Private Eye | Housing and Planning Bill

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No 1418 |13 May – 26 May 2016

Housing News

A small change to the Housing and Planning Bill is set to make a huge difference to the Government’s scheme to force councils to sell their most valuable homes to pay for Right to Buy discounts for housing association tenants.

The scheme was at the heart of the Conservative election manifesto, but as the bill neared its final Parliamentary stage, the Government still hadn’t published much detail about how it would work. The original plan was set out in a Tory press release during the election campaign, and involved forcing to pay a levy based on the sale of “high value” homes [in the most valuable third of properties in their region] as they fell vacant.

There were tow problems with this: first, independent analysis soon showed this would raise much less than the £4.5bn a year the party said it needed to pay for Right to Buy discounts, replacement “affordable” homes and a brownfield regeneration fund; second, Tory MPs woke up to the fact that many of the most valuable homes were concentrated in their seats.

The Government introduced an amendment in the Lords changing “high value” to “higher value” after recognising that areas facing the highest housing pressure, such as inner London, Oxford, Cambridge and Harrogate, would have to sell a high proportion of their vacant homes. True to form, no detail has yet been published on the impact of their change – Housing Minister “Bungalow” Brandon Lewis argues that his department has to examine “16m pieces of data” on council homes first.

Analysis by housing charity Shelter suggests what the impact might be if the Government wants to raise £4.5bn from an even split of council house sales from around the country. Councils with small numbers of “high value” homes [like Westminster] would have to sell fewer of them, while those with larger stocks [such as Birmingham, Leeds and Southwark] would have to sell and pay more.While this is not a point made by Shelter, there are no prizes for guessing which party runs which areas…

APSE Direct News | The Housing and Planning Bill – what’s the problem?

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 March/April 2016

The Housing and Planning Bill – what’s the problem?

Kate Henderson, Chief Executive of the Town and Country Planning Association, and Paul O’Brien, Chief Executive of APSE, comment on the the key issues in the controversial Housing and Planning Bill.

Currently, the Government’s new Housing and Planning Bill 2015-16 is in the second reading stage in the House of Lords. The Bill has been seen as hugely problematic by many, including APSE and the TCPA, because it is still unclear how the actions described in it will help relieve the housing crisis facing the UK, despite the Government claiming their plans will kick-start a ‘national crusade to get 1m homes built by 2020’ and transform ‘generation rent into generation buy’.

Keen to gauge how others working in local government felt about the proposed changes, APSE teamed up with the TCPA to create and distribute a survey to local authorities across the country. This generated some very interesting, and some rather concerning, results. However, before we look at those in depth, it would help to first contextualise the Housing Bill and look and the problems it raises.

The Housing and Planning Bill 2015-16 aims to speed up the current planning permission process, working on the premise that less bureaucracy means more housing can be delivered quickly. This, the Government expects, will encourage people to self/custom build their housing, as well as giving developers some extra opportunities to build more commercial housing. This is welcome news as it gives authorities, private firms and the general public more freedom to build the houses they require. However, many believe this has come too late; though the permission is there, we will struggle to meet the country’s demand of 250,00 homes each year due to a shortage of workers and supplies.

Alongside this, the Government intend to build more Starter Homes for first-time buyers, namely people under the age of 40 who have not previously owned a home. Offering 200,000 homes by 2020, the Government has said there must be a discount of at least 20% to the buyer. These homes, which should be targeting teachers, police officers, nurses and other professional roles, will have a discounted price of no more than £250k outside London and £450k in London, making these properties unaffordable for most of the target workers. These are the kind of people that starter homes should be accommodating, yet they are the ones who will be unable to afford them.

In terms of social housing, the Bill details a Pay to Stay scheme, in which social tenants with incomes of over £30k – over £40k in London – will have to pay market rent on their properties rather than their current social rent. For local authorities, the money this generates must be given to the Government, whilst Housing Associations are able to keep the extra rent money. Moreover, it is considered unviable by many councils who see this as adding to the ongoing problems of a poor private rented market – so forcing people on affordability terms from secure council tenancies into the private rented sector – will do little to alleviate local problems.

As well as this, the Right to Buy scheme is being extended to housing association tenants. This move is deeply worrying as it will lead to a decrease in the amount of social homes available for those in most need. Despite allowing these properties to be sold off, the Government have no plans to give local authorities the funds needed to build more and replace them. This is a major concern for the already-sahky future of social housing.

So what did the APSE and TCPA survey tell us? Well the headline news is that others share our concerns.

We found that 93% of councils do not think that Starter Homes will address affordable housing need.

Moreover, almost 80% of local councils do not think that Starter Homes should be classified as affordable housing, and only 7% of councils think they will address the need for affordable housing in their local authority areas.

