Select Committee on Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Written Evidence


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 England—a 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 shares—particularly 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


 
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