Housing in the West Midlands Chapter 1: Housing and the economy July 2013
Introduction The UK is facing challenging economic times. The weak state of the economy and the government s austerity measures to reduce the deficit, including welfare reform, are having a significant impact on the West Midlands, on the housing industry and on local people. CIH nationally has been calling for housing to be at the forefront of efforts to kick start economic growth since 2012. Our submission to the Spending Round 2013 demonstrated how government investment in affordable housing could address the housing crisis and drive economic growth, through grant and equity funding for new affordable housing and by raising the debt allowed to local authorities to provide new homes (for more information visit CIH spending review submission). This call to set housing centrally in the agenda to drive economic growth is echoed by CIH members in the regions. CIH West Midlands Board is committed to raising the profile of the housing industry in the West Midlands, and demonstrating its contribution to achieving regional growth and wellbeing. During 2013, it will work with its members, partners and stakeholders to: identify the impacts of government policy and investment decisions on housing in the region work to influence national and local decision makers, to support local investment and decisions that help to increase the provision of decent affordable housing across all tenures to meet local needs support its members to be confident ambassadors for housing in all arenas, with partners, investors and communities. As part of this commitment, the Board have commissioned this paper, which looks at the state of housing in the West Midlands region. It provides a picture of the trends and challenges facing the industry and local communities. It aims to provide a reference point for members seeking to know and understand the state of the region, to help when developing conversations and offers for local partners and investment/ policy decisions. The Board is developing a complementary document, highlighting the impact of key government policies to date, to shape the influencing and lobbying of the WM Board and members. This will be available from www.cih.org/westmidlands The full paper contains information about: 1. Housing and the economy 2. Household and population projections 3. Housing need: tenure and access 4. Housing issues: tenure and access 5. Employment and income 6. Welfare reform and impacts for the region 7. Taking the initiative: housing organisations support to local communities 8. Appendix 2
1. Housing and the economy House building remains significantly lower than required less than 115,000 built in 2011 compared to the 233,000 needed each year. House building in the West midlands is also low nearly half the numbers delivered in 2011 compared to 5 years before - and planning permissions down 40 per cent. But investing in house building keeps money in local and national economies Investment in new homes in the West Midlands would: kickstart the local economy improve the housing offer to attract higher value industries to the region in the future. Since the recession of 2008, the UK economy has experienced a prolonged period of stagnation, with little to no growth over the long term. The Office for Budget Responsibility recently predicted no return to growth until 2015, when real wages and productivity are expected to rise and support growth in consumption. 1 Chart 1: Forecast for UK Growth, Dec 2012 for 2013 Source: Office of Budgetary Responsibility (2012) Economic and fiscal outlook press conference slides 5 Dec 2012: GDP growth over the past year has been much weaker than we expected last November, which is more than explained by the weakness of net exports We expect a small fall in GDP in the fourth quarter and a gradual pick up thereafter...this suggests that growth will be slightly negative in 2012 as a whole, rather than plus 0.8 per cent as we predicted in March... we have also revised down the expected growth rates for subsequent years. Robert Chote, Chairman, Office for Budget Responsibility, 5 December 2012 1 http://cdn.budgetresponsibility.independent.gov.uk/march-2013-efo-44734674673453.pdf 3
The West Midlands economy constricted by 0.1per cent in 2012, but whilst growth of 0.9 per cent has been forecast for 2013, in the long term growth in the region is still challenged by underperformance in creating value added services. 2 Investment in housing development can provide that additional value. For every 1 invested in housing nearly 3 accrues to the wider economy. House building is recognised as a key factor in supporting the economy and delivering growth, but the financial constraints makes accessing funding, by banks, by developers and by purchasers, very difficult. This has increased the problems caused by the already low levels of house building nationally and in the West Midlands. It has fallen short, by a significant margin, of the numbers of new homes needed given household projections. House building is at a record low, with only 114,160 homes built in 2011 compared to the 233,000 pa needed. Starts of new homes stood at only 23,510 in the quarter to June 2012, a drop of 30 per cent since May 2010. New starts in the West Midlands region dropped to about 8,000 in 2011 (see Table 1), compared to over 15,000 five years ago. 3 Planning permissions have fallen significantly by 40 per cent over the same time period. The exact reason for such a significant fall in permissions is not clear but may be caused by a combination of local opposition to plans, the removal of regional strategies and targets and the delay whilst the new National planning Policy Framework is embedded. National guidance, considerably reduced from previous editions, is expected later in 2013. This drop in investment and development has affected the private sector particularly hard. After a slow start, the affordable homes programme is delivering more nationally, with nearly 39,000 in the second half of 2012, or one in five new homes now in this sector. However, in the West Midlands production across the sectors is still well below numbers needed (for further information see Household and population projections). 2 See article and full report 3 HBF, West Midlands housing crisis report 2011 4
