Memorandum by the National Housing Federation
(AH 77)
1. INTRODUCTION
The National Housing Federation represents over
1,400 independent, not for profit housing providers. Our members
include housing associations, co-ops, trusts and stock transfer
organisations. They manage more than two million homes provided
for affordable rent, supported housing and low cost home ownership
(LCHO), as well as a wide range of community and regeneration
services.
Prior to the introduction of the new Homebuy
products in the 2006-08 investment programme, Associations made
about 3,500 shared ownership sales a year, whilst 10,200 "key
workers" were helped through the Starter Home Initiative
from 2001-04 and a further 2,600 were helped to buy an existing
property through the then Homebuy scheme in 2003-04.
Housing associations deliver long-term value
for public investment because they are able to unlock private
finance, currently matching £30 billion of public funding
with £30 billion of private investment. They have a strong
track record of delivering high quality homes and services and
are committed to the neighbourhoods they serve for the long-term.
The sector's not-for profit independent social business model
drives these achievements.
Longer-term funding, and the continuing freedom
to recycle receipts and surpluses, would enable housing associations
to deliver more homes for affordable sale and rent in mixed sustainable
communities.
2. THE POTENTIAL
BENEFITS OF
AND SCOPE
TO PROMOTE
GREATER HOME
OWNERSHIP AND
THE EXTENT
TO WHICH
IT TACKLES
SOCIAL AND
ECONOMIC INEQUALITIES
AND REDUCES
POVERTY
2.1 The role of LCHO
Housing Associations' LCHO programme makes ownership
an affordable option for people on moderate incomes who are priced
out of the open-market, bringing the following benefits:
fulfilling the aspirations of households
to buy who would be priced out of owner-occupation. The average
salary of shared ownership purchasers in 2004-05 was £26,500;
opening up to such households (and
their dependents through future generations) the spin offs associated
with asset ownership, including wealth creation;
making it easier for employers to
recruit and retain "key" workers;
freeing up homes for those who are
not able to buy when the purchaser moves out of existing affordable
rented accommodation or relieving pressure on the waiting lists
for such homes.
Nonetheless there will be a need for public
investment in affordable rented accommodation for those not in
a position to buy.
2.2 The case for home ownership in mixed communities
England needs new homes for open-market sale
and rent, LCHO and affordable rent to cater for a spectrum of
income groups. Work commissioned by the Federation[143]
also suggests that mixed communities have the best chance of thriving.
Whilst, a report from the ODPM and the Cabinet Office Strategy
Unit[144]
shows that concentrations of worklessness, poverty and deprivation
disadvantage individuals and communities. Investment in LCHO alongside
affordable renting can help create the mix needed in local areas
and provide opportunities for people to move from renting to ownership
without having to relocate.
Too often government's investment decisions,
planning policies and lettings policies have had the unintended
consequence of bringing about polarised communities of the poorest
and most vulnerable. There has also been insufficient attention
to opening up opportunities for people to rent and buy on moderate
to low incomes in high value areas, such a rural hotspots under
pressure from people moving into the area on retirement.
2.3 Key worker considerations
More could be done to open up the benefits of
LCHO to a broader spectrum of people. We are concerned that the
current government focus on "key-workers" has resulted
in funding in some areas, such as London, to specified groups
only. This has highlighted the need for government to invest more
in affordable housing so that the needs of some groups are not
met at the expense of another. But, it also suggests that regional
housing boards should be able to target LCHO on broader considerations
of income groups priced out of the housing market and on local
definitions of "key workers", in recognition of local
recruitment and retention difficulties.
2.4 Rural issues
There are threats to the delivery of LCHO in
rural communities that need to be addressed. The Rural Housing
Trust estimates that there is a need for six to eight affordable
homes in each of the 8,000 small villages in Englanda total
of 50,000 homes. However, the delivery of LCHO in rural areas
is under threat as associations' are unable to place a cap at
80% equity sales in order to meet requirements re providing affordable
homes in perpetuity. Without this cap, rural landowners and planners
may not supply land or planning permission for LCHO development,
thus stagnating rural housing programmes. It is essential that
the government rethinks its current position on this and looks
at an amendment to the Commonhold and Leasehold Reform Act 2002
to enable associations to cap sales.
