Affordable Family Housing

Published Date: 23 Mar 2015

Introduction

This dissertation determines how current trends in housing in the South East will impact on the future of affordable housing for families. The dissertation is divided in to five main Chapters. Chapter 1 provides an outline of two main facets of the dissertation: i) defining the methodology to be used in the course of the dissertation, through outlining how the Literature Review, which forms the basis of the dissertation, was conducted and ii) outlining the basic objectives that will be addressed in the course of the dissertation. The basic objectives that will be addressed are i) whether enough housing units are being delivered for families; ii) what the current housing trends are, in terms of what type of housing is being developed (i.e., flats or housing) and iii) what the impact these factors will have for the future of affordable family housing in the South East.

Chapter 2 moves on from the outline of the methodology and the outlining of the basic objectives of the dissertation to provide an overview of the trends in the UK housing market over recent years, with Section 2.1 providing a summary of the findings of the Barker Report, a report that was commissioned by the Government with the explicit purpose of achieving improvements in housing affordability, creating a more stable housing market, locating housing supply to promote economic growth and providing an adequate supply of public (or social) housing for those who need it (Barker, 2004). Section 2.2 looks in detail at what factors have fuelled the recent trends in the UK housing market, looking in detail at such factors as the introduction of buy-to-let mortgages and the impact these have had on house prices and the private rental market. This section also addresses the issue of the purchasing of second homes and how this relates to new housing developments, in terms of many of the new builds in desirable areas being swept up by people purchasing second homes, and not by first time buyers, causing further problems for first-time buyers wanting to enter the housing market, in terms of pushing up prices and causing affordability problems.

Section 2.3 of Chapter 2 looks at the issue of the affordability of housing, and will show, using statistics from a number of studies to discuss the issue of how affordability of housing has changed over recent years, such that many individuals are now priced out of the market, with house price to income ratios being extremely high, higher than many mortgage lenders are prepared to lend, for example, causing problems with the ability to enter the property ladder. Section 2.4 of Chapter 2 will look at what can be done to address the lack of affordability of housing, especially in the South East of England, in terms of what policies can be implemented, both nationally, in terms of managing such factors as interest rates, and locally, in terms of how planning regulations can be used to deliver affordable housing, through such planning directives as S106 and PPS3, for example. Section 2.5 of Chapter 2 provides a summary of what factors affect how the existing housing stock is used, looking in detail at such drivers as economic, policy, sustainability and the role of changing aspirations in determining how households choose their housing.

Chapter 3 looks in detail at the specific case of the housing market in the South East of England, providing, in Section 3.1, a summary of the housing type and size in the South East of England, and, in Section 3.2, an overview of the factors that are important in increasing the demand for housing in the South East, including changing demographics and an increasing population, through migration to this area from other regions of the UK, and from abroad, and from an increase in the population through a higher birth rate. Section 3.3 looks at public views of development in the South East, to show what the public think about different development options for the South East, with Section 3.4 providing an overview of the strategic challenges for housing in the South East, as presented by the increased demand for housing in this region. Section 3.5 looks at whether the existing housing stock could be better utilized, in terms of providing more affordable housing through the improvement and subsequent re-use of the existing housing stock.

Chapter 4 looks in detail at the future for housing in the South East, in terms of, in Section 4.1, discussing future housing projections and policies for housing in the South East that will determine how many houses are needed and built in this region. Section 4.2 provides definitions for affordable housing and social rental and intermediate housing, and then looks in more detail at possible avenues for providing more of the necessary affordable housing in the South East, looking at, for example, the effects of S106 and the Planning Policy Statement 3 (PPS3) on the production of affordable housing across the region.

The dissertation ends with a Conclusions section, given in Chapter 5, which, firstly, summarises the main findings of each chapter and then looks in detail at the basic objectives that have been addressed throughout the dissertation, i.e., i) whether enough units are being delivered for families; ii) what the current housing trends are, what type of housing is being developed (i.e., flats or housing) and iii) what the impact these factors will have for the future of affordable family housing in the South East. The Conclusions section provides an assessment of each of the main objectives, with regards to the literature, information and data previously referred to throughout the course of the dissertation.

Chapter 1: Methodology

This Chapter will describe two main facets of the dissertation: firstly, the main objectives of the dissertation and, secondly, the methodology that will be utilized in order to find the relevant literature, information and data that form the dissertation. The basic objectives that will be addressed are i) whether enough housing units are being delivered for families; ii) what the current housing trends are, in terms of what type of housing is being developed (i.e., flats or housing) and iii) what the impact these factors will have for the future of affordable family housing in the South East.

This Chapter will present a description of how the methodology was developed and utilized to form the basis of the literature review that will be presented in subsequent chapters of the dissertation, in terms of providing a detailed description of how the literature was searched for and was then, subsequently, used. This explanation includes a description of how, exactly, the literature review was carried out, in terms of what was actually undertaken, in practical terms, to find the literature, information and data that has been used as the basis for this dissertation. This Chapter thus describes, in detail, the methodology that was used to find the information that was used as the basis of the analysis of the specific research questions of interest in this work, i.e., i) whether enough housing units are being delivered for families; ii) what the current housing trends are, in terms of what type of housing is being developed (i.e., flats or housing) and iii) what the impact these factors will have for the future of affordable family housing in the South East.

