Thursday, 24 July 2014

Inside edge

Out of credit

Thu, 5 Sep 2013

Take your pick of today’s official criticisms of the universal credit. It was over-ambitious and high risk, it had no clear plan and it has offered poor value for money.

Has the National Audit Office (NA0) ever delivered a more damning verdict on a key government policy than the one it has just published?

Think of just about every rumour you’ve heard about the IT system, every assumption about the chaos behind the scenes and every time you reacted sceptically to DWP assurances that the latest changes to the timetable were all part of the original plan, and you will find them all in the report published today.

What you won’t find is anything on the issues of most pressing concern to housing organisations such as the introduction of direct payment to tenants and the measures the DWP is introducing to minimise the impact on landlords’ finances. But that’s only because there are so many problems with the underlying systems that it’s still unclear when that will happen on any significant scale.

Based on this report, further delays look inevitable despite those familiar assurances from the DWP that it is committed to delivering on time and on budget. The universal credit is still adjusting to the ‘reset’ insisted on by the Cabinet Office between February and May and Howard Shiplee, the fifth ‘senior responsible owner’ in charge of the project in a year, completes his 100-day planning period at the end of this month. The DWP will not have approval for further spending until after November, when it asks the Treasury to approve a new business case.

According to the original plan the new system was meant to be introduced for all new out-of-work claims from October. They would be followed by all new in-work claims from April 2014 and all migrating benefit claims by October 2017. Instead next month will merely see another six pathfinder sites added to the four already running on a very limited basis handling the simplest claims.

The NAO says ‘it is likely that universal credit will not be able to take all new claims and provide the full planned service until at least December 2014’. The reset team considered scenarios including ‘complete migration later than October 2017’ and the senior responsible owner is currently ‘looking at different options for timing of full roll-out’. The NAO comments that ‘to keep to the 2017 completion date, the department would have to migrate a large volume of claimants within a short time frame’, which hardly sounds like a vote of confidence.

Many of the problems go back right to the start of the project when the DWP adopted that ambitious timetable. The NAO says that: ‘The department was unable to explain to us how it originally decided on October 2013 or how it evaluated the feasibility of roll-out by this basis. The ambitious timetable created pressure on the department to act quickly and meant that it needed to manage progress tightly.’

It does not comment further but one clue is that the traditional ‘Waterfall’ approach to programme management, where IT projects are developed in sequential steps, would have been much slower and only allowed roll-out in April 2015. Is it too much to imagine that a month before the general election was seen as bad timing?

The DWP instead used a different approach where processes and systems are developed at the same time as defining policy requirements. This ‘Agile’ approach seems to be a perfectly respectable way of running IT projects but the DWP was unfamiliar with the methodology and no government project of this size had used it before.

By January 2012 the DWP was introducing Agile 2.0 in an attempt to integrate the two approaches. The result seems to be a complete mess where short-term systems were developed separately and with limited functionality for the pathfinders and the DWP ‘does not yet know the extent to which its new IT systems will support national roll-out’.

The current system cannot identify potentially fraudulent claims and without that in place the department will be unable to deliver the savings it promised. Under the pathfinder system, claimants cannot register changes in circumstances online and the work has to be done manually instead, adding to costs.  

In May, the DWP identified a need to write off £34 million (17 per cent) of its new IT assets but the waste could go much further than that. The reports also says that the DWP currently estimates that its IT assets are worth just 53 per cent (£162 million) of the £303 million it has invested in universal credit systems so far and remedial work could increase the budget still further.

The reset team recommended that the DWP should replace ‘digital by default’, a key principle of the universal credit, with ‘digital as appropriate’. This is something the DWP consistently denied at the time but the NAO says it is now reviewing which activities should be conducted online.

Things might have been better with adequate management systems in place. Instead the opposite happened, right down to invoices being paid without checks on whether the services had been delivered. The report says that:

‘Given the tight timetable, unfamiliar programme management approach and lack of a detailed operating model, it was critical that the department should have good progress information and effective controls. In practice the department did not have any adequate measures of progress.’

The NAO identifies weaknesses including:

  • Lack of transparency and challenge. There was a ‘fortress mentality’ in the programme team and a ‘good news’ reporting culture that ‘limited open discussion of risks’. (This is a criticism that might just as easily be made of the whole DWP and its repeated claims that everything is on track.)
  • Inadequate financial control including poorly managed and documented financial governance and insufficient review of contractor performance before making payment.
  • Ineffective departmental oversight. The DWP never had a detailed plan or management information and so could never measure progress effectively.
  • Failure to address recommendations from assurance reviews.

The report concludes that ‘at this early stage of the universal credit programme the department has not achieved value for money’. It is still possible that it may achieve its aims with ‘considerable benefits for society’ but ‘to do so the department will need to learn from its early mistakes’.

The NAO says the DWP must produce a realistic plan with clear programme objectives linked to policy design and service requirements. It should use a management approach that allows policy experts, operational teams and systems developers to work together. And it should establish effective governance processes and structure and tighten financial management.

All of which sound like fairly basic things that should have been in place right from the beginning rather than be recommended a month before the original roll-out date.

