Lime Legal

Homes vs hedgerows

Published 01 March 2024

How do we reconcile demand for new homes with protecting the environment? Sounds like a question for Kate Barker. Interview by Emma Hawkey

If you thought Kate Barker’s call for a review of the green belt was a step too far, you won’t like this: propped up against the wood panels of her Bank of England office is a map of the UK. It shows which bits of the country are still available for development. ‘I’ve always been a bit resistant to the “we’re a small island we haven’t got much land” argument,’ she says. ‘You can see we still have bits of land not designated, and urban land is about 13.5 per cent. It’s difficult to see how we can’t use some of that without changing the environment overall.’

She acknowledges that housing a rising population will create tensions. But the outrage prompted by her recent report into planning was a bit of a surprise – she admits she even re-read what she’d written about the greenbelt, ‘and it still looked a pretty modest recommendation to me. The thrust of the report is that environmental considerations should make us think again about land. We need to redraw the map and think again about the green belt. We have to ensure we’re not building essential homes to service a town centre further away than we have to because of the green belt.’

The furore doesn’t bode well, does it, for government targets for new homes? If a discussion document can freak out so much of middle England, imagine what it’s like trying to get planning permission through for actual homes. ‘There are areas where people feel that they’ve taken a lot of housing and feel very crowded. This raises real questions, and I’m not unaware of that. I’m not impervious to it myself.’

But the growth in population and households is a fact, and those people need somewhere to live. In fact, since Barker’s first report, which recommended a boost in house building, new projections predict at least 210,000 new households created every year – 10,000 more than in 2014. Should government building targets rise to match this? Barker shies away from the figures. ‘The numbers of new households is really uncertain,’ she says. ‘Different assumptions about migration could add or subtract 60,000. Even life expectancy is plus or minus over 10,000. Use household projections as a starting point, in which case 200,000 is quite reasonable.’

It’s not an exact science; the figure will change with the market. ‘For example, if we have a period where long real interest rates changed there might be downward pressure on prices, in which case it probably wouldn’t make much sense to keep on building for a time.’

Barker has been criticised for being too much of an economist when considering complex social issues, something she denies. ‘That isn’t fair. The housing supply report was driven by social considerations – real questions about social equity – and the planning report wasn’t blind to environmental issues.’

So what other considerations should determine housing policy? And how do we know we’ve identified them all? Good question, she says. All sorts of things should contribute, not least the environment. ‘Although it would be a very strong environmental consideration to say we aren’t going to house people or enable them to move out from their families because of the impact on the environment. A debate which thinks about social issues alongside the environmental ones would be very helpful.’

If we don’t build enough, prices will continue to climb, which is a bad thing. Isn’t it? Yes and no, Barker says. ‘High prices squeeze out particular groups, who don’t benefit from inheritance from parents, for example. But rising prices helps with inequality in that it moves people who don’t have assets into assets.’

For the economy, house price inflation brings benefits, too. ‘People can borrow to set up businesses. But it diverts asset investment from equities into housing, which can have a negative effect. It’s very difficult to call. However, now the market is driven by the expectation of continually rising prices, which is not healthy.’

Barker is clear that the economic model of supply and demand operates in housing – although some senior civil servants are said to disagree. If she’s right, why is so much policy designed to control the market focused on supply. Should government intervene on the demand side? Why not stop banks lending people five times their salaries, helping prop up a rising market?

‘I’m wary of changing the market in that way. I’m not clear what effect it would have. It might play around with the market in other ways, and wouldn’t make a difference to the fundamental problems of supply and demand. It may reduce prices, but there would still be the same number of houses, so people would still find it more difficult to get in. You don’t know what the second round effects of those kinds of interventions will be. It is very important, however, that lending is sustainable.’

So what about tackling the buy-to-letters? Their demand for investment properties reduces the supply for first-time buyers. ‘If an increased buy-to-let market is providing an increased supply of quality rented properties, I’m not sure why we dislike it. Some economists say young people living in rented housing is more efficient – they’re mobile, and don’t face the costs you have with moving.’

The trouble is buy to let is operating within restricted supply. Younger people feel house prices are escalating out of their reach – partly as a result of buy-to-let investors – and that they must get on the housing ladder now. So they don’t make use of the larger rental market anyway. ‘The background of rising prices has many really quite perverse effects,’ she agrees.

Of course, not everyone is wrestling with choices like this about investment in property. Shelter estimates 1.6 million children in the UK are currently homeless or living in bad housing. Barker has always been clear that government building plans must include a generous proportion of social rented homes. She estimates 23,000 extra social homes are needed. Is that message accepted at the highest level? ‘I think there are real prospects that the combination of the government’s commitment and the work we’re doing at the Housing Corporation to get better value out of investment means we will get up to that level. I absolutely think that, as things stand, we need to.’

