Our ref:
DB/ms
11 August
2003
Kate Barker
1 Horse
Guards Road
London
SW1A 2 HQ
Dear Ms
Barker
Barker Review of Housing Supply
Thank you
for the opportunity to submit evidence to your review of the underlying causes
for the lack of supply and responsiveness of housing in the UK.
I attach
our detailed submission which I hope helps to shed light on some of the matters
you have raised in the questions you published. I also attach web links to two
of our recent policy papers that are relevant to this debate, at the bottom of
this letter – one on Planning for Housing and the other on the Right to Buy.
We are
fully behind identifying and removing blockages in the system and finding other
ways of improving the responsiveness of supply of housing. However, we perceive
that there could be unintended negative consequences if this end is pursued too
vigorously without sufficient regard to long term sustainability of the
resulting communities.
The review
is geared towards problems affecting housing markets in high demand areas and
speed of supply appears to be a critical driver underpinning the review. We
believe it would be a mistake to focus solely on increasing the speed of
housing supply – this would only deal with one aspect of the problem. As the
Deputy Prime Minister has already noted it is far more important that
neighbourhoods are sustainable in the long term, than that housing is built
quickly. Whilst the two are not necessarily mutually exclusive, we would be
very concerned if speed takes precedence over lasting sustainability in the
Government’s policy response.
A key
government objective since 1997 has to been to reduce inequalities, one of the
most fundamental of which can be seen in terms of housing. The housing supply
problem in high pressure areas cannot be tackled effectively without
substantially increasing the supply of affordable housing for those on low
incomes. Any solutions that focus exclusively, or even in large part, on owner
occupation will also further residualise the social rented sector. This not
only contributes to further inequalities but will in itself place even greater
pressure on the owner occupied market.
Whilst we
recognise the particular supply problems that are currently being experienced
in the wider south east we would argue strongly that a UK perspective must be
taken if a sustainable solution is to be forth coming. There are seriousness
housing supply problems in the south west, parts of the north (e.g. York,
Chester, Harrogate), and in rural areas all over the country, yet to date
government measures to increase supply have all been focussed in the south
east. Consideration must be given to supply issues in other areas.
We would
like to see effective government support to stimulate economic growth in areas
outside the wider south east and south west. Only by doing this will we provide
an economic rationale for areas that are experiencing housing market collapse.
ODPM is funding nine Pathfinder areas to tackle low demand and abandonment in
housing markets in the midlands and north but it is hard to see how these
efforts will be sustainable if employees continue to be sucked into the south
east. In addition, focussing new developments exclusively in the south east
region adds to pollution, loss of green space, journey times and other
environmentally unfriendly problems.
Despite
these concerns, we are supportive of the review and would like to see blockages
to development removed to ensure greater stability in the housing market. We
intend to organise further debate on the issues raised by your review amongst
CIH members and would be pleased to concentrate on a particular sub-set of
issues that may be of particular importance to you. Please let me know if you
would like to arrange a meeting to enable us to give you further feedback on
these matters.
Yours
sincerely
David
Butler
Chief
Executive
Link to
Planning for Housing: the potential for sustainable communities
http://www.cih.org/policy/planningforhousing.html
Link to The
Right to Buy: a symposium for debate
http://www.cih.org/policy/rtb1.pdf
CIH Submission to the
Barker Review of Housing Supply
1.
Introduction
1.1
The
Chartered Institute of Housing welcomes the opportunity to submit evidence to
this review of the underlying causes for the lack of supply and responsiveness
of housing in the UK.
1.2
The
Chartered Institute of Housing (CIH) is the only
professional organisation representing all those working in housing. Its
purpose is to maximise the contribution that housing professionals make to the
well being of communities. As such, our members have a keen interest in this
debate about the lack of responsiveness of the housing market and its relationship
to building sustainable communities. The CIH has over 17,500 individual members
working for local authorities, housing associations, Government bodies,
educational establishments and the private sector.
1.3
We
have focussed our submission on the third theme set out in the notes attached
to Kate Barker’s letter – the causes of unresponsiveness in housing supply –
and have structured it around the four questions in this theme (sections 2,3,4
and 5). As the Chartered Institute of Housing, we have a particular interest in
the questions posed about the rented sector and affordable housing, and have in
the recent past done a lot of work around these. We therefore set out some
specific comments on both private renting and affordable housing separately in
sections 6 and 7.
