Full text of Vince Cable’s ‘Plan A+’ Build 30s level of Housing Speech

Centre Forum

Thank you for this opportunity to speak to you about the economic situation.

CentreForum is earning a reputation for being ahead of the curve in providing practical policy ideas. It was the first institution to float ideas such as the pupil premium and community land auctions which are now government policy.

And in the field of macroeconomic policy you gave space to my current Special Advisor, Giles Wilkes, who – two years ago – set out the arguments for what has come to be called credit easing. Nine months ago you published a pamphlet of mine describing what is now commonly described as Plan A+ – combining fiscal discipline with targeted demand stimuli to generate growth. And a few months later you published an excellent paper by Nick Crafts addressing the same issue as me – Delivering growth while reducing the deficit – but based specifically on lessons form the 1930s

I want to draw some out of the lessons from the Crafts paper, while recognising that there are dangers as well as lessons from drawing historical parallels. The four year period 1929 – 33 is the nearest historical approximation to the economic storm which engulfed the Western World after autumn 2008. It also offers encouragement in the form of strong sustained recovery from 1933. And it was also the testing ground for the most influential economic thinking of the last century: the ideas of Keynes.

But there was an absolutely crucial difference.  There was no banking crisis in the UK (unlike the USA and in parts of Europe ) as part of the 1929-33 downturn; there was no “credit crunch”. Nonetheless the 1930s experience provides useful insights, not least of how it is possible to build a way out of a slump.

The 1930s versus today

The most striking parallel between the two periods was the sharp contraction of output. In 1932/33 output in the UK was 10% below trend filling an absolute fall of 6% in 1929/31. Similarly in 2011/12 production was close to 10% below trend after a fall of 6 to 6.5% in the period of 2008/10.

Yet from a trough in 1931 growth recovered to an average of 3% pa over the remainder of the 1930s.  For all that Roosevelt’s New Deal is celebrated as the dawn of recovery in the 1930s, the UK came out of Depression two years earlier, despite pursuing orthodox fiscal policies.

The reason we now remember the 1930s negatively was partly because of some concentrated misery in manufacturing centres reflected in the Jarrow Marches, but also because unemployment reached levels double those experienced in the current crisis (17% in 1932 as against 8.5% on a comparable measure). This stemmed from real wages growing strongly over the early period, in a world of prolonged deflation.  This priced workers out of international markets – what Keynes called the issue of “sticky wages” – a problem we don’t have today.

But a very strong parallel to today was a devaluation of 25% over the 1929/32 period, similar to the devaluation achieved after 2008. The pound was devalued as a result of abandoning gold –  Lessons having been learnt form the disastrous, and futile, attempts to maintain the gold standard in the 1920s.

In fact, you learn far more about our recovery in the 1930s from looking at monetary conditions that you can from examining fiscal policy.

It is worth recalling just how brutal were the first dozen years after the First World War.  Britain attempted to return to its pre War gold level, which meant chronic deflation to bring us back with world prices (what Southern Europe is attempting today).  As a result, the price index which had risen from 100 in 1914 to 250 in 1920, fell to 180 in a couple of years and continued falling all the way below 150 in 1930.

The voices in the City clamouring for the Pound to be kept strong got what they wished.

But the consequences for the real economy were devastating; production fell by 22% between 1918 and 1921. The real value of debts rose and rose.  The exchange rate was far too high and so our goods struggled on world markets.  On some measures in 1931, our per capita GDP was lower than it had been in 1915.

No wonder Churchill made his lament about wanting industry more content, finance less proud.  And when Britain eventually left gold in 1931, monetary conditions became easier, and recovery could finally begin.

The 25% devaluation in the recent economic crisis stems from a very different cause: it was a consequence of the perceived weakness of the economy and the UK’s acute vulnerability to a growing financial crisis.  But as in the early 1930s, devaluation prevented the UK economy deteriorating ever further, and from 2009 started a tentative rebalancing towards manufacturing and exports.

It is important that this incentive remains. Any prolonged appreciation of the currency will undermine the hope of recovery. This is one, but not the only, reason we need to retain a loose monetary policy.

Tight fiscal Policy; Loose Money

Both eras also had an adverse international environment, with Europe in turmoil.  The 1930s was the most protectionist era ever.  Exports collapsed everywhere, and international statesmen effectively gave up cooperating, with Roosevelt famously snubbing the 1933 London Conference.

