So has the FSA done enough to guard against a future mortgage crisis without being so heavy-handed that it makes it impossible for many people to get one now?
The reaction from lenders to yesterday’s much-delayed Mortgage Market Review certainly suggests so. The Council of Mortgage Lenders (CML), which said previous drafts would have a ‘damaging and disproportional effect’ on consumers and lenders, said the FSA had come up with something ‘far more workable and proportionate’.
The Building Societies Association (BSA) said the original plans had risked locking credit-worthy borrowers out of the market and imprisoned many existing borrowers in their current homes and loans. It welcomed transitional arrangements that would allow people on self-certified loans (which made up more than half of the market in 2007) to re-mortgage to a more standard loan.
The package seems designed to stop the lending (and borrowing) abuses of the past. The three main proposals are:
- Lenders will have to carry out affordability assessments and only make loans where there is a reasonable expectations that borrowers can pay them back without relying on future house price rises.
- The assessments should allow for the possibility that interest rates might rise in future and borrowers should not enter contracts on the assumptions that initial low rates will last forever.
- Interest-only mortgages should be assessed on a repayment basis unless there is a believable strategy for repaying out of capital resources that does not rely on future house price rises.
It’s not exactly rocket science to make lenders check borrowers can actually afford their mortgage before giving them one, but the system should protect consumers by banning self-certified loans and stopping them being caught out by interest rate rises. According to the FSA, it would mean 2.5 per cent of current borrowers would not get a mortgage and that 11.3 per cent of borrowers in the boom of 2005-2007 would not have got one.
That certainly sounds powerful - though not as draconian as the earlier draft that housing organisations claimed would stop 2.2m of the 11m current mortgage holders from getting a loan at all.
However, I can’t help but think something is missing here. Partly, that comes from a feeling that regulators tend to fight the last crisis rather than the next one.
I’m old enough to remember lenders resisting restrictions on loan to value ratios in the wake of the repossessions crisis of the early 1990s by arguing that their new, sophisticated credit scoring techniques made them unnecessary - and look where that got us. In the same way, measures to protect consumers against what happened in the boom and bust of the noughties will not necessarily help in the one to come in the 2020s.
Mostly, though, it comes from what’s missing from the review itself. Earlier drafts were not just about protecting consumers but about extending the reach of regulation to cover buy to let and second charge lending for the first time. Second charge lending is where borrowers take out a second loan on top of their original mortgage.
Yesterday’s final version says that in the first draft in 2009 ‘we explained that a key risk to achieving the overall aims of the MMR is the ability of firms and consumers to “game” our changes; seeking to avoid the stricter standards applying to first-charge lending by accessing other forms of credit, such as second charge and buy-to-let’.
However, while the government has said it intends to transfer regulation of second charge lending to the FSA, the MMR goes on: ‘This transfer has been delayed until a decision is taken on the wider transfer of consumer credit. This means that any transfer will not take place until at least April 2014 or beyond.’ Translation: it may not happen.
As for buy to let: ‘Whether we regulate buy-to-let lending remains a decision for government.’ Translation: it is not going to happen.
If that does not exactly fill me with confidence, buried on p200 of the final version is an admission that the FSA is worried too: ‘We are currently seeing anecdotal evidence of buy-to-let mortgages being used by borrowers who would otherwise be denied an owner-occupied mortgage. We remain concerned that this problem may be exacerbated with the implementation of our responsible lending proposals.’
Fascinating and contrasting moves on housing this week from two of the most important politicians in London.
Then Ken Livingstone reveals another two planks in his platform as Labour candidate for Mayor of London: a campaign for a London living rent; and a London-wide lettings agency. He explains more in a piece for Inside Housing here.
Both are interesting in their own right. Greenhalgh is not just an influential council leader but one of the theorists behind much Conservative market-based housing policy thanks to his co-authorship of the Localis pamphlet Principles for Social Housing Reform in 2009. He became the pantomine villain of that year’s Labour party conference.
And Livingstone clearly believes housing can be a powerful weapon in his campaign to regain the mayoralty from Boris Johnson and his questionable claims about affordable housing.Put them together though and you have starkly contrasting visions of the future of housing both in the capital and in the nation as a whole.
The White City Opportunity Area is a huge regeneration project that includes industrial land north of the Westfield shopping centre, the old BBC television centre and a potential new university campus as well as council estates. It’s the second most deprived neighbourhood in the borough and a far cry from the well-heeled Town ward that Greenhalgh represents.
More than half of the housing is social rented compared to just under a third in the borough as a whole.The housing strategy promises ‘no net loss of social rented housing in the area’ though the intention seems to be to break up the estates into more mixed residential areas. Hammersmith & Fulham’s statement on Greenhalgh’s departure refers to £70m - or £17,000 per household - being spent in the area per year.
Greenhalgh says: ‘I do not think the people of White City are getting value for money out of that £70 million, nor do I think are wider taxpayers. I want to focus that money on getting much better outcomes for people living there and ensuring that the neighbourhood is fully involved in how that money is spent.’
