Wednesday, 27 August 2014

Inside edge

April is the cruellest month

Mon, 5 Nov 2012

Every time you think you have got your head around the impact of the April 2013 welfare changes you realise you have forgotten something that makes it even worse.

I don’t need reminding that there are now just 147 days until the bedroom tax and overall benefit cap take affect. I know that increases in the local housing allowance will be restricted to CPI inflation from the same date. I realise that a range of other cuts in benefits and the localisation of council tax benefit and the social fund with reduced funding come in at the same time.

However, that is only the changes introduced by the Department for Work and Pensions. On top of that, I knew that local authorities had suffered deep cuts in their overall funding and I’ve been following closely the change in the Localism Act to allow them to discharge their homelessness duty into the private rented sector (which applies from this time next week). And I was aware that the Ministry of Justice was cutting legal aid to remove funding for most housing and welfare cases without quite realising that also applied from April (for obvious reasons).

The potential for all of those individual factors to interact with each other and the potential for unintended consequences is clear. However, until I read today’s report from the Child Poverty Action Group (CPAG), I had not fully thought through the extent to which this will create difficult and sometimes impossible dilemmas on the ground.

Even then, the focus of the report is mainly on London (because that is where the biggest impacts will be felt) and on the private rented sector (because that will have to cope – or not – with the fall-out). So it does not really cover concerns about the bedroom tax and the switch to universal credit.

The headlines generated by the report include warnings about the extent of out-of-area placements being planned by councils (with a Guardian survey finding widespread plans) and the potential for conflict with the troubled families programme (in Inside Housing). In the first case, the concern is that Newham was just ahead of the game when it contacted housing organisations throughout the Midlands and North about housing its homeless families. In the second, the worry is that councils face a choice between keeping ‘troubled families’ in their homes and potentially rewarding anti-social behaviour or allowing them to be evicted and to lose contact with the intensive programme of support that is meant to help them.

The most immediate priority, according to CPAG, is changing the regulations for the overall benefit cap so that it does not apply to temporary accommodation. Otherwise, with rising private rents making the procurement of affordable accommodation in London unsustainable, both families made homeless by the cap and those already in temporary accommodation could face double homelessness as they are evicted for rent arrears.

Little wonder then that the report found that London councils are looking to the North and Midlands for both private and temporary accommodation. Except that the whole thing could be open to legal challenge under strengthened guidance on ‘suitability’ proposed by Grant Shapps after the original furore about Newham.

The consequences for tenants are grim even with moves that are closer to home – as revealed in The Guardian’s story about a mother with two children from Waltham Forest. She was rehoused 37 miles away in Luton but the move split up her family so that her older daughter could stay in school.

However, the report reveals the pressures that will leave councils ‘between a rock and a hard place’. London Councils has already estimated that 133,000 workless households in London, including 63,000 with children, will be unable to afford their current rent as a result of the bedroom caps and overall benefit cap. Surveys also show a growing proportion of London landlords will either not extend existing tenancies or consider not renting at all to people on benefit.

Research so far into the impact of the 2011 changes (the bedroom caps and cut to 30th percentile) suggests that most tenants will look to make up rent shortfalls from elsewhere rather than move. The proportion moving out of the borough has been lower than expected so far, perhaps because transitional protection means the impact of the bedroom caps on existing claimants is only just being felt. However, staying put will become increasingly difficult as further cuts bite and larger families face the biggest shortfalls – and there is no transitional protection under the April 2013 cuts.

The officers interviewed for the report said that elected councillors had yet to realise the full implications of the changes. ‘While several officers had received a strong steer from elected members that they did not want to see families moved out of the borough, officers are struggling to see how they could achieve this,’ says the report. Officers were ‘unclear’ as to how claimants could avoid moving out of the borough without significantly increased overcrowding.

Come April 2013, families will have three options: look for cheaper accommodation near to home or elsewhere; look for work of over 24 hours a week to avoid the benefit cap; or present as homeless to their local authority. If they are vulnerable and not intentionally homeless, then the council has to find them a suitable home and provide temporary accommodation in the meantime. From next week the home can be private rented.

Some councils are using discretionary housing payments to pay deposits or offer incentives to encourage landlords to take claimants – but this is only ever a short-term solution. Meanwhile, even outer London boroughs are finding they cannot match a supply of affordable accommodation to demand.

The report goes on: ‘Given the pressures on private rents, most authorities felt that it would not be possible to do this to any large scale within London, particularly for families whose benefits are capped at £500 a week. This led to discussions about procurement of private sector properties elsewhere – locations cited included Nottingham, Derby, the Midlands and Wales.’

Many councils believe that the government’s suitability consultation on the discharged duty, which says that ‘it is not acceptable for local authorities to make compulsory placements automatically hundreds of miles away’, leaves them in an impossible position.

The benefit cap will leave families in temporary accommodation with a shortfall against their rent that councils cannot ask them to make up if it would deprive them of other essentials. The report goes on: ‘Applying the benefit cap to families in temporary accommodation effectively means that families who are accepted as homeless, could be made homeless once more due to their inability to pay the costs of temporary accommodation.’

And what about people who local authorities persuade not to make a homelessness application and accept help through prevention and relief work? Do they accept stay put and find a way to make up the rent shortfall, move into sub-standard and overcrowded accommodation or move far away from their communities and children’s schools? None of the choices look good and the scope for choice is narrowing all the time.  

Squeezed out

Wed, 31 Oct 2012

Housing is the big thing missing from today’s major report on living standards from the Resolution Foundation.

The final report of its Commission on Living Standards looks at the plight of low and middle income families. Things were bad even before the crash with average incomes falling by £570 between 2003 and 2008 as growing inequality meant that prosperity was not shared around. The gap was only made up by a £730 a year increase in tax credits.

However, incomes have fallen even more since 2008 and in the run-up to 2020 tax credits are being cut. Even on optimistic growth assumptions, says the commission, low income households are see their incomes fall 15 per cent over the next eight years, back to levels last seen in 1993, and middle income families will see their incomes fall 3 per cent to 2001 levels. That is a fall unprecedented in modern times.

To put that in financial terms, a low income household (the 10th percentile, or in the bottom 10 per cent) had an income of £10,600 a year in 2008/09. By 2020/21 that will have fallen to just £9,000 a year (at 2008/09 prices). A middle income household (at the 50th percentile) will see their income fall from £22,9000 to £22,100 over the same period.

The commission calls for a series of measures to boost wages for the bottom half of earners, with improved training and skills, a stronger Low Pay Commission to take a view on sectors of the economy that can pay an ‘affordable wage’ higher than the legal minimum and measures to help employers reduce their reliance on low pay.  That needs to be backed by measures to boost employment including support for parents and second earners with more free childcare, higher child tax credit for younger children and higher universal credit disregards.

That brief summary scarcely does justice to a report that analyses why the middle is being squeezed throughout the western world and why things are worse in the United States and Britain. The Resolution Foundation is doing a range of other work on housing policy but, since it was outside the commission’s scope, the report only touches on the way that housing costs have exacerbated the problem of the squeezed middle and the way that housing could contribute to a solution.

It describes the squeezed middle as ‘a group whose members are in work but on low pay; who work across all sectors, especially those – like retail and hospitality – that are rarely discussed in relation to policy; and who struggle to get on the housing ladder, to secure promotion and to save’. They are in other words very close to the ‘hard-working families’ and ‘strivers’ so heavily featured in coalition welfare reform rhetoric.

That’s backed with analysis of the mortgage costs, which shows that repayments are higher as a proportion of income now with base rates of 0.5 per cent than they were in the mid-1990s when rates were 7 per cent. Meanwhile other research for the commission concluded that: ‘mortgaged home ownership among low to middle income families will fall consistently over the next decade as more and more families are forced into the private rented sector’. Even with moderate growth in real incomes, 18 per cent of households will be renting privately by 2025 and that proportion could reach 22 per cent if income growth does not resume by then.

The report goes on: ‘Given the importance of housing to labour mobility, ensuring that supply can respond to projected patterns of demand will be very important not just to living standards but also to economic growth. Even so, it seems likely that under any reasonable scenario many more low to middle income households will find themselves raising children in rented accommodation. This will necessitate a change in the quality and security that the rented sector is able to offer.’

It’s interesting too that the start of the squeeze on lower and middle incomes identified by the commission coincides with the final stage of the last housing boom and the start of the boom in buy to let that have ensured that more and more low and middle income earners are priced out of the market. However, the analysis appears to assume that home ownership and private renting are the only two housing options available. One big reason why lower and middle income families have been squeezed is that social housing has been squeezed too. Almost a third of households were social tenants in 1981 and average household incomes were the same as those of private tenants. Flash forward 30 years and only 17 per cent of households are social tenants and their incomes are half those of private tenants.

The explanations for that are complex – the right to buy, residualisation of the social sector, deregulation of the private sector, the squeeze on mortgages and the rest – but it has squeezed lower and middle income families as surely as more general economic factors. That squeeze will only get worse if real incomes continue to fall as the report fears and  the shortage of housing supply continues.

Any reversal in that trend relies on reversing the orthodoxy of the last 30 years: that personal subsidies are more efficient than bricks and mortar subsidies because people only get support when they need it.

That may seem unlikely and a throwback to the world before the 1980s. However, if that orthodoxy was already shaky – it’s one big reason why housebuilding has slumped after all – then it has surely disappeared with the end of security of tenure in the social sector.

On the same day as the commission published its final report, the Telegraph reported a new initiative by the three Conservative-controlled west London councils that have embraced the social housing reforms most enthusiastically. Behind the headline about ‘council homes for middle class professionals’ like teachers and nurses, Westminster, Hammersmith and Fulham and Kensington & Chelsea are pressing for freedom to borrow against their housing stock. This will presumably be to build homes for affordable rent. Jonathan Glanz, Westminster’s cabinet member for housing, tells the paper: ‘We need to continue ensuring that we provide for a wide range of people and maintain mixed communities, including middle-class people on middle-range salaries.’

Whatever you think of five-year tenancies and the housing policies and priorities of the councils concerned, it seems like social housing of a sort is definitely back on the agenda for the squeezed middle. Even if the options for those below the squeezed middle look more limited than ever. 

Red flags

Tue, 30 Oct 2012

As the slow motion train crash of welfare reform continues, the driver is ignoring a succession of people desperately waving as he passes them.

Heedless of the big red flags they are holding, Iain Duncan Smith and his conductor Lord Freud sometimes even wave back and blow the whistle of their sleekly designed train in acknowledgement of what they see as the congratulations of the crowd.

All along they have argued that the universal credit – the one genuine reform amid all the welfare cuts – will make all the pain worthwhile and ensure that work pays and nobody is worse off.

Yet the warnings are now coming thick and fast and not just from the usual doom-mongers and government IT system sceptics. As I blogged last month, the people lining the track include former welfare reform tsar Frank Field, the Social Market Foundation, the Social Security Advisory Committee and maybe even cabinet secretary Sir Jeremy Heywood as well as councils, charities and housing organisations.

Now new research for the Joseph Rowntree Foundation acknowledges the advantages of the design of the new system in terms of streamlined administration and integration of in and out of work benefits but argues that these risk being undermined by the details of implementation. In particular, it highlights the dangers of:

  • Requiring people to claim online when only 20 per cent do at the moment and only  40 per cent are ready and able to do so in future
  • Paying out monthly when most people on low incomes budget on a weekly or daily basis
  • Paying out in a lump sum to the head of the household rather than paying individual elements separately with increased risks of budgeting problems, arrears and financial exclusion.

