Without local authorities, England has only seen more than 200,000 housing starts three times since the war. So why is council housing being ignored now?
As John Perry argues in Inside Housing, councils are currently building around 3,000 homes a year but they could build 15,000 if they were given more freedom to borrow. ‘A government that is desperate for house building shouldn’t look a gift horse in the mouth,’ he says.
Desperate is exactly the right word for our current performance on housebuilding: just 105,000 starts in England in 2011/12, down from a miserable 112,000 in 2010/11 and less than half the level needed to meet demand and prevent an ever-increasing spiral of rising prices and rents.
Looked at in the context of history, the refusal to free councils to build is even more curious. The last year in which we built anything like the number of homes needed was 1979 (209,000), which was precisely the year that the rapid decline of council housing began.
Only three times since the war have we seen more than 200,000 housing starts without taking account of the contribution from local authorities: 1964, 1965 and 1968. The total of 176,000 starts by the private sector and housing associations in 2007 was the highest for 35 years but that is when the current slump began.
With housing association investment slashed and build to rent slow to get off the ground, that leaves housebuilding and all its associated benefits for economic growth completely reliant on private housebuilders. They have only started more than 200,000 homes twice since the war and since the late 1960s they have only started more than 175,000 once.
So why the refusal to turn to local authorities? The argument within government I’ve heard advanced most recently is borrowing: under current financial arrangements any by councils and almos would count as public borrowing and increase the deficit; but changing the borrowing rules for councils (as already applies in other countries) would raise the spectre of the disastrous borrowing by regional governments in Spain in the financial markets. Both options would conflict with the coalition’s key priority of deficit reduction.
But there is a deeper prejudice against council housing too. In part this is political, since building more of it would conflict with the logic of the rest of the government’s social housing policy, which is clearly to promote a residualised social housing sector for the most vulnerable and near market rents with fixed-term tenancies for everyone else.
And it’s not just the politics of the coalition either. We have spent the last 35 years under governments of both parties moving from bricks and mortar to personal subsidies. It was not just the Conservatives and Sir George Young who believed that ‘housing benefit will take the strain’.
There also seems to be hostility in Whitehall to local government in general and investment by local government in housing in particular. The institutional memory of the mistakes of mass council housing runs deep even though tower blocks and system building were mostly the result of central government diktat. Even as memories of Ronan Pont fade, the inquest into the 2009 Lakanal House fire provides a grim reminder.
Put all of those arguments together and the resistance to council housing is more understandable. Yet each of them is steadily crumbling.
On the economics, the evidence is mounting by the day that the government’s failure to deliver economic growth is increasing the deficit rather than reducing it. Right at the top of the government there is a recognition that housebuilding is one of the best ways of delivering growth because it generates more jobs and fewer imports than the alternatives. Borrowing to invest in new homes makes just as much economic sense as it makes social sense.
On the politics, many of the leading advocates of more freedom for council housing and a change in the public borrowing rules are Conservative local authorities, notably Westminster City Council under its leader and former Cabinet member for housing Philippa Roe. It may be aiming at affordable rent homes for key workers rather than traditional council housing but the point is the same.
On the subsidies, the key argument is that directing them into housing benefit is more economic because all of the money goes to people in housing need. In contrast, subsidising the construction of a home only meets need for so long as the people in it are in need. This argument is shaky enough already since it implies an ever-increasing housing benefit bill and in any case depends on allocation policies. However, there are also some powerful new arguments against it, which ironically come from coalition policy.
In an interesting session of evidence to the public accounts committee last year, MPs asked David Orr of the NHF and David Montague of L&Q and the G15 about the trade-off between bricks and mortar and personal subsidies. David Orr quoted work showing that if you expected subsidy to be used for more than seven to eight years, capital subsidy was more cost-effective for the public purse. Below that revenue subsidy was better.
David Montague added that: ‘We are in the process of modelling the scenarios that David has also modelled, and now our conclusions are that if you take a seven-to-10-year view, revenue funding is more effective, but if you take a longer term view, capital funding is more effective. It depends very much on whether you believe that the homes that we are building should permanently be for people who will need support.’
On that basis, bricks and mortar subsidies for the sort of fixed-term tenancies introduced under the Localism Act and adopted by mostly Conservative authorities are definitely more cost-effective than housing benefit. If the coalition eventually legislates on pay to stay, with higher rents for higher earners who no longer need subsidy, the arguments will become even stronger. Fixed terms and pay to stay are not to many people’s tastes (including mine) but there are plenty of better alternatives out there and any number of options for rents, tenancies and mixtures of investment and they could improve investment for housing associations as well as councils. The point is that 35 years of orthodoxy saying housing benefit good, bricks and mortar subsidies bad no longer makes any sense.
All of which leaves blind prejudice as the only reason for continuing to ignore council housing. Even that has partially broken down with the introduction of HRA reform. It’s way past time to go further: lift the borrowing caps, consider changing the borrowing rules for homes as well as roads and rail and allow councils and almos to build again. Let prejudice give way to common sense.
Housing is barely mentioned in the DWP impact assessment of the Welfare Benefits Uprating Bill but there is little doubt that the impact will be huge.
The technical reason for the omission appears to be that the Bill only covers benefits and tax credits for which primary legislation is needed to change the uprating method. The 1 per cent increase also applies to the local housing allowance but this can be done by regulation and so is not included in the assessment.
The obvious direct impact will be on private tenants. The 1 per cent uprating in LHA effectively amounts to a cut within a cut within a cut within a cut. More on this aspect below.
