The first part of my analysis of Margaret Thatcher’s housing legacy looks at the right to buy and the property-owning democracy.
The death of the former prime minister got me thinking in what I hope is a dispassionate way about what her time in office meant to housing.
What seems to be undeniable is that the right to buy represented a sea change. Many people would nominate British Gas or British Airways or BT as her greatest privatisation but council housing was bigger than any of them. Some 1.5 million homes were sold between 1979 and 1990 (500,000 of those between 1979 and 1983). Capital receipts from the right to buy totalled £17.6 billion between 1979 and 1989 compared to £23.5 billion from all the other privatisations put together.
It is the one housing policy that is being mentioned in all of the obituaries and hagiographies in the national media but the truth about Thatcher and the right to buy is more complex that you might think.
It’s not just that there were thousands of council house sales long before she became Tory leader. It’s more that when the idea of a right to buy (as opposed to voluntary sales by landlords) was first proposed one of its most prominent opponents was a shadow environment secretary called Margaret Thatcher. For most of the details that follow I am indebted to the brilliant Five Giants: A Biography of the Welfare State by Nicholas Timmins.
When Edward Heath wanted to include the right to buy in the Conservative manifesto for the October 1974 manifesto he was proposing something that directly impacted on her shadow environment secretary portfolio. She believed that it would be unfair to people who had to save to buy their homes. ‘What will they say on my Wates estates?’ she asked at the time.
When she took over from Heath as Tory leader there were even more radical ideas knocking around. Peter Walker, an archetypal ‘wet’ who she had sacked from the shadow Cabinet, proposed that council houses should just be given to anyone who had paid their rent for 20 years and that the rent should be treated as a mortgage for anyone else. He argued that it would make sense financially because councils would no longer have to meet management and repair costs. However, Thatcher again opposed the idea. According to Walker: ‘Margaret was against it because she felt it would upset “our” people who had struggled to pay their mortgages.’
Meanwhile, according to Timmins, something similar to the right to buy came very close to being Labour policy first. The message came over loud and clear on the doorsteps at the 1974 election that tenants wanted to own their homes and Downing Street advisors worked on a scheme for ‘lifetime enfranchisement’. It had the enthusiastic backing of prime minister Harold Wilson but foundered on opposition from advisers and ministers at the Department of the Environment.
So history could easily have been very different at the 1979 election. Instead the right to buy went on to become indelibly associated with a politician who had at first opposed the idea and arguably became a key factor in her three election victories as aspirational working class voters in places like Basildon switched to the Tories.
However, as Steve Hilditch points out over at Red Brick, the truth is again a bit more complicated. The 1979 manifesto did not make a big deal out of the right to buy and it included all sorts of safeguards on sheltered housing, rural areas and resales. There was also no mention of what would go with it: dramatic cuts in housing subsidies that would help cut public spending but also push up rents and encourage more sales. The big differences with what had gone before were the scale of the sales and the fact that the proceeds were not reinvested in housing.
The combined result was a decisive break with the housing policy consensus that had operated since 1945. From 1980/81 council house sales outstripped new council homes built and they have done so ever since. The discount was gradually increased until by 1986 it was 60 per cent after 30 years’ tenancy on houses and 70 per cent after 15 years for a flat. Some 32 per cent of England’s stock was sold between 1979 and 1990. Academics Ray Forrest and Alan Murie conclude in Built to Last, ROOF’s book on housing policy: ‘There is no doubt that if the local authority housing programme is treated as self-contained, the term “asset-stripping” is perfectly appropriate.’
Among the consequences in the 1980s were increased residualisation in council housing and increased homelessness across the country but these were not concerns for Margaret Thatcher. As she said in a famous interview in 1987:
‘I think we have gone through a period when too many children and people have been given to understand “I have a problem, it is the government’s job to cope with it!” or “I have a problem, I will go and get a grant to cope with it!”; “I am homeless, the government must house me!” and so they are casting their problems on society and who is society? There is no such thing! There are individual men and women and there are families, and no government can do anything except through people and people look to themselves first.’
The other major theme of what I think of as Margaret Thatcher Mark I was the rise of home ownership. In her very first speech as Tory leader, Thatcher had proclaimed her belief in the old Tory idea of a ‘property-owning democracy’. As her original opposition to the right to buy showed, she was instinctively on the side of ‘our people’ and that meant people who were saving to buy a new home. She was enthusiastically backed by the major housebuilders. In part they were reacting against Labour’s flirtation with nationalising them but few things summed up the sprit of buccaneering capitalism better than the TV adverts featuring Lawrie Barratt (the founder of Barratts who died last year) in a helicopter flying over his building sites. Barratt homes divided opinion but Thatcher liked them so much that she knighted him and bought one for her retirement.
Home ownership grew by more than three million homes between 1979 and 1990 (more than a third of them right to buy tenants). That was all supported by increasingly deregulated mortgage lending and lavish mortgage tax relief that was giving almost 10 million home owners an average of £800 a year each at a cost of almost £8 billion by 1990. Unsurprisingly house prices grew rapidly too, culminating in an almighty boom and bust in 1989 and 1990 and repossessions that were double the levels seen in the recent crash.
So that was Thatcherism Mark I. Mark II would have to wait until 1988 when her government created the conditions for the rise of housing associations, private renting, housing benefit and the housing system we have today. More on that tomorrow.
This week’s move by Prudential into the private rented sector one is highly significant for reasons that go far beyond the 500 or so homes involved in the deal.
The giant insurer had actually already moved into private renting when its M&G subsidiary invested £125 million in a sale and leaseback deal with Genesis Housing Association at the Stratford Halo development in east London in January. However, the Berkeley money comes directly from its property fund management arm PRUPIM and so represents its first real foray as an institutional investor.
The first reason why this is so significant is symbolic. The Pru was probably the best known of the institutional investors that once owned a sizeable chunk of a UK’s private rented sector that accounted for 76 per cent of homes in 1918. It was also one of the best-known disinvestors in the sector subsequently as private renting’s share fell to just 10 per cent in 2000.
The second is attitudinal. I remember researching a feature in the 1990s that involved talking to the major institutions about whether they would return to investing in private renting in the wake of the deregulation of the sector in 1988. The Pru was probably the most cautious of the lot at the time, citing the political risk that a future Labour government would reverse the changes and re-regulate.
The third is financial. The other major reason why institutional investors were so reluctant was the way that they measure returns. In their traditional markets – offices and shopping centres – they look purely at the rental yield. Measuring the return in this way makes residential look like a bad investment because it does not include capital growth. It also means that high house prices are a key barrier because the rental yield appears to be too low.