1.4
Whilst
we completely understand the drive to increase the supply of new housing to
meet demand in the wider SE area we would argue very strongly that increasing
both the speed of construction and supply of new housing will not in themselves
produce communities that are sustainable. It is more important that any policy
reforms are geared to produce communities that are sustainable in the long term
than that housing is built quickly. The planning system has an important role
to play in delivering long term sustainability and we believe that significant
reforms are needed to make planning a more positive and proactive activity.
1.5
The
provision of affordable housing is key to tackling problems of housing supply.
Any solutions that focus exclusively, or even in large part, on owner
occupation will not solve the issues for low income households, and would
result in further residualise the social rented sector.
1.6
We
also believe that it is necessary to take a UK perspective. A lack of supply
affects the south west region significantly as well as parts in the north of
the country and many rural areas, so solutions must not be focussed entirely on
the south east. It is also important that the opposite problem of low demand or
over-supply in parts of the north and midlands is seen as a linked, rather than
a separate issue. Government support to stimulate economic growth in areas
outside the wider south east could help both to stimulate demand for housing in
low demand areas and to rebalance housing markets in the south east by easing
demand.
2.
Behaviour of the house building industry
2.1
Government
is promoting much wider use of off-site manufacture techniques as a means of
increasing the speed of house construction. New technologies are needed in the
house building industry, and we support the ethos of the Rethinking
Construction programme in driving these through, but there are reasons why we
believe they may not be taken up quickly by the private sector and should not
be adopted too hastily by the public sector.
2.2
Housing
and regeneration professionals have been dealing with the consequences of the
last ‘build lots fast’ era for a number of years. Apart from the well-known
issues associated with system built high rise flats, there have been other
serious structural problems affecting housing in the past. Notably, problems
with PRC build types were sufficiently serious to warrant the passage of an Act
to remediate defective properties (although many remain unresolved). The costs
of these mistakes are significant and include the human well as financial
costs, and care should be taken to avoid repetition of them.
2.3
The
quality and durability of off-site manufacture techniques are not yet proven
and this may limit the success of volume building using these methods. Problems
with construction techniques
typically take decades to emerge – far longer than the lifespan of the
demonstration projects that form a key part of the Rethinking Construction
programme.
2.4
This
is reflected in the concerns that lenders have expressed as to whether or not
properties built using these techniques can function as adequate security for a
loan when they have not been fully tried and tested. We predict that it may
take decades for new methods to be fully accepted by lenders and many purchasers.
2.5
It may
be possible to identify certain built types that have got a good track record
and are more trusted by lenders, and initially to concentrate on these types
for volume building. Government may also need to consider underwriting
warranties if the industry cannot provide them, if off-site manufacture is to
be a viable option for large scale private house-building.
2.6
The
poor take-up of new technologies (methods and materials) makes them expensive
and makes it harder to persuade UK manufacturers to produce them. Private developers also claim that house buyers still prefer
traditional build types. There
may be a role for the DTI to invest in the development of off-site
manufacturing methods in the UK to reduce their costs at least until the volume
of building reduces costs through market mechanisms. Also, the Regional
Development Agencies are well placed to bring together potential customers of
new technologies to create sufficient demand to stimulate manufacture and lower
prices.
2.7
Many housing professionals
are concerned that public housing is being used as the test bed for new
techniques – although there is some very good practice being developed in the
social housing sector which could be more widely shared – whilst there is
little inducement for private house builders to adopt them. This raises
questions about the long-term effects of continuing visible differences between
public and private housing on efforts to promote social inclusion. There is a
strong case for policies that move towards a situation in which there is no way
of differentiating between private and publicly subsidised housing. We believe
that planning policy could have a role in this by placing design requirements
on private developers.
2.8
There
is a significant lack of traditional skills in the construction sector – both
in terms of manual and managerial / professional and technical skills – which
is especially acute in relation to new (and green) construction methods. The introduction of measures (such as
releasing land) to increase supply without improving skills levels in this area
will produce poor quality housing that will be costly in terms of repairs and
maintenance.
2.9
There
are particular problems relating to building to higher densities. Private house
builders make higher margins building detached four-bed executive homes than
they do through volume sales of smaller homes. Also, legal complications with
leases on flats, and the damage to the image of high rise from poor quality
blocks in the past, can put off potential buyers of higher density
developments.