Much now depends on Howard Shiplee, the former construction director of the 2012 Olympics who was brought in to lead the project at the end of March. In a piece for the Telegraph on Monday he candidly admitted the ‘missteps’ and ‘bad luck’ that have dogged progress so far. If he can put things right he will deserve a medal all to himself.

However, the points raised by the NAO are all to do with the implementation of the universal credit rather than how it will operate once it is up and running. I’ve blogged before many times about the serious concerns raised in many different quarters about what happens once it is up and running. These cover not just the implications of digital by default and direct payment but monthly payment and payment to a single member of the household and the awful precedent of the chaos that followed major administrative changes to housing benefit in the 1980s.

All of that is yet to come.  

Shared vision

Fri, 30 Aug 2013

Shared ownership seems an obvious solution to the housing problems of people on low and middle incomes – so why does it remain on the margins?

A report out this week from Shelter looks at perceptions of and problems with the part rent-part buy tenure and ways that it could be reformed to take it into the mainstream.

In the process, it makes a pretty convincing case that the piecemeal, alphabet soup of government ownership schemes has done little to make housing more affordable for the squeezed middle and more to create confusion about the options available. In particular, it shows how shared ownership could make more homes in more places more affordable for more people than either version of Help to Buy. The report finds that almost eight out of 10 low to middle income families could not afford a family home with a 95 per cent Help to Buy mortgage.

So what are the problems with shared ownership? According to Shelter, one is scale: there are now 174,000 shared owners in England, just 0.8 per cent of all households, and not many of them have moved up to full ownership. And every time the government creates a new scheme, the eligibility rules change, creating confusion for prospective buyers and extra work for lenders.

Another is the way the market works. Buying and selling a shared ownership home is much more complicated, and finding information and getting a mortgage can be harder, than for conventional ownership.

A third is that because shared ownership focuses on new build it brings with it many of the same problems: the 10 per cent new build premium means you get less for your money and you can quickly go into negative equity; and new build economics can put a squeeze on space.

The report argues that the housing options for low to middle income families will not improve on their own and that the market will not fix itself. Unless the government acts, more and more of them will be forced into insecure private rented accommodation. Instead:

‘A bigger, better shared ownership market could provide these families with the balance of affordability, flexibility and stability that they need in their home. But it cannot be done by halves. A functional middle market needs scale to work like a proper market and move from being a rationed, niche part of housing in England. Shared ownership needs a bold, long-term commitment from policy-markets to make this happen.’

The scale could come from the case made by business secretary Vince Cable for one per cent of GDP to be spent on direct capital investment in house building. A £12 billion budget would be enough for 600,000 homes at £20,000 per home, a grant rate that Shelter argues would give providers the flexibility to offer lower initial shares for sale (as low as 12 per cent).

Much of the confusion could be swept away by having one scheme with clear eligibility rules and a buying and selling process that emulates the mainstream market more closely. Increasing the size of the sector could enable homes to be sold back into a larger secondary market that is less restricted than the current one.

Problems with new build could be tackled by making criteria for setting headline values and a requirement to meet sensible space standards a condition of getting grant.

The report has much to commend it but, as the title (Towards a mainstream shared ownership market) implies, it is just a beginning.

Media reports like this of shared owners’ problems with rising rents, repair bills and service charges and complaints about inflexible contract terms suggest that providers have some way to go with improving the consumer experience. Are those issues that can be ironed out or do they suggest a more fundamental problem?

The legal position of shared owners is another major concern. Do they have the best or the worst of both worlds? In particular, if the provider takes out a possession action for rent arrears, what happens to the tenant/owner’s share in the property? In the best (only?) known case so far (Richardson v Midland Heart), the tenant/owner faced losing all of her original capital outlay of almost £30,000 over £3,000 of rent arrears incurred when she fled her home in fear of violence and her rent was no longer covered by housing benefit. It was apparently only because the housing association offered an ex gratia payment that she got anything back – and even then nowhere near her capital stake in the property at the time. The message to shared owners seems to be that they risk losing everything if they fall into rent arrears but some of the details remain unclear and the case does not seem to have gone to appeal. Clarification of the legal position is surely needed before a major programme of investment. See here and here for more on the case.

A report last year by the Cambridge Centre for Housing and Planning Research for Thames Valley Housing Association and the NHF highlighted problems with the secondhand market for shared ownership homes. It called for action to improve mobility, encourage staircasing and improve the sales process.

And then there is the money. Despite that quote from Vince Cable, the case for massive investment will seem unconvincing to a Treasury that has found £15.5 billion for Help to Buy equity loans and mortgage guarantees without it counting as public borrowing. The investment that is being made by the coalition is going into Affordable Rent at a similar £20,000 per home grant rate.

Finally, even if a future Treasury accepted the case for investment, would it be at a scale big enough to change the market given the desperate need for homes to rent for people on even lower incomes? As the report accepts, both are needed.

But the alternative is to continue with piecemeal ownership schemes that fail to address the housing shortage or improve the options for people on low to middle incomes. The report offers a big housing idea that could have wide political appeal and appears to go with the grain of the housing aspirations of people on low and middle incomes. Staircasing receipts offer a future income stream to providers. And for those politicians prepared to look beyond the next election the report has a long-term warning about the costs of doing nothing and letting the private rented sector (or Affordable Rent) take even more of the strain.

