My speech to The Chartered Institute Of Housing Annual Conference, 15th June 2004
It is an honour to be invited to attend your annual conference today. And it is a particular pleasure to speak to you today alongside both David Miles and Kate Barker who have both played important roles in shaping our thinking over the past year.
You only have to look around this hall and at the fringe meetings and exhibitions that surround it – as I have done this morning – to understand the wealth of expertise that the Chartered Institute of Housing gathers here every year. The scale and excellence of this gathering demonstrates a commitment to making a success of British housing policy which I know you all share – a commitment which I want to demonstrate to you today that the Government and the Treasury also share.
Getting housing policy right is of fundamental importance both to the lives of everyone in our country and also to the stability, sustainability and fairness of our economy and society as a whole.
Which is why the Treasury under the Chancellorship of Gordon Brown – as of today the longest-serving Chancellor for well over a hundred years – has taken an increasingly close interest in housing policy issues. It is because we recognise the central and growing importance of housing for meeting our economic and social objectives that we have worked closely in partnership with the Deputy Prime Minister John Prescott and his Department – on the Housing Green Paper, the Sustainable Communities Plan, the recent Housing and Planning Bills and on the implementation of the Miles Review of housing finance and the Barker Review of housing supply.
Venturing into the complex and technical world of housing policy is not for the faint-hearted.
At one level, our housing policy objective is very simple and fundamental – it is about ensuring decent shelter for everyone in our country.
But few areas of public policy rival housing policy for its complexity:
- for many households, housing is both a flow of services – shelter – and at the same time a key store of wealth for the future;
- for the private sector, housing is supplied within a highly regulated marketplace with supply – of land and planning permission – controlled and regulated by the local democratic process unlike any other privately supplied good;
- and the public sector, though very involved in the subsidy and provision of housing services for low income groups, does so in a far more indirect and arms-length way than in other public services such as health or education, with support to individuals provided through a combination of rent subsidy and individual benefits, while housing services are provided through a mixed economy of the private sector, local authorities and housing associations.
Making housing policy is a challenging task – not only because of its fundamental nature and complexity but also because of the long-term and sometimes unpredictable impact that changes in policy, planning and behaviour can have on housing and wider economic outcomes.
And given the potential for housing policy decisions to impact over the long-term on such a wide range of economic and social policy objectives – macroeconomic and financial stability and household consumption, savings and financial exclusion, productivity and regional balance, employment and labour mobility, the environment and sustainability, and poverty and neighbourhood renewal – we as policymakers know there is a premium on:
- Anticipating the direct and indirect long-term consequences of changes in housing policy or behaviour;
- Ensuring that undesirable or unanticipated consequences are fully understood in advance;
- And ensuring policies are fully integrated – with Government recognising trade-offs where they exist and striking the right balance between competing objectives in an open and accountable way.
When we came into government in 1997 we were acutely aware that over the previous thirty years, policymakers have not always done a good job at focussing on the long-term, anticipating indirect consequences or making effective trade-offs as they tried to modernise housing policy.
Many of the housing policies that we inherited in 1997 – right to buy, financial sector liberalisation, the protection of the greenbelt, the introduction of personal housing subsidies – while often sensible, well-motivated and highly successful in their own terms – have had unintended – and unanticipated – consequences which have posed real challenges for our economic future
So from 1997, we have recognised that radical housing market reform is necessary both to deliver decent housing for all and to meet our wider economic and social goals.
I am very pleased that both David Miles and Kate Barker are also speaking to you today. They have both done a brilliant job in making sense of hugely difficult and complicated policy areas and produced excellent, thorough and far-reaching reports around which I believe we will be able to build a consensus for the years ahead. I will leave much of the detailed analysis, discussion and prescription to them and to all of the many other real experts assembled here today.
In my contribution this afternoon I want to set out the trends in the development of housing policy over recent decades, show how these housing trends have impacted on our wider economic and social reform agenda and set out the rationale for the reforms we have put in place since 1997 and the next steps ahead.
UK HOUSING – TRENDS AND CHALLENGES
Looking back over the past quarter of a century, housing policy in the UK has changed radically.
