A British Property Federation response to the: HOUSING GREEN PAPER October 2007 __________________________________________________________________________________ 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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