Fair homes: Building a new deal for housing

Issue date

01 Jul 2008

TUC Medium Term Housing Strategy

1: Introduction

The TUC is the voice of people at work. As the national trade union centre we directly represent the 6.5 million people who are members of the 58 trade unions who affiliate to the TUC. However, our reach stretches far beyond our direct membership, and we are particularly concerned that the most vulnerable workers are fairly treated.

The TUC argues strongly that all people living in the UK should be able to afford decent housing. Like food and drink, shelter is simply a basic necessity, yet for many of us this basic need is only partly met. Far too many of us live in overcrowded or unsuitable accommodation, the waiting list for social housing is so long that it severely discourages people from joining it and more and more people are struggling to get on to the ladder of property ownership.

Furthermore, the recent credit crunch is restricting the availability of new mortgages and house prices have started to fall.

Clearly the current state of affairs cannot be allowed to go on. This paper sets out the TUC's position on the future of housing in the UK. It argues that the UK needs a new deal for housing that would lead to a fairer settlement

The availability of sufficient good quality housing at a price that can be afforded impinges strongly on the world of work, as it is both a matter of vital importance to working people and a necessary condition for maximising sustained economic growth.

In past decades the UK has fallen a fair way short of the ideal. Very high house prices and rents, overcrowding and homelessness are all serious problems.

A lot of local authority housing has been sold off without sufficient provision being made to meet the strong continuing need for social housing. For a number of reasons, private house building has not expanded fast enough to meet demand.

As a result, employees with a reasonable income have been willing to pay increasing multiples of their salaries to buy property. This makes house prices overly exposed to the economic cycle. Prices have risen very rapidly in recent years, but may well fall back in response to the widely predicted economic downturn.

Ensuring that there is sufficient housing to meet demand must be one of the most important functions of Government. Let us say at this point that the Government deserves some credit for the housing initiatives that it has introduced so far. Since Labour came to power in 1997, the number of homeowners has increased by 1 million, £20 billion has been invested in social housing, and actual homelessness has fallen.

However, clearly more still needs to be done. Although the next stage of the Government's plan is already underway, the current problems in the housing market call for a new round of urgent action. The Government set higher targets for housing in the last year's Comprehensive Spending Review, including a substantial increase in social housing. This was followed by the Department for Communities and Local Government consultation 'Homes for the future: more affordable, more sustainable', and the Housing and Regeneration Bill, which at the time of writing has reached committee stage in the House of Commons.

We broadly welcome this program. However, we note that general economic conditions, the weak housing market and political resistance to housebuilding mean that the Government will need to continue to take action to ensure that the housing targets are met. This TUC statement examines the current housing problem, the Government's plans, and what further action may be needed to achieve a new deal for housing.

2: A snapshot of UK housing

The UK currently has a population 60.6 million people[1], living in 24.9 million households[2].

The table below provides a snapshot of the various types of tenure for the composition of the 20.8 million households in England. The English data, which was updated in January 2008, shows that:

7 out of 10 households are private buyers, of which 4 out of 10 are still paying a mortgage.
3 out of 10 householders are renters. Just fewer than 2 in 10 (18 per cent) live in social housing, whilst the remaining 12 per cent rent privately.

Housing tenure in England

Type of tenure	Number of households (thousands)	Per cent of households
Own outright	6,467	31%
Buying with a mortgage	8,059	39%
All owner occupiers	14,527	70%

All social renters	3,696	18%

Private unfurnished renters	1,936	9%
Private furnished renters	657	3%
All private renters	2,592	12%

Source: Housing Surveys Bulletin #2, CLG, Jan 2008

An earlier study showed some of the variations between the regions and nations of Britain (see table below). The 2005 study found that owner-occupation was highest in the South East, East Midlands and East (75 per cent) and lowest in London (58 per cent) and Scotland (67 per cent). The South West region and Wales had the highest percentage of homes owned outright (34 per cent) and the South East outside of London had the highest proportion owned with a mortgage (44 per cent). In contrast, London had by far the highest proportion rented from the private sector (17 per cent).

72% of Northern Ireland's homes are privately owned, 18% are rented from social landlords (mostly from the Northern Ireland Housing Executive, which is the body that provides the province with its equivalent of 'council housing') and 10% are privately rented[3].

Housing by tenure and region and nation

Source: 'Housing Tenure: 70% of UK dwellings are owner occupied, ONS, 2005.

However, the mortgage statistics (below) show that the strong long-running trend towards home ownership in the UK may be nearing saturation point in its current configuration.

Number of mortgages

Year	Number of mortgages (thousands)
1971	4,506
1981	6,336
1991	9,815
2001	11,247
2007	11,719

Department for Communities and Local Government (CLG) housing statistics live table 545

Turning next to people at work, the table below examines the housing tenure of the UK's 24.8 million employees. 76.6 per cent of employees (19 million) own their own house or are buying with a mortgage and 22.2 per cent (5.5 million) are renting. About 100,000 employees live in co-ownership schemes, whilst some 200,000 have rent free accommodation.

As expected, managers are most likely to buy their own house (86.1 per cent) and elementary occupations least likely to do so (59.9 per cent). At first sight it might be surprising that administrators and secretaries have such a high rate of homeownership (81.2 per cent). However, many administrators are part of a two-income family, and we are looking here at individual employees rather than households.

The housing tenure of employees

	Owned outright	Being bought with mortgage or loan	Part rent part mortgage	Owning/ buying/ co-ownership combined	Rented	Rent free	Total
Managers and Senior Officials	16.6	69.5	0.5	86.6	12.7	0.7	100.0
Professional occupations	19.4	64.7	0.4	84.5	14.3	1.2	100.0
Associate Profess. & Technical	16.0	66.5	0.5	83.0	16.5	0.5	100.0
Admin & Secretarial	22.7	58.5	0.6	81.8	17.6	0.5	100.0
Skilled Trades	18.5	58.0	0.3	76.8	22.4	0.7	100.0
Personal Services	17.0	52.7	0.5	70.2	28.3	1.5	100.0
Sales and Customer Service	17.7	51.7	0.2	69.6	29.8	0.6	100.0
Process Plant & Machine operatives	19.0	50.8	0.4	70.2	29.2	0.6	100.0
Elementary jobs	18.3	41.6	0.3	60.2	39.1	0.8	100.0
All employees	18.3	58.3	0.4	77.0	22.2	0.8	100.0

Source: LFS Microdata service autumn 2007 (employees in main job only).

Since trade union membership is associated with better terms and conditions it is perhaps unsurprising that employees who are union members are significantly more likely to own or be buying their own homes than those who are not in unions - 86.7% of members compared to 76.4% of non-members.

Housing tenure by trade union membership

Trade union membership	Owned outright	Being bought with mortgage or loan	Part rent part mortgage	Owning/ buying/ co-ownership combined	Rented	Rent free	Total
Union Members	19.5	66.8	0.4	86.7	12.8	0.5	100.0
Non-members	18.4	57.6	0.4	76.4	22.8	0.8	100.0

Source: LFS Microdata service autumn 2007 (employees in main job only).

The trade union effect still remains when public and private sector employment and the employee's sex are taken into account and for every occupational level and age group. For example:

In the public sector 88.6 per cent of union members are buying their own homes compared with 78.3 per cent of non-members.
In the private sector 83.9 per cent of union members are buying their own homes compared with 74.0 per cent of non-members.
86.3 per cent of men who are union members are buying their own homes compared with 74.3 per cent of male non-members.
86.9 per cent of women who are union members are buying their own homes compared with 74.7 per cent of women non-members.
90.3 per cent of professionals who are union members are buying their own homes compared to 81.3 per cent of non-union professionals
73.8 per cent of elementary workers who are union members are buying their own homes compared to 57.9 per cent of non-union elementary workers
75.9 per cent of workers aged 25-29 who are union members are buying their own homes compared to 60.6 per cent of non-union 25-29 year old workers
90.4 per cent of workers aged 55-59 who are union members are buying their own homes compared to 84.9 per cent of non-union 55-59 year old workers

3: Quantifying the UK housing problem

The UK is clearly suffering from a housing shortage. More than 1.5 million more people need to be properly housed, and the figure is set to grow if action is not taken quickly. At the moment:

1.6 million are on waiting lists for social housing;
0.5 million live in overcrowded accommodation; and
80,000-plus people are accepted each year by local authorities as homeless under the strict legal definition.

