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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 703-i House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE OFFICE OF THE DEPUTY PRIME MINISTER: HOUSING, PLANNING, LOCAL GOVERNMENT AND THE REGIONS COMMITTEE
Affordability and Housing SUPPLY
Monday 28 November 2005 MR PETER WILLIAMS and MR BOB PANNELL PROFESSOR ALAN MURIE, MR PETER LEE and DR ED FERRARI MR JOHN SLAUGHTER, MR PAUL PEDLEY and MR ANDREW WHITAKER Evidence heard in Public Questions 1 - 152
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Committee on Monday 28 November 2005 Members present Dr Phyllis Starkey, in the Chair Sir Paul Beresford Mr Clive Betts John Cummings Martin Horwood Anne Main Mr Bill Olner Dr John Pugh Alison Seabeck ________________ Memorandum submitted by Council of Mortgage Lenders
Examination of Witnesses
Witnesses: Mr Peter Williams, Deputy Director General, and Mr Bob Pannell, Head of Research and Information, Council of Mortgage Lenders, gave evidence. Q1 Chair: Can I welcome you to this first session of our inquiry on affordability and housing supply. Can I ask you to start off by just introducing yourselves and then I will start off with the first question. Mr Williams: Thank you, Chair. My name is Peter Williams. I am Deputy Director General of the Council of Mortgage Lenders. Mr Pannell: I am Bob Pannell. I am the Head of Research and Information at the Council of Mortgage Lenders. Q2 Chair: Thank you very much. Can I start by asking you what your attitude is to the analysis made by Kate Barker and, in particular, whether you believe that she is correct in saying that if the supply of new housing were increased, the rate of increase of house prices would be slowed? Mr Williams: Over the long term. A supply intervention of the scale potentially to be announced on 5 December is obviously hugely significant and enormously welcomed by the Council. However, I do not think any of us are under any illusion: it is not an easy thing to achieve, and the price effects of such an intervention will be muted and largely felt over the longer term. Q3 Chair: Part of your submission is suggesting that, with a big increase in housing supply, the effect of trying to reduce house prices would be lost through other people buying more properties. Is that the point that you are trying to make, and what evidence do you have for that? Mr Pannell: It is certainly the case that, as people's wealth and income increases, there is an increased demand for housing, so we would expect that to be reflected if there is an increase in supply, particularly in local areas, that some people would take the opportunity either to consume additional housing services in that area or migrate into that area from neighbouring areas. Q4 Chair: How much do you assess of the additional home ownership would come from people already living within those areas but unable to afford to buy at present? Mr Pannell: It is difficult to be precise, but it would be a fraction of the gross increase in supply in that area. Mr Williams: Given the demand for housing as an asset, let alone as a place to live, clearly, we know there is a fairly significant ability for people to consume housing, thus we should not assume that new supply means new households able to access the market. It may mean existing households in the market simply consume more housing. Q5 Chair: Indeed, but if there were not an increase in supply, there definitely would not be an increase in home ownership. Mr Williams: That is probably likely. Clearly, home ownership has continued to increase even though housing supply has been at a fairly modest level. That has been a natural process that has been evolving over a number of years, and of course, the right to buy is part of that. Do not forget the level of home ownership in Britain has substantially increased because of a transfer between tenures. That had nothing to do with a supply intervention. Q6 Anne Main: You said there would be a slow effect. One of the issues you raised in point 46 was the issue of Stamp Duty and other regulatory costs. Would you see those as having a greater impact then on the affordability of houses, or an equal impact? What assessment have you made? Mr Williams: We have not assessed the differential impacts. Clearly, as I said, the impact of housing supply on price is very hard to enumerate in full detail. We know, obviously, that Stamp Duty is a significant and known cost at present, and so in the short term, Stamp Duty still remains a significant inhibitor. Q7 Martin Horwood: You said something quite important there which seemed to be slightly contradictory to what you had said a moment earlier. You said, if I heard you right, that the increase in supply might not mean new households accessing the market, even if the market as a whole looked more affordable. Is that really what you are saying? Mr Pannell: I think what we are saying is that a large part of any increase in supply is likely to be dissipated, so, depending on the particular types of property being built in a particular area that we are talking about, the environment at the time for investment purposes, etc, the extent of dissipation is very difficult to predict in advance, but a substantial part is likely to be dissipated and not result in an increase in owner occupation, certainly not of the same order of magnitude. Q8 Chair: What measures do you think could be taken to stop that dissipation? Mr Williams: I am not sure we would want to suggest there should be any measures taken to stop that dissipation. This is ultimately a market. You are currently observing a large increase, for example, in the supply of flats in London, and some of that has gone into the investment market and that has expanded the private renting sector. All of those things ultimately do increase the choice available to people across the market in its totality. Q9 John Cummings: Interest rates over a number of years now have fallen in real terms to historically low rates, and obviously, lenders are actually lending up to five times household salaries. How much is this contributing to causing house prices to escalate? Mr Pannell: Our sense would be that most of what we see happening in the housing market is a reflection of what is happening in the wider economy, so a large part of the increase in house prices reflects the very buoyant jobs market, what we have seen in terms of the reduction in both short and longer term interest rates, to the extent that lenders are innovative and provide more flexible product offerings. That obviously helps a broader spectrum of households and individuals to access home ownership. By doing that, of course, one of the things that happens in the market is that prices will adjust to the demand that manifests itself, but we do not see that relaxation of criteria is the main thing driving that forwards. It is very much the mechanism by which the improvements in the underlying economy are expressing themselves. Q10 John Cummings: Would you agree that a national or regional affordability target would help? Mr Pannell: There certainly needs to be a regional and perhaps even a sub-regional dimension to affordability targets, because there is no such thing as a national housing market. It is very much a patchwork of interweaving local markets. Q11 John Cummings: What about a national target? Would you agree with that? Mr Pannell: There obviously needs to be a more global context within which you then set regional and sub-regional targets, yes. Q12 Anne Main: Regional affordability targets: they could still be relatively affordable but totally unaffordable to people who are on low incomes, so how would that help? It would just make them more affordable to people who perhaps want to invest in them. That is my point, that they become a cheaper investment proposition locally; they do not become affordable to poor people. Mr Williams: This takes us back to our earlier point about just because you are putting supply in, just because you are putting affordability targets in, that does not mean to say the people you would like to occupy it, at the price they would like to occupy it, actually do occupy it. Q13 Chair: Unless they are provided through a housing association, of course, where only people who meet the housing association's criteria are able to... Mr Williams: Yes, although even there, what we have observed through the key worker living programme is that it has not been as easy to target it at the people you would like to target it at as it might suggest. Q14 Anne Main: You said it would help. In what way do you think it will help, since I do not think it will help, or I am dubious it will help? How do you think it will help having a regional affordability target? Mr Pannell: I thought I had said that it was necessary to have a regional dimension to affordability targets. Q15 Anne Main: Why? Mr Pannell: Because the housing market characteristics change quite dramatically even within one region. If you compared the position for key workers, for example, in the London and South East area vis-à-vis some of the places further away, where house prices and incomes and the labour market are very different, you cannot possibly hope for a single national measure to work in a predictable fashion across all regional and more local markets. Q16 Sir Paul Beresford: Who would enforce these targets and how would you achieve them? How would the Government, if the Government is enforcing them, achieve them? Mr Williams: As we understand it, through the work ODPM is working on on affordability, those affordability criteria will be passed to local authorities to implement and police, and that will impact upon the supply of the land and other resources. Chair: Can I suggest we get back on track. That is something, Paul, we need to explore with the ODPM, I think. Q17 Martin Horwood: If interest rates rise, as you predict, is this going to cause the kind of fall in house prices that would result in a crisis in the housing market? Mr Pannell: In terms of our forecast, we are actually expecting a relatively flat profile for interest rates, certainly over the next two years, but if interest rates were to rise, to follow your scenario through, our sense is that the fundamentals in the housing market underpin current housing values to a very marked degree, and even if you look back to the late 1980s, when obviously there was a very significant debt problem and arrears and repossessions crisis emerging, the reality is that the vast majority of households, in a very significantly constrained environment and very difficult time for the macro economy, maintained their service payments on mortgages throughout that period. Q18 Martin Horwood: In your submission, in paragraphs 19-22, you paint a rather charming picture of inventive new products and more repayment models and different ways of providing people with the means to pay being a way of making the market more affordable. That seems to fly in the face of classical economics, which says that if you increase the amount of lending to people, that is actually inflationary. Is that not right? Mr Williams: That is clearly a concern. Obviously, there are limits to what lenders can do. They do not have control of housing supply but they do have control over mortgage products, and what we have tried to do is arrive at products that give people some capacity to interact with the supply situation as they find it but, clearly, if we simply stimulated demand wholesale, that would be bad news. This is why we have been very concerned in our work on shared equity with the Government that the programme there is not so large that it would destabilise the market. No, lenders are absolutely with you, that what they want to see is a process where supply and demand are reasonably well balanced, but these are about helping specific groups into an existing market. Q19 Martin Horwood: So do you think the past expansion of repayment models and financial products has been inflationary? Mr Williams: In one sense they are; in another sense they are not. Clearly, we take the supply situation as we have it. We assume supply follows, and, sadly, it is the case in Britain that supply has rather lagged, as you know, but I do not think that is a task for lenders to address. This is a task for those that operate on the supply side of the housing system. Q20 Martin Horwood: You are the ones that are doing the lending, and if you are lending more, the flurry of lending is making more... Mr Williams: Sure. Can I turn it around? Would you like to suggest that the lending ceases? Q21 Martin Horwood: Not ceases, but if in effect what you are doing is just, in one phrase, enabling people to stand on financial tiptoe, you are not actually making the market really more affordable for them and it will have the effect of raising prices. Mr Williams: That is clearly the risk that is run. Mr Pannell: What it does do is ensure that the market is very efficient and fair for everybody that is able to enter home ownership on a sustainable basis. What we are doing is very much broadening the tenure as wide as we prudently can. Q22 Martin Horwood: From April, the Government is allowing housing to be included in personal pension plans. Do you think there is also a risk of that being inflationary? Mr Williams: There is a risk, but all the evidence suggests it is over-stated. The evidence that has been put in the public domain is very limited. We would have liked to see the Treasury publish its own impact assessment. It would be helpful, I think, to calm the debate that is obviously raging in the marketplace about what impact it has, but the collective view across lenders is that the effect is over-stated. There may be