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Chamber Urges Coalition to Build More Homes

Doncaster Chamber has called upon the coalition Government to acknowledge the depth of the UK Housing Crisis.

In a letter to Housing Minister Grant Schapps (below), the Chamber stress that the Government’s move to eliminate Regional Spatial Strategies has created uncertainty within local authorities and that policy makers "must realise that while foreign reserves and investment in the World’s capital markets and irresponsible bank lending were undoubtedly responsible for the last recession, neither would have had anything like the same impact were it not for house-price rises giving UK savers ‘collateral’ to borrow off."

In this light, the Chamber call for a large-scale Government program to build homes across the UK, providing much needed investment in the construction industry, reducing the obscene social housing waiting list and, most importantly, preventing further significant rises in house prices.

 

If you would like to read in greater detail, the Chamber's Housing Policy, please click here.

If you would like to discuss this matter, or would like to take advantage of related media opportunities, please contact:

Ian Mason
Policy Researcher
T: 01302 640170
E: imason@doncaster-chamber.co.uk

 

 

August 12, 2010

 

THE UK HOUSING SHORTAGE

Mr Schapps,

We write to you today, with regard to an area of concern for businesses in South Yorkshire.

As the three South Yorkshire Chambers of Commerce, our organisations together represent over 5500 businesses - a significant proportion of the region’s business stock – ranging from sole traders to multinational corporations. Our Construction Focus Group, a strategic body that advises, informs and supports the delivery of the area’s economic strategy in all aspects relating to construction, is populated by key players in the sector across South Yorkshire and serves to identify opportunities and threats to the industry that may harm economic growth.

As such, we would like to address the matter of the UK’s critical housing shortage.

While business acknowledges the need to rein in the structural budget deficit and wholeheartedly supports the coalition Government’s aspiration to eliminate this by the end of this parliament, significant reservations exist as to how such deep cuts will affect future growth. A lack of political will/capital investment to drive through massive increases in house-building in the short term, will have a significant impact on long-term growth and could well lead to a further recession.

The Government’s move to eliminate Regional Spatial Strategies has created uncertainty within local authorities, uncertainty that has since been cited as the basis for the rejection of a number of schemes across the country, including a plan for 1,200 homes in Newmarket and 2,000 homes in Winchester. In all, projects set to deliver over 7,500 new homes across the UK have been cancelled as a direct result of the legislative intervention.

While we acknowledge that the revocation of the RSS is aimed at returning decision-making powers on housing and planning to local councils, we are concerned that any centralised effort to increase the level of housing provision will become somewhat impotent without clear direction from local planning documents.

The construction industry, already decimated by the recession, is troubled by this level of uncertainty – made worse by coalition cuts to many public funding streams designed to increase the supply of new homes; some £450m has already been shaved from housing commitments since the election, with more retrenchment expected in October’s Whitehall spending round. In all, we understand that 77 developments, worth some 7,000 new homes, are now under review, as are the HomeBuy schemes designed to subsidise buyers.

Annual house-building levels are already at their lowest level for more than half a century. The assumptions of your department have previously suggested that new households are projected to increase by, on average, 252,000 each year between now and 2031; the population is increasing, while the average size of households is declining. A range of demographic factors have been cited as factors contributing to this, such as increasing life expectancy and more divorces. If this proves to be the case, the current levels of housing construction have fallen far below future levels of household formation.

The peak of housing completions came in 2007/2008 – just before the financial crisis hit the construction sector – 168,140 homes were completed, still some 84,000 less than would be needed to satisfy demand and maintain house prices. In the financial year to April 2010, only 113,420 new homes were completed – a deficit of some 139,000 homes. More troubling, is the number of housing starts in that period – only 87,360. There is a clear and present risk of further house-price rises in the coming years – a factor that was central to the credit-crunch that triggered the last recession.

The Bank of England’s latest inflation report predicts that CPI inflation will stay above the 2% target well into 2011 – primarily as a result of the coalition’s VAT increase and further house-price growth, not to mention the increased cost of importing raw materials to business, due to the weak pound. With wage inflation still depressed, this could impact upon household’s disposable income and thus consumption, so often the key driver of the UK’s economic growth.

The risk then, is that further house-price rises could, once again, send demand for credit (from existing home-owners looking to re-mortgage) rocketing – providing the first real test of bank’s post-crisis prudence.

We acknowledge the commitment to an incentive system whereby councils will, for six years, receive matched funding for any new council tax revenue generated from the building of extra homes. We believe that this does not, however, recognise the magnitude of the situation.

The IMF recently calculated the share of the increase in real house prices in the UK over the last ten years that cannot be accounted for by fundamental factors such as lower interest rates and rising incomes. This “house-price gap” suggests that prices are about 30% higher than can be justified by fundamentals. There is a real risk that this gap will widen yet further in the coming years. Policy makers must realise that while foreign reserves and investment in the World’s capital markets and irresponsible bank lending were undoubtedly responsible for the last recession, neither would have had anything like the same impact were it not for house-price rises giving UK savers ‘collateral’ to borrow off.

In this light, the Government must seek to restore confidence amongst developers as soon as possible in order to avoid an extended period of uncertainty within Local Authorities. Further reductions in house building could prove very costly indeed.

We hope that you find these thoughts pertinent to yourself and your current portfolio and, in light of this, we would like to extend to yourself, or appropriate colleague, an invitation to the region, in order to discuss the matter with developers and business leaders. We would be happy to accommodate you on a date of your choosing.

Please do not hesitate to contact us at the address below, should you require clarification on any matter.

Yours Sincerely,