11 November 2014
Sheila Camp, LGIU Associate
The Lyons Housing Review
The Lyons Housing Review, published in late October 2014, is the result of a wide-ranging inquiry into the current and ongoing housing shortage, bringing forward proposals on how best to tackle it in the prevailing economic climate. The Review was commissioned by the Leader of the Labour Party, Ed Miliband, to inform the party’s policy review and was chaired by Sir Michael Lyons. Its membership included representatives of the housing and planning professions, developers and academia.
The Review has produced a series of recommendations for the 2015 government, which seek to increase the production of new homes to eventually meet the numbers needed, but, at the same time, not increase public expenditure in the short term. It champions an enhanced role for communities and local councils; includes proposals to increase land supply; and looks at ways to increase the diversity of developers and investors. Crucially, it makes a cogent case for a shift away from personal housing subsidy to investment in bricks and mortar.
This briefing will be of particular interest to members and officers with responsibility for housing, planning, finance and economic development, to policy teams and of general interest to elected members with housing shortages in their wards.
Briefing in full
The Review was established some nine months ago by the Leader of the Labour Party, Ed Miliband, to identify priorities for the next government to tackle the long-standing shortfall in the production of new homes and to inform the party’s policy development. As the Review’s Chair, Sir Michael Lyons says in his Foreword,
“We currently build half the number of homes we need each year and the consequences in terms of overcrowding, thwarted ambition, rapidly rising rents and the impact of house price inflation on the management of the national economy are clear for all to see”.
The Review looks at ways of not only increasing house production per se but at creating homes and places where people will want to live, of seeking to house all groups in society and attracting a wider range of stakeholders into the building of new homes.
The scale of the problem
The overall shortage of homes in England has built up over the preceding decades and, at the present time, it is estimated that 243,000 new homes a year are needed to cater for new household formation. Against this, we produced 109,000 last year and, over the past 10 years, have averaged 137,000. Without some change of direction, we could be short of 2 million homes by 2020.
What are the consequences of this shortfall as increasing demand chases an inadequate supply? The youngest and poorest households bear the brunt.
- House prices are increasingly unaffordable, with the average home costing 8 times the average wage, as opposed to 4.1 times in 1994. The average deposit needed is 65% of earnings, which leads many to despair of ever accessing owner occupation.
- Rents have also risen rapidly as more households, unable to access owner occupation, turn to the private rented sector, which now houses 18% of all households, up from 10% in 1996. And private renters typically spend 46% of their income on rent, whilst the typical owner occupier spends 20% on mortgage repayments
- Young people are increasingly unable to form independent households, with more having to live in the parental home; a knock-on effect of this means they are often unable to afford to move for work.
- Labour mobility – if insufficient affordable homes are available in an area, new and expanding firms cannot be confident of attracting a stable workforce and job seekers are reluctant to chance being able to access accommodation they can afford.
- Economic effects – from rising housing benefit bills to macro economic cycles, the stability or otherwise of the housing market affects the overall economy. As Lyons, and Kate Barker before him (Barker Review of Housing Supply 2004), demonstrates, ” Since the post war period, economic cycles have shown a clear positive correlation with instability in the housing market”.
Lyons asserts there are two major reasons why, as a country, we fail to build enough homes. First, insufficient land is brought forward for housing development, and often meets with local resistance to new homes.
Second, the capacity to produce new homes has shrunk dramatically. Whereas 50 years ago, public and private sector combined built over 300,000 homes per annum, now the public sector contribution has collapsed and the private sector is reduced to a small number of volume house builders, with the number of small and medium sized firms shrinking dramatically.
The Review looks at how to increase supply to tackle the current shortage and its crippling effects and, as a by-product, generate the jobs and wider economic benefits of a buoyant construction sector.
A national focus on delivery
Lyons argues that the challenges involved in securing a sustainable step change in housing supply should not be underestimated; it will require action by all stakeholders but particularly the various arms of government. Although basically housing is a local issue, national government has a key role to play in establishing housing as a top priority which underpins its strategic thinking – something which has not been the case since the immediate post-war period – and setting out a clear and ambitious vision for delivering the homes the country needs.