As I’ve blogged before, the implication of falling ownership and rising private renting is a burgeoning housing benefit bill once renters reach retirement. The report estimates that if just half of today’s Generation Rent never buy a home the housing benefit bill for them alone will be £16 billion a year. Shared ownership could halve rents – and that bill - in retirement and be a key way of shifting subsidy back from benefits to bricks and mortar. 

Give and take

Wed, 28 Aug 2013

Finally I’ve found somebody who thinks that Help to Buy 2 is a good idea: the private equity owners of Foxtons.

I’m obviously exaggerating for effect here (I was just reminded of Simon Jenkins too for starters) but the London estate agent is famous for three things: its flashy sponsored Mini Coopers; the pushiness of its staff; and the timing of its sale in 2007. The founder of the company sold out to private equity firm BC Partners for £360 million just months before house prices and transactions crashed.

After a rare apology from BC Partners to its investors, and a rocky road to recovery, Foxtons is set to return to the stock market next month with a valuation of up to £500 million. That spectacular turnaround may have a bit to do with some canny financial engineering but, as the Financial Times reports this morning, it has far more to do with the fact that its timing could hardly be better.

London house prices are up 8 per cent in the last year and significantly above their peak. And, as the FT comments:

‘Moreover, the government has introduced a multitude of stimulus measures to underpin a housing market recovery. In doing so, it has reignited investor appetite for the span of businesses with exposure to property. Foxtons’ IPO follows that of rival estate agent Countrywide and housebuilder Crest Nicholson – both of which were over subscribed.’

But what is good news for those firms and their investors in particular and for estate agents and housebuilders in general offers more mixed prospects for the people that are supposedly being helped to buy.

A survey out today from the Intermediary Mortgage Lenders Association (IMLA) finds that lenders and brokers think first-time buyers will be the biggest beneficiaries of Help to Buy but that artificially inflated house prices are the biggest threats to its success.

Lenders already expect a 2.7 per cent increase this year and if that rate was maintained for the duration of Help to Buy, house prices would rise 11 per cent to pass their 2007 peak by the end of 2016.

That is a national average of course and first-time buyers in Foxtons’ London heartlands have seen that happen already. However, it could be just the beginning: lenders are worried that the launch of Help to Buy 2 (mortgage guarantees) in January 2014 could send prices even higher.

As Peter Williams, executive director of IMLA points out: ‘There is a clear consensus that first-time buyers stand to benefit most from the second part of Help to Buy. But if house prices continue to rise for the duration of the scheme, then in essence we will be giving with one hand and taking away with the other.’

Help to Buy 2 is available to everyone, not just first-time buyers, and is designed to boost mortgage lending at higher loan to values. In the example quoted in the Treasury’s scheme outline, it would enable someone to buy a £100,000 home with a deposit of £5,000 or 5 per cent. The guarantee bridges the gap between that and the 20 per cent deposit that lenders have typically demanded since the credit crunch.

Lots of the detail remains to be settled in the next few months ahead of the launch. However, the IMLA survey points to the danger that rising house prices will simply wipe out the value of the guarantee and make that deposit harder to save. At best that will benefit some first-timers while leaving others no better off than before; at worst it will trigger a bust to go with the boom that will hurt all of them.

And in the meantime they will be able to look at the homes priced out of their reach in the window of one of 50 new branches owned by Foxtons. 

Whose benefit?

Fri, 23 Aug 2013

You know the formula by now: take a provocative premise, add three claimants selected to provoke different reactions, stir in the reaction on Twitter, then stand back and watch the viewing figures mount up.

As with How to Get a Council House, Benefits Britain 1949 suffers from all the faults that are seemingly hard-wired into Channel 4 reality shows. The opening episodes showed them both at their worst (see me on How to Get a Council House and Frances Ryan on Benefits Britain 1949) but with time they evolved into something that went beyond the format and the premise.

I’ve just caught up with the second episode of Benefits Britain 1949 and if you haven’t seen it I recommend a viewing in conjunction with the third and final episode of How to Get a Council Housebecause they neatly bookend the whole debate about social housing and its place in the welfare state.

I use the term ‘welfare state’ advisedly for two reasons: first, its supposed inventor William Beveridge hated the term because of its ‘Santa Claus state’ connotations; second, it seems that whenever TV (here or by John Humphrys) uses the term it comes complete with the baggage of ‘scrounger’ connotations. The language used matters.

The premise of Benefits Britain 1949 is that present day claimants agree to live under the rules that were applied 64 years ago, The results (and especially the benefit levels uprated for inflation) usually come as a shock.

I’m not sure how accurate the results are and would be interested to see the calculations behind the uprating and some of the more questionable assertions such as ‘housing single mothers costs £4 billion a year’. However, I think I spotted two or maybe three definite mistakes in the programme: first, I’d be surprised if there were many integrated ‘labour and welfare’ offices in 1949; second, even if there were they would have said ‘social security’ not ‘welfare’; and third they would definitely not have covered housing allocations made by local councils. Making ‘housing’ part of ‘welfare’ may seem like TV shorthand but it reveals some dangerous underlying assumptions.