A literature review is, in its simplest form, a classification of, and an evaluation of, the most relevant works that have previously been published, as a result of in-depth research, on a particular subject. The literature review is usually organized, depending on the particular research objective of the current work, so that it best presents a systematic and comprehensive review of the work that has been previously published on that particular topic. On this basis, equipped with a full understanding of the previous works on the topic of interest, decisions can then be made as to what research still needs to be conducted on the specific topic of interest. A full understanding of the existing literature therefore provides not only a comprehensive review of the existing literature but can also provide the researcher with the necessary information to be able to decide what specific sub-topics need further investigation and, hence, are worthy of further research time. In this way, then, a literature review has the ability to inform not only the researcher’s current research plans but also has the power to inform any future research. In the context of this dissertation, for example, the research objectives are quite broad and wide-ranging, and future research might focus on one particular aspect of the housing market in the South East as the subject of the research, for example. The thorough literature review would reveal which aspects of the housing market are in need of further research, and would, therefore, suggest which aspects of the housing market should be concentrated on, in terms of future research time. The literature review process thus informs not only the current research but also possible research topics of potential future interest.

Within the context of this work, which aims at, firstly, gaining a general picture of housing trends in the UK, and then looking at specific aspects of this housing market in a specific area of the UK (i.e., the South East), the term ‘the literature’ means not only the ‘usual’ literature, such as textbooks, and specialist academic books, but also refers to the relevant research literature, such as that published in journal articles, policy documents and consultancy reports, for example. Policy documents and consultancy reports will be especially valuable in this dissertation in terms of providing relevant statistical data and guidance on relevant policy. Reviewing all of the relevant the literature serves, as has been seen, several main purposes, including: i) aiding with defining the current research question, in terms of understanding, precisely, how the current research question fits in with previous research; ii) providing alternate views regarding the specification of the current research topic, in order to evaluate how the proposed research should best proceed; and iii) ensuring that all of the previous relevant literature on the current research topic has been, firstly, evaluated and then fully understood, thus providing validation for the current research topic(s) through the support of the previously published literature (see Hart, 1999).

A literature review is, therefore, generally conducted as a matter of course before beginning any new piece of academic research, because, as has been seen, a thorough review of the literature provides a comprehensive overview of what research has already been performed on the topic of interest, and on related topics, and because a thorough literature review can also provide valuable further information, including how other researchers have tackled similar research topics, in terms of what methodology they used and what analyses and conclusions were drawn from the literature they found and the results they gained (Hart, 1999). A literature review is not, therefore, simply a reviewof the existing literature on a subject, but is, rather, an evaluationof all the previous work that has gone before the current research topic, and an evaluation of the relationships between all of the previously completed works (Hart, 1999).

A thorough literature review therefore allows an evaluation of the relationship between the research question(s) that is/are being proposed and the existing body of research. This process, as has been seen, gives the researcher plenty of ideas with regards to how to develop their research question further, based on what has previously been attempted, and found, and what omissions there are in the previous literature (Hart, 1999). In this sense, therefore, reviewing the literature in this manner gives the current research project a proper contextby asking relevant questions, aimed at determining what is already known about the topic, what the relationships are between the previous research, what omissions there are in the previous research/literature, what ideas already exist, in terms of developing an understanding of the topic, what further evidence is needed to provide a satisfactory conclusion to the research, providing an overall contextualization for the contribution that the proposed research objectives will make to the body of existing literature (see Hart, 1999).

The literature review thus, whilst it could be thought of as time-consuming, and of little use, is of extreme importance and value because it allows the researcher to decide, on the basis of what has gone previously, the most relevant and useful research questions and objectives and the best approach to use to satisfy these questions and objectives (Hart, 1999). A thorough literature review can also inform the researcher as to how to present the literature review once the literature review process has been completed i.e., once the literature has been searched, studied and evaluated, summarised and when a final conclusion, or set of conclusions, has been drawn from this process (Krathwohl, 1988). Undertaking a literature review can therefore act as a practical guide as to how the research that is being suggested should proceed, from prior to the research actually starting right until the research is completed and it is time to think about writing up the results of the research (Madsen, 1992).

The main aims of a thorough review of the literature, as outlined in this Chapter, is, therefore, to find the most relevant literature, to then read and analyse the information contained within the literature that has been found, and to evaluate this information, in terms of positioning the previous literature within the framework of the current research questions and objectives (Muskal, 2000). This process requires many skills, including knowing how to search bibliographic databases to find the necessary information, knowing how to gather and organize the information that has been found, and knowing how to appraise previous work and how to develop further research questions from the information that has been gathered (see Fink, 2004). In addition to providing information of importance to the research questions and objectives, a literature review can thus teach the researcher new, and valuable, skills (see Fink, 2004).

In terms of how a literature review is carried out, in practical terms, standard bibliographic databases can be searched in order to find the relevant literature (Hart, 1999). If, for example, one wishes to find out about trends in the UK housing market and the effects these have had on housing in the South East of England, the researcher would first need to know something about the UK housing market, and recent trends in this market, in addition to knowing something about the housing market in the South East of England and how national trends have impacted on this region. Terms such as these would, therefore, be entered as search terms in to the bibliographic database, which would then return the details of any relevant, existing, literature.

Using extremely general search terms in the database searching would, however, provide potentially millions of rather unspecific articles, and it is recommended that, if this happens, the search terms are narrowed by entering more specific search terms. The usual procedure, for searching bibliographic databases whilst conducting a comprehensive literature review, is to provide narrower and narrower search terms until the database only returns entries that contain information specifically relevant to the research question and objectives. These entries would then be looked at in detail, and, if useful, could, for example, be used as the basis of other searches and/or as the basis of the literature review that the researcher is intending to present as part of the write-up of their research (see Hart, 1999).

A ‘citation’ search can be run in order to find other, potentially relevant, literature from the articles of interest that have already been found. This type of search highlights the literature that has cited the original article as a reference and can, for example, show the researcher how other researchers have interpreted the results of previous research and what other directions the research topic has been taken in (see Hart, 1999). Once a thorough search of the bibliographic databases has been completed, the results should then be collected together in one place, and should then be recorded, evaluated and analysed, according to the process previously described, as this literature will form the basis of the literature review that will be presented as part of the research project. Searching bibliographic databases for literature and information is a well-recognised and accepted, ethical, research tool (Anson and Schwegler, 2000).