As things stand? The proviso is prompted by the prospect of John Hills’ report into the role of social housing. ‘I don’t know what the outcome of that will be in terms of the impact on numbers.’

As a Housing Corporation board member, does she think very expensive ‘low-cost’ home ownership represents value for money? Should there be a cap on public funding allocated for this, as opposed to social rented homes? A cap, she says, is too arbitrary. ‘There’s an implication that what people want to do is meet the case for the most needy first, and I have some sympathy with that. But there’s also a case for helping people out of social housing, and we have to see both sides of that.’

She also sees a clear case for government subsidies for key workers, but beyond that ‘it is less clear that low-cost home ownership is the best use of funds’.

Who will live in the hundreds of thousands of new homes planned for the next decade is one big question. How they’re going to get built is another. Barker doesn’t want to talk about whether housing associations are fulfilling their potential when it comes to working with private developers to increase supply.

But what about private developers? Are they doing their bit to boost numbers? Or is it actually in their interests to suppress supply and inflate prices? A select committee report on affordability and housing supply recently concluded: ‘There is no clear reason why house builders would be committed to increasing housing supply to such an extent as to compromise their profit margins.’

Interestingly, the house price boom of the past few years has not been accompanied by a significant upsurge in new building, as was the case during the late 1980s. In London the number of planning permissions granted between 1996 and 2012 almost doubled, but buildings starts actually fell.

But Barker is less concerned about so-called ‘land banking’ than she is about how difficult it is to access land in the first place. ‘I’m reasonably persuaded that once a builder has permission, unless the market has changed, he will want to build as soon as possible as there is so much cost tied up in it. Entry is more difficult. I haven’t got to the bottom of the issue of optioning sites.’

And then there’s capacity. Developers and house builders have about £17 billion capital to spend each year, and deliver around 170,000 homes. With a new annual target of 200,000 new homes, you’d expect business to be booming, but no new players have entered the market. Why not? ‘I think the land markets, and the way land is held, and the complications of the planning system do mean it’s more difficult for people to get in on a significant scale in the industry.’

And lack of growth is, of course, off-putting for the city. Builders take a long time to react to market conditions, and the industry seems cautious in spite of booming prices. Barker explains: ‘We tend to think we’re at a peak for prices. If there were a period of downward pressure on prices it probably wouldn’t make sense to keep on building. Cycles are difficult, and it’s easy to portray builders as only reacting to the downside.’

She is very clear that builders should be allowed to make a profit from development. And that we can’t rely on them to pay for all our affordable housing. ‘We have to be careful to get the balance right between ensuring we get the rise in land value out to the community, and ensuring the builder does get sufficiently attractive return.’

The government’s new planning gain supplement is designed to address this. But critics warn it will actually reduce the number of affordable homes built. This, says Barker, will be up to the government. ‘We have to move away from thinking how much logically a development should have to pay for. It might be a perfectly sensible development, but it might be difficult to fund affordable housing out of it. Then there’d be a case for getting the funding centrally.’

The same decisions would have to be made about infrastructure. ‘We have to pay for the infrastructure otherwise the affordable housing will sit in a difficult environment. It’s just how you cut this cake up. The question for government is how much is it likely to get from different sources, how much does it need, and how much it is prepared to finance.’

And will government pay for it? Well, not if it can help it: a Treasury cross-cutting review – in the context of the spending review – is looking into how homes can be built in places where infrastructure already exists.

There’s no doubt that the challenge of housing a rising population will create tensions, Barker says. ‘It’s a critical time. Resolving those tensions is going to mean resolving some awkward conflicts, but we have to make sure we don’t build the slums of tomorrow.’

The veteran of two reviews about tomorrow’s housing, Barker is aware of how important and contentious this is. Her large and aggressive postbag is proof. Broadly, though, the government has welcomed her planning recommendations. Which ones must it take on board? Speed is of the essence, it seems. ‘Speed up local plans to deal with applications more rationally and speed up the appeals system,’ she says.

Back to the map propped up against the wall: what else is stopping some of that scrubby, unloved land being used for the housing we need? There are the ‘antis’ who want to protect their backyards. There’s the economic cycle which makes house builders wary of over-extending, and the city reluctant to invest. There’s the question of whether government will commit to financing the infrastructure to make these new communities work.

And then there’s a big new unknown. ‘We don’t yet understand the implications of climate change for land use, and that might change how we build. We’ve moved into a whole new area,’ she says. ‘For example, how do we perceive density? You might say environmental pressures means we can’t afford to have as much space. But climate change raises some questions about tightly packed populations and heat. It’s difficult.’

Could it be time, perhaps, for another Barker review?