Examination of Witnesses (Questions 1-19)
DEPARTMENT FOR
COMMUNITIES AND
LOCAL GOVERNMENT,
TRANSFORM SOUTH
YORKSHIRE & LIVERPOL
CITY COUNCIL
19 NOVEMBER 2007
Chairman: Good afternoon and welcome
to the Public Accounts Committee where we are today considering
the Comptroller and Auditor General's Report on housing market
renewal. We welcome Peter Housden from the Department for Communities
and Local Government, who will introduce his team.
Peter Housden: Good afternoon.
On my right is Mike Gahagan, who is the Chair of the Transform
South Yorkshire housing market renewal pathfinder. On his right
is Siobhan McCoy, who is the housing market renewal initiative
manager in Liverpool city council. On my left is Richard McCarthy,
Director General for housing and planning in the Department for
Communities and Local Government.
Q1 Chairman: Mr Housden, you will
see that we have quite a large Committee. My colleagues' time
for questions is limited, so I hope that you and your colleagues
can keep your answers brief and to the point, so that Members
of the Committee do not feel that their time is being eaten into.
As you know, the Report on the Thames Gateway
programme was published last week. It was quite a critical Report,
and many of the features that we saw there are replicated in this
National Audit Office Report: lack of leadership, uncertainty
about responsibility in Government and uncertainty over funding.
Reading the Report before us, frankly, it does not seem that you
have any more of a grip on the housing renewal programme. Is your
Department just not fit for purpose, like the Home Office?
Peter Housden: Chairman, I am
happy to talk about the Thames Gateway—
Chairman: No, you do not need to. I am
just using it as an example.
Peter Housden: It is worth bearing
in mind that the field work on which the Thames Gateway Report
was based was done in 2005-06. As we had the opportunity to discuss
with your Committee earlier in the year, we were and remain on
course to undertake the transformation that the Report referred
to. In terms of housing market renewal, our sense is of a radical
and innovative programme that is on course to meet its targets.
That, in one sentence, is my conclusion.
Q2 Chairman: All right. That is a
very clear answer. Let me put an alternative point of view to
you and you can answer. You have committed £2.2 billion of
taxpayers' money and demolished 10,000 houses, but you are apparently
unable to measure what impact that programme is having on housing
markets. Do you think that stacks up to a good programme?
Peter Housden: We are able to
measure its impact on housing markets. On its two key indicators—vacancy
rates and the relation to regional house prices—the pathfinder
areas are demonstrably succeeding in their objectives. One would
preface all that by saying this is a long-term programme. Right
at the outset, I think everybody accepted that you could not reach
short-term judgments, but in terms of a programme this far into
its 15-year life, those are positive indications.
Q3 Chairman: Yes, but as paragraph
3.14 makes clear, there are so many factors that can influence
demand for housing. There is no clear evidence that the £2.2
billion that you have spent has made a significant difference.
I am not denying that house prices may have increased, but that
may be due to many other factors.
Peter Housden: If I may say so,
I think you have gone right to the heart of the issue for us here.
In regeneration schemes in general, where you are involving markets—here,
the housing market—it is methodologically possible only
in the most rarefied circumstances to identify a direct relationship
between a cause and an outcome, and the separation of this range
of factors is a key thing. What struck me as really important,
however, was that if you look at the key indicators of vacancy
levels and prices in the areas of low demand that were not selected
for housing market renewal intervention—they were not selected
because the position there was less severe than in the nine areas
that were originally chosen—those areas have performed less
well than the housing market renewals areas. Intuition would take
you to the opposite conclusion—that areas that were more
advantaged in a rising market, with advantageous demographics,
would accelerate more quickly than areas of acute need. So, for
us, there is a strong correlation between housing market renewal
intervention per se and rising relative house prices and
reductions in vacancy levels.
Q4 Chairman: Other colleagues can
pursue that point. I just note what you have agreed in the Report.
In paragraph 3.15, you agreed with the Comptroller that: "it
is difficult to identify the extent to which the increases in
house prices in pathfinder areas since the establishment of the
programme have been due to intervention by the pathfinders themselves
or due to general trends in the housing market". However,
others can come in on that point if they wish to.
The problem of speculators cashing in at taxpayers'
expense is mentioned in paragraph 3.16. The figure mentioned is
an average of £10,000 per house. Could you not have done
more tackle that?
