Breakdown of the 2017 Housing White Paper
- Published: Tuesday 07 February, 2017
- Category: Housing market
- By: Matthew Bone
- Updated: Thursday 16 February, 2017
The government released their landmark Housing White Paper this month, which outlines its plans to ease the current UK housing crisis. We take a look at the paper and what it could mean for both the buy-to-let market and the housing industry as a whole.
The White Paper’s background
In 2015, the then Housing Minister Brandon Lewis, announced plans from the government to create 1 million new homes by 2020. The plans were widely considered to be over-reaching and unrealistic, considering the UK house building industry was already lagging behind the required number of houses needed for the growing population.
When Theresa May became Prime Minister in July 2016, she reiterated the original goal of 200,000 homes pledged to be built per year, however, only 141,690 new builds were completed between September 2015 and September 2016. Current Housing Minister Gavin Barwell said the government were "behind schedule" on the proposed timeline, but still maintained its feasibility.
During the 2015-16 financial year, the number of affordable new homes built hit a record 24-year low of just 32,000, less than half the 66,000 built the previous year.
Aims of the 2017 White Paper
Secretary of State for Communities and Local government, Sajid Javid says the White Paper has four aims:
- Getting the right homes built in the right places
- Speeding up house building
- Diversifying the market
- Implementing interim housing solutions immediately
Gavin Barwell reiterated that this White Paper would address the lack of affordable property in the UK, stating:
"Whether you're trying to buy or you're trying to rent, housing in this country has become less and less affordable, because for 30 or 40 years’, governments have not built enough homes and this White Paper is fundamentally trying to do something about that."
What does the government blame for the housing crisis?
Outlined in the paper is a trident of reasons for the crisis in housing:
- Not enough local authorities planning for the homes they need
- House building that is simply too slow
- A construction industry that is too reliant on a small number of big players
Local authorities don’t plan for the homes they need
Local authorities have had a statutory duty to assess housing needs for at least sixty years, as outlined in Section 91 of the Housing Act 1957 which was consolidated and updated in the Housing Act 1985:
“Periodical review of housing needs.
(1) Every local housing authority shall consider housing conditions in their district and the needs of the district with respect to the provision of further housing accommodation.
(2) For that purpose the authority shall review any information which has been brought to their notice, including in particular information brought to their notice as a result of [F1the consideration of the housing conditions in their district under [F2 section 3 of the Housing Act 2004]].”
Every local authority devises a “Local Plan” which, in simple terms, sets out the policy against which authorities are going to judge planning applications made in their district.
What the government is proposing to tackle is the speed at which planning is completed, the cost involved and the bureaucracy surrounding it, so that “every area has an effective, up-to-date, plan” legislated through a Neighbourhood Planning Bill.
Speeding up housebuilding
For a long time, the idea that large developers were building slowly to ensure demand remained high and with that, their profits, was dismissed as hearsay and conjecture. However, with local councils granting planning applications by the thousands, and seeing minimal houses completed, that very idea seems a lot more realistic now.
One particular council in East Cheshire granted over 20,000 permissions since 2001, but saw only 5,000 homes built in the same time.
On top of that, over the last five years, the average delay between planning permission being granted and home completion has risen dramatically from 21 to 32 months, something that will have had a detrimental effect on this housing crisis.
In July 2016, David Thomas, CEO of Barratt Developments PLC, said he would be reducing the rate of building due to the Brexit vote:
“Following the EU referendum, we are mindful of the greater uncertainty now facing the UK economy. Consequently, the immediate outlook for our industry is less clear and it is too early to draw any conclusions regarding market conditions from the short trading period since the referendum.”
Source: “Barratt says it could slow housebuilding rate following Brexit vote”, The Guardian 13 July 2016
In response to the White paper David had this to say:
“We welcome the continued government focus on tackling the housing shortage and we’ll support any policies aimed at speeding up the planning system and bringing forward more land for new homes – particularly in areas of high demand.