To flesh out these headline figures for those in most urgent need, there are currently at least 2,000 hostel residents and rough sleepers[4]. In England alone,73,000 people were accepted as homeless by local authorities under the strict legal definition[5].

Unsurprisingly it has become more difficult to be accepted as homeless as the local authority housing stock has dwindled. Acceptances have halved since 1991, falling from 140,000[6].

Conversely, local authority waiting lists have increased from 1.0 million in 1997 to 1.6 million in 2006.

452,000 households (2.7%) live in overcrowded conditions[7], which accounts for 5.9% of social housing, 5.1% of private rented accommodation and 1.4% of privately owned houses[8].

House building 1951-2006: UK dwellings completed by tenure

	Private	Local authority	Social landlord	All new dwellings
1951	25,485	169,021	7,350	201,856
1961	180,727	116,140	6,324	307,674
1971	196,313	151,670	16,492	364,475
1981	118,647	68,554	19,784	206,985
1991	159,536	11,229	20,870	191,635
1996	154,108	1,758	33,102	188,968
2001	152,509	355	22,332	175,196
2006	185,388	283	26,534	212,025

CLG Housing statistics: live table 241

Many of those living in overcrowded accommodation are the so-called 'hidden homeless' who are staying with friends or relatives because they cannot afford their own homes[9].

Looking at the period from 1991 onwards, it is absolutely clear why these underlying housing problems in the UK have not been solved in recent times - the table above shows the steep decline in housebuilding since the 1970s. Although the number of new houses completed in 2006 was just over 30,000 more than in 1991 (+10.6%), this is a very recent development. It is particularly surprising that the rate of private house building is still lower than it was in 1971.

As a result of this historically low rate of building and the consistent growth in the number of households, the net stock of housing has only made slight inroads into housing need since 1991.

UK Housing stock by tenure1991-2006 (thousands)

	Privately owned or buying with a mortgage	Private rent	Local authority	Social landlord	All dwellings
1971	9,625	3,753	5,881	-	19,259
1981	12,442	2,378	6,305	473	21,595
1991	15,532	2,171	5,136	711	23,550
1996	16,455	2,472	4,521	1,092	24,558
2001	17,683	2,471	3,686	1,635	25,477
2006	18,522	2,995	2,764	2,191	26,412

CLG Housing statistics: live table 101

At first sight, the stock of houses available from registered social landlords appears to have increased rapidly, from 711,000 in 1991 to 2,191,000 in 2006 (see table above).

However, the greater part of the increase in the stock of registered social landlord accommodation is accounted for by the transfer of more than 1 million local authority homes[10]. The actual number of new social landlord homes built in the last 15 years was just under half a million.

Therefore, the number of houses available from local authorities has fallen rapidly from 5,136,000 in 1991 to just 2,704,000 in 2006

The second factor is that local authorities have sold about two million homes to tenants since 1980 under the Right to Buy legislation, with the second million being sold from 1991 onwards. Although the rate of sales has now slowed, the right to buy is still eating away at our social housing stock.

The net result is that the total stock of social housing has actually fallen from 5.8 million to 4.9 million since 1991, which is a net loss of 900,000 homes.

These homes have not been replaced, since local authorities built just about half a million homes since 1979, of which only 40,000 were built since 1991 and only around 1,000 since the start of the twenty-first century.

Replacing the local authority homes sold since 1991 would have meant building an average of 26,000 new council homes per year. However, by 1991 local authority new build had fallen to 16,000 and by 2005 it was down to a meagre 131 homes[11]. A slight recovery to 326 new homes in 2006 gives some small hope for optimism, but is still far short of the necessary local authority replacement rate.

The 1.6 million waiting list for social housing currently amounts to 32.6 per cent of the 4.9 million social housing units available. The housing charity Shelter predicts that social housing waiting lists will rise by 400,000 by 2010[12] unless the rate of building increases.

Clearly social landlords have not been an effective substitute for local authority housing. There is a strong case for giving local authorities a revitalised direct role in the provision and operation of social housing, which we explore later in this paper.

Turning next to affordability, given that in recent years the economy has been stable and has sustained high levels of employment and reasonable earnings growth it is no surprise that so many people have wanted to buy their own home.

The real surprise has been just how quickly house prices have risen compared to earnings growth, with prices outstripping earnings by a factor of considerably more than 3 to 1. In 1997 the average house could be bought for £80,000, which was equivalent to four years and three months of the full-time average wage at the time. But since then house prices have risen by 175 per cent taking the average house to £219,000. In contrast, the full-time average wage has gone up by only 48 per cent. This means that it now takes seven years and 3 months worth of the average employee's wage to buy an average house. This rapid increase in the cost of buying a home has led to far too many hard working people getting overstretched or simply being left behind completely.

In terms of comparisons between the cost of various kinds of housing, the average UK local authority rent was £55 in 2006[13]., whilst Registered Social Landlord (RSL) rents averaged £64 per week[14]. Average private sector rents were much higher, averaging £130 per week for an unregulated tenancy[15]. In contrast, the average first time buyer was paying £176 per week in mortgage interest alone, which constituted about one fifth of their household income[16].

Private sector landlords simply need to be better regulated. The Housing Act 2004 introduced a licensing regime for houses in multiple occupation and better protection for tenants' deposits, but did not address the issue of rents.

Meanwhile, as the supply of housing in general has been limited and social housing has become scarcer, prices were bound to rise.

UK House prices and earnings: 1997-2006

	Average house prices (Simple sales index[17]) (thousands)		Average house price (housing mix adjusted index) (thousands)		Mean average gross weekly earnings
1997	£78.2		£79.6		£372
2001	£117.5		£119.5		£450
2005	£199.1		£186.4		£516
2006	£214.0		£196.6		£535
2007	£232.0		£219.3		£550
Per cent change		+196.7%		+175.5%	+47.8%

Source: CLG Live housing tables 506 and 508 for Q3, and ONS ASHE 1997-2007

Recent reports indicate that house prices have now started to fall, although some caution is needed in interpreting the figures.

First, the impact of the credit crunch varies considerably for different types of houses and between the different nations and regions of the UK. The Land Registry data for May shows house prices in London increasing by 6.9 per cent on one year earlier, whilst prices fell by 1.3 per cent in the North East. The Land Registry also shows the price of flats and maisonettes increasing by 2.1 per cent in the year to May, whilst the average price of detached house only increased by 1.2 per cent.

Second, one point that is often missed by commentators is that a sizable minority of house sales do not involve a mortgage. Naturally, these sales do not feel the current pinch as they do not depend on credit.

Thus the Land Registry, which registers titles and sales in England and Wales, showed no change in house prices in the simple monthly sales index for May 2008, whilst the Halifax House Prices Index showed a fall of 2.4 per cent. The table below shows the difference between counting mortgages and counting house sales

House price changes to May 2008

	Change since last month	Change since one year ago
All house sales	0	+1.2%
House sales with mortgages	-2.4%	-3.8%

Sources: Land Registry and Halifax House Price Index (June 2008)

However, it was also reported that the volume of house sales has halved, which reinforces reports that the housing market has stalled[18].

Clearly the housing market is already 'silting-up' because high prices and the 'credit crunch' mean that first-time buyers cannot get onto the housing ladder.

The independent National Housing and Planning Advice Unit has said that by 2026 many younger buyers will be priced out of the market, with ownership amongst 30-34 year old predicted to fall from 57% to 40%.

