In the wake of yet more delays and questions about value for money, I wonder what Erwin Schrödinger would have made of universal credit.
In the Austrian physicist’s famous thought experiment, a cat is placed in a sealed box with a flask of poison and a radioactive substance. The decay of a single atom of the substance during the test will trigger a hammer that breaks the flask and kills the cat. The point is that an external observer cannot know whether or not the atom has decayed, the poison has been released and the cat is dead unless they open the box. Since we cannot know, the cat is both alive and dead.
Schrödinger’s Cat was meant to illustrate a paradox in quantum theory but it could just as easily be applied to Iain Duncan Smith’s flagship welfare reform. It’s not just that universal credit is meant to be simple and transparent but is actually fiendishly complicated and impossible for outsiders to understand. These have become givens over the last couple of years. IDS’s cat also exists in two states at the same time and we cannot know whether it is alive or dead until we open the box or see it in action.
So universal credit is a triumph. IDS told us so in interviews and articles yesterday about ‘the end of the dole as we know it’. The delays and problems so far show that the DWP is willing to learn from experience. The ‘roll-out’ was being accelerated to families that very day and Duncan Smith told the Today programme that he will ‘land’ it (though it wasn’t clear how you can land something that hasn’t taken off yet). The problems are in the past and the critics are all being too negative and universal credit is value for money.
The announcement was a blatant piece of pre-emptive PR ahead of a progress report due today from the National Audit Office. This concludes that: ‘In principle, the Department’s approach should allow it to learn from experience, improve the design and readiness of services and reduce risks. However, in our view the Programme is at too early a stage to determine if the Department will achieve value for money in its implementation of Universal Credit. ‘
It seems the universal credit is a not-triumph at the same time as it is a triumph. The report also reveals further delays to the roll-out. This now extends to the end of 2019 including a two-year delay in the timetable for incorporating tax credits that should reduce risks. However, the DWP does not yet have any plans for when 550,000 of the existing claimants of tax credits and employment and support allowance will move over. This graph from the report shows the declining universal credit caseload expected in 2012, 2013 and now:
In line with Schrödinger’s experiment, universal credit also exists simultaneously in two different forms. The ‘live service’ one was introduced in the North West for single people, then couples, including some with housing benefit claims, and from yesterday families with children. It is being ‘rolled out’ nationwide to simple cases in 2015 and 2016. However, all this relies on old IT systems from before the 2013 ‘reset’. This will result in administrative costs of £149 million but the DWP believes it will generate societal and distributional benefits of £267 million.
The DWP says the nationwide roll-out will give it a chance to form working relationships with local authorities and housing associations. Before then, it is working on changes to the social security regulations about sharing information with landlords, admitting that ‘some landlords and claimants have struggled with rent arrears where support for housing costs is including in a single payment direct to claimants’.
The ‘digital’ version of universal credit – the way it is meant to work - is still barely off the drawing board and the NAO report reveals:
‘The Department’s digital service has been delayed and is still in the very early stages of development but is soon to be tested with all claimant types, even the most complex. Recruitment and capacity problems have delayed the new digital service by six months compared with plans at the start of 2014, and it has not yet reached its planned staffing level.’
Testing of aspects of the digital service starts this month but it can still only handle a small number of claims and it depends heavily on manual intervention. Testing at scale has slipped to May 2016 but the NAO describes the 18-month timetable to move from a few hundred claimants to 10 million as ‘challenging’.
Given the record of universal credit so far, none of this can be taken for granted. A delay of a further six months would lose £2.3 billion in societal benefits and cost £2.8 billion more in staff time for using live service rather than digital systems. However, the NAO comments: ‘The Department does not yet have a plan should the digital service fail and has not evaluated whether it could use live service systems instead.’
This twin-track approach costs more and most of the IT developed for the live service version will not be useable in the digital one. However, the NAO says the DWP ‘estimates that the twin-track approach yields a higher net present value overall by bringing forward the benefits of the programme’. The DWP says they are ‘complementary parts of an integrated approach’ but the NAO says the twin-track programme ‘creates uncertainty about the relative emphasis on the digital service as the end state for universal credit, or a more traditional view of benefit reform with planned updates to IT systems’.
These £20.7 billion benefits to the economy are at the heart of the outline business case for the project that the Treasury finally signed off in September. They include higher earnings for people as they move into work and reduced spending on benefits. However, the NAO warns that the estimate is ‘heavily dependent on a number of assumptions’ and that the uncertainty is ‘magnified’ by the use of distributional impacts (people on lower incomes are assumed to value a change more than those on higher incomes).
In another duality, universal credit was designed from the beginning to deal with people in work and out of work. A key part of its appeal was that it would simplify the transition between the two and reduce the benefits trap when people take a job. That’s even more vital at a time when more and more people who are working are also in poverty. The DWP expects the majority of people on universal credit to be in work. However, there is also a stick to that carrot: the expansion of conditionality to people who are in work but not deemed to be working hard enough.
That makes it remarkable that the NAO report reveals that the business case does not currently include funding to support working claimants:
‘The Department has not confirmed plans for how it will support claimants who are in work, even though it expects that around one million in-work claimants will have conditions attached to their claim.’
The overall verdict of the NAO is that the DWP has reduced delivery risks since last year’s ‘reset’ by extending the roll-out and choosing the more expensive twin-track approach to developing the service. However, it concludes:
‘We consider it important that the Department, having reset the programme on a sounder basis at significant costs in terms of resource and elapsed time, confirms its plans for delivering Universal Credit in terms of cost, time and functionality, against which it can be held to account for the good use of public resources.’
In other words, IDS’s cat is still in its box, alive and dead, failing and succeeding at the same time. The universal credit paradox is that we cannot know for certain which state it is in and whether it’s gone too far to be allowed to fail or cut our losses and abandon it. The time to open the box could just possibly come some time in late May 2015.
Today’s penultimate housebuilding figures before the election will increase fears that the recovery is fading.
On the housing minister’s preferred measure (see the spin from Brandon Lewis on the previous figures), housing starts in the July to September quarter were down 10 per cent on the previous three months and up just 1 per cent on a year ago. This is the first quarter-on-quarter fall in starts over two years.
For a comparison that goes beyond just a single quarter’s figures, here’s a graph showing the 12-month rolling totals for starts back to before the recession:
There was better news for the government on completions (which everyone else considers a better measure because you can’t live in a start). The July to September total was up 5 per cent on the previous quarter and 8 per cent on a year ago. However, to put that in perspective, the 117,200 total for the last 12 months is still lower than in the year before the coalition took power. Here are the 12-month rolling totals:
There are short-term and long-term points to note about these figures.
The short-term one is that they seem to bear out warnings from a succession of big housebuilders recently that the Help to Buy mini-boom is over. This also tallies with a leaked warning from DCLG civil servants over the summer of a fall in housing starts over 2014/15 as a whole. Figures for the final quarter will be published in February, just three months before the election.
The long-term one, as I noted three months ago, is to underline just how bad the performance of this government on housebuilding has been. We have fallen further and further behind the benchmark of 250,000 a year.
On this basis, taking current levels of completions our annual ‘deficit’ on new homes is running at around 130,000 a year. Our accumulated ‘debt’ over the last four and a half years is around 600,000 new homes.
The Grant Shapps ‘gold standard’ of building more homes than before the recession is a distant dream too. And even the more modest hope of building more new homes than the last Labour government – a performance that Shapps rightly criticised – will not be fulfilled.
Labour managed 696,000 starts and 750,000 completions between 2005 and 2010. There are obvious time lags that mean it’s difficult to decide where the impact of one government ended and the new one began. However, with six months to go in its five-year term, the coalition has struggled to 526,000 starts and 507,000 completions. It’s not much to show for all that support for housebuilders.
Where are we heading on housing over the next 25 years? That’s the question posed by a new study – and the answer may make you may want to look away now.
The study for the Joseph Rowntree Foundation (JRF) takes existing trends in the relationship between housing and poverty between 1991 and 2008 and projects how it will change up to 2040.
Housing policy featuring one of the most extensive housing benefit systems in the world and a relatively high proportion of social rented housing has traditionally acted as a safety net for people in poverty. It also means that there hasn’t been an automatic connection between income poverty and housing deprivation.
What Will the Housing Market Look Like in 2040? concludes that the housing system will only prevent an increase in poverty in England by 2040 on these assumptions:
- Housebuilding rises to 200,000 homes a year by the 2020s and 220,000 by the 2030s
- Social rents remain indexed to prices (as in the CPI plus 1 per cent formula)
- Housing benefit continues to meet the current share of housing costs
- The decline of social renting is halted.
Even the first of those sounds unlikely, despite the commitment of all the main parties to increased supply. And we are already going backwards on the other three given the rise of affordable rent, welfare reform and the reinvigorated right to buy and estate regeneration.
According to the report, private rents will rise faster than incomes up to 2040 leaving up to half of private renters in poverty. The housing benefit bill will increase by 40 per cent if social rents remain indexed to inflation. If they rise to 65 per cent of market rents, the housing benefit bill will rise by 125 per cent and an extra 1.5 million people would be in poverty. However, that assumes that housing benefit meets a similar proportion of housing costs in 2040 as in 2008 and that tenure remains unchanged.
Although some of these impacts could be mitigated by increased supply, the report says that this poverty projection is likely to be an underestimate. It expects social renting to house just 11 per cent of the population by 2040 and the private rented sector more than 20 per cent. This implies that the poverty rate would be higher than its 2008-based projections suggest. On top of that, doubling the housing benefit bill (an extra £20 billion a year compared to 2008) ‘is likely to be politically unfeasible’.
In effect, a housing system that has helped mitigate against the impacts of poverty in the past will be ‘responsible for notable increases in the poverty rate in future’:
- People who rent will be twice as likely to be living in poverty as home owners
- Private rents are forecast to rise by 90 per cent, twice as fast as incomes (this is between 2008 and 2040 and so includes the period since the financial crisis when incomes were falling in real terms; rents are expected to rise in line with incomes from 2014)
- The number of people in private rented homes will rise 3.4 million to 10.6 million by 2040. Half of them will be in poverty (an increase of 2.6 million)
- The number of people living in social housing will fall from 8.2 million to 5.7 million
- Real median house prices will rise by 57 per cent to £263,000 and the number of people living in owner-occupied homes will fall by 820,000.
JRF chief executive Julia Unwin sums up the implications like this:
‘We need a clear strategy that builds the homes we need in the right places and avoids locking low income households out of affordable homes. This is about more than frustrated aspirations of home ownership from Generation Rent: the reality facing many people is a life below the poverty line because of the extortionate cost of keeping a roof over your head. Addressing the rising cost of housing is crucial to tackling the high levels of poverty in the UK.’
The report by researchers from Heriot-Watt and Sheffield universities is based on what happened to a sample of 5,000 people between 1991 and 2008, the most recent year for which survey data is available.
While the projections are looking much further forward than November 2014, it’s not hard to look at what has happened to housing and welfare since 2008 and what may well happen after the next election and conclude that things could easily be far worse.
On tenure for example, Savills estimated earlier this month that the private rented sector will house not 20 per cent but 24 per cent of households in England and Wales and by 2019 not 2040. On rents, last week’s Policy Exchange report would create ‘free’ housing associations but leave the poorest households even more reliant on private renting (more on this later).
On welfare, the link between housing benefit and rent has already been broken for many people through changes such as the bedroom caps, the shared room rate and the bedroom tax. The local housing allowance is currently rising by only 1 per cent a year and the Conservatives plan a freeze if they win the next election.
This report shows the choices facing us on housing policy. If we allow housing costs to continue rising and social housing to keep on shrinking, we will only be able to prevent rising poverty through a huge increase in the housing benefit bill. If we continue to cut housing benefit while pursuing housing policies that increase it, the result will be an increase in poverty and long-term costs to the economy. Saying that now is one thing. Seeing the implications of that 25 years in the future is quite another.
