Wednesday, 04 March 2015

Blind alley

From: Inside edge

What happens if this is just the start of the fall in home ownership? That’s the sobering question raised in a new report out today that begs huge questions for social landlords, potential investors in private renting and above all the government.

The End of the Affair, a joint report by Andrew Heywood from the Smith Institute and Genesis, concludes that the ‘age of aspiration’ promised by Grant Shapps soon after he became housing minsiter is not going to happen.

‘Most citizens would welcome the opportunity to live in an “age of aspiration”,’ he says. ‘However, few would argue with the assertion that aspiration infinitely deferred is a wearying blind alley.’

Instead, on current trends, there will be 1.9m fewer homeowners in 10 years’ time as owner-occupation’s share of housing falls from the current 67% to more like 60%. And they will end up in a private rented sector that will rise from 16% of the housing stock to more than 24%. As I’ve argued before, private renting has probably already over-taken social renting in England. 

Of course what seems obvious on current trends may not turn out quite like that - just ask Gordon Brown who promised in 2005 that there would be 1m more homeowners by 2010 and instead created 1m private tenants.

But Heywood argues that the decline of home ownership is being driven by fundamental social, economic and market forces including unaffordable house prices, radical change in the mortgage market, rapid formation of single households and rising migration and the erosion of job security. Add soaring personal debt, tax concession for private landlords, an ageing population and declining pension provision and you can see what he means. 

For government, that means recognising that its commitment to extend homeownership is unrealistic unless it is prepared to invest lots of money (for example with relief). ‘In these circumstances, government must find a way to manage down popular aspirations to attain home ownership if widespread disillusion is to be avoided.’ 

It makes it even more urgent to find a way to unlock large-scale institutional investment in private renting and a way to boost housing supply without expanding owner-occupation or major government investment to drive it. 

For housing associations, it may mean moving into private renting rather than relying on the return of the old low-cost home ownership cross-subsidy model. And, in the absence of the political will for large-scale investment in social renting, asking what happens once the current surge in affordable housing completions runs into the buffers.

For all of us it means asking what new social vision will replace the one that has dominated the last 30 or 40 years: rising home ownership and individual prosperity combined with a reduced role for the state and greater individual responsibility.

All of which begs lots of questions he doesn’t really answer. Will things settle down into German-style levels of home ownership and private renting? Or will those millions of new private tenants start to wonder about the fact that previous generations have done very nicely, thankyou, out of rising house prices and then pulled up the ladder behind them?

Readers' comments (13)

  • Whilst I agree that more homes for fair rent need to be built and that home ownership may not be for everyone, this Government and previous have failed to acknowledge the money wasted in social housing that could have been better spent – over-running costs on PFI, DHS, costly affordable ownership schemes, very little built in decades.
    There are better ways for the Government to spend the housing budget to improve current tenants ‘lot’ i.e. a portable discount so that working, non sub-prime tenants can buy and vacate their socially owned home for a waiting list applicant – this has to be better value than the current home ownership schemes and has a quicker turnaround potential.
    Also, although there is a need for more rented social accommodation, this has implications for the Government re: tenant not owning at the other end of their life-scale. If still in rented (PSL or RSL) at age sixty then likely to need full / part HB – 15 years at say £100 per week is £75k out of Government purse – on housing alone. This would not occur if property owned ( but does hi-light the disparity between home owner and renter as does HB awards when home owner suddenly unemployed).
    Why can’t the Government direct that in social housing, part of the current rental element has to be set aside (in some type of insurance / ISA type product) by the RSL in order to cover the HB need in later years?
    For the Government finances (which affect all our taxes, living standards) surely state funded home ownership / building is better than state funded HB for PSL rent levels?
    The current policies will do nothing to alleviate the situation (housing crisis) and show the Government does not have a real grasp on the problem or a strategy to deal with.