Recommendation 1: Housing as a priority for Government
On taking office, Government should make a clear commitment to building new homes through:
- A clear statement of national targets for house building moving beyond 200,000 by 2020 to cover the next twenty years.
- Early publication of a Housing and Planning White Paper and Draft Bill to implement reforms, confirm a coherent strategy for housing policy and actions that will be followed over the Government.
The machinery of government needs to be refocused to support housing delivery, across government departments, at prime ministerial and cabinet level and in data collection.
Recommendation 2: Ensure Government is focused on delivering more homes
To ensure focus on the delivery of more homes, government should:
- Establish the post of a dedicated housing minister attending cabinet.
- Establish a new-cross government task force bringing together key departments
- Create an independent advisory Housing Commission to bring skills and expertise from across the housing sector to inform policy, advise government and provide independent scrutiny and challenge to government in meeting its targets.
- Establish a national Housing Observatory as a single repository for key data, forecasts and analysis on housing
Confidence in the stability of housing demand is crucial for developers and building materials manufacturers, especially during fluctuations in the economic cycle. Government has an important role to play in maintaining steady demand for homes
Recommendation 3: Certainty of measures to support housing demand
Government in 2015 should provide confidence that, in future, counter-cyclical demand side measures will be implemented when needed. Future mortgage support should be more effectively targeted at first-time buyers and consideration should be given to restricting future schemes to new-build and houses which are closer to prevailing average prices.
Lyons considers the Homes and Communities Agency should be retasked to move away from regulation and managing the development programmes of social landlords to a major role in enabling development through bringing forward public land for housing and partnering public developers.
Recommendation 4: Re-task the Homes and Communities Agency
The HCA should be re-tasked as a national delivery agency with the core functions of:
- Sole agency for disposal of government land for housing and assets with a focus on investing land as equity through local development partnerships and a five year revolving delivery plan for government land for housing.
- Acting as a major partner for local authorities and New Homes Corporations bringing skills and expertise, private funding, land and guarantees to support development.
- Supporting large scale development through the coordination of expansion of training and professional development across local and central government.
At present, funds for housing development are fragmented, which leads to endless bidding rounds and general inefficiency, acting against a focused approach to increasing supply.
Recommendation 5: Consolidate and devolve funding for housing
Housing funding streams should be consolidated as part of the economic development fund and devolved to city or county region authorities working across functional economic areas.
There is also room for a more coordinated approach to securing investment, a task for the revamped HCA. And it should manage government guarantees to ensure they effectively support new homes
Recommendation 6: Expand HCA role in securing private investment
The investment arm of the HCA should be expanded to act as a vehicle to aggregate opportunities for private investment at scale.
Recommendation 7: Guarantees to support housing supply
The HCA investment arm should manage the use of government guarantees (within an overall envelope set by HM Treasury) to increase supply and attract new additional investment in viable projects
Land for housing – supply and ensuring identified sites are built out
A plentiful supply of land for housing delivered through the planning system is essential if housing supply is to increase significantly. Local Plans are already required to identify a five year supply of land to meet local housing needs, but progress is patchy, both in identifying sites and in finalising Local Plans. Lyons argues for improvements in the Local Plan process and in the Strategic Housing Market Assessments which underpin them – these should be based on actual housing markets, which often do not coincide with local authority boundaries.
Recommendation 8: Increasing land for housing through Local Plans
To increase identification and delivery of land through Local Plans:
- Guidance for Strategic Housing Market Assessments should be strengthened to stipulate core indicators and methodology to ensure consistency and robustness of all Local Plans.
- All local planning authorities should be required to submit a Local Plan to the planning inspectorate for examination within a set time frame (December 2016). If this requirement is not met, the Secretary of State will have the power to direct the Planning Inspectorate to intervene.
- Local authorities should be required to include a statement in their annual monitoring report about their Local Plans’ compliance with the NPPF and any issues that would trigger a review of the plan.
- Recognising that establishing deliverability of land beyond five years will be difficult, there should be a clear requirement for a 15 year pipeline of land to ensure local authorities take a long term approach to land supply.
- New and additional emphasis on the delivery of housing in the Plan in the context of the stronger powers available to councils to do so. Delivery will be monitored annually by DCLG in terms of house build as well as land allocation. Where there is a persistent under delivery, the Secretary of State will have the power to intervene.
