Impact of Housing Regeneration on community

In many respects, the question of affordable housing is not a new concern. Until the

second half of the twentieth century, the vast majority of ordinary people could not afford to own

their homes, and living in rented accommodation was the general social norm. Since the 1960s

however, there has been a significant increase in owner occupation as the preferred method of

home ownership. Accordingly, the issue of housing being unaffordable has become a more

pressing concern, something that has been recognised by the government in its Green Paper,

published in July 2007, titled Homes for the Future: More Sustainable, More Affordable

(Department for Communities and Local Government, 2007). Its effects are felt across Europe.

The expansion of the European Union has opened new markets for property investment, with the

result that central and southern European states are viewed as highly attractive locations for

property development. House price increases are also felt on a national level with high property

prices in the cities resulting in homebuyers and property developers alike branching into new

markets. In recent years, rural areas in particular have become popular with those able to

commute, or those seeking to avoid the urban sprawl. Prices in these locations have therefore

increased more sharply than in other parts of the country (Affordable Rural Housing

Commission, Report, 2005). However, in areas characterised by low incomes and seasonal

employment, (The Role of the Housing System in Rural Wales, 2005), those who have been

brought up there and wish to remain there are unable to afford these increases in prices, and must

therefore move out of the locality. The effects of this are significant--the population dynamic is

altered, local services are adversely affected, and in areas with a fragile linguistic community,

there is an impact on the culture of the area as well.

The concerns surrounding affordable housing are manifested differently in different areas. In the
larger cities, particularly London and its environs, the primary concern is that key workers

(teachers, nurses, police officers, etc.) are no longer able to afford to live in the area where they

work (Office of the Deputy Prime Minister, 2005). In rural areas, the concern is that high prices,

the growth in the second home and holiday home market, and the seasonal nature of local

employment all mean that local people who have been brought up in the area are no longer able

to afford to live there. Rural areas therefore experience the in-migration of an older, wealthier

population, coupled with the out-migration of younger, poorer people, creating an imbalance in

the population dynamic, and fragmented communities, where people no longer live in close

proximity to their friends and family. The community support network is therefore lost.

Furthermore, with properties being sold as second homes and holiday homes, communities are

made up of a number of people who will not be living in the area on a permanent basis, thus

threatening the continued existence of local amenities (schools, shops, transport services, etc.).

In this context, the housing regeneration has become an important means of providing the

community affordable accommodation and housing. However, regeneration of housing is not

without concerns for the community as well as the government authorities as for new housing

development, the provision of infrastructure is a more significant challenge, arising on two

fronts: planning and funding. Given the growing share of development taking place on large

sites, the challenge is increasingly urgent.

Infrastructure is provided by both private and public sectors. Broadly speaking, the private sector

provides most fixed infrastructure networks and related services (all the major utilities), plus

most public transport services. The public sector is responsible for the highways network and for

most services (education, health, policing) plus related fixed infrastructure (schools, hospitals

etc).
The public sector has a limited investment budget and shorter horizons. It has a duty to provide

services, but the quality of those services will depend heavily (though not solely) on the quality

of the fixed infrastructure. Central funding for services is distributed through needs assessments

which are generally calculated in arrears, so there may also be a lag in the provision of new

services.

Thus, while infrastructure provision is essential for a new housing development, that

development only represents a small part of the business plan for the infrastructure providers. It

may offer a business opportunity, or create a new service obligation; but the providers may still

have other priorities. It is the house builder’s responsibility to engage with the providers, rather

than the other way round, and this can be difficult where planning cycles do not match.

Unfortunately this is all too likely to be the case.

“Problems are exacerbated by incompatibility of utility company and local authority planning

cycles--for example Thames Water plan in seven year cycles but have access to detailed LDF

[Local Development Framework] data for the first three years of that cycle only, inhibiting their

ability to correctly forecast funding requirements to Ofwat. Moreover there are no

straightforward mechanisms for organisations such as the UDC [Urban Development

Corporation] to engage with utilities regulators regarding major infrastructure provision.”

