House of Commons - Communities and Local Government Committee

Select Committee on Communities and Local Government Committee Eighth Report

3 SOCIAL RENTING

Declining stock and increasing backlog

59. We have already noted the significant decline in social rented housing stock resulting from Right to Buy. The situation is being compounded by increasing rates of household formation and an ageing population. Shortages are getting worse.

60. The 2004 Barker Review found that an additional 17,000 social rented houses would be needed each year, above the 23,937 built in 2002-03,[113] to meet newly arising housing needs; and that some 6,000 further homes per annum would be required to clear the backlog of demand. This implies additional investment of between £1.2 and £1.6 billion per annum (although Barker noted that this investment need not necessarily come exclusively from the public purse).[114] In response the Government agreed to increase the annual supply by 10,000 a year to 31,000 by 2007-08,[115] representing an increase of 50 per cent over 2004-05 delivery. Targets agreed between the Government and the Housing Corporation for the two-year period 2006-08 included the provision of 49,000 new social rented homes.[116]

Figure 3—Number of social rented homes added to stock, 1991-08

Source: Ev 179 (CLG) and HC Deb, 24 Oct 2007, col 376W

61. This increase may be welcome, but is still short of meeting Kate Barker's recommendation for 48,000 homes per annum "just to accommodate demographic expansion"[117] without even clearing the backlog. Moreover, subsequent revised household projections and assessments made by others suggest that Barker's calculation of the number of social rented houses required is conservative. The National Housing Federation, for instance, estimated that around 80,000 new social homes are needed each year, "approximately 55,000 of which should be social rented homes."[118] Shelter's assessment is that some 50,000 social rented homes are needed each year, or 20,000 more than the levels in 2002-03.[119]

62. Increases in the rate at which new supply is delivered must be complemented by improvements in the effectiveness of the use of the existing stock. The two major reviews of social housing by Professors Hills and Cave have already reached this same conclusion. Noting that 90 per cent of the stock in ten years time has already been built, Professor Hills argued:

…mistakes in managing and looking after the existing stock can entirely offset the benefits of getting things right on the new supply. A failure to maintain property adequately, to prevent decline in neighbourhood conditions, or to keep an income mix that would avoid stigmatisation of an area that led to just 1 per cent of the stock effectively being lost would offset more than a year's new production,

adding, "The history of the last thirty years is that such mistakes have been made all too often."[120]

63. The recent upturn in completions of social rented properties and increases in funding are welcome. However, the result is still below the level of 50,000 per year which is needed to reduce the backlog significantly. The Government must be more ambitious in its delivery of new social rented homes by giving sufficient encouragement, resources and flexibility to all providers of social homes to increase supply. This includes measures to get better use out of the existing stock. We consider this latter point further below.[121]

Funding social rented homes

64. In its response to our 2006 report on Affordability and the Supply of Housing,[122] the Government indicated that social housing would be a priority in the 2007 Comprehensive Spending Review.[123]Only if considerable further investment is forthcoming can sufficient decent and affordable homes be made available in the places in which people wish to live.

65. Shelter estimated that the increase in public expenditure required to meet its target would be "around £1 billion a year".[124]The Chartered Institute of Housing estimated that the total annual expenditure over this spending review period to meet the need for social rented housing (excluding low cost home ownership schemes and other sub-market housing) would be £2.6 billion in 2008-09, £2.8 billion for 2009-10, and £2.95 billion over 2010-11.[125]

CURRENT POLICY

66. The Housing Green Paper published in July 2007 announced that the Government intends to invest £8 billion in affordable housing between 2008-2011, a £3 billion increase compared to the previous three years. Of that £8 billion, the Government plans to spend some £2.5 billion in 2008-09 and £2.8 billion in 2009-10 on the delivery of new affordable homes.[126] The merger of the Housing Corporation, English Partnerships and certain delivery functions of CLG into the new Homes and Communities Agency offers the potential for additional efficiency savings and obtaining greater value for money, particularly in bringing forward surplus public sector and brownfield land for development.

67. These additional funds will increase the supply of new homes to rent. The Government plans an increase from 30,000 units per annum currently to 45,000 by 2010 and 50,000 in the next spending review.[127] However, even this substantial increase is unlikely to enable the Government to reduce the backlog of need before the next spending review. Furthermore, there is some doubt about whether the planned investment is sufficient to deliver what has been promised. The National Housing Federation, for example, has suggested that £8 billion would deliver only 150,000 to 160,000 of the 180,000 affordable homes planned.[128]

68. We welcome the Government's financial commitment to build more social housing. The sums announced are close to some independent estimates of the sums needed to meet additional demand for social rented housing. However, those funds will be spent not only on social rented housing but also on other forms of non-market housing. Consequently the Government is unlikely to be able in this spending period to reduce the backlog in need for social rented housing, and may not even be able to meet new demand. We recommend that the Government monitor the effect of its planned expenditure on the supply of social rented housing and be prepared to raise investment still further if, as we expect, it proves necessary.

IMPLEMENTATION

69. It is vital that the increase in public investment be translated into a real and sustained increase in the number of social homes built year on year. This has not been the case in recent years. Spending through the Housing Corporation on affordable housing has more than doubled since 1997-98, from £954 million to £2 billion in 2007-08. As CLG acknowledges, however, that rise in spending "has not been matched in outputs".[129]Housing Corporation expenditure on social rented housing rose from £458 million in 1997-98 to £1.3 billion a decade later. However, as the table below shows, completions actually declined from 25,680 to a forecast of 21,000 over the same period. Even allowing for the inevitable time delay between the provision of funding and the completion of housing projects and for rises in unit costs, this is disappointing. We welcome the forecast of a rise to 28,000 in 2007-08, but note that it is merely a forecast. We must wait and see whether it is translated to a real rise in social rented homes actually built.