Although many local councils are working cooperatively to solve housing needs across administrative boundaries, it is not always the case that neighbouring authorities recognise the needs of towns and cities to expand beyond a tightly drawn boundary. The Review proposes powers for the Secretary of State to intervene to enable a “right to grow”
Recommendation 9: Strategic Housing Market Plans and the “Right to Grow”
To ensure plans are based on housing market areas, not administrative boundaries, groups of authorities covering one or more strategic housing market area should be able to prepare Strategic Housing Market Plan (SHMP) with statutory weight which must be taken into account in developing and updating Local Plans.
To implement the “Right to Grow”, the Secretary of State should have the power to require the authorities of a particular housing market area to complete a Strategic Housing Market Plan (SHMP) where co-operation is not forthcoming and housing need is not met.
The current procedure for drawing up and consulting on a Local Plan prior to its adoption is lengthy and inevitably leads to a period of uncertainty. The process needs simplifying.
Recommendation 10: Simplifying plan making
To simplify and speed up plan making, the process, including examination, should be split into two stages. Local authorities would first work together on the strategic elements of their plans including housing numbers, strategic infrastructure, major urban extensions or new settlements. Once found sound by the Planning Inspectorate it could be accorded weight in decision making much earlier than at present. The detailed work on the detailed policies of a Local Plan could be approved after a lighter touch second stage.
Ensuring that new homes meet local housing needs, especially in London, is a key concern. Too often in the capital, homes are built for and snapped up by outside investors, often without being marketed locally. It is essential in all areas that Local Plans identify local housing need and the types and tenures of homes required to meet that need.
Recommendation 11: Ensuring local access to new homes
To ensure that local people can access homes built in their areas:
- Local authorities should ensure that Local Plans reflect the right mix of tenures in their areas to meet local need so that local people benefit from new development, particularly increasing opportunities for shared ownership to help local people and first-time buyers afford new homes in their areas.
- Local authorities should be empowered, in areas with a public stake in new housing development such as Housing Growth Areas, to ensure that a proportion of new homes are released and marketed locally before further afield so that people living locally or with strong local connections including first-time buyers get the chance to buy the homes that their local community have given permission to be built.
Uncertainty for developers as to whether their proposals for new homes will be granted planning permission is a major concern. Working collaboratively with local councils in partnership arrangements would reduce that risk and speed up the process. Arrangements could be more formal for large sites. Small sites, for less than 10 units could have development agreed in principle, with the more expensive detailed work undertaken at a later stage.
Recommendation 12: De-risking planning
Reduce the risk and speed up the process for planning permissions through:
- Greater use of master planning and Planning Performance Agreements for large scale development and early engagement in planning to reduce risk, improving certainty and speed of development.
- Introduction of “redline” applications for sites of less than ten units (a plan of the site with a short statement justifying the design and dealing with the likely impacts). This would allow the principle of development to be agreed before the developer is required to produce a lot of work on detailed matters.
- Implementing the current proposal to apply set timescales on planning authorities for signing off conditions and that where timescales are not met, they will be deemed to have been discharged.
- The LGA, Planning Officers Society; Home Builders Federation, British Property Federation and statutory consultees should promote best practice guidance.
With continuing pressure on local authority budgets, planning fees should reflect costs and councils should pool skills and expertise to ensure the planning function is adequately resourced.
Recommendation 13: Resourcing planning
To ensure councils have the skills and resources needed for a more proactive and positive planning role:
- Local planning authorities should be able to set planning fees locally on a full cost recovery basis but in return for guaranteed high levels of service.
- Local authorities working together at strategic housing market level should pool capacity and expertise.
Finally, a national dimension is needed
Recommendation 14: National spatial dimension
- A national spatial assessment should be produced to draw together the spatial implications of government infrastructure and growth and economic development policies.
- Based on this assessment, guidance should be issued to local authorities to inform Local Plans and major developments and ensure national infrastructure decisions are linked to opportunities to build more homes.
- The National Planning Policy Framework should be updated to establish a brownfield first policy with a sequential test to be applied to development.
Having brought forward land for housing, the next challenge is to ensure that these sites actually deliver homes on the ground and do not just form part of developers’ (and others) land banks. A starting point is greater transparency of land ownership and a second issue is a tighter time limit on planning permissions.