In terms of how the literature used later in this dissertation was sought out, ‘UK housing market’, ‘affordability of housing’, ‘housing in the South East’ and ‘affordable housing’, amongst others, where used as search terms when searching the bibliographic database, Web of Science. The Web of Science database contains references to most articles published in the last century, covering the fields of economics and finance, amongst other subjects. In terms of deciding which literature to utilize, following the database search, several inclusion criteria were decided upon and then used, including the age of the literature (with nothing older than 10 years being consulted, due to the fast-moving pace of the UK housing market, and relevant policies) and the quality of the literature (with peer-reviewed articles, newspaper articles, consultancy reports and official policy documents being preferred to information from non-official websites).

The literature that was found following the database search was consulted if it was of general interest to the subject, for example, if it contained information on the UK housing market over recent years, and if the literature was recent (i.e., published within the last ten years) because only literature published within this timeframe would have any understanding of recent trends in the UK housing market and how these trends affect housing availability and affordability in the South East of England. This literature, which was considered to be background literature, was useful, in terms of putting the research question and objectives in to context. The literature that was, eventually, included in this work was selected if it included information on recent trends in the UK housing market, or if it had a direct relevance to discerning trends in the UK housing market and affordable housing in the South East of England. The References section at the end of the work, in addition to in-text citations, gives the full list of literature that was used for the purposes of this dissertation.

Finally, as has been seen, for research to proceed, it is necessary to build upon the work of other researchers. This process, of building on the work of other researchers, makes the research process more efficient, and this is the way in which research tends to proceed in this way, by using the work of other researchers as a starting point for one’s own research, so that research is not repeated (Krathwohl, 1988). This ensures that research moves in a positive direction, building constructively on the work of others and not unnecessarily repeating research, allowing time to be devoted to other, less researched, aspects of a research topic (Krathwohl, 1988).

In terms of how the work of other researchers can be, ethically, incorporated in to the research one has conducted, using the work of others - through the development of a literature-based work, for example – is entirely ethical, on the condition that the previous work is referenced and cited correctly within the subsequent work, using whatever citation style is most appropriate (Madsen, 1992). On this basis, then, the use of existing literature of interest as the basis for subsequent research on a topic is a valid research protocol, one that has been employed in the course of this dissertation to provide support for the research objectives and also to provide literature, information and data to address, evaluate and analyse these research questions and objectives.

The next Chapter, Chapter 2, provides an overview of the trends in the UK housing market over recent years, with Section 2.1 providing a summary of the findings of the Barker Report. Subsequent sections of Chapter 2 provide details of what factors have fuelled the UK housing market in recent years, how affordable (or not) housing has become in the UK, what can be done to address the lack of affordability in UK housing and what factors affect how the current housing stock is used.

Chapter 2: Background to the UK housing market

This Chapter provides an overview of the trends in the UK housing market over recent years. Section 2.1 providing a summary of the findings of the Barker Report. Subsequent sections of Chapter 2 provide details of what factors have fuelled the UK housing market in recent years (Section 2.2), how affordable (or not) housing has become in the UK (Section 2.3), what can be done to address the lack of affordability in UK housing (Section 2.4) and what factors affect how the current housing stock is used (Section 2.5).

Section 2.1: The Barker Review

The Government commissioned a report from Kate Barker, with the explicit purpose of achieving improvements in housing affordability, creating a more stable housing market, locating housing supply to promote economic growth and providing an adequate supply of public (or social) housing for those who need it (Barker, 2004). Essentially, the 2004 Barker Review found that there are several major problems with regards to the supply of housing in the UK, in that, in many parts of the country, house prices have increased rapidly, far out of line with any increases in salaries, mainly because the supply of housing has not kept up with the demand for this housing, and because there has been an increase in the number of people needing housing, due to an increase in the population and an increase in the amount of one-person occupancy of existing housing stock (see Department for Communities and Local Government, 2006 and Barker, 2004).

In practical terms, Barker (2004) predicted a need for 209,000 more households in the UK each year, from the date of the report until 2026, with recommendations also being made as to how the house-building sector and the planning system should respond to this need (see Department for Communities and Local Government, 2006). Not only did Barker (2004) recommend an increase in the number of private dwellings, of the magnitude already suggested, but also an increase in the amount of social rented housing in order to deal with the increase in the need for such housing and the loss of stock of such housing through the Right to Buy scheme (see Department for Communities and Local Government, 2006 and Reeves, 2005).

The Government responded to the Barker review (see Office of the Deputy Prime Minister, 2004) by outlining three main goals of their house building strategy: providing a step on the housing ladder for future generations, providing quality and choice for those who rent and ensuring that mixed, sustainable communities are encouraged in any new developments. Key announcements from the Government included a commitment to increase house building from 150,000 per year today to 200,000 in the year 2016, to increase the amount of affordable housing for ownership and rent and to make planning more responsive to local housing needs by encouraging the development of regional and local plans to release more land for building, for example (see Office of the Deputy Prime Minister, 2004). The remainder of the dissertation will look in more detail at these aims and how they can be achieved.

Section 2.2: What factors have fuelled the recent trends in the UK housing market?

Sprigings et al. (2006) look at the role of investors in the housing market, arguing that since the late 1980s, there has been an overall growth in private rental in the UK, when financial and mortgage markets were liberalised and when banks began introducing new financial products to capture those customers with money to invest in property. Since the mid-1990s, it has become fashionable to ‘buy-to-let’ with many individual investors owning several properties they rent out, often in towns with high numbers of students. The Council of Mortgage Lenders (2006) provides data showing that the number of buy-to-let mortgages increased from 44,400 in 1999 to 223,800 in 2005, with the number of buy-to-let mortgages increasing from 3.5% of the total number of mortgages lent to 22% of the total number of mortgages lent (Sprigings et al., 2006; see, also, Wilcox, 2006). In addition to buy-to-let mortgages, many individuals who own buy-to-let properties have taken money out of other investments in order to buy more properties, with the general impression being that property is a safer investment than stocks and shares, for example.

