17 March 2004

Kate Barker's Review of Housing supply: Final Report published

Launching her Final Report – “Delivering Stability: Securing our Future Housing Needs” – Kate Barker said:

“I believe that continuing at the current rate of housebuilding is not a realistic option, unless we are prepared to accept increasing problems of homelessness, declining affordability and social division, decline in standards of public service delivery and increasing costs of doing business in the UK – holding back our economic success. My Review sets out a series of policy recommendations to address the lack of supply and responsiveness of housing in the UK.

Creating a more flexible housing market is a considerable challenge that will require concerted action by all players: Government at national, regional and local level, the building industry, and those engaged in social housing provision.”

In 2001, around 175,000 houses were built in the UK – the lowest level since the second world war. And over the past ten years, the number of new houses built has been 12.5% lower than in the previous decade.
Over the last 30 years, UK house prices went up by 2.4% a year in real terms – compared to the EU average of 1.1%. In Germany it was 0.0% and in France 0.8%. Latest evidence suggests the trend rate of house price growth has increased to 2.7% over the last 20 years.

A weak supply of housing:

Contributes to macroeconomic instability and hinders labour market flexibility, constraining economic growth.
Leads to housing becoming increasingly unaffordable over time. In 2002 only 37% of new households in England could afford to buy a house, compared to 46% in the late 1980s.
Re-distributes wealth from have-nots to haves, bringing potential for an ever widening social and economic divide between those able to access market housing and those kept out. Rising numbers in temporary accommodation is evidence of the polarisation that exists today (in 2003 there were 93,000 households in temporary accommodation compared to 46,000 in 1995).

Estimating Housing Need

The Review sets out three scenarios for England’s housing requirements in the future, two of which would require policy changes beyond those already being implemented by Government. For private housing, these may be over-estimates, as greater supply would affect expectations and change the response of prices to additions to the housing stock. Taking as the baseline the level of private sector build in 2002/03 (140,000 gross starts and 125,000 gross completions) it is estimated that:

Reducing the price trend in real house prices to 1.8% would require an additional 70,000 private sector homes per annum; and
More ambitiously, reducing the trend in real house prices to 1.1% would require an additional 120,000 private sector homes per annum.

An increase in supply of social housing of 17,000 homes each year is required to meet newly arising need. Making inroads into the backlog of the most needy, coupled with the Report’s range of future price scenarios, mean that up to 23,000 additional social homes per annum would be required. These scenarios imply additional investment, building up to £1.2 (and £1.6 billion respectively), not all of which should necessarily come from Government.

The Review’s scenarios set out choices for Government, which needs to consider the appropriate balance between the objectives of macroeconomic stability, market affordability, meeting housing need and environmental sustainability. This is likely to require further action from Government, building on the achievements of the Sustainable Communities Plan and the planning reforms already underway.

Key recommendations

Government should express its objectives for the housing market through establishing a goal for affordability of market housing, with the aim of improving access to market housing over the housing market cycle. This should be incorporated into the Public Service Agreement framework to reflect the status of housing as a national priority.

To deliver this improved market affordability, and building on changes already underway, the Report recommends a number of reforms to the planning system:

In setting housing targets and allocating land, planning bodies should take greater account of market signals, such as changes in house prices and levels of market affordability.
Stronger, more strategic regional strategies for housing and planning should be delivered through the bringing together of regional planning and housing boards and the establishment of new Regional Planning Executives to create a stronger evidence base for housing decisions. Regional Planning Executives should provide independent public advice on the scale and allocation of housing numbers within regions.

At a local level the allocation of land for housing should become more responsive to demand for housing. In drawing up local plans, planning authorities should allocate buffers of additional land, which would be released for development as triggered by indicators of unexpectedly high demand.

Action is also required to ensure that appropriate incentives are in place for local authorities to support development, and to ensure that development is not held up by the absence of necessary infrastructure:

Local authority growth incentives should be introduced to address the costs of additional housing, allowing local authorities to “keep” the council tax revenues from additional housing for a period of up to three years;
More strategic use should be made of English Partnerships and area-based special purpose vehicles such as Urban Development Corporations to drive housing delivery;
A Community Infrastructure Fund of £100-200 million should be created to overcome infrastructure blockages and facilitate development.

The Review has considered the appropriate role of taxation for housing and land. Landowners and developers typically make windfall gains as a result of residential planning permission being granted, especially where this is on greenfield sites. These windfall or development gains result from the increase in land values, as land for housing is worth up to 300 times more than agricultural land. It is right that the community shares in this increase in value, which could provide funding for other policies important to increasing housing supply. Reforms in this area would also bring certainty and simplicity to the system, compared to the present situation whereby contributions are made through complex and protracted Section 106 negotiations.

The housebuilding industry needs to focus on its customers and deliver a better quality of service. The industry is characterised by low customer satisfaction levels, a weak record of investment in skills and innovation and a cautious approach to increasing levels of output. The Review sets out a number of challenges for the industry:

to improve levels of investment in skills;
to improve significantly customer satisfaction; and
to build out sites, particularly large ones, as quickly as possible.

Taken together, the package of measures set out by the Review would have a positive impact on housing supply.

Notes for editors

1. HM Treasury’s assessment of the five economic tests concluded that “… the incompatibility of housing structures means that the housing market is a high risk factor to the achievement of settled and sustainable convergence”.

2. The Review was set up on 9 April 2003 by the Chancellor of the Exchequer and the Deputy Prime Minister with the following Terms of Reference:

Conduct a review of issues underlying the lack of supply and responsiveness of housing in the UK; In particular to consider:

The role of competition, capacity, technology and finance of the housebuilding industry; and
The interaction of these factors with the planning system and the Government’s sustainable development objectives;

If appropriate, identify options for Government action, including the use of fiscal instruments.

3. Kate Barker has consulted extensively in preparing her recommendations. Details of those consulted can be found in Annex C of the Final Report.

4. This is the Final Report of Kate Barker’s Review. The Interim Report published in December 2003 set out the costs and benefits of a better housing supply and identified ways in which housing supply, as it currently operates, affects our economic and social well-being. The Interim Report estimated the scale of the housing shortage in the UK and assessed the poor response of housing supply. The Interim Report also identified the main causes of housing shortage and unresponsiveness.

5. Further copies of this report can be obtained from the Barker Review website

6. Kate Barker became a member of the Bank of England’s Monetary Policy Committee in June 2001. Previously she was Chief Economic Advisor at the Confederation of British Industry (CBI) and before that Chief Economist at Ford of Europe.

7. Press enquiries: 020 7270 5238

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