Recommendation 15: Transparency in the land market
To ensure greater transparency in the land market, the Land Registry should open up land ownership information to the public in a similar manner as the property price paid data set and make it a legal requirement to register land option agreements, transactions and prices.
Recommendation 16: Use it or lose it
To ensure planning permissions are implemented and reduce incentives for speculating on land:
- The life of a planning permission should be reduced to two years with higher fees applying for renewal of expired permissions.
- Greater substantive work should be required to count as the commencement of development.
- Councils should have powers to levy a charge equivalent to council tax if land allocated in a plan with or without planning permission is not brought forward within 5 years.
- Compulsory Purchase Order powers should be strengthened and streamlined to make it easier for public bodies to acquire land where it is not brought forward and where it is a priority for development.
Compulsory Purchase Orders, whilst remaining a valuable tool for local councils, were more widely used in previous decades. The Review highlights reasons why they are not used more often, including the fact that the process is lengthy, controversial and of uncertain outcome. Also, councils may lack the skills or budgets needed for a successful CPO. Evidence to the Review stressed the need for updating CPO framework.
Recommendation 17: Compulsory Purchase Orders
Update legislation for Compulsory Purchase powers to make them more effective as a tool to drive regeneration and unlock planned development by:
- Streamlining and clarifying existing legal guidance and legislation on CPO as far as possible, to reduce uncertainty and confusion.
- Streamlining the process and reducing opportunities for landowners to stall progress.
- Where a CPO is contested, land valuation should be considered by the tribunal up front, to reduce timescales, uncertainty and risk for local authorities and their development partners.
- Amend the Land and Compensation Act to provide that where land is designated for a Garden City, or a Housing Growth Area, compensation for CPO powers should be based upon current use value plus a premium ensuring a generous return to the land owner, but ensuring the infrastructure costs can be captured from the value created by the new development.
Community Infrastructure Levy, currently being rolled out, is designed to replace negotiated contributions to infrastructure. Concern was expressed about its interaction with S106 agreements, its impact on developers on certain sites and, as it is based on a fixed charge per new home, its lack of flexibility.
Recommendation 18: Community Infrastructure Levy
Remove the restriction on pooling Section 106 contributions for both strategic and mitigating infrastructure on strategic and large sites (over 500 units). This will enable the authority, having set a zero rate for CIL on such sites through its charging schedule, to pool contributions from multiple development partners through Strategic Land and Infrastructure Contracts or similar frameworks to support the delivery of strategic infrastructure across the site.
A comprehensive review of CIL should be undertaken to consider reforms needed to ensure it more effectively captures funding for infrastructure, options should include:
- Analysis of the impact of cumulative changes to regulations and the process of testing through examination in producing robust evidence base for CIL.
- Assessment of the impact of the CIL exemptions for charities, self-build and affordable housing introduced by the coalition government.
- Consideration of whether the proportion of CIL devoted to parish councils and “neighbourhoods” is appropriate and require parish councils to produce an investment plan for its use with an annual report on delivery.
Concern was also expressed to the Review about the way viability testing of Local Plans, the CIL charging plans and sites are carried out in the absence of an agreed methodology. Lyons recommends this be addressed.
Recommendation 19: Viability
Definitive guidance should be produced to ensure a single and robust methodology for viability assessment to reduce the scope for different interpretations of viability and reduce uncertainty. This should allow the landowner to receive a reasonable return and offer clarity about what they can expect to receive for their land, and should clearly identify the uplift in value arising from the grant of planning permission to enable this to be properly considered as part of the planning process alongside the costs of necessary supporting infrastructure and affordable housing. In addition an “open-book” approach to negotiating site specific viability is required, to increase transparency and speed of negotiations.
Lyons courts controversy when considering the mismatch between the original definition of “affordable” in the NPPF and the government’s definition of up to 80% of market rents, pointing out that the latter may well be unaffordable to lower income households, particularly in high cost and/or low wage areas. He comes down in favour of the NPPF. He also seeks changes to speed up S106.
Recommendation 20: Affordable housing
- To strengthen the ability of local planning authorities to meet affordable housing need in their areas, the definition of affordability in the National Planning Policy Framework should be revised to reinstate the previous definition that affordable housing should “meet the needs of eligible households at a cost low enough for them to afford, determined with regard to local incomes and house prices”.
