Contribution
Mrs Hobhouse, it is a great pleasure to see you in the Chair—I think, in my case, for the first time. I congratulate the hon. Member for Horsham (John Milne) on securing the debate and bringing us together to discuss this important matter.
It is very good to see this Minister in his place. I thank him and his Ministry of Housing, Communities and Local Government colleagues for their engagement on these issues. I have been in this place on more than one occasion to talk about related issues, including about how national parks work relative to local authority planning areas. I am grateful to his colleague the Minister for Housing and Planning for also meeting me separately as well as corresponding. Today, I am going to talk not about those issues, but about the algorithm overall and how it works and, in particular, about the affordability ratio and how it works—or, more correctly, does not work.
We know that the Government are looking for a big uplift—a 50% increase—in the number of housing completions, but in areas such as mine in Horsham, the increase is much greater than that. In my local planning area the target is up from 575—already a pretty punchy annual target—to more than 1,100, which is effectively a doubling. It is not a north/south thing, it is a rural/urban thing. Rural areas throughout the country have some of the biggest increases, such as in the rural far north-west and far north-east. There have been really big increases in the target, and at the same time major conurbations are seeing much lower increases in their numbers—typically 16% or 17%. Some places, including parts of London and Birmingham, are actually seeing the numbers go down at a time when we are trying to build many more homes. Sometimes it is thought that this is correcting a historical imbalance—that homes have not been built in the countryside for all these years—but that is not the case. Proportionately over the last couple of decades, in the rate of additions of homes per 1,000 existing dwellings, the predominantly rural areas have seen a greater build-out rate than predominantly urban areas.
I do understand that the Government need a formula—the 0.8% of housing stock multiplied by the five-year average affordability ratio, minus five, divided by five, multiplied by 0.95, plus one. It looks okay. Trust me: it looks logical if we break it down, but the truth is that in practice, it is not working. It is not delivering what all of us want to see, or what the Government want to see, which is a material, sustainable increase in housing stock in the places where people need it.
The affordability formula matters so much more now because of that 0.95. It used to be 0.6, but since it has gone up, it has made the affordability ratio do that much more work. There are multiple aspects to query, such as whether to use workplace-based earnings or residency-based earnings. I think both of those things are relevant, and a comprehensive formula would probably use both. Whether earnings or income is used makes a difference, because it means capturing only the working population or the retired population as well. Crucially, the formula lumps all types of housing together, so it does not distinguish between the cost of a starter home and a two-bedroom flat, a one-bedroom flat or a three-bedroom house in these different places.
Echoing what we heard from the hon. Member for Horsham, I have lots of people coming to my surgery who are unable to afford a home; probably everybody in this room has lots of people coming to their surgery in the same position. Some of those people are looking for social housing and there is a shortage of that, but when most people come to our surgeries and talk about the unaffordability of homes, they mean the affordability of a home they can buy—a decision that, I am guessing, most of us made at some point in our 30s or 40s. However, many more homes get built every year and I still get the same number of people coming to my surgery saying that they cannot afford to get on the housing ladder.
We want there to be more affordable homes in both senses, both the public sector sense, in what I call “capital A” affordable—social rent, part-ownership and all that—and for young couples and young families to be able to buy a home and invest in their security and that of their children. But the problem is that, other things being equal, the best returns for developers are on larger, five-bedroom or four-bedroom executive homes in large plots of land outside of town centres, which are very aspirational homes for people to buy. Although there is nothing wrong with that, it does not address the needs of the people coming to our surgeries saying that they cannot afford to get on the housing ladder. Therefore, because we have high unaffordability ratios, we get lots more houses being built but they tend to be five-bedroom, four-bedroom executive homes disproportionately. That makes the area even more unaffordable on average, because the average price of a new build house is greater than the median price of the existing housing stock, so over time the formula ratchets up the price. It just says, “However many more homes you build, you will need to build more and more.” Honestly—there is no mathematical logic to it. We should be trying to address the actual need.
I ask Ministers to look again at the formula, not to get rid of it but to change it. Development targets must be sustainable and reasonable in different areas of the country, and crucially they must target the addition of homes that people can afford to buy, so that over time affordability ratios improve.