The overall effect of this influx of investment in to a market that has a restricted supply of housing (because not enough new housing, of the correct types, is built) has been to create a high inflationary effect (see, for example, Schiller, 2005), meaning that poorer individuals have great difficulty in getting on the property market in such a climate (Sprigings et al., 2006 and Danekshu, 2007). Indeed, the number of first time buyers has been decreasing year-on-year recently; with first time buyers staying longer in the rental market than previously and taking loans from parents in order to be able to afford the high deposits necessary to enter the property market (see Danekshu, 2007 and Sprigings et al., 2006). The long-term effect of such a process will be to create long-term wealth inequalities in the UK, with those who cannot afford to get on the property ladder being forced in to renting for longer, if not indefinitely, creating a wealth divide between those who own property and those who do not; it is also being increasingly realised that this process is having an amplifying effect (Danekshu, 2007). Many people who own property in the South East and who have high equity in this property are now investing in second (or third) properties in other areas of the UK, forcing prices up in these areas, and creating a ripple effect of the vicious circle of high property prices that many first time buyers find it difficult to overcome (Sprigings et al., 2006 and Wilcox, 2003 and 2006).

This process has been invoked in the United States, to explain the differences in wealth creation, and net wealth, of individuals of different races, with Friedrickson (2005) stating, “Arguably the most important source of the current economic gulf between the races in the USA is the vast difference in average net worth or property ownership. Although black incomes may be around two-thirds those of whites, their average net worth is only about one tenth. Much of this difference is explained by the fact that whites own far more homes than blacks and therefore their net worth’s are higher…By 1984, seven out of ten whites owned their own homes, worth, on average, $52,000 but only one in four blacks owned a home worth, on average, less than $30,000” (see Sprigings et al., 2006).

Whilst the UK does not have such explicit racial divisions in terms of wealth, there are signs that a similar process could be underway in the UK, as the housing market segregates the population in to those who can afford to buy a house and those who cannot with low salaried individuals in low affordability areas already being priced out of the market for housing in the lower quartile price brackets, for example (see Wilcox, 2006). This process is exacerbated by the fact that accidence of residence often determines how equity (i.e., unearned income) is generated, with some areas of the UK (such as the South East) generating equity at far higher rates than other areas of the UK, leading to unequal equity accretion, contributing further to the process in which some home owners can afford to purchase second homes whereas others are prevented from entering the property ladder (Sprigings et al., 2006; see, also, Danekshu, 2007). As Sprigings et al. (2006) suggest, the UK property market is now based on a property being seen as an investment rather than a unit of consumption, which has, and will continue to, alter the way in which the housing market functions (see, also, Heywood, 2005), having grave consequences for those who are unable to afford to enter the property market.

Section 2.3: Affordability of housing

Households with workers aged between 29 and 39 face significant difficulties in terms of home ownership in every area of the UK, based on local prices for 2/3 bedroom houses (see Wilcox, 2003). As Wilcox (2003) shows, the ratio of mortgage advance to household gross earned income rarely exceeds 3.5 to 1, but house prices run to a ratio of 5.0 to 1 in thirty three local authority areas of the UK, with this figure exceeding 6.0 to 1 in Westminster and some other areas of London, such that fewer than one in five households can afford to buy properties at the lower quartile of house prices in nineteen UK authorities. Outside London, the same problem persists, with ratios being lower than 4.0 to 1 in only four areas of the UK, with average ratios being 4.61 to 1 in South East England (Wilcox, 2003). This, as Wilcox (2003) states, reinforces the need for an urgent review of plans for increased funding for affordable housing in the South East of England.

As Monk et al. (2008) state, there are a number of indicators that can be used to judge the opportunities for first time buyers, including the lower price quartile of housing and the percentage of sales involving properties costing under £120,000. As Monk et al. (2008) show, in the South East of England, in the first quartile of 2001, the lower quartile price for housing was £65,000 but, by the first quarter of 2006, this had doubled to £130,000 (see EERA AMR, 2006). Thus, housing affordability has worsened in the South East of England over the past decade, with the average house costing £114,300 in the first quarter of 2001, increasing, on average, 76% to £201,000 by the first quarter of 2006, although some regions of the South East saw even greater increases in average house prices, up to 118% (Monk et al., 2008).

In terms of affordability of housing in rural areas, these areas have been adversely affected by the increase in house prices in the UK, with demand for private housing in these areas, migration to these areas and the purchasing of second homes in these areas by people who have their first homes outside these areas, having fuelled large price increases which means that, in these areas, any extra house building is unlikely to affect affordability, such that the provision of social housing and affordable housing in these areas should be a priority (House of Commons, 2006).

Whitehead and Gaus (2007) look at the issue of affordability, showing that owner occupation costs have moved out of line with social and private rents, essentially worsening the affordability gap, with high house prices forcing individuals in to the rental market (see, for example, Andrew, 2006). The decline of the social rental sector, coupled with the decrease in affordability of housing has meant that the private rented sector has increased it’s market share, fuelling the buy-to-let market and further increasing house prices as a result of this (see Whitehead and Gaus, 2007). As Whitehead and Gaus (2007) discuss, if the housing market continues as it is, the number of adults aged 30-34 who are able to afford a home is expected to drop from 57% to 40% by 2016, with families expecting to be paying 10 times their income in order to be able to afford the cheapest homes (see, also, Daneskshu, 2007). Indeed, over the last five years, in 70% of local authorities, none of the five main categories of key workers have been able to afford to buy a house and in 30% of these areas, these key workers are unable to buy a flat (Whitehead and Gaus, 2007; see Halifax, 2007). Thus, there are major problems with affordability in most areas of the UK, with mortgage repayments also increasing as a proportion of salaries, from 15% in 1999 to above 22% in 2005 (Whitehead and Gaus, 2007), with the majority of new market home sales in London, for example, being made as buy-to-let investments (see Craine and Mason, 2006).

