Exploring ways to deliver more affordable homes in the housing downturn A Regional Campaigns discussion paper Building blocks Shelter Regional Campaigns discussion paper Authors © Shelter, 2008. All rights reserved. This document is only for your personal, Kelvin MacDonald, Strategic Policy Consultant, FRTPI, FRSA non-commercial use. You may not copy, reproduce, republish, post, Rachel Newton, English Regions Campaigns Manager, Shelter distribute, transmit or modify it in any way without prior written permission. Application for permission for use of copyright material, including permission Kelvin MacDonald is an adviser to Shelter, an affiliated lecturer at Cambridge to reproduce extracts in other published works, shall be made to the University’s Department of Land Economy and a policy consultant working publishers. Full acknowledgment of publisher and source must be given. with, among others, Communities and Local Government, the Local Government Association and the States of Jersey. He was previously the Director of Policy and Research at the Royal Town Planning Institute. RH2028 Foreword Britain is in the middle of a financial crisis: the downturn in We need to seize these opportunities. There is a wealth the housing market, the squeeze on mortgage credit, and of experience and expertise in housing, planning and the slowdown in housebuilding, all make the Government’s development in all regions of the country. We need a plan housing programme more challenging than ever. of action, and this requires all of us in the housing sector to work together, innovate, and have the drive to make The impact of the current economic climate on the delivery things happen. of affordable housing threatens to exacerbate the housing crisis and leave millions of families trapped in damp, With more and more people struggling to pay for their dilapidated, overcrowded or temporary housing, or in housing or forced to live in intolerable conditions, now is the homes they can barely afford. The numbers of households time for action. on social housing waiting lists are at record levels. The housing market bubble has burst causing soaring repossessions and the return of negative equity. The country is facing recession and unemployment is rocketing. Against this backdrop, the case for building more affordable Adam Sampson homes is stronger than ever. Chief Executive, Shelter The external environment is changing rapidly, so we must respond swiftly and decisively to help ease the housing crisis. While the current housing market conditions pose serious problems, they also present new opportunities for affordable housing development – in many ways allowing registered social landlords (RSLs) and local authorities to take the driving seat for the first time in years. Contents Introduction 6 Background 7 How we use our land 11 Making use of unsold market stock 14 Using the planning system 16 Putting local policy in place to support affordable housebuilding 19 Taking charge of delivery 23 Being creative with finance 26 Building mixed communities 28 Delivering infrastructure and affordable homes 31 Conclusion 33 Appendix 1: Government measures to tackle the housing downturn and credit crunch 34 Appendix 2: Case study sources 37 Introduction This Shelter Regional Campaigns discussion paper explores ideas for delivering affordable housing during the housing market downturn. Nationally, regionally and locally, housing and planning experts, civil servants and elected representatives are dealing with the continuing housing crisis. Now the dramatic shifts in our economic environment require us to develop new ideas and a fresh approach to how we tackle this situation. This paper is based on a report commissioned by Shelter from leading housing expert Kelvin MacDonald. Case studies throughout the paper offer examples of good practice that is happening on the ground. We hope this paper will stimulate further discussion, ideas and, most importantly, contribute to the development of a plan of action in all regions to maximise affordable housing delivery in today’s economic environment. We must act now to prevent the housing crisis in this country from getting even worse. Terminology Social housing (or social rented housing) is homes usually provided by local authorities or registered social landlords at regulated rent levels and accessed on a basis of housing need. Intermediate housing (or low-cost housing) refers to homes, either rented or owned, provided for households who can afford more than social rents but cannot afford full owner-occupation or market rents. Market housing refers to homes that are owned or rented without financial assistance from the Government. Affordable housing includes social and intermediate housing. Building blocks Shelter Regional Campaigns discussion paper Background In July 2007, the Government made a commitment to tackle the housing crisis with a major housebuilding programme that includes a significant number of social homes. We must ensure these homes are delivered in spite of the housing downturn. When we were experiencing high and increasing that such obligations will increasingly be viable once we come out of the other end of the current house prices, and ready access to cheap credit, on new housing developments.’ downturn. This means having delivery models some of the value of profit derived from the prepared, with planning and land ready, to start Now that housebuilding has slowed down so housing market could be captured in order to building again on the scale necessary as soon as dramatically, we have the opposite situation. support the affordable housing sector. Current the market recovers. While it is not yet reflected in official statistics, government policy and guidance on increasing there is overwhelming anecdotal evidence from all There are also some significant differences the supply of affordable housing is based on sides that housing developers are increasingly between the situation then and now. The first this assumption. unwilling or unable to contribute through section major difference is that there are currently dual A Communities and Local Government (CLG) 06 agreements. forces at play: difficulties in borrowing capital and report from 2006 states: falling house prices. If only the latter of these were A major reference point for all of us is the housing operating, there would be some hope that falling ‘[The increase in house prices] also brings slump in the 1990s, where we saw house prices prices would eventually lead to individuals and opportunities. Where housing commands much fall by more than 10 per cent and an estimated RSLs both finding it easier to buy stock or land. higher prices there is greater scope for securing one million households found themselves in However, the credit crunch has hit housebuilders affordable housing through developer negative equity.2 In 199, at the height of the as well as individuals. Job cuts in the building contributions or ‘planning obligations’. In crash, there were 75,500 repossessions – an industry are regularly making headline news. For traditional high-value areas, local planning average of 207 repossessions every day.3 There example, one of the UK’s leading housebuilders, authorities already have strong experience of are lessons to be learnt from this period. After Persimmon, announced in April 2008 that it had negotiating planning obligations to deliver both the housing slump in the early 1990s, the building decided not to start development on any new social rented and intermediate market housing. industry took many years to recover to full sites.4 Persimmon has blamed the lack of But there is now a need for local authorities in capacity. It is vital that this time we do everything mortgage finance available to potential buyers other areas to raise their game and to recognise possible now to speed up the process of recovery rather than selling prices or costs. At the same 1 Communities and Local Government (CLG), Delivering affordable housing, 200. 2 Aldrick, P, ‘Negative equity threat stalks housing downturn’, Daily Telegraph, 5 September 2008, quoting analysts Bernstein Research. 3 Council of Mortgage Lenders website: Statistics: www.cml.org.uk/cml/statistics 4 REG-Persimmon Plc, AGM Statement, RNS Number: 0004T, 24 April 2008. Building blocks Shelter Regional Campaigns discussion paper time, the credit crunch has hit RSLs and agreements.5 In addition, RSLs are increasingly the vulnerability of RSLs to the vagaries of the hampered their ability to borrow to provide developing affordable housing by cross- market, and has left many of them unable to draw finance for development. subsidising their profits from market housing, down granting funding. This is now preventing often through a separate commercial housing them from reverting to ‘own build’ and benefiting A second difference is that since the last slump development arm. The result of these changes from falling land prices. It is becoming clear that there have been significant changes in the ways is that the proportion of the cost of an average current trends demand new approaches to funding in which RSLs deliver affordable housing. A far new social home funded from public grant and investment in social housing development. greater proportion of affordable housing has been has fallen substantially in recent years. This obtained from private developers and there has mechanism for delivery has greatly increased been an increasing reliance on section 10 A picture of the current housing market The global financial