However, the impacts do not stop there. Tenants and landlords in the social rented sector could be forgiven for concentrating on the bedroom tax and other cuts due from April 2013. As things stand, housing benefit for social tenants will still be uprated in line with actual rents but how long can that be guaranteed when the link has now been broken for private tenants?
On top of that long-term worry, even if the link survives, tenants will come under even greater pressure as a result of the 1 per cent uprating of their other benefits. The impact assessment puts the average loss at £3 a week per households. However, the biggest impact will be felt by the poorest in the bottom three income deciles, who will lose £4-£5 a week.
This would be worrying enough but this impact will be compounded by the introduction of direct payment under the universal credit from October 2013. Once the housing element is paid to the tenant, any cut in any part of their income will be much more likely to turn into rent arrears. Direct payment and 1 per cent uprating will be a toxic combination even if the housing element remains unaffected.
Next consider the impact of this round of cuts on top of the recession and all the other cuts since 2010 on social housing communities. Research by the Human City Institute estimates that real incomes will fall by a combined £8.5 billion between 2008 and 2015.
On the uprating itself, I don’t have space to go into the detail here but it is clear that the change will affect working as well as workless households. In the language of the coalition, it is also clear that many of the so-called shirkers and strivers are in fact the same people moving between insecure jobs and unemployment. With 9.6 million households affected overall, it’s likely that most social tenants of working age will be affected in one way or another. For an impartial analysis of the Bill and uprating as a whole, this briefing by the House of Commons Library is a good place to start (although as I’m writing this the link seems to be down).
As for private tenants, 1 per cent uprating is only the latest in a long line of cuts in the local housing allowance. So far, increases in LHA rates have been set to the 30th percentile, frozen for 2012/13 and increased in line with CPI rather than RPI inflation from April 2013. The final cut was meant to be temporary but will now be trumped by 1 per cent uprating in 2014/2015 and 2015/16. That is on top of extending the shared accommodation rate (SAR) to the under 35s.
As a briefing by Crisis points out, over the last decade rents have risen faster than even RPI inflation and in areas like London the disparity is even greater. The DWP impact assessment of CPI inflation assumed that rents would rise at 4 per cent a year.
With the link between the LHA and actual rents already broken, properties in many areas are already unaffordable and over the long term swathes of the country will be inaccessible to people on benefit. Although the highest rent areas will be exempt from the 1 per cent cap, the effects will be dramatic even before we get to April 2014. A mystery shopping exercise by Crisis found that in a number of areas less than 2 per cent of shared accommodation is available to the under-35s.
Even this may under-estimate the cuts. As Joe Halewood has pointed out on his blog, the published rates for the LHA from April 2013 suggest an increase of just 0.6 per cent rather than the 2.2 per cent rate of CPI. The maximum increase anywhere in the country is 2.2 per cent and the rate is actually being cut in some areas.
The DWP impact assessment of the Bill says that the average household will be £3 a week worse off as a result of 1 per cent uprating. However, this does not include housing costs.
As Kate Webb points out on Shelter’s blog, the losses faced by private renters will be more than double that. Calculations by Shelter suggest that by April 2015 more than half of LHA rates for two-bed properties will be £3.45 a week or more below CPI indexation and £7.45 or more below actual rents.
These cuts will be happening at the same time as local authorities discharge their duty to homeless people with private rented homes – and will only add to fears that this will generate revolving door homelessness as they fall into rent arrears.
In last night’s debate, Conservative MPs accused the opposition of failing to include the impact of the government’s increase in the personal tax allowance. However, a briefing by Citizens Advice points out that anyone on housing and council tax benefit will immediately lose 85p in the £1 from anything they gain on tax. It argues that the cumulative impact of all the tax and benefit changes for a couple with two children with one of them on a full-time wage just above the minimum wage and paying rent of £130 a week will be that they will be £3.50 a week worse off from April 2013, £8 a week from April 2014 and £13 a week from April 2015. The loss for a family with the same rent earning £26,000 a year – the classic ‘hard-working family’ in whose name benefits are supposedly being cut – will see their weekly loss rise from £2.30 in April 2013 to over £12 from April 2015.
If you thought that 2013 might be the worst it was going to get for housing and welfare reform, think again.
The coalition’s Mid-Term Review is as coy about what was billed as ‘the most radical reform of social housing in a generation’ as it is about what else will be done to tackle the biggest shortage of new homes in four generations.
The section of The Coalition: together in the national interest on Communities and Local Government is one of the shortest in the whole document. The five claims on what’s been done in the first half of the coalition may be many things but none of them involve housing.
Thus the coalition has ‘introduced sweeping reforms to increase local authority freedom’ but not come close to giving councils the freedom to borrow to invest in new homes that is being demanded by local politicians from all parties. It has ‘given neighbourhoods greater power to do things for themselves’ and ‘abolished regional government and reduced the size and cost of central government’ but even Policy Exchange has warned of the plans for new homes lost in the process. It has established mayors in three cities (but seen them rejected in most places). Finally, showing a true sense of priorities, it has restored weekly black bin collections to six million households.
The government’s record on investment in housing is hived off into a separate section with boasts about: introducing NewBuy and FirstBuy; creating Affordable Rent to deliver more affordable homes for less grant; introducing the New Homes Bonus; increasing the maximum Right to Buy discount and ensuring that ‘additional receipts’ are used to build more homes for affordable rent; and introducing the Get Britain Building Fund to unlock stalled sites.
On the Right to Buy the phrasing is interesting. The pledge is merely to ensure that additional receipts are used and there is no mention of the boast frequently made by Grant Shapps that there will be one-for-one replacement.
Put all that together though and there is no mention whatsoever of reforming the homelessness legislation to allow the duty to be discharged into the private sector or allowing landlords to use fixed-term tenancies.
