Inside edge
Cash injection
Why haven’t record low interest rates generated more of a boom in the housing market than the one that’s now hit the buffers?
The latest Nationwide index published this morning shows that prices fell 0.9% in August following a 0.5% fall in July. Until now it has reported markedly more buoyant results than the rival Halifax index.
Comparing the Nationwide’s last three months with the previous three, prices flat-lined and anything other than a sizeable increase in September will see that measure enter negative territory for the first time since May 2009. The annual rate fell to 3.9% from 6.6% a month and that too could go negative within the next few months on current trends.
But all this is happening at a time when home owners are substantially better off. In September 2008, the average interest rate for a variable rate mortgage was 5.9%. It’s now just 2.8%.
That means anyone taking out a 75% mortgage on a house priced at the Nationwide’s current average of £166,507 is now paying £579 a month rather than £796 a month. They are £217 a month or £2,604 better off. (Compare that to the £600 a year cuts facing tenants on housing benefit).
Nationwide says the falls are due to the unwinding of the supply-demand imbalance that drove up prices last year. Rising prices encouraged sellers back into the market and buyers have more bargaining power. The falls are a correction in a market that had got ahead of the recovery in the wider economy.
Another big reason is the sclerosis in the mortgage market and lack of entrants. First-time buyers are finding it virtually impossible to get a mortgage without family help with a deposit and Bank of England figures earlier this week showed a slump in mortgage approvals.
A third is fear of the austerity budget and possible double-dip recession to come. There are better ways to use that £2,604 a year than to buy a more expensive house that may fall in value.
But underlying it all in my view is that house prices are still fundamentally over-valued against incomes. That injection of cash into the pockets of home owners concealed it for a while but now it’s reasserting itself.
That does not mean that prices are about to fall as they did in 2008 but it does mean that any increase in interest rates will have a huge impact. It may not happen until well into 2011, as Nationwide believes, but sooner or later it will.
Vote for me
As Labour members start voting in the leadership election today the candidates are queuing up to admit that the party did not do enough on housing. But the new ideas seem to be coming from the also-rans rather than the front-runners.
The most eye-catching proposal so far came yesterday from former schools secretary Ed Balls (109/1 at Betfair), who is backed not just by former welfare secretary Yvette Cooper (his wife) but also by former housing minister John Healey and former London mayor Ken Livingstone.
The plan is a direct challenge to the economic orthodoxy on cutting the deficit. Balls does not just defend Healey’s pre-election plans against coalition cuts but goes further, arguing that the public finances are £12bn better off than at the time of the Budget in March and that half of that should be used for a housebuilding programme to create 100,000 more affordable homes and 750,000 jobs.
And he says Labour has to admit where it got it wrong too. ‘The truth is that whilst we made progress, Labour leaders over several decades never paid enough sustained attention to housing to make it the priority it deserved. That must change. We now need a strong housing policy to support our economy, to provide the homes Britain badly needs and to reconnect with the voters we lost, both young families who want a home of their own and those queuing patiently for social housing.’
In his manifesto, Andy Burnham (45/1) agrees that ‘Labour’s failure to build more council homes early in the life of the government was a major mistake’ and proposing giving local authorities ‘extended prudential borrowing powers’ to buy up private rented homes owned by absentee landlords that fall into disrepair.
But he is also proposing a radical shake-up of the tax system with a call for a land value tax, an annual levy on the market rental value of land that would replace property taxes like stamp duty and also yield revenue to protect public services. ‘It’s time to lose New Labour’s timidity in the face of tax and make a moral argument for it playing a bigger part in deficit reduction,’ he says. ‘It is fairer than sudden and deep spending cuts, which will leave vulnerable people without support and forever change the character of our public services. But, with LVT, we can support the vulnerable and protect public services while also taking away taxes that are a barrier to people in the bottom and middle thirds getting on in life – keeping in place what was important about New Labour.’
The other outsider, Diane Abbott (249/1), has been critical of the coalition’s housing benefit cuts and David Cameron’s ideas on security of tenure and sees social housing as a priority. But she doesn’t seem to have much new to say beyond that.
Which leaves the two front-runners. David Miliband (2/5) pledges in a very New Labour way to ‘ensure we build more council housing to rent and affordable housing to buy’ and he also signals something of a break with the Labour past.
‘Our manifesto commitment, that would have allowed councils to once again build on a large scale, was absolutely right. However, we should have arrived at this position much earlier. We rightly focused first on improving the stock – through the Decent Homes programme – but should have acted quicker to increase supply. We need to find ways of meeting the demand for new social and affordable housing.’
Ed Miliband (3/1) goes further with a direct appeal to the Labour members who battled with the leadership at party conferences throughout the noughties. ‘It’s not naive, it’s rational to say that on agency workers, on housing, on tuition fees our members got it right and we got it wrong,’ he says.
The idea of a Living Wage of £7.60 an hour - ‘the minimum hourly wage necessary for housing, food and other basic needs for an individual’ - at the heart of his campaign. And part of his case that Labour must re-connect with working class supporters is about housing too. ‘Concerns about preferential access to housing — often false — built up because we refused to prioritise the building of new social housing. If we want to win back our lost support, this can no longer be a marginal issue.’
Big bang
Build 100,000 social homes a year while saving £20bn a year. That’s the startling proposal put forward by the think-tank Policy Exchange today.
In the process, house price inflation would be abolished. Housing association and council homes would be nationalised and 84% of them sold off to tenants. Homeownership would expand to 80% of the population.
All this from the think-tank that is probably closest to the Cameroons. One of the previous major housing reforms it proposed - the right to move in 2009 - became Conservative party policy within three months.
So who pays the price for all that? First, people who currently qualify for social housing through needs-based allocations. These would be abolished and homes would go first to the severely disabled and then to people who’ve been on the waiting list for longest or who have the greatest local connections to the area. Other vulnerable tenants, such as those with children, would get three-year tenancies in the private rented sector with their landlords getting a £4,000 one-off payment.
Second, housing associations and local authorities. They would continue to manage homes but would see their stock and debt taken over by central government and their debts paid off with the rents from existing tenants. In the meantime, the government would offer homeownership direct to tenants.
