Solving the Housing Conundrum A 3-STEP APPROACH TO NORTH EAST HOUSING POLICY
Contents
Foreword
5
Executive Summary
6
Introduction
8
Housebuilding Survey
10
Finance
13
Planning
16
Existing Stock
18
Conclusion
22
Summary of Recommendations
23
Acknowledgements
27
References
27
Solving the Housing Conundrum
NECC is the North East’s leading business membership organisation and the only regional Chamber of Commerce in the country. We represent around 4,000 businesses located in Northumberland, Tyne and Wear, Durham and Tees Valley, covering both local enterprise partnership areas in the North East. Our members are drawn from businesses of all sizes and sectors, and employ around 30% of the region’s workforce.
Watson Burton is a Newcastle head-quartered leading national law firm with a well-earned reputation for helping businesses succeed. Offering a range of commercial law services, the firm has significant nationwide coverage providing first class legal advice from offices in Newcastle, Leeds and London. The firm has six core practice areas in employment, real estate, construction, insurance, commercial litigation and corporate and commercial. Key to the firm’s success is the ability of its expert lawyers to get to know clients and understand the commercial realities of running a business.
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FOREWORD WELCOME TO THE NECC AND WATSON BURTON HOUSING REPORT. We first started discussing the need for a detailed examination of North East housebuilding activity following our ‘Help to Buy: Boom or Bubble’ report last year. Since then our teams have carried out a survey of NECC members, held one-to-one interviews and chaired numerous task groups with the vital support of those involved in the supply chain. The result is a cohesive and balanced set of recommendations which addresses a range of viewpoints; from opening up funding opportunities, to creating a more supportive planning regime on a national and regional level. It is also very clear that as a region, we need to be focusing on utilising existing (and sometimes dormant) housing stock. Change will require buy-in and commitment from regional organisations, national organisations and central government, and this report will allow NECC to campaign extensively for this region in this respect, taking the message out to key decision-makers – who in turn must engage to make these changes.
The team at Watson Burton has provided input based on our extensive knowledge of the housing market across a range of perspectives including finance, planning, construction and the integration of renewable energy into housing development. Our involvement has enabled us to see firsthand the commitment from NECC and its members to address these key issues and develop a robust plan which will help the region to realise its full potential in delivering a longterm and sustainable housing strategy. Pursuing the recommendations in this report will enable the North East to seize this opportunity to influence change with the broader aim of creating stronger sustainable communities and infrastructure for the future.
Tracy Hall, Partner & Head of Real Estate, Watson Burton LLP
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Executive Summary
Housing is an engine of economic growth. Every house built in the North East equates to an additional contribution of £80,532 to the regional economy and the creation of 1.9 jobs. This represents a £1.3bn contribution to the region’s economic output. At first glance, this can appear to be an impressive set of figures. However, when we consider that the North East’s housing market has under-performed for the past decade and last year built only half of the number of homes needed, it becomes a matter of how much economic output are we failing to capitalise on and why? This report sets out a number of recommendations to industry and decision-makers which we believe would support the North East to capitalise on its potential to be a prime development site and deliver more homes. These recommendations must be underpinned by strong leadership that presents a clear, proactive and prodevelopment stance on behalf of the North East. Whether this comes from local authorities, combined authorities or local enterprise partnerships is not important; what is essential is that a single body takes responsibility for driving this policy agenda and is willing to be held accountable for doing so.
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We outline priorities in three key areas: FINANCE Constrained public finances, cautious private sector lenders and investors, and limited availability of mortgage finance make securing finance for development a significant obstacle. With the continued squeeze on the public purse and a notable move away from supply-side spending, Government must think carefully about its role in increasing housing supply and how public finances are best used. Access to private finance is an acute issue, particularly for small and mediumsized developers. Likewise, attracting investment into the region is difficult, with returns on capital typically lower than in most other regions. The North East must showcase why it is an attractive option to developers looking to build new homes. Returns on capital investment alone do not have to be decisive. Innovative public and private financing options; mortgage availability; and financial incentives tailored to the region’s housing market will go a long way to attract investment.
PLANNING The North East needs a swift planning process that gives the region a competitive advantage for investment. Our capacity for housing development should be a key advantage over competitor regions even though returns are potentially greater elsewhere. We must foster a pro-development planning system that gives developers and investors confidence from the outset that all stakeholders will actively work towards the common aim of delivering more houses. The willingness of local politicians to support housing development is often reflective of the attitudes of the constituency they represent. Therefore, the electoral cycle is a key factor in generating support for housing at the local level.
EXISTING STOCK Addressing the housing crisis is not simply a matter of building more homes – we must make the most of our existing stock. The North East is host to one out of every five properties vacant in the UK. These houses are empty or unfit for purpose for a variety of reasons and policy responses should recognise this; some properties can be cost-effectively brought back into use, while for others the best option is demolition and redevelopment. It is essential that there is an avoidance of a one-size-fits-all approach to empty homes. A combination of refurbishment, demolition and adapting existing stock to meet new needs and market opportunities, such as an ageing population should be adopted, along with financial incentives which recognise the resource-intensive process of bringing our existing stock up to standard.
Making spatial strategies accessible to local people, not just planning experts; promoting the scale of housing need in the North East; and getting local people involved from the outset can help encourage the public to face up to the choices needed and build support for development.
