Housing & Economic Growth

Transcription

1 Housing & Economic Growth Opening plenary: Maximising potential to create housing and economic growth Speakers: Chair: Peter Jones Head of Area Berkshire, Swindon, Wiltshire, Homes and Communities Agency Stephen Aldridge Director for Analysis and Innovation, Department for Communities and Local Government Chris Walker Senior Economic Advisor, Department for Communities and Local Government Stuart Ropke Assistant Director of Research and Futures, Department for Communities and Local Government Lindsay Todd Chief Executive, Radian

2 Delivering the Government s housing ambitions Peter Jones, HCA Head of Area 15 January 2013

3 Current situation: we always need to do more Demand for housing growing Supply not growing fast enough Housing remains unaffordable to many Markets still shaky and developers wary, though profits rising again Ageing population = changing needs Local partners at front line of meeting this need and managing impacts Housing supports economic growth Government recognises this and is pushing to do more

4 Autumn announcements September package: Single shop window for public land Centralising ownership: programme from other public sector bodies Support to unblock large scale stalled sites: enabling Autumn Statement Around 225m to accelerate large sites 190m for investment in public sector land sites and enable quicker disposal 100m to bring forward public sector sites for development We play a key role in Governments ambition to make the best use of public land to benefit communities

5 Local large scale projects Cranbrook, East Devon New town of 6,500 homes First phase well underway; school and energy centre complete 20m investment in Phase 2 Delivers new town centre, primary and secondary school Accelerates delivery from 300 to 500 homes a year Working with partners on other local large scale projects

6 Public Sector Land Programme Land with a capacity of 100,000+ homes has been identified across government departments

7 The HCA land work Other peoples land Delivery support to DCLG on public land programme Alignment of landownerships and structuring complex transactions HCA land and programmes Economic assets Get Britain Building Land Disposal and Development Accelerated land disposal Large scale sites Public Land Local alignment and support including City Deals and GPF Use of standard models and toolkits ATLAS (planning support on large sites) Common issues barriers across all land types (include upfront infrastructure costs, cash flow, demand and market risk, leadership continuity and political will) so delivery needs to be brought together

8 Fast moving picture: much to get to grips with HRA reform Growing role of public land Unblocking large sites More support for affordable housing - More funding and guarantees New models and tenures - PRS, rent-to-buy, Affordable Rent

9 Planning and strategy context Responding to NPPF - Especially building capacity on viability and land supply Ensuring Local Plans are robust Understanding why sites are stalled - Finance? Viability? Demand? Neighbourhood Plans LEP growth plans Tenancy strategies Impacts of welfare reform Responding to Green Deal Making best use of the PRS

10 City Deals: Localism in action Joint Investment Board LMDC and Board Bristol Public Property Board Work towards combined authority Sheffield, LCR, Newcastle Housing Investment Fund/revolving funds Joint investment planning Aligning HCA assets to deliver economic growth priorities Recycling HCA receipts from disposal of assets: Exceptionally for GM and Birmingham Wider public land and property role Continued HCA enabling support

11 But we can t take our eye off the ball AHP is well underway First six months of 2012, we completed 11,981 homes and started on site with a further 5,243 SSW delivered 26% of completions and 29% of starts Negotiating schemes, allocations, rents, planning.. Renegotiating S106? Working locally to take advantage of opportunities (Custom Build)?

12 All this in a tough climate Reduction in resources and funding Tight borrowing restrictions Some new (and old) opportunities: - New Homes Bonus (growing) - Regional Growth Fund (more announced) - Growing Places Fund - HRA headroom (plans underway) - Build to Rent Fund - Business Rate reform coming - More infrastructure funding announced - New investors entering the market - Public land

13 This creates opportunities to innovate PRS developments funded by local pension schemes? Working with LEPs on new Growth Plans and to strengthen links between housing and the economy New governance and delivery models, pooling resources and working across areas Continuing innovation in partnerships, JVs and PPPs Using local authority land

14 We re here to help Providing commercial support and expertise to help: Unlock land Put together deals with the private sector Helping develop, refine and deliver local plans for housing and growth: Aligning assets and bringing together funding streams where appropriate Assisting with funding bids Planning support: Including on large sites, S106 renegotiation

15 Contact Details Peter Jones Head of Area, Berkshire, Swindon, Wiltshire

16 homesandcommunities.co.uk /HCA_UK /homes-&-communities-agency

17 HOUSING AND GROWTH Presentation for the Housing and Economic Growth Summit Ageas Bowl, Southampton 15 th January 2013 Stephen Aldridge and Chris Walker 17

18 The purpose of this presentation is to set out: 1. An overview of the current macroeconomic situation 2. Housing s contribution to the economy 3. The role of housing in supporting economic recovery 4. Housing s contribution to longer term economic growth 18

