The UK Experience by Malcolm Morley*
The credit crunch is taking its toll. Banks are posting record losses arising from their support for unrealistic multiples in lending to people trying to buy houses that had become unsustainably expensive. They are now reluctant to make loans to each other or to people who do not now have a significant deposit for the housing that they want to purchase.
Ministry of Justice figures released in August 2008 showed the number of court orders for mortgage repossessions in England and Wales rose to 28,568 in the three months to the end of June 2008. This was 24 per cent more than in the same period a year ago and was the highest since the third quarter of 1992, when 30,587 orders were made.
Building sites for housing that have not already been started are not being started. Those where the building can be stopped are being stopped.
House prices are starting to fall. The housing market has started on its correction course.
Builders and financial institutions are calling on Government to intervene to prop up the housing market. They are asking Government to underwrite risk and to make it easier for people to go back to the unsustainable levels of borrowing and house prices that have caused the record levels of repossessions!
At the time of writing the Government has resisted this temptation. It is, however, seeking to develop a range of initiatives to support those in financial difficulties and to switch a significant proportion of its available housing finance from commissioning houses to be built to buying housing that builders cannot sell.
There are dangers in the use of public sector funds for the purchase of private sector speculative development. The biggest danger relates to the most important objective of the investment of public funds in social housing – the creation of mixed communities.
Long battles have been fought with housing developers in the past to prevent the social housing being clumped together in the worst location on sites. The aim has been to support the creation of mixed communities with different housing types mixed together providing a range of socio economic profiles as part of the same community.
If the only real player in the local market is that funded by the public sector, developers will want to change the mix of housing they are building to increase the number of social housing units.
They will also want to sell all of the existing lower specification housing for social housing. If this happens it will frustrate the objective of creating mixed communities. There will be a real danger that the problems created in the past where large council owned estates were built, which saw a concentration of social housing with attendant problems, will be recreated.
There are no easy answers to the housing correction that is finally taking place. It has to be hoped, however, that councils can be influential in raising the danger of the undermining of the creation of mixed communities through redirected public sector funding in purchasing and commissioning housing developments.
*Malcolm Morley is Chief Executive of Harlow District Council and can be contacted via the Editor, email info@lgfocus.com.au The views expressed in
this article are not necessarily those of
his employer.