“Housebuilders have an important role to play in building the homes the country needs and over the last five years Barratt has increased the number of homes it has built by more than 55%. But it is also vital that as the quantity increases, the quality of new homes doesn’t suffer.”
Whether the change from a three- to a two-year cut off for building on land once planning permission has been agreed will affect change remains to be seen, some speculate it will make little difference.
A construction industry that is too reliant on a small number of big players
Tony Abel, Chairman of Abel Homes Ltd. an independent house-builder based in Watton, Norfolk said of the government’s housing plans:
“There is [also] a suggestion that small house builders (like my company I presume) need to ‘take on the Nationals’ and build a lot more homes. There are so many obstacles to new home delivery:
The banks are still very nervous about funding property developers / new home builders and it’s a very capital intensive business.
- At every planning application we are challenged about the supporting infrastructure – NHS in particular.
- Councils are inadequately staffed which often leads to delays.
- Planning conditions are often too onerous and can cause large delays if problems arise.
- The utilities companies are struggling to meet current demand.
- Skilled labour shortage is a serious problem.
- Many key materials are also on a long order time.
- Professionals (architects, engineers etc.) are all stretched.
- The District Valuer’s Office is seriously under resourced.
The house building industry is complex and everybody involved remembers the 2008 recession all too well; therefore, the industry is loath to expose itself financially for fear of being caught out again.”
Highlights of the Paper
The Paper contained several measures the government believe will help ease the housing crisis, below is a summary:
- £3bn fund to help smaller building firms to challenge major developers
- Ban on letting agent fees for tenants is upheld
- Provide long term security and for tenants
- Encourage landlords to offer guaranteed 3-year tenancies
- Outline that developers must provide a proportion of new affordable rental homes at 20% cheaper than market value
- Reducing the duration of planning permission from three years to two in a bid to force developers to ‘get on and build’
- Building more sheltered housing to persuade older people to downsize and free up a greater number of larger homes for families
- Enable councils to plan for more build-to-rent properties
- Clampdown on land-hoarding (also known as land-banking) by developers, and name and shame those who do
- Forcing councils to produce an up-to-date plan for housing demand, review every 5 years.
A bone of contention in this White Paper is with the term ‘affordable’ housing. The government considers affordable properties to be based on a family with a combined income of £80,000 (outside of London). This indicates that those writing this housing policy may not truly understand what affordable really means to the majority of the UK, where average household incomes are nowhere near this level.
This was highlighted by Lib Dem leader Tim Farron, as Sajid Javid announced what affordable homes meant, with Farron questioning:
“Exactly what planet is he living on? In my constituency of Westmorland and Lonsdale, the average household income is £26,000.”
This worrying definition of “affordable” housing raises the concern that any new homes built will once again be priced too high for those in desperate need of them, completely in contrast with what the government has said it is aiming for.
For those looking to take their first steps onto the property ladder, the new homes aimed at them will remain out of reach, despite the government’s pledge to build for the future for “Our children and our children’s children.”
Demand outweighing supply
One prominent factor for the housing shortage appears to be immigration, with numbers of people coming into the UK estimated by the ONS to be at 650,000 for the first 6 months of 2016 alone.
Conversely, Gavin Barwell, in an interview with Peston on Sunday, stated immigration is not the majority factor:
“It’s actually less than a third of the household growth that we see in this country [that] comes from net migration.”
The table below compiled by Migration Watch UK, an independent and non-political think-tank, from official sources including the Office of National Statistics (ONS) and The International Passenger Survey, challenges the Housing Ministers notion that migration is less than a third of the problem.
January - June 2016 UK migration statistics
Source: ONS / The International Passenger Survey/ https://www.migrationwatchuk.org
Since 2010, 2.1 million target people have come to the UK, and in the same time, 873,870 dwellings have been built. This makes for concerning reading, and does raise the question as to whether the government are downplaying the role of immigration on the housing crisis.
