Motion to Take Note
That this House takes note of the Report from the Economic Affairs Committee, Building More Homes (1st Report, HL Paper 20).
My Lords, it is a privilege and a pleasure to introduce the report of the Economic Affairs Committee entitled Building More Homes, which was published last July—things move quite slowly in the housing policy market. I thank all members of the committee who participated, our terrific support staff, Ayeesha Waller, Ben McNamee and Oswin Taylor, and our specialist advisers Professor Geoff Meen and Professor Christine Whitehead.
The committee examined this topic in depth over six months. We heard from more than 50 witnesses and received scores of written submissions. What was revealed was a dysfunctional market beset with long-term failures, leading to a chronic shortage of supply and worsening availability and affordability. The committee concluded that the housing market needs bold and radical measures if it is to be reformed. Today’s debate affords the House the opportunity to consider the Government’s recently published White Paper, Fixing our Broken Housing Market, and see how it matches up to our report’s challenge to build more homes.
The cost of a broken market in human terms is considerable. The supply of affordable rental accommodation, in particular social housing, is inadequate and the availability of affordable starter homes is severely restricted. This forces many young families to live in insecure private rental accommodation, supported by a rapidly increasing housing benefit bill, which in 2015 amounted to £27 billion. The lack of availability of affordable housing prevents movement of labour to areas—particularly London and the south-east, and other major metropolitan areas—where there are job opportunities. The price people are paying for our failed housing policies is a crushing financial and emotional burden for many families.
The lack of housing supply forces house prices up, with the latest annual increase to December 2016 at 8.2%. Those buying their first homes are now older and wealthier—indeed, they have to be wealthier. Unaffordability has increased the cost of the private rental sector, such that tenants in London spend 60% of their income in rent, as opposed to those owning their own home, who spend 19% of their income.
How many new homes do we need to build each year? The current level of supply is gradually recovering from a sharp decline following the financial crisis but still falls far short of what is required. Our findings were that, if we are to meet the current annual demand and catch up on the hangover of unmet demand from the past, we need to build 300,000 homes each year. This higher rate of construction will need to be sustained over many years to have a moderating effect on prices.
The White Paper acknowledges that between 225,000 and 275,000 homes need to be built each year, but it does not commit to that target. The Government appear to be continuing to stick to their current target—the target of the last Government—of 1 million homes in the lifetime of this Parliament. Would the Minister please confirm in his reply what the Government’s current target is?
The last Government chose to prioritise the expansion of home ownership at the expense of homes for social and affordable rent, where demand from low-income households is high and unmet. We were told that opportunities to boost institutional investment in the private rental sector are potentially being undermined by the very policies designed to assist owner occupation.
The committee examined the long-standing and persistent reasons for failing to build enough homes, and proposed solutions to each of them. I will focus on three key failures.
The Government have very much relied on the private sector to build the homes needed, and the private sector has failed to do that. The private market is, we learned, uncompetitive and distinctly oligopolistic in character. The number of SME builders has fallen dramatically following the financial crisis, while the large builders and land agents hold significant land banks. A third of planning permissions are not used, and estimates of the total number of unused planning permissions vary from 445,000 to more than 600,000. That variance highlights one aspect of this market, which is that the statistics are often rather elusive.
From the builders’ economic perspective, they are behaving quite rationally, as they are seeking to maximise profit and minimise exposure to risk; they therefore manage for margin rather than volume. So the economic incentives need to be changed. We recommended that local authorities be given the power to levy council tax on land not developed after an agreed period of time. The Government recognised the problem, but their response is to decrease slightly the length of time before builders have to start work. It is doubtful that this measure is strong enough to tackle the problem.
The second failure is the almost non-existent level of public sector building. A central finding in our report is the conclusion that the UK has only built—and, in our view, can only build—enough new homes when local authorities play a substantial role in housebuilding. In the decade to 1979, local authorities built more than 1 million new homes, but in the decade to 2015, they built just 9,000.
We were impressed by the ambition of local authorities, particularly large metropolitan authorities, wanting to get back into the business of building houses, but they are unable to access the funding required to support their ambitions. The restrictions on the ability of local authorities to borrow to build social housing are both arbitrary and anomalous. The restrictions that, for example, allow them to borrow to build a leisure centre or a swimming pool but not to build houses should be replaced and reformed. They should be allowed to borrow under the prudential borrowing regime to build all types of houses, in particular, social housing.
In London and elsewhere, local authorities have shown an entrepreneurial spirit, entering into partnerships with housing associations, institutions and private sector builders to develop multi-tenancy sites, where the development profits can be used to help the local authority to fund future developments. The success of the partnerships will hopefully encourage local authorities to consider investing some of their sizeable reserves in housebuilding.
The Government have made a welcome pledge of £2.3 billion over the next four years to the housing infrastructure fund, targeted at the areas of greatest housing need. The fund will pay for infrastructure projects, such as transport and utilities, to enable local authorities to unlock new housing projects. This is a good start. The White Paper introduces a further potential source of government funding, through bespoke housing deals with local authorities in high-demand areas to deliver genuinely additional housing. The Government are prepared to use “all the levers” at their disposal to support these bespoke deals, but the White Paper gives no indication of the funds available. Can the Minister please let us know the amount of money available to support this interesting initiative?
The third failure is the low level of homebuilding on public land. The committee heard evidence that over 3 million homes could be built on public land. Public land in total is 900,000 hectares, or 6% of all land. In London, it is estimated to be 20% of all land. Public land presents an opportunity to build the kind of homes the market is not willing to support and also, very importantly, to support the revival of small and medium-sized builders through direct commissioning. This would bring additional, much-needed competition to the marketplace.
The Government must be commended for taking action to release land, but, as the National Audit Office has pointed out, the promised houses have not been built on that land. The Government expect that, by 2020, nearly one-third of their housebuilding target—assuming it is 1 million—will be built on public land. We recommended that the National Infrastructure Commission be charged with overseeing and monitoring the number of homes actually built, so that we know what is going on. The Government acknowledge the problem and commit, somewhat feebly, to “work harder” to make public sector land available, but they are silent about how progress is to be pushed ahead and monitored.
We also recommended that the release of public land could be achieved, in part, by extending the flexibility of local authorities to dispose of land for housing at less than best consideration and not be forced—as is the case now—to sell that land suitable for housing at higher prices to commercial developers. The Government agree with this and acknowledge that the availability of public land is essential if we are to provide the boost to building low-cost homes in areas of high demand.
On planning, we called for local authorities to be able to increase planning fees if the extra revenue is invested in planning departments. Indeed, many developers told us that they were very happy to pay more if the underresourced planning departments that they had to deal with could use the funds only to beef up their staff resources to speed up the planning process. The Government opposed an amendment along these lines to the Housing and Planning Bill, but have now had a change of heart and included this proposal in the White Paper, which is to be welcomed.
Our report also drew attention to the negative effects on the housing market of regular policy and fiscal changes. Intervention in one part of the market can all too easily disrupt another part of the market. For instance, the changes in stamp duty land tax, which have proved to be a bit of a boon for the Treasury, appear to have deterred people from moving to smaller homes, thus creating a barrier to the best use of the current housing stock. This has also slowed the development of the vibrant buy-to-let market.
As he carries out his extensive consultation process on the White Paper, Gavin Barwell, the Housing Minister, is emphasising that he wants government policy to be held steady and settled for a period of years. This will be widely welcomed in the industry, but will the Treasury agree? It is of course the Treasury that sets the rules for local authority borrowing which so constrain the ambitions to build. Unless the Treasury takes the bold step to free local authorities to borrow prudentially to build homes, it is doubtful that the White Paper’s commendable ambitions can be delivered. I beg to move.
My Lords, it is a pleasure to follow the noble Lord, Lord Hollick, and I just take a few moments to pay tribute to the excellent way in which he chairs our committee. The noble Lord, Lord Tyler, in one of these BBC programmes, suggested that this is something of a daycare centre—it feels more like a workhouse under the leadership of the noble Lord: we have produced a report on electricity, we are working on a report on the labour market, we have finished off this housing report, and I believe we are doing something on student loans. We used to meet on Tuesdays; we now meet on Tuesdays and Wednesdays—and Thursdays, sometimes—and, in addition to that, the sub-committee now meets two days a week. So let us have no more talk about how this House is not properly employed.
I found this subject something of a challenge; housing is not an area where I claim any expertise. The last time I thought seriously about housing was when I was on Westminster City Council, which is nearly—gosh, it cannot be that many years ago; it is quite a long time, anyway. I was quite struck when, just after new year, I arrived by train in Glasgow. It was pouring down with what was almost sleet, on a horrible cold night. I went to get a taxi, and sitting in a sleeping bag in the wet was a young girl with a cup wanting money. Around London today we can see more and more examples of people in this desperate situation. Everyone in the taxi queue walked past, pretending not to notice her—if she had been a Labrador, everyone would have patted it, but she was a person and very few people put any money in the cup. It is not just with homelessness that we have a problem; we also have the problem of professional couples earning in good jobs who, in some parts of the country—most notably in London and south-east—cannot afford to get into the housing market. I was very proud to be a member of the Government in which my noble friend Lord Lawson led us with considerable success towards the idea of the home-owning democracy. The fact is, home ownership is falling and our ability to house those on the lowest incomes is non-existent.
If people do not have time to read the report, the only thing they have to look at in it is Figure 1. It shows the housebuilding that has occurred in the various sectors, and outside the private sector—as our chairman, the noble Lord, Lord Hollick, has pointed out—it is failing to meet demand. The demand has increased remarkably. I was quite struck by the numbers reported by the noble Lord, Lord Green. He said that we had to build a house every 15 minutes to meet the demand that was arising simply from immigration. However, it is not just immigration that is increasing demand: it is also rising incomes, the change in the nature of households and the availability of cheap mortgages because of quantitative easing.
Central to this problem, as the noble Lord, Lord Hollick, pointed out, is the supply of land. One of the recommendations in our report is that we should create some incentive. There is no incentive for a health authority or a transport body to make land available for housing if they do not get to keep the proceeds. That would make a difference, but, as we say in our report, there does not seem to be anyone in central government making sure that that land is used effectively.
We had a private session with the Housing Minister, Gavin Barwell, and I found him the most extraordinary Minister. He has been around the country and is absolutely on top of these issues. He understands them and that is very much reflected in the White Paper. That session was, therefore, very cheerful. We were very cross with him at one stage, however, because the Government took a very long time to respond to our report, and produced a response that was, to say the least, derisory. We were cheered, however, to find out that the probable reason for that was that many of our ideas were being incorporated into the White Paper, for which we were extremely grateful. Again, it shows that, in the Housing Minister, we have someone who is listening. I know he spends his time going around the country talking to local authorities. The key thing here is that this is not a singular problem. It varies from region to region: in some parts of the country, it is perfectly affordable for people to buy homes, but in other parts of the country it is not.
Now we come to the bit that I found ideologically challenging. The great thing about this House is that we operate—certainly our committees do—on the basis of the evidence put before us. The evidence was absolutely overwhelming: we cannot rely on the private sector to provide all the housing that we need and the different categories of housing that we need, but it was also reassuring to find that the old kind of statist ideas were also not going to deliver. We need a rented sector, but this term “affordable housing” is like something out of double-think. Affordable housing turns out to be something that you have to be very well-off indeed to be able to afford. There is little in the way of supply for those people who are on very low incomes and do not have very much money. The conclusion that we came to is that we must find a way of enabling local authorities to provide low-cost housing for people who need those facilities.
Where I was cheered, in recognising that there needed to be more reliance on public sector housing, was that this would also enable us to save a great deal of taxpayers’ money. The noble Lord, Lord Hollick, pointed out that we were spending £27 billion on housing benefit. If we had more housing at lower rents provided by local authorities or housing associations, or local authorities in partnership with the private sector, we would not have to provide the housing benefit on such a level. It does not seem a very effective use of taxpayers’ money to simply use housing benefit in a market where the rents are going up and up and neither the taxpayer’s situation nor the availability of housing is improved.
I should, perhaps, declare an interest as chairman of Secure Trust Bank, because one aspect of the Government’s policy is clearly to encourage the building of more houses. They have set a target—I think it is a target—of a million houses, which, as the report points out, will be insufficient. The clear conclusion of our report, described by the noble Lord, Lord Hollick, is that the big housebuilders are something of an oligopoly. Actually, if you look at the business models of the big housebuilders, they are entirely rational in taking up the land, getting planning permission, creating a land bank, and then restricting the supply of housing that is coming on to the market to maintain the price, get best value and plan for the economic cycle. They are being entirely rational and you would not expect them to do anything else, but that is not consistent with what the Government need to do to meet their policy objectives.
Encouraging the small and medium-sized builders, which the Housing Minister says is a priority, means that they need availability of finance and labour. That has implications for our immigration policy when we finally get control of our own borders, but it also has implications for finance; so what on earth is going on when the Bank of England, in setting the capital requirements of the banks for lending, is actually making it cheaper for them to provide mortgages to people who have a low loan-to-value requirement and more expensive for the banks to provide money to developers to build housing? In the last few months, it has increased the capital weighting required for smaller banks, which are the main sources of revenue for small and medium-sized builders, from a 100% risk weighting to 150%. That means that it is 50% more expensive for the banks to provide loans, and it also means that there is less capital available and less ability for the banks to provide that.
On Friday, a report was published by the PRA with a statement from the Treasury Minister, saying that it wanted to increase competition and that it was going to address these issues. However, when you look at the detail, it is making the situation—certainly on my cursory glance—not better, but marginally worse.
I appreciate that we have lost a bit of time this morning, so I will bring my remarks to a close. On housing for rent, we need—as I have already indicated—rental properties available for people on lower incomes. We also have to recognise, however, that we need to have some means of securing rental tenures that are longer and more secure for people with families. We cannot go back to having a regulated housing market—we are certainly not recommending that—because we know where that will end: it will end with even less supply. We can, however, encourage the development and funding of building for rent in the private sector, where the terms of tenure are longer, to meet an obvious demand as we move forward.
Finally, I should like to say what a pleasure it has been to serve on this committee, and how much I appreciate that the White Paper has picked up on some of the ideas. The Housing Minister told us that everyone wanted a silver bullet. The White Paper is not a silver bullet; there is no silver bullet. We will solve this problem with a combination of policies on the capital and other rules that apply to the banks, on housing benefit, on welfare and on immigration. We need government as a whole to put their shoulder to the wheel on this. In our report, we said that there should be a senior Cabinet Minister who is in charge of driving this policy; my recommendation is to make Mr Barwell a senior Cabinet Minister.
My Lords, it is a pleasure to follow the noble Lord, Lord Forsyth, and I enthusiastically endorse his comments about making a Cabinet Minister of Gavin Barwell. I too am a member of your Lordships’ Economic Affairs Committee which, under the exemplary and firm guidance of the noble Lord, Lord Hollick, produced the report we are debating.