We also found that over two thirds of respondents anticipate that they will be building less social and affordable housing as a result of the Government’s plans to reduce social rents by 1% a year for the next 4 years.

This is against a backdrop of 96% of councils describing their need for affordable housing as ‘ severe or moderate’.

Moreover, nine out of 10  councils are concerned that the extension of the Right to Buy to housing association tenants will mean that there will be well socially-rented homes available.

Most starkly for the Government, 53 of respondents are from Conservative-controlled councils – this clearly shows a huge difference of opinion between Conservative Councils, charged with delivering more homes at a local level, and central Government policy.

So with the House of Lords scrutinising key measures in the Housing and Planning Bill, and pressure to deliver the Bill, is there room for concessions?

The answer has to be yes – there is a growing cross-party consensus for a series of amendments to be tabled which may yet ‘gut’ the worst excesses within the Bill.

APSE and the TCPA hopes that with cross-party working, more sensible approaches can be taken to delivering the homes our communities desperately need. It is time now for the Government to listen to local councils; they are best placed to really know and appreciate the impact of housing policy within their communities.

More details can be found at www.apse.org.uk and www.tcpa.org.uk.

LGA First | Making sense of housing policy

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No. 597 | March 2016

Features | Making sense of housing policy

Cllr Peter Box

Councils are keen to build more homes and the LGA is working hard to ensure proposed housing reforms don’t make that job more difficult.

Councils share the Government’s ambition to increase house building and enable home ownership.

From the outset, the LGA has been working privately and publicly to try to mitigate any of the potential negative impacts and unintended consequences of Government housing reforms on behalf of councils and local communities, But it is clear that the Housing and Planning Bill has wide-ranging implications for local communities.

Measures within the Bill – currently being debated in the Lords – risk combining to reduce the number of existing council homes, which local authorities will be forced to sell and then struggle to replace.

This could lead to an increase in the Housing Benefit bill as more people are forced to move into the more expensive private rented sector. This will do nothing to help councils reduce homelessness and the use of temporary accommodation.

The LGA has opposed plans to force councils to sell off homes to fund the Right to Buy extension to social housing, and a mandatory Pay to Stay policy [see below] and the provision of Starter Homes at the expense of affordable homes to rent. Meanwhile, we have been working at real estate services provider, Savills to understand the impact of these housing policies, as part of our effort to make the case for additional flexibilities to Government, Parliament and partners.

Plans for Starter Homes at discounted prices, for example, will help support home ownership in some areas but will nbe out of reach for all people in need of affordable housing in 220 council areas, according to Savills. We have argued that councils must have the flexibilities to shape the number, location, types and quality of Starter Homes to ensure that they meet local need, alongside other affordable homes for rent.

The LGA also strongly opposes the proposal to require councils to charge mandatory market-based rents to higher income tenants, and to take a sum of money from councils based on a national estimate of the additional income from higher rents. Many social housing tenants across the country will be unable to afford market rents or take up the offer to by their council house under this policy.

This Pay to Stay policy needs to be voluntary for councils – as it will be for housing associations to protect social housing tenants, and avoid hard-working families being penalised, people being disincentivised to work and earn more, and key workers, such as nurses, teachers or social workers, having to move out of their local area. Councils must also retain any additional income generated from rents to reinvest in new and existing homes.

The LGA insists the extension of Right to Buy to housing association tenants must not be funded by forcing councils to sell off homes. As a minimum, the LGA forecasts councils would be forced to sell 22,000 ‘high value’ homes in order to fund this extension.

This number could be much higher depending on how the Government chooses to define ‘high value’. Councils should always be free to manage their assets to meet the needs of local communities and must retain 100% of all receipts to reinvest in new and existing housing.

The LGA will continue to firmly make the case – in both private and public – regarding the importance of councils playing a  lead role in house building, reducing homelessness and benefits, and enabling home ownership.

Cllr Peter Box is Chair of the LGA’s Environment, Economy, Housing and Transport Board.

Analysis: Impact of the Housing and Planning Bill

Savills and the LGA project that 66,000 council homes will be sold to tenants under the existing Right to Buy scheme by 2020.

Local authorities could then be forced to sell a further 22,000 ‘high value’ homes by the end of the decade to fund plans to extend the scheme to housing association tenants. This could vary depending on how the Government defines ‘high value’ for different areas.

Required rent reductions, of 1% a year for the next 4 years, take £2.2bn from council housing budgets by 2020 – making building replacements extremely difficult.

There is a risk that of the 88,000 homes sold up to 2020, 80,000 will not be replaced. This will add £210m to the Housing Benefit bill.

Forcing councils to sell off homes to fund the extension of Right to Buy to housing association tenants could cost councils £6bn by 2020, according to Savills. A total of 5,500 homes would be sold each year should ‘high value’ be defined as the top third value of the regional market.