That said, the programme revealed some fascinating insights into the post-war system and some about the 2013 version too. As I’ve blogged before, the comprehensive system of social insurance devised by Beveridge and implemented with some changes by the Labour government had many virtues but some blindspots too. It struggled to cope with the needs of married women, single parents and the civilian disabled and never came to grips with how to pay for housing costs. Most importantly, Beveridge assumed that there would be full employment and council housing for all.

That was all too apparent in the treatment of Nichola, a single parent with two young children who was top of the priority list in 2013 but as an unmarried mother was not entitled to anything except discretionary or charitable assistance in 1949. Or Matson, a political refugee from Zimbabwe, was only entitled to minimal help in 1949 and was turned away by the racist landlord of a hostel, but then found happiness through work.

But there was more surprising news for Matt and Heidi and their kids. On the surface they seemed handpicked to play the undeserving claimants: he hadn’t worked for six years and their house and garden were a tip. In the Britain of 1949 that prompted a visit from the ‘rehabilitation officer’ to teach them how to keep their home clean and tidy and avoid losing their tenancy.

These are the kind of stories recalling a more moral and self-reliant welfare state that have prompted approving reviews in papers like the Telegraph because they offer implicit support for Iain Duncan Smith’s reforms. However, poverty and need are never quite so simple or straightforward, and neither are benefit systems designed to alleviate it. Paternalism has its upsides and its downsides and the programme showed both.

That was demonstrated most clearly in the story of Nichola. In 1949, she would have received temporary assistance or perhaps been sent to a hostel for unmarried mothers but she would have faced a real risk of having her children taken into care because she could not house them. The key moment in the programme came when the former benefits officer applying the rules from 1949, Anne Townsend, grudgingly revealed that where there was a genuine bond between mother and children, she could use her discretion to find charitable help. As she left, her austere mask slipped and she started crying. It turned out that her own mother had experienced many of the same problems. By the end of the programme, it turned out that 1949 had one advantage over 2013 for Nichola: wartime assistance with childcare costs was still in operation then and she could afford to work.

Nichola’s story had real echoes for me of the experience of the family at the centre of Ken Loach’s iconic Cathy Come Home. That starts when Reg is injured and loses his job, and he and Cathy are evicted from their home. Let down by an inadequate system of discretionary help, they face up to a life of poverty and homelessness and after living in a succession of hostels, squats and empty houses, their children are taken into care. The outcry that prompted and the campaigning of Shelter led eventually to the landmark legislation of 1977 that gave local authorities an obligation to house homeless families.

The final episode of How to Get a Council House looked on what happens to homeless families now, focusing on Tower Hamlets. An uninformed viewer would have come away puzzled at the title of the programme since it became clear that it should really have been called How to Get a Private Rented Flat at an Extortionate Rent (If You’re Lucky). What had changed since 1949 is not just the shift from mass council housing to the dire shortage revealed in the first episode but also the coalition’s changes to allow the discharge of the homelessness duty into the private rented sector.

The programme had the usual Channel 4 mix of  ‘deserving’ (woman fleeing domestic violence), heartbreaking (father caring for son with spina bifida) and ‘undeserving’ (alcoholic who broke the hostel rules) cases. As with previous episodes, it showed housing staff doing a professional job against the odds.

I still have severe reservations about the way that complex issues are given the Channel 4 treatment and, as Abigail Scott-Paul of the Joseph Rowntree Foundation points out, that is part of a much wider debate about ‘poverty porn’ on television. The obvious danger is that programmes like this merely reinforce the media and political message about strivers and scroungers.

But both programmes told another story if you were watching closely enough. The most telling moment in that final episode of How to Get a Council House came when the homelessness officer rang a local private landlord to secure temporary accommodation and was turned down despite offering a fee of more than £2,000 on top of the rent.

That said it all to me (and I hope others) about the true beneficiaries of Benefits Britain 2013.

Tape measure

Thu, 22 Aug 2013

Plans to ‘end rabbit hutch homes’ made all the headlines but the government’s consultation on new housing standards is about much more – and maybe not even that.

The housing standards review was launched in the wake of the government’s housing and construction red tape challenge, which itself was part of a wider drive to eliminate over-regulation in the economy.

Don Foster duly hailed the results published this week as ‘cutting red tape to help build more affordable homes’. Rules on safety and accessibility would not be changed but the number of housing standards that councils are allowed to apply locally would be reduced from more than 100 to fewer than 10.

Nothing wrong with that, you might think. A patchwork of different requirements in different local areas increases design and construction costs for house builders and that means new homes cost more. Instead the Building Regulations will be backed by nationally agreed standards on issues such as security and accessibility.

If that steam rolls its way through the localist principles that supposedly unite the Conservatives and Liberal Democrats, so be it. After all, the coalition did pretty much the same thing on planning with the national planning policy framework for councils that fail to agree a local plan.

But look a little deeper beneath the surface of the documents published this week and it becomes clear that the issues involved in ‘cutting red tape’ and ‘taking off the bureaucratic handbrake’ are highly complex.