Some good news for Housing Day: it seems more people say yes to new social housing than say yes to new homes in general.
A fascinating Ipsos MORI poll published this morning reveals that 58% of people support ‘more social housing being built in my local area’. That compares with 22% who oppose it.
That’s a surprisingly positive result in itself given the steady flow of negative media stereotypes. And the balance only falls slightly to 55:24 when social renters are excluded.
However, support is also significantly higher than the 47% saying yes to ‘more homes being built in your local area’ in a survey of public attitudes to housebuilding published by the DCLG in July. That was hailed by housing minister Brandon Lewis as evidence that ‘nimbyism is on the wane’ and he was right: between 2010 and 2013 opinion shifted from 46:28 opposition to new homes to 47:31 support.
So what’s going on? The DCLG figures come from the British Social Attitudes Survey 2013 so it’s possible that the Housing Day poll reflects a general growth in support for new homes this year. However, the 58% support comes despite widespread concern about the impact of poverty porn on public perceptions of social housing.
Challenging the stereotypes created by programmes like Benefits Street with alternative positive stories was one of Housing Day founder Ade Capon’s five aims for this year’s event. Perhaps more people are resistant to the dubious charms of Love Productions than we thought: 60% agree that the negative view of people who live in social housing is unfair.
Beneath the headline message, the Housing Day poll reveals a mix of strong support for some of the main aims of social housing but also some real confusion about how it works. Around half of those polled admit they know not very much or nothing at all about how social housing is allocated and who lives in it.
The public think councils and housing associations house roughly three times more people than they actually do. In England, the proportion of social renters is believed to be 42% when it is actually 15%. They also significantly over-estimate the proportion of social tenants who are 24 or under. It’s put at 31% in the poll but is actually 12%.
The message is more mixed when it comes to comparisons between social and private renting. Social renting is seen as the most affordable form of housing by 69% of people with just 10% saying private renting. Social renting is also seen as the most suitable housing for vulnerable people by 61:15.
However, private renting wins by 53:20 on having the best choice and 42:25 on the best quality and (surprisingly to me given all the campaigning on short-term tenancies) by 33:19 as the best place to bring up a child.
Overall, social renting only just edges it as the best form of renting by 36:35. When social renters are excluded, private renting wins by 39:31.
There are also some interesting results when it comes to the traditional arguments for social housing:
- Affordability: 81% agree that social housing is important because it helps people on lower incomes get housing that wouldn’t be affordable in the private rented sector
- Tackling poverty: 67% think social housing plays an important role
- Mixed communities: 80% think social housing should be available to people who cannot afford private rents as well as to the most vulnerable.
Against that, relentless government propaganda seems to have had an impact: 41% of those polled disagreed that ‘social housing discourages those who rent in this way from improving their personal situation’ but 31% agreed. With social renters excluded, 42:31 disagreed.
So what should we take from all this? The good news is that there seems to be more support for social housing and the aims behind it than I might have expected given the media and political backdrop. The less good news is that things may be changing beneath the surface: people under 45 rate private renting higher than social renting whereas it’s the other way round for older people.
All of which reinforces my thinking about Housing Day. Today’s flood of tweets and pictures and videos is brilliant and they show a real appetite within the sector to communicate a positive message about social housing. However, the really important thing is to go beyond talking to each other and reach out and convey the message to people outside the sector. They’re already more positive than you may believe.
If you need any reminder of the urgency, have a quick read of the latest report from Policy Exchange published (I assume by coincidence) today. The central proposal is for ‘free’ housing associations in a grant-free future. That’s free from regulation of rents, sales, allocations and with a buy-out of historic grant. It’s a more sophisticated and voluntary version of previous Policy Exchange proposals but it still seems part of the end game for social housing to me.
Ipsos MORI polled 1,1997 adults in England, Scotland and Wales between 24 October and 2 November. The poll was conducted on behalf of a consortium of housing associations led by Yorkshire Housing and including the Joseph Rowntree Foundation. Detailed results including a breakdown between England, Scotland and Wales are available from the Ipsos MORI website.
A new book by the economist whose work first established the 250,000 homes a year benchmark has to be worth reading – especially when she’s not convinced it’s possible anymore.
Kate Barker’s seminal report on housing for the Blair government nailed the idea that the UK and especially England need to build houses at a much faster rate. A decade, and a separate study of planning, later and it still the ultimate source for targets of 200,000, 250,000 and even 300,000 homes a year to cope with demand and make up for the shortfall.
Now she’s back with Housing: Where’s the Plan, a short book setting out the housing challenge and potential solutions to it. With the new homes deficit rising by the year, she starts with a sober assessment of the possibilities:
‘To create a fairer and less harmful housing market, a combination of strong central direction about housing supply and unpopular taxation changes would be required. But politicians find it hard to grasp these nettles: there is far too much short-term pain and the gain will go to their successors. It is easier for them to carry on with somewhat ineffective knee-jerk and populist help for first-time buyers.’
While a perfect market may not be possible the book suggests ‘criteria for what a better housing market might look like’. However, she injects a note of caution from the outset:
‘I have become less convinced that it will be possible to meet demand in much of southern England, given the strength of local opposition in many places. So building more housing will not be the only answer, we also need to ameliorate the consequences of demand continuing to exceed the available supply.’
In less than 100 pages, the book covers an immense amount of ground including the sort of outcomes we want, post-war housing and planning policy, the housing market and the wider economy, market risks and taxation.
She also sets out, and knocks down, a series of ‘myths’. For example, the UK does not have an abnormally high rate of owner-occupation; rising prices do not mean housing is unaffordable for all; and we are not running out of land. Some of these are more clearly myths than others but all are put in a wider context.
The great strength of the book is that it avoids easy answers to what is a highly complex problem. While she argues that planning can be self-referential and planners don’t consider the costs of their decisions, she does not fall into the same easy trap as other economists of pinning the blame for under-supply on planning and assuming that new supply is enough on its own to solve the housing crisis.
The record of the 1950s and 1960s shows that ‘there is nothing about nationalised development rights and a plan-led system that intrinsically inhibits residential development’. Instead a retreat from active public policy, plus subsequent changes in planning regulation and funding of subsidised housing and in attitudes to development have combined to reduce the building rate.
In such a short book, some things are inevitably missing. For my money, she’s rather too complacent about what’s happened since the financial crisis, even arguing at one point that ‘lack of new supply was helpful’ because it helped stop prices falling. There is not much discussion of the role of buy to let or (surprisingly) the structure of the housebuilding industry.
I’d also question the assumption behind her decision to focus mainly on the private market. ‘Social housing deserves its own book,’ she says. Including it would certainly have made this one much longer but in an era of marketisation I’m not sure the distinction is so clear anymore. What we think of as ‘the market’ is in reality an inter-connected system of complex markets under-pinned by the state not just through development subsidy but through housing benefit, taxation and now billions of pounds worth of financial instruments.
However, these are quibbles about a book that asks some vital questions. The final chapter asks the crucial one: what would good look like? Barker confesses she was dispirited by what she found in her review a decade ago. Since then the financial crisis and downturn have reduced the capacity of the homebuilding industry and the housing market remains a source of inequality in living space and in location. Against that, she argues that the NPPF has brought improvements in planning and the mortgage market is better regulated.
She draws out four key reasons why our housing problems are so intractable and why it’s ‘vital’ to get new building back ‘towards or above 200,000 a year’:
- Demand for housing space rises strongly with income – meaning that the rich will buy more space and the poor will need subsidy
- Land remains the fundamental problem – we need more planning permissions and we need to reduce landowners’ expectations about their share of the gains
- There is no easy solution to the UK’s regional imbalances – London’s status will increase development pressure in the South East and she is sceptical about attempts to halt economic decline in the North and elsewhere
- Opposition to new development in the South East makes it questionable whether supply can keep up with demand.
Her recommendations are designed to boost housing supply while ensuring greater fairness and reducing the investment motive for owning housing. But she admits they do not try to address the issue of how to distribute economic activity more evenly around the country.
Most of the recommendations are familiar: local housing plans with greater borrowing and land assembly powers for local authorities; plans that judge their success in terms of achievements such as reducing the waiting list or improving affordability; incentives for local communities to accept development; new settlements and urban extensions; and encouragement for self-build. This is a similar agenda to the one laid out in the Lyons Review. She also calls for more risk sharing in mortgage finance and stronger regulation of quality and financial fairness in the private rented sector.
She calls for a holistic approach in contrast to the ‘knee-jerk’ responses of the past. That will require cooperation between a vast range of different government departments and agencies including a new ministerial committee chaired by the chancellor and aided by a new public advisory group of experts.
But her most controversial recommendation is designed to address demand rather than supply. Alongside reform of VAT and the council tax, she calls for the end of the exemption from capital gains tax (CGT) for main residences:
‘If objections to development lead to some effective rationing, then it seems perverse not to tax the benefit of owner-occupation that comes from price increases for the existing housing stock. If politicians are not prepared to face up to the need for much more housebuilding, they must instead face up to taxing capital gains on housing.’
It’s hard to fault the logic but whether you build more homes or tax existing ones it means taking on the same powerful lobby of voters who are already on the housing ladder. Where are the politicians prepared to do that?
How would the government’s own policies fare under the new families test?
The test published by Iain Duncan Smith will apply to all new laws and policies ‘to make sure they support strong and stable families’. It follows a speech by David Cameron in August promising family impact assessments of all domestic policies as part of a wider speech about family-friendly policy.
As I blogged at the time, Cameron was careful to avoid giving the impression that he only meant traditional families. However, his speech exposed a huge gap between rhetoric and reality on everything from the benefit cap to the bedroom tax, out-of-area homelessness placements to the private rented sector and troubled families to wider welfare reform.
So who better to set out the detail than a secretary of state famed for his ability to believe he is right regardless of the inconvenient facts? Have a look at the six tests proposed by IDS and a quick think about the policies introduced in the last four years that affect housing:
- What kind of impact might the policy have on family formation? (What about the benefit cap and the way that a new relationship or extra child can leave you unable to pay your rent? What about failure to ensure affordable house prices or stable family-friendly tenancies?)
- What kind of impact will the policy have on families going through key transitions such as becoming parents, getting married, fostering or adopting, bereavement, redundancy, new caring responsibilities or the onset of a long-term health condition? (To take just one example, what about those who cannot share a bedroom because of a medical condition but still get charged the bedroom tax?)
- What impacts will the policy have on all family members’ ability to play a full role in family life, including with respect to parenting and other caring responsibilities? (What about the way homeless people are being sent miles away from family support networks because of housing benefit caps?)
- How does the policy impact families before, during and after couple separation? (Severely when it comes to separated parents facing the bedroom tax on the room they keep for when their children stay over. Work and pensions minister Steve Webb told Daily Politics earlier that they would have had an exemption under a family test.)
- How does the policy impact those families most at risk of deterioration of relationship quality and breakdown? (Do I need to go on?)
None of this means that the new family test has no value. The questions are pertinent and worth asking before any new policy is announced. All of it could provide a useful way of looking at policy, at least in theory. In practice, of course, policies like Help to Buy could be seen through pro-government glasses as helping families on to the housing ladder and through anti-government ones as excluding many more by propping up unaffordable prices.
The definition of a ‘family’ way in accompanying guidance for government departments is admirably inclusive and careful to embrace all kinds of family unit and all kinds of family members. However, Iain Duncan Smith must have forgotten that families include same sex couples, lone parents and step parents before he penned an article on ‘why we must support marriage’ for the Daily Mail. ‘I believe part of the problem lies in politicians shying away from promoting strong family relationships, at the heart of which lies marriage – for fear of being thought judgmental,’ he says.
What are civil servants used to preparing impact and equality impact assessments that are routinely delayed, published at the last minute or ignored to make of its call to ensure that the family test should not be reduced to ‘a “box ticking” exercise or bureaucratic hurdle’?