some sub-market effects but generally I think people are more confident that it will not have the impact that has been argued. Q23 Martin Horwood: But it will have some impact. Mr Williams: At the margin, yes. Q24 Mr Betts: Going on to the issue about supply, the Government clearly believes that one of the solutions to all this difficulty is to get a million more homes for people to buy as home owners in the next ten years. Do you have concerns about that? Do you have a degree of scepticism that it actually is achievable? Mr Williams: It probably is achievable, simply because we know that net something like 200,000 households a year move into home ownership and over five years therefore you could climb to a million. We saw a million and a half households become home owners over the period 1997-2003, so it is probably achievable. What we are saying is that there is some evidence to suggest that the demand side is changing. The work we have done on potential first-time buyers does indicate something of a sea shift in the profile of people coming forward. We know households are getting older before they enter home ownership, we know there are issues about job mobility, we know there are issues about debt, and all of that is beginning to change, we believe, some of the preferences around home ownership such that one cannot automatically assume the future is like the past. So the reason for our slightly cautious remarks in our submission was to reflect that, that we do not think it is a given in quite the way that some people may easily suggest. Q25 Mr Betts: Is there a danger - this is something that has been raised over the last 20 years - that some people have been encouraged and enticed into owner occupation who probably would be best suited by other tenures, particularly in light of their personal circumstances, but it is presented as almost the one and only thing that you really ought to try and achieve? Mr Williams: We are very clearly strongly interested in people, if they enter home ownership, being able to sustain home ownership, as I am sure you would agree, and obviously, in the past a whole variety of issues were there. Tax relief would be an example of ways that may have encouraged people to enter the tenure earlier than they might have done. Certainly, going forward, given the way the world has changed in terms of the labour market, more contract-based employment, more self-employment, etc, people clearly should enter the market at a point where they think they can sustain the tenure, and there is less support now, with no tax relief, with a somewhat diminished income support for mortgage interest regime, there is less support for people who then fall away in that process. We therefore think people do need to approach it with a degree of care, which they always should have done, but that is even more true of the future. Q26 Mr Betts: Is there an optimal level for home ownership? Are we about there or are we close to getting there? Mr Pannell: It is actually an area where there has been relatively little work done on the potential limits of home ownership. The last robust assessment was made in the late 1990s, when it was suggested that home ownership could comfortably grow to something like 72-73 per cent. That may have moved out a little bit more in the intervening period. Probably, once you start looking much beyond the mid 70s, you are not likely to move much beyond the mid 70s within the foreseeable future. That may be a natural limit. Q27 Mr Betts: So that is the limit of people at any one time, but because of this delay in people moving on to the home ownership ladder, ultimately probably only 80 per cent will become home owners at some time? Mr Williams: That is right. Over the life cycle, probably 80 per cent of people will have been home owners and, of course, we know Britain is 13th in the European home ownership league table. There are a number of countries at 90 per cent plus. There are a number of countries at 80 per cent plus. We are close to the EU average, so if we are succeeding in economic growth terms, logically you would expect home ownership to be able to rise. Q28 Sir Paul Beresford: The difficulties people see over pensions are part of the fact that they are using housing as an alternative to an additional pension. Mr Pannell: That is certainly true on the part of many households. Q29 Alison Seabeck: Talking about extending home ownership, to pick up one of the points in your submission, if Barker is successful in lowering real house price gains, will this raise credit risk associated with loan to value advances and therefore affect lenders' willingness to produce low-cost home ownership packages? Surely, this will impact on the very people who are striving to get on to the home ownership ladder. What specific evidence do you have from lenders that this is a likely outcome? Mr Pannell: No specific evidence as such, and I cannot remember the exact figures that Barker was suggesting real house prices may be reduced by, but I think in terms of orders of magnitude, it was something like halving the real house price increase by two per cent down to one per cent. Given that the mortgage business nowadays is very competitive and margins are very fine, that is bound to have an effect on the risk-reward calculations that all lenders need to take forwards. It will at the margin reduce their risk appetite for certain propositions. One of the examples of that would be some forms of low-cost home ownership. Q30 Anne Main: Just to tease out the constraints imposed on lenders with respect to those who buy property on exception sites, you seem to be unhappy about that. It does seem to be unfortunate that at the lower end of the market there seems to be the least choice. Are you saying that we should be looking at improving the amount of choice for lending in the low-cost home ownership programme? Mr Williams: Yes, I think the collective view of lenders is that the low-cost home ownership programme in England has been neglected. There are specific issues around section 106 sites in terms of the restrictive requirements imposed upon them by PPG3 and its revisions. We have argued strongly for some amendment to those over a period of time, that has not been forthcoming, and the upshot is that lender appetite to lend on some of those properties has diminished. Q31 Anne Main: Those are at the lowest end of the market, generally speaking. Mr Williams: They can be at the lowest, though not necessarily. Some of those sites are relatively expensive. There is often second-hand property that is cheaper elsewhere, but they are in chosen locations and particular groups of people, so there is pressure for them, certainly, but I do not think by any means they would necessarily be at the bottom end of the market. Q32 John Cummings: Do you have any concerns over lenders being asked to underwrite the Government's Market Homebuy scheme? Mr Williams: No. We initiated that discussion with the Government. We were very pleased to be able to follow up just what I said in reply there, that we felt the low-cost home ownership programme had been neglected, we were keen to see ways in which it might be expanded, and we were therefore comfortable with having discussions with the Government and we hope announcements will be made shortly which fulfil that. Q33 John Cummings: You therefore agree that equity sharing schemes help reduce the problems of over-commitment? Mr Williams: It can do, and it is back to your point about the balance between supply and demand. Clearly, if somebody can only afford 75 per cent of a home, an equity sharing scheme is helpful in assisting them into that market. There are issues around equity loans. This is not the solution to everything, by any means, but at the margins, it is a scheme that does have potential to help more people enter home ownership in a supportable and sustainable way. Q34 John Cummings: In a sustainable way, referring to the scheme, it is certainly helping the most appropriate people? Mr Williams: This is a scheme yet to happen. The existing Homebuy scheme by and large achieves its objectives. Some recent research published by ODPM supports that, though there is a slight tendency for the households that get it at the margins to have slightly better incomes than the bottom of the market. There are reasons for that. I think this is all about how the scheme operates, and I think, as we build the low-cost home ownership sector, we can improve its targeting. So yes, there is no reason at all why we cannot ensure that that programme really does deliver low-cost home ownership to people who want to become home owners and can over the long term sustain home ownership, which is the key thing. Q35 John Cummings: If you have identified weaknesses in the scheme, have you made these known to the Department? Mr Williams: Yes. Q36 John Cummings: Have you had a favourable response? Mr Williams: No. Q37 John Cummings: Have you had any response? Mr Williams: The issues have been raised over a number of years. They are raised in the Home Ownership Task Force report and some of the work to be done in terms of targeting of those schemes still needs to be completed. Q38 John Cummings: But have you had any response from the Department? Mr Williams: The Department responded, for example, to the Home Ownership Task Force report. Q39 John Cummings: No, on those particular issues that you have raised. Mr Williams: No. Q40 John Cummings: They have not? Mr Williams: Not fully. Q41 John Cummings: But they have responded partly? Mr Williams: Yes. Q42 John Cummings: To your satisfaction? Mr Williams: Not to my complete satisfaction. John Cummings: Bring out the rack! Q43 Chair: One of our other witnesses has suggested that some of the shared ownership schemes are being used to help people trade up. Do you have evidence of that? Mr Williams: I am surprised at that comment, to trade up, because I think by and large, the people entering the scheme have not been home owners before. Q44 Anne Main: You said sustainable home ownership in the shared equity scheme. Do you have a default rate in terms of payment? Do you have many people who default on the loans? Is it higher in that group than anywhere else or not? Mr Williams: The evidence on this is very mixed. This, again, is back actually to the previous point of Mr Cummings about some of the tracking. There are proper performance indicators for low-cost home ownership. The picture on arrears and repossessions in relation to low-cost home ownership vis-à-vis home ownership generally are not well substantiated. There are bits of evidence but there is not the picture that we need. That is back to the uncompleted business: an example, sir. Q45 Mr Olner: You mentioned, Mr Williams, the sustainability of mortgage repayments. Repossessions have gone up considerably in the last year. How worried should we be? Mr Pannell: We are certainly far from complacent about the increase in repossessions. A lot of media coverage relates to the figures produced by the Department for Constitutional Affairs, which are judicial statistics, court orders, actions and orders made. Q46 Mr Olner: There has been a 66 per cent rise. Mr Pannell: Something like that, yes, but in terms of the actual repossessions, the figure for the 12 months ended the middle of this year was something below 8,000. There are very substantial differences between the DCA figures and actual repossessions. Unfortunately, the DCA, because of the way the statistics are compiled, it does not allow one to very easily understand the full reasons why there is such a gulf between those statistics. Certainly, with actual repossessions, we have seen a modest increase over the last year or so, but it is still the case that repossessions are very close to historical lows, both in absolute terms and relative to the size of the home ownership stock. We are forecasting a modest increase over the next two years to something like 12,000 in 2007, which would still be historically very low. Just to put that into context, a few years ago ODPM research suggested that the equilibrium number of repossessions was something like 30,000 per annum, so we are significantly below that and certainly nobody that I know of is suggesting an increase in repossessions of anything approaching that magnitude. Q47 Mr Olner: Can I put on record that obviously, the figures are nowhere near that. They are low compared to the figures of the early Nineties, but we surely learned some lessons from the figures of the early Nineties. An awful lot of people do not get into debt deliberately and I just wonder whether the message that we are putting into place to assist people staying in their homes, you had already started to exercise with this current group of repossessions. It does not help anyone if somebody is made homeless. Mr Williams: No, absolutely. This is one of the reasons why in 1999, with the Government, we launched our sustainable home ownership initiative, which is very much about trying to increase home buyers' awareness of the risks of home ownership, of the need to look at ways they can manage their mortgage account in the event of sickness, accident or unemployment; why we have encouraged more people to take out payment protection insurance; and when you look at lender behaviour going forward, what is striking underlying the figures Bob has been talking about is, both by lenders and borrowers, a degree of caution in terms of, for example, loan to value ratios. If you look back at the early Nineties/late Eighties, the number of 100 per cent loans was strikingly larger than it is now. There has been a ratcheting back on both sides by buyers and lenders to manage exactly the risk you are talking about. Q48 Mr Olner: