Saturday, 25 October 2014

Inside edge

City limits

Tue, 26 Nov 2013

Today’s Draft London Housing Strategy is the boldest attempt yet seen from a Conservative administration to get to grips with the housing crisis. It still does not go remotely far enough.

In his foreword, mayor Boris Johnson says London is facing an ‘epic challenge’ of building more than 42,000 new homes a year, every year, for 25 years. Of these, 15,000 would be affordable and 5,000 for market rent.

That is no exaggeration. As he goes on to say, that is ‘a level of housebuilding unseen in our great city since the 1930s’. To put it in perspective, the average over the last 20 years, at a time when the population was growing rapidly, was 18,000 per year. London has not come close to 42,000 completions a year since the war, even at the peak of the council housing boom in the late 1960s.

In any case, says the strategy:

‘The government has not proposed to reverse greenbelt policy and it seems unlikely that earlier levels of public investment can return any time soon. A new approach to harnessing the investment and effort necessary to increase house building is therefore required.’

Confronting a problem on this scale means the strategy includes some radical and sometimes (for a Conservative administration) surprising solutions. To give three examples, it calls for:

  • Reform of the public borrowing rules for council housing – preferably as a separate capital investment activity as applies in the rest of Europe and for housing associations; at a minimum to give English local authorities the same freedom as Scottish ones.
  • A London Housing Bank – a discussion paper is due on this next year but funding could come from the public sector and institutional investors for measures such as purchasing market homes off-plan and underwriting Build for Rent activities.
  • Shifting from personal to bricks and mortar subsidies –  ‘investment in new homes with low rents for those who need them represents better long-term value for tax payers than meeting the high costs of market housing through housing benefit’. The strategy discusses the challenge of coping with the transitional consequences for tenants on benefit with high rents and says this will require ‘an appropriate future capital settlement from central government, alongside appropriate revenue funding to mitigate these transitional costs’.

That is on top of Johnson’s longstanding call for more financial autonomy for London, with the devolution of all property tax including stamp duty. The Treasury has recently agreed this for Wales – so why not London? Part of the argument is that the capital has raised more in stamp duty than the Treasury has put back in affordable housing investment (£17 billion over the last 10 years) but that rather ignores the £50 billion spent on housing benefit in the capital over the same period.

There are some radical ideas on land too, with proposals for new garden suburbs and, within 33 Opportunity Areas, new Housing Zones offering targeted tax incentives, lighter-touch planning and help with land assembly.

Most, if not all, of these ideas would draw support from across the political spectrum, as will the draft strategy’s conception of ‘housing as essential infrastructure’ and the argument that building too few homes is as much of a barrier to growth as inadequate public transport, roads and utilities.

An idea of the scale of the current problem is given by two more stats: the average first-time buyer is now in the top 20 per cent of London’s household income distribution; and there could be a shortfall of 50,000 to 90,000 homes for professionals over the next ten years, which could result in a potential loss of economic output of £15 billion to £35 billion.

However, the draft strategy also has some more contentious proposals when it comes to affordable housing. The net effect – despite an apparent ‘initial new funding of £1 billion’ - seems to be to increase the size of the inverted commas around that word affordable:

  • While 60 per cent of the next Affordable Housing Programme will be reserved for Affordable Rent, half of this will be ‘capped at low affordable rents’ prioritised for those in greatest need and low income employment and half will be at ‘discounted rents, set at the lower of up to 80 per cent of market rent or the local housing allowance’. That might seem at first glance like a hint of a return to social rent. In fact, few current Affordable Rent homes come in at 80 per cent of market rent in London (the median for London in the last round was 59 per cent, according to one report) so will this mean higher rents and fewer homes for those in the greatest need? The strategy also says that ‘investment partners should use fixed-term renewable tenancies’ for the capped rents and does not specify their level.
  • The Mayor will encourage boroughs to give greater priority to working households in allocations. That is qualified by stressing this ‘should also be balanced with the need to ensure the most vulnerable are looked after’ but that does not sound like a watertight assurance.
  • The strategy argues that there are 115,000 of the 786,000 London households who live in affordable housing ‘who could afford to pay more towards their rent’. While it says the Pay to Stay threshold should be increased to the First Steps income limits of £66,000 for smaller and £80,000 for larger households, the DCLG estimates that there are only 34,000 households in social housing in the whole country earning more than £60,000. Does this herald a wider ambition for higher rents lower down the income scale, perhaps through conversion to Affordable Rent?
  • Prepare for your assets to be sweated to the max if you are a housing association. Smaller, non-developing associations ‘will be expected to utilise their borrowing capacity’ and the GLA will explore with the social housing regulator how associations in general ‘can be incentivised to fully utilise’ their surpluses. That much is perhaps inevitable but, in addition, ‘all providers will be expected to provide market housing for rent and/or sale alongside their affordable housing offer’ and they will also be ‘strongly encouraged’ to consider targeted disposals or lettings at market rent of ‘selective high-value stock’. Conversions to Affordable Rent will be ‘recalibrated’ to increase the income range on ‘mono-tenure estates’.
  • The strategy also talks of the ‘vast development potential of London’s existing affordable housing estates’. There’s nothing wrong with that in theory but is that a signal to prepare for yet more Earl’s Court and Heygate style regeneration rows about gentrification and the displacement of existing residents?

Overall then, the strategy seems to combine some of the best thinking on the role of government in promoting new homes with a continued faith in the marketisation of ‘affordable’ housing.

However, critics argue that even 42,000 homes a year is not enough. Labour’s Tom Copley says independent experts say London needs 60,000 a year and that the strategy’s ‘lack of ambition commits us to a future of unaffordable housing’. London Councils says we need 800,000 homes to be built by 2021. The Green Party’s Darren Johnson says that his namesake ‘boasts about his track record on affordable housing, but he will leave office 50,000 homes short of the number he needed to build’. The Mayor’s strategy will deliver homes for property investors, not Londoners, he says.