2.10
However,
high density residential buildings can work well if designed and built to a
high standard and marketed to an appropriate client group. The Rogers Review on
Urban Renaissance (1999) recommended greater use of terraced houses for
achieving high density living, but there are others possibilities too.
2.11
Stronger
planning powers to require private developments of smaller / cheaper properties
at higher densities where appropriate should be considered. Also, funds could
be made available for more demonstration projects relating to quality living at
higher densities.
3.
Capacity constraints affecting land, access to
finance and availability of skills
3.1
There
are issues around constraints in land supply. However, releasing large amounts
of land will not make a big difference, and we consider that arguments to this
effect may be overstated.
3.2
The
amount of new housing that is added to the total housing stock each year is
much less than 1%. The demand for housing is so great compared to supply in
some parts of the UK that even increasing the level of house building
substantially will not change this imbalance significantly.
3.3
There have been various studies that investigate the
impact that increasing the supply of market housing would have on house prices.
These were considered by the ODPM
Select Committee Inquiry into Affordable Housing (House of Commons, 2003) which
found convincing evidence that “… a huge
amount of private housing development, far in excess of what the Government is
proposing, would be required to reduce prices even in the medium term …”.
3.4
The only
realistic way to make housing affordable to lower and middle income households
in high demand areas is to provide some form of direct subsidy. The quantity of
affordable housing developed and its affordability relative to market prices
is, therefore, crucial.
3.5
Builders
build at a rate to suit their businesses. Increasing production is not the only
means, and often not the most efficient means, of increasing profits. To an
extent, it is in developers’ interests to restrict supply because they can make
more profit by waiting until house prices are high.
3.6
Developers
will frequently take out options to purchase land at a future date through
agreements with land owners. Once purchased, developers are not obliged to
build immediately, and they will sometimes withhold land until the housing
market conditions for development suit them (eg. until house prices are high).
This practice of land banking through option agreements is a problem, partly
because developers’ timetables do not usually fit a community’s need for
housing, but also because it actually reinforces fluctuations in the housing
market.
3.7
We
understand that this system of taking out options on land can help to bring land
forward more quickly when it is required because the negotiation has already
taken place. However, we suggest that the incentives for private companies to
bank land needs to be reduced so that the balance between whether a site is
held back or developed is much finer. We believe that introducing some form of
taxation on land that is earmarked for development, but not being developed,
could help to bring land forward by making it less financially favourable to
hold onto land.
3.8
Some
local authorities also have significant land resources but are unable to make
best use of them because they lack the money (and sometimes the political will)
to undertake the physical restructuring, including demolition, necessary to
release the land in a sufficiently cleared state for private developers to use.
In very high demand areas, more use could also be made of Urban Development
Corporations – a single organisation that can facilitate and co-ordinate land
release and development.
3.9
Public
sector bodies could be given more powers (including the financial capacity)
that would enable them to capture land values in order to bring down the cost
of development and cross-subsidise the development of affordable housing.
Better practice in the public sector in, for example, purchasing options, land
banking and phased land release would enable public authorities to plan land
availability more strategically.
3.10
There
may be a greater role for English Partnerships to purchase private land as well
as bank public land. The potential for greater use of Community Land Trusts, in
which the community owns the land collectively, should be explored.
3.11
Site
assembly, particularly of some brownfield land, is often very difficult in
practice. There are, however, examples of good practice both in the UK and
abroad and more could be done to make them more widely available. At one time,
local authorities had dedicated funding to clear sites ahead of development,
but they appear to have lost this. English Partnership might also be used more
effectively to fund the clearing of sites.
4.
Why has private housing supply not expanded to
replace the provision of social housing?
4.1
The review asks a fundamental question about why the
private sector has not expanded to replace the provision of social housing,
given the growth in people’s aspirations to own a home. There are a number of
strands to the answer to this question.
The experience in
low demand areas
4.2
Some clues
can be gained by looking at what has happened in areas of low demand where
supply of housing outstrips demand. In these areas private housing is, to some
extent, taking over from social housing, although there are other reasons why
we believe there are limits to the degree to which this can happen (which we
discuss in 4.7 to 4.12).
4.3
The
demographic profile of council tenants shows that there are many more young and
elderly people, and far fewer people in middle age, now living in council
housing. There is also strong evidence that younger social housing tenants
often aspire to leave the sector at some point in the future to become
homeowners or private tenants.
