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News Release from: Chartered Institute of Building [CIOB] | Subject: Housing Supply review
Edited by the Buildingtalk Editorial
Team on 29 April 2004
Housing Supply - Closing The
Affordability
Details from Kate Barker's Housing Supply review to the Chancellor of the Exchequer and the Deputy Prime Minister.
When she submitted the final version of her Housing Supply review to the Chancellor of the Exchequer and the Deputy Prime Minister, Kate Barker recalled that her study arose from growing concern that "for many people, housing has become increasingly unaffordable over time The aspiration for home ownership is as strong as ever, yet the reality is that for many that aspiration will remain unfulfilled unless the trend in real house prices is reduced." For governments seeking re-election, that provides a strong impetus in the direction of finding a remedy
This article was originally published on Buildingtalk on 12 Mar 2004 at 8.00am (UK)
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Central to achieving change, Ms.
Barker acknowledges, is allocation of more land for development.
But there doesn't seem to be any specific recommendation on the question of allocating more land, except to say that local plans should be more realistic.
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To allocate means to assign or distribute resources, but it isn't quite that simple.
Indeed, the Barker regime seems to make it more complex.
"When allocating land sufficient to meet their targets for additional dwellings, local authorities should allow for the proportion of sites that prove undevelopable, often as a result of site specific problems." Not only that, " - local authorities should allocate a further buffer of land to improve their plans' responsiveness to changes in demand." Where development earmarked in this way is blocked by market or co-ordination failures, she suggests, its development should be facilitated.
What this means apparently is that English Partnerships (the Government's development agency) should play a lead role in assembling land and managing the issues around complex sites.
If local authorities do allocate further land for housing development in this way, the value of that land will inevitably increase.
In other words, there will be a planning gain where the land use is redesignated, though it may not be realised until the permission is granted and the development is allowed to proceed.
Ms.
Barker asks: how can some of this gain be captured? That is a good question, but how its capture would affect the issue of affordability is not at all clear.
The fact that some of the gain is diverted to the government or the planning authority doesn't affect the price at which the land changes hands.
In fact, the interest of the local authorities or the regional executives would be no different from that of an owner, which is that the land should change hands at values which maximise the gain.
Proposal for 'planning-gain supplement' What Ms.
Barker discovered in consultation with the developers was that Section 106 of the relevant planning legislation needs reform.
This allows the local authority to negotiate with the developer so that part of the increment in value arising on development is secured for the benefit of the community, usually in some kind of infrastructure improvement.
"Section 106 needs reform to provide more certainty and simplicity", she says.
But this is subject to the Government's attitude towards the proposal for what is called a planning-gain supplement on the granting of planning permission.
The report says that the granting of planning permission is a suitable point in the development chain at which to levy a charge.
The charge apparently is not to fall on the landowner but rather on the developer.
Nor is the charge to be directly related to the actual land to be developed.
"Developers could be required to make a contribution based on a proportion of the residential value of land in each local authority", a procedure which Ms.
Barker says would avoid excessive complexity.
Using data provided by the Valuation Office Agency "obviates the need to engage in a lengthy and costly administrative process to calculate accurately the exact part of the land value uplift that is attributable to a change of use." The whole scheme sounds unworkable.
It is a variation on the former development gains tax.
As she says in the section of her report dealing with DGT (Part 4, Contributing to development), such taxes failed because to a greater or lesser degree they obstructed the very objectives they were intended to achieve.
For example, "the taxes were often poorly targeted.
In practice larger landowners and speculators could avoid the tax, leaving smaller landowners to form the majority of the tax base.
This led to the perception that the tax was 'unfair' and disproportionately affected smaller landowners." That may be so, but more important from the aspect of the house-building industry is that holding back land from development in the sure knowledge that one day an ineffective measure would be withdrawn did far more damage to the industry's potential for raising output than any so-called barriers to the modern methods of construction which house-builders are supposed to adopt under the supervision of the Government.
Taxing land on the basis of windfall gains is the wrong approach.
The granting of residential planning permission contingent on the payment of a planning-gain supplement sounds suspiciously like sale of planning consents, with all its attendant risks and complications.
Acknowledging that such a charge would impact on housebuilders' cash flows, Ms.
Barker suggests that it might be settled by instalments.
Indeed, the report agrees it is likely that the amount of land coming forward for sale would decline in the presence of the tax.
The Housing Supply study originated with recognition of the need for more affordable housing.
It found that the key constraint on expansion of the social housing stock is the cost and availability of land.
Planning-gain supplements will certainly not reduce its cost and may severely reduce its availability.
The final report said that at least 17,000 additional houses are required each year within the category of social housing, 23,000 if the backlog is to be addressed.
This assumes that some of those in need would be helped by improvement of 'market affordability'.
Ms.
Barker and her team have come to the conclusion that a program of this order would require subsidy at the rate of £70,000 per dwelling, which at the 23,000 rate would cost around £1.6 billion yearly additional investment.
The subsidy is needed not to support the rising cost of house building but to offset the rising cost of the land on which the houses are built.
It is doubtful whether any of the measures this team has brought forward would be effective in reducing that.
Sustained inflation - 'theoretically it should not be possible' The property services company FPDSavills recently revealed research showing that building land values in the United Kingdom have grown by 769 per cent over the past 20 years.
This, they pointed out, is a much faster rate of growth than the rate at which the value of average UK housing has grown.
"Theoretically, it should not be possible for this to happen over such a long period of time without a downward adjustment being made at some point.
Given the rate of new house price inflation, building costs and assuming stable developer margins, the residual value of land should have grown by 321 per cent." This is a measure of the gap between affordable housing and housing that is getting beyond the reach of increasing numbers of people.
To generate wider affordability, the Barker policies have to narrow the gap by a useful proportion of that 400 per cent.
Not an easy task, but it certainly won't be achieved by recycling failed policies of the past.
Gordon Brown's own housing prospects are thought to be greatly improved if the present Government's hopes for the next election are fulfilled - from No.
11 to No.
10.
Here is a subject worthy of his closest attention.
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