1. home and garden

Supporting Scotland’s Growth
Housing: The Economic Benefits of Increasing Delivery
May 2015
Executive Summary
Housing delivery has fallen dramatically in Scotland, with recent output almost
10,000 units per annum below the pre-recession peak. If Scotland is to secure
a prosperous economic future and meet the needs of its growing population, it is
clear housing delivery needs to increase from current levels.
NLP’s eVALUATE framework has been utilised to estimate the economic benefits
that could be delivered by increasing delivery rates to 25,000 homes per annum
– consistent with the levels of homes delivered in 2007. This indicates that
increasing supply represents an opportunity to unlock significant benefits to the
Scottish economy in terms of: employment, Gross Value Added (GVA), additional
resident expenditure and Council Tax revenues.
Given the scale of the impacts which could be delivered, it is essential that the
issues constraining supply are resolved. Particularly the need for Local Councils
and Strategic Planning Authorities to carefully consider allocations and assess
the realistic prospects of delivery to ensure housing delivery meets need and
demand.
The Research in Figures
14,900
new homes built in 2013 – lowest level since 1947
25,750
new homes built in 2007
4,400
homes delivered by the social sector in 2013
180,000
£165.7m
£50m
£11.5m
households on waiting lists across Scotland
per annum will be generated in the Scottish economy (direct
and indirect GVA) if housing delivery increases by 10,000
units per annum to the level observed at the 2007 peak
additional ‘first occupation expenditure’ by new residents
(per annum) could be generated by increasing housing
delivery to pre-recession levels
per annum additional Council Tax revenues could be
generated by delivering 10,000 additional units per year
Introduction
Scotland must deliver more new homes in order to help
secure a prosperous economic future. The messages
coming out of Scottish Government are clear in relation
to the economic importance of the house building
sector.
The shortage of housing in Scotland has been driven by
a number of factors, including:
•
Demographic change: the population of Scotland
has been growing since 2000 and this is forecast
to continue, with a further 465,000 residents
projected between 2012 and 20376. The changing
structure of households is also driving additional
demand for new housing;
•
Availability of finance: the legacy impacts of
the recession continue to restrict access to
development finance and mortgages. There are
signs that the latter is beginning to ease7. Initiatives
such as Help to Buy (Scotland) and the recently
introduced £30m fund for small developers can
also have a positive impact moving forward; and
•
Allocation of sites in weak market areas: many
Councils in Scotland are relying – at least in part
– upon allocated sites in weak market areas to
help meet their housing targets. The risks of such
an approach in respect of potential under-delivery
are considered further in the Nathaniel Lichfield &
Partners (NLP) report:
Supporting Scotland’s Growth - Housing: Location
as a Barrier to Housing Delivery in the Central
Belt (which will be published in June 2015)
“A strong and growing house-building industry is
key to Scotland’s future economic prosperity.”
Scottish Government1
In addition, more new homes are needed in order to
meet the needs of the country’s growing population.
Whilst some pockets of Scotland are characterised by
fragile demand and low house prices, this contrasts
starkly with the strong housing markets in locations such
as Aberdeen and Edinburgh. In the UK, only London,
Cambridge and Oxford have experienced a more acute
rise in affordability pressures than Aberdeen over the
last ten years2.
The overall failure – at the national level – of wages to
keep pace with rising house prices in recent years has
given rise to significant social challenges:
Housing:
The Economic
Benefits of
Increasing
Delivery
1
•
It is becoming increasingly difficult to get onto the
property ladder. Scottish residents now expect to
purchase their first home at 33 years3 of age and
it is anticipated that this figure will continue to rise
over time; and
•
There is also an increased strain on social housing
providers. The social housing sector delivered just
4,400 homes in 20134, despite there being an
estimated 180,000 households on housing waiting
lists across Scotland5.