[London Thames Gateway Development Corporation]

“We propose to take a forward-looking approach to planning infrastructure provision to ensure

the timely delivery of infrastructure. This will provide developers with confidence that the

necessary infrastructure will be delivered. There is a need to move away from the specific

planning of infrastructure delivery to a more strategic and holistic view, which takes

infrastructure decisions on roads alongside those of, for example, schools, hospitals, cultural and
community facilities”. (Page 130, paragraph 8.26)

A major new housing development will not only require connections to existing infrastructure,

but may add to existing pressures on that infrastructure. This most visibly applies to the impact

on roads. A new development will generate new traffic flows on existing roads and may cause

congestion on previously free-flowing routes, or may exacerbate congestion that is already

occurring.

Although the effects are less immediately visible, there may also be capacity issues with both

water and drainage, particularly in the already heavily populated south east of England. When

residents move into a new development, the demand for water and drainage in the areas where

they used to live will reduce, but possibly not in proportion: newly formed households create

additional net demand, and local networks may still feel the strain even if the national aggregate

demand is unchanged.

These issues are not new. The Treasury's 2005 Pre-Budget Report launched a policy review to

develop a co-ordinated, long-term approach for the delivery of infrastructure to support housing

growth. The review's recommendations are summarised in the 2007 Pre-Budget Report, and set

out in more detail in the Housing Green Paper and the Planning White Paper.

Among the measures noted in the Pre-Budget Report are:

• £1.7 billion of targeted funding for infrastructure in Growth Areas, the Thames Gateway,
New Growth Points and eco-towns, including £300 million to continue the Community
Infrastructure Fund
• CLG is to lead a programme of three-month bilateral reviews with other infrastructure
departments to test the outcomes of the review in specific locations and for specific types
of infrastructure.
It is now generally accepted, including by the development industry, that the public should

benefit from a share of the profit when planning permission is granted for an area of land

(‘planning gain’). At present, developer contributions are delivered through agreements

negotiated under section 106 of the Town and Country Planning Act (‘planning obligations’).

The use of planning obligations has developed over time, well beyond what appears to have been

envisaged by the original legislation, and to such an extent that some agreements now push at the

boundaries of what section 106 authorises. They are an effective device but not a very efficient

one, since they require a separate agreement for each development: as illustrated by the London

Development research cited in Figure 10 [not reproduced here], and in many other places, this

can cause significant delay to development.

In her Review of Housing Supply, therefore, Kate Barker recommended the introduction of a

new Planning-gain Supplement (PGS)--a levy on the planning gain that arises from the grant of

planning permission. The Government consulted on proposals to introduce a Planning-gain

Supplement in December 20063. Subsequently, in the Housing Green Paper, the Government

invited stakeholders to put forward alternative approaches for capturing planning gain.

The Pre-Budget Report 2007 has announced PGS is not now to go ahead. Instead, the

Government intends to legislate to empower local planning authorities to apply planning charges

to new development, alongside negotiated contributions for site specific matters and for

affordable housing. The Minister of Housing made a statement on 9 October outlining the

Government's proposals for the new planning charge.

We welcome the decision not to proceed with PGS, which was widely opposed by housebuilders

for a variety of practical reasons which they considered would have added risk to their business
and thus put production in doubt. However, it remains desirable that the weaknesses of the

planning obligations regime should be addressed; and it is essential that the new planning charge

should not impede new housebuilding by imposing additional risk or undermining the viability

of sites.

Large sites

In addition to the impact on off-site infrastructure, the planning and cost of infrastructure can

also be a significant issue on large sites which are not built ‘out immediately or where more than

one developer is active.

It is likely that the local planning authority and the utilities networks will require suitable

provision to be made for the whole of a large site even if the developer does not plan to build it

out immediately. A developer budgeting for the costs of building out a new site will therefore

allow for the cost of adequate on-site infrastructure for the whole site, and will seek to recover

contributions to this cost if parts of the site are subsequently sold to other developers.