19 1) Macroeconomic overview 19

20 Change in GDP since 2008 Q1 (%) GDP fell sharply during the recession by around 6% - and is yet to return to pre-recession levels 0% 2008 Q Q Q Q Q Q Q Q Q Q3-1% -2% -3% -4% -5% -6% London in particular, but also the South East and the South West, appear to have experienced a slightly shallower recession than the rest of the country -7% GDP 20 Data Source: ONS

21 Quarter on Quarter GDP Growth (%) The economy continues to recover, but more slowly than expected 1.5% 1.0% 0.5% The slower than expected recovery is a product of: 0.0% -0.5% 2005 Q Q Q Q Q Q Q Q1 A greater than expected impact of the financial crash on GDP -1.0% -1.5% Commodity price inflation that has reduced real incomes -2.0% -2.5% Global/euro area uncertainties GDP Growth Average growth (2000 Q Q1) Average growth (2008 Q Q2) Average growth (2009 Q Q3) Note: 4th Quarter preliminary GDP estimates will be published on 25 January. 21 Data Source: ONS

22 Annual GDP growth (%) The latest forecasts from the Office for Budget Responsibility suggest growth will remain below trend until % 2.5% 2.0% 1.5% 1.0% 0.5% Recovery from credit booms and busts can take longer than other types of recession, because of the time it takes to de-leverage debt 0.0% % Actual OBR Forecast 22 Data Source: OBR

23 However, both the OBR and Treasury note, there continue to be significant uncertainties and risks surrounding these forecasts There are significant global uncertainties, including: 1. Euro area economic momentum remains weak and tensions from the crisis are still evident 2. United States although the fiscal cliff was avoided, the deadline for agreement on spending cuts has been delayed until 1 March, and agreement on raising the debt ceiling is still required 3. Growth in developing countries - has slowed. Although, the latest indicators suggest growth, notably in China, may be starting to pick up once more These factors are impacting on business confidence and investment in the UK, and on UK exports. 23

24 Change in Employment and GDP since 2008 Q1 (%) In contrast to output it is worth noting that employment levels in the UK economy have been more buoyant and now well exceed pre-crash levels 1% 0% -1% -2% -3% 2008 Q Q Q Q Q Q Q Q Q Q3 Since early 2010 the public sector has lost 600,000 jobs. However, the private sector has created 1.2 million new full and part-time jobs 500,000 more than predicted. -4% -5% -6% Youth unemployment has also been falling recently, down 72,000 in the latest quarter -7% GDP Total employment 24 Data Source: ONS

25 Change in employment from 2008 Q1 (%) Employment levels are above their recession levels in London. However, the South East and South West are yet to see unemployment return to pre-crash levels 4% 3% 2% 1% 0% -1% -2% -3% -4% 2008 Q Q Q Q Q Q Q Q Q Q3 The East of England has seen the highest increase in employment levels since the recession, an increase of over 3 per cent. The North East and North West have also seen increases in employment, of 1.9% and 0.8% respectively South East South West London 25 Data Source: ONS

26 The Government has put in place a number measures to support economic growth In the short term, it has sought to: Ease credit and funding constraints Providing 375 billion through quantitative easing, by the Bank of England Setting up the Funding for Lending Scheme, to reduce the cost of credit Creating a business bank to help small firms in particular access finance and support Investing 600 million alongside 650 million from the private sector in four new funds that will lend to mid-sized companies Promote infrastructure investment Providing up to 40 billion in government guarantees to ensure that priority projects in the infrastructure pipeline can raise the finance they need Switching resources from resource to capital programmes: 5.5 billion in the Autumn Statement Boost exports Increasing export finance for small firms: 1.5 billion in the Autumn Statement Increasing the resources available to UKTI to support more small and medium size exporters 26

27 The Government has put in place a number of measures to support economic growth For the longer term it has sought to: Maintain and increase investment in science and innovation Protecting programmes in the 2010 spending review Providing 600 million of extra resources in the Autumn Statement for Research Council infrastructure, and facilities for applied research and development (R&D) Creating a new generation of catapult technology and innovation centres Creating a Patent Box, with greater tax relief for creative sectors Encouraging the development of a Tech City in London home to 200 high-tech companies Invest in skills and education Providing 1 billion pounds in the Autumn Statement to expand good schools and build 100 new free schools and academies, and a further 270 million to improve further eduction colleges Taking the number of apprenticeship starts to almost 1 million Back major infrastructure projects E.g. HS2, the Northern Line extension, road and rail projects across England Put in place a more competitive tax system Reducing corporation tax from 28% to 24%, with legislation to reach 21% in 2014 Reducing the top rate of income tax from 50% to 45% Reduce unnecessary and inefficient regulation Moving to a one-in-two-out rule for new regulation: building on reduced burdens on business of 850 million per annum so far 27