First, the combination of financial liberalisation and the introduction of the right to buy for social tenants have expanded home ownership substantially over the past three decades. Owner-occupation has grown from around 55 per cent in 1975 to almost 70 per cent today. Families in Britain want to own their own homes. And more families in Britain can now own their own home than ever in our history – and finance them in more flexible ways than before.
Second, reforms to the planning system and environmental legislation have continued to protect valuable countryside and the greenbelt – especially in the Southeast where urban expansion could pose the greatest threat to the countryside.
Third, public spending on housing has shifted since the 1970s from bricks and mortar with the introduction of individual housing support, ensuring that ability to pay is no longer a barrier to access social housing but accompanied by a significant increase in the diversity of housing provision. In 1975, over 80 per cent of public spending on housing was in the form of supply-side investment in housing construction-related local authority revenue streams. By 2000, over 80 per cent of housing support was channelled through demand-side support such as Rent Rebates and Allowances paid through Housing Benefit and, on a declining profile, Mortgage Interest Tax Relief, with approximately 25 per cent of the £11.5 billion of housing benefit allocated each year going to private sector tenants.
But when we came into government in 1997 and since, we have identified significant long-term challenges for housing policy – many of them resulting from the unintended and mutually-reinforcing consequences of the policies I have set out above.
Individuals and risk
First, as David Miles pointed out in his review of housing finance, the rise in owner occupation alongside financial liberalisation and the particular British phenomenon of a mortgage market characterised by variable rates and complex short-term fixed deals, has meant a rise in the degree to which interest rate risk and related financial risks are managed by individual households. More than 60 per cent of new mortgages in the UK are tied to short-term variable rates compared to about 35 per cent in Italy, 5 per cent in France and none in US and Germany.
Households surveys show that since 1995, the number of households reporting a problem with unsecured credit has fallen from 42 per cent to 32 per cent, while the numbers saying they have no problem has risen from 58 per cent to 68 per cent.
But where unsecured non-mortgage debt is concerned, of the 3m households in arrears with credit exposure or households bills amounting to over 25 per cent of incomes, 57 per cent of those 3m households had incomes of less than £7,500 a year
Low income groups are three to four times more likely to be in arrears on priority debts with job loss, the birth of a child, separation or illness the factors most likely to trigger a crisis.
And when these families get into difficulty, it is often the unwillingness of mainstream banks to stay engaged that leaves them at the mercy of the un-regulated sector.
Planning, Supply and Regional Balance
The second unintended consequence of housing policy in the 1980s and 1990s, as Kate Barker highlights in her report on housing supply, has been the way in which historic under-investment in housing and a de facto tightening of planning rules over the past two decades have seriously impeded housing supply – and led to a growing mismatch between supply and demand, rising real house prices, and declining affordability.
Since 1960, the UK has invested a lower proportion of its national income in housing than any other EU country – private and public. Over that period, the number of housing completions has halved from their peak at over 400,000 in the mid-1960s to under 200,000 per year since the mid 1990s while the percentage of major planning applications granted has also fallen. Estimates of the responsiveness of housing supply to price signals have found that price elasticity of supply has fallen over the
post-war period and almost to zero in the 1990s.
As a result, average house price inflation in Britain over the past three decades has been 3.3 per cent compared to 1.2 per cent in France, 1.5 per cent in Italy and 0 per cent in Sweden.
For individuals, the result has been a substantial rise in the household wealth of existing home-owners alongside a big rise in the costs of getting on to the housing ladder for first-time buyers. In 2002, first time buyers paid on average £48,000 more, than they would have paid if house prices had stayed at 1975 levels or £32,000 more than they would if house prices had risen in line with trends in other European countries.
For the economy as a whole, this mismatch between supply and demand also entails considerable costs – constraining economic growth and flexibility, distorting business location decisions, restricting labour market flexibility, hampering the delivery of public services and reducing standards of living for everyone in the UK.
The regional divergence in house prices has also been a major factor in widening regional economic disparities over the last three decades – making it hard for people to move both from areas where prices are lower to high price areas because of affordability and hard for working age households in high price areas to move away for fear of being unable to move back. Since 1975 real house price growth in the North has been 109 per cent, whereas in the South East it has been 184 per cent. The result has been to constrain wealth-creation and productivity across the country and contribute to the regional imbalances that this Government inherited.