Likewise, on welfare and jobs, the Mid-Term Report has plenty to say about the universal credit and the work programme but does not mention housing benefit beyond a reference to the household benefit cap.
The first two changes were fundamental parts of the Localism Act. All three were identified as key changes to the housing safety net in the Homelessness Monitor published by Crisis last month. Are they not worth boasting about, not worth highlighting, politically inconvenient or just filed under completed business? Or was it just, as I blogged this morning, that none of them were mentioned in the Programme for Government in 2010 either?
Looking to the future the government will ‘increase the rate of housebuilding’ by:
- Creating a debt guarantee scheme for up to £10 billion of support for new affordable and private rent homes
- Supporting first-time buyers by extending FirstBuy and continuing to champion NewBuy
- Allowing developers who can prove that affordable housing requirements make a project unviable to have them reduced or removed
- Brining more empty homes back into use, releasing public land and reducing planning delays.
The ambitions for the future in Communities and Local Government seem surprisingly modest too. There are only two of them: to continue to devolve responsibility for local government with single funding pots for local areas; and to back proposals by local authorities to share services. It’s noticeable that there is no mention of pay to stay - the big housing reform that has yet to be implemented. Is it now on the backburner, perhaps because of concerns about the practicalities - or is housing apart from housebuilding now so low down the list of priorities that it is not worth highlighting?
Unless I’m missing something (and I’ll add more later if I have), there is nothing new here. The Mid-Term Report is actually being publushed two months late by my reckoning but nothing much seems set to change as the coalition kicks off its second half.
In this afternoon’s press conference David Cameron did promise more help for people who cannot raise a deposit for a mortgage, with more details to be announced before the Budget. Whether this will amount to more than a token scheme remains to be seen but that might be preferable to one big enough to prop up house prices still further.
However, taking the plans for the future as a whole, the strategy seems to be to rely on what has already been announced to fix the broken mortgage and housing markets and encourage new investment in private renting. Plus yet more welfare reform of course – starting with tomorrow’s uprating Bill.
The launch of the coalition’s mid-term report later today got me thinking back to its original Programme for Government - and how much it did not say about what followed.
According to reports this morning, David Cameron and Nick Clegg, mortgages and housebulding will feature in a package of policies including a new flat rate state pension and help with long-term care. They will say in their foreword: ‘We will build more houses and make the dream of home ownership a reality for more people’
Back in May 2010, fresh from the general election and their walk in the rose garden, the Conservatives and Liberal Democrats agreed a 36-page document setting out their priorities in every department and every area of policy.
At the time I highlighted what had been dropped from the two parties manifestos. Reading it now, almost three years on, the really striking thing is how many key coalition policies were not even mentioned.
Take the section on Communities and Local Government. All the mood music of localism is there in the opening statement that: ‘The government believes that it is time for a fundamental shift of power from Westminster to people. We will promote decentralisation and democratic engagement, and we will end the era of top-down government by giving new powers to local councils, communities, neighbourhoods and individuals.’
There was rapid progress on most of the dozen or so specific pledges relevant to housing, including abolishing regional spatial strategies, reviewing the housing revenue account and exploring ways to bring empty homes back into use.
The pledges illustrated the extent to which localism was the glue that held the coalition together. However, there was no hint that the government would be launching what it described as ‘the most radical reform of social housing in a generation’ within just six months and no mention of fixed-term tenancies, affordable rent, reform of the right to buy, pay to stay or discharging the homelessness duty into the private rented sector.
On jobs and welfare, the emphasis was all on welfare to work. The work programme, payment by results, greater conditionality, reform of incapacity benefit and finding ways to improve incentives to work all featured heavily. However, there was no mention at all of housing benefit or the local housing allowance.
The most significant statement in the whole document was actually on the final page: ‘The deficit reduction programme takes precedence over any of the other measures in this agreement, and the speed of implementation of any measures that have a cost to the public finances will depend on decisions to be made in the Spending Review.’
That obvious financial imperative involved Lib Dem acceptance of the Conservative argument on the target for reducing the deficit (‘We will significantly accelerate the reduction of the structural deficit over the course of a Parliament, with the main burden of deficit reduction borne by reduced spending rather than increased taxes.’) dictated everything that followed.
Each of the unmentioned reforms was subsequently justified in terms of doing more with less money: affordable rent would maintain supply with reduced funding; fixed-term tenancies and the bedroom tax would enable more efficient use of scarce social housing; the right to buy would fund more new build. However, there was also a deeper conviction that social housing was a problem that needed ‘reform’. The thought that a greater reliance on higher and market rents might actually increase the deficit over the longer term went unmentioned.
The glue of ‘localism’ would be accompanied by an appeal to ‘fairness’ with Cameron and Clegg saying that: ‘Difficult decisions will have to be taken in the months and years ahead, but we will ensure that fairness is at the heart of those decisions so that all those most in need are protected.’ However, just as localism came to mean allowing Conservative councils to do more of what they wanted, so fairness was turned on its head to favour ‘hard-working families’ over claimants and justify policies like the benefit cap and the 1 per cent benefit uprating that parliament will debate tomorrow.
It will be fascinating to see what the coalition can come up with in the mid-term report later and it is perfectly possible that there will be something new on housing in addition to window dressing on mortgages and housebuilding. For example, one piece of unfinished business from the original programme was a pledge to ‘review the effectiveness of the raising of the stamp duty threshold for first-time buyers’.
However, just as with the Programme for Government, the financial and ideological parameters for the run-up to May 2015 have already been set.