And how can the rest of us listen to the sanctimonious IDS proclaiming that ‘this is the truest representation of government on the side of hard-working families in Britain’ without reaching for the sick bag?
Or better still having a read of today’s fifth report from the Real Life Reform project that tracks the impact of IDS’s own policies. Three-quarters of these real families are in debt, that debt has increased by 72 per cent since September 2013 and almost half do not know if they will ever be able to repay it. The average family in the study spends just £3.28 per day on food and four out of ten have nothing left at the end of the week.
Then think about the impact of the extensions to welfare reform that have already been announced by the Conservatives (reducing the benefit cap to £23,000, freezing most benefits and tax credits for people of working age for three years) let alone the billions of pounds worth of cuts that have not yet been spelled out (including the proposed cuts to ESA that leaked this week).
Universal credit came under scrutiny on TV and radio last night and whether you look from above or below things are not looking good.
Dispatches on Channel 4 covered the problems from below by looking at the experience in Warrington, where the job centre was one of the first to pilot the new all-in-one benefit. We heard from a succession of people whose claims were delayed, or processed wrongly or were simply not told what was happening and from Golden Gates Housing Trust on the problems this has caused.
The pilots are of course only meant to cover the simplest cases. However, single people don’t necessarily stay single: Jay moved in with his girlfriend and baby and found himself in a nightmare of delayed payments and rent arrears. ‘Me, my partner and my child will be homeless and you just don’t know what’s going on,’ he said. Jay started off as a fan of universal credit but they survived on coffee and crisps until the problems were sorted out.
And contrary to claims by the DWP and the amount of staff time devoted to the pilot there seemed to be a lack of information and support for people in the system. One claimant received a large universal credit payment without being told he had to pay his rent out of it. Peter Fitzhenry from Golden Gates Housing Trust told the programme that, contrary to claims by the DWP, only one or two of its tenants had been given personal budgeting support.
A survey by the programme showed that nine out of ten tenants on universal credit were in rent arrears and more than a third had faced some form of eviction action. However, it was not clear who was surveyed or how much of this was caused by differences between the way rent is charged and universal credit is paid.
Much more worrying were the leaks about how the system is creaking at the seams inside job centres. One manager wrote a memo headlined ‘Ideas please: sinking’. She only sent it to her own team but it was a pretty damning verdict on what is meant to be a ‘flagship’ reform. See more in The Guardian here.
Some of these problems could be seen as examples of the DWP learning from experience of course. That’s the whole point of pilots and all the people in the programme did have their problems resolved in the end. However, the standard DWP response to criticism – this reflects how things were before we made changes – has become all too wearily familiar.
Analysis on Radio 4 reviewed what’s happening from above. The presenter, Jonathan Portes, was chief economist at the DWP until 2008 and so well placed to put universal credit in the broader context of welfare reform. He highlighted the continuities with what was happening under Labour (‘in some respects maybe we were too cautious’) and the broad support for the new system at the outset. ‘Everybody thinks it’s sensible and has done for years,’ said Labour MP Margaret Hodge, chair of the public accounts committee.
The programme interviewed supporters of IDS like Spectator editor Fraser Nelson, who argued that he was right to be ambitious and that he will be seen as the most effective reformer under the coalition government.
But did he bite off more than he could chew? The Treasury thought universal credit was risky and expensive. Experts warned the timetable was wildly over-ambitious. The DWP was pushing through major changes in disability benefits at the same time that in some ways make universal credit look good: delays and other implementation problems mean around £3 billion a year in promised savings have not been delivered. Hodge predicted that the DWP will admit to a £500 million write-off for IT costs on the universal credit – but only after the election.
Behind the scenes, according to the programme, IDS was trying to blame the problems on Robert Devereux, his permanent secretary. Former head of the civil service Gus O’Donnell said that, in contrast to the micro-management of Tony Blair, David Cameron had adopted a hands-off approach that meant problems only became clear later in the process.
Portes concluded the programme: ‘Maybe we did go too slowly with welfare reform in the 2000s. But the experience of the last four years suggests that being cautious is not the worst mistake you could make.’ His piece for The Guardian yesterday was much more trenchant.
Next week sees IDS face another grilling at work and pensions questions on Monday and a joint appearance with Robert Devereux before the work and pensions committee on Wednesday. No doubt we’ll face the usual dismissal of every criticism as based on out-of-date information.
For tenants and landlords all this means it’s impossible to know what’s really going on beyond an impression of chaos from above and below. As Brian Wernham points out on his blog on the two programmes, universal credit exists in a foggy world where it’s hard to separate fact from anecdote. Quite apart from the system itself and whether it works on the ground, crucial details like the extension of the sanctions system and the proposed extension of the waiting period will also have a major impact.
The ‘accelerated roll-out’ to every job centre in the country will now ‘start’ (whatever that means) in February 2015, though presumably this will still only be for the simplest cases and still using the same Heath Robinson temporary IT system as the pilots. However, Dispatches showed only too clearly that the simplest cases have a habit of becoming more complex and Analysis shows just how dysfunctional things are at the DWP as it struggles to get the national system back on track.
Until May 2015 the ‘careful roll-out’ will continue and everything will be of course on time and on budget. After the election, depending on who wins and who becomes secretary of state, it will be time to take stock in ways that were planned all along or time to blame Iain Duncan Smith for the shambles.
Guess what the total value of government financial instruments to support new homes will be by 2021.
The answer that leapt off the page at me in a report on the department’s performance published by the National Audit Office (NAO) last week is a cool £24 billion. And that is just the direct support that comes under the DCLG and its agencies.
Perhaps the figure should not come as a surprise. After all, ever since the financial crisis we’ve grown used to the government adopting new ways of financing things that do not rely on conventional spending or borrowing.
The three programmes that make up the £24 billion are £10 billion for financial guarantees to housing associations and the private rented sector to help build new homes, £9.7 billion for the Help to Buy equity loan scheme (HTB1) and £4.2 billion for other loans and investments such as Build to Rent and the large sites scheme.
It’s still relatively early days for many of these schemes (HTB1 was only extended to 2019/20 in the 2014 Budget) but they are already hugely significant. The NAO notes in its report that:
‘The [Homes and Communities] Agency has already moved to a point where the March 2014 valuation of its available for sale financial investments (£1,554 million) exceeded its payment of grants during 2013-14 (£1,052 million).’
All of these schemes will be familiar to readers of Inside Housing. But it’s only when you put them together that you realise the scale of the shift from old-style grant funding for housing to new-fangled financial instruments. To put that £24 billion into perspective, the total value of construction output on new housing is currently running at £25 billion a year.
Consider too what’s happening elsewhere in housing that does not come under the DCLG. Add the direct impact of another £12 billion for Help to Buy mortgage guarantees (HTB2) and the indirect effect of hundreds of billions of pounds worth of Funding for Lending and quantitative easing on mortgage payments and house prices. Look at the novel forms of equity investment that are being developed within local government – and schemes devised by governments in other parts of the UK.
And the total value of financial instruments seems set to grow even further in the rest of this decade. All of the main parties are committed to deficit reduction plans with little scope for more conventional public investment and borrowing. As I blogged last week, for example, Labour’s Lyons Review included proposals for Help to Build loan guarantees for small builders, more loan guarantees for housing associations, equity loans for private landlords and equity investments of public land. The Independent reported on Sunday that shadow ministers are already holding talks with the banks on how Help to Build would work.
The scale of the shift to financial instruments is obvious when you stop to think about it. What’s more surprising (to me at least) is how the shift has happened with relatively little public debate about its advantages and disadvantages. True, the merits or otherwise of HTB2 came under very close scrutiny but that is just part (and so far a small part) of what we’re talking about.
The upsides for the government are not hard to see. Financial instruments like guarantees do not count as public spending and borrowing. Some of them could result in healthy profits for the taxpayer: the Financial Times calculated in May that the government could make a £4.5 billion profit on Help to Buy equity loans. Commercial fees are charged for many of the guarantees and loans. And is it conceivable that ‘available for sale financial investments’ could actually be sold by a future government?
The obvious downside is that the taxpayer could suffer losses if house prices fall or a housing market crash leads to large-scale defaults against loans or developers going bust and guarantees being called in. Relying on guarantees and loans increases risks for housing associations and others. The existence of the instruments could drive policy elsewhere (for example by giving the government even more of a stake in ever-rising house prices). How much of the activity being guaranteed would have happened anyway? How much of the benefits will disappear into the pockets of shareholders in the major housebuilders? And might there be better ways of using the public sector balance sheet to support new housing?
The NAO’s job is to scrutinise the financial performance of central government. Its report on HTB1 in March highighted the potential impact on borrowing by low-income households but also noted that it was a ‘long-term commitment with uncertain returns’ and the objectives did not include any value for money criteria. Last week’s report also analyses the risks and notes that the DCLG and HCA have responded to its concerns by recruiting more staff with the skills to administer HTB1 and its other financial instruments.
‘With less grant and a greater emphasis on support through financial instruments, development of new housing will require substantial levels of debt at a time when some associations are coming closer to covenant boundaries. This leads to diversification into commercial activities and to a desire to circumvent constraints in a variety of innovative (but potentially risky) ways.’
Further away from home, the same thing is happening across Whitehall, from the £40 billion in infrastructure guarantees being issued by the Treasury to the financing of Hinckley C nuclear power station to the shift from direct funding to student loans in higher education. It’s a brave new world that deserves much more scrutiny that it is getting.
Who said this? ‘What is currently happening in the housing market epitomises our concerns about Britain becoming a permanently divided nation.’
This is not a quote from a housing pressure group or a think-tank or even an article in Inside Housing. Instead it is the verdict in a report published on Monday by an official government body: the Social Mobility and Child Poverty Commission.
The advance headlines ahead of its annual State of the Nation report were about the ‘under-30s being priced out of the UK’ and much of the coverage after that went to the commission’s criticism of Labour’s plans on the minimum wage and its proposal to ban unpaid internships. However, read as a whole the report gives a fresh perspective on problems that are all too familiar to anyone in housing.
That perspective comes from its unusual status as an advisory non-departmental public body with a remit to advise the government and others on child poverty and social mobility. It was established under the last government’s Child Poverty Act 2010, which set binding targets on future governments to eliminate child poverty by 2020.
The coalition’s record on child poverty is mixed so far and how you consider housing makes a big difference. The most commonly used measure, relative poverty (that is, relative to other incomes) before housing costs, improved in the three years to 2012/13 thanks to rising employment and the fact that benefits were stable at a time when real wages were falling. However, progress on this has stalled and high housing costs dragged an extra 1.4 million people into relative poverty after housing costs were taken into account.
The Commission concludes that ‘changes in the housing market are already increasing poverty and are threatening to become a major impediment to social mobility’. The number of children in absolute poverty (unable to afford a basic standard of living) after housing costs has risen by 450,000 since 2009/10. This has been ‘almost entirely driven by an increase in working poverty’ and the Commission says the biggest factor in this is the shift of families with dependent children from owner-occupation to the more expensive private rented sector. The proportion renting privately has doubled in the last ten years.
The report sees four implications in these ‘startling changes in the housing market’:
- Lower relative living standards for some families, with private renters paying 40 per cent of their average income in rent but mortgage holders paying 20 per cent.
- A rising proportion of the population not benefitting from record low interest rates
- Reduced stability for families: in 1999/2000 three-quarters of those with children who were renting had a social tenancy but in 2012/12 less than half did.
- A delayed transition to adulthood and increased inequality between generations as young people are locked out of ownership and parental help becomes ever more important to getting on to the housing ladder.
The Commission argues that what’s happening in housing challenges ‘the very terms of the debate’ about child poverty and social mobility:
‘Changes in the housing system complicate what social mobility means, with risks that, even if children from less advantaged backgrounds do well at school and find a good job, they will find themselves trapped for the long-term in shared, expensive and insecure private rented accommodation, unable to start a family and worse-off than both their parents and their peers from more advantaged backgrounds.’
