Housing Affordability
The article below was written earlier this year but nothing has really changed to make housing more affordable, as this October 2018 update will hopefully show.
The Government, developers, landowners and other interest parties continue to see massive house building as the answer to the 'housing crisis', hoping that the laws of supply and demand will kick in and house prices will tumble, or, dare I say, crash!
Because that is what would be needed to bring house prices into sync with earnings, especially for young people and young families trying to get onto the housing ladder.
Basildon Council have stated that house prices in the borough are at least 15x earnings, and that is likely to be higher in Billericay. With mortgage lenders still limiting loans to around 4x earnings the disconnect can be clearly seen. In effect, house prices would need to drop by 75% to bring matters back in line with wages and that simply won't happen. For first time buyers this is a significant and worrying situation.
Even if the developers had the resources - land, workers and materials - would they actually want accelerate the housing supply? Of course not, as it would hurt their profits. Developers very carefully control the housing market for their own means by building slowly so that there never is a glut of houses to cause prices to fall. Furthermore, they tend to focus on building the larger houses as profits are disproportionately higher on 3 bedroom and bigger properties. The number of 1 or 2 bedroom places is very small on nearly all local developments because profits are lower. But those starter homes are exactly what the market desperately needs, assuming the right price.
Help to Buy is clearly assisting some people, but all that is doing is funding the deposit that most people simply can't save for. It is not reducing the house purchase price. It's just leading to more debt, all be it at a reduced interest rate in part.
What am I so certain about this? You just need to look at the annual results from the big national developers. They are building more houses than ever but at the same time their profits are increasing as well as their average selling prices. They seem to be quite pleased with themselves but it's clearly not helping the average person. It's going against the basic economic laws that are expected to fix the problem. Furthermore, developers are now caught is a potential miss selling scandal as they have been selling houses leasehold, not freehold, through third parties. This means people, in their desperation to buy a house, are not actually owning the land it sits on and are incurring huge, and rising each year, ground rents and services costs. Such properties will be hard to sell in the future. At least the Government has spotted this and will hopefully do something about it, but too late for some.
And finally, developers will continue to buy land at extortionate values, get planning permission and simply bank it for a rainy day. It is cl;early a landowners and developers market.
It is naive to think that leaving the matter of affordability to commercial, profit driven, companies will work.
So, do we have a housing crisis? The answer is clearly yes, but it has two faces. Firstly there is the matter of affordability as I have discussed above, but where there is a real shortage of houses is in the social housing market i.e. council houses. Not so many years ago, council house building was the major element of all houses being built in the UK, but successive governments or all parties have stopped such activity. The number of houses being built since the 1970s has collapsed to all time low numbers. Thankfully the current Government has finally committed to do something about this by allowing local councils to start building again. But it will be a slow recovery and if those councils look to the commercial developers to build, will it really work?
The Government, developers, landowners and other interest parties continue to see massive house building as the answer to the 'housing crisis', hoping that the laws of supply and demand will kick in and house prices will tumble, or, dare I say, crash!
Because that is what would be needed to bring house prices into sync with earnings, especially for young people and young families trying to get onto the housing ladder.
Basildon Council have stated that house prices in the borough are at least 15x earnings, and that is likely to be higher in Billericay. With mortgage lenders still limiting loans to around 4x earnings the disconnect can be clearly seen. In effect, house prices would need to drop by 75% to bring matters back in line with wages and that simply won't happen. For first time buyers this is a significant and worrying situation.
Even if the developers had the resources - land, workers and materials - would they actually want accelerate the housing supply? Of course not, as it would hurt their profits. Developers very carefully control the housing market for their own means by building slowly so that there never is a glut of houses to cause prices to fall. Furthermore, they tend to focus on building the larger houses as profits are disproportionately higher on 3 bedroom and bigger properties. The number of 1 or 2 bedroom places is very small on nearly all local developments because profits are lower. But those starter homes are exactly what the market desperately needs, assuming the right price.
Help to Buy is clearly assisting some people, but all that is doing is funding the deposit that most people simply can't save for. It is not reducing the house purchase price. It's just leading to more debt, all be it at a reduced interest rate in part.
What am I so certain about this? You just need to look at the annual results from the big national developers. They are building more houses than ever but at the same time their profits are increasing as well as their average selling prices. They seem to be quite pleased with themselves but it's clearly not helping the average person. It's going against the basic economic laws that are expected to fix the problem. Furthermore, developers are now caught is a potential miss selling scandal as they have been selling houses leasehold, not freehold, through third parties. This means people, in their desperation to buy a house, are not actually owning the land it sits on and are incurring huge, and rising each year, ground rents and services costs. Such properties will be hard to sell in the future. At least the Government has spotted this and will hopefully do something about it, but too late for some.
And finally, developers will continue to buy land at extortionate values, get planning permission and simply bank it for a rainy day. It is cl;early a landowners and developers market.
It is naive to think that leaving the matter of affordability to commercial, profit driven, companies will work.
So, do we have a housing crisis? The answer is clearly yes, but it has two faces. Firstly there is the matter of affordability as I have discussed above, but where there is a real shortage of houses is in the social housing market i.e. council houses. Not so many years ago, council house building was the major element of all houses being built in the UK, but successive governments or all parties have stopped such activity. The number of houses being built since the 1970s has collapsed to all time low numbers. Thankfully the current Government has finally committed to do something about this by allowing local councils to start building again. But it will be a slow recovery and if those councils look to the commercial developers to build, will it really work?
Affordability is a word often associated with the ‘housing crisis’. But it is important to understand what that means in the housing context as it is not what it seems.