2.5 Factors influencing the affordability
of housing for sale
Many people are priced out of open-market ownership
and will be in the future even if house price inflation is curbed-such
is the gap between house prices and incomes.
LCHO can help bridge that affordability gap
for some households. The extent to which it can do so is dependent
on schemes that allow people to purchase small shares, particularly
in high priced regions. An analysis of sales through the shared
ownership programme showed that housing association schemes allow
people to buy small initial sharesparticularly important
in higher priced regions. Latest figures[145]
show that 86.8% of shared ownership purchaser bought an initial
stake of 50% or under with only 5.6% in the South West, 10.5%
in London, 11.4% in the South and 16.9% in the East buying stakes
higher than 50%. We were pleased that the ODPM listened to our
arguments in its 2005 consultation on Homebuy (to replace existing
LCHO products, such as shared ownership) that requiring people
to buy initial shares of at least 50% would restrict access to
LCHO by making it unaffordable to income groups who had traditionally
been supported.
More could be done to make home ownership sustainable
for those on the margins of affordability if there was greater
investment in flexible tenure, such that there was funding for
associations to buy back shares from owners allowing buyers to
flex the share they own downwards (or upwards) to suit their personal
circumstances. Perhaps, due to a loss of household income due
to divorce or sickness. Please find attached at appendix A the
Federation's 2005 booklet Housing Associations and sustainable
home ownership that explores how associations have delivered such
options and what more they could do with support from government.
3. THE ECONOMIC
AND SOCIAL
IMPACT OF
CURRENT HOUSE
PRICES, THE
RELATIONSHIP BETWEEN
HOUSE PRICES
AND SUPPLY,
THE SCALE
OF THE
GOVERNMENT PLANS
TO BOOST
HOUSING SUPPLY,
THE RELATIVE
IMPORTANCE OF
INCREASING THE
SUPPLY OF
PRIVATE HOUSING
AS OPPOSED
TO SUBSIDISED
HOUSING AND
THE SCALE
OF HOUSE
DEVELOPMENT REQUIRED
TO INFLUENCE
HOUSE PRICES
AND THE
IMPACT OF
PROMOTING SUCH
A PROGRAMME
ON THE
NATURAL AND
HISTORICAL ENVIRONMENT
AND INFRASTRUCTURE
PROVISION
3.1 The case for more homes
The Barker Review of Housing Need[146]
highlighted the failure of the housing market to work effectively,
and the consequent economic and social impact. It looked at the
need for housing from the macro-economic perspective of reducing
house price inflation and made the case for 17,000-23,000 affordable
homes per annum.
The Federation believes that the starting point
should be: "how many homes do we need to build to meet the
nation's housing needs?" Our forecasts[147]
indicate that 80,000-85,000 new affordable homes are needed every
year to meet current needs and to start addressing the backlog.
The costs of not doing so are:
a failure to close the affordability
gap with the resulting human costs of households being unable
to meet their needs and aspirations. At appendix B we attach a
Federation May 2005 booklet: England's Housing Crisis-the facts
demonstrating the depth of the affordability crisis);
rising homelessness levels and rising
costs of temporary accommodation placing a strain on people's
health and well being and on local council tax payers;
ongoing recruitment and retention
difficulties.
Investment in new affordable homes needs to
balance the need for affordable renting alongside LCHO. We believe
this balance should be led by regional housing assessments based
firmly in housing market analysis.
Recent Spending Reviews have brought a welcome
increases in resources for affordable housing such that associations
currently deliver around 31,000 homes per year with grant funding
plus some 6,000 with other resources. This could increase to 60,000
homes a year by 2007-08 based on existing capacity and borrowing
potential. The total cost to the public purse would be £3.6
billion a year.
