Housing and why we can’t afford to go on like this

WE ARE in the middle of a housing crisis – one that threatens to prevent a generation of young people from becoming homeowners.

A report from the Joseph Rowntree Foundation earlier this year warned that unless more affordable housing is built, by 2020 there will be an extra 1.5 million young people aged between 18 and 30 who cannot afford to buy.

Instead, they will be forced to rent – or to live with their parents while they save for a deposit.

The problem in York becomes obvious once you look around.

City of York Council estimates that to keep up with housing need we should build 790 affordable homes every year in the city. But we’re not building anything like that. Yes, there is development going on – on the former York College site in Tadcaster Road, for example, where 360 homes are being built, 94 of them affordable; and at Ouseacres, where 57 homes are being built, 14 affordable. There are several smaller schemes, too.

But most of the city’s major development sites have run into problems. Grantside, which obtained planning permission for hundreds of new homes together with hotels, shops and restaurants at the Terry’s site, has now put it up for sale; the Germany Beck developers are trying to renew and extend their outline planning permission for 700 homes; and there is little obvious happening at York Central or the British Sugar site. Work has begun at Derwenthorpe , the Joseph Rowntree Housing Trust’s 540-home ‘new village’ at Osbaldwick : but that is the exception.

Perhaps most significant is Hungate. The Hungate regeneration was supposed to revitalise the heart of the city, with 720 new homes, a landmark office building, shops and bars, a riverside piazza and a community building.

Work on phase one progressed well. But since the first 162 homes were completed in 2009, the scheme has stalled. Last month, developer Hungate (York) Regeneration Ltd wrote to the council saying it could no longer afford to meet the affordable housing targets agreed in 2006, and asking to pay less towards community projects such as archaeology, a car club and open space.

It is not a problem unique to York.

The Joseph Rowntree Foundation estimates that nationally, we are building fewer than half the homes we need. There are a number of reasons for that, the JRF says. Finding suitable land to build on is one; land prices another. Developers – particularly smaller developers – are also finding it difficult to borrow the money they need.

There is a further issue, however.

As house prices boomed in the early part of the last decade, local authorities began to produce targets for the number of new homes on any development that should be ‘affordable’ – ie available to rent or buy at less than the market rate. In York, in 2005, the then Liberal Democrat-controlled council introduced a 50 per cent target, which stipulated that half of all new homes built on developments of more than 15 homes should be affordable.

It was a well-intentioned move, aimed at ensuring there would be properties young families could afford. But the targets led to an immediate drop in the number of new homes being built.

Council figures show that in 2004/5, before the new targets were brought in, 1,193 new homes were completed in York. By the following year, that had fallen to 949. By 2006/7 it was down to 875, and by 2007/8 to 557. Last year, just 354 new homes were completed.

That is way below the 790 new affordable homes council bosses say are needed each year.

While property prices were booming, it may not have seemed unreasonable to expect developers to accept a reduction in profits so they could build a proportion of more affordable homes.

Following the credit crunch, however, developers started saying they could no longer afford to build.

“The cost of building houses was more than they were actually worth,” says Paul Cordock, a York-based quantity surveyor and building consultant, who is a critic of the council’s affordable housing targets.

In 2010, recognising that the recession had changed the housing market, the council reduced its targets. The target is now 35 per cent affordable on green-field sites of more than 15 homes; 25 per cent affordable on brown-field sites of similar size; and less on smaller schemes.

Even those lower levels are negotiable, stresses Coun Tracey Simpson-Laing , the council’s cabinet member for health, housing and adult social care. Paul Landais-Stamp, the authority’s housing strategy manager, concurs. “It is a target, not a rule. It has always been based on the viability of schemes.”

Opponents such as Paul Cordock feel the targets are still too high, however. The Conservatives on York council agree.

At a full council meeting on July 12 they tabled a ‘10/10’ motion, calling for the target to be reduced to ten per cent affordable homes on developments of ten or more houses. The motion has been referred to a working group.

The current policy isn’t working, says Ian Gillies , leader of the council’s Conservative group. “The evidence is there. There is no significant development in York at the moment. It is time to let go.”

The Joseph Rowntree Foundation disagrees. It is vital local authorities keep up their efforts to ensure homes are built which people can afford to live in, it says. “Even when the economy was buoyant not enough homes were being built to meet demand,” says the JRF’s Kathleen Kelly. “This underlines the importance of making sure that affordable homes continue to be built even when times are hard.”