Amy Tarr and Dan Finn of the Centre for Social and Economic Inclusion recommend a series of steps that the government could take to mitigate the risk that the new system will leave people worse off than before and trap them in poverty. Better financial support and advice, reconsideration of the impact of localising council tax benefit and the social fund and a more visible ombudsman for the whole benefit system are just some of them while the report also calls for more information on the back-up arrangements in case the IT system fails.

But are IDS and Freud listening to the key message that their sleek new train needs a few design changes and that  ‘making work pay’ has to be about more than just toughening the sanctions regime for people on benefit?

The complacent response so far from the DWP (see the standard line to the Telegraph that ‘Universal Credit will help millions of people by making them better off in work than on benefits’) and the rose-tinted view of lessons from the direct payment pilots might suggest not. However, behind the scenes there are signs of movement on some of housing’s biggest concerns about the new system.

The Northern Ireland government has won three significant concessions: housing costs will continue to be paid direct to the landlord with an opt-out for tenants, rather than the other way around; universal credit will be paid fortnightly rather than monthly; and introduction of the new system will be delayed six months from October 2013 to April 2014.

Social security minister Nelson McCausland says the concessions are a recognition of the ‘unique circumstances’ of Northern Ireland, which is presumably a reference to the politics (of the coalition) and the institutional setting (with the Northern Ireland Housing Executive) in the province.

However, all three of the concessions would go some way to addressing the criticisms of the new system in the rest of the UK too and the second and third dangers highlighted by today’s research. It’s worth noting that there also seem to be ‘unique circumstances’ throughout the UK for mortgage lenders, since mortgage interest payments will continue to go direct to banks and building societies under the new system.

So it’s not too late for ministers to take heed of the people waving red flags beside the track. Getting the detail of the universal credit right will not solve the more fundamental problems of welfare ‘reform’ – the assumptions that making work pay can be achieved by cuts in benefits alone and that work alone can raise everyone out of poverty – but it may just avoid a preventable train crash. 

Barbed wire

Thu, 25 Oct 2012

Is it possible to ‘hard-wire common sense’ into a mortgage market that has a track record of irrational excess?

The Financial Services Authority (FSA) launched the final version of its Mortgage Market Review (MMR) this morning after a marathon round of consultation with lenders and consumer groups.

As from the very beginning, with the Turner Review in 2009, the key task is to find a way to prevent a repeat of the irresponsible surge in lending up to 2007 without choking off the supply of mortgages and making the housing market even more dysfunctional as a result.

Along the way, the idea of explicit limits on loan to value ratios has been dropped in favour of more stringent checking of affordability, the virtual abolition of self-certified mortgages and much stricter control of interest-only loans. The new regime will apply from 2014.

However the final version also contains transitional protection to make life easier for ‘mortgage prisoners’ – customers trapped on existing loan terms and unable to remortgage or move. These will apply straight away.

Reactions so far suggest that the FSA has got the balance about right but I wonder if that will be the long-term verdict. Discounting the fact that it will be much more difficult for someone like me (in their 50s and self-employed) to get a mortgage in future, the package is geared to avoid future mistakes.

As for the consequences of the past, mortgage prisoners will be helped by new transitional rules that allow lenders to ignore the new rules on affordability and interest-only loans for existing borrowers who want to remortgage for the same amount or less and who have a good payment history.

Given that up to half of new mortgages in 2007 were self-certified, that will help a lot of borrowers. However, it does nothing for those locked out of the housing market and frustrated would-be first-time buyers may look askance at extra help for people who may have borrowed unwisely while they are protected from themselves and stuck paying rent.

Reaction from lenders and brokers is generally positive. They argue that most lenders are already operating most of the new rules. The Council of Mortgage Lenders said today that the rules would bring certainty and had avoided elements in the original draft that would have been difficult to implement or unduly restrictive. On the face of it, the proposal that lenders must verify borrowers’ income and that the mortgage is affordable taking into account their net income ought to prevent the abuses of the past. Making them take into account the impact on mortgage costs of future interest rate rises looks sensible. Making ‘a clearly understood and believable alternative source of capital repayment’ a condition of getting an interest-only loan does too – even if that leaves some room for interpretation, not to mention amazement that it is necessary to say so.

However, as I’ve blogged before, the problem with the new regime could be more what it does not cover than what it does. In December 2011, plans to regulate buy-to-let lending were dropped with the explanation that this was a ‘decision for the lending’. Similarly, proposals to regulate second charge lending were put off pending a wider review of consumer credit that is not due until at least April 2014. Neither is mentioned in the final version of the MMR. That is two major parts of the market that will not be connected to the hard wiring

Meanwhile, as the Joseph Rowntree Foundation’s housing market taskforce said in September, regulation of the mortgage market is only one element in tackling housing market volatility.  It warned that overall the government was being too timid and that ‘in some ways we are moving further away from this goal’.

Lenders and regulators told us after the 1990s crash that they had learned their lessons, only to forget them a decade later. The final version of the MMR may be the best compromise currently available between over-and under-regulation but it does little to make the wider housing market any less dysfunctional or any less stacked against the housing have-nots. Addressing that will take more than common sense, no matter how hard-wired. 

Home truths

Mon, 22 Oct 2012

‘We’re not in any way complacent,’ Mark Prisk told the Today programme this morning – having spent his interview being just that.

It’s the first time I’ve caught a media appearance by the successor to Grant Shapps, who was so ever-present in the radio and TV studios that he was dubbed the minister for Daybreak. Prisk is not on twitter either so other than a few brief interviews and a few blogs he is still a bit of a mystery to me.

The housing minister was reacting to the latest Home Truths report from the National Housing Federation, which includes the stat picked up everywhere that the number of people in work on housing benefit is rising by 10,000 a month.

The report forecasts that private rents will rise almost as quickly (35 per cent) over the next five years as they have over the last five (37 per cent). If that’s correct, then even more people will have to rely on housing benefit even if they are working. The total of in-work household claimants has grown by 417,830 or 86 per cent since 2009.

In previous years, Home Truths has concentrated more on the plight of first-time buyers and the falling proportion of home owners so this year’s report and the extensive coverage it is getting in the media feel like a major change in perceptions of the housing crisis. The Prisk interview was preceded by one with Milly, a single parent in the South East who is working but recently had to move because of restrictions on the local housing allowance. The only way she could find new accommodation was to lie to her landlord about being on housing benefit and to share with another single parent.

As I blogged after David Cameron’s speech at the Conservative conference too, there are clear signs that the government at last gets the fact that it has to increase housebuilding even if that means offending the nimbys. There are also signs that things are changing underneath the surface, as in Isabel Hardman’s report on Friday about a proposal by Jake Berry, parliamentary private secretary to Shapps, to penalise developers who landbank sites without building on them.

So it was intriguing to see what Prisk had to say (listen here from about 2 hours, 15 minutes in). His response to the interview with Milly was that:

‘We’ve had many years of low rates of housebuilding. I think it fell to the lowest rate since the 1920s under the last administration. So this is a systemic problem of a dysfunctional market and as they’ve said the key issue is getting more homes built both for sale and to rent. You heard from Milly’s point of view that the best way to help tenants is to expand the private rented sector so she has much more choice. It’s quite clear from what she was saying that she has very little choice at the moment to be able to shop around and get a better deal.’

So, asked interviewer Sarah Montague, the answer is to build  an awful lot more homes?

‘Well I think we certainly do. Obviously it’s a controversial issue but I think when  you look at the long-term problem, the fact that the number of homes built has been something like less than half the number of households formed, you’ve got to do that and that’s why we’re putting significant money into the affordable homes programme, 170,000 additional houses, and also particularly for private renting which I think is really important for the first time putting a debt guarantee which sounds technical but essentially it’s allowing much more investment to come into this market. Get some of the experienced players in Germany, Sweden and America and elsewhere to really help people like Milly.’

Let’s leave aside that the coalition’s share of the affordable homes programme is actually 80,000, there are intriguing hints here of the way that private renting is now at the top of the government agenda. It’s telling though that he thinks it will be the Germans, Swedes and Americans that will come to the rescue rather than our own investment-shy institutions?

Sarah Montague then pressed him on affordable rent. As the public accounts committee pointed out last week, if you finance them with higher rents you simply add to the housing benefit bill and the problem. Prisk replied:

‘There’s a flaw in their report which I think is that they’re making an assumption that every local authority will charge 80 per cent of market rents in order to deliver that extra £15 billion of private investment. In fact when you look at the numbers it’s much more like 65 per cent so I think they’ve got that number wrong.’

This is weak even if you leave aside the fact that it’s not local authorities that will be charging the higher rents. For the record the PAC actually said: ‘The Department has not done enough to understand the full impact of higher rent levels on tenants. Housing providers can charge higher rents than before (on average 65% of market rents in London and up to 80% elsewhere).’ According to Prisk’s own department’s reply to a freedom of information request, the average proportion of market rent in regions outside London ranges from 77.7 per cent in the North East to 79.5 per cent in the North West.

In any case, said Sarah Montague, we know that [market] rents are going up so even if it’s a lower percentage it’s still of a higher rent. Prisk replied:

‘We come back to several things. One, make sure the rented market is growing so there are more properties. Two, add that extra 170,000 on the affordable homes programme.  Three, as the federation rightly say, let’s get that public land that’s been idle for too long sold – we’ve got land out there for about 33,000 houses sold now, get that into the market, get that underway. That’s the way to tackle this and make sure for example you help first-time buyers some of whom want to buy but are staying in rented property making more problems in the rented sector because they can’t raise a deposit.’

Montague pressed him again – ‘so public accounts committee are just wrong and have their facts wrong?’ – and Prisk replied:

‘Well they’re making assumptions about what councils are going to do on the basis that they’re going to charge 80 per cent. The evidence at the moment is that that is not the case. So I think that is where we differ with them.  But we’re not in any way complacent about the challenge, people like Milly highlight the fact that for years the last government, all governments, have actually failed to build enough homes. We want to change that.’

Leave aside a second mistake about councils setting affordable rents and you’re left with an implicit acknowledgment that this government as well as the last one has failed on housebuilding. But is it really true that all governments failed? Between 1945 and 1979 they seemed to do pretty well and John Major didn’t do too badly. Gordon Brown (despite presiding over the lowest number of starts since the 1920s) at least did something in response to the crash. The problems have been mainly down to just three governments: those of Margaret Thatcher, Tony Blair and David Cameron (in that order).

Not in any way complacent? As Brian Green blogs over at Brickonomics, even the big housebuilders believe they can produce no more than 160,000 homes a year by 2017 without a significant change in land availability. That leaves a huge gap for the Swedish, German and American cavalry to fill – and that is just to stop things getting even worse. It does nothing about high house and land prices. It does nothing to resolve the problems faced by private tenants like Milly in a landlords’ market or the soaring rents that have defied David Cameron’s attempts to argue they are falling. As with the energy market, it’s one thing to say you want to bring charges by private suppliers down, quite another to achieve it.

