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Centre for Cities has long argued that a fundamental shortfall in housing supply is the root cause of the affordability challenges facing a number of high growth UK cities. So we cautiously welcomed the recent calls of the Prime Minister and Chancellor for a crusade to get homes built across the new Parliament.
The detail of the new Housing Bill itself indicates that the Government’s approach remains more about enabling further demand than boosting supply.
Primarily, that’s because the focus of the Housing Bill is squarely set on increasing home ownership. Gone is the section 106 requirement for affordable housing in new developments (the source of 36 per cent of affordable homes built between 2013-14). Their replacement – Starter Homes – offer a 20 per cent discount to first time buyers under 40. Although the arbitrary conditions and discount appeal more to politicians than to economists, the idea is clear: to tip the balance sheet for developments that might not have been viable with affordable housing – resulting in more homes.
So how might this play out across urban Britain? In cities with more affordable housing such as Burnley, Stoke and Dundee this approach might bring some marginal development sites ‘on line’, although with the fundamental shifts facing Housing Association financing, the price effect of more and discounted homes coming to market will likely be countered by a drop in the supply of other ‘traditional’ affordable homes and the requirement for local authorities to sell off valuable assets to fund new Right to Buy replacements.
In cities with the least affordable housing such as Oxford, London and Brighton, the real impediment of development viability is land prices rather than affordable housing requirement. Therefore the effect of replacing a contribution to affordable housing with a (less prohibitive) provision of starter homes will likely mean that developers can make higher bids for land to landowners – which has the potential to actually make the affordability crisis in those places worse by pushing up the price of homes.
Even with a 20 per cent discount, it is very likely that Starter Homes will be far beyond the reach of most people in and around the UK’s most successful cities. In 12 of England’s cities (all in the Greater South East with the exception of Bristol) it took just five years, the length of a parliament, for house prices to rise by more than the 20 per cent discount offered by Starter Homes – whereas income rose in these cities by around 5 per cent (2009-14). In London for example, Shelter estimated you will need an income of double the average to afford a Starter Home in 2020. This will worsen what is already seen by businesses as the key threat to economic competitiveness in London and Oxford.
Note: the housing affordability ratio is calculated as House Prices divided by Income for each city. A higher ratio means less affordable homes given local incomes.
Although there are targets included within the Bill to boost overall housing supply – a million homes over the next five years would represent a significant leap from current rates (130,000 in the year between July 2014 and 2015) – there is scant detail on how this will be achieved.
Indeed the Bill misses the chance to grapple with the real issues holding back the supply of housing around the UK’s least affordable cities – the cost of land. Avoiding the green belt remains a misguided priority; this omission is costing the Government an opportunity for a fundamental re-adjustment of the land and housing markets around these cities and a potential windfall from creating land that could be developed. A strategy for building enough homes in the places that need them which ignores this land is impossible to take seriously.
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