4.4
Where housing
is in low demand and house prices – even of new housing – are relatively
affordable, there is significant movement from council and housing association
dwellings (as well as from smaller older private dwellings in unpopular areas)
to new private housing. This is likely to continue until such time as trends in
supply and demand are reversed sufficiently (through market restructuring -
including the inevitable demolition of significant amounts of council housing
in some places).
4.5
At the other
extreme, where house prices are high, the social sector remains over-subscribed
because even though the aspiration to own exists, it is not accompanied by the
ability to afford to purchase. Many people living in these areas continue to
live with their parents for much longer than in other areas, or are forced to
share for longer, because they cannot access suitable market or affordable
housing.
4.6
The question
that needs to be answered is what ratio of dwellings to households is required
– in any one place – to bring house prices down sufficiently to enable every
household who wants to, to afford to purchase or rent on the open market? If
the answer is that households and dwellings need to be approximately in
balance, then the private sector could conceivably cater for more low income
households in the future. If, however, significantly more dwellings than
households are required to bring prices down sufficiently (as is the case in
low demand areas), then it is necessary to consider whether it is acceptable to
allow some of these homes to stand empty in order to have some excess in the
market in order to reduce prices.
Housing benefits
rules
4.7 Housing benefit rules are another reason why the private sector has not taken over from social housing. The fact that housing benefit is only available for tenants, and is not available to help towards the costs of a mortgage, is very significant particularly for people on low or insecure incomes, especially given that around two thirds of social sector tenants are now dependent on housing benefit.
4.8 Caps on benefit allowances effectively bars many households from affording good quality privately rented housing, and what they can afford tends to be poorer quality privately rented accommodation. Some private landlords are reluctant to take tenants on housing benefit.
4.9 Under current rules, people who are dependent on housing benefit cannot compete in the market. Extending eligibility for housing benefit to low income home owners would provide a means for people on low incomes to access home ownership, and to gain the financial benefits of increasing property prices.
Mortgage eligibility
4.10 There will always be people who cannot access loans for house purchase because they are too high a risk for lenders. These individuals rely on rented housing, whether in the public or private sector and measures to increase owner occupation will not help them with access to suitable accommodation unless there are radical changes to lending practice, supported by government.
Security of tenure
4.11 Security of tenure is another factor. The general use of assured shorthold tenancies could be a disincentive for some low-income households to take up residence in the private rented sector. The social rented sector – both council and housing association housing offers much greater security than either owner occupation or private renting and for some people, particularly those on low incomes or insecure earnings, this is a reason for preferring to live in the social sector. This could be partly addressed through changes expected following the Law Commission review of housing tenure, particularly if private landlords can be persuaded to use longer term tenancies more readily.
Management services
4.12 A range of management services are available in rented housing, but not for owner occupiers. For some people, the management services that they receive from a landlord, such as repairs and maintenance, are a reason to live in rented housing. This is particularly the case for elderly and some disabled people, but peace of mind that repairs will be carried out can be important for other people too.
5.
Policy constraints – issues relating to planning and
the tax systems
5.1
The
Government is committed to building sustainable communities, but we are
concerned that the primary understanding of ‘sustainability’ seems to be in
relation to increasing the speed of housing supply, particularly in the wider
South East region (despite the findings pointed out earlier that even
increasing supply hugely will not reduce house prices substantially).
5.2
We do
recognise that there are unnecessary delays in the process of planning – and
these need to be identified and dealt with to increase speed and steam-line the
system. However, it may be tempting to conclude that, as the planning system is
widely seen as a key block to getting volume housing built, it should
de-regulated in some way or another. We would strongly warn against attempts to
diminish the role of the planning system in an attempt to deliver speed and
quantity alone.
5.3
CIH
has been arguing for planning reforms for some time now (see our Planning for Housing policy paper
produced jointly with the RTPI). We believe that what is required is for the
planning system to be more proactive in the process of building
sustainable communities. The activity of planning should be seen as part of the
solution, rather than the problem. This would require a number of significant,
but not unattainable changes to the planning system and to the culture of the
planning profession – something that is being investigated in the Egan Review.
5.4
It
must be recognised that sustainability embraces a number of elements –
including social, economic and environmental elements – and that outcomes, in
terms of the long-term sustainability of neighbourhoods created, are more
important than the speed of development. The building of whole functional
communities – with a range of community facilities including shops, transport,
schools, community centres etc – must not be sacrificed for speed. Neither
should the drive for house building to support socially mixed, rather than
segregated, communities.