Table 1 -Housing Corporation expenditure and completions, social rented housing, 1997-98 to 2007-08

	97-98	98-99	99-00	00-01	01-02	02-03	03-04	04-05	05-06 (p)	06-07 (f)	07-08 (f)
Expenditure (£m)	458	450	525	576	647	762	1,217	1,050	992	1,392	1,348
Completions through expenditure	25,680	23,967	20,539	18,316	19,409	17,706	16,563	16,245	18,637	21,000	28,000

Source: Ev 17--9 (CLG)

Note: P = provisional figure; F=forecast

70. Other factors may have been reducing the level of additional public expenditure required to deliver additional social housing on this scale in the next spending period, as Shelter has acknowledged.[130] The use of planning obligations through section 106 of the 1990 Town and Country Planning Act, efficiency savings through joint procurement, and a greater use of existing financial assets are examples. As the memorandum to our inquiry from a group of academics from the Universities of Cambridge and Sheffield noted, "it takes time for approvals to come through as completions, but these too have been rising steadily from 9,000 in 1999-2000 to 18,000 in 2004-05."[131] The majority of the new homes built remain social rented units, although recent indications are that the proportion of shared ownership houses is increasing, especially in London and the South.[132]

71. Housing Corporation subsidy in the form of Social Housing Grant (SHG) is an important vehicle for channelling expenditure on affordable housing. Greater competition for SHG between public and private providers is another factor which might further reduce the public expenditure needed for social housing. Until 2004 only housing associations and other Registered Social Landlords (RSLs) were eligible for SHG to develop social housing. In the Housing Act 2004 the Government, aiming to improve value for money through competition, removed that restriction, opening up SHG to "a mixed economy of providers", which includes private developers.[133] The Housing Corporation told us that "the market for grant-funded affordable housing development has become more competitive": some £70 million of SHG has been allocated to seven private developers to provide around 3,000 social rented and intermediate homes for the period 2006-08.[134]The Riverside Group commended this development, telling us that: "by channelling SHG through a small number of skilled partnerships, the [Housing] Corporation has established a balance between competition and scale of delivery".[135]

72. Shelter reported signs that the new arrangements had resulted in more homes for the money and the Housing Corporation itself predicts that "as entrepreneurial organisations from other sectors come forward […] this trend will strengthen".[136] The removal of the restrictions on the use of social housing grant is one example of how opening up the sector to new and innovative practices involving a range of housing developers and providers can increase the supply of badly needed affordable housing. We recommend that the Government seek more ways of encouraging "entrepreneurial organisations" from all sectors, including local authorities themselves, to strengthen this trend.

CONSTRUCTION COSTS

73. The new public housing funding which the Government has made available is working its way through the process. Data from the Department for Business, Enterprise and Regulatory Reform, reproduced below, show that the value of new orders and output in the public housing sector has been increasing. The latest rise in the volume of total output and for new orders in the public sector contrasts with the results in the private sector, where the value of new orders fell by 6 per cent in 2007 compared to 2006.[137]

Figure 4—Volume of new orders and overall output from the construction of new social housebuilding in Great Britain (£ million at constant 2000 prices).

Source: DTI Construction Market Intelligence- New Construction Orders, Output and Employment, March 2007

74. The cost of construction has, naturally, a significant impact on both the economic viability of individual projects and judgements about whether their cost justifies their benefit to society. The table below shows the average price index for tenders for public works in England and Wales between 1995 and 2005. This index shows that the price of constructing new social housing has risen faster than other public-funded projects, the output inflation of construction overall and all industries.Table 2—Tender Price Indices for public sector building compared with output price indices for new construction and all industries (GDP). 1995-2005. Index 1995=100

	Social Housing (new build)	Public sector (non-housing)	Road Construction	New Construction	All industries
1995	100	100	100	100	100
2000	126	119	114	120	114
2005	186	166	135	150	129

Source: BERR 2007 Annual Construction Statistics

Note: Annual average of quarterly indices

75. Not only has the price of construction increased, but so has the cost of land. In addition, priority for funding has naturally been given to the more expensive areas, which have the greatest need. The Housing Corporation recognises that "while there have been some efficiency savings, more funds have gone towards higher costs for land and labour with greater concentration of spending in London and the South".[138] The Callcutt Review of the housebuilding industry notes that:

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76. If the supply of new housing is to be maximised, it is vital that the public sector achieve the best possible value for money. The new Homes and Communities Agency will have a vital role to play in ensuring that this is the case. We recommend that the HCA monitor the construction costs for new social housing and take all possible action to minimise cost inflation, to avoid social housing providers competing for scarce labour, and to prevent the sector being held to ransom because of the extent of the need for social housing.

77. If the objective of ensuring that social housing providers do not have to compete for scarce labour is to be achieved, action will be necessary to improve the training available in the housebuilding industry. We note, with concern, Callcutt's observation that shortages among craft and some professional groups pose a significant threat to delivery of the Government's targets for new homes,[140] and that the structure within the housebuilding industry inhibits the delivery of targets. The Callcutt review found that:

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78. The lack of a sufficient skilled labour force within the construction industry could restrict the construction of new homes for social and private rent. Urgent action is necessary to mitigate this risk. We support, in particular, the recommendation by the Callcutt Review that the HCA, central and local government and their agents should, when disposing of land for housebuilding, stipulate training conditions on main and sub-contractors in the terms of sale.[142]

UNIT COSTS

79. At our final oral evidence session, the then Housing and Planning Minister told us:

… although in London you would expect there to be a higher level of grant per unit because of the high construction costs, high land value costs, the North West I think is higher than the East Midlands and higher than the South West in terms of the level of grant that is required for an individual unit, and part of that is probably because they are not getting as much section 106 contributions for that additional social housing or for that shared ownership housing in those regions.[

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80. Following this session, the Department supplied data on the average grant per social rented home from the Housing Corporation's submission to CSR 2007. Those data are set out in the graph below, which shows clearly the significance of land and labour costs in London. The amounts are taken from the approved bids and not final completions.