The conclusion of my two-part review of the issues and people I was blogging about in 2012 looks at bullding, owning and affording homes - and a year of anniversaries.
6) Housebuilding: talking a good game
If you measure the importance of an issue by its media profile, 2012 was certainly the year of housebuilding. The first half of the year saw momentum building behind the idea that investment in new homes would be good for the economy as well as people who need a roof over their heads. Support came from economists and politicians (increasingly from the Lib Dem side of the coalition) and even the director-general of the DCLG was talking about a ‘decade of housebuilding’ at the CIH conference in June. Hopes were genuinely high that the case for housing was winning support at the highest levels of government and David Cameron’s party conference speech in October was heavy on anti-nimby rhetotric.
Those hopes were not dashed completely in the second half of the year but it became increasingly clear that the government was intent on a conventional approach and not minded to try anything as radical as QE for housing or changing the public sector borrowing rules for council housing. The housing and planning package in September and the Autumn Statement in December offered little substance and plenty of retreads of existing policies while the housebuilding numbers remained stuck in the doldrums.
7) Giving housebuilders what they want
A poor year for housebuilding proved to be a very good one for housebuilders as their results revealed rising margins, falling debts and soaring profits. The suspicion grew of an assumption within government that the way to boost housebuilding is to give housebuilders what they want, with a succession of housebuilder-friendly government initiatives included the NewBuy scheme to guarantee mortgages for new homes, a review of red tape, measures to unblock stalled sites and the National Planning Policy Framework. By the end of the year the government was introducing a Growth and Infrastructure Bill that allowed the renegotiation of ‘economically unrealistic’ section 106 agreements. If the evidence to justify it seemed weak, so did the apparent lack of any quid pro quo for all the taxpayer support.
8) The affordable squeeze
The changes to section 106 agreements threatened to put an even greater squeeze on affordable housing investment that was already under severe pressure. After a calamitous 97 per cent fall in April to September 2011, 2012 saw starts of affordable homes bounce back. However, the total of 3,735 was still down 72 per cent on 2010 with the biggest falls coming in social rented housing and in London.
The coalition’s social housing reforms continued with the underwhelming relaunch of the right to buy with an unlikely-sounding buy one, get one free offer. Reports from the National Audit Office and Public Accounts Committee revealed concerns about the slow progress of the affordable rent programme and the implications for rent levels and the housing benefit bill. I blogged about the slow death of social housing.
9) A year of anniversaries
Appropriately, given the shift to higher ‘affordable’ rents and the rise and rise of private renting, 2012 marked the 21st anniversary of one of the most significant statements in the recent history of housing. ‘Housing benefit will underpin market rents - we have made that absolutely clear,’ Conservative housing minister Sir George Young said in January 1991. ‘If people cannot afford to pay that market rent, housing benefit will take the strain.’ Not for much longer in the wake of a succession of cuts.
As well as the 5th anniversary of this blog, 2012 saw three other big anniversaries for housing. I blogged about the centenary of the death of Octavia Hill and the mixed legacy of the great social reformer and the 150th anniversary of the announcement of a trust ‘to ameliorate the condition of the poor and needy’ of London by an American banker called George Peabody. The year also saw the 70th anniversary of the Beveridge report, the blueprint for the welfare state that never quite managed to solve the problem of housing costs and a succession of attempts by politicians to claim his legacy. On the Queen’s Diamond Jubilee, I took a look back at six housing generations and their very different experiences of the housing market.
10) Going backwards on the housing market
Speaking of which, house prices and transactions continued to flatline and thousands of first-time buyers continued to be excluded from a dysfunctional market. There were some tentative signs of a slight upturn at the end of the year but the billions of pounds poured into schemes like quantitative easing and Funding for Lending largely benefitted banks and existing home owners. Evictions of tenants was a much bigger problem than repossessions of owners in 2012. Two years after it was pronounced ‘absolutely dead’ buy to let continued to grow while a growing proportion of home sales in London were to overseas property investors.
Long-term reform of property taxation looked as far away as ever and a study for the Joseph Rowntree Foundation concluded that housing market policy was going backwards. The FSA finally published its Mortgage Market Review with the aim of ‘hard-wiring common sense’ into it. However, the legacy of past regulatory failures was graphically illustrated in the tragic case of Malcolm Frost, who was found dead in his garden shed a few days after being evicted from the home he had sold and leased back.
See part 1 here.
The first of a two-part look back at the issues and people that I was blogging about in a momentous year for housing.
1) Private renting: a year of growth
I predicted in January that 2012 would see the private rented sector overtake social renting. As things turned out, I was wrong – but not by much. Whether you judge it by the number of homes or the number of households or the answers given by people in the Census, a combination of growth in buy to let, shrinking home ownership and the slow decline of social housing mean it will happen sooner rather than later.
It was also a year that the boundary between the two sectors continue to blur: social housing responded to the tenure shift as a series of social landlords from Thames Valley to L&Q launched private renting initiatives; private landlords like Grainger registered social housing subsidiaries; and the government approved proposals in the Montague report to kick start institutional investment in private renting.
Yet with size surely comes responsibility. Coalition rhetoric about strong families and stable communities failed to match the reality of short-term, insecure private tenancies. The Labour opposition made tentative proposals for reform of letting agents and tenancies and rents as calls for reform increased.
2) Welfare reform: implementation and some backtracking
Speaking of which, 2012 was the year of welfare reform implementation, with the bedroom tax understandably dominating the agenda for social landlords but increasing awareness that this was only one part of a perfect storm of changes due from April 2013.