Surely, with five times household income being lent to somebody as a norm, it is putting tremendous pressure on household units, because household units do not stay the same for ever. Mr Williams: Sure. Mr Pannell: If five times income were the norm, then I would agree with you. The figures that we have suggest that for first-time buyers, the median income multiple was 3.2 in the middle of this year. That compares with something like 2.4 ten years ago, and of course, what has happened in the intervening period is the macroeconomic backdrop has changed dramatically, particularly in terms of the interest rate environment. Interest rates are well below half the level that was prevailing 10-12 years ago. Q49 Mr Olner: But has that not just encouraged you to lend people more money? There seems to be a fair amount of entrapment within the money lending business. I know you denied it in the first instance, but I actually think it has an awful lot to do with driving the price of properties up. Mr Pannell: We should not forget that we have enjoyed more than ten years of continuous economic growth. The jobs market is probably the strongest it has been for many a generation. Interest rates are historically at very low levels in nominal terms, and that creates a huge demand from individuals, and mortgage lenders, for the most part, are meeting the aspirations for home ownership. Mr Williams: I am not seeking sympathy in saying this, but I think lenders are classically between a rock and a hard place on this one. If you try and help people into home ownership, you are then accused of being too generous, and I think the data evidence does show that actually, as Bob has cited, and other evidence supports, the evidence shows a high degree of caution, but I think it is by both borrowers and lenders. Q50 Mr Olner: Is there any correlation between people desperate to get out of tenanted property and taking risks that are not sustainable at the end of the day? Mr Williams: For example - and I do not know whether this is quite the right example - under the right to buy, the evidence in terms of default and repossession is that there is very little difference. Q51 Mr Olner: They gave them away, did they not? Mr Williams: There is no doubt there is a protection element there. It is a troubling fact that the level of advice given to those people on departing that tenure into home ownership is perhaps less than it might be elsewhere in terms of the advice and information available to them, which is an issue that perhaps needs considering. As a generality, I do not think we have any data really, particularly to talk of failure, of people dropping out of home ownership who come in as first-time buyers. Clearly, the biggest area of default is the first two to three years on entering home ownership. That is typically when budgets are most stretched, when people find it most difficult, but I do not think that is particularly associated with people coming out of social rented homes, if you like. Clearly, they have come from somewhere. Some will have come from their parental home, some will have come from the private rented sector, some will have come from abroad. There is no particular pattern that I have seen any evidence of there. Q52 Anne Main: It is the flipside of what Bill has just asked: if people default in the first one or two years, do you have any concerns that this push to get people into home ownership is taking away focus from providing social housing for rent? Mr Williams: Looking at government expenditure, clearly, there is a huge amount and an increased amount of government expenditure on the social rented sector. I have already mentioned that the programme for low-cost ownership had in fact been cut back. The Government is now keen to push those programmes ahead again. I do not think those have been developed at the expense of the social rented sector. I think the Government is, however, responding to a choice agenda here. What it is saying is that, reflecting low mobility, recruitment and retention, choice, they feel the need - rightly, in our view - to respond to the unmet demand for home ownership and they are putting a limited amount of resource in there. We are helping them expand that limited amount of resource by the shared equity programme we are talking about so that deliberately, it is not an offset taking away from the social rented sector. I think our collective view is the Government is actually spending a lot of money on social renting and its commitments to home ownership are relatively limited but nonetheless very welcome. Q53 Mr Olner: In the past you have expressed serious concerns about modern methods of construction, particularly in the prefabricated home sector. Have you resolved those concerns? Mr Williams: We are in the process of resolving those concerns. We are waiting for the publication of LPS 2020, which will be the new certification standard for modern methods of construction. We would like to see ODPM and the Housing Corporation embrace that fully in a way that they have yet to do. We, the insurers, are confident that this will provide a whole-life standard for new dwellings built by modern methods which means they are sustainable and mortgageable over the long term. In the absence of that standard, the risk is that we will be getting people into hew homes which then have no long-term life and our concern is that, if we are not careful, we will repeat past mistakes, ones you are very well aware of and I hope others in this room are too. Q54 Mr Olner: But we are getting there? Mr Williams: We believe we are getting there. Q55 Mr Olner: When do you think we will reach that? Mr Williams: It will be published next year. The key question is adoption. Q56 Mr Betts: What is the element of doubt there? Mr Williams: Adoption. Q57 Mr Betts: That is ODPM and the Housing Corporation? Mr Williams: Yes. Q58 Mr Betts: If they do not, the thing is a dead loss. Mr Williams: The danger is if they do not, and they carry on where they are, which is some of the properties being built and put into the social rented sector but potentially then falling from the social rented sector into home ownership through the right to buy, for example, right to acquire, is that those properties, because they have a short life built into them, with unknown lifetime characteristics, will become unmortgageable in the future. You will have had the great success of getting somebody a new home because they have bought it, and then they will find they cannot mortgage it and sell it on to anybody else. A success becomes a deep and dismal failure. Q59 Alison Seabeck: What discussions therefore have you been having with the ODPM about the pilots being brought forward for the £60,000 house, which I assume are using modern methods of construction, and which I assume they will want to sell and therefore lenders ought to be involved in it. Mr Williams: I believe we are involved. I do not know the details, I am afraid. I am happy to reply by letter on that point. Chair: That would be very helpful. If you could reply to the Clerk, that would be extremely helpful. Q60 Martin Horwood: I am puzzled that you say the key issue is adoption, because with what you have described as the deep and dismal failure, the key problem surely is the quality and sustainability of the design? Mr Williams: Yes, but then the adoption of the standards that makes those requirements absolutely mandatory, because at the moment there has not been a standard that has been imposed. Many of these buildings are being imported from all over the world, built by unknown construction techniques, with unknown operational life characteristics, which will simply, as I say, succeed in the one breath and fail in the next. Q61 Mr Olner: Do they get through building regulations? Mr Williams: I assume so, but that is only related to the short term. The standard we have developed with the Building Research Establishment and the British Board of Agrément is designed to look at the whole-life characteristics of the dwelling. Q62 Chair: That standard would apply across the private and public sectors? Mr Williams: Yes. Chair: Thank you very much indeed. Memorandum submitted by Centre for Urban and Regional Studies, University of Birmingham
Examination of Witnesses
Witnesses: Professor Alan Murie, Mr Peter Lee, Senior Lecturer, and Dr Ed Ferrari, Lecturer, Centre for Urban and Regional Studies, University of Birmingham, gave evidence. Q63 Chair: Can I welcome you. Can you just introduce yourselves one after the other before we start? Professor Murie: My name is Alan Murie. Mr Lee: Peter Lee. Mr Ferrari: I am Ed Ferrari. Professor Murie: We are all from the Centre for Urban and Regional Studies at Birmingham University. Q64 Mr Betts: Can we begin by exploring your views on the levels of home ownership. If you had been in here a few minutes ago, the Council for Mortgage Lenders was saying that home ownership rates are still continuing to rise but not as quickly as they were. They probably have a little bit further to go. You seem to be thinking, from what I can gather, that they are likely to rise much further and the Government is being unduly optimistic in thinking there are going to be a million more home owners in ten years' time. Professor Murie: I think the big question mark about the rate of growth at present is the development of the buy-to-let market, because in effect, the buy-to-let market is beginning to crowd out people from the home ownership sector. The question we are raising in the evidence we have given you is how far the expansion of the buy-to-let market is compatible with the expansion of the home ownership in the way the Government wants. In the centre of some cities at the moment, a very high proportion - I have heard a figure of 95 per cent - of properties being sold are to the investment market. That obviously is not being repeated across the market as a whole, but it does mean that a lot of the new supply coming into the market is being taken out by investors prior to it becoming available to home owners. I suppose I could answer your question in a different way: it depends on what kind of home ownership the Government wants. That is multiple home ownership, if you like; it is people who own their homes but who own more than one home. It is different from the notion of owner occupation, which traditionally has been what we have talked about, and I think there may be some doubt about whether that growth of individual home ownership can continue at the rate that would be wanted if the buy-to-let market continues to expand as it is. Q65 Mr Betts: What would your projection be over the next ten years then? Professor Murie: We would hesitate to make a projection. Perhaps that is not very helpful to you. It depends on whether the buy-to-let market is a blip or a trend, whether it continues at a high rate, and all of the speculations about the investment in pension schemes relates to that, whether there is a continuing trend for investment in buy-to-let, in which case we would still anticipate that the home ownership sector, the owner occupied sector would continue to grow but not at that same rapid rate. We are also beginning to see a different kind of home ownership emerging as a result of that, so it begins to be a question about whether it is the same kind of sector. Q66 Mr Betts: Could you expand on that? Professor Murie: I suppose it is partly that the development of the buy-to-let market means you have a different type of ownership emerging, people who own their own home but are increasingly owning a second and maybe a third home as well. Most of the buy-to-let market is small homes, but also, the owner occupied market is becoming much more extended from a very high-priced, luxury market right down to a low-priced accessible market and the two ends may never meet, so you do not have what used to be talked about as a foot on a ladder; you do not have a ladder that you can move from the bottom to the top of; you have a highly stratified market where it is not easy to move from one end to the other. It is a different kind of product. Q67 Chair: In what way is that different from the past, in that people with small houses could never aspire to eventually move their way up to a mega-mansion? Mr Lee: I think we have to be clear about the starting position here. We are talking about the expansion of home ownership. I think Alan's point is about the difference between home ownership or ownership per se, and owner occupation, actually occupying and having a house in the first place. If we look at new build, specifically in the West Midlands, and we are looking at the rural parts of the West Midlands, where the ratio between incomes and house prices is roughly 13 times local household incomes in Malvern Hills, that means that the relationship between local incomes and the housing market has been completely distorted. If we look at new build and the proportion of new build that is occupied by people in the private rented sector, it is more than double the regional average, which means that the ability of people to get on that first rung of the ladder and that relationship between local incomes and the housing market has been distorted by external investment. That might not be different in principle from the past, but if we start at an index of 100 in 1985, average house prices have more than three or four times outstripped lower quartile incomes, which means it is this external investment in housing and home ownership from outside which is distorting the relationship between local incomes and the housing market. Q68 Martin Horwood: I am going to ask a similar question to one I asked the previous witnesses. Do you think the rise in home ownership has been