Figure 5—Average grant per social rented home 2003-2008

Source: Ev (HC 457) 157 (CLG)

81. Peter Dixon, Chairman of the Housing Corporation, told us that "there are different challenges and different approaches in the North and we have run into some problems with some of the schemes in the North being … surprisingly expensive. One of our problems in terms of deliverability is that we probably do not have enough good deliverers of affordable housing in some parts of the North".[144]The Riverside Group, one of the deliverers in the North, also refers to the high cost per unit and the rate of grant and adds "costs are high because almost all of the projects require remediation, complex site assembly and 'bespoke' solutions to the challenges they present."[145] Reflecting the higher potential value from alternative uses, the high cost of developing in London is the most prominent feature of the difference between regions; but there is not one pattern of change across the regions from which firm conclusions can be drawn. The cost per social rented unit in southern regions does appear to be falling, for example, but this trend does not apply in the south west.

82. We recommend that the Homes and Communities Agency, once established, make it an early priority to establish a monitoring programme to examine the elements behind regional differences between unit costs of social rented homes more closely. By separating out the broad costs of development and then examining regional differences, the HCA should be able more effectively to anticipate future costs and examine the financial benefit that s.106 agreements provide.

Increasing use of planning obligations

83. The 1992 version of Planning Policy Guidance note 3 (PPG3) set out the aim of delivering affordable housing through planning agreements. Thresholds determining when developments should include an element of affordable housing were established in 1996 by planning circular 13/96, which was revised in 1998 to lower the thresholds.

84. There are two reasons, besides the identification of land, why planning agreements are used for affordable housing. The first is to create more mixed communities to avoid the problems associated with concentrating social housing in designated buildings or estates; as we note later in this Report, if this aim is to be achieved, the social and affordable housing provided must be mixed within developments and not pushed away from the rest of the development to parts of the site which are of a lower value.[146] The second reason is to lower the development costs to the social housebuilder through a reduction in the cost of land and, occasionally, the buildings. Placing an obligation on developers and landowners to include affordable homes lowers the cost of land so as to come within Housing Corporation guidelines.[147] Without the obligations, or another formal mechanism in the planning system to secure land for social housing, housing associations would be largely limited to land owned by the public sector.

85. In recent years planning agreements have become increasingly significant as a method of providing land for affordable housing. The Joseph Rowntree Foundation has estimated that between 2000-01 and 2002-03 the proportion of affordable homes built as a result of planning agreements increased from 30 per cent to 47 per cent of all affordable completions.[148] Figures from CLG, reproduced below, confirm that the number and proportion of affordable homes built through planning agreements has grown, with nearly two-thirds of social rented homes now being built this way.

Table 3—Social rented and Low Cost Home Ownership (LCHO) homes built through planning agreements and as a percentage of total completions in England. 2001-2006.

	Built through planning agreements			Percentage
	Social Rent	LCHO	Affordable	Social Rent	LCHO	Affordable
2001-02	7,987	2,002	9,989	30	36	31
200-03	9,224	2,940	12,164	39	35	38
2003-04	11,368	4,461	15,829	50	30	42
2004-05	11,914	6,028	17,942	57	39	49
2005-06	14,372	8,991	23,363	61	41	51

Source: Housing Strategy Statistical Appendix 2006

Note: Low Cost Home Ownership are homes provided by housing associations and include those that are sold with a discount.

86. The picture in terms of overall supply is, however, less rosy. The growth in the number of affordable homes built through planning agreements has been barely enough to match the fall in the number of homes built on wholly funded sites.[149] The overall number of social rented homes completed fell between 1997-98 and 2004-05. Without planning agreements the more recent increase in the total number of affordable homes produced either would not have happened[150]or would have cost significantly more to provide.

MORE FLATS, FEWER HOUSES

87. Two particular issues arise from the increasing use of planning obligations for the supply of affordable housing. The first is the effect on the type of housing being provided, and whether it is meeting real housing need in the social rented sector. The second concerns the use of grant support for affordable housing delivered through planning obligations.

88. Between 2000 and 2006 the number of flats built increased from 20 per cent of all completions to 47 per cent. The result of this increase can be seen in every single town in the country. To the many households either unable to afford to move somewhere bigger to accommodate their growing families, or priced out of the market altogether, the construction of so many flats is perplexing. The two main factors behind it are likely to be planning policy driving up density; and the market for new homes being driven by investors rather than owner-occupiers. The Government is unable to identify whether changes to density required by planning policy was a cause,[151] although officials from CLG clearly believe that the change has been driven by the market rather than Government policy.[152]

Figure 6—Proportion of flats built in England within the private and social sectors as a percentage of all homes built. 1991-2007.

Source: CLG (Live Table 254)

89. Our concern is that the type of social rented home being built is being determined by the market rather than housing need.[153] The social rented sector already has a high proportion of homes as flats, rather than houses.[154] In Sheffield, for example, flats account for 63 per cent of the council's stock.[155] As we have already noted,the greatest demand for social housing is for family accommodation.[156] Yet figures from CLG indicate that almost 70 per cent of all homes built for or by housing associations (which are the predominant builders of affordable homes) are flats.[157]CLG officials told us that they thought that this growth was temporary and "may now be coming to an end."[158] However, the Government has been sufficiently concerned about the trend to issue a revised PPS3 allowing local authorities to stipulate what type of affordable housing should be provided in their area, and to allocate a greater proportion of the social housing grant towards homes with three or more bedrooms.[159]

90. The use of planning obligations for delivering affordable homes has resulted in more affordable homes built as one-or two-bed flats rather than accommodation suitable for families, even though family accommodation is the stock for which there is the most significant unmet need. New supply has thus not been meeting the greatest housing need. We welcome the Government's recognition of this trend and the steps which it has so far taken to counter it. We recommend that the Government continue to monitor trends in the construction of new social rented housing and be ready to take further action if the trend towards the construction of smaller flats rather than larger units continues. Efforts to secure more affordable housing will be wasted if they are not directed at the areas of greatest need.