This statement by PRUPIM chief executive Alex Jeffrey turns that thinking on its head by admitting that the returns from residential have historically been higher than from commercial property when you include capital as well as rental growth:
‘The expanding residential rental property market, particularly in London and southern England, is gaining in appeal for institutional investors. We believe that returns from the sector – which have historically outpaced commercial real estate – will continue to be attractive as demand increases. We expect the supply and demand dynamics of the residential property market in London and the South East to remain favourable for investors, with continued strong demand for quality properties.’
Clearly things are changing rapidly in private renting with interest from institutions, local authority pension funds and housing associations. However, they do not yet amount to the build to rent revolution advocated by the British Property Federation and endorsed by the Montague report last year.
The PRUPIM/Berkeley deal is actually the result of the private rented sector initiative by the Homes and Communities Agency in 2009. The portfolio consists of flats and houses that were in 13 different locations. In contrast, the build to rent model involves homes in blocks specifically designed for rental and with consequent savings in management costs.
However, the signs look promising, even if a key Montague recommendation on planning (taking build to rent into account in viability assessments) has still not been implemented. Last month’s Budget increased the size of the government’s build to rent fund, which provides equity or loan finance to developers, from £200 million to £1 billion, saying that the existing fund was over-subscribed.
I’ve written before about how writing about institutional investment in private renting is like Waiting for Godot, the Samuel Beckett play in which the supposed principal character never actually appears. As the Man from the Pru makes his (re)appearance, could the wait finally be over?
Will it be remotely enough to make up tackle the housing supply crisis? The wait on that question definitely goes on.
Northern Ireland could be set to scrap the bedroom tax as fears grow about the impact on tenants when it is imposed elsewhere from Monday.
The Northern Ireland Assembly has still not approved the Stormont Welfare Reform Bill and is not due to discuss it again until April 16.
However, housing organisations believe the Northern Ireland government is now increasingly likely to decide not to impose the size criteria despite the fact that it will have to meet the £17 million cost from elsewhere in its budget.
Thanks to its devolution settlement, Northern Ireland is the only part of the UK that can go its own way on welfare reform. The government has already decided not to implement key elements of the universal credit, including direct payment of the housing element to tenants.
Until recently, campaigners believed the government would be forced to implement the bedroom tax because of the financial implications. However, political opinion has hardened against it in the wake of UK-wide media coverage of the impact on tenants and both Sinn Fein and the DUP have signalled their opposition.
The Welfare Reform Bill was delayed to allow an ad hoc committee to consider the equality and human rights aspects of the legislation. The Committee for Social Development published a report at the end of February recommending that the clause on the bedroom tax should not be implemented. It said 33,000 tenants would be affected, with landlords signalling that they could not provide alternative accommodation for tenants wanting to downsize.
It went on: ‘The committee also shared concerns of stakeholders that the segregated nature of our society may restrict options that people otherwise would have to move to areas where appropriate, but limited, housing may be available.’
An inter-departmental group is now considering the options and is due to report in April.
The Chartered Institute of Housing in Northern Ireland and Northern Ireland Federation of Housing Associations say 62 per cent of working-age households on housing benefit claimants in social housing could potentially be affected, compared to 33 per cent in Great Britain.
They have put forward a series of options including:
- Not implementing the bedroom tax
- Only applying it to new tenancies
- Delaying it until alternative options for affected households can be affected
- Only applying it to people who refuse a reasonable offer of smaller accommodation
- Only applying it to people under-occupying by two or more bedrooms
- Exempting disabled people who are living in specially adapted accommodation or who need an extra bedroom to facilitate their care and support.
Any of these changes would give tenants in Northern Ireland more protection than tenants in the rest of the UK. However, hopes are rising that the government will drop the bedroom tax completely.
The Welfare Reform Act covering the rest of the UK was passed in 2012 and different devolution arrangements mean Scotland and Wales have to follow Westminster’s lead.
However, the SNP government in Scotland has written to all social landlords urging them to prevent evictions of tenants with bedroom tax arrears, and the Labour government in Wales is being urged to create a Welfare Defence Programme to protect tenants.
In England several local authorities, including Darlington and Bristol, have also pledged there will be no evictions for bedroom tax arrears although it remains to be seen how this will work in practice.
Campaigning and legal action is set to continue up to and beyond Monday’s implementation date.
Yesterday the government failed in an attempt to block ten cases brought by three firms of solicitors and barristers at Doughty Street Chambers. The cases all involve disabled or abused children or disabled adults who have expertly assessed needs for their own bedrooms.
Leigh Day is acting for a severely disabled woman with spina bifida whose husband has to sleep in a separate bedroom and for a disabled widower with a disabled step daughter who cannot find smaller accommodation suitable for his wheelchair.
The cases will now be heard at an urgent three-day hearing at the divisional court in May.
Earlier today the National Housing Federation published a report raising serious doubts about whether the government will achieve its declared aims of tackling over-crowding, encouraging more efficient use of social housing and saving money. It highlights:
- the mismatch in the north of England, where under-occupiers outnumber overcrowded families by three to one
- the lack of smaller social homes for the 660,000 affected families to move to
- the increased costs if they move to the private sector instead
- the impact on disabled families in specially adapted properties and the costs to the taxpayer if they moved to smaller homes.
A survey by Inside Housing shows that just 1 per cent of tenants affected by the bedroom tax have moved so far, 13 per cent want to move but have not found anywhere and 46 per cent say they will stay and pay the extra.
And protestors will make their voice heard at demonstrations in 53 towns and cities across the country on Saturday.
The bedroom tax may be crumbling in Northern Ireland but the cracks in the policy are continuing to appear everywhere else too.
So, shockingly, it turns out that the government’s ‘powerful new incentive’ to councils to approve more homes may not be working out quite like that.
A damning report on the New Homes Bonus published today by the National Audit Office (NA0) is deeply embarrassing for the DCLG and former housing minister Grant Shapps but it hardly comes as a huge surprise.
The flaws were pretty clear right from the beginning. As I argued when the first allocations were made, it is not really a bonus and it amounts to a mechanism for transferring funding from deprived areas of the north to affluent areas of the south for homes that would have been built anyway.
However, some of the detail revealed by the NAO is still deeply shocking and the report almost amounts to a textbook example of how not to implement evidence-based policy. Here’s a flavour of criticisms that are all the more powerful for being made in the NAO’s usual measured language:
- The DCLG’s estimate of the potential increase in new housebuilding is ‘unreliable’ – the assumptions were ‘unrealistic’ and correcting a calculation that included a ‘substantial arithmetical error’ reduces the estimate by 25 per cent.
- ‘The department’s approach to monitoring and evaluating the Bonus and its effects is neither timely nor adequate.’
- It’s too early to say whether the bonus will increase new housing but ‘we found little evidence that the bonus has yet made significant changes to local authorities’ behaviour towards increasing housing supply
- ‘The Bonus has so far mainly rewarded home creation that was not incentivised by the Bonus.’