What better testing ground could he find for the belief stated in the Localis pamphlet that ‘council estates have become the very things that they were designed to replace – social ghettos – trapping their residents in a vicious circle of dependency’?
Today’s statement by Ken Livingstone is an attempt to open up a new front in the battle with Johnson, this time focussing on the squeezed middle of hundreds of thousands of Londoners who do not qualify for social housing and cannot afford to buy. So he will establish a campaign for a London Living Rent - a benchmark that people should pay no more than a third of their income on rent.
In more than half of London boroughs Londoners are paying on average over 50 per cent of their incomes. We should be doing everything we can to get that number down. Many people in reasonably well-paid jobs are seeing their incomes absorbed into their housing costs.
Learning from the success of the London Living Wage in arguing, cajoling, intervening and collaborating, the Living Rent Campaign will be a new way of making City Hall work for ordinary Londoners.
That would be backed up with a new London-wide lettings agency that ‘will put good tenants in touch with good landlords across the spectrum of private renting so that both can benefit from security of tenure and reduce the costs of letting’.
It would work with councils, landlords and tenants to develop a strategy to tackle rogue landlords, drive up standards and cut unscrupulous letting agents out of the market.It’s good to see a major politician from any party look to tackle what’s happening in the private rented sector but it’s not at all clear how the Living Rent plan would work. Johnson’s camp told the BBC that the mayor has no powers to introduce it and that in any case it would lead to fewer homes being built and disinvestment by landlords but he’s clearly felt moved to respond with his own plan to accredit 100,000 London landlords by 2016.
However, Livingstone is promising to ‘campaign for’ a Living Rent - not actually introduce one. Just as Greenhalgh will be putting his theory that council housing breeds deprivation to the test with market-based solutions, so Livingstone’s pledge is a first, tentative challenge to the view that the market can be left to its own devices.
I see Grant Shapps is having another go at housing associations about transparency. He might be better off shining a light on the murky world of letting agents.
There’s another timely reminder of the state of a sector that risks giving estate agents a good reputation out this morning. A report from the Resolution Foundation finds that tenants are being ripped off with significant upfront costs, variable fees and a lack of transparency around charges.
In a mystery shopping exercise conducted in three cities, researchers found that all agents were charging tenants administrative fees ranging from £95 to £375. On top of that half were charging for putting an extra person on the tenancy agreement, a third were charging tenancy renewal fees, half charged a check-out fee and some charged holding fees, check-in fees and credit and reference check fees.
Total upfront costs including a deposit, fees and rent in advance for a one-bed flat ranged from £1,028 in Manchester to £2,166 in London.
Yet only two of the letting agents displayed the costs of renting on their websites and many renters only discovered charges after they had decided to rent a property.
The research covers a relatively small sample of agents but this is far from the first time that abuses have been highlighted. In 2009, Citizens Advice found that 94 per cent of agents were charging fees on top of what they already charge landlords. Some were charging a modest £25 while others were charging almost £700.
At the time, the Labour government had just published a green paper calling for statutory regulation of the industry and the reputable firms in the industry, represented by the Association of Residential Letting Agents (ARLA), had just launched their own bid to clean up the sector.
However, the regulation plans proposed as part of the Rugg review were one of the first things scrapped by Grant Shapps as ‘red tape’ when he became housing minister last year. ‘With the vast majority of England’s three million private tenants happy with the service they receive, I am satisfied that the current system strikes the right balance between the rights and responsibilities of tenants and landlords,’ he said.
The decision was criticised not just by Citizens Advice but also by ARLA. ‘A great fear is that a lot of agents who were looking at tidying up their practices will now feel they can run amok and add to the poor reputation we have at the moment,’ said its operations manager at the time. ARLA has has pressed ahead with a licensing scheme for its own members
The Resolution Federation argues that letting agents should be regulated to the same level as estate agents so that unscrupulous firms can be banned. It says all agents should be signed up to an ombudsman service to give effective redress to tenants and they should have to display all charges on their website and in adverts.
On the last official statistics the private rented sector had grown to 3.3m or 16 per cent of households in 2009/10. By now it is almost certainly bigger than the social rented sector and many people estimate it could grow to almost a quarter of households by the end of the decade.
Yet concern has continued to grow too about the way that unscrupulous letting agents are ripping off not just tenants but landlords too.
How much longer before the government shines a light where it is really needed?
So is The Great British Property Scandal a fantastic exposé or a dangerous over-simplification? Or both?
I’m talking here about the documentary at the centre of Channel 4’s season of programmes this week rather than the season itself which is doing a great job of highlighting some key housing issues.
The season began with an excellent second instalment of John Snow’s Landlords from Hell on Monday. And it continues tonight with Phil’s Empty Homes Homes Giveaway (Mr Spencer has a piece for Inside Housing here) and on the next two Thursdays with Kevin’s Grand Design (what happened when Mr McCloud put his own project where his mouth is).
But the centrepiece of the whole thing is George Clarke’s two-part documentary on empty homes that went out on Monday night and last night.
