Communities and Local Government

• Corporate
• Newsroom
• Speeches, statements and articles
• Meeting the short and long term challenges

Housing

Meeting the short and long term challenges

Date of speech	2 July 2008
Location	Church House Conference Centre, London
Event summary	National Housing and Planning Advice Unit (NHPAU) - One Year On Conference

---

Draft text of the speech - may differ from the delivered version.

Introduction

I'm very pleased to be with you today.

I've made it a challenge to myself, to my department and the other departments we work with to make sure that the short-term difficulties we're facing don't paralyse us or compromise our ability to meet the challenges of the longer term. And to ensure the steady supply of housing that the country needs - whether that's homes for ownership, for rent, or for social rent.

I also want to think about how we can work to create a healthier housing market over the longer term, with people to make a valid choice from any option from this family of providers.

I myself was brought up in the private rented sector; we lived in council housing in my teens, then I went into student digs and back into the private rented sector as an adult, before I bought my own home.

So I've experienced of all these sectors - and this is of course the same for many people. The roof over people's heads can take many different forms. And I want to make sure that we are supporting all sectors, all elements of this mixed economy, in order to meet people's different needs and respond to their different circumstances at different times in their lives.

Today, I wanted to take this opportunity to set out my analysis of the current state of the market and outline some of the measures we are putting in place to help ease the present turbulence.

Of course, government cannot resolve all the problems that we're facing, but we do have a responsibility to intervene and address issues where we can. I also want to reiterate the long-term challenges - and the importance of delivering the vast increase in housing the country needs.

As you'll know, one of my major responsibilities is for the eco-town programme. As part of my work on that, I've been on a series of visits which have really brought home to me the housing challenges in these areas around the country. Of course, there are some in the areas who don't accept these challenges - who don't realise the numbers living in their communities who can't afford to rent or buy somewhere of their own. But this debate is really helping to shine a light on some of the pressing issues in areas which don't always attract the same level of attention.

We are undoubtedly facing difficult conditions in the housing market at the moment. Housing starts and completions are currently each down by around a fifth for the past quarter compared with the same time last year. Lending conditions are very tight, with mortgage approvals having fallen by 60 per cent since last year. And house prices are also falling. Although, of course, from a very high base and are still almost 40 per cent up on prices from five years ago.

The impact is perhaps felt most strongly by potential first time buyers. Many still find prices far beyond their reach and now they find they are no longer able to borrow on the scale that they need. Certainly the information coming back from builders is that visits to sites may be down, but there is still a significant level of interest from first time buyers - they just can't translate that interest into actually getting a mortgage. The demand for housing is still there, but the necessary financial support is not.

The long term challenges are also well known. We have an aging, growing population, with more people living independently. I was struck by a figure I saw recently that single people account for something like 72 per cent of the projected growth in housing. And we need to talk about this in very human terms, to help people realise what this might mean for them.

Rising aspirations mean that many more people want to own their own home. There is a sense in this country that homeownership is a prize to be won, and we need to recognise this cultural value. But we must also recognise the pressures that this puts on young people in their twenties to get onto the housing ladder. Again, this goes back to creating a broader housing offer, with more opportunities and options which meet people's needs.

In total, the forecasts are for an extra 223,000 households on average per year to 2026. Yet housebuilding rates have not kept pace with demand for decades.

The research that NHPAU commissioned being published today again highlights the real concerns about long-term affordability, and the risk of a generation being locked out of home ownership.

The results of the YouGov survey they commissioned also suggests over two-thirds of people think house prices in their area are a problem. This is really an issues which is uppermost in people's minds at the moment.

"The challenge is to get the balance right - responding effectively to the short-term turbulence while maintaining the drive towards our longer term goals."

These are challenges which, fundamentally, can only be addressed through a major increase in housing supply.

Without this, there is a real risk that when the market turns up again we will see another property price boom, making homes even more unaffordable for first-time buyers and growing families.

Increasing supply in different conditions

But how can we continue to increase the housing supply on the scale required now that the market conditions have changed so substantially?

We can't wish away the current conditions. And I won't carry on regardless as if nothing has changed.

The challenge is to get the balance right - responding effectively to the short-term turbulence while maintaining the drive towards our longer term goals.

There is an overwhelming case for building more housing, and we in government remain absolutely committed to that. We must remain as ambitious as possible.

But we also have to be flexible enough to adapt to the current economic climate.

We have to be practical and realistic. We have to acknowledge not only the difficulties faced by individuals and families, but housebuilders too.

So I want to take some time to consider the advice I received last week from the NHPAU setting out their views on housing supply ranges. I also want to hear the views of our partners in the regions on that advice.

And over the coming months I am determined that we in government will do everything possible to continue to promote stability and fairness in the housing market.

Because I do think that sometimes, out of adversity can come opportunity - the chance to do things differently.