- ‘We found little evidence that the influence of the Bonus is reflected in increased planning approvals for housing.’
- The department was aware that the bonus could result in large cumulative losses for some authorities but did not include that in the impact assessment and it has done no analysis of the impact on individual councils.
- Despite introducing a scheme designed to change the behaviour of local authorities and communities, the department did not even consult the Cabinet Office’s Behavioural Insight Team (or Nudge Unit).
- The department’s risk register mentioned pressures on the availability of rented housing and ‘associated impacts from welfare reform’ but these were not mentioned in the impact assessment. The NAO found ‘no evidence’ that it the DCLG and DWP had considered the impacts of their respective policies.
Housing minister Mark Prisk made a valiant attempt to defend his predecessor’s policy to the BBC:
‘This report is unduly negative and unfair. Housing supply is up and planning approvals are up. We are getting Britain building. The reality is that the New Homes Bonus has already rewarded councils for the delivery of 450,000 homes and we are confident that it has the potential to increase supply by at least 100,000 homes over 10 years.’
However, Labour’s Jack Dromey said ministers had been ‘extraordinarily irresponsible’ in not checking whether the scheme was value for money:
‘The New Homes Bonus symbolises the government’s failing housing policies. They are failing to increase housebuilding and the government has grossly overestimated its impact, promising much and delivering little.’
On the plus side for the government, the NAO did find ‘some evidence that the Bonus has given local authorities resources to allow them to protect activities relating to new and empty homes’. I’ve also seen for myself how it has encouraged my local council to get much more serious about developing a register of empty homes and working with the owners to bring them back into use.
Overall, though, the verdict from the head of the NAO, Amyas Morse, is that:
‘Some local authorities could face significant cuts in their funding as a result of the New Homes Bonus scheme. While it is too early for the scheme to have had a discernible impact on the number of new homes, the signs are not encouraging. “The Department must now urgently carry out its proposed review of the scheme to ensure that it successfully encourages the construction of much-needed new homes.’
It’s not hard to see that the £500 million of grant and £1.1 billion of redistributed formula grant that the government is planning to spend on the bonus over the next two years could be better spent in any number of other ways.
And the whole episode raises serious questions about another, potentially even bigger policy disaster in the making: the £15.5 billion Help to Buy scheme.
Critics including most serious economists warn that the scheme could just further inflate a house price bubble that could leave the taxpayer with multi-billion liabilities when it pops. As Julia Unwin of the Joseph Rowntree Foundation argues, the result could be economic disaster followed by human tragedy.
At the Treasury select committee yesterday, George Osborne was denying it all even as the Office for Budget Responsibility, the independent watchdog that he created, was warning that the scheme would drive up house prices while having a limited impact on supply.
Are the mistakes of the New Homes Bonus about to be repeated on an epic scale?
David Cameron’s speech about social housing and immigration today demonstates yet again the gap between perception and reality on the issue.
The prime minister says he wants to introduce an ‘expectation’ that local authorities will introduce a local residency test determining who should qualify for social housing:
‘New migrants should not expect to be given a home on arrival. And yet at present almost one in ten new social lettings go to foreign nationals. So I am going to introduce new statutory housing allocations guidance this spring to create a local residence test. This should mean that local people rightly get priority in the social housing system. And migrants will need to have lived here and contributed to this country for at least two years before they can qualify.’
According to Downing Street, this would mean that migrants would have to live in an area for, say, two years before they could go on the waiting list:
‘This will stop someone from turning up and immediately gaining access to social housing. To ensure UK nationals are protected when they are moving for genuine reasons – for example for work or because of family breakdown – local authorities will have the ability to set exceptions (e.g. in relation to work mobility, armed services personnel, for people escaping domestic violence etc).’
There will also be ‘a new legal requirement on landlords to check the migration status of new tenants, so they are not renting to an illegal immigrant’. Private landlords are warning that this could just drive vulnerable people into the hands of criminal gangs.
The speech, which also includes measures on access to benefits and free healthcare, is clearly designed to stop UKIP exploiting immigration as a political issue, and Cameron is not the only party leader announcing new policies.
However, is it much different to the policy announced by Labour in June 2009 as part of the Building Britain’s Future relaunch of Gordon Brown’s premiership? This pledged that ‘we will change the current rules for allocating council and other social housing, enabling local authorities to give more priority to local people and those who have spent a long time on a waiting list’.
The immediate response from Conservatives then was to claim that this would be illegal under the government’s own Equality Bill and contravene existing legislation too. A certain Grant Shapps, shadow housing minister, said: ‘Gordon Brown’s spin, pitched at Labour’s disillusioned core vote, has been exposed to be a sham. Housing waiting list policies need reform and we need more affordable homes. But Labour are unable to deliver the change we need.’
The move also contradicted research by the Local Government Association and Equality and Human Rights Commission showing that people who were foreign born and had arrived in the UK within the last five years – Cameron’s target group – occupied just 1.8 per cent of social homes. Another 10 per cent were occupied by people who were foreign born and had arrived longer ago than five years.
In total, 11.6 per cent of people who were foreign born and had arrived in the UK in the last five years were social tenants, compared to 16.6 per cent who were owner-occupiers and 63.6 per cent who were private tenants.
Looking at the housing options of all foreign-born nationals, 17.8 per cent were social tenants, 26.9 per cent were private tenants and 51.4 per cent were owner-occupiers.
A press release from Eric Pickles released after Cameron’s statement today claims that the proportion of new social lets to foreign nationals has risen from 6.5 per cent in 2007/08 to 9 per cent in 2011/12. However, that makes no distinction between people who have been in Britain for years and the ‘something for nothng’ recent arrivals singled out by Cameron.
The data comes from parliamentary answer by housing minister Mark Prisk in January that spelt out the rules that already apply to allocations:
‘Most foreign nationals who have recently come to England are not eligible for an allocation of social housing. Broadly speaking, European economic area nationals are eligible if they are working, self-sufficient, or have a permanent right of residence in the UK (after five years lawful residence in the UK). Other foreign nationals are not eligible for social housing unless they have been granted leave to enter or remain in the UK with recourse to public funds (for example, people granted refugee status or humanitarian protection). Where foreign nationals are eligible, they will have their housing needs considered on the same basis as other applicants in accordance with the local authority’s allocation scheme. In this context, the Localism Act gives back to councils the freedom to manage their own waiting list. They will be able to decide who should qualify for social housing in their area, and to develop solutions which make best use of limited social housing stock.
This was a point also made on the World this Weekend yesterday by Mike Jones, the Conservative leader of Cheshire West and Chester Council and the LGA spokesman on housing. He argued that Cameron’s plan would just interfere with councils’ freedom to determine their own priorities without achieving very much.