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Introduction
The United Kingdom is in the grips of the biggest housing crisis in a generation. Years of under-supply, escalating demand and a lack of access to the homes people want and need have created a vicious cycle. Without drastic and quick action this cycle will not be broken and the crisis further entrenched. The housing crisis is a prominent issue on the political agenda and has been subject to intense political and public debate. However, it is crucial now that words are turned into action. This year has seen the publication of the Labour-commissioned Lyons Housing Review and IPPR North’s Home Economics: the role of housing in rebalancing the economy – these are just two examples of a proliferation of reports seeking to remedy the crisis, deliver more homes and reap the enormous economic benefits of doing so. Government must look to harness this range of expertise and formulate a long-term and cross-party delivery plan. With a specific focus on the North East, this report presents the barriers to, and opportunities offered by a sustainable and thriving housing market, and seeks to unlock the contribution housing can make to the regional economy. We set out a number of recommendations to industry and decisionmakers which we believe would support the region to capitalise on its potential to be a prime development area and deliver more homes. The UK should be building at least 243,000 homes a year to keep pace with demand; in 2013 only 109,000 homes were completed, a figure typical of more than a decade of under-supply.1 The consequences are
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widely recognised: rents and mortgages are outstripping earnings; housing waiting lists continue to grow; and regions do not have the houses they need to attract business and workers. Housing is an engine of economic growth. Every house built in the North East equates to an additional £80,532 in the regional economy and the creation of 1.9 jobs, which represents a £1.3bn contribution to the region’s economic output.2 Our housing offer is intrinsically linked to the North East’s ability to attract and retain a skilled workforce, as well as strengthening local communities. Housing supports the delivery of new infrastructure, improves services such as public transport, boosts the funding available for local schools and supports a strong consumer market. It is a nationwide priority to deliver more homes, and with the North East’s distinctive and unique development potential as highlighted in this report, it is critical our region plays a leading role in addressing the housing crisis and capitalises on the significant economic benefits of doing so. The North East should be a prime location for development. With an abundance of potential development land, fantastic quality of life and lower population densities to list but a few, the foundations for a strong housing market are here. Already the region’s housing market is showing strong signs of growth and improvement.
New house registrations for Q3 2014 were up 32% on the same period from the previous year – the highest year-on-year increase in England and significantly stronger than the 8% UK average increase.3 It is essential that this positive momentum is sustained and built upon. Despite clear signs of progress, the North East housing market has under-performed for the past decade – demand continues to outstrip supply; house prices are six times the average income; and a housing shortfall of 75,000 by 2031 is expected if we continue to build at the current rate.4 In a region where there is significant demand for greater housebuilding along with the potential to deliver it, why does the North East’s housing market fail to build on it, and how can this be rectified? This report sets out our answers to these questions.. SCOPE OF THE REPORT Through the work of a Task Group of NECC members bringing together a range of passionate individuals with invaluable insights and knowledge on the strengths and weaknesses of our housing market; a survey of North East businesses and organisations working in the housebuilding sector; and indepth research interviews, we have sought to: • Build the case for greater levels of housing development in the North East; • Demonstrate how this links to wider economic and business benefits; and • Influence policy decisions in favour of greater housebuilding. Failure to deliver the number of homes we need is not a new phenomenon. For the past decade we have had a nationwide undersupply of new
housing. Political parties of all persuasions have recognised this, yet when it comes to how they would deliver more homes, there is a marked divergence in opinion and approaches. One thing is perfectly clear: national housing policies will not be the panacea to the housing crisis. Understanding housing need and the barriers to delivering more homes are dependent on the region in question. Housing policy must be attuned to these differences and be formulated with the active involvement of local and regional stakeholders who understand the market and how to deliver more housing, both private and social, across a range of tenures. The North East’s ability to deliver the homes we need is dependent on a myriad of factors that play out at multiple levels, with the interaction of central and local policy, market considerations and support for development all interdependent. Only by understanding these factors and how they interact can we really generate the policy and market conditions most conducive to a sustainable and healthy housing sector. To this end, we need a delivery plan that fosters a pro-development and effective planning system; a reformed and original approach to finance; and innovative and appropriate use of our existing housing stock. Housing is a fundamental part of our region’s economy and future growth. A strong and respected organisation must champion a shared vision for the North East economy with housing at its heart, working to deliver this vision in the face of challenges and opposition.
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Housebuilding Survey
Through a comprehensive survey of North East businesses and organisations actively involved in the region’s housing sector and employing 40,000 staff across a range of disciplines including construction, refurbishment, planning, real estate and housing provision, we gained a detailed picture of: • How the North East’s housing market is performing; • The importance of the sector to the regional economy; and • Barriers to development. When asked to indicate how the North East’s housing market is performing relative to the rest of the UK, 55% of respondents believe it to be either under-performing or seriously underperforming, with only 4% indicating the market to be performing strongly overall. When we break down the market into its social and private sector components the results are similar, with 43% and 42% respectively believing the markets are under-performing or seriously under-performing. Under-supply of housing is the key indicator that a region’s housing market is not performing. In 2012/3 the North East recorded 4,090 housing completions, approximately half the number needed to satisfy demand, and significantly below the regional average of 11,800 completions. When we surveyed why the region’s completion rate is significantly lower than what is required, a number of key themes emerged. These include:
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• Securing finance is a significant challenge, particularly for small and medium sized developers who are unable to access funds that are suitable and affordable. Investors and lenders are incredibly cautious and with lower returns on investment in the North East, they often choose to invest elsewhere or lend exclusively to the big six developers where there is less risk. • Public funding is largely unfit for purpose in the North East. Grant rates are too low, smaller developers often lack the back office infrastructure to navigate complex funding pots, and financial incentives do not align well with North East housing priorities, such as empty homes and homes to suit an ageing population. • Housing policy does not work well nationally due to big differences between the regions. • The planning system is difficult to get through, with a lack of up-to-date Local Plans, under-staffed planning departments and limited land release being some of the mostly commonly cited issues. • Existing housing stock is underutilised and unfit for purpose. High vacancy rates, dilapidated properties and houses unresponsive to changing housing needs, such as demographic change, is a disproportionately greater issue in the North East.
• Public opposition to development is typified by a vocal minority painting housing development as a bad thing that should be challenged. Contradictions in national planning policy, such as Neighbourhood Plans becoming the tools of wealthy and well-organised communities to block development plans can trump land allocations and Local Plan considerations. • Strategic and joined-up thinking is missing. Local authorities and departments are not coordinating where they should be. Transport, employment sites and satisfying a five year housing land supply are just some of the areas where local authorities should be working together and thinking strategically to deliver common goals.