Discounted starter homes will be out of reach for all people in need of affordable housing – defined as those who would have to spend 30% of their household income to buy or rent a home – in 220 council areas [67%], and for more than 90% of people in a further 80 [25%] council areas.

Should the Pay to Stay policy be mandatory for all social tenants, around 50% of tenants deemed high income in the South East, East of England and London would not be able to pay market rents or take up Right to Buy, and would need to move out of the area to find a similar property.

SavsMa_451
The areas of the country that need affordable housing that can afford a Starter Home

FURTHER READING:
LGA Media Release Starter homes will be out of reach for majority of families in need of affordable homes in England  [17 February 2016]

Exeter City Council Labour Group’s proposals for Labour Party manifesto on “How to involve councils in increasing housing supply

Exeter City Council Labour Group’s proposals for Labour Party manifesto on “How to involve councils in increasing housing supply

In order to substantially increase delivery of new homes there is a need for some innovative and collaborative working between the public and private sectors as well as the charitable sector.

Introduction

When considering the increase in housing supply it helps to consider the headline issues affecting the housing market and the context in which any market interventions are to be introduced.

Headline Issues:

  • Affordability (lack of it)
  • Growing demand (demographic changes, immigration, Help to Buy scheme etc.)
  • Supply (not enough being built, Right To Buy increasing)
  • Risks e.g. welfare reform
  • Subsidy is required somewhere, whether capital or revenue
  • Availability of land / high expectations from landowners of land value

National Context

  • We ought to be building around 220,000 homes per year. Housing output has remained around 120,000 for the last four years.
  • Current under supply arguably largely due to the planning system limiting the amount of developer land and the small number of volume house builders with developable land managing the amount of houses they bring to the market to maximise returns to shareholders.
  • The government is already doing quite a lot to stimulate development and locally there is evidence that the market is now working with houses being sold off plan for the first time since the recession. However, the challenge is how we make a step change in delivery and how do we release the public sector’s potential to increase supply.

Exeter Context

  • Previous draft RSS – required Exeter’s growth with urban extensions including Cranbrook new town in East Devon (in excess of 22,000 homes at the PUA with 12,000 homes within the city). Exeter is running out of land, requires cooperation of neighbours.
  • Cranbrook, within East Devon, (up to 6,000 homes) successfully delivering this year 600 units. Within Exeter we are also on course for 600 units this year.
  • Exeter has built 94 affordable homes in total in the first eight months of this financial year and currently 351 affordable properties have started on site. 20 new Council Own Build properties are due to start on site in February 2014 with a further 200 units potentially being built in the next three to five years.
  • HRA borrowing cap headroom of £4.7m fully employed

Lessons from Cranbrook and Exeter’s Urban Extensions

  • In recent years Exeter City Council has been involved in a growth partnership with East Devon District Council. Exeter’s future housing growth has been directed in large part to the east of Exeter in East Devon District Council. This followed Regional Planning Guidance and Structure Plan policies. Following an initial period when East Devon was opposed to meeting this growth in 2003 East Devon begun to plan for delivery of a new town known as Cranbrook. 3,500 dwellings in a first phase, and eventually planned to accommodate 6,000 dwellings.
  • Outline planning permission was granted in 2005 and delivery finally commenced in 2011 following significant public sector intervention. Housing sales have been strong and approximately 450 starts this year. The public response has been broadly supportive, although at the local plan stage 14,500 letters of objection were received.
  • Cranbrook and other urban extensions (Monkerton, Newcourt and South West Exeter) being delivered in Exeter provide useful lessons in addressing the fundamental question of how we improve the supply of housing building in this country.
  • There is a long lead in time for delivery – Cranbrook was originally identified in the Devon structure plan and RPG10 in the late 1990s. The long lead in time adversely impacts on housing land supply and creates uncertainty in the local housing market. Strategic sites work against a local authorities land supply calculations and are far more challenging to deliver than more modest allocations. However, the prize in strategic allocations is they should be capable of delivering community infrastructure and self containment.
  • In Cranbrook’s case the public sector was required to de-risk the project by front funding infrastructure (£12m regional infrastructure funding and £40m of other funding); and removing third party ransom issues. Without the public sector de-risking the development the private sector would not have commenced development, and yet the land owners and house builders make a very healthy profit. The public sector simply achieves housing provision. However the house builders still control supply of new starts as per the more conventional sites. For example they could open up the site in more than one location to increase supply but they do not.
  • In terms of non housing uses this has only come forward because of public sector support.
  • Arguably Cranbrook was deliverable only through the emergence of the Regional Infrastructure Fund and investment from the HCA and the Local Infrastructure Fund. These measures are not typically available to local authorities. It demonstrates that the public sector can unlock problems and deliver strategic sites with the appropriate tools. However, it is not a good return to the public sector. The public sector has conferred value on the land owners because of the planning system and the public sector has de-risked development through RIF etc. Arguably a better model would be for the Councils to have power to identify an allocation and have the powers to CPO land at existing use value to assemble the land to deliver a strategic allocation and to use the increase in land values to off set the cost of infrastcrure and for the local authorities to deliver land parcels for the volume house builders. Thereby removing strategic land developers from the process of strategic sites. This will allow councils to provide land for self build on a larger scale and to increase supply of land coming forward.
  • In the absence of co-operation between local authorities growing urban areas like Exeter would need support to deliver strategic growth in neighbouring areas. A small number of new town type corporations under local authority control would provide a useful model to achieve delivery. The New Growth Points governance model provided a useful incentive to achieve growth but the initiative alone was not sufficient to make a real difference. The regional development agency and the HCA provide real capacity and financial resources to make a difference. Knowledge, capacity and funding mechanisms are essential to achieve a step change in delivery.
  • In Cranbrook the HCA investment in affordable housing is now returning receipts as a consequence of overage payments.
  • Local authorities negotiating position with developers can be weakened by a requirement to deliver housing. The community can lose out but Community infrastcrure levy will address this in part.
  • Providing councils with greater resources and powers to deliver their strategic sites in the manner of new town corporations and urban development corporations would provide a powerful alternative to the current model.
  • Land supply methodology makes it more challenging for strategic sites because of assumptions on build rates.
  • The public sector needs to find a way of realising the value from the land as a consequence of the planning system. This is particularly so for large scale sites as the cost of infrastructure is disproportionate to conventional sites.