Fantastic exposé? Clarke, the architect and presenter of Restoration Man, is passionate about the waste of leaving homes empty in the middle of a housing crisis.
The passion came out loud and clear as he filmed streets of boarded-up houses and interviewed people desperate for homes.
He’s channelling it into a campaign to do something about it: a change in the law to give communities and individuals the power to turn abandoned properties back into homes; and access to low-cost loan funds for the conversion work. It has 58,000 signatures so far.
And he’s on to something with his support for grassroots action on the housing shortage. It’s more than past time we had a new generation of housing activists and housing organisations and it’s vital that the funding that is available gets used in the most effective way.
Dangerous over-simplification? As well as praise and signatures, the programme has attracted some criticism too for arguing that empty homes will be enough on their own to solve the housing crisis.
Little wonder that George Clarke’s arguments seemed to go down so well at the Conservative conference, when empty homes (like brownfield land) can be used as convenient cover for nimbyism. Watch last night’s episode for a transparently staged meeting with David Cameron.
As my fellow IH blogger Colin Wiles argues, the housing shortage cannot be ‘solved’ without building new homes on greenfield land.
Any argument that obscures that fundamental point risks making things worse. And my guess is that most people who watched last night’s programme will come away thinking that empty homes are the solution – rather than part of the solution.
George Clarke has been careful to make that point in print but in the broadbrush world of TV it did not come across. In the programme he attacked cuts in capital investment and right to buy in one breath and said the government did not seem to get that it was all about supply, then added: ‘But before we start building more new homes we’ve got to tackle the number of empties.’
Similarly, although he mentioned the fact that 88 per cent of empty homes are privately owned, the implications of that were not explored.
While the government is keen on anything that lets communities take over council-owned property, it’s been steadily reasserting private property rights (for example by more legislation against squatting and restricting the use of empty dwelling management orders).
It’s hard to see how those 88 per cent of empties can be brought back into use without much greater incentives – or much greater penalties – for those private owners. The Lib Dem-inspired council tax changes that are out to consultation might be a start.
Nor did the programme look at the complex arguments about the housing market renewal areas where most of it was filmed: was it the renewal programme that caused the empties or the cancellation of the programme halfway through?
The renewal areas themselves were born out of the widespread idea when the Labour government was elected in 1997 that the key housing issue was low demand. That in turn was heavily influenced by the fact that the key ministers had constituencies in the North West, Yorkshire and North East.
In renewal areas, the theory was that you could create sustainable communities by demolishing some homes to save the rest. In social housing, the problem was seen as the condition of the existing stock, not the construction of new homes.
‘Low demand’ helped blind Labour ministers until it was far too late to the rapid emergence of the exact opposite as the housing boom took off in the 2000s.
It would be a tragedy if a campaign to bring empty homes back into use distracted attention from the even greater need for new homes now. Just as it would be if the overwhelming case for new homes drowned out the one for grassroots action on empties.
We desperately need both.
Housing was under scrutiny in the House of Commons and on prime time TV yesterday and the comparison did not flatter the mother of parliaments.
In the Commons, it was CLG questions and the first chance for MPs to question housing minister Grant Shapps about the housing strategy and his handling of the fall-out from the 97% fall in the number of affordable homes.
All last week the main contenders had been talking up the fight: the Labour contender Jack Dromey with a series of barbs about the 454 homes and warming up with a Guardian Q&A ; the coalition champion Shapps releasing a robust open letter over the weekend.
Come Monday 2.30 and they were stripped for action. Parliamentary questions are actually more like tag team wrestling than boxing since MPs take it in turn to have a go at the ministers and it was Labour’s Rushanara Ali who made the first move.
The first question is always something general and Shapps flipped it back easily enough. ‘Housing starts over the six quarters since the Government were formed are up 24% when compared with the previous six quarters under the previous Government.’
Nonsense, said Ali. ‘The actual figures were a 7% decrease in housing starts, a 6% fall in net supply in the past year and a 99% fall in affordable housing in the past six months.’
Shapps replied: ‘We can all play with figures, but I would have thought that the only accurate indication -.’ At this point Hansard says [Interruption], which I imagine was rather like the bit in wrestling where the crowd boo the pantomone villain. The minister went on: ‘Well, I would have thought that the actual indication on which everyone in the House could agree would mean taking the period since we have been in power and comparing it with the same period beforehand. If we do so, we discover that housing starts are up by almost one quarter, which of course is in stark contrast with the record under the previous administration, when the number of affordable homes reduced by 200,000.’
The intensity rose when the former Labour champion Nick Raynsford stepped into the ring. ‘The minister says that he wants to compare the period in which the current government have been in power with an equivalent period under the previous government, but he seems to be under an illusion that the current government came to power on 1 April 2010. They did not. Will he now stop trying to take credit for housing that was built during the period of the previous, Labour government and show respect for statistical honesty and truth, which we in this House regard as important? ‘
That was more like it. But Shapps flipped himself off the ropes with: ‘If the right hon. Gentleman, as a distinguished former housing minister, is asking me to stop including four weeks, he has his wish.’ [Hmmm. The coalition actually started on 12 May and he was not appointed until the next day].
