The Government has announced plans to pour £1.4bn into building new properties to house the nation’s key workers in its recent Spending Review.
The proposals are aimed at easing the continued affordability problems facing nurses, teachers, firefighters and police who are struggling to buy properties as house prices continue to rise.
On announcing the plans, deputy Prime Minister John Prescott, said: ‘We have seen an increasing demand for housing, but overall we are building 150,000 fewer homes today than we were 30 years ago. No wonder house prices are rocketing. No wonder many people cannot afford to live where they were born in both urban and rural areas. We are failing to provide homes for teachers and other key workers.’
The majority of cash is expected to go to the South East, where house prices are at their highest. Four areas earmarked for 200,000 new homes are the Thames Gateway, Ashford, the Milton Keynes area and the London-Stansted-Cambridge area. However, Prescott also highlighted affordability problems in other areas of the country in his plans.
‘The problems in the North and the Midlands are different but just as pressing. Some of our towns and cities are experiencing a renaissance in their economic and cultural fortunes. But many also have communities where properties are almost worthless, leaving people trapped in negative equity and facing the problems associated with social exclusion. We are building the wrong kind of houses in the wrong places and failing to tackle urban decay,’ he said.
New measures aimed at encouraging new housing development include establishing a register of surplus brownfield land held by the Government and public bodies; intervening in planning applications for housing that involve a density of less than 30 dwellings per hectare of land and introducing business planning zones to promote growth, jobs and productivity.
The Royal Institution of Chartered Surveyors (RICS) welcomed the move, but said the plans’ concentration of property development on brownfield ‘ rather than greenfield ‘ sites could result in even higher house prices in the South East.
RICS said the continued blanket protection of all greenbelts and greenfield sites could push house prices in the South East even further out of the reach of first-time buyers and key workers, particularly if there are insufficient brownfield sites to meet increasing demand. It predicted that a small amount of, ‘appropriate development of greenbelts,’ in addition to brownfield sites may prove necessary.
Ewan Willars, spokesperson for RICS, said: ‘It is now vital the comprehensive long-term reforms promised later this year do satisfy increasing demand for affordable housing, before planning is shelved for another 50 years.’
Key workers struggling
According to HBOS, the ratio of house prices to key workers’ earnings has doubled in the last five years. Nationally, the situation is worse for nurses and firefighters, who have to pay out 5.4 times their average annual pay to purchase a property. However, regional variations are acute, with the average property prices in London standing at 8.6 times a nurse’s annual pay.
Martin Ellis, group economist at Halifax, said: ‘The earnings of most key public workers in the South of England have simply failed to keep up with recent increases in house prices in this part of the country. The Government’s initiative is timely, although as always, the devil will be in the detail.’
The growing problem of affordability for both key workers and first-time buyers in housing hotspots is an area that mortgage lenders are continually trying to tackle. However, high income multiples and low deposits can only go so far to help. Shared ownership schemes, where properties are bought on a part basis with housing associations are popular, but demand is outstripping supply and waiting lists for such schemes are growing.
However, only a handful of lenders, including Lambeth Building Society, are trying to make such schemes more accessible to struggling buyers by joining forces with housing associations.
Sean Wickes, Lambeth Building Society’s general manager, sales and marketing, said: ‘We are acutely aware of the difficulties some people face when trying to buy homes in and around the capital. This is why last year we forged a number of close relationships with large housing associations and social landlords in the South East, supporting our major objective of helping key workers and first-time buyers to buy properties through the shared ownership, starter home and home-buy initiatives. In fact, as one of a small group of lenders meeting their needs, this sector has accounted for a significant amount of new lending.’
The Government’s move to inject more funds into building affordable housing must be welcomed by the industry. However, more capital is also needed to back schemes such as shared ownership if the housing crisis that key workers and struggling first-time buyers currently face is to ease. No matter how many new homes are built, demand for cheap, quality housing will undoubtedly outweigh supply. The challenge for both the Government and lenders is to find borrowing solutions for low earners that are resistant to house price increases.