Peter Housden: Speculation is
an emotive term. All the transactions are private sales between
residents or landlords and other third parties; they are not regulated
by the Government. That is the obvious point. The second point
is that increasing land and property values are a feature of regeneration
schemes, and the more successful the schemes are, the stronger
a feature they will be, so as confidence increases, those purchases
look more and more like rational investments. My last point is
that in relation to the compensation terms, there is, as you will
know, a code of practice, which dictates effectively what local
authorities are obliged to give in compensation to both residents
and landlords. That has a minimum stipulation of at least a year's
occupancy, which is relevant to this issue.
Q5 Chairman: I again quote from paragraph
3.16: "Pathfinders estimate that this form of speculation
has added an average of £10,000 to the cost of acquiring
a property," and that is on relatively low-value houses.
Again, other colleagues can come into the debate if they wish.
Your action is based on theoretical analysis.
We have so much experience of house clearance since the second
world war. Is basing your action on theoretical analysis the best
way of proceeding, or would you have been better to have involved
local communities more in what you were doing? That would have
saved a lot of anxiety and stress, would it not?
Peter Housden: I do not believe
that what the programme has done is based on theoretical analysis.
It is worth reminding the Committee that the genesis of the programme
was not in a ministerial office, but based on a range of practitioners
on the ground identifying a striking and socially really significant
issue in areas of low demand. That led the Government, backed
by the Select Committee of the day, to move into a careful exploration,
in the most severe areas of low demand, of what range of strategies
would work, and it was very clear from the beginning, as had been
learned from all previous programmes, that engagement with local
communities was crucial.
We will no doubt talk more this afternoon about
how that has been undertaken in different contexts. The key thing,
however, is that the locality-based neighbourhood is where the
problems are experienced; it is not where they are resolved. The
basic design of the pathfinders, as you will recall, was across
local authority areas to correspond with housing markets. That
was the focal point of the programme and is why the governance
arrangements are as they are, but there is no trade-off between
that and community consultation and engagement. We have had a
range of positive affirmations from the Audit Commission and others
as to how that is proceeding.
Q6 Chairman: May I introduce the
subject of affordability? That is mentioned in paragraph 4.9,
which says that: "on average, there is a gap of £35,000
between the amount of compensation existing homeowners receive
for their home when subject to a Compulsory Purchase Order and
the cost of buying a suitable alternative property." That
is what worries me. You are supposed to be helping those communities,
but there is that gap of £35,000. People may find their house
is demolished and they cannot afford to move back to the area.
Peter Housden: Mike Gahagan may
want to talk about specific examples relating to this issue in
Yorkshire. It is a consequence of rising values, and the programme
has always been mindful of the need to provide careful and individually
tailored support to people in those circumstances. Whether to
move into a new home with finance or to move into a socially rented
tenancy has been the stuff of individual tenant care in these
programmes.
Q7 Chairman: Are you worried about
the sub-prime crisis in America? What work has your Department
done in that regard? The situation in America is about dodgy mortgages,
giving credit to people who perhaps have limited creditworthiness.
Will that impact on people's ability to afford these houses?
Peter Housden: We had the opportunity
a few months ago to discuss the low-cost home ownership programme
in the round and, as I said then, we are always very careful in
those circumstances to ensure that the individuals are being offered
loan products that they can afford on a sustainable basis.
Q8 Chairman: But you take my point
that with the crisis in sub-prime mortgages, it might be more
difficult for people to obtain mortgages.
We shall move on. You were going to build 60,000
houses a year in the north and the midlands; you are now going
to build 70,000 houses a year. Will not that impact on the scheme?
It might make a lot of these schemes redundant, because you are
building so many more houses.
Peter Housden: This is a very
important point. The context is changing significantly, in that
many areas in the north and the midlands are experiencing a rising
demand for growth and form an important part of the Government's
overall housing strategy. In terms of the way this programme moves
forward, that linkage into the broader growth agenda will be critical.
The Report properly picks that up—for example, in the way
in which the planning system and regional spatial strategies will
need to accommodate housing market renewal, and there are already
some good examples of the way in which housing market renewal
objectives are being taken into account properly as regions debate
how to move forward. We are confident that that risk is acknowledged
and will be managed.
Q9 Chairman: Okay. Look at figure
7 on page 14, which sets out the hugely complex system. Some people
argue that this is once again a step from letting local government
get on with it—yet another tier of unnecessary bureaucracy
in an already crowded field of regional and local regeneration.
Is that a fair criticism?
Peter Housden: No, but there is
a real issue at the bottom of what you say, in the sense that
the co-ordination of those programmes is fundamental. Housing
market renewal sought to bring to local regeneration strategies
an added dimension that had been absent, and because housing markets
do not respect local authority boundaries, it was important to
be able to draw in the local authorities, which retain statutory
and important functions, and to connect them to the wider regeneration
strategies. In housing market renewal, we have seen good governance
at the level of the nine pathfinders, and good integration, and
as we go forward the department will look for still stronger aspects
of that in terms of knitting this with the regeneration effort.
