METREX Expert Group Affordable Housing

Size: px

Start display at page:

Download "METREX Expert Group Affordable Housing"

Deirdre Simpson
6 years ago
Views:

1 METREX Expert Group Affordable Housing METREX 125 West Regent Street GLASGOW G2 2SA Scotland UK T. +44 (0) F. +44 (0)

2 METREX - Affordable Housing Expert Group The strategic issue of housing need and affordability Across Europe housing demand and need are being driven by two major factors. Firstly, more households and smaller households, resulting from greater equality of job opportunities, higher levels of marital breakdown, more single parents and an aging population. Secondly, by migration and an incoming labour force. The assessment of housing demand involves consideration of these factors and the disposable income of households that will allow them to enter the private sector housing market. The assessment of housing need similarly involves consideration of these factors and the households that are unable to enter the private sector market for housing to buy or to rent. Affordability is an issue for those considering the housing market and those in housing need. However, it is provision for those in housing need that has now become a strategic planning issue. The reason for this is that the public sector resources available to meet housing need are generally reducing at a time when those in need are also finding their disposable income is under pressure. This gives rise to the strategic need at the metropolitan level to assess affordable housing need and to consider innovative mechanisms to meet it. This is the purpose of the work the METREX Expert Group on Affordable Housing. In recent rimes, housing demand has been complicated by speculation in land values and house prices. Demand for housing as such has been inflated by demand for investment opportunities with higher returns and lower risk. As housing value is created, in part, by the community investments and amenities in the area in which housing is located, mechanisms have been introduced to obtain a community share of this added value to new developments. It has been one means of securing affordable housing. The alternative is to accept that a growing gap between an inflated price for land and housing and housing need can only be bridged by public subsidy of housing development or residents and tenants. This approach would mean, in effect, the community, having helped to raise values, then having to then pay to bridge the gap between these higher values and affordability. It seems essential that an element of community created value in housing development be returned to the community to secure affordability. Some established mechanisms are described in a later part of this note. 2

3 Context Extracts from the METREX Benchmark of effective metropolitan spatial planning (see the METREX web site at to download the complete Benchmark) Balancing housing demand (need) and housing supply Housing market areas (HMA) There will always be a level of demand that results from movement into and out of a metropolitan area and within it. Such demand often arises from employment-led considerations. This mobile element of demand is open to influence by spatial planning policy and can be met to an extent in locations that are selected as part of a metropolitan spatial planning Strategy. Local demand often arises from housing-led considerations such as trading up or down or meeting changing household needs. It is possible to assess these components of housing demand within local and metropolitan housing market areas. These can be defined on the basis of information on household origins and destinations when households move and their reasons for moving. European metropolitan planning for housing is now most commonly based on the accepted concept of housing market areas. These can form the basis of assessments of affordable housing need. Housing demand Housing demand is driven by demographic factors (births and deaths), migration (in, out and within a metropolitan area), household characteristics (single person, family, aged etc.), household and disposable income levels and expenditure patterns (housing, retailing, travel, leisure etc.). The housing market in urban regions will have different tenure balances, for example, between the rented and owner occupied sectors and between the public and private rented sectors. The extent to which these inter related components of demand can be assessed and incorporated into forecasts will depend on the data and methodologies available. However, spatial planning practice will be more effective if such assessments and forecasts can be made, monitored and reviewed regularly to enable a more informed and proactive approach to be taken to exploring strategic housing options. European metropolitan planning is now also most commonly based on local government (Regional or Municipal) or Government population and household forecasts, which may have to be extended to meet planning horizons and modified to enable the exploration of alternative futures. Effective housing supply by tenure in the plan period The components of housing supply in the plan period will include the existing housing stock (having regard to housing conditions and any prospective demolitions), the existing undeveloped housing land supply and the outcome of urban potential assessments. The effective output from these components can be programmed over the plan period having regard to such constraints as ownership, physical conditions, infrastructure, marketability and, in consequence, overall site viability. An added refinement would be to programme this output by tenure in order to be able to compare it to demand by tenure in housing market areas. 3