Wilcox (2006) looks at the geography of affordable and unaffordable housing, examining long-term trends in housing market affordability, setting out average house price to income ratios, analysing the proportion of younger working households in each area that cannot afford to buy homes, identifying the potential market for ‘intermediate’ housing market products and policies, which may help those households that cannot afford to buy in the open market and showing how far affordability difficulties in London can be eased where households are prepared, or able, to move to cheaper neighboring areas, for example (Wilcox, 2006).

Over the last decade it has become progressively more difficult for households to access home ownership as house prices have risen sharply, which, in part, has been the result of a sustained period of economic growth, and lower interest rates that have made it easier for households to obtain, and to afford, higher mortgages (Wilcox, 2006). As Wilcox (2006) shows, house price to income ratios have increased from 2.9 to 5.5, on average, from 1987 to 2005, with mortgage costs as a percentage of earnings also increasing, from 2.0 to 3.5 over the same period. These figures show significant regional variations, with affordability in the South East, for example, being far lower than in other regions of the UK, due to the far higher house prices in this region and salaries in the region, which are not significantly higher than in other regions of the UK and the fact that house building in this region has not kept up with the rate of household formation (see Wilcox, 2006; Table 1).

The South East had, in 2005, a mortgage cost to income ratio of 28.3, compared to 22.1 for the East Midlands and 21.8 in Scotland, for example, with house price to income ratio in the South East being 4.76, compared to 3.72 in the East Midlands and 3.67 in Scotland (see Wilcox, 2006; Table 1). These figures represent a worsening of affordability, across the UK, compared to affordability in 2004 (Wilcox, 2006). This means that many individuals cannot afford to buy property in these regions, and, indeed, the South East has one of the highest proportions of households unable to buy at lower quartile house prices of the entire UK, with some regions of the South East (such as Bexley) having 30% of households unable to buy at lower quartile house prices (see Wilcox, 2006; Table 5).

Thus, there are significant numbers of individuals who are priced out of the housing market in the UK, especially in the South East. The housing market is influenced by a number of factors, as has been seen, all of which interact and interplay in undeterminable ways, which, in addition to longer-term structural factors, makes it difficult to predict how the housing market will perform in coming years (see Wilcox, 2006). It is clear, however, as recommended by the Barker report (Barker, 2004) that house building needs to be increased, particularly in the South East, as a way in which to provide new housing to the housing market in order to provide some relief for the lack of affordability of housing (see Wilcox, 2006). How the Government should respond to the need for affordable housing is the subject of the next section, Section 2.4, which presents a discussion of how to approach the problem of non-affordability of housing across the UK.

Currently having a full-time job does not guarantee decent and affordable housing. The number of households waiting for social housing has risen from 1 million to 1.6 million over the last ten years, both as the number oh households has grown and as more families have found they cannot afford a home. Families mover further away from their jobs which in turn causes long commutes, less time at home and greater expenses for transport and increased traffic congestion.

Section 2.4: How to approach the problem of the lack of affordability of housing

As explained in House of Commons (2006), and as recommended in Barker (2004), the Government believe that the best way to tackle the crisis of affordable housing in the UK is to increase the volume of housing stock in the UK, although there are disagreements as to exactly how much the housing stock needs to be increased by, and what type of housing needs to be built. The Government suggests that an extra 200,000 homes a year need to be built, which equates to roughly an extra 40,000 on top of what is already being built, but other research has shown that this figure may be inadequate (House of Commons, 2006; see, also, Barker, 2004). The Government, however, recognize that a simple supply and demand model cannot be applied to the housing market, as there are a multitude of factors that affect house prices; as such, it is not simply a case of improving affordability and expecting everyone to be able to then afford a home (Wilcox, 2006; House of Commons, 2006; Monk et al., 2008). The following sections will explore this idea in more detail.

Over the past fifteen years, the number of dwellings rose by 1.53 million and the number of households increased by 1.524 million (House of Commons, 2006), such that the number of new houses being built is only just sufficient in terms of the increasing demand for these new homes. The excess of homes over households in the UK as a whole has fallen from 4% in 1981 to just 1.7% in 2003, with the excess in the South East being just 1.3%, with London having 3.5% more households than homes, which, if this trend continues, means that unless house building increases, there will be significant housing shortages in the future across many parts of England (see House of Commons, 2006). According to projections from recent censuses, the number of households in the UK is set to increase from 20.9 million in 2003 to 25.7 million in 2026, or an annual increase of 209,000, 20,000 per annum higher than the Government’s previous projections which, with the significant increase in one-person households means that there will be a serious shortfall of housing within the UK within the new few decades (House of Commons, 2006). These figures do not take into account any internal migration within the UK or immigration to the UK, Government estimates of which have seriously underestimated immigration to the UK and which are expected to vary according to region, with the South East expected to have, for example, a far higher rise in the number of households than that projected (see Monk et al., 2008 and House of Commons, 2006).

The Government’s response to the shortfall of housing supply has been to stimulate house-building (for both the private sector and social housing) and to attempt to influence house prices; to stimulate house building, the Government has suggested reforms to the planning system so that more land can be released in areas with greatest housing shortages and that infrastructure can be built to supply new housing developments (House of Commons, 2006). As many organizations argue, however, there are many factors which make projecting the number of necessary extra homes extremely difficult, with any projections thought to be inaccurate due to factors such as household growth, increased life expectancy, migration and the growth of single-occupancy households, none of which can be reliably predicted, individually, and all of which, in conjunction, lead to varying outcomes which are unpredictable (see, for example, Barker, 2004 and House of Commons, 2006).