And it says the next government must give housing greater priority: ‘The new objective for housing policy should be that it contributes to more social mobility and less child poverty’. There should be action to make longer-term tenancies the norm, boost housing supply and make shared ownership a real option for people who are priced out of the market without assistance from their families. Private renters are missing out on both security and asset accumulation and face support for housing costs becoming detached from actual rents and it’s unclear to the Commission whether the current voluntarist approach is having much impact on longer-term tenancies.
All of these points will be familiar to people working in housing but they take on a different meaning when put through what the report calls a ‘social mobility prism’. The Commission sees action on housing as one of five key recommendations to meet the ‘2020 challenge’. The others are credible plans for deficit reduction, recoupling earnings and economic growth, boosting growth in the regions and setting out a ten-year ambition for the UK to become a Living Wage country by 2025.
However, to view that through a housing prism, the Living Wage assumes that families with children have access to social housing. That makes it curious that the report does not say more about boosting supply of social housing or protecting what already exists.
As things stand, progress towards the 2020 child poverty target is about to go sharply into reverse. This report only measures progress up to 2012/13. That means it does not reflect all the cuts in benefits and tax credits that applied from April 2013. Publication of the 2013/14 data is currently scheduled for June 2015, a convenient month after the next election.
And we are still only halfway through austerity. The Commission argues:
‘It is hard to see how savings on this scale can be made without seriously affecting the public services that aim to level the social playing field and the income transfers that have propped up families in work and out of work. Yet there seems to be an emerging consensus between the main political parties that fiscal consolidation on this sort of scale will be necessary between 2015 and 2020.’
That is a matter for each of the political parties but:
‘What appears hard to square, however, is their shared desire to reduce poverty and speed up mobility with their eye-wateringly tight fiscal plans. None of the main political parties has made much effort to reconcile the social ends they say they want to achieve with the fiscal means to which each of them is committed. There is a need for more honesty about the implications of planned public spending cuts from all the political parties.’
The report warns that protecting benefits for pensioners will make the cuts far worse for everyone else. With most working-age benefits now rising by just 1 per cent a year (and the Conservatives pledging a freeze to follow that) poverty is set to worsen in the rest of this decade.
Far from eliminating child poverty, experts predict we are now on course for the first decade since records began in which absolute child poverty increased. And a housing system that will become the symbol of a permanently divided nation.
So what clues does the Lyons Review offers us about housing up to 2020? Here are some more thoughts.
The review is important in its own right as one of the most significant political reports on housing in the last ten years. However, it also gives us a much more detailed impression of what life will be like under a Labour government in the second half of this decade to add to the outlines of what we can expect under the Conservatives.
I argued in my blog last week that Lyons is good on housebuilding but offers little to supporters of social housing. If you judge the review by what it was asked to do (provide recommendations to Labour on how to get to 200,000 new homes a year in England by 2020) your verdict will tend to be positive. If on the other hand you ask whether recommendations made within these constraints are enough to solve the housing crisis you will be much more negative (for example, see this blog by Alex Hilton.).
The same pattern was evident in Andrew Neil’s interview with Emma Reynolds on Sunday Politics yesterday (watch again here from about 15 minutes in). Neil showed his ignorance of how housebuilding works but he also put the shadow housing minister on the spot when he asked her why we will still be building fewer homes than we need in 2020 and what being ‘a priority’ for investment really means.
Here are seven more talking points that illustrate what I mean about the two different ways of looking at Lyons:
1) A national priority
The way forward: The review boldly states that ‘the government must provide long-term political leadership by making housing a national priority’. Housing will be championed by the prime minister, chancellor, communities secretary and ‘housing minister attending Cabinet’ plus a cross-departmental task force and other advisory bodies. Funding will be devolved to city and county regions.
The worry: The housing minister had ‘attending Cabinet status’ at the end of the last Labour government, a period when we were still under-achieving on new homes. If housing really is that much of a national priority, why not give it full Cabinet and departmental status? Once housing funding streams are consolidated into the economic development fund devolved to city and county regions, where is the guarantee they will actually spend it on housing?
The real test will come if (when?) there is a downturn in private housebuilding (perhaps when interest rates rise). One of the most important recommendations in the report is that: ‘Government in 2015 should provide confidence that in future, counter-cyclical demand side measures will be implemented when needed’. One of the biggest housebuilders, Bellway, said last week that 200,000 homes will be impossible without additional government investment in affordable homes.
2) Avoiding change for the sake of it
The way forward: The report argues that the government should avoid the short-lived initiatives that have plagued housing policy in the past and use primary legislation sparingly. That’s all good but there are also recommendations to reverse coalition tinkering: changing the definition of ‘affordable’ in the NPPF back to one that refers back to incomes; reversing the exemption from the zero carbon standard for small housing developments; and scrapping the proposed minimum threshold for affordable housing section 106;
The worry: Some of this runs counter to the review’s emphasis on supporting small builders. And what about two other coalition changes? The evidence so far indicates that the New Homes Bonus is a mechanism for transferring funds from North to South for homes that would have been built anyway and that the ‘reinvigorated’ right to buy is not producing anything like one for one replacement. Why timidly call for a review of them rather than be bold and scrap them too?
3) Are locals ready to be led?
The way forward: Plans for new housing will be ‘locally led’ but there would be new powers for the secretary of state to intervene. As things stand, a fifth of local authorities have still not even published a local plan let alone adopted one. The review proposes a range of measures to speed things up strategic housing market plans across administrative boundaries and a ‘right to grow’ into neighbouring authorities.
The worry: Some local authorities – think Milton Keynes, where the report was launched – are already promoting new homes. Others are doing the minimum possible. Action to ‘empower local communities to make their own decisions’ sounds great but what if that decision is ‘no thanks’? The local/national issue is already a problem under the existing system but could ‘the right to grow’ turn into political guerrilla warfare? How will South East councils feel about meeting London’s housing need? For a preview of that, see the way that Eric Pickles is already proclaiming the Labour threat to the green belt.
4) Can local authorities cope?
The way forward: Local authorities would ‘play a much more energetic role’ in leading housing development and will have greater powers to act through housing growth areas, new homes corporations on land assembly and infrastructure. Where councils do not have the expertise they should share it between them.
The worry: ‘A strong leadership role from local government to intervene where the market does not provide by itself and a more energetic and active role in assembling land and driving development through partnership to deliver the type, number and quality of homes their communities need’ sounds great in theory. In practice though, local authority services have already been cut to the bone and more austerity is on the way. If councils are already struggling to deliver statutory responsibilities like adult social care, what will be left for planning and housing?
5) Borrowed time
The way forward: The report tells us that ‘as a nation we only consistently built 200,000 homes or more at times in the past when local authorities were building a good number of them’. It goes through the convincing arguments for allowing local authorities to borrow to invest for switching back from benefits to bricks and mortar. It does not follow through with any recommendations, although it’s not the Lyons Review’s fault that Ed Balls has ruled out extra borrowing for housing investment.
The worry: Labour’s caution is evidently driven by fear of giving ammunition to the Conservatives. However, different forms of borrowing are everywhere in the report. There will be Help to Build loan guarantees for small builders, loan guarantees for housing associations, equity loans for private landlords and equity investments of public land. It seems it is ok for councils to raise bonds for housing companies outside of the HRA. There are recommendations on ‘active management of the overall council housing borrowing headroom by the Treasury’ and an assessment of ‘the distribution of the receipts from right to buy’. As with existing policies like Help to Buy, any form of borrowing seems to be ok so long as it does not actually count as borrowing.
6) Mobilising housing associations
The way forward: Lyons says the government ‘will need to work actively’ with associations to mobilise surpluses and borrowing headroom on the balance sheets. This applies especially to the largest ones in London and the South East to leverage them to parts of the country where there isn’t the same ‘capacity and willingness to invest’. Nick Duxbury reports on this in more detail here. Lyons also proposes a ‘re-tasking’ of the Homes and Communities Agency. Responsibility for investment will transfer to the DCLG and then down to city and county regions, as the HCA becomes an investment aggregator and enabler for development in much the same way as the old English Partnerships.
The worry: This sort of talk, and mention of opportunities for mergers, has led to concerns at the National Housing Federation about housing association independence. As Alex Marsh argues, if the government takes intervention too far it could ultimately find that associations’ borrowing will be reclassified as public borrowing and if it pushes risk too far it could be storing up big problems for the future. The review considered moving regulation away from the HCA too but concluded that would ‘risk delay and uncertainty’. However, does an agency whose main focus would be commercial make for the best regulator of social housing? And what about the interests of tenants?
7) The future of social housing
The way forward: There is an unresolved dilemma at the heart of the report. While there is extensive discussion of the problems that affordable rent poses for landlord borrowing capacity, tenant affordability and the housing benefit bill, higher rents mean more homes for the same public subsidy. Lyons envisages that output by councils and housing associations will double by 2020 compared with 2013. With investment limited despite that vague promise of housing being ‘a priority’, will a Labour government really choose fewer homes with lower rents over more homes with higher rents?
The worry: Labour’s caution on borrowing and investment and the target of 200,000 by 2020 indicate to me that we will see a development of what we have now rather than a break with it. When that’s combined with the universal credit, the end of direct payment and continuing austerity, what does that mean for the most vulnerable tenants and those who most need social housing? The tensions between landlords’ commercial focus and social mission can only intensify and the temptation to go for better-off tenants paying higher rents can only grow. That’s precisely why investment has to be a priority.
The Lyons Review is the most significant report on new housing supply in years but it’s much more convincing on private sector housebuilding than social housing.
Lyons picks up where Barker left off on housing in 2004 (and on planning in 2007) but with two added bits of context. First, we’ve gone backwards in the last ten years: annual output is around half what we needed and the backlog of unmet need is mounting by the day. Second, any solutions have to operate under severe political and financial constraints.
So anyone reading the report whose priority is more social housing will come away disappointed with the recommendations for a future Labour government. There will be no change in the borrowing rules for council housing and no increase in the borrowing caps except for potential swapping between authorities. The case for continuing and increased grant subsidy is accepted but subject to overall constraints on public spending in which social housing will be an unspecified ‘priority’ for more money.
And anyone hoping for a shift in the political obsession with aspiration and ownership rather than homes will already have been disappointed by the advance coverage. The Labour Party’s spin has been all about first-time buyers and ‘homes for locals’ even though they get relatively minor mentions in the report itself.
However, as with the launch setting of Milton Keynes the report offers solid grounds for optimism too. Here at last is consensus on a long-term strategy in place of the short-term gimmicks we’ve seen ever since the financial crisis.
The military overtones in the report’s title – ‘Mobilising across the nation to build the homes our children need’ – are one indication of its comprehensive range. Another is the review’s acceptance that the main aim of the report – how to deliver Labour’s pledge of 200,000 homes a year by 2020 – is only a starting point in meeting need now estimated at 260,000 a year. The recommendations reach well beyond one parliament.
The mobilisation will have to be across all tenures and all types of housing organisation. Here’s the review’s delivery grid of who should be producing the 200,000 homes in England by 2020:
What’s interesting here is that Lyons believes that volume housebuilders can only do so much. They will build half of the 200,000 homes in 2013 and increase output by 50 per cent on 2013 levels. However, the plan involves all the other actors – housing associations and local authorities, small builders, custom builders, private rental developers – at least doubling the number of homes they provide. That 200,000 target may be less than is needed but it will still be extremely challenging.
That’s why the meat of the report is a series of recommendations on wholesale institutional change designed to promote increased supply. At national level there would be:
- A housing minister restored to attending Cabinet status and supported by a cross-government taskforce, independent advisory Housing Commission and national Housing Observatory.
