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


Memorandum by the Royal Town Planning Institute (RTPI) (AH 81)

INTRODUCTION

  1.  The Royal Town Planning Institute is pleased to provide evidence to this important inquiry. The Royal Town Planning Institute (RTPI) has a clear recognition of the importance of housing in this country and of the crisis that we face if adequate, decent housing is not provided. The RTPI is a learned and learning society representing over 19,000 chartered town planners. Following the adoption of its New Vision for Planning and its merger with ROOM, the National Council for Housing and Planning, the RTPI is taking a more direct interest in housing issues and, in particular, the relationships between policies and practice in housing with those in planning and regeneration.

  2.  The work of the RTPI and of ROOM@RTPI displays both a clear understanding of the role that planning plays in aiding the supply of housing and a commitment to play our role in improving the ways in which we provide decent housing for all those need it. A joint report with the Chartered Institute of Housing—Planning for Housing: The role of planning in delivering Sustainable Communities (2003) sums this up by stating that:

    The provision of adequate, decent, high quality housing that is accessible to all those who need it is a fundamental part of any national and local economic, social and environmental strategy. Well planned, good, accessible and affordable housing contributes directly to the range of key tasks that face this country—improving the health of the nation, raising educational standards, reducing social exclusion, contributing to sustainable economic development, and reducing the need to travel, as well as fulfilling a basic need for shelter. It is the role of both planning and housing policy and practice to ensure that this happens. It is not the role of either system to block the delivery of such housing through an over narrow view of environmental protection, through a lack of understanding as to how housing markets really work or through an inflated view of the degree to which public policy can influence them.

  3.  This overall approach underpins the RTPI's responses to the Committee's specific questions set out below.

The potential benefits of and scope to promote greater homeownership

The extent to which home purchase tackles social and economic inequalities and reduces poverty

  4.  It is recognised and accepted that home ownership is a common aspiration—a 2000-01 BSA survey revealed that nine out of 10 households would like to own their own home at some point. Greater opportunities for homeownership are welcomed by the RTPI, as are more options of housing tenure. The provision of a decent home for all those that need one must be a basis of any planning policy and the planning system must not serve to frustrate this aim nor to dash people's aspirations.

  5.  However, for many, home ownership will only ever be an aspiration, it is important that housing policies reflect this and are thus broad enough to encapsulate those on the margins of housing markets. The RTPI believes that housing and planning policies should place a much greater emphasis on the greater issues associated with housing need instead of assuming that an emphasis on home ownership will necessarily lead on to the provision of a decent home for all those in need.

  6.  One of the key roles of planning is to provide mixed and balanced communities. The narrow pursuit of home ownership without balancing policies for those who cannot achieve this aspiration under current conditions would militate against this overall role of planning—and one of the ODPM's key policy objectives.

  7.  Housing is being seen more and more as a form of investment and this has been a factor in a greater demand for housing. The vast majority of housing is provided by the private sector and without the provision of subsidies, home ownership is beyond the reach of many. There is a risk that those outside housing markets whom cannot influence market demand risk being marginalised by Government housing policy. The values and importance of social, subsidised and rental housing must not be forgotten in Government housing policies.

  8.  Equally, planning and housing policy must be directed at new, intermediate forms of tenure to help more people to obtain some equity in housing. A recent report from the Joseph Rowntree Foundation—Affordability and the Intermediate Housing Market (2005) shows that, in the majority of areas in the South East, East and South West of the country and in pockets elsewhere, the intermediate housing markets forms more than 30% (and in places more than 40%) of the total market.

The economic and social impact of current house prices

  9.  In 1990 the average price paid by first time buyers was £45,000, 2.7 times their average household income. By the second quarter of 2005 the average price paid was £145,000, 4.2 times their average household income. First time buyers are having to raise larger deposits and average mortgage advances have increased from 2.2 times to 3.2 time's annual household income, in spite of falling interest rates.

