HOUSING GREEN PAPER

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					 A British Property Federation response to the:

 HOUSING GREEN PAPER
 October 2007

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Introduction

1. The British Property Federation (BPF) is the voice of property in the UK representing companies
   owning, managing and investing in property. This includes a broad range of businesses
   comprising commercial property owners, the financial institutions owning and investing in
   property, both commercial and residential, corporate landlords, local private landlords as well as
   those professions that support the industry such as law firms, surveyors and consultants.

2. The property industry is a vital component of a successful economy. As an industry, commercial
   property contributes 5.6 per cent of UK GDP, which makes it larger than the financial services
   industry. Combined with the residential property, the sector employs 2 million people.

3. Our members are professional landlords with portfolios covering both commercial and residential
   property. A large number of them are either public companies or large enough landlords to have
   professional management structures, which, in addition to being publicly scrutinised, guarantees
   that management standards are high. In addition, most of them are already members of
   accreditation bodies, and we as an organisation also encourage best practice whenever we can.

General comments

4. We broadly welcome this Green Paper, which indicates the consequences that current supply has
   on affordability and hence the prioritisation that Government has given to increasing housing
   supply. The personal energy that the Housing Minister has invested in both securing
   parliamentary time for a housing and regeneration bill and funding to support increasing housing
   supply in the recent comprehensive spending review are to be commended.

5. The Barker Review illustrated that there is significant need for additional housing. To meet this we
   believe that all three parts of the sector need to grow: owner-occupied, social and private rented.
   Failure to do so has significant consequences for our economy, but beyond that the really
   compelling case for increasing housing supply is reflected in the social consequences:

     •     greater overcrowding;
     •     more people living in temporary accommodation;
     •     longer council waiting lists;
     •     people overstretching their finances in their desperation to get on the housing ladder;
     •     the tensions which are often created where several generations are living under the one
           roof;
     •     the stresses which longer and longer commuting times place on the individual and their
           family life.

6. We therefore strongly support the aspirations in this Green Paper, but mindful like Government, of
   the need to minimise the impact on the environment.

7. The aspirations in the Green Paper and the increased funding that is being made available are a
   good foundation for addressing years of undersupply and increased demand resulting from
   various social and demographic pressures.
       •      2 million new homes by 2016, 3 million by 2020.
       •      £8bn of investment over 3yrs - a 50% increase.
       •      45,000 new social homes per annum.
       •      25,000 new shared ownership homes per annum.

8. Looking at these figures within the context of the recent past they look challenging, but we have
   no evidence to question whether they are achievable. Focusing on the long-term is something that
   Governments are often accused of not doing enough and therefore we welcome such long-term
   targets, but would stress that in the short to medium term many peoples’ needs for housing, will
   not be met. A thriving professional private rented sector, offering quality accommodation which is
   built to let could be offering such people homes.

9. Ultimately the majority of the 3 million homes the Government desires by 2020 will be delivered by
   the private sector and therefore we also focus on where the Green Paper could be augmented,
   clarified or improved to support private sector supply.

10. Some of the most important elements of the Green Paper are where it discusses the public sector
    interaction with the private sector. Specifically, therefore, the rest of this response covers four
    issues:

       i.     The role of the private rented sector.
       ii.    Planning and private sector delivery issues.
       iii.   Shared equity.
       iv.    Infrastructure funding.


The role of the private rented sector

11. It is noticeable that the paper makes no specific mention of the private rented sector and only one
    recommendation targeted at it, namely a requirement on English Partnerships to ensure new
    developments on former public sector land have limits on the proportion of buy-to-let sales.

12. We appreciate that the main focus of the Green Paper is housing supply, but the private rented
    sector has some important influences on supply: investment sales are generally believed to have
    a positive impact on development, broadening demand for units and therefore reducing risk for
    the developer. There are concerns about investors competing with and therefore crowding out first
    time buyers, but this assumes that such investment sales are having a significant influence on
    prices and in their absence such units would be affordable for first time buyers. This is currently
    the focus of a National Housing and Planning Advisory Unit research project.

13. There are a number of reasons why the PRS is growing and will need to continue to grow
    significantly over the coming decade:

   •       Higher education numbers have risen up from 600 thousand to 2.25 million since 1990. The
           Government’s target is 50% participation rate by 2010. Currently, it is at just over 43% and
           therefore there will be some need to provide more student accommodation over the next few
           years.

   •       Net international migration was 235,000 in 2004/05. Overall, migration is predicted to
           contribute about a third of all housing need over the next 20 years. Many migrants first-time
           housing is in the private rented sector.

   •       While house prices have tripled in the years since 1994, private sector rents have only
           increased in line with earnings over the same period (see chart 1). This means that across
           England as a whole private rents are less than two-thirds of the cost of house purchase
           (based on a 100% repayment mortgage, but without making allowance for repairs and related
           costs). In only eight local areas do private rents represent more than 80% of average local
       house purchase costs and in no areas do rents exceed purchase costs (see chart 2). For
       many households therefore, private renting is their only short-to-medium term hope of finding
       ‘affordable’ housing.


     Chart 1 – House prices, mortgage costs, rents and earnings




     Source: SEH / SML / RMS / ASHE / NES


     Chart 2 – Affordability of private rents and mortgage costs




     Source: S. Wilcox


14. Projected student growth and trends towards single households will mean that some increased
    supply will be needed to cater for the sector’s traditional clientele of students and young
    professionals. However, a rapid increase in inward migration and continuing affordability problems
    will also mean that the private rented sector increasingly will be accommodating families and
    more vulnerable households.