Suggested points for the manifesto

  • Provide a strong policy commitment to CPO land for strategic sites to enable local authorities to acquire at existing use value, and to provide mechanisms for provision of early infrastructure to deliver development parcels to the market to overcome the rational behaviour of volume house builders in limiting supply
  • This type of intervention has to take place before the planning system allocates land or grants planning permission in order to capture the uplift in value to provide the required infrastructure. This type of approach has been used in the past with new town development corporations.
  • In terms of Councils building more:
    • Life the HRA borrowing cap for local authorities
    • Permit sharing or trading borrowing headroom between councils
    • Change the classification of debt so that it’s not included in national debt figures (ie use the General Government Financial Deficit Mode
      The following highlights a number of initiatives for increasing housing supply, much of which is addressed by the CLG Parliamentary Committee report which considered options for local authorities to increase housing supply.
  • Encouraging the release and use of public sector land for development, through a ‘build now, pay later scheme’
  • The Affordable Homes Programme investment framework, which the government estimates will provide 170,000 new affordable homes by 2015
  • New Homes Bonus to incentivise local authorities to support development
  • Reforms to the planning system
  • Receipts from sales of properties under right to buy, ploughed back into reinvestment in new affordable homes
  • Get Britain Building Investment Fund providing finance on stalled sites that are ‘shovel ready’
  • New Build Indemnity Scheme to improve access to mortgages for new build properties in England
  • Conversion of office accommodation to residential (without the need for planning permission)
  • Council self-financing (HRA Reforms) since April 2012

It is worth dwelling on the self-financing ability of Council as this is one of the significant areas of housing growth that has the potential to be untapped subject to reform of the cap on local borrowing. Below are some salient points on self-financing and its potential impact on the housing market:

  • Councils now have self-financing since April 2012. According to ARCH [Association of Retained Council Houses] 71% of stock holding local authorities plan to develop new council housing – 20,000 to 25,000 units over the next five years.
  • Of those authorities that have indicated they are planning to undertake new build, 50% are planning to use Affordable Rents to help finance the new homes. The other 50% are planning to continue to use Social Rents.
  • The self-financing settlement also involved the imposition of a cap on local borrowing. The cap is set significantly below the amount of borrowing councils could safely afford to repay. Most councils have some headroom within the cap to undertake additional borrowing, but some do not. The availability of headroom bears no relation to a council’s need for additional borrowing or to its housing needs.
  • A significant number of local authorities (39%) are considering new build outside of the HRA although many of these schemes are at an early stage. These include building through Arms Length Management Organisations [ALMOs], through Housing Association partners and through special purpose vehicles (SPVs).
  • ARCH, together with the LGA (Local Government Association), NFA (National Federation of ALMOs) and CWAG (Councils with ALMOs Group) are arguing for restrictions on borrowing to be removed to enable councils to gear up their investment programmes to meet housing need. ARCH estimates that, with the cap removed, councils would have the capacity to deliver up to an additional 60,000 homes over five years. This would require an additional £7 billion of borrowing which would be well within what councils could reasonably afford to borrow.