So if the reality about housing and recent migrants is rather less dramatic than Cameron’s speech makes out, what about the perception? The 2009 report from the LGA and EHRC came up with several reasons why voters might see it as more of a problem than it actually is. These included: the Borders Agency’s use of empty social housing for asylum seekers, key worker schemes for groups such as health and care home workers with high numbers of residents from particular ethnic groups and the fact that on many new developments with mixed tenure it was hard to tell private from social; and the sale of former social homes under the right to buy.
Above all, however, there was the sale of social housing under the right to buy. The report pointed out that this had not just reduced the available stock, and therefore housing options for UK citizens, but:
‘In many parts of the UK, the sale of social housing and its subsequent use as private rental accommodation for migrants has fuelled misconceptions about the allocation of social housing. Perceptions that migrants displace UK-born social housing applicants may arise from the fact that some private rented housing which is now home to migrants is former social housing stock. Local residents may believe it is still “owned by the council” despite it now being in the private sector.’
That seems to be of particular relevance to a government that is now pulling out all the stops to increase right to buy sales. Under last year’s ‘reinvigorated’ right to buy, it increased the maximum discount first to £50,000, then to £75,000.
With sales failing to match ministers’ expectations, George Osborne increased this again to £100,000 in last week’s Budget. He also cut the qualifying period from five to three years and announced a simplified application process.
However, a survey by the Mirror earlier this month revealed that a third of flats sold under the original right to buy are now owned by people with a different address. These included at least 40 flats on one South London estate owned by the son of a former Conservative housing minster who lives in Surrey and another 57 owned by two companies based in Guernsey. There is no way of telling how many of their tenants are foreign nationals who their neighbours may believe have somehow jumped the housing queue.
A private member’s bill from Labour MP Gareth Thomas currently before parliament seeks to restrict sales of former social housing to people with a local connection. It would extend the use of local occupancy clauses, which were allowed under the original right to buy legislation. Local authorities in areas of outstanding natural beauty were able to include a covenant stipulating that the right-to-buy property could only be sold to people living or working in the area.
Although it stands virtually no chance of becoming law, his Housing Market Reform Bill seeks to extend this exemption to other areas of the country where house prices have escalated out of the reach of local people. As he put it at the end of January:
‘Surely, helping local people who are not rich, who have lived and/or worked in an area for a considerable period and who are an integral part of their community to afford to buy by allowing local authorities to designate sales of former social housing to be just for local people was a sensible measure in the 1980s for those living in national parks and would be again now for many other areas of the country, particularly London.’
If Cameron is now so keen on local residency tests and local homes for local people, perhaps he should have a quiet word with his next-door neighbour in Downing Street about the right to buy.
Here’s my take on the four key questions for housing coming out of the Budget so far.
1) Is Osborne just blowing bubbles? There are sound reasons why the government might want to help people buy new homes or help first-time buyers get mortgages. The equity loan and mortgage guarantee schemes under Help to Buy are extensions of the existing FirstBuy and NewBuy schemes.
However, put them together and you have new schemes that will go to more people and go further up the income scale (a mortgage of up to £600,000 would suggest a household income of getting on for £200,000) without any guarantees that they will result in any more new homes being built. The equity loan option will be available on all homes but is designed to exclude second home owners and buy to let landlords. However, where NewBuy only applied to new homes, the mortgage guarantee will apply to the whole market. And on the Today programme this morning George Osborne repeatedly ducked questions about whether second and multiple home owners would be able to apply. It seems that any attempt at targeting new supply or first-time buyers has been abandoned in a desperate attempt to get the housing market moving before the next election.
Perhaps, as with their predecessors, the results will be less than overwhelming. If so, some trapped renters will benefit without much of an overall impact on the market. However, the scale of the package is clearly designed to make a splash. And if they succeed in boosting demand without boosting supply the result will just be higher house prices that leave many other people behind. If that bubble pops later on, the government could be left with a big liability.
In my view, the fundamental problem with the UK housing market (and therefore the rental market too) is that house prices are too high and out of kilter with earnings. The government, encouraged by housebuilders, has decided that the fundamental problem is lack of mortgage lending. This is a huge gamble.
2) What do you call a rebooted reboot? A year after it was relaunched, reinivigorated and rebooted, it’s déjà vu for the right to buy. We already knew about the increase in the maximum discount in London to £100,000 but there were two additional carrots in the Budget that will apply everywhere: a reduction in the qualifying period from five years to three years; plus a look at ways to ‘simplify’ the application process.
According to the Budget document: ‘The additional receipts from increased sales will be used to pay down housing debt and support the Government’s commitment to 1:1 replacement of all additional homes sold.’ However, one for one replacement looked a tall order even at the lower discount. Last year’s impact assessment said that £75,000 ‘was chosen because it was considered to best meet the policy objectives, in particular the potential to increase take up of Right to Buy whilst at the same time ensuring that receipts would be sufficient to enable one for one replacement with affordable rent properties’. This was never true replacement since it involved trading social rent homes for affordable rent. The new policy will mean more sales and more receipts for the Treasury according to Budget forecast but on its own assessment this leaves any notion of one for one replacement further away than ever.
Meanwhile the government is reviving pay to stay, the policy promoted by Grant Shapps to charge tenants earning more than £60,000 a full market rent. I’ve never been a fan of a policy that is cumbersome and full of contradictions. The rebooted right to buy gives anyone affected an obvious alternative – and maybe that is the intention.
3) What about social housing? Billions were found for Help to Buy and Build to Rent to boost home ownership and private renting but what about the money for new affordable homes that was supposedly the Lib Dem price for supporting increased right to buy discounts? The Budget statement mentioned £225 million for 15,000 affordable homes. That would be paltry enough and implies funding at below current affordable rent levels but buried deeper in the Budget tables is a line that puts the additional spending at just £125 million in 2014/15.
The Chancellor may point to the fact that neither Help to Buy nor Build to Rent are public spending in a conventional sense and that neither will count against public sector net borrowing. However, that only underlines the point that the Treasury is now apparently relaxed about using off-balance sheet accounting for everything except the tenure that has the strongest case for it: changing the public borrowing rules for council housing. He also rejected the case made by councils from across the political spectrum for borrowing caps to be raised to enable them to build new homes.
There was a telling moment on the Today programme this morning when Evan Davis asked Osborne why he did not just build more social homes. Osborne responded: ‘I don’t think the solution to our housing situation is to build many, many more social homes.’ The Budget was true to his word: his solution is state support for £600,000 mortgages and mortgage guarantees for second home owners.