Other factors will also affect the projections for the potential number of new homes that are needed, such as the perpetuation of the buy-to-let market and the demand for second homes (see Sprigings et al., 2006 and Monk et al., 2008, for example). The purchasing of second homes is a significant contributor to the housing market, with, for example, 30% more homeowners owning a second home in 2003, compared to 1995 figures, and preferences for second homes being in certain areas of the UK, usually those areas where there is already less housing, such as certain areas of the South East; this demand for housing in these areas puts pressure on local housing markets, causing price rises and concomitant housing shortages, and shortages of affordable housing, in these areas (see Spriging et al., 2006). It is thought that if new homes are built, many of these will be taken up as second homes, causing problems for the Government’s plans for new housing to be built to provide housing for the increasing population of the UK (House of Commons, 2006), leading to suggestions that curbs should be placed on the right to buy new properties as second homes. There are, thus, many factors other than housing supply that affect the affordability of housing, and it is imperative that the Government examine a range of strategies that could be effective in influencing demand for housing: adjustments to interest rates, the availability of credit and taxation rates would, for example, stem price rises and improve affordability (see House of Commons, 2006; see, also, Steele and Todd, 2004 and Wilcox, 2006).

The ability of first time buyers to get on to the housing market in the UK has reduced significantly in recent years, due to the large increases in house prices and the fact that salaries have not risen in concert, with only around half of the couples in their early thirties who are currently renting a property actually able to afford to get a mortgage on their own home, a trend which, if the housing market continues to proceed as it has done in recent years, will lead to only a third of couples of this age group being able to afford to buy their own home in twenty years time (House of Commons, 2006). The average deposit for a first home has, for example, risen from £5,000 in 1996 to £34,000 in 2005 and so first time buyers are, generally, increasing in age and are living in increasing debt, as the housing market dictates that they need to borrow money in order to be able to put a deposit on their first home (House of Commons, 2006). This situation is currently only tenable because of the low interest rates, which allows relatively low mortgage repayments; as soon as the interest rates begin to increase, the situation will not be sustainable. The impacts of this on the housing market, and for individual home owners, will be devastating; the UK has, after all, one of the largest levels of personal debt in the UK, with personal debt equating to around 60% of annual GDP (House of Commons, 2006).

In addition, existing house building targets are not being met, with, in 2005, only 160,000 new homes being built, with some areas having large number of unimplemented housing planning permissions and sites that have been allocated for building on that have not been taken up; in the South East, for example, there is an estimated seven years worth of building land that has yet to be developed, which, according to Barker (2004) is because the necessary infrastructure has not been considered nor budgeted for (see, for example, House of Commons, 2006). Even though the Planning and Compulsory Purchase Act 2004 has reduced the time allowed to implement planning permission, with developers now having three, not five, years to gain outline planning permission, existing house building targets have yet to be achieved, leading to the suggestion that, if housing is desperately needed in an area, the local authority should use a compulsory purchase order to buy the land to find an alternative developer to build the necessary housing (House of Commons, 2006).

There is concern about the number of high density developments that are being built, with planning regulations favouring high density building, and developers taking advantage of these new planning regulations, as high density buildings are also, for them, more profitable. Many organisations have concerns that the development of high density properties leads to the creation of unstable communities and, actually, does not fulfill the housing needs of the UK, as it is not necessarily small dwellings that are needed to fulfill the housing shortfall in the UK. Whilst the demographic trends would suggest a shift towards a need for smaller dwellings, due to factors such as more older people, and divorced people living alone, for example, these types of home owners do not necessarily want to buy smaller dwellings, as they still may want to buy houses with more space; building small, high density, one or two bedroom dwellings is therefore not necessarily conducive to solving the housing shortfall in the UK, due to the changing aspirations, and demographics, of house buyers. To this end, the Government has, through the Planning Policy Guidance Note 3 set a minimum target density for housing of 30 dwellings per hectare for new housing developments, with the Planning Policy Statement 3 suggesting a minimum of 30 dwellings per hectare, with flexibility to decide on the actual size of these dwellings, according to the needs of these dwellings (House of Commons, 2006).

As House of Commons (2006) state, in addition to problems of affordability due to a lack of new housing, there are, at present, 680,000 empty homes in the UK which represents about 3% of the UK’s total housing stock; the Government has, therefore, recently given powers to local authorities to be able to take over empty dwellings through the 2004 Housing Act, allowing local authorities to issue empty dwellings management orders on such homes meaning that these homes can be brought back to usage. This issue will be explored in more detail later in the dissertation.

Planning for the increased need for housing in the UK is not, therefore, as simple as encouraging house building, for factors such as infrastructure and community building also need to be taken in to consideration. The South East England Regional Assembly have noted that, “work on the draft Regional Spatial Strategy for the South East has highlighted wide ranging concerns about the inadequacy of existing physical and social infrastructure and its ability to respond to scales of growth proposed over the next 20 years. A particular concern is that there has been a serious time lag, with infrastructure provided several years after development has taken place. The timely and assured provision of infrastructure will determine the deliverability and sustainability of the Government’s proposals for improving the supply of housing” (see House of Commons, 2006). The final costs of this necessary infrastructure are likely to be extremely high, reaching £50 billion or more, with transportation, social housing provision and educational provision accounting for the majority of the infrastructure costs, with the current provision for funding infrastructure being insufficient, in terms of both the strategic approach to this and the actual funding available for this (House of Commons, 2006).