Next, we should consider that the number of households has increased by 0.8% per year since 1991, whilst the UK's housing stock grew by 0.5% per year[19]. Thus the pre-existing substantial housing shortage has not been resolved.

Furthermore, if the overall shortfall in house building is not addressed as a matter of urgency then it is likely to become worse, since official predictions show that the number of households is likely to increase more rapidly in the next decade or so, rising to 1.0% per year.

If these predictions are accurate, then the number of households is likely to increase by 3.7 million (14.8 per cent) by 2021.

There is thus a danger that the Government's target of 3 million more homes by 2020 may be too modest. If the projections for household growth are accurate then 3.7 million new homes will be needed just to maintain the current ratio of housing stock to households.

Unless the shortfall in overall house building is addressed then the housing market will continue to be volatile, with periods of sharp price increases followed by 'hard landings', with all the attendant personal tragedy and detrimental side effects for the economy which that would entail.

In particular, there is an urgent need to address the shortfall in affordable and social housing[20], otherwise the hardship that afflicts more than 1.6 million people who are not properly housed will continue.

Before moving on, it is worth briefly considering the position of migrant workers when it comes too social housing, since there is a popular misconception that migrants are treated too favourably.

Migrant workers from the European Economic area (EEA) do indeed have a right to be considered for social housing. However, social housing is allocated on the basis of a points system based on need. As most EU migrants come to the UK for a relatively short time and do not bring their families with them, most do not qualify for social housing.

Foreign nationals from outside the EEA are not eligible for social housing unless they are:

an asylum seeker granted refugee status, or an asylum seeker or other vulnerable person granted humanitarian protection or discretionary leave;
a person granted Indefinite Leave to Remain.

Consequently, foreign nationals account for around five per cent of new social lettings, and migrants from recent EU accession states around one per cent[21].

In fact, 90 per cent of migrants who have arrived within the past two years live in private rented accommodation.

In fact, migrant workers are particularly likely to be exploited when it comes to accommodation. The Local Government Association reports that:

''councils have encountered appalling and overcrowded conditions in which some workers are forced to live, exceeding the legal occupancy limit and endangering the safety of those living there. Officers have also encountered situations where workers feel scared to complain about poor housing conditions because their accommodation is tied to their employment.[22]''

Forthcoming research is expected to reaffirm that more needs to be done to protect migrant workers[23].

4: Good quality housing

The TUC's vision is one of high-quality new housing in mixed developments in vibrant communities. This must be supplemented by continued work on improving the existing housing stock.

We need a new national housing charter that guarantees good quality housing design, which delivers on appearance, space, and layout and recognises that families, and family lives, have changed. For example, housing design needs to reflect the welcome news that average life expectancies have increased.

The proposed eco-towns are welcome, since they will be instrumental in leading housing design towards minimizing its environmental impact.

However, a more general feature of good quality housing is avoiding concentrations of the same type of dwelling. We will also need variety, flexibility and human-sized smaller scale developments scattered throughout existing settlements if we are to achieve better living, neighbourhoods and communities.

Falling house prices present an opportunity for social housing providers to buy private housing. This would help to integrate social housing into broader communities.

We need to build communities, not just housing. For example, in Scandinavia whole developments have been designed and built around the principle of putting the needs of children and young people first. In contrast, whilst Milton Keynes has many strengths it was clearly built around the needs of car traffic rather than children.

Vibrant communities need good public transport links, leisure faculties, health and education services, access to green space, and provision for all age groups from teenagers to pensioners.

They also need to include sufficient social and affordable housing

High quality housing will depend on the establishment of a high quality construction, renovation and maintenance workforce, which must be well trained, have access to trade unions, and enjoy good terms and conditions.

Establishing vibrant communities also rests on ensuring a proper role for democracy in housing. This will include a strong role for local authorities, democratic planning processes, tenants' rights and collective bargaining with the housing workforce.

5: Housing and the labour market

The supply of housing has a number of effects on the labour market. First, the combination of a shortage of housing at affordable prices and strong regional house price variations inhibits the movement of labour around the UK. This contributes to the persistence of labour shortages in some areas and to entrenched pockets of unemployment in others.

This situation has also has a detrimental effect on public services, as large numbers of public service workers are unable to live in the communities they serve in areas where housing costs are high.

Second, as shelter and physical security are such a basic human need, poor housing and overcrowding are likely to reduce a worker's productivity. Housing problems often lead to health problems, are likely to impact on family life, and to crowd out training and lifelong learning.

The housing shortage is also contributing to the growth in commuting times and distances. The average journey to work has increased by 10.5% since 1997[24], whilst the average annual distance travelled to work has increased by 67.6% over the same period. These increases have obvious impacts on congestion in urban areas and on the environment in general.

6: The construction workforce

Construction is an important industry in the UK. The industry's quarter of a million firms make up 8.3% of the nations output[25].

2.3 million people are employed in the industry. Construction workers make up 5.9% of all employees and 22.8% of the self-employed.

Furthermore, the workforce has increased by more than a quarter during the last decade, up from 1.8 million just ten years ago. Much of the increase has been accounted for by the creation of 370,000 more employee jobs (up 33.4%).

Construction workers by employment status and occupation (thousands).

	Employee	Self-employed	Grand Total
1 Managers and Senior Officials	236	58	294
2 Professional occupations	116	15	131
3 Associate Professional and Technical	80	*	88
4 Administrative and Secretarial	128	*	138
5 Skilled Trades Occupations	537	683	1,220
7 Sales and Customer Service Occupations	16	*	18
8 Process, Plant and Machine Operatives	184	37	220
9 Elementary Occupations	167	42	209
Grand Total	1,466	854	2,320

Source: LFS Summer 2007. *Results of less than 10,000 are omitted, as they are not statistically rigorous.

The use of bogus self-employment continues to be a big issue in the sector[26]. It is clearly unacceptable that workers should lose out on employment rights such as holiday and sick pay, and that the Treasury should lose out on national insurance and income tax payments through the widespread use of false self-employment.

Self-employment was already well entrenched ten years ago and has grown more slowly in the past decade, but a 19.1% increase still amounts to an extra 137,000 self employed jobs.

There are some other serious failings in the industry when it comes to workforce issues. These issues are most keenly felt in the house-building sector, where unions commonly say that health and safety and training lag five years behind the broader construction industry.

Most importantly, the industry must take steps to improve its health and safety record; otherwise more house building is certain to mean more deaths at work.

Construction is one of the UK's biggest industries, but 'it is also one of the most dangerous. In the last 25 years, over 2,800 people have died from injuries they received as a result of construction work. Many more have been injured or made ill'.[27]

This casualty rate is clearly unacceptable - 241 workers died in 2006/2007 alone. Trade unions are playing a strong role in helping to improve this record, but could do still more if the 'roving safety representative' scheme was extended. Many small firms struggle to meet the necessary standards since they lack sophisticated management systems. They would benefit from contact with trade union safety representatives, who have undergone sophisticated training in the very issues in which many small businesses lack the vital knowledge.

These issues are exacerbated by projects that rely on excessively complicated sub-contracting chains in order to drive down costs, and this is particularly true in the house-building sector. Unfortunately this practice often leads to loss of proper management control of personnel issues.

In particular, although all house-building companies pay the Construction Skills levy[28], which is used to pay grants to companies providing training, only the biggest six house-building companies actually train any of their employees. Training is regionally skewed, with 7 trainees to every 100 employees in Scotland but only 0.9 trainees to every 100 employees in London. Local authority direct service organisations still play a key role in training, but their role has been under threat in recent years from local authority housing stock transfers to social landlords.

The construction industry as a whole employs about 7,000 new apprentices each year[29]. Construction apprenticeships typically last for 3 to 4 years. The application rate for employed apprenticeship places is 5:1. This is unsurprising, since trade unions have ensured that construction apprentices are paid well above the average apprenticeship rate. The Construction Industry Joint Council agreement sets starting rates for a 16 year old trainee at £3.88 whilst the Building and Allied Trades Joint Council sets starting rate of £4.18. However, these rates increase throughout the apprenticeships, reaching £9.32 and £10.06 respectively during the final year.