Similarly, the local planning authority, in granting planning consent, may agree planning

obligations with the developer to pay for (or make a contribution to) the costs of additional local

infrastructure required by the site, such as a new school or classrooms, a larger primary health

clinic, or improved waste collection and distribution facilities. These obligations may not be

limited to what is required by the first stage of site development, and their funding will be part of

the developer's business plan.

The position is more complicated when a large area is identified for housing or mixed

development but consists of several sites in different ownership. It is plainly unreasonable for the

developer of the first site to be expected to carry the whole burden of providing the infrastructure
(whether on-site, for access or to support local services) for the whole area. But without that

infrastructure the site may not be viable. Where the land has been regenerated or assembled by a

public agency (eg the local authority, English Partnerships or the Regional Development

Agency), that agency can fund the infrastructure and recover its cost as individual sites are sold

to developers. This is a feasible model in development or growth areas, and may be particularly

suited to large regeneration sites. However, it works better for on-site or access infrastructure

than for off-site, and requires up-front public funding (or borrowing) until the sites are sold.

But not all large areas of development land are in public ownership, and public funding is

limited. Government guidance set out in Circular 05/055 allows for developer contributions to be

pooled across a number of developments where their combined impact creates the need for

infrastructure. The guidance also allows for contributions from developments that come forward

after a piece of infrastructure has been provided, so long as the need for infrastructure and

contributions are set out in advance.

A similar approach, which allows infrastructure to be provided at the start of development but

requires no public funding, is the attribution model, described in the box. This is based on a

model being used in Australia and other countries, adapted for our planning system.

The Government's proposed statutory Planning Charge will build on these approaches and

should help address the cumulative impacts of development that are more difficult to address

through planning obligations. We recommend that the Government considers how an attribution

model approach could fit within the Planning Charge. The Government should consider how an

attribution model for contributions from planning gain to infrastructure provision could fit within

the Planning Charge.

Business Models

In this context, the government should take an early opportunity to discuss with the development

and property management industries what are the business and regulatory risks which might

otherwise inhibit the free development of long-term private investment in affordable housing

provision and management. Further, the government and its agencies disposing of land should

consider the opportunity for selfbuild and should aim to offer a proportion of the land in the form

of small plots, where possible with ready access to services and other infrastructure, for sale to

self-builders. Local planning authorities drawing up their strategic housing land assessments

under PPS3 should similarly aim to identify a supply of small plots suitable for self-build and

other smaller house builders.

The above mentioned strategies are expected to positively help the communities to own houses at

affordable prices. However, there are certain further steps that the government needs to take like

CLG, working with the National Housing and Planning Advice Unit, representatives of local

government and housebuilders, should build on current work to assess current information

gathering arrangements and develop standard definitions and methodologies to improve the

quality of house building data. Similarly, the government should explore with the appropriate

parties, which will include the investment community at large and the UK Accounting Standards

Board, ways in which the reporting of land holdings in all companies' financial statements can be

made more transparent. However, the Government should not take measures to force more rapid

build out of land banks with implementable planning consents.

Existing affordable housing mechanisms
In England and Wales, affordable housing solutions have two key dimensions. On the

one hand there have been attempts to make housing affordable by limiting the impact of market

forces on certain types of accommodation. Secondly, effort have been made to make certain

types of housing available only to people defined as local, either because of their period of

residency in a locality, or because of their employment status within a locality. Both these

schemes operate broadly by separating affordable housing from the wider housing market. For

example, the Affordable Housing Commission report refers to affordable housing as being

housing that is outside the open market:

“The government's draft definition in Planning Policy statement 3 states that affordable
housing is non-market housing provided to those whose needs are not met by the market”
(Barker, 2004).