Q10 Chairman: Perhaps if you just
let them get on with it in the first place, we might have avoided
some of that duplication. In any event, let us ask the last question
to the Treasury.
In order to get around the VAT problem, pathfinders
schemes are demolishing perfectly good houses rather than refurbishing
them. Is that a good idea? Is this value for taxpayers?
Paula Diggle: There is a policy
choice for the Chancellor to make. We have limited room for policy
manoeuvre on VAT rates: we cannot broaden any zero rating of VAT,
and there is a limit to what we can do about 5% VAT. The only
way we could equalise the rates of VAT would be to equalise upwards.
Q11 Chairman: Is that right, National
Audit Office? I thought that in the briefing just given to me,
it said that it is possible to vary VAT.
David Corner: We were told that
it was possible and that certainly European legislation was not
a barrier.
Chairman: Right. We will have to investigate
that further, because it seems that the taxpayer is not getting
good value if we are demolishing rather than refurbishing perfectly
good homes. Thank you very much.
Q12 Keith Hill: Perhaps I ought to
declare a sort of interest. When I was a Minister in the former
Office of the Deputy Prime Minister, although I did not have direct
responsibility for the pathfinder programme, I was nevertheless
the sponsor of the Merseyside pathfinder that features quite heavily
in the NAO Report, which, by the way, Chairman, seems to me relatively
benign as NAO Reports go, though I am very new at this business.
Mr Housden, the NAO concludes that: "low
demand is now less severe in pathfinder areas, the gaps in the
housing market between these and their surrounding areas have
started to close, and there are clear physical improvements in
many neighbourhoods." Is that not a presumption that the
pathfinder programme seems to be working pretty well?
Peter Housden: Yes, the vital
signs are essentially positive. Again, I repeat the caveat about
early days, but essentially, there is good progress.
Q13 Keith Hill: The NAO makes a certain
amount in its Report about relationships with local communities.
It calls them "vibrant", although when I was touring
Anfield in Liverpool and Bootle in Sefton, I observed miles and
miles of abandonment and not much by way of vibrant communities
where the pathfinder programme was in place. But the NAO says
at the beginning of part 4 of the Report that: "The risks
of increasing community stress can be high", and it draws
attention to the Pendle case, which is extremely well known. Other
than Pendle, is there any evidence that the pathfinder process
has increased community stress?
Michael Gahagan: You have to accept
that when you are going through the demolition process there is,
for a while, an increase in community stress. There is no doubt
about that, because it is quite a stressful process. You have
to make the judgment that, at the end of the day, it is worth
doing—and, of course, not doing anything, over time, will
lead to considerable stress in those communities, as you have
said, with a lot of vacant houses.
Can I just correct something on the Pendle case?
Although it concerns my colleagues in East Lancashire, I do not
think that that was the pathfinder scheme. I think that the pathfinder
helped to sort that out.
Q14 Keith Hill: It is cited in the
NAO Report as an example of a failure in terms of pathfinders,
so if you are correct in saying that, it is a helpful correction.
I note that the Audit Commission, which, in
my experience, is never entirely easy to please, has praised the
progress made by pathfinders on, precisely, community engagement,
but what do you make of the criticisms by the Empty Homes Agency
and the Sustainable Development Commission, which are cited in
the NAO Report?
Peter Housden: There will always
be, as Mike indicates, some short-term issues. The thing that
struck me in visiting, as you have done, the Liverpool pathfinder
was that people—residents—in those areas are in very
different situations. They have different interests and wishes,
and they can change over time. We have all come across, I suppose,
people who have been vehemently opposed to demolition and to being
rehoused, who, once in a new home in Liverpool, often with people
they have lived with for many years, have become strong supporters
of the programme. They can change over time. People have different
interests and it is clearly the role of local government to reconcile
those interests to the long-term advantage of the communities.
I hope that the pathfinders add value by giving that housing market
connection, but at the end of the day those issues have to be
reconciled.
One of the other things that strikes anyone
who looks at this seriously is that a citizen or resident with
fundamental concerns has not only the ballot box, if you like,
in their local area, for taking a view about things, but also
a series of statutory protections. If you take, for example, compulsory
purchase orders and the public inquiries that those result in
if they are contested, citizens have the opportunity for the case
to be heard, and are protected against irrational or unfounded
decisions being made in their community. There is an array of
mechanisms that provide protection for individual citizens in
these difficult areas.
