Recomendations by Economist Kate Barker following her review of housing for the Treasury were published in 2004.

Four key areas of the review were to achieve improvements in housing affordability in the market sector, a more stable housing market, the location of housing supply which supports patterns of economic development and an adequate supply of publicly-funded housing for those who need it.

Given the recent turmoil in the property market, news editor of Localgov.co.uk sister title The MJ, Chris Smith, spoke to her about the current conditions and propsects for the future.

Here we provide the full transcript of the interview.

Q: Has the credit crunch made those four policy areas of your review even more important?

Kate Barker: It's always timely to look at these things.

In terms of affordability with the benefit of 20-20 hindsight I rather wish I'd been clearer about this at the time. The truth is house price earnings ratios are a very crude measure of assessing the climate. It's extremely important to take into account credit conditions.

In general we're seeing falls in housing prices but affordability isn't any better overall.

There are some people for whom it is better; first time buyers who have access to a reasonable deposit but for many people that's not the case.

Overall, affordability - in terms of house purchase - is not really improved by the credit crunch. Nor indeed although it varies area by area, have we seen a decline in rents.

It's important to remember that the private rented sector should have a role to play. We shouldn't always think that home ownership is the be all and end all.

I'm not sure I did quite say that in the report and I think it's important to think about the choice of housing.

Certainly among young people I don't think there's any difficulty in the idea of living in the private rented sector.

Q: What about bringing about stability in the market?

Kate Barker: Well it's clearly not made the housing market any more stable. But I never kidded myself that I could tackle the whole problem of stability through the report I conducted. Probably in terms of stability the more important of the two reports that went on at that time was the one that David Miles conducted on moving to long-term mortgage rates but that was more about permanent changes to the credit facilities.

In terms of location of housing supply the changes we've seen and in prospects of policy have been helpful. I would certainly, as someone who supported the motivation behind PPS 3 and, although it's not popular with everyone but I'm in favour of the shift towards RDAs taking a wider strategic role.

Clearly there's a lot of questions about how they relate with local authorities that play in there. I'm not sure the Assembly-local authority relationship was ever really effective.

I am very supportive of that move although of course we haven't got there yet.

Q: And an adequate supply of publicly-funded housing?

Kate Barker: Well, actually it has made it more important. If we have this fall in supply over the next couple of years, there are going to be all sorts of consequences in terms of access. It wouldn't be surprising to see more people who are squeezed out of the market altogether and difficulty in keeping homeless numbers down. So social housing is going to be very important. It's also going to be quite difficult.

Q: ‘Real' house prices have dropped but the mortgage market has gone with it. One option being discussed in Whitehall and think tanks is whether local authorities should return to offering mortgages to first time buyers. Housing minister Caroline Flint is looking into this option. What's your advice?

Kate Barker: Very wisely nobody has asked me this question on which I'm really a bit beyond my expertise. There is the obvious point that local authorities themselves would have to borrow money to put into the housing market and we can see general reluctance by lenders because they are troubled about risk. You can see that in the way some of the lenders are more reluctant to lend to housing associations. But local authorities are a good risk.

There's a question about whether this overcomes the difficulties in the supply of credit.

There are then issues about the movement of house prices and where risk will stay.

You have to be rather optimistic that it would bring the market up.

I don't have any radical opposition to it. But it is also fair to say the mortgage market is a very different place. It was much more managed in the 60s and 70s. It would be quite a step for local authorities. My feeling is that it's quite a difficult option.

Q: "There are issues around the relationship between the private sector as the main deliverer of housing and Government's objectives, which may not always accord with market pressures." Has regional and local government eased the tension around development?

Kate Barker: Fundamentally, this has to be the case. There isn't an easy way of resolving tensions whoever takes the decisions whether the decision is the RDAs, local authorities or even central government ‘diktats' as they call them.

Whoever does it, it doesn't ease the difficulty that areas are not enthusiastic to major housing developments near them. And to a large extent their concerns are very important. It's very easy to dismiss it all as NIMBY but I've always been clear about this: there are real concerns for people about what it will do to their house prices, what it will do to the infrastructure around them and the look of the land. It's not surprising these issues are contentious.

It is an illusion to think that developments that are put forward that are put forward by local authorities don't arouse considerable opposition from the people that happen to be near it.

