Housing market and low income housing provision in UK

UK-Brazil urban network

March 2011

Youngha Cho

Oxford Brookes University

ycho@brookes.ac.uk

Contents

1. Housing policy: brief overview

2. Social housing provision for low income household in UK

3. Impact of demographic and economic changes The impacts of economic downturn The impacts of political regime change

4. Social housing reform: new delivery model for low income household

5. Conclusion and responses

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1. Housing policy: brief overview

After the WWII: urgent need to repair war damage, active urban renewal programmes during the late 1950s and 1960s, mass construction of new housing

1970s to 1990s: characterized by Thatcher government (1979-1990)’s policy regime. Deregulation and liberalization

• Deregulation of the financial system • Housing privatization

• Right to Buy (privatisation of social housing)• Deregulation of private rented sector

Restructuring housing subsidies• Supply-side subsides demand-side housing cost subsidies

Asset Restructuring of social housing sector

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Key policies in 2000s 2000s: focused on tackling localized and contingent problems,

different housing problems between high growth area and low demand area, affordability problems in the south/London area, low demand in north regions mismatch between supply and demand.

2001:Housing Green Paper, Quality and Choice: A Decent Home for All Focus was mainly on social sector housing’s quality and condition, up-grading the

existing stock No mentions on new dwellings to be built

2003/4 : Kate Barker Report , Lack of new construction Worsened affordability Planning regulations

2007: Housing Green Paper New mass construction plan: 2 million new homes by 2016

3 million new homes by 2020

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2. Social housing provision for low income household in UK

Housing revenue grant (demand subsidy) aimed at supporting the monthly housing costs of

occupiers either direct to tenants in the form of housing benefit or in certain cases, to providers of special needs

housing

Capital grant (supply subsidy) subsidised construction of housing managed by local authorities and housing corporation

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Social housing products by capital grant Social rented housing

LA housing (11 %, 2007) HA housing (8 %, 2007)

Rented housing owned and managed by local authorities and registered social landlords,

target rents are determined through the national rent regime.

Intermediate tenure housing (Low Cost Home Ownership) It helps social tenants, key workers and first-time buyers to get onto the hou

sing ladder. Housing at prices and rents above those of social rent, but below market

price or rents. includes shared equity products (e.g. HomeBuy), other low cost homes for

sale and intermediate rent LCHO gives housing developers access to grants for the provision of new af

fordable housing. Also help housing associations in encouraging and supporting their social re

nted tenants into affordable home ownership.

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Low Cost Home Ownership scheme

There are currently five products in the HomeBuy scheme: New Build HomeBuy: new homes are provided by our development partners and

offered for sale as leasehold properties on shared ownership terms

Open Market HomeBuy: purchasers buy a home on the open market with the benefit of an equity loan that sits alongside a conventional mortgage

Social HomeBuy:enables social housing tenants of participating housing associations and local authorities buy their current home either outright or on shared ownership terms.

HomeBuy Direct: purchasers buy specific new build properties with an equity loan of up to 30 per cent of the purchase price, with the loan jointly funded by the government and the developer.

Rent to HomeBuy: selected new build homes are rented on intermediate rent terms for up to three years, after which time the tenant can purchase their home through the New Build HomeBuy scheme

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Relative costs of capital grant required to develop affordable housing

Social rent: £67,932 per unit on average (£113,775 in London)

Intermediate rent: £44,023 per unit on average (£55,840 in London)

LCHO OpenMarket HomeBuy:£34,960 per unit on average NewBuild HomeBuy: £30,829 per unit on average

Source: Affordable housing review, 2009 Knight Frank

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Housing under-supply and mismatch in nature

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Owner-occupier focused policy

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Relative poverty of social tenants

Household incomes as a percentage of the average.France(1996) Germany(1996) GB(1997/8), Netherlands(1998) Sweden(1997)

Source:ODPM 2005, Lessons from the past, challenges for the future for housing policy

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Incomes as percentage of average

Source:ODPM 2005, Lessons from the past, challenges for the future for housing policy

Greater levels of income inequality in Britain Greater concentrations of households from the lowest income deciles live in the

British social rented sector. Greater commitment in Britain to house the most disadvantaged groups in the

social rented sector.

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Summary of English Housing Policy: 1970s-2000s

Housing under-supply: supply mechanisms are not providing sufficient amount of new housing for both market and social sector

The deregulated finance market combined with a highly regulated land market produced housing market instability

Owner-occupier focused policy

However, greater commitment to house the most disadvantaged groups in the social rented sector.

Lack of social housing in high demand areas

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3. The Impact of demographic and economic changes

Household estimates and projection by household type, England

Rapid increase of one person household

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Aging population

more vulnerable and no/low income hh

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House price increase (real house price 1969-2002)

Strong long term upward trend 3.3% pa in real terms over this 35 year period Low supply elasticity Regional differences

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Worsened affordability (house price-income ratio)

Ratio of average house price to average disposable household income.

The worst between late 1980s and early 1990s. The latest boom period ( 2003-2007) : much worse

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Households in temporary accommodation and B&B in England

For poorer and vulnerable households there are particularly acute pressures.

87,000 hh living in temporary accommodation including around 4,000 in bed and breakfast.

Source: Housing Green Paper (2007)

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The number of hh waiting for social housing has risen from 1m to 1.8 m over the last ten years(1997-2007)

Provision of new social housing has increased by 50% in 2007-8 since 2004-5.

However, it remains significantly lower than the 40,000 households which make up newly arising need each year.

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How the recession has changed the housing market?

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Downward trend in house prices.

