Housing associations and the Right to Buy Contents

6Building new homes

Replacing the sold RTB homes

67.To a large extent, the success of the extended RTB will rest on its ability to add to the total housing stock and replace sold properties. When statutory RTB was introduced in 1980 there was no commitment to replace the sold homes. In 2012 the Government ‘reinvigorated’ the RTB by increasing the discounts available and reducing the qualifying period. The Government also introduced a commitment to one-for-one replacement of the homes sold. The Government argues that the extension of RTB to housing associations on the same basis will lead to increased affordable housing nationally. Some witnesses were concerned that social housing stock will be sold but not replaced, leading to a decreased housing supply. However the Government argues that homes built following a RTB sale are not replacements, but in addition to existing supply. Mr Lewis told us:

“I do not accept the terminology of replacements. They are not replacement homes. The home is still there and the family, or the people who have bought it, are in it. Bearing in mind they need to stay in it for a period of years, within those three years, the people who have bought the home are still in that home, by definition of the way the system works. When we are building the extra home, it is about creating an extra home for somebody.”55

68.Trudi Elliott, Chief Executive of the Royal Town Planning Institute, told the Public Bill Committee on the Housing and Planning Bill that:

“We are in a position now where, as a result of previous changes, planning permissions per year are up to 242,000, whereas completions or starts have got up to only between 131,000 and 133,000. So it is the other stuff in the system that will help us to deliver homes that we have to focus on.”56

69.The need for new starts to keep pace with planning permissions underlines the challenge of building new homes, including ensuring at least one new home built for every RTB sale. The Minister argued that some of the planning permissions in place were for large sites that would be built out over a number of years and that there could be a lag time between granting permission and finalising preconditions and other negotiations.57 There should be a comprehensive plan put in place by the Government setting out how the homes sold through RTB and council home sales are to be replaced to ensure the housing supply increases. The Government should publish more details on how it will achieve its objective of at least one-for-one replacement of sold homes, and address factors such as the availability of land, the capacity of the home building industry, including the shortage of skills, and the uncertainty of income from council home sales.

Capacity of the home-building industry

70.England has a severe housing shortage with councils across the country faced with substantial waiting lists for homes. It is therefore vital that the objective of increased supply is realised. According to the National Housing Federation,58 the country needs to build 245,000 homes a year to meet demand, while a report from KPMG and Shelter59 puts the figure at more than 250,000 per year. According to the Department for Communities and Local Government (DCLG), England has not seen more than 250,000 completed homes in any year since 1977/78 and in 2013/14 just 112,330 were completed.60 The Minister emphasised that housing starts have increased in recent years and highlighted the lag between planning permission being granted and work on site beginning. He also explained that there were many instances where planning permissions were in place on very large sites that would be built out over a number of years, or where permission had been granted but negotiation continued on final conditions.61 Mr Lewis also outlined the range of measures being introduced by the Government to address the issue, such as the introduction in the Bill of planning permission in principle, the Builders Finance Fund and the direct commissioning of 10,000 homes.

71.We do not believe that there is a single solution to the housing crisis in this country and we acknowledge the scale of the challenge. We note for example reports that according to the National House Building Council, the number of new homes registered in the three months to the end of September 2015 was 2 per cent lower than the same period in 2014. Increased labour costs and a skills shortage in the construction industry are cited as reasons for this decline, with an estimated 300,000 people leaving the building trade in the 2008-10 downturn.62 According to the Local Government Association (LGA), the skills shortage in the construction industry will threaten the Government’s house building plans. The LGA argue that the construction industry’s forecasted annual recruitment needs have increased for the last three years consecutively, up from 29,050 a year in 2013, to 44,690 a year from 2015. However the volume of construction-related training has declined: since 2012/13 vocational learning qualifications have dropped by 4 per cent and higher education by 17 per cent. Construction, planning and built environment apprenticeships have fallen 58 per cent from 18,850 in 2008/09 to 7,930 in 2013/14.63

72.Lord Kerslake described for us how the structure of the house-building industry has consolidated, with the number of SME house-builders dropping from 12,000 in 1990 to 3,000 in 2015.64 We note with interest therefore the recent announcement65 by the Government that it will be directly commissioning development at five sites which the Homes and Communities Agency is currently developing. The intention is that directly commissioning will make it possible to support into the market smaller building companies and newer entrants which are ready to build but lack the resources and access to land. We were told by Peter Schofield, Director-General, Housing and Planning at DCLG, that a key objective was to address the slow rates of build-out on sites by agreeing the speed of development upfront.66 The developments will still be subject to the usual planning permissions and infrastructure agreements, so we await their progress and will monitor whether the direct commissioning approach leads to quicker developments. When we asked the Minister whether the country had capacity to deliver the homes needed, he acknowledged the skills shortage and told us that he was discussing the issue with colleagues in the Department for Business, Innovation and Skills.67 The capacity of the home-building industry nationally is of cardinal importance: we intend to monitor it, and will launch an inquiry into it in due course if this seems useful.