Sooner or later a government will have to take much more radical action than anything that is being contemplated by this one. That won’t happen until ministers realise just how much they are still being complacent about when it comes to the housing crisis.  

Rent spiral

Fri, 19 Oct 2012

Remember when David Cameron claimed that housing benefit cuts were bringing down rent levels? I bet he doesn’t now either.

Cameron said at prime minister’s questions in January that: ‘What we have seen so far, as housing benefit has been reformed and reduced, is that rent levels have come down, so we have stopped ripping off the taxpayer.’

The claim provoked almost universal derision at the time but (ex) housing minister Grant Shapps backed up his boss and said he had been referring to a survey by LSL Property Services showing that the average rent fell 0.8 per cent between November and December.

Nine months on and the latest LSL survey has just revealed a 3.2 per cent rise in the average private rent in England and Wales to a new record of £741 a month. Rents soared by 1.1 per cent in September alone.

In London, where the bedroom size caps in local housing allowance hailed by Cameron should have had the most impact, rents rose almost twice as quickly. The average rent is now 6.2 per cent higher than a year ago at £1,092.

The one bright spot in the survey is that the 9.1 per cent of rent that was late or went unpaid was slightly below the 12-month average of 9.5 per cent.

However, that was put into context by a survey yesterday from the Money Advice Trust showing that calls to its national debtline about rent arrears have increased by 99 per cent since 2007.

Almost 10 per cent of callers between January and August 2012 had rent arrears compared to 8 per cent in 2011 and 6 per cent in 2007. And renters made up more than half of callers for the first time ever.

Joanna Elson, chief executive of the Money Advice Trust, warned of a ‘dangerous spiral’ as stagnant earnings growth and sharp jumps in rental costs risked pushing people over the edge.

The really worrying thing is that all this pressure is building up before the firestorm of welfare reform hits next April. Social tenants face massive problems of their own with the bedroom tax but social and private tenants will both be hit the overall benefit cap and cuts in council tax benefit. Six months later the universal credit starts and there were more dire warnings of the effect on disabled people and their families this week.

Far from the reductions in rents claimed by the prime minister and the new Conservative party chairman, welfare reform is looking exactly as critics claimed it would be: a guaranteed way of ringing up arrears and eventual homelessness.

Just as well then that Cameron has turned his attention to bringing down gas and electricity bills – but then that doesn’t seem to be working out too well so far either. 

Hidden costs

Mon, 15 Oct 2012

Bit by bit the facts about the affordable rent programme are leaking out but far too much remains hidden or unclear.

On Friday, in the typically under-stated style of all-party committees, MPs published their verdict so far. The public accounts committee concludes that ‘it is not yet clear whether the programme will deliver value for money in the long term’ and that ‘the department needs to do more work to understand the impact of the programme on tenants and its interaction with wider welfare reforms’.

It is still worried about slippage because the delivery of new homes is heavily skewed towards the end of the programme and warns that it may be a one-off way to take advantage of housing providers’ balance sheets.

All of this is worrying even though it is perhaps the understandable result of a programme developed in a hurry to keep the affordable housing show on the road. From the government’s point of view it delivers more homes for less money and, while the pressure will undoubtedly be on in the final year of the programme, it also again illustrates the ability of the Homes and Communities Agency and social landlords to deliver what they are told.

But deliver for what? Hard information about affordable rent is only just trickling out. The PAC report tells us very little that we did not already know: it repeats the DCLG’s impact assessment claim that the housing benefit bill will rise by £1.4 billion over 30 years as a result of the programme without questioning any of the assumptions behind that; an appendix quotes the headline figures that the average affordable rent will be £182 a week in London (65 per cent of market rent) and £133 a week in England (73 per cent); and it says that 63 per cent of homes in England and 5 per cent in London will be at the maximum 80 per cent of market rent.

That’s what we do know. However, the information is based on the original bids and not the final contracts that were signed and so may have changed again (as Inside Housing reports, a quarter of the London providers originally planned to charge higher rents when their bids were submitted). In addition, the DCLG did not collect information on the rent charged by bedroom size and we still do not know how the distribution of the homes, their size and their rent between the different London boroughs. Given the back-loading of the programme is it possible we will not know the full facts for another three years?

In some parts of the country, where social rents are already reasonably close to market rents, it may be hard to see the difference with affordable rent (though the new programme may also not be that viable). In other, more expensive, regions and especially in London we still do not know the answer to another question either: will the new homes be let to tenants who can afford the higher rents or will they do to tenants who are in the most housing need? If it’s the former, then more homeless households and people in the most need will be forced into the private rented sector and the housing benefit bill will be that much higher and the benefit trap that much bigger. If it’s the latter, the housing benefit hit will be smaller but still substantial and there will still be huge barriers to employment.

The PAC concludes that the DCLG ‘has not done enough to understand the full impact of higher rent levels on tenants’. It goes on:

The Department does not hold information on the rent levels being charged for individual properties and it has not considered the impact on tenants or prospective tenants of these rent levels or the interaction with wider Housing Benefit reforms. The Department should consult tenants and providers to understand the impact of the higher rent levels on tenants, and commission research into the financial and other characteristics of those tenants living in ‘affordable rent’ homes and build the results into future programmes.’

Apart from the danger of the new homes going to ‘the richest of the poor’ rather than those in the most need, there is also an issue about the allocation of the larger (and therefore more expensive) homes. ‘We are aware of cases where four bedrooms homes have gone to a couple with no children or a couple with one child,’ say the MPs.

Put this all together and we have a programme being developed in conditions of considerable secrecy and with seemingly very little attention being paid to what happens after the buildings are completed. However, the fundamental problem of what counts as ‘affordable’ is not new.

The most expensive shared ownership flats left behind the definition of affordable long ago. A quick look at First Steps London, the website for Boris Johnson’s ‘affordable housing programme’, reveals this £570,000 three-bed flat in Hackney. It can be yours for a deposit of £14,250 and a mortgage of £128,250 to buy a 25 per cent share. If you can get a mortgage, the monthly repayments will be at least £750 a month on top of the rent for the remaining 75 per cent of £1,048.27 and the service charge of £155.89. According to the website that requires household earnings of £60,935 a year, but that would mean that the estimated monthly cost of £1,954 would account for 56 per cent of take-home pay of £3,510.

Again, the housing organisations involved are doing their best to deliver new homes within the bounds of what is financially feasible and the tenants and shared owners will be paying less than they would be on the open market. However, that brings me back to the definition of ‘affordable’.

The only real way to guarantee that homes are affordable is to base the price or the rent on what people can afford to pay. That, broadly speaking, is how social rent works, with rents calculated on a 70:30 formula local earnings to market values. The minute you define ‘affordable’ solely in relation to market values that link is broken, especially when it happens at a time when many incomes are frozen or falling. And, as I blogged in June, the social – genuinely affordable – sector is set to shrink by around 250,000 homes over this parliament as a result of the combination of affordable rent re-lets, the right to buy, regeneration schemes and asset management by landlords.

In the meantime, UK house prices are propped up by ultra-low interest rates and quantitative easing. Whether you believe the warnings that prices are over-valued by 20 per cent or not, you have to wonder what will happen when interest rates eventually rise. There are big regional variations and rents are historically more stable than house prices but you have to wonder whether rents at (up to) 80 per cent of the market level will really seem so ‘affordable’ then, let alone affordable.

Backyard blues

Thu, 11 Oct 2012

It’s great news that David Cameron used his conference speech to criticise nimbys and call for more homes but does he really get the problem?

In the week that has seen the launch of the pan-housing Homes for Britain campaign it was significant that the prime minister went beyond the odd dutiful word in his leader’s speech at Birmingham. The bit that really struck me was this:

‘There are those who say “yes of course we need more housing”…but “no” to every development - and not in my backyard.
 Look - it’s OK for my generation. Many of us have got on the ladder.
 But you know the average age that someone buys their first home today, without any help for their parents? 
33 years old. We are the party of home ownership - we cannot let this carry on.

‘So yes - we’re doubling the discount for buying your council house…we’re helping first-time buyers get a 95 per cent mortgage…but there’s something else we need to do - and that’s accept we need to build more houses in Britain. There are young people who work hard year after year but are still living at home.
 They sit in their childhood bedroom, looking out of the window dreaming of a place of their own.
 I want us to say to them - you are our people, we are on your side, we will help you reach your dreams.’

I’m not at the conference myself but I’ve had some positive reports about Homes for Britain and this section of the speech is further evidence of that. Ok, there are no specific policies, but this is still Cameron taking a stance on the issue and showing that he gets the point about generational fairness when he knows many (or even most) in his party are eager to find reasons to oppose new homes in their backyards.

So where’s the problem with all of this? First off, housing benefit. I’ve already covered this extensively this week here and here but Cameron again contrasted people who commute to work and pay their taxes with the ‘families – individual families – getting 40, 50, 60 thousand pounds of housing benefit to live in homes that these hard working people could never afford themselves’. He again contrasted the choice facing young people:

‘Choice one: Work hard. Go to college. Get a job. Live at home. Save up for a flat. And as I’ve just said, that can feel like forever. Or: Don’t get a job. Sign on. Don’t even need to produce a CV when you do sign on. Get housing benefit. Get a flat. And then don’t ever get a job or you’ll lose a load of housing benefit. We must be crazy.

‘So this is what we’ve done.
 Now you have to have to sign a contract that says: you do your bit and we’ll do ours. 
It requires you to have a real CV and it makes clear: you have to seek work and take work - or you will lose your benefit.
 And we’re going to look at ending automatic access to housing benefit for people under 25 too. If hard-working young people have to live at home while they work and save, why should it be any different for those who don’t?’

The phrasing on the under-25s was interesting. The government will ‘look at’ ending ‘automatic’ access sounds to me like a retreat from suggestions that it will be scrapped altogether. Perhaps the message is sinking in that more than half of the under-25s on housing benefit have children and that there may be good reasons why the rest cannot move back in with their mum and dad?

However, the rest of it was the familiar mix of exaggeration and generalisation from a tiny minority of cases. Never mind that only a miniscule number of claims ever amount to £60,000. Never mind that the fastest growing group of housing claimants is people in work who need it because wages are low and rents are high. Never mind that fact that all of the housing benefit goes to the landlord not the tenant. Never mind that, as the Priced Out campaign revealed this week, one in four Conservative MPs are landlords themselves. By my reckoning they include 13 of the ministers sat around the Cabinet table and Cameron himself.

Cameron clearly sees the ‘strivers’ as people struggling to pay the mortgage and justifies the government’s stance on austerity on the grounds that it has delivered ultra-low interest rates:

‘If we did what Labour want, and watered down our plans, the risk is that the people we borrow money from would start to question our ability and resolve to pay off our debts. Some may actually refuse to lend us that money. Others would only lend it to us at higher interest rates. That would hurt the economy and hit people hard. If you have a mortgage of £100,000, just a 1 per cent interest rate rise would mean an extra thousand pounds to pay each year.’

However, there are now as many tenants out there (7.4 million and rising) as people buying with a mortgage (7.4 million and falling). That means the ‘strivers’ are just as likely to be renters who have faced ever-increasing rents even though their landlords’ mortgage payments have fallen. The ‘strivers’ may even include many of the very people whose housing benefit Cameron wants to cut in the name of fairness.

