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Meeting the targets? A look at this week’s housing annoucements

This week has already seen two major announcements made about housing policy in Britain. On Monday, at the Commons Questions to the Communities Secretary, Sajid Javid announced that the Housing White Paper, which was expected this month, will now be published in January. Then on Tuesday, the Mayor of London, gave more detail to his plans to build 90,000 new affordable homes in London by 2021, making use of a £3.15 billion housing investment deal secured from central Government which was announced as part of the Autumn Statement (which we blogged about last week.) This forms part of the Mayor’s new Supplementary Planning Guidance (SPG), which is the first major housing policy to come out of the new City Hall administration. Both announcements are important to the UK housing industry – there has been a lot of discussion about the housing crisis and ways in which to ‘solve’ it, but the Mayor’s new SPG, and the Housing White Paper, will represent a step-change in approach.

As recently as last week, the government had said its White Paper would be out by the end of this year, but another month’s delay does not represent a major setback. It will be an important and comprehensive paper, to set out the government’s plans for tackling the housing crisis and meeting its target of one million new homes built by 2020, so it is not unusual for there to be a slight delay; it could also be that particular aspects are having to be adjusted following some announcements in the Autumn Statement, such as the banning of letting agents’ fees. Either way, both Javid and the Housing Minister, Gavin Barwell, have been clear that they face a difficult task.

The rate of house building in England has been steadily rising, which can be seen in the quarterly figures below. (All data used in this blog come from the DCLG tables, which were updated last week.)

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Last year, the total number of new houses built in England was 142,600, a 20% increase on 2014, and well up on the post-Financial Crash lows. However, this number is still much lower than the 200,000 per year target that the Government has set in order to deliver 1 million new homes by 2020. Meeting the government’s target would need a return to levels of building which have not been sustained since the 1970s, and will therefore require significant changes to the current housing environment.

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The government has clearly recognised this, and while we await the White Paper, Phillip Hammond’s Autumn Statement included some announcements that indicate the government’s intentions. £2.3 billion has been set aside for an infrastructure fund to support 100,000 new homes in areas where demand for housing is high; £1.4 billion earmarked to deliver 40,000 new affordable homes in the next five years; £1.7 billion is to be invested in speeding up the construction of housing on public land.

However, investment alone will not be enough to deliver a much greater amount of housing at such rapid pace. There are many issues in the UK housing market, which vary from region to region, where individual local authorities face different challenges. A one-size-fits-all approach will not allow the growth needed, and along with putting funding in place for local areas to access, it needs to further devolve housing powers to local areas, so they can take the decisions that provide the types of housing they need. This is clear from the fact that the house building recovery since the Financial Crisis has been quite different from region to region. Although the number of new houses built each year is up in every region since the national low of 2010-11, only in London has this surpassed the pre-crash highs. In Yorkshire and the Humber, and the East of England, the recovery in terms of new houses has been sluggish.

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In London, which we can see has been the biggest driver of the increase in house building, the Mayor on Tuesday published his “Homes For Londoners” Draft Affordable Housing and Viability Supplementary Planning Guidance, ahead of a draft new London Plan, which will come towards the end of 2017. This comes alongside the new £3.15 billion fund to build 90,000 new affordable homes in the capital by 2021.

In a move away from Sadiq Khan’s campaign pledge, the SPG sets out a new “threshold approach to viability”, which, for now, lays out a 35% affordable housing target for all new developments. While the Mayor has re-affirmed a longer-term commitment to a 50% target, it is clear that his administration has realised that the need to build housing – of all kinds – in much greater numbers than previously requires a target that doesn’t frighten developers. This is a welcome and pragmatic move, and the Mayor also plans to do it in a way which helps another issue we have previously raised: by speeding up the planning process.

As an incentive to developers to meet the 35% target, any application which meets or exceeds the threshold, provides on-site affordable housing and meets other requirements such as the appropriate mix of tenure, will not be required to submit viability information about the scheme. In effect, this will mean a quicker planning process for such developments. As well as helping deliver new homes for Londoners at a greater speed, the clearer and faster process will be good for developers: they know that if they meet the 35% threshold, they will spend less time in planning, get on site sooner and reduce their costs.

Alongside this, the Affordable Homes Programme 2016-21 will use the £3.15 billion as grants to increase the amount of affordable housing on developer led sites above 35%, and to support the GLA’s approved providers build schemes with at least 50% affordable housing. The Mayor’s hope is that this change in policy, tied to greater funding, will help 17,000 new affordable homes per year, which is significantly higher than is currently being achieved.

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Indeed, there were that many completed in 2014-15, but that number has dropped dramatically as the number of starts on site are much lower than they were in 2010-11, a trend which looks set to continue based on the provisional statistics for 2016-16.

Given that affordability is such a key issue in the London housing market at the moment, which has the highest house price to income ratio in the UK, this is an unsurprising focus from the new Mayor. It is also demonstrated by the introduction of a new intermediate affordable housing product: London Living Rent.

The SPG states that this will help households with around average earnings save for a deposit to buy their own home, through lower rents and time-limited tenancies. It will be restricted to tenants with a maximum household income of £60,000. The rents will be capped based on ward-level house price and incomes, so that a two-bedroom London Living Rent property will cost approximately one-third of the local median household income. Current affordable rent levels will become “genuinely affordable”, and be set much lower than the current 80% of market value, with individual local authorities given the opportunity to give guidance on what they consider these to be for their borough. For London Living Rent, or other intermediate affordable housing, grants will be available to developers of up to £28,000 per unit. For the low cost rent products, either “genuinely affordable” or social rent, there will be up to £60,000 per house built. If these policies work as hoped, this represents a massive change for the London market: mass construction of housing, funded by large government grants, at significantly subsidised rents.

With big changes ahead, we will be watching developments carefully, both in London and beyond, and we will be sure to look at some of these again in greater detail.

 

If you are interested in a more detailed briefing and to hear more about our Local Government Practice, please contact David Park (Partner) at david@nudgefactory.co.uk

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