And then it was the Labour champion’s turn. The government’s own figures showed new homes down 6%, homelessness up 10% and a catastrophic 99% fall in affordable house building, said Dromey. ‘So few new homes have been built that the Housing Minister could visit them all in the next six weeks. Does he accept that this is a direct consequence of the Chancellor of the Exchequer’s £4 billion cut in housing investment, and that this sorry record of failure demonstrates that the Government’s housing policy, like their economic policies, are hurting, not working?’
It will not surprise you to learn that Shapps did not accept that - or that he used his tried and tested put-down that Dromey is the sixth Labour housing minister or shadow he has faced across the despatch box. He replied that: ‘Actually the figures for those in temporary accommodation are down by 4%, and that homelessness is at its lowest level for 28 of the past 30 years.’
Even in a stats fest, that last one sounded a bit weak, but Shapps had more: ‘On the specifics of the numbers, I know that he is keen to twist official statistics to try to represent whatever he wants to show, but the truth is that I could not possibly visit 92 different providers, which I can now reveal to the House have agreed to build 70,000 units at a cost of £1.4 billion. That is far in excess of anything delivered by the previous administration. I know that he has not been in the job for long, but many of his predecessors are on the opposition back benches, so he could consult them and ask how we ended up with 200,000 fewer homes.’
That was better - especially the patronising put-down. There was still time for a quick replay of that ‘28 out of the past 30 years’ stat in a question on homelessness (I imagine it will get another airing when the latest homelessness stats are published on Thursday) and a rematch between Shapps and Dromey’s predecessor Alison Seabeck about like-for-like replacements under the right to buy.
And there was also a chance for Eric Pickles (who would willingly wrestle him?) to praise a recent book by Labour’s David Lammy.
‘In recommending the book, I would draw members’ attentions to the insightful point that “Labour’s greatest dereliction of duty in government was social housing.” I am sure we can all agree on that.’
But if this is really the best that parliament can offer thank goodness for Channel 4. If you missed them last night, the second part of Jon Snow’s Landlords from Hell and the first part of George Clarke’s Great British Property Scandal are well worth making the time to watch.
I imagine some local authorities and housing associations will be crying foul this morning about some TV over-simplification and there was some interesting division of opinion on twitter.
However, both programmes shone a light on issues that would otherwise go largely unnoticed outside the housing world. And there is more to come from the Property Scandal season tonight, tomorrow and Thursday - and National Empty Homes Week continues too.
Put the Autumn Statement and the housing strategy together and we’re left with a mystery.
Put simply it’s this, if housing is so important that it merits a strategy of its own, why was there nothing more in George Osborne’s statement a week later than the end of the stamp duty holiday for first-time buyers?
Because, as the National Housing Federation points out, investment in housing is easily the best way to deliver the ‘biggest bang for the taxpayers’ buck’.
The NHF argues that a public investment of £1bn could be matched by £8bn from housing associations to build 66,000 shared ownership homes, create 400,000 jobs and save the taxpayer £700m in job seeker’s allowance into the bargain.
It might have added that housing schemes could be ‘shovel ready’ far quicker than the other infrastructure projects that the government wants pension funds to finance (they won’t be ready to start until 2013/14).
So you have something that’s ready to go quicker, is more labour-intensive (though a good case can be made that housing repair and maintenance or energy efficiency or empty homes work would create even more jobs) and yet does not merit anything beyond what was in the strategy last week.
As I blogged earlier this month, the government could have been even more radical with a quantitative housing scheme funded by buying bonds in a public interest company that could fund construction of new homes for future sale to the social and private sectors. Even a modest programme would deliver jobs and growth.
But the government does not appear to see housing as ‘infrastructure’ and appears to be leaving growth to an untried arrangement with pension funds to deliver a list of big road and rail schemes that make handy soundbites.
Instead you can already see the writing on the wall for the next spending review. The detail of the Autumn Statement reveals that the squeeze on public sector gross investment will continue to fall into the next spending review period. Brian Green has more on the construction funding gap on his Brickonomics blog.
Perhaps the solution to the mystery is that unspecified further spending cuts are looming to go with the two extra years or public sector real terms pay cuts because the recession is costing more than the Chancellor thought?
To give just one example, the independent Office for Budget Responsibility says that a higher claimant count means that housing benefit will cost £1.9bn more over the next five years than it was forecasting in March this year (£200m this year rising to £600m by 2015/16).
What price more housing benefit cuts to come? And what price the next affordable homes programme - if there is one?
Perhaps it’s not such a mystery after all.
As he gears up for the Autumn Statement, George Osborne is facing the usual pleas for more stamp duty concessions at the bottom end of the market. He’d be better off concentrating on evasion at the top end.
Reports over the weekend estimated that one in three buyers of homes worth more than £1m are evading the 5 per cent rate of stamp duty and that the avoidance could be costing the taxpayer up to £1bn a year.
According to the Mail, most of the transactions involve Central London properties that are seen by the super-rich as a safe haven for investment - and now, it seems, as a tax haven too.