• A lack of leadership in the North East means that the region does not have a respected and visible flag bearer to champion development in the region. Investors looking to the region can be uncertain of whom they should be speaking to, for instance the existence of multiple bodies and organisations can cause confusion. The presence of a visible leader with the support of the region behind them would allow the North East to present a shared vision for the region and to speak with one voice.
TO WHAT EXTENT DO THE FOLLOWING FACTORS PRESENT A BARRIER TO DEVELOPMENT IN THE NORTH EAST? 100%
75%
50%
25%
0% PUBLIC OPPOSITION
SECURING BUILD FINANCE
DIFFICULTY SECURING INFRASTRUCTURE TO SUPPORT DEVELOPMENT
Significant Barrier
OBTAINING PLANNING PERMISSION
DELAY TO DEVELOPMENT ONCE PLANNING PERMISSION HAS BEEN GRANTED
Somewhat of a Barrier
LAND AVAILABILITY
Not a Barrier
SECURING MORTGAGE FINANCE
Housebuilding Survey
A thriving and sustainable housing market is not simply about the number of homes provided, but also the degree to which they meet the needs and wants of customers.
Housing developments are regarded as failing to deliver for the customer when it comes to adequate space within homes, accessibility, and house size and build quality.
In the North East we have many unique and distinctive features that we should utilise to strengthen our housing offer.
Our survey clearly demonstrates that housing is pivotal to the North East economy in many ways. It supports talent attraction and retention, local communities and leisure services, boosts the local supply-chain and creates employment opportunities.
We have excellent quality of life, cutting edge energy efficiency technologies and the ability to deliver good value for money with our housing. With the exception of energy efficiency and natural light, for which 54% and 47% of respondents respectively indicate homes in the region meet customer needs, respondents suggest the region’s housing is failing to capitalise on its potential.
If we are to capitalise on these opportunities, we must remove the barriers to development and deliver more of the sort of homes the region wants and needs.
TO WHAT EXTENT DO YOU AGREE OR DISAGREE THAT THE BUILDING OF NEW HOMES IN THE NORTH EAST IS IMPORTANT FOR THE FOLLOWING? 100.00%
75.00%
50.00%
25.00%
0.00% TALENT ATTRACTION
TALENT RETENTION
Strongly Disagree
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SUPPORTING LOCAL COMMUNITY SERVICES
Disagree
SUPPORTING SUPPORTING LOCAL RETAIL & SUPPLY CHAIN LEISURE SERVICES COMPANIES
EMPLOYMENT OPPORTUNITIES
Neither Agree or Disagree
Agree
INFRASTRUCTURE PROVISION
Strongly agree
Finance CONSTRAINED PUBLIC FINANCES, CAUTIOUS PRIVATE SECTOR LENDERS AND INVESTORS, AND LIMITED AVAILABILITY OF MORTGAGE FINANCE MAKE SECURING FINANCE FOR DEVELOPMENTS A SIGNIFICANT OBSTACLE. SECURING FINANCE Capital funding for new homes from Government has undergone a significant reduction, with the drop in grant funding and emphasis on recoverable investments typifying a pattern of a government shift away from supply-side spending. With the continued squeeze on public finances, Government must think carefully about its role in increasing housing supply. In the North East, where rents and returns on investment are typically lower, grant rates are too low and recoverable investments unviable. Essentially, public funding for development in our region is largely unfit for purpose. Indeed, new house registrations in the North East by the social housing sector decreased by 8% in Q3 2014 when compared with the same period a year earlier.5 Difficulties securing public finance are made worse by the complexity of funding arrangements. The proliferation of funding pots; onerous application processes and lending terms; and the inapplicability of lending available to the region’s needs, are all areas where we must see improvements if we are to supply more homes. Difficulties securing finance are not unique to the public sector. Private sector lenders remain incredibly cautious about financing developers following the recession, particularly when the returns on capital are lower. Access to finance is an acute issue, especially for small and medium-sized developers who have every potential development sense-checked by lenders, often only to find they were unable to secure the funds. Developers need to be able to access low-cost and appropriate finance, working in partnership with lenders to secure the best finance option available, considering both traditional and alternative financing models.
RECOMMENDATIONS Public funding • A review of current public funding arrangements should be conducted to identify finance gaps and barriers to securing funding reflective of the North East’s housing market. • Existing funding pots should be rationalised and the application process and lending terms proportionate to the level of risk. • Government must recognise that recoverable investments are not a viable funding option for many areas in the North East. A review of grant rates; increased supply-side spending; and greater support for risk-sharing arrangements for public and private sector partners should be government priorities. Private lending • The region must showcase why it is an attractive option to potential investors and developers. Returns on capital investments alone do not have to be decisive – an effective planning system; a skilled and readily available workforce; and a strong local supplychain will go a long way to attracting investment. Developing the region’s offer in these areas is essential. • Banks, private equity houses and other funders should work more closely with developers, building strong and resilient relationships in which all parties understand business plans, growth ambitions and the particulars of the development in question. • Lenders and customers should work together to identify the best funding options available, with greater consideration of alternative sources of funding. A forum to facilitate discussions between developers and finance should be established.