15. Government should be taking an interest in the Private Rented Sector, where supply is going to
    come from, and whether it will best cater for these different groups’ needs. A professional, well-
   managed sector could be playing an important part in meeting housing need ‘here and now’. In
   particular, institutional investment in a build to let sector could be adding to supply and providing a
   service and tenure better suited to some clients, such as families. A number of European
   countries have a well-developed professional rented sector. In places such as Germany it is
   generally seen as being beneficial to their housing market, helping to provide flexibility and to
   moderate house price pressures. With relatively minor policy changes aimed at encouraging a
   professional sector the UK could be replicating this.

16. Whilst this Green Paper may not have been the best place to articulate a strategy for the private
    rented sector, it is increasingly noticeable that the Government has no strategy. As a result, policy
    intervention can seem contradictory and piecemeal. The suggestion that English Partnerships
    should place limits on buy-to-let sales on public sector land deals in the Green Paper being one
    such example.

17. Limiting investment sales on public sector land would increase the risks of development and
    therefore hamper rather than promote greater supply. Investors would simply switch to buying
    other stock, therefore leading to greater concentrations of buy-to-let sales on non ‘public sector
    land’. As we have pointed out there is also significant demand for private rented sector
    accommodation and any reduction in supply would drive up rents.

18. If such a policy is being pursued as a way of tackling management problems, then there are better
    and more targeted ways of tackling the perceived problems than a crude limitation on the
    proportion of a development (on former public sector land) that can be PRS.

19. In terms of policy process such a policy would be a major change and not one that should be
    pursued without thorough consultation. The NHPAU is currently researching the extent to which
    there is competition between owner-occupiers and first-time buyers for the same stock and it
    would also seem prudent to await for its conclusions before even contemplating any interventions.


Planning and Delivery

20. Ultimately this is the most important aspect of the Green Paper. Without sufficient land with
    planning permission and a house building industry which can deliver 240,000 homes a year, the
    target of 3 million homes by 2020 will not be met.

21. It is therefore of some concern that it is also the part of the Green Paper where several major
    policies remain either untried and tested or still in development, which makes it difficult to
    respond, beyond talking about the generality.

22. For example, at regional level there is a suggested review of the Regional Spatial Strategies, but
    Regional Assemblies have been scrapped. This could be helpful in that Assemblies have a poor
    track record of identifying housing supply, all regions providing for less supply in regional planning
    guidance and their draft regional spatial strategies, than current household projections (see chart
    3).

23. What is unclear, however, is which bodies will lead the proposed Review of the draft regional
    spatial strategies and the extent to which they will have to collaborate with, be influenced by, or
    consult with other stakeholders. We would welcome responsibility for regional spatial strategies
    residing with the Regional Development Agencies, but only if they are given sufficient autonomy
    to perform that job.

24. Likewise, at local level, many of the PPS3 reforms remain largely untried or tested. PPS3 requires
    local authorities to have a 5-year rolling programme of deliverable land, with another 10 years of
    supply identified, but will this work in practice? If it does not, 240,000 homes a year will not be
    delivered.
       Chart 3 - Comparison of housing supply levels in current Regional Planning Guidance
       to the draft Regional Spatial Strategies and the 2004-based household projections




25. Lastly, Government policy on assisting the development industry to deliver the quantity of homes
    required is largely unknown because the Callcutt Review is yet to report.

26. A more general fear shared by our members is the increasingly prescriptive policies that impact
    on the residential development sector. Requirements for ever greater s106 obligations, other
    infrastructure funding, limitations on the design, environmental impact, mix and management of
    housing ultimately will impact on the speed and quantity of housing that can be provided.


Shared Equity

27. The Green Paper suggest a number of new initiatives to increase the availability of shared equity:

   •    Up to 17.5% Govt. equity loan.
   •    Up to 18,000 homes via council backed Local Housing Companies.
   •    A review of the market for private sector shared equity by Brian Pomeroy.
   •    The current competition for new shared equity schemes being led by the Housing Corporation
        and CBRE.

28. We hope there are some excellent bids forthcoming for the Housing Corporation competition.
    However, generally, by adding more and more initiatives and greater and greater levels of
    complexity we fear Government increases the risk of discouraging greater private sector
    investment in shared equity. Greater complexity could also dissuade first-time buyers from making
    more use of the products available.

29. In particular, the introduction of a 17.5% government equity loan for open market homebuy seems
    at odds with the Government’s desire to encourage greater private sector investment. A first-time
    buyer faced with the choice of a 17.5% loan on which they will have to pay no ‘interest’ charges or
    one for 25%, on which they may have to pay interest on the 12.5% provided by one of the four
    private sector lenders, will inevitably opt for the former. By intervening in the market offering this
    product the Government risks crowding out the private capital it would welcome.
30. More generally, we believe take up of the current open market homebuy has been poor and this in
    large part we think reflects the complexity of the products. Restrictions on who can access open
    market homebuy vary from region to region. By the time the would-be first-time buyer has waded
    through the choices open to them for their mortgage and equity loan there is huge scope for mis-
    selling.


Infrastructure Funding

31. We have made separate representations with the House Builders Federation, London First and
    The Major Developers Group on planning gain supplement and the industry’s preferred method
    for raising developer contributions to infrastructure. We welcome the announcement in the Pre-
    Budget Report which signalled the Government’s desire to work with the industry in pursuit of our
    recommendations and look forward to working together on those.

				
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