  10.  The current trend of increasing/high house prices has serious implications on the success of the Governments sustainable community's agenda, for example, the impact on the ability of a whole range of key workers—not just those identified in the ODPM's key Worker Living Scheme—to work in areas of housing demand. People on moderate/low wages are being priced out of areas where there is demand for housing, which means that these communities will suffer from a lack of such skilled residents.

  11.  Opportunities for first time buyers to get "on the property ladder" are becoming less and less available, particularly in areas of high demand. In the current housing market, housing is increasingly regarded as an investment opportunity. This means that one factor is an increased demand for housing as more people look to multiple home ownership with second and investment homes. As Shelter has pointed out, the gap between those with assets in housing and those without is widening with real implications for the distribution of wealth and future opportunity within this country.

The relationship between house prices and housing supply

  12.  A relationship clearly does exist between house prices and supply, but supply is only one element of many that influence the affordability of housing. A belief that more house building alone will reduce house prices is simplistic and will never help to resolve the housing affordability crisis.

  13.  The economics of housing markets are far more complex. Housing has several unique features that make conventional market economics inappropriate, such as a fixed location, with values dependent on many externalities, their long life and the fact that they are (increasingly) regarded as an investment, rather than consumption, good, demonstrated, for example, by the growth of the buy to let sector.

  14.  As it stands, new, open market housing is out of reach for many, especially if they are not already on the property ladder. Yet, increasing housing supply, even on a substantial scale, is only likely to have a negligible effect on affordability.

  15.  According to evidence in the Barker Review, (using current levels of construction), reducing the rate of growth in real house prices by 1.8 per cent, would require an additional 70,000 private sector homes per annum; and more ambitiously, to reduce the trend in real house prices to 1.1%, an additional 120,000 private sector homes per annum would be required. It needs to be made quite clear that this level of additional housing will only serve to reduce the rate of rise in house prices—not reduce house prices themselves. In this context, it is worth recalling the Government's response to the Select Committee's previous inquiry into Sustainable Communities in the South East. This stated, in relation to the announcement of 200,000 more homes in the south east, that "we never claimed that our proposals would cause the absolute level of house prices to fall"—merely that they "should help to moderate the growth trend in house prices in the longer-term."

  16.  It is understood that the ODPM has undertaken a study to determine the effect that an enhanced house building programme may have on house prices. The publication of this study is awaited with great interest. Such research that has been undertaken in the past indicates that it would require an extremely large expansion of the house building programme to reduce house prices to any significant extent. For example, a study published in 1996 found that "releasing a lot of extra land has only a moderate impact on prices. For example, a 32% general increase in plan provision might only reduce prices by 8% in the medium term." Earlier studies had found that "increasing plan targets by 75% would raise output by 16% on average over six years and lower prices by 7.5%, so enabling an extra 3-4% of new households to buy a new home." This demonstrates a negligible impact on affordability by a substantial increase in private sector house building.

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

  17.  As has been stated, it is recognised that the planning system has an important role to play in solving the housing affordability crisis that is currently being experienced in this country, but cannot do so in isolation. The RTPI is concerned that current Government policies focus overmuch on planning's role and, on development control in particular. It is essential that planning's role in the provision of affordable housing is taken within a broader consideration of all the factors that constrain supply. These include such factors as mortgage rates and the range of mortgage products, stamp duty, salary levels, patterns of public investment, demographic and migration factors; interest rates; the attractiveness of housing for institutional investments; the availability of finance, public investment in housing; the availability of personnel and skills in the construction and related industries and the behaviors within the house building industry.

  18.  Secondly, it should be noted that new housing forms a very low proportion of total housing turnover. In 2001, there were 1,458,000 transactions in the housing market and, yet, only 123,451 new homes were completed. It is also worth noting in this context that the price of new housing is more expensive than prices within the existing stock. In 2002 the median price of new housing in the UK was £133,500 and that of other housing was £100,000. Only 6.0% of new housing was priced at less than £60,000 whilst 23.6% of other housing came into this band.