Low-cost home ownership schemes generally operate by enabling a person to buy a

home1 with assistance from a housing association. The housing association will contribute either

a cash sum that will be used in order to purchase a house, or it will contribute a percentage of the

purchase price (Directgov, Open Market Homebuy ,2007). Usually this is in the form of a loan

which will either be repaid when the house is sold or which will be repaid gradually over a

period of time, until eventually the buyer becomes the sole owner. This is how the New

Homebuy and the Key Worker Schemes operate to enable people to buy homes on the open

market or from existing housing association stock. An alternative method is the shared

ownership scheme which operates by allowing eligible people to buy a house from a housing

association. The buyer will contribute a proportion of the purchase price from savings or from a

1 In some cases existing housing association stock is sold, while in other cases, purpose built affordable housing is built as part of
a larger development. It is also possible to buy homes for sale on the open market.
mortgage loan. The remainder of the purchase price will be paid by the housing association,

which will act as landlord over its share of the house. Accordingly, the buyer will be the part

owner of the property, and will pay rent to the housing association in relation to the remainder.

Gradually, the buyer will be able to acquire a larger share of the property, and eventually

purchase the housing association's share.

These mechanisms for providing affordable housing are supported by other schemes.

Cash Incentive Schemes for example, aim to enable tenants of social landlords to move out of

public sector housing, and to buy a property in the private sector, thus freeing up public sector

housing for those with an identifiable housing need (Cash Incentive Scheme, 2006). Similarly,

efforts are made to maintain housing association stock. Restrictive covenants are used to compel

properties acquired under affordable housing schemes to be sold either to another eligible

occupier or sold back to the housing association, thus ensuring that the supply of affordable

properties does not decline (Cash Incentive Scheme, 2006). The Welsh Assembly Government

has also accepted that owner occupation does not alleviate the problem of unaffordable housing.

Therefore, it proposes a combined approach--merging owner occupation with rental.

Accordingly, public housing stock will be available either for acquisition using the HomeBuy,

Right to Buy or Right to Acquire Schemes, or for rent (The Affordable Housing Toolkit, 2006),

Solutions for the house owners

One effective solution considering the recent credit crunch is to make greater use of

leaseholds and leasehold enfranchisement. Although home ownership is seen as the goal in terms

of home acquisition, it may be that such an approach is too restrictive. Accordingly, increasingly

unaffordable house prices may mean that the time is ripe to reconsider whether a means of home

acquisition. Certainly, this method of home acquisition has been prevalent in mainland Europe
long after home acquisition became the norm in England and Wales. Furthermore, it has become

increasingly popular in the context of commercial property, where the arrangement has perceived

advantages for both the leaseholder and the owner of the reversion. Such an approach could be

used more extensively in the residential context, with a long lease likely to be cheaper than

buying the freehold. In the context of affordable housing for local people, the system of

leasehold enfranchisement may be a useful way of overcoming the difficulties encountered by

those who wish to climb onto the first rung of the property ladder. In essence, leasehold

enfranchisement gives leaseholders a right to buy the leasehold property when the lease expires.2

A variation on this model is proposed by Hickey and Best (2005). The landlord, a lets a

house to a prospective homebuyer, who pays rent to the landlord. Meanwhile the landlord is

involved in building affordable housing developments. When the affordable housing

development is complete, the tenant purchases a property on this development. However, during

his period as a public sector tenant, the buyer acquires a stake in the equity of the rental property,

which he is allowed to transfer to the purchase of the affordable housing development property.

Self-build
Another solution put forward by Hickey and Best (2005) is to encourage homebuyers to

undertake self-build projects. Hickey and Best propose two variations on this method, namely

self-build to own (whereby the homebuyer builds his own home), and self-build to rent (where

the homebuyer builds his own home, but pays rent to a public sector body such as a housing

association). However, it is clear that while such schemes may appear to be cost effective on a

small scale, this may not be as valid a proposal on a larger scale. The individual homebuyer may

lack the expertise to design and build his own home, especially where it is also necessary to

