Written evidence submitted by the Building Societies Association [NPP 25]

Executive summary

1.                 The Building Societies Association (BSA) represents all 44 building societies and two credit unions. Building societies have total assets of over £330 billion, and account for approximately 20% of both UK mortgage and savings balances. It is estimated that more than a third of the UK population has a financial service relationship with a building society. Building societies are owned by their saving and borrowing customers, or members.
2.                 Building societies exist to provide a safe home for retail savings and help their members buy residential property. The sector therefore has a keen interest in the state of the housing market in the UK. One issue we have engaged with extensively over recent years has been how to overcome the barriers to new housebuilding.
3.                 We welcome the opportunity to feed into the Communities and Local Government Committee’s (CLG Committee) inquiry into the Department for Communities and Local Government’s (DCLG) National Planning Policy consultation.
4.                 Our key recommendations:

•                   Infrastructure needs to be a key part of new house building – Alleviating housing issues that are caused by a local housing supply that is unresponsive to increased demand cannot simply be solved by forcing new homes to be built. Consumer research carried out by the BSA over the last year has shown that infrastructure investment in transport and other facilities is vital to getting positive buy-in from communities to new house building.
•                   Make the Starter Homes discount in perpetuity or at least 10 to 15 years – The current discount period of 5 years runs the risk that if housing affordability fails to improve, future first-time buyers are equally barred from getting on the housing ladder. Longer discount terms would also ensure there was no quick windfall and be a barrier to market abuse whereby investors seek to capitalise on the scheme.
•                   Ensure that cash buyers cannot access the Starter Homes scheme – A key part of the 2012 National Planning Policy Framework (NPPF) definition of affordable housing is an eligibility test, with its provision to those households whose needs “are not met by the market”. That is not a cash buyer. The insistence that any buyer purchasing a Starter Home does so via a mortgage would also be an additional barrier against market abuse.
•                   Support renting as well as home ownership in the new definition of affordable housing – Research indicates that there could potentially be 70,000 households a year unable to access the housing market without other forms of assistance or severe compromise in their living standards. Renting must still be supported for lower income households where it is neither attractive or financially viable to buy their own property.
•                   Don’t just focus on first-time buyers – a key part of the Government’s housing agenda is concentrated on satisfying the home ownership ambitions of first-time buyers, with Starter Homes specifically targeted at the under 40s. However, boosting properties for other specific cohorts of buyers would quickly improve movement up and down the property chain. Examples include:

a)                   Building homes at higher price points to incentivise people further up the housing ladder to move - A fifth of homeowners polled by the BSA say that affording their next property is a barrier to putting their home on the market, a sign that affordability is an issue across the housing chain.

b)                  Enlarging the retirement housing market – The BSA published a major report on Lending into Retirement[1] in 2015 and continues to work with its members and external groups to improve lending conditions for this cohort of borrowers. But a lack of suitable property for those nearing or in retirement to right size, is also a problem. Satisfying this pent up demand could encourage greater movement in the market.

Proposed housing delivery test

5.                 The BSA has been critical of past Government housing policy which for decades has failed to provide the number of homes required to meet demand. In advance of the General Election at the beginning of 2015 the BSA published its Housing Manifesto[2] which called for the Government to take a more coordinated approach to enlarging the supply of new housing.
6.                 To that end, the broad range of announcements around housing over the course of 2015 and 2016 have been welcome. Many could boost supply rather than just stoking further demand, which has been the common criticism of previous interventions.
7.                 In the context of the DCLG’s consultation on the National Planning Policy Framework (NPPF), the focus on supporting new settlements and developing brownfield land, encouraging the use of small sites for house building and increasing build out rates are all a step in the right direction.

Increasing residential density around commuter hubs

8.                 A key part of the DCLG’s consultation is the intention to address the significant shortfall between the number of homes needed to keep up with housing demand vs the net additions to the housing stock through the proposed Housing Delivery Test.
9.                 Under the Housing Delivery Test, where significant under-delivery is identified, action would be taken to address it, with alternatives including the provision of additional sustainable sites, well served by infrastructure.
10.             But overcoming local opposition to new building would have to be an essential part of this as well.
11.             The BSA recently conducted consumer research to investigate why many people oppose rather than welcome housebuilding in their locality.
12.             Our work indicates that alleviating housing issues that are caused by a local housing supply that is unresponsive to increased demand cannot simply be solved by forcing new homes to be built. To reduce local opposition to new housebuilding, it is necessary to accompany it with appropriate investment in supporting infrastructure and facilities requiring integrated planning, including transport. Therefore, although we start from a perspective of enabling housebuilding, we would stress the dependence on other related various infrastructure projects.