First, as the consultation document acknowledges, the costs and benefits are about far more than just the construction cost of a new home. Any consideration of the standards of new homes has to balance a range of different policy considerations for society as a whole against that headline calculation. Sometimes requirements can vary between regions for good reasons and imposing a national standard can lead to increased costs in some areas.

Second, much of the patchwork of local standards that the coalition now wants to scrap is the direct result of its own actions. According to the consultation: ‘One key driver for the increasing adoption of space standards is the NPPF which requires that local authorities have due regard to the nature of housing development in relation to current and future demand.’

Meanwhile the adoption of higher minimum space standards for affordable housing in London than elsewhere followed the decision to hand the Homes and Communities Agency’s London operations over to the Greater London Authority in 2011.

Third, ‘red tape’ is very much in the eye of the beholder. The consultation that is supposedly reducing it actually proposes a new requirement on developers to provide waste storage for new homes to avoid bins dominating street frontages (reducing ‘bin blight’ is an obsession of Conservative communities secretary Eric Pickles) and raises the possibility of new national space standards (supposedly a victory for the Lib Dem half of the coalition). As ‘red’ tape is swept away, blue and yellow tape seems to be taking its place.

Fourth, those plans to ‘end rabbit hutch houses’ (presumably because ‘hobbit homes’ are Boris Johnson) are not at all that they appear to be. The section of the consultation paper on space states that the main purpose is to look at the issues in principle and ‘as a result, government does not have a preferred approach on space standards at this time’. However, six pages later the document states that:

‘The government’s preferred approach would be for market led, voluntary mechanisms such as space labelling, in order to meet consumer needs rather than mandatory application of space standards.’

Space labelling is a scheme put forward by house builders to allow consumers to compare different properties more easily but clearly it could work as an alternative or an adjunct to space standards. My guess is that the confusion could be down to the fact that the Conservatives support the house builders but the Lib Dems are refusing to give up on space standards. As the consultation points out: ‘The degree to which space standards should be developed or mandated is hotly contested and views for and against are very polarised.’

The impact assessment sheds further murky light on the space proposals. It does not include space standard impacts ‘because there is no firm proposal at this stage for a specific space element in the proposed nationally described housing standard and the evidence base on the costs and benefits of different standards is still at an early stage’. A preliminary analysis is tacked on to the end of the main statement. Space standards will be the subject of a huge battle over the next few months but supporters will have to overcome the presumption against them in the consultation.

Fifth, the consultation and impact assessment confirm moves to water down previous commitments on the sustainability and energy efficiency of new homes while still using the same terminology. The code for sustainable homes, which was set up to blaze a trail ahead of minimum standards laid down in the Building Regulations is seen as responsible for ‘a proliferation of local design standard requirements’ that have added to costs. It will now be phased out and the impact assessment states that ‘code levels 4, 5 and 6 do not now fit in with, or represent the government’s definition of zero carbon’. The Planning and Energy Act 2008, which allows local authorities to set requirements for on-site renewables, ‘may need to be amended or removed’.

The UK Green Building Council, founded by industry and environmental groups, argues that the proposals ‘fail to provide a vision for sustainable homes’ and exclude key sustainability requirements such as responsible sourcing of materials and ecology. Chief executive Paul King said these omissions plus the demise of the code risk ‘losing a momentum that has transformed the way homes have been built over the last seven years. The government claims its plans will take off the bureaucratic handbrake that holds back housebuilding, but it is in danger of letting key sustainability requirements roll away completely.’

Just as well then that my final point is that the environmental impact will not be as great as it seemed it would be when the UK-GBC was founded in 2007 and output of new homes was around 180,000. Completions are of course currently running at around 110,000 or half the level needed to achieve 250,000 net additions to the stock per year. The impact assessment includes an estimate of housing growth over the next 10 years. Under the (optimistic?) midpoint estimate of 4.5 per cent growth a year it will take until 2022 to get back to 2007 levels.

Communities and Local Government department ministers claim that policies to boost house building such as the elimination of ‘red tape’ proposed in this consultation are working. Their own civil servants estimate that England will fall at least another 500,000 homes behind the level needed to meet demand over the next 10 years. 

Half measures

Thu, 15 Aug 2013

For all the rhetoric from ministers, house building in England is still running at half the level needed to meet demand.

Earlier this week communities secretary Eric Pickles boasted that house building and new supply were ‘on the up’ and that the government had delivered ‘almost a third of a million additional homes in the last two years’.

He quoted National House Building Council registrations, gross affordable housing supply, net additional dwellings and the number of new homes bonus awards to justify that claim. Every housing statistic you can shake a stick at in other words with just one small exception: the house building figures produced by his own department.

A quick look at the second quarter figures published by the Communities and Local Government department this morning shows that was probably a wise choice. The apparent good news is that starts are up 6 per cent and completions 9 per cent on the previous quarter but that comparison is subject to all kinds of distortions caused by the cold winter disrupting production.

The better news is that the 29,510 starts between April and June is up by a third on the same quarter of 2012. However, that could also be distorted by last year’s extra Jubilee bank holiday and the run-up to the Olympics. And before Mr Pickles boasts about that too much, he might want to look at the total for the April to June 2010 quarter when his government took office: 30,350.

