Memorandum by Fordham Research Ltd (SRH
34)
BACKGROUND
Fordham Research is a long standing research
consultancy, which started life in the late 1980s advising Councils
in respect of planning gain. When affordable housing became a
"planning gain" item in the early 1990s, the firm began
carrying out Housing Needs Studies (HNS) and, more recently, Housing
Market Assessments (HMAs). These have now been produced for a
very large number of Councils or groupings of Councils. Reflecting
the firm's background, we have over the years gained a wide experience
of the policy implications arising from the analysis of market
and affordable needs, quite a bit of it at the "sharp end",
in Local Plan Inquiries, or appeals.
DEFINING AFFORDABLE
HOUSING
Housing Needs Studies were designed to identify
local housing needs. There are usually limitations to what can
be obtained with a sample survey in terms of small area detail,
but the key output has normally been to identify the amount and
nature of the need for affordable housing, so as to underpin the
policies and practice of securing affordable provision from developers
via Section 106.
Defining "affordable housing" is a
key step to this. Previous planning guidance defined it, in principle,
as housing below what could be provided in the market, and left
Councils to define this locally. It is this local operational
definition of affordable housing that is crucial, since it determines
whether what is offered by developers is actually going to help
households who would not otherwise be housed. Unfortunately, many,
perhaps most, Councils have failed to produce a meaningfully operational
definition.
A FUNDAMENTAL ISSUE
This business of definition may seem a somewhat
detailed point; however, it is a fundamental one. The fact is
that developers and landowners are, generally speaking, not benevolent
organisations. They will naturally seek to minimise the financial
impact of any affordable housing they provide. Because the affordable
housing definition has been rather slippery, this can be exploited
to deliver housing in a form which is not affordable in any meaningful
sense.
It seems to us that:
1. Affordable housing must cost less than
the cheapest outgoings at which second-hand property in reasonable
condition can generally be obtained in the area. Historically,
this normally meant basic, sale housing, but as house prices have
risen so much, in most parts of the country it now means privately
rented.
2. The affordable cost, as defined above,
must be specific to each size of property—1 bedroom, 2 bedrooms,
and so on.
(1) is important because new build housing for
sale normally costs at the very least 35%, more often 45%, more
than basic, sale housing, which in turn can now cost 10-40% more
than privately rented. It is therefore absolutely fundamental
that affordable housing is defined in terms of the cost of second-hand
market housing and not new build price. Otherwise developers can
offer to discount the new build price by 5% and claim that the
resulting accommodation is "affordable" when it is not.
(2) is important because the Council will not
wish to be offered a 1-bed unit at a 3-bed affordable price. Unfortunately,
a lot of the available secondary data (eg from Land Registry)
is not size-specific, and various devices will have to be used
to address this difficulty. As a result there often isn't a clearly
defined X bedroom affordable level, leading to the above. Fordham
Research does not rely on secondary data on prices, but carries
out a local market survey.
We have constantly endeavoured to get these
points across in planning inquiries (more especially, the first
point) and also, as opportunities arise, to the Department. However,
they do not appear, as yet, to be generally accepted. For instance,
the latest draft guidance PPS3 seems to give the green light to
using lower, quartile house prices, with no size-specific element.
BALANCE OF
SOCIAL RENTED
AND OTHER
"BELOW MARKET"
HOUSING
Whilst rigorously defining the upper limit of
affordable housing essential to getting genuinely affordable housing
from developers, it also has a more general impact for the Committee's
current inquiry, ie upon the appropriate balance between social
rented and other tenures such as shared ownership. This is an
obvious point really: the lower the affordable threshold, the
more that social rented dwellings come to dominate the numbers
of households who can be assisted.
The significant purchase element in "new
build" shared ownership means that this tenure suffers from
the "new build price" problem described above. We have
always found, when we looked at the local situation, that new
build shared ownership offered at a typical 50% average share
struggled to produce housing which was appreciably cheaper in
outgoings than the lowest cost of second-hand sale housing. With
the price inflation of recent years this has become even more
difficult, as market rent became relatively cheaper and, hence,
came to represent the affordable threshold.
We would not suggest that shared ownership has
no point, or for that matter no market. Unless it is down at a
25-30% share, it is just difficult to produce it at any cheaper,
lower outgoings, size for size, than private-rented housing in
reasonable condition. It may well still attract purchasers, but
they could have secured a market solution in the area somewhere,
though that solution may not involve an ownership element. It
also has a role to play for households with a significant amount
of equity, but comparatively modest income; for instance, a party
in a marriage breakup.
If Government wishes to promote home ownership
to people needing homes, who would otherwise be able to rent,
it is better that this is made an explicit objective. At present,
shared ownership and other home ownership solutions are being
passed off as affordable, when in reality they quite frequently
are not, and at the cost of weakening Councils' ability to secure
genuinely affordable housing in other cases.
The term "intermediate housing" has
come to be used to mean affordable housing priced at outgoings
above the level of social rented housing. This category suffers
in just the same way from the problems described above, of a poorly-defined
upper boundary.
We recently coined the term "usefully affordable
housing" in order to describe, in a Planning Inquiry, housing
that would be made available at outgoings appreciably below the
affordable limit, as we sought to define it above. The outgoings
for such housing would have to be appreciably less than the threshold
for it to be "useful", as otherwise such housing could
only meet a vanishingly small proportion of housing need as defined
by that threshold.
There is clearly a role for such "usefully
affordable housing". However, experience in a large number
of HNS and HMA studies suggests it is normally going to meet only
a minority of need—perhaps typically 10-30%.
AFFORDABLE HOUSING
PROVIDED THROUGH
SECTION 106
So far, Section 106 affordable housing has been
provided both with, and without, grant support. Increasingly "no
grant" has become the default assumption. Where social rented
housing is provided, with only partial grant or no grant at all,
this has clearly improved the supply of affordable housing. Where
something else has been provided, it has quite often not been
"usefully affordable".
IS "UNAFFORDABLE"
HOUSING USELESS?
We have sought to establish that "unaffordable"
housing provision—housing made available at below its open
market price but above the cost at which the cheapest homes in
reasonable condition can be obtained (whether rented or purchased)
locally—cannot directly help households in housing need,
on our understanding of what that means. The Committee may infer
that it is therefore useless. However, that is not the case. All
housing which is made available at outgoings towards the bottom
end of the market will increase the supply of such housing, hold
down the price, and, hence, help to reduce the affordable threshold.
In that sense it is of assistance. However, the available supply
would have to increase significantly to make much impact. So the
effect may be quite modest. Requiring developers to build more
modest, basic, cheaper housing—a market from which they
have largely withdrawn—might have a greater impact, but
would face exactly the same sort of definitional issues as we
described above.
THE ROLE
OF PRIVATE
RENTED HOUSING
If affordable housing is defined as we have
suggested, then in most parts of the country it is cheaper than
the cheapest, locally available, private-rented housing in reasonable
condition, size for size. This means that private rented housing
cannot help unless it is made available either:
1. at a lower rent than this; in which case
one would expect that it was not in reasonable condition.
2. at an equal, or higher rent, with housing
benefit assistance.
In our view: (1) is of limited relevance; (2)
will depend upon the relationship between the minimum rent we
have identified through out market survey and the "reference
rent" set by the local Rent Officer. The reference rent determines
the ceiling rent for which housing benefit is eligible to be paid.
There may only be, at best, a very narrow window between the two
levels.
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