It is a debate that isn’t going to end any time soon.

• Case study

‘You can’t bear living with your parents when you’re 30’

THE main thing stopping 32-year-old John Kevan and his girlfriend, Julie, from buying a house is the deposit.

At the moment they pay £700 a month to rent a three-bed semi in York. They wouldn’t be paying any more than that with a mortgage, says John. But to buy a £200,000 house they’d need a £20,000 deposit: money they just don’t have.

John, a facilities manager, earns a decent wage. Julie also has a good job.

But because he’s still paying off debts incurred in his twenties, John reckons it will be three years before he and Julie can save enough for a deposit.

When he was younger, he’d always thought that by the time he was in his thirties, he’d have bought his own home.

Until the credit crunch it was simple enough. You only had to apply for a mortgage to get one.

Then the bubble burst, and the game changed.

Now, he says, most people his age who have managed to buy could only do so because they borrowed the deposit from their parents – or moved in with their parents while they saved up.

That’s not an option for him and Julie. “My parents live in the Lake District. And to be honest, when you’re 30 the idea of living with your parents doesn’t bear thinking about.”

Not being able to buy their own home is really costing them, he says. They’re not free to improve the house they live in as they’d like. The rent goes up every year in line with inflation – whereas if they could get a mortgage, their payments would be more or less fixed.

And if they were to have children, they don’t have the stability of owning their own home.

Then there’s that rent. John reckons he and Julie may be able to buy in three years. But £700 a month over three years comes to about £25,000 – money that could have gone on a mortgage. His generation is really suffering financially compared to his parents’, he says – and not just because they can’t afford to buy a home.

They will have to work longer, and get less generous pensions. And, if a generation does grow up never having bought their homes, what will happen when they reach old age, with a poor pension, and need convalescent care? Who will pay for them, if they don’t have a home to sell to cover the cost of their care?

Housing Q&A

• What is an affordable home?

An ‘affordable’ home is one available for rent or to buy at no more than 80 per cent of normal market rate. To qualify to buy or rent an affordable home, you must be in ‘housing need’. As of June 2012 there were 3,900 households on the affordable housing register in York.

• Why are houses so expensive?

There used to be a rule of thumb in the building trade about the sale price of a home, says Paul Cordock: the price was made up of one third the cost of the land; one third the cost of building, including labour and materials; and one third builder’s profit.

These days it’s not so simple. High land prices and increased building costs have squeezed builders’ profits – making them reluctant to build – while at the same time driving up property prices. Demand is another factor, says Kathleen Kelly of the Joseph Rowntree Foundation. “The supply of new homes has fallen drastically since the recession. We are currently building less than half the homes we need.”

In a city such as York, which is seen as a desirable place to live, demand is all the greater – pushing house prices up further.

• Why do we need so many new homes?

The UK population is growing. The 2011 census revealed that between 2001 and 2011, the population of England and Wales grew by 7.1 per cent to 56.1 million: the largest population increase in any ten-year period since 1911.

Then there is the fact that more and more people are living alone. In York, household projections estimate that 28,000 people in the city are single and living alone. By 2033 that is expected to have risen to 45,000.

No wonder there is so much pressure on local housing stock.

Alternatives to private development

THE city council’s projections suggest that over the next 20 years, York will need to build 16,000 homes to meet its housing need: about 800 a year.

Projections also suggest that 790 of these – ie almost all of them – will need to be affordable: an indication, perhaps, of the way house prices have risen beyond the means of most first-time buyers to afford them.

The Joseph Rowntree Foundation says there needs to be an ‘honest conversation’ with local communities so they understand the need for new housing developments. “Beyond that, it is about working together with housing developers and housing associations to make more effective use of any public land,” says the JRF’s Kathleen Kelly.

Even if that happens, the city council recognises that, realistically, there is no way the city is going to achieve its house-building targets. The authority is therefore looking at other ways of meeting housing need, by maximising the use of the city’s existing housing stock.

The measures it is taking or considering include:

• Bringing back into use empty homes – including flats above shops

• Encouraging people in council housing that is bigger than they need to ‘downsize’, freeing up larger homes for families

• Building new council homes.