Future proofing housing supply

A REPORT FROM THE HOUSING FORUM WORKING GROUP ON NEW SOLUTIONS TO BOOST HOUSING SUPPLY

FEBRUARY 2017 A REPORT FROM THE HOUSING FORUM WORKING GROUP ON NEW SOLUTIONS TO BOOST HOUSING SUPPLY

Working Group Chair Acknowledgements

Stephen Teagle The Housing Forum would like to thank all those that contributed to this report, who are Chief Executive, Partnerships and listed at the back (page 20). Regeneration, Galliford Try and Deputy Chairman, The Housing Forum The Housing Forum February 2017 The Housing Forum is the only cross-sector, industry-wide organisation that represents the entire housing supply chain as the voice of the industry. We have over 150 member organisations, from both public and private sectors, collaborating to inform, network and influence with the shared objective of more homes and better homes for the nation. The cross-sector representation of our membership equips us specially to investigate issues that require collaboration to achieve successful outcomes. The views in this report are the views of The Housing Forum and have been contributed from Working Group discussions and conference debates. If you are interested in joining The Housing Forum please contact Chief Executive Shelagh Grant: [email protected] 020 7648 4068 www.housingforum.org.uk 1

Contents

Introduction 2

Executive summary 3

Part A. Leadership and structures 6

Part B. Sector capacity 11

Part C. Commissioning and investment 15

Concluding remarks 18

Acknowledgements 20 2 A Housing Forum report | Future proofing housing supply

Introduction

By Working Group Chair Why publish a report calling for measures Some of the measures we propose in this to improve housing supply so soon after report, can have an immediate impact. Others Stephen Teagle the Government publishes a Housing will require time to bring forward the step White Paper? The Government’s proposals change in supply we need. Sustaining supply Chief Executive, Partnerships and and the clear ambition for a million homes beyond a single Parliament requires us to plan Regeneration, Galliford Try and in five years provide a welcome focus in for and negotiate the political and economic Deputy Chairman, The Housing Forum addressing one of the UK’s most malign cycles. We need a bold and coherent vision to infrastructure deficits - failing to provide the generate confidence and encourage capacity, number of homes we need. The Housing innovation and investment. In short, we need White Paper is a step in the right direction policies which future proof supply. and will rightly claim headlines for the In addressing the problem we challenge not interventions it proposes: funding for more only this Government, but those who aspire to affordable homes; a planning system focused be successor administrations. Housing delivery on building new homes rather than issuing involves resolving competing priorities; it is planning permissions; a strengthened build reliant on public and private interests being to rent proposition; releases of public land; aligned and behaviours shaped to encourage a renewed focus on the skills shortage and supply. We need the sector and our political the potential offered by modern and leaders to envision and plan for that now. offsite manufacturing. All are needed. All are welcome. Everyone reading this report will know someone whose life chances are But there is more to do and a longer time- compromised in some way by a lack of frame is required to achieve it. The policies housing options. The electoral and economic within the Housing White Paper are an consequences of failing to act, build year excellent framework but we need the by year as supply falls behind demand. leadership, the investment and the The measures proposed here can address mechanisms to deliver. This report draws that and provide a platform for delivery on the expertise of our members across all over the next 20 years. sections of the housing industry to take the long view and answer the question we set ourselves: what steps are needed to address supply over the next decade and beyond? What are the structural changes required and how can we build the foundations for that success now? How can we avoid promoting one tenure to the detriment of another and sustain supply across the economic cycle? 3

Executive summary

The purpose of our report is to There is a clear need for long-term political Our solutions, drawn up by a wide cross section set out a range of solutions that commitment to housebuilding within of housing experts, are split into the following could genuinely boost housing Government and some encouraging signs are three areas: emerging. The Housing White Paper released supply beyond the 250,000 new ‘Leadership and structures’ examines the in early February is an indication of the current best ways to depoliticise the issue of housing homes each year that are needed Government’s intention and ambition to and calls for a stronger lead from central and to meet demand. accelerate supply. While we certainly welcome local government including the promotion of this renewed focus on housing supply, we have That’s nearly double the output the Housing Minister to a seat in the Cabinet to recognise that many pieces of the jigsaw and a recommendation that the Government we have achieved in recent years. needed to increase output are still missing. commissions homes directly. This, coupled with Disappointing past experiences tell us that a coalesced sector speaking as one voice, could favourable policy needs to be backed up deliver real momentum to housebuilding. by strong leadership, proper investment and practical and efficient delivery mechanisms ‘Sector capacity’ deals with many of the if it is to translate into more homes on Farmer Review’s suggestions for modernising the ground. the construction industry in order to achieve both greater productivity and output. It also Real house prices have jumped 151% since closely follows the Housing White Paper’s policy 1996, while real earnings have risen only about direction for incentivising and attracting new a quarter as much and 1.2 million people are entrants to the market and accelerating languishing on housing waiting lists in England. planning decisions and proposes some More than 6 million face tenure insecurity and practical solutions for this. no prospect of ever buying their own home. ‘Commissioning and investment’ considers The purpose of our report is to set out a range the Government’s role in long-term funding of solutions that could genuinely boost housing and sets out a framework for Government to supply. Over 250,000 new homes are needed agree a long-term, large-scale capital investment each year to meet demand. That’s nearly double plan for housing supply – including giving the output we have achieved in recent years. local authorities the financial mechanisms If the housing supply tap is to be turned on to directly commission new housing. to full, then still more needs to be done to We appreciate that some of our solutions overcome the challenges that exist in the are radical departures from the status quo - market and create a benign and sustainable including our calls to depoliticise housing, environment for housebuilding. with cross-party consensus at the Parliamentary There is no one big idea. Instead action and level and suggestions to take some planning changes of behaviour are needed right across decisions away from elected politicians. But we the industry, from the way new homes are have been tinkering at the edges for too long. commissioned to the way they are funded We need to lift housing output to levels and built. not seen since the late 1970s. That needs bold actions and brave decisions. 4 A Housing Forum report | Future proofing housing supply