Central government would then issue short-term bonds to finance the construction of new social homes with the initial social rent covering the interest payments. Rising rents would also generate a surplus that would pay off the principal debt and give any tenant paying their own rent a path to ownership. Government would pay maintenance costs of up to £2,000 a year until their ownership share reached 50%. If their circumstances improved, tenants could take out a mortgage and buy the home outright and they would also get improved right to buy discounts and a right to move and buy.
The existing social housing stock would be sold off as it became vacant - either through the path to ownership or on the open market.
So far, so free market, but Making Housing Affordable challenges many of the ideas at the heart of the coalition government’s thinking too:
‘The idea that government can seriously “push down” claimants’ rents via cuts in Housing Benefit is largely false,’ says the report - arguing that housing benefit claimants do not make up enough of the market to set market prices.
‘Ending security of tenure in social housing is a mistake,’ it adds. It would mean anyone who improved their circumstances would face losing their home and in any case would only have a marginal impact as it would only apply to new tenants.
The current reaction to the scrapping of house building targets, with almost all councils promising no new homes in their area, ‘should be ringing very loud alarm bells in government’.
There’s no way that the report can be accused of lacking ambition or pandering to vested interests. It rightly identifies new homes and house price inflation as crucial issues. But could its big bang proposals really work?
First, the assumptions about the number of sales of social homes seem optimisitc to say the least. The report claims that the net result would be 146,000 homes a year bought by tenants. ‘This is not that much higher than the first decade of Right to Buy sales (106,000 or so a year) despite the ease with which working tenants will be able to buy and the support available.’
Not that much higher? That’s 40% higher than at the height of the biggest housing sell-off ever when millions of existing tenants were actually in a position to buy.
If that’s over-optimistic, then it would impact on the financial assumptions behind the plan: £8bn a year proceeds from stock sales when tenants die plus £10-15bn a year from sales to existing tenants.
Second, there are big assumptions about the savings to be made from changing incentives and improving the proportion of social tenants in jobs but not much is said about the families that would have qualified for social housing but would now be stuck in expensive private lets facing even steeper disincentives to work.
Third, the plan relies on some heroic assumptions about big improvements to the supply of new homes and the end of house price inflation.
The government would get two new targets just at the point it finishes abolishing the ones it inherited: that anyone working full time on the minimum wage should be able to afford an average UK lower quartile property by 2030; and that there should be ‘rough annual house price stability over the next two decades’.
The report points out that UK house prices rose by 133% in real terms between 1995 and 2006 and argues that the main reason was lack of new supply rather than excessive lending or immigration.
That would be tacked through ‘real localism’ and ‘community-controlled planning’. Decentralising planning under the current system will just give nimbys more power, says the report.
Instead, homeowners directly impacted by a development would be balloted. The development would go ahead unless more than 50% vote against it. The costs of ballots would be paid by developers who would also be free to offer financial incentives (which sound pretty much like bribes) to those voting.
While 75% of undeveloped land would be protected, the report argues that the result would be more homes of better quality, since residents would only vote for schemes that they approve of and will create a better quality of life all round.
The report cites Kate Barker’s work on the effect of new supply on house prices and argues: ‘If supply had run at 1960s levels since 1980, around 175,000 extra dwellings would have been built a year, and real terms house prices would have risen much less than they did – from £75-80,000 to just £105-110,000. This would have brought the UK more in line with other countries – where they did build more homes.’
Ignore for the moment the fact that almost all of that extra supply in the 1960s came from council housing and that the private sector has never built anything approaching that number of homes. Even if housebuilders could be persuaded to rapidly expand, doesn’t this sound like the exact opposite of what Conservative MPs were celebrating with the end of regional strategies?
Ups and downs
Rising rents are going hand in hand with falling prices as the housing market adjusts to shifts in supply and demand.
Two surveys over the last few days show the impact on tenants and landlords as well as home buyers and sellers.
On Friday, in its latest residential lettings survey, the Royal Institution of Chartered Surveyors (RICS) said increased tenant demand and a shortage of properties were pushing rents higher.
Demand increased in all regions but was strongest in London and the East of England. The RICS said demand stemmed from problems in getting a mortgage, worries over double dip price falls and the large deposits being required by lenders. At the same time, landlords looking to cash in were having difficulties getting a buy-to-let mortgage.
It’s an illustration of how interdependent the rental and sales market have become in the wake of the buy-to-let boom and the increase in the size of the private rented sector. But the shortage of social housing is also having an impact: 11% of demand for private lets now comes from social tenants, almost double the level two years ago.
With few signs of an improvement in the mortgage market any time soon - and suggestions over the weekend that the Bank of England may impose new restrictions - the impact is being felt in the sales market too.
In its latest survey published this morning Hometrack hardens its view of what happening and concludes that a re-pricing of housing is now underway. The annual rate of house price inflation remains positive at 1.5% but almost all of Hometrack’s indicators are pointing to a deterioration and the monthly fall in August was the biggest for 16 months.
The proportion of postcodes reporting price falls surged from 12% in July to 30% in August while only 3% of postcodes reported an increase. The sales price as a percentage of asking price and the number of new buyers registering both fell for the second month in a row. Homes are taking longer to sell.
In the meantime, the supply of homes for sale grew by 2.4% in August - well above average for what is traditionally a quiet month.
Hometrack director of research Richard Donnell says that ‘modest re-pricing’ is likely to continue for the next six to 12 months. The recovery in prices over the last 18 months and the abolition of home information packs had led to a surge in new properties coming on to the market at the same time as growing weakness on the demand side.
At some stage those supply and demand factors will shift again. Some tenants who can get a mortgage but are choosing to rent at the moment may see falling prices as a chance to buy. Homeowners may decide to rent out their property rather than accept a lower price.
Ahead of the spending review though the signs are not looking good for the government’s revenue from stamp duty on house sales or its spending on housing benefit to cover rising rents.
North of the border
Being in Edinburgh for the last week felt a bit like being in a parallel universe.
It’s not just that you can’t move for jugglers, fire-eaters and people doing headstands inside buckets at this time of year or even the fact that the whole city is still plastered with reminders of the hubris of the Royal Bank of Scotland.
It’s more that most of the things we’ve come to take for granted in England since the general election do not apply yet in Scotland. Many of them never will.
There have been few cuts so far - Scotland’s budget for 2010/11 was set before the cuts imposed in the Labour Budget in April and the coalition emergency Budget in June.