Gavin Barwell went on to say that once the UK leaves the EU, “we can re-look at our immigration policy and bring numbers down”, but what effect this will have remains to be seen.
Regardless, the government’s target of 1 million homes by 2020 will still fall considerably short of the number that is actually needed, according to a committee in the House of Lords. The cross-party House of Lords Economic Affairs Committee said that at least 300,000 homes a year would need to be built to keep up with the demand, a 50% increase on the pledged 200,000 homes per year.
That level of home building has not been seen since 2007, raising further fears the government is doing too little, far too late to make any real difference.
Longer tenancy agreements
Details were outlined encouraging landlords to offer guaranteed tenancy agreements of 3 years for tenants. This would, according to the government, ‘result in more security, stability, and the ability to plan for the future’. It could also minimise void periods landlords face when a sitting tenant moves out at the end of their contract.
In reality this will affect little – if any – change, as tenancy agreements carry with them the ability to include a “break clause” to allow either party an exit route from the contract after an agreed period of notice.
Break clauses commonly include a restriction on when they can be incepted, so neither tenant nor landlord can do so immediately after a tenancy has begun (for example, a period of six months after the start date) but outside of this the clause can be used at any time, so whether you have signed on to a 12-month or 36-month tenancy there is still the opportunity to exit early.
Furthermore, the majority of lenders in the buy-to-let market set a maximum tenancy agreement length for landlord’s applying for buy-to-let mortgages. Only about a third of lenders Commercial Trust works with will currently accept tenancies of 36 months or more, and some of those are subject to other criteria.
The White paper only addresses this proposed step in the loosest of terms, with words like ‘encourage’ or ‘taking steps to promote’ longer tenancies, the practical solutions are not outlined which begs the question has it been properly thought through?
In the aftermath of the White Paper’s release, Gavin Barwell has come forward and said that the government’s request for longer tenancies will not apply to buy-to-let, but rather from agreements with housing associations, local authorities and institutional investors developing homes in the Build to Rent sector.
He said of the confusion around the wording that he hoped if other players offered those length tenancies it might “encourage other landlords to do so as well.”
Barwell went on to say that:
“I think if you tried to force people to do it at the opposite end of the market (buy-to-let) I think history is very clear about what happened when you have rent controls. I don’t think that would be a good idea.”
The growing issue of homelessness
Gavin Barwell, Housing Minister said of plans to address homelessness:
“people are right to be angry about homelessness… the long term solution is to recognise the cause of homelessness is not having enough homes in this country and the lack of affordability and that’s what the whitepaper is going to try and address.”
According to research by independent development and social research charity, The Joseph Rowntree Foundation ‘The end of a private tenancy is now the fastest-growing cause of homelessness, up by 200% in the last 4 years, and the single biggest cause in London’.
If the rental rates continue to increase, due to rising house prices and landlords passing on the cost of increased taxation to their tenants, many will find renting financially unviable, and as such, may add to the numbers of homeless rather than reduce them.
Councils asked to build again
In the White Paper the government is turning to councils (amongst others) to build more property, but they seem to have overlooked that until relatively recently councils were encouraged to sell off their stock of property to tenants (Right to Buy legislation passed in the Housing Act 1980) and to Housing Associations (“Large-scale voluntary transfer” (LSVT) which began nearly thirty years ago in 1988 with the Tory government and was subsequently embraced by Labour too).
It was intended that 1.3 million homes should be transferred away from council ownership which resulted in 300 LSVT’s by over 200 local authorities.
This process was far from easy and presented many challenges. I can imagine that some heads of local councils involved in this process will be looking at this with incredulity.
The green belt dilemma
The paper included a reform to allow developers to build on green belt areas – ‘an area of open land around a city, on which building is restricted -’ something that has angered many, including the government’s own MP’s. However, Gavin Barwell has said that he does not believe ‘large tracts’ of green belt needs to be built on to combat the housing shortage.