The tenure of new homes

73.In addition to increasing the number of homes built, it is important to ensure that the spread of tenure available meets the needs of the population. Representatives of housing associations told us that as a result of Government policies such as the rent reduction (discussed in part 7 below) they expected to continue building homes, but that the profile of these homes was likely to change. For example David Montague, Chief Executive of L&Q Housing, explained that:

“I think there is a general shift towards more housing for sale among housing associations. If you look at G15, one third of us are predicting that we will do the same amount of affordable rent; two-thirds are predicting less; 80 per cent of us are saying that the thing we will replace it with is housing for sale.”68

74.Other witnesses said that their housing associations would maintain levels of overall building or decrease slightly, but all agreed that the profile of what they were building would change. We note that the homes that are built to replace those sold through RTB and the council home sales might be replaced in a different tenure, which could be a cause for concern in some areas.

75.Research commissioned by the Joseph Rowntree Foundation to explore the impact of the extended RTB and high value council sales reached significant conclusions. The research did not consider whether the homes sold could be replaced, but rather what they might be replaced with. It used three scenarios: the first where sold homes are replaced and let at the same rents, the second where the replacement stock was let at Affordable Rent levels (i.e. higher than social rent levels) and the third where the new homes were built for sale as shared ownership.

76.The report found that the first scenario would have a positive impact on poverty levels and would increase access to low rent housing. With the higher rents in the second scenario, poverty levels would be expected to increase. Under the third scenario, the research found that because only around 3 per cent of households currently accessing social rented housing could afford to buy shared ownership homes, and fewer still Starter Homes, many would be diverted into the private rented sector where rents are higher still, thus increasing both poverty levels and the national Housing Benefit bill. The report argues that not replacing sold stock at the same tenure will see:

“more than 20,000 working households ineligible for housing benefit who are having to pay higher rents–most likely within the private rented sector–as a result. Just under half of these would be classed as in poverty on the basis of their incomes and would be pushed into more severe poverty as a result of the higher rents.”69

77.We believe that if the policy of RTB is to realise its objective of increasing social mobility, the tenure and rent levels of the replacement stock is of fundamental importance. The Government must take steps to ensure that the homes built to replace RTB and council home sales meet the needs of local communities and have a tenure mix that reflects local circumstances.

Starter Homes

78.The Housing and Planning Bill emphasises the role of Starter Homes, which are defined as homes costing up to £250,000 (£450,000 in London), to be available at a 20 per cent discount to first time buyers that meet qualifying criteria such as being under the age of 40. The Bill provides for a new legal duty to be placed on councils to guarantee the provision of 200,000 Starter Homes across all reasonably sized new development sites. In his speech to the Conservative Party Conference, the Prime Minister confirmed that Starter Homes would be counted as ‘affordable housing’ for planning purposes including s106 agreements for developer contributions. The classification of Starter Homes as ‘affordable’ has been criticised by many, including Lord Kerslake who told us “I think it is hard in London to see a property that requires a salary of £77,000 and a deposit of £90,000 as really meeting the definition of affordable.”70 Cllr Ferris Cowper also questioned how affordable Starter Homes really would be, explaining that in East Hampshire the average income to house price ratio was currently 11.25, and that taking into account the 20 per cent Starter Home discount, this would still be a little under 10–meaning that the average purchaser would still need almost ten times their salary to purchase a Starter Home.71 There is a risk that rather than providing a low-cost means of entering the housing market, Starter Homes will instead only allow people who could afford to buy anyway to purchase a more expensive home. Given that the discount will only last for five years, Starter Homes would likely be an extremely attractive investment for prospective buyers with an almost guaranteed profit if sold after five years.