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THE NORTH EAST HOUSING MARKET Help to Buy has undoubtedly had a positive impact in the North East. Demand is up and correspondingly so is supply; homebuyers are more confident in their ability to secure a mortgage; and house builders have the confidence to build.. In the North East 3,562 new homeowners have been created since the launch of Help to Buy and strong demand for housing generated by the scheme means there is a strong pipeline of development.6 This is expected to feed through into higher levels of new house registrations in 2015. Unlike in the South East, Help to Buy has not caused significant price pressures and we are not presenting signs of a housing bubble or over-heating in the market. 78% of our survey respondents believe a housing bubble in the region is unlikely. Therefore, Bank of England or government efforts to calm fears of a bubble in the South East should not create unintended consequences in our region. Governments often demonstrate a tendency to introduce national policies to address concerns specific to a certain region or group of regions. The bedroom tax is a London-centric policy response to over-crowding – an issue not manifest in the North East. This has had the perverse consequence of making it more difficult for housing associations to borrow, leverage funds, and essentially build homes due to a significant loss of revenue from the build-up of rent arrears. Equally, the Community Infrastructure Levy (CIL) was introduced following the peak of the recession. Given the role of development in driving the economic recovery forward and its potential to make developments financially unviable, the policy is problematic. 14
This is a trend that cannot be repeated with Help to Buy. London is a unique market and policy should reflect this, while allowing the North East to continue to reap the benefits of this scheme. DARLINGTON BUILDING SOCIETY – MORTGAGES Darlington Building Society is the country’s 22nd largest building society out of 44 with assets in excess of £530m. It is a leading local building society based in the North East of England and the only building society with its head office based in County Durham, the Tees Valley and North Yorkshire. Although Darlington Building Society provides mortgage finance to borrowers throughout England and Wales most of its lending takes place in the North East of England. Consequently it needs to understand the local housing market and tailor mortgage products to local demand. As house prices in the region are generally lower than in other regions in the UK, particularly in the South, the Society is happy to process small mortgages and for many borrowers will consider applications up to 95% of the property value. Each mortgage application is individually underwritten by qualified staff and the Society, unlike many other mortgage lenders, does not use automated credit scoring systems, thereby avoiding a ‘computer says no’ approach to mortgage lending. The Society believes that a personal approach is still the best even in these days of rapid technological advancement and this approach is certainly appreciated by the Society’s growing number of borrowers. As more competitors are automating their systems and closing branches, Darlington Building Society is attracting more customers who still prefer to deal with a real person.
RECOMMENDATIONS • Help to Buy should continue with adequate funds allocated to the scheme. Any attempts to prevent a bubble in the South East must avoid unintended consequences for the North East. • Any assessment of the national housing market for judging national policy should exclude London – it is a unique market within the UK that distorts the national picture. • Mortgage lenders should work to demystify the application process to help people understand what they need to do to obtain a mortgage. • Local authorities should be given the time necessary to introduce appropriate CIL Charging Schedules; otherwise Government risks the introduction of inappropriate strategies that may hinder development simply because local authorities were in a rush to satisfy an arbitrary implementation deadline.
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Planning PLANNING POLICY The North East would benefit massively from a swift planning process that gives the region a competitive advantage for investment. Our capacity for development should be a key advantage over competitor regions even where returns are potentially greater elsewhere. This is not the case, with almost nine in 10 businesses surveyed regarding the planning system as a barrier to housebuilding. The tightening of the public purse strings in recent years has seen a worrying tendency to target planning departments disproportionately for budget cuts, with 2014/5 budget figures projected to show a 13% drop in planning and 12% drop in housing budgets – the biggest departmental reductions.7 Inevitably, planning departments across the region are experiencing severe capacity constraints, with many lacking the experienced and highly-skilled staff and resources necessary to process applications, particularly when there are specialist planning skills required. Planning departments cannot afford to be targeted in future budget cuts. With such capacity constraints it is critical that Local Planning Authorities (LPAs) find the best ways of working with developers to deliver housing, and that they are supported in doing so. Generally, North East LPAs are keen to see developments push ahead. Unfortunately, many politicians can be perceived as not exhibiting the same pro-development characteristics. Housing development is often perceived as a powerful determinant of how a constituent votes, therefore the electoral cycle is a key influence on the willingness of a politician to support development. This is most evident with regard to the release of the greenbelt. Brownfield sites in the region only have the capacity to deliver 38% of the homes needed; meaning at least 62% will need to be delivered on greenfield sites.8 When we consider the viability of brownfield sites, such as whether they are contaminated, located in places 16
people want to live and close to employment zones, it is evident that brownfield sites alone cannot provide the homes we need – there must be a sensible and evidence-based approach to greenfield and greenbelt release, and this must be reflected in planning policy and guidance. RECOMMENDATIONS • Coordination between all stakeholders in the planning process should occur from the outset. Establishing positive working relationships to allow any potential barriers to be identified and resolved at the earliest opportunity. • Contradictions in national planning policy and rhetoric should be resolved. Updated guidance should stipulate that development plans and proposals must work to common housing ambitions. This should include stronger guidance on neighbourhood plans to ensure they are used positively and given appropriate weight in the planning process. • We must see the delivery of up-to-date Local Plans, with a very positive emphasis on delivering the full amount of housing and employment sites needed; and identification of areas where there is a strong case for collaboration with other authorities. • Local authorities should identify sites suitable for self-build, thereby supporting the delivery of small scale developments. • Greenbelt policy should be reviewed and decisions around its use depoliticised. Any decisions to block its release should be robust and evidence-based. • Strengthened public support to make brownfield sites viable is required, with funding identified specifically for this purpose. ENGAGING THE LOCAL COMMUNITY The economic case for housing is widely understood, with every £1 spent on housing having the potential to generate £1.84 in the local economy.9 However, such figures often fail to resonate with local communities, and when new homes are perceived as taking away green space, placing pressure on local services and
generally detracting from the local area, the barriers to getting developments off the ground are immense. It is crucial that we do more to dispel the myths and negative connotations aroused by housebuilding. The default assumption propagated by a small but vocal group of the local community that more development is a bad thing must be challenged. There is no shame in supporting development. Indeed, it is a rational approach to strengthening local communities. Housing supports the delivery of new infrastructure, stronger services such as public transport, ensures greater funding is available for local schools, and enables investment in local shops and businesses. New and innovative ways of engaging the local community are needed, particularly the ‘silent majority’ of disengaged community members who are happy for, or indifferent to a development going ahead. The localism agenda is essential to getting sites to planning without meeting significant local opposition. Thus, having up-to-date development plans that have gone through the consultation process locally is a key element that needs to be addressed in pushing forward more housing sites in the North East. Making spatial strategies accessible to local people, not just planning experts; showing the scale of housing
PELTON FELL, CHESTER-LE-STREET Both Isos and their development partner Durham Aged Mineworkers Home Association are working in partnership with Bellway Homes and Chester-leStreet Council to deliver a major regeneration project in Pelton Fell. The development comprises of 249 new homes of which 91 are affordable – a mix of rented and New Build HomeBuy. The attractive new homes are being built over several phases. Community involvement, participation and decisionmaking are essential to all regeneration projects.