USE OF GRANT SUPPORT

91. Three quarters of affordable homes built through planning agreements were built with some form of grant support. This figure increases to 84 per cent for rented homes allocated to housing associations.[160] However, there is a major shift from Government towards reducing or eliminating the use of social housing grant for homes built through planning agreements.[161] This shift is putting a squeeze on the number of new social rented houses being built. Most affordable housing schemes which have been built with no support at all from the SHG are for low cost home ownership not social rent.[162] Adam Sampson, Chief Executive of Shelter, reiterated this point during the first evidence session:

163

If the preference to gain more affordable homes through planning agreements without the use of a subsidy is followed, and the proportion of social rented homes in any given new development is reduced, a better mix of tenures within developments may not occur, undermining the principle of mixed communities.[164] That principle is further undermined, and the benefit to the public reduced still further, if reduced use of grant results in too high a purchase cost of intermediate housing delivered through planning agreements. Fordham Research told us:

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There is little benefit to be gained from obliging developers to deliver non-market housing if that housing still has to be sold at too expensive a price to be affordable to the people for whom it is meant.

92. There are also regional differences in the effectiveness of planning agreements to deliver new social rented housing. Several witnesses referred to the variation in the use of s.106 agreements for affordable homes by local authorities, citing, in particular, the Audit Commission's recent assessment of, and guidance to local authorities on, the use of s.106 for affordable housing.[166] Affordable housing provided on s.106 sites is predominantly in the south where land values and house prices are higher and developers consequently have more leeway within profit margins to absorb the effect of the subsidy to the social sector represented by planning agreements. In the north, s.106 agreements only provided 38 per cent of all affordable completions over 2004-05.[167]

93. The absence of public funds to support the purchase of homes delivered through planning agreements will tighten profits available to developers. Two consequences flow from this. First, there is a greater risk of protracted discussions between local authorities and developers, lengthening the time taken to approve applications and slowing the delivery of urgently-needed homes. Secondly, a continued squeeze on public subsidy for homes built through s.106 agreements will result in increased numbers of low-cost home ownership and other "affordable" homes which may not meet real housing needs. CLG and the Homes and Communities Agency must not lower the amount of social housing grant to support developments on s.106 to such an extent that developments which include the right proportion of social housing for the area are made unviable. We recommend that the HCA undertake regular regional reviews of the level of support provided for social homes built on s.106 sites and be flexible in its approach towards the level of grant provided in respect of individual sites which are critical to addressing local housing needs.

COMMUTED PAYMENTS

94. Commuted payments are monetary payments made by developers to local authorities towards the provision of affordable housing on s.106 sites. They may be made in lieu either of on-site in-kind provision or of provision of discounted land.[168]Three issues regarding commuted payments concern us.

95. First, it appears that local authorities do not always use commuted payments for the purpose for which they are intended. The Cheshire Housing Alliance told us:

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The North West Housing Forum raised a similar point.[170]

96. Of course new housing often cannot be built unless infrastructure to support it is also provided, and it is important that local authorities have all necessary flexibility to find the funding required to do so. However, the fundamental purpose of the payment, and the expectation of the housing associations and the public, is that the money will support the provision of affordable housing. The introduction of the Community Infrastructure Levy (CIL), which is designed to replace the use of s.106 agreements to fund the provision of infrastructure to support new developments (while s.106 remains for affordable housing), may mitigate the problem, but that is not certain, and the implementation of CIL may in any case be some way off yet. We recommend that CLG issue guidance on when commuted payments are appropriate and in what circumstances the funds so raised may be used to support projects that do not fund the construction of affordable homes.

97. Secondly, we are concerned about the opportunity which commuted payments offer for developers to avoid providing social or other affordable housing in new developments. Many developers prefer commuted payments to the alternative of providing social housing in their development.[171] Commuted payments may be appropriate in neighbourhoods where there is already a high concentration of social housing. However, if a developer pays simply to ensure that their new development consists exclusively of expensive, privately owned housing, the objective of creating mixed communities is not met. Whilst the use of commuted payments might be an acceptable strategy in some circumstances, such as when there is potential for constructing more social rented homes elsewhere with the contribution, local authorities must ensure that commuted payments are not used simply as an excuse to avoid mixed tenure in new developments.

98. Thirdly, and perhaps most disgracefully, local authorities do not appear to be using a large proportion of the money received in commuted payments. Responding to our request, CLG supplied us with a detailed account of the amount of money received by local authorities in commuted payments each year, and the proportion of that money actually spent. These figures, which are reproduced below, revealed that while the overall amount of money being spent has increased, spending is not keeping pace with the amount of money coming in.

Figure 7—Commuted payments held and spent by local authorities in England (£000s) and total spend as a percentage of the total amount held. 2001-2006.

Source: Supplementary information on Housing Green Paper evidence session. CLG (HSSA 2006).

99. There is no excuse for authorities taking commuted payments and then not spending the money on affordable housing. We recommend that CLG undertake further analysis to investigate the reasons for failures on the part of local authorities to spend commuted payments. We also recommend that local authorities not spending such payments and without an adequate expenditure strategy for the funds that they hold be obliged to pass on the funds to support other projects within their region.

100. Finally on this point, some of the figures produced by CLG through the Housing Strategy Statistical Appendix (HSSA) do not appear to be accurate. In the north east, for example, local authorities did not hold any commuted payments until 2003-04 when £64,000 was held, £94,000 was received and £20,000 was spent. Yet somehow, and contrary to the national trend, no funds were held, received or spent in the following two years.[172]

101. We are concerned that the Housing Strategy Statistical Appendix might be inaccurately recording the level of commuted payments. We recommend that the Government undertake, as a matter of urgency, a more accurate investigation into the amount of money held by local authorities from commuted payments.