Set against the context outlined above, this report
considers:
•
Current rates of house building in Scotland and
trends in industry output over time;
•
Existing barriers that are constraining the number of
homes being built in Scotland; and
•
The economic benefits associated with securing an
increase in delivery rates.
Housing:
The Economic
Benefits of
Increasing
Delivery
2
The Supply of New Homes
Figure 1 provides an analysis of gross housing
completions8 across Scotland from the post-war
years to the present day. From this it can be seen
that completions of 14,900 were recorded in 2013,
representing the lowest level of output since 1947 and
corresponding to just 57% of the 25,750 units delivered
at the height of the pre-recession ‘boom’ in 2007.
This demonstrates just how acute the impact of the
2008/09 downturn has been on rates of delivery. The
rapid decline precipitated by the recession (with output
contracting by more than 8,000 units per annum in
the space of two years) has stabilised more recently
through delivery rates which have not yet started to
rise, despite improving market conditions. Completions
data for the last three years shows that housing output
has remained broadly consistent at c.15,000 units
per annum, with 15,225, 14,900 and 14,900 units
delivered in 2011, 2012 and 2013 respectively.
In addition to the impacts and legacy of the recession,
the graph clearly illustrates two long term trends with
respect to housing delivery in Scotland:
1. The marked decline of social housing delivery.
Between 1948 and 1975, the public sector
and housing associations accounted for more
than 17,000 new units per annum or 80% of
total new completions. This has contracted
significantly to less than 6,500 new homes per
annum or 20% of total output in recent decades
(1983 to 2013); and
2. The continuous growth – prior to the 2008/9
recession – and increased importance of private
sector housing delivery. Changes to the public
sector funding landscape are likely to place
the onus on private sector developers to drive
completions back up to the levels required to meet
anticipated future need.
Figure 1: Housing Delivery in Scotland (1946 – 2013)
50,000
45,000
40,000
Completions (Gross)
35,000
30,000
25,000
20,000
15,000
10,000
5,000
Private Sector
Source: Scottish Government, Housing Statistics
Housing:
The Economic
Benefits of
Increasing
Delivery
3
Public Sector & Housing Association
2000
2002
2004
2006
2008
2010
2012
1994
1996
1998
1990
1992
1988
1984
1986
1980
1982
1976
1978
1960
1962
1964
1966
1968
1970
1972
1974
1956
1958
1952
1954
1948
1950
1946
0
Housing:
The Economic
Benefits of
Increasing
Delivery
4
Barriers to Increasing Housing Supply
In macro-economic terms, there are clearly ongoing
legacy impacts of the economic downturn which
continue to impact on the ability of some developers
to access finance for development and purchasers
to secure mortgages. The Government is seeking to
address these issues through initiatives such as Help
to Buy (Scotland) and the recent introduction of the
small developers’ element of the scheme. In addition,
planning factors are also a major influence on the scale
of delivery of new homes in Scotland in particular:
•
Housing:
The Economic
Benefits of
Increasing
Delivery
5
The allocation of housing sites in weak
housing market areas. NLP research
Supporting Scotland’s Growth - Housing:
Location as a Barrier to Housing Delivery in
the Central Belt (which will be published in
June 2015) identifies that 37% of allocated
housing sites across the Edinburgh and
Glasgow city-regions are located in the
weakest market areas. This poses a risk to
delivery rates as sites fail to come forward or
do so at a reduced pace that reflects modest
sales figures;
•
A lack of testing of deliverability and/or
viability at the plan making stage;
•
A lack of consideration of realistic timescales
for delivery. Some sites will take a long time
to develop out as they are creating a market
– as they develop over time – in a more
marginal area. By contrast, sites in more
desirable areas will develop out quicker;
•
Alignment of economic growth with housing
growth to ensure one can support the other
and so reduce the need to travel; and
•
Allocating housing sites where the existing
infrastructure can support them or making
allocations of a scale capable of providing
new or extended infrastructure.
