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


Memorandum by the Home Builders Federation (HBF) (AH 80)

SUMMARY OF EVIDENCE

  S.1  Ensuring we have a sufficient supply of the right housing in the right places is critical to the nation's long-term social and economic wellbeing.

  S.2  A key factor contributing to the increasing difficulties with affordability in the housing market is that too few new homes are being built. Although housing completions in England increased by nearly 20% in 2004 compared to 2001 this increase was from a historically low base in modern times. The total number of homes built in the UK has been declining since the 1960s and remains insufficient. [149]

  S.3  Affordability is further exacerbated by the rise in the number of households wishing to access housing. An additional one million households were formed in England between 1996 and 2003. [150]

  S.4  Kate Barker's "Review of Housing Supply" was right to conclude that the UK needs an increased supply of housing over the long-term. There is no short-term panacea to solve the difficulties with affordability. (Indeed, without a sustained increase in supply some shorter-term measures designed to tackle problems of affordability may themselves risk contributing to increased prices.) The priority is to reverse the trend of demand out-stripping supply. Increasing supply to bring it into equilibrium with demand is the only way to restore the long-term health of the housing market and ensure sustainable affordability. HBF's members therefore want to build the right number and types of homes, in the right locations, to meet people's needs over the next 20 years.

  S.5  As the Barker Review argued, bringing housing supply steadily into equilibrium with demand will help ensure greater stability of house prices over the long term. This will ease the affordability gap as wealth creation will allow wages to increase and average dwelling price to income ratios to fall.

  S.6  The UK can cope with an increase in housing supply. Currently some three-quarters of the population only use 7.2% of the land. [151]Kate Barker stated that under the extreme assumption that all new house building would take place in the South East, her more ambitious scenario of 120,000 additional private homes each year would use about 0.75% of the total regional land area over the next 10 years. [152]The environmental impact, including land use, is capable of being managed to meet sustainable development requirements. Increasing the supply of homes to meet demand offers the people of Britain the opportunity to live in better, less crowded housing.

  S.7  If we fail to seize the current opportunity to sustain a substantial increase in supply, the divide between the haves and the have-nots of housing is likely to become more severe. This will have damaging consequences for social justice and community cohesion. It is the vulnerable in our society who suffer most from the current housing shortage.

1.   The potential benefits of and scope to promote greater home ownership; and the extent to which home purchase tackles social and economic inequalities

  1.1  A home is essential to the quality of people's lives. It can be fundamental to an individual's or family's identity and sense of well-being. A home provides a secure base, helping people to:

    —  become part of a community;

    —  seek or retain employment; and

    —  access schools, hospitals and other services.

  1.2  Home ownership enables people to exercise their own choice about the community they live in, the distance they live from their place of work and which services they may access. Affordability is one of the key factors in determining how people exercise such choice when choosing a home of their own. Ownership, in contrast to other forms of tenure, also offers greater opportunity for people to invest in raising the standard of their home.

  1.3  There is both the scope and need to promote greater home ownership, reflecting the priorities of people in Britain. The Council of Mortgage Lenders suggests that 81% of the population aspire to own their own home within 10 years. [153]Other studies have shown that as many as 90% of the population aspires to own their own home. Recognising the aspiration for home ownership and giving people as much scope as possible to exercise that choice is key to ensuring a functional society.

2.   The economic and social impact of current house prices

  2.1  There is near universal concern about the cost of affording a first home. A YouGov poll for the Home Builder's Federation conducted in April 2005 showed that 95% of all respondents stated that people trying to buy their first home find it financially difficult. [154]

  2.2  This concern is borne out by the fact that the number of first time buyers has been falling steadily since 1999. First-time buyer transactions have declined from their peak of around 50% of the market in the late 1980s to stand at 29% in 2004. [155]