And it’s not just stamp duty. The Observer reported that only nine of the 60 apartments in the exclusive One Hyde Park development are registered for the council tax.
Both scams appear to involve buying the property through offshore companies that are out of reach of the UK taxman and the hapless local authority. According to the Mail, ownership of all of the homes in up-market Cornwall Terrace in North London has been transferred to a company registered in the Isle of Man.
What Rinat Akhmetov and Tamara Ecclestone get up to may seem to belong to a different planet but the flood of investment into London property is a major reason why house prices and rents in the capital remain so high and unaffordable for the rest of the capital’s inhabitants - and by extension why the housing benefit bill is so high for the taxpayer.
The evasion is said to have got worst since the introduction of the 5 per cent rate on £1m homes in April. However, there is also believed to be widespread evasion further down the scale.
Could the government be doing more to stop it? Osborne signalled a clampdown in the Budget in March and may try and do more today but the super-rich and their accountants have been lighter on their feet than HM Revenue and Customs so far.
The new 5 per cent rate was meant to pay for the the stamp duty holiday for first-time buyers on homes worth between £125,000 and £250,000 and the usual suspects are calling for this to be extended beyond March 2012.
The CML points out that only 13 per cent of the £4bn raised from stamp duty in 2010/11 came from properties worth £250,000 so a longer holiday would not make much difference. The fall in the yield from £6.7bn in 2007/08 is mainly down to a slump in transactions.
However, that £4bn yield last year reveals the true impact of the evasion - if that estimate of £1bn on homes worth over £1m is anywhere near accurate. So perhaps Osborne could look at two more radical reforms.
First, he could look at the ‘slab’ structure of stamp duty which means that a huge increase in tax is triggered once the price of the house reaches the £250,000, £500,000 and £1m thresholds. The duty on a home worth £249,999 is £2,499 but on £250,000 it is £7,500. On £999,999 it is £40,000 but on £1m it is £50,000. Threshholds like that create a huge incentive for evasion.
Second, he could order a much more serious crackdown on evasion through offshore companies - and a complete review of the taxation of UK property owned by foreign nationals and non-doms. For starters, any property owned by an offshore company is not a home but an investment and it should be taxed like one.
EDIT 17:25: Today’s Autumn Statement confirms that the stamp duty holiday for first-time buyers will end as planned in March. Research to be published soon will apparently show that ‘the stamp duty land tax relief for first time buyers has been ineffective in increasing the number of first time buyers entering the market’. And the housing strategy provides ‘more effective measures which provide better value for money”
That rather begs the question of why the government went ahead in the first place with something that has turned out to be a waste of money.
Meanwhile the mortgage indemnity fund which was the main feature of the strategy has been attacked by the free market think-tank the Adam Smith Institute as ‘immoral’.
‘Using taxpayers’ money to underwrite 95% mortgages is immoral – it will draw people into home ownership who will be unable to afford their loans when interest rates eventually rise again,’ it says. ‘And it risks setting off the same sub-prime events that got us into this pickle in the first place.’
As for the massive tax evasion at the other end of the stamp duty scale, the Autumn Statement had nothing to add.
When Grant Shapps and David Cameron told us on Monday that ‘builders aren’t building’ I hadn’t realised that they meant it quite so literally.
I thought I’d said my piece about the housing strategy but I just can’t resist the latest development (or lack of it).
Everyone was expecting a fall in affordable housing starts as Labour’s programme ran down and affordable rent got going but hands up who expected a fall of 97 per cent?
The figures are so extraordinary that they made me wonder more than once if they were a hoax. Between April and September 2010 there were 13,626 affordable home starts. Between April and September 2011 there were just 454. That’s not a misprint: 454 (259 for social rent and 195 for low-cost home ownership).
The HCA explains that the figures were impacted by the closure of three Labour programmes (the NAHP, Local Authority New Build and Kickstart) and that the new Affordable Homes Programme will deliver starts on site in the second half of 2011/12. In other words, I’m guessing part of what we’re seeing is the effect of delays in signing Affordable Rent contracts.
Yes, there are all the usual caveats about the stats on starts and completions - exactly the sort that have led to claim and counter-claim from Jack Dromey and Grant Shapps over the last few days. Yes, starts will pick up in the second half of the year (even though they will not really deserve the tag “affordable”).
But a fall of 97 per cent?
Is it just coincidence that these figures were released the day after that ‘radical and ambitious’ housing strategy? That the pre-release access list for the HCA statistics includes several people at the DCLG including the special adviser to Eric Pickles (under Cabinet Office rules pre-release means a maximum of 24 hours before)? That a figure that would have been quoted again and again in Monday’s news coverage only emerged 24 hours later?
I frankly don’t know. But I do note that all of this came a day after Grant Shapps found himself on the House of Commons naughty step over the way that details of the strategy were revealed in the media before parliament was informed. The issue was raised not just by Labour’s Hilary Benn but by Tory MP Peter Bone as well.