Our 10 solutions for increasing housing supply

Leadership and structures Sector capacity

1 Take party politics out of housing 3 All local authorities must become more 5 Government and industry to strategy and delivery by creating pro-active leaders of housing supply implement the Farmer Review’s call cross-party housing groups and Local authorities are well positioned to tackle for modernisation of housebuilding removing elected members from the current shortage of new homes as skills and technology decision-making on planning identified within the Housing White Paper. To address the looming skills crisis, applications below 250 homes They have planning and land acquisition Government urgently needs to adopt the Housing should be depoliticised. This can powers, coupled with the statutory and moral Farmer Review’s recommendations and drive be achieved at a Parliamentary level through obligation to provide high-quality housing offsite built or modular housing. It should also the production of a cross-party housing for all residents within their area. The housing use education, fiscal, housing and planning strategy based upon consensus. sector needs all local members and council policy to create the right conditions that officers to capitalise on this position and will support the modernisation, and the To achieve a more consensual, non-party- drive housing supply. sustainability, of the construction sector. political approach to housing developments And there should be wholesale reform of at local level, directly elected members should 4 Create a single voice for the housing the current Construction Industry Training set strategic planning policy but decisions industry Board (CITB) and its related levy system. on individual planning applications below The housing sector needs to have a single 250 homes should be made solely by the voice. A single message delivered by a 6 Central and local government to professional planning teams. new housing industry body would enable incentivise new entrants to the market 2 Government to appoint a Housing clear, powerful and effective communication New entrants should be encouraged into the Minister to the Cabinet and directly with Government. housing market by offering a wide range of commission new homes supporting measures related to land, expertise and finance. Local authorities should be As an extension of the policies and encouraged to sell land by judging potential momentum of the Housing White Paper, buyers against ‘best value’ factors including Government needs to take a greater and more the speed of delivery of new homes. direct role in housing delivery, and this should be done by promoting the Housing Minister 7 Central and local government to revise to the Cabinet, with sole responsibility for the planning system so it favours housing supply, including delivering new increased supply homes on public sector land. The planning system for housebuilding must be unclogged and decision-making speeded up. The additional resources promised by Government in the Housing White Paper will help. A key change is to revise planning policy to encourage the allocation of sites of different sizes to attract interest from a range of builders, registered providers and other housing organisations. 5

Commissioning and investment

8 Government to agree a long-term, The Venn diagram demonstrates how each of the large-scale capital investment plan recommendations in this report interact with each other. It also highlights that we will only achieve the increase for housing supply in housing supply that is needed by addressing Government and the housing industry should each of the areas. work together to agree a minimum 10 year, large-scale capital investment plan for housing in order to provide greater certainty to the industry on the scale, type and location of the funding available. 9 Give local authorities the financial mechanisms to directly commission new housing and greater freedom for risk sharing To enable both Government and local authorities to directly commission their own homes, two key mechanisms are required. The first one is a long-term recyclable investment fund which is aligned to the direct commissioning of new housing supply on public sector land. The second is for greater freedom for public sector organisations to share risk with the private sector and use their land as a long-term investment opportunity rather than a short-term asset sale. 10 Create a centre of excellence for procurement expertise for use across the sector All parties involved in housing procurement should co-operate to create an accessible bank of best practice delivery models for sharing amongst local authorities and housebuilders alignment of land ownership, planning, funding and business plans for the public, regulated and private sectors. 6 A Housing Forum report | Future proofing housing supply

Part A. Leadership and reformed structures

Housing supply would be Solution 1. Take party politics out of Local government officials would take serious note if Government adopted this cross-party boosted with changes at the top. housing delivery by creating cross- We need strong, committed and approach to housing. And to help achieve a party housing groups and removing more consensual, non-party-political approach proactive leadership at both elected members from the decision- to housing developments at local level, we national and local government making process for applications recommend a fundamental change to level and from those in the below 250 homes planning applications. housing industry itself. The Housing Forum calls for the depoliticisation In order to simplify and accelerate the decision- A two-pronged approach of of housing supply in central and local making mechanisms within the local planning system, directly elected members should set promoting the Housing Minister government. strategic planning policy but withdraw from to the Cabinet and directly Depoliticisation of housing supply would be deciding on individual planning applications commissioning new homes achieved at a Government level through the below 250 homes. These decisions should be would ensure that the production of a cross-party housing strategy made solely by the professional planning teams. Government does more than based upon consensus. There are already encouraging signs that this approach is being Historically, the outcomes of planning just set policy. recognised, with the inclusion for the first time applications are often unpredictable and inconsistent. Our solution seeks to remove the Depoliticising the planning of housing and regeneration in the National time delays and additional costs caused when application decision-making Infrastructure Delivery Plan, which drew cross-party support. 1 planning applications are recommended for process where there are fewer approval, refused at committee but then than 250 homes would also In support of this view, the Council of Mortgage awarded planning permission through appeal. remove some of the barriers. Lenders, in written evidence to the Committee This uncertainty has been highlighted as a key of Economic Affairs last October, noted: reason why small, medium and large developers “The long-term nature of our housing challenge limit their investment in the sector. means that we need a clear and consistent Relieving planning committees of their decision- housing strategy, that commands strong making ability is a radical step, so our solution cross-party and cross-national support and can is that the change applies solely to planning 2 be sustainable across several parliaments.” applications of up to 250 homes. This ensures Similarly, Dr Peter Williams, Departmental Fellow, significant and strategic planning applications Cambridge Centre for Housing, addressing the are still considered by elected members. same committee, said: Providing greater clarity and reducing risk in regards to the policy and decision-making “Housing is a hugely complex market and it will encourage new entrants into the market, does require, to the extent that we can achieve including smaller builders, which will increase it, cross-party consensus and long-term plans, the overall capacity of the sector. and both of those are absent.” 3

1 Infrastructure Projects Authority, (September 2015), The National Infrastructure Plan for Skills, date accessed. (4 January 2016) https://www.gov.uk/government/publications/national-infrastructure-delivery-plan-2016-to-2021 2 Written evidence accessed on 12 October 2016, page 231 http://www.parliament.uk/documents/lords-committees/economic-affairs/Economics-of-the-UK-Housing-Market/The-Economics-of-the-UK-Housing-Market-FINAL.pdf 3 Written evidence accessed on 12 October 2016, page 1447 http://www.parliament.uk/documents/lords-committees/economic-affairs/Economics-of-the-UK-Housing-Market/The-Economics-of-the-UK-Housing-Market-FINAL.pdf 7