The year began with the final parliamentary stages of the Welfare Reform Act. As the Lords battled with the Commons in a game of parliamentary ping-pong, I highlighted doubts about how the benefit cap would work. By the end of the year, even the DWP seemed to agree, with concessions in the Autumn Statement followed by an announcement that the cap will now be introduced in only four London boroughs from April before being introduced in the rest of the country over the summer. You would never guess from the DWP press release that this was not the original plan.
The second half of the year brought growing doubts about the implementation of the universal credit from October 2013. I blogged about how it resembled a slow motion train crash and a whole series of warnings about the detailed regulations. For housing organisations though, direct payment of housing costs to tenants is the key concern and publication of the first results from the demonstration projects and witnesses at a public accounts committee hearing confirmed the impression that we are flying blind on what will happen.
3) Homelessness: a suitable safety net?
A devastating report for Crisis in December spelt out the point that welfare reform cannot be taken in isolation: key elements of the housing support system are changed too. The year brought continuing tension between local authorities looking to cope with the new system and ministers promising that safeguards would remain. April saw a furious row between housing minister Grant Shapps and Newham mayor Sir Robin Wales over plans to send homeless people as far away as Stoke-on-Trent.
However, this was only a response to the previous year’s changes in the local housing allowance. In November, the homelessness legislation was substantially weakened when Localism Act regulations allowing local authorities to discharge their homelessness duty into the private rented sector became law. Any private tenancy has to be ‘suitable’ in its physical condition, affordability and location but it remains to be seen how this will work in practice.
4) From Shapps to Prisk
Speaking of Grant Shapps, I blogged extensively about his housing reforms, his record on housebuilding, his regular rows about statistics and the man who we learned was not just a minister but a rapper too. However, I never guessed that in addition to his many faces, Shapps also had many names. September saw me blog about his move from the housing portfolio to become chair of the Conservative Party.
The new DCLG team brought us Mark Prisk as housing minister and Nick Boles as planning minister. I blogged early on about the potential for creative tension between the two over issues such as the green belt. Boles carved himself a high profile with public statements about the need for more new homes while Prisk left me unimpressed with his defence of government policies but hoping that delivery matters more to him than his media profile.
5) Welfare reform II: strivers and scroungers
The move from housing to a party role thrust Shapps straight into the growing political row about welfare between the main three parties. The political aspects were nothing new, with the Conservatives attempting to use Labour opposition to the benefit cap to argue that the opposition was therefore opposed to hard-working families. However, the temperature was steadily raised as the budget numbers implied a need for another £10 billion of welfare cuts after the election. In April, news leaked of a Conservative plan to cut benefits for the under-25s. In June David Cameron made that official with a speech contrasting hard-working families and claimants. And by October strivers v scroungers rhetoric was filling the party conference speeches of both the prime minister and chancellor George Osborne.
However, the Lib Dems spent the second half of the year trying to put some distance between themselves and their coalition partners. Notwithstanding Nick Clegg’s plan to allow parents to raid their pension funds to buy houses for their kids, the party made it increasingly clear that it would block more radical Conservative ideas on welfare. In the Autumn Statement there was no sign of ending housing benefit for the under-25s or cutting benefits for large families. However, it also confirmed plans to restrict the increase in most working age benefits including the local housing allowance to just 1 per cent between 2014/15 and 2015/16. Austerity – and the fall-out for housing – will last for at least four more years.
Part two of my review of 2012 follows on Monday morning.
It seems about as realistic to expect clear answers from the direct payment demonstration projects as it does to expect them from senior civil servants at a select committee hearing – and that’s exactly how things turned out this week.
As the Department for Work and Pensions (DWP) was publishing the first data from the projects, witnesses including its permanent secretary Robert Devereux and head of housing policy division Andrew Parfitt were appearing before MPs at the public accounts committee (watch again here). The two things happened so simultaneously that the officials told the MPs that there was ‘no data on arrears so far’.
Which was almost true given that the report was only 18 pages long and consisted of brief snapshots from the six projects. As Carl Brown reported yesterday, the headline results are that they failed to collect around 8 per cent of the rent on average (about double the normal level) and switched 316 tenants out of 6,220 back to direct payment to the landlord in the first four months of the projects.
On the surface, those results look worrying but not as bad as many people had feared. Look beneath it, though, and the picture is much murkier. First, I believe that participation is voluntary for tenants, so the results may exclude groups who are more likely to run up arrears but even so there were still 8 per cent arrears. Second, greater support and resources is available in the project areas than will be the case once direct payment is in place nationwide. Third, the projects have different triggers for the reintroduction of payment to the landlord, which is sensible in terms of seeing what works best but makes it hard to generalise from the results.
And perhaps most importantly these demonstration projects are taking place in isolation from the wave of other changes in welfare payments that will happen before the universal credit and direct payment are introduced. It’s one thing to pay your rent on time now but it may be quite another in the wake of the bedroom tax, the benefit cap and all the other housing benefit changes due in April 2013. And once housing costs are paid direct to the tenant any of the other elements of universal credit is a potential trigger for rent arrears. As Professor John Hills of the LSE pointed out in the first session of the PAC hearing: ‘All of this is happening at once so as well as the percentage of rent loss we need to think what people will be left with to pay for everything else.’
None of that reckons with behaviour change – a mantra repeated constantly by the DWP officials. The ‘reforms’ are designed to save money but they are also designed to push people into employment (if there are jobs) and cheaper accommodation (if there is any). It is not so much nudge as shove theory. As Professor Hills said, the knock-on effects depend on what people do. If they stay put, there will be rent arrears and debt; if they move, other public authorities including schools could feel the effects.