Addressing these factors and unlocking higher levels
of housing supply requires a more integrated and
dynamic approach to planning, with an understanding
the economics of housing delivery at the local level. This
must also be reflected in Strategic Development Plans.
Nevertheless, there will be no shortage of those arguing
against individual development schemes or the release
of sites for new housing development. It is clear that
Councils and Strategic Development Planning Authorities
will have to make difficult planning choices in order
to tackle the issue of under-delivery and ensure the
provision of sufficient housing to meet future identified
need.
Within this context, it is important to consider the
economic benefits that can be generated by pursuing
additional housing supply.
Housing:
The Economic
Benefits of
Increasing
Delivery
6
The Economic Benefits of Increasing Supply
Traditionally, much of the debate regarding the
economic importance of housing has focussed on the
structural benefits that can be delivered by securing a
better balance of supply and demand in the Scottish
housing market.
The Barker Review9 and the Scottish Housing Market
Review10 provided a substantive body of evidence,
focusing particularly on the importance of facilitating
labour market mobility and addressing house price
affordability pressures in order to maximise economic
competitiveness. Clearly, these issues remain and it is
critical that they are addressed to ensure the long-term
health and sustainability of the economy.
More recently, the debate has shifted subtly, with a
greater emphasis being placed upon the role that
housing (and the construction industry more generally)
can play in helping to drive economic recovery. The
Scottish Government’s Strategy and Action Plan for
Housing11 recognises that:
“Scottish Government has a keen interest in a
healthy private house building sector, which is a
vital industry in the Scottish Economy”. It also
acknowledges that “getting housing ‘right’
would…enable all of Scotland to flourish”.
The economic considerations outlined above are
inevitably framed at a strategic level. As a consequence,
it can be difficult to relate them to the situation in
individual neighbourhoods and Council areas, where
local planning decisions are made.
At the local level, site-specific debates tend to focus
more on whether additional investment, employment
and expenditure generated by development proposals
will offset any perceived concerns relating to issues such
as traffic, impact on existing services, impact on house
prices, density, impact on views and other relevant
trade-offs.
The SPP provides the national policy basis for
economic benefits to be taken into account in local
planning decisions. Paragraph 29 states that planning
policies and decisions should be guided by a series
of key principles, including: “giving due weight to net
economic benefit” and “responding to economic issues,
challenges and opportunities.”
NLP’s eVALUATE framework (Figure 2) provides an
industry-leading methodology for assessing and
articulating the economic benefits of housing and other
forms of development) at the local level. Drawing upon
NLP’s extensive national experience of advising on the
economic value of development schemes, eVALUATE
seeks to capture impacts that are beyond the scope of
traditional economic assessment.
eVALUATE assesses the economic benefits of
development in relation to:
•
Construction and operational impacts;
•
Fiscal implications for Scotland’s Councils;
•
Wider economic competitiveness and efficiency
impacts; and
•
Wider social and community impacts.
The next section considers the gross economic benefits
associated with increased housing delivery rates. In
calculating these benefits, NLP has applied eVALUATE.
Housing:
The Economic
Benefits of
Increasing
Delivery
7
Figure 2: eVALUATE Framework for Assessing Economic Benefits of Development
NLP eVALUATE Framework
Construction and
Operational Impacts
Construction
Jobs, GVA and
Expenditure
Operational
Jobs, GVA and
Expenditure
Indirect Jobs
and Spending
(Multipliers)
Jobs, GVA and Spending
Fiscal implications for the
Local Planning Authority
Economic Competitiveness
& Efficiency
Social and Community
Impacts
Development
Value
(S75)
Council Tax
and Business
Rates
Restructuring
the Local
Economy
Potential
Catalytic
Investment
Welfare
Expenditure
Skills and
Training
Delivery
of Public
Services
Resources for
Infrastructure
and
Local Growth
Delivery of
Infrastructure
and Housing
Quality of
Place and
Public Realm
Health,
Crime and
Deprivation
Social
Inclusion and
Community
Integration
Improved Public Finances
Local Economic Growth
Improved Community
Wellbeing
Source: NLP
Housing:
The Economic
Benefits of
Increasing
Delivery
8
The Headline Case for Increasing Supply
During the past three years for which data is available,
housing delivery rates across Scotland have averaged
just 15,000 completions per annum. This rate of
output is insufficient to meet need. Indeed, the latest
household projections from NRS12 indicate that the
number of households in Scotland could increase by up
to 20,300 per annum over a 15 year period to 2027.