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  • "Also, although there is a need for more rented social accommodation, this has implications for the Government re: tenant not owning at the other end of their life-scale. If still in rented (PSL or RSL) at age sixty then likely to need full / part HB – 15 years at say £100 per week is £75k out of Government purse – on housing alone. This would not occur if property owned "

    True yet not the case. If would probably require 10 years of self-funding by the owner and then them paying £20 - 30k a year for the last 5 years in a care home after having been forced to sell the asset that is their home.

    Back to the main thrust of the blog and the reality is that there is a fundamental shift in the ownership / rental of housing as the variables that allowed the expansion of home ownership such as availability of RtB, mortgages and many others are noticeably absent and not available.

    The reality of the public purse cost can be seen already in the first 10 months of this government. 300,000 more PSL tenants claiming HB and these make up 71% of all new HB claims. This trend has seen the overall HB bill rise dramatically and added billions of public purse cost already - unnecessary cost as we could build 60,000 council houses a year for the same cost and have 60000 more national assets.

    The future is highly likely to see even more public purse costs wasted on very expensive private housing costs through HB(LHA) and create even greater dependency in terms of employability and also increase welfare benefit cost.

    That all has to be paid for by Joe Public and means simply we all pay more taxes to fund what is essentially short-term private sector profit.

    The argument for developing council housing is not an ideological one but a common-sense financial one that is in the best interest of every tax payer.

    The financial imperative is that increased council housing is good for the country is more true today than it ever was in its Keynesian heyday. Yet any attempt to discuss the issue sees it being labelled as loony left wing propoganda - in other words those captivated by the rule of the market have closed minds and wont entertain even discussing it.

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  • An owner will have either paid their mortgage by retirement / invested to do so – I’ve already detailed disparity of home owners ‘lot’ in HB rules – the home owner has no choice other than to self-fund. The rental tenants cost the Government between ages 60 to 75*, the home owners do not – therefore “This (finance need by tenant from Government) would not occur if property owned”.

    *75+ more likely to be the age of nursing home need, if any, no matter how funded for any tenure types.

    I have suggested a ‘light’ example – retirement age is not 60 for most and I have also suggested a ‘light’ example cost wise re: rent – many rents far exceed £100 per week.
    Most rental tenants will have a HB need either continued or started at retirement age (if they had high private pensions and the salaries that had allowed those, then unlikely to have been in renting in first place).
    The blog is written against a backdrop of low fair rented availability, housing costs, austerity, VFM and in trying to minimise cost to public purse, the Government should include minimising HB need for what is likely to be a long term unchanging set of financial circumstances (age 60 – 75) and therefore a permanent requirement of HB. Possible solutions - ownership / some type of (as suggested) investment plan for social housing tenants early on in their tenancy / rents so low that tenant can meet out of state pension / minimal HB.

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  • * +

    I think a form of private sector intermediate accommodation for single and couple housholds is needed- self contained flats offered at affordable rents that would enable those who aspire to home ownership to be able to save and move on in due course, but those who are never going to be able to own a home to have a decent home with rent they can manage.
    During the boom years many of the major housebuilders threw up a great many first-time buyer developments but for many the mortgages for these are unobtainable and buy-to-letters mopped up as many properties as the FTBers.

    If these schemes were built and managed purely to rent a great many singles and couples would not have to run the risk of living at the whim and mercy of unregulated private landlords.

    In my view the government should be encouraging this sort of development, not simply allowing private rents to go unchecked at the same time as locking many low income and small households out of any kind of secure accommodation.

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  • Chris

    keepingitreal - are you moving towards recognising the advantages of rent regulation? That way private landlords could still make a profit whilst their rents become more affordable. It also means that the get rich quick, normally appalling, landlords will not be as interested, improving standards in the private rented sector as the sharks find another group of public to exploit.

    As you say, the answer is the build more homes. This is logical, as it moves towards meeting the demand, and again reducing costs.

    So, building to increase supply and regulating rents is the way forward - an argument that seems very familiar, and an argument that is gaining realisation as the cure to our problems.

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  • keepingitreal | 16/06/2011 11:52 am

    Good points.

    and give working tenants £75k to move out of socially rented home and free up for waiting list applicant, provided:

    working tenant not sub-primes (thorough checking needed);

    clause that they cannot have any type of social housing tenure for x years (have known RTBuyers sold up and back in social housing within 3 years - double whammy).