The report’s conclusions were in fact straightforward: that the housing market is obviously in crisis, and has been for a long time; and that the crisis is getting worse. In many areas of the country, people have no realistic prospect of being able to buy their own home. The UK-wide ratio of house prices to average income stands at 8:1 and prices continue to rise, last year by 7%. This morning, the IFS forecast that average incomes will not in fact increase at all over the next two years. It is not surprising that home ownership levels are in steep decline, especially among young people. As others have pointed out, the key reason for this is the lack of supply. There is not enough private housing, not enough housing association housing and effectively no local authority housing.
The committee’s report examined this failure to build and other aspects of the housing market. We concluded that it was vital that local authorities returned to building at scale and across all types of tenure. We made other recommendations to do with the planning system, the use of public land and the use and taxation of existing housing stock. These were all important and, we believed, helpful recommendations but we were clear that:
“Local authorities and housing associations must be incentivised and enabled to make a much greater contribution to the overall supply of new housing”.
We then said:
“Without this contribution it will not be possible to build the number of new homes required”.
Since the early 1960s, the private sector has on average built around 150,000 new homes annually. We saw no reason for the private sector as currently incentivised to increase its output. The builders made it clear to us in evidence that they are margin maximisers and not volume maximisers, for entirely understandable reasons, as the noble Lords, Lord Hollick and Lord Forsyth, have explained. This means that there is a significant supply gap that must be filled by the public sector. Housing associations can and do build around 50,000 new homes in a good year, which means a gap in supply of around 100,000 homes if we are to reach the recommended target of 300,000 per annum. That gap will have to be filled by the public sector.
The Government’s response to our report came in two parts, as the noble Lord, Lord Forsyth, has mentioned. The first was a preliminary and rather sketchy response; the White Paper was the substantive response to our report and it has a promising title, Fixing our Broken Housing Market. That blunt title and its acknowledgement that the housing market is broken were encouraging signs and so were the forewords by the PM and the Secretary of State. The Secretary of State said:
“Soaring prices and rising rents caused by a shortage of the right homes in the right places has slammed the door of the housing market in the face of a whole generation”.
That is true. The Prime Minister said of the proposals in the White Paper:
“We’re giving councils and developers the tools they need to build more swiftly”.
That is less obviously true and skirts around the crucial question of volume. Speed and volume are not necessarily the same thing. The White Paper says that:
“The consensus is that we need from 225,000 to 275,000 or more homes per year to keep up with population growth and start to tackle years of under-supply”.
If the private sector and housing associations between them manage to build 200,000 homes a year, the Government have a deficit on their own figures of between 25,000 and 75,000 homes a year. Who will build these required homes, and how? It has to be local authorities. The committee took that view.
We also noted the keenness of some local authorities to build and the obstacles in their way, the chief of which was money. We have the very odd situation where borrowing on the general revenue account is limited only by the well-understood prudential principle, but borrowing on the housing revenue account is generally not available or much more restricted. This means, as others have noted, that local authorities can borrow to build swimming pools but not to build houses—a ludicrous situation, given the gravity of our housing problem. We recommended allowing local authorities to borrow to build social housing, as they can for other purposes. We saw this as the surest and simplest way to increase housing volume. I think that the Government have rejected this proposal, chiefly by ignoring it. They agree that local authorities have an important role in delivering new homes but, in the absence of the ability to borrow on the housing revenue account, this relies chiefly on joint ventures financed through the general account. There is nothing wrong with that; in fact, there is a great deal to like about joint ventures through the general account, as we said in our report. Again, the question is one of volume.
These schemes have so far been disparate and sometimes very small-scale. What volume do the Government think will emerge? How have they modelled this number? What confidence can we really have that this kind of venture will produce the required 25,000 to 75,000 new homes each year and what similar schemes can the Government point at to show that this kind of scheme produces volume results in a reasonable time? These are important questions. Without these additional homes from local authorities, the Government’s housing plan will fail. I would be grateful if the Minister could address these questions when he replies.
The White Paper contains many other proposals, many of them important improvements on the current housebuilding regime. In particular, it recommends a proper assessment by local authorities of forecasting housing needs and requires a plan to show how these needs may be met. This is a very good idea in principle—at least the first bit is, even if I thought that local authorities were already in fact obliged to do exactly that. The second bit, showing how the need may be met, may prove very difficult given the current budget cuts under way if borrowing requirements are not relaxed and joint ventures are the only significant tool available. I welcome in principle, though, the notion of a new housing delivery test. Speaking of local authorities, the White Paper says that,
“where the number of homes being built is below expectations, the new housing delivery test will ensure that action is taken”.
In paragraph 2.49, it goes on to give some detail. The remedy for underperformance seems to be that,
“the presumption in favour of sustainable development in the National Planning Policy Framework would apply automatically”.
That really is quite opaque. Can the Minister explain how this would actually work to remedy a shortfall in building homes?
The section of the White Paper entitled “Helping People Now” reprises the problems with the housing market and recites the grim statistics that we have heard already this afternoon. It goes on to offer help and lists a range of demand-side schemes, which it says will help more than 200,000 people to become home owners by the end of this Parliament. We have seen such schemes before; they have been, in one form or another, a prominent feature of government tinkering with the housing market for a long time. All these schemes have two things in common: they do not address the fundamental flaws in the housing market, and typically help people who are already near the threshold of home ownership over that threshold. On what basis do these schemes provide value for the taxpayers’ money spent? Does not their narrow focus and inflationary effect mean that the money could be better spent on improving supply rather than increasing demand?
All in all, the White Paper is a bit of a disappointment or at least a curate’s egg. It contains some good things but they are all essentially second-order good things. It is not radical; in fact, it is rather timid. We have had a dysfunctional and socially harmful housing market for a long time and it is getting worse. It needs lots of reform, and there is some in the White Paper, but it needs radical reform if we are to bring real and sustainable improvements. What it needs is a lot more building by local authorities. The easiest, most obvious and most reliable way to do this is to relax the restrictions on borrowing on the housing revenue account. It is a pity that the Treasury seems to have prevented that solution going forward. This is a simple measure. It would work and greatly reduce the £9 billion of the housing benefit payment that currently goes to the private rented sector. Without the scale of local authority building that this measure would allow, it will not be possible to build the number of new houses required. That is a missed opportunity and it risks the perpetuation of a huge and socially damaging housing problem.
My Lords, let us start by giving credit where credit is due. First, the White Paper is candid in acknowledging the multiple failures in the housing market. Secondly, it recognises that the current target of 1 million homes over five years is too low. Although we are told that it remains in force, it has been completely airbrushed from the documents, presumably because it is clear that housing starts have already fallen behind the asking rate.
Thirdly, it adopts much of the thinking of the Economic Affairs Committee—for example, that the problems will be solved only by action by all players and on all types of tenure. It makes a major move away from the almost exclusive focus of recent Governments on promoting home ownership and recognises that there are severe pressures in the rental market. Indeed, in my view, it is the rental market that is the epicentre of the crisis, where hardship is greatest. I agree that much of the credit for this fresh thinking should go to the new Minister for Housing, Gavin Barwell, and I wonder whether he will eventually enter the pantheon of those who have held this portfolio with distinction—notably the then Sir George Young and Nick Raynsford, who between them held it for about 15 years.
Fourthly, it acknowledges that the so-called volume builders will never want or be able to build enough. Thereafter, things go downhill. A new range is suggested, although whether it is a target or just the consensus is unclear—I hope that its status can be clarified. The bottom end of the range, 225,000 homes per annum, may not even be enough to match emerging demand. The top end of the range, 275,000, may not do enough to catch up the underprovision of the past decade. For that reason, our report recommended 300,000 per annum.
The main failing of the White Paper is that, despite an extensive range of measures, there is no assurance that the Government will deliver the numbers required—indeed, no attempt is made to reconcile the two. Finally, there is a serious omission: the tax issues which distort the housing market are simply not addressed. That is the gist, but let me develop some of these points.
I do not need to go over the main failings. Most of the things that the Government want are not happening or, worse, are going in the wrong direction. A major factor in these failings comes from the excessive focus on home ownership to the neglect of the rental sector. Simple economics tells you that if, as the Government claim, they have helped 200,000 people into home ownership but the supply has not increased, house prices will rise to price out a different 200,000.
The recognition that renting needs to be promoted is a huge advance. The share of the private rented sector has doubled from 10% to 20% in the past 15 years, but much of the sector is in poor condition, badly managed and, as has been said, tenancies are insecure, so families cannot even be sure where their children will go to school.
The Prime Minister’s foreword itself acknowledges that 2.2 million working households on below-average income spend a third or more of their disposable income on housing. As has been said, that figure is greater in London. Today, it would take a low or middle-income family saving 5% of their wages 24 years to reach an average-sized deposit. This is all massively unfair, as the White Paper reveals that housing costs relative to income are substantially lower for owners than for renters.
As the main housebuilders build almost exclusively for sale, it follows that if rental provision is to increase, new players have to be mobilised. Historically, local authorities and housing associations played that role, and they need to be brought back into play. My estimate is that we need to find an additional 100,000 homes above those provided for sale.
There is a lot in the White Paper about local authorities, but most of it is about their role as planning authorities. The requirement to produce plans which meet local need is very much to be welcomed, as is the fact that they are to be given extra resources to speed the planning process. However, while paragraph 3.27 states:
“They also have an important role in delivering homes themselves”,
there is no sign of the relaxation of the housing revenue accounts that we have called for.
This is followed by a masterly euphemism in paragraph 3.32:
“We will work with local authorities to understand all the options for increasing the supply of affordable housing”.
This ranks alongside Hirohito’s:
“The war … has developed not necessarily to Japan’s advantage”.
The picture is not much better with housing associations. Paragraph 3.26 raises hopes, stating that the Government will,
“set out, in due course, a rent policy for social housing landlords … for the period beyond 2020 to help them to borrow against future income”.
Hopes rise further with:
“Our aim is to ensure that they have the confidence they need about their future income in order to plan ahead”,
but then reality comes crashing in:
“The Government also confirms that the 1% rent reduction will remain in place in the period up to 2020”,
together with the damaging restrictions imposed by the Housing and Planning Act.
Great hopes have been expressed about the entry of institutional investors, who allegedly have billions of pounds ready to go, but I have heard all that before. Those investors now find themselves constrained by the ill-thought-out Solvency II directive.
So it continues to the end of the document: encouraging aspirations not backed by the resources or the freedoms to develop them. There are lots of bits and pieces of schemes, many of them worthwhile, including one to deal with great crested newts, but nowhere is there a table which draws all the contributions together to demonstrate that the plans for more housebuilding can be achieved.
Then we come to the serious omission: the way that the tax system distorts the housing market. This is dramatically illustrated in the White Paper, which states:
“In 21st century Britain it’s no longer unusual for houses to “earn” more than the people living in them”.
This is a shameful admission, but nothing is offered to remedy it. While pay is subject to income tax and national insurance contributions, there is no tax whatever on the increase in the value of the house: no income tax, no CGT, no extra council tax, only, eventually, inheritance tax, where the allowances are currently being increased. It is not surprising, with returns on financial assets low and taxed, that investment in bricks and mortar, whether a second home, a buy to let or simply a loft extension, is proving so popular, thereby taking home ownership further out of the reach of many.
In our report, we criticise the working of council tax. We have a situation where the grandest mansions, some no doubt owned by Members of this House, could never pay more than three times the tax of the humblest dwelling. This is a much shallower gradient than the old rates system. The property values are still those of 1991, so those living in the areas where values have risen most have not been asked to contribute more.
In practice, the Government recognise the argument that high-value properties are not paying enough, but their response is to impose very high rates of stamp duty at the top, so those who move pay astronomical sums, while those who stay put, like me, pay nothing. Evidence is beginning to emerge that this is proving counterproductive, causing such a slowdown in turnover that revenues have declined. Far better to return stamp duty to more reasonable levels and then recoup the money by raising council tax, so that all property owners pay a little more every year.
To conclude, the White Paper starts promisingly by introducing some fresh thinking, but it fails to convince that it is capable of making the step change that is required.
My Lords, I warmly welcome this excellent report from the Economic Affairs Committee. My conversations with local authorities, housing associations and chamber of commerce colleagues in the north-east have endorsed the power of its analysis. The report demonstrates the complexity and long-standing dysfunctionality of the housing market with a terrifying clarity.
Recognising that my six months working in an estate agents in the early 1970s will not quite cut the mustard, I will not attempt to speak to the many technical aspects of the report and the White Paper, which I also welcome. I will leave that to the many noble Lords who are far more qualified than I am to do so. I want to speak about the crucial significance of this issue to human dignity and flourishing, and the kind of society we aspire to build.
One of the greatest social thinkers in recent history was Archbishop William Temple, Archbishop of York for 12 years and then Archbishop of Canterbury during the Second World War. He wrote:
“Every child should find itself a member of a family housed with decency and dignity, so that it may grow up as a member of that basic community in a happy fellowship unspoilt by underfeeding or overcrowding, or by dirty and drab surroundings”.
With those words before me, this afternoon I want to focus on the importance of building homes and communities, not just houses. If we are to do this, we need homes that people want to live in in places where they need them. We need communities in which people want to put down roots. The first key factor is the need to have an increase in access to home ownership, particularly for young people, so bringing new people and young families into the community. Communities cannot be built on transient private renters. The Government are to be congratulated on their efforts in this regard—for example, the Help to Buy scheme and the proposals for starter homes—but more needs to be done.
Just how much was brought home to me on a delayed train on the east coast line a couple of weeks ago when I had a chance to have a conversation with a young woman who lives in Stockton. She was excited because the following day she was going to move into a house she was buying. She was a nurse in her mid-20s. She had been able to buy the small house in Stockton, which is a low-price housing market, because she had stayed at home while she was at university and her parents had subsidised her living and she had a small legacy from a grandparent. That it had taken her, a nurse in her mid-20s, that much effort and that long to be able to achieve a modest house in Stockton demonstrates that it is almost impossible for many of our young people to achieve the same thing. For young people who do not have access to the bank of mum and dad, a 10% deposit, even in less expensive housing areas, can be an insurmountable barrier.
There is also some evidence, which surprised me, that many young people are not aware of the possibilities of home ownership and do not know what the options are. Research by the North East England Chamber of Commerce suggested that just one-third of the students and young people questioned knew what a mortgage was. Nine in 10 were unware of starter homes, and only half were aware of the Help to Buy scheme. I wonder whether our higher education institutions and employers can do more in terms of financial education for our young people.