The NRS figures are ‘policy neutral’ and therefore take
no account of:
•
Economic or social interventions that could drive
the need for housing up beyond this figure; or
•
The requirement to address the backlog of underprovision that has accrued in recent years, as a
result of post-recession delivery rates that have
failed to meet need.
It is clear, therefore, that delivery rates in Scotland need
to increase. What is also clear is that the house building
industry has previously demonstrated the capacity to
achieve this, with pre-recession levels of output peaking
at 25,750 in 2007. This is more than 10,000 units
higher than the level of house building observed in each
of the the last three years.
Output of c.25,000 dwellings per annum should not be
viewed as a ceiling in terms of delivery rates, however.
Indeed, Figure 1 demonstrates the historic success
of the Scottish house building industry in increasing
output year on year (albeit with some fluctuations) over
a prolonged period of time. Nevertheless, a figure of
c.25,000 provides a useful benchmark (underpinned by
recent, demonstrable market capacity) against which to
assess current performance and the positive economic
impacts of increasing supply.
There is a cost to the Scottish economy associated with
delivering 15,000 rather than 25,000 new homes per
annum and this is illustrated in Figure 3 overleaf.
For the purposes of this headline assessment, these
impacts are expressed in terms of: employment in
person-years; Gross Value Added (GVA); expenditure by
local residents; and additional Council Tax revenues.
Housing:
The Economic
Benefits of
Increasing
Delivery
9
All impacts are expressed in gross terms (as opposed
to net additional) and – reflecting the strategic nature
of the exercise – are underpinned by high level
assumptions regarding the economic benefits of each
new dwelling and resident expenditure profiles.
It is acknowledged that there is likely to be some
leakage13 of the benefits identified within this document,
although it anticipated that the majority of direct
construction jobs will benefit Scottish residents.
All figures have been derived using the 2015 variant
of NLP’s eVALUATE model, and values are therefore
likely to increase in scale over the 15 year period under
consideration.
A discussion of the specific impacts that make up the
headline benefits are summarised in Figure 4 overleaf.
Housing:
The Economic
Benefits of
Increasing
Delivery
10
Figure 3
Estimated Economic Benefits
of Increased Housing Delivery
of 10,000 units per annum
1. Construction
12,500 jobs
Direct Employment
[estimated to create 12,500 person years
of construction employment]
(187,500 person years of construction
employment over 15yr period)
13,800 jobs
Indirect/Induced Employment
[13,800 person years of employment
could be supported in the supply chain]
(207,000 person years over 15yr
period)
2. Expenditure
11
Gross Value Added (GVA)
[expected additional GVA p.a. from direct
and indirect jobs]
(£2.5bn direct and indirect GVA over a
15yr period)
3. Local Authority Income
£50.0m
£233.6m
First Occupation Expenditure
(£750m over 15yr period)
Net Additional Expenditure
[by Local Residents]
(£28.0bn over 15yr period)
Source: NLP analysis
Housing:
The Economic
Benefits of
Increasing
Delivery
£165.7m GVA
£11.5m
Additional Council Tax Payments
(£1.4bn over 15yr period)
Figure 4: Commentary on economic impacts of housing delivery
Construction
Employment
and GVA
Housing development can make a significant contribution to the creation of new jobs and
economic output. Delivering an additional 10,000 homes per annum would support:
•
•
•
Resident
Expenditure
12,500 direct construction jobs per year (187,500 person-years over a typical 15 year
Plan period);
A further 13,800 jobs per year (207,000 person-years over a 15 year Plan period) in the
construction industry supply chain and related services14; and
£165.7m of additional GVA per annum (£2.5bn over a 15 year Plan period) generated
by employment opportunities created in the construction industry, the supply chain and
other related services15.