In an interview with Robert Peston on his Sunday TV show, Barwell said of the green belt proposals: "We are not going to weaken the protections. We have a clear manifesto commitment. There is no need to take huge tracts of land out of the green belt to solve the housing crisis.”
Councils will be granted the ability to build on the green belt in exceptional cases– providing they have exhausted all other options first. These options include: Releasing surplus government land, building on brownfield sites, building in greater density in towns and cities and working with neighbouring councils to help meet housing need.
This has caused widespread unease as it remains unclear as to what ‘exceptional cases’ will look like. There are fears that councils will assert that every case put forward is exceptional, in order to push ahead with development under the pressure of meeting governmental and local targets.
Andrew Mitchell, Conservative MP for Sutton Coldfield, writing in the Mail on Sunday, said:
“My concern is this: that by giving councils and builders more scope to argue that ‘exceptional circumstances’ can be invoked and the green belt destroyed, we are opening the way to vandalism across Britain. It is unforgivable.”
Downsizing accommodation for the elderly
To try and grow numbers of family-sized homes the government plans to make it simpler for older people to move out of larger properties and into smaller, more suitable housing.
A report by the Royal Institution of Chartered Surveyors said 2.6 million homes worth a combined £800bn could be released onto the property market if older owners downsized.
The paper plans to incentivise good quality sheltered home building from councils, housing associations and smaller developers and break the monopoly of a handful of large house builders.
Whilst providing help and assistance to vulnerable elderly people can only be welcomed, older generations understandably develop strong emotional attachment to their home and moving out is not an option that is always popular. On paper it may be made ‘easier’ but in reality it is still a huge practical upheaval on top of the emotional repercussions.
£3 billion fund for smaller property developers
The White Paper highlighted the need for smaller, independent house building firms to ‘take on the nationals’ in order to meet the housing quota and drive the paper forward, with the announcement of a £3bn fund will be set up and used to ensure that those smaller firms can compete.
Tony Abel said of the government’s housing plans:
“We all agree that more homes are required, most don’t want them in their back yard – and the entire industry, its associates, its suppliers, its governance and its workforce cannot go any quicker. And if it did, the infrastructure would struggle even more than it currently does.”
If the government is really targeting 200,000+ new homes built a year, then concerns like these will have to be addressed at both a local and national level, or their pledge will be just another failed promise and the crisis will continue to get worse.
Overall impact of the paper on housing
The Paper has outlined exactly what the government wants to achieve, but we are all left wondering exactly how it will be done.
A ‘one size fits all’ housing policy does not adequately address the many complexities and challenges needed to be addressed and overcome to reach its goals. An unrealistic view of what constitutes “affordable housing” and ignoring calls from industry experts to address the housing problems sector by sector, as opposed to a ‘just increasing supply’ approach feels like an ill-conceived plan.
The intent of the paper is very much welcomed. Landlords have been the scapegoat for rising house prices, where in fact the wide availability of cheap debt and a painful lack of housing supply are far greater contributing factors. Any steps the government intends to take to address this should be encouraged, but many believe this paper will not have the impact hoped for.
Impact on the buy-to-let market
This housing White Paper marks a change of direction in conservative housing policy. They have moved away from focusing solely on home ownership, something they have remained resolute on since Margaret Thatcher announced the ‘Right to Buy’ policy in the 80’s and instead turned their attention, in part, to focus on creating affordable housing in the rental market.
While it is a positive step to see the government taking the buy-to-let market seriously as a housing option it has recently put in place several measures which have forced some private landlords out of the market, and significantly punished those that remain; so it is even more disappointing that whilst on the one hand they acknowledge the value of the Private Rented Sector (PRS) they are in practice driving up the business costs associated with it which can only, ultimately, be passed on to tenants.
It can only be hoped that house building targets are met in order to empower those who want to get onto the property ladder, and that the government comes to realise that disenfranchising private landlords adds to the pressure upon UK housing rather than lessening it.
Whatever the outcome Commercial Trust will support our landlord clients throughout.
This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.