Targets: need and deliverability
7. The Government's housing supply targets are
designed to address both demand for new housing from buyers
and tenants, and housing need, which reflects overall demographic
trends. The targets are based on projections derived from population
data from the Office of National Statistics, which anticipate
that households will increase in number by 223,000 per year to
2026. The target number of 240,000 new homes per year is greater
than the estimated number of new households because of the need
to address many years of undersupply. The goal of building 45,000
new social homes per year similarly takes into account both newly
arising and past unmet need. The targets also aim to increase
affordability by reducing the price rises which occur as a result
of shortage of supply. As Dr Peter Williams, Executive Director
of the Intermediary Mortgage Lenders' Association (IMLA), told
us, "the three million is about slowing the increase in house
prices, improving affordability so that demand can become effective".[7]
8. Underlying levels of demand are not always
reflected by activity in the housing market. Property professionals
have reported a marked decline in private sales since the onset
of the credit crunch. The Royal Institution of Chartered Surveyors
(RICS) notes that, in September 2008, "the number of completed
sales per surveyor over the last three months fell to 11.5 per
surveyor, which is a historic low for the survey".[8]
The Council of Mortgage Lenders (CML) paints a similarly gloomy
picture, noting that "mortgage approvals for house purchase
are already running at around one third of last year's levels
[…] current indications also suggest that first-time buyer
numbers […] may struggle to hit 200,000 this year - the lowest
level for at least 40 years".[9]
Both these observations indicate a decline in effective¯or
realisable¯demand
but do not necessarily represent a fall in underlying demand.
The distinction is made by the Home Builders Federation (HBF),
which states "survey evidence, and abnormally high new home
cancellation rates, show that potential demand for new homes has
fallen far less than new home reservations, which means many potential
buyers are unable to proceed because they cannot obtain a mortgage
on terms they can meet".[10]
As well as problems with access to lending, some buyers are unwilling
to buy a home whilst house prices continue to fall. Neither of
these factors alters the demographic trends and assumptions about
demand which underpin the Government's housing targets. As Barton
Willmore, a planning and design consultancy, notes, "just
because people cannot buy houses at present does not mean that
the need has disappeared".[11]
9. Like most submissions, the evidence from Barton
Willmore assumes that the credit crunch will have an adverse impact
on housing supply but that demand will remain constant, or even
grow. There is, however, a possibility that the economic downturn
may also have an impact on the rate of new household formation,
for instance through migration. Difficult financial conditions
may reduce the rate at which economic migrants enter the country,
for example, and the rate of migration out of the country could
increase. There is as yet little evidence either to support or
to discount this possibility. When asked about it in oral evidence
on 27 October 2008, the Minister for Housing, Margaret Beckett,
replied, "You may be right in thinking that present events
will have some impact on household formation. I think it is much
too early to judge but it is genuinely a very interesting question".[12]
We were pleased to note at our oral evidence session on 16
December 2008 that the Government is intending to conduct research
on the likely impact of the credit crunch upon housing demand,
and look forward to seeing the results.[13]
10. In order to meet the target of 240,000 new
homes per year by 2016, an average increase of 7,274 new homes
would be needed each year from the 2007 level of 174,530 (a 4%
increase in 2008). However, evidence from the National House-Building
Council (NHBC) shows that the number of new homes registered with
NHBC to be built each month in the UK fell by 56% from 15,871
in September 2007 to 7,055 in September 2008.[14]
At the end of 2008 it predicted that the total number of new homes
started in that year would be 103,000, half the number of new
homes started in 2007, and approximately 80,000 lower than would
be necessary for the UK to be on course to meet its 2016 target
(see figure 1, below).[15]
Figure
1: Progress against building targets
Source: Cred 41 (National House Building Council)
The national downward trend in the number of new
builds is generalised throughout the regions. The South East England
Regional Assembly notes that the South East is unlikely to achieve
the 33,125 new homes per year set out in the South East Plan.[16]
Similarly, the East Midlands Regional Assembly states that housing
targets for that region "are unlikely to be achieved".[17]
11. It is clear that, in the immediate term at
least, the Government's housing targets cannot be met. The Construction
Products Association argues that "if Government maintains
its commitment to targets that are no longer credible it will
lose the confidence of the companies to invest in the UK, and
future targets will not be taken seriously".[18]
However, only a small number of written submissions to this inquiry
support any revision of the targets because this would imply a
reduced long term commitment. John Stewart, Director of Economic
Affairs at HBF, stated in oral evidence that "the fact that
supply will be down over the next two or three years, possibly
longer, does not change the fundamental fact that those people
exist, they need homes, they need adequate housing".[19]
12. In evidence to us on 27 October 2008, the
Minister for Housing appeared to suggest that there might be some
flexibility in the overarching housing target: "I think the
most challenging of the targets is the three million, but that
is an ambition actually rather than a target".[20]
Since then, however, we have been reassured that the Government
continues to take its targets very seriously. In written evidence,
the Department affirmed that "although the housing market
is facing a major short- to medium-term challenge as a result
of reduced credit and a loss of confidence, it is important to
recognise that this does not negate the long-term supply and affordability
challenges".[21]
In other words, although the target for three million new homes
by 2020 may have become even more challenging in current economic
conditions, "because the need is not going to go away, the
targets cannot just disappear either".[22]
13. We accept that, in the short term at least,
the Government's housing targets may not be met. The targets were
set, however, in response to housing need and demand: they set
the context for the vigorous policies needed to improve delivery
over the long term, whatever the short term barriers. The credit
crunch does not reduce levels of demand for new housing, nor does
it affect the need to address years of undersupply. We strongly
support the Government's continued commitment to the housing targets
set in its 2007 Housing Green Paper.
BALANCE OF PROVISION: PRIVATE, SOCIAL
RENTED AND LOW COST HOME OWNERSHIP
14. By 2010-11, the Government wants approximately
one third of the total new homes intended to be built each year
to be affordable homes. Of these 70,000 new affordable homes,
45,000 are to be for social rent, leaving a target of 25,000 new
Low Cost Home Ownership (LCHO) homes per year.[23]
This breakdown underpins the policy objectives the new Homes and
Communities Agency (HCA) is mandated to achieve from the National
Affordable Housing Programme budget.
15. As a result of the credit crunch, there may
be a need to adjust the relative proportions of the overall housing
targets allocated to social and LCHO homes. The Committee has
for some time expressed concern about the shortage of provision
of social rented housing. In our 2008 report on The Supply
of Rented Housing, we noted that the Government was "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".[24] Crisis,
the homelessness charity, states in written evidence that "in
2007, 1.6 million households, around 4 million people, were on
the social housing waiting lists. That number is predicted to
rise to some 2 million households by 2010, that's 5 million people
waiting for a social home. This is without taking into account
the likely increase in demand due to the current crisis".[25]
A report published by Shelter in November 2007, Homes for the
Future - A new analysis of housing need and demand in England,
estimated the backlog in need for social housing at a lower level
than Crisis, at "more than 500,000 households requiring social
rented homes, who are currently homeless, living in overcrowded,
temporary or other unsuitable accommodation".[26]
Whichever figure is more accurate, the unmet need for social homes
is significant. The Shelter study concludes that the targets for
LCHO and social rented homes do not reflect actual need. Its analysis
indicates that "newly arising need and demand will require
67,000 social rented homes, 30,000 intermediate homes and 145,000
market homes each year to 2020".[27]
Shelter's analysis of the shortfall in targets against its projections
of need is given in figure 2, below.
Figure 2: Shortfall in targets against projected
need