New housing development offers an opportunity to attract new residents and expenditure to an
area, supporting the vitality and viability of local shops and services. This can be particularly
beneficial in isolated rural communities. The scale of benefits will be determined by local
patterns of expenditure and the extent to which new residents are drawn into an area from
elsewhere.
If housing supply across Scotland increased by 10,000 a year and this attracted a proportion of
residents who would not otherwise be living within the individual Council areas or Scotland as a
whole, the additional resident expenditure (at the local level) – aggregated across the Country
– could be as high as £233.6m16.
This represents the uplift associated with increased delivery in just one year. This could
translate to as much as £28bn over a 15 year period, as expenditure related to housing delivery
in a particular year is compounded over the remainder of the period.
First
Occupation
Expenditure
In addition, new housing generates a substantial ‘one-off’ injection into the local economy as
homeowners embark on significant expenditure in order to make their house ‘feel like home’17.
Council Tax
Revenues
New housing development generates increased Council Tax receipts. As recently announced,18
Council Tax payments across Scotland are to be frozen during 2015/16 for the eighth
consecutive year. Increasing the number of occupied homes appears, therefore, to represent
the only mechanism through which Councils can increase Council Tax revenues in the
immediate term.
Increasing housing delivery rates across Scotland by 10,000 homes per annum could be
expected to generate £50m of such expenditure every year. Over a 15 year period, this equates
to £750m. Clearly, any increase in first occupation expenditure offers a further opportunity to
support the vitality and viability of local shops and services.
It is estimated that increasing housing delivery by 10,000 units per annum would generate an
additional £11.5m per annum19 or £1.4bn compounded over a 15 year period20.
The above analysis does not include consideration of other mechanisms through which housing
development can increase Council revenues, including business rates. New housing can support
the provision of additional commercial space either: as part of a mixed-use development; or in
response to increased local population and spending. Under the Business Rates Incentivisation
Scheme (BRIS) all authorities that exceed their annual business rates target are able to retain
50% of any additional income for the revaluation period.
Source: NLP
Housing:
The Economic
Benefits of
Increasing
Delivery
12
Conclusions
Levels of housing delivery across Scotland have fallen
dramatically since the economic downturn and – in
recent years – have been approximately 10,000 units
per annum below the pre-recession peak. In 2013, just
14,900 new homes were built. This is the lowest level
of output recorded since 1947.
Using NLP’s eVALUATE framework, it is estimated that
this could generate the following economic benefits over
the course of a 15 year period:
•
395,000 person-years of employment in the
construction industry and its supply chain;
House prices across Scotland continue to rise –
particularly in more buoyant markets such as Aberdeen
and Edinburgh – driving up the average age of the
First Time Buyer and placing a greater strain on social
housing providers. These pressures will continue until
rates of new house building begin to meet demand.
•
£2.5bn of additional GVA resulting from activity in
the construction sector and its supply chain – this
excludes additional gains to be delivered as a result
of additional resident expenditure;
•
£28bn of additional resident expenditure –
supporting the vitality and viability of local
shops and services and helping to create new
employment opportunities; and
•
£1.4bn in additional Council Tax revenue.
At present, a series of factors are constraining output.
Some are driven by exogenous factors and therefore
beyond the gift of Councils and Strategic Development
Planning Authorities, but others can be influenced by
the planning system:
•
Legacy impacts of the recession and the restricted
availability of credit;
•
The allocation of housing sites in weak market
areas;
•
Failure to understand and rigorously test the
deliverability and viability of sites at the plan
making stage; and
•
The need to better align housing growth with
economic opportunities and existing infrastructure.
