Written evidence from Beryl Metcalfe (ARSS
153)
INCENTIVIZING COUNCILS
TO PROVIDE
HOUSING
Summary
1. The proposed incentive is a one off payment
between £6,000 and £10,000 per dwelling
2. Per capital revenue support grant is £1,312
per person for England.
The dwelling incentive would cover 4.5 to 7.5 years
for a single person or 2.3 to 3.8 years for a couple. So accepting
the incentive would not cover future costs arising from it.
Local authorities have fixed costs but additional
population will have higher than average infrastructure costs.
3. New Dwelling Requirements: Somewhere at the
upper end of the range 100,000-270,000 pa.
At 252,000 pa (latest OPCS projection), incentive
maximizes at 4% of local authority spend for an increased population
of 7%. Logically all local authorities should refuse the incentive.
( If they accept it will make council tax soar.)
4. Housing Targets and Planning: House of Commons
Paper
Local planning systems and incentives in Germany
and Switzerland to be copied. But Germany and Switzerland have
different history and falling populations whereas we are the population
boom country of the EU.
5. Will all these houses be needed?
Not if the poor still cannot get the dwellings they
need. Five reasons why the household projections might be too
high. Abolishing cohabiting rules could save money, keep families
together and reduce the number of dwellings needed. (This is counter-intuitive
but bears study.) Less likely is that more will be needed.
6. Pricing: contrary to the Barker report pricing
is not directly linked to scarcity. For various reasons including
the availability of capital and affordability we may not be able
to solve lack of housing for the poor by building larger houses
for the affluent.
7. The proposed incentive would not cover subsidy
costs for affordable housing in the public sector. To provide
this would make council tax soar.
8. Population imbalance in the country will put
severe pressure on water supplies in the south east. Some form
of regionalized planning may be essential medium term, perhaps
based on water catchment areas. LEPS are unlikely to be able to
establish new settlements which may be the most sustainable solution
for a higher population.
Here is something about me
Following my MSc in Environmental Planning and Design
from Aston University, (1973-75) with special mention), I have
given evidence and appeared at four Examinations in Public in
the West Midlands, in 1981 and 1991 as the Chairman of the West
Midlands Churches Committee (originally the county but later the
region), and in 2002 and 2009 as a member of the West Midlands
Regional Sustainability Forum but speaking on my own behalf.
I have had a long term interest in housing issues.
My MSc thesis compared various community responses to the housing
problems of Caldmore, an area of Victorian terraced housing in
Walsall which was becoming ethnically diverse. As a result I was
invited onto the Board of Caldmore Area Housing Association (1975-99)
where I served as Company Secretary for about 20 years and in
a number of other roles. While there I ran a Special Temporary
Employment Project on Asian Housing Finance with a team drawn
from the various local communities and also did research into
housing for the Walsall Communities Relations Council and Afro-Caribbean
Youth Council. In 1994 my husband and I moved to Stafford where
I served on the Board of the Bethany Project for homeless people
1999-2004.
From 1975-98 I was employed by the Church of England
Diocese of Lichfield in the field of urban deprivation and was
responsible for drawing up deprivation statistics for their parishes
and for a number of other Midlands Dioceses, developing z-score
based systems for comparing discrete areas. I was involved with
several consultations on the construction of the national index
of deprivation. My first degree from Cambridge in Mathematic and
Fine Arts with Architecture put me in a position to see serious
error in the log transformed chi squared statistics which were
being used nationally in 1991ff and which formed the basis of
deprivation adjustments to the local government and health service
apportionments. This background is also useful in assessing the
validity of housing projections.
My portfolio career also included 17 years of work
for the Open University mostly tutoring courses which included
"Man Made Futures". Hence I could claim to be a futurologist.
I will separately send my evidence to the House of
Commons West Midlands Regional Committee Planning for the Future
where my paper appeared in the Second Report of Session 2009-2010,
published 8 April 2010 and deals with some related issues.
1. INCENTIVIZING
COUNCILS TO
PROVIDE HOUSING
1.0 How much is the proposed incentive? The average
Band D precept for 2009-10 in England is 1414, the average is
1,175 and highest for Rutland is 1,656.