The bad news is that, after a very disappointing January to March quarter, the 27,270 completions between April and June were down both on a year ago and on the quarterly total when the coalition took office.

In the last 12 months there have been a total of 110,000 starts and 107,000 completions. While both have at least limped above 100,000, and starts indicate a modest recovery in the pipeline, they are basically flatlining. For a more detailed look at the numbers, see this post by Brian Green on Brickonomics.

Readers may remember that Grant Shapps became housing minister in 2010 promising to make us ‘a nation of home builders’ and with a ‘gold standard’ of building more homes than Labour.  Given that Labour had presided over the lowest annual total of house building in peacetime since the early 1920s it sounded like it should be achievable.

The claim by Mr Pickles of a third of a million homes in two years that I quoted earlier was based on homes qualifying for the new homes bonus. In a report earlier this year, the National Audit Office said that the CLG’s estimate of the increase in house building as a result of the bonus was ‘unreliable’ and based on ‘unrealistic’ assumptions.

The CLG house building statistics show that in the first three years of the coalition there have been 333,000 completions compared to 416,000 in Labour’s last three years. To match the 750,000 completions seen under Labour in the five years between 2005 and 2010, the coalition now needs more than 200,000 completions a year in its last two years, almost double what it has managed so far. 

If that sounds completely implausible, the sobering thing is to realise is that this was about the level needed to get to the 240,000 additions a year to the stock target set by Labour in 2007. It hoped for 3 million new homes by 2016 but the recession and falling construction rates mean we could miss that by up to a million. 

The target was in turn based on analysis by Kate Barker in a report for the Treasury in 2004 of the level of new supply needed to keep house price inflation under some level of control. As the government stokes up demand through funding for lending and help to buy, we are still falling further and further behind what we need on supply and, as I blogged on Tuesday, prices are on the rise once again. 

On the rise

Tue, 13 Aug 2013

As the evidence for a housing market recovery mounts by the day, so is the impression that an old-fashioned dose of house price inflation is now seen as a very good thing by the government.

In a survey out this morning, members of the Royal Institution of Chartered Surveyors report that activity is rising around the country and prices are up for the fourth month in a row. Yesterday, the Council of Mortgage Lenders reported that the number of loans to first-time buyers was up 30 per cent on a year ago to its highest level since the credit crunch in 2007. On Friday, CML said buy to let lending topped £5.1 billion in the second quarter of the year, the highest since 2008.

Also, the Communities and Local Government department published figures showing that 10,000 people have registered for a help to buy equity loan in the last four months. Whether by coincidence or design, that was neatly calculated to capitalise on a housing market feel-good factor that was sent into overdrive by last week’s forward guidance from Bank of England governor Mark Carney that interest rates will stay at a record low until unemployment falls below 7 per cent (widely interpreted as meaning until 2016 at least).

This does not yet amount to a new boom: transactions are still well down on the early 2000s and, according to the Halifax, prices rose 4.6 per cent in the year to July, significantly ahead of inflation but well short of the increases seen up to 2007. However, house price inflation is steadily gathering momentum and, as Sunday’s Observer showed, it is well into boom territory in parts of London.

However, all this is happening at a time when wages are falling in real terms and growth in the rest of the economy is weak at best. Can it really be only two and a half years ago that Grant Shapps, then housing minister but now Conservative Party chairman, argued that the government should use policy levers to ensure ‘house price stability’? In a ‘rational’ market, he said, prices would rise by 2 per cent while earnings rose by 4 per cent, so that they fell in real terms over time. He went on:

‘It would foolish to go as far as to say that you can simply end boom and bust but there are policies that can have an impact and they include things like housing supply, the way that mortgages operate and whether there are exterior policies such as the pension raid that can have an impact on where people invest their money.’

As I argued at the time, it was a spot-on analysis but it seemed wishful thinking even in 2011. Things look very different in 2013: the Bank of England’s funding for lending scheme is fuelling a surge in mortgage lending at lower rates while another 63,000 help to buy equity loans are still available.

In the CLG’s statement last night Eric Pickles valiantly attempted to make the case that the new confidence in the market is being matched by successful attempts to boost supply. That is important to defend the government against the accusation that it is merely boosting demand and therefore prices. However, to make that claim, `Mr Pickles has to use National House Building Council registrations rather than his own department’s house building stats and to argue that official stats on new affordable homes from the Homes and Communities Agency and Greater London Authority understate the true figure. Ministers are now using new homes bonus statistics to argue that almost 320,000 additional homes have been provided over the last two years. The press release does come complete with endorsements from the chief executives of Barratt, Persimmon and Taylor Wimpey, but that is not entirely surprising given that their companies are enjoying the benefits of yet more government subsidy with few strings attached.

However, all of this is relatively small beer by comparison with the January 2014 launch of £12 billion of help to buy mortgage guarantees (which are not restricted to new build homes) and with Mark Carney’s pledge on interest rates. As I argued last week, this amounts to official encouragement for a boom in buy to let and it also sends a strong message to anyone looking to buy that they had better do so as soon as possible before prices rise.

