Housing White Paper – 2017

Housing White Paper
 
Housing White Paper

2 March 2017, by Susan Emmett

The long-awaited proposals are supportive of higher levels of development and challenge local authorities and developers to do more

 

The steep rise in the value of residential property has made housing inaccessible to many, holding back economic productivity. This has been partly driven by a chronic undersupply of new homes. The Housing White Paper, launched in February, seeks to tackle this housing shortage, clearing one of the barriers to the UK realising its economic potential.

Its 104 pages offer no quick fix solutions prompting criticism that it stops short of the ‘radical vision’ promised by Sajid Javid. What the White Paper lacks in terms of headline-grabbing, it seeks to make up for with a more pragmatic approach that tackles the housing crisis on multiple fronts, from planning through to construction.

The Housing White Paper is not a manifesto for revolution but a detailed blueprint for evolution. Wide-ranging measures place greater responsibility on local authorities to adopt up-to-date plans that meet housing requirements, increase pressure on house builders to accelerate construction and provide support for a wider range of tenures.

Many of the measures are to be the subject of further consultation, partly giving this White Paper the appearance of a Green Paper in terms of the level to which policy still remains to be defined. The success of the new policies will depend largely on the detail of how they are implemented, as set out in this paper.

 

Support for development

The planning policy framework in the White Paper is supportive of higher levels of development by aiming to simplify and speed up planning. Government will also be exploring a new approach to developers' contribution to infrastructure, expecting more efficient land use through higher densities and reviewing space standards. In terms of developer contributions, this includes both reform of Community Infrastructure Levy (CIL) and an attempt to standardise an ‘open book’ approach to Section 106 agreements.

The document stopped short of making radical changes to the Green Belt with a reiteration of the Conservative Manifesto commitment to protect it. The White Paper does however provide a clear process for a local authority that wishes to review the extent of the planning constraint, if it can demonstrate there is not enough land within the urban area or other appropriate locations for development.

These are the principles on which the Minister for Planning endorsed the Green Belt review in the Birmingham Plan, which released land for 6,000 new homes. In addition, proposals allow for development on brownfield sites in the Green Belt where it contributes to the delivery of Starter Homes.

Steps were also taken to align development and transport, with emphasis on building around new strategic infrastructure. Specific reference is made to the role of the National Infrastructure Commission including its interim report on the Cambridge-Oxford Corridor, which identified the potential for significant levels of new homes and jobs.

Housing assessments must reflect true need

To deliver these overarching aims the White Paper sets out a series of mechanisms, starting with the building blocks of planning. Under the proposals, councils must provide up-to-date local plans based on an ‘honest assessment of the need for new homes’, with reference to a more standardised assessment of need. This is long overdue.

Academic estimates of housing need tend to be significantly higher than the trend-based household projections. The 2014 update of the Barker Review suggested 320,000 market homes per year would be needed to keep house price growth in line with the Europe-wide average. Christine Whitehead and Neil McDonald’s work for the TCPA suggested a figure of 312,000 homes per year is required in order to deal with the backlog from recent under-delivery.

A truly ‘honest assessment of need for new homes’ by each local authority would therefore have to add up to at least 300,000 in order to really address the housing shortfall.

However, currently inconsistent and selective assessment methods have led to wildly different results and an overall shortfall in assessed housing need of 86,400 homes a year.

Our analysis of the 285 local authorities with up-to-date housing needs assessments, suggests that their numbers would add the equivalent of 1.1% of their existing housing stock a year. If we apply this increase across all 326 authorities in England, total housing need would add up to 213,600 homes per annum, 25% less than the 300,000 that we really need.

The standardised method for assessing housing need recommended by the Local Plans Expert Group is a step towards fixing these issues, and we estimate that it could add up to national need of around 300,000 homes a year.

But planning for more homes in the right places is a key issue. As proposed, the locations where the imbalance between supply and demand is most acute would not necessarily see the highest uplifts.

The suggested method for accounting for market signals puts Kensington & Chelsea in the same affordability band as Boston in Lincolnshire. We have devised a simpler system with more bands and higher maximum uplifts, which arrives at a similar national total but focusses more on extra homes in the most unaffordable markets.

It will be important that the standardised method is a starting point, allowing authorities to plan for higher job growth and the homes that those workers will need.

 
300,000 new homes needed in England each year

▲ 300,000 new homes needed in England each year

Local Plans must meet housing need

Housing supply will meet need only if Local Plan targets add up to assessed need across an economic area. This has not been the case to date. Figure 1 highlights the local authorities with recent plans where the target falls short of the objectively assessed need. It also shows that some of the authorities in areas of greatest need lack a Plan.