However, because the number of employed apprentice places does not meet demand, there are also a large number of non-employed college based apprenticeship places, so that there are currently around 85,000 construction apprentices in all[30]. The snag is that many college-based apprentices are lost to the industry because they cannot find employment opportunities with the training needed to allow them to complete the NVQ element of their apprenticeships.

A further serious problem that the industry must address is that there are too few black or female workers - less than 1 per cent of employees in the skilled construction trades are women and only 2.4 per cent are from ethnic minority backgrounds.

The lack of diversity amongst construction apprentices is even worse, with both black and female workers making up less than 1 per of employed apprentices in the skilled construction trades[31]. This is a missed opportunity that urgently needs to be addressed by the industry.

Improving the skills of the workforce is a necessary condition for the success of the Fair Homes project. The Government has taken some action to try to address this problem, including convening the Construction Sector skills summits of 2001 and 2007. However, it has proved difficult to get more companies to train, partly because of the recent reliance on migrant labour, which unions often say has 'exported the UK construction skill shortage to Poland'. This is unlikely to be a sustainable strategy given that the pattern of migration is likely to change in the near future as transitional restrictions are lifted from some of the old EU countries and the economies of the new member states become stronger.

Industry surveys commonly report that many construction workers are not appropriately skilled. This usually takes the form of an extension of the labourer's role into craft tasks. For example, many labourers are asked to undertake bricklaying, with the qualified craftsperson undertaking only the more difficult tasks such as building wall corners and door and window frames. Clearly there is a financial incentive for some employers to de-skill the industry in this way.

The Government is the biggest customer for general construction. It could help to address the skills shortages in the industry if it were to specify the provision of apprenticeships and training, including diversity targets, in its contracts.

Furthermore, in order to ensure quality employment, public sector contracts for services should specify minimum terms and conditions. Such measures have already been adopted by the local authorities in Oxford and Preston, for example, and are under consideration by a range of other local authorities, some of whom are drawing on the assistance of the recently formed Fair Pay Network campaign group, who are promoting this model.

The construction workforce needs to be fit for purpose if it is to meet the government's house-building targets. This must include better health and safety standards, an end to bogus self-employment and improved training. The latter will be particularly important in minimising the environmental impact of the housing targets, since eco-friendly construction requires a new skill-set.

7: Housing, energy efficiency and the environment.

It is important to ensure that the UK's housing stock is energy efficient and has a low impact on the environment. This is not just an issue for new build as, according to Government's Sustainable Development Commission, 75% of the homes we are going to be living in 2050 are already built[32].

The DTI Energy White Paper 2006 identified improving domestic energy efficiency of existing homes as one of the most cost-effective ways of reducing CO2 emissions, with potential for further cost effective carbon saving potential of some 9 million tonnes of carbon by 2020. Most of the gains would come from improvements in space and water heating and insulation, which together would reduce emissions by 7.5 million tonnes.

The Government's Sustainable Development Commission reported that the potential saving from existing homes' energy efficiency would be 9-19 million tonnes by 2020, which would help the Government to meet its CO2 targets. The government has also acknowledged that cavity wall and other home insulation measures are 'among the best steps that can be taken to improve the thermal efficiency of people's homes'[33].

The current piecemeal insulation schemes, which compel energy companies to set aside a small portion of their profits under the 'energy efficiency commitment' to promote subsidised or free insulation through schemes such as 'Warm Front', miss the opportunities for economies of scale by being means-tested and relying on individuals or landlords to refer themselves.

The Government's Energy Saving Trust published the 'Energy Efficiency Innovation Review' in 2005. This states that 'access to the consumer is a key factor in delivering carbon savings' and adds that 'consumers have poor knowledge of the costs and benefits of measures, and tend to overestimate the costs and installation times while underestimating the savings, and.. . distrust the supply chain'.

The Government's current solution is to modify slightly the existing 'supplier led programme', whilst acknowledging that 'individual energy suppliers working alone are poorly placed to deal with these barriers'. The Government also acknowledges that action delivered through local government would 'create greater trust than the energy suppliers could achieve on their own', but the proposal designed to address this acknowledgement is the establishment of piecemeal council tax rebate schemes.

This piecemeal approach has been particularly ineffective in terms of the private rented sector[34], which has now fallen behind social housing in terms of energy efficiency. Landlords currently get fairly generous grants (£1500/100% tax rebate) on insulation measures but they are still not taking them up. This is partly because it is common for tenants to pay energy bills, so landlords do not gain directly from work that reduces these bills. One solution would be to regulate to require landlords to insulate properties properly when they refurbish.

Furthermore, the TUC echoes Ofgem's recent call for energy companies to be compelled to spend a proportion of the £9bn windfall benefit they will enjoy when the next phase of emissions permits are introduced under the European Union Emissions Trading Scheme, on helping their customers make their homes cheaper and easier to heat, through a mass universal programme of energy efficiency measures.

The TUC also argues that the logical next step, based on the German experience, would be for a Government-led programme of universal insulation measures, which could start in the poorest local authorities, as this would be a more effective way of overcoming all these hurdles.

We might do well to look to Germany for wider inspiration in this area. The German Government has adopted a range of successful policies that eliminated barriers to renewable development. They have set aside £1bn a year for the next 20 years to bring all pre-1978 homes up to super energy efficient standard.

The most ambitious building retrofitting project to date is the German Alliance for Work and the Environment's project to retrofit German homes. The Alliance is a collaborative effort between the German government, unions, NGOs and employers federations.

Since 2001, 1 billion Euros of public subsidies stimulated 5 billion euros in investment and resulted in 200,000 apartment retrofits. An estimated 4 billion Euros through additional tax revenues and savings in unemployment benefits and 2% of annual emissions from German buildings were reduced. The energy efficient measures included improving heat insulation of roofs, windows and walls; introducing advanced heating technologies and controlled air ventilation systems; and using renewable energy such as photovoltaic or solar thermal systems.

Low-interest loans, including those offered through Germany's 100,000 Solar Roofs program, have helped overcome the obstacle of high initial capital costs. Income tax credits drew investments of billions of Euros into renewable energy. But the policy with the greatest impact has been an electricity 'feed-in law' (Strom-Einspeisungsgesetz). The feed-in law requires utility companies to purchase electricity generated from renewable energy sources at an established a minimum price. The law created certainty for investors, led to economies of scale, and to dramatic cost reductions. This was first implemented in Germany in 1990 following the success of similar policies in Denmark. It has been further developed by successive measures, including the Renewable Energy Sources Act in the year 2000.

The benefits of such a programme would be substantial. For example, installing cavity wall insulation in all those homes that do not currently have it, would, at current energy prices, reduce 8.5m householders' bills by £130-160 per year.

This would reduce the pressure on wage inflation caused by rising energy bills, and would help the Government meet its fuel poverty targets they are otherwise likely to miss.

Such a programme would save 4 million tonnes of CO2 per year[35]. It would cost a maximum of £2.5bn. However, as this estimate assumes installation costs of £300 per property and ignores the large economies of scale possible, it would almost certainly cost less in practice.

It would also create at least 37,280 person years of employment (assuming one installation takes 2 people half a day), not including related jobs in training, administration and manufacturing, and the knock on benefits to the economy of lower fuel bills and higher disposable incomes.

The German scheme described above created 25,000 new jobs and saved a further 116,000 jobs that would otherwise have been lost during a recent construction recession.

Taking a more strategic approach in this way would not only generate economies of scale but would also help to ensure that the jobs created have decent terms and conditions. This would be good public policy, as the relatively small extra cost of treating workers properly is offset by the positive effect that this would have on their tax/benefit ratio. From the consumers' point of view, such a scheme would help to ensure quality.