This time round, adverse conditions are much more about the specific circumstances of the Eurozone, which thus far has not damaged international exports to the same degree, but has a worrying effect on confidence.

The most fascinating aspect of this historical parallel however is a potential similarity of policy response. In the period from 1929 until 1938 the UK government was in approximate fiscal balance, although some fiscal tightening was blamed, by Keynes and others, for a ‘double dip’ recession in 1932 when the economy seemed to crawling out of slump. 

Yet, without a noticeable relaxation in fiscal policy, the economy surged into strong growth which was becoming apparent mid 1933. As I said earlier the obvious explanation was a sharp loosening of monetary policy. Today’s consensus between Keynesians and monetarists in favour of easy money to sustain aggregate demand has prevailed because of the demonstrated effectiveness of monetary policy in the Depression.

The right way to understand loose monetary policy is in terms of expectations: of whether future money demand will be growing fast enough to make borrowing to invest or spend worthwhile.  It is not enough just to look at the base rate.  Look at Japan: because of its persistent deflation, its zero-interest rates still do not reflect easy money conditions.  Anyone investing is facing the persistent pressure of falling prices and falling profits.

In the 1930s, the abrupt departure from Gold – so much condemned by the City – had the strongest possible effect on expectations of rising money GDP.

For the first time since the War people had a reason to invest now, and expect a rising level of spending to reward their investment.

And as I said before, the banking system was functioning so people who wanted to borrow, could borrow.

This recipe worked spectacularly well. Real short term interest rates fell from about 10% in 1931 to well under 1% for the rest of the 1930s. Low interest rates fuelled a private investment boom – with industrial production surging after 1932 – and a burst of mortgage borrowing to finance house purchase – and building. Consumption also rose strongly.

The hope today is that a comparable recovery will be generated.  In nominal terms interest rates are lower than at any time in the 1930s.  In real terms, risk free rates seem set to be negative for a long period.  However, families and small businesses are not enjoying these low rates, a problem the Mansion House speeches were specifically designed to address.

Aggressive monetary policy, enhanced by QE, has now been operating for four years. And the IMF has recently argued strongly for a reinforcement of supportive monetary policy through the liberal provision of liquidity to the banking system– as announced on Thursday -, QE (with a wider range of assets) and more aggressive interest rate policies.

I would supplement these useful moves with an observation about how monetary policy is communicated.  Quantitative Easing can sound like a powerful instrument – but if it does not succeed in making people expect rising money spending in the economy, it is likely to be far less effective than leaving gold proved in the 1930s.   

The Big Differences

As I stated at the outset, historical parallels are seductive but often seriously misleading. We need to understand the important differences and in particular why we are arguably facing even more challenging circumstances than the interwar Coalition government.

One relates to private consumption. Consumption was helped by falling agricultural prices, and access to cheap credit from building societies for home purchase.  There was no household debt problem and once consumer confidence recovered on the back of rising real wages, consumption rose rapidly, driving the economy. By contrast, today’s UK households have faced a cut in real living standards, with inflation in excess of 3% caused mainly by higher import prices, (commodity prices driven up by rapid growth in Asia).

And with household debt to GDP ratios the highest in the developed world, after a “bubble” in mortgage fuelled house prices, there is little appetite for more household debt. The obvious sources of demand growth to stimulate business investment are therefore blocked: private consumption by borrowing; public consumption by deficit reduction; and exports by European problems.

Another fundamental difference relates to a breakdown in the money transmission mechanism following the banking crisis. In the 1930s there was a system of relationship banking for business which may not have been particularly innovative – and depended on the Big 5 who had 80% of all deposits – but was reliable in marked contrast to the wild excesses followed by remorseless deleveraging of banks today. Once the government devalued against gold, money was able to flow freely.

And for households deemed to be prudent, almost 1,000 locally based British building societies were dependable, non-profit, mortgage lenders. A virtuous circle was created: more mortgage demand leading to more house building leading to more houses; leading to lower prices and greater affordability; leading to more demand.

Houses built by the private sector rocketed from around 130,000 in 1931 to almost 300,000 in 1934 and it is estimated that house building contributed almost a third of all employment increases in this period. 