Solution 2. Government to appoint a Our view is that the Government needs to do Promoting housing to the Cabinet would more than just set policy in relation to housing allow housing policy to become totally Housing Minister to the Cabinet and supply. It needs to take a greater and more joined-up. And by placing responsibility for directly commission new homes direct role in delivering this policy and it the delivery of new homes on public sector There is a clear need for long-term political should be done through two significant steps: land with a single individual within the Cabinet, far more homes could be built via this commitment to housebuilding at Government ●● Upgrading the Housing Minister to the route. A high-profile post would also serve to level. For too long, housing has been Cabinet, with sole responsibility for housing attract international investors to invest in downgraded politically. As one long-term supply, including delivering new homes on housing and infrastructure. contributor to the built environment recently public sector land. commented: ●● Changing Government policy to enable The Housing Minister’s position would “It is a sobering thought that over the the direct commissioning of new homes. come with: past 20 years we have seen no less than Housing Minister to become ●● Executive powers to ensure a more 13 different housing ministers.” Cabinet role integrated system of government and This must stop. a more cohesive housing strategy which Giving a Cabinet seat to the Housing Minister would deliver new homes far more swiftly There are some positive signs. The Housing would accord the position equal standing than has been the case for years. These Forum recognises that housing has gained with other leading departments of state and powers would collate resources and ensure more attention within Government, as was demonstrate that Government recognises the clear policy direction across all housing- evidenced at the 2016 party conferences and importance of housing and the need to find related Government departments. in last year’s Autumn Statement. Most solutions to the nation’s housing problems. ●● An increased budget – additional to significantly, the Government’s Housing White The Housing Minister’s new remit would current spending - which provides the Paper, Fixing our broken housing market, 4 include executive powers to act as the central necessary funding for direct investment clearly acknowledges the importance that is point for a number of departments which are in housing supply. being placed on accelerating housebuilding. directly and indirectly impacted by housing ●● Indirect influence on budgets which are However, the policies set out within the issues such as Health, Welfare, Education and held by other departments to ensure Housing White Paper rely heavily on the Transport. In addition, the Housing Minister greater policy integration and alignment. private sector and local government to make would have direct responsibility and For example, the housing benefit budget it happen – none of the new homes will accountability for delivering new homes on is held by the Department of Work and be directly commissioned. all public sector land through a range of Pensions, but the cost of benefit is measures that include the direct ultimately determined by the supply commissioning of new homes. Crucially, it of social/affordable rent housing and would also provide a single focus point for the its effect on rental levels. housing sector to engage with Government. Without a Cabinet role, the Housing and Planning Minister will never have the authority to address fully the deficit in housing supply. In the 2015 Lords report Building More Homes, Dame Kate Barker refers to housing policy as being “totally un-joined up”.

4 Fixing our broken housing market, Department for Communities and Local Government, February 2017 https://www.gov.uk/government/publications/fixing-our-broken-housing-market 8 A Housing Forum report | Future proofing housing supply

Clear and direct route to market To help this process, Government should take Solution 3. All local authorities must note of and learn from past mechanisms that As outlined in solution 3, local authorities have become more pro-active leaders of proved successful in delivering increased a very important role to play in helping drive housing supply. One useful set of pointers housing supply, including setting up up housing supply. But to achieve the levels comes from the success of the New Towns housing companies and releasing that are required, Government needs to Commission and numerous urban land for development directly commission new housing. This is development corporations. Here, Government particularly true for projects that are seen as directly intervened in development projects Local authorities are well positioned to tackle high-risk investments for the private sector. such as Milton Keynes and London Docklands, the current shortage of housing. They have The key task for the Cabinet’s new Housing and was able to deliver substantial numbers planning and land acquisition powers, Minister is therefore to take forward of new homes. coupled with the statutory and moral Government housing policy set out in obligation to provide high-quality housing The final annual report for the London the Housing White Paper to deliver a clear for all residents within their area. The Housing Docklands Development Corporation lists and direct route to market. This initiative White Paper acknowledges this role and firmly its achievements as: 6 would sweep away the policy uncertainty places the responsibility for the delivery of and confusion which often deters local ●● 1,884 acres of derelict land reclaimed new homes with local authority members and officers. Some local authorities are already government and the private and regulated ●● 25 million sq. feet of commercial/industrial responding to the housing shortage challenge housing sectors from proceeding with floor space housing projects. and demonstrating a significantly more active ●● 24,046 homes built leadership role than 5-10 years ago. In January 2016 the Government committed ●● £1.86bn public sector investment itself to the direct commissioning of 13,000 More local authorities must now follow the ●● £7.7bn private sector investment new homes 5 on public sector land. This was approach being set by these exemplar bodies, followed by the Accelerated Construction We welcome that the Housing White Paper and offer strong, visionary leadership within Programme (ACP) which was confirmed in the opens the door for locally accountable New their own communities. Autumn Statement and the Housing White Town Development Corporations which is a Local authority leadership can be exercised by: Paper. This momentum needs to be positive step for direct commissioning of new ●● Commissioning and investment – forming maintained, reinvigorated, championed and homes by the public sector. As a result of local housing companies, setting up delivered by the Housing Minister working appointing and empowering a Cabinet strategic networks, direct commissioning with the Homes and Communities Agency Housing Minister who can directly and joint ventures. (HCA - to be relaunched as Homes England in commission new housing, the Government summer 2017), with a revised remit ‘to make a can drive other agendas such as the ●● Policy and strategy setting - developing home within reach for everyone’. There are Construction Labour Force Solutions set out an ambitious local plan, setting up housing promising signs of greater risk share between within the Farmer Review. As a client, it has a zones, working with development the HCA and the private sector under the ACP, greater, faster and more direct impact on the corporations and forming political and but we are calling for Government to take on industry than through policy alone and is commercial partnerships. the construction and sales risk through direct better able to drive the outcomes that the ●● Promotion and sponsorship - acquiring delivery of new homes outside of the construction industry requires. and bringing forward land and property traditional housing market. Government can also accelerate housing for development and creating stronger supply by establishing and promoting good incentives to build-out sites with planning practice models for the direct commissioning permission. of new housing that can be adopted by local Local authorities are also in a strong position authorities or other public sector bodies to drive increases in housing supply because who wish to directly develop new homes. councillors often serve for lengthy periods. This can make for consistency of approach towards housebuilding and encourage more 5 Prime Minister’s Office and DCLG, ‘PM: the government will directly build affordable homes’, 4 January 2016: https://www.gov.uk/government/news/pm-the-government-will-directly-buildaffordable-homes ambitious goal-setting. 6 London Docklands Development Corporation Annual Report, 1998 9