Regional patterns

102. The significance of demand for housing (particularly social rented housing) within London and the South East was widely recognised by our witnesses.[173]We chose to call for evidence on the geographical split of funds for this very reason. Yet there are hotspots of significant pressure within other regions, notably the North West, reinforcing our view that regional and sub-regional housing markets are not uniform.[174]Localised pressure on housing in attractive and accessible rural areas results in housing markets which are inaccessible to the local workforce.[175] The effect of inward migration and the purchase of second homes also exacerbates the shortage of affordable housing in coastal towns, for example.[176] The Royal Institution of Chartered Surveyors stated:

177

103. Places such as Chester in the North West have always been popular but, with such prolonged and high rises in the price of homes, these areas have become even more expensive. Many more areas have gone through a period of economic growth, increasing confidence, investment and further demand. The overall increase in the value of housing has brought benefits to areas of low demand; buy-to-let investment has spread to areas where investment in private renting was unexpected, such as Salford.[178]

104. In the revised PPS3, the Government places considerable emphasis on local authorities monitoring local housing markets and housing allocations. The Government believes that local authorities should act as strategic enablers of housing, and that "more could be done to get more affordable housing through section 106 agreements."[179]

105. Several representations from housing organisations in the north of England raised concern that funds for affordable homes were being concentrated on London and the South East.[180] Since 2005, a greater proportion of funds has been allocated to London and the south-east as the methods used in the distribution of funds have moved away from regeneration and towards need and demand-related factors.[181] The Department explains that the method behind the allocations includes different measures of housing need such as numbers of homeless households in temporary accommodation, overcrowding and housing affordability.[182]Variations in the costs of development across regions are also taken into account, as are regional housing strategies.

Table 4—Regional Housing Pot allocations 2004-08 and equivalent figures for earlier years

Source: ODPM news releases 11 August 2005 and 23 October 2003

106. The table above shows this shift in emphasis in from north to south, particularly to the south east. The south east region gained the most from the shift, while the north west saw the amount of allocated funds remain static but proportionally fall from nearly 12 per cent for 2002-03 to under 9 per cent for 2007-08.

107. Allocations, however, only show what the Government has committed to spending, not what has been spent. In this respect, the positions are reversed. The table below shows that, between 2003-04 and 2005-06, actual expenditure (both as an amount and as a proportion of the national total) in the north west increased, while amounts for the south east fell and the outturn for London did not change substantially.

Table 5—Actual expenditure through the Housing Corporation's Affordable Housing Programme in each English region for 2003-04, 2004-05 and 2005-06

£ millions	Outturn						Estimated
	2003-04	%	2004-05	%	2005-06	%	2006-07	%	2007-08	%
North East	41.2	2.6	40.1	2.5	34.8	2.2	39.7	2.1	35.6	1.9
Yorkshire and the Humber	64.5	4.1	60.2	3.7	58.6	3.8	67.2	3.5	69.3	3.6
East Midlands	53.1	3.3	65.1	4.0	70.4	4.5	72.1	3.8	84.3	4.4
East of England	112.9	7.1	136.8	8.5	127.2	8.2	150.1		186.1	9.7
London	723.4	45.5	711.6	44.2	714.5	46.0	891.4	46.7	840.6	43.7
South East	296	18.6	297.2	18.5	261.1	16.8	368.9	19.3	365	19.0
South West	103.6	6.5	85.6	5.3	90.1	5.8	114.1	6.0	153.5	8.0
West Midlands	88	5.5	102.9	6.4	83.4	5.4	96	5.0	89.3	4.6
North West	106.9	6.7	109.5	6.8	113.3	7.3	111	5.8	99.7	5.2
Total	1,589.60		1,609		1,553.40		1,910.50		1,923.40

Source: HC Deb, 16 Apr 2007, col 273W

108. More social rented housing is needed in all parts of the country; but particular pressures need to be addressed in certain regions, especially the very urgent need in London. More social rented housing is needed to support regional economies, more social rented housing is needed to reduce social tension, and more social rented housing is needed to lessen the use of the expensive private rented sector. However, even with the recent changes in the regional distribution of resources under the previous round of spending, areas in the south are finding it difficult to meet the need. The Audit Commission told us:

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109. Questioned on regional allocation of funds, Peter Dixon of the Housing Corporation confirmed the emphasis on London: "it is quite difficult to shift away from the present London and South East bias," he said, "because when you do start disaggregating the various aspects of need, whatever you come up with anywhere else London can usually match it".[184] But it was his colleague Richard Hill, Director of Investment for the Housing Corporation, responding to the same question, who identified the crucial issue in discussions of regional allocation. "We have had a concern about deliverability," he told us: "…it is important to understand where housing needs are, but it is also important that we can deliver housing and generate supply."[185]There is an ever-present tension in decisions on where to direct the funding between allocating funds to respond to need, on the one hand; and on the other, ensuring that the money can be spent effectively and being realistic about what can be implemented.

110. The Government has prioritised the areas which it perceives to be in greatest need; but thus far the investment it has allocated to these areas is not achieving a commensurate increase in supply. Meanwhile, significant "hotspots" of need remain in areas from which funding has been redirected: areas where it may be possible to deliver more, more quickly, with the money. We recommend that the Government, assisted by the Homes and Communities Agency, place more emphasis on deliverability when setting funding and completion targets. This can only be carried out through closer engagement with the local agents involved in delivery.