8: The Government's plans for housing

The TUC's analysis of the current situation is that there is an urgent need to build more houses and this must include a sharp increase in the provision of social housing.

The Barker Review of Housing[36] set out some of the issues that the Government aims to address in the 2007 Housing Green Paper[37]. In this Green Paper the Government made a key commitment to increase the rate of house building for the next decade from the present 150,000 per year to 200,000 per year.

The Green Paper increased the existing targets for the medium term and set a number of new ones:

An increase of 3 million more homes by 2020. These are to be 'well designed, greener homes with good transport, school and health infrastructure'.
All new homes are to have zero carbon impact by 2016.
An increase of 70,000 more affordable homes per year by 2010/2011, including 45,000 more social homes.

The 3 million new homes target has been allocated to a number of initiatives around the country:

1.6 million extra homes were already planned in existing regional spatial strategies, including 650,000 in growth area such as Thames Gateway, Milton Keynes and the South Midlands.
150,000-200,000 will be available for a review of regional spatial strategies
100,000 will go into the 45 towns and cities identified as 'new growth points' in 2006. These include Birmingham, Solihull, Swindon, Norwich, Thetford, Lincoln and others. £300 million worth of Government funding will support this initiative.
50,000 will be available for further a round of new 'growth points'. This review will take proposals for growth in the north of England for the first time under this initiative.
25,000-100,000 will be available for five new 'eco-towns'. The Government has recently announced the short-listed bids from local authorities and developers[38]. There will be two further rounds of consultation before the final decisions are announced later this year.
200,000 are earmarked for surplus public sector land, for implementation by 2016.
6,300 are available for small towns and villages. This initiative will be supported by £230 million of public investment to be delivered via the Housing Corporation.

The 2007 Comprehensive Spending Review (CSR) sets out the funding allocations for housing for the period 2008/9 to 2010/11[39]. Public spending on housing is set to increase from the current level of £8.8 billion to £10 billion in 2010/11, which allowing for inflation should deliver a real increase of around 5 per cent by the end of the CSR period. This will be supported by a new Public Service Agreement to increase the long term housing supply and affordability.

The CSR promises to deliver the following targets that constitute the next stage of the increased investment in housing envisaged in the Green Paper:

Funding to deliver progress against the Government's housing growth ambition of 240,000 annual net additional homes in England by 2016
£1.7 billion targeted funding for up to an additional 450,000 homes above previous plans in Growth Areas, Growth Points and Eco towns
£300 million to roll forward the Community Infrastructure Fund to help deliver transport infrastructure in fast growing areas
A 50% increase in social rented units to reach 45,000 new social homes per year by 2010-11, and a goal to reach 50,000 in the next spending review
In terms of facilitating delivery, the Green Paper sets out a process for reviewing regional plans to ensure that they are masking sufficient progress. In addition, the revised planning policy statement on housing (PPS3) requires local authorities to identify sufficient land for the homes needed in their areas for the next 15 years. A new housing and planning delivery grant package worth £500 million over the next CSR period will support this process[40].
If we are to avoid repeating some of the mistakes of the 1960s and 1970s then we must ensure that housing development is always supported by appropriate infrastructure. The CSR allocates £1.7 billion to fund infrastructure in growth areas like the Thames Gateway, Growth Points and Eco-Towns.

The Housing Green Paper seeks views on the introduction of a planning gain supplement, which would allow local communities to receive a share from the significant increase in land values that result from the granting of planning permission. The Government has already announced that it will legislate through the Planning Reform Bill to allow local authorities to make a planning gain charge on new developments.

9: The Planning Bill

Reform of the planning system for major projects is now underway. A Planning Bill that was introduced to the House of Commons in November 2007 had reached committee stage by early February 2008.

The Bill largely focuses on introducing a new system for approving major infrastructure of national importance, such as energy and waste facilities, but will have some impact on delivery of the infrastructure necessary to support housing development through the establishment of a levy. However, the main objective is to streamline the decision making process and avoid long public inquiries. The main proposals are as follows:

A new Infrastructure Planning Commission would take decisions.
Decisions would be based on new national policy statements.
The hearing and decision-making process would be subject to a timetable.
The new regime would be used for energy developments including nuclear power.
The Secretary of State would no longer have the final say on major infrastructure decisions.
There would be a new Community Infrastructure Levy on developments to finance infrastructure. The idea of this would be to raise money from developers to pay for facilities needed as a consequence of new developments, such as schools, hospitals and sewage plants.
Planning appeals for minor developments would be heard by a panel of local councillors rather than by a planning inspector.
A range of organisations has opposed the bill. Their reasons for opposition stem from their local context, but tend to ignore the bigger picture.
It is also the case that the current planning system is not delivering enough land for house building to solve the housing crisis. Clearly the housing crisis cannot be solved without substantial reforms to the planning system.

10: The Housing and Regeneration Bill

Some of the important proposals in the green paper are being taken forward through the Housing and Regeneration Bill that was laid in parliament in November 2007, and completed its committee stage by January 2008[41].

The main points of the bill are as follows:

Establishing the new Homes and Communities Agency, which will be charged with focusing on delivering more new and affordable homes across all tenures and driving and investing in regeneration. The new agency must also support regeneration and 'provide decent places as well as decent homes', for example, by grant funding social housing and investing in infrastructure.
Implementing the changes proposed in the Green Paper to give councils more freedoms and incentives to build new homes.
Making rating against the Code for Sustainable Homes mandatory for new homes
Giving tenants 'more choice and a voice over how their homes are managed', by reforming social housing regulation, with the aim of giving tenants a stronger say in stock transfer decisions by making a tenant ballot mandatory and giving local authority tenants greater powers over options for the future management and ownership of their homes.
Making changes to improve the way that housing services are provided. Issues include creating a level playing field for members of the armed forces applying for local authority housing and changes to improve the way the Right to Buy scheme operates.

11: Risks to implementation

It is important not to underestimate the forces that will be deployed against the Government's housing targets. They are formidable, but they must be overcome if the UK's housing problem is to be resolved.

These forces include: local opposition to particular house building schemes which will make it difficult for some local authorities to meet the targets; the willingness and capacity of the private sector to meet the targets; and the availability of land, labour and capital for development.

In the short-term the credit crunch and falling house prices present real difficulties for the private sector in meeting these targets.

Most people are in a general sense in favour of dealing with the housing shortage by building a significant number of new homes. However, general public support will not always translate into support for specific projects. Specific objections may derive from a number of different motivations, including the not-in-my-back-yard tendency, concerns about environmental impact and loss of the countryside, and the desire of many of the better off not to live in mixed developments. There are strong counter arguments to be made that go beyond the main rationale, which is that a decent society must have decent housing. For example, many house owners currently feel uncomfortable about their children's prospects of being able to leave home and set up on their own.

Local opposition will put pressure on some local authorities to scale down or oppose plans for new housing, so the Government is right to argue that community support must be developed for new housing as part of the general process of strengthening communities.

Nevertheless, there is a need for the proposed new Homes and Communities Agency to ensure that the big picture is not lost. In particular, the Barker report found that many local authorities regard house-building targets as a maximum, and thus tend to undershoot. The democratic process must play a crucial role in ensuring a viable and sustainable planning strategy. However, a way must be found to retain a strong local voice in housing decisions, whilst actually ensuring that the housing targets are achieved.

Second, there is a strong suspicion that the major house-building companies actively manage their output to ensure that house prices are not put under threat by increased supply. Given the current high returns from house-building, it would not be a surprise if house building companies tended to 'satisfice' - to carry on doing what they are comfortable with - rather than seeking to maximise their output.

Whilst it is imperative that development is both sensitive and sustainable, the planning process may be somewhat too rigid at the moment, in that it tightly rations the supply of land available for housing. The major players in construction frequently cite this as the reason why they do not plan to expand their annual output.

However, it is also true that many house-builders 'land-bank' by buying up land in bulk and then using it in a way that suits their preferred speed of development. This process is facilitated by and contributes to rising land prices. The Government should consider taxing land banking where it can be demonstrated to be holding back development.