It does not mean improved affordability. In mid 2007, FTB bought a property priced

at 5.4 times their annual salary. Falling prices since 2007 meant that this ratio had fallen to 4.2 by mid 2009.

Real concern is access to mortgage finance. Mortgage lending 2% down on Oct

2010 than one year before.

UK GDP rose by 0.8% in Q3 2010, the 4th consecutive quarter of growth since the recession

Q3 Housing starts 9% lower than previous quarter but annual housing starts in England totalled 102k in the year to Sept 2010, 40% up on previous year.

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How wider political regime changes are beginning to impact on thinking and activity in the sector?

New coalition government

Spending review outcome “Most challenging situation in living memory”

To illustrate – Total Departmental Capital(DEL) forecast outturn of £56.6bn in 2009/10

By 2011/12 planned DEL falls to £43.5bn And by 2013/14 £39.2bn

Source: CLG, 2010, M Bailes, Affordable Rent-an introduction, Affordable Housing Division.

The use of grants to fund social housing, particularly low cost homeownership is likely to be questioned.

Affordable housing providers will need to become far more self reliant, will need to work their existing assets harder to support more development.

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4. Social Housing Reform Change was inevitable. Reduced public funding- requires innovation and value for money

driven by local partner Land & regeneration- public land assets crucial for delivery Renewal of existing stock

In November 2010, radical reform of the social housing system was announced.

Local decisions; A fairer future for social housing :  To ensure that councils and social landlords can better meet the ho

using needs of their communities include changes to the way people access social housing, the types

of tenancies which are provided

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The Social Housing Reform

The measures include: improving social housing mobility(social home swap scheme) changing the way social housing is regulated reform of the council housing finance system, and doing more to bring empty homes back into use as affordable housi

ng.  

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Affordable Homes Programme (2011-2015) Aims to increase the supply of new affordable homes in England. During 2011-15, the Homes and Communities Agency will invest £4.5bn in new

affordable housing through the Affordable Homes Programme. The majority of the homes built will be made available as Affordable Rent and wi

th some for affordable home ownership.

A new delivery product, ‘Affordable Rented Housing’ is introduced: a form of social housing introduced from April 2011. provided by registered providers of social housing, has the same characteristics as social rented housing except that it is outside the national rent regime, is subject to other rent controls.

Independent valuation based on method recognised by RICS Affordable rent may be charged at up to 80% of local market rents

Uprated at RPI+1/2% for the period of a tenancy Available to providers who commit to reinvest extra revenues in new supply

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A new delivery model for low income household:Affordable Rent Model

Traditional social rent

Rents at 50% of market rent Life time tenancies Grant at £ 80k per unit Limited use of existing assets

Affordable Rent Rents at up to 80% of market rent Fixed term tenancies Grant as part of wider subsidy Asset management strategies

involving conversion of voids and sales

Source: CLG, 2010, M Bailes, Affordable Rent-an introduction, Affordable Housing Division.

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The aims of the new delivery model are to: meet housing need at a local level; provide a more flexible offer for social housing tenants; ensure that public funds (and funds generated from conversions) are

properly and effectively spent and; maximise delivery of new affordable housing supply.

The new local delivery model

Affordable rent has to be aligned with local priorities

HCA will assist local delivery with the right mix of: Public land assets Affordable rent Regulation Aligning public funding

streams Private and local partners

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Source: HCA, 2010, P Ritchie, HCA Investment seminar-Affordable Rent

It is a local investment planning!

Locally led, voluntary process to develop local priorities for investment HCA will enable local areas to realise benefits from land £1.4 bn Regional Growth Fund will be key source of funding over next three

years HCA is working with 160 local partnerships

Working closely with emerging Local Enterprise Partnership (LEPs) 24 LEPs announced

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The Role of HCA (the national housing and regeneration delivery agency) Investment and enabling agency:

investment in new housing and communities, enabling support to local partners, utilising public sector land assets, assisting DCLG playing central role in

managing land and property assets of RDAs and the economic regulation of registered housing providers (RPs).

Delivering three investment programmes: A new affordable housing model Addressing the Decent Homes backlog to prepare for self-financing P&R commitments and maximising receipts

Central to the new role is combining investment, enabling and land to support the affordable rent model

Source: HCA, 2010, P Ritchie, HCA Investment seminar-Affordable Rent

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5. Conclusion and implication

New economic and market conditions Reduced public funding signals a shift in the way housing and

regeneration are delivered The Localism Bill (Dec. 2010) shift power from central government back

into local communities.

Flexible local approach is essential for delivery of social housing This is an opportunity to support diverse range of people on waiting

lists.

HCA will invest in housing and enable regeneration HCA will co-operate with local authorities in their strategic housing role

to allocate affordable rent properties.

Registered housing providers will need to be included in planning and delivery

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Private sector (developers/housebuilders)’s responses

As land and sales prices have fallen, section 106 agreements becoming impractical.

The importance of grant as the major source of social housing support will increase for their business.

This is a real opportunity for developers There is no option but to consider the affordable

rent/intermediate housing as the future growth sector. They welcome the flexibility in terms of the tenure types

offered. They argue that HCA should be given far more flexibility

regarding subsidy allocation.

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Research Questions

We are not sure about yet how the new model, under the social housing reform framework, will work!

How will the central government’s power be devolved to local communities to implement the new delivery model smoothly?

The new model implies more support for housing need of far broader and wider demographic group (middle income household). Will the model be fair to those who need it most?

Some concerns about the new model are the general drift of policy towards flexible tenure and a blurring of the boundaries between private, intermediate and affordable housing. How would the new model will support people it is intended to help in the same way that current social housing does?

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