Most of the quangos that are being abolished in England do not work north of the border. The names Eric Pickles and Grant Shapps prompt puzzled looks.
The big reforms announced in England for the health service and education do not apply in Scotland. Neither does the abolition of regional strategies and creation of the new homes bonus.
Thanks to different electoral cycles, Scotland even has a Labour party with a realistic chance of returning to power when the elections for the Scottish Parliament are held next May.
The big thing that will apply - housing benefit cuts - is not yet provoking the same concern in Scotland, possibly because the caps that have received most publicity are seen as a London problem.
In the meantime, housing policy continues on a very different course to the one being taken by the coalition in England.
Progress continues towards the national homelessness target of abolishing priority need by 2012. Despite some local authorities lagging behind, Scotland as a whole is perhaps 80% of the way there.
Bills going through the Scottish Parliament will phase out the right to buy for new build homes and for new tenancies and give councils new powers to take action against bad landlords.
In September a new pre-action requirement will give new legal protection to homeowners facing repossession. The fact that it’s a requirement gives it the legislative teeth that the pre-action protocol in England and Wales lacks and there is a good chance that similar measures will be introduced to protect social tenants from eviction too.
But everyone knows it cannot last. Scotland will lurch uncomfortably back into some kind of sync with England on October 24, when the UK spending review will determine a large part of the budget that Scottish politicians and civil servants will have just four weeks to prepare.
Cuts are inevitable from 2011/12 and the postponement of this year’s round in Scotland will make next year’s even worse.
But the politics will be very different, with the SNP government and Labour opposition able to blame decisions by the Tory-Lib Dem government in London in the run-up to the Scottish elections in May.
Whoever wins will still face some tough choices on spending and possibly tax too - will the SNP be able to maintain its council tax freeze and will either party dare to use devolved powers to increase income tax?
Can we fix it?
Suddenly everything looks rosy again for housebuilders but how long can it last?
Results from Persimmon yesterday and from Bovis on Monday show that both firms had a good first half of 2010.
Persimmon, the largest housebuilder by market value, is paying a dividend to shareholders for the first time since the crash and is also writing back the value of its land.
Little wonder when it turned an underlying loss of £16.7m in 2009 into an underlying profit of £39.4m in 2010, increased its average selling price by 8.6% and increased its operating marginns from 1.6% to 8%.
Bovis also went back into profit and increased its margins and said it would reinstate its dividend at the end of the year. Chief executive David Ritchie said: ‘The group has the ability to increase its output capacity and profitability in the future supported by a larger land bank across an increased number of housing sites, without reliance on a general housing market recovery.’
That optimism was reflected in housebuilding figures from Communities and Local Government (CLG) last week. Starts in the second quarter were up 13% on the first quarter and 56% on the same period a year ago.
And yet the figures as a reflection of the recovery so far and it’s hard not to see them in the context of other indicators about the market in general that are turning from amber to red. House prices are on the turn. Mortgage approvals - one of the best indicators of what will happen over the rest of the year - fell for the second month in a row to the lowest level seen since May 2009. Surveyors are becoming much gloomier about the prospects for the rest of the year and 2011.
Nobody needs any reminding of the austerity to come in the UK and the international context is looking even worse, with US home sales slumping 27% in July.
In that context, it’s just as well that the housebuilders believe they’ve found a way to insulate themselves from what happens in the market in general, through careful buying and selling of land and by switching to building fewer, but more expensive homes. Austerity may be on the way but they believe they are set to benefit once the uncertainty is over.
They had better be right because if things do go pear-shaped for them again there is no chance of a second bail-out by the Homes and Communities Agency.
Turning a blind eye
With the spending review now only 60 days away, is there really no alternative to the huge cuts that are seen as inevitable across the political spectrum?
The coalition government wants cuts of at least 25% in all departmental budgets except health and overseas aid. Labour warns of the dangers of cutting too soon but had proposed cuts that were almost as big before the election. That consensus has left precious little room for debate when it comes to particular budgets – even though there must be doubt about whether any government can really follow through once the effects of the cuts start to be felt. For a preview, look at what happened in Canada when the government ended all federal support for new homes and devolved responsibility for the soaring homelessness that followed to provincial and local governments.
A spending review submission from the Building and Social Housing Foundation puts the case for a different approach, one that starts with taxation and not spending.
The BSHF argues the steps to neutralise the tax advantages of owner-occupation over private renting that are still worth £15.9bn a year with the housing market in the doldrums and were worth almost twice that during the boom years. These cannot be justified in the current economic circumstances, it argues.
However, it rejects the obvious approach of imposing capital gains tax on first homes as too blunt an instrument that would hamper social mobility. Instead, it says the old Schedule A tax on the value of imputed rents should be reintroduced.
The favourable tax treatment of owner-occupiers hurts tenants as well as landlords since they end up paying higher rents – and that in turn means a higher housing benefit bill, another area where the BSHF challenges the current orthodoxy.
Cuts on the current scale will only lead to problems elsewhere with financial consequences that will outweigh any savings, it argues. Most of the increased housing benefit bill has come from an increase in the number of claimants due to higher unemployment rather than from higher rents. Instead the government should adopt a more nuanced approach that phases in any changes and takes account of the effects in particular areas.
The prospects of the government listening to that advice would seem to rank somewhere between slim and zero, but perhaps it should for all our sakes.
I heard a lecture by the Nobel Prize-winning economist Joseph Stiglitz in Edinburgh this week in which he was asked what he would do in response to the austerity budgets being planned by European governments like ours. His response was one word: pray.
Stiglitz believes that there is a better than even chance of a double-dip recession and that governments have still not learned the lesson of the 1929, when they cut public spending in response to the stock market crash only to trigger the Great Depression.
He argues that governments have let the banks carry on with business as usual and done little to tackle the causes of the credit crisis – and that they are now set to cut spending at just the wrong time.
His alternative approach would start with progressive taxation to take money away from the rich (who save it) and redistribute it to the poor (who will spend it and increase demand in the economy).
And he would maintain spending on programmes that create jobs, tackle climate change and develop skills.All of which is in stark contrast to what we are set to do in October. Cuts in investment in new homes, funding for housing support and housing benefit for tenants seem inevitable.
But can we afford to continue to turn a blind eye to the tax advantages that force up land and house prices and make all of them cost more?