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

  19.  For decades there has been a failure to deliver adequate sustainable housing in the numbers that are required. In England alone, this shortfall now constitutes nearly 95,000 homes per annum against assessed requirements.

  20.  There has been a significant shortfall in the provision of affordable housing; in 2000-01 26,735 affordable homes were provided, against a recognised requirement of 83,000. To put it simply, there is a great need for more housing, in particular housing that is accessible to all and, thus, truly affordable housing.

  21.  In 1990-91, the private sector was responsible for 132,499 completions, housing associations 14,575, and local authorities 12,958. In 2004-05 the private sector completed 137,730 units, housing associations 16,627 and local authorities 100. This is a pattern that can be traced back to the post war years. If we look back to the 1950's, Local Authority house building numbers were regularly over 150,000 and private sector housing numbers were small in comparison. The trend has been that private sector house building has increased and now stabilised around current figures, whereas local authority housing has rapidly declined to a point where it practically no longer exists.

  22.  The private sector has kept up a fairly constant level of house building for many years, yet the impact of the mass reduction of local authority house building has never been addressed and this has had a huge impact on the availability of affordable housing. Local authorities, as strategic housing bodies, have a responsibility to ensure that housing is accessible to all. Their ability to fulfil this responsibility directly has been lost with the loss of commitment to local authority house building. As the chart below shows, housing associations, which have taken on that responsibility, have not succeeded in maintaining a level of building of supported housing.

  23.  Housing associations (Registered Social Landlords) are finding that they are becoming more and more reliant on the private sector to provide sites for affordable housing. This is mainly because of a shortage of publicly owned land that can be disposed of at a subsidised rate, the increasing price of land, and competition for available sites with the private sector. This has resulted in Housing Associations becoming more reliant on affordable housing planning polices such as S106 mechanisms to help maintain a supply of affordable housing. This, in turn, means that the sustained provision of subsidised housing is directly linked to the sustained growth of private sector house building.

  24.  The private sector does not have the responsibility to provide affordable housing for those unable to compete in the market. By its very nature, it has a responsibility to its investors and thus expecting the affordability crisis in housing to be resolved by the private sector does not form a balanced and responsible policy response. It is worth noting that, "the Office of Fair Trading is launching an inquiry into Britain's house builders. The OFT is concerned at the quality of newly built British homes. The inquiry may also investigate whether the industry acts as a cartel to keep prices artificially high by restricting the supply of land." (The Observer: 4 September 2005)

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

  25.  In the past, the planning system has been accused of failing to respond to changing demand for homes in different places, and this lack of flexibility has played its part in creating the housing crisis that we now face. It has also been said that development plans need to take better account of housing markets and need, and should reflect the needs and circumstances of different areas better. The RTPI agrees that there is the need for the whole planning system to reflect the better practice that exists within it in these respects but, as the following paragraphs show, we do not believe that the current ODPM proposals for changes to planning practice in relation to housing are the best way of achieving this.

  26.  Government's plans to boost housing supply, as described in the 2005 consultation paper Planning for Housing Provision concentrate on:

    —  assessments of need and demand, and development of plan policies, on the basis of a robust evidence base, that look at housing markets and are developed in partnership with stakeholders; and

    —  a proactive approach, using positive planning to deliver appropriate housing land, keep provision under review, and maintain a rolling five-year supply of housing land within a 15-year time horizon.

  27.  Put simply, the intention is to facilitate housing development by making the planning system more responsive to the housing market. However, it is the RTPI's belief that the Governments plans go too far, and instead of making the planning system responsive to housing markets, we risk making the planning system subservient to housing markets.

  28.  Housing allocations, as proposed, will follow housing demand, not need. This will result in housing being delivered where it is a demanded rather than, necessarily, where it is needed. Housing demand is directed by housing aspirations, therefore allowing development to follow demand will place further pressure on areas of existing growth, and will ignore areas of market failure that have a recognised need for new development.

