Housing market and
low income housing provision in UK
UK-Brazil urban network
March 2011
Youngha Cho
Oxford Brookes University
ycho@brookes.ac.uk
Contents
1. Housing policy: brief overview
2. Social housing provision for low income household
in UK
3. Impact of demographic and economic changes
 The impacts of economic downturn
 The impacts of political regime change
4. Social housing reform: new delivery model for low
income household
5. Conclusion and responses
2
1. Housing policy: brief overview
 After the WWII:
 urgent need to repair war damage,
 active urban renewal programmes during the late 1950s and 1960s,
 mass construction of new housing
 1970s to 1990s: characterized by Thatcher government (1979-1990)’s policy
regime.
 Deregulation and liberalization
• Deregulation of the financial system
• Housing privatization
• Right to Buy (privatisation of social housing)
• Deregulation of private rented sector
 Restructuring housing subsidies
• Supply-side subsides demand-side housing cost subsidies
 Asset Restructuring of social housing sector
3
Key policies in 2000s




2000s: focused on tackling localized and contingent problems,
 different housing problems between high growth area and low demand
area,
 affordability problems in the south/London area,
 low demand in north regions
 mismatch between supply and demand.
2001:Housing Green Paper, Quality and Choice: A Decent Home for All
 Focus was mainly on social sector housing’s quality and condition, upgrading the existing stock
 No mentions on new dwellings to be built
2003/4 : Kate Barker Report ,
 Lack of new construction
 Worsened affordability
 Planning regulations
2007: Housing Green Paper
 New mass construction plan: 2 million new homes by 2016
3 million new homes by 2020
4
2. Social housing provision for low income household in UK
 Housing revenue grant (demand subsidy)
 aimed at supporting the monthly housing costs of
occupiers
 either direct to tenants in the form of housing benefit
 or in certain cases, to providers of special needs
housing
 Capital grant (supply subsidy)
 subsidised construction of housing
 managed by local authorities and housing corporation
5
Social housing products by capital grant




Social rented housing
 LA housing (11 %, 2007)
 HA housing (8 %, 2007)
Rented housing owned and managed by local authorities and registered social
landlords,
target rents are determined through the national rent regime.
Intermediate tenure housing (Low Cost Home Ownership)
 It helps social tenants, key workers and first-time buyers to get onto the
housing ladder.
 Housing at prices and rents above those of social rent, but below market
price or rents.
 includes shared equity products (e.g. HomeBuy), other low cost homes for
sale and intermediate rent
 LCHO gives housing developers access to grants for the provision of new
affordable housing.
 Also help housing associations in encouraging and supporting their social
rented tenants into affordable home ownership.
6
Low Cost Home Ownership scheme
There are currently five products in the HomeBuy scheme:
 New Build HomeBuy: new homes are provided by our development partners and
offered for sale as leasehold properties on shared ownership terms
 Open Market HomeBuy: purchasers buy a home on the open market with the
benefit of an equity loan that sits alongside a conventional mortgage
 Social HomeBuy:enables social housing tenants of participating housing
associations and local authorities buy their current home either outright or on
shared ownership terms.
 HomeBuy Direct: purchasers buy specific new build properties with an equity
loan of up to 30 per cent of the purchase price, with the loan jointly funded by
the government and the developer.
 Rent to HomeBuy: selected new build homes are rented on intermediate rent
terms for up to three years, after which time the tenant can purchase their home
through the New Build HomeBuy scheme
7
Relative costs of capital grant required to develop
affordable housing
 Social rent: £67,932 per unit on average (£113,775 in London)
 Intermediate rent: £44,023 per unit on average (£55,840 in
London)
 LCHO
 OpenMarket HomeBuy:£34,960 per unit on average
 NewBuild HomeBuy: £30,829 per unit on average
Source: Affordable housing review, 2009 Knight Frank
8
Housing under-supply and mismatch in nature
9
Owner-occupier focused policy
10
Relative poverty of social tenants
Household incomes as a percentage of the average.
France(1996) Germany(1996) GB(1997/8), Netherlands(1998) Sweden(1997)
Source:ODPM 2005, Lessons from the past, challenges for the future for housing policy
11
Incomes as percentage of average
Source:ODPM 2005, Lessons from the past, challenges for the future for housing policy