Through the looking glass
Financial meltdown? Check. Housing market boom and bust? Check. Housebuilding halt? Check. But the housing crisis in Ireland is very different to the one on this side of the Irish Sea.
If our planning system can be blamed for exacerbating the long-term under-supply of new homes, theirs led to a development frenzy that produced an over-supply of homes (as well as offices, shops and hotels) in almost all parts of the country.
Between 1996 and 2005, at the height of the Celtic Tiger boom, the Irish built 550,000 new homes, an average of 55,000 homes a year.
Taking the relative populations into account, that’s the equivalent of England building more than 600,000 a year. Only Spain built an equivalent number of homes per head and that was helping to satisfy apparently insatiable demand for holiday homes.
Over the same decade the population rose by only 350,000 - making a huge surplus inevitable. And yet between 2006 and 2009, the Irish built another 250,000 homes.
According to a recent report by the National Institute for Regional and Spatial Analysis (NIRSA), there are currently 300,000 empty homes in the country and more than 600 ‘ghost estates’ of new homes that are more than 50% empty or unfinished.
Incredibly, the counties with the most vacant stock in 2006 went on to build the most new homes - often encouraged to do so by tax incentive schemes.
In the absence of a way to move those empty homes this side of the Irish Sea, the solutions to the country’s problems are far from obvious but the NIRSA team say they have to start with substantive change to a planning system that was driven by the demands of developers and speculators and ambitious, localised growth plans.
The results of the speculative bubble were even worse than over here. A state-owned asset management company has acquired £88bn of property debt. Banks were reacpitalised or nationalised with public money.
By the end of 2009, house prices had fallen up to 40% from their peak. Meanwhile, severe cuts in public spending have led to rapidly rising unemployment. NIRSA says there needs to be an inquiry into a planning system riddled with peverse incentives and cronyism to match those already carried out on financial and banking regulation.
But Ireland could take years to recover from its planning mistakes. Nationally, there is enough excess land zoned for housing to last 17 years and despite the empty homes developers continue to build new ones - 11,000 over the last 15 months. By head of population, that’s still the equivalent of the 100,000 that England managed last year.
Bad to worse
If you think our housing crisis is bad, consider this: American police in riot gear were called out to deal with 30,000 people queuing to join the waiting list for housing assistance in a suburb of Atlanta this week.
The hopefuls chasing federal housing vouchers included pregnant women, elderly people in wheelchairs and people who had driven hundreds of miles to be there. Some had camped out for nearly three days in near 100 degree temperatures.
All this to join the waiting list for just 455 vouchers to cover part of their rent in East Point, Georgia (population 45,000). Small wonder that the mood turned angry: some were treated for injuries as scuffles broke out, others were suffering from heat exhaustion. Or that TV news reporters questioned whether what they were seeing was really happening in America:
The numbers may have been bigger in East Point but the same thing has been happening in communities around the country, according to the Wall Street Journal. Anyone who makes it on to the waiting list - and lists in most major cities have been closed for years - can wait up to ten years to get a voucher that guarantees that the local housing authority will pay part of their rent.
The US crisis doesn’t stop there. In just the last seven days, new stats confirmed that foreclosure filings are still rising and are up 10% on a year ago in contrast to the fall in repossession actions reported here. That’s despite huge federal funding to help people stay in their homes: the Obama administration allocated another $2bn to its Hardest Hit Fund this week. The Federal Housing Administration is also guaranteeing a third of all mortgages outstanding.
It’s all been too much for Carl R Greene, the head of America’s fourth largest housing authority, Philadelphia. The $300,000 a year executive director disappeared after it was revealed he was facing foreclosure over $386,000 in mortgage arrears on his $600,000 condominium.
Minding the gap
If the golden age of home ownership is over then nobody appears to have told second home owners.
On the same day that the Chartered Institute of Housing (CIH) published a report calling for a new range of renting options for people who don’t qualify for social housing but can’t afford to buy, a survey by estate agent Knight Frank revealed that second home ownership has reached a record high.
The CIH report is a thoughtful attempt to address the housing needs of what it calls the ‘in-betweens’ at a time when home ownership is shrinking and funding for social housing is about to be cut.
In particular, it says there could be a new role for social housing providers to broaden their role, meeting the needs of more households at the same time as generating income to support affordable provision.
That might involve a level of asset ‘churn’ - selling off some properties and re-investing the capital gains - but also offering longer tenancies to renters.
The work was supported by London & Quadrant, which today extended its UpToYou rent to purchase scheme aimed at households earning between £12,000 and £25,000.
However, the Knight Frank survey reveals that demand from the housing ‘haves’ is set to intensify even as new ways are developed to cater for the ‘have-nots’.
Second home ownership in Britain rose 2.6% in 2009 to reach a record 245,384 homes and Knight Frank is predicting a further 2% rise this year to take the total above a quarter of a million for the first time.
The growth is especially marked in the new-build market for holiday homes, where the coalition government has said owners will continue to enjoy tax advantages that Labour was set to scrap.
In popular holiday home hotspots supply is well down while demand continues to grow. In the meantime of course, second home owners look set to be able to take advantage of record low interest rates for some time to come.
And the same will apply to buy-to-let investors (CML figures last week showed more are starting to appear again) and the 80% of first-time buyers who get help from their parents to buy.
All of which suggests that the needs of the have-nots and the in-betweeners will become even more acute over the next few years.
Out of commission
Does anyone believe that privatised auditors would have held Shirley Porter to account for the homes for votes scandal?
The Audit Commission may have drawn a big target on its back with its decisions to pay its prospective chief executive £240,000 and spend £55,000 to lobby its own government and £8,000 at Newmarket racecourse, but its abolition will leave serious questions to be answered about the future accountability of local government.
This at a time when localism will give councils more freedom from central control and austerity will make value for money more important than ever. There were plenty of warning signals from Eric Pickles, who attacked the lobbying in opposition and blocked the appointment of a new chief exec in government.
The Commission had also been given a big role in ensuring local compliance with government targets that the coalition is busily dismantling. But even so the announcement that was leaked on Friday came as a shock to staff.
The quango published a statement that highlights its role not just in Westminster but in the surcharging of councillors in Lambeth and Liverpool and in uncovering the scale of the crisis at Doncaster council.