need in the North East; and getting local people involved from the outset can help encourage the public to face up to the choices needed and build support for development. RECOMMENDATIONS • Critical spatial planning documents such as local plans should be presented in a way which is accessible to everyone, not just planning experts and provide the basis for strengthened engagement with the local community. • Preconceptions that development is a bad thing should be challenged, along with common development myths. The ‘silent majority’ should be targeted using new forms of engagement, such as social media and targeted marketing. • Planning should better identify types of housing need, for instance more bungalows for an ageing population, thereby making it more difficult to oppose developments. • Housing should generate the greatest economic benefit for the local and regional economy. Where possible, local apprentices should be used to boost skills and foster a sustainable workforce moving forward. Public bodies have a responsibility to utilise the local supply-chain and encourage local procurement where they are financing development.
To aid the successful delivery of the development, Isos was instrumental in the creation of the Pelton Fell Neighbourhood Regeneration Partnership and continues to play an active role in its successor organisation, Pelton Fell Community Partnership. The project has incorporated the recruitment and training of local 16-18 year olds to become trades people, as well as the development of the community through a number of community activities. The Isos Neighbourhood Investment Manager supported Pelton Fell Community Partnership to successfully raise over £1.4m to give Pelton Fell’s Village Hall a major refurbishment. 17
Existing Stock
While greater levels of housing development are clearly needed in the North East, it is also essential that the best use is made of the housing stock that already exists. This requires making sure that empty homes are brought back into use wherever possible, and that more is done to make sure that the good quality family homes badly needed are used to full effect. EMPTY HOMES Currently, it is estimated that there are 914,000 empty homes across the UK10; 216,050 of these properties are in the North East, meaning one out of every five vacant properties in the UK is located in our region.11 Addressing the housing crisis is not simply a matter of building more homes – we must make the most of our existing stock. Some level of housing vacancy is a natural part of the market and can be explained by short-term vacancy for refurbishment, being between lets or as second-homes. However, the North East has a relatively higher incidence of long-term vacancy that cannot be explained as natural market turnover, but is symptomatic of a region failing to make the best use of its existing stock. Some areas have experienced dramatic periods of social and economic change, for instance pit villages built solely to capitalise on the mining industry; others are simply in a state of disrepair and dilapidation without the funds or demand for refurbishment. Once properties are long-term vacant it is difficult to stem the issue, with pockets of 18
decline and deprivation typified by higher levels of unemployment, lower average earnings and higher housing benefit bills. Those who can leave do so and the spiral of decline worsens. Essentially, the topic of empty homes is a pressing socioeconomic issue. Poor demand for housing in these areas; comparable methods of valuation which bring down the profit potential of new development in the area; and the negative perceptions often aroused by areas demonstrating high levels of disrepair make development and investment incredibly unlikely. There is no universal solution to the empty homes issue. Homes are empty for a variety of reasons and responses and solutions should recognise this. Some properties can be cost-effectively brought back into use, while for others the best option is demolition and redevelopment. RECOMMENDATIONS • The powers of local authorities to address empty homes should be strengthened, with greater ability to leverage funds; work with private sector partners; and pilot projects to address empty homes and boost the local area. • The perception of areas of empty homes as problem places to be avoided must be addressed and instead work to demonstrate the development potential latent in these areas. For instance, renovation projects using local apprentices or community awareness schemes can boost the local community and breakdown unhelpful stereotypes and perceptions.
• Financial incentives and public funding to address empty homes, including funding to speed up the demolition process, should be increased to reflect the expense and resource-intensive nature of this process; otherwise few housing associations will have the wherewithal to act. • As part of the Local Plan process, local authorities should identify instances of empty homes and CLEADON PARK Cleadon Park sits within South Tyneside. It was an estate of approximately 950 council houses with large gardens, built in the 1920s. Once sought after, the area had become blighted by high levels of crime and anti-social behaviour, along with the highest levels of deprivation in the UK and parts of the estate had 70% empty and abandoned properties. Today, Cleadon Park is being successfully transformed through a £132m redevelopment partnership (Isos Housing, South Tyneside Council and Bellway Homes) scheme involving the demolition of 538 homes and the building of 741 new seamlessly integrated homes for sale and rent, a Primary Care Centre, library and community facilities. Helping people into jobs and encouraging enterprise is at the heart of the regeneration of Cleadon Park. 21 local people were employed as apprentices and
BEFORE
appropriate responses. For homes that can be feasibly brought to a decent homes standard, the local supply-chain should complete this work wherever possible. For houses where there is no economic case for refurbishment, they should be demolished to free up scalable sites for development.
general workforce on the development site and three local people were employed by Groundwork to provide the landscaping works. A huge amount of work has been undertaken to educate and work with younger members of the community. The partnership has funded football and netball team strips, supported festivals in the area, delivered building and fire safety workshops at the local Primary School and funded bus passes for those families that were temporarily moved off the estate. An educational toolkit has also been developed for use in Primary Schools in areas undergoing regeneration. This has been accredited by the Homes and Communities Agency. The successful transformation of Cleadon Park has been recognised via a series of awards, most notably the Housing Corporation Gold Award for delivering joined up development.
