House of Commons - Financing of new housing supply - Communities and Local Government Committee

Financing of new housing supply - Communities and Local Government Committee Contents

1 Introduction

1. Ensuring that there are enough homes available to meet the nation's needs should be a key priority for any government, but for many years house building levels in England have been far too low. The Minister for Housing and Local Government, Rt Hon Grant Shapps MP, himself told us that he did "not think we have been building enough homes in this country for a very long time".[1] It is clear that we need to see a step-change in housing supply, but the new homes the country needs will not be delivered unless there is sufficient money available to pay for them. This report considers the steps that can, and should be, taken to make more finance available for the building of new homes.

The challenge

2. Mr Shapps stressed that predictions of housing need were "hellishly difficult to make", pointing by way of example to the impact that the Government's immigration policy could have on the number of homes required in England. He said that, according to the "last study" he had seen, 232,000 new homes per year were needed.[2]This is the average annual figure for the projected growth in the number of households in England between 2008 and 2033.[3] Levels of household formation are determined by a range of social and economic factors. The Chartered Institute of Housing (CIH) told us that this household growth figure had to be considered on top of the "assessed backlog at any one time".[4] The CIH referred to a study that estimated households in housing need commissioned by the previous Government and published in November 2010.[5] This study set out projections that showed "backlog need peaking in 2009 at around 1.99 million households—equivalent to 8.8 per cent of all households, before falling back gradually until 2021". The forecast was based "on continuation of relevant existing policies and on judgements about the likely path of the wider economy going forward".[6] The CIH referred to a reconsideration of assumptions and suggested that "the forecast of an easing backlog is now much less likely to apply, because of the likelihood that the market will not recover rapidly and that the rented sector will grow little in gross terms".[7]

3. Table 1 below shows provisional house building completion figures in England for 2011. Such figures would suggest that England is currently building less than half the number of homes it needs to meet levels of household growth. Mr Shapps, however, pointed to the provisional New Homes Bonus figures for England for the more recent period, October 2010 to October 2011,[8] which showed that the Bonus was paid in respect of 159,000 properties.[9] This figure includes 22,000 long-term empty properties brought back into beneficial use.[10] In a Written Answer to Rt Hon Nick Raynsford MP in February 2012, Mr Shapps said that the remaining 137,000 included new build and conversions. The source data did not distinguish housing converted from existing stock from the newly-built housing that is the focus of this inquiry.[11] Moreover, while these New Homes Bonus figures may paint a somewhat more positive picture of the total number of homes being delivered, they would still suggest that there is a deficit of over 70,000 homes when compared with levels of household formation. If the backlog is also taken into account, the deficit becomes even greater. Table 1: Permanent dwellings completed, England, by tenure, 2011[12]

Private Enterprise 82,170

Housing Associations 24,530

Local Authorities 2,320

TOTAL 109,020

Figures are provisional and subject to revision.

4. Table 2 below shows house building completion figures in England for the last two decades. It shows that completions, in particular those by private enterprise, have fallen dramatically since the 'boom' years of the mid 2000s. The data also suggest, however, that even during those years, when it can be argued that there was plentiful finance available, the figures never came close to delivering the levels of housing the country now needs. Moreover, they show that in the last twenty years, the private sector has never delivered more than 150,000 homes per year. This suggests that potentially radical changes of policy and alternative sources of finance will be needed if housing supply is ever to reach levels of demand. Indeed, as owner occupation has been falling as a percentage of total tenure since 2003, some of these new approaches will need to be targeted at rented housing.[13] Increasing housing supply would also provide an important economic stimulus.[14]Table 2: Permanent dwellings completed, England, by tenure and financial year[15]

Year Private Enterprise Housing Associations Local Authorities TOTAL

1990-91 132,500 14,580 12,960 160,030

1991-92 132,050 15,970 7,110 155,130

1992-93 115,910 23,970 2,580 142,460

1993-94 116,050 30,210 1,450 147,710

1994-95 125,740 31,380 850 157,970

1995-96 123,620 30,230 760 154,600

1996-97 121,170 24,630 450 146,250

1997-98 127,840 21,400 320 149,560

1998-99 121,190 18,890 180 140,260

1999-00 124,470 17,270 60 141,800

2000-01 116,640 16,430 180 133,260

2001-02 115,700 14,100 60 129,870

2002-03 124,460 13,080 200 137,740

2003-04 130,100 13,670 190 143,960

2004-05 139,130 16,660 100 155,890

2005-06 144,940 18,160 300 163,400

2006-07 145,680 21,750 250 167,680

2007-08 145,450 23,110 220 168,770

2008-09 108,010 25,510 490 134,020

2009-10 89,540 25,180 370 115,080

2010-11 81,980 22,760 1,310 106,050

Mean 122,960 20,902 1,447 145,309

BARRIERS TO HOUSING SUPPLY

Finance

5. Our evidence indicated that the availability of finance was one of the biggest current barriers to increasing housing supply. In particular, witnesses were concerned about limitations on mortgage finance. Regenda Group, a housing association, argued:

Increasing the availability of mortgage finance is critically linked to the issue of housing supply as building rates will only increase if there is confidence that sales will take place post completion.[16]

Peter Williams, Director of the Cambridge Centre for Housing and Planning Research, said that there was "clearly a capacity constraint in the mortgage sector now and going forward for at least five years, and possibly longer, which really has a big implication for the shape of UK housing provision".[17] The Council of Mortgage Lenders anticipated "only a gradual progressive improvement in affordability pressures and credit availability, and therefore much slower recovery in property transactions" than had been projected by the Office for Budget Responsibility.[18] Some witnesses also pointed to issues raised by the availability of development finance. The Home Builders Federation (HBF), for instance, said that "funding is very restricted for many SMEs [small and medium enterprises] in the sector who often rely on project-based bank funding". It added that "if funding remains restricted, this could restrict the industry's ability to meet expanding demand".[19] Given that the financing challenges are likely to continue,[20] new sources of finance will be important both for making up the housing shortfall and providing longer term solutions. Our report will consider whether there are alternatives to traditional sources of debt finance that can help to fund the building of new homes.