  29.  There is a big difference between housing need and demand, particularly in terms of location, tenure, size and affordability. House builders will naturally and rightly seek to provide housing that maximises economic return, but by allowing market demand to lead house building we will be failing those that need our help the most, those who are unable to influence demand in the market place.

  30.  Following demand and not need will severely damage planning's ability to promote brown field development, and will thus place great development pressure on green field sites as these are often the more attractive options for developers. It is important to ensure that planning's role in creating and managing markets—as well as being informed by them—is not inhibited. The planning system has a duty to help stimulate demand in existing communities through upgrading social infrastructure, creating better environments and improving the perception and appearance of an area.

  31.  If housing development is led purely by market demand, it may be at the cost of other sustainable planning considerations. The planning system does need to understand and fully take into account housing demand, and we must support the drive for more housing, however the planning system also has a responsibility to find balance between often competing land use interests. This potential conflict in aims is demonstrated in the ODPM's own public service Agreement (5) which requires it to "achieve a better balance between housing availability and the demand for housing, including improving affordability, in all English regions while protecting valuable countryside around our towns, cities and in the green belt and the sustainability of towns and cities."

  32.  The inherent risk of the planning system simply following the housing market is that other considerations such as social issues and the environment would suffer in favour of market demands.

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

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

  33.  As paragraph 16 indicates, scale of housing development needed to influence house prices significantly could be so high that it would be unrealistic to expect this to happen. If the only action taken by Government to resolve housing affordability was mass house building in isolation of any other policies then this would have a very significant environmental and social impact. For example, a statement by the Chartered Institute of Water and Environmental Management in August 2005 said that, "The Environment Agency expresses concern that if all new homes were built to current energy efficiency requirements, domestic CO2 emissions would increase by 24%, placing strain on long term targets for carbon emissions reduction. The Environmental Audit Committee notes that unless significant action is taken, carbon emissions from the housing sector are likely to almost double from their present 30% contribution to the UK's target amount, to over 55%."

  34.  Importantly, the RTPI believes that the Government commitment to the provisions of infrastructure needed to support greater levels of house building is not currently present, and that a lack of investment in infrastructure is holding back the achievement of the Sustainable Communities Plan. For example, in the South East of England, where there is a desperate need for increased housing provision, 40,000 dwellings that already have planning permission are being held back from construction because of shortcomings in infrastructure provision according to the Barker review.

  35.  It can therefore be argued strongly that a lack of investment in infrastructure is stymieing the Government's agenda for growth. The planning system has a key role in identifying the need for, and bringing forward, infrastructure, and it is important that this is recognised as being a key requirement to delivering housing in sustainable communities. The RTPI is campaigning for greater recognition of the importance of infrastructure and a greater level of government co-ordination and prioritisation of investment.

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

  36.  The ODPM, alongside the Treasury and the DTI, is required to, make sustainable improvements in the economic performance of all English regions by 2008, and over the long term reduce the persistent gap in growth rates between the regions, demonstrating progress by 2006 (PSA 2). The RTPI is concerned that Government plans to concentrate housing growth within designated areas (predominately in the South East) may have the effect of intensifying the existing problems rather than reducing them, especially if the growth leads to a cycle of further economic expansion in already favoured parts of England.

  37.  To truly address issues of disparity in housing supply and demand, it is vital at the regional, sub-regional and local levels, that strategies for urban renewal and housing market renewal are allowed to take a locally sensitive but comprehensive view, looking across neighbourhoods and tenures and ensuring that land use policies support those for social and economic regeneration and renewal.

  38.  At the national level, this is best done through a national spatial framework. The RTPI has been at the forefront of those calling for such a strategy. This is not designed, as some critics avow, to encourage the mass movement of population from one region to another but is designed to provide a clear spatial view of England and the United Kingdom to inform decisions on priorities for investment, to analyse the differential spatial impacts of government spending plans, and to analyse trends in different functional areas of the UK to enable more informed decisions to be made.





 
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