By contrast we are now in a downward, opposite spiral. A key reason is the destruction of the British building society movement – or much of it – in the two decades after the late 1980s. This was one of the great acts of economic vandalism in modern times. And the commercial banks largely abandoned locally based relationship banking in the decade before the recent financial crisis. There is now no institutional structure in place to offer countercyclical lending, particularly small and medium sized businesses, in place of the banks. A major and urgent task of government today is to ensure that we have banks that meet that requirement, alongside counter cyclical regulations and liquidity measures of the kind set out at last Thursday’s Mansion House speeches. We now look enviously at Germany where the Sparkasse and KFW underpin a business and mortgage lending system which works.

Fiscal policy

Both the 1930s government and the present Coalition had a massive fiscal problem.  Theirs was public debt – 180% of GDP, far higher than today’s levels; debt service was 8% of GDP, compared to 3% today.  There was every reason to be concerned that the UK might be at risk of a debt “trap”, with ever expanding commitments to debt service exceeding the expansion of the economy. That is not a risk today, thanks to our prudent management.

Ours is the deficit, a record structural deficit for peace time that demanded a clear plan for its elimination in order to maintain the confidence of markets.  Our policy is far more flexible than our opponents claim – we have shown this by extending the period from 4 to 6 years for bring the budget to structural balance.  Automatic stabilizers still function.  But no-one within the Coalition doubts the need to get the deficit under control over a sensible time frame.

Innovative Policies

Given these constraints, what tools does the Government have? The first is continued use of monetary policy, and stronger communication of the policy aim it is meant to achieve – robust recovery in money spending and GDP. The Mansion House speeches signalled a clear intention to continue aggressive monetary policy.

I am sure that all the candidates to take over from Mervyn King are thinking very had about how best to do this.

A second approach is to use government guarantees, which do not count as public sector liabilities but are sufficient to trigger investment which would not otherwise occur. For example, my department operates the Entreprise Finance Guarantee under which we might guarantee £100m of borrowing but only score, say, £20m against the deficit.  Arguably the conservatism of the banks is preventing this scheme from achieving as much as it should but it has undoubtedly ensured that many thousands of companies can survive and expand.

There is little doubt that these models could be expanded on a large scale in other sectors, and particularly infrastructure. One sector where progress could be made rapidly is in housing. The main vehicle for social housing for rent (as well as shared ownership) is housing associations. These are independent, not for profit, institutions which can – and do – borrow in capital markets. There is large unmet demand for social housing which may be self-financing if built, in conjunction with private housing. Indeed, some major UK contractors are doing just that with access to long term – 10 years plus finance – with access to guarantees.  This activity could be multiplied.

There are now some interesting ideas out there for government guarantees could trigger a significant volume of housing investment, replicating the recovery model of the 1930s and leading hopefully to a virtuous circle of new building lending to increased affordability and also increased private demand. Construction products account for 20% of manufacturing. Insofar as these ideas reduce uncertainty, they can encourage significant investment from the private sector. Recovery requires a big expansion in social and private house building.

The Industrial Strategy that I am promoting has the same underlying purpose:   providing certainty about ongoing government support to encourage greater supply chain investment.  This can come through regulatory certainty as much as ongoing subsidy.  Co-financing private house building alongside council house building could be an extension of the same principle. The potential is large.

And like in the 1930s there is no reason in principle why such innovative thinking should not be applied at a local level instead.  There are already examples:  some councils (Eastleigh, for example) use prudential borrowing powers – at negligible interest rates – to invest in projects with a commercial return (and they have to be commercial to meet state aid rules). The spread between yield and borrowing cost generates a surplus, strengthening the councils’ finances as well as creating real economic activity. The Government’s “City Deals”, starting in Manchester, adopt this principle also.  The approach of tapping into very low borrowing costs is scalable and could be multiplied many times.

Conclusion

Some of the government’s critics argue that what is necessary for recovery is to abandon deficit reduction.

The experience of the 1930s tells us, however, that it is possible to build, and grow, out of deep economic crisis without abandoning doing so. Indeed, growth in the 1930s radically improved the Government’s debt position. That happened while the Government more than doubled public investment.

Some of the policy ingredients are already in place – expansive monetary policy and devaluation. But the government is now looking at even more radical solutions in order to provide a platform for a 1930s style recovery.

