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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