The second key factor in building homes and communities, not just houses, is the key imperative of having genuinely affordable housing to rent for local people, as has already been mentioned. Home ownership and social housing, particularly local authority social housing, are all too often posed as alternatives. People often have an ideological commitment and pose a false dichotomy between the two kinds of provision. We cannot afford that false dichotomy. We need both kinds of provision. We need home ownership and genuinely affordable housing that provides safe and stable accommodation for those on the lowest incomes. Providing this is something we have not got right in recent years. Affordable housing completions are at their lowest level for 24 years.
The recent White Paper’s shift in focus towards rented accommodation is welcome and needed. In Newcastle and North Tyneside, there are encouraging signs that our local authorities are doing their best to respond to this need. North Tyneside Council is committing to build 3,000 affordable homes by 2023, and Newcastle City Council delivered 1,000 homes last year. Building More Homes and the noble Lord, Lord Sharkey, made the point that initiatives such as this would be encouraged by the lifting of local authority borrowing caps. Will the Minister confirm whether the White Paper commits the Government to looking at this? I did not find this point quite clear when I read the White Paper.
We also need to support the work of our housing associations. In my conversations with some of them, they stressed the need to be able to sustain a commercial business case, and they are particularly concerned about the impact of the 1% rent reduction in social housing. Will the Minister comment on that point?
Finally, building homes and communities, not just houses, also means providing homes for people in every walk of life. We need a strong supported-housing sector so that young people, especially those on the edge of care, can find a safe home. We need supported housing for the elderly and disabled so they and we will benefit from their inclusion in communal life, which will add to the rich diversity of local communities. I shall make one point on that: Newcastle City Council, like the housing associations, is finding that the 1% rent reduction in social housing has had a particularly negative impact on the supported-housing sector.
Back in 1941, it is very likely that the heart of Archbishop William Temple would have been warmed by this excellent report. That is certainly the case for this bishop today.
My Lords, I start by declaring my interest as a past chairman and current vice-president of the Local Government Association. It is a pleasure to follow the right reverend Prelate and to hear of the implications for families of the shortage of homes, the very subject we are here to address.
We all know the personal security that comes from having a safe and decent home, and that is why I am pleased to be able to participate in today’s important debate. Getting more people on to the property ladder and improving social housing are key priorities for this Government, and I welcome the report of the Economic Affairs Committee, which makes a valuable contribution to this debate.
It is clear to us all that our housing shortage cannot be met by one housing sector alone. The private sector, local authorities and housing associations all have a valuable and very necessary part to play. Housing associations offer £6 of private investment for every £1 of public money and they provide flexibility in the way they use their existing resources and a guarantee that all profits are reinvested in homes and communities. The Government recognise the need to incentivise housing associations to build more homes and have allocated an additional £1.4 billion of funding, which will allow housing associations to build more homes of every tenure.
For decades we have not been building enough homes, and that has resulted in house prices growing faster than incomes and rising rents affecting people throughout the country. The availability of land for housing development is clearly a key factor in our housing crisis, and I therefore particularly welcome the proposals in the White Paper relating to the land release fund. As the success of the one public estate programme has already demonstrated, the release of surplus public land can provide a significant opportunity to boost housebuilding. I am pleased that the Government have committed to consultation on relaxing the requirement on public bodies to achieve best value on the sale of land. This could make a big difference, as the availability and affordability of land are some of the biggest constraints on increasing housebuilding.
The National Infrastructure Commission’s launch of the housing infrastructure fund at the Autumn Statement, as well as the connection it made between the supply of new homes and the infrastructure needed to support them, are welcome recognition of the link between housing and infrastructure. The Local Government Association has consistently argued that council planning departments need to be sufficiently resourced to fulfil their part in delivering more housing. Specifically, the LGA has highlighted the fact that councils have been forced to spend in excess of £450 million to cover the cost of planning applications over the past three years.
Currently, taxpayers are subsidising 30% of the estimated cost of processing all planning applications in England, because nationally set planning fees do not recover the full cost. The planning fee is usually a tiny proportion of the overall development costs and is not generally seen by either developers or property owners as a tax on growth. This is evidenced by the fact that a number of major developers are currently proactively involved in planning performance agreements with councils which see them voluntarily paying a higher fee in return for a guaranteed standard of service with transparent agreed timescales. I am delighted that the White Paper recognises this issue and is allowing councils to increase planning fees by 20% from July, if they commit to investing the additional fee income in their planning departments. I know that the LGA also welcomes the greater flexibilities in relation to the delivery of starter homes that are outlined in the White Paper.
It goes without saying that communities are most likely to support new development when it is accompanied by necessary infrastructure. We have already seen recognition of this with the introduction by the coalition Government of the new homes bonus to encourage councils to grant planning permissions for the building of new homes in return for additional revenue. Building on this, the introduction of the £2.3 billion housing infrastructure fund is to be strongly welcomed.
As a former council leader, I know that councils through their planning departments are playing their part in addressing the housing crisis, with nine out of 10 planning applications being approved. Despite this, research from the LGA shows that a record 475,647 homes have been given planning permission but are yet to be built. It is for this reason that I welcome proposals in the White Paper to allow councils to make greater use of compulsory purchase powers to unlock stalled development sites, and measures that will require starts within two years of planning permission being granted. I am, as your Lordships would expect, a strong supporter of local government. When faced with challenges, local government can be at its most creative, and today there are many examples of local authorities being creative and innovative with schemes that serve the needs of their communities. Some are very small-scale, but they show the flexibility of thinking and how councils can work within what appear to be constraints.
I give a small example. Ashford Borough Council, in recognising the need to assist older people, has developed a policy to allow exception sites to be used for specialist accommodation. The council made available land in its ownership on a long lease of 125 years for a nominal rent to Housing & Care 21. In July 2016, the doors were opened on 33 flats, 17 for affordable rent and 16 for shared ownership. That may be only small beer, but it shows that the council was prepared to use its own land in that creative way for what the community actually needed.
Supported housing is a vital part of the nation’s housing need. I welcome the Government’s decision to protect the level of funding for the supported housing sector. However, I am sure my noble friend the Minister is aware of the concern of the housing association movement: for it to continue developing new supported housing schemes, it needs much more certainty of funding.
Increasing the housing supply, getting people on to the property ladder and improving social housing are objectives that we can all surely support. These are the driving principles behind the report of the Economic Affairs Committee and the White Paper. I hope that through this debate we can work constructively with the Government to deliver more and better housing for the people of this country.
My Lords, I declare an interest as chairman of the Woodland Trust and president or vice-president of a range of wildlife and conservation organisations. I very much welcome this report from the Economic Affairs Committee—particularly the focus on enabling local authorities to retake their place as providers of social housing for a range of tenures, including rent. Then there is the proposal that local authorities are given the power to levy council tax on developments that are not completed in a set time period. The report is very much complementary to the report of a year ago by one of the ad hoc Select Committees—the Select Committee on National Policy for the Built Environment, on which I had the privilege to sit. I do not know whether we had slightly longer than the Economic Affairs Committee to wait for a response from government, but it was 10 months during which I reminded the Government pretty well monthly that time was ticking away—but it came.
I want to raise two economic points germane to both these reports. First, I echo the contribution of the right reverend Prelate on the need for houses but not at the expense of quality. The report on the built environment stressed that the quality of our housing and other development is vital in creating places that foster health and well-being that are environmentally sustainable. If we do not achieve that, we could fail to get value for money and we could build ourselves economic and other problems for later years.
There is a lot of evidence to be worried about on quality. First, new homes in the UK are now smaller than anywhere in western Europe. I used to visit friends in the Netherlands and think secretly, when they were showing me great hospitality, “I could not live in these little boxes”. In many cases, those are now our little boxes. I suspect when I look around that noble Lords are old enough to remember the Pete Seeger song in the 1960s about,
“Little boxes made of ticky tacky”.
According to the RIBA, half of homes built in the UK fall below the Government’s space guidelines. That is particularly so the further north you go in England. I welcome the commitment in the housing White Paper to review space standards, but we cannot continue in a situation where they are to all intents and purposes voluntary. Can the Minister comment on the prospect of statutory space standards?
Another example of worries about quality is with design and the process of design review, which is faltering and patchy as local authority resources diminish. Inadequate care has been taken to ensure access to green open space, which the evidence increasingly shows is good for physical and mental health and cheaper than the NHS. The Government’s Natural Capital Committee estimates savings of £2.1 billion in reduced health treatment costs if adequate green open space access is provided. That committee has also calculated that if 250,000 additional hectares of woodland were planted in and around towns and cities, it could generate net societal benefits of £500 million per annum. So the evidence is there that the quality of settlement and design is fundamental to value for money. We have heard in the news recently about the quality of build of some developers, which really does reinforce the worry that they are all “made of ticky tacky”. I am sure that many of them are not, but we need to make sure that we maintain the quality of build. It was distressing to hear about poor experiences of the NHBC in helping house purchasers who had bought substandard houses.
A common theme in the evidence that we received during the built environment inquiry—I am sure that it was the same with the Economic Affairs Committee—was how under the cosh local authorities feel, faced with the need to deliver plans for ever rising housing allocation targets. This can result in poor location decisions, as local authorities grasp thankfully at large greenfield sites which offer big numbers of houses but raise major questions about transport infrastructure, access to jobs and sustainability, and eat away at formal or informal green belt. I very much welcome the Government’s commitment to the green belt in the housing White Paper but open countryside is also at risk. My overall point on quality is that we must not, in the dash for much-needed houses, make the mistake of building small, mean houses of patchy quality which are poorly located and create places which have no quality of place, do not promote well-being, are not sustainable and rapidly become the slums of the future. Will the Minister indicate how the Government can avoid the “stack ‘em high and sell ‘em cheap” philosophy?
That takes me to my second, linked point, which, again, chimes with the Economic Affairs Committee’s conclusions on planning reform. Time and again during the built environment inquiry we heard from planners, local authorities, developers and practically everybody about local authority cuts resulting in the loss of planning resources and expertise. We heard of planning departments struggling with few or no specialist resources such as heritage experts or ecologists. Two-thirds of local authorities now have no ecologist in their planning department. I very much commend the committee’s proposal that local authorities should be allowed to set and vary their own planning fees. I welcome the housing White Paper’s announcement of a 20% increase in July and the consultation on a further 20% incentivisation to local authorities which are actually delivering homes. However, we need something beyond this one-off hike and I would be grateful if the Minister would indicate whether there are long-term plans to give further flexibility to local authorities. The strength and expertise of planning departments is vital if we are to see well-thought-through local plans, good support to neighbourhood planning and swift, effective development decisions.
If there was one overriding message throughout the evidence we heard from all sides during the built environment inquiry it was this: although many development proposals start off excellently, proposing quality places with good contributions to mixed housing, infrastructure and open space, there would then be a falling back. Developers would subsequently use the viability test to row back considerably from delivering these collateral benefits to simple housing numbers. Developers would come back wringing their hands and saying that they simply could not make the value proposition stack up to deliver all the promised goodies that secured the planning permission in the first place. Struggling planning departments, we were told time and again, would simply cave in, unable to challenge the viability test arguments of the better resourced developers with sharp suits and shiny consultants. The result was that the initially proposed quality of development simply disappeared. So we need strong, expert planning departments. Encouraging housing development must not be at the expense of quality of place or we will achieve poor value for money and many people in this country will live to regret it.
My Lords, I am pleased to be able to contribute to this debate on the excellent report of the Economic Affairs Committee. First, I declare my interests as chair of Peabody and president of the Local Government Association. I was also chair of the IPPR commission into housing in London and recently did a peer review of the north Essex garden communities project.
I say that the report Building More Homes is excellent because of the clarity of its analysis and the good sense of its conclusions and recommendations. It forensically examines the reasons that this country has failed to build enough homes for a long time and puts forward some bold proposals to address this. I can honestly say—and it is rare that I can say this—that there is nothing in it that I disagree with.
At the heart of this debate is the scale of the challenge we face in delivering new housing supply and our willingness to take the steps necessary to address it. I share the report’s view that the goal here is not the number of houses that we manage to build in one Parliament, but achieving a step change in the rate of build and, as the noble Lord, Lord Hollick, said, sustaining it over a long period of time. Housing should be seen as a vital part of the country’s infrastructure that is planned for the long term, going well beyond one Parliament. In this respect, I would go further than the report and make it a core part of the responsibilities of the National Infrastructure Commission. It is only by moving away from short-term fixes and taking a holistic, long-term view that we will we have any chance of delivering the homes this country needs.
Since the report was published in July we have, of course, had the Government’s White Paper Fixing Our Broken Housing Market. I have to say that there is much in this White Paper that I welcome, too. I share the positive view held by the new Housing Minister, Gavin Barwell. The Government have recognised the scale of the problem. They have set out the need—if not a target, as we have just heard—for somewhere between 225,000 and 275,000 properties a year to be built. Crucially, they have recognised that this can be achieved only by building homes of all types and tenures, including affordable rented homes, and have moved away from the previous obsession with home ownership.
If the White Paper had done nothing other than break with the utterly unfair and unworkable policies of before, it would have been worth doing for that reason alone, but it also contains a good number of practical and sensible improvements to the current arrangements. I shall give three of these: the objective assessment of need for local plans; the diversification of the market by growing the SME sector; and the increase in planning fees for local authorities. I also note in passing that paragraph 4.16 of the White Paper effectively adopts the flexible approach to the delivery of starter homes that I and others advocated during the passage of the Bill last year and on which we had such a heated debate. Taken with the dropping of pay to stay, this represents a real change of heart, on which I congratulate the Government.
Notwithstanding the positive features of the White Paper, the key question is whether it will be enough. Here, I fear that the answer is less positive. Much more will be needed if we are to deliver the 300,000 homes proposed in the Select Committee report. We have already heard about many of the areas where changes are needed, including in a very powerful contribution from my noble friend Lord Turnbull about the taxation issues involved, so I would like to finish my contribution by highlighting just five areas where I think gaps still lie.
The first is the role of local authorities and the need for greater devolution. The Select Committee report rightly recommended lifting the borrowing caps on local authority capital spend to enable them to do more direct development. This does not need to be in competition with housing associations: there is plenty of work to go around. In many ways, local authorities working in partnership with housing associations and the private sector is the way forward, as I have seen in the Sheffield Housing Company.
The desire to do more direct development goes across the political spectrum of local authorities. I recently met the cabinet member for housing in Guildford, who is passionate about that council building more social housing. I strongly encourage the Minister to meet him and hear about the barriers they experience in doing this. Local authorities in high-growth areas such as Essex, for which I recently did a peer review, as I mentioned, need more capacity to enable them to develop their plans and secure much-needed infrastructure before major housebuilding starts.
The importance of the leadership role of local authorities in place making cannot be overestimated. Without the creation of great places, new housing will not get local support. To do this, local authorities need new skills and more capacity. They also need greater powers, which is why I support the proposal that devolution deals should always contain a housing supply element.