    This would need some assessment but seems cheaper than Government funding SO schemes that occupant will never fully own, expecting low earners to enter HB system so they can fund 80% rents which in turn adds on to Government outgoings.

    The turnaround in this type of TIS would also be quick in regard of moving property market, emptying social homes.

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  • Chris

    Can you please point me to an example from economic history where regulating the price at which something can be sold has led to an increase in its supply?

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  • Chris

    1950's - housing - Great Britain

    Next question Una?

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  • 1950's

    - private rented housing was regulated and supply fell.
    - public housing was regulated and subsidised and supply did grow.
    - private housing was unregulated and subsidised (via consumer subsidies) and did grow.

    Therefore regulation alone will not (as you bizarrely assume) increase supply.

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  • * +

    I'm not entirely sure about regulating rents- it is a way forward, but, there will always be people who want to living in expensive luxury lets, and how to exempt them would probably be a problem, but on the other hand the buy to let boom has created a large number of landlords with mortgages, want to make a profit and advertise 'no dss'. There is nothing wrong with people wanting to make sound investments in property but between the buy-to letters and the slum landlords the standard of the properties varies from great to awful. I'm no expert, but I think rents should be capped based on faciilites- those with more and better can charge more than lose with less and worse. Landlords already have to have EPCs and gas safety checks, so why not expand this into a point-type system based on the condition of the property? If a property is really good and it's owner looks after it, he can charge more, if not, less. Many people then looking for a long term low cost rent can then choose- they can rent a cheap and basic property whilst saving up to buy maybe, or they can pay more and have a better one.

    I'm sure there are pitfalls with this suggestion...but I think it';s better than the silly 30% system!

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  • Instead of accepting developer provided shared ownership units as discharge of their s106 obligations – where these are unsuitable because of location, high property values, service charges, high residual rent charges and facilitating lots of un-mortgaged equity on the balance sheet of the participating RP – negotiate as a commuted sum equivalent to the cost to the developer of the otherwise on site provision, and invest this in a bespoke open market shared equity product....( like the ‘MyChoice’ Homebuy model). Prioritise and approve applicants with all the local conditions you want, who then purchase at least half of what they want where they want or need it to be applying all their own priorities just as any other open market buyer would.... They can buy new build but they get better value in the traditional second hand market! The product is also discreet as no one needs know their business – no banners identifying them as recipients of assistance – a horrible consequence on new build sites where affordable units are clearly identified on site/sale maps. After all who in the real world shares information about how they financed their purchase with all their neighbours? Open market products like this enable LAs to retain control or the value of the developer contribution in perpetuity unlike many recycled receipts policies of RPs who ring fence regionally – thus many LAs losing the benefit especially if new new-build development opportunities for RPs are limited in their area....hence the subsidy hard fought for in the planning negotiations are lost to the authority through the back door. Shared equity schemes allow for the developer subsidy to be reinvested time and time again, even ported with the family when they move if they still need it (we all know that trading up within shared ownership is virtually impossible) – inflation proofed as well as sharing the risks of negative equity trap. Drip feeding the open market with FTBs in this way also stimulates movement in a way that FTBs buying new build shared ownership will not.
    Next challenge is to find a realistic way to provide rented options in the market, integrating tenures and tenure change within the existing second hand stock.... management and maintenance issues make this more complicated....

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  • Don't know the details but is Wandsworth Council in positioning for £50k as deposit for RTB / portable TIS?

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  • Chris

    Una - are you denying the existance of the largest ever house building programme in Britain then - how ridiculous.

    Nothing is as simplistic as can be phrased in a couple of sentances, but the historical fact remains that the largest growth in the housing sector was at a time of social investment and rent regulation. Both these tools are available currently, the only thing stopping the current shower from using them is that it would reduce short term profitability for a handful of investors.

    It is about priority setting and that is the honest truth - if the Minister could be honest about his priorities then perhaps he could at least be respected for them.

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