6. We also heard from witnesses that there were various constraints preventing them from accessing the finance that was available. Representatives from various sectors—local authorities, housing associations, private landlords and investors—all pointed to particular regulatory, legislative or governmental issues that made it harder for them to finance house building.[21] We will consider in more detail some of the key constraints and how they might be eased or removed.

Availability of land

7. Some of our evidence considered the availability of land to be a barrier to housing supply. G15, a group of London housing associations, for example, said: "The supply of genuinely developable land is low and action is needed to increase the supply".[22] In particular, the evidence emphasised the importance of public bodies—central government departments and agencies and local authorities—making their land available for development.[23] In this report we will consider as a recurring theme the ways in which the public sector can support the financing of housing development through the provision of land; in doing so, we will be mindful of the assertion made by Shelter that:

new approaches to both land and finance will be required. Increasing the supply of either land or finance in isolation will not work: additional land supplied without finance will not be developed, and additional finance without land will simply inflate prices.[24]

Planning

8. It is important to consider finance and land availability in harness. These issues may also link in with planning. We heard from some witnesses that the planning system was a constraint upon housing development. John Stewart, Director of Economic Affairs at the HBF, said that planning was "a major obstacle", pointing to the findings of Kate Barker's review of housing supply and his experience of talking to house builders.[25] Other witnesses took a different view about planning, with Cllr Clyde Loakes, Vice Chair of the Local Government Association's Environment and Housing Board, saying that it was "certainly not" a key barrier to increasing housing supply.[26] We have already examined the planning system in this Parliament, in particular through our inquiries into the Abolition of Regional Spatial Strategies[27] and The National Planning Policy Framework.[28] In this report, we do not propose to look in detail at planning issues, except where they have an impact on the financing of new homes.

THE GOVERNMENT'S STRATEGY: LAYING THE FOUNDATIONS

9. On 21 November 2011, the day we held our first oral evidence session, the Government published Laying the Foundations: a Housing Strategy for England. Giving evidence to us on 30 January 2012, Mr Shapps told us that the strategy set out "over 100 different ways in which we intend to fix the gap".[29] He identified from the strategy four particular measures: the Right to Buy; plans to build 100,000 homes on government land; the new build mortgage indemnity scheme (later branded as the NewBuy guarantee); and planning reform.[30] A further measure in Laying the Foundations related to the establishment of a "Get Britain Building Fund" to "support building firms in need of development finance".[31] The 2012 Budget announced that this £420 million fund would be increased by a further £150 million.[32] John Stewart said that the fund was "not a panacea [...] but where development finance is the primary constraint this should help".[33]

Focus of report

10. We will examine some of the key measures put forward in Laying the Foundations, but will also take a longer-term view and consider the potential for broader changes of policy. As Peter Williams told us:

We all struggle to understand why housing supply does not respond more effectively than it does. There is clearly a package of issues around that, but it is extraordinary how the private sector output has remained remarkably constant, all through the cycles, without responding to what normal markets would respond to.[34]

There is clearly no 'silver bullet' with which the housing deficit can be removed; nor can we rely solely on private enterprise, which, in recent times—even during the 'boom' years of the mid 2000s—has not built more than 150,000 homes per annum in England. A range of solutions is needed, across all tenures of housing.

11. Our report will focus on identifying additional sources of finance to support house building. It will consider whether there are constraints on housing finance that can be removed, whether there are 'traditional' approaches to financing that can be given greater support, and whether there are new and innovative ways in which new housing can be funded. It will look at the contributions to be made by the public and private sectors, as well as not-for-profit housing associations. It will also consider the ways the various sectors can work together to make the most effective use of the finance available.

Our inquiry

12. We received over 60 written submissions, from housing associations, local authorities, academics, think tanks, charities and representative bodies, amongst others. We explored the themes emerging from our written evidence in four oral evidence sessions between November 2011 and January 2012. In the course of the inquiry we visited Birmingham and Dudley, to see at first hand the steps being taken to address the challenges of housing supply, and the Netherlands, to consider whether there were lessons from the Dutch approach that could usefully be applied within England. We are grateful to those who supplied us with written and oral evidence, and to those people we met on our visits. Particular thanks are due to Birmingham City Council, Dudley Metropolitan Borough Council and the British Embassy in the Hague for arranging the visits, to the Royal Institution of Chartered Surveyors who held a briefing session for us at the start of the inquiry, and to our specialist advisers, Professor Christine Whitehead OBE of the London School of Economics and Political Science,[35] and Philip Jenks of Phil Jenks Consultancy Ltd.[36]

1 Q 320 Back

2 Q 322 Back

3 Department for Communities and Local Government, Household Projections, 2008 to 2033, England, November 2010, p 1 Back

4 Ev 110 Back

5 As above Back

6 Glen Bramley, Hal Pawson, Michael White, David Watkins and Nicholas Pleace, Estimating Housing Need, research commissioned by the Department for Communities and Local Government, November 2010, p 10. Back

7 Ev 110 Back

8 Q 321 Back

9 HC Deb, 1 February 2012, col 66WS Back

10 As above Back

11 HC Deb, 27 February 2012, col 36W Back

12 Department for Communities and Local Government, Live tables on house building: Table 244: Permanent dwellings completed, by tenure, www.communities.gov.uk Back