3.2 The importance of supply side solutions
to home ownership
The government's investment in schemes that
enable people to buy their existing homes (such as the new Social
Homebuy scheme, right to buy and right to acquire) although important
in opening up opportunities to own do not directly contribute
to meeting the nation's need for more homes. We are pleased that
the ODPM listened to our arguments for restructuring its proposals
for Social Homebuy to assist in accessing finance to replace the
homes sold. The government's investment in subsidising sales of
existing homes must not be at the cost of investment in new affordable
homes for rent or LCHO. We argued against the extension of right
to buy to housing association tenants on the basis that it would
lead to a significant net loss in affordable rented housing.
We understand that this government is interested
in schemes that subsidise mortgages. Whilst such schemes may come
to play an important role in supporting aspirations to buy, they
do not help meet the nation's needs for more homes. There are
also questions about the affordability of such an option for people
who have traditionally been assisted by government investment
in LCHO. In high value areas the proposal of an equity loan of
25% with a purchaser buying 75% on the open market could mean
that the average salary of these LCHO buyers would be significantly
higher than the current average of £26,500. It would not
be right to siphon off funding from investment in new affordable
homes in pursuit of this.
3.3 House price inflation
The Barker review suggested that to reduce house
price inflation from a trend rate of 2.4% to the European average
of around 1% might require 120,000 extra private completions a
year. This is double the current rate of outputs. And, would be
insufficient to close the affordability gap in the short to medium
term. A traditional economists' view of supply and demand broadly
appeared to hold good for housing up until the early 1990's house
price crash, with rising prices being met with increased production
of new units. It should be noted that the supply of publicly funded
housing was a factor here. Since, however there has been little
concerted increase in supply of market housing to meet increasing
house prices. One possible explanation is that house builders
have developed a more cautious approach and are less inclined
to take advantage of higher prices by increasing output. At the
same time, we saw a reduction in the supply of new affordable
housing from a high point of the mid 1990s.
3.4 Environmental considerations
The drive to build new homes for sale and rent
must go in tandem with investment in new infrastructure. Unless
new residents can access local services, transport and jobs, there
is danger that unsustainable "dormitory suburbs" will
be created. The ODPM Select Committee assessed the infrastructure
needs of the growth areas to be at least £20 billion and
ways need to be found to fund this without diverting resources
from affordable homes.
The need for new homes is so great that solutions
to any potential negative environmental impacts need to be found
urgently. To achieve this:
the Housing Corporation's National
Affordable Housing Programme should allocate grant expenditure
on new homes on rounded value for money considerations. Such that
considerations of the environmental rating, the quality and design
of the home and of the built environment are judged as important
as considerations of the number of homes built for a given amount
of government expenditure. We have concerns that the current emphasis
is too narrowly focused on grant cost per unit/person, and that
the tools developed by the Corporation to evaluate bids takes
insufficient account of wider sustainability considerations;
there should be no let up through
planning and investment policy in the presumption of brownfield
development first (currently running according to the ODPM at
70% of construction);
government should reduce the VAT
on renovation and refurbishment of existing properties to 5%,
as at 17.5% it puts such developments at a major cost disadvantage
relative to new build where the rating is zero. The cost of this
to the exchequer would be £200 million.
Above all it is worth reflecting on the finding
in the Barker report that under the extreme assumption that all
the additional build were carried out in the South East an additional
120,000 homes per year would take just 0.75% of the total land
mass.
4. HOW THE
PLANNING SYSTEM
SHOULD RESPOND
TO THE
DEMAND FOR
HOUSING FOR
SALE
Planning policy can help ensure that land release
and designation matches regional and local housing assessments.
In doing so it is not just about responding to the demand for
housing for outright sale but also to the need to build homes
for affordable rent and LCHO. In this way planning policy should
deliver for a range of income groups. It should also deliver for
this range in mixed communities as explored above.
The ODPM's proposed revisions to PPG3 need to
be strengthened to match these aspirations:
local authorities should be required
on the basis of local housing assessments to specify in their
local plans the mix of homes required by tenure (for example:
open-market sale, market renting, intermediate renting, new build
Homebuy and affordable renting);
local authorities should also be
enabled to specify the mix required on every site, however small;
safeguards should be created to ensure
that house builders are not able to exploit the ability to abandon
mixed community requirements (because of, for example, concerns
about viability based on unrealistic assumptions of grant forthcoming).