Local authorities also recognise housing as ●● Local housing companies – solicitor delivered solely through the housing revenue having a fundamental role in the 10-20-year Trowers & Hamlins estimated in October account over the next five years. This would period of the local plan, acknowledging its 2016 that 40-50 councils have created local represent a significant scaling-up in recent impact on education, wellbeing, employment housing companies in order to kick-start council housebuilding levels. and community cohesion. Consequently, they housing in their area. Thurrock Council, The same LGA survey also showed that over see housing as a basic human utility - a need for example, has set up and owns Gloriana, 80% of stock-owning councils planned to rather than a want - and a major part of the which plans to build 500 homes. Research work in partnership to support new housing social infrastructure they are entrusted with. by Inside Housing in December 2016 development over the following five years. showed that 98 of the country’s 252 local As stewards of their communities, local Twenty-four councils indicated that they authorities have established or will be authorities - unlike private housebuilders - planned to help deliver over 7,000 homes in establishing a housing company. can take a long-term view of the value and partnership during that period. Extrapolating strategic importance of land and property ●● Strategic new community networks – these figures, the LGA estimated that councils in their neighbourhoods. Rising above 14 local authority planning departments in England were planning to build 77,000 new short-term capital asset considerations allows and development corporations are homes in partnership by 2020. them to build houses at scale, not just in planning and delivering large-scale new The Housing Forum would encourage all isolated pockets. communities through the TCPA New Communities Group’s innovative local local authorities to take on the Government’s The necessity for local authorities to become leadership. They aim to deliver 150,000 challenge and to be innovative, risk taking and more actively involved is underlined further by new homes. utilise the flexibilities, support, and a ‘bespoke the business model of the private deal’ that the Housing White Paper offers, to housebuilder, which prioritises profitability In 2015, a Local Government Association (LGA) enable and directly deliver accelerated over volume. Even in the boom years at the survey showed 45 councils planning to build housing supply. As the well-worn graph below end of the 1980s and mid-noughties, private a total of 8,000 units. The LGA estimated that clearly demonstrates, local authorities are the enterprise in this country did not deliver the if all stock-owning authorities followed suit, missing ingredient to get to the number of volumes that were required to meet public approximately 28,000 new homes could be new homes that we need. demand. 7 . The Housing Forum’s 2015 publication Number of permanent dwellings completed by tenure 1946 to 2015 (Source: DCLG) Graph showing that without direct house building by local authorities output has continued to fall short Building homes at scale: nine vital ingredients called for local authorities and public bodies to proactively bring land forward for development. 8 Two years on, the need for local authorities to initiate land development is even more urgent. Encouragingly, there are a number of innovative local authorities which are finding ways to increase the supply of local homes. These new delivery approaches include:

●● Direct commissioning and joint venture activity using own land – the 10 authorities comprising the Greater Manchester Council as well as Newcastle City Council’s housing organisation Your Homes Newcastle are taking an active approach to self-developing.

7 House building; new build dwellings, England: September Quarter 2016, Department for Communities and Local Government 8 Building homes at scale: nine vital ingredients, Housing Forum report, July 2015. http://www.housingforum.org.uk/resources/influencing/housing-forum-reports/building-homes-at-scale--nine-vital-ingredients 10 A Housing Forum report | Future proofing housing supply

Solution 4. Create a single voice for It would appear likely that the sheer number and diversity of opinions, policies and the housing sector potential solutions being published by the A vast amount of information and opinion on housing industry in relation to the housing the UK’s housing shortage has been published shortage is actually undermining our over the past several years by both the UK industry’s ability to communicate a clear Government and by the many industry bodies message to Government. The Farmer Review operating within the housing sector. agreed, saying: Given that the housing shortage is a multi- “There is no single large scale body faceted problem, comprising a range of that represents both industry and clients complex and complicated political, technical, across all types”. 12 social and economic challenges, and given It is essential to address this problem. A single also that the housing industry is itself message delivered by a new single-voiced represented by an array of industry bodies, housing industry body would enable clear, it is not surprising that a wide diversity of powerful and effective communication with opinion, policies and calls to action are Government. regularly presented to Government. The housing industry wants consensus from Recent examples include the RICS Residential our politicians so it is only right that the 9 Policy paper published in 2015 and RIBA’s industry should also provide a consensus to Housing Matters: #20 ways to tackle the housing enable all parties to work towards shared 10 crisis policy published in 2016. In common objectives. Although this degree of co- with similar publications from their peers, operation across the housing sector will not they both draw on the particular expertise be easily achievable, the rewards would be of the professions they represent to comment great. And given the industry’s commonality on the housing shortage. of issues, the potential to create a summary of However, although these documents have shared opinions does at least appear to exist. differing perspectives, there are common To achieve the single voice, we are proposing headline issues which revolve around land, a small working group drawn from each development opportunities, planning housing industry body come together to draw permission, demand, funding and resources, up messages for Government on a bi-annual and they share common solutions too. basis around housing supply. Despite these many well-researched calls Only with the shared opinions and potential for action, housing supply levels over the past solutions to the housing shortage clearly decade and more have consistently fallen stated on behalf of our industry will we short of the 240,000 new homes per year be able to effectively communicate with level cited as required in the 2004 Barker Government and affect the changes so 11 Review of Housing Supply. urgently required. As a cross-industry, cross-tenure body The Housing Forum is well placed to initiate this.

9 RICS Residential Policy, published 22 September 2015 by the Royal Institute of Chartered Surveyors 10 “Housing Matters: #20 ways to tackle the housing crisis” published 4 August 2016 by the Royal Institute of British Architects 11 “Review of Housing Supply - Delivering Stability: Securing our Future Housing Needs - Final Report – Recommendations” published 17 March 2004 published by UK Government 12 Modernise or Die: The Farmer Review of the UK Construction Labour Model, Cast Consultancy, 2016 11