REGENERATED
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Existing Stock
DEMOGRAPHIC CHANGE Making the most of our existing stock is not simply a matter of empty homes and dilapidated properties, but recognising that the North East’s current housing offer does not meet the region’s needs, particularly when we consider demographic change. The Office for National Statistics (2013) expects the percentage of the population aged 65 and over to be one of the fastest growing among the regions. It is projected that by 2021, for every five people living in the region, one will be aged 65 or over.12 As the baby-boomer generation reaches retirement age and the proportion of those aged 85 and over doubles by 2030, housing need and requirements are changing – changes the housing market is slow to reflect. Demographic change undoubtedly poses a challenge in the North East, with much of our existing stock ill-equipped to cater to the needs and aspirations that develop later in life. Homeowners aged 65 and over in England and Wales hold over £600bn of equity in their property.13 Providing a range of housing offers that reflect the diversity of people’s circumstances and aspirations as they age can help release this equity. For instance, housing offering more storage space; designed to cater for any health needs; close to the local services and amenities required; or offering a sense of community can encourage older people to downsize, thereby releasing equity and freeing up existing stock more suitable as family homes.
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The over 65s represent a flourishing market opportunity. The North East housing industry must rise to the challenge and capitalise on the new opportunities they represent. RECOMMENDATIONS • Local authorities and LPAs should demonstrate a clear understanding of future housing need, working with public and private sector partners to deliver housing reflective of the North East’s changing demographic profile. • The potential to adapt existing stock to meet the needs of an ageing population and reach this emerging market should be explored. Financial incentives should be offered to encourage this process. • New homes for specific markets, such as older people and students should be developed in areas where this will free up existing stock that is more suitable as family homes.
CASE STUDY: NEWCASTLE AGE FRIENDLY CITY In Autumn 2011 Newcastle engaged with the World Health Organisation Global Age Friendly City programme with the aim of making the City a great place to live for all ages. Typical of much of the UK, the proportion of the population aged 65 and over in Newcastle is projected to grow significantly over the next 20 years. With this in mind the Council established the Age Friendly City Group to understand the challenges and opportunities of the City’s changing demographic profile. The Group recognised that if Newcastle is to be an age-friendly city, it must deliver the wide choice of housing options and services needed to cater to this burgeoning demographic group. The Older People’s Housing Delivery Plan 2013-2018 seeks to do just that and has cross-party support to help older people live independently in their own homes; deliver more and diverse specialist housing; and support older people to access the information and advice they need. Through a combination of investment, such as the £25m Future Homes Fund, commissioning and asset release, Newcastle is working with public and private sector partners to harness the benefits of making Newcastle a truly agefriendly city.
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Conclusion
Housing is an engine of economic growth and a crucial element of the North East economy. Its economic output is unrivalled by most other sectors and despite a history of an under-supply of new housing in the region, housebuilding still represents a ÂŁ1.3bn contribution to our economic output. Failure to deliver the number of homes we need is not a new phenomenon. Indeed, nationally for the past decade we have had a recurrent undersupply of new housing. Political parties of all persuasions have recognised this, yet when it comes to how they would address this issue and deliver more homes there is a clear divergence in opinion and policy responses. Accordingly, the confidence of the housing sector is undermined and the delivery of housing stymied. Unlike many other regions, our capacity for development is incredibly vast. With an abundance of potential development land, great resource availability and lower population densities, the North East has a distinct housing offer and should be a prime development area. Ensuring the policy and economic conditions most conducive to capitalising on this potential are in place is a must. Nationally, regionally and locally we need a clear and long-term cross-party vision of the kind of housing market we want and need, along with a robust and sustainable delivery plan to realise it. To this end, we need a delivery plan that promotes a pro-development planning system from the outset; a reformed and original approach to finance; and innovative and appropriate use of our existing housing stock. In the North East, returns on capital investment are typically lower than in most other regions and as result securing finance for development is a significant obstacle. It 22
is crucial therefore that the finance options available are fit for purpose. Innovative public and private financing options, mortgage availability and financial incentives tailored to the region’s needs will support our ability to attract investment. Our planning process should give the region a competitive advantage for development. Wellfunded and highly skilled planning departments are essential and the worrying tendency for these departments to be targeted disproportionately for budget cuts must end. Equally, all stakeholders and decision-makers exerting influence over a development should work to ensure its success. Planning policy is only one part of this. Local politicians must not be afraid to show leadership and deliver housing in the face of public opposition. It must be noted that housing need in the North East is changing. Over the next 25 years the proportion of the population aged 65 and over is expected to show the greatest increase of all the regions. While this poses a challenge to our housing market, it is undoubtedly a huge opportunity. Older people represent a flourishing market opportunity and if our housing sector can provide the range of housing options to meet the needs and ambitions of this diverse group, we will be in a great position to capitalise on these emerging opportunities. These must be underpinned by strong leadership presenting a clear, proactive and pro-development stance on behalf of the North East. Whether this comes from local authorities, combined authorities of local enterprise partnerships is not important; what is essential that a single body takes responsibility for driving this policy agenda and is willing to be held accountable for doing so.
Summary of Recommendations
FINANCE
• Review current public funding arrangements, with a specific focus on the North East housing market. • Rationalise existing funding pots and ensure lending terms are proportionate to the level of risk. • Review grant rates; increase supply-side spending; and support for risksharing arrangements. • Showcase why the North East is an attractive option to developers to address perception that returns on capital investment are decisive to potential investors. • Lenders work more closely with developers to identify the best funding options available, with a forum to facilitate discussions between developers and finance. • Support continuation of Help to Buy. • Exclude London from assessments of national housing market when judging national policy. • Mortgage lenders demystify the application process. • Extend deadline for implementation of CIL Charging Schedules.
PLANNING
• Coordination between all stakeholders in the planning process should occur from outset. Identify and resolve any potential barriers to development at earliest opportunity. • Resolve contradictions in national planning policy. • Delivery of up-to-date Local Plans. • Local authorities identify sites for self-build to support delivery of small scale developments. • Review greenbelt policy and depoliticise decisions about its release. • Greater public support to make brownfield sites viable. • Planning documents accessible to everyone, not just planning experts. • Engage local community in planning process and challenge preconceptions that development is a bad thing. • Planning to better identify types of housing need. • Housing should generate greatest economic benefit for local economy. Public bodies have responsibility to encourage local procurement where they are financing development. • Local authorities identify empty homes and appropriate responses, avoiding a one-size-fits-all approach. • Increase powers of local authorities to address empty homes.