First, all aspects of monetary and financial policy should be focused on ensuring that the advantages of loose monetary policy are felt everywhere, not just in low government borrowing rates. This encompasses monetary policy, liquidity policy, credit easing and banking policy to ensure that financial institutions perform the role played by building societies and banks in the 1930s but not currently being pursued by damaged and ultra-conservative banks.

Second, the public sector balance sheet has to be used to leverage in private capital, particularly in housing. Demand has to be created, it does not emerge simultaneously. There is scope here to both create demand and solve a pressing supply need at the same time.  Innovative approaches to public policy – making the most of the fact that our resolute action has given us a strong balance sheet – are the key to unlock this potential.

Thanks again to Centre Forum. In China politicians conduct their debates using the thoughts of Confucius, here we use the thoughts of Centre Forum.

JRF 1/2 Million Young People will be Forced into Private Renting by 2020

JRF 

A report published today by the Joseph Rowntree Foundation warns of an escalating housing crisis which is set to lock over one million young people out of home ownership by 2020.

The report, Housing options and solutions for young people in 2020, finds that an extra 1.5 million 18 to 30-year-olds will be forced into private renting in just eight years’ time.

It means many young people’s dreams of owning a home will never come true, while many more will have a much longer wait before they own their own properties.

An extra half a million young people will be forced to stay with their parents well into their 30s, taking the total number of young people living with mum and dad to 3.7 million by 2020.

In 2020, the number of home owners under 30 will nearly halve, with just 1.3 million expected to own their own homes. The number of homeless young people under 25 is predicted to rise to 81,000, with further increases expected.

The influx of young people chasing accommodation in the private rented sector (PRS) means that young families, poorer and vulnerable people will find it hardest to compete for tenancies with around 310,000 more young families looking for private rented housing in 2020.

The report warns of a ‘three-tier’ system developing in a race to find PRS housing, with those at the top who can afford to pay, a ‘squeezed middle’ group who might struggle to pay and a bottom rung of 400,000 who risk being excluded completely.

The authors make a number of recommendations to remedy these problems, including:

  • The provision of more affordable rents and longer, more stable private rented tenancies, with tax breaks for landlords who offer such options.
  • The expansion of local letting agencies who find suitable private rented housing and protect vulnerable young people by acting as brokers between young people and landlords.
  • Addressing the long term undersupply of housing to improve affordability.

Kathleen Kelly, Programme Manager for Place at the JRF, said: “Our badly functioning housing system will see those on the lowest incomes really struggling to compete in the competitive rental market of 2020.

“Renting is likely to be the only game in town and young people are facing fierce competition to secure a home in what is an already diminished supply of housing.

“With 400,000 vulnerable young people, including families, on the bottom rung of a three-tier private renting system we need to avoid turning a housing crisis into a homelessness disaster.”

David Clapham, lead author of the report, added: “With 1.5 million more young people no longer able to become home-owners by 2020, it’s vital we take the opportunity to make renting work better. To do this we need strong political leadership that is willing to work with both landlords and tenants to make it more affordable and stable for ‘generation rent’.

“Young people are at a double disadvantage – it takes longer to raise enough for a deposit and their wages are generally lower. But there are simply not enough homes and those we do have cost too much to rent or buy. While more housing would help address this, it may not come quick enough for young people forced into renting in eight years’ time.”

Grant Shapps put on hold the Street Party – Private Housing Construction Orders fall 10.7% in Q1

Last Week we had figures from the HBF showing a rise in permissions for major housebuilders, causing Grant Schapps to tweet that it was another excuse for a street party.  But permissions does not necessary translate into starts, and that q was explainable by the rush by councils to secure 5 year supplies before the NPPF came into force and the rush by developers to explot this.

Today we have the latest ONS quarterly construction data, decidely mixed but the fall in housing orders is striking.  The very large % shifts is down to a year ago many programmes -such as Building Schools for teh Future – having come to an end without replacement programmes in place.  Also the very low base means that smal changes can produce large % shifts.

