British prime minister, David Cameron, has pledged to turn “Generation Rent” into “Generation Buy”, by building 200,000 affordable starter homes for under-40s by 2020. The price of the starter homes will be capped at £250,000 (£450,000 within London), and buyers will not be able to sell the properties on for five years. While the prime minister’s announcement will help address the UK’s chronic housing shortage, it is also likely to have unintended consequences.
We really ought to be building 240,000 new homes each year in England alone, if we are to meet need. Currently, we are only building about half of that amount. In fact, it was as far back as 1978 when we were last building the numbers of new houses we need today.
Minister for Housing and Planning Brandon Lewis recently said that building 1m new homes in the life of this parliament would be a good achievement. But, welcome as those homes would be, they are still fewer than we need.
The real challenge is to rebuild the construction capacity that we lost after the credit crunch, when many small and medium sized builders went out of business and many skilled construction workers left the industry as house prices fell and small builders found it hard to raise finance. So building more homes will involve boosting the number of small- and medium-sized construction firms, as well as skilled labour – all of which will take time and money.
As though the challenge of building a million homes wasn’t enough, we also need to ensure these homes are spread across all tenures: we need homes for private and shared ownership, newly built and professionally managed private rental homes and affordable rental homes. The prime minister’s announcement of additional starter homes is a useful contribution to meeting the gap between what we need and what we are currently building.
But these homes are to be secured by relaxing planning obligations for developers. Herein lies the potential for unintended consequences.
Over the last two decades, planning obligations have proved to be a very useful way of securing funds for infrastructure – such as open public spaces, schools, roads and public transport – and new affordable homes, including shared ownership and affordable rental homes.
Local authorities can use planning laws to negotiate with developers to incorporate affordable homes into their projects, and contribute toward the local infrastructure needed to support the new residents they attract. Over the years, large sums have been secured for infrastructure and affordable homes. Developers obviously incur costs when making these provisions. They ensure they can afford these extra costs by paying less for the land they buy than they would have done, if they did not have to comply with these obligations.
Prices for land tend to rocket when planning consent is granted, and it has long been regarded as reasonable for some of this potential increase to be diverted to fund infrastructure and affordable homes. Crucially, planning obligations have enabled private funding to replace publicly funded grants to housing associations, while maintaining the output of new affordable rented homes.
What’s the catch?
Now, developers will be required to provide starter homes at a discount, instead of contributing to infrastructure and affordable rental homes. This trade-off could mean that new starter homes are built, but the supporting infrastructure isn’t. It could also prevent communities from securing the new affordable rental and shared ownership homes they need. This will be a critical loss, especially since the latter have proved an effective way of helping low-income earners to get a foot on the “housing ladder”.
And while financial institutions are keen to invest in newly built privately rented housing, the scale of this activity is still modest and will not be adequate to meet the gaps in rented housing provision in the immediate future.
Perhaps the government has yet to unveil plans to increase public funding for infrastructure and to provide additional grants to build new affordable rental homes. But this seems unlikely, given the cuts to public spending we’re expecting, as we await the outcomes of the public spending review.
What we need, in addition to the government’s aspiration to build 1m new homes by 2020, is clarity about all the resources to be provided. This will allow the house-building and construction industry to gear up with confidence, and aim to reach that target across all tenures. Starter homes will help – but they shouldn’t come at the cost of schools and affordable rental homes.