For me, all this begs the question of what happens if the Mayor fails to deliver 42,000 homes a year for 25 years and, even if he does, what happens until the new supply comes on stream. Given the history of the last century, and the fact that he is prevented from looking outside London for solutions to the capital’s housing shortage (as happened in the 30s and after the war), that is much more likely to mean when he fails to deliver.

On the demand side of the equation, the strategy denies that overseas and buy-to-let investors are crowding out Londoners from ownership. Failure on supply will merely price even more people out of either owning or renting in the capital and a continued housing shortage will put even more pressure on housing system in general and the private rented sector in particular. The strategy says that the mayor is ‘keen’ to see landlords testing longer tenancies in the private rented sector and that it’s ‘important that there is greater transparency about letting agent fees’. But is the self-regulation of Johnson’s Housing Covenant remotely up to the job?

First for Wales

Wed, 20 Nov 2013

Legislation published today marks a historic moment for housing in Wales but it has wider significance for the rest of the UK too.

It makes history by becoming Wales’s first Housing Bill since it acquired greater devolved powers. The Housing (Wales) Bill aims to ‘ensure that everyone in Wales is able to access a decent home’ (though ministers behind all Housing Bills everywhere say that). The details are what count and the timing and the context are what create the wider significance. As Carl Sargeant, the Welsh minister for housing and regeneration, puts it: ‘Despite the impact of austerity measures and budget decisions taken by the UK Government, the Welsh Government is determined to improve the supply, quality and standards of housing and the proposals in this Housing Bill are crucial in achieving this.’

Decisions in Westminster on austerity and welfare reform apply to Wales, Scotland and (with some differences) to Northern Ireland as well as England. As the SNP government in Edinburgh prepares to set out its plans for independence next week and the coalition in Belfast considers how to implement welfare reform, here the Labour administration in Cardiff is saying that it can do things differently under devolution. And many of its proposals could well find their way into the housing legislation of a future Labour government in England.

Back with the detail of the Bill, it comes in seven different parts and the first two are probably the ones that will received the most scrutiny: Part 1 sets out requirements for the registration and licensing of landlords and agents operating in the private rented sector; while Part 2 sets out a new approach to homelessness, with a greater emphasis on prevention and a more inclusive approach including greater protection for households with children who are homeless or threatened with homelessness.

The next five parts cover:

  • a new statutory duty on local authorities to provide gypsy and traveller sites where need has been identified
  • standards for local authority rents, service charges and quality of accommodation. This puts achievement of the Welsh Housing Quality Standard by 2020 by the 11 Welsh councils that retain their housing on a statutory footing
  • implementation of self-financing for council housing (already implemented in England but now agreed with the Treasury for Wales)
  • measures to boost co-operative housing by allowing fully mutual housing co-operatives to grant assured and assured shorthold tenancies, creating more security for tenants and helping co-operatives obtain finance from lenders.
  • allowing local authorities to charge a flat 150 per cent of the standard council tax charge on properties that have been empty for more than 12 months.

All of these measures are designed to contribute to the two main aims of the Bill, ensuring that: people have access to a decent home; and that people at risk of becoming homeless receive the help they need.

Most of the proposals are based on a white paper published in 2012 but there have been some changes following consultation on the detail.

On the private rented sector, the Welsh Government is pressing ahead with plans for mandatory registration and accreditation of both landlords and agents. This will be based on the current voluntary scheme, Landlord Accreditation Wales. However, the license will be valid for five years rather than the three proposed in the white paper (and as applies in Scotland).

This section of the Bill could be a major focus of attention as it makes its way through the Welsh Assembly. Private landlord organisations argue that agents should be licensed first and the spokespeople for all three major opposition parties (Plaid Cymru, Conservatives and Liberal Democrats) have signalled that they are considering their position on the licensing of landlords. As Inside Housing is reporting, with the Assembly split 30-30 between Labour and the other parties, so if all opposition AMs vote against the casting vote will go to the speaker, who has a duty to preserve the status quo.

What happens here could have a bearing on the rest of the Bill, since the homelessness proposals in particular are based on an assumption that the private rented sector will be properly regulated.

On homelessness, the Bill includes a new strengthened duty on local authorities to take reasonable steps to prevent and relieve homelessness. They will also be able to discharge their main homelessness duty into the private rented sector.

The white paper set out ambitious plans for a ‘housing solutions’ approach to homelessness with a much greater emphasis on prevention. In effect the interim duty would be extended beyond priority need groups to cover groups like the single homeless. It also set a target of ending family homelessness by 2019 by removing intentionality within the term of the government.

However, the Welsh Government appears to have rowed back on some of the white paper proposals on prevention and intentionality amid concern from local government about the cost of implementation.

An explanatory memorandum published alongside the Bill says that the main changes compared to the white paper are:

  • When someone who is homeless first applies for assistance the local authority will be able to choose whether to carry out an intentionality test in all cases or not at all
  • Applicants who are not in priority need will not be entitled to temporary accommodation
  • Local authorities will be able to refer people who are unintentionally homeless and in priority need to another authority under the current ‘local connection’ provisions
  • The discharge of the full homelessness duty can be through the offer of a social tenancy or a six-month assured shorthold in the private sector (rather than the 12 months without consent and six months with consent proposed in the white paper).

On family homelessness, the white paper had proposed that households with children found to be intentionally homeless should still have the right to the full homelessness duty. The Bill retains this provided it is the first time they have been found to be intentionally homeless within the last five years. In addition, where a household with children is found to be intentionally homeless but is owed a re-housing duty, the local authority will have a duty to co-ordinate a plan to help prevent them becoming homeless in future.

The Welsh Government has decided as a result of consultation to amend the priority need of all former prisoners who are homeless on release from custody. Priority need will now apply where they can demonstrate vulnerability as a result of having been in custody and they have a local connection.

The Bill will be formally introduced in the Assembly tomorrow (Tuesday). Royal Assent could be by summer 2014 if it passes its four legislative stages.

To read more about the private rented sector click here.

Running on empty

Wed, 20 Nov 2013

As the bedroom tax celebrates its debut in the Oxford English Dictionary, there is new evidence today that it is creating empty homes rather than removing ‘spare’ bedrooms.