  2.3  The economic and social impact of a shortage of first-time buyers is not confined to the mainly younger generation of adults seeking to purchase their first home. The scarcity of housing is creating an inter-generational problem. The HBF/YouGov poll (2005) demonstrated that one fifth of homeowners who bought for the first time in the last five years financed the deposit with assistance from a relative. [156]A survey for the Joseph Rowntree Foundation found that parents of would-be home owners expect they will have to contribute an average £17,000 of their own money so their adult children can purchase their first home. [157]There are now two million parents in the UK with children over the age of 30 living at home. [158]

  2.4  Perhaps the most significant social impact will be the increasing divide between the home owning haves and have-nots, particularly as a greater proportion of younger families miss out on housing assistance but have limited opportunity to purchase their own property. Recent figures compiled for the Joseph Rowntree Foundation indicate that more than 1.25 million younger households in England, Scotland and Wales earn incomes that are too high to qualify for housing benefit if they were living in "social" rented accommodation, but too low to afford a mortgage on even the cheapest two-or three-bedroom homes for sale in their area. [159]

  2.5  A further constraint on the younger generation of owner/occupiers from having a home that meets their needs is a shortage of larger homes for them to own. Analysis of census data by Professor Dave King of Anglia Polytechnic University, commissioned by the HBF, revealed that people tend to retain the same level of consumption of housing space as they grow older. Occupation of the largest homes peaks around the age 45-54, but as household size diminishes, eg when children leave home, people stay put and rarely trade down from a home of "family size".[160]

  2.6  There is a consequent danger that if the supply of housing is constrained and planning policy favours the building of smaller dwellings, the affordability of homes suitable for families could be further exacerbated. The gap in wealth between the better-off households in larger dwellings and the rest of society could be further increased. This would have an especially big impact on younger households. It could be argued that today's young people will be the first generation for nearly 100 years who will not be able to aspire to more spacious housing than their parents.

  2.7  Space constraints could also lead some couples to have fewer children, while overcrowding will tend to rise if families are unable to trade up. The current problems of overcrowding in social housing, where children have to share a bedroom with their parents in almost three quarters of overcrowded families could be translated to owner occupying families. [161]

  2.8  Growing shortages of homes, and rising relative prices of family homes, could make communities less sustainable by squeezing out middle-income households, including many key workers, leaving more polarized communities of the very poor and the well off. [162]

3.   The relationship between house prices and housing supply

  3.1  As in any market, there is an intrinsic link between price, demand and supply. The total number of homes built in the UK has been declining since the 1960s, while the number of households is rising with an additional one million households in England between 1996 and 2003. [163]Put simply, as the supply of housing falls short of demand, prices rise in real terms. One result is that while in 1984 the average first-time buyer property cost just over £20,000; by 2004 a first time buyer property cost around £117,000. [164]Kate Barker's Review established that the trend increase in house prices over the last 30 years has been 2.4% per annum in real terms—significantly greater than the European average of 1.1%.[165] The problem is one of long-term trends and this requires a long-term solution.

  3.2  The only long-term remedy to ease price inflation is to increase supply. This is not a short-term panacea, but a steadying of the long-term relationship between supply and demand. As Kate Barker concluded, in order to deliver a trend rate in annual real house price increases of 1.8% an additional 70,000 houses each year in England might be required.

  3.3  Affordability of housing will be eased not only as price inflation in housing falls, but as macro-economic wealth creation allows wages to increase and average price to income ratios to fall.

4.   Other factors influencing the affordability of housing for sale including construction methods and fiscal measures

  4.1  The price of land is a significant and growing share of the overall cost of new housing. A survey conducted by the estate agents FPD Savills indicated that in 1992 the cost of the land accounted for 15% of the price of a home. This had more than doubled to 34% by 2003. [166]

  4.2  This high cost of land reflects the constrained supply of land for housing through the planning system. It is vital, therefore, that the planning system can ensure sufficient developable land is brought forward to satisfy the requirement for housing if we are to meet both housing need overall and deliver the full range of housing types required over time. Ensuring developable land supply is adequate and flexible will also enable developers to maximize creative market solutions for providing lower cost homes for those who want them.

