INTRODUCTION

  The House Builders Federation (HBF) is the trade association that represents private sector house builders in England and Wales. Our member's account for 80% of new homes built each year.

THE SCALE OF HOUSE BUILDING NEEDED

  HBF has previously drawn the Committee's attention to the incredibly low level of house building and we welcome the Government's commitment to securing a step-change in output.

  There is no single, magic number of new homes required to meet future housing need. The number of new dwellings required nationally will depend on future population and household growth, rates of demolition and conversion, vacancy rates and the general condition of the housing stock.

  Projections or predictions of the likely number of households over the next 20-25 years are inevitably uncertain. Of the six sets of official projections published since 1981, all—including the most recent—have underestimated actual household growth. The recent 2001 census figures further complicate the picture.

  The 1996-based household projections put household growth from 1996-2021 at 3.814 million (DETR, 1999). If we assume a home for every additional household, plus a 2% margin for transactional vacancies among the new homes built over the next 20 years, and subtract the 699,000 increase in the housing stock of England from 1995-96 to 2000-01, there will need to be 3.19 million additional dwellings provided in England from 2001-21, or approximately 160,000 per year.

  However, the 1996-based household projections seriously underestimate household growth. The 2000-based population projections suggest perhaps another 700,000 households should be added to the 2021 total estimated in the 1996-based projections. This would give a 1996-2021 increase of 4.5 million households. Assuming a home for every additional household, a 2% transactional vacancy rate among the additional new homes, deducting the 699,000 additions to the stock in the last five years, and again assuming conversions cancel out demolitions over the next 20 years, then we need to build 3.9 million new homes in England from 2001-21, or 195,000 per year.

  But even this total is likely to be an underestimate because it would imply a crude housing stock surplus in 2021 of only 1.4%, not sufficient to provide a home for every household and allow for a 3% vacancy rate. So another approach is to estimate the stock increase needed to house every household in 2021 and to allow for a 3% vacancy rate.

  The 1996-based household projections, adjusted for the 2000-based population projections, suggest there will be around 24.7 million households in England in 2021. Assuming every additional household has a home, plus 3% for vacancies, we will need a stock of 25.44 million dwellings in 2021. The actual stock in 2001 was 21.134 million, which implies we need an additional 4.3 million homes from 2001-21. If once again we assume conversions cancel demolitions, we need to build approximately 215,000 new homes per year from 2001-21.

  Actual housing completions in England fell to 130,019 in 2001, and averaged 139,600 per year in the five years 1997-2001. So current rates of new building are running somewhere between 76,000 and 85,000 per year below likely need over the next 20 years. Therefore we are currently building only 60-65% of the homes necessary to meet housing requirements in England over the next two decades.

  Were new house building to continue for the next 20 years at the same rate as over the past five years (approximately 139,600 per year), with conversions equalling demolitions, the housing stock would reach 23.9 million in 2021. It has already been estimated (see above) that housing all households in 2021 (24.7 million), and ensuring a 3% surplus to cover vacancies, would require 25.4 million dwellings.

  In other words, current house building trends will produce 1.5 million fewer dwellings than are likely to be needed over the next 20 years if we are to ensure a home for every household and a sensible margin for vacancies. 6% of all households in England will not have access to a separate dwelling by 2021, equivalent to 1.5 million households, or well over three million people.

  If we ignore the impact of vacant stock, current house building trends will result in 800,000 fewer dwellings than household in 2021, a crude deficit of 3.1% of all households. If house building numbers fall further, as some in the industry expect, this crude deficit by 2021 will be even larger.

  So there can be no doubt, using either recent evidence or projections for the future, that England faces a growing housing crisis unless there is a dramatic increase in new house building. The stock surplus is already at a critically low level and is set to become a crude deficit (ie fewer dwellings than households) within the next year or two. Housing affordability and labour shortages, already serious problems in many areas of the country, are set to worsen.

  There can be little doubt that a decade from now, and probably much sooner, we will see a mirror image of the current rail and health service crises. Repairing the housing crisis, built up over more than two decades, will take many years, and probably several decades. The longer it is ignored, the greater the economic and social damage it will inflict, and the longer it will take to repair.

THE EFFECT OF PROPOSALS ON HOUSE PRICES

  Economics tells us that when the supply of a good or service falls due to some outside constraint (ie a leftward shift of the supply curve), in the short term the price will rise until supply and demand are brought back into equilibrium at a new higher price. In the longer term, producers will adapt to these new conditions and try to increase supply (ie shift the supply curve back to the right), so that the price will decline over time, though not necessarily back to the original price.

  Unlike most goods and services, however, private housing can suffer from long-term under-supply because:(a) the supply of land, and therefore new homes, is tightly controlled by local authorities through the planning system, and (b) household growth, which generates additional housing need/demand, is largely independent of expansion of the housing stock and housing costs. This means rising housing need is not choked off by housing shortages and higher housing costs, nor does housing supply respond adequately to rising demand and higher house and land prices.

  Academic research has shown private housing supply in the UK is exceptionally unresponsive to increases in demand, even in the long term. In the jargon, private housing supply is very inelastic. This unresponsiveness has become highly visible over the last decade. Whereas gross domestic product (GDP) and per capita GDP have steadily expanded since 1993, private housing completions in Great Britain were almost static between 1994 and 2000 and then fell in 2001 to their lowest level since 1982.

  It is sometimes argued that because new homes contribute only limited additions to the stock each year and represent only 10-12% of the housing market, housing supply has very little impact on house prices and increasing supply in the south of England (in line with the Government's objectives) would be ineffective.