Realistically speaking the subsidy per house will
be only a maximum one off grant of about £10,000. Possibly
only £6,000 if police and fire precepts are omitted.
2. PER CAPITA
CALCULATIONS
2.1 Broadly speaking local authority revenue
grants for 2010-11 for England are £68,249 million for a
population of 52 million which is about £1,312 per person.
The incentive will therefore cover about 4.5 to 7.5 years of spend
for a single extra person or 2.3 to 3.8 years for a couple. But
these amounts have to be spent into the indefinite future. It
therefore follows that if extra housing is provided for extra
population, and councils act logically, no councils will be incentivized
by this particular proposal although it might sway them if they
are already facing a housing and homeless problem.
2.2 In practice local authorities have many fixed
costs and marginal costs per person are lower - but the additional
population is likely to be children who will need schools and
old people who will require personal care and other services—ie
the extra people are likely to need more than the per capita amount
so the overall guesstimate is probably of the right order.
2.3 The incentive discounts the long term costs
of extra population—rather like not fully funding pensions
and finding there will be too little in the pot in the future.
3. NEW DWELLING
REQUIREMENTS
3.1 Looking from another direction: What housing
programme is needed to provide an adequacy of housing units and
how will that affect the global size of the incentive?
3.2 House completions are running about 100,000
pa meaning a government subsidy to local authorities of £1
billion. Or £2 billion, if the programme picked up to double
that at 200,000pa. NHPAU (abolished April) thought we needed about
240,000 pa to match household formation. six years of council
tax would then be £2.4 billion. DCLOG and OPCS say there
will be 252,000HH pa extra to 2031. The incentive would then maximize
at £2.5 billion at about 4% of local authority spend but
might well be half that. This is to deal with a projected 7% population
increase. Clearly the incentive is insufficient.
4. THE HOUSE
OF COMMONS
PAPER 6 JUNE
2010
Housing Targets and Planning
4.1 This reviewed past history.
Housing Green Paper Jy 2007: two million homes by
2016, three million by 2020. Building 250,000 pa.
NHPAU Nov 2007: 270,000 per year by 2016.
The credit crunch intervened and output plummetted.
4.2 February 2009: Conservative Green Paper proposed
replacing regional targets with incentives rising from £250
million in 2010-11 to £1,250 million in 2014-15. This money
to be removed from revenue grant support.
4.3 Useful comparisons are made with Germany
and Switzerland. It is said that both have larger building programmes
than England but retain green land and they achieve this by decentralized
planning systems and incentives. They also achieve better space
standards in homes. I agree that an incentivized local planning
system might work satisfactorily but it important to understand
the differences between those countries and ours.
4.4 Germany has always had a larger building
programme because they needed much more reconstruction after the
1945 War. It has a larger population than ours at 82 million but
this is projected to fall to 70 million by 2060 whereas Britain's
population will rise from 61 million to 77 million. The EU population
projection report of 2008 says Britian will have much faster population
growth than any other EU country. Switzerland has similar projections
to Germany with marked declines expected to 2050 as a result of
a very birth rate.
4.5 Both Germany and Switzerland have enjoyed
relative wealth in the last 50 years enabling new housing to be
larger than our new housing. Both countries also have a more egalitarian
income structure. In the UK large sections of the population have
low long-term income prospects and have had to accept housing
of limited size. Another factor may be that construction costs
are lower in both countries because of an abundance of local timber.
4.6 The result of all this is that lower incentives
would work in Germany and Switzerland than in the UK and that
there is far less environmental pressure arising from increased
building and population. One important risk in the UK is the availability
of water in the south east where population growth pressures are
highest.
4.7 It would appear that the unusual growth spurt
in the UK is substantial due to net inward migration and the descendants
thereof. Family size is falling in the UK and is below replacement
level for the white population (as recently as 2000 the UN thought
that the UK population would be falling below its present size
by 2050). But the ethnic populations from Asia and the Caribbean
have been used to much larger families to compensate for high
death rates and even though they are having smaller families,
they are still above replacement rates.