  4.3  Modern Methods of Construction (MMC) could potentially deliver efficiencies that would help contribute to lowering the cost of new housing and improving overall affordability. These benefits are, however, dependent on achieving sufficient economies of scale. This in turn requires a steady and predictable supply of developable sites available through the planning system. Recent research by Michael Ball, Professor of Urban and Property Economics at the University of Reading, shows that the stimulus of higher volumes should have a dynamic positive effect on production methods as well as improving productivity generally. [167]

5.   The scale of the Government's plans to boost housing supply

  5.1  The Barker Review of Housing Supply provides the most comprehensive analysis of house building for 60 years. Her conclusion that the current low rate of house building is not a realistic option for the future is critical to finding solutions to housing affordability.

  5.2  Housing supply is currently running far below demand. The number of households in England is expected to grow by around 190,000 per year over the next 20 years, according to Government estimates, yet housing completions over the last five years have averaged less than 140,000 per year. This disparity between supply and demand is unsustainable.

  5.3  The Barker Review estimated that we should be building an additional 70,000 to 120,000 private homes per year in England, plus 17,000-23,000 extra social sector homes. This scale, and the Government's acceptance of it, is right if there is to be a long-term reversal of current affordability difficulties.

  5.4  This scale of increased house-building is environmentally sustainable. Kate Barker asserted that under the extreme assumption that all new house building would take place in the South East, her more ambitious scenario of 120,000 additional private homes each year would use about 0.75% of the total regional land area over the next 10 years. [168]The relatively small amount of land required is further illustrated by the recent Policy Exchange report that argued it is a myth that Britain is a small, overcrowded country. The report showed that only around 8% of land in Britain is urban and asserted that we live in crowded and dense cities, not a crowded and urbanised country. [169]

  5.5  New homes are already also significantly more energy efficient than the existing stock. Building on this record, the HBF is working with the Government to seek practical and commercially viable means for further improving the environmental performance of new homes in future.

  5.6  The Government's manifesto commitment to increase the number of home owners by one million over the lifetime of this Parliament is ambitious. Changes in tenure, and the greater implementation of shared ownership schemes should help, but an increase in the supply of newly built homes is likely to be essential if the target is to be met.

6.   The relative importance of increasing the supply of private housing as opposed to subsidised housing

  6.1  Private builders are responsible for building nearly 90% of all new housing, with most subsidised housing being delivered through s106 agreements. The supply of private housing and the role of private house builders is therefore critical to housing provision across the board.

  6.2  The long-term solution to easing housing affordability is to achieve a better equilibrium between supply and demand across all housing tenures. Supply therefore needs to increase for provision across the market and for all types of tenure.

  6.3  In this context, while initiatives such as Homebuy are welcome as a means of assisting those experiencing particular issues in accessing the housing market, they can only form a complementary part of the overall solution. Indeed, there is a risk that without a sustained increase in overall housing supply the injection of public money into such initiatives may itself add to inflationary pressure in the housing market.

7.   How the planning system should respond to the demand for housing for sale

  7.1  The planning system should do exactly that—plan systematically for the provision of the housing required—not be a means, as it too readily can be, of stopping development.

  7.2  Prior to the 2005 General Election, the HBF published a manifesto entitled: "Meeting housing needs and aspirations" which offered the following 10 recommendations to ensure that the planning system allows enough homes to be built:

    —  The Government must make sure the new planning system is faster and more efficient, as intended, that adequate housing numbers are delivered, and that there is not a serious supply hiatus of several years as the new system is introduced.

    —  The Government must find more ways to incentivise local planning authorities to deliver adequate housing numbers.

    —  The immediate priority for the new Government will be to undertake a review of PPG3. As Kate Barker recommended, this must take a rigorous approach, be grounded in an evidence base, with stakeholder panel scrutiny, and weigh up policy costs and benefits.