4) Where are the cuts still to come? For the second time in six months, the Office for Budget Responsibility has increased its forecast of the cost of housing benefit. The fiscal outlook it published alongside the Budget reveals that, thanks to more detailed modelling of housing benefit entitlement ‘to reflect differences in population and rent growth in different regions’, it now believes the total will be £3.7 billion higher over the next five years than it said in December. The extra cost of £500 million in 2013/14 is more than the saving claimed from the bedroom tax. That would be eye-catching enough on its own. However, the December figure was itself £2.8 billion higher over the next five years than it said in March 2012.
All of which raises the question of the cuts that were not spelt out. The Budget apparently brought no new cuts in welfare – a first for a statement from Osborne – but there was ominous talk of ‘a firm limit on a significant proportion of anually managed expenditure (AME), including areas of welfare expenditure’. The implications for housing benefit are unclear but in the era of the bedroom tax and universal credit any more cuts in benefits could lead to increased rent arrears. We already know that many benefits will be increased by just 1 per cent regardless of the level of inflation but there could be even more pain to come in the spending review in June.
16:23: One more piece of Budget fine print that perhaps suggests the relative importance of affordable homes. The Chancellor will invest an extra £125 million in affordable housing in 2014/15. However, he now expects to make £45 million from the right to buy changes that same year, followed by £40 million in 2015/16 and £50 million in each of the two years after that.
16:03: There’s also some bad news from the OBR for the Chancellor on the cost of housing benefit. Based on new modeling, it now says the total housing benefit bill will be £500 million higher in 2013/14 rising to £1 billion higher in 2017/18 than it forecast in December. The cumulative total is £3.7 billion more over the next five years.
The OBR explains that: ‘Around three quarters of the change reflects more detailed modelling of the housing benefit incapacity group by benefit type, and more detailed modelling of housing benefit entitlement to reflect differences in population and rent growth in different regions.’ I’m not sure what the ‘housing benefit incapacity group’ is either.
The December figure that the OBR now says was an underestimate was itself £2.8 billion higher over the next five years than the one it made at the time of the March 2012 Budget.
15:55: Phew! Beginning to go cross-eyed from Budget detail but here’s more from the independent Office for Budget Responsibility, which has a rather more sober verdict about the chancellor’s ‘dramatic’ housing measures.
Taking Help to Buy and the mortgage guarantee scheme together with the measures on right to buy and build to rent, it argues that: ‘The expansion of the existing schemes is likely to have a relatively small additional impact on transactions and residential investment. The details and timing of the guarantee scheme have yet to be finalised and it is therefore too early to quantify the likely impact. Overall, however, these measures, alongside the Funding for Lending Scheme, should support the significant growth in property transactions and residential investment that we forecast over the next two years.’
That forecast, which includes a near-doubling in receipts from stamp duty over the next five years, had previously looked over-optimistic if not wildly optimistic to many people.
Help to buy and build to rent are not classified as financial transactions and so do not affect public sector net borrowing. However, they will increase the government’s net cash requirement and public sector net debt by £1.3 billion in 2013/14 and £1.9 billion in both 2014/15 and 2015/16.
15:23: Responses to what really was a dramatic Budget for housing are coming thick and fast.
David Orr of the National Housing Federation said the government should be focusing on ways of unlocking investment in new homes giving housing providers more certainty. said: ‘We welcome the Chancellor’s realisation that people around the country are struggling to buy their own homes, and the measures introduced today may help a number of them. But the danger is that if we don’t tackle the fact we’re still not building enough homes, we’ll just create another housing bubble that will continue to push house prices up and out of reach of the majority.’
The Chartered Institute of Housing welcomed moves to boost home ownership plys the announcements on affordable homes, build to rent and social rents. However, chief executive Grainia Long warned that Help to Buy could just push up house prices if it fails to stimulate housebuilding on a big enough scale. ‘Thousands of people have been locked out of home ownership by spiralling prices and these schemes will help to address that,’ she said. ‘However, government will need to monitor the impact of these policies carefully to ensure that they are increasing new house building rather than simply stoking up house prices.’ The CIH was also disappointed that the Chancellor has failed to lift borrowing caps on council housing and said it was still not convinced about right to buy receipts funding replacement homes.
The House Builders Federation must have struggled to keep a straight face when it ‘guardedly welcomed’ the Budget. Exectuive chairman Stewart Baseley said the government had now clearly understood that lack of mortgage availability is the biggest constraint on housing supply and was looking to address it: ‘Extending NewBuy to the second hand market should create churn in the market place and drive up sales across the Board – including for new homes. We do though need to ensure a level playing field across the whole market. Extending FirstBuy is very welcome and will provide a real option for people currently unable to buy – so providing a vital market for the new homes industry. Building the homes the country desperately needs can be a key driver of economic activity. Government must be praised for its attempts to stimulate activity, but must also be wary to get the details right
14:39: Three planning snippets from the main Budget document:
- The government promises more simplicity and clarity and to ‘make greater use of information on prices to ensure that sufficient land is allocated to meet housing and employment need’
- There will be a consultation on further flexibilities between use classes – as in the move on offices to homes – ‘to support change of use from certain agricultural and retail uses to residential use to increase responsiveness within the planning system’.
- The DCLG is working with the Treasury to conduct a feasibility study into wider use of the land auctions model.
14:30: More detail from the main Budget document:
- The equity loan option for Help to Buy will provide £3.5 billion of investment in England, supporting up to 74,000 home home buyers as well as boosting construction.
- The mortgage guarantee option will make available up to £12 billion of government guarantees supporting up to £130 billion of high loan to value mortgages.
- On right to buy, the government will also ‘look at ways to simplify the application process to ensure applicants are not hampered by a burdensome administrative process’.
- ‘The additional receipts from increased sales will be used to pay down housing debt and support the Government’s commitment to 1:1 replacement of all additional homes sold.’
- The £200 million Build to Rent fund announced in the Autumn Statement in 2012 was ‘significantly oversubscribed’. ‘Budget 2013 announces that this fund will be expanded to £1 billion to support the development of more homes in England. The fund will provide equity or loan finance to support the development finance stage of building new homes for private rent.
- A response to the consultation on implementing zero carbon homes from 2016 is promised by May.
- A social rent policy giving social landlords certainty until 2025 is promised at the 2015/16 spending round – in recognition of their concern about uncertainty after 2014/15.
- On pay to stay, the government will ‘shortly take steps’ to allow social landlords to charge market rents to tenants with income of over £60,000. ‘The Government intends to require these tenants to declare their income to ensure they make a fair contribution, with all additional income reinvested in housing.’
14:10: Here’s a summary of key housing points from the main Budget document:
- ‘Budget 2013 announces a reduction in resource Departmental Expenditure Limits (DEL) by £1.1 billion in 2013-14 and £1.2 billion in 2014-15. In the short term, these funds will be used to help support housing.’