Effects of Right to Buy

111. Right-to-buy sales, coupled with the inability of local authorities to reinvest the proceeds, have been a major factor in the decline in the stock of social rented housing. As Karl Tupling, Sheffield City Council's Director of Housing, told us, there is hardly any estate which has not been affected by the right to buy.[186] The policy has helped to meet growing aspirations for home ownership, providing many households with greater security, particularly financially—though Professor Hills, in Ends and Means, notes that the Right to Buy "was exercised disproportionately by those with higher incomes (and in better areas and houses)."[187] In some areas, too, it has had the positive effect of facilitating the development of more mixed social structures within what would have otherwise been mono-tenure neighbourhoods.[188] But against those positive consequences must be set the loss of badly-needed stock to the social rented sector. In London, for example, more social rented homes have been sold through right to buy than have been built by local authorities and housing associations in every one of the last twenty years.[189]

112. The ongoing fall in the number of social rented homes through right to buy continues at least in part because of the restrictions imposed on the use of the receipts. Research from the Joseph Rowntree Foundation has found that, since the introduction of the right to buy, only a quarter of the money that the Government received has been ploughed back into public housing.[190] Without the necessary reinvestment in new stock, a home sold under right to buy represents a permanent loss to the social sector. Since 2004, the receipts from right-to-buy sales have been split: the local authority receives 25 per cent and central government receives the remainder. This means that, in the case of Sheffield for example, the "assets with a market value of over £57 million [right-to-buy sales are of course at less than market value] are sold leaving the city with less than £9 million to reinvest".[191] Monies retained by councils through the right to buy cannot be easily reinvested into building new social housing because of restrictions on raising and keeping revenue and developing capital assets.[192]

113. The then Housing and Planning Minister told us of her support for the broad objectives of right to buy; she added that she believes that the Government is reinvesting the receipts back into increased housing provision.[193] The Minister has also noted that the "right to buy for a lot of people at the moment is not affordable because of what has happened with overall house prices".[194]Sales of homes under right to buy fell by 35 per cent between 1998 and 2005.[195]

114. The Government has acknowledged that receipts from right-to-buy sales need to be reinvested into new homes. Although those receipts are returned to housing through the national housing revenue account system, there does not appear to be a willingness from Government to allow receiving councils themselves to use those receipts to fund the construction or acquisition of new social rented homes. We urge the Government to make reforms to allow right-to-buy receipts, and any borrowing taken against this income, to be easily and rapidly used by councils to build much-needed homes.

115. Some of the homes that have been sold under the right to buy are now being resold by the original purchaser at market rate, which is beyond the reach of most social tenants, those on low incomes and first time buyers. John Craggs, Deputy Chief Executive of the Sunderland Housing Group, told us:

196

116. During our visit to Manchester we learnt that in one part of the city approximately 75 per cent of council stock was sold under right to buy. Many of these homes have since been sold on to buy-to-let investors. We saw the same thing happening in Westminster, from whose council we understand that 32.5 per cent of properties sold under the right to buy are now in the private rented sector.

117. Over 1,000 of the right-to-buy properties now in the private rented sector in Westminster are currently rented back to the council to cope with the demand for social rented homes.[197] That accounts for one in ten of the properties sold under the right to buy in the borough. The lease of one of the properties that we visited in Westminster was purchased under right to buy and was last sold on the open market in 2003. Since then it has been re-let back to Westminster City Council at a rate nearly five times higher than the rent paid on the homes still owned by the Council.[198]Evidence to our inquiry showed the same thing happening in other areas:[199] it appears to be a national phenomenon.

118. These are not the only perverse effects of right to buy. Professor Hills noted in his report that while the right to buy has retained better-off former tenants in some areas, other areas have seen "a decline in the upkeep of properties and private lettings to sometimes disruptive, but weakly supervised, private tenants (sometimes including those evicted from social tenancies in the same area)".[200]When landlords do not look after the physical condition of the property or the behaviour of their tenants, the effect on neighbourhoods can be damaging.[201] Even the Housing Minister has recognised these drawbacks, telling us:

202

119. It is not merely the effect on the makeup of communities which is of concern. Without a better link between sales and newly-built properties—whether that is through ring-fencing receipts or preventing sales unless a similar new social rented home will be available—there will be the potential for even more sales without replacement. The right to buy and right to acquire have some important benefits but, unless and until there is an adequate supply of social rented homes, these rights need to be qualified, because they are affecting the rights of others to access a decent home that they can afford.

120. We support the aims of the right-to-buy policy, which has enabled many families to get on the housing ladder who would not otherwise have been able to do so. We are deeply concerned, however, about the impact on community cohesion in some areas of the country of the number of former council-owned homes which are now being rented privately, and about the effect of such sales on the availability of social rented housing in those areas. We also note that, in areas where rents are high, many former council homes are being rented at very high rates back to councils to house the homeless. We recommend that the Government review the effect of right to buy on neighbourhoods and on the councils which have sold their houses under the policy, with a view to bringing forward further measures which will mitigate the adverse consequences of an otherwise successful policy. The review should also consider the extent to which the right to buy, if it is more prevalent on the more popular estates, can reduce rather than increase community and tenure diversity.

SALES OF COUNCIL HOUSES AND FLATS

121. Right to buy and transfers to housing associations have removed a disproportionately high number of family homes from local authority ownership. In Ends and Means, Professor Hills notes that only 12 per cent of the total stock has been sold under right to buy in areas where council flats are the predominant type of home, but in areas that are mainly houses, this figure rises to 34 per cent.[203] Flats, which are not typically designed to meet family needs, represent some 40 per cent of local authority stock yet, between 1999 and 2005, accounted for under 20 per cent of all sales.

Figure 8—Sales of flats as a proportion of all sales of homes owned by local authorities (including those sold to housing associations). Percentage of flats sold per year compared to the annual percentage of council-owned and RSL-owned flats in England—1999-2006.

Sources: Survey of English Housing (S120) & P1B Quarterly Housing Monitoring returned to CLG by local authorities.

122. The graph above shows the extent of the problem. Even in 2005-06, the most recent year for which figures are available, houses represented a greater proportion of sales than they did of the total housing stock. The result is a disproportionate reduction in the stock of houses suitable for families, exacerbating pressures on the remaining social rented stock.