Part B. Increasing housing supply by tackling sector capacity

Attracting new players to the Solution 5. Implement the Farmer Solution 6. Incentivise new entrants to sector at every level is essential Review’s call for modernisation of the housing market if more homes of different sizes housing skills and technology and tenures are to be built, Although demand for housing has far outstripped supply in recent years, there has which is recognised in the It is widely recognised that the chief constraint to the delivery of new homes is a sector-wide been a dearth of new entrants to the market. Housing White Paper. This shortage of people and skills.13 This problem On the face of it, this is surprising. We might includes new investors, new may get worse. Mark Farmer’s recent review have expected to see the arrival of small, developers, new landlords of the UK Construction labour market Modernise entrepreneurial start-up builders and developers and new suppliers. or Die highlighted a significant risk that the and self- and custom-builders as well as other industry’s workforce will actually shrink by new entrants such as for-profit affordable Financial incentives can be 20-25% within the next decade. 14 housing providers, institutional investors in the found and risks can be removed private rented sector (PRS) and pension fund This represents a serious risk to maintaining to encourage a wider spectrum holders. Instead, the UK has actually seen a current levels of housing supply, let alone decline in the number of housebuilders and of home builders and investors increasing them to the levels required. It is SMEs, and the industry remains dominated by to take part in increasing clear, therefore, as Farmer notes: the volume housebuilder model. housing supply. “Any government measures aimed at land and The reason is that barriers to entry are too great: But unless the construction planning, development funding or demand high land costs and a lack of access to affordable stimuli initiatives that are disconnected from industry’s skills shortages are finance are forcing new entrants out of the sector. influencing construction industry upon which swiftly addressed, nowhere near it relies are potentially flawed”. We therefore support the Government’s position the required level of homes can in the Housing White Paper and recommend Farmer made 10 recommendations, including: be built. that new entrants should be encouraged into ●● Using the residential development sector the housing market by offering a wide range of as a pilot programme to drive forward the supporting measures related to land, expertise large-scale use of pre-manufactured and finance. This could be done in the construction, for example, through offsite following ways: built or modular housing. Land disposal by local authorities ●● Wholesale reform of the Construction Industry and other public bodies Training Board (CITB) and its related levy system, including a new mandate to properly The sale of public land should be open to all fund and drive forward both appropriate skills relevant and willing organisations and support/ development and innovation to suit a modern assist new entrants, thus allowing many more progressive industry. players into the market. ●● Government using its education, fiscal, The Housing White Paper sets out proposals to housing and planning policy measures allow local authorities to dispose of land at to initiate change and create the right below best consideration and they should be conditions that will support the construction encouraged to judge potential buyers by other sector’s modernisation. ‘best value’ factors such as speed of housing delivery, social and community value, design The Housing Forum endorses these observations quality, environmental sustainability, and and recommends that Government goes beyond contribution to local jobs and the economy. the policies set out in the Housing White Paper and moves to implement them swiftly and in full.

13 People and Money: Fundamental to unlocking the housing crisis, Arcadis, 4 June 2015 14 Modernise or Die: The Farmer Review of the UK Construction Labour Model, Cast Consultancy, 2016 12 A Housing Forum report | Future proofing housing supply

Potential buyers should also be given enough Offering loans or bonds would de-risk the In addition, the proposed amendments to the notice to raise the capital (say, one year) to venture for lenders, which would allow National Planning Policy Framework (NPPF) allow smaller developers and community additional funding to be secured on the to allow build to rent developers to deliver groups better opportunities to access the back of the loan. private affordable rent as part of their market. Local authorities should be permitted developments without the need for a The Housing Forum welcomes the the option of retaining the freehold of land registered provider partner is a welcome step Government’s Home Building Fund, which (or some level of site ownership) which they in the right direction of increasing diversity holds £1bn of development finance to attract can then develop. This would provide a in the affordable housing market. new entrants into the market. Financing is long-term income stream, and allow them available to support projects such as to focus on long-term projects rather than Joint venture vehicles community-led housing projects, serviced chase short-term capital receipts. The current delivery of new homes in the UK plots for custom- and self-builders, offsite is driven by private developers and housing Local authorities should also be encouraged manufacturing, new entrants to the market associations, with a more limited number of to use the compulsory purchase powers and groups of small firms working in consortia homes built by local authorities. What is referred to in the Housing White Paper to to deliver larger sites. needed is a greater sharing of the buy parcels of developable land and give complementary skills of these three sectors to local groups or SMEs the first option to buy For-profit registered providers develop joint ventures to deliver more homes. at sub-markets prices with planning The provision of social/affordable rented permission in principle. properties is dominated by registered For example, housing associations and local providers and local authorities, with 27,020 authorities can access lower interest rates, Knowledge-sharing champions and 1,360 completions respectively in the thanks to their strong asset base, than can Creating ‘small is beautiful’ development financial year 2015-2016.15 Not enough private developers with their low-asset, champions at regional and sub-regional level properties are being created this way to high-risk business model. Private developers, could help smaller developers and meet demand. Only by attracting new on the other hand, are better at development communities kick-start projects. They could entrants to the market can capacity be and sales. By operating as individual sectors, also help local authorities initiate their own significantly expanded. the overall capacity of the industry is development and pair small local builders and constrained by the restrictions each sector In recent years, a number of private registered architects with community groups and has. However, by sharing resources and skills providers such as Cheyne Capital, Octopus landowners. For example, to get more projects there is untapped potential to increase supply. Investments and Heylo have entered the up and running, the GLA could offer a market to provide social/affordable rented We are seeing increasing evidence of local London-wide incubator service, such as a and intermediate dwellings without recourse authorities, housing associations and centre for development advice and resources, to public sector funding. In addition, a number developers working in increasingly co- accessible to local authorities, community of housebuilders are also considering entering ordinated ways to boost supply and this groups and smaller developers. this emerging market. needs to be encouraged and incentivised. Development bonds and The Housing Forum recommends that By attracting new entrants, the housing revolving funds financial and regulatory incentives are created industry will increase the overall capacity Local authorities and sympathetic lenders to attract many new entrants to this market (both skills and finance). Also, through access could facilitate housing in their area by directly and then retain them. For instance, it would to new funds with different risk profiles, these supporting it financially through loans or by be necessary for local authorities to allow new organisations are able to take forward issuing bonds. Traditional lenders view lending these incoming organisations to acquire S106 more or different housing projects to those to self- and custom- builders as high risk since properties ahead of their traditional registered undertaken by the traditional housing there is initially no building as collateral. provider partners. Cheyne Capital’s industry. This is a point well made in a 2015 partnership with Luton Council is a good Arcadis report. 16 example of one local authority embracing a new form of affordable housing provider.