And it argued that it was its own success in improving the performance of local government that had enabled the coalition to give it more autonomy. But that seems not to have counted for much as the government pressed ahead with the abolition of targets and comprehensive area assessment and with the publication of the all spending over £500 by government departments and agencies and by local authorities.
Who needs the Audit Commission when making that information publicly available will empower an army of armchair auditors who will hold the bureaucrats to account? Pickles said that the Commission’s in-house audit practice - the fifth largest in the country - would be transferred out of public ownership and sold or otherwise transferred to the private sector.
The Commission already contracts out some of its work. But anyone who followed the long homes for votes saga will question whether private auditors would have shown a fraction of the tenacity of district auditor John Magill in surcharging Porter and other Westminster councillors and then fighting to uphold his decision through the High Court, the Court of Appeal, the House of Lords and the European Court of Human Rights.
On a more routine level, consider the role that district auditors played in housing issues at Hull, Brentwood, West Wiltshire, North East Somerset….the list goes on. Would private auditors from the same multinational giants that failed to spot problems at Royal Bank of Scotland, Northern Rock, Lehman Brothers and Enron be interested in much more than pocketing their fees and moving on to the next client?
Hopes and fears
The dire forecasts said repossessions would be higher than in the early 1990s. They are now likely to be about half the level seen then. Crisis over?
As house prices plummeted through 2008 and into 2009, repossessions started to climb and the Council of Mortgage Lenders (CML) forecast they would reach 75,000 in 2009 - only just short of the worst ever total in 1991.
That would have been a political disaster for the government and a PR disaster for the banks and prompted action on a wide range of fronts: an improved safety net; a pre-action protocol; new support schemes; and increased forebearance measures.
Above all, record low interest rates reduced monthly payments for borrowers in trouble.Compared to those worst fears, the results are a triumph. Lenders repossessed not 75,000 families but 48,000 in 2009 and the CML now forecasts the total will fall to 39,000 in 2010 against the 53,000 it expected at the start of the year.
In the meantime, the coalition government has begun to dismantle much of the safety net and many of the support measures introduced by Labour. The CML published second quarter figures yesterday showing that repossessions were down 4% on the previous quarter and 21% on a year ago.
The number of mortgages more than three months in arrears showed similar falls. But it also warned there is no room for complacency. The number of people with low level of arrears has fallen quite rapidly but the number with arrears worth more than 10% of there mortgage barely fell at all.
The danger is that many repossessions have just been postponed and that totals could remain high for several years. If the total starts to rise again as public spending cuts bite, then the political risks for the coalition are obvious.
Yet it’s hard to justify maintaining help for homeowners at a time when tenants are about to go through draconian cuts in housing benefit.
As Michael Coogan, director general of the CML, puts it: ‘While we don’t want to cry wolf, it seems obvious that the ongoing prognosis for arrears and possessions is far from a healthy all-clear. We hope the coalition government will not risk undermining the chances of extending the welcome trends this year by removing support mechanisms that work.’
Paying the rent
What does it say about the prospects for real institutional involvement in UK private renting when the biggest quoted landlord says its business is based on trading rather than renting property?
For years Grainger has seemed like the exception to the rule that there are no institutional investors in private rented housing but it has become far more than just a landlord. It’s apparent from an interim management statement today that - in the UK at least - its business has moved in a different direction.
The statement follows Grainger’s move into the equity release market via the £34.6m acquisition of Sovereign Reversions but very little of it addresses what you might think of as the dominant concerns of a landlord - yield, vacancy levels and the rest of it.Instead it’s all about sales levels - the £49.4m of sales completed over the last four months and total sales pipeline of £154.8m - and its strategy for the future is linked to house price growth.
Following its return to profit, Grainger has started buying property again but in its decision making it ranks ‘attractive yields’ behind ‘good prospects of long term capital appreciation’, ‘high levels of reversionary potential’ and ‘development or refurbuishment potential’.
It’s a totally different story in Germany, where almost half the population rent from a private landlord. ‘Unlike the UK where our activities are focussed more towards trading, our German business is primarily rental based, which complements the group’s varied return profiles,’ it says.
‘Gross rents to end July amounted to £25.4m, representing a yield of 6.8%, on valuation.’ The statement is not explained although it’s presumably related to the fact that Britain’s rising house prices make it more profitable to buy and sell property than to rent it for the long term, whereas the opposite applies in Germany.
Rising prices also make rental yields look much lower to investors than those on offer in commercial property. As Grainger notes in an epitaph for an earlier attempt at institutional investment: ‘The controlled liquidation of the Schroders Residential Property Unit Trust nears completion with only £0.1m of assets remaining to be sold?’
Little wonder that Grainger was one of the doubters in Inside Housing’s recent analysis of the chances of white knight investors appearing in the wake of the Homes and Communities Agency’s private rented sector initiative.
’There is not a lot in the way of support for the [private rented] sector from the new government,’ said Andrew Pratt, the company’s managing director of residential. ‘The private rented sector initiative has withered on the vine. The majority of people don’t have confidence that this will emerge any time soon.’
Fall guys
Today sees the best evidence so far that house prices are falling and are likely to continue to fall into 2011.
In the last few weeks the surveys have pointed in different directions and the pundits have disagreed about whether the housing shortage will push up prices or austerity send them down.
Now the closely-watched survey by the Royal Institution of Chartered Surveyors (RICS) is showing its first price falls since July 2009 and is indicating that this could be just the start.
The surveyors say demand is falling as buyers take account of the economic uncertainty and have continuing problems getting a mortgage.
But supply is rising at its fastest rate since May 2007 as more buyers test the market in the wake of abolition of home information packs (HIPs).
Looking to the future, the balance of surveyors expecting price falls rose sharply and the ratio of sales to stock - a lead indicator of future price movements - fell to its lowest level since June 2009.
The survey would have been even more gloomy but for continuing resilience in the London market, where prices have been propped up by foreign buyers taking account of the weak pound. And prices have started to fall before any real impact from public spending cuts.
On the face of it, that should be much-needed good news for first-time buyers. A survey published by the Nationwide yesterday show that they need three times the deposit of five years ago and that the house prices they are paying are scarcely any lower in relation to their earnings.