123. As we learnt during our visit, sales of social rented homes in the Netherlands are much more effectively managed. Dutch housing associations have moved away from a "bricks and mortar" approach to one that also looks at creating mixed neighbourhoods. This includes selling existing stock on the open market. In poor neighbourhoods the sale of stock can cause some degree of resentment because the existing residents can not always afford to purchase outright or even a share of a dwelling. To avoid creating tension, and to give some democratic legitimacy, housing associations agree the volume of sales within neighbourhoods with the Municipality—the local authority—and both work towards agreed strategies for the neighbourhood. The revenue from the sales is used by the housing associations to fund their role as providers of social housing.

124. The Government has already allowed areas facing housing market pressure to reduce the maximum discount offered to tenants to reduce the adverse effects of right to buy. With the sector facing such acute shortages, particularly for houses for families, the right to buy (or acquire) should be tempered further. We recommend that the Government examine the adoption of an approach similar to that which we saw in the Netherlands, where social housing providers and the local authorities agree housing strategies including the volume of social rented homes to be sold within neighbourhoods. Such an approach should include an investment strategy for making the best use of capital receipts gained by building new properties and buying back those previously sold. Any restriction on sales must be clearly backed up by evidence that it will contribute to the aims envisaged and that it is supported by the communities concerned, and should be specifically targeted at the relevant property type or area under significant pressure.

'PEPPER-POTTING' TO ACHIEVE MIXED COMMUNITIES

125. Taking the concept of mixed communities to its fullest extent, the Hills review advocates a "pepper-potting" approach which intermingles tenures rather than creating distinct areas of social rented housing within larger areas of private housing, or vice versa.[204]The housing provided through s.106 agreements is pepper-potted in many new developments.[205] Witnesses told us, however, that in many cases affordable homes have been built in defined areas within larger developments to poorer quality environmental and design standards.[206]

126. Witnesses told us that, as a result of the right to buy, there is no such thing as a "typical council estate" any more.[207]Nevertheless, further measures are needed to reduce social polarisation within existing estates. There is also an argument that social rented units should be mixed within existing areas that are predominantly owner-occupied.[208]Mixing tenures this way can raise the aspirations of tenants, reduce the misconception that all social tenants are problematic, and improve satisfaction rates among social tenants.

127. In his report, Professor Hills advocates a role for social landlords as property and asset managers who buy and sell to match the needs of their clients, not only diversifying the social rented stock through mixing social rented housing in new housing schemes, but also selling or renting existing stock within estates to finance the purchase of homes in other areas (like-for-like sales).[209] Hills suggests that public funding to cover the gap between the sale price of a unit in a predominantly low-income area and the purchase of an existing property in a (somewhat) more prosperous area of town would be justified if it were part of a determined attempt to reduce polarisation.[210] This approach is supported by the North West Housing Forum, who told us:

211

128. Currently, local authorities cannot undertake like-for-like sales outside the Housing Revenue Account, although housing associations, pilot ALMOs, and special purpose vehicles can. The HRA system means that the proceeds of a sale by a local council must be paid into the HRA and is not, therefore, necessarily immediately available for the purchase of a replacement. Noting this constraint on local authorities, Hills recommends that, to reduce polarisation, this rule be re-examined.[212] Hills also considers that allocations policies should be reviewed to reduce polarisation, although he acknowledges that this is difficult with such significant pressures on the social rented sector.[213]

129. Private housing investment through buy-to-let can make a positive contribution towards the overall aim of mixed communities, because private tenants tend to be better off and younger. Private sector tenants also tend to be more transient, however. Like-for-like sales therefore need to be managed carefully to ensure that they make a genuine contribution to not only mixed, but sustainable communities. Disposal of stock within areas of existing social rented housing will also need to be monitored carefully. If the development of mixed communities is not to be at the cost of the loss of badly needed social rented stock, such disposal must be followed by its expeditious replacement.

130. The Chartered Institute of Housing considers that it would be reasonable to include targets for mixed communities within Local Area Agreements to promote a more widespread use of s.106 agreements.[214]We disagree. While we support more widespread use of planning agreements to create mixed communities, PPS3 (Housing) already requires local authorities to set affordable housing targets, which we would expect to be sufficient to promote the use of s.106. The creation of mixed communities is a more delicate task. More should be done within existing neighbourhoods, but changes must be made gradually. Changing the spatial distribution of income is long-term process and should not be linked to short-term budgeting or target setting. Doing so could result in communities being damaged. The potential synergies between creating mixed communities and some other policies to improve housing supply—infilling, for example—should not become excuses for poor planning and ignoring the needs of existing communities.

131. Pepper-potting within existing areas should be promoted more widely, but must be seen as a long-term plan and carried out in an open, planned and transparent way. We recommend that the Homes and Communities Agency take the lead in promoting this approach to pepper-potting. The Agency should assist the development of pepper-potting projects by local authorities and housing associations by devising ways of countering the potential adverse effects of buy-to-let and by monitoring the expeditious replacement of 'pepper-potted' social rented stock. We also recommend that guidance be issued to local authorities ensuring that new social and affordable housing built under s.106 agreements is mixed within developments and built to the same standards, not pushed away to discrete areas of larger sites.

Role of social renting within an ageing society

132. Choice of tenure changes with the needs of the household: age is a significant factor. Older home-owners, for example, may choose to sell up and rent to relieve themselves of the ongoing maintenance required with home ownership.[215] The likely increase in the proportion of retired people has been widely noted as a significant trend in most developed countries. CLG's own memorandum notes the increasing number of retired social tenants.[216]

133. The ageing of the population raises the question of how the social rented housing stock can be utilised most effectively to meet the needs of all its tenants. The Government has recently raised again the possibility of encouraging tenants, particularly older tenants, to "downsize", moving out of a no longer needed family-sized house and moving to a smaller home. The Government recognises that many tenants will want to remain in the family home where they raised their children; but it wants all local authorities to offer their tenants the opportunity to downsize. That opportunity is currently not offered at a national level, although the Government has been working on schemes to provide greater mobility for social tenants across sub-regions, regions and England as a whole.[217]

134. There is some debate about the extent to which such encouragement can be effective. There is little gain to a tenant in downsizing, compared to the potential financial benefits to an owner-occupier, and stronger incentives are needed to make downsizing more effective.[218] A retired or elderly tenant needs more than just financial support to undertake such a move and, to make it as attractive as possible, other tailored support, such as packing and removal, utility services transference and postal redirecting will need to be provided. Elderly tenants need also to be assured that, where they are found a new home, it is suitable for, or adapted to, supporting their needs.