Examples of Councils developing within and outside their HRA and using different funding models:

Oxford City Council owns and manages around 7,800 properties and has borrowing headroom of some £19m. Prior to the implementation of self-financing, the council had already established a Limited Liability Partnership with developers Grosvenor to develop up to 1,000 new homes at Barton, 350-400 of which will be affordable.

The LA new build scheme, though limited to 108 homes, bred success in terms of the next phase of bidding to the HCA: AHP grant of £2.5m towards 112 affordable rent properties. The HRA is able to finance the balance of expenditure for these homes entirely from revenue in the early years of the business plan.

Through ongoing prudent management of the existing stock, significant resources are potentially available to be allocated within the HRA business plan in the medium term to acquire some or all of the affordable Barton properties upon completion. Purchase of the initial 60 properties has been provided for in 2015, again from revenue.

 The focus is heavily on using the HRA as the delivery vehicle for LA build, taking advantage of future rent income for reinvestment. The future could potentially be one in which Oxford could add over 5 per cent additional stock to the HRA over the next 10 years.

The London Borough of Barking and Dagenham manages over 19,000 properties. The Council is embarking on a ground breaking venture with a private equity firm to deliver 477 new units by April 2015 on estates that have already been demolished as part of the options appraisal process. The scheme requires a Special Purpose Vehicle to be set up and will run for 60 years in conjunction with the equity grant and will let properties at a range of between 50 per cent and 80 per cent of market rent levels. The HRA will provide the day to day management of the units. In addition both HCA and LGA funding has been secured to deliver 285 HRA units at slightly above existing social rent levels to be built on sites where no previous housing has stood.

 The debate on lifting the borrowing cap has been ongoing and a CLG Parliamentary Committee was formed to consider options for Local Authorities to increase housing supply. Following a committee meeting on 7 May 2012, the committee concluded that:

  1. We have seen that local authorities, working in partnership, have the potential to make a significant contribution to the financing of new housing supply. There is, however, a risk that local government will not be able to make the most of this potential because of constraints placed upon it by central government. The moves towards self-financing under Housing Revenue Account reform are positive and could significantly increase the finance available for housing supply. However, the cap upon borrowing, the refusal to allow councils to share headroom, and the centrally-imposed Right to Buy proposals will all place restrictions on councils’ ability to finance the building of new homes. The local government sector should be trusted to manage its own finances in accordance with the Prudential Code. We urge the Government to give councils the freedoms they need to provide finance for new housing supply.

Source:http://www.publications.parliament.uk/pa/cm201012/cmselect/cmcomloc/1652/165209.htm

The committee addressed a number of suggestions and below is a summary of the Committee’s response to suggestions:

SUGGESTION 1) Lifting borrowing caps

Committee conclusion: ‘We recommend that the Government lift the cap on local authorities’ borrowing for housing, and allow councils to borrow in accordance with the Prudential Code. We are also concerned at the Government’s warning that it will “take action” if public borrowing increases as a result of Housing Revenue Account reform. It is important that it does not place any further constraints upon local authority borrowing for housing. The cap is already unnecessary, and further borrowing restrictions would have a detrimental impact upon the contribution councils can make to new housing supply’.

SUGGESTION 2) Sharing/trading borrowing ‘headroom’ between councils

Committee conclusion: ‘We are disappointed that the Minister (Shapps) has ruled out allowing local authorities to pool or swap Housing Revenue Account borrowing headroom. Such arrangements could help to make best use of councils’ borrowing capacity, enabling more homes to be built. In our experience, the Government is usually enthusiastic about local authorities collaborating, sharing services and pooling resources to achieve better value for money; we consider that it should take a similar attitude to joint working on housing finance. We recommend that the Government consult on proposals to enable local authorities to ‘trade’, swap and pool borrowing headroom. This should be subject to councils’ agreeing that any borrowing under these arrangements will still be in accordance with the Prudential Code’.

SUGGESTION 3) Change constitutions of Arms-length Management Organisations

Three models proposed by National Federation of ALMOs:

  1. The first model involved “the ALMO having a much longer contract and on the local authority having a one-third (rather than sole) interest in the ALMO’s ownership”.
  2. The second model was similar but also involved the transfer of some vacant properties or land, thereby giving the ALMO an asset base.
  3. The third, and most radical, model involved a transfer to a “Community- and Council-Owned Organisation (CoCo)”. This model would see the ALMO becoming “the owner of the stock, but on a different basis to current stock transfers”

In Models 1 and 2, the ALMO is primarily still a management vehicle, but no longer majority-owned by the local authority. The authority could no longer award the management contract to the ALMO without a tendering process that complies with EU procurement rules. They would need to assess the risk that potentially another housing management provider could be awarded the contract. In Model 3, where the ALMO takes ownership of the stock, there is no requirement for a tendering process. But it would mean that tenancies would no longer be secure council tenancies. However, legal steps can be taken which effectively give all tenants the same security in future as they enjoy now.

