Kate Barker’s review of housing supply was finally published this morning and recommends a radical shake up of the housing market and policy changes beyond those already being implemented by government.

The review says that to reduce house price inflation to between 1.8% and 1.1% Britain would need to build 70,000 to 120,000 extra private sector homes a year.

Kate Barker, a member of the Bank of England's Monetary Policy Committee, was asked by the chancellor last year to examine problems with Britain's housing supply and her recommendations are widely thought to have influenced the Chancellor in his Budget thinking to be revealed today.

Launching the report, Barker said: “I believe that continuing at the current rate of house building is not a realistic option, unless we are prepared to accept increasing problems of homelessness, declining affordability and social division, decline in standards of public service delivery and increasing costs of doing business in the UK.”

“Creating a more flexible housing market is a considerable challenge that will require concerted action by all players: government at national, regional and local level, the building industry, and those engaged in social housing provision.”

The Review sets out three scenarios for England’s housing requirements in the future, two of which would require policy changes beyond those already being implemented by government.

Taking as the baseline the level of private sector build in 2002/03 (140,000 gross starts and 125,000 gross completions) it is estimated that:

• Reducing the price trend in real house prices to 1.8% would require an additional 70,000 private sector homes per annum; and
• More ambitiously, reducing the trend in real house prices to 1.1% would require an additional 120,000 private sector homes per annum.

An increase in supply of social housing of 17,000 homes each year is required to meet newly arising need. Making inroads into the backlog of the most needy, coupled with the Report’s range of future price scenarios, mean that up to 23,000 additional social homes per annum would be required.

These scenarios imply additional investment, building up to £1.2 (and £1.6 billion respectively), not all of which should necessarily come from government.

The Review’s scenarios set out choices for government, which needs to consider the appropriate balance between the objectives of macroeconomic stability, market affordability, meeting housing need and environmental sustainability. This is likely to require further action from government, building on the achievements of the Sustainable Communities Plan and the planning reforms already underway.

Local authorities should be allowed to 'keep' the council tax receipts from new housing developments for a period of time to provide incentives for growth and to meet transitional costs associated with development, say the report.

And the review also recommends the government look at taxation for new housing and land used.

“Landowners and developers typically make windfall gains as a result of residential planning permission being granted, especially where this is on greenfield sites,” says the report. “These windfall or development gains result from the increase in land values, as land for housing is worth up to 300 times more than agricultural land. It is right that the community shares in this increase in value, which could provide funding for other policies important to increasing housing supply.”