inflationary? Mr Ferrari: Yes, in the sense that, as both my colleagues have mentioned, it has outstripped incomes. If you look at some very local examples, we have been doing some work in South Yorkshire, for example, where incomes in real terms have been either stable or possibly even declining year on year whilst house prices have clearly outstripped that, again, pointing to a disconnection from local populations and their incomes and the housing market as it impinges on their neighbourhoods. In that sense, yes, it has been inflationary. Q69 Mr Olner: Following on from that, are you saying that in South Yorkshire there are just small localised hotspots where this occurs? Because primarily in that part of the world there is sometimes a surplus of houses, which would tend to bring prices down. Mr Ferrari: Yes. It is my feeling that the inflationary pressure that is caused by the external pressures on house prices that we have been talking about have occurred even in places that have hitherto been characterised by low demand, or at least changing demand for the housing product. Q70 Chair: Can I just clarify? There seems to be an elision of several different things. Are you talking about people buying second homes in rural areas, where obviously the local income is not relevant, or are you talking about people who are investing in buy-to-let, as Professor Murie was talking about, in city centre areas, which is a completely different pressure? You seem to be running them both together and slipping from one to the other. Professor Murie: I am not so sure that they are such different things. People are in both cases making decisions as much on the grounds of investment and an investment in an asset that they anticipate will appreciate. I think there is a growth of what is now called buy-to-let in rural areas. We have simply stopped calling it second homes; we increasingly call it buy-to-let. It may mean that the person very rarely uses it as a holiday home whereas in the past they may have done so more, but I think the big addition to the market is what is conventionally called buy-to-let. Q71 Anne Main: I asked the same question of the Council for Mortgage Lenders. If there were some sort of regional lowering of prices, on a regional basis, do you think that would increase the affordability for wealthy buyers to be able to buy more and more buy-to-let properties rather than making the properties cheaper for people who are on a lower income scale? Mr Lee: Obviously, it is going to increase the ability of those investors to buy more properties on the open market, therefore we have to look at the environment by which (a) they are allowed to do that and (b) what the competing investments are. The competing investments are the stock market or whatever and they are not getting that kind of return. We know that they are getting a yield on buy-to-let of roughly 22 per cent when we look at the capital appreciation and we look at the kind of rental income coming from that. Therefore, there seems to be an environment in which it is very attractive to buy that, so lowering the price, no, will not necessarily increase the access to those on low incomes. We know that the price of housing would have to come down considerably to reduce those kinds of margins when we are looking at rural areas in the West Midlands and the relationship between incomes and lower quartile house prices of 13 times. They have to come down considerably. So obviously, there has to be something to do with the external environment in which those investments are seen as much more attractive than alternative investments. Q72 Sir Paul Beresford: One of the suggestions that people have made is that we should have regional affordability targets. The Government will set these and the councils will apply them. We have not quite reached a Stalinistic system but I suspect we are on the way there. I cannot see how it will work. Do you think it will work? Professor Murie: I do not think we think it would work. We are not convinced that you can arrive at fixed targets of that nature very easily. We do believe you can analyse the way regional housing markets are working and begin to intervene to try to introduce more balance in the markets, but that kind of affordability indicator is too crude. A lot of the work we have done emphasizes a sub-regional level within housing markets. The example of Yorkshire was given. There are parts of Yorkshire and Humberside where the market is booming, and I think it is more than just small pockets. There are hotspots within every region where the market moves very fast, and to intervene to be able to balance the market needs something that is much more sensitive and complex, unfortunately, than an affordability index. Q73 John Cummings: The Government is of the opinion that it is increasing equity by enabling more people to own their own homes. It seems to be a straightforward statement, and yet, it would appear you suggest otherwise. Could you tell the Committee why? Mr Lee: I suppose there has always been an equity stake in housing, owner-occupied housing, but to suggest that social equity will be increased for all groups proportionally and equally would be misleading, would it not? If we are talking about a polarisation in house prices and a reduction in residential mobility because the distance between house prices in relative and absolute terms has grown so considerably, that must mean that for those with low assets and low incomes, their ability to access social equity through housing will be less than those who are paying less as a proportion of their income for housing. Obviously, social equity is going to be different for different groups. The other issue is that for low income groups, accessing equity in their housing obviously is going to increase their debt, which has to be serviced. Housing is being viewed as something not just about accommodation and the roof over one's head but as a kind of a supplement to the welfare state and as a supplement to the ability to consume more, which obviously is going to be different for different groups, depending on your starting position in the housing market. Q74 John Cummings: Have you entered into dialogue with the Department over your differences? Mr Lee: Starting now, I guess. Q75 John Cummings: In written form or through discussions? Mr Lee: We do regularly have projects through ODPM and regionally where we discuss these matters. John Cummings: I would be very interested to hear the outcome of such discussions between yourselves and the Department over that particular issue. Q76 Alison Seabeck: Housing markets are clearly complex and you suggest that in your submission, and they cannot simply be described in terms of supply and demand. What, in your view, are the main complicating factors? Mr Ferrari: I guess there is a short answer and a long answer. The short answer is that housing markets are, yes, a complex mix of local and national forces between cycles, for example, in the macro economy and structures, for example, local economic situations. Some of the unique characteristics of the housing market which are indeed complicating arise from the fact that housing is a unique economic good in terms of its economic characteristics. It is not unlike the labour market. It is very unlike other markets or other commodities. Housing is fixed, there are well-known time lags involved in supply, and the price of housing internalises a whole host of external factors that we cannot entirely satisfactorily model, for example, location effects and other such. For me, the most important complicating factor about the way housing markets work are the areas over which they work and the spatial effects of housing markets. Almost without exception, I think housing markets work over larger areas than we tend to think of or we tend to assume, which in turn increases the capacity for displacement effects to occur. Q77 Chair: Can you give an example of a displacement effect? Mr Ferrari: For example, if one were trying to meet housing needs or indeed housing demand through the provision of new housing in a place like Sutton Coldfield, for example, the market that Sutton Coldfield is in probably extends over a much wider area than we have hitherto been used to dealing with, both administratively and conceptually, and therefore displacement would occur in that that new housing would be attractive to and consumed by investors and movers, people who move to consume housing, from a much wider area. So even when providing new housing, the chances are that meeting local needs and demands will be secondary to meeting the needs and demands of a much wider market. Q78 Alison Seabeck: That reinforces the point made earlier, if I am right, that it is quite difficult to set regional or even local targets for house building and development because the whole market is skewed anyway. In a sense, people will come where you build, whereas if you have a grand regional plan - forgive me if I sound slightly confused by this, but I just do not understand quite how you can set regional housing targets in quite the way you are trying to describe. Mr Ferrari: You cannot have a set regional affordability target, to take that example, any more than it is the case that you have a regional housing market or a local housing market. It might be complicating but also illuminating to think of the housing market in terms of a series of overlapping housing markets at various spatial scales, even globally. A city like London might exist within a global housing market, and part of its housing supply, or the outcomes of the housing market will be determined by global pressures as much as local pressures. Q79 Alison Seabeck: Can I come back to affordability? Again, in your submission you talk about there being a worsening problem of affordability. It is really the case that houses are being bought and sold at a steady rate? There is a steady turnaround at the moment, so where in your view is the problem? Mr Lee: Where do we start? All we can do in terms of the affordability threshold, the affordability targets that we are talking about regionally or that we are thinking about setting, is to plan, monitor and manage these things and see where we are going in terms of the delivery of affordable housing and whether we are actually scratching the surface and meeting any of the need. You are saying that houses are being bought and sold and where is the problem; if we look again at the West Midlands, where we have looked at affordability from the perspective of incomes and house prices and the flow of affordable housing, ie the flow of lets - because we have to talk about social rented housing here as well - and the flow of sales of lower priced market-entering housing, from looking at new household formation, from looking at the flows of social housing, from looking at the affordability thresholds, we can get a feel for how many new households are looking at affordable housing and how much of that should be social housing and monitor that. We are looking at, say, 40,000-50,000 over the next 20 years, dependent on all other factors being equal, but in the short term we are looking at maybe delivering 6,000 units over the next five years on an annual basis. Last year we delivered something like 2,500. So we can have lots of discussions about the complexity of housing markets, etc, but if we have a shortfall of 3,500-4,000 affordable units, that seems to be the problem. One of the problems is the spatial mismatch. Housing markets work on very different spatial scales, so we have long-distance migration trends, which tend to be about job relocation, and short-distance moves, which tend to be about housing market or housing-related adjustments. So you move to an areas because you have a job and then you make that kind of adjustment - "Don't like that neighbourhood. I'll move over here." So you have all those adjustments going on and you have that kind of spatial mismatch between where the jobs are being created and where there is excess supply of housing. We cannot forget regeneration and a whole basket of economic development and regeneration-led policy that can deliver more in that kind of matching up. Where we have a problem is that housing is being built, yes, but we have a lot of city centre housing in our major city centres which is supposedly delivering urban renaissance which is lying empty, and we have had a lot of discussion over the last couple of months about segregation and ethnic minorities, and two or three miles up the road in cities like Manchester, Leeds and Birmingham, we have people in dire housing need. So the housing system is not matching up the disproportionate amount of need and affordability problems of this group of people but is delivering housing which is lying empty to corporate investors who are deciding... Q80 Chair: Can I try and pick you up... Mr Lee: I am just trying to address the question of where the problem is, which seems to be suggesting that there is not a problem. Q81 Chair: I do not think Alison was suggesting there was no problem. Mr Lee: No, it was a rhetorical question. Q82 Chair: I am having real difficulty in trying to work out whether what we are having is an interesting academic discussion... Mr Lee: No, no. I think it is more than that. Q83 Chair: Hang on! Or whether we are actually getting somewhere that can inform policy. I want to actually quote the last sentence of your written evidence, which is "A national spatial strategy seems a starting point for addressing regional disparities. This would require strong leadership to a framework for economic and housing investment that may seem too interventionist for some." Do you mean people should be told where they are going