A survey published by Community Housing Cymru (CHC) today suggests that the first six months of the under-occupation penalty have cost more than 1,000 affordable homes in Wales.

Welsh housing associations say they have 727 homes standing empty as a result the policy. Meanwhile 78 per cent have seen an increase in their rent arrears, with over £1 million attributed to the bedroom tax. Some 51 per cent of tenants are paying the shortfall, 37 per cent are part-paying and 12 per cent are not paying at all.

At this rate arrears will reach £2 million by April 2014, which CHC calculates would be enough to service around £40 million of debt that could be used to build 400 new affordable homes. That means that a total loss of more than 1,100 affordable homes at a time when there are 90,000 people on the waiting list.

A survey published yesterday by the Chartered Institute of Housing hints at the scale of the voids problem in England too. Responses from social landlords and strategic housing authorities suggest that a new breed of difficult to let homes is emerging, it says.  

Almost two thirds reported falling demand for two and three bedroom flats and three bedroom houses because people who would normally have been allocated them cannot afford to make up the housing benefit shortfall. A similar proportion reported a shortage of smaller homes for downsizers. Half said they were experiencing longer void periods and lost rental income.

With some landlords already allocating larger homes to households who are not affected by the bedroom tax, and that rising number of voids, 44 per cent of applicants said that a lack of capacity to meet demand from the highest priority applicants, including homeless households, was a key concern.

CIH chief executive Grainia Long says the government is missing the point with a consultation on housing allocations that closes on Friday that focuses on prioritising local connections. ‘It is more about inaccurate perceptions of who gets access to social housing than it is about the real issues councils and social landlords are facing,’ she says.

None of this will perhaps come as much of a surprise to those grappling with the problems thrown up by the bedroom tax but it highlights the serious efficiency problems with the policy to go with the concerns about equity that were the main focus of last week’s Commons debate.

Back in Wales, CHC says that just 3 per cent of the 22,000 housing association tenants have managed to downsize so far. While welcoming an extra £20 million of investment in smaller homes by the Welsh Government, it says the policy risks turning tenant against tenant and tenant against landlord.

Chief executive Nick Bennett says the only solution is to ‘take power closer to the people’ by devolving the same control over welfare policy to Wales that Northern Ireland already has. The Silk Commission is due to report to the Welsh Assembly on further devolved powers in the New Year.

That message will strike a chord in Scotland too, with abolition of the bedroom tax a key part of the SNP government’s case for independence.

England has no such options of course. The CIH survey highlights growing tension between welfare reform and allocations policy, with tighter schemes excluding people with no or low housing need from housing registers, precisely the groups who may have accepted hard-to-let homes in the past. Some strategic authorities also worried that housing associations are refusing their nominations, creating particular problems for those with no retained stock but statutory homelessness duties to discharge.

The bedroom tax and its knock-on effects on the housing system look like issues that will not go away. Optimists among landlords believe that neither of the coalition parties will want to go into the next election without defusing it as a political issue and symbol of unfairness. Pessimists are not so sure and predict the impact will only get worse.

The Department for Work and Pensions is still doing its best to claim what it calls the removal of the spare room subsidy is a success. Its spin on statistics published last week showing that the number of households affected fell from 547,000 in May to 523,000 in August is that it is ‘bringing fairness back into the system’.

However, ‘spare room subsidy’ seems unlikely to make it into the dictionary any time soon. ‘Bedroom tax’, on the other hand, was one of the runners-up in the Oxford Dictionaries Word of the Year 2013 alongside ‘twerk’ and ‘binge-watch’. It was only beaten by ‘selfie’. In case anyone starts saying ‘it’s not a tax’, it is now. 

Analysis of those stats by the National Housing Federation highlights the North West as the worst hit region of England with 83,000 families affected losing an average of £748 per year. It points out that the figures understate the true scale of the impact since they exclude working families who would have got partial housing benefit before but have now lost their entitlement. 

The day after

Wed, 13 Nov 2013

Yesterday’s bedroom tax vote has left me wondering if our political system is capable of righting what is such an obvious wrong.

A Labour motion calling for immediate repeal was defeated by 26 votes – a narrower margin than the government might have expected – while a government amendment effectively saying it is all Labour’s fault passed by 31 votes. Could things have been different?

The debate included some excellent and passionate speeches, some harrowing personal testimony from MPs about their constituents and some outrageous comments from a few Conservatives.

The man responsible for it all – Iain Duncan Smith – was not there, having chosen to attend a European conference on youth unemployment in Paris. An important subject but not the setting you might expect to find one of the cabinet’s most convinced Eurosceptics.

That left it up to Lib Dem work and pensions minister Steve Webb to start the coalition’s defence of the policy. Interestingly, he told local authorities: ‘If they have exhausted, or if they anticipate exhausting, their discretionary housing payments budgets, they can come to the government for a top-up. So far, barely a dozen local authorities have asked for additional funding.’ It remains to be seen of course what that really amounts to, since as with DHPs themselves, there are no guarantees, but it did seem a hint of movement from the government.

But back to that wrong: it becomes more obvious with each passing day that the bedroom tax is resulting in brutal injustices and unintended consequences.Yesterday’s debate had yet more evidence on this and brought up some that were new to me: for example, fathers losing access to their children because they have lost the spare bedroom that is a condition of access.   

It is also increasingly obvious that the policy will not achieve its principal aim of saving £480 million, either because tenants move or because costs are transferred from central to local government.

Yet a quick look back to the final Commons debate on the bedroom tax section of the Welfare Reform Bill in February 2012 reveals that there were 14 Liberal Democrat and two Conservative MPs who voted against the government when it reversed Lords amendments that would have softened its impact.

Last night there were only two Lib Dems – Andrew George (my MP, I’m glad to say) and party president Tim Farron – and one Tory – Andrew Percy, who also voted the other way (I think as a means of registering a formal abstention) – who voted against the government.

Why was this? After all, as Farron pointed out on Facebook, he was voting in line with party policy as agreed at its conference in Glasgow only a few weeks ago with virtually no dissent.