5.5
Nevertheless,
we have identified a number of ‘sticking points’ in the planning process which
are causing unnecessary delays, and we believe that there may be more that
could be identified and dealt with. Speeding up the development control process
is important but it is only a part of the solution. Better strategic planning,
with greater ownership should result
in more relevant and active plans that are more easily and speedily translated
into outcomes through the development control process. Some of our thoughts for
reforming the planning system, making it both faster and more able to deliver
sustainable communities, are set out below (some of these are discussed further in Planning for Housing)
Reducing the scope for
multiple applications for the same site
5.6
We are
aware that it is quite common for developers to submit multiple applications
for housing developments simultaneously on the same site, in order to ensure
that at least one of them is accepted. Local planning authorities have an
obligation to progress all applications they receive so this adds to the
workload and adds delays to the planning process. This matches evidence that
shows that planning applications have doubled in recent years whilst the level
of construction has actually decreased. We understand why this happens from a
developers’ perspective, but believe that the process needs to be changed to reduce
the number of applications.
5.7
We
suggest that there would be a number of advantages to planning departments
taking the lead in designing sites. This would help both to speed up the
planning process and to create quality housing and environments. Currently
there is very little design / architecture involved in house building and
estate design (either by house builders or public authorities) resulting in the
much criticised ‘toy town’ developments.
5.8
Whilst
planners themselves may not have the expertise to design good quality housing
and environments, architectural expertise could be bought in or fostered
through, for example, design and architecture competitions. Some local
authorities already prepare ‘masterplans’ for an area and others make good use of
design briefs and statements. These practices should be actively encouraged and
developed further. Granting of planning permission would rest on the developer
agreeing to develop to the brief agreed by the local authority, or at least the
site brief could be used as the starting point for negotiation.
5.9
As
well as helping to reduce delays, developing the capacity of the planning
profession to be more proactive about site and house design could also help in
promoting mixing of house types, sizes and affordability (which will help to
achieve the Government’s objectives of sustainability). The drive to maximise
profit means that many developers are pulling in the other direction the result
being that affordable housing is often physically separated from more up-market,
expensive housing – although, of course there are some developers who do accept
the need to mix housing.
Joint plans for housing
5.10
Our
current regional and local planning systems (and even the new proposed systems)
do not produce visionary strategies for growth. Proactive and preventative
housing strategies are rare.
5.11
Both
CIH and the RTPI have suggested that local authority planners and housing
strategists could work together to produce an overall strategy for housing in
an area which would be an common, integral part of the Local Development
Framework and of the Local Housing Strategy (currently planners have
responsibilities for one element of planning for housing and housing
professionals have separate responsibilities). In doing so, they would aim to
deliver the vision set out in local community strategies as it relates to
housing. This would bring about greater vision in and coherence of housing and
planning strategies and the strategy would hold more weight at public
examination.
5.12
Strategic
housing as well as planning skills need to be developed to improve the delivery
of housing. A portion of the Planning Development Grant of £350m allocated by
the government to improve the planning profession should be made available to
developing joint planning and housing strategy skills within local authorities.
Greater public and member involvement in drawing up
strategies
5.13
Currently,
members and the public tend to be
much more involved in decisions regarding individual planning applications than
in drawing up plans – there is more interest in how plans affect individuals
than in how they affect the wider community. CIH (and RTPI) would like to see
far greater involvement of both members and the public in drawing up local strategic plans
and plans for specific areas though a variety of routes – including the Local
Strategic Partnerships. This may require changes to local political processes
as well as to methods for engaging the public.
5.14
However,
we have also heard of instances in which developers are delaying the adoption
of Local Plans – that may contain elements that are not favourable to
developers – by inundating councils with objections to their Local Plan reviews. They can also be very reluctant to build
on brownfield sites and will sometimes spend a considerable amount of time
challenging planning department figures on housing demand. Councils are obliged to deal with all of these
objections and challenges, slowing down the process. The new Local Development
Frameworks should take account of development needs in their areas as
identified through robust housing assessments (suggested in current revisions
to PPG3).