My second issue is that the Government need to do more to harness the power of housing associations. I have said in other places that the sector now has the policy alignment that it has been asking for, and it must step up to the plate and deliver. Peabody will play its part, including our very ambitious plans for Thamesmead. We are also proposing to merge with another housing association, Family Mosaic. One important reason for that is that it will enable us to build more homes. The National Housing Federation has set out an ambition for the sector to deliver 120,000 new homes a year by 2033, half of the Government’s target. This could be helped enormously if the Government were to consider either rent flexibility or at least very quickly moving to rent stability to address the issues that were raised with the changes in 2015. There are also other proposals, such as that by ResPublica for the creation a £10 billion renewable building fund, that I believe are seriously worth exploring.
My third issue is that the Government should allow a more localist and flexible approach to building on the green belt. The IPPR report on housing in London found that this could play an essential part in securing the 50,000 new homes a year that London needs. In reality, councils up and down the country are already looking at the issue of the green belt. The Government can do more to support them in this. I understand that this issue was the subject of some intense debate between the department and No. 10 Downing Street. I sincerely hope that the department will stick to its guns and keep going on this.
My fourth issue is the need to address the concerns of the private housebuilders on labour shortages and the future of Help to Buy. Ensuring a good supply of skilled labour has moved from being an issue for the private housebuilder to being, in many cases, the issue. Noble Lords will be pleased to hear that I will not rehearse again the issues that we talked about yesterday on Brexit. However, we have to do much more than we are at the moment on growing an indigenous skilled workforce. We have only scratched the surface of this issue. Help to Buy has played a key role in underpinning demand for new housing, but we need quickly to resolve what happens to the scheme after 2020. If we do not, housebuilders, faced with a softening market, will scale back their delivery.
Fifthly and finally, we still have some unfinished business from the Housing and Planning Act, particularly the deeply divisive forced high-value sales policy. I sincerely hope that the Government can find a way of pushing this even further into the long grass. I would welcome the Minister’s view on each of those five points when he comes to sum up.
Delivering the new homes that this country so desperately needs should not be regarded as mission impossible. The Select Committee report has pointed the way forward as to what is needed. The Government have responded but need to go further. The sector itself, public and private, must also step up to the plate and deliver its share of the task.
My Lords, my thanks go to the noble Lord, Lord Hollick, for tabling this Motion and giving us the opportunity to discuss the Building More Homes report. I am grateful also for the contributions from a number of members of the Economic Affairs Committee, which have been both helpful and enlightening.
My right reverend friend the Bishop of Newcastle has already set out some of the concerns from these Benches but I want to echo her comments, particularly the concerns she raised about the supply of social housing, and the key issue of whether we are building communities or just bricks and mortar. That is a fundamental issue for us and we need to remember some of the hard-learned lessons of the past. Like some others in your Lordships’ House, I am particularly keen to see the Government lift the restrictions on local authorities’ ability to borrow to invest in new social housing stock. I hope that the Minister will be pursuing this issue with the Government.
The Building More Homes report was prescient in a number of ways and, as has already been pointed out by a number of Members of your Lordships’ House, including the noble Lord, Lord Forsyth, it is to the Government’s credit that many of the points raised by the Economic Affairs Committee have been taken on board in the recent White Paper. I am particularly glad to see that concerns about starter homes, which were expressed in the report and here in this House, have to some extent been calmed. The Government’s decision not to implement the requirement for starter homes at this time will help local authorities sustain a mix of affordable housing tenures, while the decision to extend restrictions on the onward sale of starter homes to 15 years will help protect starter home affordability.
I want to say a few things about rural housing. Housing supply is one of the greatest challenges facing rural communities, and here I must declare an interest as president of the Rural Coalition. Rural affordable housing supply is critically low, while much of the existing housing stock tends to be unaffordable to the vast majority of local people. One of the continuing problems is that many new properties built in the countryside are often unsuited to the needs of rural communities. There are simply too many large, expensive houses being built that do not reflect the needs of those local rural communities. We are not good at building three-bedroom family homes at a price that means that people such as teachers, nurses and other skilled workers can stay in rural communities as their families grow up. This is a fundamental issue of rural sustainability: how we can ensure that our rural communities are living communities. Neither are we good at building the small, one or two-bedroom homes that enable local people to downsize when the time is right, as the Building More Homes report rightly points out.
I hope that in this regard, the Government’s proposed reforms in the White Paper will be beneficial. A more accurate housing needs assessment and more detailed local plan should facilitate the development of housing that is more suitable to local needs. Plans to give local authorities greater powers to encourage developers to build, hence preventing land banking, are also to be warmly welcomed, even if they do not go as far as the committee report proposed in permitting the levy of council tax on uncompleted sites.
For some of the most significant proposals in the White Paper, however, the devil will inevitably be in the detail. I am thinking particularly of the proposed review of Section 106. While simplifying the process by which planning authorities and developers decide on affordable housing contributions is of course desirable, it is vital that this review improve the tools local authorities have to bring forward affordable housing, rather than hindering them. I would hope that in the course of this review, Ministers will pay particular attention to the use of Section 106 in rural communities, where smaller developments yield much smaller Section 106 contributions—that is, if they yield any contributions at all. Recent planning policy changes to exempt smaller developments from Section 106 requirements seriously imperil the already limited supply of affordable rural housing, and I for one am not convinced that the Government have quite appreciated how serious this problem is.
When it comes to rural affordable housing, I am also still not convinced that the Government understand how policies such as starter homes and right to buy could affect the provision of land for real affordable housing. If the affordable housing built on rural exception sites is liable to be eventually lost to the open market, the incentive, for example, for a philanthropic landowner to provide land for homes for the local community will be lost. This is not a theoretical concern. I know a number of landowners who have talked specifically about this problem and I hope that Her Majesty’s Government will take steps to address it. Regardless of those outstanding concerns, however, the Government have been bold in accepting many of the recommendations of the Economic Affairs Committee and are rowing back on some of the more contentious proposals included in the Housing and Planning Act. I pay tribute to them for that and hope that we will continue to move rapidly in the same direction.
My Lords, I am delighted to follow the right reverend Prelate. I sympathise with his compassionate comments, particularly on rural housing. As a member of the Economic Affairs Committee I would like to echo the words of others in thanking the staff for the extraordinarily good work they did and also the chairman, the noble Lord, Lord Hollick, for his skilful chairmanship.
The debate has been wide-ranging already and many of the topics that were in our report have been addressed, so I will restrict myself to just two issues. First, the government White Paper accepts that we need to build more homes, faster. Much has been said about more, but not much about faster. We need to make sure that planning permissions are developed speedily. There is far too long between permission being granted and housing being built—not that it is always built, given that about one-third of planning permissions are never fulfilled. The Government have to look at how to get planning permissions turned into real developed houses in the shortest possible time. That may mean some sort of penalty, which the committee certainly thought was worth investigating.
However, there is another aspect to building houses faster that we should be doing more about: modern methods of construction. Some of those have been going on, but not nearly enough. We need to get momentum going if that is to take off. It could make a huge difference to our housing situation. The Building Societies Association has said that MMC could be a game-changer, but that it will not happen unless the Government really get behind it. There is too much nervousness among consumers and a lack of knowledge among lenders. We need to get enough of those houses built to demonstrate that this is the way forward. The current method of housebuilding, bricks and blocks, has been unchanged for virtually 100 years, and of course it is very vulnerable to the weather. Fabricating large parts of a house in factories and then moving it to site could make huge savings. The steel construction industry reckons that 75% of the labour costs could be taken out if we got MMC working properly. As the Building Societies Association said, we need to see the Government backing this. Major projects such as Northstone, where there are plans for 10,000 houses and the Government are taking the lead, would be the perfect place for MMC techniques to work. The big housebuilders have projects under way and are investing in factories, but much more needs to be done. I would very much like to hear from the Minister his plans for putting government support behind MMC.
My second point concerns spending by local authorities and their ability to borrow to fund public sector housing. In our report we called for the cap to be loosened. Local authorities told us over and over again that they wanted to be able to borrow more. They said they thought it a nonsense that they could borrow to build swimming pools but not the housing that is so badly needed in so many parts of the country. The Minister told us in our private meeting that there is a little more flexibility in that area now, but as the noble Lord, Lord Sharkey, pointed out, it is nowhere near enough. Yet while these local authorities are being restricted in what they can borrow to build housing, they are having a high old time borrowing to buy commercial property. In recent years councils have become really big players in the market, outbidding private sector investors in many cases. They have been buying shopping centres, bingo halls, service stations, hotels, offices—you name it, councils are now the proud owners. The biggest deal so far was Spelthorne Borough Council, which spent £360 million of largely borrowed money buying BP’s office complex at Sunbury-on-Thames. It is very pleased with the deal—but just think how many houses it could have built for that much.
The explanation for this hunger for commercial property is that local authorities are trying to bridge the gap between what they have now and what they have lost in the government funding that has been taken away. By buying property at low interest rates and letting it at higher rates, they hope to pocket a sizeable margin that they can use to spend on other things—which is fine for as long as the margin persists. They are able to do so because of the low interest rates at which they borrow. We may wonder how they manage to do that. A recent article by John Plender in the Financial Times explains exactly how it works. Councils are borrowing from the Public Works Loans Board, a very low-cost lender with average loans last year of 3.2%. It has plenty of money to keep on lending, too. In March last year it had loans of £65.3 billion outstanding, but its headroom goes up to £95 billion; so councils with an appetite for funding have plenty of it to go for. The Public Works Loans Board is run by the UK Debt Management Office, which is controlled by the Treasury—the very same Treasury that will not allow our local authorities to borrow large amounts of money to build the council housing they need. There seems to be a bit of a contradiction. I can see why local authorities are doing what they think they need to do, even though they would like to borrow to build social housing; they ought to be given more options.
Is it not somewhat strange that, just last year, Portsmouth City Council bought shops in Redditch, a ferry terminal, a Mercedes showroom in Southampton and a warehouse near Gloucester? It may be that Portsmouth has lots of information and knowledge about the commercial property market; we can only hope so. That goes for all the other local authorities that have been building up these vast portfolios. I am prepared to believe that local authorities know a lot about social housing, but I am not convinced of their knowledge about Mercedes showrooms or ferry terminals. Therefore, I would like the Minister to tell me, if he can, whether he is comfortable about the investments—I hope they are investments—these local authorities are making, or whether he can see a way to make more of that money available to invest in the social housing we so badly need.
My Lords, as a member of the committee, I too thank our great leader, sitting in front of me. As has been said, the starting point for our inquiry was a very remarkable estimate that is widely accepted—that, simply to stop real house prices and rents from rising further, we need not 200,000 homes a year but 300,000, just to stop things getting worse. However, surely we want things to get better, so we need more than 300,000 homes a year to make the target of an affordable housing sector a reality. That means a massive housing boom over 15 years, as the noble Lord, Lord Kerslake, has said—that is what we have to generate. We have to ask ourselves what conditions could generate a continuing housing boom—not little tinkerings but the fundamentals for generating such a boom. However, I do not think that we will get the answer to that unless we understand the fundamentals of our present situation, which is really quite remarkable.
Real house prices and rents have trebled over the last 30 years—it has been said that that is completely out of line with the experience in the rest of the world—yet the number of houses built by the private sector is the same as it was 30 years ago, so there is no response. You would have expected those extraordinary prices to generate an extraordinary supply response but that has not happened. If you look for explanations, you can find little ones that might apply in one year or another, but surely the fundamental explanation must be the planning system. The planning system determines the supply of land on which the houses are built and, if the supply is restricted, the real price of land goes up. So what has happened to the price of land? It has more than quadrupled. In fact, in terms of the constituents of the price of housing, the whole increase is due to the increase in the price of land. Therefore, I would like to talk about land and planning.
There is only one way that we can describe the present situation, which is that it involves a major disregard of human need. For example, if a hectare of land is worth £2 million when it is used to provide homes for people and with its existing use it is worth only £20,000, that simply disregards the simple evidence of human need. What is the value of the land to society with one use as compared with another? The only exception to that being an outrage would be if one could show that the amenity value of the land with its existing use was as high as the price of the land if it provided homes. That might be the position sometimes but certainly not in an awful lot of cases at present.
How can we improve the situation and unleash the energy of the housebuilding industry? The key is to make it easier to get planning permission. It is that simple and, unless we face up to that, we will not start from the central analysis of how we have reached where we are. In particular, we have to make things easier for small and medium-sized builders, who have been pushed out of the market mainly by the complexity of the planning system. We have to get them back in to create this boom. Therefore, I want to make two suggestions for liberalising the planning system and generating the boom.
First, there has to be in the system more presumption in favour of development. I think that the Government have used that phrase sometimes but it has to be made real. One possibility is to focus on areas where the price of land is very high and therefore the evidence of human need for houses is very strong. You could say that in areas where the value of land was above £2 million, there would be a presumption in favour of development, and the local authority could refuse it only if it could persuade the inspector that the amenity value of the existing use exceeded the value of the land if it were used to provide houses. I would not suggest that as a universal arrangement, and certainly not in areas of the green belt that were open to public access, for example, but I shall make a few suggestions as to where you could start.
One obvious starting point that has been suggested in some reports is on land near railway stations. I think it has been suggested that if we could build up the areas within two miles of railways stations in commuter reach of big cities, we could have an awful lot more homes. Another suggestion would be parts of the green belt lying inside the M25 but without public access. There is an awful lot of land without public access inside the M25. I do not know whether your Lordships know this extraordinary fact but if only 10% of the green belt inside the M25 were developed, this would provide 1 million homes. It is important to get these things in perspective.
I have recently chaired a conference on the green belt for Greater London. It was startling to see just how the proposition that my noble friend is putting forward works in practice. The reality is that, if we are to make London liveable in the face of climate change, we need to maximise the benefits of the existing green belt to deliver heat reduction, water protection, flood risk management and access to open spaces, otherwise we will see the heat impacts on London of increasing temperatures from climate change. As far as I am concerned, the secret is not to build lots of houses on the green belt but to get the green belt to work for its living in all these aspects. Two-thirds of the green belt being inaccessible to the public is something to change, but it does not need to be built over.
I am grateful for that. I am a bit more hopeful about dealing with climate change by electrifying the economy with clean electricity rather than by failing to give people homes. I think that we can make progress without expecting people to go into ever more expensive properties. I was very encouraged by what the noble Lord, Lord Kerslake, said about the green belt. It is true that attitudes are changing, and that is very helpful.
Of course, we understand that local authorities have political reasons for not wanting to give planning permission. We always remember how Aneurin Bevan got the National Health Service set up by stuffing doctors’ mouths with gold. It still seems to me that we ought to allow local authorities to have a higher fraction of the financial uplift that occurs when they give planning permission, and we should then insist that they use that for housing purposes. My colleague Professor Cheshire at the London School of Economics has suggested a levy on the final value of a completed development, combining that with the change in presumption that I referred to earlier. There are many areas in which these ideas can be explored. The committee took no view on these issues but it made a clear recommendation that the Government should examine these proposals. I hope that the Minister can confirm that his admirable colleague Mr Barwell will be doing that.