15 Housebuilding: June quarter 2016, England, DCLG, 25th August 2016 16 Solving the Housing Crisis; The Big Idea, Arcadis, 2015 https://www.arcadis.com/en/united-kingdom/our-perspectives/2015/solving-the-housing-crisis-the-big-idea/ 13

Below are examples of innovative partnerships Solution 7. Revise the planning Adequate resources that offer a development template for others system so it favours increased Building More Homes highlights two key delays to follow: supply that are caused by the planning system: ●● In Almere, Holland, the local authority has “The imposition of planning conditions funded infrastructure on a 100 hectare site, The Housing Forum acknowledges that the and the delays certifying compliance with which has been sub-divided into plots and planning system and the way it is operated these conditions and the negotiation of sold at fixed prices to individuals and small by local authorities has been subject to many S106 agreements”. groups. In total 3,000 homes will be built. changes in recent years and that further A similar proposal is planned in Graven Hill changes noted in the Housing White Paper are The report says these delays are due to a near Bicester, where Cherwell Council has to be consulted upon. We welcome the move lack of resource within planning departments. agreed to trial a local development order towards a planning system that focuses on Since 2009/10, local authority revenue (LDO) for a pilot area of the 1,900 home building homes rather than simply awarding spending on planning and development has self-build development. planning permission. Therefore, we are not fallen by nearly 50%. Planning departments advocating fundamental changes, but ●● Lewisham Council has optioned a site to are regularly reported to be under resourced suggesting mechanisms to enable the system 17 RUSS Community Land Trust for self-build and desperately short of staff. The report to work more effectively. We therefore delivery. The trust won an open-market also highlights that the complexity and cost of recommend that the following measures that bid by demonstrating best-value factors, the system are key constraints, particularly for are highlighted in the Housing White Paper such as community involvement and small and medium developers who view this are adopted: the provision of training and skills to as a significant risk factor which prevents them increasing the scale of their investment in local people. ●● Increase staffing levels and other resources the sector. ●● Enfield Council is working with the in the planning system to accelerate the non-profit developer Naked House to supply of land with planning permission. Increasing investment in local authority develop ten small sites across the borough ●● Revise planning policy to encourage sites planning departments would streamline the that volume housebuilders do not consider of different sizes to attract interest from process and encourage small to medium commercially viable. Naked House is leasing small and medium builders, registered developers to participate. The planning system the sites from the council and is building providers and the charitable and not for thus acts as an enabler, not a constraint on affordable intermediate homes finished profit sector as well as volume builders. housing supply. to a minimum standard. ●● Use the planning system to promote The Housing and Planning Act 2016 will allow ●● London & Quadrant, a London-focused tenures with high absorption rates, for approved partners 18 to compete with local registered provider, has invested in the example the private rented sector. planning authority departments to process Manchester- based Trafford Housing Trust ●● Build flexibility of tenure into post-planning planning applications. However, decision- - an excellent example of the strength of consent so that flexible tenure making remains with the local authority one RP’s balance sheet being used to fund developments rather than mixed tenure so providing additional resource is essential. additional affordable housing outside of developments are produced. In addition, the Housing White Paper will its usual area of operation. allow planning departments to increase fees by 20% where they commit to providing a better service.

17 Building More Homes, House of Lords, Economic Select Committee, July 2016 referencing DCLG, Revenue Expenditure and Financing: https://www.gov.uk/government/collections/local-authority-revenue-expenditure-and-financing 18 Housing and Planning Act, 2016, Section 161 14 A Housing Forum report | Future proofing housing supply

Create a range of site sizes and It is well recognised within the industry promote smaller sites for that PRS is a growing tenure within the UK. Property agency Savills predicts the rental development market will expand by more than 1m Current planning policy advocates sustainable households over the next five years. 20 development, and many local authorities find By 2025, the consultancy PwC predicts an this is best achieved by working with volume additional 1.18m households entering the housebuilders in large urban developments. private rented sector, which will then equate Instead, what is needed is a planning system to almost 25% of all households.21 that promotes increased housing supply The PRS tenure can provide short-term across a range of site sizes. The larger sites housing solutions for workers who are would appeal to volume housebuilders, but required to be increasingly flexible in deciding the small and medium sites would enable where they live. No other tenure provides this smaller organisations, such as small builders, form of housing. The current increase in rental registered providers and the charitable sector, levels is evidence of a shortage of high quality, to deliver new homes. We recommend that private rental sector accommodation. planning authorities actively promote smaller Increasing the supply of PRS properties sites in a strategic way and we welcome the would help stabilise and possibly reduce rents. proposed amendment to the NPPF which On the majority of sites, housing for sale is will require local plans to allocate 10% of their proposed by developers as this generates the allocated sites to be below half a hectare highest return to the land owner. However, in size. local authorities can use the planning system to control the tenure of the end products, Promotion of high-absorption-rate which in turn will influence the behaviours tenures of landowners, developers and the The Housing Forum urges local authorities to investment community. use their planning policy powers to promote the private rented sector as a required tenure Current investment in the PRS stock comes in areas where there is a demonstrable from private individuals, small-scale investors, demand for market rent as a tenure. We agree registered providers and, more recently, with the Montague Report 19, which sees PRS institutional investors. To date, institutional as a key requirement for local authorities to investment in the private rented sector has provide as part of a balanced housing market. been concentrated in London and other major We do not want to prescribe PRS on all sites, cities. PRS in other less attractive markets has but rather promote PRS through a consistent been led by smaller-scale investors which supply of PRS properties on sites where the has not necessarily provided the additionality tenure is needed. We welcome the attention in number of homes. This can be contrasted that is given to this in the Housing White with the provision of affordable housing Paper and hope that this flows through to through S106 agreements. By using planning revised planning guidance and into local obligations to create a supply of S106 plans. affordable housing properties, the planning system is able to feed a growth in investment and satisfy demand for the product.

