HC 1652 Communities and Local Government CommitteeWritten submission from PlaceShapers

About Us

We are a national group of 59 community based housing associations formed in 2008. We own more than 300,000 homes between us, provide services to more than one million people and employ over 70% of our staff locally. Together we completed over 21,000 new affordable homes in 200607—200910 and, as at May 2010, we had plans to invest around £2.7 billion to deliver a further 20,000 new homes.

We came together as a lobby group because we see the importance of working in depth with partners at a local level to achieve real improvements within an area. Good housing is the bedrock for a decent life and we are conscious of our pivotal role as change agents. Unemployment, crime, poor health, low educational achievement are all linked so what we do as housing organisations to help residents, local government and other agencies work together can make a huge difference to lives.

Summary

There is a real opportunity to ensure that the nations housing needs can be addressed and the current economic challenge provides the catalyst to re-shape the market.

PlaceShapers believe there are a range of steps that can be undertaken which will improve the supply new affordable housing, if we:

Establish a strong political vision with the aim of re-balancing the UK housing market.

Reduce the size of the private sector land bank.

Increase the supply of free/discounted public land.

Adopt a shared risk approach and accelerate deferred land purchase arrangements.

Ensure that any move to a purely revenue based grant model is deliverable regionally.

Continue with the new affordable rent models it will increase capacity but on its own will not see a stepped increase in new supply, particularly in the Midlands and North.

Increase private finance and availability.

Context

Even in the good years, housing supply has been unable to meet demand. We now have 1.8 million households on English local authority housing registers. A recent survey (Savills) suggests that there will be a shortfall of 1.1 million properties within five years, and 1.7 million by 2029. The economic environment has significantly constrained new supply due to a combination of:

weak housing market with poor prospects for real house price growth over the next five years;

restricted access to land due to excessive land banking and unsustainable pricing;

availability of corporate finance;

weak job market which adversely impacts on confidence to enter into long term mortgage commitments;

tighter lending criteria for mortgages and larger deposits (average deposit for first time buyer £26,500) even though interest rates remain at an all time low;

reductions in capital grant funding for social housing;

limited flexibility for social housing providers to cross subside new supply through mixed tenure;

financial market volatility and shareholder confidence particularly for the volume house builders; and

concerns regarding suitability and affordability of private rents.

The current economics suggest that the majority of first time buyers are unable to finance the requisite deposit, a position which is unlikely to change. The size of the deposit now required means that for 64% of the current non-homeowners the prospect of ownership is unrealistic (NCSE report).

For the first time in a decade, there has been a net movement out of owner occupation and into private renting, the numbers entering the rented sector rose by 21%. However the UK when compared to other larger European countries (England: 29%; France: 37%; Germany: 54%; Netherlands: 46%) has the lowest private and social rented markets. This reflects historical housing policies and the British mindset on owner occupation. This raises a real opportunity to reshape UK policy on renting as a sustainable alternative to home ownership, not just as a short term solution but a long term housing option.

The value of social housing stock rose by 75% to £247 billion in the last 10 years (Savills valuation). This is in contrast to the private rented sector which has seen increases of 178%. The marked difference reflects how social housing assets are driven by investment value of the income streams. This essentially takes capacity away from social housing providers. This position may improve as we move towards the affordable rent model.

The welfare reform programme has significant implications for new housing supply. It is important that as Country we continue to bear down on welfare costs. However the potential implications of these reforms may lead to a more transient community as result of fixed term tenancies, and a reduction in the supply of affordable new larger homes purely due the economics of cost and value as opposed to long term need.

There is a need for greater connection between macro policies which will support new supply as well as sustainable communities. There needs to be a better connect to housing and jobs and reducing transportation and energy costs for families. Creating real incentives for private house builders, local authorities and social housing providers to build homes which reduces the on-going live-in costs for customers rather than the current model which focuses predominantly on the initial cost of development.

Financing of New Supply

Increasing housing supply to meet demand is a critical issue and one which should no longer continue to be seen as a lower priority to other key aspects of Government policy and expenditure.

We believe there are a range of steps that can be undertaken which will improve the supply new affordable housing.

Strong political vision and reshaping the market

We believe there is an opportunity to re-shape the nation’s policy and move away from the historical desire for owner occupation to a more balanced model where renting is seen as a more sustainable and preferred alternative.

Social housing providers own or manage nearly 2.5 million homes and rental income from social housing amounts to £10 billion per annum. The move towards an affordable rent model and the intermediate rent market will enable social housing providers to meet the needs of different but inter-connected markets.

Historically there has been a stigma attached to social housing, however in the past 20 years providers have invested significantly in terms decent homes and new supply. These new homes are predominately built to higher standards compared to the private market and in some cases have utilised technologies which have delivered better energy efficiency and reduced running costs for the customer and tackling fuel poverty.

