Affordability and the Need for Affordable Housing SG ‘ Firm Analytical Foundations’ Conference 22 April 2008 Prof Glen Bramley

School of the Built Environment Outline of Session Policy context – Firm Foundations, supply & affordability Local affordability & need model Update & projections Baseline scenario Alternative assumptions & impacts The Geography Question Different measures are different Some policy issues

School of the Built Environment Supply and Affordability Scottish Housing Market Review and Firm Foundations identify inadequate/unresponsive housing supply and affordability as key problems Parallel with Barker Review in England Belief that increasing supply will lead to moderation in market prices – developing economic model Setting national target to raise output to 35,000 pa Established Housing Supply Task Force to focus on unblocking supply Main focus on planning – SPP3 - regional targets - identification of strategic growth opportunities But must be environmentally & socially sustainable

School of the Built Environment

Local Affordability & Need Model What model is & does - models local income distributions in detail - estimates affordability to buy or rent in market for need - compares with supply of social relets -> net need - traces backlog need for given supply, tenure, vacancies, etc. Not a full-scale econometric model of market - but some behavioural models (hhd formation, relets) - some market feedbacks imposed based on judgements - key trends in incomes, prices imposed Snapshots (2005 & 2006) +forward projections to base data updated to year steps - tied to hhd projections – LA level Results last time – see CS Report 72

School of the Built Environment Differences this time Affordability based on cheaper of purchase or private rent Updated prices (higher) and incomes (bit higher) 16 forward scenarios to 2021 based on different assumptions - A prices trend with incomes, vs B 15% price correction to Lending multipliers 3.5 (single) vs Price threshold lower quartile vs lowest decile - PR affordy 25% of net income vs 30% Comments, in light of recent events - Price correction now likely, following credit crunch - Scottish data, & prudence, support 3.5; English data LQ is recommended practice; LD raises issues about quality - PR 30% more realistic & consistent with guidance (25% of gross) - but what will happen to PR rent levels? - should we also be modelling access to deposits? (model does allow for large deposits through ‘wealth adjustment’)

School of the Built Environment Re-run of Affordability Model

School of the Built Environment Comments on Baseline Affordability improves gradually Net need a bit lower than previous study, but rising and plateau-ing (until price correction introduced) Still some sizeable surpluses in places New hhd formation fluctuating Relets declining due to falling stock With provision of 7000 pa, backlog would fall gradually Vacancies appear to grow, possibly -> more demoln Owner occupation levelling off around 71% PRS continues to grow (? BTL bubble?)

School of the Built Environment Affordable Needs Depend on Assumptions

School of the Built Environment Impact of Different Assumptions Most of variant assumptions imply better affordability and lower need in future Effects are not linear & additive 15% price correction halves net need (- 5-6,000) LM 4.0 reduces need by similar amount (5-6,000) LD price threshold reduces need by 3-5,000 Higher aff ratio for PR reduces need by 3-8,000 Combinations reduce need by 4-9,000, leaving residual need of <1000 in later years So it all depends on the assumptions…. ….but does credit crunch mean we need to change more?

School of the Built Environment There is also the Geography Question Main modelling done on unitary LA basis CS Report 72 compares HMA’s and former DCs Larger HMAs submerge some need Smaller units make some difference in larger rural and mixed LA’s (Highland, Fife, Borders, etc) No easy right answer, given data constraints Current policy thinking emphasizes subregional analysis and cooperation

School of the Built Environment

Affordability Measures Proliferation of studies, indices, targets, etc. e.g. Wilcox, CLG/NHPAU, SG (FF), various Banks Simple ratios of house price to income/earnings popular, and feature in govt targets However, these neglect variations in interest rates, household structure, economic activity and income composition E.g. in England correlation between GB measures and LQHPER are quite low

School of the Built Environment Comparison of Measures

School of the Built Environment Some Policy Issues Setting normative affordability standards Addressing LTV & deposits issue (savings scheme?) Balance between overall supply-> market affordability and affordable housing provision Providing more affordable housing without much money Making more effective use of planning powers & s.75 Role of intermediate (LCHO) provision, esp OMHS Building a lot more housing than prospective household growth - rising vacancies, demolition, low demand Acceptability of PRS as solution for different groups e.g. families, homeless, esp given lack of security

School of the Built Environment Why Involve Planning? Critics have argued inappropriate use of planning - lack of ‘rational nexus’ between AH and specific site - stealth tax – should be overt - not job of hb industry to subsidise social housing Counter view (inc Barker) that planning constraint responsible for affordability problem & should compensate - plan area level nexus - betterment taxation efficient and equitable - there will never be enough public subsidy for soc hsg In practice policy has 3 drivers - land to put social/afford housing on - getting subsidy from land value - promoting mixed communities

School of the Built Environment

Contribution of Grant & s.106

School of the Built Environment Main Conclusions on PAH Not a substitute for general land release and market housing supply (inc assoc infrastructure) - but in pressured scenic areas it may be It can be made to work, but it takes a long time Land value & subsidy issues critical Ideal from Social Justice viewpoint - paid for by tax on landowner windfalls - promotes mixed communities (inc demographic mix?) - increases affordable supply in pressured areas