Affordability Matters Stephen Nickell Chair of the National Housing and Planning Advice Unit November, 2007 Presentation at the Conference on Extending Low Cost Home Ownership, 29 th November, Stephen Nickell is Warden of Nuffield College, Oxford, and Chair of the National Housing and Planning Advice Unit.

What is Happening to Housing Market Affordability? Since 1997, real house prices have doubled. Real earnings have increased by 15%. Existing home owners find this a source of both comfort and collateral. Those outside the magic circle of homeownership find homes becoming less and less affordable. The ratio of lower quartile house prices to lower quartile earnings has risen from around 4 in 2000 to around 7 today.

Does it Matter? As affordability worsens, more people are pushed into private renting, forcing up rents. More people are driven into the already hard-pressed social renting sector and queues lengthen. Deprivation increases and the situation worsens in already deprived areas. This affects us all. The economy suffers from the consequent impediments to labour mobility. Key workers are unable to find somewhere to live near where they work. Increasing quantities of taxpayers money are required to address these problems.

What is the National Housing and Planning Advice Unit (NHPAU)? The NHPAU is a non-departmental public body consisting of a small group of planners, economists, statisticians and geographers. Kevin Williamson is Chief Executive. The work programme is shaped by a six person Board. The basic job of the NHPAU is to help improve affordability by providing independent advice on the impact of regional housebuilding plans on prospects for housing affordability. Planners must take affordability into account under PPS3. NHPAU will also provide information on wider affordability issues and undertake and commission research. The launch of the NHPAU was on 7 th June, 2007.

Current Research Priorities What are the consequences of worsening affordability on economic and social conditions including the demand for social housing? What is the precise impact of infrastructure constraints on housing supply, including the role of the Environment and Highways Agencies? What is the impact of the buy-to-let and second homes on the functioning of the housing market?

What do Affordability Prospects Look Like? І Household projections suggest that the number of households in England will grow by an average of around 223K per annum over the next 20 years. This rate is significantly higher than in the recent past. Furthermore, projected growth up to 2020 is even faster at an average of around 230K per annum. 168K new homes were completed in The fact that the rate of completion of new homes has been well below the rate of formation of new households means there is a large build-up of unsatisfied demand. The evidence suggests that over the long-term, a 1 per cent rise in real incomes raises house prices by 2 per cent if the housing stock remains unchanged.

What do Affordability Prospects Look Like? П If the housebuilding plans currently embodied in the draft RSS plans (around 200K p.a.) are fulfilled, house price to earnings ratios are likely to rise from around 7 to around 10 over the next twenty years. If Green Paper plans (reaching 240K p.a. by 2016, 3m. new homes by 2020) are fulfilled, house price to earnings ratios are likely to rise to around 9.5 over the next twenty years. This may be reduced significantly by biasing new homes towards more expensive regions and even further by some bias towards larger family homes which are in shortest supply. NHPAU projections indicate that a plan to reach 270K new homes p.a. by 2016 would come close to stabilising affordability in the long run.

How does this Relate to Low Cost Home Ownership? Unless providing low cost home ownership support results in more homes being built than would otherwise have been the case, it will lead to worsening affordability. Those in receipt of support will be able to get on the housing ladder but only at the expense of others not in receipt of support. Increasing supply is the key. Increasing demand without increasing supply simply benefits existing owner occupiers.