We should recognise that we are suffering from a self-inflicted wound. We have inflicted it on ourselves mainly through the way in which we have operated the planning laws. Other countries have much less of a problem because they have not done what we have done. It is a case of the triumph of the few over the many. The distributional impact of the planning system is one of the most powerful sources of inequality in our society, and I think that we will satisfy the needs of the many only if we are honest about the origins of our present situation.
My Lords, it is a great pleasure to be able to speak in this very important debate. I declare my interests, which in this instance include being a private rented sector landlord and a commercial landlord. Probably more appropriate in this instance, I also declare that I am a practising chartered surveyor with direct involvement in the development process and the employee of a practice dealing with both building cost consultancy and construction management. I am also a vice-president of the LGA and the National Association of Local Councils.
The committee’s report is very welcome for its range and depth of analysis and I congratulate the noble Lord, Lord Hollick, and his team on that. It is to the credit of the committee that a lot of its points appeared in the housing White Paper. The basic premise is sound: we need more homes and we are not delivering enough of them. But that masks a complex raft of issues, as we have already heard. I am not sure I subscribe absolutely to the idea of a broken housing market. I think the housing market is probably performing as we might expect, given all the tinkering around that has gone on over many years. But I am not an apologist for those shortcomings, which are fundamentally significant and affect potential home owners. As the noble Lord, Lord Forsyth, said, there is no silver bullet.
The Government have started to try to simplify things. There is no question that the consistently flagged-up point is the sheer complexity of the system in getting from a greenfield site to a completed development—the very high costs and risks involved in that and which confront those engaged with it. The Government have made a start and are trying to address a number of issues. However, in some areas, analysis and policy still appear less coherent. I will therefore deal with a few of the barriers as I see them working in the particular sector that I occupy.
Housing provision is a pipeline that needs constant feeding. The more you try to chop and change things as you go along, the worse things get. The planning system itself has become quite labyrinthine in its complexity. It has become a legalistic, adversarial exercise played for very high stakes. That applies to development sites of any size, large or small; we consistently hear that it takes no more effort to get a large site under way than a small one. That cannot be quite right.
To prove deliverability, it is necessary to jump through a whole series of hoops, regardless of whether there is any objective need. I have no problem with the need to demonstrate ecological compliance, but proving a negative in circumstances where there is no evidence—and there turns out to be no evidence—of the presence of, for instance, great crested newts or whatever it may be is a cost that is built in and then feeds into the eventual cost of housing. It causes substantial delays, and provides a barrier that militates against smaller applicants, who do not have the vast teams of experts that the larger boys have. There are liabilities in terms of legal tripwires of many sorts, and for one person to understand the ramifications is pretty difficult.
Huge inconsistencies are evident within and between local planning authorities. But as the noble Lord, Lord Layard, said, the system is not of their creation. It has been created by the rest of us—by society. I do not impugn the integrity of overworked planning officers, elected local government members or, for that matter, applicants in general, but I adhere to advice once given to me by my late father’s lawyer: where there is uncertainty, muddle and confusion, dishonesty comes close behind. That may range from the overexuberant application of a particular set of rules at one end of the scale and, at the other, some rather sharp practices. I have experience of all of those. Local planning authorities have to deal with some aggressive and bullying tactics in the course of their business.
The lack of adequate staffing at planning authority level is well known. Noble Lords should try finding an authority with any in-house heritage competence, for example, or for that matter willing to pay an outside provider for it. I and colleagues have experience of pre-application advice turning out to be a complete waste of time. It is almost as if the officers dealing with the thing are operating on separate agendas. But I do not think that is a criticism so much as a demonstration of inexperience, diffidence and self-protection. However, it results in inordinate delays, so I support the point made to the committee that much more resource needs to be put into local authority planning, and if fees are to increase they must be hypothecated to the planning administration budget and not be capable of being vired to some other account. I do not treat as entirely apocryphal the account that reached me of a developer being asked by an authority if he would fund the employment of an additional planning officer needed to deal with his own application.
The practice in which I work regularly comes up against significantly drawn-out timeframes, particularly on reserved matters approvals. I know that the Government also have that in focus. Once a resolution to grant is made, it can be many months, stretching into years, before you can get the remaining issues resolved. Some requirements are patently absurd, such as one that a colleague recounted to me where an ecological receptor site was required to accommodate an unlimited—it was specified as unlimited—number of reptiles and to be maintained in perpetuity. Maybe the officer was being overprotective, but, whatever the reasons for that sort of thing, it creates needless delays and adds to costs.
On democracy, local authorities are of course political animals and they seek to reflect the desires of an electorate who often do not want to take on board the wider needs of the nation’s requirements in housebuilding—still less those of an adjacent constrained authority, possibly one of a different political colour. I have seen attempts to dump—to use an unparliamentary word—development on the periphery of an authority area or an area where voters’ politics differed sharply from those of the controlling party on the council, and so on and so forth. There are potential mismatches between the neighbourhood aspirations and the perceptions of the potential ability to assimilate new development as compared with the obligations placed on principal authorities by a Government and the Homes and Communities Agency requiring them to do better.
Politics mixed with planning creates friction and drag in the system, seemingly in direct proportion to the respective parties’ belief in their powers of veto. A word of warning here: to pick up the point made by the noble Baroness, Lady Young, about the quality of what we produce, if we enforce fast-track development, the risk is that we do not get the highest quality that we ought to have. We need to be careful about that.
The bigger issue is that if we want democracy and set out to expand that to communities, which I support, speed and efficiency may well suffer, particularly if participants do not understand the basic policy or principles behind it or do not wish to engage themselves in the financing of neighbourhood plans, for example. Resources need to go into that. The question is often asked, “What does this development do for the people of our municipality or community?”. In reality, the question should be the one once suggested to me by a Liberal Democrat aspiring parliamentary candidate which is, “Where is it most convenient and appropriate for people to live, work, have their recreation and travel about sustainably?”. Development needs to be looked at in a reworked 21st-century version of how medieval settlements came into being. They were strategic. They had communications and they were defensible positions. There was access to food and materials and all the other things that were needed. We need a reworking of that because that is part of the desire line that will make these communities not just some other shell that takes 40 or 50 years to bed-in socially, but somewhere that is cherished and invested in for the longer term.
I could raise many more issues, but I will foreshorten my comments to just touch on a few myths that seem to be doing the rounds. The Government seem to be blowing hot and cold on the balance between the private rented sector and the home-owner market. They cite that investors and home owners are in direct market competition. But they have not provided any credible evidence that I have seen to back that up. I noticed that the bar chart in figure 5 of the committee report, which is borrowed from another source, on the percentage of household income spent on rent as opposed to mortgage repayments, does not seem to be a comparison of like for like. I am sure that it was not lost on noble Lords that matters of insurance, repairs and maintenance, which are not typically reflected in a mortgage repayment, would skew the results of that, never mind the parallel issue of proving creditworthiness and raising the necessary deposit to obtain a mortgage in the first place. Some of the disadvantages meted out in recent Budgets to the private rented sector that seem hypothecated on that sort of premise are not well targeted and will cause damage. Although the sector could justifiably be expected to perform better—I do not doubt that there could be better landlords about—it is none the less an important sector which needs to be nurtured and cherished, along with all the other things that the Government are doing.
One statistic coming from government was that those now approaching retirement were home owners by the age of 30 in a much greater proportion than pertains at present. I suggest that mortgage finance, lifestyle choices and other relevant matters were quite different in the late 1980s. Certainly, the example of my children has been that, as young adults, they live highly mobile lifestyles, often flitting between jobs or even between different localities within a country or between countries. The last thing they appear to want is to be geographically fixed and lumbered with a mortgage or indebted to parents for an otherwise unaffordable deposit. To this should be added some very substantial transaction costs that have now been built into the system and particularly affect the London market.
I live in a part of Sussex where there is a lot of demand for short-term lettings— people between houses, on short-term placements and so on—but we have also in the past, and do so currently, let to families with children who have been with us for a decade. The children come along as four and five year-olds and leave as teenagers. If that is not sufficiently long-term, I do not know what is, but it is wrong to try to constrain the market. One problem is that if people feel that they cannot let short-term, they will not do it at all, or they will set up a holiday let or something like that. There has to be removal of some of the impedimenta that mean that people feel threatened and that they do not have a ready exit from a longer-term situation.
There are many issues involved in this area of activity. I commend the committee on an excellent piece of work. I do not agree with absolutely everything that is in there, but it is a very workmanlike approach and I hope the Government are listening.
My Lords, I add to the plaudits raining down on the noble Lord, Lord Hollick, and his colleagues on the committee. It was forensic in its analysis and commonsensical in its conclusions, and the report was remarkably well written by the standard of such reports. It also received in this debate today the ultimate accolade: the noble Lord, Lord Kerslake, said that he could not find a single thing to disagree with. Those of us who have listened to the noble Lord on housing over the months will recognise that that is the ultimate compliment. The report also cheered me up, because it came out in July at the tail end of that prolonged period, that endless night, when we discussed the then Housing and Planning Bill. It contained many good things, but it also contained—my noble friend on the Front Bench is now looking at me rather pointedly—some rather dubious things; indeed, in some areas, it seemed to point decisively in the wrong direction.
Since then, much water has flowed under the bridge. We have a new Government with a new Prime Minister, a new Chancellor of the Exchequer—very important in this context—and a new Minister, Gavin Barwell, who is not only an outstandingly able politician, as my noble friend Lord Forsyth alluded to, but happens to be the MP for a Croydon seat next to my old constituency of Orpington and therefore understands the problems of London housing which are at the epicentre of the housing difficulties we face. I am delighted that he is there. We have also had the dafter ideas in the Housing and Planning Bill dropped along the way, or at least not appearing as we go on. We have also had a modest Neighbourhood Planning Bill, which I think has been generally welcomed, an Autumn Statement which led to more financing for housing associations—which I very much welcome—and, finally, a recent White Paper which had many good things in it and got housing policy pointing fundamentally in the right direction. Whereas previously it focused far too much on tenure, it now focuses on supply—which is what the committee thinks it should do; therefore, we are at one on this.
The problem—I am afraid there is a “but” in all this—is that policy is hopelessly underpowered. It is like a Rolls-Royce that has a Mini engine and is therefore unlikely to catch up with the traffic around it and to make progress at the sort of speed we will need if we are to meet the target not only of 200,000 houses a year but the 300,000 houses a year which the committee says is necessary, and may well be so. In that respect, I give two examples. First, as the committee said—my noble friend Lady Wheatcroft also alluded to it graphically—we need to take the cap off local authorities. We need to take the constraints off their ability to use their surplus resources, which I know they have—my noble friend cited Bromley; Portsmouth, I know about. They have a lot of resources which could be used. We should incentivise local authorities to be entrepreneurial in a way they are not allowed to be at the moment. By curious chance, the Government should look across the Channel to France, where local authorities do not have such restraints and build more than 300,000 houses a year, a lot of them social housing. That is precisely because they are encouraged to be entrepreneurial. I remember the famous story of President Bush saying, “The trouble with the French is that they do not have a word for entrepreneur”. It is rather amusing that the French should be being entrepreneurial in their council housing and we are being markedly less so. It is also quite astonishing.
The other issue is the one raised by the noble Lord, Lord Layard, who has disappeared from the Chamber momentarily. It was brought home to me at the breakfast meeting this morning organised by Shelter to promote its idea of new civic housing. The noble Lord, Lord Shipley, was there along with others. In a nutshell—as he might agree—Shelter said, “It’s the land, stupid”. That really is the fundamental problem. If we allow land to be priced out at its maximum value in every possible circumstance, we will not get enough housing. We will get poor-quality housing and poor infrastructure as well. Unless we tackle that problem we are really going nowhere. I am pleased to note that the Government say, rightly, that they wish to consult on this issue and begin to have some ideas about it but we know what to do. It is a question of whether we can do it.
I see that Gavin Barwell is now going round the country talking to people about our housing problems. Apparently, he is meeting very large audiences. Perhaps some people think he is Gary Barlow and not Gavin Barwell; I gather that is a bit of a problem. However he is getting his audiences, he is going to the people in different parts of the country and I welcome that. My noble friend Lord Forsyth said, rightly, that he should be a Cabinet Minister. My noble friend may have been thinking of the famous case of Harold Macmillan, who was a Housing Minister in the Cabinet and therefore able to produce, with his particular authority as a Cabinet Minister, more than 300,000 houses a year—a famous part of Tory history which we all remember.
If that happens, Gavin Barwell should employ the noble Lord, Lord Hollick—just as the noble Lord, Lord Adonis, is employed by the Government—to help achieve this task. I would diplomatically suggest to the noble Lord, Lord Hollick, that that might be a better use of his time than trying to renovate the Labour Party, which is a rather Herculean task at the moment. Whatever the Government do, they should get together and, given that we all know what needs to be done, get on and do it.
My Lords, I must declare an interest as I chair the board of Orbit, a large housing association. I want to focus on the supply-side issues that the Select Committee identified as being of crucial importance in rectifying our housing crisis but that have been neglected by successive Governments. I was a member of the committee when we undertook this inquiry. It was a great pleasure, not least because the noble Lord, Lord Forsyth, and I agreed on both the nature of the problems and the solutions—surprising as that may seem.
The spiralling rise in house prices was central to the committee’s concerns. Following nearly 40 years of stability in these prices, they have risen dramatically since the 1970s and particularly fast in recent years. In London, the average price of a house is nearly £500,000 and in the rest of the country £220,000. As my noble friend Lord Hollick said, rents have also increased vastly. Private renters spend 43% of gross income on rent; in London it is 60%. In the past, many couples could save to put down a deposit and buy a house within a decade. Today, many will never be able to do so. Aspirations are dashed and increasing numbers of families live in poor accommodation and in poverty because of its high cost, greatly affecting the quality of their lives.
We are in this mess because for many years we failed to build anything like as many houses as are needed to meet demand. The starkest of statistics is that between 1955 and 1975 local authorities built 2 million homes, but between 1995 and 2015 they built just over 12,000. As other speakers said, including the noble Lord, Lord Forsyth, the private sector completely failed to replace local authority housing construction. Moreover, the three biggest builders have 200,000 plots in short-term land banks and more than a third of new houses granted planning permission between 2010 and 2015 have not yet been built.
The Select Committee set out these shocking statistics which demonstrate that the housing market is not working. The Government have been too slow to acknowledge this and not so long ago came up with policies that were no solution. Indeed, they stoked up demand resulting in further house price increases and made the problem worse. I congratulate the Government on moving away from those policies and for stating categorically in the White Paper that the housing market is broken. I welcome this change of direction.
