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We need to build more homes. For decades we have failed to build enough homes to meet demand. We need to build at least 243,000 homes a year to keep up with the number of new households being formed, but last year we only built 109,000 homes
Indeed, we have only managed an average of 137,000 homes a year over the last ten years. Without a change of course, it is predicted that the country will be short of up to two million homes by 2020.
The consequences of this are widely felt. House prices and rents are going up faster than earnings because demand massively outstrips supply. The average home now costs 8 times the average wage. The 2011 Census shows that there were one million more children living in the private rented sector than ten years previously. Millions of working people are unable to afford the homes they want, and their children and grandchildren face the fear of never being able to afford the homes they need.
Our failure to build enough homes also causes volatility in the national economy and damages the prospects for growth by reducing labour mobility and undermining the ability of our towns and cities to attract new businesses.
There are two major causes of this crisis.
First, there is not enough land being brought forward for new homes. This artificial scarcity of land for housing has created distortion in the land market, limiting the rate at which new homes are built and incentivising the acquisition and trading of land. This is compounded by the fact that communities do not have all the powers they need to ensure that homes are built in the places they want, and some are not taking responsibility for meeting local housing need. There are limits on the scope for local authorities to play an active “place-shaping” role and to actively promote the creation of new homes. Whilst some authorities have sought to overcome these constraints others have not, relying instead largely on the reactive use of their planning powers.
Secondly, the nation’s capacity to build homes has shrunk drastically. Fifty years ago, the public and private sectors between them built over three hundred thousand homes a year. Now, we rely on just a small number of volume house builders and as a result we build far fewer homes. There has also been a change in the shape of the house building industry itself. During the 1980s there were on average 10,000 active SME builders (those building 500 units or less) delivering around 57 per cent of all output; last year there were only around 2,800 active small builders producing 27 per cent of all new homes.
Meanwhile the public sector’s contribution has declined significantly despite Housing Associations’ great efforts to fill the gap left by councils’ retreat. For much of the period between 1948 and 1978, local authorities were responsible for building more than 90,000 homes a year. Last year it was just 1,000 homes. Housing Associations have played a crucial role, building on average 18,800 new homes per year between 1978 and 2013, but this is only a fraction of what the public sector built in the post war era.
This report sets out a roadmap to tackle these underlying issues and increase house building to at least 200,000 homes a year by 2020. To solve our housing crisis, we must of course go beyond this figure over time and ensure that both the public and private sectors develop the capacity they need. We must also change minds and build public support for housing. This means building high quality homes that people want to live in, in places that will thrive, where communities can prosper and where the environment is protected for future generations. And we must provide more choice and affordability too. With private rental market affordability stretched, a shortage of homes for affordable and social rent and an ageing population, we will need to build more of all tenures.
Our approach seeks to refocus public and private investment for the longer term, making better use of land and assets and encouraging a longer term equity stake in development to provide a return for investment; and highlight priorities for future investment when this becomes possible. Public expenditure is a matter for the next government but housing must be a key priority for capital expenditure in the next Parliament.
The type of homes and the action needed to get them built will be different in different areas of the country. The pressure for new homes is particularly acute in London and the South East, but there is no community in the country that does not face the challenge of providing homes for its children. Every one of these communities must accept this challenge, but they must also have a stronger say locally so they can make sure the new homes really do meet the needs of local people, are in the places they want to see them built, and deliver benefits to the wider community.
The Government must provide long term political leadership by making housing a national priority. Decisions about how and where new homes should be built should be taken locally by local authorities and their communities with the tools, flexibilities and devolution of funding needed, but on the basis of clear commitments that housing need will be met.
We propose a new cross government task force to support Ministers; with an independent commission to provide independent scrutiny and evaluation of progress; and stronger objective information on trends in housing supply through the creation of a housing observatory. The Homes and Communities Agency should become the Government’s development agency with sharper focus on delivery and a new role in attracting private investment. Current funding programmes for housing should be consolidated and devolved to local authorities in city and county regions.
Constraints on the supply of land do more than limit the number of building plots available; they also encourage a business model for developers that limits the rate at which those plots are then built out. The responsibility of councils to identify sufficient land for new homes in local plans should be strengthened, as should their ability to deliver these plans. Where there is a failure to cooperate across boundaries to meet needs in a housing market area, councils will be required to produce a joint strategic plan, with the Secretary of State having the ability to intervene and instruct the Planning Inspectorate to ensure that it happens. This will address the weaknesses in the current Duty to Cooperate and ensure that places that need it can exercise a “Right to Grow”. We also advocate stronger partnership working through the planning system, timely response to planning conditions and full cost recovery to ensure planning is properly funded.
Councils should also have “use it or lose it” powers to incentivise faster development, giving them the ability to levy council tax on plots allocated for housing in plans where homes are not built within reasonable timescales – as if the houses had been built, and to compulsorily purchase such land where necessary. We also recommend shortening the life of planning permissions and creating greater transparency in the land market to make it clear not only who owns what land, but also to make public which developers have taken out options on land with the potential for new homes. This openness will help communities to ensure that where they have made land available for the homes they need, these homes get built.
The public is frequently concerned that houses are often built in the wrong place, for the wrong people and without adequate attention to the pressures created for existing infrastructure. As new housing changes and shapes the places in which people live, communities should make the decisions about how they grow. It is the job of elected local authorities to do this with their communities and to ensure the homes they need are provided. We therefore recommend that local authorities play a much more energetic role in leading housing development for their communities. They should be provided with greater powers to bring forward developments working with partners, through Housing Growth Areas. This will give councils the ability to act as lead developers on behalf of their communities, with greater control over: where the homes should go; the speed of development; the design and quality of schemes; and the specification of a greater mix of tenures so that they can attract a wider range of house builders into the market. This is not intended to displace existing development activity where it is working well but to bring forward additional homes and to accelerate delivery where there are problems in bringing schemes forward.