28 2) Housing s contribution to the economy 28

29 Construction output contributes around 8% of GDP. Housing including, building and maintenance and repairs accounts for around 3 per cent of GDP Contribution of construction output to UK GDP (%) 8% Contribution of housing to construction output (%) 2.5% 14.8% Public new building 5.7% Private new building 92% 65.7% 11.4% Public repairs and maintenance Private repairs and maintenance Other construction Construction Rest of the economy 29 Data Source: ONS

30 Value of new housing construction output ( million) Net additions House building has fallen since the recession. Although, there has been some increase in net additions over the last year 25, ,000 15,000 10,000 5, The fall in construction output contributed one fifth of the overall 6.1% contraction in GDP following the financial crash Value of new housing construction output Net additions 30 Data Source: ONS and DCLG

31 Gross Value Added (GVA) of UK Economy ( million) Indeed, if construction, North Sea oil and gas and financial services are excluded, the economy has broadly returned to pre-crash levels of output 285, , , , ,000 Of the current approximately 3% gap between current GDP levels and peak GDP levels construction makes up around 43% of the gap, and within this housing makes up 18%. 260, , Q Q Q Q Q Q Q Q Q Q Q Q Q Q3 Financial services and extraction of oil and gas make up 34% and 26% of the gap respectively.* Quarterly GVA (excl. construction, extraction of oil and gas, and financial services) *Note: the numbers sum to over 100% because output excluding these sectors is now slightly above the peak level 31 Data Source: ONS

32 3) The role of housing in supporting economic recovery 32

33 Housing can play a key role supporting recovery The sector has spare capacity meaning it can grow without creating inflation It has strong job multipliers, as building and repairs and maintenance are labour intensive Job growth helps to underpin aggregate demand for goods and services within the economy Housing construction does not rely heavily on imports, which drag on growth It is estimated that there is a supply chain multiplier in construction of 1.78, i.e. 1 construction job supports 0.78 jobs elsewhere in the supply chain. For every 1 million of new housing output, 19.9 workers are needed for a year. For every 1 million of housing repairs and maintenance 30.8 jobs are supported. 33 Source: Scottish Government, and Construction Skills and DCLG analysis

34 The short term prospects for UK growth are highly dependent on creating the right conditions for greater investment, including in housing Summary of the OBR s central forecast 34 Source: HMT

35 A number of factors have been holding back greater housing investment Demand-side barriers Lending banks are less willing to lend as the perceived risk of house prices falling is higher To reduce banks exposure to this risk, higher deposits have been demanded The cost of borrowing for banks has increased due to uncertainty in the economy, and higher risk aversion in the financial sector Supply-side barriers The fall in house prices has reduced the financial viability of building, leading to stalled sites Reduced access to investment finance, particularly for smaller suppliers 35

36 The Government has put in place a range of policies to support the housing market in the short term Demand-side The NewBuy scheme, enabling households to access 95% mortgages for new build homes FirstBuy, supporting first time buyers by providing an equity loan to reduce the size of the deposit and size of mortgage required Creating a debt guarantee scheme for up to 10 billion to support affordable housing and private rental homes Supply-side Introducing the Get Britain Building fund to unlock building on sites with planning permission Supporting the release of public sector land and reducing planning delays to accelerate major housing projects Affordable homes programme with new affordable rents Increasing the maximum discount available for Right to Buy for the first time, all the additional sale receipts will be recycled back into new affordable rented homes 36

37 The Department monitors the impacts of all initiatives and broader measures impacting on the housing market Demand-side Funding for lending (mortgages): The availability of secured credit to households was reported to have increased significantly in the three months to mid-december 2012, driven in part by the Funding for Lending Scheme. A further significant increase was expected over the next three months BoE Credit Conditions Survey NewBuy Guarantee = could help up to 25,000 additional sales over 3 years, 2,000 reservations so far FirstBuy = up to 27,000 first time buyers by 2014, 10,000 reservations so far Supply-side Get Britain Building = unlocking up to 16,000 new homes, nearly 9,000 already under contract Public Sector land = land for 100,000 homes; land sold for 33,000 affordable homes with new affordable rents Affordable homes programme: target = 170,000 homes by 2015, approx 70,000 so far Right to buy one-for-one replacement, estimated = 20,000 homes by 2015, 200,000 Right to Buy enquiries Large sites = to support 50,000 new homes 37 Source: DCLG estimates

38 4) Housing s contribution to longer term economic performance 38

39 Net additions to the housing stock The current rate of housebuilding is not keeping pace with the number of new households, which is primarily driven by population growth 250, , , ,000 50,000 Over 70% of the projected increase in the number of new households is from population increases. Alongside this an ageing population will lead to a greater number of single person households. These are not forecasts, but projections based on sociodemographic trends Net additions Projected average household formation ( ) 39 Data Source: DCLG