ONS

The key points from this release are:

  • In constant 2005 prices, seasonally adjusted, the total volume of all new construction orders in the first quarter of 2012 is estimated to have grown by 4.6 per cent compared with the fourth quarter of 2011, but is 3.6 per cent lower than the first quarter of 2011. In a volatile series, new orders remain at a relatively low level
  • In constant 2005 prices, seasonally adjusted, large increases were seen quarter-on-quarter in private industrial new work and private commercial new work which grew by 57.9 per cent and 27.8 per cent respectively. There were decreases in infrastructure new work (13.6 per cent) and private new housing (10.7 per cent)
  • The volume of new orders for infrastructure is estimated to be 59.5 per cent higher in the first quarter of 2012 than in the same period one year earlier (constant 2005 prices, seasonally adjusted)
  • The volume of new orders for public new housing and public new work combined is estimated to be 41.3 per cent lower in the first quarter of 2012 than in the same period one year earlier (constant 2005 prices, seasonally adjusted)

The key points from this release are:

  • In constant 2005 prices, seasonally adjusted, the total volume of all new construction orders in the first quarter of 2012 is estimated to have grown by 4.6 per cent compared with the fourth quarter of 2011, but is 3.6 per cent lower than the first quarter of 2011. In a volatile series, new orders remain at a relatively low level
  • In constant 2005 prices, seasonally adjusted, large increases were seen quarter-on-quarter in private industrial new work and private commercial new work which grew by 57.9 per cent and 27.8 per cent respectively. There were decreases in infrastructure new work (13.6 per cent) and private new housing (10.7 per cent)
  • The volume of new orders for infrastructure is estimated to be 59.5 per cent higher in the first quarter of 2012 than in the same period one year earlier (constant 2005 prices, seasonally adjusted)
  • The volume of new orders for public new housing and public new work combined is estimated to be 41.3 per cent lower in the first quarter of 2012 than in the same period one year earlier (constant 2005 prices, seasonally adjusted)

Local Opposition Single Biggest Barrier to New Housing – Local Government Leaders

LGA

Ensuring that new housing development comes with roads, schools and parks is vital to tackling the housing crisis and overcoming public opposition, local government leaders have said.

A survey of frontline councillors carried out by the Local Government Association reveals that public opposition is the single biggest barrier to the building of new homes. However, development which comes with appropriate infrastructure is nearly four times more likely to be supported by the public, according to councillors. 

The LGA is today launching a ‘Housing the Nation’ campaign, calling on government to remove some of the restrictions hampering local authority efforts to tackle the nation’s housing crisis.

It is warning that councils’ efforts to ensure that all new developments come with the appropriate infrastructure like roads, schools and parks risk being undermined by government proposals to allow developers to force councils to reopen Section 106 agreements previously agreed with developers. 

According to government figures only 106,050 new homes were built in 2010/11 compared to 160,030 in 1990/91. Approximately 250,000 are required each year to meet demand.

The LGA’s survey of frontline councillors found that:

  • Four in five respondent councillors (84 per cent) say their local authority area is in need of new housing.
  • 42 per cent of councillors thought residents in their area were, on balance, opposed to new housing.
  • But, when proposed housing developments comes with the necessary infrastructure, only 11 per cent of councillors said residents would still be opposed.
  • Public opposition was cited as single biggest barrier to new housing. 59 per cent of councillors said it had been a barrier to new housing developments in their area in the past two years.

Cllr Keith House, Deputy Chairman of the LGA’s Environment Board, said:

“It is widely recognised by all that we desperately need new homes and at the moment, there simply aren’t enough being built.

“Councils play a crucial role both in providing affordable and social housing and working with developers to plan new private sector housing. But to do this more effectively, local authorities need greater freedom and financial control to invest in new and existing homes. The constraints of Whitehall are preventing local authorities from tackling the housing crisis.

“Our survey shows that one of the biggest obstacles to new housing being built is public opposition. People don’t dispute the desperate need for new housing. But quite understandably they just don’t want a new housing estate down the road if it is going to lead to congested roads and crowded classrooms. 

“Councillors have to balance the interests of their residents with the wider needs of the area. The current economic crisis means that new development is scarce and councils are doing what they can to encourage growth in their areas. This includes providing land and assets, overwhelmingly saying ‘yes’ through the planning process and, where appropriate, renegotiating Section 106 agreements.

“By allowing local authorities the flexibility to finance new homes and make best use of the homes already available councils can play a role to turn the tide on the housing crisis and get to work providing the new homes the country so desperately needs.”