As and editorial in a leading construction journal put it:

''Kate Barker rightly identified land supply as the main constraint on the delivery of housing.... The aim is affordable homes but the countervailing forces both in terms of cost and accessibility are just as strong today as those which have already reduced house building in England to an unacceptably low level. They won't give way without practical measures for removing them.[42]''

Of course, the most obvious short-term risk to the house building targets is that the current economic slowdown and fall in house prices will tend to make developers build fewer houses, whilst the associated 'credit-crunch' will reduce demand. The TUC wants to see the private sector housing market develop strongly on a stable growth path. To achieve this aim, the Government will need to intervene to support private sector house building and the availability of credit more strongly than in the past. According to the Green Paper, the Government plans to use partnerships, increased public sector investment, changes to the planning laws and 'new ways to identify and release land for development' to get things moving.

This will be a difficult balancing act, since the Government will want to take account of the independent mandate possessed by local authorities. New housing must be built, but it will particularly important to gain the support of local authorities and the communities that they serve in the project.

In some cases, it might make sense for government to take a role in building private houses, particularly when the private sector is demotivated by adverse economic circumstances. One suggestion is that either central government or local authorities might themselves take a role in building houses for sale. In particular, if local authorities were able to take a share of the profits from house-building then this would provide a financial incentive for local people to support development, since the resultant surpluses would have a beneficial effect on both local services and council tax bills.

Piloting such a scheme would also generate valuable insights that could be used to raise the standard of public sector contract letting. For example, it would allow the benchmarking of unit costs. One of the flaws in the 'contract state' model of delivering services through outsourcing is that a gap often opens up between the knowledge and understanding of the government department letting the contract and the company delivering the contract. Some direct involvement in the process could be a considerable corrective to this tendency.

The TUC believes that it is the duty of government to ensure that its citizens are properly housed. There is also an argument that if the government is serious about its housing targets it should at least consider whether it might take a greater role in this highly profitable sector, which would allow for active management of the housing supply by some 'topping up' shortfalls in private sector delivery. Such an initiative could be self-funded from the profits derived from house sales.

If the UK construction sector is to expand its output then it is likely to run up against some labour skills shortages. There is also a danger that, when the economy is growing more strongly in 2009/2010, more house building will mean an increase in construction costs, as the sector tries to achieve a parallel increase in both private sector and social housing building whilst simultaneously delivering prestige construction projects like the Olympics.

The construction industry needs to develop a personnel strategy that will allow it to rise to the challenge. This will mean planning for recruitment that delivers a diverse, well-trained workforce with good health and safety standards.

In short, both active management of housing supply and demand and sound strategic personnel policy are necessary for the housing targets to be met.

12: Implementing the social housing targets

The TUC recognises that the most vulnerable in our society are likely to be the most adversely affected by the current housing shortage. The shortfall of affordable homes carries significant social and human costs, including homelessness and significant deprivation.

The Government must therefore be congratulated for making improvements to the targets for building new social housing and for allocating extra funding in the Comprehensive Spending Review. It is vital that the targets are fulfilled, and that they deliver high quality new homes. However, with ordinary working people priced out of the market in most towns across the UK, house price inflation having massively outstripped wages growth in recent years, ever-higher levels of indebtedness, and the current problems with the housing market, there is a danger that the government response won't match the scale of the problem.

We need a major programme of investment and reform, based on a partnership between public and non-profit bodies, to build the houses that the UK so urgently needs. If the Government is to meet the social housing challenge, they must adopt the following measures:
The Government must enable local authorities to improve all existing council homes and estates and allow local authorities to start a new house-building programme while maintaining adequate revenue for council homes.
The UK's new housing developments should be built on a plural model, so that tenants and owner-occupiers live side-by-side, and schools are able to draw on a much wider social mix.
The Government's affordable house-building programme should deliver both homes to buy and homes to rent at below market prices.
The affordable homes programme should be subject to contract compliance processes that guarantee that workers have access to training, skills and trade unions.
The scope of the 'key workers' scheme should be extended to cover a wider range of relatively low-paid essential workers, such as those in the transport industry, postal workers, youth workers and nursing auxiliaries. The goal should be to improve access to affordable, good quality accommodation within reasonable reach of workplaces and other facilities.
The measures in the Housing and Regeneration Bill that would allow local authority tenants a greater say in the future management of their homes is a welcome one. However, there is a danger that some authorities may try to divest themselves of their stock before the bill becomes law. The government should impose a moratorium on transfers or privatisations until the point when tenants can have a real say in the future of their homes that the Government intends them to bring about.
The TUC does not believe that the idea of a 'Commitment Contract'[43] that would make social housing tenancies dependent on a commitment to seek employment would be desirable. Rather, the TUC believes that the Government should continue to develop its strategy of making work pay.
New legislation is urgently needed to allow local authorities to play their proper part in dealing with the housing shortage. The TUC wants to see local authorities given a real opportunity to retain their own housing stock. They also need to have a level playing field on debt write-offs that is not dependent on transferring stock to a social landlord and to have sufficient investment to bring their housing stock up to the Government's decent homes standard by 2010.

The TUC calculates that about a quarter of the 360 or so British local authorities have transferred their council to RSLs or arms length management companies[44]. However, in around 75 cases tenants have defeated transfer proposals[45]. The trend towards tenants voting against transfers is gathering pace, largely because the Defend Council Housing campaign has been effective in making news of broken promises, rent rises and even the collapse and subsequent local authority bailouts of such housing transfers.

The TUC argues for the construction of a revitalised local authority social housing sector that is directly owned and operated. However, this must simply not mean a re-run of problems of decline and poor maintenance that followed earlier building booms.

Rather, we need a mixture of affordable, social wage solutions to the current housing shortage, including local authority housing, a vibrant Registered Social Landlord Sector with significant increase in the number of new homes for social rent, and more options for real low cost home ownership.

Local authorities setting tough targets for affordable housing in new development would help this process.

However, if private building is set to slow because of economic and credit difficulties, then it makes it all the more vital that local authorities and RSLs will be able to increase their output to deal with the shortfall.

One problem to be overcome for local authorities is that a combination of the right for tenants to buy local authority social housing at a discount and the need to keep rents relatively low often combine to make new directly owned social housing a rather unattractive proposition for local authorities.

The right to buy at a discount was introduced in 1980. To qualify, one must be a secure council tenant for at least two years for long established tenants or five years for those who became tenants after January 2005. Those who transfer to RSL's retain the 'Preserved Right to Buy' (PRB) providing that they are still the tenants of the same property before and after the transfer. The PRB reduces the tenant's discount to take into account the value of improvements carried out by the RSL.

The discounts can be quite substantial:

Those who are eligible under the 2-year qualification rule described above get a basic discount of 32 per cent for houses and 44 per cent for flats.
More recent tenants who are eligible under the 5-year rule have a basic entitlement to a discount of 35 percent for houses and 50 per cent for flats.
In both cases, those buying a house are eligible for 1 per cent more discount for each extra year, up to a maximum limit of 60 per cent. Those buying flats are eligible for 2 per cent more discount for each extra full year, up to a maximum limit of 70 per cent.

Many local authorities now also apply caps to the maximum discount available in many areas[46], which has helped to slow the rate of housing loss.

However, in order to encourage local authorities to build more houses the Government will need to change the balance of incentives to make social housing more attractive. This could be achieved in a number of ways, which might include excluding new properties and new tenants from the right to buy and capping existing tenant's entitlements more tightly.

In October 2007, the Scottish Parliament announced plans to end the right to buy for new council homes. The Westminster Government should consider adopting a similar measure.

13: Financing housing

UK lenders raise finance from a number of sources to fund the mortgages that they provide to individual borrowers. Around two-thirds of mortgage funding comes from 'retail deposits' (e.g. savings) from private individuals.