Passing round the decision-making doesn't necessarily ease that basic tension. What I would hope it would do is that a good relationship between local authorities and regions would develop more sensible responses to local plans rather than if they come from central government. They will know and understand their areas better. That was the whole purpose behind regionalism and I'm very supportive of it but tensions remain.

Q: There is still a strong regional disparity. We've even had a report saying Government should abandon the north. You called for a stronger role for regional planning bodies. Have we got there yet? Are they having an effect?

Kate Barker: The response to the LSE report was in some sense a bit hysterical. There are perfectly sensible questions to raise about how we think about the balance of development and facing up to the costs and benefits. We might want to recognise it's not costless and that's what the report is drawing attention to.

We were very keen to keep population in the north in northern cities but very reluctant to see population in southern cities expand. Historically cities do grow and shrink.

But the report is a deliberate polemic. I don't think even the authors think we should abandon the north. That would clearly not be acceptable.

With regional planning boards I would hope they would be able to introduce the kind of breadth of policy that would make the efficiency of the spend that we have to do in order to achieve the better spread of economic activity. Part of the challenge of the LSE report is that if we're spending this money it is important that we do it correctly. There are cases where the money spent on regeneration has been incredibly effective and frankly there have been cases where it isn't.

This runs much more widely than just housing. I've never thought that just building housing will somehow make economic activity go there. It's actually quite difficult and expensive to redirect economic activity.

I'm not quite sure we get regional incentives right at the moment but it's important to have them. You always run the risk if you place all of your strategy in terms of one or two big companies. The Seimens semi-conductor factory that opened and shut was a very salutary tale.

Q: Would a return of council housing improve stability and affordability?

Kate Barker: One of the things that was put to me when I was doing my reports, which was quite a long time ago now, was that because councils weren't themselves involved in building any more and therefore they felt it was a cost because even though they were getting RSL supply they didn't have the same nomination rights.

They were not as keen to give permissions. It would be easier to get permissions from councils, easier for them to take a view about putting the land in, if they had direct control over it. I have a little bit of sympathy for that but I don't see we are ever going to have a return to council housing on the scale that we had previously.

RSLs have, I think generally, been a great success generally. It's quite important, and consistent with the work that Hills and Cave did, to think of people having a choice of landlord in the future.

The big return of council housing in places where the council is very dominant in their area would run counter to that.

I do see council housing as playing a role and one of the things we're going to get over the next couple of years is this regulated alongside Registered Social Landlords. That's going to be very profound for the sector in terms of the relationship between the two and the movement of individuals between the two.

That's a pretty important goal and I'd like to see that played up. Obviously local authorities have a role to play there just as much.

Greater flexibility in the ability to move between renting and buying is important.

The agenda of the Tenants Services Authority is a really exciting development and I hope it really will deliver for tenants. I thought Hills and Cave gave us a lot of food for thought about how it can be done better.

Q: "Funding flows need to be more forward-looking, and local authorities allowed to ‘keep' for a period some or all of the council tax receipts generated by new housing. Have we got there on this? Would giving councils greater financial freedom help?

Kate Barker: Wait and see what the review comes up with.

Q: ‘Local authorities should also consider the level of competition in the new build market when granting permissions.' Are they doing this?

Kate Barker: I don't know whether local authorities are taking this into account. That's a good question for CLG to ask.

Competition in the market is quite high for different reasons. A good question is what the housing development industry is going to look like once we're through a period where new supply is going to fall quite sharply.

There is a question about what the Government would like and is there anything it can do to achieve it.

In terms of land we may see opportunities for RSLs, indeed the public sector to acquire some land banks. Perhaps a move more towards a system where developers are just developers rather than active land players. That would be a different industry but, perhaps a more interesting one.

Q: And perhaps a more stable one. An outsider would think it's a crazy business that invests in something and does nothing with it.

Kate Barker: To be fair to builders they tried hard not to invest in it. They tried to option it but they still had to strike deals for the options so they acquired streams of liabilities.

It's true there are different models in different countries and we have ended up with quite an odd one. It's not clear to me how it's played out in terms of efficiency.
It wouldn't be developers doing something with the land market it would be someone else. The land market would be quite a tricky place.

Q: Lib Dem Treasury spokesman Vince Cable has said one option would be for councils to buy cheap properties or land now while it's cheap.

Kate Barker: I'm not sure it would be local authorities. RSLs will be looking to take up that.

The truth is the public sector is not historically short of land. We've had lots of reports on the land holdings of the public sector. The public sector buying up all the land isn't necessarily going to solve the problems. They still have to have a concern in generating a return, the infrastructure costs and funding it. That lies at the heart of it.