‘Nudge’ Approach to Housing Adopted with Tax Break on Granny Flats – But Granny in a ‘shed with bed’!

Telegraph

Ministers are expected to abolish council tax for “annexes” used by family members to encourage pensioners to move in with relations.

The Government will also consider overhauling planning regulations and fees to make it easier to adapt garages and other outbuildings.

The Communities Secretary, Eric Pickles, said it was “fundamentally unfair” for households to be charged twice by paying council tax on their homes as well as the annexes.

“We are keen to remove tax and other regulatory obstacles to families having a live-in annexe for immediate relations,” he said. “We should support home owners who want to improve their properties and standard of living. These reforms should also play a role in increasing the housing supply.”

Under existing rules, “granny flats” are regarded as separate dwellings and are liable to be charged full rates of council tax by local authorities, which typically exceed £1,000 a year.

Officials estimate that the change could benefit as many as 300,000 households in England.

The reforms, which are likely to require legislation, are expected to form part of a package of policies to address the shortage of affordable homes over the next two years. The Government has already supported moves to encourage pensioners to downsize and allow councils to rent out their family homes.

Research last year estimated that 25 million bedrooms in England were empty.

At the same time, high property prices are forcing young families to squeeze into small homes. With almost a fifth of the population expected to be older than 65 by 2020, ministers believe “radical and urgent” reforms are needed.

The annexes could also be used to accommodate young people looking to make their first step on to the housing ladder.

Currently, an annex does not need to have its own front door to be counted as a separate dwelling but it would be expected to have distinct living and sleeping areas, and a kitchen and bathroom.

Some discounts for the elderly living in annexes already exist. However, when part of a house has been adapted as a “granny annexe”, it continues to be counted separately for council tax, even when it is no longer occupied.

Ministers also intend to review legislation to remove red tape that can make it more difficult for home owners to adapt properties.

Currently, garage conversions require planning permission and officials are concerned that too many councils refuse to approve schemes.

The review will also consider scrapping the need for households to pay for planning agreements on how the flats will be used, which can cost more than £1,000.

A government source said: “Such a policy would make it easier for families to expand their homes and offer accommodation to extended families, without the hassle and cost of moving home.”

The Department for Communities and Local Government acknowledged in a policy document on the proposals that the law on council tax for annexes was “complex”.

Ros Altmann, director-general of Saga, the over-50s group, said the reforms could be a “benefit” for families that would otherwise struggle to afford the cost of care for relations.

However, she warned that the elderly must not be forced to move out of their own homes.

Sorry but this shows a total lack of coherence of government policy.  At the same time as the government is cracking down on ‘sheds with beds’ which in large part are a problem because it is too easy to build outbuildings and convert garages if you claim that they are for ‘family members’.  So instead the government proposes to add fuel to the fire and what is more subsidise them.  The answer is not to remove planning consent but to extend it but to make it easier and cheaper in genuine cases, such as at the side or rear of a house for those who can demonstrate close family membership.  The section 106 issue referred too is an easy one to solve, simply publish a standard unilateral undertaking and then the cost is only the engrossment fee – £25 rather than £1,000.  Their is a basic error also, the conversion of a garage per-se will normally not be development.  What might require PP or be PD is either the subdivision of the dwelling or the replacement of the front garage door with a window.  Do we really want to remove PP for the subdivision of dwellings with the acute subdivision problems we see in many areas that have paralell ‘beds with sheds’ problems, where you often see small properties subdivided and occupied to victorian slum levels?  Yet again a DCLG fail in terms of analysis and solution – not every problem can be solved through only ‘cutting red tape’.  The DCLG has to move back from the failed ideological slant to determining what mix of regulation and deregulation is suited to the task, and also determining what the multiple objectives of policy, pushing in different directions, are.  This includes both helping genuine cases of aiding elderly and disabled members of a family (not just any extended family which is open to abuse) whilst clamping down on excessive subdivision and outbuildings which result in overcrowding and poor conditions.  One solution to this has to be minimum room sizes and occupancy controls,

Wigan – Another Post #NPPF Housing Land Supply Core Strategy Failure

Here is the letter from the inspector suspending the inquiry by six months

as it stands I consider the submitted Core Strategy to be unsound in that it fails to demonstrate an adequate and realistically deliverable supply of housing land….