We also propose the creation of a generation of New Homes Corporations to act as delivery agencies working across housing market areas with a particular focus on development in Housing Growth Areas. Led by local authorities, they will bring together private developers, Housing Associations, and investment partners to use powers and funding to deliver the new homes, with clear and accountable outcomes to local communities.
Housing Growth Areas and New Homes Corporations should be supported by a range of powers including a stronger role in land assembly and the ability to ensure that infrastructure can be provided upfront. This will need reforms to powers to purchase land, designed to encourage landowners, both public and private to invest their land and ensure that the costs of infrastructure are funded from the value created by the development they support. Revolving Infrastructure Funds will pool central and local funds, and will be able to attract private investment in infrastructure to support new development.
The private house building industry will be vital in providing new homes, and it accounts for 79% of all homes built. It has, however, reduced in size and output over the last generation. Each successive economic downturn has seen a wave of contraction that has reduced capacity. Action is needed on three fronts. To encourage the volume house builders, we need policy stability and a supply of land supported by the planning reforms we have recommended, and more risk sharing and working with the public sector. To revive the SME sector, we propose a package of support, in particular reducing the cost and risk of making an application on a small site and providing access to government guarantees for bank finance. And we need a wide range of organisations commissioning housing – from social landlords to regeneration agents – to make the most of the potential role of the construction sector as contractors. We should also encourage unconventional developers, from supermarket chains to the churches, to enter into the house building market in their own right. There are also opportunities to support self and custom build and community led housing initiatives. Our proposals for Housing Growth Areas and New Homes Corporations will also increase competition, and support additional homes through the growth of SME builders and encouraging new entrants.
External capacity constraints must also be addressed, especially in the supply chain for skilled labour, and opportunities for greater use of off-site build technologies should be taken.
Building more homes is not just about home ownership. We need a choice of homes to reflect people’s ability to pay and the different stages in their lives. We need to help people secure their own home through much more attractive shared ownership schemes, as well as more quality homes to rent. Housing for an ageing population must also be a priority, with more market choice for those wishing to downsize so as to free up larger family homes. We also need to do more to provide homes for social and affordable rent to ensure that those on the lowest incomes and the most vulnerable have a secure and decent home. While recognising the precarious position of the Exchequer, affordable housing must be a priority for taxpayer funding as the fiscal position improves over time.
Housing Associations have demonstrated an impressive commitment to social house building and have shown real ambition in meeting need. In a changing fiscal environment, they will need to adapt to a tougher climate for public subsidy and find alternative means of unlocking investment capacity. Government should work with Housing Associations to mobilise surpluses and headroom to unlock further investment, increase flexibilities for those who have the ambition and capacity and encourage others to develop the skills and capacity to play a bigger role. Government should also extend guarantees to Housing Associations to provide the confidence and certainty to deliver more homes.
Councils can and should return to a significant role in commissioning and building social housing. They will do this partly through New Homes Corporations; by sharing risks in partnerships with developers; and also through active asset management and new models like local housing companies. It will also be necessary to look at better use of the Housing Revenue Account for councils, where they can demonstrate a clear investment plan, with active management of the overall borrowing headroom by the Treasury.
It clearly makes sense to build on brownfield land where we can and the brownfield first policy should be strengthened, but building Garden Cities, Garden Suburbs and reshaping and expanding existing towns will be essential to meeting housing need over the medium to long-term. The next government should immediately initiate such a programme, to be delivered by new Garden City Development Corporations and New Homes Corporations based on reformed New Towns Legislation.
Government should set out criteria that Garden Cities would be expected to meet so that local authorities can come forward with proposals to be developed in partnership. Proposals from private promoters will be accepted, but only where they can demonstrate local support.
Incentives should include the ability for new Garden Cities to retain 100 per cent of business rates for 30 years to invest over the longer-term, as well as providing financial guarantees to support up-front delivery. This locally-led development model would be able to play a central role in building a new generation of Garden Cities. This should be combined with a rolling programme of Garden Suburbs. The aim should be for local leadership to promote and enable many more new settlements though a mix of freestanding new Garden Cities, new Garden Suburbs, and remodelled towns, in a range of places across the country. Together our recommendations could help accelerate the delivery of up to 500,000 homes.
New homes and the people who will live in them need infrastructure, from water and utilities to transport, schools and hospitals. However, the current system doesn’t produce enough funding to provide this infrastructure and this then leads to conflict between councils and developers which holds up both planning decisions and building where permission to develop has already been given. A fundamental problem is a failure to effectively capture the increase in the value of land which is created by the community’s decision to release it for building.
We therefore propose separate negotiation of development gain on large sites and greater use of contracts to assist land assembly and development partnerships. There must also be a clear method for assessing viability and a new arbitration service for negotiations between councils and developers.
Reformed compulsory purchase order powers will incentivise landowners to invest in land partnerships, and allow for a greater share of the increased value created by development to be used to fund the infrastructure in Housing Growth Areas, Garden Cities and Garden Suburbs.
We also need to target public investment more effectively and attract greater private sector investment in homes and infrastructure. Revolving Infrastructure Funds and opportunities for Tax Increment Financing should form part of the tools available to local authorities and their New Homes Corporations.
New housing requires public support and it should, of course, improve the quality of people’s lives. Good design, informed by an understanding of what makes homes environmentally sustainable, is therefore indispensable. Terry Farrell’s recent review has made powerful recommendations for entrenching better design through better planning and we encourage greater focus on the quality of place. We believe that a commitment to good design would be reinforced by adopting the zero-carbon standard, setting minimum space standards for new build, and streamlining housing standards.