  In the short-term, this may be true. But housing supply must be viewed from a long-term perspective. If housing supply is constrained for two or three decades, house prices will be higher than they would otherwise be. There is uncertainty and disagreement among academics as to the scale of this price effect, not least because their models do not allow forecasts extending over two or three decades. But there can be no disputing the fact that long-term housing under-supply will force up house prices. It seems highly implausible that the English housing market operates according to some unique economic principle whereby the interaction of supply and demand does not strongly influence house prices.

  The impact of housing shortages can be seen in the long-term behaviour of house prices. Over the long-term, the price of most goods and services would be expected either to keep pace with increases in the general price level, or to decline in real terms. However, house prices have increased by 2.5% per year in real terms over the last five decades, evidence that supply is not responsive to demand.

  The impact of housing shortages on real prices is even clearer if the period up to 1981 (when housing supply expanded faster that household growth, is separated from the last 20 years when housing supply lagged behind household growth. From 1953-81 house prices increased by 2.1% per year in real terms (ie after adjusting for increases in the general price level). From 1981-2001, as housing shortages became increasingly evident, real house prices rose by an average 3.1% per year.

  The geographical distribution of new housing, including plans to concentrate development in the South East in four growth areas; Milton Keynes, the Cambridge/Stansted Corridor, Ashford and the Thames Gateway

  There is a clear need to raise house building levels in the south of England. Evidence suggests that the 1996-based household projections, on which RPG9 for the South East is based, seriously underestimate the extent of household growth. Therefore the announcement by the Government of an additional 200,000 new homes is welcome.

  However, whilst supporting policies for additional growth in the four identified areas it is important not to ignore other areas of high housing demand. Indeed the Deputy Prime Minister stated to the House of Commons that he would insist that all local authorities deliver the housing numbers set out in regional planning guidance; where they fail to do so he will intervene.

  As a recent report for the South East Regional Assembly (Housing Supply in the South East) states, the region will have to increase annual completions by over 5,000 dwellings (or more than 20%) before it starts to achieve the RPG rate (28,000 per annum). In some structure plan areas the percentage increases required are very much higher, with all but two areas providing at lower rates in 2000-01 that those required in RPG9.

  The report also indicates that there is little prospect of an immediate up-turn in new housing completions, as the amount of land with permissions has decreased in recent years. In addition, in areas like the Thames Gateway, considerable up-front investment in new infrastructure will be required before the housing potential can be delivered. There are long lead times before development can commence and a number of sites have development lives of many years.

WILL PROPOSALS PROMOTE HIGH QUALITY SUSTAINABLE COMMUNITIES AND AVOID POORLY DESIGNED URBAN SPRAWL?

  Planning Policy Guidance for Housing (PPG3) emphasises the need for development to be concentrated in existing urban areas, in well-planned urban extensions or new settlements. The proposals for concentrating growth in four areas will provide the critical mass needed to achieve genuinely integrated transport solutions, mixed use development to reduce car journeys, as well as efficient water management and properly planned open spaces.

  HBF is committed to promoting best practice and innovation within the house building industry. For example, the Building for Life partnership on design between the HBF, the Commission for Architecture and the Built Environment (CABE) and the Civic Trust seeks to show how house building, done well, adds value to communities by providing high quality living environments.

  Building for Life has identified a number of barriers that must be removed by Government if we are to raise residential design standards. These are:

—  Ensure local authorities comment on objective design issues rather than detailed issues of style and taste.

—  Prevent local authorities from introducing or retaining restrictive planning policies on issues such as amenity space standards and overlooking distances, which have no bearing on the quality of developments and indeed often detract from good design.

—  Introduce Transport Development Areas to allow house builders to develop at higher densities around significant transport nodes.

—  Revise highway regulations and guidance to ensure that house builders can develop schemes that create liveable and attractive neighbourhoods and which comply with the principles set out in the Government's own planning guidelines—"Better Places to Live" and "Places, Streets and Movement" including:

—  The design of road junctions to favour the needs of pedestrians;

—  Allowing greater use of shared surfaces and creation of 20mph zones;

—  Greater flexibility over road widths, need for signal junctions, scale of roundabouts etc.

—  Review building regulations to ensure that the regulations are based on empirical models of risk assessment so that house builders can develop higher density schemes without unnecessary constraints.

—  Introduce training packages for local councillors on planning committees so that they fully understand the requirements of national planning guidance and their obligation to pursue policies and make decisions in accordance with that guidance, particularly in respect of density, mixing uses and design quality.

—  Provide a mandate to the Planning Inspectorate or Audit Commission to undertake audits of local authorities' implementation of national planning policies on the provision of housing. Where significant and continual under-performance is recorded, sanctions should be available and applied.

THE BALANCE OF NEW DEVELOPMENT BETWEEN HOUSING FOR SALE AND SOCIAL HOUSING AND THE EXTENT TO WHICH DECISIONS RELATING TO HOUSING, INCLUDING NUMBERS, TENURE AND DENSITY, SHOULD BE TAKEN BY CENTRAL AND LOCAL GOVERNMENT

  Housing is part of the national infrastructure, and like the railways and the NHS years of under-investment cannot be turned round by short bursts of unsustained investment or quick fixes. It is therefore a legitimate role of central Government to plan effectively (in partnership with local authorities) for new housing provision. HBF welcomes the strong leadership that is currently being shown by Government in this area and the determination to try and meet demand for new housing.

  However, there is a limit to the extent of the role of central government. For example housing affordability varies enormously both between and within local authorities and therefore the balance between market and social housing should be determined at the local level, often on a site-by-site basis.

  Similarly Government must provide for flexibility on application of density and parking standards at the local level. For example there is considerable evidence that density targets aimed at ensuring the best use of limited land resource in the South East are inappropriate for other parts of the country where there is already an abundance of high density housing.