Employment and Polarisation
The third challenge to have arisen over the past two decades, resulting from the shift to individual housing subsidy and the diversification of tenure was the rise in barriers to employment and a concentration of acute poverty and deprivation in specific geographical areas and parts of the residual social sector.
Throughout the 1980s and 1990s, the personalisation of housing-related support, with poor administration and very high marginal withdrawal rates, eroded work incentives for key groups on housing-related benefits, contributing to higher unemployment and inactivity and low levels of labour mobility among social housing tenants.
Between 1981 and 1999, the proportion of council tenants in employment in England has fallen from 47 per cent to just 31 per cent with an increasing concentration of economic inactivity among social housing tenants and housing benefit claimants.
The inflexible way in which this support was delivered also acted as a significant constraint on labour mobility. With investment in social housing declining in the early 1990s – and given the scale of the repairs backlog that they faced in 1997 – many housing authorities have not been able, in practice, to give their tenants a choice about where they live and have instead allocated housing to individual tenants on a “take it or leave it” basis.
Furthermore, tenants claiming housing benefit who were looking to move to another area in search of employment or better accommodation did not know how their benefit entitlement would change until they had moved and rightly feared long delays as applications were processed compounding this uncertainty.
With tenants either being prevented or disincentivised from moving to another area, intra-regional mobility for local authority tenants fell to nearly one-fifth of that for private tenants. The disparity in inter-regional mobility became even greater with local authority mobility falling to one-twelfth that of private tenants and even lower than that of private occupiers. The result has been a geographic concentration of high unemployment, social exclusion and problems of multiple deprivation in particular estates.
HOUSING REFORM SINCE 1997
It should be clear by now that these housing trends have posed significant challenges for our wider economic and social policy objectives:
- owner-occupation and financial liberalisation meant greater opportunity for the majority but has also exposed people to new risks, and for a minority this is a difficult burden to bear;
- the fall in the supply of housing posed a real challenge for productivity and regional balance;
- and the personalisation of housing support raised new challenges for employment policy, neighbourhood renewal and our goal to halve and then abolish child poverty.
These are long-term trends. But in each area we have made real progress in addressing them.
I know that the Deputy Prime Minister is personally committed to tackling these economic obstacles and social injustices. And while perhaps in the past the Treasury might have turned a blind eye to these wider economic objectives, under the leadership of Gordon Brown they are central to the Treasury’s mission of delivering economic and employment opportunity for all and not just a few.
Individuals and risk
To support households to manage their finances and tackle financial exclusion, enhanced FSA regulation of mortgages and mortgage advice comes into force on 31 October 2004 to provide better protection for consumers. And the Treasury have worked closely with the DTI and ODPM on the recent Consumer Credit White Paper.
Planning, Supply and Regional Balance
To tackle obstacles to housing supply, the Treasury has supported the Deputy Prime Minister’s Sustainable Communities Plan – a long-term programme of action backed by £22 billion of investment to improve housing and planning in order to build sustainable thriving communities, linking housing policy to improvements in public services, transport and the environment.
In high demand areas, principally the South East and London, the challenge is to ensure that much needed development protects the greenbelt and the countryside through:
- speeding up the processing of applications;
- a commitment by local authorities to deliver planned in increases in housing numbers with intervention if necessary;
- a commitment to build at higher densities than in the past;
- statutory timetables for called in applications;
- and the identification of four growth areas (Thames Gateway, Ashford, Milton Keynes / South Midlands, London-Stansted-Cambridge) where the Government will concentrate additional housing. Combined with London, the growth areas have the potential to deliver at least 200,000 homes above planned levels.
At the same time we are tackling problems of low demand and abandonment in parts of the North and Midlands through the nine low demand pathfinder areas. The Government is currently investing nearly £300m a year to regenerate core urban areas where low demand and abandonment risked causing a cycle of decline and deprivation.
And we have matched new resources – by 2005-06 we will have more than doubled the real level of public sector investment in housing compared to 1997-98 – with reforms to enhance the delivery and efficiency of housing policy including a single and independent housing inspectorate and new Regional Housing Boards bringing housing investment within a single regional pot and are ensuring better coordination of housing delivery with planning and wider regional economic strategies. We are particularly pleased with the Chartered Institute of Housing’s work in spreading best practice on developing Regional Housing Strategies and your constructive engagement in helping us deliver Kate Barker’s proposals for further integration of housing and planning.
