The affordable housing challenge: The UK experience (2008)
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What are the drivers of the UK's affordable housing challenge? What are some of the policy options to tackle it? Presentation to the ULI European Summit in Amsterdam, June 2008, when I was chief economist at the UK Department for Communities and Local Government.
The affordable housing challenge: The UK experience (2008)
- 1. The affordable housing challenge: The UK experience ULI Europe Summit, Amsterdam, Tuesday 10 June 2008 Grant Fitzner Chief Economist & Director of Analytical Services Department for Communities and Local Government, London
- 2. Part 1: Overview of trends
- 3. Long-term trends in housing tenure Slum clearance, estates, home ownership 0 10 20 30 40 50 60 70 80 1918 1926 1934 1942 1950 1958 1966 1974 1982 1990 1998 2006 Ow ner occupied Social rented Private rented
- 4. English housing supply Record low since WWII 100 150 200 250 300 350 400 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 Net additional dw ellings ('000s) New supply (inc. aff. housing) Net additions Completions > net additions = slum clearance Recent progress 1989: 206k NA 2001/2: 130k NA 1992/3: 151k NA 27% fall in NA
- 5. Private rental & buy-to-let mortgages A small part of the picture 0 500 1,000 1,500 2,000 2,500 3,000 1990 1992 1994 1996 1998 2000 2002 2004 2006 Thousands Private rental without BTL mortgage Private rental with BTL mortgage
- 6. Housing demand Rising number of households 0 5 10 15 20 25 1891 6891 1991 6991 1002 6002 millionsofhouseholds married couple cohabiting couple lone parent other multi-person one person
- 7. High residential land prices Productivity and planning effects
- 8. Part 2: House prices and affordability
- 9. Other key drivers of house prices Rising incomes, cheap credit 0 2 4 6 8 10 12 14 16 18 Mar-76 Mar-80 Mar-84 Mar-88 Mar-92 Mar-96 Mar-00 Mar-04 Mar-08 % -2 -1 0 1 2 3 4 5 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 % Strong growth in real income Low and stable interest rates
- 10. UK house prices Annual growth, 1998-2008 -15 -10 -5 0 5 10 15 20 25 30 35 40 1988 1991 1994 1997 2000 2003 2006 Mar- 08 % Halifax sa Nationw ide sa CLG nsa
- 11. Measuring home affordability Affordability ratio 0 1 2 3 4 5 6 7 8 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007p Affordability ratio, 1997- 2007Ratio Source: CLG
- 12. Affordability ratio Across regions 2 3 4 5 6 7 8 9 10 Q2 1986 Q2 1987 Q2 1988 Q2 1989 Q2 1990 Q2 1991 Q2 1992 Q2 1993 Q2 1994 Q2 1995 Q2 1996 Q2 1997 Q2 1998 Q2 1999 Q2 2000 Q2 2001 Q2 2002 Q2 2003 Q2 2004 Q2 2005 Q2 2006 Q2 2007 N West N East Yorks & H E Mids W Mids S West East London S East ENGLAND
- 13. Housing affordability ratios in the UK 1998-2007
- 14. Measuring home affordability Alternative measures Mortgage Costs (%) 0 5 10 15 20 25 30 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Totalmortgagepaymentsas%ofincome First Time Buyer All Buyers
- 15. Impact of the credit crunch Higher rates, fewer mortgages BoE mortgage approvals 55 65 75 85 95 105 115 125 135 2002 2003 2004 2005 2006 2007 2008 000s UK and US interbank spreads 0bp 20bp 40bp 60bp 80bp 100bp 120bp Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 GBP Spot 3m Libor-OIS USD Spot 3m Libor-OIS Source: Morgan Stanley, Tullett Prebon Note: OIS = overnight index swap rate
- 16. UK house prices Heading south Source: CLG, Nationwide, Halifax, Land Registry Annual house price changes -6% -4% -2% 0% 2% 4% 6% 8% 10% 12% 14% Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 -6% -4% -2% 0% 2% 4% 6% 8% 10% 12% 14% CLG (nsa) Nationwide (sa) Land Registry Halifax (sa)
- 17. Part 3: The policy response
- 18. What can Government do? 1. Increase aggregate housing supply 2. Build more affordable housing 3. Influence household demand 4. Reform the land use planning system 5. Financial incentives for local authorities 6. Low-Cost Home Ownership schemes 7. Support for people facing difficulties in the housing market
- 19. Policy option 1 Increase aggregate housing supply Government supply targets Target of 200,000 of net completions (2005 Govt response to Barker report) Target of 240,000 of net completions (2007 Housing Green Paper and PSA 20) Short-term success Achieved 185,150 net completions in 2005/06 and 199,240 in 2006/07 Medium-term challenges Impact of credit crunch particularly severe on new build. Builders are cutting back capacity Need to maintain momentum on supply side reforms, and ensure the industry responds strongly as demand returns 20,000 25,000 30,000 35,000 40,000 45,000 50,000 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 Housing starts Housing completions
- 20. Affordable Housing Supply, 1996-2006 0 10 20 30 40 50 60 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 Additionalaffordablehomes(000s) Social rented Intermediate affordable Policy option 2 Build more affordable housing Government targets SR04: 75,000 new homes for social rent over 3 year period, from 2005/06 to 2007/08. SR07: increase number of gross affordable homes to 70,000 by 2010/11 45,000 social rent 25,000 other intermediate housing Recent trends SR04 targets met: provisional figures from the Housing Corporation show that 29,419 (in 2007-08) were provided.