And it seems to me that same logical disconnect applies when it comes to nimbyism. As I was reminded on twitter earlier, the problem is that being the ‘party of home ownership’ also makes you the party of nimbys. For every Tory MP like Nick Boles who is pressing the free market case for more new homes there are 10 like Mark Prisk with constituencies full of people opposing them because they know that new development will harm their house prices.

So two cheers for the anti-nimby rhetoric but it remains to be seen whether it turns into action on the ground. Is Cameron really prepared to take on the massed ranks of the National Trust and the CPRE? Is he prepared for decisions that will be opposed in a swathe of key seats in the South East? Does he see the way that high house prices, high rents, a high housing benefit bill and low housebuilding rates are connected?

Sound of silence

Tue, 9 Oct 2012

Amid all the rhetoric about those £10 billion cuts in welfare, what’s not being said could ultimately turn out to be more significant.

We’ve become so accustomed to welfare cuts that it’s easy to assume that another £10 billion is just more of the same. It isn’t and it is not at all clear where the savings will come from.

The cut would apply after the current spending review period ends in 2014/15 and, according to George Osborne yesterday, in the first full year of the next parliament, which I assume means 2016/17.

However, to put the £10 billion in context, we are talking about a cut on the same scale as was imposed in the June 2010 emergency budget and over what will be a shorter time period. The June 2010 cuts totalled £11 billion by 2014/15 and the spending review that followed in September added a further £7 billion.

Housing’s share of the June Budget savings was £1.8 billion by 2014/15, with the £490 million bedroom tax, £425 million reduction of the local housing allowance to the 30th percentile and £390 million uprating by CPI rather than RPI the three biggest elements in that. The spending review cut another £485 million from housing benefit (the single room rent and total benefit cap) and also cut council tax benefit by £490 million. Many of those cuts do not even take effect until April 2013 and we already talking about more.

In his speech to the Conservative conference yesterday, Osborne singled out three areas for attention and stressed that it was not just about saving money:

‘Iain Duncan Smith and I are committed to finding these savings while delivering the most radical reform of our welfare system for generations with a Universal Credit so work always pays. Because it’s not just about the money - it comes back to fairness and enterprise.

‘For how can we justify the incomes of those out of work rising faster than the incomes of those in work?

‘How can we justify giving flats to young people who have never worked, when working people twice their age are still living with their parents because they can’t afford their first home?

How can we justify a system where people in work have to consider the full financial costs of having another child, whilst those who are out of work don’t?’

On the Andrew Marr show yesterday, David Cameron was more specific (see my other blog for more). His comments about going ‘further’ on welfare reform went back to his speech in June that trailed the idea of removing housing benefit from the under 25s. To put this in context, the estimate at the time was that this would save £2 billion a year, which is almost as much as all the other housing benefit cuts so far put together.

IDS had previously resisted the £10 billion cuts but (in a joint article in the Daily Mail yesterday with Osborne) now agrees it is possible. That leaves the Liberal Democrats as the main political obstacle. Even though Osborne rejected the mansion tax that Nick Clegg said at the Lib Dem conference two weeks ago would be the price of his support, things seem to be moving towards a fudged compromise.

There is no shortage of warnings about the impact and the practicalities of the cuts. As I argued on my other blog on Sunday, the idea that you can simply make the under-25s live with their mum and dad bears no relation to reality. For the Joseph Rowntree Foundation, Helen Barnard highlights that too plus evidence that many people are trapped in poverty despite finding work, with an estimated six million underemployed who want to work more but can’t. For Shelter, Kate Webb argues that over half of the under 25s on housing benefit have children and that living with their parents is ‘not an option for those whose parents have died, divorced or downsized, been abusive towards them or simply don’t have the room’. For the TUC, Richard Exell highlights the amount of housing benefit that goes to people in work and what happened the last time a Conservative government cut benefits for young people in the 1980s. Blogger Joe Halewood argues that jobless families with large families will already be hit by the overall benefit cap – what he calls the fundamental flaw in universal credit.

Given all that, I was looking out for any specifics in the speech by Iain Duncan Smith to the conference yesterday. There was plenty of rhetoric about strivers and ‘families trying to do the right thing’. There were plenty of attacks on Labour for opposing previous reforms. There was plenty of boasting about the impact of the reforms so far and the benefits of the universal credit. But IDS said absolutely nothing about which benefits would be cut and where the savings would come from.

That silence is highly significant, I think. Part of this debate is obviously political, with the Conservatives positioning themselves for the next election and trotting out the familiar exaggerations about the culture of dependency and families who have never worked while ignoring unemployment, underemployment and (as David Cameron did again on the Today programme this morning) the fact that housing benefit is also paid to people in work. However, the numbers are real and will be in spending plans by the next election. 

The key point is that it is not clear to anyone where the £10 billion will come from. Analysis by the Institute for Fiscal Studies suggests that freezing all working age benefits and tax credits would save £2 billion a year but probably substantially less than that if the chancellor limits it to out of work benefits. However, would this apply to housing benefit? Increases in the local housing allowance are already restricted to CPI rather than RPI inflation until 2014/15. Extending that would save around £400 million a year and may seem like an obvious source of savings. However, the price would be that over time the gap between benefit levels and actual rents would grow wider and wider and that it will become harder and harder to find landlords willing to rent to tenants on benefit.

The IFS confirms that scrapping housing benefit for the under-25s would save £2 billion but questions how the government could distinguish between ‘those who can and cannot reasonably be expected to live with their parents’ and therefore how much it will be possible to save in practice. Saving £1 billion on benefits to large families would mean cutting £3,000 a year from each of 330,000 out of work families with at least three children. Is that really feasible?

Little wonder then that IDS cannot be specific and that the IFS says that ‘it is clear…that there is more we have yet to hear about if the government is to cut the welfare budget by an additional £10 billion per year’.

Given all that, and with ministers from David Cameron down singling out the housing benefit budget for attention, housing organisations can take absolutely nothing for granted about the way housing benefit will operate in future. If these cuts can be on the agenda, so is anything else you care to think of.

Or maybe there is now a window of opportunity to argue for an alternative. The housing benefit bill is over £20 billion because of high unemployment, low pay and rents that continue to rise ahead of inflation. Why not reform the private rented sector, shift the balance back to bricks and mortar subsidies and, as a united front of housing organisations is arguing in Birmingham this week, build some homes for Britain?

Rogue state

Thu, 4 Oct 2012

There is good news and bad news in a Shelter survey about rogue landlords out today but neither is quite what it appears at first glance. 

The bad news is that complaints by tenants to their local authority about their private landlord are up 27 per cent in the last three years.

Worse, of 85,000 complaints in the last 12 months, 62 per cent related to category I and II hazards – things like dangerous electrics and damp that are serious or life-threatening, And there were 781 cases where health services had to get involved because of the behaviour or neglect of private landlords.

However, the 27 per cent increase in complaints may not be quite as large as it appears when you take into account the rapid increase in the number of private tenants. Over the last three years for which figures are available, the stock of private rented homes in England has increased by 20 per cent.

The good news is that successful prosecutions against private landlords are up 77 per cent in the last year. The figures are based on freedom of information requests to 326 English local authorities, with responses received from 310.

Successful enforcement is not just good news for tenants but for good landlords too because otherwise they are left paying the costs of compliance with the leglislation while others ignore it and undercut them.

However, the sheen is slightly taken off that increase in enforcement by the fact that it comes from such a low base. The actual total of successful prosecutions last year was just 487, and Shelter says most of them were carried out by a handful of authorities such as Newham, Leeds, Salford and Manchester.

When Shelter asked local authorities about rogue landlords in their area, they identified 1,449 who had given them continued cause for concern over the last year. Again, on the face of it, that ought to make it easier to target enforcement action but it’s unclear whether that represents the true scale of the problem or is just the total from councils who have got their act together on the private rented sector.

Put the good news and the bad news together and the picture is more blurred but it is still undoubtedly evidence that Shelter’s Evict Rogue Landlords campaign is paying off.

And despite fears that public spending cuts would render local authorities less able to enforce the law, there have been several high-profile legal cases recently:

  • A landlord in Brent in London was ordered to pay a fine of £1.4 million last week for illegally converting a house in Willesden into 12 flats. The fine is believed to be the highest confiscation order ever granted for a planning offence and is based on the assumed benefit that Salah Ali gained from breaching planning regulations. According to Brent council, he had continuously flouted them over the last ten years. Its planning enforcement team used powers that enable councils to recover the ‘proceeds of crime’.
  • In Sheffield last week, a bullying landlord who unlawfully evicted a tenant was jailed for nine months and a friend who helped him got a six-month suspended sentence. The landlord, Jay Allen, forcibly evicted Chris Blades after he ran up £900 in rent arrears and arrived with a friend to push him out of the door. According to the Sheffield Star, Allen has previous convictions for assault and affray and when Blades protested that he was breaking the laws he replied: ‘Do I look like I care?’ Judge Roger Keen told Allen: ‘You decided that because the rent had not been paid you were going to evict the tenant unless he came up with the money immediately, which was impossible. Using your considerable presence, together with that of your co-accused, you went to dominate, frighten and overwhelm Mr Blades.’
  • In Birmingham in August, a trainee BBC presenter was ordered to pay damages of £26,000 for attempting to unlawfully evict a tenant after her housing benefit stopped for a month. Nearly Legal reports that, despite being warned about her conduct by a council tenancy relations officer, Samina Amreen turned up with several members of her family including an uncle, Raja Amin, who was a magistrate. The tenant, Beckie Webb, had called the police and the TRO. However, under the pressure of a stand-off in which Amin refused to leave and threatened the police with TV coverage if they arrested him, she decided to leave with her children and the belongings she could carry.

Those are three tales from the rogue landlord frontline that actually made it to court. Good news, you might think, except when you bear in mind that the Birmingham case happened over four years ago in June 2008 and that Beckie Webb sofa surfed while her children stayed with her family until November 2008 when she was given temporary accommodation.

In ten years of rapid growth in the private rented sector and burgeoning housing need, the suspicion has been that rogue landlords have been free to do pretty much as they please regardless of the impact on their tenants and on good landlords who play by the rules. Today’s survey confirms that local authorities (or at least some of them) are getting their act together at last but there is still a long way to go. 

Phoning home

Mon, 1 Oct 2012

It’s great to see Ed Balls putting his - or rather mobile phone companies’ - money where his mouth is on housing but his speech still begs some big questions. 

It’s good news too see housing finally making the headlines at the start of a Labour party conference rather than becoming a footnote before they sing The Red Flag at the end.

Media briefing ahead of the speech by the shadow chancellor was all about housing and his call for the £3-4 billion proceeds of the sale of 4G mobile phone licenses to be spent on 100,000 affordable homes and a new stamp duty holiday for first-time buyers. The idea seemed to go down pretty well with delegates judging from the applause in the hall.

The politics of this is important. Labour’s relative silence on housing over the last year has enabled the Conservative side of the coalition to make the running with its social housing reforms.

Coming on top of last week’s Lib Dem conference of a policy paper calling for 300,000 homes a year and calls by Vince Cable for 100,000 affordable homes, this makes clear that there is an alternative.