On land use we are consulting on a derelict land tax to help deliver our commitment to 60 per cent of new development on Brownfield development and we have introduced incentives on household energy and water efficiency and just completed a household energy efficiency consultation as well as supporting the Sustainable and Secure Buildings Bill and the recently published Sustainable Buildings Task Group.
Employment and Polarisation
And to help tackle the concentration of worklessness and poverty in deprived communities, choice-based letting schemes are now enabling social tenants to decide for themselves where to move and tenants are being empowered to make these choices through the Housing and Employment Mobility Service which will provide tenants and their advisors with geographic information on the availability of social housing, jobs and local services in one place.
Working with the DWP, we have introduced housing benefit measures for lone parents to improve their work incentives and recognise the particular problems they face in moving back into work. And we are rolling-out a new flat rate Standard Local Housing Allowance based on simplified regional geographies to replace Housing Benefit in the private rented sector. Combined with streamlining of Housing Benefit administration in the private and social sectors, this will help give tenants greater certainty about their benefit entitlements before taking up an offer of employment either locally or in another area.
PROGRESS TO DATE
The evidence suggests that we have made progress:
- as a result of the Sustainable Communities plan, the latest figures show a continuing increase in new house building in England. Starts and completions in the quarter to December 2003 were up 9 per cent and 8 per cent on the previous year. In London and the wider South East some14 per cent more new homes were provided in 2002-03 than the year before;
- at the same time, the Government has made progress in promoting greater sustainability. The percentage of new build housing on brownfield has rising by 18 per cent since 1997 with 66 per cent on brownfield in 2003 compared to 56 per cent seven years ago;
- we are working to minimise other environmental impacts through good design. The energy requirements of a new dwelling today are around 25 per cent less than with the previous 1995 standard. As a result carbon emissions in 2010 will be around 1.4m tonnes a year lower – 8 per cent of the reduction called for in the Climate Change Programme;
- we have made substantial in roads in addressing the £19bn backlog of investment in social housing we inherited in 1997 with a million fewer homes now non-decent and a commitment to ensure all social housing is decent by 2010;
- rough sleeping is down by two-thirds to a record low level and the use of bed and breakfast to house homeless families with children has effectively ended;
- and better integration of Housing Benefits and tax credits mean that for a typical lone parent working part time at the National Minimum wage, the gain to work is at least £40 per week.
HOUSING AND STABILITY
Yet in recent years, at a time of low inflation and low interest rates, house prices have again risen to historic highs relative to earnings, and the level of household debt to income ratio has also risen.
We know that the housing market has an important impact on the level of aggregate demand in the economy:
- First, since most of Britain’s owner-occupied houses are purchased via mortgage, the housing market plays an important role in mediating the impact of interest rates, and hence monetary policy, on household consumption behaviour;
- And second, changes in house prices can impact upon the consumption behaviour of home-owners directly though the “wealth effect,” where consumers spending is influenced not just by their mortgage payments but also their expectations of the price of the housing asset they own.
We know too that the UK housing market has a number of particular features that distinguish it from those in other countries – as we set out in the conclusions of the EMU study Housing, Consumption and EMU.
This background study highlights the impact of four areas where the UK housing market is structurally different:
- Real house price growth has been stronger in the UK than in the larger euro area countries, and the low response of housing supply in the UK appears to be an important reason for this;
- High levels of mortgage debt in the UK, combined with the dominance of variable rate mortgages, implies that the sensitivity of household interest payments to changes in interest rates is higher in the UK than in euro area countries;
- The UK owner occupation rate is well above levels in Germany and France, although lower than Spain and a number of smaller EU countries;
- The competitive, liberalised mortgage market in the UK makes it easier for households to access their housing wealth than is the case in the larger euro area countries, and UK households have been active in taking advantage of these opportunities, as shown by high levels of mortgage equity withdrawal.
These particular and peculiar features of the UK housing market were a critical part of the Treasury’s assessment of the five economic tests for Euro entry – and in particular for whether the UK had achieved sustainable and durable convergence with our European partners.