And in particular, I want to explore what scope there is for public investment in social and affordable housing to take up the slack in order to maintain supply.

I've already asked the Housing Corporation, English Partnerships, and the team setting up the Homes and Communities Agency to work with us on proposals to minimise the problems we currently face and as far as possible create the right conditions for rapid recovery.

Together we are conducting a review of the affordable housing programme, developing short and long term options for using our resources most effectively.

I can today announce our immediate next steps:

Firstly, in a clear demonstration that we are continuing to drive forward the delivery of affordable housing, I am today announcing the allocation of the next £270 million of the Corporation's programme. This brings the total now allocated in this three year programme to £3.6 billion.

This latest funding alone will deliver 3800 homes for social rent and 1500 homes for low cost home ownership over the next year. Even in difficult circumstances we must maintain our delivery, and this demonstrates our absolute commitment to doing so.

Secondly, I am announcing the sixth round of the Housing Private Finance Initiative - funding of up to £1.8 billion.

I will be looking for bids which are about shaping strong and dynamic communities - not just building estates - and which make a real contribution to local housing supply.

Thirdly, we are working with the Housing Corporation to make sure that they have the ability to respond appropriately to these changing circumstances.

So they will now have greater flexibility over the grant payments for providers delivering affordable and social housing.

Previously, half the grant has been paid at the start, and half at the end. Now, the Corporation will have the discretion to pay more upfront.

This reduces the risk for the developer, encouraging new starts and helping to stimulate wider market activity.

We have also already given the Housing Corporation the opportunity to fund purchases of unsold stock from developers - which can then be used for social or affordable housing.

£19 million of the £200 million has been committed so far, and we want to see the rest of these resources being invested as soon as possible.

So the Corporation will set up a National Clearing House which developers can approach with robust proposals for their unsold stock. The idea is to give developers greater certainty and an early steer on their chances of success, before completing a full bid.

"why should responsible young people be denied the opportunity to realise their dreams of homeownership - the sense of independence and stability that comes with having a secure base?"

In addition, I have agreed with Steve Douglas we will move from quarterly bidding rounds with providers to a continuous process of engagement. In this way, the Housing Corporation can be more pro-active, with speedy interventions which deliver the affordable housing so desperately needed, while also supporting developers.

Before Parliament rises for the Summer, I will set out more details of the programme we are putting together to both respond to the short-term challenges, and lay the ground for housebuilding to accelerate again once the market recovers.

Supporting homeownership

But we must also focus on meeting the needs of those who believe that homeownership is far beyond their grasp. It's clear why some people feel that way.

Ten years ago, house prices were around three and a half times average household income. Today, they are more than seven times average income. But with the effects of the credit crunch, borrowing on this scale is simply no longer possible.

And yet, why should responsible young people be denied the opportunity to realise their dreams of homeownership - the sense of independence and stability that comes with having a secure base?

Some people have asked why we are doing this when house prices are falling. But I do think it is right to explore all the possible options which could help meet their needs and give them a sustainable route into the housing market.

Already, our shared ownership and shared equity programmes have helped thousands more people into homeownership.

We also recently announced that all households with an income of under £60 000 who couldn't otherwise afford to buy would now be eligible for these products. 7000 people have applied since then.

There is clearly demand for these products. And where there is consumer demand there is the potential for commercial opportunity.

So I'm particularly keen to see private-sector solutions being developed. I know several housebuilders are already offering their own shared equity schemes with an equity loan for 15 or 20 per cent of the property value, free for up to ten years.

And of course, we must also look beyond homeownership to consider how other sectors will help to meet our housing needs.

You'll be aware of the ongoing review of the private rented sector, and also that we will publish a green paper looking at the broader issues of housing reform later this year.

Across the piece, I think we need to be looking at what the housing offer currently is, what people can find in the public or private sector, in rented properties or homeownership, in social housing or on the open market, whether it's meeting people's needs, and how we could strengthen or improve that offer.

In particular, over the past number of years we've developed a strong and positive relationship with RSLs as delivery partners. Now I think that the time is right to look at our relationship with local authorities. I hope to shortly bring forward proposals for local housing companies and explore the opportunities for new build through that route too.

Conclusion

So, these are difficult times in the housing market. But what has been encouraging is the way that so many people have been coming forward with creative and innovative solutions to the difficulties we're facing.

My objective is to put together a package of the best proposals, working with housebuilders, RSLs,local authorities and others to minimise the problems we currently face and create the conditions for a rapid recovery.

That means both providing more help for potential first time buyers. And it also means maintaining our long-term focus on supply. Ensuring that delivery remains as high as possible during this downturn, and maintaining capacity.

It is a delicate balance we need to strike between getting the interventions right to address the short-term difficulties while maintaining our long-term focus on overall supply. But I am confident we can achieve this goal. It's not an easy task, with quick fixes. But if we do respond practically and innovatively, we can achieve this in the way that families across the country need.