The analysis presented within this report provides a high
level estimate of the economic benefits that could be
delivered by increasing delivery rates to 25,000 new
homes per annum – broadly consistent with the level of
output observed in 2007.
Housing:
The Economic
Benefits of
Increasing
Delivery
13
Clearly, therefore, the economic benefits on offer
for increasing levels of house building activity are
significant. Given the scale of the economic benefits at
stake, it is critical that the issues currently constraining
supply are resolved as these will only compound over
time.
This is a real challenge and will require Councils
and Strategic Development Planning Authorities to
carefully consider their allocations, assess their realistic
prospects of delivery and consider further allocations
to ensure that delivery can catch up with need and
demand.
This exercise must be carried out in partnership
between Councils and developers/house builders. The
development/house building industry must be more
proactive in engaging in the process and offering up
rigorous challenge, whilst also presenting real solutions
to the problem. There needs to be sustained and
active involvement in the plan making process to help
affect change.
Housing:
The Economic
Benefits of
Increasing
Delivery
14
Endnotes
1
www.gov.scot/Topics/Built-Environment/Housing/BuyingSelling/help-to-buy
2
Centre for Cities, Cities Outlook (2015)
3
Source: Money Supermarket research, as reported by www.propertywire.com (2014)
4
Scottish Government, Communities Analytical Services (Housing Statistics), Dwellings Completed
5
Scottish Government, Housing Statistics for Scotland, Housing Lists (2014)
6
General Register Office for Scotland, Projected Population of Scotland (2012-based)
7
February 2015 data from the Council of Mortgage Lenders reveals that the volume of first time buyer mortgages in Scotland in 2014 was up 16% on the previous year
8
Scottish Government, Communities Analytical Services (Housing Statistics)
9
Barker Review of Housing Supply (2004)
10
Scottish Housing Market Review (2007) Scottish Executive
11
Homes Fit for the 21st Century: The Scottish Government’s Strategy and Action Plan for Housing in the
Next Decade (2011)
12
Household Projections for Scotland (2012-based) published by National Records of Scotland consider a High Migration scenario. This projects the formation of an additional 305,000 households over the 15 year period to 2027. This equates to average household growth of 20,300 per annum.
13
Leakage effects could include, for instance: resident expenditure being captured elsewhere (such as the North of England); or some of the jobs to be created by new development being taken up by individuals that do not live in Scotland
14
Based upon the application of a cost-per-job ratio for the UK construction industry (Annual Business Survey) and an employment multiplier figure for the Scottish construction industry (Scottish Government Input-Output Tables)
15
Based upon an estimate of GVA per construction employee and the application of an appropriate output multiplier for the industry
16
Based upon the ONS Family Spending Survey (2013)
17
Planitherm Glass research (2012)
18
As recently announced by John Swinney, Deputy First Minister and Finance Secretary
19
Calculated using Council Tax charges for Band D properties. Scottish Government research suggests that the ‘average’ property in Scotland falls within Band D. www.scotland.gov.uk/Topics/Statistics/Browse/Local-Government-
Finance/DatasetsCouncilTax/CouncilTaxByBand201415
20
Housing:
The Economic
Benefits of
Increasing
Delivery
15
It is recognised that the estimated benefits relating to Council Tax revenues assume a continuation of current policy and legislation that cannot necessarily be guaranteed over a 15 year period
About NLP
Nathaniel Lichfield & Partners (NLP) is an independent
planning, economics and urban design consultancy,
with eight offices across the UK.
NLP is currently RTPI Planning Consultancy of the Year
and Just Giving Company of the Year. We are one of
the largest independent planning consultancies in
the UK and we offer the broadest range of skills of
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Our clients include local authorities and government
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Our targeted research reports explore current
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