We welcomed the government's proposals in its
recent consultation on PPG3 Planning for Housing Provision that
local plans needed to be responsive to changes in the housing
markets. However, signals on house prices must not be allowed
to dominate decisions about the amount of housing to be built
in different areas. Of equal importance are housing needs considerations.
Mechanisms need to be found to speed up land
release to increase the supply of homes for sale and rent. Co-operation
between English Partnerships, the Housing Corporation, and the
Regional Housing Boards should focus on joint financial packages
to pump prime this work, and facilitate more partnerships at the
regional level. We believe there is potential for English Partnerships
to facilitate the production of many more homes for sale and rent.
Government should also explore options for using
tax to tip the balance for landowners between selling land and
holding it back by revisiting the Barker Review's consideration
of for example the Danish model of land tax. Government should
explore how placing an appropriate form of tax on land value could
also raise cash for much needed infrastructure.
Planning policy also has a role to play in stretching
government grant expenditure to deliver more homes LCHO and affordable
renting. A recent report, Land and Finance for Affordable Housing[148],
found that an increasing proportion of affordable housing (47%
in 2003) is being delivered through section 106 agreements (of
which 75% was affordable rent, 18% shared ownership and 6% discounted
market sales). The ODPM's current deliberations on planning gain
in response to Barker proposal to for planning-gain supplement
must not undermine this contribution.
5. THE REGIONAL
DISPARITIES IN
THE SUPPLY
AND DEMAND
FOR HOUSING
AND HOW
THEY MIGHT
BE TACKLED
The significant differences in the supply and
demand of housing between the English regions are as much a product
of the labour market and the globalisation of the World economy
as they are purely outcomes of the housing market. Broadly there
is an excess of demand in London, the South East, the East and
the South West and an excess of supply in the North West, North
East and Yorkshire and Humberside. The picture in the East and
West Midlands tends to be more balanced.
However, these broad regional trends belie a
much more complex reality of sub-regional and local housing markets.
For example areas with a gross excess of supply often have a significant
amount of stock that is obsolete in terms of condition and/or
design whilst there may-be an under supply for some other property
types. The Government has taken important steps towards tackling
both high and low demand issues with its programmes of Housing
Market Renewal Pathfinders (HMRPF) and Growth Areas, but there
is still more work to and significant challenges to overcome:
investment in new homes should match
and follow regional and local housing assessments based on market
analysis;
specifically in growth areas, there
is a need for investment in adequate infrastructure alongside
housing developments, as explored above;
a need for a national strategy for
housing market restructuring to extend the HMRPF approach requiring
£350 million over three years. The Government has already
promised £65 million to begin this work in three areas.
It is also important to consider that the size
and type of properties developed can be as important as the absolute
numbers. This, along with continued household growth in all regions
(including those with declining populations and a gross excess
supply) mean that there is likely to be a continued need for new
housing provision in all regions.
Equitable treatment of regions, with their very
different needs, must be considered as part of the Spending Review
2007. An objective regional resources distribution system that
takes account of economic growth is needed. It should be complemented
by coherent and comprehensive strategic funding decision-taking.
Despite the creation of Regional Assemblies,
strategies of individual agencies are often drawn up in isolation.
Making regional structures more accessible, with clear responsibilities
and resources focused on regional priorities, would encourage
links to be made.
6. CONCLUSION
Investment in new affordable homes needs to
balance the need for affordable renting alongside LCHO and be
firmly based in local and regional assessments of needs. Housing
and planning policy needs to ensure that as a nation we cater
for a spectrum of income groups and needs through for example
homes for open-market sale and rent and homes available through
LCHO and affordable rented options.
143 Regional futures and neighbourhood realities Scase
and Scales 2003. Back
144
Improving the Prospects of People Living in Areas of Multiple
Deprivation in England (January 2005). Back
145
CORE sales 2004-05. Back
146
Delivering Stability Securing Our Future Housing Needs,
HM Treasury 2004. Back
147
Incorporated in the joint submission to Spending Review 2004 with
the Chartered Institute of Housing and the Local Government Association. Back
148
Joseph Rowntree Foundation, March 2005. Back
|