The financial side of it is much less clear. The 4G auction is due to happen next year so, unless I’m missing something, by the time of the next election in 2015 George Osborne will almost certainly have spent it on other things. If you read his speech carefully (my italics added for emphasis) this point is clear:

‘Let’s use that money from the 4G sale and build over the next two years: 100,000 new homes – affordable homes to rent and to buy - creating hundreds of thousands of jobs and getting our construction industry moving again. Add to that a stamp duty holiday for first time buyers buying homes up to £250,000 and we can deliver real help for people aspiring to get on the property ladder.’

Looked at like that, today’s statement by Balls is not a spending commitment at all, more a statement of intent about what Labour’s priorities will be when there is no money around to spend and a challenge to the government to do things differently.

However, that is still important, especially when combined with the statement by Labour leader Ed Miliband yesterday that housing would be a beneficiary of a tax on bankers’ bonuses.

Balls is promising a zero-based spending review if Labour wins the next election. That could be seen as a political device to avoid having to make spending commitments now but it’s also a signal that departments will have to justify all of their spending programmes from scratch.

The statements by Balls and Miliband therefore give housing an edge in the list of priorities but they do not answer all the questions. Just to take one example, even if the 4G money is still there to spend by the next election it will not mean anything unless it is additional to, rather than instead of, any spending review allocation. If it just means the latter, that would leave Labour spending less than the coalition.

Then there’s the question of whether it’s really worth spending £500 million on another stamp duty holiday. Individual first-time buyers may benefit by up to £1,250 each but would it really do more than just bring transactions forward?

There are much bigger questions for Labour to answer on housing. Will it go for IPPR’s idea of shifting spending from housing benefit to building homes? Will it finally free local authorities from the public borrowing rules (surely a prerequsitie for a serious housing policy)? Will it use quantitative easing for housing rather than boosting bankers’ bonuses? Where does it stand on affordable rent (Martin Hildtich is reporting that the 4G programme would be a mix of shared ownership, affordable rent and social rent)?

I’m hoping we get some answers this week. But this is still a great start and a big improvement on Labour conferences gone by when the housing debate was buried away in the final session and the leadership paid lip service to what its delegates said.

Five-year stretch

Fri, 28 Sep 2012

Five years ago this month I started this blog wondering how I would ever find enough interesting things to say. I needn’t have worried.

Fortunately for me (bad news is always good news for bloggers and journalists) and unfortunately for everyone else, the week before I wrote my first post a small bank called Northern Rock went bust. The consequences of that still dominate my blogging five years later (and hopefully that makes it interesting enough to keep reading).

In the first year, as the credit crunch got worse and worse, and the entire financial system teetered on the brink, it seemed that the housing market would experience a crash as bad if not worse than the one it went through in the 1990s.

The banks were quick to try to pin the blame for the crisis on sub-prime lending in America but their own activities did not stand much scrutiny: 125 per cent mortgages, self-certified mortgages and mortgages handed out at five or six times income were all part of a deregulated splurge in lending.

The main people in the firing line appeared to be people who had bought at the tail end of the boom. If house prices really were over-valued by up to 30 per cent, the crash seemed set to lead to widespread negative equity and soaring repossessions among both home owners and buy-to-let landlords. Most of my blogs from 2007 and 2008 are lost somewhere in the depths of the Inside Housing website but here’s a couple of examples of how bad things looked at the time.

As things turned out, the worst fears were misplaced. The government reacted to the crisis with a series of emergency measures that bailed out bankers, home owners and landlords alike. The cut in interest rates to a record low 0.5 per cent reduced mortgage payments by billions of pounds a year, hundreds of millions more were poured in to mortgage and home owner support schemes and the banks had learned forbearance can be cheaper than eviction. There were still tens of thousands of repossessions but the total was about half that seen in the early 1990s

Housebuilders too teetered on the brink. Stuck with houses they could not sell built on land they had paid too much for, several household names were only kept afloat at the discretion of banks who knew that letting them go bust would increase their own losses. Remarkably, HBOS (now part of Lloyds) had decided that it could go against all previous norms by buying up sizeable stakes in several of its own housebuilding customers but it, and they, were rescued by the taxpayer. Meanwhile the housebuilding industry as a whole benefitted from the first in a series of schemes backed by government cash.

Attention then turned to the next set of potential housing victims: housing associations that could not sell their shared ownership homes. Thanks to prompt action by the Homes and Communities Agency and Tenant Services Authority and extra funding from the government, this crisis too was averted.

In the meantime, though, the credit crunch was feeding through into mortgage lending with a vengeance. Banks that had happily handed out mortgages at 100 per cent loan to value or more in the boom now demanded deposits of up to 25 per cent in the bust.

The picture varied around the country but, especially in London and the South East, would-be first-time buyers faced having to raise a deposit of around a year’s salary before they could get into the market. Transactions plummeted to less than half previous levels but, thanks to low interest rates, there was no collapse in prices. That meant that tens of thousands and, in time, hundreds of thousands of young people were locked out of home ownership and forced to rent.

The opportunities were clear for buy-to-let landlords as rents soared, especially in London. Fergus Wilson, the buy-to-let poster boy, said in 2010 that the sector was ‘absolutely dead and will never return’. But by 2011 lending was booming again. The number of buy-to-let mortgages is now up 45 per cent since the credit crunch.

For a while, the crisis prompted the Labour government to pump more money into affordable housing. However, as 2008 and 2009 gave way to 2010 and the general election drew near it became clear that whichever party won there would be huge cuts in public spending to cut the deficit. All three were careful not to spell out in any detail where the axe would fall and who would be paying the bill for the bail-out of the banks and the housebuilders and landlords and home owners.

So who would pay for it all? The coalition’s first spending review the answer was none of the above. The price would instead be paid by savers as interest rates on their savings dwindled to nothing, by private tenants as rents soared and home ownership became ever more inaccessible,  and by anyone on benefits as a result of welfare reform. And they will carry on paying: many of the decisions taken then and in subsequent budgets have yet to be implemented and the introduction of the bedroom tax and household benefit cap looms every closer in April 2013. Bankers, home owners, buy-to-let landlords and housebuilders are doing very nicely by comparison.

I started this blog five years ago with the vague aim of showing how the whole system is inter-connected and it’s no longer possible to talk of social housing in isolation from other tenures. I did not foresee how big the changes would be in the housing landscape, with home ownership shrinking, private renting set to overtake social renting for the first time in 50 years and the boundary between the two disappearing. Or just how big the gap would become between housing haves and housing have-nots. Or that five years later the fundamental problem would remain that house prices are too high.

So here’s to the start of my sixth year of blogging for Inside Housing, with no sign that the issues that dominated the first five are going away any time soon. 

Child's play

Mon, 24 Sep 2012

Nick Clegg’s ‘pensions for property’ plan is the most breathtakingly stupid idea since, well, the last time a government proposed something similar.

Liberal Democrat leader Nick Clegg and Treasury chief secretary Danny Alexander put forward the proposal in interviews on Sunday as a way of allowing parents and grandparents to use their pension fund to guarantee a deposit for their children and grandchildren.

Party sources briefed the media that they believe 250,000 people with a pension pot of more than £40,000 could potentially benefit and that about 5 per cent of them (12,500) were likely to take it up.

The idea seems to be that the lump sum element of the pension – usually about 25 per cent – could be used as a deposit, so someone with a £40,000 pot could use it to allow their child or grandchild could borrow a deposit of £10,000

Reports suggest that the mortgage deposit scheme is more than just a Lib Dem conference idea and is being looked at by both the Treasury and DWP.

At first glance, and unless I’m missing something, this looks exactly the sort of tinkering with the housing market that politicians love because it puts them on the side of aspiration - but then they fail to think through the consequences.

First, what happens if things go wrong? What if the doomsters prove correct and house prices fall by 20 per cent? That would jeopardise the retirement income of parents or grandparents.

Many with spare cash outside their pension will already be using it to help so (as presented) this looks like it applies to people without many other assets. Since the income from their pension pot would already be tiny (a fund of £40,000 is tiny in the scheme of things and would deliver an income of about £40 a week) presumably that would force them to rely more on the state minimum income guarantee. Effectively the state would be paying for negative equity.

Second, what if things go right? Deposits guaranteed by the pension pots of parents and desperate grandparents desperate to help their kids simply help prop up house prices.

If house prices rise, that just increases the exclusion of young would-be buyers with no parental help. The divide between housing haves and have-nots grows ever wider and social mobility – something that Lib Dems are meant to be in favour of – slows down even more.

Just about the best that can be said for the pensions for property proposal is that it is too small to make much difference – though once accountants get to work on it who is to say that it could not end up applying to more pensioners too and have a much bigger impact?

Reaction within the pension industry so far has ranged from caution to hostility, with one anonymous expert describing it as ‘Maxwellesque’, Ros Altmann of Saga calling it ‘a political gimmick’ and the National Association of Pension funds saying that ‘at first glance this idea leaves us feeling slightly uneasy’.

Another downside could be that it concentrates the minds of pension funds on housing risks at exactly the time that the government is desperately trying to persuade them to invest directly in (private rented) housing.

The last time a government tried to relax the rules on pension funds for property it changed its mind at the last minute.

This was the idea proposed by Gordon Brown and the Treasury in 2005 to make residential property one of the eligible categories for investment by people with self-invested personal pensions (SIPPs). The changes were due to take effect in April 2006.

Campaigners warned over and over again that the consequences would be a boom in ownership of second homes and holiday homes fuelled by tax breaks on investment in pensions.

Finally, in the pre-Budget report in December 2005, the Treasury came to its senses and ruled that residential property (along with fine wine, antiques and racehorses) would not be eligible for investment.

Clegg’s ‘pension for property’ idea may not be quite as monumentally stupid as the SiPPs plan but the implication that it is being examined across government suggests that ministers have learned nothing in the seven years since Brown’s u-turn and the five since the credit crunch. 

And the real shame is that the Liberal Democrats seem set to debate some sensible new housing policies later in the week.

Runaway train

Mon, 17 Sep 2012

The universal credit was meant to be the great prize that would make up for all the pain of welfare cuts but what if it just adds to it?

A range of evidence about the past, present and future of welfare is published today and the results suggest a system that is cracking under the strain even before the big wave of cuts due next April and the phased introduction of the universal credit starting at the same time.

The National Housing Federation (NHF) is highlighting the impact of the first wave of cuts on the number of homeless families living in bed and breakfast. The 44 per cent increase has come in the year since the caps on local housing allowance began.

However, the latest Social Attitudes survey out today suggests welfare reform still enjoys broad public support and that there is less sympathy for the unemployed now than at any time over the last 30 years.

The proportion of people saying that if benefits were less generous people would stand on their own two feet has doubled from 26 per cent in 1991 to 54 per cent in 2011. In previous downturns, public support for more spending on welfare benefits has grown but this time around support is down from 43 per cent in 2001 to just 28 per cent in 2011.

The report suggests that this shift in opinion was nurtured by a tougher stance towards welfare under the last Labour government and has continued under the coalition. 

In that context, the universal credit was meant to be the big reform of the system: a new benefit that would make work pay and give claimants a new sense of personal financial responsibility. 