Less scope for challenging individual planning applications
5.15
If political
engagement and decision-making is weighted more towards drawing up strategies,
it can be argued that the process of agreeing individual planning applications
should assume a lower political priority. ODPM has already suggested that it
would like to see a larger proportion of planning applications delegated to
officers (Deputy Prime Minister’s statement of 18 July 2002). The primary test
for individual planning decisions should be whether or not they meet the
strategic intentions previously agreed by members. Using this test would reduce
the number of challenges made and justifying decisions would be more
straight-forward.
Presumption towards mixed tenure housing
5.16
Providing a mix of house types, sizes, affordability and
tenures in new developments is a good antidote to social exclusion and a
key to creating sustainable communities. In fact, the goal should be mixing of
households on different incomes to avoid high concentrations of very
poor people, and mixing household types and tenures in a location is one way of
helping to achieve this. We have already set out a case for maintaining access
to rented housing (whether private or public sector) on the grounds that some
individuals are not able to gain access to finance they require and because of
the difference in support mechanisms and services that are available in the two
tenures.
5.17
The Government is in favour of mixing house types, sizes and
affordability and this policy is being continued through consultation that is
currently being undertaken on updates to PPG3. However, the proposals fail to
adequately address the need to provide a mix of tenures in new development. We
understand that avoidance of this requirement is at the request of developers
who prefer to build housing for owner occupation because it maintains higher
house prices on the whole site. Whilst we fully understand that any private
enterprise needs to make sufficient profit, we believe that achieving social
equality and sustainability is more important and that planning guidance should
be stronger in requiring mixed communities.
5.18
Our argument is that the planning system should be stronger
in promoting mixed tenure outcomes, which would involve building higher levels
of certain tenures to rebalance the mix in areas where there is the tenure mix
is currently out of balance.
5.19
The
way to achieve mixed housing developments would be to:
(i)
set
out in planning policy a presumption that housing types, sizes and tenures will be mixed on sites (if
mixed sites become the norm in the future, then eventually there will be no
financial advantage to be gained by separating up market from affordable
housing); and
(ii)
make
local authorities – as the best placed strategic enabling bodies – responsible
for ensuring mixing happens.
5.20
However, they need appropriate policy tools
to enable them to require certain types of housing to be developed. This partly
relates back to the argument for giving local authorities more responsibility
for designing sites, but they also need to be able to determine the tenure mix
on a particular site. The current Planning guidance (PPG3 and Circular 6/98)
does not give local authorities sufficient powers in this respect – local planning authorities must rely on their housing needs
assessments if they wish to specify the type and tenure of housing they
require, but this does give flexibility at site level to specify house types
that would add to sustainability and provide a wider range of choice. The changes to PPG3 currently
being proposed do not address this problem.
5.21
The problem could be
largely overcome by allowing local authorities to specify in broad terms the
type/tenure of housing required on a site to promote sustainable communities.
The three categories of housing suggested below would provide sufficient
differentiation:
1.
social housing – housing for rent managed, either directly or through
contract, by an organisation that is subject to regulation and/or inspection by
a government body,
2.
intermediate-priced
housing – that would embrace
housing for private renting at below market rents, shared ownership and low
cost market for sale
3.
standard
market housing – to include all other
forms of private housing for sale or rent
5.22
Local
authorities need to be able to define the mix of these three sectors based on a
robust understanding of their regional / sub-regional / local housing markets.
Whilst accepting that not all LAs have adequately performed this role to date
considerable progress is now being made in getting planning and housing teams
to work effectively together to take a more strategic and cross-tenure approach
to housing supply and demand and we would like to see this work encouraged and
strengthened. This would be assisted if more housing and planning authorities
were to draw up joint plans for housing provision.
Section 106 agreements
5.23
Planning
obligations through section 106 agreements are a helpful mechanism for the
delivery of affordable housing. The way they operate could, though, be
improved. Also, they are of limited use for developing affordable housing in
rural areas because the development of market housing is a pre-requisite, and
this is largely stymied by the restrictions on building on Greenfield land.
5.24
Thresholds
on site size on which affordable housing can be sought are impeding delivery of
affordable housing on smaller sites, especially because (previously used) sites
coming forward for development are becoming smaller since the sequential
approach to land release in PPG3 was introduced. Many of these sites can be
very profitable. In fact some developers seek out small sites particularly
because they are not required to deliver affordable housing on them. Proposals
to reduce these thresholds from 25 units or 1 hectare to 15 units or 0.5
hectares (in revisions to PPG3 currently out for consultation) do not go far
enough and indeed previous proposals by ODPM would have effectively removed
them completely. We believe that local authorities should be permitted to set
their own thresholds subject to a maximum number of units.