- An immediate statement of national targets for housebuilding moving beyond 200,000 and covering the next 20 years plus early publication of a housing and planning white paper and draft Bill
- A ‘re-tasking’ of the Homes and Communities Agency as a national delivery agency with key roles as the sole agency for disposal of government land and assets and as a development partner and manager of government guarantees. Grant funding responsibilities would transfer to the DCLG and then be consolidated with economic development funds and devolved to city or county region authorities.
At a local level, the report recommends a series of changes on planning, with new powers for the secretary of state to intervene where there is persistent under-delivery, plus a series of new delivery mechanisms including:
- Groups of local authorities co-operating on strategic housing market plans (these would also be the mechanism for the ‘right to grow’ for authorities that cannot expand at the moment)
- Giving local authorities new powers and incentives to take a proactive approach to land assembly and development in Housing Growth Areas – either as individual authorities or working with others.
- Allowing councils to create New Homes Corporations to respond to specific needs across local markets (these would be like urban development corporations but accountable to local communities)
- Garden cities and garden suburbs brought forward by local communities and backed by a revamp of the New Towns legislation and Treasury guarantees and financial incentives to unlock development and infrastructure.
These changes at national and local government level would be matched by reforms to increase housebuilder capacity including ‘use it or lose it’ measures to ensure planning permissions are implemented, support for small firms and development of the construction skills base.
Crucially, there would be changes to the way the land market operates too. To ensure greater transparency, the Land Registry would open up information on land ownership and housebuilders and others would be required to register land option agreements, transactions and prices.
And many of the new institutional arrangements would be backed up by updated compulsory purchase legislation to unlock development. Where land is designated for a garden city or housing growth area, compensation would be based on current use value plus a premium to ensure a generous return to the landowner but ensuring that the infrastructure can be funded from the land value uplift.
These recommendations represent a growing consensus about the way forward and they come from people right across the housing and housebuilding world. However, political and financial constraints mean that the report is weaker when it moves away from market homes for sale.
Councils would get a key role in facilitating development in their areas, endorsement of innovative ideas like local housing companies and the prospect of limited flexibility on their borrowing caps. But there is but nothing yet that amounts to a rebirth of council housing let alone a change in the borrowing rules.
Housing associations are offered the prospect of new flexibility on how stock transfer homes are valued and potential new freedoms on rents. There would also be discussion of how to mobilise surpluses and headroom across the sector to unlock further investment.
And the report is also timid when it comes to other crucial issues for social housing. The right to buy would be reformed to enable ‘genuine one-for-one replacement’ and the government would assess the distribution of sales receipts as part of that. However, the policy itself would merely be left to an ‘early review’.
As for affordable rent, the report has extensive discussion of the long-term costs and the impact on housing association borrowing. It endorses analysis that bricks and mortar investment offers better value for money than higher spending on housing benefit. However, moving back to social rent would mean higher grant and fewer homes at a time when Lyons wants to double output. The report does not specify the mix of a future development programme and several times talks about ‘social and affordable rent’.
The aim is to ‘move away from models of affordable housing that are solely grant dependant and shift our approach to public funding based on investment rather than consumption’. That’s a reference to mechanisms such as long-term loans and land but the report concludes:
‘The review recognises that constraints on public spending and debt mean that the scope for increased capital spend is likely to be severely limited in the immediate term. However it is clear that without further capital support there will be a limit to the amount councils and housing associations are able to do to meet the need for affordable homes. This is therefore an issue that government will need to return to in future and should ensure that investment in housing is better reflected as a priority for government in future decisions on public spending.’
Even if Labour wins in 2015 and even if it achieves its target of 200,000 homes by 2020, there is unfinished business.
Could we invent a worse system of taxing housing than the one we have now?
As modest attempts at reform are made to howls of protest from those who stand to lose out, it’s worth standing back a moment to reflect on what we tax (and why) and what we don’t.
We have an annual tax on the value of all homes but the council tax in England and Scotland is based on property values as they were in 1991 with a top band of just £320,000. The owner or tenant of a modest semi in Wolverhampton can end up paying more than an oligarch with a multi-million pound home in Westminster. The system was designed to narrow the differences between the top and the bottom from the start but failure to uprate it in line with house prices has amplified the distortions.
We have the bedroom tax for social housing tenants on housing benefit who are judged to be under-occupying their homes but people living on their own can still claim a 25 per cent discount from the council tax.
Meanwhile the hundreds of billions of pounds worth of unearned wealth that existing owners have locked up in their homes are exempt from capital gains tax. True, the exemption only applies to principal residences but, as the MPs’ expenses scandal showed, there are all kinds of ways of avoiding it if you have a second home or a buy-to-let investment. The exemption also encourages people to buy more housing than they need given that all other forms of investment are subject to CGT.
Instead we impose stamp duty on the buyers of homes. This is the sort of transaction tax that economists hate because it is effectively a tax on labour mobility. That’s complicated even more by the current slab structure, which means a huge increase in duty on the whole sale once homes are worth above £250,000, £500,000 and so on. However, stamp duty has become a huge earner for the Treasury, with receipts rising forecast at £12.7 billion in 2014/15, and it is hard to avoid now that loopholes on ownership through companies have been closed.
We rightly exempt new homes from VAT but we continue to charge it at 20 per cent on most conversions and renovations of existing homes. This is a major barrier to bringing empty homes back into use and to increasing the space in existing homes.
Then we have section 106 requirements and the community infrastructure levy. These are presented by housebuilders as taxes on new homes but in reality they are imperfect taxes on land value uplift. Cutting ‘red tape’ by cutting the requirement for new homes may make some sites viable at the margin but the aggregate effect is simply to increase profits for housebuilders on land they already own and to increase the price they will pay for land in future.
And what about the windfall profits driven by major projects like Crossrail? Anyone lucky enough to own a home close to a station on a new train line will make substantial gains that are entirely driven by public investment. Under our current system they are also tax-free.
As I’ve blogged before, we can at least console ourselves that we did manage to get rid of the most absurd example of housing taxation of all. Mortgage tax relief, a subsidy that fed directly into increased house prices, was finally abolished in 2000. However, it had survived for more than 30 years after the tax it was relieving (schedule A income tax on the imputed rental value of a home) was abolished.
And what are all these taxes for? Raising money for the Treasury and for local services and community infrastructure are of course important aims. However, they seem to come a long way ahead of promoting a better housing system or reducing house price volatility or fostering local democracy.
However, the debate raging about property tax reforms that are already on the table shows the opposition that any proposal for reform will face.
Labour and Lib Dem plans for a mansion tax on homes worth over £2 million in England have faced a predictable attack from upmarket estate agents but there also seem to be growing doubts from MPs and mayoral candidates worried about the number of people who will be affected in London. The Labour version of the mansion tax involves an annual charge whereas the Lib Dems have been dropping hints about creating extra council tax bands instead. However, we’ve yet to see much detail on who would pay and who would be exempt and the relationship between a mansion tax and inheritance tax and council tax.
In Scotland, meanwhile, the government has just published plans to replace stamp duty with a land and buildings transaction tax. This would replace the slab structure with a marginal and more progressive one that the Scottish government says will mean that 90 per cent of buyers will be better off or no worse off. Given that the change will be revenue neutral, buyers of more expensive homes will pay significantly more.
A furious assault backlash from vested interests peaked in reports this morning that the new tax will hit the ‘squeezed middle’. Estate agents normally exaggerate the value of what they are selling so that tiny flats become bijoux and wrecks ‘would benefit from modernisation’. In this context, the language works the other way around so that four-bed detached homes in Morningside and The Grange (two of the most exclusive parts of Edinburgh) become ‘modest family homes’.
The reform seems set to create a fairer system but it still has the disadvantages inherent in a transaction tax. For more on the issues involved see this blog by Mark Stephens, who argues that the critics are talking rot but the real test will come with the reform of council tax, and this by Ken Gibb, who highlights the precedent that it will set for future devolution.
Kate Barker’s new book Housing: Where’s the Plan (full review to come soon) includes a great summary of how we’ve arrived at such an imperfect system and an analysis of why the options for reform are so problematic. In particular, she recounts the history of attempts to tax land value uplift and how they have been frustrated by landowners’ ability to sit tight and wait for a change of policy from a new government. Her own favoured solution is to extend capital gains tax to principal residences.
The most comprehensive set of proposals for reform came from the Mirrlees Review for the Institute of Fiscal Studies in 2011. Recommendations included a housing services tax, a land value tax and reform of tax on rented housing to create a level playing field with owner-occupation.
With austerity set to continue for the rest of this decade, no government will be able to ignore housing as a source of new revenue. Squeezing more from the current dysfunctional system may avoid controversy but at the price of distorting our housing system even further. All of the options for reform present their own problems but any of them would be an improvement on what we have now.
Nick Clegg’s failure to mention housing in his leader’s speech feels like a suitably downbeat conclusion to the final party conference season before the election.
As I blogged earlier in the week, on paper the Lib Dems have the best housing policies of any of the mainstream parties. A target of 300,000 homes a year, a housing investment bank and powers for local authorities to suspend the right to buy will please most people reading this. A succession of MPs, including all three of Clegg’s potential successors, made all the right noises about housing on the conference floor and in countless fringe meetings.
So does it matter that Clegg failed to use the H word? On one level, no: if Clegg had added a paragraph saying how building new homes is a priority and supporting first-time buyers a passion it would have told us nothing more than we already know about the party’s policies. Earlier in the conference, Clegg did make a significant housing announcement with support for ten new garden cities. And in any case both he and the Lib Dems may be obliterated into irrelevance after the election.
On a more basic one, yes it does. This was not just the last party conference season before the election, it was also one in which mentioning or not mentioning something in a leader’s speech took on an extra significance. Ed Miliband forgot to talk about the deficit and it confirmed what many people thought about him and Labour. David Cameron said nothing about climate change and it made everyone remember the phony PR man of Hug a Husky.
I wouldn’t put Clegg – or housing – in the same bracket. However, given what happened at the Labour conference, it seems a reasonable bet that his advisers will have pored over his speech for anything important that was missing. There were plenty of opportunities for Clegg to make a brief link between housing and the ‘opportunity for everyone’ theme of his speech. Draw your own conclusions.
And not just about the Lib Dems. In blogs in the last couple of weeks I’ve noted a lack of focus from Labour on housing and gimmicks and more cuts from the Conservatives.
At much the same time as Clegg was speaking, Eric Pickles, the Cabinet minister theoretically responsible for housing, was thanking housebuilders ‘for your hard work in getting Britain building again’ and claiming the ‘sharpest increase in private building for 40 years’. That’s certainly an upbeat way of presenting the recovery from the lowest rate of housebuilding in peacetime for 90 years but it doesn’t change the fact that England is still building half the new homes needed.
In a blog yesterday, David Orr of the National Housing Federation summed up his sense of unease and frustration about the conference season as a whole. Housing fringe meetings were packed and 84 Homes for Britain events were held but he concludes that ‘the penny hasn’t dropped’ about the housing crisis and that the general assumption was that we have time when we don’t:
‘The overall sense was that in housing, as well as many other areas, the thing really lacking wasn’t just that critical sense of urgency. It felt like a lack of leadership, not just from those who are the leaders of the parties but from the parties collectively. If we are to end the housing crisis in a generation and if we are to be able to house our children (and what a shameful reality it is that we might not) we need our politicians to do more than be in power. We need them to lead.’
Grainia Long of the Chartered Institute of Housing was more optimistic that housing is being taken seriously and that politicians may finally be giving it the priority it deserves, ‘but I’m still not sure they really grasp the urgency of the situation’.
Perhaps in an election year this is inevitable. All the campaigning about the crisis has increased the salience of housing (or at least of new homes) as an election issue but not by enough to affect the result. Power is what matters.
But what then? The conference season suggests that the best we can hope for is a crisis that gets worse more slowly. At worst, the divide between housing haves and have-nots will continue to grow and so will the deficit in new homes. The effects of this will be felt by individuals, by communities and by the economy as a whole.
