1 Introduction
1. Since 2007 the UK, in common with much of
the rest of the world, has been in the grip of a "credit
crunch": a sudden, severe and
prolonged reduction in the availability of loans affecting all
areas of the economy. Its impact is being felt across all sectors
of the housing market. Home buyers have found it difficult to
get a mortgage, and those who have found a lender have had to
provide a relatively much larger deposit, which has tended to
affect first time buyers in particular. Reduced purchasing power
has meant sellers have had to cut prices, but the market remains
slow. Although some home owners have benefited from falling interest
rates, the economic downturn means others are in danger of repossession.[1]
Developers are finding it difficult to sell new property and are
scaling back their building projects. This has adverse consequences
for the affordable housing sector as well as for private housing,
and makes it more difficult to retain skills and capacity in the
construction industry. Housing associations can no longer use
surpluses generated on a buoyant market to cross-subsidise their
activities and many have lost access to the advantageous borrowing
facilities they have enjoyed for some time.
2. This is occurring against the backdrop of
ambitious targets for new homes set by the Department for Communities
and Local Government (CLG). Although set in a time of greater
prosperity and optimism, they were derived from the need to address
both a longstanding shortage of housing supply and lack of affordability,
and demographic trends which indicated a continued increase in
the number of new households being formed each year. There is
a danger that one result of the credit crunch will be a further
increase in the gap between housing supply and demand, raising
prices yet higher when the market recovers and leaving even more
people without access either to home ownership or to social housing.
3. We announced our short inquiry into housing
and the credit crunch on 14 October 2008. Our call for evidence
asked witnesses to consider the likely effectiveness of the measures
being taken by CLG to deal with the credit crunch, with particular
reference to¯
- the achievement of the Government's
housebuilding targets, both for market and for social housing;
- the financial viability and ongoing business
of housing associations; and
- measures to help existing and prospective homeowners
affected by the credit crunch.
In accordance with our terms of reference, we have
focussed on the measures for which the Department for Communities
and Local Government is responsible: that is, those affecting
housing policy. The Treasury Committee is conducting an inquiry
into the banking crisis, which we understand is considering the
effect of the credit crunch generally on the financial markets,
including wider questions concerning issues such as the measures
the Government is or should be taking to free up liquidity. Given
that Committee's inquiry, we have not considered these wider questions
except to the extent that they affect the Government's housing
policy.
4. We received 62 written submissions and held
one oral evidence session, on 16 December 2008. At that session
we heard first from representatives from the Council of Mortgage
Lenders, the National Housing Federation, the Home Builders Federation
and the Intermediary Mortgage Lenders' Association; we then heard
from the Minister for Housing, accompanied by the Director General
of Housing and Planning at CLG and the Chief Executives of the
newly-established Homes and Communities Agency and Tenant Services
Authority. We are grateful to all those who submitted evidence
to us. We are also grateful to our specialist adviser, Professor
Steve Hilditch, for his advice and assistance throughout this
inquiry.[2]
5. The issues we examined in this inquiry are
substantial and complex, and the effect the credit crunch has
on the provision of housing is constantly evolving. The Government
itself notes that "it is largely too early to tell whether
the series of Government announcements over the summer and early
autumn has yet had an impact".[3]
Since we launched our inquiry the Government has made a series
of further announcements about new measures it is taking to shore
up the housing market and facilitate the continued flow of new
affordable housing.[4][5]
The impact of these new measures cannot be gauged for some months
to come. Thus our report can only provide a snapshot of an evolving
situation. We intend to revisit the subject later in 2009 to assess
further the achievability of the targets and the effectiveness
of the measures taken by the Government so far.
1 The correct legal term is "possession"
but "repossession" is in common usage and is therefore
used throughout this report. Back
2
Professor Hilditch declared the following interests to the Committee:
work for the Chartered Institute of Housing to deliver its contract
with the Department for Communities and Local Government (CLG)
to facilitate a series of expert and practitioner workshops in
relation to the CLG/HMT review of council housing finance; independent
chair of the CLG Project Group on setting up the National Tenant
Voice. Back
3
Cred 60. References to "Cred" numbers are to the written
evidence to this inquiry, which may be found printed with this
Report. See the rest of written evidence on page 53. Back
4
See Annex E of the Government's supplementary memorandum, CRED
60A, for a summary of the various housing market announcements
over the past year. Back
5
In this Report we use the term "affordable housing"
to mean social rented housing and intermediate housing. "Intermediate
housing" includes low cost home ownership and other forms
of sub-market housing, including intermediate rent. Back
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