Committee conclusion: ‘We consider that Arm’s Length Management Organisations should be free to adopt one of the new ownership models, subject to approval from the council and tenants. As well as promoting the involvement of tenants in the management of their housing, these models could also enable ALMOs to raise additional finance for the building of new homes (although any borrowing should continue to be affordable and sustainable). We are encouraged by reports that Gloucester City Homes will be consulting its residents on proposals to establish a ‘community owned, council owned’ organisation. We recommend that the Government give its support to those ALMOs wishing to adopt the new models, which would enable them to borrow prudentially to build more homes’.

SUGGESTION 4) Changing the classification of debt

  • Change the way Council’s debt is classified, so that it was not included within the national debt figures.
  • Use of what many European states use- the GGFD (general government financial deficit) model, which means that trading activities, such as housing, are viewed as off-balance sheet, off the national debt figures.

Committee conclusion: The Government argues that a cap on local authority borrowing for housing is necessary because of the need to reduce the deficit; by implication, a cap would not be necessary under the GGFD rules as such borrowing would be outside of the national debt. We are not convinced that the existing accounting treatment, or the cap, is justified. A change of rules would bring the UK in line with other European countries and enable councils to borrow on the same terms as housing associations. As we have already established, the provisions of the Prudential Code should be a sufficient control upon council borrowing. We recommend that the Government thoroughly examine a move to the General Government Financial Deficit rules and then consult on proposals.

Another means of potentially increasing new build homes would be to release public land for self-build initiatives.

The Coalition Government is a great supporter of self-build, they have set out their priorities and intentions for Self-Build in their 2011 policy doc ument Laying the Foundations: A Housing Strategy for England

‘The Custom Build industry is important for our national economy. It is worth approximately £3.6 billion a year, safeguarding and creating new jobs, strengthening the construction supply chain and making a real contribution to local economies. Currently custom home builders are building as many homes each year as each of our individual volume house builders, with around 13,800 custom homes completed in the UK in 2010/11’. (p.14)

The Government proposals to further self-build include:

  • Supporting the industry-led Action Plan [1] that has identified a wide range of proposals to help custom home builders and enable the sector to become a mainstream source of housing provision.
  • To unlock the growth potential of the custom homes market and double its size over the next decade, to create up to 100,000 additional Custom Build Homes over the next decade and enable the industry to support up to 50,000 jobs directly and indirectly per year. The Government intend doing this by:
  1. Asking councils to establish the demand for Custom Build Housing in their area, and take positive steps to facilitate it
  2. Helping home builders to access land which central government is releasing as part of its accelerated public land disposals programme. As part of this we will maximise, where possible, the use of our innovative Build Now, Pay Later model if there is market demand, it presents good value for money and is affordable
  3. Continuing to work closely with industry to establish a one-stop-shop for advice and support to would-be custom home builders, helping them to take the first steps in building their futures
  4. Appointing a Custom Homes champion to raise greater public awareness of the benefits of custom home building
  5. Making up to £30 million available to support provision of short-term project finance to this sector on a repayable basis.

In order to assess the impact of the Government’s proposal the action plan drawn up in 2011 (see reference 2 above), the National Self Building Association has undertaken two updates, the second and most recent in August 2013. Their conclusions were:

  • Self build completions remain depressed.
  • Measures being progressed will lead to around 3,000 additional self and custom build homes being constructed.
  • Below is a summary of the Government’s achievements and priorities which help formulate some suggestions in which to lobby Ministers specific to Exeter
Policy Area               Key progress Key priorities going forward
Land and Procurement Models • Eight HCA sites identified so far (more expected)

• Growing local council and builder/developer/enabler activity to promote self/custom build opportunities

• Published specialist Guides on custom build planning issues, how small builders and developers can get involved in custom build, and a guide to public authorities promoting the many ways of encouraging group self/custom build projects.

• Launched a new ‘matchmaking’ database to help connect housebuilders with specialist custom build developers/enablers

• Secure more site releases – encourage HCA to continue to identify more sites including some larger ones (100+ homes) and engage with councils to identify self/custom build development opportunities

• Work with Government to bring together a more comprehensive list of public land and private sector plot information for self builders

• Visit large scale European projects in Autumn 2013 and disseminate experience of different business models to local authorities to enable them to better understand the end-to-end process

Lending and Finance • Modest increase in lender activity

• Publication of Lloyds Banking Group report and ongoing commitment to support sector

• Launch of £30m investment fund which is generating fair level of interest (about half of fund is subject to bids)

• Revised £17m community-led project support fund launched by Government

• Peer-to-peer lending facility in development.