Table 1: House building starts (a) and completions (b) in the West Midlands by ownership type (numbers and percentage) Year Private Enterprise Social Rent, including Councils Total Private Enterprise Social Rent, including Councils Total 2008 6,660 1,760 8,450 9,710 2,100 11,800 2009 5,890 1,670 7,550 8,070 1,790 9,870 2010 6,800 1,880 8,680 6,450 1,910 8,360 2011 6,260 1,800 8,060 6,230 2,250 8,470 2012 first half 3,340 570 3,910 3,460 1,100 4,560 Year Private Enterprise Social Rent, including Councils Total Private Enterprise Social Rent, including Councils Total 2008 79% 21% 8,450 82% 18% 11,800 2009 78% 22% 7,550 82% 18% 9,870 2010 78% 22% 8,680 77% 23% 8,360 2011 78% 22% 8,060 74% 27% 8,470 2012 first half 85% 15% 3,910 76% 24% 4,560 Source: DCLG House Building statistics Table 1a describes the contraction in the regional housing construction industry. In 2008, 11,800 homes were completed but 9,700 were started; the pattern was repeated in 2009. Some recovery took place in 2010 and 2011 arising from the increase in starts and completions for social rent. From the low point in 2011 a modest recovery took place in the private house-building industry; in the first half of 2012 new build starts reached the equivalent level of 2008 (but this itself was a historic low point). However during 2012, the number of starts in the social rent sector (which includes affordable rent funded by HCA) has fallen to 15 per cent of the total production. Social rent starts and completions in 2012 appear to be very low, given the size of housing need in the West Midlands (Researcher s comments). Greater investment in housebuilding in the West Midlands would provide a significant kick start to regional economic growth, and improving employment opportunities. Money invested in house building remains in local and national economies, through the supply chain, local businesses and employment. The construction sector has seen a marked fall in output in 2012 of up to 12 per cent, as it was affected by cuts to public sector spending and lack of private investment. 4 Work now to improve the housing offer of the region in the long term will also support efforts to attract in higher value industry to drive forward the West Midland s economy. Opportunities for increased delivery have been provided through initiatives such as the City Deal for Birmingham (see page six) but significantly more is required, including in the more rural areas of the region. 4 See article 5
Government s growth measures and what it means for the West Midlands The impact of the recession, the difficulty for developers in accessing finance, and weak demand as buyers struggle to access mortgages and the required deposits, have all led to significant reductions in house building, added to the historic undersupply of housing in previous decades. The government s housing strategy, Laying the Foundations, recognised the importance of housing construction to the state of the economy, contributing three per cent of GDP in the previous decade. A series of measures were introduced in the strategy to increase development, including: the Growing Places Fund of 500m to support infrastructure to enable housing and other development 570m fund to Get Britain Building, helping with development finance to unlock schemes with planning permission aimed to deliver up to 16,000 new homes Build Now, Pay Later schemes on public sector land to deliver up to 100,000 homes. Other early initiatives included: simplifying the planning process through the National Planning Policy Framework incentivising local communities to take on new housing development through the New Homes Bonus. The government s preferred approach is to provide stimulus to growth through guarantees, to provide a stable framework to lever in private investment, and through initiatives matched with investment from the financial and development industries. This includes: 10billion of lending guarantees in two schemes: to support delivery of more private rented housing (new build and conversion of commercial to residential use); and further affordable housing (increased in the budget 2013 to provide up to 30,000 additional homes). Its initial focus on supporting first time buyers into new build properties has been extended in the Budget 2013 to support people struggling to scale up to their next home purchase: Help to Buy equity loan scheme provides an equity loan of up to 20 per cent. Over three years, the investment of 3.5billion is intended to support up to 74,000 households and boost construction and jobs Help to Buy mortgage guarantee scheme helping people access mortgages with a deposit between five and 20 per cent - up to 12billion guarantees intended to support 130billion lending. (For more information visit budget briefing for members and what you need to know about the Spending Round 2013.) A recent National Audit Office report on the new homes bonus highlights the discrepancy in investment this is creating, with benefit for London and the South and East of the country. The bonus is partly funded through diversion of some of the formula grant settlement for local authorities, meaning that some areas may lose more overall than they gain through the bonus. 6
