Unaffordable housing
July 11th, 2012What is affordable housing?
To some, it is “key worker” housing, providing homes for the nurses, doctors, teachers and other hard working public employees who play their part in the community and contribute to the richness of the fabric of that community. To others, it is something entirely different – it is “social housing” to accommodate those on benefits who have no desire to work at all, who who cause trouble for those self respecting residents of adjoining properties and streets. Whatever it is, it has become part of the lexicon of planners across the Principality and elsewhere. Housing needs assessments paint a picture of perpetual doom as increasing numbers of our population are deemed not to be able to afford to get onto the property ladder.
Whether one agrees with the principle that market forces ought to be interfered with in this way is neither here nor there – politicians of all flavours seem to agree that making homes affordable is one of the big issues of our day. The big question is however, what makes homes unaffordable? Going back to simple A level economics, the price of housing is a product of supply and demand. If the housing supply is somehow restricted and the demand stays the same, house prices will rise. This works in practice, too. New towns such as Milton Keynes have understood this concept and have for years regulated the release of new housing to match demand, to smooth out sharp rises or falls in house prices.
Stage one of making housing more affordable ought therefore to be to increase the general supply of open market housing. This is easier said than done. Despite ministerial pleadings, some authorities in Wales seem totally unable to recognise the need to flex and adapt positively to changing market conditions. These, it would appear, prefer to see no new houses being built than to depart from their local plan allocations, however dated and pie in the sky those allocations may now seem. Setting aside the fact that every new home built employs the equivalent of one person for a full year, by their inaction, these antediluvian authorities are guilty of constraining housing supply, forcing up prices and making housing in their areas less affordable.
Of course, even if local planning authorities were to approve every housing application ever submitted, the market would not provide a perfect balance of demand and supply. While in theory the average house price would match the average income, the reality is that in some areas, particularly cities such as London, housing supply is physically limited and demand is so high that even middle income earners find it difficult to buy onto the property ladder. This is a market failure that government, rightly in my view, ought to apply itself to. The current government thinking in this regard is straightforward – force developers to provide a proportion of their housing at below market rates i.e. make it more affordable.
In pure economic terms the effect of this is inescapable. When supply is constrained, market prices go up, and properties – to buy or rent – become even more unaffordable. Of course if affordable requirements are set at reasonable levels and if the local plan dinosaurs that exist in some local authorities are kept at bay, the effect on supply ought not to be too marked within the normal ups and downs of the housing market. However, what happens when the level of affordable housing requirement is set at higher levels? We have recent experience of a rural authority that has a policy of demanding that 60% of new housing in its principal town must be affordable . Westminster, one of the most expensive areas of the country, tops out at 50% affordable housing requirement, and only then for large scale non-central developments. Why does a rural local planning authority insist on a level higher than one in the very centre of our nation’s capital?
There is no doubt that there is a local need for more affordable housing and that developers ought to take a share of the responsibility of meeting this need. However, when 6 out of 10 new homes are required to be affordable, the balance of responsibility is clearly leaning the wrong way. So what on earth has prompted this particular authority to pick a policy from the lower branches of the la la tree? There are two schools of thought. The first is that housing development is so lucrative that developers can “easily afford” to subsidise affordable housing to this ridiculous level. The fact of the matter is, however, and as the statistics are starting to show, they are patently wrong.
This leads into the second school of thought – that, despite the clear direction of national policy that the presumption ought to be in favour of new development, the authority just doesn’t want to see it happen. If we really want housing to be affordable, then the solution appears to be much more than grabbing opportunities to raise the affordable housing obligation at every opportunity. It is about pragmatism – Reflecting sensibly on dated housing allocations, listening to and responding positively to market demands and setting realistic affordable housing levels.
The housing market is dynamic and if we are to make housing affordable for all, it is time that in some local authorities the officers showed a bit of dynamism, too.