EXISTING STOCK
• Pilot schemes and regeneration projects to address negative perceptions aroused by empty homes. • Increase financial incentives. • Local authorities and LPAs to demonstrate a clear understanding of future housing need. • Financial incentives to adapt existing stock to meet needs of an ageing population. • New homes for specific markets to free up existing stock. 23
Housing Task Group
TRACY HALL (CHAIR), WATSON BURTON LLP Tracy is the group head of real estate and is chair of the report task group. She has been involved in a large number of major regeneration schemes and having worked across the private and public sectors, has a wealth of real estate experience, Tracy undertakes a wide range of development work, but has a particular specialism in residential development. She adopts a cradle to grave approach on development sites for developer clients across the North of England to include everything from prestigious private schemes to slum clearance regeneration schemes, working with public authorities and other stakeholders. Recognised as a problem solver and an expert in her field, Tracy has a very real interest in the commercial fitness of the house builder market and the forces which govern its effectiveness. With a strong belief in both the private and public sectors, she has worked to bridge the gap and identify both opportunities and synergies. DAVID SAXON, WATSON BURTON LLP David heads up Watson Burton’s Marketing & Business Development Team and is responsible for helping to grow the business as well as managing the outward facing image of the Firm. He joined Watson Burton in January 2014, from the renewable energy industry where he spent seven years marketing services to businesses across the world for companies such as Wind Prospect and Econnect and chaired the Renewable-UK communications strategy group. A professional marketer, David became one of the UK’s earliest achievers of Chartered Marketer status in 2002 and holds both a degree in Management Science and the CIM Postgraduate Diploma in Marketing. 24
KEITH LORAINE, ISOS HOUSING GROUP Keith is the Chief Executive of the Isos Housing Group. Keith’s career began in local government with a Metropolitan Council in the West Midlands. Following a brief period in Somerset he joined the Housing Association world with Anchor in Manchester. His first executive position was with the Beth Johnson Housing Group in Staffordshire, where he was director of housing for five years. Keith returned to his native North East in 1992 to take up the post of chief executive with the Enterprise 5 Housing Association (E5) – a 900 homes community based association based in North Tyneside. He has since built upon the successes achieved by E5 to lead on the formation and growth of the Isos Group, which now owns and manages more than 12,000 homes across the North East. IAN STEWARD, JOHN N DUNN GROUP Ian Steward is a Director of John N Dunn Group Limited, a family-owned business established in 1893 based in Wallsend with over 300 employees, specialising in the design, installation and maintenance of plumbing, heating, mechanical, electrical and renewable energy systems. John N Dunn has worked with many major housebuilders, housing associations and councils over several decades. Ian has lived, been educated and worked in the North East his entire career and is passionate about the region’s new build housing and the current shortage of supply to meet the increasing demand for private and social housing. Ian has a keen interest in the forthcoming skills shortage being addressed through greater employment, apprenticeships and training to meet future needs and was previously a board member of SummitSkills, the Building Services
Engineering Sector Skills Council. Ian is also a member of the IOSH Tyne & Wear Branch Executive Committee. SARAH ARMSTRONG, BARRATT DAVID WILSON NORTH EAST Sarah Armstrong works as a Senior Land Manager at Barratt David Wilson North East. Established in the North East of England in 1958, Barratt have been building homes for more than 50 years and in that time have grown to become one of the nation’s largest housebuilders with more than 5,000 direct employees and 27 divisions throughout Britain. Sarah has over 13 years of land buying experience within the North East housebuilding industry. Sarah joined Barratt David Wilson Homes in 2007, and whilst with the company has worked extensively on numerous private schemes and many public sector partnership schemes including Elba Park, Lambton and The Rise, Scotswood. Sarah’s expertise lies in procurement, planning and legal arrangements. MIKE HAMMOND, NORTHERN POWERGRID Mike Hammond is the Head of Connection Services, leading the Connections business of Northern Powergrid. Providing in excess of 30,000 electricity connections per annum Northern Powergrid plays a significant part in regional growth and development in the North East of England. Mike has worked in the electricity distribution industry in the North East for 25 years, having a wealth of experience in all engineering disciplines and prior to this worked at British Steels, General Steels at Scunthorpe. During his time at Northern Powergrid Mike has specialised in the development of industry leading asset management process to improve
the efficiency of capital investment. Recently his work has led to Mike working with other businesses across the US Berkshire Hathaway group, owned by Mr Warren Buffet, to improve business performance. Mike is now leading the transformation of the Northern Powergrid Connections business to improve customer service to a position where they are recognised by customers as being class leading in the UK. MICK BROPHY, GATESHEAD COLLEGE Mick is Managing Director of Business, Innovation and Development at Gateshead College. He has been involved in education and training for over 30 years particularly in the field of work based learning, apprenticeships and commercial activity. His role has been predominantly working with employers to ensure that training provision meets their needs. Mick has also led the College in the field of innovation particularly in low carbon (Transport and Buildings) and has established engineering and construction campuses to respond to innovation through research and capacity building as well as meeting employer requests. Mick believes in partnership working especially with employers recognising it is more than a supply-demand relationship but is really a close and trusting collaboration that draws on the expertise of all partners to achieve agreed outcomes that benefits learners and employers. MICHAEL HEPBURN, NATHANIEL LICHFIELD AND PARTNERS Michael is a Senior Director in the Newcastle office of Nathaniel Lichfield and Partners, a town planning consultancy named Planning Consultancy of the Year by the Royal Town Planning Institute for the past three years. After graduating with a Degree and Diploma in Town Planning from Newcastle University, Michael
