Housing & Economic Growth

Opening plenary: Maximising potential to create housing

and economic growth

Speakers: 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

Chair: Lindsay Todd

Chief Executive, Radian

Delivering the Government’s housing ambitions

Peter Jones,

HCA Head of Area

15 January 2013

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

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”

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

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

Public Sector Land Programme

The HCA land work

Other peoples land

HCA land and programmes

Economic assets Get Britain Building Land Disposal and

Development Accelerated land

disposal Large scale sites

Public Land

Delivery support to DCLG

on public land programme

ATLAS (planning support on

large sites)

Alignment of landownerships

and structuring complex

transactions

Local alignment and support

including City Deals and GPF

Use of standard

models and toolkits

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

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

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

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

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)?

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

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

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

Contact Details

Peter Jones – Head of Area,

Berkshire, Swindon, Wiltshire

peter.jones@hca.gsi.gov.uk

0117 937 7242

homesandcommunities.co.uk

/HCA_UK

/homes-&-communities-agency

17

HOUSING AND GROWTH

Presentation for the Housing and Economic Growth Summit

Ageas Bowl, Southampton

15th January 2013

Stephen Aldridge

and

Chris Walker

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

19

1) Macroeconomic overview

20

GDP fell sharply during the recession – by around 6% - and

is yet to return to pre-recession levels

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

2008 Q1

2008 Q3

2009 Q1

2009 Q3

2010 Q1

2010 Q3

2011 Q1

2011 Q3

2012 Q1

2012 Q3

Ch

an

ge

in

GD

P s

inc

e 2

00

8 Q

1 (

%)

GDP

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

Data Source: ONS

21

The economy continues to recover, but more slowly than

expected

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2005 Q1

2006 Q1

2007 Q1

2008 Q1

2009 Q1

2010 Q1

2011 Q1

2012 Q1

Qu

art

er

on

Qu

art

er

GD

P G

row

th (

%)

GDP Growth Average growth (2000 Q1 - 2008 Q1)

Average growth (2008 Q2 - 2009 Q2) Average growth (2009 Q3 - 2012 Q3)

The slower than

expected

recovery is a

product of:

•A greater than

expected impact

of the financial

crash on GDP

•Commodity

price inflation

that has reduced

real incomes

•Global/euro

area

uncertainties

Note: 4th Quarter preliminary GDP estimates will be published on 25 January.

Data Source: ONS

22

The latest forecasts from the Office for Budget

Responsibility suggest growth will remain below trend until

2016

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

2011 2012 2013 2014 2015 2016 2017

An

nu

al

GD

P g

row

th (

%)

Actual OBR Forecast

Recovery from

credit booms

and busts can

take longer

than other

types of

recession,

because of the

time it takes to

de-leverage

debt

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.

24

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

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2008 Q1

2008 Q3

2009 Q1

2009 Q3

2010 Q1

2010 Q3

2011 Q1

2011 Q3

2012 Q1

2012 Q3

Ch

an

ge i

n E

mp

loym

en

t an

d G

DP

sin

ce 2

008 Q

1 (

%)

GDP Total employment

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.

Youth

unemployment

has also been

falling recently,

down 72,000 in

the latest quarter

Data Source: ONS

25

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 Q1

2008 Q3

2009 Q1

2009 Q3

2010 Q1

2010 Q3

2011 Q1

2011 Q3

2012 Q1

2012 Q3

Ch

ang

e i

n e

mp

loym

ent

fro

m 2

008

Q1

(%)

South East South West London

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

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

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

28

2) Housing’s contribution to the economy

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 housing to construction output (%)

2.5%

14.8%

5.7%

11.4%

65.7%

Public new building

Private new building

Public repairs and

maintenance

Private repairs and

maintenance

Other construction

Contribution of construction output to

UK GDP (%)

8%

92%

Construction Rest of the economy

Data Source: ONS

30

House building has fallen since the recession. Although,

there has been some increase in net additions over the last

year

-

5,000

10,000

15,000

20,000

25,000

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Valu

e o

f n

ew

ho

usin

g c

on

str

ucti

on

ou

tpu

t (£

mil

lio

n)

0

50000

100000

150000

200000

250000

Net

ad

dit

ion

s

Value of new housing construction output Net additions

The fall in

construction

output

contributed one

fifth of the

overall 6.1%

contraction in

GDP following

the financial

crash

Data Source: ONS and DCLG

31

255,000

260,000

265,000

270,000

275,000

280,000

285,000

2006 Q1

2006 Q3

2007 Q1

2007 Q3

2008 Q1

2008 Q3

2009 Q1

2009 Q3

2010 Q1

2010 Q3

2011 Q1

2011 Q3

2012 Q1

2012 Q3

Gro

ss V

alu

e A

dd

ed

(G

VA

) o

f U

K E

co

no

my (

£ m

illi

on

)

Quarterly GVA (excl. construction, extraction of oil and gas, and financial services)

Indeed, if construction, North Sea oil and gas and financial

services are excluded, the economy has broadly returned

to pre-crash levels of output

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%.

Financial services

and extraction of oil

and gas make up

34% and 26% of the

gap respectively.*

*Note: the numbers sum to over 100% because output excluding these sectors is now slightly above the peak level

Data Source: ONS

32

3) The role of housing in supporting economic recovery

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.

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

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

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

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

Source: DCLG estimates

38

4) Housing’s contribution to longer term economic performance

39

The current rate of housebuilding is not keeping pace with

the number of new households, which is primarily driven

by population growth

-

50,000

100,000

150,000

200,000

250,000

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

Net

ad

dit

ion

s t

o t

he h

ou

sin

g s

tock

Net additions Projected average household formation (2008 - 2033)

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 socio-

demographic trends

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

41

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

R2 = 0.0002

0

10

20

30

40

50

60

70

80

0 2 4 6 8 10 12

Affordability ratio, 1998

Com

ple

tio

ns/1000 p

opn,

1999-2008

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.

Com

ple

tions p

er

1,0

00 p

opula

tion

Source: DCLG internal analysis

42

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

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

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.

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 2016.

• 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.

Stuart Ropke

assistant director, research and futures

15th January 2013

Maximising potential to create

housing and economic growth

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?

Population growing

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

…and changing too

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

The politics of housing and growth

How does building affordable homes

help the UK economy?

Type of Impact

How does building new affordable homes impact GVA?

A £1m investment in affordable homes will generate £2.41 m in the UK economy in total.

A GVA multiplier effect 2.41.

How does it impact incomes?

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.

An income multiplier effect of 2.46.

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 2.51.

Source: CEBR report for National Housing Federation 2013

So why aren’t we building more

homes?

• Industry remains

risk averse

• Welfare reform

• Funding

uncertainty

• A 1 year CSR

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

Will devolving funding help?

• City deals huge

potential

• Some concerns

– Flexibility

– Transparency

– Accountability

– Ensuring homes built

in the right places

• Does it make sense?

Conclusions

• The case for housing has been made and heard

at a national level

• Government has acted but yet to see real step-

change 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?

Housing & Economic Growth

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