    —  Regional and local planning authorities must accept their full responsibilities for housing provision and focus on delivering adequate housing numbers.

    —  Lack of infrastructure may delay house building in some locations, notably the Growth areas, but regional and local planning authorities should not be able to use infrastructure as a general excuse for not delivering housing numbers.

    —  Regional planning bodies must adopt realistic and achievable regional housing targets and must set realistic targets for local authorities.

    —  Local planning authorities must meet their housing targets through adequate land releases and implementable planning permissions.

    —  Five-year land availability studies must be re-introduced, providing realistic assessments of what can be delivered and highlighting shortfalls.

    —  "Plan, monitor and manage" needs to have more emphasis on "manage"—responding promptly to housing shortages.

    —  The appeals system needs to speed up dramatically.

  7.3  The HBF support the ideas set out in the Government's recent consultation document "Planning for Housing" as a means of addressing these requirements. A core function of the planning system should be to ensure that an adequate supply of developable land is made available to deliver agreed levels of housing supply.

8.   The scale of housing development required to influence house prices and the impact of promoting such a programme on the natural and historical environment and infrastructure provision

  8.1  The Barker Review did not suggest that increasing the supply of housing will significantly alter prices in the short-term. Barker's goal is a better long-term equilibrium between supply and demand and a greater degree of stability as a consequence. Such equilibrium should ensure that value is maintained for existing home owners, but as wages rise there is more opportunity for new entrants, particularly the younger generation, to get into the housing market.

  8.2  As stated in Paragraphs 5.4 and 5.5 above, even the higher estimates of increased housing supply are sustainable in environmental terms as well as contributing to social and economic sustainability.

9.   The regional disparities in the supply and demand for housing and how they might be tackled

  9.1  More efficient, flexible and predictable planning processes are needed in all parts of the country to ensure each region can deliver the housing supply it needs. It is vital to have consistent planning policies to end the current stop/go approach.

  9.2  It is a false argument to suggest that the solution lies in moving people from areas of high housing demand, eg south east England, to areas of low demand, eg the north of England. Housing underpins the success of local and regional communities and economies. It is not viable or sustainable to create housing where the local economy and community do not require it. Failing to provide adequate housing where there is demand for it will, however, have serious adverse social and economic consequences both for the areas concerned and the country as a whole.







149   "Housing policy: an overview" (July 2005) HMT and ODPM pp25-26. Back

150   "Housing policy: an overview" (July 2005) HMT and ODPM p24. Back

151   "Unaffordable Housing: Fables and Myths" (June 2005) Policy Exchange p26. Back

152   "The Barker Review of Housing Supply", Final Report-Recommendations" (March 2004) paragraph 1.46. Back

153   Council of Mortgage Lenders/MORI (2003) Annual Survey. Back

154   HBF/YouGov Poll (April 2005). Back

155   "Understanding first-time buyers" CML Research (July 2005) p3. Back

156   HBF/YouGov poll (April 2005). Back

157   Joseph Rowntree Foundation Survey June 2004. Back

158   Not so young forced to stay at home. Newsquest Media Group. 6 October 2005. Back

159   159 JRF: Limits to working households' ability to become home-owners 11 October 2005. Back

160   HBF "Room to Move", John Stewart (March 2005). Back

161   Shelter Survey October 2005. Back

162   HBF "Room to Move" John Stewart p 4. Back

163   "Housing policy: an overview" (July 2005) HMT and ODPM p24. Back

164   "Understanding first time buyers" CML Research (July 2005) p15. Back

165   "The Barker Review of Housing Supply", Final Report-Recommendations" (March 2004) Table A.1. Back

166   FPD Savills 8 September 2003. Back

167   CITB Construction Skills / HBF (8 September 2005). Back

168   "The Barker Review of Housing Supply", Final Report-Recommendations" (March 2004) paragraph 1.46. Back

169   Unaffordable Housing Fables and Myths, Policy Exchange, June 2005 p 10. Back


 
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