- A new arbitration service for S106 negotiation of large scale projects should be introduced to assist with the speed and effectiveness of negotiations.
- The proposed changes for a minimum threshold for affordable housing S106 should be reversed to ensure that all development makes a reasonable contribution to affordable housing provision.
The New Homes Bonus was introduced by government to encourage local communities to back proposed housing development. However, being based on local council tax, it has had the effect of redistributing cash to areas with higher house prices. With 2-3 years’ experience, it is time to revisit the policy.
Recommendation 21: New Homes Bonus
The New Homes Bonus should be reviewed to consider:
- Whether the New Homes Bonus should be retained in its current form;
- Assessment of whether it has an element of deadweight, rewarding housing growth that it has not incentivised; and
- The redistributive impact of the policy.
The delivery of essential infrastructure will probably need investment over and above the various methods of capturing planning gain. Revolving Infrastructure Funds would provide a means of pooling central and local funding to target priorities for infrastructure investment and allow for the initial outlay to be recouped over time and earn a return.
Recommendation 22: Revolving Infrastructure Funds
Create a programme of Revolving Infrastructure Funds pooling central and local funding for infrastructure and ensuring receipts are retained and recycled to forward fund infrastructure and support large scale housing development schemes. These will be a key part of the offer to local authorities and New Homes Corporations to support major housing growth.
A new role for communities
Lyons recognises that communities, whilst acknowledging the need for new homes, are often anxious about the social, environmental and amenity implications for their locality. The Review proposes an enhanced land assembly role for local councils, together with a collaborative approach to new development, in effect taking the community with them and establishing long term partnerships with all the players. One way this can be achieved is by taking a pro-active partnership for land assembly and development in designated areas.
Recommendation 23: Housing Growth Areas
Local authorities should be given new powers and incentives to take a proactive approach to land assembly and development models in Housing Growth Areas. These powers could be exercised by individual local authorities, local authorities working collectively, city or county region or through New Homes Corporations.
The proposed New Homes Corporations will act as delivery agents in a particular area, building on the lessons of previous Development Corporations. They will not be agents of central government, but will be locally accountable public-private bodies.
Recommendation 24: New Homes Corporations
Allow local authorities to request the creation of locally led New Homes Corporations as delivery agents to respond to the specific needs across a housing market area and provide the powers, focus, expertise and resources to deliver an ambitious programme of development. They will bring together Housing Associations, development and investment partners to focus on the delivery of new homes.
Public sector land could also be used more effectively, for example public agencies could use land for equity investment, retaining a long-term interest (and cash flow) from the development. This would also effectively cut the initial capital costs of the development as the land costs would not be met entirely up front.
Recommendation 25: Better use of public land
Promote the better use of surplus public land to support new homes through:
- Clear guidance to central and local government to promote investment of land as equity and secure long term returns from investment and authorities.
- Government should set a new ambition for the release of sites for 200,000 homes over the next parliament half of which should be delivered through equity sharing partnerships.
- HCA and local authorities should produce revolving 5 year land delivery plans clearly identify opportunities for release of public land.
- Task HCA as delivery agency with a clear imperative to initiate development of public land for housing to meet a target of delivering 200,000 homes on public land by 2020.
Garden cities and garden suburbs
A new generation of garden cities and garden suburbs is already on the political radar. Previous initiatives have proved to be places where people want to live but the current plans, for example Ebbsfleet, do not share the comprehensive vision of places like Letchworth. A Garden City Development Corporation could provide a unique opportunity for both community governance and developing a comprehensive and attractive large scale development.
Recommendation 26: A new generation of Garden Cities and Garden Suburbs
Government should immediately promote a programme of Garden Cities, Garden Suburbs and remodelled towns and cities.
- Garden Cities will be delivered by new Garden City Development Corporations based on updated New Towns legislation.
- The New Homes Corporations should be used to extend the Garden City principles and powers to bring forward garden suburbs and the re-modelling of cities and towns
- Through a combination of accelerating delivery of existing sites where possible and bringing forward new sites, these recommendations could help accelerate the delivery of up to 500,000 homes.