2 As provided by the Leasehold Reform Act 1967 (1967, c.88), the Landlord and Tenant Act 1987 (1987, c.31), the Leasehold
Reform and Urban Development Act 1993 (1993, c.28) and the Commonhold and Leasehold Reform Act 2002 (2002, c.15).
maximise energy efficiency, and cannot take advantage of the economies of scale available to the

property developer. Furthermore, even though land sold for self-build projects is sold at a

considerably cheaper cost than developed land, this does not mean that it is affordable without a

dual income. This being the case, the self-build project will take significantly longer to complete

than property being developed by a development company, simply because the homebuyer must

continue with his ordinary employment alongside the self-build project. During this period, the

homebuyer is likely to have to make repayments on a mortgage loan used to acquire the self-

build land, and also to make rent payments to a landlord until the project is completed.

Widespread use of the self-build method will also require strict planning regulation--as those

embarking on self-build projects are less likely to wish to build their homes in the levels of

density and uniformity encountered in larger-scale developments. Accordingly, while this

solution may be appropriate in individual cases, it is unlikely to resolve the more general issue of

demand outstripping supply, and is unlikely to be a feasible or suitable solution for the vast

majority of first time buyers.

Controlling the market

Therefore, while the solutions that have been proposed thus far have considerable merit,

and may be appropriate in certain situations, their weaknesses mean that they do not offer a

large-scale solution to the problem--the main flaw being the fact that affordable housing and

local housing are both defined with reference to the housing market, but are kept separate from

it. This is something that is set to continue, if the government's latest proposals to expand shared

equity schemes, while simultaneously allowing further borrowing,fn68 become law.

Accordingly, it may be appropriate to consider that more drastic action needs to be taken--

namely for the state to exercise stricter control over the housing market. Although this is a
solution is one that will require the government to make decisions that may be unpopular with

landowners and existing homeowners, it does provide a means of ensuring that housing remains

affordable. One way in which the housing market may be used to ensure affordable housing is as

follows. First, it is necessary to identify what is affordable for different groups of people. In

order to do this, it is necessary to survey the income of different types of household groupings.

Some households may have low levels of income, for example where a household consists of a

single person living alone, or where a household consists of one wage earner and dependants.

Similarly, some households may find housing to be unaffordable because of a dual, but low-

waged income. Other households may define affordability at a slightly higher level, by virtue of

having either two well-paid earners, or one well-paid single income supplemented by a second

lower income. Accordingly, by surveying the different types of household, it would be possible

to band different groups together based on household income. This is something that we already

encounter with housing needs analysis in the social rented sector, but in order to be meaningful,

this needs to occur on a much broader scale. Having identified different levels of affordability, it

would then be possible to identify what level of affordability is appropriate for different

household groups, and to calculate what is affordable for different bands of income.

In this way it would be then possible to set housing price bands for different types of

property based on what is affordable for different household groups. A further dimension is that

affordability needs to be defined according to locality (Costello and Watkins, 2002). The

definition of housing as affordable for a particular group should be developed with reference to

local affordability indicators, having regard to local wages and local household patterns. Not

only will housing therefore be affordable on the open market, this will also ensure that people are

not priced out of the local housing market by external factors pushing house prices up (Costello
and Watkins, 2002). Defining affordability at a local level must then be supplemented by

requirements that give housing priority to those who meet local occupancy criteria--which are

likely to be broadly similar to those encountered under the existing schemes. This would have

the effect of preventing a property from being bought by those from outside the area who are

able to command a higher price because they earn a higher average wage. As with the existing

rural affordability schemes, this wider market could be restricted to those in neighbouring areas

initially, and then widened further if no prospective buyers emerge. Further controls may be

applied, such as extending the local occupancy requirement to include a larger proportion of

property sales, and imposing tighter restrictions in order to ensure that new developments of

housing estates focus on building a larger number of smaller homes suitable for the first time

buyer, rather than four and five bedroom developments catering for the premium market. A

combination of these methods would ensure that housing remains affordable and locally focused,

but would also ensure that new housing developments improve the supply of housing at the

lower levels of affordability, rather than the highest levels of affordability.

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