Across the 123 authorities with both a post-NPPF Local (or Strategic) Plan in place and a post-NPPF SHMA, housing targets fall 16% below objectively assessed need. The biggest gaps are in Broxtowe, Gosport, Hertsmere, Nottingham and Watford. The effect of the target shortfall and the need shortfall is that we are planning for 37% fewer homes than needed.

Some authorities do not have the developable land to meet need and have to rely on other authorities to make up the shortfall. But the Duty to Co-operate has not been strong enough to ensure others make up that shortfall. The White Paper seeks to strengthen the NPPF by requiring authorities to demonstrate a clear strategy to maximise the use of suitable land, to meet the needs of the area as well as any needs that genuinely cannot be met within neighbouring authorities.

This will take time to work through the system as all Local Plans are finally put in place and existing Local Plans are renewed over what is now to be a five-year cycle.

FIGURE 1

Housing targets fail to match objectively assessed housing need

 
Figure 1

Source: Savills Research

Cross boundary collaboration is is a step forward

The real answer here is more strategic planning across economic areas, so it is heartening that the White Paper offers more support for collaboration across local authority boundaries.

A strategic level of plan-making was part of the plan-making system, either through Structure Plans or Regional Spatial Strategies (RSS), until 2011 when the Localism Act abolished RSSs.

The White Paper now allows for two approaches to deal with issues that extend beyond the boundaries of one local authority. The first is via joint Local Plans which allows adjoining authorities to act together to produce a single Local Plan for their combined area. The other is through the Spatial Development Strategies which are being produced by combined local authorities or elected Mayors, with the proposed ability to allocate strategic sites.

 
Local Plan Status

Neighbourhoods to plan for growth

Over 270 neighbourhood plans have come into force since 2012. Proposals to make neighbourhood plans more growth oriented include amending planning policy so that neighbourhood plans should meet their shared local housing need.

Certainty needed around five-year land supply

As Figure 2 shows, many local authorities are failing to identify a five-year land supply, based on existing targets. 80 (27%) have published land supplies lower than five years and a further 61 (21%) have had their five-year land supply disproved at appeal. By triggering the “presumption in favour of sustainable development”, the lack of five-year land supply effectively diminishes authorities control over where new housing is built.

To counter this, is a proposal to give local authorities the opportunity to have their housing land supply agreed on an “annual basis” and fixed for a one-year period.

Authorities wishing to take advantage of this policy will need to provide for a 10% buffer on their five-year land supply.

In the interests of transparency, guidance will set out more detail on how five-year land supply should be calculated.

FIGURE 2

Five-year land supply: we need more land for housing

 
Figure 2

Source: Savills Research

Delivery tested against targets that meet need

Councils will be held to account through a new ‘housing delivery test’ which will highlight whether housebuilding is meeting housing requirements and from November 2018 automatically apply “the presumption in favour of sustainable development” if delivery falls below 25% of housing requirement. The threshold rises to 65% from November 2020.

By this point, if all goes according to plan, more local authorities should be working with an “honest assessment” of housing need which should be higher than many of the numbers currently in place.

More power & resources for local authorities

A separate consultation will look into ways local authorities can make more active use of compulsory purchase powers to promote development on stalled sites. Additional support will come from the Homes and Communities Agency (HCA), which will take a more proactive role on compulsory purchase.

In recognition that councils are under resourced, there are plans to allow local authorities to increase planning fees by at least 20% and £25 million of new funding will be made available for “ambitious” authorities in areas of greatest need.

Higher expectations of developers

Private developers are expected to speed up delivery, engage with communities and invest in their skills base. Planning permissions will be much more focussed on build out speed.

We see here the seeds of a new approach to planning, whereby the speed of build out is a factor to be considered in land promotion, acquisition and the likelihood of achieving a planning consent. This in turn has implications for the associated land value.

Fast delivery models such as Build to Rent (BTR) should flourish in this environment. The challenge will be to make this systemic change without imposing build out rate conditions and penalties that make development funding impossible.

Timing and pace of delivery will be monitored against Plan targets. There are proposals to require larger housebuilders to publish data on build out rates and to reduce the time required for builders to start work once a permission is granted from three to two years. Where no progress has been made and there is no prospect of completion, there is a proposal to withdraw planning permission for the remainder of the site.

The Government expects the HCA to lead the way on faster delivery via its Accelerated Construction Scheme on public sector land, aiming to build out at twice the normal rate via joint venture arrangements.

 

Support for a wider range of developers

Innovation and modern methods of construction are being encouraged in a drive to support a wider range of developers.

Government will encourage a greater diversity of builders, by partnering with SMEs and contractors in the £2bn Accelerated Construction programme and helping smaller companies access finance. Smaller developers will also be given a boost by moves to encourage planning authorities to allocate a greater number of smaller sites (10% to be half a hectare or less) and bigger developers to sub-divide large sites.