Greater levels of income inequality in Britain
Greater concentrations of households from the lowest income deciles live in the
British social rented sector.
Greater commitment in Britain to house the most disadvantaged groups in the
social rented sector.
12
Summary of English Housing Policy: 1970s-2000s
 Housing under-supply: supply mechanisms are not
providing sufficient amount of new housing for both
market and social sector
 The deregulated finance market combined with a highly
regulated land market produced housing market instability
 Owner-occupier focused policy
 However, greater commitment to house the most
disadvantaged groups in the social rented sector.
 Lack of social housing in high demand areas
13
3. The Impact of demographic and economic changes
Household estimates and projection by household type, England
Rapid increase of one person household
14
Aging population
 more vulnerable and no/low income hh
15
House price increase (real house price 1969-2002)




Strong long term upward trend
3.3% pa in real terms over this 35 year period
Low supply elasticity
Regional differences
16
Worsened affordability (house price-income ratio)



Ratio of average house price to average disposable
household income.
The worst between late 1980s and early 1990s.
The latest boom period ( 2003-2007) : much worse
17
Households in temporary accommodation and B&B in England


For poorer and vulnerable households there are particularly acute
pressures.
87,000 hh living in temporary accommodation including around
4,000 in bed and breakfast.
Source: Housing Green Paper (2007)
18



The number of hh waiting for social housing has risen from 1m to 1.8 m
over the last ten years(1997-2007)
Provision of new social housing has increased by 50% in 2007-8 since
2004-5.
However, it remains significantly lower than the 40,000 households
which make up newly arising need each year.
19
How the recession has changed the housing market?

Downward trend in house prices.


It does not mean improved affordability.
In mid 2007, FTB bought a property priced
at 5.4 times their annual salary. Falling
prices since 2007 meant that this ratio had
fallen to 4.2 by mid 2009.

Real concern is access to mortgage
finance.
 Mortgage lending 2% down on Oct
2010 than one year before.
20


UK GDP rose by 0.8% in Q3 2010, the 4th consecutive quarter of growth
since the recession
Q3 Housing starts 9% lower than previous quarter but annual housing starts
in England totalled 102k in the year to Sept 2010, 40% up on previous year.
21
How wider political regime changes are beginning to
impact on thinking and activity in the sector?
New coalition government
Spending review outcome

“Most challenging situation in living memory”
 To illustrate – Total Departmental Capital(DEL) forecast outturn of
£56.6bn in 2009/10
 By 2011/12 planned DEL falls to £43.5bn
 And by 2013/14 £39.2bn
Source: CLG, 2010, M Bailes, Affordable Rent-an introduction, Affordable Housing
Division.


The use of grants to fund social housing, particularly low cost
homeownership is likely to be questioned.
Affordable housing providers will need to become far more self reliant,
will need to work their existing assets harder to support more
development.
22
4. Social Housing Reform






Change was inevitable.
Reduced public funding- requires innovation and value for money
driven by local partner
Land & regeneration- public land assets crucial for delivery
Renewal of existing stock
In November 2010, radical reform of the social housing system was
announced.
Local decisions; A fairer future for social housing :
 To ensure that councils and social landlords can better meet the
housing needs of their communities
 include changes to the way people access social housing, the types
of tenancies which are provided
23
The Social Housing Reform

The measures include:
 improving social housing mobility(social home swap scheme)
 changing the way social housing is regulated
 reform of the council housing finance system, and
 doing more to bring empty homes back into use as affordable
housing.
24
Affordable Homes Programme (2011-2015)