The cracks in that façade have been deepening over the last few weeks:

  • Divisions have appeared within the government, with a failed attempt to move Iain Duncan Smith from the DWP in the reshuffle and cabinet secretary Sir Jeremy Heywood apparently expressing scepticism about the policy.
  • Responses to the detail from councils, charities and other groups have raised a whole host of concerns about implementation. 
  • Labour is calling for the whole thing to be delayed by a year amid concern about whether the complex computer system will actually work.
  • The Social Security Advisory Committee is reported to be warning IDS that the reforms will be ‘unworkable and unfair’. 
  • And, most spectacularly, Frank Field, the government’s welfare reform tsar, says the universal credit will be a ‘disaster’ that will ‘rot the soul of the low paid’.

Now a report from the Social Market Foundation (SMF) warns that the universal credit will backfire without significant improvements and undermine the government’s aim of boosting people’s sense of personal responsibility by pushing them into debt.

The results are all the more startling coming from a think-tank that has been supportive of the broad thrust of welfare reform and because the research is based on detailed interviews with claimants themselves about how the universal credit will work.

On the credit in general, the SMF warns that moving to a single monthly payment for all benefits will remove the markers and aids that families rely on to budget effectively with little evidence that it will prepare them for going into work.

‘Our research shows this will throw people in at the deep end leaving them to either sink or swim,’ says SMF deputy director Nigel Keohane. And the impact will be felt not just by the families themselves but by those they will end up owning money to, including social landlords.

The report finds widespread mystification about the key housing reforms including the one that has most exercised landlords: the direct payment of money to cover the rent to claimants.  As one claimant put it: ‘I just think, it’s not your money is it? So why does it have to pass through your hands if it’s not your money? You haven’t earned it, you haven’t done anything for it.’

Some people worried about the effect on them personally whole others worried about the effect on other claimants if ‘everyone is going to be in arrears’. The SMF comments that: ‘More generally, the proposal was met with considerable surprise and many were unable to understand what would motivate such a change.’

Where claimants did identify responsibility as an issue, they saw it in terms of the government trying to avoid the administrative work of processing payments rather than trying to boost personal responsibility. Most thought it would just put them under even greater pressure and risk of hardship and debt.

The SMF says that the research results, plus the experience of private landlords and tenants under the local housing allowance, ‘suggest that it will be extremely hard to make the existing universal credit proposal work’ and that it risks undermining the finances of social landlords.

The report proposes that there should be an online budgeting portal. The idea is that claimants would be able to opt in to it and make changes to the way their benefit money was directed before it came into their bank account. That would mean they could choose to have their rent direct paid direct to their landlord and choose to get their benefit weekly rather than monthly.

Iain Duncan Smith and the DWP will no doubt continue to resist calls for changes and stick to their line that the universal credit will make work pay and boost personal responsibility. However, the reform is looking increasingly like a slow motion train crash that everyone else can see is going to happen.

Benefit cuts are already biting and are set to affect far more families from next April with the bedroom tax and benefit cap. The danger is that IDS’s flagship reform will make things worse rather than better. There is still time to stop the train before it is too late. 

Going backwards

Tue, 11 Sep 2012

The government is missing the chance to tackle housing market volatility and its damaging consequences for households and the wider economy.

That’s the fear expressed in a progress report out today from the Joseph Rowntree Foundation’s housing market taskforce that warns that ‘in some ways we are moving further away from this goal’.

Co-authors of the report, senior housing academics Mark Stephens and Peter Williams, say that the government has demonstrated it can take tough decisions in other areas ‘but it continues to be too timid concerning actions that are needed to bring about greater housing market stability’.

The report measures progress on tackling volatility since the taskforce published its main report last year. In the long run that will come through increasing housing supply and in the short run through financial regulation and the tax system, protecting homeowners from the consequences of volatility and developing alternatives to home ownership.

And it may be time to look at the short run more urgently because things do not look too good in the long run: ‘The serious shortfall in housing supply has worsened, exacerbating our exposure to housing market cycles, with all the consequences this has for households, communities and the economy.’ (I have some more on the supply shortage and one more possible reason for it on my other blog here).

First up is financial regulation and taxation. Its failings made a significant contribution to the financial crisis and the government is in the midst of replacing the FSA with a new financial policy committee (FPC) at the Bank of England. The FPC’s remit includes the control of systemic risks but consultations so far under the FSA’s Mortgage Market Review (MMR) have backed away from counter-cyclical credit controls such as maximum loan to value (LTV) ratios amid fears that this would squeeze lending still further on those locked out of the market.

The report argues that there is a good case for using LTV limits as part of macro-prudential policy and that it is vital that the government and regulators keep a full range of instruments available. It warns of the dangers of neglecting sectors like housing with ‘great destabilising potential’ and it goes on: ‘The continued neglect of the role that property taxation might play is an obvious concern. The taskforce report showed how the council tax could evolve into a national property tax. By neglecting the management of the housing market as a whole there is a danger that it will reveal the next hole in the system of regulation.’

The taskforce recommends that there should be a council tax revaluation followed by its gradual transformation into a national land and property value tax. Both would be politically contentious: successive governments have backed away from council tax revaluation for fear of creating too many losers (even though an estimated 3.7 million households are worse off as a result of the failure to revalue); and new planning minister Nick Boles joked last year when he publicly backed a land value tax that he was ‘committing career suicide’. His prediction proves untrue but tax reform still seems to fall into the category that civil servants in Yes, Minister would call ‘brave’ and that Malcolm Tucker in The Thick of It might have a stronger word for.

On protection for homeowners, the report says that the current safety net is ‘inadequate’ and it warns of that it is important that discretion given to lenders under the MMR ‘does not facilitate a return to any irresponsible lending’. It concludes that; ‘A a rethink is required to find a solution that improves security for home-owners faced with reductions in income, whilst also meeting the Government’s objective of making work pay.’

On alternatives to owning, private renting is growing rapidly while any scope for expansion of social renting and shared ownership is limited. The report welcomes the prospect of REITs and the Montague review’s call for more institutional investment but argues that any concessions on section 106 and affordable homes should be conditional on tenants getting greater security. And it argues that housing subsidies should be switched away from a reliance on housing benefit and back towards housing supply ‘as part of a new model for financing new affordable housing’.

Stephens and Williams believe that ‘the downward trend in homeownership may be hardening into a structural change’, highlighting the need for alternatives. However, there are serious problems with all of them: ‘The government’s efforts have focused on identifying ways to attract institutional investment into the private rental sector, which even if successful, does not address the chronic insecurity that prevails there. Moreover, the housing benefit cuts will serve to make tenants less, rather than more, secure. With low-cost home-ownership always likely to be a minority tenure and with the security that is traditionally associated with social renting being diluted, this is an area where we are rapidly moving backwards. A key challenge remains to find ways to make private renting more secure without prompting mass landlord exits from the sector.’

The warnings in the report are all the more striking for being expressed in such measured language. With the housing market flat-lining and the deficit the key political priority, the temptation for the government will be to do nothing that rocks the boat, especially on housing market taxation, but the history of successive boom and busts and their damaging consequences suggests that would be a serious mistake that we will all come to regret.  

Third time lucky?

Thu, 6 Sep 2012

So here it is: what by my reckoning the coalition government’s third housing strategy in two and a half years.

Mark one was the assumption that implementing the coalition’s programme for government would do the trick. The ‘powerful new incentive’ of the new homes bonus would persuade local authorities to approve more homes and get housebuilding moving. The Localism Act would turn help turn NIMBYs into YIMBYs. And FirstBuy would give a time-limited kick-start to the housing market with equity loans for first-time buyers.

When that didn’t work, Mark two came last November. The big idea was NewBuy, a government-backed mortgage indemnity scheme to give 95 per cent mortgages on new homes to up to 100,000 buyers. That was backed up by funds for custom homes and empty homes, a consultation on right to buy 2 and another review of investment in the private rented sector.

When that didn’t work, Mark three was announced this morning in what David Cameron said was evidence that ‘this government is serious about rolling its sleeves up and doing all it can to kick-start the economy’.

Details so far are pretty thin on the ground to put it mildly but here are some initial comments from the No 10 statement [see below for the parliamentary statement by Eric Pickles]:

•  Removing restrictions on stalled sites by removing ‘costly affordable housing requirements’ where developers can prove they make the project unviable. This has been coming for a while as part of a consultation on renegotiating section 106 deals prior to 6 April 2010 that runs until October 8. It sounds like the outcome has already been decided. The No 10 press release says this will help unlock 75,000 homes but it’s not clear how this figure is calculated. It’s also not clear how the system will work since it is already quite possible to renegotiate section 106 agreements and only three weeks ago Eric Pickles was sending in ‘expert brokers’ to sort it out.

•  Confirmation of government guarantees of up to £10 billion for new homes. This was the announcement that was expected earlier in the summer and delayed. This will be part of the Infrastructure (Financial Assistance) Bill and include guaranteeing the debt of housing associations and private developers. The thinking seems to be that this will bring lending rates down close to those enjoyed by the government while remaining off the public balance sheet. It’s not clear though what the balance will be between associations and developers or how much of the lending will be new and how much will replace existing bank loans.

•  An extra £300 million in ‘new capital funding’ for up to 15,000 affordable homes and 5,000 empty homes brought back into use. This is good news and seems to be the Lib Dem price for agreeing to the section 106 changes. However, note the ‘up to’ and the clear implication that this will be more affordable rent when many of the scrapped agreements will have specified social rent. It’s also not at all clear what will happen to section 106 in the longer term.

•  An additional 5,000 homes for market rent in line with the proposals in the Montague report. Again, no more detail yet but the speculation is that the government will agree to Montague’s proposals including removing affordable housing requirements on schemes that are for market rent.

•  Including big residential schemes in the planning fast-track for major infrastructure schemes so that ‘where councils are poor’ developers can go straight to the Planning Inspectorate. Again there are no more details so we do not know what counts as big but perhaps this could clear the way for future new garden cities and urban extensions?

•  Putting the worst-performing planning departments into special measures and setting up a fast-track appeal process. This assumes that planning is the problem but, as the LGA points out in research out today, housebuilders already have planning permission on 400,000 homes and are taking up to nine years to build homes in some cases.

•  A £280 million extension of the FirstBuy scheme to help 16,500 first-time buyers. Again there are no more details but this marks a change from the statement in last year’s housing strategy was a ‘fixed term measure’. FirstBuy mark two is also much less generous:  FirstBuy mark one provided £400 million for 10,500 first-time buyers to give them a 20 per cent equity loan of almost £40,000 each; FirstBuy mark two works out at at an average of around £17,000 each

•  Freeing up the planning rules on extensions and improvements for a time-limited period. As reported, this will allow single-storey extensions of up to 8 metres without permission. This appears to represent not one by two u-turns: one of the government’s first acts was to ban garden grabbing for new homes but now it seems they can be grabbed for extensions; and only last week ministers were launching a clampdown on beds in sheds but now it seems they will be allowed if they are attached to the main house. The consequences of this remain to be seen. Ironically, it could turn us from NIMBYs quite literally into YIMBYs. However, it could also reduce housing market transactions still further as people decide not to move and spark off a wave of cowboy conversion work in city suburbs with big gardens.

That’s all the detail so far. Overall, this strategy seems rather less full of hype than the last two, as does the promise of ‘up to 70,000 homes’. But maybe that’s no bad thing. I’ll add more when there is more detail.