19 Review of barriers to institutional investment in private rented homes, DCLG, August 2012 20 Spotlight Rental Britain, Savills, February 2015 21 PWC, 2015 22nd July 2015 15

Part C. Commissioning and investment

Government needs to inspire Solution 8. Agree long-term, ●● The funding would be less prescriptive in terms of tenure to allow more flexibility for confidence in investors and large-scale capital investment developers that it has a long-term landlords to convert to alternative tenures housing plans in the future. vision for housebuilding, backed ●● The funding would allow for the detailed up with investment which will The Housing Forum welcomes the Housing White Paper and the Autumn Statement’s funding decisions to be made at a not be turned off after a year or measures to boost housing supply and increase devolved level. two. The White Paper is a good flexibility. Government clearly recognises the Recent funding programmes for housing supply start, but we need to see more. importance of increasing the supply of new have predominantly been short term and housing and also the impact that investment in tenure/issue specific. Examples of these are the Empowering local authorities housing has on the nation’s economic and HCA’s Affordable Homes Programmes, Get Britain with the freedom and financial productivity performance. It is crucial to commit Building, Estate Regeneration Programme and mechanisms to deliver new to funding housing supply over a long-term Local Infrastructure Funding. The nature of this period and The Housing Forum recommends homes would help. And so would funding arrangement means there is uncertainty that Government and the housing industry creating a bank of best-practice for the housing industry on when, where and work together to agree a minimum 10 year, procurement methods to be what funding will be available, which is not good large-scale capital investment plan for for business planning. This has created an shared across the sector. housing (two Parliamentary terms). industry that has become reactive to funding The funding available would be both capital programmes, rather than pro-actively seeking grant funding and loan finance and would be a new ways to increase housing supply. shift in funding to stimulate supply rather than Consequently, housing supply has fallen short increase demand. The funding package would of the levels required. In addition, it has been be agreed through cross-party consensus, with a unhelpful that decisions on the funding awards fixed investment commitment, as is the case have often been made at national rather than with funding decisions on other large-scale local level. infrastructure investments such as HS2 and A capital investment plan for housing would Hinckley Point C. It would be delivered through provide greater certainty to the industry on the the National Infrastructure Delivery Plan and scale, type and location of the funding available would reassure public and private investors that and would allow more efficient alignment and there is the funding and political commitment synergy of land ownership, planning, funding for priority projects to proceed. and business plans for the public, regulated and The funding would be distributed to partner private sectors. This could support other ideas for organisations on the same long-term funding long-term housing supply and investment such agreements to enable strategic business plan as the National Housing Service, which is alignment. There would be three key elements recommended in the Arcadis Report. 22 Backed to the funding package: by a Cabinet-seated Housing Minister with accountability for public sector land, this ●● The funding would be for a balanced housing solution would drive the delivery of additional market and would support open market, new homes. intermediate home ownership, private rented sector and affordable/social rented with In return for the capital investment provided by a particular focus on high absorption rate Government, the regulated and private sectors tenures. would be able to boost the economy as spending on new housing typically provides a multiplier effect of 2.84 on GDP. 23 Government would 22 Solving the Housing Crisis The Big Idea, Arcadis, November 2015 also see a reduced housing benefit bill. 24 23 Construction in the UK Economy – the benefits of investment, October 2009, UK Contractors Group and CBI 24 Building More Homes, House of Lords, Select Committee on Economic Affairs, July 2016 16 A Housing Forum report | Future proofing housing supply

Solution 9. Give local authorities the There is no single, flexible fund for local The Housing Forum believes this model would authorities to access for funding new housing create an additional fund specifically for financial mechanisms to directly supply of all tenures and share risk with the funding new housing supply of any tenure commission new housing and private sector. and would work to incentivise additional greater freedom for risk sharing investment and capacity from the private A report by Inside Housing in December sector. It also offers greater flexibility for local The Housing Forum recommends that the 2016 26 identified 98 out of the total of 252 authorities. As projects complete and the public sector (both central government and local authorities that have set up or are public sector partner receives a return, the local authorities) develop and implement the considering setting up housing companies. money is repaid and reinvested in future direct commissioning of new housing This demonstrates the appetite from councils housing supply projects. projects. To enable this, two key mechanisms to build new homes, but also the restrictions are required. of the current systems as it requires a separate There are a number of examples of local company to be set up. Providing a recyclable authorities embracing new models including The first one is a long-term recyclable investment fund and removing restrictions on Manchester City Council and the London investment fund which is aligned to the direct local authorities borrowing and their approach Borough of Barking and Dagenham and we commissioning of new housing supply on to risk sharing would allow substantial applaud their ambition. Our solution seeks to public sector land. The second is for greater additional housing supply increases because it enable local authorities with less capacity but freedom for public sector organisations to allows local authorities and other public sector equal ambition to take a direct lead in housing share risk with the private sector and use their bodies to take a longer-term view on their project development. The Housing White land as a long-term investment opportunity returns for housing supply projects. Paper offers bespoke deals for those local rather than a short-term asset sale. authorities with high demand for housing and Upfront funding from the private sector is This approach would move current land sale genuine ambition to build and we hope that reduced, which helps to underwrite the risk. policy from a short term ‘best consideration’ Government delivers on this offer. As we This could be controlled through agreeing a model to a longer-term investment model highlighted in solution 3, local authority specific level of profit for the private sector whereby the public sector return is generated building is the missing ingredient and all partner with a profit share on any super profit through the onward sale or rent of completed sectors need to work together to enable this over and above the set level. The effect is to properties rather than through the sale of untapped potential to be realised. give those local authorities with the leadership development land. We welcome the Housing and ambition to deliver new homes the White Paper’s attention to review the ‘best financial capacity to do so. And it would consideration’ model and we hope that the provide long-term certainty to the private flexibilities that we are advocating are and regulated sector and give them the delivered quickly. confidence to invest in key housing projects. Building More Homes 25 recommends that: Building More Homes notes that: “direct commissioning should be a much “a sustained increased in local authority bigger part of the housebuilding programme” housebuilding can take advantage of and calls for a review of how this can be historically low long-term funding rates, financed. Current funding for housing projects deliver a consistent supply of new homes is often provided via either the housing across the economic cycles and bring much revenue account (in the case of new social needed competition to oligopolistic large housing) or the Public Works Loans Board building firms which dominate the (for private ownership or rent) but both housebuilding market”. 27 products have restrictions in what can be funded.