Sitting alongside him, Mike Donaldson, the group director of strategy and operations at L&Q, said it had already made allowance in its accounts for rent arrears to double from 3.5 per cent to 7 per cent. While it would be working hard to try not to let that happen and had created a hardship fund, he added that: ‘The reality is we do think there is going to be a group of people who fall between the cracks.’
He pointed out that the the local housing allowance and all the behavioural issues involved there had been piloted over six years before being introduced around the country. ‘This is being done incredibly quickly and on a much broader scale,’ he said. ‘And I think to a certain extent the department is flying blind and we won’t know what the consequences will be until it’s far too late.’
And will it actually save any money? The worry for L&Q is that the government will impose more cuts as the housing benefit bill continues to increase because of rising rents. and that the government will therefore impose more cuts. It estimates that the housing benefit bill from rents on its affordable rent properties will go up by £4.5 to £5 million.
‘Multiply that across the country and add increases in the private rented sector as well and we cannot understand how those savings can be achieved because rents are only going in one direction,’ he said. ‘Our concern is that what will happen is that there will be more cuts over and above those introduced so far to achieve that level of savings for the department.’
The second part of the hearing consisted of jousting between PAC MPs and the DWP officials that switched back and forth bewilderingly from the LHA caps to the 30th percentile to the bedroom tax to the benefit cap to affordable rent to direct payment.
The MPs were considering November’s report from the National Audit Office on the housing benefit changes warning of ‘unplanned and perhaps un-plannable challenges ahead’. They wanted to know how much money will really be saved if the housing benefit bill is still rising.
The answer was like something out of Yes, Minister or The Thick of It. ‘I don’t know if I’ve got a bit of paper that tells me what I’ve done,’ said Robert Devereux, the DWP’s Sir Humphrey, before going on to argue effectively that the DWP will save more money than first estimated because housing benefit is costing more.
It is actually a reasonable explanation in the crazy world of housing benefit. The state of the economy means that the claimant count has gone up, which in turn means the total bill has gone up, so each individual cut could save more than originally forecast at the same time as it costs more. However, it still sounded like a compulsive shopper convincing themselves that the more they spend in the January sales the more money they will save.
‘It’s all smoke and mirrors,’ exclaimed Conservative committee member Richard Bacon. It is indeed and it doesn’t bring us much closer to what we really want to know: what the impact of direct payment will be on top of all the other ‘reforms’. We really are flying blind.
The big shift from owning to renting revealed in the census has potentially massive implications for government spending on housing costs.
The headline results revealed by the Office for National Statistics last week were that home ownership fell from 68.3 per cent of households if England and Wales in 2001 to 63.5 per cent in 2011. Private renting increased from 9 per cent to 15 per cent and social renting fell from 19.3 per cent to 17.6 per cent.
However, within that total for home ownership, the proportion of households owning outright actually increased, so the really significant change was the fall in the number buying with a mortgage from 8.4 million (38.8 per cent of households) in 2001 to 7.6 million (32.7 per cent) in 2011.
As I highlight on my other blog, if mortgaged ownership had maintained its 2001 share of total tenure, there would now be an extra 1.4 million households with between one and ten years on the housing ladder. Instead they are tenants, mostly of buy-to-let landlords. The number of outstanding buy-to-let mortgages in 2011 was – by complete coincidence of course – 1.4 million. I also have more analysis of the overall trends in tenure, including the areas with the highest and lowest owning and renting.
In this blog I want to concentrate on two long-term consequences of this change.
The first is obviously the growth of the private rented sector beyond what might be considered its traditional role as a flexible housing option for the young. As research by Shelter – and last week’s Labour policy paper – highlighted the sector is now home to more than a million families with children and its short-term tenancies look increasingly ill-suited to people who need long-term stability.
At the same time, the government appears to want an increase in private renting financed by pension funds and institutions along the lines recommended by the Montague report. So with mortgage lending constrained and social housing investment in short supply, further growth in private renting looks inevitable. Many housing associations are seeing an opportunity for expansion by applying professional management standards to a portfolio that can be used to diversify their business and cross subsidise their affordable housing. And changes to the homelessness legislation will create expanding demand for private rented homes for homeless families from local authorities.
Which brings me to the second long-term consequence of the change in tenure. Expanding home ownership has formed a key part of moves towards asset-based welfare over the last 20 years. Owners have an asset to fall back on later in life. Once they have paid off their mortgage, their only housing costs are council tax and repair and maintenance, and when it comes to long-term care or income in retirement, the equity in their home is a potential source of income.
In contrast, renters not only have no asset to fall back on and use to pay for their care or living expenses, but they also have to continue to pay rent in retirement. Unless they have built up substantial pension assets – and all the trends are against this too – that means the state will have to step in and help with housing benefit. The more private renting continues to grow, the higher that housing benefit bill will be.
The census confirms that home ownership is shrinking and so is the scope for asset-based welfare. A report by the Strategic Society Centre in the summer highlighted this issue alongside the long-term growth in the number of pensioners from 12.6 million now to 15.9 million in 2020 and 18.8 million in 2060 (when today’s 20-year-olds will be over 70).
In 2009/10, 1.5 million pensioner households received housing benefit and up to another 390,000 were entitled to claim but did not do so. They claimed an average of £69 a week at a total cost of £5.3 billion.
The report projected that by 2060 around 40 per cent of pensioners – 7.5 million – will be renting and that around half of them will receive housing benefit. It put the total cost of pensioner housing benefit in 2060 at £13.4 billion or £8.1 billion a year more than now.
However, even that projection was based on some very conservative assumptions about tenure and rents. For a start, it was based on a forecast that home ownership in England would fall to 63.8 per cent in 2021. Last week’s Census revealed that it was already lower than that in 2011.