Richard McCarthy: Can I briefly
add, Mr Hill, that both the Sustainable Development Commission
and the Empty Homes Agency are national agencies? The Empty Homes
Agency is seeking to minimise the level of properties left empty,
and we agree with that. The Sustainable Development Commission
is seeking to ensure that we retain those properties, wherever
possible, for the environmental benefits that that brings.
As a starting position, we would agree with
that, and it is noticeable that the level of demolitions identified
by the pathfinders has fallen as different technical solutions
have been identified and people have responded to residents' concerns,
and as the economics have changed, but it is worth noting that
other national agencies like English Heritage also recognise—as
does the Commission for Architecture and the Built Environment—that
in some areas it is appropriate to demolish homes that are no
longer useable. It does not make environmental sense to sustain
those properties, and it is better to replace them with properties
of much higher environmental performance, mixing tenures and size
of homes.
Michael Gahagan: Can I add one
thing?
Chairman: I am not in favour of this
adding, adding, adding: it is not fair on the Member concerned.
It is his time.
Keith Hill: But I am very happy to allow
it, Chairman.
Michael Gahagan: I just want to
say that the issue of demolition or improvement is very difficult
and I do not think that we have quite bottomed it out fully yet.
The Building Research Establishment and the pathfinders are all
together looking at precisely this and the carbon footprint. We
also have the Sheffield competition for designers to try to tackle
terraced houses: what can you do for £50,000? There is still
a lot going on, on this front.
Q15 Keith Hill: Okay, fine. Let me
just ask one final question then: what I found really interesting
in the NAO Report—I think that you have already alluded
to this, Chairman—is that there will be a net reduction
in housing in only three of the pathfinder areas, which was, I
think, absolutely contrary to our initial expectation. Why the
change?
Richard McCarthy: We have rising
household numbers, which we have identified only this year, within
the areas. So what you have is quite a dramatic change going on.
There are changes in household numbers and populations in the
northern and west midlands regions, to an extent that was not
recognised at the beginning of the programme. By improving those
areas, the housing offer and the environment, we can bend in and
encourage private sector developers to invest in new housing and
properties and in converting and improving properties in those
areas, so that they are part of the offer to meet the needs of
our rising population and the rise in households, rather than
being part of the problem. That process is in transition, but
it is happening.
Q16 Mr Curry: I am sorry that you
are going to get a procession of former Housing Ministers, Mr
Housden.
Have you read Jane Jacobs?
Peter Housden: Jane Jacobs?
Q17 Mr Curry: Are you aware that
"The Death and Life of Great American Cities" is the
most important book on regeneration ever written?
Peter Housden: I have not read
it.
Q18 Mr Curry: I am almost inclined
to say that the fact that you have not read it makes you unsuitable
for the job. Jane Jacobs said that what makes communities work
are mixed functions and neighbourhoods—I think that Mr McCarthy
probably has read it, because he is nodding. She talked about
having informal surveillance, such as elderly people living in
the street who can keep an eye on the children playing there,
and about having employment, residential and retail areas together,
so that mixed functions are operating. One thing wrong with regeneration
was that we tore all of that up and made people live in one place
and go somewhere else to work and somewhere else to shop, thereby
destroying all the informal communities and socialising that made
places work. That is a summary of the book; do you not think that
it should be the bible for the regeneration programme?
Peter Housden: That is absolutely
at the heart of the mixed community strategies that have formed
part of the Government's approach for a considerable while, yes.
Q19 Mr Curry: Let us hope that that
is the case. I recommend the book to you; it is quite short and
very well written.
You said that areas next to pathfinders have
not performed so well. Could that be because of the pathfinders?
Is it possible that pathfinders have a depressing effect on neighbouring
areas? Mike Gahagan might want to say something on this. If you
are pouring money into one area, people are likely to say, "I'm
not going to live there, because it is a much better bet to live
somewhere else instead, as there is much more aid going into that
area." Is not it possible that the reason why they are being
outperformed is that there is a perverse, depressive effect on
the neighbours? Do we have any work on that? If that is the case,
what do we do about it, short of making everywhere a pathfinder
area, which defeats the object of the exercise?
Peter Housden: Two quick points
before passing over to Mike: my point was not about neighbouring
areas, but about what would be shown if you drew a table of the
areas of the most acute low demand in England. The housing market
renewal pathfinder initial challenge cut off at nine; I was making
the comparison that the ones that followed were not necessarily
geographically proximate, and in many cases were not.
Your second point precisely illustrates the
importance of having local authorities concerned with the governance
arrangements of pathfinders, so that, across the housing market
as a whole, they can take those balances into account in shaping
the housing market renewal programme.
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