- 21. Policy option 3 Influence household demand 0 5,000 10,000 15,000 20,000 25,000 30,000 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021 2026 Numberofhouseholds(000s) married couple cohabiting couple lone parent other multi-person one person Changing demographics One-person households account for nearly 70% of projected growth over next 20 years - One-third are households of 65+ - Almost half belong to 40-65: combination of widowed, divorced and separated couples and singles Migration Net inward migration is generating about 74,000 new households a year Mostly younger people, live in couples and shared households
- 22. Policy option 4 Reform land use planning Land use is highly concentrated Urban areas account for four-fifths of the population but only 9% of land area The Green Belt accounts for 13% of land use Planning reforms Planning Bill before parliament Streamlining the planning system Better co-ordination of infrastructure provision Eco-towns 15 locations short-listed Zero-carbon, affordable developments using green technologies Target to build five eco-towns by 2016 and up to 10 by 2020
- 23. Policy option 5 Financial incentives for local authorities Section 106 of the Town and Country Planning Act 1990 allows LAs to negotiate some community benefit such as infrastructure, open space, specified proportion of low cost homes Housing and Planning Delivery Grant rewards payments to LAs for delivering land for development and delivering house- building relative to plans Community Infrastructure Levy (CIL) is similar to Section 106 but instead of specific requirements, LAs apply a levy (per roof or per square metre) on all new developments It would enable LAs to apply a levy for all new developments (residential and commercial) in their area, subject to a low de minimis threshold Affordable Units supplied by S106 agreements (%) 0% 10% 20% 30% 40% 50% 60% 70% 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 Involved some s106 agreement Units delivered entirely through s106
- 24. Policy option 6 Low-Cost Home Ownership schemes HomeBuy Open Market, New Build and Social HomeBuy 贈100m in spending to assist 2,500 additional first time buyers Improve affordability by offering equity loans of up to 50% of property value National Affordable Housing Programme Housing associations can buy new properties from house-builders at competitive prices In the first quarter, 1800 homes were bought by housing associations 840 for low cost home ownership, 935 for social rent Purchase Assistance Grants (贈1500 to first 2000) to assist with home-moving costs Extending benefits to beyond key workers and tenants in social rented sector; including those below household income of 贈60,000
- 25. Support for borrowers Govt is working with lenders to provide financial advice and support for borrowers to initiate and support home ownership Continuous push for development of lenders own shared equity products Support first time buyers Options to support more first time buyers (e.g. shared equity products) Right to buy & Right to acquire Any secure tenant in social housing able to afford can buy Housing association tenants have right to purchase the property they live in at a discount Repossessions Higher mortgage repayments likely to lead to a rise in repossessions, with a lag Current levels around third of 1991 peak Minimise the rise in house repossessions Policy option 7 Support for people facing difficulties Possession Actions, Orders & Re-possessions, 1992-2006 0 20 40 60 80 100 120 140 160 180 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Repossessions(000s) Re-possessions Possession actions entered Possession orders made
- 26. Summing up