Research undertaken by housing charity Shelter appears to undermine the bold housing pledges unveiled by chancellor Philip Hammond in his latest Budget. While his proposals for tackling the housing crisis have been largely welcomed, critics were quick to point to some of the drawbacks.
Although a stamp duty exemption for first-time buyers is expected to cut bills by up to £5,000, critics pointed to Office for Budget Responsibility forecasts that the move will cost £600m a year, is likely to raise house prices by 0.3 per cent, and increase first-time buyer numbers by only 3,500.
The Resolution Foundation complained that the change focused on supporting demand rather than increasing the supply of housing. It pointed out, ironically, that the cost of the policy equated to a unit cost of £160,000 per extra owner – enough to buy them a typical property outright in 26 per cent of local authorities across England and Wales.
The organisation was more welcoming of the chancellor’s pledges to increase investment in housebuilding and simply to build more housing, with a target of up to 300,000 new homes a year by the mid-2020s. Shelter agreed, but also argued that the housebuilding pledge will only make a significant difference if most of the homes being built are affordable. For a home to be ‘affordable’ it must take up no more than a third of the renter’s/mortgagee’s income. Shelter says the requirement for affordable homes in the UK is rising in a climate of soaring rents and welfare cuts.
According to government statistics, in 2016-17 there were 217,350 additional dwellings created in the UK, a rise of 15 per cent. This includes the conversion of houses and offices into flats, as well as newly built dwellings. Of those, only 41,530 – 19 per cent – could be classed as affordable, well below the average of the past 10 years.
Local authority targets
Most local authorities set targets for ensuring a certain percentage of new homes are affordable. However, developers have a right to competitive returns of about 20 per cent under national planning regulations, and these targets can be overridden by a legal loophole: the ‘viability assessment’.
Shelter has calculated that in 2016-17, this loophole led to the loss of 2,500 affordable homes – about 79 per cent of those originally planned by local councils. Table 1 illustrates the shortfall in affordable homes, notably when viability assessments are used.
Developers often submit these assessments alongside their planning applications, showing the effect of the affordable housing target on their profits to help them argue for a reduction. Worse, viability assessments are treated as commercially confidential, making it difficult for them to be challenged.
Shelter says that local councils often have no choice but to approve the applications because developers can appeal against a decision and are likely to win based on the national planning regulations.
Furthermore, where a scheme is beginning to look less profitable, developers can use a new viability assessment to reduce the amount of affordable housing. Shelter argues that this encourages developers to take risks and pay over the odds for land, reducing the percentage of affordable homes in the event that profits are at stake. According to the charity, just 7 per cent of homes end up as affordable following an application in which a viability assessment was used.