79.In a briefing note for its members on the Bill, the NHF argued that:

“Starter Homes should not come at the expense of a high-quality, sub-market rented offer, for which there remains high need and demand. It is also important that Starter Homes are genuinely additional to homes that would otherwise have been built, either for outright sale or traditional affordable housing. The requirement to deliver a particular number or proportion of Starter Homes to be granted planning permission and the ability of developers to use Starter Homes to meet their section 106 affordable housing obligations, risks having a significant impact on the delivery of traditional affordable housing. Starter Homes should give developers a higher return (80 per cent of market value) than traditional forms of affordable housing (closer to 60 per cent to 70 per cent).”72

80.In 2013/14, 37 per cent of all affordable housing completions were delivered through s106 agreements.73 Home builders will understandably seek to build the products with the highest return, and we are concerned that the Government’s policy should not lead to fewer truly affordable homes to rent being built. There is a finite amount of money available from developers to deliver affordable housing, and the duty placed on councils is likely to mean that building Starter Homes could be prioritised over other types of affordable housing. Local authorities will be under pressure to satisfy their legal obligations, and this could make negotiations with developers extremely difficult and could undermine Local Plans. Starter Homes should not be built at the expense of other forms of tenure; where the need exists, it is vital that homes for affordable rent are built to reflect local needs. The definition of affordable housing should better reflect individual and local circumstances.

81.We were told by the Minister that if someone purchases a Starter Home, they must keep it at least five years before being able to sell it a full market value.74 Several witnesses raised this as a concern, with some suggesting that this would make Starter Homes an attractive investment for those who can already afford to purchase a home,75 and others that this could put them in competition with other housing products on the market.76 We urge the Government to review the period of time over which the discount would operate.

The impact of Government policies on housing association development

82.On 25 November 2015, the Office for Budget Responsibility published its Economic and Fiscal Outlook. This looked at the impact on housing association activities of measures announced first in the July Budget and then in the November Spending Review. It found that the July measures (the 1 per cent rent cut and ‘pay to stay’, both discussed later in this report) would reduce the number of housing association new builds built up to 2020/21 from 220,000 to 140,000. The measures announced in the Spending Review (reduced funding in 2016/17 and 2017/18 followed by increases in subsequent years and a change in composition in funding towards affordable ownership including Starter Homes) would lead to further reductions in new builds in 2016/17 followed by increased new builds in the years following 2018. In total, the policies announced result in a forecast 185,000 new homes being built between now and 2020/21—34,000 fewer homes than were forecast before the July Budget, and with a different tenure mix.77

83.On 7 December 2015, the Equalities Statement on the proposed changes to national planning policy was published. The Statement anticipates that the Government’s broadening of the definition of affordable housing to include Starter Homes will lead to less traditional affordable housing being built. The report explains that “We estimate that a developer on average could deliver 1.4 to 1.8 starter homes for every affordable home”.78 Using the data in Figure A3 of the report, for every 100 people moving into Starter Homes built using s106 funding, between 56 and 71 fewer people will move into new build affordable rented, social rented or low cost home ownership homes. We note the emphasis on Starter Homes and the possible consequences for levels of affordable housing. Starter Homes will suit some people, but not all. We are particularly concerned that the requirement to include them in the homes that can be provided for through s106 agreements could change the balance of affordable housing and could put it out of reach for people on low or unstable incomes. Starter Homes should be built in addition to homes for affordable rent where the need exists locally.

84.The Government should publish annual figures on new homes built, specifying how many homes in each local authority area were sold under, and built using the proceeds from, Right to Buy, and what tenures the new homes are. Without these figures, it will not be possible to ascertain whether or not the extended Right to Buy is a success in terms of adding to the stock.

55 Q325

56 Oral evidence taken before the Housing and Planning Bill Public Bill Committee on 17 November 2015, HC (2015-16) 94, Q224 [Trudi Elliott]

57 Q326

59 KPMG and Shelter, ‘Building the homes we need: a programme for the 2015 government’, April 2014, page 4

60 Department for Communities and Local Government, ‘Live tables on house building’, table 209 [accessed 15 January 2015]

61 Q326

62Britain’s biggest housebuilders slow home construction’, Financial Times,20 November 2015

63Skills to build: creating the houses and jobs our communities need’, Local Government Association, August 2015

64 Q271

65PM: the government will directly build affordable homes”, Prime Minister’s Office press release, 4 January 2015

66 Oral evidence taken on 11 January 2015, HC (2015-16) 531, Q53

67 Q327

68 Q95 [David Montague]

70 Q266

71 Q195 [Cllr Ferris Cowper]

72Member briefing on the Housing and Planning Bill’, National Housing Federation, October 2015

74 Oral evidence taken on 9 November 2015, HC (2015–16) 529, Qq7-8

75 Q136 [Stephen Javes]

76 Q93 [Nicholas Harris]

77 Office of Budget Responsibility, Economic and fiscal outlook: November 2015, Cm 9153, November 2015, paras B45-47

78 Department of Communities and Local Government, Consultation on proposed changes to national planning policy: equalities statement, December 2015, page 12

© Parliamentary copyright 2015

Prepared 8 February 2016