Most of the anger from campaigners has been directed at the Lib Dem MPs who abstained rather than voting against. Three of them had even tabled an early day motion earlier in the day calling for substantial changes. I’m not sure it would have been enough to make a difference but why didn’t they join Mr George and Mr Farron?

Here’s where the politics comes in: this was an opposition day debate. As hostile tweets from Labour prospective candidates in Lib Dem seats immediately after the vote indicated all too clearly, one of its main aims was to nail the Lib Dems as responsible for the policy (a point made powerfully by Alex Marsh). Should they have ignored the politics and voted on the policy?

Again, I’m not sure if it would have been enough to make a difference, and it may just be hopelessly naïve, but what would have happened if Labour had tabled a motion calling for substantial concessions instead of immediate repeal?

Say, for example, it had called for exemptions all those who cannot share a bedroom for medical reasons, or for people who cannot move because there is nowhere smaller available. Would more, or even enough, Lib Dems have rebelled on that basis? Perhaps Labour could even have nailed once and for all the government line (and lie) that it is only doing in the social sector what the last government did in the private sector by pressing an amendment that the bedroom tax should only apply to new tenants?

Instead we were left with a failed attempt to repeal the policy that leaves Labour looking pure in its opposition, Lib Dems like Steve Webb clinging to spurious justifications of it and Tories competing to look tougher on welfare than each other. Maybe this is good politics for all concerned but as policy making it looks terrible to me.

The debate had some awful examples of Tory backbenchers claiming wrongly that all disabled people are exempt (they aren’t) and that the policy is exactly the same as for private tenants (it isn’t). We had David Davies calling for ‘feckless fathers’ to be dragged to work ‘in chains if necessary’, Brooks Newmark claiming that finding an extra £14 a week is ‘not a big ask’ and Anne Main arguing that ‘unicorns do not exist, fairies do not exist and…a bedroom tax does not exist’.

There were also some weak Lib Dem contributions. Simon Hughes, for example, asked Mr Webb whether he would look at exempting people waiting for a smaller property to be allocated. He didn’t get an answer on that specific point but still dutifully voted with the government.

Joe Halewood has plenty to say about what he sees as Labour’s failings during the debate on his blog.

However, there were some impressive speeches too from members of all parties that went beyond the predictable point scoring.

From the Labour side, for example, Emily Thornberry raised the wider point of under-occupation. ‘Part of the problem… is empty nesters – elderly people whose families have grown up. If the principle behind the bedroom tax is to free up homes and move people to smaller units, why does it not apply to pensioners?’. She meant that landlords should be speaking to people as they retire and encouraging them to move, not imposing the bedroom tax.

Nick Raynsford raised another unexpected consequence: a 91-year-old constituent in a four-bedroom home who seems unable to downsize because the council has understandably given priority to bedroom tax victims.

Dame Anne Begg pressed the government to extend exemptions to disabled families in specially adapted homes (as she pointed out, Mr Webb is ‘a man who thinks he can change the whole pensions system in Great Britain, yet he is not clever enough to come up with a definition of an adapted home’) and couples who cannot share a bedroom because one or both has a disability. She also made the crucial point about ministers’ assurances on DHPs: ‘the word “discretionary” is the key, because it means that they will not necessarily get the money’.

Karen Buck exposed the weakness of the government’s argument that the bedroom tax will tackle overcrowding, arguing that ‘people are not dry goods that can be put in a container and taken from London to Liverpool or Wales, because that is how the distribution of property suits their needs’.

However, if you have a spare moment, do read Kate Green’s closing speech, which sums up the case against the bedroom tax and its implementation better than anything I’ve heard or read.

From the Lib Dem side, John Hemming was honest enough to concede that Labour’s local housing allowance changes were not retrospective, but argued that the bedroom tax has to be because of the need to save money.

And Andrew George had one of the best descriptions of the policy:

‘The spare room penalty or bedroom tax victimises the most marginalised in our communities, undermines family life, penalises the hard-working low-paid for being prepared to stomach low-paid work, and masks the excessive cost and disruption to the disabled who have to move from expensively adapted homes. It is, in my view, Dickensian in its social divisiveness. It is an immoral policy.’

There were also Conservatives who were prepared to address the policy rather than the politics. Andrew Percy has just told me on Twitter that he thought the Labour motion ‘too political’ and so registered an abstention instead but didn’t agree with all of the government amendment either so didn’t vote on it. 

And Jeremy Lefroy agreed with Anne Begg about the need for more flexible exemptions (‘I am sure that the minister is listening’) and argued for a lower rate of deduction than 14 per cent and 25 per cent that could be gradually increased as more appropriate accommodation became available. He went on:

‘This must not result in evictions. Some councils have no-eviction policies, and that is a very commendable approach. I would look for all possible measures to be taken prior to eviction being enforced.’

Uncomfortably for some landlords out there, he also asked the minister to look at how housing associations paying their directors six-figure salaries ‘could themselves contribute to discretionary housing payments’.

The positive thing to come out of all of this is that Labour has pledged to repeal the bedroom tax on its first day in office if it wins the next election. To answer my opening question, that seems the only way the political system can change the policy. In the meantime, there is also that possibility of extra DHPs for councils that apply.

However, for all yesterday’s debate, a policy that a majority of MPs must surely know by now is unjust and unworkable continues today and the day after. That’s politics. 

Dave's dream

Mon, 11 Nov 2013

David Cameron’s cheerleading for the successful launch of the Help to Buy mortgage guarantee scheme unwittingly reveals more than he might have intended.

In a statement issued last night, the prime minister said that 2,384 households have put in offers under the controversial scheme and ten have already completed.

The figures come from applications backed by a decision in principle for 95 per cent mortgages by RBS and Lloyds, the semi-state owned banks. The average advance is £155,000 on homes worth £163,000, which Cameron said demonstrated that Help to Buy is supporting responsible lending.

Even better, more than three-quarters of the applicants are first-time buyers and many are in their early 30s, ‘demonstrating that Help to Buy is helping hardworking people realise their home-owning aspirations’.