4.8 This paper demonstrates that incentives would
need to be very much higher to incentivize local authorities to
attract population for them to offset increased capital and revenue
infrastructure costs.
5. WILL ALL
THESE DWELLINGS
BE NEEDED?
5.1 Here is some of the underlying data from
OPCS and DCLOG:
DCLOG and OPCS projections to 2031 published March
2009.
The number of households in England is projected
to grow to 27.8 million in 2031, an increase of 6.3 million (29%)
over the 2006 estimate, or 252,000 households per year.
Population growth is the main driver of household
growth, accounting for nearly three-quarters of the increase in
households between 2006 and 2031.
One person households are projected to increase by
163,000 per year, equating to two-thirds of the increase in households.
By 2031, 32% of households will be headed by those
aged 65 or over, up from 26% in 2006.
By 2031, 18% of the total population of England is
projected to live alone, compared with 13% in 2006.
5.2 At the West Midlands Examination in Public
in 2009 I argued that the revised Regional Assembly target of
365,000 by 2026 (well below the increased figures required by
Central Government) was about what was needed but since about
50% of these needed to be social and affordable housing, in practice
their original figure of 295,000 was realistic given the likely
scale of the social housing programme. The additional people would
be absorbed by an increased occupancy of dwellings.
5.3 If one's objective is to solve the shortage
of housing, there is no point in building housing that those in
need of housing cannot afford or access. Trickle down does not
have much effect on housing availability for the poor. With the
credit crunch, even young graduates are finding it very difficult
to become first time buyers because of the new need to have a
substantial deposit. In effect there is mortgage rationing and
even if a lot more young people managed to save the deposit, the
banks might not have the liquidity to lend to them.
5.4 On the bright side the 2031 household projections
could be too high for several reasons:
(a) growing longevity of marriages/partnerships
so that more retired people are living as couples as a proportion
of all retired people (OPCS have factored for this but not enough).
(b) the exclusion of students from the count
when universities provide accommodation in-house as opposed to
students being housed on the open market when they are counted.
Most students are single persons. Universities are increasingly
competing with private landlords and developers to provide thus
increasing the effective provision outside the housing targets.
(c) The possibility that people who are widowed
when renting will not be able to find any accommodation they can
afford so that more move in with sons and daughters. (Some risks
of overcrowding.)
(d) The option the government has to remove the
cohabiting benefit rules. The issue is that if a person on low
income and a person on benefits live together benefits are removed
and they have to live on a single income which produces huge extra
strains, especially if there are children. There is great financial
pressure for low income people to have separate homes.
There would be benefits costs if the rule were
abolished but they would be offset by not having to provide an
additional dwelling. There would also be less occasion for benefit
fraud and less accusations of cheating. Social gains might be
more families staying together.
To expand on this a bit more: a single person
on income support and with no savings gets about £57 a week
= £3,000 pa plus rent and council tax. Say a single person
dwelling costs £80,000 to build. If you have cash in hand,
it would take 27 years to be cheaper to provide the house. But
you would have foregone rent and in practice the money to build
the house is normally borrowed so that payback times are much
higher. If the person stays in a separate one person dwelling,
you are perhaps paying a further £60pw rent and £20
council tax. So one would save £80 if they move in with someone
else. Benefits calculations are very complex but it is highly
likely that abolishing the cohabiting rule would save government
money as well as helping some of the poorest people and encouraging
families to stay together.
(e) Potential reductions in immigration as a
result of government policy, economic distress in the country,
high inflation or less bogus student immigration.
5.4 But equally they could be too low if immigration
is not contained and students stay and have families at a fertile
period of their lives.
6. PRICING ISSUES
6.1 The Labour Government was persuaded to address
housing shortages by adopting the classical economics of the Barker
review ie to increase housing supply in order to bring down prices.