I have significant doubts regarding a number of the assumptions made by the Council in attempting to demonstrate an adequate supply of deliverable housing land. I am also concerned with a lack of flexibility and the absence of an allowance for cleared dwellings.
Taking a 15 year plan period of 2011-2026 I consider that there should be provision for at least 16,500 dwellings (gross). In my view there is a shortfall of at least 2,500 dwellings in terms of realistically deliverable supply within that period. The NPPF makes it clear that identified housing requirements should be fully met and that a rolling five year supply of specific
deliverable sites should be identified with a buffer of 5% or 20% where there has been persistent under delivery. Taking account of past performance in relation to housing requirements I consider that a buffer of 20% is required in the case of Wigan. There is therefore also a specific need to demonstrate a deliverable five year supply of at least 6,000 dwellings from the likely adoption of the plan i.e. 2013/14. This provides the basis for the work necessary during the suspension.

James Lang LaSalle – 72% of Land Buyers say #NPPF will make no difference in ease of aquiring housing sites

The report is here Residential Land and Planning 2012

Developers are reporting that the availability of debt for land purchase and development has deteriorated rapidly in recent months, with implications for housing delivery.

The industry does not anticipate significantly increasing delivery in response to planning reforms, but has higher hopes for the government’s NewBuy Guarantee scheme.

Land values appear stable in much of the country, with the exception of London, where competition for sites continues to drive prices upwards.

Developers active in the North and Midlands are more positive about future land availability, despite the fact that the need for housing, and the viability of development, is strongest in London and the South.

Westminster Introduce Transferable Development Rights Affordable Housing Model

Inside Housing

 Under the model the land owner agrees to sell land for below market rate in exchange for an ‘affordable housing credit’ they can use against obligations for future schemes.

In the Westminster example, which is the first of its kind, commercial property company Land Securities sold a site to private affordable housing developer Pocket for £2.3 million less than its market value.

Fermoy Road

The Fermoy Road development includes 32 one-bedroom flats

Westminster Council agreed that this money could be held by Land Securities as credit against affordable housing obligations on future developments. The credit can be used in lieu of payments that might have to be made where it is not feasible to have affordable housing onsite.

Pocket specialises in building one-bedroom homes for sale at below market rate in London. It achieves this by maximising the use of space and avoiding some planning requirements, but was unable to do this in Westminster due to high prices.

The unusual planning model allowed Pocket to go ahead with the 32-home Fermoy Road development. The homes will be sold at a discount of 20 per cent on market rate to households that meet the income criteria used for the mayor of London’s first-time buyer scheme (those earning less than £61,400 a year).

Buyers are bound by a covenant that means the home must be sold on for 20 per cent less than market price – which in Westminster is from £300,000 for a one-bed home – and to a person who qualifies for affordable housing. Sales must be approved by the council.

Marc Vlessing, co-founder of Pocket, said the scheme could be a ‘massively important’ way of funding affordable housing developments in high-value areas.

‘We are talking to Hammersmith & Fulham, Kensington & Chelsea – talking to a number of lead boroughs – Camden – in which there are large developers with big affordable housing obligations, and where our credit model creates a new currency,’ he said.

Philippa Roe, leader of Westminster Council, said: ‘This new scheme lays the foundations of a new era in affordable housing in the capital.’

Experts on the development of affordable housing said although they were familiar with the principle of affordable housing credits they were not aware of similar schemes coming to fruition.

 

CIL and #NPPF could hamper new Housing – Knight Frank

Outlaw

The Community Infrastructure Levy is causing “disquiet” amongst housebuilders, who fear that the levy could lead to a decline in the supply of residential development land across the UK, according to estate agency Knight Frank.

The levy on new development is already “squeezing margins” and, teamed with other policy developments such as the National Planning Policy Framework (NPPF), could hamper the delivery of new housing, said the company.

‘Housingbuilding 2012’ is a report produced by Knight Frank’s residential research team, which undertook a survey of more than 100 builders to assess the opportunities and challenges facing the UK housebuilding industry.

The content of the NPPF has been largely welcomed across the industry, the report said, but it is not expected to have any positive impact on housebuilding in the near future due to the confusion and delays that could result from the “bedding down” of the policy over the next year.