Cameron is meeting some of them at Downing Street later today (prepare to get heartily sick of pictures of him and other ministers doing the same in the run-up to the next election). He said:

‘The best thing about Help to Buy isn’t the statistics - it’s who is really benefiting. Most Help to Buy applicants are first-time buyers, young and have a roughly average household income. This is all about helping hardworking people get on the first rung of the property ladder - and helping them get on in life.

‘Owning a home is about more than 4 walls to sleep at night. It’s about independence, self-reliance, moving on and moving up. Above all, it’s about aspiration. Help to Buy is helping people realise the dream of home ownership - and it’s a key part of my plan for Britain.’

So far, so good for Cameron and the young buyers that Help to Buy 2 has helped highlighted in the Downing Street press release. Quotes such as ‘a dream come true to us’ and ‘the scheme really does benefit hard working people’ will be music to his ears.

The problem comes with the next bit:

‘Applicants will face average monthly repayments of around £900 and have an annual household income of around £45,000. This means a Help to Buy mortgage represents 24 per cent of borrowers’ gross income, which compares to the historical Council of Mortgage Lenders’ average figure of 24 per cent across the UK.

‘A 2-year fixed rate 95 per cent mortgage for the average house under Help to Buy is also £2,557 cheaper per year, compared to the equivalent mortgage from 2007.’

That sounds good until you look at the actual CML statistics. These do show a time when capital and interest payments took up 24 per cent of first-time buyers’ gross income but this was not the historical average but the peak of unaffordability in 2008.

The figures from before 2005 only show interest payments as a percentage of income but it’s pretty clear that capital and interest has only gone higher than 24 per cent at the peak of the previous housing boom between 1989 and 1991. These figures are also for the UK: those for England are slightly higher.

Neal Hudson of Savills (@resi_analyst on twitter) has a graph on mortgage affordability going back to 1992 here.

That’s important to bear in mind when you come to the Cameron’s second claim: that the two-year fixed rate Help to Buy mortgage for the average house is £2,557 cheaper.

The vast majority of that saving is the result of the Bank of England cutting interest rates to a record low of 0.5 per cent in 2009.

That begs the obvious question of what happens when and if interest rates return to a more normal level. At the end of the two-year fix, that £2,557 or £200 a month saving could easily look like the extra amount that those lucky buyers will have to find.

The Help to Buy feelgood factor is certainly there for Cameron and the Conservatives right now and with a fair wind it may last until May 2015. However, the figures he’s quoting open up three scenarios that look far less rosy:

First, the fact that Help to Buy mortgages seem to be stretching affordability back to the peak of 2007 may mean the scheme has less take-up than they hope once the initial rush slows down. That may be the least bad option because…

Second, any increase in interest rates (as urged by John Major today and promised by the Bank of England if the economy improves) will mean affordability problems for Help to Buyers and anyone who has stretched themselves to get on to the housing ladder. The dangers of rising arrears and repossessions and (if prices fall after the current mini-boom) negative equity will loom large.

Third, any problems like that will make it very difficult for any future government to get out of the business of state-sponsored mortgages, precisely what the critics have warned about all along. 

Universal debit

Thu, 7 Nov 2013

As we wait for the rescue plan, yet more scathing criticism of the universal credit will surprise nobody.

Today’s report from the Public Accounts Committee is a follow-up to September’s critical review by the National Audit Office but the weight of detail only confirms the impression of a project that long ago spun out of control.

Many of the findings from MPs – the lack of management, the fortress mentality, the ‘good news reporting culture – is familiar from the NAO report. But they add more detail and even more criticism on:

  • Poor management: in fact, make that ‘extraordinarily poor’ management’ at the top of the DWP with problems only emerging through ad hoc reviews
  • Waste: IT ‘write-offs could amount to at least £140 million’ but the precise extent of it is not known because the department has relied so far on ‘supplier self-assessment
  • Inadequate financial control: There was a ‘shocking absence of control over suppliers’ with secretaries were signing off multi-million pound invoices
  • Inadequate piloting: How much use will the pathfinder really be? It can only cope with the most limited claims, it has limited IT functionality and it lacks identity assurance and anti-fraud components. The MPs say it ‘will provide some useful information, we are sceptical that it will adequately inform the full roll-out of Universal Credit’.

As for the future, the PAC says that:

‘We are not yet convinced that the Department is in a position to present revised plans for approval by ministers, the Cabinet Office and HM Treasury that resolve the problems of developing a secure system that can accommodate large numbers of claimants who have complex and changing circumstances and who will be expected to fulfil certain conditions.’

Publicly at least, the DWP insists that the project is ‘on time and on budget’ for full roll-out by 2017. However, the MPs say that it will not meet its current target of enrolling 184,000 claimants by April 2014 and accelerating the later stages of the programme will create further risks. They conclude:

‘We believe that meeting any specific timetable is less important than delivering the programme successfully. There is still the potential for Universal Credit to deliver significant benefits, but there is no clarity yet on the amount of savings it will achieve.’

That will mean ‘deliverable options’, a ‘clear strategy for IT development’, ‘realistic ambitions on timescales and the amount that can be delivered online’ and a budget for the remainder of the programme and the net benefits it is expected to deliver. All the things, in other words, you might have expected to be in place at start.

The now familiar response from the DWP says that ‘this report doesn’t take into account our new leadership team, or our progress on delivery’. It adds that since it last spoke to the PAC it has launched the universal credit in Hammersmith and that it will expand to further areas this month (without mentioning that this was another delay).

And it concludes: ‘We don’t recognise the write off figure quoted by the committee and expect this to be substantially less. The head of Universal Credit Howard Shiplee has been clear that there is real potential to use much of the existing IT. We will announce our plans for the next phase of UC delivery shortly.’

It’s worth noting that previous responses have insisted that the project is ‘on time’. That ‘we will announce our plans shortly’ sounds like even the DWP has accepted the inevitable.

IDS responded to the NAO’s criticism by appearing to blame senior civil servants including permanent secretary Robert Devereux for the mess. A spokesperson now tells the Financial Times (ominously for anyone familiar with football parlance) that ‘he has every confidence with the team now in place, and that team includes Robert Devereux’.