40 Housing plays a key role in supporting long run economic growth through interactions with the labour market An adequate supply of housing in the right places is needed to: Ensure housing is affordable and that workers can be retained in and attracted to areas where the jobs are. Unaffordable housing risks raising labour costs and undermining business competitiveness and productivity Support geographical labour mobility, lower levels of unemployment and increase output Support the realisation of agglomeration economies the increases in productivity associated with geographical clustering of populations and economic activities 40

41 Completions/1000 popn, Completions per 1,000 population There is not a strong correlation between the affordability of housing measured by house prices divided by incomes and the supply of housing in an area R 2 = Affordability ratio, 1998 Not only are we not building enough houses, there is some evidence that we are not building houses in the right places, reflected in a poor correlation between demand (measured by affordability) and new building supply. 41 Source: DCLG internal analysis

42 The Government has put in place a range of local growth measures to support the housing market and broader economic development over the longer term Enablers Introducing a simplified National Planning Policy Framework that creates a presumption in favour of sustainable development Supporting LEPs via the Growing Places Fund which provides up-front funding to get local development under way Capital infrastructure fund for large sites Establishing a 2.6bn Regional Growth Fund leveraging in over 13bn of private investment Creating 24 Enterprise Zones across the country to support both new and expanding businesses New Partnerships Working with local areas to create 39 Local Enterprise Partnerships (LEPs), aligned with functional economic areas, to play a key role in driving economic growth Agreeing 8 City Deals and a second wave Incentives Delivering a New Homes Bonus that rewards local councils when they provide more housing for their local population Community Infrastructure Levy 15% or 25% to go to local communities (depending upon whether they have a neighbourhood plan) Giving local authorities a direct stake in local economic growth by allowing them to keep 50% of the local business rates revenue New freedoms e.g. Tax Increment Financing 42

43 The Heseltine Review could lead to further measures, including: Central government budgets supporting growth being put into a single funding pot for local areas LEPs developing a long term strategy and business plan to bid for these funds from central government Government is considering the report and Lord Heseltine s recommendations and will respond in the Spring. However, the Autumn Statement announced that the Government will devolve an increased proportion of growth related spending on the basis of strategic plans developed by LEPs, in line with Lord Heseltine s recommendations. 43

44 Summary and key messages The UK economy has come out of recession more slowly than expected the result of a range of international and other factors, including problems in the Euro zone. OBR forecasts suggest the UK will progressively return to trend growth rates by Construction and housing, North Sea oil and gas and financial services have contributed significantly to the recession and sluggish recovery. Construction/housing investment has a key role to play in supporting economic recovery in both the short term and the long term but there are both demand side and supply side risks. The Government has taken a range of measures to promote growth both in the housing market and generally including putting in place a new regime for enabling local economic growth. The evidence suggests recovery from credit booms and busts takes longer than other types of recession because of the time it takes to de-leverage debt but the framework for future growth is in place. 44

45 Maximising potential to create housing and economic growth Stuart Ropke assistant director, research and futures 15 th January 2013

46 Overview Why do we need more homes? What are the barriers to more development? What role can local authorities and LEPs play? Increased devolution of funding = more homes?

47 Population growing (Office for National Statistics, Subnational Population Projections, Sept 2011)

48 and changing too (Department for Communities and Local Government, Live Table 420, Nov 2010)

49 The politics of housing and growth

50 How does building affordable homes help the UK economy? Type of Impact How does building new affordable homes impact GVA? How does it impact incomes? A 1m investment in affordable homes will generate 2.41 m in the UK economy in total. For every 1 of salary from employment generated by investment in affordable homes, a total of 2.46 of salary will be generated in the UK economy in total. A GVA multiplier effect An income multiplier effect of How does it impact employment? For every 1 FTE jobs generated by investment in new affordable homes, a total 2.51 jobs will be created in the UK economy. An employment multiplier of Source: CEBR report for National Housing Federation 2013

51 So why aren t we building more homes? Industry remains risk averse Welfare reform Funding uncertainty A 1 year CSR

52 The role of local authorities and LEPs Make the case for development promote and prioritise the role of housing Release land Use New Homes Bonus Invest in their own right

53 Will devolving funding help? City deals huge potential Some concerns Flexibility Transparency Accountability Ensuring homes built in the right places Does it make sense?

54 Conclusions The case for housing has been made and heard at a national level Government has acted but yet to see real stepchange in production Unlikely to change while uncertainties remain For rhetoric to turn to action, concrete action required Could devolution of funding work to get more homes built?

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