- The document values the housing market measures including Help to Buy at £5.4 billion.
- The equity loan Help to Buy does not just increase the maximum home value – it also removes the income cap constraint (which I assume means under FirstBuy).
- The mortgage guarantee will be available for lenders to people with a deposit of between 5 and 20 per cent.
- The re-invigorated re-invigorated right to buy does not just increase the maximum discount cash cap in London to £100,000, it also reduces the qualifying period from five to three years.
- The existing affordable homes guarantee programme will be doubled, ‘providing up to an additional £225 million to support a further 15,000 affordable homes by 2015’.
13:58: A Treasury Q&A on Help to Buy says that the Help to Buy equity loan is for new-build homes only. The loan will be interest-free for the first six years.
Both options will ‘only be available on properties which are occupied by the individual or individuals taking out the mortgage’ so that should rule out buy to let.
13:50:A Treasury infographic reveals more details on Help to Buy.
Both are for people with a deposit of at least 5 per cent and are available on homes with a maximum value of £600,000 (the limit on NewBuy is, I think, £500,000).
The equity loan option effectively replaces FirstBuy and is available to everyone not just first-time buyers. Buyers will get a 20 per equity loan repayable on the sale of their home and so will need a 75 per cent mortgage. It will run from 1 April 2013 for three years and is said to provide £3.5 billion of additional investment.
The mortgage guarantee option is also available to all buyers not just first-time buyers and is designed to boost higher loan to value lending. It will run from January 2014 for three years. On the quoted example, someone buying a £200,000 house would put down a £10,000 deposit and get a mortgage of £190,000. The incentive for the lender is that the first £30,000 of the mortgage would be covered by the government guarantee. Is this effectively a replacement for NewBuy?
13:40 For once the word ‘dramatic’ is not a piece of political hype. George Osborne said extend government support for home ownership in a ‘dramatic way’ and that is exactly what he’s done. The new Help to Buy scheme comes in two parts: a 20 per cent equity loan available for homes up to £600,000 for anyone who has a deposit of 5%; and a mortgage guarantee scheme for people who can’t raise a deposit. Detail- and reservations - to come but Osborne was not joking when he said it would be ‘a Budget for those who aspire to own their own homes’.
That was followed by more modest announcements on renting: 15,000 affordable homes (but how many of them are new?); increasing build to rent by five times; and confimation of that increase in right to buy discounts.
10:05: Here’s my round-up of the news, the speculation and the guesswork ahead of George Osborne’s statement. More to come later.
We know that there will be £2.5 billion of cuts in departmental spending to fund extra spending on infrastructure. However, we don’t know how much of that infrastructure will be housing and we don’t know exactly where the axe will fall either as departments are told to deliver 1 per cent savings in 2013/14 and 2014/15. Funding for local authorities from the Department for Communities and Local Government will be protected for 2013/14 along with some aspects of defence and policing. Health, education, international aid will be continue to be ringfenced. Everywhere else, departmental under-spends will be grabbed back. Significantly, housing has the backing this time around of the Confederation of British Industry. Ahead of previous Budgets the CBI has called for investment in big road and rail schemes but now it is urging the government to invest £1.25 billion in 50,000 affordable homes.
Separately from that it seems odds-on that there will be a boost for housebuilding – or at least that is how it will be presented. The fact that every Budget and Autumn Statement since March 2011 has included one should inject a note of caution here. So far FirstBuy, NewBuy and all the other measures introduced by Osborne have had a major impact on housebuilders’ profit margins but a negligible one on new housing starts. Much of the pre-Budget speculation this time around has centred on extensions to NewBuy, the joint guarantee offered by the government and housebuilders that enables people to buy new homes with a 5 per cent deposit. At one stage there was even speculation that Osborne might extend the scheme to existing homes but the Financial Times reported on Monday that he may stop short of this and announce a public consultation.
We strongly suspect that right to buy discounts will be increased to £100,000 in London. Inside Housing broke the story on Friday that the Conservatives were pressing for this with the Lib Dems holding out for more funding for affordable housing in return.
We don’t know if Osborne will raise caps on local authority borrowing to allow more investment in council housing but he is under pressure from across the political spectrum. On the Conservative side, Merrick Cockell of Kensington and Chelsea and Philippa Roe of Westminster both make the case in Guardian articles. And the leaders of 142 Labour councils are on the letters page calling for that plus much more besides. Peter Hetherington has a good piece on Society Guardian with more of the background. Osborne has of course already accepted most of Lord Heseltine’s recommendations on transferring funding to local level but the long-term implications for housing remain to be sen
Apart from all that, could Osborne have more to say on garden cities, the release of public land and loan guarantees for new homes? Could there be more on empty homes and the post-2015 regime for housing associations? Yet more cuts in welfare or perhaps more in discretionary housing payments? Watch this space.
So three weeks left until the start of the bedroom tax: is there a still a chance of last-minute concessions?
Thanks to a steady stream of heartbreaking real-life cases in the national media, the issue is not going away for the government. Attempts by ministers from David Cameron down to make the fairness argument for the policy continue to founder on inconvenient facts.
Later today Iain Duncan Smith faces an uncomfortable time at work and pensions questions and on Wednesday Cameron is certain to face another grilling at prime minister’s questions.
Saturday will see demonstrations in more than 50 towns and cities around the country in a remarkable show of grassroots organisation that should help keep the issue at the top of the media and political agendas.
That will be quickly followed by Eric Pickles and Mark Prisk on the spot at CLG questions a week today, a housing announcement from Cameron and Clegg and then George Osborne’s Budget next Wednesday, which is surely the ideal opportunity for a concession or two. Alternatively, the clock is counting down on the 14 days the DWP has to make its case against a judicial review on behalf of 10 disabled and vulnerable children.
Wishful thinking? Perhaps but the pressure is growing all the time and the cracks are starting to appear even within in the government. As Inside Housing reported last week, even IDS’s own thinktank now believes that the bedroom tax should only apply to people who turn down an offer of smaller accommodation. Meanwhile Conservative MPs are starting to express doubts on the record in stories like this.
Cameron tied himself in knots with his first answer at last week’s PMQs when he argued that:
‘Pensioners are exempt, people with severely disabled children are exempt and people who need round-the-clock care are exempt. Those categories of people are all exempt, but there is a basic issue of fairness.’
As the National Housing Federation was quick to point out, those claims are all untrue: the government has appealed against a Court of Appeal ruling that disabled children should not be forced to share with a sibling; some people with non-resident carers may be protected but not those whose partner is their carer and needs to sleep in the ‘spare’ room; and pensioners are currently exempt, but mixed-age couples where one is above pension are and the other below will have to pay the bedroom tax once the universal credit begins.