Maybe the clue is in the very notion of a conference season and an electoral cycle. In an editorial last weekend, The Observer concluded that our housing problem can be fixed but the politics of reform are toxic:
‘To be credible, politicians need to demonstrate they are willing to pursue reform with deeply unpopular consequences, not to mention a personal financial hit.’
There still seems to be a collective unwillingness to recognise that private housebuilders can only do so much, that the land market needs radical reform and that ‘good’ borrowing for social housing now could produce homes that generate a return and a long-term reduction in the deficit. Or that something as important as housing needs more than a weak sponsoring department with a revolving door for ministers and a semi-detached secretary of state.
There are politicians in all three main parties who know this. Danny Alexander’s startling revelation at the Lib Dem conference that the Treasury has been considering a role as a direct commissioner of new homes shows that some in the most powerful department in government are thinking along the right lines. So too was Labour when it commissioned the Lyons review of how to get to 200,000 new homes by 2020. Hopefully the party will act on the report’s recommendations when it is finally published.
However, ahead of what looks seems set to be another close election, where are the votes in the H word? The housing crisis requires long-term solutions that have short-term costs and may only pay off once the government of the day has lost power.
As so often before the Lib Dems look like going into the next election with the best housing policies. On paper anyway.
Admittedly the competition is not high given the caution from Labour and divisiveness and hints about the end of grant from the Conservatives. However, the policies emerging from the Lib Dem conference in Glasgow look like they’ve been tested on a focus group consisting of people who care about housing.
This morning the party passed a motion calling for 300,000 homes a year, a new deal for renters, a housing investment bank and new powers for local authorities and housing associations to build plus measures to secure land at lower prices and remove barriers to house price stability. That was promptly amended to include a new power for local authorities to suspend the right to buy.
The rhetoric from Lib Dem MPs was good too. Tim Farron called on the party to have the courage to build more homes: ‘There are plenty of votes in opposing new homes but there are more votes still – and there is honour – in delivering them.’ This morning’s papers were briefed on Nick Clegg’s support for ten new garden cities, including five along a new rail link between Oxford and Cambridge.
Most promisingly of all, in two speeches this morning Vince Cable not only attacked Tory plans for yet more spending cuts and warned of the inequalities caused by the housing crisis but also supported higher government borrowing for infrastructure and housing:
‘When interest rates are so low, borrowing for investment is a no brainer and is nothing to do with deficit reduction. Of course we need to protect the next generation from too much public (as well as private) debt, but the next generation would certainly not thank us for a legacy of underinvestment, over-stretched infrastructure and unaffordable homes.’
With five years of continuing austerity in prospect whoever wins the election, that seems an essential precondition for increased investment in new homes that will reduce spending on housing benefit over the longer term. It’s a policy that senior Labour politicians seemed reluctant to endorse explicitly last month despite previous positive signals.
So far, so good except that there are reasons why I said the Lib Dem policies look the best on paper. The traditional one – that the party has no chance of power and it doesn’t matter what it says – seems less relevant now in spite the current state of the opinion polls.
The new one is what the party has actually done with power. To the obvious charge sheet of colluding with the bedroom tax and collaborating with other welfare reforms, a critic might add rolling over to have its tummy tickled by Grant Shapps. One Lib Dem council leader speaking this morning accused the party of ‘falling in behind a Tory housing minister determined to marginalise social housing’ while a London councillor raised the latest mockery of ‘affordable’ rent.
Policies like affordable rent, the removal of security of tenure and allowing the discharge of the homelessness duty into an unregulated private rented sector definitely did not feature in the last Lib Dem manifesto and weren’t in the coalition agreement either. And just as Lib Dem ministers seem unable to stop pleading fairness to private tenants as a justification for the unjustifiable bedroom tax, so Tim Farron this morning was unable to resist boasting that the coalition has built more ‘social’ housing than Labour.
Lib Dem supporters can point to some minor successes on housing policy, a more substantial list of Tory policies they’ve blocked and to the recent sharpening of criticism of their coalition partners. However, the party’s problems date back to decisions taken right at the start of the coalition. Accepting George Osborne’s prescription on the deficit made them prisoners of a long-term economic plan they now say is designed to destroy the welfare state. And traditional Lib Dem enthusiasm for ‘localism’ allowed the Conservatives to undermine national rights for social tenants and homeless people and strengthen the hand of local objectors to new homes.
It seems a reasonable assumption that the party will play its hand better in any future coalition negotiations. However, will policies on housing be red lined or still be pre-determined by bigger decisions elsewhere? Cable’s speech and suggestions by Danny Alexander of a direct Treasury role as a commisioner of housing offer grounds for hope. However, the reports of Clegg’s garden cities this morning says that they would follow construction of the new rail line that ‘would be provided once the structural deficit has been eliminated by 2018’. That seems to accept George Osborne’s timetable: why not start straightaway and fund the rail line from the uplift in development values or from borrowing instead?
And all that is before we get to that target of 300,000 new homes a year. Labour’s Lyons Commission is still wrestling with the problem of how to achieve only 200,000 a year by 2020. The Lib Dems are rightly more ambitious and their policies look good on paper but can they really deliver?
Given the effort that goes in to honing a conference speech to get the messages exactly right, and the fact that the prime minister was reading from an autocue rather than speaking without notes like Ed Miliband, it seems safe to assume that he meant exactly what he said. Here’s what he told the Conservative conference this week:
‘For those wanting to buy a home, yes – we will help you get on that housing ladder…but only if we take on the vested interests, and build more homes – however hard that is.’
It was part of a section near the start of the speech where he offered his audience a series of choices about taxes, jobs and pensions before he concluded: ‘It’s pretty simple really: a good job, a nice home, more money at the end of the month, a decent education for your children, a safe and secure retirement.’
The equivalent of the housing ‘vested interests’ was ‘only if’ we stick to the long-term economic plan, keep on cutting the deficit and work a bit longer and save a bit more. And Cameron offered a very similar formula for education: ‘but only if we keep taking on everyone who gets in the way of high standards’.
Except that it’s much clearer who he thinks is getting in the way here (teachers and the educational establishment) than with new homes. Just who are the vested interests?
Some clues came later on in the specific section about home ownership:
‘In a country that everyone is proud to call home, you should be able to buy a home – if you’re willing to save. It shouldn’t be some impossible dream. But we inherited a situation where it was. Young people watched Location, Location, Location not as a reality show – but as fantasy.
‘We couldn’t solve this housing crisis without some difficult decisions. The planning system was stuck in the mud – so we reformed it…and last year, nearly a quarter of a million houses were given planning permission. Young people needed massive deposits they just couldn’t afford…so we brought in Help to Buy. Of course there were those who criticised it…usually speaking from the comfort of the home they’d bought years ago. But let’s see what actually happened. They said Help to Buy would just help people in London…but 94% of buyers live outside the capital. They said it would help people with houses already…but four-fifths are first-time buyers. They said it would cause a housing bubble…but as the Bank of England has said, it hasn’t.’
You get the idea. The housing crisis is all the last government’s fault. Even more audaciously, this government has solved it. The ‘vested interests’ seem to be the people who criticised it ‘usually from the comfort of they’d bought years ago’. Never mind the fact that many of the critics of Help to Buy were precisely the priced-out renters that Cameron says he it is helping or the fact that the increase in house prices since it was launched has benefitted sellers rather than buyers. Cameron went on:
‘So here’s our renewed commitment to first-time buyers: if you’re prepared to work and save, we will help you get a place of your own. This conference, we have announced a landmark new Policy. It’s called Starter Homes. We’re going to build 100,000 new homes – and they’ll be 20% cheaper than normal. But here’s the crucial part. Buy-to-let landlords won’t be able to snap them up. Wealthy foreigners won’t be able to buy them. Just first-time buyers under the age of 40. Homes built for you, homes made for you – the Conservative Party, once again, the party of home ownership in our country.’
Given that he says it is the ‘crucial part’, Cameron seems to be implicitly accepting that ‘wealthy foreigners’ and ‘buy-to-let landlords’ are the vested interests stopping first-time buyers getting on to the ladder. That’s a much tougher message than we’ve heard from Conservative politicians before. Before the speech Cameron also said that the scheme will prevent homes being ‘flipped around in a quick sale’, perhaps suggesting that some sort of covenant will be involved.
From the detail we have so far, we know that the starter homes will be sold at 20% less than the market rate and that this will be achieved by building on brownfield land and relaxing requirements on affordable housing and community infrastructure and zero carbon.
So here’s vested interest number two: the bureaucrats who’ve imposed the ‘red tape’ that blocks cheaper homes. This is very much the view of the major housebuilders and the coalition has already granted them billions of pounds worth of concessions while asking for next to nothing in return. The crucial point here is what is meant by brownfield land: contaminated sites that are usually more, rather than less, expensive to develop, or industrial land that would not normally get residential planning permission and will therefore be cheaper? We could end up with cheap boxes built on old industrial estates on the edges of towns and cities or on precious public land so that they are instead of, rather than additional to, existing plans for affordable homes.
Either way it looks like another very nice little earner for the housebuilders that many people would identify as one of the biggest vested interests of all. The very same housebuilders who have relied on advance sales to overseas and buy-to-let investors.
So who else could Cameron mean? In his conference speech two years ago he was much more explicit about this:
‘There are those who say “yes of course we need more housing”…but “no” to every development - and not in my backyard. Look - it’s OK for my generation. Many of us have got on the ladder. But you know the average age that someone buys their first home today, without any help for their parents? 33 years old. We are the party of home ownership - we cannot let this carry on.’
Given that many of the nimbys who are already on the housing ladder are members of his own party and were in the audience, that was quite an important statement. However, seven months out from a general election and with Nick Boles no longer blazing a trail on planning, the language has been toned down in Cameron’s speech this time. The rhetorical commitment to new homes may stil be there but ‘vested interests’ was ambiguous – and deliberately so.
Communities secretary Eric Pickles told the conference earlier in the week that: ‘The thing I’m most proud of – and it’s been the most difficult to deliver – is what we’ve achieved in housing.’
Labour ‘gave us regional spatial strategies, top-down planning, ticky-tacky boxes with no parking or garages, and no room for our kids to play’ and housebuilding at its lowest level in peacetime since the 1920s. The coalition has delivered affordable housing, the reinvigorated Right to Buy, Help to Buy and many more triumphs.
Except of course that the coalition has been in power for more than four years. Housebuilding fell even lower than under Labour and is still barely half what is needed. If any homes look likely to be ticky-tacky boxes it’s the starter homes that will be built under Cameron’s new plan. And for millions of renters a world where everyone ‘should be able to buy a home – if you’re willing to save’ looks as impossible a dream as ever.
Perhaps the search for vested interests should start with politicians who make premature claims that they have solved the housing crisis.
As the parties hold their final conferences before the 2015 general election, housing has a high political profile. Here are five themes I’ve noticed so far.
1) Priorities, priorities
‘Building as many homes as we need’ is the fifth of Ed Miliband’s six national goals by 2025. The big questions remain how we achieve that and whether it will be possible without substantial extra investment in new affordable homes. So it was definitely good news that the Labour leader had this to say too: ‘We will also make housing the top priority for additional capital investment in the next parliament.’ However, that can taken at face value or as an indication that it will not be top priority in its initial investment plans.
A 2015 Labour government will be taking power amid continuing austerity and housing will be competing with a range of other Policy areas that may have more priority. The speech by Ed Balls was a case in point. He has previously made clear that Labour will retain the freedom to borrow to invest. However, his job as shadow chancellor is to convince voters that Labour will be financially responsible with ‘tough fiscal rules’:
‘So in our manifesto there will be no proposals for any new spending paid for by additional borrowing. No spending commitments without saying where the money is coming from. Because we will not make promises we cannot keep and cannot afford.’