to be able to live and work? Mr Lee: No, I do not think it is suggesting that at all. I think maybe we are looking at this too internally about housing delivering all the kind of solutions, that we build more housing and that will solve the problem. We build it where people want to live and that will solve the problem. It is a bit like roads: if we build the roads, obviously we will just increase the demand. If we build the housing in the South East, obviously there will be strong investment in that housing, but is it necessarily the right way to go in terms of the use of national resources? We have to tie up the housing to regeneration and economic development, which seems to suggest much more of a kind of spatial plan to those kinds of policy troubles. Q84 Mr Olner: I want to touch on affordability/demand. There was a time in the sixties when they tried to say to Coventry, "You cannot have any more industry there; you have too much so we will send it up to Scotland." Sadly, it all failed. That has been tried in the past. How do we address this problem about the regional demand, because affordability comes on the back of demand. If the demand is all down there in the south-east, how do we try to level out the demand side of the equation? Professor Murie: That is about a wider policy than the housing policy. It is about policies that affect the pattern of economic development across the board. I do not think people would suggest you go back to those kinds of measures. Q85 Mr Olner: Industrial building certificates? Professor Murie: Industrial development certificates. That is right. I do not think anyone would suggest you go back to those. Unless there is some concerted attempt to think through properly how investment in infrastructure and different activities may contribute to the generation of economic activity, you could end up with a situation in which public investment adds to the pressurised nature of the economy in the south and south-east of England. I do not think there is an easy answer. It is about the wider economic development and regeneration policy, not just the housing policy. We think there is a route through regional housing strategies and things like housing market renewal that could be one dimension within a strategy to try and rebalance markets, but it certainly could not do it on its own and it is not easy to achieve. I suppose there is a feeling that there is insufficient attention being given to trying to balance that development. Q86 Anne Main: You said there were places being constructed in Manchester and lying empty. People were not wanting to live in them. Perhaps you could give some of the reasons why. If you are thinking in terms of being slightly interventionist, are we saying that, to have some sort of regional affordability, we are looking at putting some sort of limits on who can buy? I would like to tease out exactly what you are referring to. Are you saying it is for local people only? What sort of things are you suggesting? Otherwise, the investment is just going to flood into those places? Mr Lee: I would hope that we are having more than an academic debate here that will just go away. We are trying to apply our research findings to some of the policy implications here. I am not painting a picture of rows and rows of empty apartment blocks in Birmingham but where we have a vacancy rate in the city of four per cent and a vacancy rate in some city centre areas of 13 and 15 per cent, that seems to be out of kilter. What is being delivered is not necessarily what is needed. It is not about saying to people that they cannot invest in housing. It is saying at some point the government has to join up policy and say, "We talk about sustainable communities and urban renaissance." Whose community and whose renaissance? Q87 Anne Main: What is being delivered? Is it the size of unit, where it is located, accessibility of transport? Mr Lee: Probably we are in danger of developing too many monolithic one and two bedroom apartments. On the assumption that households will be smaller, households will still have friends and, where they have been divorced and have families, they will want their kids to stay over, so there is an assumption that smaller households have to be put in small one, two bed or studio flats. Q88 Chairman: Is it the private sector that we are talking about? Mr Lee: Yes. Q89 Chairman: The properties you are talking about with this high vacancy rate in city centres are private sector? Mr Lee: Yes, but it is not about necessarily saying that people cannot invest; it is about saying, "What is the climate that we are creating here?" Q90 Anne Main: Is it to do with land densities, people having to have 30 to 50-plus per hectare? Mr Lee: That might be part of the problem but in planning terms the government has core output indicators in terms of measuring urban renaissance. One of its core output indicators is density of dwellings, so you have over 30, 40 or 50 dwellings per hectare, but if we factored in residency rates and said, "What is our utilisation of land here?" we might be delivering low density over here but people are occupying them. We are delivering high density here but we have quite a high vacancy rate, so it works out that our utilisation of the land is probably less over her either because investors are not prepared to lower their prices to let, say, graduates come into the market. You want to be selling to graduates at £80,000 or £90,000. If you are on an income of £20,000, and you have £13,000 or £15,000 of debt - in London, if you are talking about £80,000 or £90,000, you would probably think: I will buy one of those tomorrow. Q91 Chairman: Is there the same vacancy rate in private properties in the middle of London as there is in the middle of Birmingham? Mr Lee: I guess not. Does that not emphasise the point about economic development? Q92 Mr Olner: There are not many luxury apartments vacant in Birmingham in the centre. Mr Lee: I do not know where the evidence for that is. Q93 Martin Horwood: One of the areas in which you seem to most diametrically contradict the ODPM is around the issue of sustainability. They would say that the increase of supply is essential to deliver sustainable communities and particularly they would support, for instance, urban extensions to their identified, principal urban areas. You seem to suggest that is just going to generate unsustainable urban sprawl. Would you like to defend your position on this? Dr Ferrari: There are plenty of examples, particularly in the north and the Midlands, where even if brown field targets are being met in terms of the use of previously developed land there is a lot of capacity around without having to start thinking about urban extensions. Q94 Martin Horwood: Is that not in a different part of the country? I come from one of the areas where the urban extensions are planned. It is nowhere near those places. It is in the south-west in my case. Dr Ferrari: I assume you are referring to the growth areas in the sustainable communities? Q95 Martin Horwood: Not in my case but it applies to the growth areas like Milton Keynes as well. In my case it is a PUA in the south west. Dr Ferrari: One of the interesting things is that two or three years ago we talked about low changing demand and there were nine housing market renewal pathfinders set up to address very real and complex difficulties. Then things like the Northern Way come along which is essentially an economic development package which includes things like transport infrastructure and a whole host of measures aimed at closing a productivity gap between the north and the south in the UK. Suddenly the pressure is on and I think there is a real risk for areas that we were talking about just two years ago as low demand to see themselves as growth areas and therefore the incumbent pressure is on the planning system to build on green field sites and undertake urban extensions of the sort you are referring to, even in the north and those parts of the Midlands where affordability pressures are perhaps not as acute as in the south. Q96 Mr Betts: What is the evidence that the concept of the Northern Way has led to increased pressure to build on green field sites? Dr Ferrari: I do not have any prima facie evidence other than being involved with a number of the pathfinders as they are trying to deal with real planning applications being made by developers on the sites. Q97 Chairman: Have they been approved? Dr Ferrari: Some have and some are being called in by the Department. Chairman: It shows the system works. Q98 Anne Main: Is that because it is easier for a developer to go onto a fresh field site than it is to regenerate a brown field site? Dr Ferrari: We are not just talking about green field sites here. We are talking about sites that would be classified under the performance targets as brown field. It is just that they have not been previously classified as housing sites in the planning framework. For example, the old unitary development plans which have now been replaced by local development frameworks may classify large ex-industrial sites as brown field but not as housing land, as employment land instead. Developers would prefer to develop those sites as housing or perhaps mixed use site with a complement of leisure, employment and housing uses. It is not necessarily green field but they are nevertheless on the edge of existing major urban areas where capacity exists within those urban areas. Q99 Mr Betts: That is not my experience in Sheffield where you are looking at the reclassification of industrial land next to housing market renewal areas. They plan the two together. People are very cognisant of the inter-reaction between them. Dr Ferrari: Funnily enough, some of my experience is not in Sheffield. I know Sheffield has some very particular characteristics such as bordering a national park, which means it has planning constraints probably far in excess of other areas. The neighbouring local authority of Rotherham has a particular problem of the sort I referred to. Newcastle upon Tyne has recently granted a large urban extension to the north at the same time as having a market renewal area in the south and the west of that particular district. Q100 Martin Horwood: I am slightly puzzled by your answer, partly because I was expecting something about the pressure on the green field sites in the south, not the north. They seem to be different situations. I was asking about the difference in almost the definition of sustainability between you and ODPM. You say the danger is that the Barker agenda will not deliver anything sustainable because it is coming from a Treasury rather than a housing communities perspective. That is a very brave statement. Do you want to defend that? Dr Ferrari: My colleagues might have something to say but I am talking about sustainability and the concept of reusing land that was previously developed where it is in the best position to capitalise on existing transport links, neighbourhood infrastructure, education provision and other facets of public service provision. I guess that is my concept of sustainability in this regard. Professor Murie: I think it goes back to the answers we gave earlier. The emphasis on building housing where it is needed which comes out of the Barker review, the implication by a lot of people -- it may be this is not the way the Department is thinking -- is that you build housing in the hot spots where the demand for housing is greatest. The expectation is that that will have an impact upon house prices in those areas and ultimately will enable local people to access the housing market. Our view is that the evidence does not suggest that that is what will actually happen. Q101 Martin Horwood: Are you suggesting there is almost a difference between building housing where it is wanted and building housing where it is needed? Professor Murie: No. I suppose it is about the "where". We are trying to say that if you build within the market that people choose to live in, that may mean you build a significant distance away from a particular locality. If you interpret the "where" very locally, geographically in a very narrow sense, the consequences of that may be very different and it may affect the sustainability of communities. Q102 Chairman: If you consider the "where" in a regional sense like the south-east, you are not suggesting that the housing need in the south-east should be met by building it all up north, are you? Professor Murie: No. We are suggesting that the housing need needs to be met within the housing market that the hot spots are part of, if you follow me, which certainly would not be other regions and would not be at regional level either. We mentioned Sutton Coldfield before. Chairman: Most of you examples seem to be in the Midlands and the north. There are other places in the country. All the examples you are using appear to be entirely irrelevant to the south-east, the south-west or London. In all of your examples, every time we have asked you, even when we have started it from the south-west, the south-east or London, you have cited the west Midlands. The west Midlands clearly has housing problems which need to be addressed but you cannot generalise them to the whole country and you do not seem to have a lot to offer. Mr Olner: We should not have invited them then. Martin Horwood: I think you have an awful lot to offer. I found your submission a breath of fresh air. It was clear and relatively brief and offered a lot of very important insights. Anne Main: On transport your statement says that notwithstanding additional problems of insufficient public transport subsidy and the failure of the deregulation model outside London, we have to think wider than