As things stand, home ownership looks certain to fall even more over the next ten years. A report for the Joseph Rowntree Foundation in June warned of a looming housing crisis with an extra 1.5 million under-30s forced into private renting by 2020. Another out today from the Building Societies Association says that one in four prospective first-time buyers believes that it will take them at least 10 years to save a deposit.
Second, the estimate was based on the same £69 a week average pensioner housing benefit claim as now. While that allows a comparison in today’s terms, it does not reflect the continuing shift in tenure within renting. About 11 per cent of current pensioners receiving housing benefit rent privately compared to 28 per cent of non-pensioners. If the shift to private renting (and even within social housing to higher rents) continues, the proportion of pensioners paying higher private rents looks set to rise significantly in the longer term and so does the housing benefit bill.
So that projection that the housing benefit bill will rise by 40 per cent as a result of changes in tenure and demographics is likely to prove a highly conservative estimate. Faced with those kind of numbers, what should the government do?
The Strategic Society Centre argued for ‘aggressive steps to increase rates of ownership’: ‘Since declining rates of home-ownership will have severe fiscal consequences in the long-term, policymakers should therefore explicitly target the highest possible rates of owner-occupation consistent with economic stability (i.e. a lack of “housing bubbles”, or high-rates of foreclosures) and labour market flexibility. In short, policymakers should not be neutral to tenure. Higher rates of home-ownership are ultimately cheaper for the taxpayer.’
It added that policy makers should also look at over-consumption and multiple ownership of housing including second homes and buy-to-let investment. As I argued on my other blog, the census results show less a fall in home ownership than a fall in owner-occupation. Many of those 1.4 million buy-to-let mortgages are being paid by people who see their investment as their pension. Far better, surely, to come up with incentives for pension investment that do not push up house prices and leave the taxpayer to pick up much of the long-term bill. Alongside the increases in housing supply now supported by all parties, the job of government would be to strike the right long-term balance between tenures.
The looming housing timebomb should also mean increased investment in genuinely affordable housing and intervention in the private rented sector to go with measures to make it easier to get on the housing ladder at affordable prices. There is a debate to be had about whether that should just mean increased regulation and greater security or rent control too but it is one that is needed urgently.
The complete opposite, in other words, of what we currently do: short-term schemes to boost ownership for a few that just increase prices and make it less accessible for everyone else; laissez-faire policies for the private rented sector; and the slow death of social housing.
Oh yes, and squeezing entitlement to housing benefit, first for the under-25s, then for the under-35s, then for private tenants, then for social tenants. So far pensioners have been protected from any cuts – but for how much longer if nothing changes?
A combination of the recession, welfare reform and localism is set to generate increases in almost all forms of homelessness in England, according to comprehensive new analysis.
Homelessness Monitor: England 2012 published yesterday by Crisis is the full version of an academic study from which headline findings were released last week (equivalents will also be published for Wales and Scotland). It draws together evidence not only on what we normally think of as homelessness – rough sleeping and homeless acceptances – but also more hidden forms too such as concealed households, sharing and overcrowding.
On almost every measure, the study concludes that homelessness has got worse over the last year and is set to get much worse over the next three. The headline figures quoted in the report are already bad enough:
- Rough sleeping up by 23 per cent in the year to Autumn 2011- the most dramatic growth since the 1990s. Recorded rough sleeping is up by 48 per cent in London, although No Second Night Out is having an impact on long-term street homelessness.
- Homelessness acceptances up 34 per cent since bottoming out in late 2009.
- Temporary accommodation and bed and breakfast placements are both on the increase. Last week’s homelessness statistics, published too late for this report, showed that the number of families with children in B&B has risen from 740 in second quarter of 2010 when the coalition took power to 2,020 in the third quarter of 2012. The number in B&B beyond the legal limit of six weeks has quintupled from 160 to 880 over the same period.
- 1.5 million concealed households involving single people and 214,00 involving couples and long parents in 2012
- An increase in the number of sharing households between 2007 and 2010 after a long-term decline
- Overcrowding affecting 670,000 households according to the latest figures.
- Homelessness resulting from the termination of assured shorthold tenancies up 156 per cent in London in the two years to 2011/12.
The report by academics from Heriot-Watt and York concludes that the combination of the downturn plus continuing welfare reform ‘seems certain to drive homelessness up yet further over the next few years’. In the last housing market recession, statutory homelessness fell because falling house prices eased access to home ownership and freed up additional social and private lets but ‘no such benign impact …is likely this time
They say the full effects of the first wave of cuts in housing benefit in April 2011 – the bedroom caps in local housing allowance – will not be felt until later in 2012/13 because of transitional protection and the way that London boroughs have extended it to the maximum with technical breaks in tenancies.
The shared accommodation rate extended to 25 to 34 year olds in January is seen as ‘disastrous’ by charities working in the sector because it increases pressure on a supply of property that is already very constrained. Meanwhile increased conditionality and tougher benefit sanctions are having a negative impact on homeless people with chaotic lifestyles.
In next year’s wave of welfare reforms, the study says:
- there is ‘little doubt’ that the bedroom tax will ‘drive up rent arrears and/or evictions’ in less pressured parts of the UK
- the benefit cap will hit higher cots areas and one effect will be to drive up the number of out-of-area placements of homeless families
- major concerns remain about the universal credit, especially on online claiming, monthly budgeting and direct payment of housing costs to tenants.
On top of all that though the coalition’s localism reforms could make things much worse. The report argues that up to now our housing system – a combination of housing benefit, social housing and the homelessness legislation - has given poorer households greater protection than is true in many other countries.