The government and the Bank of England still have options if they want to prevent another boom and eventual bust. They could cancel Help to Buy given that confidence has already returned to the market (one of the biggest increases in demand recorded by the RICS was in Wales, which does not yet have any form of help to buy) and that mortgage availability has already improved. As The Economist argues this week, the Bank could restrict funding for lending to loans to small businesses rather than mortgages. And Mr Carney’s low rates pledge did come with a caveat about threats to financial stability.

None of these looks very likely as things stand. The short-term feel-good factor of rising house prices and the boost to the economy from higher transactions ahead of the election look far too tempting to the politicians to worry about the long-term consequences. And Mr Carney, who left a house price boom behind him in Canada, seems surprisingly unconcerned about the dangers of another one here. 

Doing good

Mon, 12 Aug 2013

Channel 4’s ‘How to get a council house’ broke free of its dodgy title and format last night, butt the same cannot be said for the reaction on Twitter.

The second episode in the series was set in Manchester and followed tenants and staff of Northwards Housing as the bedroom tax loomed earlier this year (watch again here). It gave some real insights into the way the system works and the good job that housing officers do in very difficult circumstances.

As I blogged last week, I thought the first episode also did well at showing the impossible situation in Tower Hamlets, where just 40 properties a week become available as 60 new families join the 24,000 others on the waiting list. But I criticised the trivialising commentary and the lack of any context that might have explained why. Matthew Warburton of the Association of Retained Council Housing was much kinder in his blog here.

Last night, though, the positives far outweighed the negatives. True, the commentary still made my teeth grind with irritating comparisons between council rents and house prices. True, I still wondered whether some of the editing was designed to hit the Shameless stereotypes and stir up the reaction it got on Twitter (the same production company was responsible for Benefit Busters in 2009).

And while there was some attempt to explain the context of the bedroom tax, an uninformed viewer could still have come away with the impression that if the tenant on TV could successfully downsize then so could everyone else. In fact Northwards has 3,000 facing an under-occupation penalty and only 58 of them have moved to date. Another 207 have registered to move but three quarters of them need a scarce one-bed home.

But for all those criticisms, and the way that reality TV techniques like the commentary end up distorting reality, there was a real human story and a genuine documentary that did break through. Council housing and the ‘spare room subsidy’ look very different seen through the eyes of people in desperate need of it and with no choice but to pay it.

Above all, though, it was the professionalism of the housing staff involved that shone through. Where the star of Benefit Busters was the scrounger-haranguing Hayley Taylor, the star last night was Lisa Jenkinson, neighbourhood housing manager at Northwards.

I’m guessing she will have spoken for a lot of people dealing with welfare reform when she told a team meeting:

‘You’re always depressed. You’re no longer doing anything good. I mean you are doing good but you’re not doing good because every door you knock on you’re just giving them bad news. We’ve just met a family where he’s lost his job, benefits are all messed up, wife’s going to lose disability living allowance and now the bedroom tax. What else, what other bad news could I possibly think to give them?’

The last bit of the programme brought some better news for the downsizer I mentioned earlier. Alan, a tenant facing the bedroom tax on his two-bed flat in a tower block, was facing up to the prospect of having to abandon the tenancy and move back to the box room at his parents’ house. Finally, he got a call with the good news of a smaller place. His old flat went to a single male who will not face the bedroom tax because he is working. The spare room will still be spare.  

And the final scene saw Lisa Jenkinson again expressing what must be the feelings of many people. ‘I find it quite a frustrating topic to talk about,’ she said. ‘To me personally it doesn’t make sense but we’re left to pick it up and deal with it. But at least someone who’s working’s got a flat… which is good.’

Fair play to the TV producers: that was a perfect ambivalent note on which to end the programme. It also strikes me that picking it up and dealing with it is unfortunately a pretty accurate description of what many people in housing do. The staff of Northwards Housing showed last night that it is a difficult, sometimes impossible, job that can still be done with professionalism and respect for tenants.

If only the same could be said for Twitter. If you do take a dip in the cesspool that is the hashtag #howtogetacouncilhouse make sure you have plenty of hot water and disinfectant handy. Yes, the title of the programme provokes that reaction, but it also reveals the scale of the ignorance and bigotry that is fuelling support for welfare reform and antipathy to ‘scroungers’. Those who believe everyone has a right to a decent home at an affordable price and that this cannot be left to the market alone have an uphill struggle on their hands. 

Away from the TV cameras, the work continues, the unintended consequences of the bedroom tax continue to kick in and the housing crisis keeps getting worse. With How to get a council house and ITV’s Tonight earlier in the evening, at least housing has the media spotlight and the chance to get its message across.

Next week’s final episode focuses on the homelessness service in Tower Hamlets. 

Home banker

Thu, 8 Aug 2013

Mark Carney’s pledge on interest rates can only make buy to let look even more of a one-way bet for landlords and the banks who lent them a cool £5 billion in the second quarter of 2013.

Figures published by the Council of Mortgage Lenders a day after the Bank of England governor made his announcement show a new surge in loans. In the three months from April to June its members made 40,000 gross advances to buy to let landlords worth £5.1 billion. Both are the highest quarterly figures seen since 2008. The number of loans was up 19 per cent and their combined value was up 21 per cent on the previous quarter. Loans were up 19 per cent by volume and 31 per cent by value on a year ago.