Shapps blamed the leaks on ‘third parties’ who had been given advance copies. ‘We always encourage them not to send out details of what is inside the documents, but unfortunately we are not always successful,’ he said.
But the speaker John Bercow told him that despite the tendency in cases like this for there to be ‘smirking on the Front Bench’ this was ‘not a satisfactory excuse’ for a minister. ‘It is not good enough - it is a rank discourtesy to the House of Commons and an abuse of parliament. That is the reality.’
The question that now arises is this: if some information was leaked before the launch of the strategy, was other information delayed until after it?
It must be trebles all round in the boardrooms of the major housebuilders as they celebrate the details of today’s housing strategy. Where does that leave the rest of us?
The document had been so well trailed in the papers over the weekend that there were very few surprises when it actually appeared this morning - and very few answers to the obvious questions begged by the advance publicity.
First up there is the big new idea to help housebuilders, sorry, home buyers, with a government-backed mortgage indemnity scheme. The idea is that this will be enough to persuade lenders to give 95 per cent mortgages on new-build homes to up to 100,000 buyers. Housebuilders would also pay 3.5 per cent of the sale price into the indemnity fund.
The obvious issue picked up on by the national media is that the taxpayer will be guaranteeing private mortgages - and potentially open to any losses if house prices fall. After all, the reason why the government has to guarantee mortgage indemnity insurance in the first place is that insurance companies will not (they lost more than £2bn in the housing market crash of the early 1990s). However, any loss would come first from the buyer’s deposit, then from the housebuilder and only then from the government.
But that begs several more questions. Is it really such a good idea to encourage people to take out 95 per cent mortgages? If house prices fall they will be left in taxpayer-funded negative equity. If they rise, the taxpayer will have propped up prices for them (and all other existing owners) at the expense of others further back in the queue.
What guarantee is there that housebuilders will not simply use the existence of the guarantee to raise their prices and increase their margins? None that I can see - and that is the stated strategy of all the major firms. What’s to stop that feeding into higher land prices?
What about the rest of the market? Imagine you stretched yourself to the limit to buy a tiny starter home. You now want to sell and move on. Suddenly all of your prospective buyers disappear to the new housing development up the road.
As research for HSBC revealed last week, there are up to 360,000 people who have bought a home since 2007 who are in negative equity. If those potential second-time buyers can’t move, neither will the market as a whole.
And the help for housebuilders does not stop there. A £400m Get Britain Building ‘investment fund’ will help unlock progress on up to 133,000 homes on stalled sites. Up to 90,000 of these are on sites that have not started and another 43,000 on sites where work has started but not finished.
Again the questions come thick and fast. Is this government money or investment from elsewhere? What’s to stop builders taking the money for these sites and stopping work elsewhere with no net increase in output?
And there’s a related boost for housebuilders that carries a nasty sting in the tail for housing associations too. The government will consult on a proposal to ‘require’ local authorities to reconsider Section 106 agreements on the stalled sites ‘agreed in more prosperous market conditions prior to April 2010’. Bye-bye affordable homes?
There is more of the same wherever you look in the strategy, much of it already announced but gathered here in one place. Builder-friendly planning changes. The government committed to reducing the regulatory burden on housebuilders in last year’s spending review. There’s the revised definition of zero carbon, the removal of centrally imposed standards on homes built on central government land and in January 2012 the launch of the Red Tape Challenge for housing, planning and construction to put all existing regulations under the spotlight. Bye-bye more affordable homes?
As for the rest of us, the document has plenty of reheated announcements interspersed with a few good ideas like the £30m fund for custom homes (the new name for self-build?) and another £50m for empty homes and yet another review of investment in private renting.
There’s a raft of consultations to come next month on things like Right to Buy 2. The document claims that initial modelling shows there can be one for one replacement despite 50 per cent discounts and the Treasury taking a 75 per cent share of the receipts. Effectively what’s left after paying off the debt would be added to borrowing against future income and free land to fund a replacement on affordable rent.
In the meantime, the Welfare Reform Bill continues to make its way through the House of Lords and peers will discuss the potentially disastrous household benefit cap this afternoon.
On top of all that the document has plenty to say about the problems caused by high house prices in the past without confronting the fundamental problem that they are still too high now.
It’s good to see that the government sees housing as a priority. But does what David Cameron claims is ‘radical and unashamedly ambitious’ and Grant Shapps says will challenge ‘the lazy consensus’ really deserve to be called a ‘strategy’ at all?
Instead it’s more a case of giving builders what they want and hoping for the best. Can they fix it? I don’t think they can.
EDITED NOV 22: The indemnity scheme is for all buyers of new-build homes (except buy-to-let investors and second home owners) and not just first-time buyers.
When an organisation as influential as the CBI calls for radical action to tackle the housing crisis it should be time to welcome a powerful new ally to the cause. I’m not so sure this time.
In a report published on Friday, the employers’ organisation said that ‘the government and businesses must adopt a two-pronged approach to deliver both short and long-term solutions to the housing crisis’.