We believe investment and government intervention strategies should be conducive to increasing the affordable rent market rather than an over reliance on purely increasing supply for private home ownership.

Land Bank

A recent report highlights that the UK’s leading house builders have sufficient land bank to build almost 620,000 homes, of which less than 50% has been granted any kind of planning permission. Private developers are in essence restricting supply by the control they exert through these land holdings, which is partly driven by the proposed changes to the planning rules.

Social housing providers will have limited capacity to land bank, but do have the capacity to deliver new affordable housing immediately. As private developers suffer no cash loss from holding onto their land bank, there is no incentive to push these out into circulation.

We believe that large land banks should be subject to some form of tax levy as a form of disincentive which would act as a means of increasing supply of land into the market. This may also reduce pricing which continues to put pressure on the affordability of new social housing.

Free/Discounted Land

Local authorities and some quangos have significant free land or land which could be used for new housing as part of a wider regeneration programme. Some local authorities have taken a strategic approach and worked in partnership with social housing providers and offered free and discounted land to deliver much needed new affordable housing. These arrangements often require the social housing provider to ensure properties are available for customers on the local authority housing waiting list. This approach continues to work well as it helps bridge the financial gap in delivering new affordable homes. The important of this approach is further highlighted as result of the significant capital grant reductions announced in the Affordable Homes programme 2011–15.

Many local authorities have either continued to retain their surplus land holdings or offered them to the market with the express desire to maximise sales value. This results in land being acquired by private developers, as social landlords are unable to compete. However rather than new housing being provided from these sites, private developers will often land bank these sites for a considerable time, and by doing so have reduced housing supply in the area.

We believe there should be greater incentive for local authorities and those public sector organisations that have land holdings to balance their need to maximise return with the need to deliver new affordable housing.

Deferred Land Purchase

This is a relatively new approach which has been used very effectively by the Homes & Communities Agency. Essentially land is provided free or at deeply discounted rate initially, but with relevant parties taking the benefit of pricing usually associated with market sale properties at the end of the project. Projects funded through this approach have been successful, as the relevant parties work together to deliver new housing. They are able to take a strategic view of the housing market and adjust the delivery timescales to suit.

We believe more local authorities should adopt this model, which allows them to potentially maximise return on their land at some future point, but importantly it enables an immediate start to the delivery of new homes.

Capital v Revenue Subsidy

The reductions in capital grant in the most recent Affordable Homes Programme will see 80,000 new homes delivered for £1.8 billion. The available grant will inevitably place pressure on social housing provider balance sheets, which will require more private finance to fund the remaining gap.

There are uncertainties around future programmes and whether there will be move towards revenue subsidy model. Whilst it is difficult to judge the implication of such a move at this stage, this would change the relationship and potential risk profile between social housing providers and funders who have invested £43 billion in this sector.

Similar to the new affordable rent regime, which has seen significant variations and implications of charging higher rents across the Country as means of delivering more social housing units, a move to a standard model of revenue subsidy is likely to have some surprising regional variations, which may indeed hamper new supply.

We believe any move to develop a policy based on a purely revenue based model should be considered at regional and at local level. In the past 10 years we have already seen a substantial reduction in the number of social housing providers capable of delivering new homes, the danger with a revenue model may see this number reduce even further.

Affordable Rents

The implementation of the affordable rent model will increase rents to aid new supply. The regional impact of this policy has highlighted the continued need for grant funding in areas where the difference between affordable rents and social rents is minimal at best, or in some cases charging affordable rents would actually reduce capacity.

In the Midlands and North the emerging picture suggests some marginal benefit of charging Affordable rents, but not enough to see a stepped change in new supply. The picture elsewhere in the Country particularly London and South-East is more focussed around affordability of the new affordable rents by customers.

Our view is that, overall the affordable rent model will increase rents, but it will not deliver the stepped change required in new housing supply.

Private Finance

Social housing providers have been successful at leveraging private finance totalling £34 billion (Global Accounts 2010). We are starting to see a shift away from traditional financing structures to the bond markets. This is primarily driven by the availability of finance from what has become a sparse market.

Whilst pricing has increased, the real lack of traditional long term bank finance has seen social housing providers reviewing their strategic priorities and in some cases a move away from delivering new homes. In an attempt to re-capitalise, the Banks who have traditionally financed this sector are expressing their preference for short term financing, which inevitably means the social housing provider having to absorb more financing risk.

We believe the Government are in a unique position to directly influence the UK banking sector to increase availability. The provision of new affordable homes will not only meet the latent demand housing demand but also provides a much needed stimulus to the UK construction industry.

October 2011

Prepared 1st May 2012