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Tim Ambler: Providing Affordable Homes

Civitas, 27 October 2020

A guest post by Tim Ambler . . .

Consultation on the planning White Paper concludes on October 29th.[i] Its central tenet, namely that the currently cumbersome planning system should be streamlined, must be right.  One could argue that it does not go far enough: ridding us of the contrary and bureaucratic Planning Inspectorate would help. It never would be missed. It also addresses the provision of affordable homes.  The White Paper does its best but here more thought is needed.

The White Paper calls for 300,000 new homes a year, compared with only 187,000 projected by local authorities and 241,000 built last year (p.14). The 84-page paper is aspirational: it aims to “support home ownership, helping people and families own their own beautiful, affordable, green and safe homes, with ready access to better infrastructure and green spaces” (p.18). 

The word “affordable” is not defined so its meaning here is a home discounted below the market price to be affordable by those whom society wish to live in the area but do not have them means to do so, e.g. social, care and other key workers, young teachers and nurses, farm labourers and first time buyers.  And we should distinguish, as the White Paper does not, the rental from the home purchase markets.

The lack of affordable housing largely arose from the Thatcher “right to buy” scheme for council houses in 1980.  Sales peaked at about 170,000 in the following year but fell to about 20,000 by 2015.[ii] It was popular but controversial; homeowners maintained their properties better than councils and tenants. The two main flaws were that the local authorities were not allowed to retain the proceeds to replace their stock of social housing and failed to recover the discounts from market price when the occupiers sold them on.

Local authority building and acquisition of homes dropped to nearly nothing although Housing Associations filled some of the gap. More recently, councils have begun building and acquiring properties for rent: 50 plan to acquire 31,747 properties over the next three years.[iii]

Astonishingly, the White Paper nowhere suggests how many of the 300,000 new homes a year should be affordable.  But is not this the real object of the exercise?  It does say (p.60) that about 30,000 (a suspiciously round number) affordable homes were built in 2018/19 – 12.4% of the total – as a result of Section 106 agreements.

The White Paper is right that the current means by which local authorities achieve, mostly through Section 106 agreements, new affordable homes are inadequate.  Developers too often find ways to renege even if the agreed provision was adequate.  Developers reckon their new posh estates are demeaned by including the poverty-stricken, even if that might make the poverty-stricken available to mow the lawns.

The White Paper’s solution to the provision of affordable homes, and all other housing related public expenditure, is: “The Community Infrastructure Levy and the current system of planning will be reformed as a nationally set, value-based flat rate charge (the ‘Infrastructure Levy’).” (p.22).  This is to be funded from land gain (from rural or low value to development values). Where there is no land gain there will be no levy and, since land gains will vary all over the place and according to the previous usage, the percent charge will vary likewise.  So much for the “nationally set…flat rate”.

These proposals are receiving so much criticism from elsewhere that there is no point in discussing them further here.  The basic issues are whether if home prices and/or rents should be subsidised to be affordable by certain categorises of people and, if so, who should fund the subsidies. Many economists argue that the problem should be solved by removing enough restrictions to make more than enough housing available.[iv] At that point, prices will fall and the lowest priced properties will be affordable. Whether or not the theory is correct, reality would not change very much in the immediate short term: affordable homes will require subsidies for a while.

The use of land gain makes sense but it would have to be collected from each change of use approval as the differences across the country, and even within districts, are considerable. The proposal in this paper is that all such gains be turned over to a national affordable homes fund from which local authorities and Housing Associations would source their discounts (subsidies) on selling new affordable homes and the costs of having new homes built, or converted, for affordable rental.

We should bury the idea that developers actually want to build affordable housing. Builders will be happy to contract with the councils or Housing Associations (if it is profitable for them to do so) but developers building on their own account really do not want to know.

Since land gain by itself would be unlikely to provide enough funds, the discounts should be recovered from affordable homeowners who sell on at market rates. The Ministry of Housing, Communities and Local Government would need to assess annually the number of new affordable homes it wants for sale or rent in the plan year, and where, and the consequent size of the fund required. Some topping up could be extracted from local authorities but it is inevitable that a contribution would be required from HM Treasury.

The White Paper makes only four passing references to Covid but actually the pandemic marks a sea-change in the availability of downturn offices and High Street shops.  Many will become vacant, paying no business rates and ready for transformation into affordable homes, located where people need to be. Furthermore, in the affordable sector, renting is more important than home ownership. Yet the White Paper makes only one reference to the rental market – on page 62.

Council tax is also only mentioned once (p.67) with the thought that the infrastructure levy could be used to reduce it for all it that locality. The levy will be, after all, a magic money tree. Council taxes are charged on the property’s value band, not the ability of the occupant(s) to pay. If one wants to increase both affordability and their availability, it does not take an Einstein to recognise that those continuing to qualify for key worker affordable home discount should pay no council tax and second-home owners should pay double.

The Housing, Communities and Local Government Committee’s report “Building more social housing” is far more informative[v] than the White Paper published the following month. It defined rents as being “only affordable when they do not exceed one third of household income” (para. 23). The report exposes Ministry muddle over affordable homes sales, right to buy and replacements.

When the Committee quizzed the Minister for Housing on how many affordable homes were needed, he responded ““we need more homes, more affordable homes and more socially rented homes”, but that he did not think it was right to put “a number on the number of homes that need to be built of one tenure or another” (para.51). On 30 June 2020, the Minister tweeted that the 2021–2026 programme would deliver ………’ around 36,000 affordable homes a year’, which is a lower output than 9 out of the last 10 years. According to the Committee, “There is compelling evidence that England needs at least 90,000 net additional social rent homes a year” (para.53) and they went on to show how that could be financially justified.

They concluded “It is disappointing that the Government does not have a published plan on social housing, nor has its own assessment of social housing need. We regard an estimate of need to be essential to calculating how much investment the Government may need to make to meet social housing need and deliver such a ‘step change’.” The White Paper has a great deal to commend it, not least the initiative to speed up and simplify the planning system.  Yet it is more of a Green, than a White, Paper.  Once the consultation responses are in, it needs a great deal more thought, especially in the light of the well-informed Select Committee report which should be studied by anyone considering the provision of affordable homes.







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