A new report by New Economic Foundation (nef – trendy no caps logo!) has found that we can build one million new affordable homes over the next five years and still cut Government spending if measures are taken to reduce the cost of building land and the interest rates paid by social landlords.

The Government hopes to save £1.7 billion a year on the social housing budget by setting a modest target of building 150,000 homes over the next four years. But the country needs 200,000 new homes a year across all sectors just to keep pace with ever growing demand. There are currently 1.7 million households on the housing waiting list.

nef’s new report, One Million Homes, published Thursday 11 November 2010, argues that the Government could make savings potentially even larger than those proposed by the Chancellor while at the same time making serious inroads into the housing shortage. Its recommendations include:

1. Measures to reduce the cost of land.

• 80% capital gains tax on all land sales over £80,000 per acre. The revenue generated would go to a National Land Fund to subsidise the cost of social housing.
• Planning permission for large residential developments would only be given to social housing developers. This would reduce the value of much of the undeveloped land in private hands (see note 2). Local authorities and housing associations would be able to sell the land to private companies, subject to detailed regulations on how often they do this and how they spend the profits.

Now you would have thought that a group with the word “Economic” in its name would have a basic understanding of supply and demand and what might happen to the supply side of the equation if such nonsense was adopted.

However in the spirit of useless research Intali have recently concluded that if beer was free we would drink more of it.  If you are not off down the pub the full nef report can be found here.

Intali represent a number of clients who are seeking joint venture agreements with contractors or funders in respect of mixed use and town centre residential development schemes throughout the UK.

We currently have schemes in the Midlands, the north East and the North West. Please contact Adam Burdett at Intali (adam@intali.com) if you would like further information.

Intali have been instructed to secure a retail tenant for a new mixed use development at Horsemarket in Kettering town centre.

Kettering is at the heart of North Northants, the U.K.’s biggest single growth area outside of London.  The town is perfectly placed to benefit from the significant growth opportunities in housing and employment that are being delivered in the area.

The Horsemarket area has recently undergone substantial public realm improvements including the installation of new bus stops to make this area a key drop-off and collection point for visitors to the town centre.

The retail unit to let comprises the ground floor of a mixed use scheme, and will provide  356m² (3,832 ft.²) of prominent ground floor retail space with the main frontage to Horsemarket and return frontage to Queen Street.

The site is now cleared in readiness for development and the unit can be completed to shell finish approximately 12 months from the date of agreement to lease.

The agents consider that the unit would be particularly suitable for convenience food retail or leisure uses and further information can be found here.

The recent statement from Minister Greg Clarke makes it very clear that local planning authorities should support enterprise and facilitate housing, economic and other forms of sustainable development. Where relevant-and consistent with their statutory obligations-they should therefore:

1. Consider fully the importance of national planning policies aimed at fostering economic growth and employment, given the need to ensure a return to robust growth after the recent recession;

2. Take into account the need to maintain a flexible and responsive supply of land for key sectors, including housing;

3. Consider the range of likely economic, environmental and social benefits of proposals; including long-term or indirect benefits such as increased consumer choice, more viable communities and   more robust local economies (which may, where relevant, include matters such as job creation and business productivity);

4. Be sensitive to the fact that local economies are subject to change and so take a positive approach to development where new economic data suggest that prior assessments of needs are no longer up-to-date; and

5. Ensure that they do not impose unnecessary burdens on development.

This puts development viability centre stage in the application process, a long overdue but nevertheless welcome change which we hope will give officers more support in emphasising the importance of viability to some of the less well informed members of the planning committee.

However the statement goes further in saying “that to further ensure that development can go ahead, all local authorities should reconsider, at developers’ request, existing section 106 agreements that currently render schemes unviable, and where possible modify those obligations to allow development to proceed; provided this continues to ensure that the development remains acceptable in planning terms.”

Laudable, but I am not sure members will be happy but if they don’t they could always read the statement

This latest RICS report highlights the structural inefficiencies of current housebuilding methods and suggests (amongst other things) that homes could be built for £20,000.

For the full report from the RICS click here

At the Leicestershire Chamber of Commerce lunch last week the President, Rick Moore, commented on the difficulties currently being encountered by first-time buyers in the housing market.  He highlighted the fact that the average age of the first-time buyer is now 35, whereas 10 years ago it was 23.  He rightly felt that this was an important issue that needed to be tackled by the industry.

The Times recently reported on new difficulties that first-time buyers are likely to face under the planned restrictions being mooted by the city watchdog, the Financial Services Authority (FSA).  These proposals are intended to close, bolt and deadlock the stable door now that the horse has disappeared over the horizon, and if approved will introduce “affordability assessments” to demonstrate that borrowers have the ability to pay significantly more than the cost of the mortgage they want to take out.  There are also proposals to restrict the terms of mortgages to 25 years, to end to self certification loans and to review interest only mortgages.

The Council for Mortgage Lenders (CML) has calculated that 45% of first-time buyers granted mortgages in the first half of 2010 would have been rejected or allowed to borrow only a lesser amount if these proposals had been in force.

The housing industry is one of the most significant drivers of economic growth in this country.  Its prosperity is fuelled by new entrants into the market, otherwise known as first-time buyers.  Without them the remainder of the market stagnates.  However it appears that the FSA is intent on making life as difficult as possible for first-time buyers, and in doing so endangers the recovery of the housing market and the economy as a whole.

We have grown used to retrospective government legislation accurately solving the problems of the past without anticipating the needs of the present and future.  We can expect little else from politicians whose decision-making is ultimately based on winning votes.  It is therefore left to the industry to provide a solution within the restrictive legislative framework set out by government.  It is encouraging that the industry has always succeeded in the past.