Balls also said that: ‘The next Labour government will raise the minimum wage, build more homes to get the housing benefit bill down and cap overall spending on social security.’ He will keep the benefit cap ‘but we will make sure it properly reflects local housing costs’.
Lower rents and more social housing can reduce the housing benefit bill, then release money for more investment to bring it down still further. But we still don’t know how far Labour will go in following through on previous signals that it will look to make a radical shift from personal to bricks and mortar subsidies. And the extra money that is being raised from housing – the estimated £1.2 billion a year from the mansion tax – will instead pay for spending commitments on the NHS.
2) The caps still fit
Where does that leave housing? And in particular where does it leave the longstanding campaign for greater borrowing freedom for council housing?
A succession of comments by shadow ministers at fringe meetings this week makes it pretty clear that Labour will not raise the borrowing caps. As bloggers for Red Brick have been pointing out all week, that will come as a big disappointment to those hoping the party would be more radical.
Shadow chief secretary Chris Leslie said that extra capital funding for housing would make a difference in an ideal world but added:
‘What I can’t do is raise your expectations and promise you that straight after the election there’s will be this splurge in borrowing. That’s not going to happen – we’ve said very clearly that the proposals that we have in our manifesto will not involve additional borrowing.’
And when shadow housing minister Emma Reynolds was urged to lift the borrowing caps by local council leaders she seemed to come up with another reason why not. According to Local Government Chronicle she said: ‘We have to be aware of what the opposition will say and how they will frame that at the next general election.’
And a third reason featured in Inside Housing’s story that the housing review by Sir Michael Lyons will recommend the sharing of borrowing capacity rather than the lifting of the caps. Carl Brown’s report quotes Emma Reynolds as saying:
‘I don’t think that lifting the HRA cap is going to suddenly unleash lots of new homes because frankly there are lots of councils in the country that are nowhere near the cap. Lifting the cap in its entirety is difficult and the borrowing would be on the government balance sheet. Michael is considering what to do within the cap in terms of sharing the headroom.’
3) Waiting for Lyons
Speaking of which, the general expectation was that the Lyons report would be published before or during the conference and provide some real substance on how to get to Labour’s target of 200,000 new homes a year by 2020. Now it is expected later this year. Pessimists see the delay as a worrying sign that Labour will play a cautious hand on housing. Optimists argue that it may just reflect a desire to avoid distracting attention from the party’s key messages for the week. The comment by Emma Reynolds above indicates that work on at least one part of the report is not finished yet.
Policy Exchange is asking whether Britain can ever build 300,000 new homes a year at fringe events at all three main party conferences. That 300,000 figure is Lib Dem policy but we’ve very little so far about how it would be achieved.
4) Two new pledges
The delay on Lyons deprived the conference of much in the way of new policy on housing. However, there were two exceptions to that.
First, Ed Miliband said over the pre-conference weekend that Labour would let councils set up new homes corporations in areas prioritised for development. They would receive government funding and work with housing associations and the private sector. It sounds a good idea that could build on the home zones already planned in London. It’s also good news that Labour wants councils to work with the wider private sector, not just existing housebuilders. However, it left me wondering about how far they will really be council-led. The whole point of previous versions of the development corporation model – the London Docklands Development Corporation and the Olympic Delivery Authority – was that they bypassed local authorities.
Second, one of the national goals promised by Miliband in his leader’s speech directly concerned housing: ‘Our fifth national goal is that by 2025, for the first time in fifty years, this country will be building as many homes as we need. Doubling the number of first time buyers in our country.’
It’s not quite clear from that whether the goal here is to build as many homes as we need or (as was trailed in advance) to double the number of first-time buyers – but neither is as ambitious at it sounds. The existing target of 200,000 homes a year by 2020 is of course still well short of the magic number of 250,000 but even so it will be challenging. Doubling the number of first-time buyers sounds much bolder on the surface but appears to mean 400,000 a year rather than the average of 200,000 seen between 2008 and 2012. However, the number of first-time buyer loans is already on the increase: there were 269,000 in 2013 and we are on course for around 300,000 this year.
5) That were trumped by the Tories
If Labour largely trod water on housing at its conference, the same cannot be said for the Conservatives. All the Saturday headlines (before they changed to defections and sex scandals) were made by David Cameron’s pledge to build 100,000 starter homes for sale to first-time buyers under 40 at a 20 per cent discount. The extension to Help to Buy would work by using cheap brownfield land and by exempting the developments from requirements on affordable housing, community infrastructure and zero carbon.
It all sounds to me like yet another nice little earner for housebuilders and it begs all sorts of questions that I’ll blog about another time. In response, Emma Reynolds pointed to the coalition’s miserable record on housebuilding and cutting investment in affordable homes. She went on: ‘Labour will make the fundamental changes to the market which are urgently needed and will double the number of first-time buyers in the next ten years.’
Whatever the merits of Dave’s Dream Homes, the point here is that the pledge forms part of a clear but divisive Conservative narrative about aspiration and enterprise. Yesterday’s carrot for the inevitable ‘people who work hard, who do the right thing’ is matched by today’s stick of withdrawing benefits for the 18 to 21-year-olds and cutting the benefit cap to £23,000. It’s the same ‘strivers and scroungers’ theme that I blogged about ahead of the Tory conference two years ago.
In contrast, despite some good ideas and hints of more to come, despite all the talk of ‘together’, I still can’t see the vision or the narrative behind Labour’s ‘fundamental changes’ on housing.
How do the different nations of the UK compare when it comes to housebuilding and the wider housing market?
An official report out this week reveals a fascinating snapshot of housing across the union that survived last week’s referendum. The housing stock, tenure, housebuilding, house prices and rents are all broken down in a report from the Office for National Statistics (ONS) that is much more comprehensive than its title (Trends in the UK housing market, 2014) implies.
Most of the trends will be familiar to regular readers of Inside Housing but what really struck me is the comparison between the different regions of England, Wales, Scotland and Northern Ireland.
On some measures it’s particularly stark. House prices, for example, are up by 11.4 per cent across the UK as a whole since the peak of the market before the financial crisis. However, that UK average masks huge variations between different nations and regions: prices are down 46.7 per in Northern Ireland, little changed in Scotland and Wales but up 13 per cent in England and 39.7 per cent in London.
Or take housebuilding. This ONS graph for the whole of the UK shows the familiar depressing pattern of slump in the 1970s, brief recoveries in the last 1980s and mid 2000s and then another fall to post-war record lows after the financial crisis. It’s largely the story of private housebuilding’s failure to fill the gap left by the demise of council housing.
Breaking that down by UK nation, in 2012/13 completions in England were 63 per cent of the peak rate before the financial crisis, 58 per cent in Wales, 55 per cent in Scotland and just 45 per cent in Northern Ireland.
However, the ONS also compares the UK nations in terms of housing completions per thousand of population. As this graph shows, despite showing the biggest fall in house prices and completions since the crash, Northern Ireland still had more than twice as much housebuilding per head as England and Wales and was also way ahead of Scotland.
Wales comes out worst on this comparison (and the Welsh Government’s Housing Supply Task Force acknowledged that the country has a long-term problem and the lowest building rate over the last 30 years in a report published earlier this year). However, here’s where the figures become political. English housing minister Brandon Lewis tweeted this yesterday:
Why could that be? Another Twitter user came up with a theory about international property speculators. Here’s how Lewis responded:
So there we have it: the housing minister thinks it costs more to build in Wales than England. It’s true that housebuilders have complained about regulation in Wales, and that English ministers have bent over backwards to remove so-called red tape but even if you take out the cost of land building costs are about more than just regulation. It’s also true that housing policy is devolved to Wales but housebuilding is driven more by policies on the economy and taxation that are controlled from Westminster. However, is it possible that it costs more to build in Wales than it should do and that this is what triggers the lower building rate?
Well, not quite. For a true comparison you’d also need to know the rate of household growth compared to the housing stock in each UK nation and take account of factors such as unmet existing need and second and empty homes. However, for this blog I’ll use the same comparison with population as in the ONS graph above but look at the change over time. On this basis, Northern Ireland saw 1.3 completions for every person added to its population in 2012/13 and Scotland saw 1. Wales lagged behind that with 0.66 completions per person added but England languished in last place with a miserable 0.29. For London the rate was just 0.17.
Taking a snapshot of a single year may not offer a true comparison. So here’s a graph based on the same comparison between housebuilding and population growth but over the last 10 years, a period in which the population grew by 7.9 per cent in Englnad, 7.3 per cent in Northern Ireland, 5.1 per cent in Scotland and 4.9 per cent in Wales:
Northern Ireland again does best with very nearly one new home per person added to the population. Scotland is close behind with a rate of 0.81.
Next comes Wales: its 73,000 completions in the last ten years is significantly less than in Northern Ireland despite a much larger population. Overall Wales has only managed 0.5 new homes per person added it its population.
But compare that to England’s rate of just 0.36. The English population has increased by 3.9 million in the last 10 years but just under 1.4 million new homes have been completed. True, that period covers the last government as well as this one but the ratio in 2012/13 was even lower.
Those 10 years included roughly five of healthy building and five of stagnation. Building rates per person added to the population are significantly worse in all of the UK nations now. As I blogged a few weeks ago, France thinks it has a housebulding crisis when it is still building twice as many homes as the UK.
However, England has done significantly worse than the rest of the UK over the last decade and it is still languishing behind under the coalition.
If it had built at the same rate in relation to the rise in population over the last 10 years as Northern Ireland, England would now have an extra 2.4 million homes. If it had done as well as Scotland it would have built an extra 1.8 million. Even by matching ‘red tape’ Wales, England would have had an extra 600,000 homes.
What are the implications for housing of the independence referendum in Scotland?
Heather Spurr has already covered what a Yes vote might mean for Scotland itself , in particular on social security and the bedroom tax, grant funding and borrowing, private finance and sustainability. Beyond that though, I wanted to look at what might happen with a No vote too – and also at what either result might mean for England, Wales and Northern Ireland.
In some senses it’s an odd question to be asking at all. Scotland has already decided to abolish the right to buy, made radical changes on homelessness and mitigated the bedroom tax in full. The contrast with housing policy in England could hardly be starker.
But housing is of course about much more than just housing policy. The parameters are set by welfare, tax and economic policy, all of which are controlled from Westminster. The bedroom tax has played a big part in the Yes campaign as a symbol of unfair measures imposed from London and the SNP has also promised to halt the introduction of the universal credit and other welfare reforms. Housing has also played a part in the No campaign, with dire warnings about the prospects of higher mortgage payments and economic woes if Scots vote for independence.
However, all three main UK parties have now promised more devolution to Scotland if it votes No. Enhanced powers over income tax and more control over some aspects of welfare, including housing benefit, look likely.
With all of these issues the detail of the negotiations that follow the vote will be vital. That’s obvious with mortgages and the pound after a Yes vote but the detail will be just as important when it comes to welfare and housing benefit after a No. As Ken Gibb pointed out last month, how do you decide how much money to transfer and how do you cope with the fact that housing benefit is demand-led and the costs could go up or down? Could the universal credit continue in Scotland if there was local control of housing benefit?
And what about the rest of the UK? If Thursday’s vote is Yes, the most obvious impact will be political: Scotland elected 41 Labour MPs and just one Conservative in 2010. Without Scotland, there would have been a Conservative majority government and potentially even greater austerity in 2010 and there are obviously more likely to be Conservative governments in future too. That in turn raises the prospect of a referendum and exit from the EU plus an attempt to get out of obligations on human rights that could have huge implications for housing and homelessness. The political environment for housing could feel very different.
However, even if Scotland votes No on Thursday, there could also be big changes. The prospect of more devolution for Holyrood is already sparking demands from some Conservatives for less Scottish influence at Westminster. Would Scottish MPs lose the right to vote on English-only legislation, which could include both housing and parts of welfare? The UK parties’ promise to maintain the Barnett formula and its perceived generosity towards Scotland is already causing controversy.