London because there are lots of areas where people look for housing. Do you see that the lack of investment or lack of infrastructure and/or investment in transport is part of the problem? That is why I said about access to those empty housing blocks we were talking about. How much is this about people being able to get to where the housing is rather than putting the housing where the people seem to be? Do you know what I mean? A lot of people travel quite a distance to where they work and they may live in completely different areas for schooling reasons or whatever, historic family reasons. How much is transport integral to sustainable communities? What are your views? Q103 Sir Paul Beresford: Before you answer that, I think your second last sentence in relation to the national spatial strategy is the answer to some of the questions you have been answering. People have to want to go to live and have something that they want to live in. The opportunity for the government to influence it through a national spatial strategy and to calm some of the hot spots down and influence some of the other areas is the way forward. That is what you are trying to say. Are you? Dr Ferrari: Transport is integral to any definition of a sustainable community. When we talk about a national spatial strategy, that is important, yes, but recent analysis of migration trends suggests a counter urbanisation -- that is, movement to suburban and rural locations from existing urban centres -- is more significant than what we used to think of as a north/south drift of population. Counter urbanisation is a very important trend that we have to consider. Transport is crucial to that debate. The further people travel to work, the further away from places of employment that people live, conversely, the more difficult it is to provide sustainable modes of transport. In other words, there is an emphasis on private car use and individual journeys over and above the provision of public transport, light rail or other modes such as that. Mr Lee: In terms of sustainability, what we are trying to drive at is a national spatial strategy which is trying to look at sustainability in a very broad way, not just in terms of demographics, housing need and affordability. We have an opportunity to change some of our city centres and the relationship between urban and rural areas and to stop that counter urbanisation. It is about the whole urban offer, transport and the ability to travel easily through urban areas and get to accessible, decent housing, designed well. If we just focus on the Barker thing which is about increasing the supply of housing, which might be good from the Treasury perspective, it will lose sight of the sustainability issues. In sustainability and urban renaissance, one has to ask sustainable for whom and investment for whom, because when we look at the kind of investment going into the buy to let field it is reducing the opportunity of some households coming through and accessing true owner occupation. It is complicated. Chairman: Thank you very much indeed. Memorandum submitted by the Home Builders' Federation Examination of Witnesses
Witnesses: Mr John Slaughter, Director of External Affairs, Mr Paul Pedley, Executive Deputy Chairman, Redrow, and Mr Andrew Whitaker, Head of Planning, Home Builders' Federation, gave evidence. Q104 John Cummings: In your evidence, you complain about the planning system constraining supply but would you not agree that it has helped provide a framework which has prevented house builders from the problems of oversupply and the dangers of bankruptcy? Mr Slaughter: House builders have managed to earn a reasonable living in recent years but their wish long term is to grow their businesses. The essential ingredient of their businesses for long term growth is the right supply of land on which they can build houses and communities. The situation has not been optimal. We and our members would like to see an increase in developable land with planning permission and that is the way the industry can grow. Mr Pedley: I sincerely hope we can look forward to a fairly stable and sustainable housing market in the years to come. If you look at any of our businesses, the primary driver of our output is the number of sites that we have. The number of sites is totally dependent upon the number of sites we have with planning permission. You can directly relate our future prosperity to the efficiency of the planning system to deliver those sites through to our businesses, whichever of the major house builders you are looking at. Q105 John Cummings: Is it not in the interests of house builders for house prices to continue to rise? Mr Pedley: No, I do not think it is. I think house prices have to be sustainable relative to the people who can afford to buy our houses. Effectively, as house prices have risen over the last few years, the number of people who can buy what we build has diminished. The average selling price of a new home is somewhere in the region of £175,000. Therefore, there is a huge number of people in the UK who cannot buy what we build. First time buyers are the most obvious example of that. They have effectively been priced out of the market. I do not think that is in the best interest of us or the country. Mr Slaughter: The reality is that although we are not building anywhere near enough houses the industry has nevertheless increased output from the modern, historic low point of 2001 by about 20 per cent over the last three years into 2004 figures. The evidence is there that the industry can and does want to increase supply when it is able to do so. Q106 Sir Paul Beresford: Do you not feel some of your members contribute to the planning delay? In the south-east, many of the applications on sites by some of your members have been ludicrous. The densities have been extreme and it is almost a Germaine Greer effect. You know you will not get it but you will step back a little bit more and you may have moved the local authority to a greater density. Mr Slaughter: The industry has been asked to look at higher density levels under planning policy. In many ways that is a response to the policy environment. We realise that there are issues about whether that is always the right approach. Indeed, one thing that we hope very much that government is going to talk about in the PPG3 that is due to come out, I guess, next Monday with other proposals in the pre-Budget statement will take a step back from where we have been and say that we probably need to look at a more flexible approach to realising density. A one size fits all policy is not appropriate. In many ways, we understand the concern you are raising and the industry would like to move forward in a more flexible way. Q107 John Cummings: Kate Barker's review suggests that more than 100,000 extra private homes are required each year to stem house price rises. Do you think that is realistic? Mr Slaughter: To build that many? Q108 John Cummings: Yes. Mr Slaughter: Yes, it is realistic. Clearly no one is expecting that increase in volumes to happen from one year to another but it is a progressive process. In time it is certainly realistic. We have conducted skills research, for example, with the Construction Industry Training Board, which shows that the industry would be able to respond to that type of increase in output. Q109 John Cummings: If house prices grow more slowly, do you think developers will continue to build? Mr Slaughter: Can we take a step back and say that what Kate Barker is talking about is reducing the long term real increase in house prices. On an annual basis, the differences may not seem very great but when she is talking about 2.7 per cent real increase in prices year on year over the last 20 years cumulatively that is a very big effect. What we are looking at and what Kate Barker is talking about is a long term supply solution. Q110 John Cummings: In the short term though, if prices grow more slowly, will developers continue to build? Mr Pedley: Yes, for many reasons, not least because it is in the best interests of their businesses. In truth I would much rather operate in a stable housing environment where house prices rise in line with earnings than necessarily what we have enjoyed, if that is the right expression, over the last few years. Q111 John Cummings: What do you believe can be done to make housing more affordable in the short term? Mr Pedley: Affordability is all about meeting the needs of the people. We have to take a far more flexible view in terms of what we build. We have to look at the needs of the individuals in any location and recognise that the housing market is a series of small, individual markets in each town and city and each different category of people who are looking to buy. Therefore, if we are looking to satisfy the demands of the first time buyer, we have to have that view when we are addressing that issue. If we are looking for executive homes for chief executives or whoever of major firms, it is a totally different set of criteria. We have to have a flexible approach so that we can meet the needs of the people with what the industry is delivering. If you do that, then you can deliver affordability. Mr Slaughter: On the long term aspect of this, listening to the evidence of the two previous delegations was quite interesting. When we are talking about the affordability issue, achieving that on a long term basis, there is the question of looking at this as an average position and in terms of what that means in practice on the ground. If you get the overall supply situation right in the long term by having a bigger, more sustained supply of housing to meet the evident demand that is out there, it becomes much more possible to deliver different solutions within that. The market will provide where the market demand is, whether that is for expensive, executive homes at one end of the market or low cost market homes at the end of the market. Where you have a constrained supply, there are arguably going to be sub-optimal outcomes for all parties. Q112 Mr Betts: You asked, as one of your suggested solutions to this problem of shortage of houses being built, that we go back to a situation where we had five years' supply of land available approved by the planning system. That does not seem the most obvious solution when, as I understand it, there are seven years' supply of housing with approval or allocated for housing already existing in the south-east. Mr Whitaker: The point about the five year land supply was that it looked on a site by site basis at the trajectory of when those sites were going to come forward, how rapidly they were going to be developed and what the constraints to their development were. That meant that we had a forward looking monitoring system that could foresee problems and delays and could do something about them in order to bring the sites forward to contribute towards that five year landscape. At the moment we have a backward looking monitoring system where, by the time we realise we have a problem, we are another year or in some cases two years down the road. The whole point of looking forward is that we can see problems developing. Q113 Mr Betts: The land is there. Mr Whitaker: Yes, the land is there. You need to make a big distinction between allocated land which does not have planning consent, land which has outline planning consent where the principle of residential development has been established but the details have not yet been agreed and sites which have detailed planning consent where a developer can get on site and start moving bulldozers around and building houses. You cannot build houses on an allocation until you have detailed planning consent. Q114 Mr Betts: Why are not developers therefore applying for the planning permission? Mr Pedley: Developers do. It is the period of time it takes to get from an allocation through to ---- Q115 Mr Betts: That is a different issue. There is no constraint on having five years' allocation. If the land is allocated and developers get on and apply for the planning permission, they have the five years' supply of land with planning permission. Mr Whitaker: There are lots of hoops to go through in order to get planning permission on an allocated site. Q116 Mr Betts: Can I tell you what used to happen in my experience when we had the old system, the UDP with five years? What used to happen was there were always some sites at the bottom of the pile. They were difficult to build on, polluted sites, a bit tricky or a bit small. They always remained at the bottom of the pile. The five year supply just kept getting topped up with slightly easier sites and they always got built on and the ones at the bottom never got built on. Trying to regenerate some of our older areas was just impossible with that system. That should change. Mr Whitaker: That should change. What should happen is that both the local authority and developers should work together to bring those difficult sites forward. If you have allocated them and said, "They are not coming forward" surely looking at the reasons for why they are not coming forward is a better system rather than just allocating them and saying, "We think they will come forward." Q117 Mr Betts: In parts of the country the PPG3 change might have involved a short term dislocation which has now been worked through where builders had to start looking at brown field sites more seriously because in the past they always knew they would find green field sites. They would build on those and leave the brown field sites behind. Mr Pedley: The industry has been very focused on brown field development for a long period of time. Q118 Mr Betts: The percentage of houses being built on brown field sites has gone up