Nearly half of the respondents to the survey said that they thought the Government’s move towards ‘localism’ would slow down the process of securing planning permission and 54% of respondents said that the plan could result in a fall in development volumes from where they would otherwise have been.

“The NPPF is a step forward. However there is a lot of room for interpretation and as such I believe it will take a couple of years, and significant use of the appeals process before it settles down,” said Steve Morgan, chairman of property developer Redrow, in the report.

The Government’s New Homes Bonus is not supported by housebuilders either, according to the report, which said that in the second year of the bonus allocation there has been a notable rise in the number of respondents who think that the scheme will have no impact at all on development volumes. Some 80% of those surveyed said that the bonus would have little effect.

The New Homes Bonus was introduced last year to encourage local councils to approve plans for new homes. In return they receive a payment matching council tax income for each home built or brought back into use, with an additional bonus for affordable housing.

Housebuilders were generally in support of the Government’s NewBuy scheme, which aims to boost the availability of mortgages by housebuilders and the Government providing a ‘guarantee’ for the mortgage.  Two-thirds of respondents to the survey said thought the scheme would result in a slight rise in development volumes, and 70% said that it should result in a modest rise in sales.

Some housebuilders expressed “dismay” at the high interest rates on such mortgage loans, said Knight Frank. “Our survey shows that lack of mortgage finance remains the biggest risk to the performance of the housebuilding sector over the next 12 months.”

Lord Best – Build 100,000 Extra Care Homes a Year to pull Britain out of Recession #UKhousing

Guardian

Lord Best has a plan. Housing’s great crossbench advocate has come up with a new strategy that will, in his words, “solve all the country’s problems”.

Here’s what the peer proposes: building 100,000 retirement, supported housing and extra-care homes a year. The trickledown effect will, in one handy flourish, pull Britain out of double-dip recession while also solving the country’s acute and growing housing crisis.

The boost to the construction industry would, by his calculations, create between 300,000 and 500,000 new jobs. “That’s the engine of growth,” he told a gathering of housing and care providers in London this week. “Whenever we’ve had a recession, it was the construction industry [that got us] out of it. If the money goes into housing, it goes into jobs – and into making people’s lives better.”

Building 100,000 homes designed especially for the needs of an ageing population would also help to house 350,000 other people. By selling their under-occupied large family homes and downsizing to smaller, specialist properties, our older people could help a whole generation of potential first-time buyers who are priced out of the market.

Lord Best said many of these homes would have been untouched and undecorated for up to 35 years, and so would sell at the lower end of average market value and be affordable to families struggling through recession. “Nearly all of the 7.8m people of pensionable age have more than two spare rooms, making way for 350,000 family [members] with children.”

So does the model stand up, or is it a rose-tinted oversimplification of a more complex economic and social system?

The first stumbling block is the finances; where does the original investment to build the 100,000 properties a year come from, especially when the days of healthy public subsidy for housing are behind us? The construction industry is in lockdown, afraid of risk and rejecting too much speculative development even where evidence of local need is overwhelming.

One argument suggests that public funding could be found if health and social care budgets and strategies were pooled and rationalised, finding savings where preventative healthcare and support for older people generates efficiencies within the NHS. This is why specialist housing providers such as Anchor have been campaigning for a dedicated minister for older people who can consider how health, housing, social care and other services fit together.

Even if the subsidy was found, what about the cultural barriers? In the UK, attitudes towards homes are rarely practical, despite our predilection for using property as an investment portfolio rather than as the shelter it was designed to provide. Retired residents who have nurtured a family and watched them move on struggle to leave those memories behind….

There would be other practicalities: planning spats over what type of housing is needed, where and how it should look; diverting funding from the vote-winning NHS to other services to support growing numbers of extra care residents; finding the money for investment in training and skills for those 500,000 new employees.

Its a good plan but rather incomplete without

a) a plan to ensure mortgages can be granted to those purchasing the freed up stock – rather than at present only new homes

b) developing them as part of mixed and balenced communities, otherwise could simply worsen the dangerous aging population balence of many areas where there is a lack of housing for young people and older people are buying up the existing stock.

It would be better if this plan ran in parallel with plans for producing social housing and housing benefit funding as we have blogged about on here many times