Spatial planning practice will be more effective if such assessments of effective housing supply can be made, monitored and reviewed regularly to enable a more informed and

4 Spatial planning practice will be more effective if such assessments of effective housing supply can be made, monitored and reviewed regularly to enable a more informed and proactive approach to be taken to exploring strategic housing options. The following Diagram shows the relationships between these components of the housing development assessment process. 4

5 The Expert Group approach outlined Housing need - by Housing Market Area (HMA) Step 1 - Households 1 Demographic change 2 Migration 3 Households 4 Household size In general terms, Step 1 is now established practice for local government (Regional of Municipal authorities) and Government needs (Health. education, welfare needs etc.). Step 2 - Affordability 5 Income profiles of households by size 6 Affordability criteria - income/mortgage and income/rental 7 Affordability need 8 Affordability supply Step 2 is less well established and requires the co-relation of both household and disposable income data and forecasts. Step 3 - Tenure 9 Tenured affordability need 10 Tenured affordability supply 11 Need by tenure (Equivalent to housing demand and supply model) Step 3 is even less well established and requires the co-relation of affordability and tenure choice. When completed it would enable the comparison of housing need and supply and affordability. Delivery mechanisms Tenure developers 1 Private - Lower cost/size for ownership or rental 2 Intermediate - Staircasing - part ownership/part rental 3 Public - Local government and housing associations/companies These are the established market (private) and social (public) delivery models, with the Intermediate sector offering the possibility of moving, progressively, between the two. Regulation 5 Planning regulation - Proportion of sites or development for affordable housing 6 Planning regulation - Financial contribution in lieu of land or affordable housing 7 Financial regulation - Rents Planning regulation can define the basis on which a community return on housing development is to be paid. It can include a proportion of the development itself being allocated for affordable housing, a proportion of the land being allocated or a financial contribution being made to affordable housing elsewhere. Such an approach requires the viability of housing developments to be made transparent between developer and regulator. 5

6 Rent regulation can also ensure that public and private rented housing remains affordable, whilst also ensuring that rents levels cover maintenance and give a reasonable return on investments. Such an approach also requires the viability of housing developments to be made transparent between developer/owner and regulator. Subsidy 8 Financial subsidies Serviced land provision or building costs 9 Financial subsidies - Residents The public sector can lower new housing costs by offering serviced development land at cost, subsidising building costs or building and renting housing at cost. In present European financial circumstances these routes to affordability are now being closed. It remains common practice to offer means tested housing support to those on low incomes to enable them to rent housing in the public or private sectors. However, inflated property prices can mean inflated rents. This is where the regulatory approach to planning or finance, set out above, can help affordability. 6

7 Case Study experience from the Expert Group The METREX Expert Group on Affordable Housing currently includes the following partners. 1 Glasgow and the Clyde Valley Strategic development and Planning Authority (GCVSDPA) 2 Stockholm County Council 3 Regione Emilia-Romagna 4 Bournemouth Borough Council 5 Institut d'aménagement et d'urbanisme de Ile-de-France (IAU-Idf) 6 Helsinki City Council 7 Reference has also been made to the housing section of the Plan for London (GLA) The partners have all produced full Position Statements and related Powerpoint presentations that were presented and discussed at the first meeting of the Expert Group at the offices of the GCVSDPA, in Glasgow, on Friday 19 February They can all be downloaded from the METREX web site at The following section draws on these sources to present effective practice. It is hoped to add experience from Germany, Spain and eastern Europe to give a more complete picture. 7