substantially since PPG3, has it not? Mr Pedley: Yes, but if you look at the industry there are a number of major developers now who are building 60, 70, 80 per cent or more on brown field sites. To be perfectly honest, if you think about the demographics of a brown field site, the vast majority are sitting in areas surrounded by chimney pots; whereas a lot of the green field sites are on the edge of built up areas. Therefore, just thinking about the market, most developers would rather build, as a generalisation, on the brown field sites because they were in the middle of the population areas. Therefore, you have a ready market sitting there for your product. There is no negativity in terms of developing a brown field site. The only caveat is that you can satisfy all the permissions necessary to make the industry a safe development. Q119 Mr Betts: Experience may mean it is difficult to believe that is the case. There is a suspicion around that builders have not been building so many houses in the 1990s but their profits have been doing very well, have they not, because they have been sitting on these land banks and the value has gone up enormously. That is where your profits have been generated, is it not? You have not done too badly out of not building too many houses, have you? Mr Pedley: At the end of the day a lot of people have benefited from the change in the housing market over the last five years. We have been talking about prosperity in the housing market that started in about 1996 and finished in the summer of 2004. Virtually all the major home builders spent a lot of time with Kate Barker's team to hopefully dispel the notion that we were sitting on land banks, because we are not. I, on behalf of my company, spent a lot of time with her team literally going through every site that we owned and either explained to her that we were on site developing or why we could not. A lot of it is because we may have an outline planning permission but we do not have a detailed planning permission. Q120 Mr Betts: Would it be fair to say that the increase in your land bank values has been one of the significant reasons why your profits have done so well in the nineties? Mr Pedley: Yes but unfortunately it is a quoted company. The City's perception is that that land profit is not sustainable and that is why the PEs of the major home builders have been sitting at six and seven. It is only now that we are demonstrating sustainability going forward that they are beginning to adjust. Q121 Mr Betts: You have answered a question about share prices rather than profits. Your profits have done quite well, have they not? Mr Pedley: Yes, but it is a quoted company. Profit is only valuable to your shareholders if it is translated into your market capitalisation. Q122 Mr Betts: The dividends are quite good as well for shareholders, but never mind. Mr Pedley: If your profit is not sustainable going forward because it is driven by inflationary land elements, it is not benefiting anyone. Q123 Mr Betts: Are there any problems with the structure of your industry in explaining why we do not build sufficient houses? Mr Slaughter: No. Q124 Mr Betts: There are no problems at all? We have a perfect arrangement? Mr Slaughter: The industry has proved to be very efficient. All the evidence is there to show it. The skills study I referred to earlier has looked at that to some extent recently. That study showed very clearly that the basic structure of the industry, although we have major national companies such as Paul's that are operating, is comprised in practice of a number of regional business units, so a lot of the detailed activity is around regional business units in the industry. The industry can gear up to increase the scale of operations very efficiently by increasing the number of regional business units as well as having the necessary corporate structures to support those. There is not in essence an issue in terms of the number of companies or the structure of the industry. In that sense, in terms of growing output, that is not the case. Q125 Chairman: The Barker review suggested that the Office of Fair Trading should have a close look at the operation of the housing market if the builders did not improve their performance. How are you responding to that recommendation? Mr Slaughter: We have initiated a lot of work on that including the first house builders' customer satisfaction survey which is ongoing at the moment. We are heavily engaged in discussions with government and the OFT themselves about how we can address the customer satisfaction aspects of Barker's agenda. We are doing a lot of work in other areas as well. We have facilitated a discussion with 50 or more stakeholders about what are the obstacles to better take-up of modern methods of construction, what is an impediment to more viable investment decisions in that area. We have a lot of work going on on skills and we are actively involved in discussions with CABE on the design agenda. From the industry perspective we are doing a great deal with very many stakeholders to address the issues that Barker raises. Q126 Chairman: Would greater competition drive standards up still further? Mr Whitaker: It is not about competition in the industry per se. It is about competition in land and that is what Kate Barker was referring to when she was saying that the planning system creates monopoly on land in particular areas. The moves we have seen in the planning system to move towards local plans or development plan documents which are vision and objective based will lead to competition in land. Therefore, that will allow house builders to compete in quality of product because effectively you will establish a beauty parade, if you like, because you have competition in land. By creating a monopoly in land via the old planning system, that was what led to some of the problems, according to Kate Barker. Q127 Alison Seabeck: You talked about land with outline planning permission and I suspect we all have in our constituencies sites which have had outline planning permission for years and years and they may well have been passed or sold on with that. I acknowledge there are problems with the planning system. There is value to developers in holding land with outline planning permission. What circumstances or conditions would lead you to reduce the land supply or would lead developers to reduce the land supply they hold and go on to develop it? Mr Whitaker: Can I dispel the myth of the picture that you paint? The way the planning system works is that you have a planning consent that has a life to it. In the case of an outline planning consent, that used to be three years and you had an extra two years to put in the details. If you wanted to extend that planning consent beyond three years, you would have to reapply for outline planning consent. Q128 Alison Seabeck: Which people do. Mr Whitaker: Absolutely, but it is still open to the planning authority to impose further conditions on that consent. You cannot just perpetuate an old consent that did not have any requirement for affordable housing and did not have a section 106 package on it because at the time of renewal the local authority could reconsider that application. I do not mean to be disingenuous. Q129 Alison Seabeck: I am trying to tease out not only your role in all this but the planning authority's role. If you are saying that after two or three years the planning authority then has to look at it again, I suppose our questions will be are they performing as they should, but I want to see it from your perspective. Mr Whitaker: This brings me back to the answer that I gave to Mr Betts which is that there is a responsibility on the local planning authority to ensure that the permissions that they are granting are realistic, are realisable and will be delivered in a particular timescale. It is not good enough to sit back and say, "We did our bit. We made provision for land to come forward. It did not come forward and we do not know why." The one thing I remember about the old five year land availability surveys was that local authorities would talk to developers about when they were going to bring those sites forward and would be able to encourage them to bring those sites forward and do things that were needed. If somebody said, "I cannot bring it forward until that particular junction has been changed", they would say, "Okay. We will get that junction changed" or now, "We will require you to put a section 106 agreement in place which gets that junction changed." This liaison between developers and local authorities should be seen as a very positive step. Mr Pedley: There is no benefit to a developer sitting on a site with outline planning permission. You are just tying up capital unnecessarily. Q130 Anne Main: Section 106 is germane now to a lot of planning applications. You are meant to have affordable housing or improvements to junctions and so on. Do you think the planning gain supplement which could be announced next week could work alongside 106 contributions? If so, where do you think the money will go? Will it go centrally? To what level will it go? Mr Whitaker: Let us not try to speculate what is going to be announced next week because we have not seen what is in that document. There would be some benefits to some models of planning gain supplement. One of the key concerns the industry has is where does that money go. Does it stay locally as suggested by Kate Barker it should, or does it go into a central pot and is it then redistributed? Q131 Anne Main: That is what I am asking you. What are your views? Mr Slaughter: Our views are not very well formed because we have not wanted to take a very detailed position precisely because we have not seen the government's proposals. In high level, principle terms, we think there is a big issue potentially about transparency. The current section 106 arrangements I do not think we feel work well from any party's point of view, certainly not from the developer's point of view and probably not from the community's and local authority's point of view either. If we had a more transparent system where, for the sake of argument, we knew publicly what the agreed list of local requirements was, whatever the financing arrangement was, where we had perhaps at least a proportion of the money going back to the local community to be spent on those agreed objectives, we might be a lot better off than we are now. It is not necessarily clear where the money is going. The community does not understand that. There does not seem to be an incentive or a local benefit from development. If we could move forward from that in a positive way, that would be a step forward but we have to caveat that by saying that there is a long history to trying to do something about this through the last century. There have been a number of attempts to have a form of development land tax, none of which has worked. Given the context of what we are talking about in this inquiry, the absolutely critical requirement is that whatever route we go down here is going to not have the effect of disincentivising land from coming forward. That certainly was the experience with previous attempts. Q132 Anne Main: Previous attempts with the development land tax? It disincentivised bringing land forward? Mr Slaughter: Yes, it did. Q133 Anne Main: Why? Mr Slaughter: One of the reasons was around the political context, where there was not necessarily a political consensus for going forward in a particular direction. Landowners held back from making land available in the hope and expectation that the situation would change in the future, which is indeed what happened. From our point of view and from the industry's point of view it is extremely important that whichever route we go down here is one we are clear there is a political buy in to because if that is not the case we are going to end up prospectively in similar problems to the ones we have had in the past. Q134 Anne Main: Going back on what you said about 106 money but also developments where you have, for example, affordable, key worker or small unit housing, quite often it means that you have five bedroom houses on the other side of the estate or even with the estate to be able to afford to do those. Do you think this is skewing the market? One house builder I spoke to a few months back said, "What we want to build is three bedroom family homes but we end up having to build five bedroom houses over the year to make one or two bedroom units affordable for the local council." Is that a problem? Mr Pedley: I do not agree with the statement. Q135 Anne Main: Do you think it is a problem? Mr Pedley: I do not think there is any problem in providing affordable housing provided that is what your objective is. There is a far too narrow definition of what affordable is all about. If you look at a planning permission, you can either build traditional housing at £170,000 or you provide some form of subsidised housing, be it shared equity or for rent at the other side of the spectrum. What we have to achieve is a far more integrated approach to housing where we look at all the markets that have to be delivered so we can create sustainable communities. Q136 Anne Main: Can you expand on that? Mr Pedley: There is nothing to stop you building affordable homes for the first time buyer. You will largely generate a very similar land value as if you were building a traditional £170,000 development with what you would call a section 106 affordable alongside. You are rebalancing the financial equation when you look at a piece of land. That is totally feasible. What we tend to do with planning permissions is we get the traditional development. I will sell you a house at £170,000 and then