Posted by: Jules Birch25/10/2011
How do you get the genie back in the bottle? How do you reverse the shift from bricks and mortar to personal subsidies that’s happened over the last 35 years?
For me that’s the most interesting question posed by the IPPR in a new report out today on how to fund new housing supply.
The think-tank assesses all the options at a time when there seems little option of a straightforward increase in public investment but focuses in on three main areas:
- Institutional investment - by domestic pension and insurance funds in general and local authority pension schemes in particular
- A more active role for local authorities - freeing up their land for developers in return for an equity stake, pressuring others to develop private land in a ‘use it or lose it’ approach and piloting land auctions
- A long-term reversal of the shift to a demand-side subsidy system.
The IPPR sees those, plus further work on the idea of a National Investment Bank and reform of the development industry, as the ideas with the most potential for generating new supply.
Some of it is familiar stuff (as I’ve blogged before waiting for institutional investment in private renting is much like waiting for godot) but the proposals on shifting back to bricks and mortar subsidy are much less so.
The shift to personal subsidy has been the orthodoxy under both Conservative and Labour governments ever since the big cuts to the local authority building programme began in the wake of the financial crisis in 1976. Some 35 years later, and in the middle of another financial crisis, could it be time at last to consider whether this was such a good idea?
Yes, says a quick look at the numbers on supply. We’ve rarely come close to achieving the IPPR’s estimate that of the 250,000 new homes a year we need in the 35 years since the council house building programme was cut.
No, says recent government policy. Affordable rent is a shift even further towards personal subsidy and even if higher rents mean extra borrowing capacity the programme also requires the conversion of existing tenancies to higher rents. Money saved from cuts in housing benefit could have been ploughed back into new supply at higher rents but is instead being used to pay down the deficit.
And yet the policy has left us with a massive and politically contentious housing benefit bill and has also reduced new supply. The IPPR investigates six options for resetting government spending:
- Setting a single housing strategy and budget across government. Tax breaks, capital investment and benefit spending should all be drawn together to let informed decisions be made across government.
- Regulating rents. A nationally agreed framework for the social sector and a system that goes further than the LHA caps in the private sector.
- Reducing housing benefit expenditure. The idea is to release money to finance new supply but ideas such as not paying full benefit for the more expensive properties and setting a fixed envelope for housing benefit spending would still be contentious to say the least.
- Dealing with private landlords. Could the government leverage a greater impact from what it spends in the private rented sector? Private sector leasing schemes could be expanded to guarantee income streams for landlords in return for lower rents and the savings ploughed back into new supply. Perhaps bricks and mortar subsidies could even go to private landlords, as in Germany where ‘social housing’ includes homes with subsidised rents provided by social landlords for a period before they revert back to full rent.
- Giving social landlords more freedom to use their rental income. Could the government take a tougher line on what it gets in return for its housing benefit spending?
- Localising spending on housing, starting in London. Local councils or consortiums of councils and landlords could be given responsibility for spending on housing benefit and investment and the power to make decisions about whether to subsidise rents or new supply.
Just that brief overview reveals the size of the obstacles in the way, especially during the transition. Even if the proceeds would be ploughed back into new supply, many people will feel that further cuts in housing benefit and fixed budgets are steps too far.
And yet as the IPPR argues: ‘We are currently stuck in a negative cycle, delivering poor value for money for the taxpayer: not enough housing supply, rising house prices and rents, poor work incentives, unemployment and an ever-rising HB bill. We need to aim for a positive cycle, delivering better value for money: higher house-building, stable rents, better work incentives, higher employment and a lower HB bill.’
Rival think-tanks on the right have been making the running with their arguments that all social housing is ‘subsidised’ and that the solution to the crisis is an even greater shift to personal subsidy. It’s good to see the left begin to articulate a response.
From Inside edge
Housing commentator Jules Birch puts the latest news in context