5.25
We
believe that the amount of contribution to be made on sites of all sizes should
more closely reflect the differences between land
price before and after acquisition and development, and between the development
costs and property price.
Restrictions relating to rural areas
5.26
The sequential approach in
PPG3 is unhelpful for achieving development of affordable and modest market
housing (ie. to provide housing that is affordable for lower income households)
in rural areas, and this is compromising the sustainability of rural
communities.
5.27
The proposal in the
consultation on PPG3 contains the suggestion that it should be possible to
allocate sites specifically for affordable housing. This is helpful but it does
not get round the problem that brownfield land is in short supply in many rural
areas. It may, therefore, be necessary to build this more affordable housing on
greenfield land, but at the current time, the sequential approach prevents this
from happening. Relaxing the sequential approach in rural areas specifically
for the development of affordable housing would not only help to provide land,
but it would also help to costs of development down. This land would not be
available for market housing, so the land value would be lower then would be the case if
market housing were to be developed, but higher for the land owner.
6.
Is the private rented sector an unattractive
financial option?
6.1
One of
the specific questions asked is whether the private rented sector is an
unattractive option. CIH has previously undertaken work, with the input of
investors and private landlords groups, to explore some of the problems in the
private rented sector (Chains or challenges, 2001). This work leads us to the
conclusion that institutional investors are reluctant to invest in the private
rented sector and there are a number of reasons for this.
High risks associated
with the lack of regulation in the private rented sector
6.2
The
image of the PRS as a poor quality sector continues to be the dominant public
image, and the relative lack of effective regulation in the sector (compared to
other industries in which large scale investment can be made) deters many
investors.
6.3
Poor
physical quality is, to some extent, borne out in evidence. The latest English
House Condition Survey (EHCS) results show that physical conditions are worst
in the private sector than any other sector – around half of all privately
rented homes in England are non-decent, compared with 30% of owner occupied
homes and 43% and 28% in the council and housing association sector
respectively. However, physical standards have improved between 1996 and 2001.
6.4
It is
also the perception of poor management standards that gives the sector its poor
image. For example, one in five tenants consider that they have had a portion
of their deposit unreasonably withheld when their tenancy terminated (Survey of
English Housing).
6.5
The
sector is diverse and there is undoubtedly some very high quality accommodation
and management standards. Private landlords are bound by many rules spanning
many different Acts, but a proper regulatory framework – to encourage good
practice and enforce against bad practice – continues to be elusive and makes
investors wary of being associated with the sector. It is, in effect, too high
a risk for them to take.
6.6
In the
past CIH has put forward a number of suggestions for improving the regulation
of the sector and has worked together with landlords’ groups such as the
British Property Federation to find ways forward. In doing so we have tried to
be even handed – recognising the need for landlords to be able to run a viable
business – and have also supported positive approaches that include assisting
landlords to carry out their role well through providing information, training
etc.
6.7
The
current proposals in the draft Housing Bill – for allowing licensing HMOs and
for wider licensing in selected areas – will bring about improvements on the
ground. However, this in itself is unlikely to be sufficient to gain the trust
of investors.
6.8
Local
authorities have the greatest responsibility for enforcing and raising
standards in the private rented sector. Many are doing good work with private
landlords through private landlords forums designed to improve information
flows and provide services that are relevant to landlords, and many also run
accreditation schemes. However, membership of these schemes is voluntary and
the question remains how those landlords who are not willing to be involved can
be reached and encouraged to improve their practice.
6.9
There
is a place for voluntary schemes that promote and incentivise good practice,
but we believe that this proactive, strategic work needs to be encouraged and
underpinned by other relevant forms of regulation. Dialogue with investors
about the kinds of regulation that would help to change their opinions of the
sector is needed, but some ideas for improving regulation and the work of local
authorities include:
·
Requiring
landlords or managers to register themselves and the addresses of properties
they are renting out – in other words, simply to make themselves known. This
suggestion was made following work carried out by Birmingham University (CURS)
that found that local authorities do not have comprehensive information about
the PRS in their areas. There are no mechanisms in place that enable them even
to know the whereabouts of privately rented properties in their areas. Many
local authorities attempt to keep their own records, but they far from
comprehensive. As well as assisting local authorities in their enforcement
role, this would also help them (and central government) to support private
landlords by providing them directly with information, advice and opportunities
for training, for example.
