The severity of the crisis was highlighted in a report from the House Builders Federation last month, which revealed that Britain is suffering its first housing deficit: the number of households has outstripped the number of houses.
The problem is particularly acute in the south-east of England. There are 1.4% fewer homes than households in the South-east, but this rises to 4.2% in London. This means that about 620,000 homes need to be built in the capital and its hinterland over the next 10 years.
The causes are not hard to locate. Housing completions are at their lowest levels for 77 years, excluding the war years. Last year, just 162,000 new units were built while the number of households increased by 220,000. On top of this, 7.6% of the nation's housing stock is unfit for habitation and Britain invests less in housing – 3.3% of GDP – than any other industrialised nation. Restrictions on greenfield development, nimbyism, a lethargic planning system and lack of public investment are all blamed for the crisis – which means that the few people believe that the government's intended overhaul of planning will make a big difference.
With the government increasingly desperate to be seen to act, Building asked 10 industry experts what should be done now.
First, we must have clarity about the product. We need well-designed high-density schemes (at least 50 units to the hectare) consisting mainly of generous-sized mid-rise apartments with plenty of communal and public open space and local facilities. In the next 18 months, CABE will be undertaking a series of case studies to show what can be achieved. Second, we need a plan. Londoners cannot wait until 2004 for the mayor’s spatial development plan. We need a development framework that deals with all the competing aspirations and identifies strategic brownfield housing sites in London and the South-east, and designates them for housing, if necessary overriding local borough policies. Third, we need a single agency to co-ordinate delivery. The government and the mayor should join forces and establish a single housing regeneration agency for the Thames Gateway, vested with land and relevant powers to co-ordinate the delivery of 100,000 new homes quickly. Fourth, we need access to land. The government must fast-track legislation to strengthen land assembly powers, so that land owners cannot allow sites to go to waste while they wait on hope values. A revolving land assembly fund is also required, to buy up sites, prepare and plan them, and then sell them on to the market for development, with the receipts being channelled into further acquisitions. Fifth, we need financial help. Whether it is dealing with contamination, removing electricity pylons or providing infrastructure, the market needs some assistance. Targeted fiscal incentives are required, including stock relief and further capital allowances. What about significant write-offs for the provision of affordable housing as part of mixed-tenure schemes? What about resurrecting transport development zones? With more than £2bn being raised each year through stamp duty, but about £1bn going into new affordable housing, the Treasury owes the housing market some assistance. Sixth, we need innovation from the development and construction industry. The work of the Housing Forum needs to be implemented, including much greater use of prefabricated modular construction. The industry must also start to innovate financially, particularly in its delivery of mixed-use, mixed-tenure schemes. Finally, we particularly need help to deliver more rented housing. To do so, we need to incentivise the institutional investment markets to invest in affordable market-rented housing. We can borrow from the US by creating targeted real estate investment trusts with tax advantages. We also need to liberate the housing association movement to provide greater quantities of market rented accommodation as part of mixed-tenure schemes.
Release the double-bind
The government should make housing an equal priority with health and education. There are two big problems: first, we invest much less government money in affordable housing today than 25 years ago; second, social housing stock is always declining because of right to buy. Affordable housing is in a double bind. House prices are increasing disproportionately fast, so more people need affordable housing. At the same time, as land prices rise, public subsidy buys fewer and fewer affordable houses each year. The most important thing to do is to liberalise the planning system. We do not have enough new housing in general – not just affordable housing – and that’s a planning problem. We have a planning system that is about controlling development rather than facilitating it. When Lord Falconer talks about housing key workers in prefabs, he is making an unreal connection. There is a big scope for prefab, particularly on urban infill sites, but we shouldn’t specifically link that with key workers. Key workers may be equally well housed in traditionally built homes.
Breaching the green belt
Anybody who knows anything about economics knows that when you restrict supply, prices go up. Since 1947, when the green belt was created, the supply of land for housing has been restricted. In the mid-1930s, before green-belt policies, the cost of land was only 10% of the cost of a house. Today it is well over 50%, so it is not surprising we get these huge house prices now – probably the highest in relation to income in the world. But, with the urban white paper, the government is aggravating the situation by calling for houses to be built on brownfield sites, which is not where people want to live. Most people are not interested in living in high-density developments in urban areas. They want to have a house with a garden and a car. And most brownfield sites are outside the South-east. In Cambridge, for example, there are no brownfield sites. Instead, we have to release more greenfield land. We should at least double the current rate of land release. Just 0.05% of England is developed each year, so if you doubled the amount of land used over the next 20 years the total would be just 2% and that would probably level land prices. Just 10% of all land in England is urbanised, so we have 90% of land available. Most of that is of no use to anybody. The way land is constrained around towns and villages – the green belt – is very damaging. Instead, there should be wedges of green coming into the town centre, so that development can follow transport corridors. Not as an endless sprawl, but like beads on a rosary along the transport routes. We do not want to flood the landscape with houses, so it should be managed well. Development should take place where the demand is and under the auspices of a good planning system – not a free-for-all.