Savings are not capable of funding the whole mortgage market so lenders also raise funding through the wholesale money markets. They use a variety of instruments to do this, including certificates of deposit, time deposits, commercial paper, inter-bank borrowing, bonds and mortgage-backed securities. Unlike the 'retail option', wholesale funding is typically associated with a small number of high-value transactions.

However, the US sub prime market and the related UK Northern rock crisis have shown that bad lending policies can, to say the least, seriously upset the market.

A very imprudent use of the wholesale facility led to Northern Rock becoming overextended. As it has now been clearly demonstrated that the Government has to be the guarantor for banks and building societies, and thus for the whole mortgage market. The Government should now consider taking proactive action to ensure that sufficient mortgage capital is available, and that it is used responsibly.
Clearly the first priority will be to ensure that financial services are properly regulated. In our view, the Financial Services Authority should have picked up the problems with Northern Rock more quickly. A wide-ranging change of ethos is needed in order to ensue that the regulator is effective. This will need to take into account the fact that some financial institutions seek to undermine the regulator through a range of methods, including actively poaching the FSA's best staff, who are comparatively poorly paid, and through the use of aggressive legal challenges.
There are also a number of things that the Government can do to ensure that there is a sufficient supply of mortgages.
One proposal is to seek to increase the affordability of longer term fixed rate mortgages, which would help to ensure that first time buyers in particular are not too exposed.
More broadly, the Government could take action to make the cost of mortgages cheaper and to ensure that they are well suited to the needs of buyers.
The Government could usefully consider the introduction of a moderate number of state or local authority social mortgages, which could be used to allow first-time buyers on lower incomes to buy homes.
Finally, the Government should do its best to ensure that people do not lose their homes because of a short-term downturn in the economy. The Council of Mortgage lenders reports 27,000 repossessions in 2007, which is an increase of 5,000 is an increase of 952 on the previous year.[47].
However, some predictions suggest that repossession might rise as high as 60,000 next year, which would mean about 120,000 people losing their homes. There must be no return to the slash and burn policies adopted by the banks and building societies during the housing crisis of the early 1990s. The Government must take action to ensure that people with viable mortgages who get into short term difficulties do not lose their homes.
The Government has already undertaken some work in this area, but more needs to be done. The Treasury published a review of housing finance in March, which reached the following conclusions[48]:
The establishment of a working group to take forward market initiatives to improve the liquidity of the mortgage backed securities market. Mortgage debt is often traded in order to raise more funding.
The Government will consult on a new UK framework of fixed interest mortgages, which would rest on lenders insuring themselves against loss via 'call-option' derivatives - wholesale lending instruments with rates that would protect the mortgage lender, as suggested by the Miles review[49].
The Government supports the Housing Corporations approval of two new shared ownership schemes.
The Government will work with the industry to investigate the possibility of developing house price insurance.

The Government also published proposals for a new covered bond[50] legislative regime[51] that could be used to draw investment into housing. The covered bond market was growing until the Northern Rock crisis broke, at which point the market ground abruptly to a halt. The Government will want to ensure that such bonds were set against proper security, thus militating against overoptimistic banks overextending themselves.

However, the March HMT review has ruled out issuing its own derivatives[52], as the Miles Review proposed[53].

Turning briefly now to the transaction cost of buying a house[54], this still amounts to 1.9 per cent of the average purchase price. The Government has made a commitment in the 2007 Housing Green Paper to explore whether schemes like the first time buyers initiative could be treated more favourably for Stamp Duty Land Tax, which replaced the old Stamp Duty in 2003. This would be a useful component of a new deal for housing.

There has been a long debate about the tax treatment of second homes and empty properties. Around 600,000 UK citizens own second homes, including 350,000 UK properties. The Affordable Rural Housing Commission's 2006 report argued that the Government should consider an impact tax on second homes.

Furthermore, according to the Empty Homes Agency, a campaigning charity, there are about 680,000 vacant properties in England. Of these, some 280,000 are privately owned long-term empty homes, which means that they have been vacant for six months or more. Many of these properties are in disrepair, but the incentives of capital appreciation and discretionary council tax discounts on empty homes, which are offered by 50 per cent of local authorities, often combine to militate against these properties being brought back into use.

The VAT rules on housing work are complicated and would bear re-examination. At present, new buildings are zero-rated but labour, goods and materials used in the alteration or enlargement of an existing building attracts 17.5 per cent VAT.

However, listed buildings are exempt as long as the renovation follows the rules, whilst conversions do not pay VAT on labour and materials. Nor do renovations where the building has been unoccupied for at least 10 years. However, renovating a building that has been unoccupied for between 5 and 10 years attracts VAT at the reduced rate of 5 per cent[55].

These rules should be realigned to ensure that there are proper incentives to bring empty properties back into use and to develop extra capacity to house people in existing properties.

Finally, it has been argued by a number of commentators that the increase in the number of rich non-domiciled workers buying homes in London had a ripple effect on prices in the suburbs when prices were rising sharply[56]. Government figures report that the number of non-domiciled residents has increased by 74 per cent since 2002 to reach 110,000 in 2005.

Non-domiciled residents are taxed only on the money they earn in or bring to the UK. Property taxes can be avoided by setting up offshore trusts.

The Government was therefore justified in making rich non-domiciled workers pay more tax, as this is a necessary component in the establishment of a fair housing policy.

14: Conclusions

The Government was right to set increased targets for house building.

No doubt there will be considerable forces ranged against any increase in the rate of house building. There will be those who argue that we need to keep every single green field free from development, and there will certainly be those who say 'not in my back yard'.

The TUC's view is simply that every citizen should have the right to decent housing at a price that they can afford and near to their job. Obviously something has to change in order to allow this simple goal to be delivered. For far too long the static growth in the provision of private housing and the relatively low rate of provision of social housing has left the UK with a housing shortfall that urgently needs to be addressed.

The result has been rapidly increasing house prices in the private sector and ridiculously long waiting lists in the social housing sector.

Lack of decent housing can blight people's lives. It can often have a detrimental effect on health, relationships, employability and the life chances of their children.

As well as the human tragedy, housing problems have been bad for the economy. Poor housing can reduce workers' fitness and motivation, whilst lack of housing reduces their mobility.

This affects both private and public sectors alike. We have long recognised that you cannot sustain a position indefinitely whereby the people who provide key services often cannot afford to live in, or close to, the areas where their services are required.

In addition, rapidly increasing house prices feed general inflation. The Bank of England controls inflation by raising interest rates, which then feed through into higher mortgage rates, which give a second round push to inflation. Controlling house price inflation with interest rates place a real constraint on economic growth and job creation.

Unless the supply of houses is greatly increased we will be condemned to a cycle of boom and bust in house prices.

In contrast, increasing the rate of house building will also create modest jobs growth in the construction industry. There will, of course, be some skills and training and safety issues that must be addressed in order to ensure that this can be accomplished smoothly.

A key point to note is that there is currently a considerable shortfall in the provision of affordable and social housing. In particular, since local authorities more or less stopped building social housing the rate of construction has fallen sharply. We will certainly need local authorities to be given more power to raise revenue and build affordable housing as a matter of urgency.

In short, we need both the private and social sectors to build more houses. We must take care to learn from the mistakes made in mass house building during the 1960s and 1970s, and we must build good homes in the most environmentally sustainable way possible.

However, no matter how much care we take to ensure that these important criteria are met there will be strong resistance to building the homes that are needed which will only be overcome by ensuring that the right incentives are deployed.

It follows that there must be a new deal for housing, which must deliver the following:

Sufficient private sector homes at market rates;
Sufficient affordable homes for sale and rent;
Sufficient social housing, including a strongly revitalised role for local authorities as providers; and
Renovation and modernisation of the existing housing stock.

In all cases, housing should be made as environmentally friendly as possible. This should include a national initiative on renovation in order to maximise economies of scale.

In all cases, the work should be used to generate high-quality well-trained sustainable jobs with access to trade unions.