Q: There have been protests against eco towns and other big developments. Should the 'Nimbies' take a reality check or are their fears over the loss of countryside justified?

Kate Barker: Two of the proposed eco towns sites are within a 15 mile radius of where I live so I am very alive to the views on eco towns. I drive past the banners saying what a bad idea they are all the time. But the idea of eco towns in themselves – trying to build exemplar dwellings – is a very good one.

There have been some good ones- there are some, not in enormous numbers on the continent.

People tend to quote Sweden and Germany as examples but we are trying to do this on a much bigger scale. The other thing, as I understand it, is that there they have come out of things local authorities have wanted to do.

The idea of them is very exciting. It will be very interesting to see what they are like but just because they are an exciting and innovative way of going forward and developing best practice - but finding out if this model of having people who don't travel so much has traction is actually quite difficult.

The key point is that the fact you're developing an eco-town doesn't make a location that wasn't correct for development before, right now.

The challenge for many of the sites is saying is ‘if it wasn't in the regional plan, why is it right to bring this in now. How does it fit with what else is in the regional plan?'

That is a fundamental challenge.

These are going to be quite expensive to develop and there's always going to be an issue around cost. The are questions around the scale and the location issues but the idea is really exciting. It's a pity it's gone forward in a way that's led to all this opposition.

Q: The popularity of programmes such as Grand Designs show there is an interest in self-building. We're a nation of DIYers. Could encouraging more people to go down this route – and making the system easier – help more people onto the property ladder?

Kate Barker: That's a point I made about whether or not we're going to see a change in the development industry.

If we did start to see, and I suppose I'm struck buy the different way of development in Germany where people buy a plot and develop their own houses, then actually would be quite a good thing to see.

We'd have to be realistic about this though: it's not a magic bullet to provide all the answers. It doesn't get around the infrastructure costs

The only thing you would save on is the building costs and the economist would say it's not a saving because you could be doing something else. You would save the developer's margin but in terms of infrastructure costs and the impact on an area those would remain.

It would make people more interested in design because they would be designing their own home. I think there's some interesting things around self build.

It doesn't solve the fundamental problem of land and infrastructure which lies behind everything. It's ensuring you are able to have the right quality and infrastructure to meet the rising population.

There's questions around how the credit market will move over the next five years and how much of the costs new development is going to bear. There's some hard questions there.

Q: You also raised concern about the quality of house design. Has the quality improved?

Kate Barker: The main thing that strikes me about the homes I look round, frankly, is their size rather than their design. Some of the new market homes are just not very big.

Are designs better? There's been some pretty depressing reports from CABE. I don't think they are.

Design isn't about whether it looks nice it's about how it works inside and whether people like it.

In terms of quality I was quite struck by the Office of Fair Trading report about how people moving into new homes felt. On the whole it wasn't too discouraging. There were a few examples where people had moved in and had real difficulty and it took a long time to get them fixed. My feeling is that it suggested things weren't too bad.

There are all sorts of tensions here about whether we should be building things that look vernacular or modern. Maybe it's because by and large people don't like things that look quite modern – the shock of the new.

There are still questions about access to green space. Useable recreations for young people to play in still is something that doesn't exist in a lot of places. There's a natural tension where go to some places and parents complain about the noise. But I always find green spaces that have signs saying ‘no ball games' quite depressing. We live more closely together so we have to think how to be more tolerant of each other.

Q: Five years on do you think things have changed for the better?

Kate Barker: The case for greater supply is more widely accepted across the political divide. Most people will still recognise that it's there. There are still issues around the density of building and how we use that land.

Even organisations such as the CPRE recognise that we need to build more. That's very encouraging. There's been lots of work done on supply and the review of rural housing which all revolve around this theme.

The trouble is that plans and planning move very slowly which while in the long run may open up opportunities to think about things differently, in the short run it's opened up a series of quite acute problems to focus on.

It's important that the Government doesn't just focused on the short-run. It's just as much about how when things improve we're able to get supply up afterwards. That's terribly difficult. It's around whether planning obligations will have to be renegotiated on some sites because economic conditions have changed. And construction skills which are incredibly difficult to resolve – how you keep the right sort of people in the industry. I hope the Government are looking at this quite hard. I'm pretty confident that they are not just thinking about what's going on now but about how to get the up-turn right.