But what is the solution this time?  The 1946 Frank Capra classic, “It’s a Wonderful Life”, is a reminder of what building societies used to do.  The “good old” Bailey Building and Loan was a local institution making independent decisions about the ability of borrowers to repay and genuinely helping people to get out of “Potter’s slums” and into their own home.  What would the FSA have thought about that?

But the lack of a regulatory-fettered lender is only part of the problem.  The government’s own statistics show that house prices are still at historically high levels relative to first-time buyers’ incomes.  The last survey was completed in February 2010 and demonstrated that the price to income ratio at that time was 4.47, close to historic high of 4.57 in 2004.  To get first-time buyers back into the market this ratio needs to be no higher than 3.5 and therefore incomes must increase (unlikely in the immediate future) or house prices must fall.

The Office for Budgetary Responsibility (OBR) predicted in its November report a decrease in house prices of 1.4%, but this is likely to make little impact in reducing the price/income ratio to levels that will encourage buyers to the market.  The OBR prediction is a consensus figure made up of independent city and non-city forecasts, and opinions for 2011 vary between +13.3% to -10%, and therefore the fall in house prices could be much more (or indeed much less).

The house building industry has little ability to influence either incomes or house prices, and therefore to make a positive contribution it needs to address both the cost of providing new homes and the method of sale.

Build costs are stable at the moment, but the majority of new homes are built the same way they were 100 years ago.  Surely there is a more efficient, cost-effective and sustainable solution.

The planning system also places huge costs on the provision of new homes.  Although the evidence is anecdotal, the costs of flood risk assessment, ecology surveys, Design and Access statements, and the other endless requirements of local authorities before they will even consider a planning application, all add to the cost of the final product.  New codes for sustainability (worthy but unaffordable), Section 106 contributions and the demand for private developers to provide affordable housing, all drive up the cost of new homes.

And then there is the issue of land values.  Landowners have become used to achieving spectacularly high prices for housing land, and history suggests that such values will probably return at some point in the future.  They are understandably reluctant to release land at today’s depressed prices, but if the industry is to provide housing that is affordable (as opposed to subsidised affordable housing) a way must be found to encourage the release of land at prices that offer a reasonable premium to existing use values whilst maintaining affordability.

Rick Moore is right that first time buyers need to be brought back into the market.  We cannot expect politicians to do anything more than chase votes and therefore it is down to the industry to provide the solution.

Ready when you are.

The Office for Budgetary Responsibility has reported that they expect house prices to fall in 2011 with a difficult couple of years to follow.

The Revised Estimate of the Fiscal Impact of Spending Review 2010, based on the OBR’s  November Economic and Fiscal Outlook is available to download at http://www.hm-treasury.gov.uk/data_obr_index.htm , but the relevant paragraphs are reproduced below.

4.2 2  We assume that residential property prices follow the median of independent forecasts for the next two calendar years, implying a 1.7% increase in the year to the fourth quarter of 2010 and 1.4% decline in the year to the fourth quarter of 2011.  The independent forecasts are weaker than in June.  This probably reflects recent weaknesses in the housing market and the continued risk that credit constraints could place downward pressure on prices during 2011.  From 2014 onwards, house price inflation is assumed to be broadly in line with the long-term average earnings growth.

4.23   We expect residential property transactions to return to their trend level in the medium term.  The trend level is informed by the long-term average duration of home ownership and the expansion of the housing stock.  In this forecast we have re-estimated the equilibrium duration so that the medium-term anchor better reflects recent trends.  Average duration is now 19 years rather than the 18 years estimated in the June budget.  This change has had the effect of reducing equilibrium transactions by around 130,000 per year by 2015 relative to the June budget forecast.

4.24   Leading indicators such as mortgage approvals and new buyer enquiries point to muted transactions growth in the very near term.  This is consistent with the independent forecasters’ revisions to house prices.  Over the next couple of years we expect the availability of credit and the house price outlook to continue to weigh on transactions before recovery takes hold and brings about a return to medium-term equilibrium.

The Forecasts for the UK Economy, a comparison of independent forecasts, is also available, and makes interesting reading with Medium-Term Forecasts for House Price Inflation (Table M6 – page 21) ranging between +13.3% (Beacon Economic Forecasting – hang your head in shame) and -4.2%.

Bearing in mind the majority of predictions are negative for next year with negative or very moderate growth the 2012, it seems the government will not be relying on any help from the housing sector in contributing towards increased GDP.

The latest Consensus Forecast produced by Investment Property Forum (IPF), one of the leading property industry bodies in the UK, shows expectations for returns on investment stabilising at 13.6% for 2010 but predicts increasing uncertainty for 2011.

Although rental value growth figures for 2010 remain negative for all sectors, the slightly improved position as we approach the year end is based on less pessimistic forecasts for both rental and capital value.

However forecasts for performance in 2011 show a continuing fall in expected returns, with rental growth increasing by 6.7% (7.2% in 2010) and capital values falling by 1.5%(+6.4% in 2010). Total returns for 2011 are predicted to be 5.2%, rising to 9.2% in 2012.

The full report can be downloaded from the IPF website or if you would prefer to receive a pdf copy please call Adam Burdett at Intali.

The government has approved the core strategy for Leicester, after the council decided to retain housing targets based on East Midlands regional spatial strategy.

The council has decided to retain its housing target of 21,000 homes to 2026, despite the abolition of the regional spatial strategies by communities secretary Eric Pickles.

The government has rated the document as sound following the recommendation of a planning inspector.

The revised document said: “The council has endorsed the RSS housing figure for Leicester which is based on evidence, supplied by the city council, on the capacity of the City to accommodate housing growth.

“Therefore the RSS housing figures…are retained in the core strategy.”

The plan will now go before councillors for final approval in November.