8 Comparisons of Expert Group partner experience and practice Housing need - by Housing Market Area (HMA) Step 1 - Households 1 Population 2 Demographic change 3 Migration 4 Households 5 Household size Step 1 is standard practice that needs no explanation. However, it might be expected that climate change migration will add to the economic migrations of recent years. The table below compares the key indicators from the partner areas. Expert Group comparisons PopulationHouseholds Income and expenditure Housing stock Number Number Average Average Percentage Number Annual Private Private Public size income on housing target ownership rental rental % (* coop) % % 1 GCVSDPA (HMA) to Stockholm County Council * 3 Regione Emilia-Romagna All rental Other 4 Bournemouth Borough Council (HMA) 5 IAU-Idf (Region) Helsinki City Council * 8 Other 7 GLA Step 2 - Affordability 6 Income profiles of households by size 7 Affordability criteria - income/mortgage and income/rental GCVSPJC refer to the "traditional" approach to affordability analysis, whereby a household is considered able to afford a home if it costs 3.5 times the income of a single person household or 2.9 times that of a dual income household. A household is considered able to afford market renting that is up to 25% of gross household income. 8 Affordability need Bournemouth foresees two categories of future need for affordable housing. New household formation and the proportion unable to buy or rent in the market. Data suggests 1993 household a year falling into this category. Existing households falling into need. Data suggests 4720 existing households falling into need a year. The consequent annual need for affordable housing would then be 6713 dwellings, of which 1832 might be met from turnover of the existing affordable housing stock. This leaves a residual balance of However, there is also a backlog to be cleared at 823 dwellings a year, making a total annual development programme of 5704 affordable dwellings. 8

9 GCVDPA will shortly have the findings and conclusions of a consultancy study into the issue of affordability need. It will help to inform this part of the work of the Group and also Step 3. 9 Affordability supply Most partners refer to a backlog of unsatisfactory or unsuitable housing. GCVSDPA refers to a demolition programme of dwellings, mostly in multi storey flats, and their replacement by new homes. The financial needs of the public rented sector, to bring the existing stock up to acceptable standards, are having an effect on the ability of many authorities to undertake a new building programme. In addition to qualitative needs for affordable housing there are locational needs. Particularly in large metropolitan areas, there is a need for a good distribution of affordable housing, including within inner areas. Low-income households providing essential services need good and low cost accessibility. Mixed-use, higher density development, to include affordable housing, is now seen as part of urban policy for competitiveness and a low carbon future. Step 3 - Tenure 10 Tenured affordability need 11 Tenured affordability supply 12 Need by tenure (Equivalent to housing demand and supply model) It is common practice for metropolitan authorities to tenure housing demand and make assumptions about the proportion that may be met by ownership or rental. It is less common for housing need to be tenured between public (social) housing, housing associations, cooperatives or companies and the private rented sector. Associations, cooperatives and companies may also facilitate an "intermediate" approach to affordable housing by enabling mixed rental/part ownership/purchase of dwellings. The London Plan seeks 60% of all new affordable housing as social housing and 40% for intermediate housing. Delivery mechanisms Tenure developers 13 Private - Lower cost/size for ownership or rental The private sector does provide low cost housing by keeping size and building standards to the minimum. In the UK, with the low cost of mortgages over the last decade, there was a move to invest in "buy to let" properties. However, the motive was largely speculation rather than the outcome of a conscious policy to meet housing need. 14 Intermediate - Staircasing - part ownership/part rental Intermediate housing is designed to enable new households, particularly young couples, to gain a foothold on the first rung of the housing ladder. It enables households with capital to invest in housing to part own their property and to rent the balance. Housing associations and cooperatives can offer this approach but resale usually has to be back to the association or cooperative. Current experience seems to be that intermediate housing would remain unaffordable to those without capital. 15 Public - Local government and housing associations, cooperatives and companies In many parts of Europe, particularly those with a traditionally high proportion of public rented housing, there has been a move to "right to buy". Much of the more attractive housing stock in this category has have been sold to exiting tenants. However, there remains a need for "social" housing, particularly in metropolitan areas where high property values have squeezed out housing for those in lower paid jobs that are nevertheless vital to the urban economy. 9