In summary, therefore, there will, in future, be significant shortages in housing in the UK, due to population growth but also due to changing demographics, both of which need to be monitored in order to provide accurate predictions of future housing needs (House of Commons, 2006). Current house building is occurring slower than the rate of new households that need housing, with many factors contributing to household growth, including increasing life expectancy of the population, migration, the growth in single households and the state of the housing market, all of which work in conjunction in unpredictable ways to determine future housing demand. Due to the fact that different areas of the UK have different housing demands, due to different demographics and other factors such as the desirability of the area as a buy-to-let area or an area rich in second homes, it is not possible to deal with housing requirements in a uniform, UK-wide, manner: each region needs to be looked at in detail and solutions arrived at on the basis of these regional-level investigations.

Factors such as buy-to-let and the acquisition of second homes have not been studied in sufficient detail, given that they have a massive impact on the affordability of housing, and it is suggested that these factors be studied, in terms of future housing needs and the future affordability of housing across the UK. It is also fundamentally important that factors such as infrastructure and the environmental impact of new housing be considered in the long-term, as a fundamental part of the overall review of the need for new housing in terms of delivering housing in response to need and delivering housing that is adequate for those needs (House of Commons, 2006).

As stated in Office of the Deputy Prime Minister (2003a), affordability of housing has been running at 20% of overall housing delivery in the South East, with eight principal factors affecting the delivery of new and affordable housing: planning policy frameworks; strategic planning and infrastructure issues; the complexity of developing urban and Brownfield sites; funding for affordable housing; local authority performance and resources; public opposition to developments; the operation and behaviour of the house-building industry and professional and construction skills shortages. In terms of how these factors can be dealt with to improve the delivery of affordable housing, there should be improved monitoring of housing delivery and improved estimation of the affordable and overall housing need at the regional level (see Office of the Deputy Prime Minister, 2003a).

In addition, clear local priorities should be established for affordable housing provision, and viability assessments should be undertaken in order to ensure that any policies for affordable housing provision are viable (Office of the Deputy Prime Minister, 2003a). Forums should also be established to provide a site of liaison between house builders, community leaders and employers in the region, with S106 agreements needing to be negotiated in parallel with planning applications, under specific response time targets (Office of the Deputy Prime Minister, 2003a). To this end, the document Sustainable Communities: Building for the Future, laid out new arrangements for the delivery of affordable housing, including the creation of regional housing boards, in each of nine regions in England, which were, until March 2006, responsible for producing a Regional Housing Strategy and ensuring that this strategy is implemented, at which point eight Regional Assemblies took over these responsibilities.

Section 2.5: What affects the use of existing housing stock?

Many factors affect the use of the existing housing stock: these can be roughly divided in to four main driving forces, namely demographic drivers, economic drivers, changing aspirations and, finally, policy drivers. Demographic drivers include such factors as population changes, changes in household composition, for example, divorce which can lead to one household suddenly becoming two households. Economic drivers include such factors as income levels, which determine how large a house an individual can commit to buying, existing equity, which also determines how large a house an individual can commit to buying, and the housing market itself, which determines, generally, what housing can be afforded. At the present time, with low interest rates, people are under the impression that, whilst expensive, houses are affordable, due to the relatively low mortgage repayments, but as soon as interest rates start to rise, mortgage repayments will also rise, leading to the relative price of a house increasing, in terms of proportion of salary, for example.

Changing aspirations, namely aspirations towards higher housing standards and other aspirations such as owning a second home and working from home, have an effect on the housing market as householders begin to look for larger properties, in different areas, perhaps, and begin to under-occupy their houses, having a knock-down effect on the housing market, as the housing stock becomes saturated through under-occupancy. Policy drivers of change in the housing market include such factors as changes in the levels and types of new houses that are built, policies affecting tenure, environmental legislation, social housing allocation systems, strategies for dealing with empty houses, and financial incentives that are provided by the Government as a way of encouraging home ownership. All of these policy drivers have effects on the housing market, either direct or indirect effects.

All of these four drivers, demographic drivers, economic drivers, changing aspirations and, finally, policy drivers act alone to affect the housing market but also interact in ways that are difficult to ascertain and to predict, making it difficult to actually predict future housing needs, for example, and making it difficult to predict the future of housing markets. It has been shown, for example, that income and equity already in the housing market are major influences on the consumption of housing, far more so than the size or type of the household (see Stewart, 2005, for example). The implications for this are, of course, that should incomes continue to rise, then there will be an increased demand for housing space, from within the existing stock, aswell as from new builds, either houses or flats (Clarke et al., 2007). Other implications of this are that social exclusion and polarisation of wealth will increase, unless interventions are set up with the explicit purpose of reversing this trend (Clarke et al., 2007; see, also, Cabinet Office 1999; Shaw 2005). If allowed to continue, this economic factor will lead to an increase in the over-consumption of housing (through under-occupation and the purchasing of second homes) by well off families, and will leave a large, and increasing, number of poorer households unable to afford any housing that would meet their needs (see Clarke et al., 2007).

In conclusion, there are several forceful drivers that act against a better use of the existing housing stock, in terms of meeting the demands of housing in the South East for the next few decades and meeting the needs of the population of the South East over the same period, with aspirations increasing and leading to demand for bigger, better housing, across the board. As Clarke et al. (2007) have shown, however, there are options for using the existing housing stock, such as converting larger properties in to smaller flats and extending existing houses, which mean that the housing shortfall may not be as grave as is predicted by many researchers and organisations. Whilst this will not address the need for affordable housing for many individuals who cannot afford to get on to the property ladder, it does mean that the burden of the housing shortfall in the South East may not be as problematic as it potentially could be. This said, however, whilst making better use of housing stock is a desirable policy objective, there are strong drivers against this happening, namely that increasing number of households can afford to buy larger, or even multiple, homes, meaning that younger, poorer, individuals are less able to compete in the housing market in the South East. These issues will be discussed in greater detail in subsequent sections of the dissertation.