In the short term it calls for measures to help first-time buyers by allowing them to access savings locked up in their pensions for a deposit and introducing introduce a mortgage indemnity guarantee (MIG) insurance scheme.
In the longer term it calls for a reduction in ‘regulatory drag’ on housebuilders and a pro-growth planning system to support the construction of new homes.
CBI director-general John Cridland said: ‘In the short-term, boosting activity in the housing market and construction sector could be a major game-changer for growth. Housing makes a significant direct contribution to economic output and job creation, and also has a big impact on business and consumer confidence and spending.
‘Despite five million people languishing on waiting lists because of the housing shortage, house building is at its lowest peacetime level for 90 years. A quarter of a million new homes are needed each year for at least the next twenty years to make up the shortfall.’
That had me turning eagerly to the full report to see what the bosses had in store. What I found instead was something that completely missed the point and, if the CBI has had the influence I suspect, makes me doubt just how much difference the growth and housing strategies due in the next two weeks will really make.
The document is almost entirely focussed on the housing market. Private renting gets one mention with a call for encouragement for institutional investment.
Affordable rent is welcomed as an improvement on social renting (‘a drag on our labour market flexibility’) with some concern expressed about the funding structure beyond the current spending review. And, apart from a call for more tenants to get the chance to buy, that’s it.
The rest of the report is devoted to the shrinking tenure of home ownership, with calls to free up the mortgage market and deregulate the development environment for housebuilders.
The CBI says first-time buyers should get more help and that the government should be prepared to back mortgage indemnity guarantee insurance if lenders, insurers and housebuilders cannot find commercial solutions. This would enable buyers to get more mortgages at up to 95 per cent loan to value rather than the current average of more like 80 per cent.
Meanwhile, first-time buyers should also be able to use up to 25 per cent of their pension pots as a loan to themselves to pay for a deposit.
Both measures would help some people get on to the housing ladder - but at what cost? Despite dutiful mentions of the need to avoid a repeat of the lending excesses pre-2007, the combined effect will surely be to make house prices even more unaffordable and increase personal indebtedness (a report by HSBC yesterday estimated that 360,000 people who bought in 2007 now cannot afford to move).
Unless of course there is a massive expansion in new supply to bring down prices (and rents) in the longer term. The CBI supports government action to ensure the planning system is pro-growth, release public sector land and allow more ‘build now, pay later’ schemes. It calls for reform of stamp duty and a block on any new financial regulations that will restrict the supply of mortgage funding.
But the CBI also wants a block on a drive to ‘reduce the regulatory burden on housebuilding’. It says the government has made a start in reducing regulation at the national level but that ‘the approach to deregulation looks to be even more fragmented and far less effective when considering local red tape, which must be addressed with equal resolve’.
Prominent on the list of those local demands are, of course, community infrastructure and affordable housing. There is an argument to be had about whether it is better for development to go ahead without an affordable element if the alternative is no development but it’s not at all clear how this will help the ‘five million people languishing on waiting lists’ in whose name the CBI calls for action.
And where are the guarantees that reduced regulation will actually lead to more housebuilding as opposed to the increased margins which all of the major housebuilders say are their priority?
All in all, this is a plan that seems likely to make housing more unaffordable and could even reduce the supply of affordable homes without any guarantee of the major increase in new supply that is so desperately needed.
The Localism Bill will just about have got Royal Assent when councillors in Wandsworth meet this week to discuss the council’s plan to evict new tenants who refuse to look for work.
The Conservative-controlled South London borough is looking to put itself in the forefront of local moves to get rid of the idea of ‘something for nothing’ in social housing with a ‘housing into work’ plan for new tenants.
In a press release published on Saturday, Wandsworth says that the new fixed-term tenancies will be conditional on finding work or enrolling on a training course. ‘New tenants who are able to work but refuse will forfeit their right to a home,’ it says.
Under the plan all new applicants will be on fixed-term tenancies and subject to periodic reviews to ‘ensure they receive continued support to help them find employment or engage in other worthwhile activities like voluntary work’.
It goes on: ‘Tenants who failed over the course of that fixed term to take steps to find work or improve their employment prospects would face the prospect of losing their council home. They would then need to secure their own accommodation.’
Housing spokesman Cllr Paul Ellis explained: “We are effectively creating a contract with selected new tenants to support and help them find a job or gain new skills. In return we expect them to take up these opportunities. People who refuse to meaningfully to look for work without good reason will forfeit their right to a council home.
“This isn’t about punishing people who are made redundant or cannot find a job. It is about having a way to penalise those who can’t be bothered to make the effort.”
It’s no surprise to see Wandsworth in the vanguard of councils looking to exploit the new flexibilities. The plan has been in development for some time and it fits entirely with the ‘hand up, not a hand-out’ rhetoric used by Conservatives.
It’s also planning to join the growing number of councils - Labour as well as Tory - that are planning to give higher priority on the waiting list to people in work).
When he announced this change over the summer Cllr Ellis was quick to draw comparisons with Labour’s ‘something for something’ policy as outlined by leader Ed Miliband and other shadow cabinet members.