25 Building More Homes, House of Lords, Economic Select Committee, July 2016 26 “More than a third of councils set up housing companies”, 9 December 2016, Sophie Barnes, Inside Housing 27 Building More Homes, Economic Select Committee, July 2016 17

Solution 10. Create a bank of We highlighted the waste of time and resource resulting from bespoke practices in procurement expertise for use The Housing Forum Report Building homes at across the sector scale.28 If the relationship and contract with The Housing Forum recommends that all the local authority were standardised, there parties involved in housing delivery should would be less risk and a greater range of co-operate to create an accessible bank of partners including small and medium builders best-practice delivery models for the would be interested. procurement of housing projects. The same issues occur in other public sector As local authorities are the central drivers bodies and registered providers. It would to delivering additional housing supply, it’s benefit all these parties if procurement essential to have an efficient procurement knowledge was shared between them, and system. There is a wealth of knowledge about more houses could be built more quickly. procuring housing projects within the sector Building More Homes endorses the efforts but it has often been developed independently of local authorities: with limited sharing of best practice between local authorities. “to innovate, co-operate and enter into partnership with others in the housing sector As a result, local authorities often incur to increase the number of houses built” significant costs in consultancy and management time trying develop a bespoke and it encourages local authorities to share model when this could be avoided through their experience and expertise to ensure the knowledge sharing. Part of the problem is proliferation of successful schemes. the significant risk mitigation work that takes To reach the housing supply levels needed, place to ensure that all aspects of the council there needs to be a clear cascade of the are satisfied, particularly within the internal knowledge and experience within the strong procurement teams. This can result in performing local authorities to those which procurement exercises taking up to two years have less capacity and experience. The from the initial concept to appointing a Housing Forum recommends that a good development partner. practice review is conducted to evaluate The procurement of a development partner which procurement models work best. These then follows an expensive and elongated can then be explained in a best-practice tool procurement which incurs significant costs kit for adoption across all local authorities. for both the council and the prospective In future, procuring development partners for development partners. This deters the private housing projects should move from concept sector from getting involved: why incur idea to appointing development partner significant expenditure when there’s a within three months, and to spades in the significant risk of being unsuccessful? ground within six months (subject to planning consent requirements).

28 Building homes at scale: nine vital ingredients – The Housing Forum’s nine-point plan for building at scale, July 2015 18 A Housing Forum report | Future proofing housing supply

Concluding remarks

We have been tinkering at the There is a clear need for long-term political We appreciate that some of our solutions edges for too long. More needs commitment to housebuilding within are radical departures from the status quo - to be done to overcome the Government and some encouraging signs are including our calls to depoliticise housing, emerging. The Housing White Paper is aimed with cross-party consensus at Parliamentary challenges that exist in the at accelerating supply and proposes a raft of level and suggestions to take some planning market. Action and changes policies to achieve this. Whilst the strategic decisions away from elected politicians. But we of behaviour are needed right direction is welcome, we all have to recognise have been tinkering at the edges for too long. across the industry. that many pieces of the jigsaw are still missing. This report strongly advocates local authorities Disappointing past experiences tell us that as the drivers of new, additional housing supply favourable policy needs to be backed up by and history tells us that they are the missing proper investment and practical and efficient ingredient. Notwithstanding the importance delivery mechanisms if it is to translate into that we place with local authority members more homes on the ground. In addition, it needs and officers, every part of the housing industry committed leadership on the ground to turn has its role to play. It is only through partnership ambition into reality. Real house prices have working, both between our individual jumped 151% since 1996, while real earnings organisations and as a sector, that we will have risen only about a quarter as much and achieve our aims. If we are to lift housing output 1.2 million people are languishing on housing to levels not seen since the late 1970s, bold waiting lists in England. More than 6 million actions and brave decisions are needed. face tenure insecurity and no prospect of ever buying their own home. If the housing supply tap is to be turned on to full, then still more needs to be done to overcome the challenges that exist in the market and create a benign and sustainable environment for housebuilding. There is no one big idea. Instead action and changes of behaviour are needed right across the industry from the way new homes are commissioned to the way they are funded and built. 19

The Venn diagram demonstrates how each of the recommendations in this report interact with each other. It also highlights that we will only achieve the increase in housing supply that is needed by addressing each of the areas. 20 A Housing Forum report | Future proofing housing supply

Acknowledgements

The Housing Forum is indebted Working Group Chair Paul Finch, Managing Director, to the many people who Sanctuary Maintenance Contractors Stephen Teagle, Chief Executive, Partnerships contributed to the content, Elizabeth Humphreys, Development and Regeneration, Galliford Try and Deputy writing and production of Programme and Performance Manager, Chairman, The Housing Forum this publication. Waterloo Housing Group Contributors and commentators Nigel Ingram, Director, Aurora Estates Ltd Toby Jay, Director, Hunters Jeff Endean, Housing Strategy and Partnerships Manager, LB Lewisham Shami Kaler, Principal Design Manager, Wates Living Space Pete Gladwell, Head of Public Sector Partnerships, Legal and General David Keeling, Director of Development and Sales, Cross Keys Homes Catherine Harrington, Director, National Community Land Trust Network Jade Lewis, Advocacy Leader, Saint-Gobain Delegation UK and Ireland Richard Jones, Partner, Arcadis Jyoti Madlani, Regional Business Development Tonia Secker, Partner, Trowers & Hamlins Manager, Keepmoat Geoffrey Murray, New Business Consultant, Working Group members Silver Rebecca Begej, Head of Business Development, Richard Mussell, Managing Director, Homes for Haringey Rund Partnership Zohra Chiheb, Architect, Levitt Bernstein Philip Pamment, Director, PRP Caroline Compton-James, Head of Strategy, Anthony Riley, Group Director of Development Osborne & Operations, Waterloo Housing Group William Cornall, Director of Regeneration & Shane Rooney, Pre-Construction Director, Place, Maidstone Borough Council Bouygues UK Graham Cox, Land and Development, Martha Slade, Associate Director, Kind and Company (Builders) Limited Rund Partnership Mike De’Ath, Partner, HTA Design LLP John Spence, Partner - Head of Design, Obasi Ezeilo, Land & New Business Manager, calfordseaden LLP Southern Housing Group Alex Thomas, Key Account Manager, Samantha Ferneley, Business Development Worcester Bosch Executive, BLP Consult Marc Thompson, Head of Strategy and Projects, Galliford Try Alan Wright, Partner, bptw partnership Working Groups

Working Group support The Housing Forum Working Groups produce influential reports for our Shelagh Grant, Chief Executive, members, which are recognised at The Housing Forum the highest level in government Charlotta Andressen, Project Executive, and throughout the industry. The Housing Forum The topical agendas continue Mateja Pirc, Project Executive, The Housing Forum to draw in external specialists from finance, planning, government and Report Editor, Denise Chevin trade associations. Designer, Lester Clark Member organisations can join any Working Group. To register your interest in participating, please contact:

Shelagh Grant, Chief Executive [email protected] 22

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