Other coalition MPs are squirming too. On Any Questions over the weekend, Lib Dem cabinet minister Ed Davey’s heart did not seem in it as he stuck to his line that it was all about being fair to families who are overcrowded while completely ignoring objections that only a small proportion of under-occupiers have anywhere to downside into. Meanwhile when up and coming Tory backbencher Andrea Leadsom was challenged on Cameron’s erroneous claim on disabled children she simply made one of her own. ‘The actual case is that if you have disabled children who need for reasons of their disability to have separate bedrooms then that will be accommodated by the local authority,’ she said. The help is of course discretionary and the £30 million budget is only enough to pay for a fraction of the tax faced by the 230,000 disabled people affected.
Both Cameron and Leadsom were pushing the government’s ‘spare room subsidy’ alternative to ‘bedroom tax’. As a piece on Conservative Home on Friday acknowledged, it is really much too late (even if a Tory Batman can be found) to win the name game. However, what’s interesting is the way that it links to the Conservative case that social housing is ‘subsidised’ housing – even as the numbers from the UK Housing Review show that home ownership continues to be the most subsidised tenure.
Leadsom claimed that ‘it is simply not fair’ for the taxpayer to be paying for people to live in homes that are too big for them but who really gets the ‘spare room subsidy’? Under-occupation of social housing is after all lower as judged by the bedroom standard (10 per cent) than for private renting (16 per cent) and many times lower than in owner-occupied homes (49 per cent). However, it seems that under-occupation is only an issue for renters. The bedroom tax does not apply to shared owners who are under-occupying in the same way that support for mortgage interest is not cut for home owners with more bedrooms than they need.
And the real spare room subsidy does not end there: 7.7 million households in England currently receive a single person’s discount of 25 per cent off their council tax. Many will be single adults with children, so not all of them will be under-occupying, but the discount applies regardless of the size of the home. The legislation that transferred council tax benefit to local authorities stipulates the single person discount must continue in their new support schemes. This was presented as a way of avoiding a charge on pensioners living alone but the discount goes to many more people regardless of income.
Work by the Institute for Fiscal Studies estimated that cutting the single person discount from 25 per cent to 17.5 per cent, while exempting pensioners and allowing for increased council tax support to poorer households, would raise enough revenue to cover the £500 million cut in council tax benefit. That is also more than the government claims the bedroom tax will save.
The issues with the council tax and spare rooms do not end there. As Joe Halewood has pointed out, measures exempting empty homes from the council tax make it not just a spare room but a ‘spare home subsidy’. And then there is the way the system itself is designed to avoid big bills for larger homes. As the UK Housing Review points out: ‘The current differentials are regressive, and bear down disproportionately on occupants of low- value properties while providing little disincentive for overconsumption of housing by under-occupiers of large homes.’
Just to bring the argument full circle, the council tax was of course designed as a replacement for another unpopular measure over which a Conservative government lost the name game.
It still seems more likely that the government will react to losing the argument over the bedroom tax by digging in its heels rather than by backtracking and making concessions. However, if the pressure continues to build, especially over the next week, who knows?
After all, even as Margaret Thatcher insisted that there was no question of any change to what she insisted on calling the ‘community charge’, she was losing first the argument, then the policy and finally her job as everyone else protested about the poll tax.
So will the next big housing announcement from David Cameron and Nick Clegg amount to any more than the last three?
The Financial Times reported yesterday that the coalition double act are ‘drawing up schemes to revive the flatlining housebuilding industry and help people get on the housing ladder’. On the eve of the Budget on March 20 they will make a series of announcements including measures on shared equity schemes, social housing and support for first-time buyers.
Despite the scoop, even the FT admits that this ‘may be treated with some scepticism given that such announcements on housebuilding have become a regular feature of the coalition – while the industry has continued to stagnate’.
That’s not surprising: by my reckoning, this is the coalition’s fourth housing strategy or package in under three years. The first was the programme for government (new homes bonus, Localism Act, FirstBuy) in May 2010. The second in November 2011 gave us NewBuy plus consultations on right to buy 2 and investment in private renting. The third in September 2012 brought us government guarantees, measures to unlock stalled sites and the Montague report.
Housing package Mark 4 seems certain to feature the traditional images of Cameron and Clegg in hard hats and high visibility jackets and perhaps taking tea with a ‘hard-working family’. But what will it actually say?
According to the FT, it will include a promise of new ‘garden towns’ (a cuddlier version of garden cities?), more flats above shops and more private renting. Crucially for housing associations, it may also have details of how affordable rent will work after 2015.
Ministers are also said to be discussing an extension of the NewBuy mortgage guarantee scheme to existing homes. Although OldBuy sounds like a contradiction in terms, it’s worth noting that NewBuy was extended to allow part-exchange of existing homes in January. However, going further than that would raise all sorts of questions about the desirability of taxpayers guaranteeing 95 per cent mortgages across the market.
If some of those measures sounds familiar, that’s because, well, they are. In the Commons yesterday even the coalition’s own MPs seemed to be wearying of all the rebranded announcements and initiatives. ‘I would just comment that a couple of those announcements do not seem to be that new, but I hope that when they are made in a couple of weeks’ time, they will be made with a little more commitment and determination than they were before,’ said Conservative MP George Hollingbery. ‘They are keen on recycling,’ agreed his fellow backbencher Stewart Jackson.
MPs were debating last year’s Communities and Local Government committee report on financing new housing supply, which set out starkly the gap between housing need and provision. Although it emphasised that there was ‘no silver bullet’, it did demonstrate a cross-party consensus that more, much more needs to be done on new homes.
What’s happened since is more regress than progress, with housing starts in 2012 down 11 per cent on the miserable total for 2011. As committee chair Clive Betts pointed out: ‘If our recommendations were correct a year ago, they are probably just as correct now.’
However, the debate did at least show a continuing consensus for change and offered some possible hints of what may be announced in a fortnight. There were calls from both sides of the house for more freedom for local authorities to borrow to invest in new homes and praise for housing associations looking to expand into private renting. Betts appeared almost as enthused by the self-build on show at Almere in the Netherlands as former housing minster Grant Shapps. ‘That seemed a brilliant way forward,’ he said. ‘I see no reason why we cannot build 50,000 self-build homes in this country, instead of the 10,000 we build at present.
Conservative MP Mark Pawsey was critical of the forced renegotiation of section 106 agreements. ‘Perhaps the government should be encouraging local authorities to do that rather than dictating to them,’ he said. And he attacked plans to make it easier to convert offices into homes as ‘not helpful’. He also raised the possibility of a tie-up between housing associations and institutional investors on the management of private rented homes.
More evidence of fresh thinking on the Tory side came from James Morris, another committee member, who argued that ‘there is great scope for local authorities to take on more borrowing capacity and leverage pension funds in order to invest further in houses of different sorts’.