The Government should continue to work to ensure that the incentives deliver more and better housing.

The medium term plan should include:

Measures to stabilise house prices, improving the accessibility and affordability of mortgages for first time buyers;
Measures to ensure that sufficient mortgage finance is maintained and that mortgage providers are properly regulated;
Measures to encourage local authorities to build and operate social housing; and
Measures to encourage the re-use of empty homes.
The short term plan should include:
Measures to restore access to mortgages;
Measures to ensure that those with short-term mortgage problems do not lose their homes;
The public sector stepping in to plug the gap in house building.

[1] 'Mid Year Population Estimates 2006', ONS 2007. This represents an increase of 349,000 since the previous year.

[2] 'Focus on Families: Rise in Non-family Households, ONS, 2007

[3] 'Northern Ireland Housing statistics 2004/5', Office of National Statistics 2007

[4] Sources: CLG National Rough Sleeping Estimate and 'European Observatory on Homelessness: Statistics Update 2005', S. Thompson, 2005. Note that the rough sleepers statistics are likely to be an underestimate because local authority response rates to the CLG survey are getting worse.

[5] CLG Housing statistics live tables: table 626

[6] CLG Housing statistics live table 26

[7] Overcrowded accommodation is defined as that which fails to meet the CLS' 'bedroom standard'. This standard allows for at least 1 bedroom for each couple or single person, 1 bedroom for each pair of same-sex adolescents aged 10-20, and 1 bedroom for each pair of same sex children under the age of 10 - although an unpaired child can also share with an unpaired adolescent of the same sex. By definition, single people and couples living on their own do not live in overcrowded accommodation since they need only one bedroom, which may be a bed-sit. The most common cause of overcrowding is more than one family living in the same housing unit.

[8] CLG Housing statistics live table 806

[9] See reports by, for example, the New Policy Institute and the housing charity Crisis.

[10] ONS table 6.3 Sales and transfers of local authority dwellings 1979-2003 plus CLG figures for 2004-2006.

[11] CLG Housing statistics live table 209

[12] Shelter Press Release, 19 June 2007

[13] CLG Live Housing Table 701.

[14] CLC Live housing table 704

[15] Derived from CLG live housing table 731.

[16] The average first time buyer currently has a family income of about £35,000, borrows £117,000, which is 90% of the value of the property, and pays 20.6% of the household income in mortgage interest payments (Council of Mortgage Lenders Website, table MR2).

[17] CLG calculates two house prices series. One is a simple mean average of the price of house sales. The other is a 'mix-adjusted' index. This means that sales are weighted against the stock of each type of properties, such as flats, terraced house, semi-detached and detached house and so on. For most purposes the mix-adjusted index is more useful than the simple average of houses sold in any one year, since it is a better reflection of the average value of all house, as the simple index takes no account of variations in the type of properties sold.

[18] The Land Registry House Price Index May 2008 (released June 2008) reports that 53,00 house sales were recorded in England in spring 2007, a fall of 50 per cent from the 106,000 sales recorded in spring 2007.

[19] CLG Housing statistics live table 101 and ONS Mid-year population estimates.

[20] The TUC defines social housing as local authority and housing association homes, which are mostly rented. Affordable housing is a broader term covering anything below the market rate which is made available on a permanent basis to local people who cannot afford to rent or buy housing appropriate to their needs in the open housing market. Thus affordable housing includes social housing.

[21] The Housing Corporation's national core data for local authorities and housing associations, cited in Housing Report to the Migration Impacts Forum,16th January 2008 by Joanne Roney, Executive Director Neighbourhoods & Community Care, Sheffield City Council

[22] 'Migrant Workers Present Housing Challenge for Councils' Local Authorities Coordinators of Regulatory Services (LACORS) website: http://www.lacors.gov.uk/lacors/NewsArticleDetails.aspx?id=17001&authCode=

[24] DfT Transport statistics 2007

[25] BERR website. Gross Value Added measure.

[26] See recent releases from construction union UCATT and general union UNITE. To understand how this problem has become entrenched see 'Report of the Phelps-Brown Committee', R. Lewis, Modern Law Review 32:1, 1969, pp75-80, which is an accessible summary of this key inquiry into self-employment in the construction industry. 'The Impact of the Tax System on Self Employment in the British Construction Industry', G. Briscoe, A. Dainty and S. Miller, International Journal of Manpower, 21:8, 2000, pps596-614 sets out how and why the problem developed from the 1970s to the end of the 1990s. The following figure are also suggestive: 39.8% of self employed workers say that they are running a business, compared with 27.4% of self-employed construction workers. 54.6% of all self-employed workers say that they are single-self employees or subcontractors, compared with 69.3% of self-employed works in construction (Source: LFS Summer 2007).

[27] 'Health and Safety in the Construction Industry', HSE Website article,

[28] Construction Skills is the sector skills council for the construction industry. Trade unions play a role through their representation on this body. The industry has charged Construction skills with collecting a levy to fund training. The levy applies to all construction employers whose wage bill exceeds £73,000 per tear. The levy funded £113 million worth of training grants in 2006 (Source: Construction Skills Website - http://www.citb.org.uk)

[29] Source: Construction Skills

[30] LFS autumn 2007 reports 85,000 construction apprentices.

[31] Ibid

[32] (http://www.sd-commission.org.uk/publications/downloads/SDC-Home-Truths…).

[33] Iain Pearson, Hansard 1/2/07.

[34] 'Energy Efficiency Innovation Review' Energy Saving Trust 2005

[35] Energy Saving Trust estimate.

[36] 'Review of Housing Supply, Delivering Stability: Securing our Future Housing Needs', HM Treasury, 2004

[37] 'Homes for the Future: More Affordable, More Sustainable', CLG, 2007

[38] '15 Locations Short-listed for eco-towns programme', CLG Press Release, 3 April 2008 http://www.communities.gov.uk/news/corporate/737721

[39] 'Meeting the Aspirations of British People: 2007 Pre-budget report and comprehensive spending review', HM Treasury 2007, pps 101-104

[40] Ibid p101

[41] http://services.parliament.uk/bills/2007-8/housingandregeneration.html

[42] 'Building Talk', July 2004 Editorial

[43] Caroline Flint, Minister for Housing, mooted the idea at the Fabian Society conference in February 2008 as part of a speech that largely focused on improving services for social housing tenants,

[44] See ONS table 6.3 'Sales and Transfers of Local authority Dwellings'

[45] Defend Council Housing Website register of 'no' ballots.

[46] 'Your Right to Buy Your Home ', CLG, 2007 edition.

[47] Council of Mortgage Lender tables AP2 and AP3

[48] 'Housing Finance Review: analysis and proposals, HMT, March 2008, pps 57-58.

[49] 'The UK mortgage Market', Taking a longer term view' David Miles, HMT, 2004

[50] Covered bonds are debt instruments secured by a cover pool of mortgage loans, so that the property is collateral. In the event of default, the bond would also become a debt to which investors have a preferential claim. The nature of this preferential claim, as well as other safety features such as asset eligibility and coverage; bankruptcy-remoteness (eg lack of knock-on effects on other enterprises) and regulation make covered bonds very safe, which would be likely to appeal to portfolio investors. Issuing covered bonds enables credit institutions to obtain lower cost of funding in order to grant mortgage loans for housing and non-residential property as well as to finance public debt.

[51] Based on 'Proposals for a UK Recognised Covered Bonds Framework', HM Treasury, 2007

[52] Derivatives are financial instruments whose value is derived from the value of something else, which in the case would be the financial institutions mortgage portfolios. A trustworthy government backed derivative would reduce the risk for lending institutions.

[53] Miles Review Ibid

[54] Costs included in the term 'transaction costs': registration costs, legal fees, real estate agents' fees, transfer taxes

[55] HMRC Website

[56] See, for example, 'spree by super rich raises prices even for first time buyers', Times, 19 June 2007.

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