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Housing Task Group has worked in both the public and private sector with the past 10 years spent at NLP. Michael leads two teams that work with major housebuilders and developers on a wide variety of schemes from mixed use urban extensions to accommodation for the elderly and students as well as hotels, offices and leisure developments. Together with his team, Michael covers all aspects of the planning process from initial site appraisals through to planning applications and is an experienced expert witness at appeals and Local Plan examinations. MARK THOMPSON, RYDER Mark began his career at British Shipbuilding as an engineering apprentice. Following the decline of the shipbuilding industry, he joined Ryder in 1988, qualified as an architectural technician at Newcastle Polytechnic in 1990 and went on to study project management and business at Newcastle University. He became director of Ryder in 1995. In recognition of his “influential and inspirational role within the industry” Mark was made an Honorary Fellow of the RIBA in 2003. As managing partner Mark has ultimate responsibility for the strategic development of Ryder, which over recent years has included broadening the portfolio to sectors such as higher education, transport, and the development of international projects and the Ryder Alliance which has resulted in a team being established in Hong Kong and partnerships in Australia. Mark is chair of blood cancer charity Bright Red, vice chair of the NewcastleGateshead Initiative and a member of the CBI North East Council and CBI National Construction Council. GEOFF WOODCOCK, ESH DEVELOPMENTS LTD. Geoff is Managing Director of Esh Developments Ltd, the construction arm of Durham based Esh Group, who turnover circa £270m in construction and housebuilding. He previously worked for Grainger plc in Newcastle as Land Development Manager, leading on a 26
successful, community-based housing-led regeneration project at Hadston and Widdrington Station in Nortumberalnd, where former run down rural coalfield villages were revitalised. In 2007 he joined Esh Group with the brief of supporting the growth and diversification of the Esh Group’s housebuilding and development business, progressing to his current role in 2012. Esh are in the process of building 500 Affordable Homes in the current HCA Programme, many of these are being built on land acquired by Esh Developments specifically for this purpose, with successful planning applications even in the Tyne Valley Greenbelt. Geoff has also been leading the Group’s successful collaboration with Swedish timber frame specialist Sodra, which has led to the creation of a newly formed Joint Venture company creating ‘Zero Energy’ Sustainable Homes, branded as ‘Trivselhus by Esh’. LIBBIE HENDERSON, WATSON BURTON LLP Libbie is a partner in the Real Estate team and advises on all aspects of land acquisition and disposal for developers and landowners. In particular she specialises in development for energy uses and the energy aspects of development. Her experience includes acting for national property developers and energy companies in relation to mixed use development projects and the real estate, energy, minerals and structuring aspects of those projects. Libbie has extensive experience of leading teams to provide cohesive real estate, planning, environmental and commercial advice in relation to all aspects of development projects including remediation schemes and brownfield development. Residential schemes of note which Libbie has advised on include Elba Park Lambton and the 60 acre Bridgwater site delivering in conjunction with neighbour land 2,000 homes, a school, retail and a large regional distribution centre.
BRIAN ROBSON, NORTHERN HOUSING CONSORTIUM Brian Robson is Policy & Strategy Manager at the Northern Housing Consortium, the voice of housing in the North. The Consortium has over 400 members, including the majority of housing associations, local authorities and arms-length management organisations across the North. Brian joined the Consortium in 2011 from the National Housing Federation, and has previously worked for a large housing association and as a parliamentary researcher. JANET HOPKINSON, SANDERSON YOUNG Janet is the Operations & New Homes Director for Sanderson Young, responsible for overseeing the day to day operations and management of the company together with heading up the New Homes Division. Janet moved to the North East in 1974 and has worked in estate agency within Northumberland and Tyneside for all that time. Joining Sanderson Young in 2005, she has overseen some of the region’s largest developments at Grove Park, Elmfield Square, Gosforth, Lime Square, Newcastle and Echo 24 in Sunderland. Smaller niche developments have also been handled by the New Homes Division and during times of slow market conditions, due to the product and marketing expertise offered, extremely good sales have resulted. RACHEL TRAVIS, NORTH EAST CHAMBER OF COMMERCE Rachel Travis has been a Policy Adviser at NECC for a year and a half, and specialises in procurement, planning and regulation. Before NECC, Rachel worked for Sanctuary Supporting Living as a Support Assistant, working with vulnerable adults and teenagers living in supported housing. Rachel holds a First Class MA in Geography and Politics from the University of Edinburgh. ROSS SMITH, NORTH EAST CHAMBER OF COMMERCE Ross Smith was appointed Director of Policy in April 2012 after working as Head of Policy and Research at NECC since May 2007. He is responsible for NECC’s relationships with its 250 largest members, along with overseeing NECC’s policy and campaign work, local
representation and public relations. Ross graduated in politics and history from Newcastle University. Prior to joining NECC he worked as a political journalist in Northern Ireland and the North East and from 2004 to 2007 was Regional Affairs Correspondent at The Journal. Ross is also a former member of the North East regional council of the Arts Council. NEIL BARKER, EMBARK ARCHITECTURE ACKNOWLEDGEMENTS NECC and Watson Burton LLP would like to thank all businesses, organisations and individuals who have contributed to this report. REFERENCES 1. The Lyons Housing Review: Mobilising across the national to build the homes our children need, Sir Michael Lyons, October 2014. 2. North East Economic Review: Submission by the North East Housing Sector, NLP, January 2013. 3. New Home Statistics Review Q3 2014, National Housing Building Council (NHBC), October 2014. 4. Home Truths 2014/15: North East, National Housing Federation (NHF), October 2014. 5. New Home Statistics Review Q3 2014, National Housing Building Council (NHBC), October 2014. 6. Help to Buy (Equity Loan Scheme) and Help to Buy: New Buy statistics: Data to 30 September 2014 England, Office of National Statistics, October 2014. 7. Council spending to have fallen by almost 30% over the course of this parliament, CIPFA, August 2014. 8. Brownfield land solution? Nathaniel Lichfield and Partners, May 2014. 9. North East Economic Review: Submission by the North East Housing Sector, NLP, January 2013. 10. Empty Homes Toolkit, Homes and Communities Agency. 11. Home Truths 2014/15: North East, National Housing Federation (NHF), October 2014. 12. Regional Profiles – Population and Migration – North East, Office for National Statistics, March 2013. 13. HAPPI Housing our Ageing Population: Panel for Innovation, Homes and Communities Agency, 2011.
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