ADDED 11.50am

A parliamentary statement by Eric Pickles has more detail on the package. Here are some highlights:

•  Montague and the private rented sector: the government is ‘investing £200 million in housing sites to ensure that the high-quality rented homes that are needed are available to institutional investors quickly’. A taskforce of developers, management bodies and institutional investors will broker deals. Providers who commit to invest in additional new-build rented homes will be be eligible to raise debt with government guarantee from the £10 billion fund. Expressions of interest will be invited from tomorrow and ‘it is expected that housing associations, property management companies and developers will be amongst those to benefit’.

•  Affordable housing, the government will be inviting bids for up to 15,000 extra affordable homes ‘through the use of loan guarantees, asset management flexibilites and capital funding’. The £300 million extra government funding will also cover brining an extra 5,000 empty homes back into use.

•  FirstBuy: the extra £280 million will enable the scheme to be extended to March 2014.

•  Large housing schemes: the government will look to work in partnership with developers and local authorities to do more deals like Ebbsfleet.

•  Off-site construction: Pickles revives memories of John Prescott’s campaign for off-site construction, with the creation of an industry-led group convened by DCLG and BIS to look at barriers to the growth of the sector and how increase incentives to use off-site techniques. This will make proposals by Budget 2013.

•  Public land: the role of the HCA outside London will be strengthened with a ‘targeted programme of transfers from other government departments and agencies’. Pickles adds: ‘We will also work to accelerate disposals by preparing the land for market and providing a single ‘shop window’ for all surplus public sector land.’

•  Planning:Pickles confirms the plan to allow applications to be decided by the Planning Inspectorate ‘if the local authority has a poor track record of consistently poor performance in the speed or quality of its decisions’. However, unlike the statement by No 10, Pickles does not mention housing in the definition of major infrastructure projects that will be able to use fast-track planning procedures.

•  Section 106: the government will introduce legislation effective from early 2013 that ‘will allow any developer of sites which are unviable because of the number of affordable homes to appeal with immediate effect’. Pickles goes on: ‘The Planning Inspectorate will be instructed to assess how many affordable homes would need to be removed from the Section 106 agreement for the site to be viable in current economic conditions. The Planning Inspectorate would then, as necessary, set aside the existing Section 106 agreement for a three year period, in favour of a new agreement with fewer affordable homes. We would encourage councils to take the opportunity before legislation comes into effect to seek negotiated solutions where possible.’ This is in addition to the consultation on non-viable section 106 agreements made before April 2010. This appears to signal that all section 106 agreements are potentially up for grabs and it poses all sorts of questions, not least about the ability and expertise of planning inspectors to rule on viability. Sounds like good news for lawyers.

•  Green Belt: Pickles says the coalition agreement ‘safeguarding the Green Belt  and other environmental designations’ but says the government will ‘encourage councils to use the flexibilities set out in the National Planning Policy Framework to tailor the extent of Green Belt land in their areas to reflect local circumstances’ and to make better use of previously developed land.

•  Empty offices: ‘We will introduce permitted development rights to enable change of use from commercial to residential purposes, while providing the opportunity for authorities to seek a local exemption where they believe there will be an adverse economic impact. This common sense measure will help the regeneration of our towns and cities. Our high streets will benefit from a greater resident population, increasing footfall and supporting local shops.’

Home delivery

Wed, 5 Sep 2012

It’s still very early days but the appointments of the new ministerial team at the DCLG team are already raising some questions for me.

According the line being spun by the new Conservative chair Grant Shapps on the Today programme this morning, the government is now at the delivery stage. Within that context, new housing minister Mark Prisk’s previous job as construction minister should bode well for the top priority of building more homes. Meanwhile the appointment of Nick Boles as planning minister looks to signal a fresh emphasis on reforming the planning system to boost the economy.

However, a brief look at their track record suggests some intriguing possibilities on policy – as well as some potential tensions. Here are three initial questions that occur to me:

What about the green belt? There could, to say the least, be some creative tension here.

Chancellor George Osborne sees relaxing planning controls as one way to generate growth. That’s a view shared by Policy Exchange, the influential think-tank founded by Boles. In Cities for Growth, a report published last November, it argued that ‘green belts are not that green and make our cities greyer’ by forcing the development of playing fields and gardens and assume that ‘development is always a negative’. It called for a new generation of garden cities and city suburbs with large financial incentives for local residents who approve them.

I’m guessing that will not go down too well with constituents in Mark Prisk’s semi-rural constituency of Hertford and Stortford who will be looking nervously at the nearby new towns of Stevenage, Harlow, Welwyn and Hatfield. A quick look at his website reveals his backing for local campaigns against the last Labour government’s plans for 80,000 homes in the county and proposals by developers for a green belt development at Harlow North.

What then will he and his constituents make of the way Boles describes countryside campaigners and opponents of planning reform? As the Daily Mail reports this morning, he told the Tory Reform Group last year that they were ‘hysterical, scare-mongering, latter-day luddites’.

Prisk may also have a particular problem with an idea floated by Osborne over the weekend. The chancellor cited the example of Cambridge. He told Andrew Marr: ‘They have been pretty smart about swapping some bits of the green belt for other bits – in other words allowing some development on the green belt if you bring in new pieces of land into the green belt. Those powers already exist but are not widely used. I would like to see more.’

In 2005, spurred on by the 1,500 acres in his own constituency that he said were under threat, Prisk promoted a private member’s Green Belt Reform Bill. This sought to abolish flexibility introduced by Labour that sounds uncannily close to the swapping described by Osborne and re-establish the ‘permanent character of the green belt’. He told MPs: ‘In a county such as Hertfordshire, it means that land can be released for development if land elsewhere in the region—near Peterborough, for example—is rebadged as green belt,’ he said. ‘As hon. Members will realise, that entirely undermines the idea of a permanent green belt that shapes a city. Indeed, what it leaves us with is more like an elastic band, something that is continually stretched as more and more development is forced in.’

What about the private rented sector? Despite the apparent contradiction of support for the green belt, Prisk is strongly in favour of deregulation and liberalisation as a rule. As a business minister he dealt with selling off the assets of regional development agencies and replacing them with local enterprise partnerships and was also involved in freeing up regulations to allow social housing tenants to start businesses from home.

However, there is one other exception to his suspicion of regulation. In 2007 he tried unsuccessfully to amend Labour’s Consumer, Estate Agents and Redress Bill to regulate lettings agents in the same way as estate agents and give trading standards officers and the Office of Fair Trading powers to tackle rogue firms. He argued:

‘As a Conservative, I am instinctively cautious about arguing for more regulation. However, as a chartered surveyor and a constituency member of parliament, I know that we need to put lettings on the same regulatory footing as sales. The fact that the National Association of Estate Agents, the Royal Institution of Chartered Surveyors and the rest of the industry agree shows that the measure is long overdue.’

He also quoted approvingly the argument put by Shelter about the negative effects of high letting agent fees on tenants struggling to pay their rent and the ‘opportunity to improve regulation of this sector and ensure consistency and affordability of letting agent practice’. At the time the Labour government dismissed his amendments as a ‘cynical manoeuvre’ that was about ‘who represents consumers’ interests’.

However, five years on, does this open up space for movement on the issue that had been closed off by Shapps, who dismissed any kind of private rented sector regulation as ‘red tape’?

The problem, after all, has been getting worse for the last five years: as Shelter revealed yesterday, one in four people feel they have been charged unfair fees.

Another encouraging sign that the new minister may be prepared to listen to the concerns of tenants came just before the election when he was one of 34 Conservatives to support an early day motion moved by Labour’s Brian Iddon calling for more protection for tenants whose landlords are repossessed. Iddon’s Mortgage Repossession (Protection Of Tenants Etc) Act subsequently passed with all-party support.

What about housebuilding? With his construction minister background, Prisk will already be familiar with the issues when the government launches its latest attempt to kick-start more housebuilding on Thursday. The Home Builders Federation was quick to tweet that it had ‘already done some good de-regulatory work with him’ as construction minister and says his priorities should be maintaining funding for FirstBuy, boosting mortgage finance, improving planning and cutting regulatory costs..

However, as I argued yesterday in my blog on Grant Shapps, one of the big problems so far is that the government has been too ready to assume that what is good for big housebuilders will be good for housebuilding. Deregulation such as the relaxation of section 106 and sustainability requirements have boosted the value of their land and their profit margins while housing starts have remained stubbornly stuck at half the level needed.  Will Prisk and the DCLG continue to favour the bigger housebuilders or will they be bolder in encouraging smaller firms and new entrants into the market?

That’s just a flavour of the questions that Prisk and Boles will face as they attempt to implement the government’s housing strategy that is expected tomorrow (and answer questions in a Labour debate today).

However, action to deliver an effective housing strategy has to come from across government – not just the DCLG.  On that front could the new boys have some questions of their own to add? Less than a year ago Nick Boles joked that he was ‘committing career suicide’ by publicly backing the idea of a land value tax (LVT). It didn’t seem to do his prospects too much harm on Tuesday. 

Taken for granted

Tue, 4 Sep 2012

Many people will be celebrating the departure of Grant Shapps today. My own feelings are much more mixed.

I’ve disagreed with the housing minister on most of the major policy changes he’s made, from ending security of tenure to affordable rent and from watering down the homelessness legislation to pay to stay, as well as those he hasn’t like greater regulation of the private rented sector.

However, I’ve never agreed with those who regard him as a few sheets short of a ministerial brief: the Stan Laurel to the Oliver Hardy of Eric Pickles. Entertaining as the comparison was at the time, amusing as it may be to play #shappstistics and #shappsbingo on twitter, if he was just a figure of fun would he have been able to deliver the most radical change in social housing policy for 30 years?

In doing so he has taken an agenda devised in Conservative west London and implemented it with astonishing speed. He’s used the prospect of ‘localism’ to hoodwink the Lib Dems into agreeing to policies they opposed and he’s easily beaten off a Labour opposition that still does not know where it stands on the key issues.

Grant Shapps is a far more complex character than he first appeared. I’ve blogged before about his many faces and his many more faces as Bumptious Shapps jostles for position with Political Shapps, Shameless Shapps, Comedy Shapps and Rapping Shapps. But none of that had prepared me for the appearance over the weekend of his business alter-egos, Michael Green and Sebastian Fox.

For a while it seemed that they might even be enough to wipe him from Downing Street’s reshuffle whiteboard but it’s just been confirmed that he will indeed be replacing Baroness Warsi as Conservative Party co-chair. Who knows, maybe those cheesy books about How to Bounce Back from Recession could even come in handy?

But what about his record as housing minister? As I may have mentioned once or twice, the statistics on housebuilding, homelessness, affordable homes and private sector rents all have to go in the minus column (despite his valiant attempts to spin a good news story out of them). None of his confident pronouncements about the impact of the new homes bonus or building more homes than Labour show any signs of delivering. On just about every measure, the housing crisis has got worse under his stewardship (although in fairness it was always likely to with the economy in recession and housing investment cut by 65 per cent).

Later this week his successor will presumably help to launch the coalition’s housing strategy mark 3 in hopes that stats do not emerge a few days later showing a 97 per cent fall in affordable housing starts. Throughout his term in office, Shapps showed a naïve faith that giving housebuilders everything they want would do the trick when the evidence suggests that they are intent on building their profit margins rather than homes. On what is currently the biggest housing issue facing the country, his time in office has to go down as two wasted years.