10 In Sweden it is up to individual Municipalities to decide whether they need a "not for profit" housing company at the their disposal as an instrument of housing policy. Regulation 16 Planning regulation - Proportion of sites or development for affordable housing Bournemouth has adopted a radical approach to the sharing of the added value, created by new housing development, between the public and private sectors. This is illustrated in the diagram below. Selling revenue is from house sales. The return on the affordable element of sales depends on the form of tenure, for example, social renting, shared ownership, intermediate renting or shared equity. Build costs include infrastructure costs, professional fees, marketing costs, finance costs and overheads. This requires transparency from the developer. Developer margin is about 15%. Gross residual value is shared between affordable housing and land value The Bournemouth approach requires all residential development to make a contribution to the provision of affordable housing on this basis. For larger developments 40% of housing is expected to be affordable housing, as a starting point. Bournemouth has produced a "Toolkit" that enable the viability of developments and their capacity to support affordable housing to be assessed. In the London Plan (LP) sites over 5 hectares or accommodating more than 500 dwellings have to produce a planning framework to include affordable housing. The LP also specifies site densities and dwelling sizes to set standards. Emilia-Romagna has also adopted an approach whereby 20% of the area of new housing development must be donated to the Municipality fro the provision of social housing. 10

11 17 Planning regulation - Financial contribution in lieu of land or affordable housing An alternative to the provision of a proportion of affordable housing on a site or the donation of land for this purpose is to provide a financial contribution of equivalent value to the local authority. This may be a more cost effective approach where the distribution of affordable housing is an issue or a wider urban restructuring is required. 18 Financial regulation - Rents In Stockholm, and Sweden itself, there is along standing system of rent regulation. Rents should reflect the real management costs of the property and are negotiated with the residents/tenants association. Tenants have a right of tenure and landlords cannot raise the rent to an unreasonable level or force a tenant to move. In Emilia-Romagna, the range of subsidies referred to below are regulated through a convention that includes, Publically subsidised housing prices based on consideration of infrastructure costs, construction costs and urbanisation charges. (A similar approach to Bournemouth that also requires transparency) Determination of the rental level Regulation of the rental term Regulation of the permanent rent Subsidy 19 Financial subsidies Serviced land provision or building costs The Emilia-Romagna convention (above) enables publically subsidised housing development. 20 Financial subsidies - Residents Stockholm, and Sweden itself, also offers housing subsidies to certain groups such as families with children and the elderly, which follow individuals not dwellings. They are related to family size, living area rent levels and household incomes. This is also the practice in the UK where Housing Benefit is paid to those with unaffordable housing needs. In Emilia-Romagna there is a 20-year-old system of housing support policies for those on low incomes. Contributions to the public system of houses for rent Grants and credit for the purchase of the first house Contribution to low income tenants for the payment of leases from private owners Current schemes include the following houses for permanent or term rental (maximum 10 years). Low cost credit is provided at 120k for a permanent lease, 110 for term lease and 100k for a lesser lease houses for rent to term (minimum 10 years) or permanently. Contributions can be made to cooperatives, enterprises, Municipalities, Foundations, and NGO's selected through a regional bank Housing benefit fund to subsidise rents for low income households Guarantee Fund through which the Regional Council can replace the borrower in economic difficulties. The borrower has to recompense the Regional Council at the end of the mortgage period 11

12 Revolving Fund to promote concession mortgages from banks. Grants are given to Municipalities, building enterprises and cooperatives. Funding repaid is recycled to new projects New schemes include the following. Regional contribution of 10k ( 13k in low energy housing) to first time buyer couples Ethical Real Estate Fund for the purchase of dwellings for rental to low income tenants at cost rents rather than market rents RR/METREX/Glasgow/21/2/

Oxfordshire Strategic Housing Market Assessment

Oxfordshire Strategic Housing Market Assessment Summary Key Findings on Housing Need March 2014 Prepared by GL Hearn Limited 20 Soho Square London W1D 3QW T +44 (0)20 7851 4900 F +44 (0)20 7851 4910 glhearn.com