The Five Tests assessment recognised that:
“the analysis in the EMU study Housing, Consumption and EMU reveals high sensitivity of incomes (after mortgage payments) to interest rate changes in the UK and high house price growth and volatility, reflecting to a significant extent the low supply response of house building in the UK”
and concluded that the:
“incompatibility of housing structures means that the housing market is a high risk factor to the achievement of settled and sustainable convergence.”
As the Chancellor said at the time in his House of Commons statement:
“The issue in housing, where we are more interest rate sensitive, is not the attainment of identical market structures with other countries – all countries have unique features of their market – but the fact that to deliver stability in Britain the combination of house price inflation and volatility — and the impact of both on consumption — has generally led to interest rates higher than other countries.”
He concluded that:
“most stop-go problems that Britain has suffered in the last fifty years have been led or influenced by the housing market. The volatility of the housing market and potential for higher inflation is a problem for stability that we are determined to do more to address to produce greater stability and reduce the risks of inflation, irrespective of the decision on the euro.”
The UK housing market has in the past been a source of instability in the British economy – most recently in the late 1980s when the combination of loose monetary and fiscal policy and a housing boom led to inflation above 10 per cent, interest rates at 15 per cent, 1.5m families with negative equity and a consumption-driven recession – the longest since the Second World War.
That is why our first priority when we came into Government in 1997 was to put the instability of the past firmly behind us.
We made the Bank of England independent with a symmetric inflation target – tackling head on the destabilising flaws in the design of the monetary policy regime that we inherited. We legislated for the Code for Fiscal Stability and established two tough fiscal rules, and reduced the national debt while at the same time taking action on mortgage tax relief and stamp duty to improve the working of the housing market.
And as a result of the excellent job that the Monetary Policy Committee has done on the one hand, and our fiscal rules and discipline on the other, have delivered a longer sustained period of stability in British economic management than at any time in the past-war period:
- inflation is low – as today’s inflation figures confirm;
- Britain has the lowest level of public debt of any of the large industrialised countries;
- employment is at a record high, unemployment at its lowest level in a generation;
- the UK economy has not only continued to grow through two global downturns, but avoided recession during a period when the US, Japan, France an Germany all suffered recession;
- indeed, we have been able, during this period of global instability, to lift 1.5m children out of poverty since 1997 and deliver the longest sustained programme of investment in our public services, with public spending on the NHS on track to rise to 90 per cent above its 1997 level by 2008.
Throughout this period the Monetary Policy Committee has taken a deliberately forward-looking and pre-emptive approach to delivering stability and growth – raising interest rates in 1997 and 1998. Then cutting rates seven times between 1998 and 1999 as the Asian financial crisis destabilised the global economy. And again after 2001 cutting UK interest rates nine times as the US recession and the slump in world trade growth rippled round the world.
It is important to recognise, too, that the UK housing market and the British consumer have played an important role in sustaining growth in Britain in recent years at a time of depressed global trade growth.
Indeed, the period of relative stability in the household savings ratio that we have witnessed in this economic cycle – quite unlike the gyrating swing in household savings from a low of 4.9 per cent in 1988 to 11.6 per cent in 1992 – has helped sustain stability and economic growth in the UK economy.
And given our commitment to stability and the conclusion of our Euro study, you will understand that at the Treasury and the Bank of England we are monitoring the current state of the housing market very carefully indeed. Given Britain’s past history, no-one can afford to be complacent where stability and the housing market are concerned.
As the Governor of the Bank of England explained at his May press conference, the link between house prices and household consumption in the short- and medium-term is highly uncertain and is watched closely by the MPC.
Of course, it is not the job of the MPC to manage the housing market but to meet the inflation target. The path of both asset prices and their impact on demand and inflation are highly uncertain. And Britain has a very unhappy experience with trying to run monetary or fiscal policy to target asset prices, notably the exchange rate, which this government has no intention of trying to repeat.
But it is the task of the MPC to meet the inflation target at all times – which means it has to worry about prospects for inflation today, in two years and in four years time. To meet that objective, it has to ensure that interest rates are not set at a level which would be either too high and therefore deflationary now, or too low encouraging a inflationary boom and therefore a sharper correction later.