The house building industry
As has already been noted, the house building industry has contracted quite dramatically over the past 30 years, to a point where it is over-reliant on the output of a small number of volume house builders, who in 2013, completed 87,000 new homes. To increase production to 200,000 per annum will require an increase in capacity beyond that which these existing players can deliver. It will be necessary to stimulate the growth of a new generation of small and medium builders (SMEs), as well as engaging spare capacity in the wider construction industry. Lyons recommends measures to support the growth of SMEs, based on small sites which volume house builders tend to ignore.
Recommendation 27: A package of support for SMEs
Government should provide support to SME firms to build more homes through:
- Legislative change to permit “redline” outline planning applications on smaller sites of fewer than 10 homes.
- Local authorities should identify small sites in public ownership in local plans, and work with other public landowners to make them available for purchase and development by SMEs.
- Local authorities and their New Homes Corporations, working with lead developers should offer more packaged and opportunities for serviced sites to help SMEs access the market, including in Housing Growth Areas.
- A Help to Build scheme will allow SME house builders to access lower cost bank lending supported by Exchequer guarantees.
Unsurprisingly, the contraction of new house building has led to a shortage of skills, even in the current situation, with reported shortages from basic skills like bricklaying through to project management. Obviously, this will need to be addressed for delivery capacity to increase; it will require a major effort by the construction industry and education working together and include measures to encourage young people to see construction as a positive career choice.
Recommendation 28: Skills in the house building industry
A skilled house building workforce should be further developed through:
- The sector, led by the Construction Industry Training Board, setting skills standards and coordinating strategic investment to boost apprenticeships. They should also be asked to develop a proactive policy on increasing diversity in the industry and a Code of Practice on developing employees that will balance employment flexibility with employers’ equal interest in conserving and building the industry’s pool of skilled labour for the long term.
- Local skills boards for house building, perhaps under the auspices of LEPs, should bring together builders, other parts of the construction industry, councils, and training providers including schools, to take a ten-year view on local skills needs in the sector, business-led and anchored in the Local Plan.
- Firms should work with schools and colleges to improve young people’s perception of a career in building, by taking a stronger and more proactive role in schools and colleges, especially by providing governors, sponsoring schools, providing work placements and apprenticeships.
Greater stability in the industry will encourage manufacturers of components to expand their capacity to meet increased demand and the Review concludes that one key area ripe for expansion is off site construction, which can significantly reduce the time for homes to be completed. Previous problems with the quality of modular built homes can be overcome and modular units can also supply high quality insulation and allow flexibility in the finished unit.
Recommendation 29: a bigger role for manufacturing in the creation of new homes
Government should take active measures to further promote the growth of the offsite manufacturing sector with a strong emphasis on achieving consistent high quality and should ask the Technology Strategy Board to both explore how the growth of this sector can be accelerated and provide further focused support for R&D by existing manufacturers.
Quality, design and sustainability
A key theme running through the Review is that, in addition to raw numbers, new homes must be homes where people will want to live in places where they will thrive and communities will prosper. This means an end to poorly designed, poorly finished housing. New homes must be well designed and environmentally sustainable, built to quality housing standards, rather than what the market will bear.
Recommendation 30: Ensuring quality and design standards
To ensure new homes and places are built to high quality and design standards:
- Streamline good housing standards – for energy, water and security – into a single set which is implemented through building regulations, and that there continues to be access to design review (or PLACE review) to ensure good quality design.
- The Building for Life 12 standard should be referenced and encouraged by all Local Plans as a collaborative tool which helps create good places.
- The LGA working with the HBF, RIBA and TCPA and others should establish a new kite mark for quality places reflecting the views of both original and new residents
Compared with our European neighbours, space standards in new housing in England are cramped and can impact on family life, for example if people cannot eat together or children find space to do homework. The Review quotes an Ipsos MORI survey for RIBA in 2013 found lack of space reported as the key problem for people in homes built between 3 and 10 years ago. Government has shied away from introducing space standards in the private sector, but Lyons demonstrates it is an issue to be tackled if homes are to last.
