Housing and the Credit Crunch - Communities and Local Government Committee Contents


Memorandum by the East Midlands Regional Assembly (CRED 27)

  The Communities and Local Government Committee has resolved to undertake a brief inquiry into the Government's response to the effect of the "credit crunch" on its housing policies.

  The Committee will consider the likely effectiveness of the measures that the Department for Communities and Local Government are taking to deal with the "credit crunch" with particular reference to:

    —  Achievement of the Government's house building targets, both for market and social housing.

    —  The financial viability and on-going business of housing associations.

    —  Measures to help existing and prospective homeowners affected by the "credit crunch".

  In view of the role and responsibilities of the East Midlands Regional Assembly, this submission will focus on the first of the three lines of inquiry, specifically "the impact of the credit crunch on the achievement of the Government's house building targets, both for market and social housing".

1.  SUMMARY OF SUBMISSION

  1.1  Targets for the next five years for market and social housing are unlikely to be achieved as a result of the downturn in the housing market.

  1.2  However, history suggests that the housing market may rebound strongly once the overall economic situation improves and Regional Planning Bodies and Local Planning Authorities need be planning for this recovery now.

  1.3  It is unlikely that housing delivery can increase sufficiently over the medium to longer term to meet the Governments overall targets for new homes by 2016 and 2020.

2.  BACKGROUND

  2.1  The "credit crunch" and ensuing economic downturn has fundamentally affected the housing market. The climate for house building has now changed beyond all recognition, for both private developers and builders of social housing.

  2.2  Consequently, current economic conditions are certainly very different from that at the time of the Government's announcement of the Housing Green Paper and associated house-building targets.

  2.3  Specifically, house buying has decreased with potential buyers discouraged by both a limited access to credit (mortgage products) and the (rational) expectation that the next house price movement will be downwards.

  2.4  Consequently, housing developers have substantially reduced or halted the construction of new housing. This situation will continue for the foreseeable future.

  2.5  In order to give an assessment of the impact of the "credit crunch" on Government's house building targets, these issues should be fully considered and the national targets should be disaggregated to fully understand the national and regional implications.

3.  TARGETS SET OUT IN THE HOUSING GREEN PAPER (JULY 2007)

  3.1  The Housing Green Paper set a national target of delivering 240,000 houses per annum by 2016, to provide an additional two million new homes between 2006 and 2016 and three million new homes between 2006 and 2020.

  3.2  There is little reason to suggest at this point why building rates should not rise to 240,000 per annum by 2016 given the country has achieved much higher rates in the post war period.

  3.3  However it is very unlikely that delivery will increase sufficiently over the medium term to meet the overall targets for additional new homes by 2016 and 2020.

4.  TARGETS SET OUT IN THE EAST MIDLANDS REGIONAL SPATIAL STRATEGY (PROPOSED CHANGES ISSUED BY THE SECRETARY OF STATE, JULY 2008)

  4.1  The Secretary of State has proposed an increase of the Regional Assembly's house building target for the East Midlands of 20,418 per annum to 21,750 per annum over the period 2001 to 2026. This was against the advice of the Regional Assembly.

  4.2  The Secretary of State has also included interim build rate targets for each local authority for the periods 2006-11, 2011-16 and 2016-26. This was against the advice of the Regional Assembly.

  4.3  Considering past trends, given that the region delivered just over 22,000 new homes in 2006-07, the overall regional target may still be achievable over the longer term. However, the usefulness of past trends is now challenged in light of the current environment.

  4.4  However, it is now clear that much of the period up to 2026 will be characterised by the effects of the housing market downturn. Therefore, in the short term, development will be well below these levels. As a result, the Secretary of State's proposed house building targets for 2006-11 are unlikely to be achieved.

5.  TARGETS SET OUT IN LOCAL AREA AGREEMENTS (LAAS)

  5.1  A number of Local Authorities in the East Midlands that have either Growth Area or Growth Point status have agreed targets with Government for housing delivery within LAAs.

  5.2  Given the short term nature of these targets, it is very unlikely that they will be achieved and Local Authorities may therefore need to re-negotiate these targets.

6.  TARGETS FOR AFFORDABLE HOUSING

  6.1  The Housing Green Paper also set an affordable housing target of 70,000 per annum by 2010-11. Although the Government has made significant additional funding available through the Housing Corporation (soon to be the Homes & Communities Agency), achievement of this target requires significant additional investment from the commercial banking sector and developer contributions from Section 106 Planning Obligations.

  6.2  In a buoyant housing market this would have been challenging enough. In a falling housing market the target looks increasingly unrealistic.

  6.3  However, there is the opportunity for Government to support the purchase of unsold private stock by Housing Associations for affordable housing, as happened in the early 1990s.

October 2008





 
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