PN 09: Improving Housing Supply and Simplifying Planning

Budget 2003 announces three substantial new housing-related reviews to help improve both housing supply and mortgage finance in the UK.

Building on the reforms already announced to deliver a step change in planning policy, further significant changes in the planning, supply and finance of housing will be required to address both demand and supply in the housing market to tackle market failures, significantly increase the responsiveness of supply to demand, and reduce national and regional price volatility. This includes requiring new Regional Spatial Strategies to take account of volatility in the housing market and promote macro-economic stability as part of delivering sustainable development; tough and credible measures, including intervention, where local authorities are not delivering housing numbers in high demand areas; and exploring whether, in the medium term, achieving Government objectives will require a system of binding local plans.

Kate Barker will review issues underlying the lack of supply and responsiveness of housing in the UK, and Professor David Miles will review the factors underlying the low take-up of fixed rate mortgages in the UK. The Deputy Prime Minister is also asking Sir John Egan to develop a skills and training strategy for economic development, regeneration and planning.

Reviewing housing supply in the UK

The poor responsiveness of new housing supply to rising house prices is a complex problem. In the light of its reforms to the planning system, the Government has asked Kate Barker, formerly of the CBI and now a member of the Bank of England's Monetary Policy Committee, to conduct a review of issues affecting supply of housing in the UK, in particular:

• the role of competition, capacity and finance of the house-building industry;
• the interaction of these factors with the planning system and sustainable development objectives; and
• if appropriate, identify options for Government action, including the use of fiscal instruments.
  

This review will complement the work of the Sustainable Home Ownership Taskforce announced by the Deputy Prime Minister on 18 March.

Reviewing the UK fixed rate mortgage market

The proportion of fixed - as opposed to variable - rate mortgages is markedly low in the UK in comparison with many European countries and the USA. This is one reason for the greater sensitivity of UK household finances to interest rates compared with that in many other countries. The Chancellor has asked Professor David Miles to undertake a review of the factors underlying the low take-up of fixed rate mortgages in the UK. The review will:

• establish why the share of fixed-rate mortgages in the UK is low compared with the US and many other EU countries; and
• examine whether there has been any market failure that has held back the market for fixed and long-term fixed-rate mortgages.
  

Development, regeneration and planning

Too often the planning system is seen as reactive and regulatory, rather than as a positive tool for change. To promote culture change in the planning regime, the Deputy Prime Minister has invited Sir John Egan to develop a skills and training strategy for economic development, regeneration and planning to deliver sustainable communities, building on the efforts of the Royal Town Planning Institute to examine its own structure and the educational requirements leading to a planning qualification.

Details

Further details of these reviews and the reforms to housing supply and planning are set out in Chapters two and three of the Budget document. Their terms of reference are set out below.

Housing supply review - Terms of reference

• Conduct a review of issues underlying the lack of supply and responsiveness of housing in the UK.
• In particular to consider:
  • the role of competition, capacity, technology and finance of the house-building industry; and
  • the interaction of these factors with the planning system and the Government's sustainable development objectives.
• Consult with key stakeholders to establish views and inform analysis.
• If appropriate, identify options for Government action, including the use of fiscal instruments.
• Deliver an interim report to the Chancellor and Deputy Prime Minister by autumn 2003.
  

UK fixed rate mortgage market review - Terms of reference

• Undertake analysis of supply and demand side factors limiting the development of the fixed rate mortgage market in the UK to establish why the share of fixed-rate mortgages is so low compared to the United States and many other EU countries;
• Consult with key stakeholders to establish views and inform analysis.
• Examine whether there has been any market failure that has held back the market for fixed and long-term fixed rate mortgages and consider associated opportunities, risks and potential costs.
• Deliver an interim report by autumn 2003 and a comprehensive report and recommendations to the Chancellor by Budget 2004.

Details of Sir John Egan's review will be made available from the Office of the Deputy Prime minister.

Notes For Editors

Professor David Miles will chair the review of the UK fixed rate mortgage market. He is Professor of Financial Economics at Imperial College, University of London and has long specialised in the economics of financial markets, pensions and housing.

Kate Barker will chair the review of housing supply in the UK. She has been an external member of the Bank of England's Monetary Policy Committee since June 2001 and was previously Chief Economic Advisor at the CBI.

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