However, fresh price falls will cause alarm at the banks - only last week Lloyds was congratulating itself over big reductions in the number of its borrowers on 90%-plus mortgages - and make it even harder to get a loan in a market that should already be restrictive.
Falling prices could also put new pressure on families struggling to pay the mortgage - at the same time as the coalition starts to dismantle Labour’s emergency support measures. And what will the implications be for housing associations?
There is no suggestion yet that the price falls will be on the scale of 2008 or lead to anything like the same problems in terms of unsold stock but they will be happening at the same time as associations’ public funding faces its biggest-ever squeeze.
Early evidence
Liberal Democrat opposition to David Cameron’s idea of fixed-term social tenancies goes far beyond the rebuke issued last week by deputy leader Simon Hughes.
The evidence comes from early day motions (EDMs) that Cameron’s coalition partners have signed over the last three years.
In the last parliament, EDMs opposing moves to end secure tenancies were signed by 41 out of 63 Lib Dem MPs.
Ten of them stood down at the election, but the rest still represent a majority of the current 57-strong parliamentary party and include two Cabinet ministers and seven junior ministers.
In November 2007, after Caroline Flint had flirted with the idea of making new tenancies conditional on looking for work, Labour’s Austin Mitchell sponsored an EDM that this House ‘actively opposes both the stigmatisation of council housing as housing of last resort and proposals to means test or time limit secure tenancies’.
This was ‘so that local authorities can respect the choice of existing tenants who want to keep the council as their landlord and get their homes and estates improved, house the wide range of people on council housing waiting lists and so return council estates to the mixed communities they were before shortage distorted allocations policies and concentrated deprivation’.
The 123 signatories included 37 Lib Dems, 27 of whom are still MPs. Signatories included two MPs who are now coalition Cabinet ministers (energy secretary Chris Huhne and Scottish secretary Michael Moore) plus another six who are now junior ministers: Norman Baker (transport), Jeremy Browne (Foreign Office), Paul Burstow (health), Ed Davey (business), Lynne Featherstone (equalities) and Steve Webb (pensions).
The other 19 opponents of time-limited tenancies who are still MPs were Hughes, Bob Russell, Mike Hancock, John Hemming, Don Foster, Adrian Sanders, Andrew George, Alan Reid, Stephen Williams, John Leech, Mark Hunter, Roger Williams, Lorely Burt, Jo Swinson, Dan Rogerson, Charles Kennedy, Mark Williams, Jenny Willott and Tim Farron.
A second Mitchell-sponsored EDM in December 2008 pointed out ‘the urgent need to boost the economy by a massive programme of public investment to improve existing council homes and estates and build a new generation of first-class council housing to provide secure tenancies and low rents’.
It also called on the government ‘to provide funding to build new council homes thus allowing authorities to open up their allocation policies once again to the wide range of people on council housing waiting lists so that butchers, bakers, nurses and teachers can live together with young families and pensioners thus returning our estates to the mixed and sustainable communities they used to be, and to provide a sustainable housing policy offering security and stability for the 21st century’.
Many of the same MPs signed and they were joined by Andrew Stunnell, now a junior minister at Communities and Local Government, Martin Horwood and John Pugh.
Since the election and the coalition, Mitchell has sponsored another EDM that argued that ‘the only way to allow for greater mobility of council and social housing tenants to enable them to move to where the jobs are is not to reduce the security of tenure to which tenants have a right, but to increase the stock of public housing so that it can not only cope with the increased demand but also allow for more mobility of tenants’.
Lib Dem signatories were understandably thinner on the ground but Russell, Hancock, Hemming and new MP Mike Crockart still offered their support.
Supporters of those three EDMs total 31 out of the 57-strong parliamentary party. Education minister Sarah Teather, who held the housing brief before the election, takes the total to 32 as a well-known defender of secure tenancies.
She told Inside Housing in July 2009 that she would resist any form of conditionality creeping into social housing allocations. ‘How on earth can you persuade people to go back into work, if you tell them that as soon as they get work, they’re in danger of losing their flat?’ she asked.
‘We do need to give people incentives to move out, but that’s completely different from losing security of tenure.’In interviews over the weekend, housing minister Grant Shapps continued to defend Cameron’s idea.
‘Affordable housing is very expensive to build, and takes billions of public subsidy,’ he said. ‘We provide tenures which last a lifetime and sometimes beyond. That is not an efficient situation for the future - and is unfair for people on waiting lists, who are often the most vulnerable in our society.’
An opinion poll for the Sunday Times suggested that 62% of voters support Cameron and 32% oppose him - Lib Dem voters by 67:26 and Labour voters by 48:47. However, Lib Dem backbenchers have been making no secret of their opposition in local media interviews. Two MPs in the party’s Westcountry heartland have already condemned the plan. Andrew George (St Ives) said it would create an even more divided society while Adrian Sanders (Torbay) said: ‘The coalition agreement is based on two fundamental principles: one – fairness, and two – looking after the interests of vulnerable people. So far given what we know about this idea, it fails both those tests.’
And there is also some opposition on the Conservative backbenches. Nadine Dorries, who was brought up on a Liverpool council estate, said she welcomed the debate but that fixed-term tenancies would simply discourage people from looking for work.
‘If we are going to support families, then the bedrock of families is the family home and I do not think that saying to people “in five years’ time you might lose your home” is a good way for people to try to improve their lot,’ she told the Today programme on Saturday. ‘Rather than saying to people “if your lot has improved you will be moved on” we should be giving the option to buy. That incentivises people to improve their lot.’
Moving the goalposts
Housebuilders are putting forward a new way to tackle the affordable housing crisis: simply change the definition of affordable.
In its submission to the spending review, the Home Builders Federation (HBF) says reviewing and clarifying the definition would ‘encourage greater flexibility and innovation by local authorities, developers and affordable housing providers, especially nil-grant private sector solutions’.
It says this would allow more homes to be provided with no public subsidy, open up affordable housing to a wider group of qualifying households, give access to homeownership to people who can’t otherwise afford it and reduce the threat to development viability posed by ‘excessive local authority affordable housing demands’.
No prizes for guessing that the HBF thinks that HomeBuy DIrect should count as affordable. It says many local authorities resist this at the moment despite the fact that the PP3 defintion of affordable includes ‘shared equity products (eg HomeBuy)’ and that they also resist including private sector ‘low cost homes for sale for intermediate rent’ despite them being included in the definition.