Chart 2: Regional spread of the New Homes Bonus 50 45 40 35 30 25 20 15 10 5 0 2011-12 2012-13 2013-14 Adapted from NAO, The New Homes Bonus 5 Wider measures to drive economic growth also support development: Local enterprise partnerships Business and authorities together driving priorities for investment to deliver economic growth and increased employment, and development in housing, transport and facilities. West Midlands LEPs: Black Country; Coventry and Warwickshire; Greater Birmingham and Solihull (also covering East Staffordshire, Tamworth, Lichfield, Bromsgrove, Cannock Chase, Redditch and Wyre Forest); the Marches (Herefordshire, Shropshire and Telford and Wrekin); Worcestershire. LEPs will lead on the negotiation of local growth deals to allocate the Single Local Growth Fund announced in the Spending Round 2013. This will be 2billion in 2015, and at least the same amount in following years to deliver a total of 20billion of investment by 2020. It will draw on housing, skills and transport funding - 400million from the New Homes Bonus will be transferred to this. Enterprise zones Providing additional support for business and industry development including business rate discounts and simplified planning processes. West Midlands has three enterprise zones: Birmingham city centre, Hereford (Skylon Park), Darlaston and i54. 5 http://www.nao.org.uk/report/the-new-homes-bonus-2/ 7
Regional growth fund A competitive fund of 2.6billion (2011-16) for projects and programmes that use private sector investment to create economic growth and sustainable employment. The West Midlands won funding in round two, for three schemes: Birmingham City Council and wider - 125million for supply chain in advanced manufacturing sector Birmingham Post s business support scheme - 5million for beneficiary grants to create value added jobs in Birmingham, Coventry and Solihull Hereford Council s business support scheme - 1.5million to help SME/start-up businesses to utilised unused or under used buildings in the Marches LEP area and create/safeguard 330 jobs. Funding for lending scheme Enabling banks to borrow at cheaper rates in order to enable access to finance by businesses and households. City Deals Agreements to transfer some central government powers to cities to enable greater support to local business, to increase economic growth and to prioritise public spending. Birmingham was among the first of the city deals, and includes plans for: GBS Finance - a vehicle to recycle public sector funding Skills for growth compact with local businesses Increased housing and mixed use development on public sector land investing in council land and creating a new fund to prepare sites Focus on life sciences Carbon saving measures and green jobs building on the Birmingham Energy savers programme. Household growth in Greater Birmingham and Solihull is expected to rise by 9.4 per cent by 2025, with 63 per cent of that in Birmingham, creating a need for 66,500 new homes in a tightly constrained urban area. The LEP will look to develop a bespoke LEP Investment Plan for growth with the HCA, a Spatial Framework across the LEP and help with viability appraisals for strategic local authority assets. It estimates potential to deliver 2,800 new homes and 800 new jobs. Further city deals being negotiated include: Black Country Coventry and Warwickshire Stoke and Staffordshire. 8
Spending Round 2013 Most recently, the government announced a series of investment decision for housing in the Spending Round 2013, including: 3.3billion over three years to deliver 165,000 new affordable homes nationally 400million for a new Affordable Rent to Buy scheme that will deliver additional homes to rent in the medium term, to be sold on after 10 years (with first refusal to the sitting tenant) 2billion a year for a single local growth fund to be led by LEPs and incorporating 400million of funding from the New Homes Bonus 102 million of loan and equity finance will be available in 2015-16 to fund infrastructure that enables delivery of homes on large sites Further investment for decent homes standard in existing homes of 160m 3.8billion investment for initiatives that help to reduce health and social care costs 220million for disabled facilities grants 40million for hostel accommodation tailored for rough sleepers, intended to reduce use of A&E and improve mental health outcomes the introduction of a cap on overall welfare reform spending from 2015, including housing benefit and tax credits (excluding JSA and state pension). The capacity of the housing industry to work in partnership and address the agendas of economic and health partners will be a crucial element in winning public and privates funding in the future. This will include working to develop local relationships and housing offers for LEPs and Health and Wellbeing Boards. 9
About CIH The Chartered Institute of Housing (CIH) is the independent voice for housing and the home of professional standards. Our goal is simple to provide housing professionals with the advice, support and knowledge they need to be brilliant. CIH is a registered charity and not-for-profit organisation. This means that the money we make is put back into the organisation and funds activities we carry out to support the housing sector. We have a diverse and growing membership of over 22,000 people who work in both the public and private sectors, in 20 countries on five continents across the world. www.cih.org About CIH West Midlands CIH West Midlands are a regional board whose role is to: promote membership and support members in the West Midlands raise profile awareness of the importance of housing, through: o regular events that focus on key policy issues affecting members and sharing good practice o producing a regular ezine and offer key documents, for example, this policy document and supporting materials o lobbying key bodies locally and regionally and through CIH Nationally CIH West Midland Regional Board have nearly 1900 members across, local government, RSLs and the private rented sector. To find out more about getting involved contact celeste.deakin@cih.org Housing in the West Midlands Brief summary about CIH WM Researcher: Henryk Adamczuk Additional material and editing: Sarah Davis Commissioner editors: WM Regional Board Policy Sub Group July 2013 10