Recommendation 31: Space Standards
Space standards should be introduced applicable across all tenures. Further work is required to establish the most appropriate standards and whether there is a case for flexibility for local areas to offer exemptions in certain markets. The standards should be incorporated in a new National Housing Design Guide, which could bring together all relevant requirements in one place (RIBA, Design Council). This would have the benefits of standardisation, certainty, equity and the maximum benefit to people’s wellbeing.
To help tackle climate change, the government committed in 2006 to zero carbon new build homes by 2016 but since then, policy changes have weakened this commitment. Arguments against have been advanced on the basis of increased building cost, but recent research has shown that cost could be less than £5000 per dwelling, reducing to under £3500 by 2020. Given the benefits to the householder in terms of lower energy cost, as well as the contribution to climate change, Lyons considers the zero carbon commitment should be firmed up.
Recommendation 32: Zero Carbon Homes
The Government in 2015 should reaffirm its commitment to a genuine zero carbon standard for new homes and set out a clear trajectory for all homes (reversing the exemption for small housing developments) to achieve this if further action is required beyond 2016. It should address issues around the performance gap, and should work with the industry to address problems highlighted by the Zero Carbon Hub: skills and knowledge, communication, and responsibility.
Housing for all
To meet the diverse housing needs of the country requires much more diversity than merely building for owner-occupation. People should have a choice of tenures that meets their needs at different stages of life. In particular, a larger supply of quality market rented homes would improve choice, drive up standards and drive down the cost of supply.
Recommendation 33: More quality homes for market rent
To support a vibrant market rented sector:
- Local authorities should use their role in leading development in Housing Growth Areas and joint ventures with Housing Associations and private developers to encourage high quality market-rent where there is demand.
- The NPPF should specifically require that local plans consider the objectively assessed needs for market rented housing alongside that of affordable and market housing as it does at present..
- Government should continue to set out national standards (primarily the Housing Health and Safety Rating System) on the condition of properties. There should be guidance on expectations for Houses in Multiple Occupation but with appropriate local flexibility. This will ensure landlords provide well managed, safe, homes for good tenants and provide greater clarity for investors.
A revamped shared ownership model could assist those mid to low income families who cannot access full ownership but some changes are needed to the current model. There needs to be a coherent “offer”, which will encourage more potential lenders to fund shared owners; flexibility in resale procedures; and opening up the tenure to a wider range of households.
Recommendation 34: Shared ownership
Government should promote a new and coherent offer for shared ownership including:
- Promotion of a single brand and comprehensive offer for the whole country with broad eligibility criteria and standardised lending products.
- A clear set of options and pathway of choice including staircasing to full ownership, options to choose the home it applies to.
- Sufficient flexibility to enable households to move easily from one part-buy property to another or to another tenure.
- Extending eligibility of the undersubscribed Private Rented Sector guarantee scheme making them eligible for future equity loan schemes such as a refocused help to buy.
With half the projected household growth by 2021 coming from the 65+ age group, there is a need to focus on what homes will be chosen by older people, rather than sticking to the traditional sheltered, retirement or extra care developments
Recommendation 35: Housing for older people
More homes to meet the needs of people in later life should be supported through:
- Government exploring options for incentivising private sector investment in increased provision of homes with extra care and for encouraging older people to down size from family homes.
- Local government and Housing Associations seeking opportunities to promote more attractive options for active older people looking to down-size, including in promoting schemes for self-commissioned housing and in packaging sites as part of an active role in development and partnership schemes.
- In both cases, homes should be highly energy-efficient and designed to the HAPPI standards.
There are numerous examples of successful partnerships in both development and procurement but they are not always shared widely.
Recommendation 36: Promoting effective partnership models
The LGA, NHF and CIH and others should work together to distil the lessons from successful partnerships and offer model forms of partnerships and a proportionate approach to procurement.
Despite the new financial “freedoms” for councils to raise capital following the HRA reforms, there remain barriers to councils investing in the optimum number of new homes. Borrowing caps remain a major restraint on innovation and need reviewing if councils are to deliver their fair share of new homes.
Recommendation 37: Councils investing in new homes
We recognise that any decision about the overall HRA borrowing cap is a matter for the next Government but to increase councils’ ability to invest in new homes:
- There should be provision to raise individual HRA borrowing caps where councils present a business case and an investment plan that sets out the extra borrowing needed and the additional homes that will be delivered in return.
