Barker Report

Housing Issues Today November 2005

By Nicholas Newman

Housing has always been a bit of a political football, and the recent Kate Barker Review of Housing Supply 2004 has brought it back into the spotlight. Its proposals for a significant stepping up in housing production have angered many in the rural propertied classes as represented by such groups led by Prince Charles and the CPRE (Campaign for the Preservation of Real Estate Values), since the Review strengthens the case for more development. In fact, they deny there is a housing shortage as outlined in Kate Barker’s Review; rather they argue that the real problem is making efficient and effective usage of current stocks and there are many who would appear to argue that, if there is a problem they would rather the homeless remained on the streets, than sacrifice the usage of an empty piece of land to provide decent housing for such groups.

 Both sides of the debate agree that Britain’s housing stock could be utilised more effectively and efficiently.  The Office of the Deputy Prime Minister (ODPM) 2004 reports that there are over 700,000 empty properties predominately in the North and Midlands, with a further 171,000 second homes. Where they disagree is the need to expand production of new homes above the current 170,000 being built each year to at least an extra 120,000 per annum that Barker proposes. The trouble is much of the empty housing is not in the right location, is not suitable for modern needs including housing for the elderly, or at the right price beyond the capacity of the owner to refurbish the property to meet market needs.

 As to why there is so much empty or underutilised property, in part it is because we live in a property owning democracy where rights are protected, but it is also due to market failure and it has not been helped by the unintended consequences of past government policies. These include providing a series of subsidies that have favoured second homes and empty homes through discounts on Council Taxes and VAT on the cost of refurbishing empty property...

 There is also disagreement on the need to expand existing housing, with the conservationists arguing for keeping production at current levels, with greater emphasis on building new construction on brown field land, plus more efficient utilisation of current stock. However Barker argues even we did adopt measures that would resolve the empty homes issue and overcome the human rights issues that affect the property owners; there would still be a breathing gap of only four years before it would be necessary to start following her prescription for expansion of house building.

 This age of high house price inflation that we have been experiencing has seen house prices double in a decade, which has led a growing number of this nation’s citizens in England living in temporary accommodation, more than doubling between 1995 and 2003, from 46,000 to over 93,000. Add to this the increasing number of households not able to buy into the Thatcherite dream of Britain being a property owning democracy, as the proportion of new households unable to afford to buy has increased from 37 per cent in the late 1980’s to 46 per cent of new households in 2002. This has resulted in growing numbers of young people not being able to leave the family home until well into their late their late 30’s before they can become first time buyers reports the ODPM (2002).

 These trends are likely to grow as the number of households is now outstripping that of new homes built. 165,000 new homes were built on 2001, while around 220-230,000 new households are created each year. This has resulted in house prices doubling since 1995.

 Yet despite demand for housing exceeding supply in 2001, the building of new houses in the UK fell to its lowest point since the Second World War. Over the ten years to 2002, output of new homes was 12.5 per cent lower than for the previous ten years and new housing now accounts for less than 10% of residential property transactions in England and Wales, compared to 40% in 1965. This has led to recruitment problems for labour, particularly key workers in all areas of the economy, as labour mobility is restricted due to shortage of available affordable housing.

 The anti-development claims that permitting Barker’s plans to go ahead would result in one mega suburb covering the South East if  all this building were concentrated in the South East (an unlikely and undesirable event), over the next 10 years. In fact around 2 million people will be seeking new homes in the South East Region reports SEEDA (2004) over the next decade that is some 200,000 new houses are required. As currently planned such proposals are likely to utilise some 0.75 % of the South East’s total land area of 1.7 million hectares, which is 1.92% of developable land leaving around 90% of the area undeveloped, overall only 7.1% of England is urbanised reports the ODPM (2004). This failure to meet demand Barker said “…was a major factor contributing to soaring house prices and had led to many people being priced out of the market.” The Journal (Newcastle, England), 12/13/2003.

 As to why, despite this evident demand for housing, there has been a failure to meet housing needs is a good question. Barker was commissioned by the Treasury to investigate this problem. Kate Barker and her team investigated three hypotheses; the first that we live in a small and densely populated land, the second, due to failures inherent in the construction industry and lastly that it has was due to failures intrinsic in the land supply process.

 Regarding the first that we live in a densely populated land, she dismisses this claim, in fact Holland is a smaller country and has a higher population density, yet on average property prices across the board, are £32,000 cheaper than in the UK.

 The second, that we have a housing shortfall due to inherent failures in the construction industry, has some validity in terms of lack of development capacity, skills shortages, land assembly problems, a failure of financial institutions to supply development capital and a reluctance to develop brown field sites due to cost uncertainties that may arise. But overall Barker does not see these as a significant cause of our current housing development shortfalls.

 Lastly, Kate Barker investigated the land supply process; there she found several significant structural problems in the land supply process from delays in the planning system over negotiations on the Town and Country Planning Act’s Section 106 agreements, to the number of planning refusals doubling since 1996 to 25% in 2002. In part it is due to changing social attitudes, partly generated by the anti development hysteria promoted by conservationists, but also because of the more genuine fear that such construction puts on existing services. This has resulted in slow decision making, with often major decisions taking 18 months, in part due to being under-resourced and habitually unable to bring into being transparent decisions which are consistent between authorities and through delays in procedure. For developers, the process of identifying a piece of land and winning all the various permissions needed to build something is so long and arduous that it's hardly surprising if developers have no mental energy left to design anything worthwhile. Add to this the lack of adequate finance to fund the necessary public infrastructure investment needed to support new development. Since local buyers are unlikely to have much choice of new houses anyway, the result is the sort of lowest-common-denominator developments that has become common and hated all across the land.

 Everybody moans about the planners, seeing them as pocket Hitlers who have taken the 1947 Town and Country Planning Act and driven it into areas of control far beyond the dreams of its draughtsmen. The planners' power, abetted by local stop-whatever-it-is groups, has almost ossified parts of England where people wish to live. Even the beneficiaries of the inevitable soaring house prices are finding it a mixed blessing, as adult offspring stay on, unable to afford anything remotely as agreeable as the family home.

It is clear from Ms Barker Housing Review that unless action is taken to rectify matters to resolve our chronic housing shortage, house prices will continue to climb and even more people will be destined to live in cramped unsuitable housing. Her key recommendations for tackling this crisis are in part being acted upon by the Government, from such schemes as accommodation provided by employers for key workers, to Councils given the discretion to remove Council Tax discounts for empty and second homes, and new powers to seize and rehabilitate empty properties and then rent them out until such costs of rehabilitation have been recouped.

 As to her other significant recommendations, these include increasing the planning powers of regional government to set targets and decide policy which is more responsive to real market needs rather than political goals. While her proposals for a new tax on the Capital Gain that is created when planning permission is given and financial vehicles known as REITS (Real estate investment trusts ) to fund new infrastructure have received mixed responses from some house builders. However, her proposals for local authorities to keep the profits from extra Council Tax revenue that will result from new development should be welcomed, as well as act a positive incentive to encourage development.

 Overall Kate Barkers proposals have been welcomed, though Adam Sampson Director of Shelter has argued that they have not gone far enough, while Neil Sinden, policy director at the CPRE has as expected greeted the Barker proposals with horror, dismissing much of the evidence that backs Kate Barker and her team’s case as set out in the Housing Review. Though the likelihood that Barker’s proposals will be implemented before the next election is thought to be unlikely, by most commentators due to many of its contentious proposals,  The real question is one of philosophy of values, how do you value a piece of empty land as against solving people’s homelessness.