More new homes to stop soaring house prices

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More than a million extra new homes should be built in England during the next 10 years to bring down soaring house prices, a leading Bank of England economist advised the Government yesterday.

More than a million extra new homes should be built in England during the next 10 years to bring down soaring house prices, a leading Bank of England economist advised the Government yesterday.

Kate Barker, a member of the bank's Monetary Policy Committee which sets interest rates, said in a major review of housing supply commissioned by the Treasury that a "step change" was needed in the level of house building.

Continuing the current low rate was "not a realistic option", she said, adding that it would lead to "increasing problems of homelessness, declining affordability and social division".

The review stated that the 175,000 houses built in the UK in 2001 was the lowest annual level since the end of the Second World War, and during the past 10 years the number of houses built had been 12.5 per cent lower than in the previous decade. The shortage meant property was becoming increasingly unaffordable, with only 37 per cent of households in England able to afford to buy a house in 2002, compared with 46 per cent in the late 1980s.

The increasing polarisation between haves and have-nots in the housing market was evident, she said, in the rising numbers of people in temporary accommodation - 93,000 in 2003, compared with 46,000 in 1995.

Ms Barker's recommendations, in her report to the Chancellor, Gordon Brown, and the Deputy Prime Minister, John Prescott, who is responsible for housing, were welcomed by house builders but greeted with dismay by environmentalists.

A spokesman for the House Builders Federation said: "The report confirms that the only solution to Britain's housing supply crisis is an increase in housing provision, and a planning system that allows these new homes to be built. It also confirms that housing undersupply has a long-term and direct impact on house prices.

"Rocketing house prices are causing serious social and economic problems, not least for aspiring first-time buyers who are being denied a foot on the housing ladder."

The Campaign to Protect Rural England said that government acceptance of Ms Barker's recommendations would create "an unnecessary environmental disaster, placing huge areas of countryside at risk". Neil Sinden, the policy director, said: "England is the most built-up country in Europe, yet the quality of our big cities and urban living lag behind the rest of the continent."

Ms Barker called for between 70,000 and 120,000 extra houses to be built in England every year for the next 10 years, on top of the present baseline, which in 2002-03 was 125,000.

The new homes, she estimated, would bring down the long-term increase in house prices which, during the past 20 years, had been 2.7 per cent annually in Britain, compared to the European Union average of 1.1 per cent. Building an extra 70,000 houses a year would reduce the rate of increase to 1.8 per cent per annum, and building an extra 120,000 would bring it down to 1.1 per cent.

The increases she recommendedcould be consistent with the Government's target of building 60 per cent of new homes on brownfield land and none would necessarily have to be built on the green belt.

There would be some implications for the environment, but these would not be "extreme". Ms Barker said: "If you did all the extra house building in the south-east of England - which I am not recommending - over 10 years it would only take up three-quarters of 1 per cent of the land area."

Besides calling for extra homes, Ms Barker recommended changes to the planning system to make development easier, and suggested a windfall tax, to be paid by landowners and developers, on the substantial increase in value in agricultural land when it received planning permission for building.

Planning bodies needed to take greater account of the market when setting targets for new homes and allocating land, she said, and local authorities needed to be given incentives to support new developments.

The main thrust of Ms Barker's report was accepted by Mr Brown in his Budget speech and by Mr Prescott, although both men stopped short of endorsing her actual figures.