It does not mean cheap houses that are available to purchase or rent, or not at least for most people.
The National Planning Policy Framework (NPPF) defines affordable housing as highlighted below. As you can see it largely relates to social houses available to rent at a lower than market rate for people with special circumstances and needs. Councils are expected to ensure that such affordable housing is provided with all major new housing developments.
It does not mean cheap houses that are available to purchase or rent, or not at least for most people.
The National Planning Policy Framework (NPPF) defines affordable housing as highlighted below. As you can see it largely relates to social houses available to rent at a lower than market rate for people with special circumstances and needs. Councils are expected to ensure that such affordable housing is provided with all major new housing developments.
NPPF Affordable Housing Definition
"Social rented, affordable rented and intermediate housing, provided to eligible households whose needs are not met by the market. Eligibility is determined with regard to local incomes and local house prices. Affordable housing should include provisions to remain at an affordable price for future eligible households or for the subsidy to be recycled for alternative affordable housing provision.
Social rented housing is owned by local authorities and private registered providers (as defined in section 80 of the Housing and Regeneration Act 2008), for which guideline target rents are determined through the national rent regime. It may also be owned by other persons and provided under equivalent rental arrangements to the above, as agreed with the local authority or with the Homes and Communities Agency.
Affordable rented housing is let by local authorities or private registered providers of social housing to households who are eligible for social rented housing. Affordable Rent is subject to rent controls that require a rent of no more than 80% of the local market rent (including service charges, where applicable).
Intermediate housing is homes for sale and rent provided at a cost above social rent, but below market levels subject to the criteria in the Affordable Housing definition above. These can include shared equity (shared ownership and equity loans), other low cost homes for sale and intermediate rent, but not affordable rented housing.
Homes that do not meet the above definition of affordable housing, such as “low cost market” housing, may not be considered as affordable housing for planning purposes."
Social rented housing is owned by local authorities and private registered providers (as defined in section 80 of the Housing and Regeneration Act 2008), for which guideline target rents are determined through the national rent regime. It may also be owned by other persons and provided under equivalent rental arrangements to the above, as agreed with the local authority or with the Homes and Communities Agency.
Affordable rented housing is let by local authorities or private registered providers of social housing to households who are eligible for social rented housing. Affordable Rent is subject to rent controls that require a rent of no more than 80% of the local market rent (including service charges, where applicable).
Intermediate housing is homes for sale and rent provided at a cost above social rent, but below market levels subject to the criteria in the Affordable Housing definition above. These can include shared equity (shared ownership and equity loans), other low cost homes for sale and intermediate rent, but not affordable rented housing.
Homes that do not meet the above definition of affordable housing, such as “low cost market” housing, may not be considered as affordable housing for planning purposes."
However, Basildon Council has a poor record of affordable housing provision with just 13 such houses completed in 2016/7 out of a total of 412 house completions; just 3%. Way below the guidelines.
But Basildon is not alone. A recent CPRE report shows that the proportion of affordable houses is actually declining despite a massive increase in the number of homes being built on the Green Belt. The simple reason being that developers prefer to build expensive large houses for outright sale as they generate more profit, and in most cases they are convincing councils to support this.
But Basildon is not alone. A recent CPRE report shows that the proportion of affordable houses is actually declining despite a massive increase in the number of homes being built on the Green Belt. The simple reason being that developers prefer to build expensive large houses for outright sale as they generate more profit, and in most cases they are convincing councils to support this.
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One of Basildon Council’s justifications for eroding the Green Belt is to build homes so that our future generations can stay living in their home town. But for that to happen they need to be at a price that to local people can afford.
But house building goes against the economic laws of supply and demand. House prices simply do not go down the more houses that are built. Developers carefully control supply to keep prices up. It is now becoming widely recognised that the housing crisis may not be one of not enough houses but one of houses prices being out of the reach of most people. Developers will pay millions for Green Belt agricultural land that is at best worth a few thousand pounds. They therefore need to recoup that cost through the prices they charge for houses. Furthermore, developers bank land with planning permission and will only build when the market conditions allow them to make maximum profit. To make matters even worse, it is reported that a large proportion of the new properties in London and surrounding areas for sale at under £500,000 are sold to overseas investors, often off-plan before local people can buy them. But at least there is now a plan to make the houses under £350,000 available to local people before buyers from outside the immediate area. Developers have historically called the shots but change seems to be in the air. Will it benefit us? |
Consider St. Luke’s Way, Runwell near Wickford.
This is a new development that is similar to what we can expect in Billericay. House prices start from £290,000 but the majority are 4 and 5 bedroom homes at over half a million pounds. And this site is almost 2 miles from Wickford station and shopping areas.
Also the development at Sun Corner. The starting price for a 1 bedroom flat is £310,000! |
The harsh reality is that we are unlikely to see much affordable (social) housing in Billericay but many more executive homes for people moving out of London to somewhere that is more affordable to them. Any smaller houses that are built will be at the market rate. It is unlikely that we will see much property below £300,000, needing an income in excess of £60,000 per year to get a mortgage, assuming a 10% deposit.
Is that what we need for our local young families and our children trying to get a first home of their own? And at the expense of our green spaces with untold infrastructure pressures.
If we are going to see widespread development in Billericay perhaps we need to see a Local Plan with a firm commitment from the Council and developers to deliver the right number of ‘starter homes’ at sensible prices.
Is that what we need for our local young families and our children trying to get a first home of their own? And at the expense of our green spaces with untold infrastructure pressures.
If we are going to see widespread development in Billericay perhaps we need to see a Local Plan with a firm commitment from the Council and developers to deliver the right number of ‘starter homes’ at sensible prices.