However, like many commentators, I am sceptical about whether the Government will meet their target of 250,000 new homes. Moreover, it is doubtful whether this target is large enough to deal with the enormous backlog and continuing population growth. As my noble friend Lord Layard said, the committee estimated that at least 300,000 new homes are needed annually for the foreseeable future to stop things getting worse. Why is the Government’s own target quite a lot lower than the committee and independent experts calculate is needed?
As chair of a housing association that is also one of the largest housebuilders in the sector, I am acutely aware of the struggle to find suitable land, which many speakers in the debate referred to. The committee’s report advocates a more aggressive approach to the release of public land. Some government departments and their agencies hoard land for which they have no current use. In their response to the committee’s report, the Government were vague, saying just that they would work harder to release this land. In the White Paper, they are much more specific, mentioning the 160,000 homes they plan to build on public land. Can the Minister tell the House what mechanism the Government propose for monitoring progress in reaching this target and how the release of public land will be co-ordinated across government? Perhaps the great Mr Barwell, who has received so many accolades today, can be asked to take this on, but he needs support from the top to make this happen.
I welcome the fact that the White Paper proposes consultation on allowing local authorities the flexibility to dispose of land to be used for housing,
“at less than best consideration”.
Can the Minister also say what the Government’s plans are to deal with the hoarding planned by land traders? I welcome the Government’s determination to improve the planning process and their decision to consult on much-needed increases in density in areas where demand is high. We lag behind many of our neighbours in Europe in this respect. The £45 million land release fund to help local authorities identify surplus land for housing is welcome, although given the size of the problem I wonder whether this sum will go far enough. The costs of decontamination alone for many brownfield sites are enormous. Can the Minister say how the Government intend to address this?
The White Paper proposes to allow local authorities to increase planning fees by 20%. This, again, reflects a recommendation of the committee. It is right to stipulate that this should be reinvested in planning departments, which have suffered from reductions in skilled staff as a result of a 46% cut in funding between 2010-11 and 2014-15. Housing associations want well-resourced local teams, and they will be willing to pay a little more to achieve this.
I have already referred to the gap between the number of planning permissions granted and the number of homes built. Measures in the White Paper to speed up the delivery of new houses are welcome, but the Government’s failure to accept the Select Committee’s recommendation to levy council tax on those developments not completed within a set time is disappointing. Again, perhaps the Minister could comment on this.
The committee recommended that the National Infrastructure Commission should oversee the release of public land for housing. A number of speakers have referred to this. Perhaps we missed a trick by failing to include a bigger role for the commission in setting the agenda for large-scale housing developments across the country. The £2.3 billion committed in the White Paper to a housing infrastructure fund in areas of greatest social need to help unlock the delivery of new towns and developments of 1,500 homes or more is welcome, but could the Government agree to the commission assessing the infrastructure needs in the interests of speeding up the process and getting more homes built quickly? If these infrastructure issues are not addressed, nothing will happen.
The Government’s obsession with home ownership at the expense of other types of tenure concerned the committee greatly. The White Paper’s new approach, with social and affordable housing and private renting at last on the agenda, is really refreshing. It is vital to improve the housing of those who cannot afford to buy their own homes and to help them escape from poor-quality accommodation provided by private landlords. But to achieve this it is important to make it much easier for local authorities to provide new homes on a much larger scale, as many speakers have pointed out.
I conclude on what I think has been the main theme of the debate. In his White Paper, the Secretary of State trumpets a “bold, radical vision”, but with respect to local authorities’ freedom to build, it fails to be either bold or radical. It does not give councils the borrowing powers they need, nor the right to retain right-to-buy receipts to invest in new affordable homes. It also fails to recognise that interfering in the rents that housing associations can charge damages their capacity to build more affordable homes and to reach the 120,000 target mentioned by the noble Lord, Lord Kerslake. Lenders’ appraisals of risk are affected, as are housing associations’ business plans. Will the Government think again, first, about liberating housing associations in this respect and, secondly, about local authorities’ powers and freedoms to build?
A change of heart would diminish the scepticism of many commentators, which I referred to at the beginning of my speech, about the likelihood that the White Paper targets can be achieved. Only then will we reduce the housing benefit bill and make the progress needed to alleviate the misery of so many people who are suffering because of wholly inadequate housing.
My Lords, I maintain the long tradition of beginning by saying I do not want to repeat anything anyone has already said, then repeating everything that everyone has said. I hope there will be some slight changes of emphasis in my remarks. The Economic Affairs Committee’s report is a really impressive analysis. I congratulate the noble Lord, Lord Hollick, the committee members—I used to be one; it is a great committee to serve on—and the very well-chosen special advisers, Professors Christine Whitehead and Geoff Meen.
I hope almost everyone has now accepted the core message of the report: we have to build a lot more new homes. Relying on a handful of large housebuilding companies will not do it, so we must dramatically boost building by all the other providers: councils, housing associations, SME builders, retirement housing providers, Build to Rent developers, self-build and custom housebuilding, and more.
Since publication of the committee’s report there have been some radical changes to the position facing us when your Lordships debated the then Housing and Planning Bill last year. In what seemed like an endless tussle over that legislation, with one of the Government’s heavy defeats featuring in this week’s BBC2 documentary “Meet the Lords”, we argued for more affordable homes to rent, not just homes to buy. Now we have the Government’s housing White Paper. Although some regard it as insufficiently radical, I recognise that it represents a shift in housing policy in absolutely the right direction. I also congratulate Gavin Barwell, the Housing Minister, on his leadership. Not least, the White Paper fully acknowledges the requirement for affordable rented homes and the new version of starter homes for sale will no longer replace all the homes so badly needed for rent.
On the Economic Affairs Committee’s views on excessive dependency on a few very large housebuilders, there is plenty of good stuff in the White Paper on diversifying the housing market. I welcome the encouragement for the fledgling Build to Rent sector, which draws in funds from institutional investors to create new, well-managed additional homes, in contrast to buy-to-let speculative investment, which simply acquires homes already there.
Local authorities are rightly disappointed that the Government are not planning to fully relax opportunities for them to borrow to build new council housing. I doubt whether the Government’s stance is really because the Treasury believes local authorities will go wild and borrow excessively, having now seen councils behaving cautiously and prudently where they have had the chance to borrow to build. Rather, it is the continuing reluctance by government to follow international practice and define investment in new housing as being outside the definition of public expenditure. This means housing investment would add so much less to the annual deficit if non-public bodies, such as housing associations, did the spending.
The White Paper helpfully emphasises government intentions to see more publicly owned land released for housing—it’s the land, stupid. Other changes beyond the White Paper also give hope for the future. I am keen on the creation of whole new settlements—those garden villages or garden towns that are beginning to come forward. The signs are good that an amendment promoted by the noble Lord, Lord Taylor of Goss Moor, and a number of us from across this House will obtain government approval at Third Reading of the Neighbourhood Planning Bill. This amendment would give councils a greater say in the development of major new settlements, thereby incentivising more local authorities to get behind the creation of these mini new towns, where capturing the land value at the outset enables lots of homes to be developed in high-quality, mixed-income new communities.
On the subject of good news to fulfil the hopes expressed by the Economic Affairs Committee, a new report from the National Housing Federation, Demise of the NIMBY, strongly suggests widespread acceptance of the value of building more homes in place of the endless opposition to any new development which has characterised the debate for years. The biggest housing association concentrating on rural housing, Hastoe Housing Association, similarly reports an increase in the number of parish councils asking it to come to develop homes for locals in their village. Of course there will remain stiff opposition to housebuilders simply adding a lot of “executive housing”, with no additional infrastructure for the community, on the edge of the village. But the need for homes for locals is now accepted in many areas, with neighbourhood plans helping determine the location for them, and this means less hassle to build extra affordable homes.
Perhaps it is worth noting that, in terms of getting the extra homes built, it is very often the housing associations that can make things happen: they are well placed to expand the new Build to Rent market, being in a position to borrow on rather more favourable terms than speculative developers; they can partner local authorities in joint venture companies; they can be central to the master plans for new settlements; they are ideal retirement housing providers since they can be trusted, rightly, by older people wishing to downsize; and they can pursue their core role of providing affordable rental homes, and creating communities which include housing for shared ownership and sale, this time often in partnership with the housebuilders.
I am delighted to see that the Government have found an extra £1.4 billion in hard cash to support this work. More of the same would mean more new and affordable homes. The housing association sector really does have the potential to double its output and to generate the very large numbers of extra homes that we know will not be forthcoming otherwise. Their non-profit, social purpose means they add social value by taking in the most disadvantaged, by working with smaller charities locally, by working with health and social care providers, by investing in training and employment, and by generally supporting every kind of community activity.
Sadly, I have to conclude on a sour note. The positive approach of the Department for Communities and Local Government, which I am applauding, is not matched by the actions of the Department for Work and Pensions. The DWP is undermining housing policy by vainly trying to cut the costs of housing benefit before market conditions make this a sensible option. When supply more nearly matches demand, government can exert downward pressure on rent and therefore reduce housing benefit. But that cannot happen yet. The compulsory 1% per annum real reduction in rents for housing associations and councils means an accumulated 12% revenue cut over four years, which of course impacts on their ability to create additional affordable homes.
All the DWP’s other new benefit caps and ceilings, and the freezes on local housing allowances, mean tenants on the lowest incomes getting less government help with housing. Time does not permit me to speak about the DWP’s latest plans to limit rents charged for specialist supported and sheltered housing, which I fear, if taken forward, will undermine the excellent work of the DCLG in supporting—magnificently—the Homelessness Reduction Bill, which I was honoured to take through its Second Reading last Friday.
However, I must draw attention to the even bigger concern for everyone in the housing world: the reductions in help for tenants in the private rented sector mean fewer and fewer landlords will take in anyone who relies on government help with their housing. Shelter figures show that, by 2020, the local housing allowance will not cover rents for even the cheapest properties in over 80% of local authority areas. Landlords already face the inherent risks of poorer households finding deposits and rent in advance, as well as the DWP’s insistence on paying housing support to the tenant not the landlord. The result is not simply that, in seeking to prevent homelessness, councils and charities will find fewer and fewer landlords willing to accept the people they want to assist. The even greater anxiety is that, gradually, more and more of the 800,000 existing private sector tenants who receive housing benefit will find their landlords ending their current shorthold tenancies. Unless the DWP recognises the need to lift the freeze on local housing allowances and returns to paying housing benefit on the cheapest market rents, a major calamity awaits.
So, there are plenty of reasons to be cheerful about the opportunities for building more homes, as the EAC report advocates so powerfully, but also serious difficulties for poorer households needing somewhere to live, because DWP welfare reforms are undermining constructive DCLG housing policies. I end therefore with a plea for the Government, collectively, to reconcile these conflicting trends so that the good intentions of the Housing Minister and of the housing White Paper—echoing so much of the Economic Affairs Committee’s thinking—can be fulfilled.
My Lords, I warmly congratulate my noble friend Lord Hollick on securing this debate and on the work of the Economic Affairs Committee in producing this important report. The subsequent publication of the Government’s White Paper is also to be welcomed, particularly where it has responded positively to recommendations of the committee, even if in other respects it is perhaps longer on hope than on constructive policy.
Housing looms large in British life, whether measured by the value of the housing stock—£6.8 trillion, more than 3.7 times annual GDP and 1.5 times the value of all companies listed on the London Stock Exchange—or by the number of television programmes devoted to the usually more glamorous aspects of the subject. Emotional attachment to a family home cannot and should not be disparaged, and the ambition for ownership should not be discouraged. But, inescapably, the cultural and economic emphasis on home ownership in the UK, in comparison with the perhaps more utilitarian approach in other countries, creates a challenging context within which to pursue a successful housing policy.
The Economist wrote, in response to the publication of the White Paper,
“Part of the trouble with Britain’s housing market is that politicians like to tinker, rather than reform”.
The complex implications of radical reform on intergenerational wealth, and even on financial stability, certainly discourage a politician with any sense of career preservation from pursuing it. The current imbroglio on the revaluation of business rates, for instance, makes even the modest recommendation of the committee’s report for council tax revaluation—let alone more fundamental reform of property taxation, as advocated by the noble Lord, Lord Turnbull—seem like an unappetising invitation to an ambitious Minister.
While the Government’s timidity in this respect in the White Paper may be understandable, if regrettable, the further exacerbation of residential property’s special treatment inherent in the Government’s inheritance tax changes in the summer Budget of 2015 was inexcusable. As the Institute for Economic Affairs—hardly a think tank of Marxist hue—said in evidence to the committee, this was,
“a step in the wrong direction … By treating housing wealth preferentially relative to non-housing wealth, these changes will introduce further distortions, and further inflate demand without adding anything to supply”.
Sad. Against a background, therefore, of the distortions caused by such special treatment of owner-occupied housing and the unambitious targets adopted to date by the Government—at least until the Minister responds—specific measures to improve the situation risk being overwhelmed by the macro-headwinds.
I none the less take a little time at this late stage in the debate to comment on a couple of issues relating principally to social housing. In a report to 13 London boroughs, published in January with the rather indigestible title Viability and the Planning System: The Relationship between Economic Viability Testing, Land Values and Affordable Housing in London, it was disclosed that the delivery of affordable housing in London had fallen 37% since mid-2009. Although the report’s analysis identifies many of the factors already discussed this afternoon as contributing to this reduction, one not otherwise mentioned is the question of the planning obligations on new developments to provide affordable housing though Section 106 agreements.
The report concludes that, as these agreements are currently working,
“this has produced a circular situation in which the more a developer pays for a site, the lower the Section 106 contributions can be argued ... Cumulative changes to planning policies since 2012, as operated in practice, have had the effect of shifting the balance of power between developers, landowners and community with the result that landowners have been the primary beneficiaries”.
Will the Minister say whether the Government will review the workings of Section 106?
As other noble Lords have said, the supply and utilisation of land from both the private and the public sectors need urgently to be improved. The committee’s report recommended that local authorities have the power to levy council tax on developments not completed within a pre-agreed time period. I regret that the White Paper has ignored this. Will the Minister explain why this very reasonable and practicable measure is not being adopted on a basis, I would suggest, whereby the charge ratchets up as time passes?
The White Paper, has, on the other hand, recognised the need set out in the report for flexibility in the application of best value in the sale of public land, as a number of other noble Lords have discussed. However, it only commits to consultation, and giving the public sector bodies greater freedom in relation to best value might not in itself release the land needed without provision for the vendors to at least be partially compensated by central government. Will the Minister say whether a central fund to do this will be considered and vigorously negotiated with the Treasury?