Housing associations (HAs) are also expected to build a wider range of tenure through an expanded and more flexible Affordable Homes Programme worth £7.1billion.

Our analysis suggests that housing associations have the financial capacity to more than double their output and bring forward 44,000 extra new homes per year by 2029 through additional asset-backed borrowing.

Some form of subsidy is critical to deliver these homes across a range of tenures and to include affordable housing. In the absence of grant or low land value, HAs would deliver less housing overall and lower proportions of affordable housing.

It is essential to create certainty over the rent policy for social landlords beyond 2020, for this development capacity to be unlocked.

Support for a wider range of tenures

There is a greater focus on delivering mixed types of accommodation, including homes for rent. Gone is the previous government’s ambition to deliver 400,000 affordable new homes focussed on home ownership during this Parliament. Instead there is an expectation that 200,000 people will be helped onto the housing ladder by a range of schemes such as Help to Buy, shared ownership and starter homes.

The previous target to deliver 200,000 starter homes has disappeared and rules have changed to restrict eligibility. First-time buyers will be required to have a mortgage and subject to the same £80,000 (£90,000 for London) household income cap as those accessing shared ownership schemes. Buyers will also have to repay some or all of the 20% discount if the home is sold within the first 15 years of ownership.

Developers will no longer have to deliver 20% of schemes as starter homes, which would have been detrimental to other forms of affordable housing. But there will be a policy expectation that housing sites will include a minimum 10% of homes for affordable homeownership.

Separate consultation on Build to Rent

There is enough institutional capital pointing at BTR for it to reach the £60bn size of the US Multi-Family sector. This could add 15,000 homes to housing supply every year until 2030, but some breathing space is needed for the sector to reach this potential.

BTR has been given a timely boost in the Housing White Paper. Local planning authorities will have to plan proactively for BTR where there is an identifiable need.

The main proposed measures place emphasis on BTR through planning policy, encourage affordable private rent (sometimes referred to as discounted market rent) and offer family-friendly tenancy of three years or more to tenants who want one.

Importantly, these proposals mirror many of the recommendations in our recent report to the British Property Federation Unlocking the Benefits and Potential of Build to Rent. It shows that if pro-active planning for BTR is aimed at large sites, it will accelerate housing supply by as much as threefold, without displacing homes built for other tenures.

 

Build to Rent to deliver more homes

First off, the White Paper rightly identifies that BTR needs a clear definition in the NPPF. Defining BTR in planning terms would then enable policymakers to address proposals around the delivery of affordable private rent, covenants and clawbacks, and variations in terms of design and space standards that are more suited to rented housing.

In terms of boosting overall housing supply, measures to place more emphasis on BTR through planning policy would have the biggest impact.

Our report for the BPF identified that if local authorities were to show preference for BTR on large sites, this could see 10,000 units unlocked every year to 2030. Add current annual delivery rates to this and the sector could see delivery increase to 15,000 home per year which would have a very real impact on housing supply.

Switching traditional forms of affordable housing to discounted market rent is a sensible option where schemes are seeking to incorporate the affordable units within the same block. Combining market and discounted units into a single development under common control helps to provide efficiencies in terms of design, density, construction and management.

These efficiencies improve financial viability, provide the potential to deliver more affordable units and help to create mixed and well-integrated communities by pepper-potting units.

Longer term, family-friendly tenancies make a lot of sense to long-term investors. Evidence shows that the average tenancy length for a professional landlord is three years with many more starting to offer longer tenancies. The consultation will no doubt pick up that tenancies that extend beyond three years may run in to problems around taxation, legal issues or potential of breaching landlords’ loan covenants.

Will it work?

The paper’s greatest strength is its multi-pronged coherent approach. It will instigate faster construction by focusing planning consents on build out rates.

It will amend the National Planning Policy Framework to streamline the approach to plan-making with the aim of delivering suitable land more quickly and where demand is greatest.

It will target development around new strategic infrastructure and drive local authorities to look beyond municipal boundaries to deliver joined up thinking to address strategic issues.

There is also a focus on assisting smaller developers to participate in delivery by guaranteeing a supply of sites at a scale to suit them particularly.

Some changes could run counter to the general objective of speeding up the process and promoting greater levels of delivery.

Potentially, introducing guidelines on design through local and neighbourhood plans will give rise to additional controls on development and delays.

The additional tasks to be undertaken by authorities both in plan-making and development control also risk delay. Ensuring that delays are minimised requires adequate resource is in place within councils.

The additional funding to be secured from enhanced planning fees may at least in part help to address current resource shortfalls.

None of this will happen overnight. It quietly takes us in the right direction, rather than delivering a shouting game changer.

 

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