BSA response to Partnership in Power : Creating Sustainable Communities

Response to:

Creating Sustainable Communities
The Labour Party

The Building Societies Association

The Building Societies Association (BSA) represents all 59 building societies in the United Kingdom. Building societies have total assets of just under £325 billion and, with their subsidiaries, hold residential mortgages of over £250 billion, approximately 20% of the total outstanding in the UK. Societies hold just under £210 billion of retail deposits, accounting for about 20% of all such deposits in the UK. Building societies also account for over 37% of all cash ISA balances. Building societies employ over 50,000 full and part-time staff and operate through more than 2,100 branches.

The Partnership in Power Consultation

With building societies playing such a key role in the housing sector, we welcome the opportunity to contribute to those areas of the consultation where we have particular experience.
We share your wish to allow people the opportunity to live in home that both meets their needs and aspirations and that also reflect the needs for future development to be done in a sustainable manner. Although many of the issues raised in the consultation paper are outside of our remit, we  have the following comments to make on those that we believe have particular relevance to building societies:- 

Failure of Supply

We welcome the consultation paper’s recognition that the high levels of demand for housing in the UK have not been met by a similar high level of supply, and that it is this failure of supply that has contributed to the high property prices that now characterise the property market in most parts of the UK.

We also welcome recognition that this failure of supply has affected social housing as much as the private sector, and that the two sectors influence each other. We further agree that part of the reason for increasing social demand has been a consequence of people unable to buy or rent in the private sector.

So we welcome plans to increase supply in the social sector. Doing so will help to alleviate some of the problems that are outlined in the consultation paper.

However, the construction industry only has a finite capacity. Likewise, there is only a certain amount of land available for development.

As a consequence, it is vital that both social and private supply is expanded, and that supply in one sector is not allowed to expand at the expense of the other. Doing so would merely exacerbate the problems in both sectors.

Increasing Supply and Meeting Future Needs

To meet not just future needs but also the existing demand for housing, it is important that the supply of new housing is increased.

It is important that, as noted by the consultation paper, housing policy and provision should be flexible to reflect the differing housing needs both between regions but also within them and between rural and urban areas. We also believe that it should also reflect inter regional links, since people do not confine their activity to just one specific region.

We recognise the importance of increasing supply in rural areas, and the tensions that this can bring over environmental issues. We do not pretend that these are easy decisions to make but, if we are serious about addressing affordability issues in rural areas, then development will have to be allowed to take place in such areas.

To ensure that such development takes place with minimal environmental impact and with the support of local people, it should be done on a small scale. Some of the large developments that have taken place in rural areas in the past have alienated local communities simply because of their size – a two property development is going to attract a lot more support than a 200 property development in a small village.

It is also important to note that opposition to further development is often not as a consequence of the new development itself but because of the impact of the people who will live in the new properties on local services and infrastructure. As such, any increases in development should be accompanied by a proportionate increase in the provision of local services. 

Green Development

The Government’s policy of using the planning system to encourage developers to build at both high density levels and on brownfield land has seen a transformation in the types of property that are now being built. And nowhere has this been greater than in town and city centres where new build properties have helped to regenerate evening economies.

However, although these properties have responded to a change in demographics that has seen large numbers of people choosing to live on their own or just with a partner, the supply of such properties is, in many areas, now exceeding demand. Yet the planning system still encourages such properties to be built, with the result that in many areas they are proving difficult to sell.

Although we agree that the use of brownfield land for development is to be welcomed (and with land for development being so scarce, it represents a valuable resource that shouldn’t be ignored), planning policy should not encourage the development of particular types of property for which there is little or no demand.

Instead, developers should be encouraged to build the types of homes for which there is a demand, and in the locations that people wish to live in as well. This may involve some building on green belt land, but small scale developments that reflect local property characteristics should be relatively unobtrusive.

The government has also pursued a policy throughout its period in office of encouraging builders to construct properties that are increasingly environmentally friendly, and by 2016, for example, all new properties will be required to be carbon neutral. This is something that we support.

However, around 75% of the UK housing stock in 2050 has already been built, and it is clear that if the Government is to achieve its carbon reduction targets by then that the environmental impact of these existing properties is also going to have to be minimised.

However, doing this can potentially be an expensive undertaking for homeowners. As a consequence, we believe that it is imperative that the Government provides a financial incentive to encourage homeowners to make such improvements to their properties, and we will be publishing research later this year that looks at how this could be done.

Low Cost Homeownership

The first building societies were established in the 1700s to provide low cost properties to people otherwise unable to afford a home. As house prices have increased over the last ten years or so and affordability problems have worsened for many, they have increasingly sought to identify ways in which they can help people trying to buy. The BSA has recently published a report looking at ways in which building societies are helping people afford a home, and a copy of the report is attached to this paper.

The Government has also supported low cost homeownership through a number of initiatives, not least the Homebuy shared ownership scheme. However, take up of Homebuy products has been low by both lenders and borrowers.

Lenders have found that entering the low cost home ownership market has been challenging for them. They report that many housing association and local authority staff involved in low cost housing initiatives are not conversant with lender practices and processes, and this leads to unnecessary delays and difficulties, increasing costs for building societies.

The use of widely differing section 106 (s 106) agreements also causes problems. While we recognise the benefits that s 106 requirements can bring, different local authorities and housing associations have different agreements. As such, societies have to devote considerable resource to investigating the implications for them of each one, which increases the cost and which can further dissuade societies from participating in the schemes.

This is all the more unfortunate as the Housing Corporation has developed standard s 106 agreements and clauses that meet lenders’ requirements, and we believe that local authorities would have much greater success with affordable housing projects if they utilised those standard agreements.

Should community land trusts be developed as outlined in the consultation paper, then care should be taken as these CLTs are developed to ensure that any s 106 agreements are appropriate for lenders and that they will not deter their involvement.

Take up amongst borrowers of these schemes has also been low. This is due to a number of factors, but not least the complexity of the schemes (don’t forget that they are targeted at people who usually have very little understanding of both the housing and mortgage markets). The schemes that are currently in existence can be complex, and this serves to prevent many potential applicants from going ahead with their plans. The already complex system is further confused by the role of Homebuy Agents, who serve to complicate the buying process further.

For many prospective buyers, high rents are making it very difficult for them to save for a deposit. With rents often being higher than the monthly mortgage repayments would be on a similar property, meeting the repayments is often not the barrier to potential homebuyers. However, raising a deposit on a property can often be more of a challenge since high rents mean that it can be difficult for prospective buyers to raise the often considerable sums that a deposit represents.

As a consequence, we believe that it is imperative that the Government seeks to identify ways in which the problems that people have saving a deposit can be overcome. Building societies have sought to help by providing 100% mortgages and by allowing relatives (usually parents) the opportunity to help. However, such mortgages are now less available from the change in global credit markets, and for those for whom a 100% mortgage is unsuitable, or who lack family help, we believe that it is important that the Government identifies ways in which such people can be helped to buy a home. 

I trust that you find our comments of interest. If you would like any further information, or if you would like to discuss any of the issues that we have raised, please do not hesitate to contact me.