Both the Treasury and the Bank of England have consistently forecast a slowdown in consumer spending and house price inflation as the global and UK economic recoveries gather pace – and UK interest rates have risen from historic low levels since last year. In his speech last night in Glasgow, the Governor pointed to early signs from surveys of a slowdown in the housing market.
There are important reasons to believe that households overall balance sheets are and will remain consistent with macroeconomic stability.
First, as Mervyn King also said yesterday, there are good reasons to think that the long-term level of house prices relative to earnings has risen:
- because, as the Barker Review shows, house prices reflect the balance between rising demand and restricted supply for housing in the UK;
- and in addition, the success of the new economic policy framework in delivering economic stability with low interest rates and strong labour market outcomes has made people more confident in taking on new risks and is likely to have contributed to a rise in the equilibrium house price earnings ratio.
Second, and quite unlike the late 1980s, the low interest rates delivered by greater macroeconomic stability have ensured that household interest payments remain low by historical standards. The ratio of interest payments to household disposable income – income-gearing – has remained close to 7 per cent since 2002, compared to it’s peak of over 15 per cent in 1990 when consumers were hit at the same time by rises in interest rates well into double figures and rapidly rising unemployment.
The result is that the assets side of the household balance sheet is strong with household net wealth, despite the recent fall in equity prices, still over 50 per cent higher than at the beginning of 1997. And the survey evidence also suggests that while mortgage equity withdrawal has increased, many households are saving this withdrawn equity rather than spending it and so strengthening balance sheets further.
Taking developments on both sides of the household balance sheet together, the ratio of household debt to total wealth – capital gearing – remains stable around its long-term average.
Finance ministries and central banks must always be vigilant – and that vigilance is locked-in by the new macroeconomic framework that we have put in place since 1997 which has proved itself robust in the face of global volatility over the past seven years.
Supported by fiscal policy, the MPC – by taking a deliberately forward-looking and pre-emptive approach to setting interest rates – has done an excellent job in steering a course of stability for the British economy.
Homeowners and businesses can have confidence that in the coming months and years – continuing with this tough and forward-looking approach to locking in stability – Britain will continue to steer a course of stability for the British economy.
While a moderation in the house price-earnings ratio is widely expected by the Treasury and other forecasters, household balance sheets are strong and inflation is low. While vigilant to the risks, it is because of Britain’s forward-looking and pre-emptive approach that this adjustment is expected to occur in a steady way consistent with stability and sustained economic recovery.
But while we are taking the short-term action necessary to ensure that no risks are taken with stability, we also have to act to tackle the medium- and long-term imbalance between supply and demand in the British housing market.
As the Chancellor of the Exchequer said in his June Euro statement:
“further housing market reforms will be put in place – reforms right in any event for the British economy – reforms that will help ensure that, by having a reduced propensity to house price inflation, stability can be further entrenched.”
HOUSING REFORM – NEXT STEPS
It was because of these ongoing concerns about the particular nature of the UK housing market that the Government last year asked David Miles to review the structure of mortgage finance including the case for – and how we can help the development of – the long-term fixed rate mortgage market in the UK; and Kate Barker to review the issues underlying the lack of supply and responsiveness of housing in the UK.
As we take forward the Sustainable Communities Plan, complete our Spending Review and work on the detailed recommendations of the Barker and Miles Reviews and look forward to the next Parliament, we are clear that housing policy must play a central role in delivering our economic and social ambitions for Britain.
And we have set out the next steps in our reform programme.
Individuals and risk
On housing finance and information, the Miles Review recommended reforms to introduce a larger proportion of fixed-rate mortgages – an important reform in itself but even more important were the UK to join EMU. And the Review has recommended a series of actions to improve information and advice available to consumers, make the pricing of mortgages more transparent, fair and sustainable and remove the regulatory obstacles to the provision of fixed-rate mortgages in the UK, and the Treasury and FSA are taking this work forward.
We endorsed his conclusion that urgent reform is desirable to make the market work better for consumers in a number of areas. A number of his recommendations are addressed to the government and we will consider and consult on them as proposed by the Review. A number of recommendations are addressed to the FSA, which has in train reforms in the mortgage market that will move to statutory regulation on 31 October. We have asked the FSA to consider and report on the further reforms proposed by David Miles.
Planning, Supply and Regional Balance
On housing supply, our aim is to build on the success of the Sustainable Communities Plan and also build a consensus around the Barker proposals.