·
Requiring
all managers to be ‘fit and proper’ – this is proposed as a requirement for HMO
licensing, but we suggest it should apply to the whole of the PRS
·
A
greater role for the Independent Housing Ombudsman (IHO) – it would not be
unreasonable to require landlords to sign up to the IHO, providing the service
is helped to expand to take on the extra workload
·
The
requirement for local authorities to run accreditation schemes in their areas
and to run a national awareness programme to make both landlords and tenants
aware of the schemes – tenants can then be encouraged to choose accredited
properties
·
Allowing
local authorities to run licensing schemes in areas where there are particular
problems geared to resolving the problems (ie. not just low demand areas)
·
Promotion
of tenant sponsorship schemes to assist tenants in receipt of housing benefit
(a group that landlords are often unwilling to accommodate) and act as an
advocate with landlords
Insufficient returns
and unfair taxation treatment
6.10
Some
commentators have argued that the sector does not produce sufficiently high
returns at the lower end (ie. cheaper end) and that tenants are not prepared or
are not able to pay the cost of quality accommodation.
6.11
The
differential taxation treatment of the private rented sector compared with both
owner occupation and small businesses (both of which are exempt from capital
gains tax) increases operating costs. Landlords either have to pass these costs
on to tenants in the form of higher rents or they have to cut corners on, for
example, long term maintenance. This unfavourable tax treatment reduces returns
and discourages investment in the sector.
Lack of a suitable
investment vehicle
6.12
At the
current time, if an individual or organisation wishes to invest in the PRS,
then they have to do so directly – i.e. become landlords and get involved in
buying properties (even if they use the management services of a letting
agent).
6.13
There
is no possibility of indirectly investing in the sector – i.e. handing over
money and expecting a return – because there are no suitable investment
vehicles available. Possible models, such as the Business Expansion Scheme,
have been explored in the past, but no lasting solutions to this problem have
been found.
7.
Increasing the supply of affordable housing
7.1
The
review points out that the decline in house building since the late 1980s has
mainly been in the social housing sector.
7.2
We no
not believe that the housing supply problem in high pressure areas can be
tackled effectively without substantially increasing the supply of affordable
housing – including both social housing for rent and low cost home ownership
housing. We made the point earlier that in areas where demand outstrips supply,
the market will never realistically be able to cater for all low income
households. In fact in parts of the south east there is currently a distinct
shortage of housing that is sufficiently affordable.
7.3
The
level of resources for housing has increased in recent years, but the total
public investment remains lower than housing investment in the mid 1990s. We
believe that a step change is required in the level of investment going into
affordable housing and will be making this point in our forthcoming submission
to the next Spending Review.
7.4
The
Right to Buy and Right to Acquire add to supply problems in high demand areas
by transferring housing from the affordable housing sector into the private
housing market. The fact that tenants remain in their dwellings for some time
after they purchase only results in a lag phase between the house being
available for a low income household and it not being available. In any case,
the length of time people remain in their dwellings post-sale is reducing, and
the incidence of sub-letting after sale is high (the changes to the draft
Housing Bill do not deal with sub-letting problems adequately).
7.5
The
fact that local authorities are not able to ring fence all the capital receipts
from such sales to replace this housing is also problematic in high demand
areas. Currently, they are required to set 75% of the receipts against debt
repayments and the remaining 25% is not ring-fenced for housing. This is a
factor in limiting the supply of affordable housing.
7.6
Our recent
briefing paper on the right to buy produced jointly with IPPR is attached for
information. In it we argue for a greater proportion of the receipts from sale
to be recycled for housing purposes and for this to be either ring-fenced or
somehow targeted for spending on housing purposes. In high demand areas this
would be for affordable housing.
7.7
CIH is
represented on the Housing Corporation’s Home Ownership Task Force and we are
making detailed comments on possible reforms to all low cost home ownership schemes
to this group.
References
CIH (2001)
Chains or Challenges: the prospects for better regulation of the private rented
sector
CIH (2003)
Planning for Housing: the potential for sustainable communities
CIH (2003)
Right to Buy: a symposium for debate
Towards and
Urban Renaissance (1999) - Rogers Review
ODPM Select
Committee Inquiry into Affordable Housing (House of Commons, 2003)
ODPM Deputy
Prime Minister’s statement of 18 July 2002