135. Downsizing is an important component of the policy of using the stock more effectively, but any programme must treat each individual with the utmost care. While progress towards reducing under-occupation should be monitored, no local or national targets should be set. We recommend that the Government provide local authorities with more resources to offer a package of measures to support tenants who would consider downsizing, including adapting homes to suit tenants' needs. We also recommend that all local authorities include provision for downsizing amongst the preferences which may be expressed in their allocation schemes for social housing; and that the Government press on urgently with the work which it is undertaking on national, regional and sub-regional mobility schemes, ensuring that those schemes include provision for downsizing.

136. The ageing of the population will also result in an increasing requirement for adaptation in the social rented housing sector. With care services moving towards "floating support" methods, enabling people to live in their own homes rather than being confined to institutionalised care, more specialist accommodation will be required for the elderly.[219] Many social housing providers are already providing alternative forms of care for vulnerable people through the Supporting People programme; there is a clear need for more rented accommodation which provides this type of support.[220]

137. The Government has recently published its "National Strategy for Housing an Ageing Society."[221] The strategy includes a growing role for Home Improvement Agencies in further supporting people living independently, as well as the provision of more specialist accommodation. We welcome the overall aim of the strategy, and in particular the acknowledgement that rural areas have faster rates of ageing.[222]

138. The publication of the Government's strategy for housing in an ageing society demonstrates that the Government is taking account of the need for the social rented sector to provide different forms of care for more people as demographic patterns change. The social rented sector will have an important role in implementing the strategy. In developing the strategy further, and in particular when allocating resources, including from non-housing sources, for its implementation, we recommend that the Government take particular account of the distribution of the ageing population, for example in coastal and rural areas: demographic pressures are not uniform across the country.

Conclusion: the role of social renting

139. We believe that our recommendations above, if implemented, would result in significant improvements to the situation in the social rented sector. But none of these recommendations alone—nor even all of them together—can address the most fundamental issue facing the Government: the role of the social rented sector in public policy.

140. Witnesses told us that "council housing is a vital public service",[223] that social renting provides a safety net for the most vulnerable in society,[224] and even that "social housing is part of the glue that binds society together";[225] and without doubt these are critical functions of social housing. But these roles have come not merely to affect but to define the characteristics of social rented neighbourhoods. Professor Hills told us that "we are dealing with a situation where nearly half of all social housing is located in the 20 per cent most deprived neighbourhoods in the country".[226] His findings regarding the "neighbourhood effects" of the polarisation of incomes and spatial distribution of tenure are of significant concern.[227]

141. Professor Hills's report Ends and Means charts the growing concentration, dating from the 1980s, of social tenants amongst the lowest income groups.[228] This concentration is associated with adverse effects on people's employment and education potential[229] and the quality of public and private services supporting the communities.[230] Findings from other countries have also shown that the concentration of poverty does not merely add to people's difficulties, it multiplies them.[231] Social renting has become more polarised towards those who earn the least, who have fewer opportunities in the labour market, and who live in the most deprived areas.[232]

142. The social rented sector serves a vital purpose in providing homes for those in the most need. But the hope has always been that it will do more than just that. One of the avowed aims of social housing is to provide certainty, through security of tenure, so that people can get on with improving their livelihoods.[233]However, Professor Hills's report demonstrated that this currently does not happen. There is no evidence that social renting has a positive impact on employment[234] and, with re-lets falling,[235]the mobility of tenants (particularly between labour markets) is not likely to improve in the short-term.

143. The sector is keen to become a tenure of choice and to offer homes in neighbourhoods in which people want to live. These aims are not just laudable, they are essential for a just and fair society. But the shortage in the supply of social rented housing is already acute even without widening its role to those who are better off socially and financially. The Government therefore faces a stark choice: does it retrench, leaving social housing as the sector of last resort; or is it prepared to make the investment and policy commitment necessary for social rented housing to play a full role in the creation of truly sustainable communities?

144. The Government and the wider social rented sector must reach a conclusion on whether social renting is to provide accommodation only for those who need it the most or whether the sector should be available to a wider range of people. For our part, we consider that social housing has a vital role to play in the creation of mixed and sustainable communities. Current Government policies and spending plans are insufficient to allow it to do so. There is no short-term fix to the current situation: sustained and substantial increases in spending, together with a firm policy commitment to the creation of mixed communities, will be needed over the medium to long term if social rented housing is to fulfil the aims envisaged for it.

113 Ev 179 (CLG); Kate Barker, Delivering Stability: Securing our Future Housing Needs, HM Treasury, March 2004, para 5.18. Back

114 Delivering Stability, recommendation 27, page 97. Back

115 Ev 179 (CLG); The Government's Response to Kate Barker's Review of Housing Supply, Treasury/ODPM, 2005, paras 1.14 and 2.15. Back

116 Ev 185 (Housing Corporation) Back

117 Delivering Stability, recommendation 27, page 96. Back

118 Ev 106 (NHF) Back

119 CLG Committee, Affordability and the Supply of Housing, para 33. Back

120 Ends and means, page 169. Back

121 Para 199 ff. Back

122 HC (2005-06) 703 Back

123 CLG, Government Response to the ODPM Select Committee Inquiry-Affordability and the Supply of Housing, Cm 6912, September 2006, para 27. Back

124 Ev 118 (Shelter) Back