Chapter 3: The specific case of the South East of England

This Chapter looks in detail at the specific case of the housing market in the South East of England, providing a summary of the housing type and size in the South East of England (Section 3.1), and an overview of the factors that are important in increasing the demand for housing in the South East (Section 3.2). Section 3.3 looks at public views of development in the South East, with Section 3.4 providing an overview of the strategic challenges for housing in the South East. The Chapter ends with Section 3.5, which looks at whether the existing housing stock could be better utilized, in terms of improving and subsequently re-using the existing housing stock in order to provide more affordable housing options across the region.

Section 3.1: Housing type and size in the South East of England

DTZ Consulting (2007) looked at how the size and type of new housing completions has changed in recent years in the South East of England, at why the size and type of new housing completions has changed in recent years in the South East of England, at how this pattern varies with regards to other housing markets in the UK, and, if the changes are found to be significant and of importance, then what should and can be done to address the issue.

It was found that, in the South East, in 2005/6, 53% of housing completions were flats, a rise of over 20 percentage points since the period 2001/2, similar to that seen in the period 1989/90, although far more pronounced in this more recent period (DTZ Consulting, 2007). Thus, there have been more flats than houses built in the South East in recent years. It was also found that the number of houses built and then placed for sale on the open market was 13000 in 2004/5, representing a significant fall since 1997, with the majority of house completions in the South East being, overall, for flats, not housing, which represents a significant rise since the 1999/2000 period (DTZ Consulting, 2007).

Given that the housing market is driven by what sells, and is not concerned with who occupies the property, nor long term maintenance and management issues, builders of housing are meeting the demand for single-occupancy or buy-to-let flats, which are, at the moment, more appealing to buyers than multi-occupancy houses, for example, with the majority of dwellings being offered for sale in the 2004/5 period having two bedrooms or less (see DTZ Consulting, 2007). What, then, are the reasons for the growth in sales of smaller housing units?

There are three main reasons for this: i) that the buy-to-let market has increased, sustaining demand in the housing market for this type of dwelling; ii) that the affordability of housing has declined over recent years (in part due to the increase in market prices due to the formation of the buy-to-let market), so that buyers get less for their money; and iii) that intense competition for land and the rising costs of developments (due to the effects of Section 106) have meant that developers have preferred to build high-density dwellings, a trend that has been accepted by local authorities (see DTZ Consulting, 2007; see, also, Wilcox, 2003 and CML, 2001).

As DTZ Consulting (2007) suggest, the changing patterns of planning permission have led to the changing patterns of completion in recent years, with the focus being on using previously developed land, leading to an increase in high-density developments, meaning that local authorities are more likely to accept building projects that have a higher proportion of flats and smaller units. In summary, market forces and the acceptance of higher density developments have led to the situation in which lower density developments are no longer so desirable to developers, as higher density developments are more profitable, which, coupled with a decreased supply of building land, has meant that an increasing density of developments is becoming more popular (DTZ Consulting, 2007). Thus, in conclusion, that whilst a variety of interacting factors are responsible for the current completion patterns seen in the South East of England, the interaction of market factors and the planning system are mainly responsible for the current situation. Much of the growth in building of small flats has been at the expense of building smaller (affordable) houses. The decline in proportion of the larger (3 bed +) dwellings has been less dramatic than the decline in the construction of houses as a whole.

Section 3.2: What are the factors increasing the demand for housing in the South East?

The South East is an attractive place for people to live, with a high number of available jobs and excellent transport links not only to the rest of the UK, but also to Europe. Holman’s and Simpson (1999) look at the issue of population migration within the UK, showing that population movement away from the North of England is creating pressure on housing in the South East, which, added to the fact that the number of households in the UK is expected to increase by almost 4 million between 1996 and 2021, means that the South East of England will have greater demand on housing than previously expected. The main reasons behind the internal migration South Eastwards is the fact that job opportunities in the South East increased at a higher rate in this area of the UK following the recession in the mid-1990s (see Holman’s and Simpson, 1999).

As outlined in the document Sustainable Communities in the South East: Building for the Future (Office of the Deputy Prime Minister, 2003b), the South East is the UK’s largest region, covering more than 19000 square kilometers and with an estimated population of around 8 million, or 13% of the total UK population. The South East also has the fastest growing economy of any of the UK’s regions, with the South East accounting for around 15% of annual UK GDP (see Office of the Deputy Prime Minister, 2003b). The South East region has many strengths which make it desirable for householders, including low unemployment rates, the fact that it is close to London, the agreeable countryside, the close transport links to Europe and the rest of the UK, the good road networks and local airports and it’s good weather, all of which make the South East an attractive place to live (see Office of the Deputy Prime Minister, 2003b).

Section 3.3: Public views of development in the South East

Platt et al. (2004) looked at public views of development options in the South East of England, through interviews and workshops with local and national stakeholders and a survey of public opinion, which gathered the views of 1400 people across three towns in South East England. It was found that no single development option was favoured, with three development options (densification, urban extension and new town) being marginally more liked than disliked (Platt et al., 2004).

There was no overall opposition found for land being used for development, either for brownfield or open land, and the favoured options for development were for those that would provide a better level of service provision, with opinions being divided as to whether a policy of minimum growth was the correct way forward or not (Platt et al., 2004). A majority of those surveyed were opposed to the development of high-density flats, although medium-density terraces were found to be acceptable to the majority of people surveyed, with first time buyers, especially, liking the idea of detached and semi-detached houses, but expressing a preference for detached housing, due to financial constraints (Platt et al., 2004): after all, it is unlikely, without outside financial help, that a first time buyer in the South East could buy anything other than a small, detached, house or a small flat.

One third of respondents suggested that the housing stock in their town should remain the same, with forty per cent of respondents agreeing that their town needs to grow in order to accommodate the increasing demand for housing, with the majority of respo