However, it seems only fair to point to a fresh round of leaks that have emerged since the PAC completed its work. Computer Weekly reported this week that the DWP will decide later this month between two options: scrapping all of the £300 million IT system and starting again; and continuing to use some of the existing IT systems for the pathfinders while developing new systems for the roll-out. ‘Whichever option is chosen, sources suggest it is likely that all the existing IT work will eventually be scrapped,’ it says.

That looks like an amplification of an earlier leak to The Guardian which also said that the government is now considering two options: writing off £119 million of investment so far and starting again with a much more web-based system that would reduce the need for Job Centre staff; and attempting to improve the existing system. A risk assessment criticises both options and says that either way a maximum of 25,000 people (just 0.2 per cent of claimants) will be on the new system by the next election.

All of which will leave not just claimants but anyone with a stake in the new system wondering what on earth is going on and hoping for some clarity, any clarity, as soon as possible. Who knows how much social landlords have invested in extra staff and services on the assumption of a timetable that it now seems the DWP has no chance of meeting? Should the DWP now cover some of their costs? I have not even mentioned direct payment yet.

There is still general support for the project’s aim of delivering a more transparent system for everyone involved. But the longer the mess continues the more it begins to look like a universal debit.

IDS and the DWP must announce a clear and deliverable timetable, with a credible way of achieving the project’s goals, to hope to begin to repay the credit they have wasted.

Help to rent

Wed, 6 Nov 2013

For all today’s headlines about house prices, the most significant claim in new forecasts out today is that private renting will grow by another million households in the next five years.

That is one of the new forecasts for the housing market issued by Savills today and flows from its assumptions on what will happen to house prices. It comes despite the government’s flagship help to buy policy that aims to create more homeowners. 

The property firm forecasts a 25 per cent rise in prices between 2014 to 2018, with the south east and eastern regions seeing the biggest increases. That remains well short of what it sees as ‘bubble’ territory (an increase of more like 40 per cent). So, rather than taking us back to the mid 2000s, it believes the current market is more like 1996 ‘when the last housing market recovery firmly took hold’.

However, if this is 1996, it is not quite as we knew it at the time and this will be a recovery that only benefits some. The legacy of the credit crunch is that high prices have excluded people from owner-occupation and it’s transactions rather than prices that have fallen. ‘The UK housing market is now the preserve only of the wealthiest 50 per cent of households – and only if they have access to sufficient capital to use as a deposit,’ says Yolande Barnes of Savills Research in her introduction.

This is exactly the problem that the government is hoping to tackle with its controversial help to buy 2 mortgage guarantee policy, which produced its first lucky buyer last week. As financial secretary to the Treasury Sajid David told the commons yesterday: ‘The government [is] committed to making the aspiration of homeownership a reality for as many people as possible. That is why we recently announced that participating lenders will be able to offer high loan-to-value mortgages supported by their help to buy mortgage guarantee schemes three months earlier than planned. I was pleased to hear that Lloyds Banking Group recently announced that the first such mortgage was taken out by a first-time buyer in Dartford, Kent.’

The issue is how much impact help to buy 2 will really have. The controversy surrounding it is based on the fear that it could increase demand and prices without doing much about supply. Savills clearly thinks it will have less impact than the government hopes.

When the policy was first announced in March, it said that if the £12 billion of guarantees translated into £130 billion of mortgage lending the scheme had the capacity to enabled 550,000 extra house sales, a 19 per cent increase in overall transactions.

Now it is expecting around 325,000 transactions over the next three years ‘as those buyers with a strong aspiration to build up their housing wealth and the income to do so take advantage of the scheme’.

However, ‘the major beneficiaries of an increase in net mortgage lending are likely to be existing home owners, particularly those with a pot of existing equity’.

Savills forecasts that housing market transactions across the UK will rise from 960,000 in 2013 to 1.11 million in 2014, 1.18 million in 2015 and 1.25 million in 2016 before levelling down to around 1.2 million in 2017 and 2018.

That would in turn mean that Sajid David’s hope of ‘making the aspiration of home ownership a reality for as many as possible’ is unlikely to be fulfilled. Instead, if Savills is correct, the ranks of generation rent will continue to swell by more than 200,000 a year from 4.8 million in the UK in 2013 to 5.8 million in 2018, perhaps 20 per cent of households.

The implications of that would be profound. The housing system is still adjusting to the extraordinary 2 million household growth of private renting over the last decade but it will need to cope with more of the same over the next five years.

An opinion poll commissioned by Savills suggests that a large majority of renters still see the tenure as an intermediate step to owning. Many of them are going to be disappointed.

From the landlord side of the equation, even though buy to let has bounced back strongly from the credit crunch, it may not be enough to cope. Chris Buckles of Savills Research concludes: ‘Meeting this demand will fall to the cash rich investor and the institutions. They could, if they are brave and receive sufficient government support, be on the cusp of revolutionising the provision of private rented housing. This will be critical in the polarised housing market of the next five years.’

All this pressure will feed through into rent inflation too. Savills forecasts that the average rate of increase across the UK will rise from 2 per cent in  2014 to 2.5 per cent in 2015, 4 per cent in 2016 and 5.5 per cent in 2017 and 2018. Rents in London will rise still faster, starting with 3.5 per cent in both 2014 and 2015 and rising to 6 per cent by 2018.

That may be good news for landlords and investors but it is obviously less good for renters. As this blog by the New Policy Institute shows, the cost of living crisis in housing since the credit crunch is all about renters, as people with mortgages have seen their costs fall.

And it has alarming implications for the growing proportion of private tenants who rely on housing benefit to pay their rent. The local housing allowance is due to be uprated by just 1 per cent in 2014/15 and 2015/16 and it could be a target for continuing austerity measures after the next election. The shortfall between their rents and benefits could continue to escalate.

Bonus culture

Thu, 31 Oct 2013

So has what started out as ‘a Rolls Royce idea’ ended up ‘a Reliant Robin policy in practice’?