However, there was scepticism from Labour’s Nick Raynsford, a former housing minister, about a key element of the first housing package: the new homes bonus. ‘The Government will have been presiding over a lower level of consents for residential planning than ever before, which is extraordinary when they are spending £3.3 billion in supposed incentives to encourage more planning consents,’ he said. He also questioned the value of extending NewBuy to existing homes under Mark 4.
And shadow housing minister Jack Dromey laid down a challenge: ‘The government badly need to come forward with a serious strategy for getting Britain building, and not yet another false dawn.’
Responding for the government, the Lib Dem communities minister Don Foster did his best. ‘Under this coalition government, shovels are in the ground,’ he tried. The new homes bonus ‘is a powerful incentive that is really working,’ he ventured.
Foster told MPs that despite the leak ‘we will just have to wait and see what is around the corner’. He did have an intriguing hint about those garden ‘towns’ even if he did not appear to have received the memo that they are no longer called ‘cities’. ‘The House will be aware that there has not been a single new development of more than 13,500 homes in this country since the 1970s, so we intend to promote and support larger scale garden cities where there is clear local support and private sector appetite,’ he said. ‘We are currently working through the details on that.’
However, the signs look less positive on more freedom for local authority borrowing, a move that councils argue could enable them to build 60,000 homes in five years. Clive Betts pressed him for a direct answer: ‘Is he prepared to look again at the cap on borrowing to fund housing at local authority level? Why is housing the only form of borrowing that local authorities cannot enter into simply because of the prudential rules?
The response? ‘The hon. Gentleman knows part of the answer, because that is the same problem his Government faced, and it is to do with difficulties with the Treasury. Having said that, we are looking at the issues and are willing to look at the possibility of having flexibility in the cap and other ways of moving forward.’
Whatever happens in two weeks’ time, prepare for housing announcement number five some time later in the year.
Should we simply be accepting the continuing shift from home ownership to private renting as somehow inevitable?
That’s one of the many housing questions posed in the latest edition of the UK Housing Review. Now in its 21st edition and published by the Chartered Institute of Housing, the review has long been the bible for housing nerds but it is the best source of authoritative information on tenure and any other aspect of housing you care to think of.
The CIH has press released the story that home ownership has slumped among the young: from 39 to 14 per cent for the 16-24s and 67 to 43 per cent among the 25-34s. However, the rate is falling for older people too. Age-specific home ownership rates derived from Labour Force Survey data analysed by Glen Bramley shows that even 35-44 years olds were less likely to own from the early 90s onwards. In 1992, 79 per cent owned but that had fallen to 69 per cent by 2008 and 63 per cent by 2012.
There was even a fall for 45-54 year olds in the 2000s, with the rate falling from a peak of 80 per cent in 2002 to 75 per cent in 2008 and 71 per cent in 2012.
That leaves those aged over 65 as the only group who have seen rates continuing to climb, from 60 per cent in 1992 to 73 per cent in 2008 and 76 per cent in 2012.
It’s been obvious for some time that the fall in ownership is about much more than the problems seen in the mortgage market since the credit crunch. Thanks to ever-rising house prices, mortgaged ownership and first-time buyers were both falling from the early 2000s, although the scale of the total decline was obscured by a continuing rise in outright ownership.
These new figures confirm the way that the decline has rippled up through the age groups – and the review points out that it will continue to do so unless some fundamental things change.
First, the growth of private renting: the review shows that this has happened across the country and not just mainly in London and the South East. The fastest growth came in Northern Ireland, where the size of the sector increased six-fold between 1991 and 2011. The largest percentage increases in England came in the North East (202 per cent), the North West (170 per cent) and Yorkshire & Humber (150 per cent). The review points out that these were also the regions that saw the biggest decline in social housing, so clearly the tenure shift is about much more than just a fall in ownership.
Second, the housing stock: most of the growth in private renting is happening as a result of the transfer of formerly owner-occupied stock as people decide to rent rather than sell rather than the construction of new homes. Based on an estimate that just 10 per cent of buy to let ‘investment’ goes to new build, the review estimates that only 14,000 of the 246,000 rise in private renting in 2011 represented additional homes.
Third, government moves to support the sort of mortgage lending at high loan to values have largely failed to deliver the sort of funding that first-time buyers need. Loans of 90 per cent fell from 14.9 per cent of all lending in 2007 to just 1.5 per cent in 2009 thanks to the financial crisis. However, despite all the rhetoric and initiatives from ministers, the rate had only risen to 2.5 per cent by 2012.
Fourth, the climate continues to favour buy-to-let landlords over young buyers. Mortgage lending is tightly regulated and now mostly on a repayment basis. That means repayment costs are typically 50 per cent more than on unregulated, interest-only buy-to-let loans.
Fifth, the continuing fiscal bias towards home ownership: the government took £5.3 billion in inheritance tax and stamp duty out of the sector in 2011/12. However, tax reliefs on imputed rental returns and capital gains tax on first homes (allowing for rollover relief) totally £19.4 billion. The review argues that the importance of this has not been recognised and goes on: ‘It is also notable that these reliefs are almost entirely regressive and favour most those households owning the most expensive dwellings in the country. They have also become part of the barrier that must be crossed by young households entering the sector, as the benefits of limited taxation for existing owners have effectively been factored into the higher house prices they face.’
Put that all together and you have not just an explanation for the shift in tenure over the last 20 years but a powerful argument that it will continue over the next 20 if nothing else changes. The consequences of that will not just be felt by young renters priced out of the market but, as I’ve argued before, by society as a whole in a burgeoning housing benefit bill for people who do not have a home as an asset to fall back on in retirement.
However, is this inevitable? The review says ‘moralistic voices’ are calling for young people to save for a deposit before they become owners but given their savings behaviour and rising student debt, but it argues that this would ‘effectively deny a high proportion of young households – those who cannot draw on parental help – from ever becoming homeowners’.
And should we be accepting it? The review questions the cross-party consensus about backing private renting to support housing mobility and goes on:
‘There has not been any real debate about the pros and cons of the consequences of the policies now in place that effectively constrain many younger households to remain in the rented sector, without the same alternative available to their predecessors to enter the owner-occupied market. There also seems to a sense of fatalism about this outcome in reports from the ‘policy lobby’ that focus on the case for improving the private rented sector offer, but without questioning why younger households that have adequate, secure incomes – but limited savings or access to parental support – should be denied the opportunity to own rather than rent when that is their preference.’
And it also questions the almost universal support for institutional investment in private renting. ‘This is rather a strange obsession given that there is no evidence that consumers prefer institutional landlords, and given that the predominance of small landlords is the norm in other countries, including Germany,’ it says.