we will talk to an RSL about providing the affordable. We miss out a huge gap which is the first time buyer. Mr Whitaker: This has been skewed. I agree with you that hitherto the market has been skewed or the production of affordable housing has been skewed because of local planning authorities getting confused with their local authority housing hat targeting subsidy to the bottom end of the market -- i.e., social, rented housing. We have provided a lot of social, rented housing because the local planning authority will only accept that form of affordable housing as the correct contribution on a section 106. When we come in with the explanation that Paul has given you, which is, "Look, can we build a mixed development applying all types of tenure to this development?" a lot of local authorities will say, "No. Our priority is for social, rented housing. Therefore, we want you to focus on the provision of social, rented housing." That is what has led to the polarity of the market. Mr Pedley: You are looking quizzically at me. We have just bought a site in Castle Vale in Birmingham in the open market in competition with all our peer group. The whole site of 140 units is targeted at the first time buyer. Prices will be between about 55,000 and 110,000 because that is what the first time buyer in that locality can afford. There is no section 106 affordable accepted but the whole scheme, by its very definition, is affordable and is targeted purely at people trying to take that first step on the housing ladder. We bought the land in the open market. Therefore, it is totally viable and we will make the normal development returns that we seek to achieve. There is no reason why we cannot do it. Q137 Chairman: Would you sell those houses individually? I have had experience in my constituency of exactly such a scheme and all but one house was bought by one investor. Mr Pedley: They are all sold on a 125 year lease and the number one covenant is you cannot be an investor. You have to be an owner/occupier to live there. Q138 Martin Horwood: Whose initiative was it to introduce that? Mr Pedley: Ours. We looked at the housing market 18 months ago and said that there was a huge gap in the market. If there are 1.4 million transactions in the UK housing market each year, somewhere around a third should be first time buyers and that number had dropped to about 200,000 so therefore there was a huge gaping opportunity for any developer who wanted to go down that route. Q139 Anne Main: It is not a mixed community as the government envisages though, is it, a whole community of one bedroom or small units. Mr Pedley: They are not one bedroom. They are both one and two bedroom. If you look at the area around Castle Vale, a lot of it is for rent anyway. What we are providing is the owner/occupation element. Q140 Anne Main: I am amazed it got past planning. Mr Pedley: Unanimously, by the way, in 13 weeks. Q141 Mr Betts: That is fine but that is probably what that site is marketable for and it probably would not have the potential to build executive type houses there. What about in another area where you have the potential to build executive type houses but there are still people who need affordable homes so therefore you do not build affordable homes. Unless 106 comes in, you will not do anything to provide affordable homes, will you? Mr Pedley: I totally disagree. We have a site in Chorley that has a planning consent for over 2,000 houses. We are creating a totally mixed development with some for rent. We are doing this with the RSLs. We have just done the first phase which is the affordable and we are building houses everywhere up to about £300,000. To give you some idea, there are just over 70 units that we have released and we had 2,500 inquiries for those. There is a huge demand for the first time buyer in the market place. Q142 Mr Betts: I can quote many examples where builders have not volunteered or gone into that sort of arrangement. They have a nice area; they build executive houses on it and even in areas of the north there are major shortages in certain pockets of localities of affordable housing for people. They are never going to get any houses built of that type unless there is some arrangement with the local authority. Mr Pedley: If you think about it from our point of view as a developer, if you are targeting the largest single element of the market, it must be commercially sensible to do, which is why we have done it. Q143 Mr Betts: Let us move on to modern methods of construction. There is not enormous enthusiasm amongst your members for modern methods of construction, is there? Mr Slaughter: There is a good deal. There is substantial interest. A good proportion of the major companies are investing in modern methods of construction. As part of our response to Barker, we have been facilitating a wide ranging discussion including with the Council of Mortgage Lenders who were giving evidence earlier and a whole range of bodies, looking at what are the impediments to further uptake of investment. We have not produced our report quite yet but the basic premise of that research is that MMC, which we define very widely -- we are not just talking about off-site manufacture but essentially about innovation in housing -- is something that can deliver enormous business benefits. It can deliver business efficiency, improvements in quality, a reduction in waste and so forth. In principle, these are things that the industry would certainly look at if the environment was supportive. The whole premise of that Barker work is why is the environment not as supportive as it might be. Q144 Mr Betts: There is a difference between doing the off-site bathroom suite which you come and fit in as opposed to the whole house being built off-site. Mr Pedley: We have not tried to build a whole house off-site but we have tried to use MMC to improve the quality and speed of what we do on site by effectively descaling the process as much as we can. One of the reasons we can work commercially is that we are building using a lightweight skill frame system, which means you can build a house in about three weeks. If you can get the speed to that degree, the amount of overhead you save is phenomenal. If you can build it 100 per cent with virtually no water in it, which is what causes most of the problems with a new home, you can take up virtually all your maintenance issues and you start being able to give that benefit back to the customer in terms of the price. Q145 Mr Betts: With the past forms of modern methods of construction, whatever you call them, it is not the water that has been in the house when it gets built; it is the water that gets in afterwards that generally causes the problems. We want some reassurance that what we are going to build now is not going to replicate the problems of the past. Mr Pedley: There is no reason why you should have a lot of water in a house built with MMC because you get the roof on so quickly you make it watertight. Q146 Mr Betts: What is holding you up then? We do not see much evidence of a complete shift over. Are you happy to look at the social, rented sector? Mr Pedley: The social, rented sector is probably one of the most advantageous places to use it because the RSLs generally have a standardised form of housing. Therefore you can use it. If I can give you an analogy with a car, if you walked into a Ford dealership and said, "I love the Ford Focus but can you just tweak it slightly?" a Ford Focus comes off the production line and that is the whole issue with MMC. You have to have a manufacturing mentality to make it work. It is more expensive than using brick and block. Building in volume significantly, it will stay more expensive. The only way you can make it work commercially is to have a fairly high volume going through which means you need the planning system to limit their comments to elevational treatment, not looking at the fabric of the house. Once they get to the fabric of the house, if you are changing the dimensions, you have to go through the whole process again of re-engineering the house. That just means it is totally cost disadvantageous to us to do. Q147 Mr Betts: The Council of Mortgage Lenders was talking about the need for ODPM and the Housing Corporation to give their seal of approval before we saw it take off. Mr Slaughter: They were talking about LPS2020. That is one of the elements that we have been looking at in the work I have referred to in response to Barker. There is a lot more besides. We talk about the planning and regulatory system and in principle what we will be coming out with once our report is made public, hopefully fairly soon, is a whole set of analysis and recommendations about how we can improve the environment, including some assurance on bringing new products into the market. We have to bring all these bodies like the CML with us because if you do not create the right confidence in the market place it is not going to work. That is what we have been trying to do. Q148 Dr Pugh: Can I ask you about PPG3? I know you are not totally happy with it but there is one aspect that interests us here and that is the instruction to achieve densities within 25 and 35 homes per hectare. Most people would agree this leads to a concentration in building of small-ish homes, flats and things like that, where probably that may not be needed. There may be a greater need, for example, for family accommodation in certain areas. What can be done about that? Mr Slaughter: Our hope is that when the proposals for PPG3 come out in a week's time the ODPM will be willing to look at a more flexible approach -- I guess there will have to be some minimum density threshold but beyond that -- that allows more flexibility than perhaps the current policy does. The direction some other commentators are moving in would suggest providing housing that is appropriate to the local context and also to the local market demands. Delivering family housing at increasingly high volumes is certainly a problem area. Q149 Dr Pugh: And would presumably lead to more sustainable communities? For example, seaside resorts, which I know a little bit about, attract a lot of elderly people and flats are very much in demand for elderly people. Seaside resorts do not necessarily need to attract any more elderly people than they already do, do they? Mr Slaughter: No, sure, but even there it is not that straightforward. The research that we have carried out during the last year, Room to Move, analysed housing consumption trends amongst the population as a whole based on census data. That shows that there is not a simple correlation even between household size and the desire to consume housing. You cannot necessarily square a one or two person household with a demand to have a one or two bedroom flat. We have to be quite careful where we go on policy in this direction if we are going to provide not just the numbers of homes that are required but homes that will sustain what people are looking for in their lives. Q150 Dr Pugh: If there is pressure to bash them out at a particular density, do you agree with the conclusion reached by the Commission for Architecture and the Built Environment, CABE, who criticise the design quality of a lot of the new homes appearing in the north? Is there any validity in that criticism? Mr Pedley: You have to be careful with the CABE report because it was largely based around schemes that were designed in the early 2000s, right on the back of PPG3. I think the industry has learned a lot of lessons in how to comply with PPG3. When I saw the chief executive of CABE this morning, his comment was that if you went back and did the same exercise with what we are designing today you would see an improvement in design. I think that is absolutely true. Going back to your earlier point, if you are looking at a traditional scheme of housing you will get at least 15,000 square feet on an acre. If you are looking at 12 units to the acre, which would be 30 to the hectare, you are talking about houses of 1,250 square feet each. That is a four bedroom home. There is no problem in complying with those sorts of densities. When you look at city centres, the numbers go up very significantly. In a lot of the schemes we look at, we would like more flexibility on the density in terms of increasing it because we think we can get a better scheme by doing so. Q151 Dr Pugh: There is a bias in the building profession to try and get the density up? Mr Pedley: The problem is prescribing a density for every site. What you should have is the flexibility to make sure what you design is appropriate for the location and that comes back to who is your consumer; who is your customer and what are they looking for. Mr Slaughter: Coming back to your question on CABE, the other key thing to pick out of the CABE report is the complexity of delivering urban design. It is a question of the developers, local authorities, highways and various other agencies coming together. A lot of the issues that CABE raised in their report were about issues like car parking and road layout which are not just down to the developer. There is a need for a collective approach if we are going to further advance this agenda in the future. Q152 Dr Pugh: It is not just a question of deciding who is your customer because sometimes in order to have a sustainable community you need to be building houses that people need, whether it is key workers in the south-east or family accommodation elsewhere. Mr Pedley: That, to me, is just making sure that each individual phase is appropriate for who you are targeting it at. If you are looking at the more affordable end, your densities will naturally go up. Chairman: Thank you very much indeed, gentlemen. |