• Ensure that the Government’s Help to Buy scheme includes self/custom builders

• Host round table with lenders to encourage more self build mortgages

• Support industry initiatives to replace Government £30m fund when this closes in 2015

Further suggestions on ways to promote greater house building include lobbying for the introduction of Land Tax.

1) Land Tax – What is it?

  • Land Value Taxation is a method of raising public revenue by means of an annual charge on the rental value of land.
  • “Land” means the site alone, not counting any improvements. The value of buildings, crops, drainage or any other works which people have erected or carried out on each plot of land would be ignored, but it would be assumed that all neighbouring properties were developed as at the time of the valuation; other things being equal, a vacant site in a row of houses would be assessed at the same value as the adjacent sites occupied by houses.
  • Targeted at ‘unproductive wealth and speculation’
  • Would incentivise those who trade and sit on empty land to develop it for the common good. It would mean that the costs and proceeds of investment were more fairly shared.
  • It should be levied on all land except for that which lies under ordinary people’s homes. Very wealthy homeowners should pay, but those with limited incomes could defer payment where required. For it to work, all land ownership would have to be declared.

2) Land Tax – Key proponents:

  • Centre for Labour and Social Studies (CLASS)
  • Land Value Taxation Campaign

Land Value Tax Core Arguments:

Sources:

1) CLASS Report: In land revenue: The case for a land value tax in the UK [2]; and
2) Land Value Tax Campaign Website [3]

Why supporters say it should be introduced

  • Targets unproductive wealth, encouraging capital investment in place of land speculation.
  • Would remedy long-term shortage of housing, encouraging developers holding on to land to actually build properties in order to make their ownership of land financially viable.
  • Could moderate house price inflation by the curbing of speculation on the price of land.
  • By taxing the value of the land itself and not the value of the buildings upon it (like Council Tax does) , the level of Land Value Tax will always be proportional to the level of investment and prosperity in the wider area- it is right that land owners enjoying their location in faster growing areas pay more for their land. Land Value Tax, by definition, bears lightly or not at all where land has little or no value, thereby stimulating economic activity away from the centre – it creates what are in effect tax havens exactly where they are most needed.
  • Hard to avoid or evade as land is fixed and tangible, efficient due to fixed supply, meaning that there is no substitution effect, and thus no deadweight or distortion.
  • Tax on labour, buildings or machinery reduces incentives for entrepreneurial or constructive activities, whereas a tax on the value of land no matter how it is occupied would stimulate long term investment.
  • Would supposedly end boom and bust- speculation created unsustainable booms, often followed by damaging corrective slumps. An end to speculation means an end to this cycle.
  • Already used in Denmark and Australia under the name Site Value Rating.
  • Land has no cost of production, why should speculation and scarcity drive up its value? Should be taxed according to relative prosperity of area as it owes all that it is worth to the wider community.

3) Land Tax – In Parliament

The Land Value Tax Bill 2012-13 began it’s passage through Parliament after being suggested as a a Private Members Bill by MP for Brighton Pavilion Caroline Lucas (Green Party). The Bill died as it failed to make it through before the end of the 2013-13 session. To see a draft of the Bill follow this link [4].

About the Bill: The bill required the Secretary of State to commission a programme of research into the merits of replacing the Council Tax and Non-domestic rates in England with an annual levy on the unimproved value of all land, including transitional arrangements; to report to Parliament within 12 months of completion of the research; and for connected purposes.

 Other suggestions worth lobbying government assistant (financial or otherwise) to enhance the delivery of house building include:

Kickstarting an off-site revolution

Due to there being an insufficient number of homes being built to meet even current levels of demand, consideration needs to be given to ways in which new homes can be built more quickly and efficiently. At present housebuilders build rate is less than one new home a week per site. Off-site solutions offer increased speed of construction on-site improved build quality, much greater accuracy, safer working conditions, predictable in-use performance, and reduced waste in the manufacturing and construction process. Off-site systems and components however require investment in manufacturing facilities, which in turn require high-volume sales to make the business viable. In some cities (could be Exeter) some developers (Housing Associations, Councils, private investors) are increasingly building medium to high rise flats or rationalising older estates and having the potential to build more homes at quite some scale. This is a market where the use of off-site solutions is likely to be attractive as homes can be completed and brought to use more quickly (and in-use performance, including energy efficiency and upfront action to mitigate fuel poverty can be incorporated).

If the government could invest in the creation of manufacturing facilities on a local or regional level then there is the scope for the private, public and charitable sectors to all benefit and housing delivery could be accelerated and the standards of construction improved for everyone’s long term benefit.

It is worth noting that institutional investors could be key players in providing the ‘scale’ to support such a venture given their desire to enter the build-to-rent development sector. In this market where new entrants are investing for the long term and looking to manage risk to achieve assured levels of income, they are seeking suppliers who can offer certainty regarding quality, construction cost and in-use performance – the kind of characteristics that off-site solutions are best to deliver.