Filling in the corners
Densification is the answer. Increasing the range of residential accommodation within walking distance of the City of London is essential. The areas around the City have tremendous scope for densification. If we spend too much time thinking of a grand strategy, we lose too much time. We should be looking at every corner and seeing what can be done. A large number of small-scale projects is much more helpful than large-scale comprehensive developments, where you’re likely to get it wrong. Small is beautiful – think small blocks shoe-horned into street corners. A world-class city cannot survive without adequate housing at all levels. There needs to be something between council housing and expensive lofts. That could be done by housing associations part-funded by planning gain. Above all, it requires funding. The further people live away from London, the less they impact on London in a positive way. People should move back towards the centre. One lucky side-effect of the appalling rail system is that is discourages people from long-distance commuting.
Affordable housing on every site
The principal problem is the flight from London of people seeking a better lifestyle and more space, inflating prices in the South-east. Housebuilders are building for people coming out of London with a large capital gain under their belts rather than meeting the demographic needs of the South-east. The market mechanism has failed us. Successive governments have failed to tackle the problem. The first thing that has to be done is to remove the thresholds for which affordable housing is applicable. At the moment, on sites below half a hectare, local authorities cannot insist on affordable housing being included in the scheme. On small sites, developers want to deliver low-density private housing because they get the most money for it. The threshold protects developers and prevents affordable housing being built. Thresholds must be removed. Greenfield housing is not being brought forward and the government is reluctant to support it. I’m not promoting greenfield development, but there does need to be some. There needs to be proactive, sensitive planning to bring it forward, and prevent ticky-tacky boxes. We also need to utilise infill sites in existing towns. The research we’ve done in Reading and Hastings indicates there could be up to 1000 ha of land in town centres across the region. This could provide 60,000 homes. Surplus government land – particularly that owned by the Ministry of Defence – should be used to meet housing needs. At the moment they simply sell it to the highest bidder. We need to make sure most affordable homes are for rent and not for sale. A lot of popular attention is put towards allowing key workers to buy their own homes. But every time you provide an affordable home for sale to a key worker, you lose that home when they retire or move on. In the South-east, we’ve got to substantially increase the number of smaller homes, suitable for single people, couples and single parent families. There’s a failure in the housing market to provide homes in tune with demand. We’re suffering because the private sector is not providing what the region needs.
Send the bill to the Treasury
The government is now clearly aware of housing undersupply, its effects on house price inflation and the huge problems this causes for key workers and others unable to get a foot on the property ladder. Despite a range of measures and initiatives to address the problem, including the starter-homes initiatives, shared ownership schemes and calls for greater use of prefabs, the only solution is to increase supply, and the government knows this. The bottom line is that to get more affordable housing we need more homes so that supply matches demand. This is elementary economics. We are impressing on Lord Falconer that his proposed changes to the planning system will not increase supply unless they are backed by sanctions – penalties for local authorities that fail to hit their housing provision targets. Falconer said this week that 10 years of demands from ministers that targets be hit have failed, and there’s nothing to suggest that imposing new targets without sanctions will work. The government clearly wants to increase brownfield use and further urban regeneration. But how well this can be achieved depends on finance. The less the tax burden on developers, the more brownfield sites will be viable. Therefore it is essential that section 106 agreements continue to be flexible, since a tariff system – as proposed in the planning green paper – would eliminate this flexibility and make potentially suitable sites unfeasible. This would help nobody. It used to be that government paid for social housing. Increasingly, our industry is taking over that burden but there is a limit to what we can afford. The Treasury has benefited hugely from rising house prices. Since Labour came to power, stamp duty receipts have jumped from £675m to £2.2bn per annum, and inheritance tax receipts have risen 54% to £2.4bn. We need some of this money to be put back into making more brownfield sites viable.