No prizes either for guessing that it says both HomeBuy Direct and Kickstart should be protected in the spending review.
The HBF also wants a review of the cumulative impact of policy and regulation and the way that a succession of demands on developers from section 106 to zero carbon are undermining the viability of sites - again predictable, but surely urgently needed after the credit crunch and housing market crash undermined the old section 106 model.
And it also pleads for more clarity on the proposed new council tax incentives for development, warning that the current hiatus could carry on form months and lead to lower housing completions in 2011 and beyond.
None of this is a criticism of an organisation that is simply arguing its corner but it’s an illustration if any were needed that the spending review will be as much an argument between different forms of housing investment as it is for housing investment as a whole. While the groups lobbying the government can agree on the desperate need for new homes, what sort of new homes should they be?
The CIH, NHF and National Federation of Almos also made the case for new housebuilding in their spending review submission but their programme would be 70% for social renting and only 30% for low-cost homeownership.
The temptation for ministers is obvious. In its response to the online consultation on the coalition’s Programme for Government earlier this week the CLG said rather optimistically that ‘government is committed to increasing the supply of affordable housing’.
Moving the goalposts on the definition would make that an awful lot easier to achieve.
Money in the bank
Here’s a stat you probably won’t read in all the good news stories about the return to profit at Lloyds Banking Group: its stock of repossessed homes is up 17% on six months ago.
The bank, which is 41% owned by the taxpayer, made a profit of £1.6bn in the first six months of 2010 compared to a loss of £4bn this time last year after a big fall in the amount it had to set aside to cover bad loans.
Lloyds has a 23% share of mortgage lending and is also a dominant force in lending to shared owners and housing associations so its results probably matter more to housing than those of any other bank.
Record low interest rates meant that it could increase its profit margins on its mortgage lending, with more customers on variable rate loans and rates increased for riskier loans. Meanwhile its gross lending fell.
That’s also enabled a reduction in the number of high loan-to-value mortgages (only 9.5% of its loans are now worth more than the value of the home they are secured against, compared to 13% at December 2009).
However, despite all that, and a 6.5% fall in the number of mortgages more than three months in arrears, reduced sales of repossessed homes meant its repossessed stock rose 17% from 2,720 homes in December 2009 to 3,195 in June 2010.
It says this ‘still represents a relatively low level of repossessed stock comparable to prior periods’ but it’s an illustration if any were needed of how vulnerable the the banks, homeowners and the taxpayer remain to any fresh downturn in the housing market.
Just as well then that the index produced by its Halifax subsidiary, also published today, showed at 0.6% rise in house prices in July. This was only the third increase recorded by the Halifax index in the first seven months of this year and the average price of £167,425 is now back at the level of November 2009.
The Halifax sees the fact that the 0.6% rise made up for a similar fall last month as evidence to support its view that prices will be flat this year.
However, the annual rate of house price inflation fell for the second month in a row to 4.9%. The annual rate tends to take a long time to turn around, falling between August 2007 and April 2009 and then rising again until May 2010.
The evidence from other recent surveys also looks gloomier for house prices. The Nationwide had been markedly more upbeat than the Halifax until this month but recorded a 0.5% fall in July. Hometrack recorded its first monthly fall in 15 months in July, citing the fact that demand is falling at the same time as supply is rising.
And Bank of England stats on mortgage approvals - usually a good indication of what will happen to prices in a few months time - were down 6% on a year ago. That was the first time the annual rate had turned negative since April 2009.
The pundits are split on what will happen next though few are predicting a collapse on the scale of 2008. Some forecast a steady slide in real terms, much as happened in the wake of the crash in the early 1990s. The Centre for Economics and Business Research forecast on Monday that prices would be constrained by the economic situation in 2011 before rising by 5% in 2012.
Dave'll fix it
Three months after he fought an election on a pledge to ‘respect the tenures and rents of social housing tenants’ David Cameron has come out in favour of fixed-term tenancies.
According to reports of a question and answer session in Birmingham today, the prime minister said the change would cause a ‘big argument’ but that it was right to look at a more flexible system for future tenants under which they can be moved on if their circumstances change and homes are freed up for people on the waiting list.
He was responding to a question from a mother of two teenagers who said she had slept on a blow-up bed for two years because her council could not find her a bigger house.
According to the Press Association, Cameron said that the government was investing more in social housing. ‘But there is a bigger question here, which is: how do we make sure that people are able to move through the housing chain? At the moment we have a system very much where, if you get a council house or an affordable house, it is yours forever and in some cases people actually hand them down to their children,’ Cameron said. ‘And actually it ought to be about need. Your need has got greater … and yet there isn’t really the opportunity to move.’
‘But there is a question mark about whether, in future, should we be asking, actually, when you are given a council home, is it for fixed period, because maybe in five or 10 years you will be doing a different job and be better paid and you won’t need that home, you will be able to go into the private sector. Do we want to reform tenure to actually enable people to move through housing rather than seeing it as something that you either get - “great, I’ve got my council house” - or you don’t get - “bad, I’m sleeping on a blow-up mattress”.
‘So I think a more flexible system - that not everyone will support and will lead to a quite a big argument … looking at a more flexible system I think makes sense. Not talking about existing tenants but, for future tenants, asking: can we relate more the need you have to the housing that you get, making sure we have more social mobility and people can move through social housing, rather than actually see it as something they get for life?’
Given that Labour flirted with the idea in 2006 when Ruth Kelly was communities secretary it’s no great surprise to see the Conservatives questioning security of tenure too.
However, Cameron’s comments are not just at odds with his own manifesto (though, interestingly, not with the coalition’s programme for government). They also seem to contradict housing minister Grant Shapps, who during the campaign accused Labour’s John Healey of ‘spreading unfounded and baseless statements about David Cameron, myself and Conservative policies on social tenure and rents’ and said that the Tories had no plans to change security of tenure for existing or future tenants.
A week before the election, a Conservative spokesman told Inside Housing that the party had ‘no policy to change the current or future security of tenure of tenants in social housing’.
But the signs were clear that there might be a policy after all when Shapps was asked in parliament about an interview he did with me in ROOF in which he said that the rights of future tenants had to be balanced against the needs of people on the waiting list.