On the plus side, at least he has been in the job for over two years (five if you include his time as shadow housing minister). Compared to the revolving door comings and goings under Labour that makes him a veteran who knows his brief. That, plus an ability to charm his critics, was much in evidence at the CIH conference in Manchester in June. Easy as it was to deride many of his initiatives, some of them (like self-build) have still made progress thanks to him.

Shapps has also been refreshingly honest about the fundamental problem in our housing system: that house prices are too high and need to come down. He deserves great credit for speaking out against the assumption that ever-rising prices are a good thing (even if he’s failed to see that this contradicts his argument that everything that is not a market rent is a ‘subsidy’).

He’s said that homelessness is what got him into politics and (discharge of the homelessness duty aside in my opinion) has done some good work in office. It’s worth pointing out that his final public act as housing minister was to announce that homelessness prevention grant will be protected until 2015. I’ve got no inside knowledge but that does seem like an unusual move by an outgoing minister and it was accompanied by confirmation of plans for StreetLink, a new service to be run by Homeless Link and Broadway that aims to ensure that as few people as possible face spending Christmas on the streets. That’s not a bad legacy to leave behind and it’s not hard to see that a new minister could be bad news for homelessness and supported housing.

Even his more grandiose statements are not necessarily a bad thing. His ‘gold standard’ of building more homes than Labour looks about as likely as his pledge to make us a nation of homebuilders but they were both ways of holding him to account and highlighting his record. So was his statement at the CIH conference about grant funding after 2015. A new minister will simply be able to shrug them off as nothing to do with them.

So for all of those reasons, plus a more personal one that he has given me so much to write about over the last five years, I will regret the departure of Grant Shapps.

The appointment of a new minister (not expected until tomorrow) presents opportunities as well as dangers. Maybe they will be open to movement in territory that was closed off until now – notably (as I was reminded on twitter this morning) on the need for greater regulation in the private rented sector that Shapps dismissed as ‘red tape’. Maybe they will not be quite so effective in driving through measures that undermine social housing. Maybe they will be prepared to admit that relying on housebuilders and the market is no solution to the housing crisis. Maybe they will even be part of a beefed-up housing department and have cabinet status. But I’m not holding my breath.

Economic ally

Thu, 30 Aug 2012

Housing has gained an unexpected new ally in the battle to convince the government to fund more affordable new homes.

City broker Tullett Prebon is better known for its warnings of financial Armageddon and for shoot-from-the-hip appearances on the Today programme by its chief executive Terry Smith. It has even argued that financial austerity and severe cuts in public spending are a myth spun by the government to the bond markets.

But now a report by its global head of research Tim Morgan argues not only that a house building programme is one the few options left for the government, but also that it must be social housing funded by public investment.

The less good news (apart from some apocalyptic warnings about the economy) is that he also supports housing benefit cuts in high-value areas and swallows wholesale the case made by Policy Exchange last week for all ‘expensive’ social home to be sold as they become vacant. However, that still does not completely drown out the good.

What’s intriguing is to see the case for a fundamental change in our housing system being made by someone outside the sector – and on strictly economic grounds with barely a mention of housing need or homelessness.

Morgan argues that ‘for at least two decades, Britain’s housing policy has been a disaster’. It has ignored the relationship between supply, demand and price, put excessive faith in the private rented sector, fallen into the trap of favouring current over capital investment, failed to recognise inter-generational inequalities and lacked the courage to tackle vested interests.

We have deluded ourselves that high property prices are a good thing, he argues. Instead, they swallow up capital that could have been used for more productive purposes and, although they may temporarily boost demand, they inflate debt. Meanwhile, they price out and blight the lives of young people and even the older generations who imagine they will fund their retirement will find that nobody younger can afford to buy.

Morgan claims that house prices are over-valued by at least 25 per cent in relation to incomes and possibly by as much as 40 per cent. Meanwhile low interest rates have blinded us to the size of the mortgage debt we have taken on as a result: a 1 per cent increase in mortgage rates would put 24 per cent of mortgages at risk while a 3 per cent increase would put 69 per cent at risk.

We have not just put too much faith in owning houses but also cast tenants into a limbo of insecurity and high rents by favouring private renting over social renting. That has been compounded the shift from bricks and mortar to personal subsidies as the government expands demand, drives up prices (rents) and bails out buy-to-let landlords by paying housing benefit.

As I argued earlier this week on my other blog, the housing market is dysfunctional because house prices are too high, propped up by emergency financial support, and yet there is no easy way to allow them to fall without replacing one set of problems with another. The government’s solution of hoping that prices will slowly fall back in relation to incomes while it encourages a private housebuilding stimulus to boost supply looks a longshot at best. Another City firm, Fathom Consulting, has been touting a plan based on forcing the banks to repossess people and then indemnifying them against the losses (for more on this unpalatable proposal listen again to the second half of this item on Wednesday’s Today programme).

Morgan’s overall case is that Britain is in trouble because of a decade of dependence on private borrowing and public spending. Conventional fiscal and monetary policies have been ineffective in tackling a deleveraging recession. In these circumstances, a housebuilding stimulus is one of the few viable ways of kick-starting the economy. Most of the benefits will go to the domestic economy rather than leak into imports (as would happen with the alternative of a cut in VAT) and the Treasury will get back most of the costs in reduced benefits and increased taxes.

The report is not without its problems: Morgan’s approach is broad brush and he mixes up starts and completions at one point; he fails to consider that rising housing benefit might be a consequence of rising property prices and rents as much as a cause; and he grasps at Policy Exchange’s plan to sell off expensive social homes as they become vacant without taking into account the practical or social problems of the policy.

However, he goes on:

‘We would be inclined to go rather further than this, adding directly-funded capital investment of £4bn to the £6bn projected by the Policy Exchange report to lift the annual investment programme to £10bn. This could be supplemented by a new levy on second homes.

‘We would stress that this investment should be undertaken by local authorities or housing associations, and not through private-public gimmicks like PFI. The government and social sectors should act as owners and commissioners of new housing, whilst the role of the private sector would be to build the new homes as contractors.’

Just for good measure, he adds that the government should take on NIMBY resistance to new social housing with a new wave of planning reforms.

It’s a case that’s been made before by many people in the housing world but it’s all the more powerful coming from a City firm that otherwise sees public spending as the problem. Whether the government is listening or not, the case for investment in housing has never been stronger.

Give Montague a chance

Fri, 24 Aug 2012

Here’s why I think the housing backlash against the Montague report is being overdone.

From some of the reactions so far, the review group seem to a bunch of pin-striped latter-day Rachmans intent on squeezing out affordable housing and trousering the profits in between slaughtering the first born and unleashing plague, pestilence and famine. 

I’ve been trying to reserve judgement until I had time to read the report.  I have to say that I now think the people who have most to fear from this are not housing associations and local authorities but buy-to-let landlords and letting agents who will face professional competition. The plague and pestilence people this week were Policy Exchange, not Montague.

The fuss has all been about Montague’s proposal on section 106. The leaks in advance of publication suggested that he would want market housing to count as affordable in planning deals, raising fears that it would squeeze out the funding stream that has underpinned around half of social housing over the last few years (rising to more than 60 per cent in 2008/09). However, I think that stems from a misunderstanding both of what the report says about section 106 and about what is already happening on the ground.

Montague recommends that local authorities should be able to use existing flexibilities in the planning system to enable the development of private rented homes where they can meet local needs. Government guidance should also include a strong steer to specify private rental needs as part of their strategic housing market assessments.

However, the report as a whole argues that the fundamental reason why build for let has not taken off so far is that the income yield is too low. Although the total return on investment in residential has beaten every other kind of property investment over the last ten years, most of it has come from an increase in capital values. Institutional investors want a steady income so they will choose the 5.6 per cent income return and 1.6 per cent capital growth seen in retail over the 3.5 per cent income return and 5.9 per cent capital growth seen in residential. As in the rest of the housing market, the fundamental problem is that house prices and land values are too high. Build to let will only work if land values are based on rental tenure rather than theoretical valuations based on sale.

Montague argues that the section 106 and community infrastructure levy negotiations on build to let sites should take this into account and that the need for affordable housing should be weighed against the benefits build into market rent developments. ‘In many cases, it will be appropriate for authorities to waive affordable housing requirements in relation to schemes for private rental, or to the private rental component of larger schemes also including an owner-occupied component. And local authorities should review stalled sites to engage the potential of private rented units to engage the potential of private rented units to accelerate delivery.’

Much of the criticism seems to be based on the assumption that the report is calling for a general relaxation of section 106 in a way that will damage affordable housing. In fact, it is only calling for a relaxation for the private rental element.

In the meantime, and in a way that has nothing to do with Montague, a general relaxation of section 106 is already happening and is set to become even more damaging for affordable housing. For examples, just see what has happened with the redevelopment of Tottenham Hotspur’s stadium or plans by its former manager Harry Redknapp for a new apartment building in Portsmouth or the surge in the number of councils taking cash contributionsin place of affordable homes.

This is partly a result of the downturn in the housing market undermining the viability of schemes (Tottenham’s classier rival Arsenal, for example, delivered 40 per cent affordable housing on its stadium scheme but that was during the boom). However, it is also the result of a drive by the government to cut ‘red tape’ for housebuilders. As I’ve previously argued, this has made their land holdings hugely more profitable without leading to the construction of any extra homes. The latest developments include a subtle but profound change in the definition of ‘affordable’ in the National Planning Policy Framework and the implementation of previous plans to force the renegotiation of section 106 agreements made before 2010.

Some of this is necessary to make schemes viable and get building started. Some of it is simply giving housebuilders what they want without any guarantee of any more homes in return. It’s hard to predict the overall impact but the chief executive of one major housebuilder, David Ritchie of Bovis Homes, said earlier this week that the result could actually be to reduce the number of completions.

Ironically, this general relaxation of section 106 requirements could also undermine the proposals in the Montague report because it would remove the proposed land value advantage for private renting. What’s bad for affordable housing is also bad for build to let.

All previous attempts to revive institutional investment in private renting have failed, partly because of investor suspicion about the regulatory regime but mostly because of the house price/income return conundrum. The Homes and Communities Agency tried very hard with its private rented sector initiative in 2009 but it found that it could not make development viable without subsidy. Montague’s way round this is for the public sector to bring forward land using build now, pay later and joint venture models to share the risk and the profits and for the government to adopt a broader definition of value for money so that land does not have to be sold for the highest possible price. Once the model is established, the hope is that build to let will have enough of a track record to attract more investors.

It remains to be seen if this will work and recent history suggests it will be an uphill struggle. The Montague report is far from perfect. It is intentionally short but so light on evidence in places that it does not answer some of the questions in its original terms of reference – it is less a ‘blueprint’ than an outline sketch. It is largely silent on conditions for tenants apart from a vague-sounding voluntary code of practice. A doubt remains in my mind about the identity of the institutional investors: will they be pension funds or commercial insurance companies or could they be rather less desirable housing partners? Sir Adrian Montague himself represents the respectable end of the private equity industry but the more rapacious end of the sector seems to have its eyes on housing in the United States and eastern Europe.

However, despite these doubts, the Montague report deserves a chance. For better or worse, the lines between social and private renting are blurring all the time. It would be a tragedy if misplaced criticism about section 106 helped to undermine a desperately needed source of new investment for housing.

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