Finally, I strongly support the committee’s report and many noble Lords who have spoken today in wishing to see local authorities enjoying greater freedom to borrow to invest in affordable and social housing. We are truly disappearing down a rabbit hole with Alice and attending the Mad Hatter’s tea party when local authorities are permitted, as the noble Baroness, Lady Wheatcroft, explained, to indulge in what hedge funds term a “carry trade”, buying commercial property from PWLB funds, while being prevented from borrowing to fund social housing.
In advocating this, I should make one caveat. At a time when local authorities are struggling to find the resources to maintain planning departments at fighting strength, we should not underestimate the challenge in building or rebuilding the development teams needed to execute successfully any significant social housing programme to the quality levels advocated by my noble friend Lady Young. Therefore, we need a mixed economy, combining direct building by local authorities with the necessary resources, and partnerships with housing associations and private developers for local authorities without them.
My Lords, I first declare my vice-presidency of the Local Government Association. I strongly welcome the report of the Economic Affairs Select Committee on building more homes. I detect from the contributions this afternoon a broad unity of view about many of the conclusions of the report, which is welcome.
There have been—and reference has been made to this this afternoon—a very large number of reports in recent times on housing supply and the rising cost of housing, both for purchase and for rent. I think that the Government have finally realised that the time for just talking about the housing crisis must come to an end. I think that the White Paper is moving us in the right direction, although it does not itself provide a solution to a number of the problems affecting the housing sector. I will return to this later.
I pay tribute to the committee, of which I used to be a member, for its evidence-based report. It has been several months since it was published, but at least it has enabled the new ministerial team to examine why existing government housing policy has been failing and to adapt some of the committee’s conclusions.
We have heard a lot this afternoon about the context of rising homelessness and of homes being called affordable when they are not affordable to very large numbers of people in work. We have very high house prices when compared internationally and very high rents in the private sector. The private sector is building only around 150,000 homes a year. We have low numbers of self and custom-build homes. We have declining space standards and large numbers of planning permissions granted but not carried through. The planning system is underresourced. Reductions in social rents may have helped the Government’s finances, but they have impacted negatively on the affordability of building new social homes for rent and on supported housing. As has been pointed out, it can be difficult for local authorities to develop brownfield sites without higher levels of remediation grant.
I say to the Minister in particular that reference has been made to the sale of high-value council homes. I had hoped that, by now, the Government might have told us that that proposal had been kicked well into the long grass and would not be proceeded with. The White Paper is not helped in its intentions if the Government are to continue with their proposal to sell high-value council homes. I hope that the Minister may be able to tell us, if not this afternoon then sometime soon, that that damaging policy will cease.
The committee’s conclusion in this report is that 300,000 homes a year should be built. Reference has been made to the Government’s target of 1 million new homes by 2020, but the word “target” is incorrect. It is not a target but a commitment; it became a commitment in the last Queen’s Speech. The difficulty for the Government is that the private sector can build only half of the 300,000 homes that the committee believes are needed. So there will be a requirement on everybody else to build the additional homes that I think we now generally recognise are needed—and, be that in the Government’s figure of 225,000 to 275,000 or the 300,000 of the Select Committee, it is significantly higher than what we are building.
The committee rightly pointed out that the Government are helping those on the verge of being able to afford home ownership, whereas those who need secure low-cost rental accommodation have not been helped sufficiently. This is correct; the Government’s focus on home ownership, while valuable and important, has been too great in comparison to that on the social rented sector. The Chartered Institute of Housing has said that the Government commit only 4% of their housing budget on below market rent social housing. That 4% is simply not high enough.
The committee said, as many of your Lordships have said this afternoon, that local authorities must be incentivised to do more. They should be able to borrow using the prudential borrowing code; I entirely subscribe to that. There are ways in which local authorities are doing good things. Bristol’s new housing company is a good example of what can be done. However, while the Government will impose a new housing delivery test on local authorities, that test is mainly about planning, not building. Local authorities need greater powers over borrowing if they are to build.
Indeed, if local authorities and housing associations build more, that will reduce demand for housing benefit, which now stands at a very high level. In the interests of good public policy, it seems to me that building more homes for social rent would save on the total amount being spent by a different government department.
I was struck by the comments of the noble Baroness, Lady Wheatcroft, about the Public Works Loan Board. Of course, some local government pension funds may be investing in property for perfectly good reasons. For the rest, I would not wish to comment, not knowing the facts. However, the Minister might consider writing to all those who have taken part in this debate about the issue. It is about the future role of the Public Works Loan Board, it is about the powers of local authority pension funds to invest and what they can invest in, and it is about the powers of councils to borrow now against, first, their housing revenue account but, secondly, their general asset base. At the moment, there is not clarity about that in local government. It might help if the Government made a formal statement.
I am taken by the proposal for a senior Cabinet Minister to get more public land released. The figure has been cited that 3 million homes could be built on land that is currently publicly owned. That is a very large number. I subscribe to the view that there should be a Cabinet seat for the Housing Minister and I subscribe to the committee’s recommendation that the best-market-value rule when releasing public land should be relaxed. I shall return to that in a moment.
The Government’s proposals of an increase of 20% in planning fees will probably suffice for the time being. I have certainly been impressed by the work about new towns that the Government are now undertaking under the Neighbourhood Planning Bill, now approaching Third Reading. Useful comments were made about the National Infrastructure Commission and its role to ensure that housing is considered as part of our infrastructure.
The White Paper has some good things in it. I like the fact that the rule about the 20% starter home requirement in larger new developments has been relaxed. I like the proposals for build to rent. I like the proposals to make the affordable homes programme open to all tenures and to promote custom-build and self-build. These are all helpful, as is the housing infrastructure fund.
The problem remains finance. House prices are running at eight times average earnings, and fewer and fewer young people can afford to buy. Less than 40% of those under the age of 35 can now afford to buy, when just 10 years ago it was two-thirds. In the north-east of England, my home region, more than 70% of working renting families cannot afford to buy a new home, even with Help to Buy. Across England, that figure is 83%.
This takes me, almost finally, to land values. The planning system encourages speculation. Land is sold to the highest bidder, even by the Government. Developers can outbid other developers, then sit on the land to wait for values to rise so that they get their money back and generate profit. Where they build, they regularly succeed in getting the affordability element reduced. Unless this issue is addressed, the White Paper will not increase housebuilding by very much. I draw two conclusions.
First, we should tax undeveloped land. The committee said that powers are needed for councils to levy council tax on developments not completed within a set time. I concur with that. I also support land value taxation. It is time for the Government to review the tax system for undeveloped land. Secondly, I should like to think that public bodies, including government departments, should be prepared to sell their land at below market value to break the cycle of ever-rising prices. Treasury rules need to be re-examined because they do not work properly for the medium to long-term.
The latest British Social Attitudes survey states that 56% of people would support more building of homes in their area. That figure has doubled in the past decade. The Government have an opportunity. They should grasp the opportunity of that rising public support for home building.
My Lords, I should perhaps explain why I am speaking at this stage in the debate as opposed to where I was listed. It is not just because I can follow the noble Lord, Lord Shipley, and the right reverend Prelate the Bishop of Newcastle in an example of Newcastle united. It is, sadly, because my noble friend Lord Kennedy has had to return home because his father-in-law has died and he needs, of course, to be with his wife, my noble friend Lady Kennedy of Cradley. I am sure noble Lords will wish to extend to her our sympathy and our condolences on her loss.
The clue is in the title: I refer to the 104-page White Paper with its glossy cover, published this month, a year after the House began its protracted scrutiny of what is now the Housing and Planning Act. The title is Fixing our Broken Housing Market. It tells us something about the Government’s attitude to housing that they should apparently see what is, at its heart, as the right reverend Prelate the Bishop of Newcastle pointed out, a major issue of social policy primarily in terms of the market. Of course, the market is part of the issue, but it is not the only aspect that has to be addressed fundamentally.
We should not, I suppose, be surprised. Where, to give him his due, Harold Macmillan long ago recognised the need for more and better housing, much of it in the public sector, in the Thatcher era an obsession with tenure developed, more particularly an obsession with home ownership, even where that was at the expense of those who were not able to afford to buy a home. So we had, and have, the right to buy, which has led to 35% of council homes that were sold now being in the private rented sector without adequate replacements and at a greater cost to the Exchequer in welfare benefits.
Moreover, affordability is defined by reference not to the income of tenants or would-be buyers but in percentage terms. “Affordable” is defined as 80% of the rents and prices of privately owned properties, artificially inflated as they are by an excess of demand over supply. The right to buy is being extended to housing association tenants, for the moment, at least, in a voluntary scheme, further decreasing over time the availability of genuinely affordable homes to rent.
I congratulate my noble friend Lord Hollick and the members of the Economic Affairs Committee, six of whom have participated in this debate, on a compelling report, which was published in July. As the noble Lord, Lord Forsyth, pointed out, it took the Government five months to reply with, in effect, three pages of responses to what they describe as the report’s recommendations. The response does not, however, reply to comments in the report which do not contain specific recommendations. In fairness, some matters are touched on in the White Paper but, for example, the report comments at paragraph 253:
“It is wrong to create specific tax rules, as is the case with recent changes to capital gains tax and inheritance tax, around housing”.
That matter was raised by, among others, the noble Lord, Lord Turnbull, and my noble friend Lord Chandos. To this, no reply is made.
The report goes on at paragraph 254 to affirm, correctly, that “Council tax is regressive” and to recommend:
“The bands should be amended so that owners of more expensive properties”—
I declare my interest as the owner of a house which is worth perhaps 12 or more times what some of my constituents’ homes are, despite being in only band F—
“so that owners of more expensive properties contribute proportionately more than owners of less expensive properties. This should be done in a revenue neutral way”.
I mentioned that interest. I should also remind noble Lords that I am a member of Newcastle City Council and an honorary vice-president of the Local Government Association. Perhaps I could advise the right reverend Prelate the Bishop of Newcastle that in my ward and others work is being done to provide affordable social housing, although not in the numbers that we would ideally like to see.
The proposal is dismissed on the grounds that,
“it would require a wholesale council tax revaluation”.
Indeed it might, given that it is 25 years or more since any revaluation took place. But surely, given the huge increases in house prices over the years, some additional bands at the top and bottom ends of the scale would not be unreasonable, even if the overall yield was not increased, which should be the objective.
The report recognises the need for a substantial increase in the number of houses to be built. We have heard several of your Lordships point out that the Government’s figure is less than is desirable or achievable. But of course we need to build not just houses but communities, of mixed tenures, including social housing, built by councils, housing associations and housing co-operatives, with provision for special needs, such as those of the elderly or disabled, and with the necessary physical and social infrastructure that creates a sense of place. To return to an issue I have frequently had occasion to mention, we must build to higher standards of space and energy efficiency than has been the case for many years. Comparisons with what, for the moment, we can still call our European partners do not show us in a good light.
We need to revive Parker Morris standards, which have been significantly diluted over recent years. Of course, we also need to ensure access to green spaces and educational, recreational and medical facilities. The White Paper devotes only a couple of pages to these issues under the heading of “Sustainable Development and the Environment”. The right reverend Prelate the Bishop of St Albans made a strong point about the particular needs of rural communities.
The committee’s report—understandably, given its remit—concentrates on numbers, and rightly refers, in chapter 5, to the benefits of, and the need for, more building by councils and housing associations, having pointed out in chapter 2 that government policies on the right to buy and starter homes conflict with their wish to increase the supply of affordable homes to rent. It points out that enabling councils to build homes for sale can help to finance building and refers to the imposition of cuts in social housing rents for both councils and housing associations, with damaging results for the capacity of both to invest in existing or new stock. I have mentioned the effect in Newcastle, where the 1% cut in rents will over time cost £590 million. The noble Lord, Lord Turnbull, and one of the right reverend Prelates made the same point about the impact of this measure. The report says that one housing association will lose £138 million in four years. The cuts benefit the Exchequer, since they will reduce housing benefit, but they aggravate the housing problem.
Critically, the report supports the right of local authorities to borrow to build social housing, a point strongly endorsed by the noble Lords, Lord Sharkey and Lord Kerslake, but to which the Government made no response. At paragraph 220, it makes a welcome call for the Government to allow councils,
“to borrow under the prudential regime to build all types of housing”.
They would, after all, be investing in assets which over time will increase in value.
Interestingly, the committee is critical of recent government policy on the private rented sector. Paragraphs 94 to 98 refer to polices such as restricting tax relief on financing costs of rental property to the standard rate; introducing a higher rate of stamp duty on purchases of additional private rented properties; reducing tax allowances for wear; and exempting gains on residential properties from a reduction in capital gains tax. It refers to the warning of the Council of Mortgage Lenders that the impact of these changes will increase the cost and limit the availability of private rented homes, while the committee itself is concerned that changes, including stamp duty land tax, could inhibit investment in the build-to-rent sector, where apparently there is potentially between £30 billion and £50 billion available from institutional investors.
Crucially, the committee recommends that the target for new build should be 300,000 annually for the foreseeable future and it dismissed, as some noble Lords did, the Government’s target of l million by 2020 as insufficient. In addition, it proposes that councils should be able to vary planning fees, a matter that has been the subject of comment by the noble Baroness, Lady Eaton, and others, and levy council tax on properties not completed within a set period. The committee’s report makes a notable contribution to a debate of the highest importance to millions of people who aspire, perfectly reasonably, to live in modern, affordable housing with a genuine choice of tenure. It deserves a better reception from the Government than is reflected in last year’s Housing and Planning Act or this year’s White Paper. I hope that the Minister, in his reply, will take the Government’s declared position somewhat further than now appears to be the case.
By sheer and timely coincidence, I attended a meeting this morning with the noble Lords, Lord Horam and Lord Shipley, at which Shelter launched its report on civic building, which is available on its website. It has interesting ideas on the very subject we are debating, and a title as telling as that of the White Paper. Two statistics were mentioned which highlight some of the problems we face: 83% of people cannot afford to buy new homes at current prices, and 50% of people who can afford it and do buy encounter problems with the property. The building industry is not just not building enough, it is apparently not building well enough. That is also something that needs to be addressed.
One other issue received particular emphasis. Colleagues who attended will agree that probably the highest amount of attention and concern was given to the cost of land, and the requirement on public authorities to sell to the highest bidder. This is not addressed in the White Paper. Will the Minister indicate whether the Government will at least be reviewing this? I have been critical of the White Paper but it is an improvement on what has gone before—it would be difficult for it not to be an improvement on what has gone before—but much more needs to be done. The Committee’s report offers sound advice on how to tackle the range of issues that need to be addressed in the interest of providing decent, affordable homes for all who need them, whatever age they are or whatever status they have in society, as part of a programme involving local communities, local people, local authorities and the building industry to reignite an approach to housing that will lead to substantial numbers of good houses being built and made available. Importantly, we need communities of mixed tenure which strengthen the bonds of our society.