Labour’s Karen Buck asked him: ‘Will he confirm that new tenants -people in housing need coming off the housing waiting list, as he described- will enjoy the security enjoyed by existing tenants?’
His answer immediately raised speculation all over again: ‘As I have said, security of tenure is incredibly important, particularly for people in social housing, and we are keen to protect that. There are 1.8 million families languishing on that social housing waiting list, and it is right and proper that we look at the way in which we can reduce that list. It may include looking at tenure for the future.’
Cameron’s comments will reignite the debate that was started and then squashed under Labour and lead to passionate argument between those who believe that what would amount to the introduction of long assured shortholds in social housing contradicts everything it is meant to stand for and those who argue that a tenancy for life is indefensible when so many people are on the waiting list.
However, that may not be the only fundamental debate that is about to happen. Conservative councils in London have been arguing that the cuts in housing benefit could leave them with a huge problem unless the homelessness legislation is changed.
In mid-July, Karen Buck asked Shapps: ‘Given the enormous upheaval that is likely to accrue from the cuts in housing benefit, will the Minister give a guarantee to the House today that he
will not weaken the safety net of homelessness legislation?’
Just as with security of tenure, his answer was a studied non-answer: ‘I acknowledge the hon. Lady’s considerable knowledge and interest in housing and matters of homelessness, which we have regularly debated. I can provide the assurance that this Government will take issues of homelessness and protection very seriously. I have recently set up a cross-ministerial working group for the first time to bring Ministers together, and we also have a discretionary fund, which we are expanding to £40 million to assist in this way.’
Ticking the boxes
Is meaningless consultation set to become this government’s answer to meaningless assessment and inspection?
The coalition is seeking to engage with its citizens in a series of initiatives ranging the Spending Challenge, a Treasury website aimed at generating ideas for cuts, to David Cameron’s flagship Big Society.
But the first one off the mark was the online consultation on the coalition’s Programme for Government. The Communities and Local Government department has just issued its response to the 352 people who took part in the online exercise.
The public contributions ranged from sensible to questionable to downright bonkers and there was what looked like an organised attempt by Christian groups to hijack the agenda.
On housing, there was support for coalition policies such as abolishing regional spatial strategies, with one respondent arguing that giving local communities the power to decide housing policy would be a big boost in rural areas where there are no suitable homes for families.
But there was lots of opposition too. ‘Abolishing RSS is madness – that is a case of throwing out the baby with the bathwater – local councils need guidance on a range of planning subjects that cut across council boundaries,’ said one opponent.
Many people also questioned the direction of policy on investment (‘why is affofdable social Housing not a major priority and area for investment?’) and private renting (‘it is time that tenants within the private rental sector had some protections in place against negligent, greedy and temporary landlords).
But any of them hoping that the exercise might actually mean anything will be left disappointed by a response that could have been written before it started.
Policies that have already been implemented, such as the abolition of regional strategies, are not mentioned. Those still to be decided, such as funding for affordable housing in the spending review, get a classic civil service non-answer.
‘Government is committed to increasing the supply of affordable housing,’ says the two-paragraph response on housing. Blandly ignoring any decisions that might be about to be made on investment, it simply repeats the coalition’s intention to create more local housing trusts, give incentives for new development and continue to support shared owners and social tenants to buy.
The response is over in two paragraphs which are then followed by the promise ‘we’ll keep listening’ and an invitation to take part in two more consultations, the Spending Challenge and Your Freedom, an exercise in scrapping laws and regulations. All in all it’s not an auspicious start for the new form of public consultation - and looks more like a total waste of time and money.
In the meantime the Big Society has been launched as a flagship idea that in theory could transform the lives of many tenants on estates. But just how big is it really going to be when the organisation that could help empower tenants to take part has already had its funding cut? Is there only room for people who already have power and influence and who want to do what the government wants?
The coalition government has heavily criticised its predecessor for the way that assessment and inspection degenerated into mere box-ticking exercises. Are consultation and engagement already going the same way?
Not so simple
Iain Duncan Smith’s plans for benefit reform are nothing if not ambitious and show little sign yet of being watered down by the responsibilities of being in office.
While the discussion paper he launched today does look at alternative options put forward by other think-tanks, it’s based fairly and squarely on the plans put forward by his Centre for Social Justice (CSJ) last year.
The central themes are identical: making work pay by reducing the marginal rates of benefit deductions that mean some people can lose 90p out of every extra £1 they earn; simplifying the system to make it easier for claimants to understand and cheaper to administer; and combining a range of tax credits and benefits including housing benefit into one universal credit for people in work and another for people out of work.
So far, so good, and the discussion paper also has a welcome recognition that ‘the benefits system is not the only way in which the government seeks to support those in need’ and of the crucial role that housing plays.
It cites the way employment training for employment as one case in point. ‘Another example is government support for the provision of affordable housing and sub market rents. We recognise the imperative to increase the supply of new homes, including new affordable homes, and to ensure sustainable funding for the affordable homes that we already have.’
But the obvious problem is identical too: that introducing the changes will require investment upfront (£3bn according to the discussion paper today, £3.6bn according to the CSJ, £8.5bn according to former Labour welfare minister Angela Eagle) to save money in the longer term. Will George Osborne really put his money where IDS’s mouth is? The fact that this is a discussion paper rather than a green paper suggests he’s not convinced yet.
And will he really recognise that ‘imperative to increase the supply of new homes, including new affordable homes’ in the spending review?
Meanwhile anyone thinking back to previous reforms of housing benefit will recognise that what seems like ‘simplification’ for the people who administer it can result in misery for some of those who claim it.
And then there’s the way that cuts already introduced will interact with the new system. For example, housing benefit is a key part of that ‘sustainable funding for the affordable homes that we already have’ and housing association business plans have assumed that rents will rise by RPI plus 0.5% every year.
But that is 3% a year more than the housing benefit will rise under plans to link it to the lower CPI in future and tenants also face cuts if they are unemployed for more than a year, if they have non-dependent adults in the household or if they are under-occupying their accommodation. All are major threats to the 65% of association income that’s derived from housing benefit and administering them sounds far from simple.
The cuts will also accelerate the process whereby housing benefit is no longer based on the rent people pay and leaves most people with a shortfall. Duncan Smith seems genuinely committed to making work pay but the other side of that is a continuing squeeze on the living standards of anyone not in work.