Sharing risk

At a local level, the Council and Housing Associations have the capability to work much more collaboratively with the private sector in sharing risks, especially given that most housing associations have been restructuring into group structures that incorporate the charity alongside a profit-making arm, which ‘gifts; funds in the form of donations to replace government grant. By Councils and/or Housing Associations working with private developers beyond just being affordable housing providers but as equal partners, there are greater opportunities for more and larger developments and for real mixed and sustainable communities to emerge.

Lobbying the government for the removal of the borrowing cap on Councils will assist to promote such partnerships, risk sharing and the facilitation of larger and more sustainable communities.

Exit strategy for Help to Buy

The government’s Help to Buy scheme is a welcome approach to growing demand for housing but only as long as there is a clear exit strategy that helps avoid the dangers of a housing bubble. Since its announcement in July 2013, the number of potential buyers looking to enter the market grew at the fastest rate since July 2009. At the same time, house prices rose again, at the fastest rate seen since the market peak of November 2006. The second tranche of Help to Buy could magnify what has already happened and whilst the UK economy is seeing the very early signs of recovery, the last thing needed is a housing bubble to derail this slow and steady progress.

It is reassuring that the government has instructed the Bank of England to implement a strategy for using ‘speed bumps’ and close monitoring by the Financial Policy Committee, to avoid a potential bubble, however the government could consider other measures to control the further impact. It is suggested that the government considers specific measures to ensure that the Funding for Lending scheme should be explicitly for business expansion in the small and regional housebuilders.

Realistic Prices

House prices are too high relative to average incomes. There is no quick fix to this so a longer term solution needs to be found to address affordability. Increasing the rate of housebuilding helps, and this helps contribute to the economic recovery but this takes time and whilst mortgage availability is improving the private sector developers will only develop to meet market demand, so any policy that improves mortgage availability will lead to an inevitable increase in supply. However, developers will not deliver more than market demand, so it is unrealistic to expect this ot lead to an easing of house prices.

The Barker Review target of 245,000 annual new-build completions, surpressing long-term real house price growth to 1.1% is base on outdated analysis from 2004 but provides a useful aspiration. Given that market demand is unlikely to reach those levels (it only reached 150,000 in 2007), it is left to the public sector to delivery the majority of the housing need.

The lack of realistic priced homes also leaves the private sector to act as a longer tenure for those who remain priced out.

Unlocking Land through Local Infrastructure Funding

The Government’s Local Infrastructure Fund (LIF) launched in February 2013 is purposely earmarked to unlock large sites but given that funds need to be drawn down before March 2015, only shovel-ready schemes will be deliverable. This type of funding is to be encouraged but lobbying made to extend the timeframe and to also extend the funding scheme.

Local Enterprise Partnership Involvement

In his Government-commissioned report into a path of sustainable growth for Britain, Lord Heseltine heavily advocated a transfer of both funds and decision-making responsibility to the local level. He stated that a number of current schemes initiated by the Government, for example the Growing Places Fund, New Homes Bonus and Community Infrastructure Levy, are promising steps towards the kind of local rebalancing that the British economy needs. However, he also stated that ‘we need to go further and faster to achieve an essential rebalancing of central and local power and resources, extending not just to cities, but to local areas right across England’[5].

His first of 81 recommendations made is to create a single funding pot for local areas, without internal ring fencing which limits the spending flexibility of local leaders. The focal point of this local investment is the Local Enterprise Partnership (LEP).

Heart of South West LEP has scope within its Strategic Growth Plans and programmes for including similar funding schemes as the Local Infrastructure Funding (LIF), so the opportunity to use this approach could be multiplied on a sub-regional basis.

Localism Act 2011

The Localism Act allows Local Authorities to act as companies, in doing so they could provide housing loans for repayment or equity to facilitate more households into home ownership (therefore increasing demand for housing and facilitating supply by housebuilders or even the LA themselves).

Cllr Pete Edwards
Leader Exeter City Council

Notes:
[1] NaSBA (2011) An Action Plan to promote the growth of self build housing: the report of the self build Government-Industry Working Group, http://www.buildstore.co.uk/ActionPlan/Govt-Action-Plan-July-2011.pdf

[2] CLASS Report: In land revenue: The case for a land value tax in the UK http://classonline.org.uk/docs/2013_05_Think_piece_-_In_Land_Revenue_(Andy_Hull).pdf

[3] Land Value Tax Campaign Website http://www.landvaluetax.org/what-is-lvt/

[4]The Land Value Tax Bill, http://services.parliament.uk/bills/2012-13/landvaluetax.html

[5] Heseltine, D. (October 2012) No Stone Unturned In Pursuit of Growth, p.36 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/34648/12-1213-no-stone-unturned-in-pursuit-of-growth.pdf