My Lords, the whole House understands why the noble Lord, Lord Kennedy, was unable to wind up the debate. We extend our sympathy to him and to his wife, the noble Baroness, Lady Kennedy, on the recent loss of her father, although no one would know that the noble Lord, Lord Beecham, had not been working on that wind-up speech for several weeks.
If political students wanted a textbook example of how a committee in your Lordship’s House could influence and reshape government policy, I would direct them to the report we have been debating this afternoon. As the noble Lords, Lord Horam and Lord Best, explained, its context was the Housing and Planning Bill, introduced by the newly-elected Government in 2015, which contained a number of measures to increase housing supply, particularly for first-time buyers, but was not free from political controversy. It provided the back-drop to this report, which was published a few weeks after Royal Assent.
A few days after publication, there was, in effect, a change of Government. All DCLG Ministers but one were moved and a new team arrived, with the political space to revisit policy and with your Lordships’ report in their in-tray to assist that process. I have been genuinely impressed by the fresh approach adopted by Gavin Barwell, as I know have many others, who have admired the way he has shown his commitment to tackling the challenges of his portfolio and engaged with all the stakeholders. As a former Chief Whip I would caution against praising him too highly, just in case he is headhunted by the Prime Minister and his skills are applied to other challenges that may confront the Government in Whitehall. But it was perhaps a tacit acknowledgement of the influence of your Lordships’ report that the title of the subsequent White Paper, Fixing Our Broken Housing Market, was lifted from the introduction to this report: “Housing, A Broken Market?”.
I cannot think of any Select Committee report in either House that has had so many of its recommendations adopted so quickly, sometimes at the expense of Government reordering earlier priorities, as my noble friend Lord Horam said, and as also mentioned by the noble Lords, Lord Turnbull and Lord Kerslake. Perhaps the right reverend Prelate the Bishop of St Albans would describe it as repentance. We are taking forward measures that fit with over half of the committee’s 13 final recommendations as well as a host of other points raised in the report. So I commend the committee on the timing and the targeting of its report, its chairman for his perceptive introduction and all noble Lords who have taken part in this debate. The White Paper was, of course, a consultation document, so everything that has been said in this debate will be taken into account in that process.
I have discovered in my short time in your Lordships’ House that Whips are often invited to respond to debates on subjects in which they had, until shortly before, displayed but a fleeting interest. I hope that that is not the case today; like other noble Lords, I have chaired a housing association. Unlike other noble Lords, I was a housing Minister at various levels of seniority from 1981 to 1994, with a discontinuity from 1986 to 1990 when I fell out with Margaret Thatcher over the poll tax. Indeed, as Under-Secretary of State at the Department of the Environment, I first spoke in a housing debate in October 1981 about making the best use of government land to support the housebuilding programme—a subject still topical today, as the committee highlighted in its report.
Let me say how the Government have acted on the committee’s recommendations, and try to address the points raised in today’s debate, recognising that I may not have time to address all of them, in which case I will of course write to noble Lords.
The report rightly acknowledges that housing has become too unaffordable, whether to rent or to buy—a point strongly made by the noble Lord, Lord Hollick, when he introduced the report; and many others, including the noble Baroness, Lady Blackstone, and the noble Lord, Lord Sharkey have explained the impact this has on the lives of those who are affected. They reminded us that the average house costs almost eight times average earnings—an all-time record. This means it is too difficult for too many people to get on the housing ladder, and the proportion of people living in the private rented sector has doubled since 2000. For the average couple in the private rented sector, rent now takes up roughly half of their gross income, a point mentioned by the noble Lord, Lord Turnbull, who also mentioned the anxiety that many of those in the private rented sector feel because of the absence of security. That figure, of roughly half of their gross income, is even higher in London. Noble Lords may ask themselves, as indeed do many others, how their children and grandchildren will be housed when they grow up and leave the family home. The Government are determined to reform the housing market so that housing is more affordable and people have the security they need to plan for the future. That is the background to the White Paper.
The starting point, as the committee has recognised, is to build many more homes. Since the 1970s we have delivered, on average, 160,000 new homes each year in England, far below what the committee and numerous independent assessments have said we need. The White Paper sets out a comprehensive plan to deliver the step change in housebuilding—as the noble Lord, Lord Kerslake, described it—which capitalises on the substantial additional funding secured in the Autumn Statement. The figure of £1.4 billion was referred to by a number of noble Lords as extra money available for affordable housing. In deciding how that money should be spent, the right reverend Prelates the Bishop of Newcastle and the Bishop of St Albans stressed the importance of stable communities where young people can buy a home and have a stake in the area in which they live. We were invited by the right reverend Prelate the Bishop of St Albans not to overlook the needs of rural housing. That is, indeed, a priority and there is a new community fund to provide £60 million per year to support housing in rural areas. It is interesting that in the Neighbourhood Planning Bill a number of neighbourhood plans came forward with more homes in their village or community than were actually required by the district plan. That addresses the point so well made by the noble Lord, Lord Best, that nimbyism is moving on, although it may not have totally disappeared.
To achieve this goal, the White Paper sets out a four-pronged approach. First, release more land for homes where people want to live. The noble Lord, Lord Forsyth, reminded us that there are regional variations in the equation between supply and demand. Secondly, ensure homes are built more quickly, once they have planning permission; thirdly, open up the housing market to a wider range of providers and methods of provision; and fourthly, help people in the meantime while our reforms take effect. We think that that is a comprehensive and realistic plan to deliver the homes we need, and others agree. David Orr, chief executive of the National Housing Federation, said that the White Paper contained,
“extremely positive steps towards ending the housing crisis”.
How have we addressed the committee’s recommendations? It raised the importance of ensuring that local authority planning departments are properly resourced—an issue raised by my noble friend Lady Eaton and others. As noble Lords have mentioned, the Government are boosting local authority capacity by raising planning fees, by 20% where local authorities commit to spending the additional income on planning services. The Federation of Master Builders has said that this is,
“one of the biggest game changers”,
in the White Paper. I hope that those extra resources might enable planning authorities to recruit the ecologists referred to by the noble Baroness, Lady Young of Old Scone, where they are needed and also to deal with some of the sharp practices that we heard about from the noble Earl, Lord Lytton. An additional 20% is available in areas that are delivering on their housing plans.
The Government agree with the committee that we need to act to ensure that homes are built more quickly once planning permission has been granted, which was an issue raised by the noble Baroness, Lady Blackstone. The White Paper includes a package of measures to address slow build-out. The committee highlighted the suggestion that planning consents should be limited to two years. We encourage local authorities to consider shortening the timescales for developers to implement a permission from three to two years, as set out in the White Paper.
The committee recommended that the community infrastructure levy needed to be simpler, more transparent and responsive to the concerns of builders and we are looking at that carefully. That includes the workings of Section 106, which was raised by the noble Viscount, Lord Chandos. We will make an announcement at the conclusion of those considerations in the Autumn Budget this year.
More broadly, we are tackling the barriers that can hold back development on-site, including through the £2.3 billion housing infrastructure fund, by helping to put the right infrastructure in the right places—an initiative welcomed by the noble Lord, Lord Hollick—and by streamlining the licensing system for managing the great crested newt. Too often, lack of infrastructure prevents development, and that substantial sum should unlock up to 100,000 new homes. We will hold the feet of local authorities and developers to the fire to account for the delivery of new homes, including through a new housing delivery test, to ensure that local authorities are on track with their plans.
The committee made several recommendations about making better use of public land to deliver new homes. The Government aim to dispose of surplus government land in England with capacity for at least 160,000 homes by the end of March 2020. This follows our successful programme in the last Parliament, in which land was released for 109,000 homes against a target of 100,000.
Progress with the current programme is good. The programme’s annual report, published on 20 February, shows that by the end of September 2016 departments had already sold or identified land with capacity for 145,492 homes—91% of the programme’s ambition. I hope that publication of that report, which of course came after the publication of the committee’s report, has addressed concerns about when information on monitoring the new programme would be available. We will publish a further report in July, with data about the number of homes built on land released under the programme—an issue raised by the noble Baroness, Lady Blackstone.
Alongside this, the Government’s new accelerated construction programme will deliver up to 15,000 housing starts in this Parliament on surplus public sector land and encourage new developers with different models of construction to build new homes at up to double the rate of traditional housebuilders.
We agree with the committee that we need to diversify the market to increase supply. That includes supporting housing associations and local authorities to build more—an ambition recommended by the committee in Chapter 5—alongside supporting smaller developers and new investors.
We want to support housing associations with ambitious plans for growth—for example, L&Q, which has recently merged with East Thames housing association and acquired the strategic land firm Gallagher. I was interested to hear from the noble Lord, Lord Kerslake, about the merger between Peabody and Family Mosaic with the specific aim of enabling the combined association to build more homes. We welcome new investors into different types of housing, such as the joint venture in supported housing between Universities Superannuation Scheme Ltd and Morgan Sindall Investments Ltd—a subject raised by a number of speakers, including the right reverend Prelate. Although we have taken initiatives to sustain supported housing with some ring-fenced funding, I understand that there are residual anxieties, which I will certainly pass on to ministerial colleagues.
We want to see local authorities deliver new council houses, as stressed by the right reverend Prelate the Bishop of Newcastle. Numbers of new council homes have been increasing year on year, and they are an important source of new supply, particularly in areas where there is acute housing need.
We will work with local authorities and key partners to consider the options for increasing housebuilding further. This may include innovative approaches—such as the one in Ashford mentioned by my noble friend Lady Eaton—and the use of local housing companies to deliver new affordable and market housing. In response to the question from the noble Lord, Lord Hollick, I understand that there is no fixed budget for this. The department responds to requests on a case-by-case basis, focusing on areas of high demand.
My noble friend Lady Wheatcroft raised points about diversifying the market and the potential for the greater use of modern methods of construction, such as off-site construction. We will stimulate the growth of the sector through government programmes—for example, partnering with off-site manufacturers through the accelerated construction programme—and we will work with lenders to ensure that homes built off-site can access finance on the same basis as traditionally built homes. Therefore, in direct response to the question from my noble friend, we recognise the imperative of government leadership in this area in getting the initiative off the ground.
The committee called for more homes for rent alongside those for sale. The White Paper includes a package of measures to boost new privately financed build-to-rent developments, as well as additional investment and flexibility for more affordable homes, including those for rent. That was a subject raised by the noble Lord, Lord Best, and perhaps I can focus on it for a moment. I have always been amazed that pension funds and insurance companies in this country have invested in almost every conceivable asset apart from residential accommodation for rent. They have invested in gilts, equities, commercial property, commodities, gold and silver, but, had they invested in homes for rent, they would have achieved both capital appreciation and income buoyancy unparalleled by almost any other investment. I have nothing against buy-to-let investors, but there would be more stability and professionalism in this sector if there were this long-term institutional investment, as suggested by the noble Lord.
A number of major investors have already invested and are already building schemes—Legal & General, M&G, Grainger, Moorfield, Lone Star, Hermes, Realstar, Essential Living and Delancey, to name but a few. I noted that the property consultancy Knight Frank estimates that investment appetite could grow to £50 billion, representing 250,000 homes.
The committee highlighted barriers to entry for smaller builders. The White Paper includes a package of measures to help smaller firms—an issue raised by the noble Lord, Lord Layard—from making more small sites available through the planning system, to loan funding of £1 billion as part of the home building fund to support small and custom builders. Many noble Lords spoke about those on the waiting list and those threatened by homelessness, which I hope will be assisted by the Bill being taken through your Lordships’ House by the noble Lord, Lord Best.
Increasing the supply of social housing for rent will of course help those looking to the sector for a solution to their housing problem. I have always favoured schemes that help social tenants move on to home ownership, such as HomeBuy. Some of these, where tenants move into a new property such as Help to Buy, can help to secure a re-let at a fraction of the cost and time of a new build. That can promote mobility through the sector helping both tenants and those in housing need.
The committee and noble Lords raised a number of questions about the Government’s housing target. Our ambition is to deliver 1 million new homes by this Parliament, by March 2020. We have made good progress so far with 189,650 new homes delivered in 2015-16. However, there is clearly more to do, as the noble Lords, Lord Sharkey and Lord Kerslake, reminded us. No one who has listened to this debate could draw any conclusion other than that we need to go a lot further to meet that ambition.
I turn now to some of the points raised in the debate. A recurring theme was the need to raise the borrowing limit for local authorities. In addition to doing a spell as a Housing Minister, I also did a spell in the Treasury so I can see both sides of the argument. On the one hand, the Housing Minister wants the maximum borrowing capacity for local authorities and on the other hand the Treasury sees an imperative to manage public debt. Clearly, there is tension between the two. I would like to write to noble Lords because there is a real danger of getting bogged down in fiscal theology as to what scores and what does not score as a public expenditure. I will set out more clearly what we are doing and what the constraints might be. But in the Autumn Statement 2013, £300 million of additional borrowing was made available to councils in England and £127.2 million was taken up. In 2015-16, local authority borrowing headroom is set to be £3.4 billion on top of almost £2.5 billion of general housing revenue account—the reserves accumulated by local authorities.
The noble Lord, Lord Sharkey, asked what the housing delivery test was. It is about assessing progress in housebuilding against local planning authorities’ targets. It compares the number of homes that local planning authorities set out to deliver in their local plans against the net additions in housing supply. It is not just about planning but about how many actual houses are built.
My noble friend Lord Forsyth raised the issue of the PRA. I will raise again with the Treasury and the PRA the issue of the capital weighting of loans to small builders. I have many other answers, but my time is drawing to a close so I will sum up. The Government are committed to fixing the problems with our housing market, many of which the Committee highlighted in its excellent report. By building the homes that Britain needs and giving those renting a fairer deal, we will give those growing up in society today a greater chance of enjoying the same opportunities as their parents and grandparents, as part of our wider ambition to make this a country that works for everyone. I welcome the committee’s interest in this area and, in light of the impact of its report, hope that it will consider looking at the issue of housing again, possibly later in this Parliament.
I thank all noble Lords who have spoken today. We have had an interesting debate and there were some kind remarks about the committee’s report. There were surprisingly high marks from the noble Lord, Lord Kerslake, and some unusual career advice from the noble Lord, Lord Horam. We may indeed return to this topic later, but we look forward to the Minister’s response, particularly on the availability of finance to underpin the ambitions that are widely shared around the Chamber. On the 1 million homes, it is clear that we will have to see quite a large increase at the end of the Parliament—in 2019-20. It might be helpful if I add a further burden to the Housing Minister’s already full in-tray, which is to provide a programme of how the Government are going to achieve this objective. What measures will they take? We have neighbourhood plans for local authorities, which indicate the number of housing opportunities available. How will those opportunities be grasped? Who will build those houses? If the Government could set that out, it would do a lot to allay the scepticism that we have heard around the Chamber today about the deliverability of the plans.