Increase investor appeal
If you look at the 4.3 million new households to be created by 2020, or however many millions it is added up to be, we discover that an awful lot of them are single people between 25 and 45. They don’t want to buy three-bedroom houses in the suburbs and languish in commuter traffic, so there is a huge market for private rented housing in city centres. We have built two schemes of 50 flats in downtown brownfield sites at high densities in Leeds and Birmingham, and we charge rents of £100 to £120 a week. I think in terms of volume, there could be an almost insatiable market for this product, both by prospective tenants, and by City funding institutions. I can think there would be eight or nine major investors that would take £50m or £100m worth of decent new residential apartments for rent, just like that. But they would all like to do it together, otherwise they would look as if they are being a bit risky and excited. To start with, maybe housing associations could act as intermediaries. They are not frightened of building for rent – that is what they do. They can just get on with commissioning an exciting scheme without going down the subsidy route where they’re told what to do by the Housing Corporation. As long as they can borrow long-term at less than 6%, then from day one investors will not be making a loss. As rents rise and capital values grow, they can cash in. But in the longer term, I would like to see a separate stream of developers getting involved in the private rented market. Housing associations have other important things to do.
Bring back the New Towns
The main reason housing provision is so low is not because private housebuilders are being sluggish, but because we simply aren’t providing the amount of affordable housing that local authorities used to provide. First of all, one of the major ways we housed huge numbers of people in the post-war years was in new towns. It’s a tragedy that we abandoned that as a social and economic activity. New communities are a very, very good way of creating sustainable developments, providing a wide range of housing mix and fuelling economic activity. You only have to look at the success of post-war new towns – Basildon, Crawley, Bracknell, Milton Keynes – to realise that. Building new towns is something the government can do. There is a new towns act in existence that gives provision for land assembly. Second, the means by which we procure social housing in this country is hopelessly inefficient. We have several hundred housing associations building new homes, in many cases in very small numbers at a time. There seems to me a number of voices beginning to say maybe there is a better way of meeting social housing needs when we need serious volumes. Third, we need reform of the planning system to make it more responsive. Finally we do need to deal with the huge backlog of repairs on our poor estates, underused property and the swaths of unused properties owned by private landlords.
Fix the planning system
We need to make the planning process quicker. Everybody is against the development. We acquire a piece of land and we wait months and months to know if we can get planning permission. The outcome is fewer and fewer developments. My fear is that this year we could produce even less housing than we did last. Ken Livingstone suggests we provide more affordable housing in London and we accept that. But even if we do, it does not mean we get planning permission any quicker. Local authorities are desperately short of people in their planning departments. They need more people to help them process applications. We’re not asking to build on every piece of land – we just want more certainty. Most housebuilders would be willing to pay for a faster planning process. We’re paying interest rates on our land while we wait for a planning decision. It’s cheaper for me to say to the planning department “if you’re stretched, here’s more money”. You could double the fees we pay and it would be a small price to pay. Ninety per cent of what I do is brownfield. But it matters not a jot whether it’s brown or green. Brown is just as much hassle; it’s just as hard to get it through the system. In fact, it is getting more difficult, partly because the sites are getting smaller. But the nation’s housing needs cannot be met without building on green land. We have to make some inroads into greenfield land. It’s a myth that housebuilders are exacerbating the crisis by sitting on landbanks. I’m building every house I can. Most of the housebuilders with decent landbanks are outside the South-east. As a housebuilder that predominately operates in the South-east, we work off a relatively small landbank – two to two-and-a-half years – because land prices are so high, and because there’s so little land that can be developed. As an industry, we’ve been accused to crying wolf, but we’re now seeing the effects of years of inaction. We have tremendous skills shortages in the industry. I would suggest we only have capacity to build 10% more houses than we’re building at the moment. The industry has got to step up training. We’ve got to make it more sexy to attract young people. Our image is not good. I’m still building houses the same way the Romans did, in a really traditional way. We also need to start thinking about how we can de-skill housebuilding, to make it more factory-oriented and increase productivity. The nightmare scenario is that planning legislation will slow the system down in the short term as the new system is introduced. That’s irrespective of the merits of it – and the jury’s still out on whether the planning changes will work. Personally, I think we should make the current system work.
Small is beautiful
The key is intelligent use of land. Train stations, bridges, petrol stations, supermarkets and fast-food outlets all provide rooftop development potential. Housebuilding has not really changed for hundreds of years, so maybe the urgent need for affordable housing will push the industry to be more innovative. Using products that are factory-built, that come with customisable finishes and that can be ordered in a similar way to buying a car will provide compact, affordable and quick homes. Planning policy changes are sluggish and do not reflect changing demographics in cities. Lifestyle changes, longer working hours, freelancep or flexible working and the increase in the cafe/dining culture mean we spend less time at home. Maybe we should be looking to a European model of simple dense urban living where public squares and parks provide the breathing spaces between urban blocks. Paris has thousands of tiny studio apartments but in fantastic locations. Our “micro-flat” tries to be an affordable, thoroughly designed compact living space. Essentially, its a means of getting more units on a site. Intelligent design of the practical elements, such as toilet, shower, sink, storage and kitchen makes the quality of living spaces no less than that of a traditional cellular one-bed flat.