Housing strategy must find ways to fund 250,000 new homes a year

Tuesday 8th November, 2011

New sources of funding are needed to solve the nation's housing crisis, according to new research published today (Tuesday) by think tank the Institute for Public Policy Research (IPPR). The report says that the Government's housing strategy - due to be published next month - should encourage investment in house building from local authority pensions funds, promote the release of local government held land and should control Housing Benefit expenditure, in order to invest more in bricks and mortar.

IPPR analysis shows that England faces a shortfall of 750,000 homes by 2025 and that the worst supply and demand mismatches will be in London, the South East, East of England and Yorkshire and Humberside. IPPR says we need to build 250,000 new homes every year.

IPPR's report says central government will struggle to solve the nation's housing crisis without investment from local government pension funds (valued at £150bn) and without local government held land (51 per cent of all publically held, developable land). IPPR says that without the cooperation of local councils, the Government's housing strategy will fail.

The report also says the Chancellor should establish a National Investment Bank to finance developers and reform the development industry to increase competitive pressures, lower the barriers to new entrants and find ways to compel developers to develop the land they hold.

Andy Hull, IPPR Senior Research Fellow, said:

"We are facing a housing crisis, with a huge gap between the supply of new houses and our demand for more homes. The forthcoming housing strategy will be a serious test of whether the Government appreciates the depth of our housing crisis and is smart enough to unlock the funding to build new homes. We also need Government action to get developers developing."

IPPR's new report argues that Housing Benefit should be reformed with a 'stepped' taper, to discourage the use of expensive properties. At present, Housing Benefit covers 100 per cent of rent costs up to a certain limit and nothing beyond that. An alternative would be to lower the level of rent that will be 100 per cent covered by Housing Benefit, but introduce an additional rental band which Housing Benefit would cover at 50 per cent (with a further, final, cap above that). This would create more of an incentive for people to seek out lower rents, as a greater proportion of their costs would then be covered (but at lower overall cost to the state). This, however, would only work if there were cheaper properties available in the area for tenants seeking them.

IPPR's new report also argues that the Government should set a fixed envelope for Housing Benefit, effectively turning it into a Departmental Expenditure Limited budget as part of an integrated overall housing budget across Government, reported on together in one place in Government accounts. Ministers would then be forced to account for and take action if the expenditure 'ceiling' is at risk of being broken - creating a check in the system and putting downward pressure on rents that would keep the Housing Benefit budget down, in order to invest savings in new house building.

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Notes:

IPPR's new report - 'Build now or pay later' - is available in advance on request from the IPPR press office and will be available to down load from http://bit.ly/IPPR8116

Local Authority pension funds are valued at over £150bn.

Using the Government's own projection for household growth, IPPR analysis shows that England will be 750,000 homes short of the required housing demand by 2025. The worst supply and demand mismatches will be in London, the South East, East of England and Yorkshire and Humberside. In these regions demand is projected to be substantially higher than net additions to the housing stock in recent years.

London faces a housing gap of 325,000 homes

Yorkshire and Humberside faces a housing gap of 151,000 homes

East of England faces a housing gap of 132,000 homes

South East of England faces a housing gap of 77,000 homes

East Midlands faces a housing gap of 66,000 homes

West Midlands faces a housing gap of 28,000 homes

North East of England faces a housing gap of 16,000 homes

South West of England faces a housing gap of 7,000 homes

The North West of England is the only region where supply could meet demand, with 40,000 extra homes compared to the number of households, due to the high rate of unoccupied premises at present.

IPPR argues that mortgages should be capped at 90 per cent of property values and at a maximum of three-and-a-half times household income. IPPR recommends these caps on 'loan-to-value' and 'loan-to-income' ratios to help stop another housing bubble building up in the future. IPPR analysis shows that the UK has had four housing bubbles in the last forty years, causing widespread damage to the economy.

Source: RICS Residential Estate Agency Group-communities.rics.org