Opposition to new housebuilding

13.             That there is widespread opposition across the UK to new housebuilding in people’s immediate locality is well known, with the word Nimby, the acronym for the phrase ‘not in my backyard’, a well-known and understood description for residents in opposition to new developments. We commissioned a consumer survey[3] to ask to what extent a cross-section of adults opposed new housebuilding in their local area. Unsurprisingly, there was generally greater opposition the larger the development was proposed to be. For example, on average across all UK regions 53% of respondents said that they opposed, fully or to some extent, a development of 300 or more houses; 34% opposed 50-99 new houses; but just 11% opposed 1 or 2 new houses being built.
14.             However, there were noticeable differences across regions, as shown in Figure 1. The North East, London and the West Midlands had lower levels of opposition than the national average. Opposition tended to be above the national average in the South West, Wales, Yorkshire and Humberside (and Northern Ireland, though this is also based on a small sample).

15.             Figure 1: Proportion opposing housebuilding to any extent – by region
    Note small sample size in Northern Ireland

Reasons for opposition to new building, by region

16.               In almost all regions of the UK, the greatest reason that people gave for opposing new building projects is the potential impact on existing local infrastructure, such as roads, trains, hospitals and schools. Traffic congestion was the most common issue cited in the comments, but schools, hospitals and sewerage were also mentioned. The impact on infrastructure is by far the most common reason given for opposition in densely populated regions such as London and the South East, areas where the demand for housing is greatest. The regional results are shown in Figure 2 below.

17.             In Scotland, concern about the local area’s natural beauty or character being affected was more common, and in the North East the main reason for opposition was that new homes would not be affordable for local people, though the sample for this region was small.

18.             Figure 2: Reasons for opposing new housebuilding – by region
    Note small sample sizes in Northern Ireland and North East

Reasons for opposition to new building, by scale of housing development

19.             Those opposing the building of just one or two new homes in their vicinity were most likely to be concerned about the impact on local infrastructure, as shown in Figure 3 on the next page. However, while still the most common reason, the proportion citing this factor falls slightly for all of those opposed to the construction of 3 to 9 houses. As developments get larger than this, the concern about the impact on infrastructure then rises steadily. The dip in the proportion of people opposing housebuilding because of the potential impact on local infrastructure could be due to sample effects: those opposed to the building of even one-or-two properties are also likely to oppose the building of any more houses, but they may have very different reasons than those who can accept one or two new properties but not any larger developments.
20.             Other reasons for opposing housebuilding tend to rise with the size of developments, but then peak at the 10-49 property development size, beyond which they level off or reduce slightly.

21.             Figure 3: Reasons for opposition to housebuilding - by scale of development

Implications

22.             These findings indicate that to enable significant numbers of new homes to be built without significant local opposition it needs to be accompanied by infrastructure investment in transport and other facilities to avoid pressures on those services. It also needs to take into account the local environment and maintain the beauty and character of the neighbourhood.

The redefinition of affordable housing

23.             As previously stated, we welcome the Government’s overall objective to boosting housing supply.
24.             It is widely recognised that the UK housing market has many structural issues. We have been under-building new homes for years, consistently building less than half of the 250,000 completions needed each year. It is therefore encouraging that the Government and all other parties have made housing a political priority in this Parliament.
25.             In the 2015 Autumn Statement the Government unveiled a Five Point Plan to deliver 400,000 affordable housing starts over the Parliament through a mix of Starter Homes, an expansion of shared ownership and various other schemes.
26.             This is certainly a laudable aim and with both the Housing and Planning Bill and consultation on the National Planning Policy Framework (NPPF), the focus is now clearly on delivery.

New definition

26.             The change in the definition of affordable housing is vital to the mass expansion of the Government’s Starter Homes scheme.