The real world behaved differently. Spain has a building programme
four times that of Britain for a smaller population, and the highest
vacancy rate in Europe but house prices had not fallen by the
time of the Barker Report in 2006 and have only dropped 18% from
their highest point at the end of 2007. Whereas house prices fell
in the UK when there was a squeeze on mortgage finance despite
far fewer new dwellings being provided than new households being
created. Classical economics says the price should rise if there
is scarcity but instead it fell.
6.2 One interesting fact is that statutory homelessness
fell in the last ten years despite there being fewer new dwellings
than households. This merits research but it suggests that there
is a good deal of elasticity in the housing in England. This probably
arises from falling occupancy and the fact that many more young
adults returned to parental homes to save a deposit when they
found a) they could not buy a property and b) the supply of social
rented houses for young couples had dwindled.
6.3 The conclusion is that prices are not directly
linked to affordability. Someone has to put up the capital to
build new homes and to provide mortgages.
7. BUILDING COSTS
AND PUBLIC
EXPENDITURE
7.1 Local authorities:
If one looks at current Homes and Communities
Agency grants for new build they run from £30,000 upwards
to £168,000 per property (the high figure in Greenwich).
This subsidy is needed to produce an affordable rent.
7.2 Refurbishment costs for smallish two bedroom
homes to decent homes standards were stacking up about £60,000
per dwelling when I was last on the Board of a Housing Association
over ten years ago and will undoubtedly be higher now. Subsidy
of £50,000 per property or so was needed to achieve affordable
rents at that time.
7.3 Clearly an incentive of £10,000 per
dwelling is not enough to enable any extra affordable housing
to stack up so any additional costs would be an extra charge against
new private housing which is already carrying the costs of a proportion
of affordable housing, service roads etc on all larger sites.
7.4 In addition there are the on-costs. Cambridgeshire
website suggests a figure of £800 per liner meter or £4,000
for a five metre frontage of road. Curtilege roads and utilities
may be included in the costs of providing the houses but may not
cover feeder roads or road engineering to cope with higher flows.
£10,000 will hardly pay for an extra set of traffic lights
at the entrance to an estate.
7.5 In practice local authorities also have to
provide social infrastructure: education, health facilities, public
open space, waste plants in proportion to a growing population.
They may choose to build or permit more housing but a one off
£10,000 per dwelling would be a very minimal incentive which
would build up problems in the future.
7.6 In practice the government is proposing to
increase the incentive gradually by reducing local authority revenue
support grant correspondingly. As the incentive is not enough
to meet the extra infrastructure costs to local government even
medium term, it follows that there will be a huge upward pressure
on Council Tax. One can only hope that there will be commensurate
savings from scrapping unnecessary bureaucracy.
8. CONCLUSION
8.1 In the past regional strategies put pressure
on local authorities jointly to meet higher housing targets. The
right level of target is a matter for debate but there was pressure
towards the goals of a decent home for everyone. Abolishing regional
strategies produces a situation where it is not in anybody's local
interest to increase housing supply even with a 4% short-term
uplift in resources. This uplift is illusory anyway since it will
come off the revenue support grant.
8.2 It also makes it almost impossible to relieve
environmental pressures by the creation of new settlements—although
the new town model is one that should be revisited in the interests
of sustainability in a low oil world.
8.3 If we persist with this strategy, serious
housing shortages may develop across the country. This will only
be exacerbated by the crackdown on housing benefit costs which
will mean more and more people looking for smaller cheaper lets
that may not be available.
8.4 Or rather, those lets will not be available
since the shakeout from the whole market of those who cannot buy
is expected to find accommodation at rents standing at or below
the mid point of their sector—so the whole market of would-be
low-income renters will be trying to fit into half the market
of rentable properties. This is a recipe for massively increased
homelessness amongst the poorest people in our land. Sooner or
later, the government will find itself having to provide more
social housing by one means or another.
8.5 It is also predictable that some portions
of the country will fare far worse than others in this upheaval
and that the government will eventually have to try to direct
population to less pressured areas by some sort of regional policy.
For sustainability, and healthy communities this has to be employment
led. Government offices in those far flung places not of interest
to industry? It is hard to see how less successful LEP's could
solve their own difficulties.
September 2010
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