That’s not me describing the new homes bonus but the words of Conservative MP Stewart Jackson. Now a member of the public accounts committee, he was speaking at an evidence session in June ahead of its report published this morning. He was also a shadow communities minister at the time the bonus became a Conservative flagship policy. 

With scepticism like that on the Conservative side it’s little wonder that the PAC has more scathing criticism of the handling of the policy. It follows an embarrassing verdictfor the department of Communities and Local Government delivered by the National Audit Office in March.

Margaret Hodge, the Labour chair of the PAC, says that with £7.5 billion due to be redistributed between councils by 2018/19 to encourage more homes, it’s ‘vital’ that the bonus works: ‘It is therefore disappointing that after more than two years of the scheme being up and running, no evaluation is in place and no credible data is available to show whether the scheme is working or not. 

‘So far the areas which have gained most money tend to be the areas where housing need is lowest. The areas that have lost most tend to be those where needs are greatest,’ she adds.

‘The CLG has yet to demonstrate whether the new homes bonus works. Is it helping to create more new homes than would have been built anyway? Is it the best way for the government to use its limited resources to create more homes where they are needed most?’

Questions like this have been asked from the very beginning. As I blogged when the first allocations were made, the policy is less a bonus for building new homes than a penalty for not building them, and it amounts to a mechanism for transferring resources from deprived areas to affluent ones.

The National Audit Office agreed, branding the CLG’s estimate of the potential increase ‘unreliable’ and based on ‘unrealistic’ assumptions that included a ‘substantial arithmetical error’.

So far, it said, ‘the bonus has mainly rewarded home creation that was not incentivised by the bonus’.

Despite the policy being an attempt to use incentives to change the behavior of local authorities and communities to make them more pro-development, the CLG had not even consulted the cabinet office’s behavioural insight team (the nudge unit).

The message from Amyas Morse, the head of the NAO, was that: ‘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.’

That was in March. Seven months later, the PAC is making the same point about urgency: ‘We would have expected the [CLG] to have planned a systematic evaluation from the outset to track its impact on local authorities’ behaviour towards housing development, and the cumulative impact of the [new homes bonus] alongside the [CLG’s] other policies affecting local authority funding. The department has yet to demonstrate that the new homes it is funding through this scheme are in areas of housing need and the its planned evaluation is now urgent.’

That has prompted Sir Bob Kerslake, permanent secretary at the CLG and head of the civil service, to take the unusual step of issuing a statement publicly disagreeing with the committee: ‘I am disappointed by today’s report and have some significant disagreements with its findings. We have made very clear that our review of the new homes bonus is under way and will be completed by Easter 2014 as we have always promised,’ he said.

‘The whole point of the new homes bonus – which the committee fails to recognise – is to recognise housing growth where it occurs, with money going where those homes are needed most. That’s why we’ve committed £1.2 billion over five years towards this scheme, which the National Audit Office themselves found has the potential to deliver up to 100,000 additional homes over 10 years.’

However, arguments like this did not convince PAC members when he put them forward at a meeting in June and an evaluation published a year after the National Audit Office called for one ‘urgently’ will not meet most people’s definition of the word.

And it seems unlikely that the evaluation will be able to offer much convincing evidence of the impact of the bonus even then. The PAC report points out that ‘the department is committed to establishing if the new homes bonus has changed the behaviour of local authorities as part of its evaluation’.

‘However, the [CLG] told us that disentangling the impact of the bonus from other economic factors and other government initiatives, such as help to buy, would be difficult,’ it added.

Similarly, while there has been a positive trend in the number of empty homes being brought back into use, ‘this began before the Bonus was introduced’. The impact remains unclear - though I have seen evidence that the bonus has had a positive impact on the way my local council looks at empty homes. 

In the meantime the PAC suggests adjustments such as offering extra incentives for energy-efficient homes rather than a ‘wholesale shake-up’.

By offering incentives to communities, the new homes bonus did introduce an interesting idea into the debate about how to get more homes built. It was also attractive politically as a bottom-up alternative to Labour’s top-down targets.

However, was it ever really a ‘Rolls Royce idea’? Keep them small and incentives probably will not work, make them more attractive enough and eventually they become a questionable use of public money.

Whether the new homes bonus was badly implemented, or impractical in the first place, or both, the debate has already moved on and in help to buy the coalition has a shiny new flagship. No matter how much Sir Bob and the CLG apply the turtle wax between now and easter 2014, they will still have a used Reliant Robin on their hands. 

Drawing the line

Wed, 30 Oct 2013

Where does sensible asset management stop and social cleansing begin?

That’s the issue highlighted for me by the sale of ‘Britain’s most expensive council house’ and the protest that followed.

I put that in inverted commas because I’m not sure the building near Borough Market in Southwark was actually being used as a house but what is clear that it was sold at auction for £2.96 million, 30 per cent more than was expected last week.

The council’s case is that it’s better to sell and use the proceeds building 20 new council homes than keep it when it needs £500,000 worth of repair and refurbishment work. ‘I think that’s a no-brainer and most people do apart from the protestors,’ cabinet member for regeneration Fiona Colley told me yesterday.

Put like that, it’s hard to disagree. Social landlords all over the country have to make decisions about the best use of their assets. But there is a continuum involved here. At one end you might have a tower block that will cost more to maintain than it will to knock down and build replacement homes. At the other, you might have Policy Exchange’s proposal for Ending Expensive Social Tenancies. Grant Shapps, the housing minister at the time, considered it ‘blindingly obvious’ and the influential think tank is pushing the idea on twitter again this morning. I didn’t think so much of the idea when I blogged about it at the time.

But what happens with proposals that fall somewhere between those two extremes? The ‘£3 million council house’ is not the only example in Southwark. At Neo Bankside, a swanky new riverside development near Tate Modern, the original plan was that the ‘affordable’ housing contribution would be on site. But Fiona Colley explains: ‘We found that even at 25 per cent, the smallest share, they were only affordable on a household income of £90,000, which is above the income limit to qualify. So we recognised that and took £10 million to fund 170 council homes which to us makes much more sense.’