27.             The Government states in the consultation that the definition of affordable housing needs to support “present and future innovation by housing providers” in meeting a wide range of households who are unable to access market housing. This includes housing for home ownership as well as rent.
28.             The current definition in the NPPF includes social rented, affordable rented and intermediate housing, provided to eligible households whose needs are not met by the market.
29.             Examples of low cost homeownership include shared ownership (SO), shared equity (SE), as well as in perpetuity clauses or where a subsidy is recycled for alternative affordable housing provision.
30.             But the Government argues that the above range of products “limits the current availability of home ownership options for households whose needs are not met by the market”.
31.             Instead it wants to continue to include a range of affordable products for rent and ownership for households whose needs are not met by the market without necessarily being constrained by the parameters of product that have been used in the past.
32.             The BSA, like other organisations, called for the 20% discount for the Starter Homes scheme to be in perpetuity rather than for a limited period of 5 years.
33.             This was based on concerns around the fact that if the discount only lasts 5 years this could mean that only the initial 200,000 Starter Homes buyers benefit from the discount. This potentially runs the risk, if housing affordability fails to improve, that the following generation of first-time buyers would be equally barred from getting on the housing ladder.
34.             Key elements of a longer discount period:

a)                   No quick windfall - In the original Government consultation for the Starter Homes scheme in 2014[4] it was specifically stated that restrictions were important to ensure Starter Homes were not “sold quickly for a quick windfall profit”. An original discount period of 15 years was the preferred option in that first paper. A longer discount period of 10 to 15 years or in perpetuity would ensure that a Starter Home does not still become a means to a quick windfall profit.

b)                  Barrier against market abuse - There are a number of scenarios by which investors could seek to access (via a willing eligible buyer) the scheme. There are no protections in place to ensure that investors could not formalise arrangements to access Starter Homes and bank a 20% windfall once the 5-year period has ended. A longer discount period could negate the attractiveness of the scheme to this type of market abuse.

c)                   Not a 100% mortgage - During the Committee stage of the Housing & Planning Bill a counter argument was put forward that applying the discount in perpetuity would have the effect of asking the lender to provide a 100% mortgage. This would not be the case. Whether the 20% discount lasts five years, 10 years, or in perpetuity, the buyer would also need to provide a deposit of at least 5%.

35.             Likewise, it also seems a prudent measure to ensure that a cash buyer could not access the scheme. A key part of the 2012 NPPF[5] definition of affordable housing is that it is provided to “eligible households whose needs are not met by the market".
36.             Considering the scale of state subsidy now being provided for Starter Homes, the eligibility test should be maintained. But a household whose needs are not me by the market, is not a cash buyer. An accommodation would be that a mortgage must be one of the purchase requirements of a Starter Homes schemes.

Access to affordable housing

37.             As its flagship product for the current Parliament, the Government clearly wants to push Starter Homes and ensure that it hits its target of 200,000 Starter Homes by the end of the current Parliament.
38.             This naturally raises concerns about what effect this could have, especially in combination with the expansion of Right to Buy to housing associations and the taxation changes affecting landlords announced in the Summer Budget and Autumn Statement in 2015.
39.             Research in November 2015 from estate agency Savills[6] estimated that if there was no new development of sub-market rental housing it could leave a gap of at least 70,000 potential new households each year being unable to access the housing market without other forms of assistance or severe compromise on living standards.
40.             Many of the structural changes could reinvigorate housing delivery. But if too much focus is given on home ownership and less given to social housing, as the Savills research shows, it risks potentially having an adverse effect on those lower income households for whom it is neither attractive or possible financially to buy. Renting, either privately or via social housing, is a key part of our current housing mix and ensuring this tenure is supported is equally important.

Focus on first-time buyers

41.             Many of the changes to the definition of affordable housing are centred not just on home ownership but specifically first-time buyers under the age of 40 as well.
42.             There is not just undersupply across all housing tenures and types and across all age groups. One way to get movement back into the market could be building housing at higher price points to incentivise people further up the housing ladder to move. As their homes come onto the market this creates buying chains and could stabilise prices further down the ladder as more homes come onto the market. The market could also better absorb a range of new housing tenures, prices and types.
43.             One example of this comes from Legal & General research, which surveyed a group of people over 55. They found that despite 32% having considered moving to a smaller property in the last five years, only 7% had actually done so[7]. These home movers may have significant amounts of equity and be able to pay a higher price tag but seem equally as frustrated in their search for a home suitable for their needs as first-time buyers.
44.             The BSA conducts a quarterly survey of consumers called Property Tracker, asking about the main barriers to purchasing a property. In our September edition[8] it was found that nearly a fifth of homeowners who were looking to sell their property said difficulty affording their next property is a barrier to putting their home on the market. This shows that affordability is an issue across the housing chain[9].

January 2016