We know – as Kate Barker sets out – that the measures currently in train will probably not be sufficient to keep up with the expansion of household formation over the next 10-20 years – with population growth suggesting 3.8m more homes may be needed by 2021.
Kate estimates that if it was decided to aim to reduce the trend to the European average of 1.1 per cent per annum, an additional 120,000 of annual new supply would be needed. Reducing the trend to 1.8 per cent would require an additional 70,000 private dwellings, compared to the recent baseline of around 140,000.
She sets out a challenging programme of reforms to deliver this increase in the supply of housing encompassing: reforms to the planning system; improvements to the delivery of housing development; improving the incentives and resources for new housing development, including more resources for social housing, and the Review also concludes that it is in principle fair to partly fund this proposed package of measures through a Planning-gain Supplement based on the uplift in land values experienced during the development process with incentives for brownfield development and for local authorities to retain council tax uplift. And the Review also discusses the need for enhanced investment in social housing.
Of course, as Kate herself acknowledges, we must proceed with care. It is important for government to strike a careful balance between competing objectives.
In the Budget, the Government welcomed Kate’s report and agreed that delivering its commitment to stability and affordability would require a significant increase in development over time.
We have committed to establishing a long-term goal for affordability in the housing market incorporated and will be implementing this over the next 18 months. The goal will need to be reflected at a regional level through regional targets as part of the process of setting regional housing numbers.
And in the Spending Review, the Government is committed to making a start on the significant increase in investment in social housing Kate called for, and consider the infrastructure needs of new housing development.
But achieving long-term stability will require everyone to do their part to ensure the delivery of all the elements within this overall package: in Government at the national, regional and local levels and in the development industry and the Government will consider the progress made by end of 2005.
The Spending Review will also ensure that Government policy on continues to address low demand, promotes regeneration and neighbourhood renewal and delivers more balanced regional economic growth and tackle deprivation. In particular the Review will need to address the funding required to deliver our ambitions in housing market renewal pathfinders and wider low demand areas. And we will also respond to the final proposals of the Northern Way Task Force.
Employment and Polarisation
Achieving our goal of full employment in every community will also require further reform.
Through the New Deals and tax credits much has already been done to increase gains to work and reduce long-term inactivity. But we will need to look at ways of further integrating tax, tax credit and benefit systems in this area to improve work incentives across the board and simplify housing benefit administration. Reforms such as the local housing allowances will contribute to this agenda by making gains to work more transparent and easing the transition to work.
Increasing the supply of affordable housing in high demand areas and tackling problems of low demand in deprived areas is critical to boosting labour mobility and labour market flexibility and we will need to do more to tackle concentration of severe deprivation and culture of workless-ness on the worst social housing estates with programmes of intensive intervention, and by promoting more mixed tenure and encouraging the private rented sector. We are consulting on the introduction of Property Investment Funds, a version of US style REITs, to encourage institutional investment but also protecting tenants with legislation on tenancy deposits and so encourage a flourishing private rented sector where tenants rights are protected.
In conclusion, this is a rich and ambitious housing reform agenda. It is necessary to deliver further productivity gains, regional balance, full employment and to tackle disadvantage – and to help us to lock-in macroeconomic stability over the long-term with less volatility in consumption and interest rates than we have seen in over past decades.
If we can get these long-term policies right, we may be able to do a better job than in the past of both understanding the unintended consequences of our decisions and striking the right trade-offs.
We will champion people’s aspirations for homeownership – but at the same time we want to do more to help individuals manage risk while reducing cyclical volatility
We want to protect valuable countryside and make the most use of brownfield development – but in a way that offers a fair deal for first-time entrants into the housing market and is consistent with a strong and prosperous southern economy and more balanced regional economic development.
We want a mixed economy in housing with more effective choices for individuals – but in ways that are consistent with strong and sustainable mixed tenure communities where employment can grow, economic enterprise flourishes and poverty is addressed.
I can assure you that the Treasury is committed to working closely with the ODPM, the DWP and with all of you to get these trade-offs right and to help you achieve your goals as policymakers and practitioners.
Together I believe we can build a lasting consensus about the right way forward for the coming decades.
Thank you.Posted November 26th, 2015 by admin