Again it seems hard to argue that this is more sensible than, for example, this £720,000 ‘affordable’ home that I was alerted to by a commenter on my blog. A 25 per cent share can be yours for £2,444 a month in rent, mortgage and service charges, half the post-tax income of a household on the maximum qualifying income of £80,000.

Yet the protestors in Southwark beg to disagree. Housing Action Southwark and Lambeth argue on the Guardian’s Comment is Free that there is no justification for selling off council houses during a housing crisis.

The occupation is partly a protest against draconian new laws on squatting but also is also happening in the context of the regeneration/gentrification of the wider area. ‘Southwark council has tried to justify the sale by promising to build 20 new council homes with the profits,’ they say, ‘but after the ongoing Heygate estate scandal, it is difficult to take them at their word.’

That is of course a reference to the controversial regeneration of the Heygate estate near the Elephant. Southwark sees it as part of a wider regeneration plan that will bring homes and jobs to the whole area but, as the final few leaseholders get ready to leave by Monday, that’s not the way campaigners see it at all.

The same issues are cropping up all over London (but not just in London) and pitting residents against local authorities and developers. Think Hammersmith & Fulham’s plans for Earl’s Court and two nearby council estates or Lambeth’s sell-off of short-life housing or Newham’s stalled plan to demolish the Carpenters Estate to make way for a new campus for UCL.

You have to draw the line somewhere - but where exactly? The boundaries between regeneration, gentrification and social cleansing lie somewhere between the tower block that’s falling down and the Policy Exchange sell-off plan. As with previous rounds of regeneration, including those that created the estates in the first place, they involve issues of resident involvement and consent, the use of the proceeds for new housing and the conditions for the offer of new homes. These have to be balanced against the interests of the wider community. 

So the issues and the boundaries are not new and perhaps it’s only possible to draw the line on a case by case basis. But bigger social and economic processes are at work now: growing inequalities of income and wealth, globalisation, financial pressure on local authorities, welfare reform and the escalating cost of housing. What would the outcome be if the battle of Coin Street were fought again today?

Beyond facts

Wed, 23 Oct 2013

The routine is familiar by now: researchers question government policy, government rubbishes researchers.

Last week it was the University of York, the bedroom tax and Esther McVey, today it’s the Chartered Institute of Housing, the benefit cap and Mike Penning but the gist was the same.

Where McVey embarrassed herself on the World at One, Penning had definitely got out of bed on the wrong side before he arrived in the Today programme studio. That was compounded when presenter Justin Webb introduced him as Mark rather than Mike. ‘Let’s start as we mean to carry on, shall we?’ he harrumphed before attacking ‘the BBC and The Guardian’ for being the only media outlets to report the story.

The interview went downhill from there. ‘Let’s report the facts, not flawed data,’ he said, but seemed unsure quite what the facts were. And he then blundered into an on-air row with Webb in the following exchange:

Penning: ‘It’s a fair policy and it’s much too early for the BBC and the institute to be writing this off.’

Webb: ‘It’s ridiculous to say the BBC is writing this off, we’re merely reporting what they did.’

Penning: ‘Why did you accept what they reported? Because we gave you the information last night that it wasn’t factually correct.’

Webb: ‘We’re not accepting it. We just had an interview with the woman in charge and asked her questions about it. That’s how you report things. We’re not accepting it by reporting it, you know perfectly well we’re not.’

That I think provides a clue to Penning’s initial annoyance. The DWP had obviously been trying – and failing – to kill the story last night. Its line was that 16,500 claimants ‘potentially affected by the cap’ have been helped into work across the country (since April 2012) and so it’s working. The department is of course a paragon of statistical rectitude when it comes to the cap.            

Penning’s other point was that: ‘I don’t understand why we are looking at something so early on in one very restricted London area, which just happens to be Labour-controlled, which is said not to be working.’

In fact the CIH research looks in detail at the impact in Haringey, one of the four London boroughs where the cap was first introduced. Among the findings:

  • Only 74 of the 747 households affected by the cap were known to have moved into work, while 11 had increased their hours by enough to avoid it
  • Half those affected were claiming discretionary housing payments to help pay their rent, shunting the costs from central government to councils (as Haringey leader Claire Kober points out). Around £60,000 has been saved from the benefit bill but expenditure on discretionary housing payments (DHPs) totals £960,000 so far.
  • The mass evictions that were feared have not yet materialised – though the report warns ‘they are visible on the horizon’. Claimants have relied on DHPs so far but this will be unsustainable in the long term.
  • A small number of households have faced severe consequences. These include women unable to leave abusive partners, children in danger of being taken into care and pre-emptive evictions of some private tenants.

The CIH concludes that the cap is ‘struggling to meet its aims’ of saving money and encouraging people into work. True, 11 per cent of households have moved into work but that does not seem much to show for the resources thrown into Haringey and the other pilot areas.

But all of this assumes of course that work and savings really are the main objectives of a policy that has always been intensely political. Opinion polls show that public support for the policy remains high. A survey for the DWP published earlier this month shows strong public support for the cap on just about every count, even though people believe it is unfair to people in high-rent areas.

I’ve written many times before about the way that the benefit cap’s arbitrary notion of ‘fairness’ breaks down once you look beyond the headline figure of £26,000 a year. This starts of course with the flawed use of earnings rather than income to set the level of the cap but it goes beyond that to the way that the cap operates independently of decisions already taken elsewhere in the system.

And so where there are already caps on the maximum housing benefit payable in each area, the overall cap operates well below that level. It is only DHPs that are making up for the rent shortfalls in Haringey.

Where councils accept a duty to homeless people and house them in temporary accommodation, the cap decides it will not pay the rents for it. This applies to 43 per cent of the capped households in Haringey.

And where the benefits system has rules on in what circumstances lone parents are expected to work that depend on the age of the child and the availability of affordable childcare, the benefit cap cuts the income of all those not working. Six out of ten of the households capped in Haringey had children below school age and the availability and affordability of childcare were major barriers to work.

But the benefit cap is a policy that operates independently of such considerations and in a world that exists beyond the facts. That’s why research and researchers have to be rubbished. 

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