It goes on: ‘Moves towards fixed-term tenancies in the social rented sector, and rents at up to 80 per cent of market levels, will in time weaken the sector’s safety net function, while local restrictions on eligibility for social housing risk excluding some marginalised groups in high housing need. ‘
Breaking the link between statutory homelessness and social lettings ‘appears designed to render “minimal” the number of new homelessness applications’ and to discourage family exclusions of young people based on the assumption made with scant evidence that they are jumping the queue.
That implies that there could be an apparent reduction in homelessness as measured by statutory homelessness applications. Allowing local authorities to discharge their duty into the private rented sector creates a mechanism for minimising homelessness applications in the first place and therefore one perception of the problem without doing much at all about the reality.
Ironically, the one form of homelessness that it concludes is not rising is the one that attracts most media attention: middle class homelessness. Thanks to a combination of low interest rates and lender forbearance, mortgage repossessions of well-paid professionals have not reached the levels seen in the early 1990s recession.
Otherwise though the study concludes that the period from now until the next election ‘is a crucial time period over which the homelessness impacts of the recession are likely to intensify, and be severely exacerbated by the government’s radical welfare and housing reforms’.
Ministers at the DWP routinely dismiss warnings like this as ‘scaremongering’ or – if they are really close to the mark – ‘irresponsible scaremongering’. We shall see.
In the meantime, I’ll be watching Panorama tonight for more on Britain’s Hidden Housing Crisis.
I’d love to give three cheers for Labour’s new approach to the private rented sector but I can only manage two.
Yesterday it published a policy review paper on stability and affordability for renters and families. This is the second of three policy review papers on private renting: the first covered management and letting agents, the third will cover standards and rogue landlords.
My first cheer is for the party’s analysis of the problems faced by private tenants.
The statistics provide strong backing for a new approach. Figures just published from the 2011 census reveal that private renting now accounts for almost 17 per cent of housing in England and Wales compared to just 9 per cent in 2001.
We know that there are 1.1 million families with children in the private rented sector and that six-month assured shorthold tenancies do absolutely nothing to give them the stability they need. Private renters with children are 11 times more likely to have moved within the last year than home owners with children.
Projections of future trends make an overwhelming case for reform: the policy document quotes predictions of a million people locked out of home ownership by 2020 and 27 per cent of low to middle income families in the private rented sector by 2025. A new report from the IPPR yesterday revealed the impact that these trends are having on young people in particular.
My second cheer is for the future it envisages of greater stability with longer-term tenancies and predictable rents very much along the lines of the one proposed by Shelter recently.
The policy document says: ‘We need real change in the housing market so that private renters can, where they want to, gain access to longer tenancies and obtain greater financial certainty. When renters and landlords enter into these longer tenancies, rent could be indexed for the duration of that tenancy – we will consider the most appropriate type of indexation to allow the market to operate as freely as possible, while giving certainty over future rent levels for renters and landlords.’
It makes a wholly convincing case for longer-term tenancies, one that is overwhelmingly backed by tenants and is also supported by many landlords who see that they could also benefit through reduced costs and greater ability to plan ahead. It is often the practices of letting agents and the conditions imposed by lenders for buy to let mortgages, rather than the preferences of landlords, that get in the way of this.
Labour will look at options ranging from a voluntary incentive-based approach and a ‘something for something’ deal with landlords to one that gives renters greater legal rights to longer tenancies and predictable rents. And it quotes the examples of Germany, where private tenants have a high level of security and there are limits on rent increases, and France, where the minimum term is three years and rents cannot increase by more than the increase in the reference rent index.
The party will work with mortgage lenders to ensure that buy-to-let mortgages do not prevent landlords offering longer tenancies. And it will look at options including the direct payment of housing benefit and tax incentives to landlords who do offer them.
As shadow housing minister Jack Dromey sums it up: ‘With longer term tenancies and predicable rents, the private rented sector will offer the affordable and stable homes that renters need. Families will feel that their rented house is a home and it will help strengthen communities as people put down roots and get to know their neighbours.’
As for my third cheer, I can’t quite give that because I still have a nagging doubt about Labour’s ultra-cautious approach.
The party is quite right to be concerned about the impact that talk of greater regulation in general and of rent control in particular could have on the supply of privately rented homes. It’s also right that ‘all too often, private renting is unaffordable, unstable and subject to poor conditions and bad management’.
However, when it claims that ‘our first Policy Review paper on housing set out steps to tackle unscrupulous letting agents and to end rip-off charges’, er, no it didn’t. It actually promised to ‘consider’ different models to improve standards, to ‘work in partnership with the sector to develop solutions’ and to ‘consider’ how compliance could be monitored, for example by a regulatory body with enforcement powers’. Again, it was hard to disagree with the content but there were no definite proposals and no actual policy commitments.
It could be argued that two and a half years before the next election is not the time to expect an opposition party to make those sort of commitments. However, when it comes to making all the right noises about private renting and then doing very little, Labour has previous.
Remember the Law Commission’s 2006 report on Renting Homes with its proposals for a shake-up and simplification of the law relating to all forms of renting? The last Labour government let the proposals gather dust on the shelf alongside the draft Bill that would have implemented them.
Remember the Rugg review, the independent report commissioned by Labour that in 2008 proposed regulation of letting agents and registration of landlords? As I blogged in July, the last government produced a green paper in May 2009 pledging mandatory regulation of letting agents and management agents’ but had done nothing by the time it lost power a year later.
The Labour government in Wales is now about to implement most of these proposals through its Housing Bill and Rented Homes Bill. The party in England is making all the right noises and some of what it is talking about could go still further if it wins power in 2015 – but will it actually be prepared to act next time around?