Stripping out remortgaging, there were 20,430 loans for house purchase to landlords in the second quarter worth £2.3 billion. These are also the highest levels seen since the third quarter of 2008.

Overall buy to let lending is now running at double the level seen in early 2010, when (at the risk of sounding like a broken record) Fergus and Judith Wilson, the king and queen of buy to let, pronounced that the sector was ‘absolutely dead and will never return’. At the time they were talking about selling their property empire but earlier this year they still owned 1,000 homes and were complaining about London boroughs ‘dumping’ their homeless households in Kent.

To put that turnaround in perspective, buy to let now accounts for 13.3 per cent of all mortgage lending, up from 13.1 per cent in the first quarter of 2013, 12.9 per cent a year ago and just 9.4 per cent in 2007, when the credit crunch was about to hit. There are now almost 1.5 million buy to let mortgages outstanding and they are worth £168 billion, meaning that the total market has broadly doubled since 2006.

Even though conventional mortgage lending has recovered recently and buy to let’s share has grown at a slower rate in the last two years, landlords still look set to be grabbing one in six new mortgages by the end of the decade.

Can that extraordinary growth continue? Everything about current economic policy suggests that it can. New Bank of England governor Mark Carney revealed that interest rates will not rise above their record low 0.5 per cent until unemployment falls below 7 per cent. On current trends that is highly unlikely to happen until at least 2016.

In one sense this only formalises what many economists expected anyway. However, I would suggest that it is likely to give a powerful new impetus to buy to let (and to house prices). This morning’s papers are full of headlines like ‘Interest rates frozen for three years’. That conveys a powerful message to people that now is a very good time to borrow as much as possible – and that the Bank of England will support you.

Even before the Bank’s latest intervention the property website Rightmove was arguing that its Funding for Lending Scheme had created an ‘arbitrage of immediate return’ for buy to let investors. By making £80 bn of loans available to banks at rock bottom rates, the scheme had driven down mortgage rates to as little as 2 per cent at a time when rents were delivering average gross yields of 5.9 per cent. That seemingly guaranteed profit can only increase the temptation for home owners to buy another one to rent or as a holiday let. If they have enough equity in their first home they could even bypass buy to let by remortgaging it to buy another one outright.

The Bank’s new policy can only intensify that effect by sending mortgage rates even lower, reducing still further the miserable sub-inflation returns available to savers and voicing both messages loud and clear in the national media. With what consequences for the housing system?

Choice viewing

Fri, 2 Aug 2013

A documentary about housing on Channel 4 is usually the cue for me to look what else is on TV. This time I watched the programme – and the reaction to it. 

Inside my Twitter feed, the debate was about whether How to Get a Council House (watch again here) presented a realistic but depressing portrait of life on the waiting list or trivialised the issues by ignoring the reasons why the wait is so long.

Outside my feed, the racists, kippers and anti-welfarists were in full cry. Search under the hashtag #howtogetacouncilhouse and you will quickly see what I mean: in this world council housing is the preserve of immigrants and scroungers. All of the public prejudices against people on benefits are simply transferred to council tenants.

The programme looked at Tower Hamlets in London, where 24,000 people are on the housing register. The queue is getting longer all the time because for every 40 properties that become available, 60 new people are joining.

The positive side of the programme was that it showed what life is like for the people waiting for a home and the housing officers doing their best to help them in an impossible situation. It will have shown people in some detail how and why people get priority for housing and hopefully dispel some of the myths (though not on Twitter). Perhaps (as reflected in this Telegraph review) it will make people think about why the system operates as it does.

Choice was a key theme. The council operates a choice-based lettings scheme but it made me wonder about the value of informing people that their bid for a flat came 1,058th in priority and of inviting six families to a viewing when three of them have no chance of getting a home. As Colin Cormack from the council said at the end of the programme, ‘for the majority of people in the queue there is no choice whatsoever’.

The negative was the inevitable tendency of the cameras to focus on the cases that will look good on TV but are not necessarily representative. People who get a new home and thank the housing officer do not make for good telly. People who are picky enough to turn down nine offers or insist on a parking space to go with their brand new three-bedroom flat do.

And the programme was also shorn of any context. I’m not sure what the Tower Hamlets waiting list was like when I lived in Bow in the early 80s but the number of people I knew who managed to get a hard-to-let council flat seems a fair indication. If you had told me then that a flat on the Ocean estate would one day be on sale for almost £500,000 I would never have believed you.

There was little or no explanation of what’s changed in the meantime. The only mention of the right to buy came from a neighbour of a tenant waiting for a ground floor flat. It was never explained that the Bengali population of Tower Hamlets (who prompted many of the racist tweets) has been established for decades. The impact of parachuting Canary Wharf into one of the most deprived areas of London was never examined. Above all, there was the irritating way that each property allocated had its market price juxtaposed with what the council rent was without ever asking why market rents are so high. 

However, as I was reminded on Twitter earlier, perhaps that is a different programme entirely and certainly not one that would get an audience of 2 million people. I’m reliably informed that episode 2, which features the impact of the bedroom tax in Manchester, will definitely be worth watching next Thursday night. 

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