- The Treasury would be able to ensure that the additional flexibility does not see an increase in total borrowing over and above that currently planned for.
- Government should initiate a review into whether there is a need for increase of headroom in the longer term and options that would allow councils to borrow for housing investment in line with the requirements of the prudential borrowing code;
- Local authorities should build on existing examples of innovation and partnerships to maximise opportunities for alternatives to borrowing under the HRA to support the development of new homes.
Right to buy has led to a decrease in social rented stock, and has failed to provide sufficient receipts for one for one replacement. Since the increased discounts were introduced in April 2012, over 11,000 homes have been sold but less than 20% of that total have been added to the stock. Lyons considers this serves as a deterrent to private investors and developers working with councils as the long term future of the new stock is uncertain.
Recommendation 38: Right to Buy
Reform the Right to Buy to enable councils and Housing Associations to re-invest in genuine one-for-one replacement. An incoming government should assess the distribution of receipts from Right to Buy sales as part of this. A new government should undertake an early review of the Right to Buy to establish whether it is meeting its policy objectives, the distribution of receipts from sales and on the total level of affordable housing stock.
As the NHF has frequently argued, housing associations could do more. Lyons agrees and comes up with proposals to increase investment from these independent social businesses. However, the review recognises the dilemma – in effect forced on associations – of funding development through higher rents and makes a cogent case (though not a specific recommendation) for returning housing subsidy to bricks and mortar rather than benefits.
Recommendation 39: Unlocking capacity and ambition of Housing Associations
Greater investment and innovation from Housing Associations should be facilitated through:
- Extending the Affordable Homes Guarantees Programme to 2020 to give Housing Associations the confidence and certainty to commit to more long-term projects. And consider extending the guarantee to allow Housing Associations to re-finance debt to release more capacity.
- Government should hold discussions with the sector about how to mobilise the surpluses and headroom to unlock further investment from Housing Associations which could include consideration of partnerships and mergers and setting an overall envelope for an Association’s rents, within which it would have flexibility with appropriate safeguards if it could demonstrate how this would support new supply.
- Consider the case for lifting restrictions on the way Housing Associations value their properties to increase borrowing capacity, on a case by case basis, dependent on their ability to demonstrate it would result in additional affordable homes.
Public expenditure implications
Lyons indicates the Review’s recommendations are based on a continuing tight fiscal situation and involve rebalancing rather than increasing public expenditure by making better use of existing resources. The aim is to facilitate an increase in house building by creating an environment more conducive to development and attracting a wider range of players.
Development partnerships which bring together land ownerships and share development gains are key to this; also important is the effective devolution to communities to meet their own housing needs, within a strong central framework.
It is essential that, as well as making best use of existing private investors – housing associations and volume builders – that institutional investors are attracted into housing and infrastructure development. In addition, there is potential for more use of assets by both housing associations and local authorities to support new homes.
Lyons is clear that housing must be a key priority for the next government and that increasing social housing is essential. There is also the long term task of beginning the switch from “benefits to bricks”, so that public expenditure supports building homes rather than subsidising increasingly unaffordable rents.
The Lyons Review represents a comprehensive look at what the country needs in terms of new housing supply and the reasons why new build numbers are falling well short of this.
Its recommendations are driven by what might be termed the hard-nosed end of the housing sector – the bricks and mortar decisions – rather than the human cost of housing shortage. This is no bad thing if it is to inform the strategic decisions of a new government, regardless of political colour, and to encourage existing and new investors and developers.
A major theme throughout is building confidence and stability in a continuing expanded housing supply so that local councils, developers and investors will plan ahead secure in the knowledge that there will be no sudden reversals of policy. If the banking crisis has taught us one thing, it is the consequence of institutions losing confidence and retrenching into minimum activity.
It could be argued Lyons’ major weakness is its reliance on partnerships, shared objectives and collaborative working to increase capacity. Existing house builders have had a tough few years, small and medium firms have gone to the wall in considerable numbers and it has proved very difficult to attract institutional investors to housing, despite the prospect of long term returns. To achieve this turnaround means public authorities have a vital role to play in providing these other players with the confidence to expand.
For more information about this, or any other LGiU member briefing, please contact Janet Sillett, Briefings Manager, on email@example.com