Aims to increase the supply of new affordable homes in England.
During 2011-15, the Homes and Communities Agency will invest £4.5bn in new
affordable housing through the Affordable Homes Programme.
The majority of the homes built will be made available as Affordable Rent and
with some for affordable home ownership.
A new delivery product, ‘Affordable Rented Housing’ is introduced:
 a form of social housing introduced from April 2011.
 provided by registered providers of social housing,
 has the same characteristics as social rented housing
 except that it is outside the national rent regime,
 is subject to other rent controls.
 Independent valuation based on method recognised by RICS
 Affordable rent may be charged at up to 80% of local market rents
 Uprated at RPI+1/2% for the period of a tenancy
 Available to providers who commit to reinvest extra revenues in new supply
25
A new delivery model for low income household:
Affordable Rent Model
Traditional social rent




Rents at 50% of market rent
Life time tenancies
Grant at £ 80k per unit
Limited use of existing assets
Affordable Rent




Rents at up to 80% of market rent
Fixed term tenancies
Grant as part of wider subsidy
Asset management strategies
involving conversion of voids and
sales
Source: CLG, 2010, M Bailes, Affordable Rent-an introduction, Affordable Housing Division.
The aims of the new delivery model are to:
 meet housing need at a local level;
 provide a more flexible offer for social housing tenants;
 ensure that public funds (and funds generated from conversions) are
properly and effectively spent and;
 maximise delivery of new affordable housing supply.
26
The new local delivery model

Affordable rent has to be aligned
with local priorities

HCA will assist local delivery
with the right mix of:
 Public land assets
 Affordable rent
 Regulation
 Aligning public funding
streams
 Private and local partners
Source: HCA, 2010, P Ritchie, HCA Investment seminar-Affordable Rent
27
It is a local investment planning!




Locally led, voluntary process to develop local priorities for investment
HCA will enable local areas to realise benefits from land
£1.4 bn Regional Growth Fund will be key source of funding over next three
years
HCA is working with 160 local partnerships
 Working closely with emerging Local Enterprise Partnership (LEPs)
 24 LEPs announced
28
The Role of HCA (the national housing and
regeneration delivery agency)

Investment and enabling agency:
 investment in new housing and communities,
 enabling support to local partners,
 utilising public sector land assets, assisting DCLG playing central role in
managing land and property assets of RDAs and
 the economic regulation of registered housing providers (RPs).

Delivering three investment programmes:
 A new affordable housing model
 Addressing the Decent Homes backlog to prepare for self-financing
 P&R commitments and maximising receipts

Central to the new role is combining investment, enabling and land to support
the affordable rent model
Source: HCA, 2010, P Ritchie, HCA Investment seminar-Affordable Rent
29
5. Conclusion and implication



New economic and market conditions
Reduced public funding signals a shift in the way housing and
regeneration are delivered
The Localism Bill (Dec. 2010) shift power from central government back
into local communities.


Flexible local approach is essential for delivery of social housing
This is an opportunity to support diverse range of people on waiting
lists.


HCA will invest in housing and enable regeneration
HCA will co-operate with local authorities in their strategic housing role
to allocate affordable rent properties.

Registered housing providers will need to be included in planning and
delivery
30
Private sector (developers/housebuilders)’s responses
 As land and sales prices have fallen, section 106 agreements
becoming impractical.
 The importance of grant as the major source of social housing
support will increase for their business.
 This is a real opportunity for developers
 There is no option but to consider the affordable
rent/intermediate housing as the future growth sector.
 They welcome the flexibility in terms of the tenure types
offered.
 They argue that HCA should be given far more flexibility
regarding subsidy allocation.
31
Research Questions

We are not sure about yet how the new model, under the social
housing reform framework, will work!

How will the central government’s power be devolved to local
communities to implement the new delivery model smoothly?

The new model implies more support for housing need of far broader
and wider demographic group (middle income household). Will the
model be fair to those who need it most?

Some concerns about the new model are the general drift of policy
towards flexible tenure and a blurring of the boundaries between
private, intermediate and affordable housing. How would the new
model will support people it is intended to help in the same way that
current social housing does?
32