And whether the result is Yes or No, there seems widespread agreement that the union cannot stay as it is. Will Wales demand the same powers as Scotland? Will responsibility for housing be transferred to the English regions? Will Northern English cities and their city regions win more power? Will London succeed in its bid for more power and money, including the billions of pounds worth of receipts from stamp duty in the capital? Will housing benefit be devolved to Wales and the English regions and how do we decide who gets how much?
Think tanks have already mapped out some of this territory. Within the last week Respublica’s Devo Max – Devo Manc has called for new powers for Manchester and IPPR’s Decentralisation Decade for a ten year programme of English decentralisation. I was at an event organised by the Institute of Welsh Affairs on Thursday that showed just how far-reaching the implications for the Indyref could be not just for Wales but for the whole of the UK. What the calls for devolution and decentralisation have in common with the SNP’s call for independence is a feeling that the UK is too dominated by London, Westminster and Whitehall. I wrote a more general piece on the referendum on my other blog here.
One final thing that we could all learn from the referendum is the level of participation: voter registration in Scotland is 97 per cent and the turnout is expected to be over 80 per cent. Everyone can see that the result matters but it’s also thanks to a registration drive to find Scotland’s ‘missing million’ voters and the awareness that every vote counts.
There is a clear housing angle to this for the rest of the UK. As I’ve blogged before, low voter registration means that around 3.8 million private renters were disenfranchised at the last election. Social renters are more likely to be registered because they have more stable homes. However, voter turnout is higher at the top of the class system than at the bottom and among the old than the young. How much more powerful would housing’s voice be if tenants and the badly housed used their vote and the parties knew that their votes mattered?
We will find out the answer to the question ‘should Scotland be an independent country?’ on Friday morning. That’s just the start of many more questions to come.
Nobody pretends that reform of housing benefit will be easy but a report out today underlines the scale of the task.
The report by the Chartered Institute of Housing (CIH) does a great job of making the links between policies on housing, welfare and the labour market. The sobering conclusion for the government is that everything it has done so far has only succeeded in reducing the rate of growth of the housing benefit bill rather than reducing it.
So as fast as the government introduces cuts like the bedroom tax the bill keeps rising faster because of inflationary factors built into the system. Between 1997/98 and 2012/13 the total bill rose by 48 per cent in real terms.
The biggest factor in that was rising rents, which not only cost more in themselves but mean more claims including from people in work. The increases have come in the private sector in the wake of deregulation and the decline of home ownership but also in the social sector as a result of stock transfer, private finance and reliance on rents to finance new development.
However, developments in the labour market also mean more people need help with their rent. Zero hours contracts, insecure employment and falling real earnings all mean that housing benefit is subsidising low pay as the number of in-work claims rises.
These trends are nothing new but, as I blogged last month, they have intensified under the coalition. And the conclusion is a stark one for anyone who believes that the solutions lie in welfare reform as such:
‘Overall the rise in HB spending is largely due to housing and labour market restructuring and therefore the policy solutions that will most effectively bring it under control lie in policy areas outside welfare itself (for example, housing and employment). Further restrictions on entitlement may slow the rise in spending in the short-term but do nothing to tackle the causes of welfare dependency and are unlikely to have any significant impact in reversing it.’
Iain Duncan Smith will, of course, beg to disagree. As I blogged a couple of weeks ago, he see the rise of in-work housing benefit claims as evidence of success rather than failure, a reflection of the way his policies are getting people back to work. And he will point to the way the universal credit is designed to ensure that work always pays by reducing the penal rate at which benefits are withdrawn as someone earns extra money. However, the report shows how the inevitable result of reducing the withdrawal rate is to extend the range of incomes over which the withdrawal applies.
So the flagship reform of a government that says it wants to reduce welfare dependency ends up with private renters who are in the top 15 to 20 per cent of earners still on benefit. A one-earner couple with a child paying the average private rent for a two-bed flat would need a salary in excess of the higher rate tax band to come off universal credit altogether.
In contrast Labour is making the right noises about shifting the balance of investment from benefits to bricks and mortar and has shown some interest in proposals by the IPPR to devolve control of housing benefit to local authorities so that savings can be reinvested in new homes.
The CIH argues that reforms to tackle the underlying causes of the growth of housing benefit mean reversing long-term trends in tenure and what it calls ‘the creeping conversion of low-cost rented housing into more expensive homes at market and near-market rents’.
Reforms would include a substantial increase in the supply of social rented homes with rents low enough to give tenants a realistic chance of escaping welfare. ‘Affordable’ rent homes would be restricted to people in work and non on the lowest earnings. Landlords would get more flexibility to use the proceeds from market rents and sales to reinvest in social homes but grant would be conditional on rents being genuinely affordable. And the bedroom tax would be scrapped.
However, there would also need to be changes at the heart of government too: a formal tie-in between welfare and housing policy, with the DCLG able to draw on savings made by the reforms agreed with the DWP; and the removal of Treasury restrictions on the use of capital receipts to build replacements for homes sold under the right to buy.
And wider economic reforms would be needed too: a shift away from subsidies for low pay to employer incentives to pay the living wage; social landlords taking a lead by paying the living wage themselves and ensuring their contractors do the same; and greater investment in infrastructure and skills outside London and the South East.
Pretty much the opposite of current policy, in other words. However, the CIH also has a more controversial suggestion: government should consider basing universal credit for private tenants on a proportion of the rent rather than the whole rent. The idea is that if this was accompanied by higher basic allowances for living costs the cost would be the same overall but tenants would have an incentive to move of downsize without being punished as they are under the bedroom tax or benefit cap.
Many CIH members who helped to draw up the report in workshops around the country feared that this idea could be hijacked as a justification for yet more cuts. Arguably of course, many private tenants already get less than housing benefit than their rent and the proportion will grow as policies like 1 per cent uprating take effect. The CIH warns that future governments should not use the proposal as a Trojan horse to reduce entitlements and would oppose it unless there was a substantial uplift in standard allowances.
The recommendations amounts to a reversal of more than 20 years of letting housing benefit ‘take the strain’. That will be far from easy but shows how the total bill is being driven upwards by a range of different government policies. For all the rhetoric about welfare reform and ‘making work pay’ that blames claimants for becoming ‘benefit dependent’, future governments need to start by looking in the mirror.
With eight months to go until the general election the battle to influence the manifestos has begun in earnest.
Party conference season begins with Labour on September 21 but organisations from across the housing spectrum have been publishing manifestos of their own in a bid to reach the politicians.
Conservative Home (see my blog here) was early out of the blocks but the influential Tory website has been followed by the Council of Mortgage Lenders (CML) and Confederation of British Industry (CBI) in the last week. The Fabian Society has just published a report last week on the ‘silent majority’ in favour of more social housing. The National Housing Federation (NHF) is set to reveal its election plans at its conference next week.
The Lib Dems have already launched a ‘pre-manifesto’ for 2015 featuring a target of 300,000 new homes, a long-term plan on how to achieve it within a year of the election, ten new garden cities and reform of what they still insist on calling ‘the removal of the spare room subsidy’. Labour has already made commitments on 200,000 homes and garden cities, reform of private renting and abolition of the bedroom tax but all eyes are on the Lyons Review and the leadership’s response.
What seems much less clear (beyond yet more austerity and cuts in welfare) is what the Conservatives will do, with two very different visions on offer for new homes.
The small ‘l’ liberal, free market vision represented by Nick Boles, Policy Exchange, Conservative Home and perhaps George Osborne sees the economic damage that the housing shortage is causing, especially in London and the South East, and believes that the solution is to sweep away ‘socialist’ planning restrictions. However, there are still considerable differences of opinion on this wing of the party, as this review of Conservative Home’s manifesto by Policy Exchange’s Chris Walker shows.
The small ‘c’ conservative, ‘war on the countryside’ one represented by Eric Pickles, Brandon Lewis and the Daily Telegraph wants to preserve the privileges of existing home owners, especially in London and the South East, under the guise of devolving planning decisions to local communities. There is also a battle over tax, with Tory MPs from the South East calling for the scrapping of stamp duty under £500,000 and a surge in donations to the party from developers opposed to Labour and Lib Dem plans for a mansion tax.
The divisions with the Conservative Party can blur, with different conceptions of localism, for example. However, the tensions between the two have run right through this parliament and especially in the struggle over the National Planning Policy Framework (NPPF) and the battle over the green belt.
The last week has seen some powerful backing for the liberal side of the argument. The CBI argues that ‘housing is not just a social priority – it is a key business issue’. It argues that the last ten years of above-inflation house price increases have cost consumers £4 billion in higher housing and transport costs and it makes the case for 240,000 new homes a year, ten new towns and garden cities by 2025 and reform of planning:
‘Our policies on where we build have changed little since the 1940s and are no longer fit for purpose. many areas within the green belt are not green and pleasant fields but former industrial sites and waste land. we need to question why we are protecting these areas at the expense of meeting our housing needs.’
It argues that their manifestos should contain ‘no red line commitments about land use that would tie the hands of a future government’. The new government itself should ‘give local authorities greater incentive to review the extent and environmental quality of their green belts, with a focus on releasing low environmental quality land, alongside brownfield sites for new homes.’
Last week, the Wolfson Economics Prize on garden cities was won by a proposal for urban extensions to double the size of 40 existing towns and cities over the next 30 years with 86,000 new homes. As David Rudlin of Urbed put it: ‘We propose taking a confident, well-planned bite out of the green belt – rather than nibbling around its edges and annoying every town and village.’
The prize attracted a broad range of entries and it is not political but it is funded by the Conservative peer Lord Wolfson and administered by Policy Exchange. So the speedy response from housing minister Brandon Lewis was interesting. He told the Architects Journal:
‘We do not intend to follow the failed example of top-down eco-towns from the last administration. We are committed to protecting the green belt from development as an important protection against urban sprawl - yesterday’s proposal from Lord Wolfson’s competition is not Government policy and will not be taken up. Instead, we stand ready to work with communities across the country who have ideas for a new generation of garden cities and we have offered support to areas with locally-supported plans that come forward.’
There was some speculation that Lewis may have missed the fact that the urban extensions are meant to be locally led. In fairness, However, there are few greater insults a Conservative could have found than to compare them to Labour’s eco-towns. The LSE’s Professor Henry Overman found the statement by Lewis ‘deeply depressing’ while the New Statesman’s Jonn Elledge asked: ‘What use is a housing minister who doesn’t want to build housing?’
The issue came up again in a different form at Communities and Local Government questions on Monday, the first for Lewis since he was appointed housing minister in July. Tory MP Charlie Elphicke asked him to confirm that the NPPF ‘has provisions that protect the green belt from developers and people…who would like the build all over it. Lewis replied:
‘My hon. Friend is right, and I intend soon to issue additional guidance to reiterate the protection that the national planning policy framework provides to the green belt and other designated areas. That will make it clear that local planners should seek to meet their objectively assessed needs, unless there are specific environmental and other policies in the framework—such as those on the green belt—which indicate that development should be restricted.’
Sadly he was not asked about the Wolfson Prize or the CBI report. However, the message to voters in the mostly Conservative seats that surround London and the cities earmarked to have a bite taken out of their green belt seems pretty clear. Judging from the rest of the session, it seems that the DCLG is now in full election mode. From Eric Pickles on Help to Buy and parking to Lewis on the green belt and the right to buy to Kris Hopkins on the council tax and business rates to Penny Mordaunt on helping coastal communities, you could almost see the clock counting down to May 2015.
What happens in the longer term remains to be seen. Divisions over new housing and planning are not exclusive to the Conservatives. The CBI wants the parties to look to long-term solutions to the housing crisis and avoid manifesto commitments that would tie the hands of a future government. The CML has put forward a set of proposals designed to tackle housing across tenures and age groups. But with just eight months to go until what seems set to be yet another close election the debate continues – between and within the political parties.