And the new idea of a commitment to look for work carries more than a passing resemblance to the commitment contracts controverisally championed by Labour’s Caroline Flint when she was communities secretary in 2008 (even though Flint’s stress was on incentives rather than sanctions).
However, I wonder if a policy that sees the world in such black and white terms will survive an encounter with messy realities.
That after all is what happened with Wandsworth’s controversial pledge over the summer to evict the families of convicted rioters. As I blogged at the time, even before getting into the legal and moral objections, the policy was too much for right-wing columnist Peter Hitchens and even the Daily Mail thought twice about the policy when it discovered that the first family involved were active Christians.
As Inside Housing reported last month, the 18-year-old involved in that particular case has since pleaded guilty to buglary and comes to trial on a separate charge on December 12. It remains to be seen what will happen to Wandsworth’s notice seeking possession on the home where he lives with his mother and eight-year-old sister. With human rights organisation Liberty set to represent the family, it promises to be quite a battle.
The issues promise to be almost as messy with the new policy. For starters, who judges whether someone is ‘meaningfully’ looking for work? The council? Job Centre Plus? The private company that gets a bonus if they find one? If someone loses their disability benefits under controversial tests of their ability to work, should they also lose their home? If they do get a job, how much can they earn before they risk losing it because they are judged to be earning too much to need it?
How does it fit with other government plans to force people to do community work or lose their benefits? Or to penalise people who don’t work enough hours or earn enough?
As with the riots, why should people in council housing face a sanction not applied to people in other tenures? And why should housing be singled out as a sanction? Why not education or healthcare?
And with councils like Wandsworth be so busy looking for tenants to evict for not looking for work, or earning too much, or because someone in the household committed a crime, how will they have time for anything else?
As the Bank of England monetary policy committee meets to consider its next move, how about some quantitative housing to go with the quantitative easing?
Last month the MPC added another £75bn of QE to the £200bn it committed in 2009 and 2010. Broadly speaking, the idea is to buy UK government bonds to lower the yield, bring down long-term interest rates, make borrowing cheaper and get the economy moving again.
The side effects are an increase in inflation in general and asset prices in particular. Lower long-term interest rates means cheaper mortgages which feed through into house prices higher than they would otherwise have been - amplifying the effect of an artificially low base rate.
The winners from QE are bankers, London and the South East and people with shares and houses. The losers are savers who continue to get miserable returns, people about to retire whose pensions will be worth much less, would-be first-time buyers who cannot afford to get on to the housing ladder and private tenants facing soaring rents. Anyone on benefits will lose out too if the government goes ahead with plans to abandon the automatic uprating of benefits to inflation (CPI last month was 5.2 per cent).
So, with the MPC due to announce its decision on interest rates and QE later today, what’s the alternative?
To state the blindingly obvious, how about something that creates jobs and growth, stimulates the supply of something that is desperately needed and holds down house prices too?
Take last month’s £75bn. One month’s QE would be enough to build 750,000 homes at an average cost of £100,000 per home.
The idea of an alternative QE is not new. The left-leaning think- tank Compass suggested QE for a Green New Deal in its economic Plan B at the end of last month with investment in job-creating energy efficiency measures for existing buildings (in contrast to the FiTs fiasco).
The economic historian Lord Skidelsky has proposed developing the government’s existing idea of a Green Bank into a full-fledged National Investment Bank able to borrow money to invest not just in green projects but housing, transport and small business too.
Brian Green has been quietly pushing the idea of QE for housing on his Brickonomics blog for the last three years. Last month, he refined it with a £50bn plan to build 500,000 homes and net £10bn for the Treasury into the process.
The idea is a new form of QE where the Bank of England buys bonds in a time-limited Public Interest Company with a remit to build homes that it will in future sell on to the private or social sectors.
The £10bn for the Treasury comes from the jobs created. Every unemployed construction worker put back to work nets the Treasury £25-£30,000 in benefits saved and taxes generated. The Home Builders Federation estimates that every home built creates 1.5 jobs directly and twice that number in the supply chain, so £10bn (£20,000 x 500,000 homes) is a fairly conservative estimate.
Even if all of the homes were at market rents, or all of them were eventually sold, the gains would be huge at a time when there seems little prospect of the market delivering enough new homes to meet demand. Rents could pay any interest in the short term and future sale proceeds could go back to the Bank of England.
Compare that to what we have now: housing starts at half the level required to meet demand; a generation of young people priced out of the housing market; soaring rents and a soaring housing benefit bill.
It seems such a no-brainer that you think there must be a catch. Wouldn’t it just increase the deficit? No, because it wouldn’t count as public borrowing - and in any case the package of homes could be designed to deliver a rental income in the short term and more than repay the bonds in the long term.
The Bank of England would object to moving outside of its financial comfort zone. The government would object to anything that smacks of a Plan B and financial sleight of hand but will it come up with any better ideas in its growth strategy later this month?
What stands in the way of this idea this is not money but a mind-set. And it has to be a better bet than the Plan A-Plus advocated by the CBI yesterday to land people with more expensive mortgages just as we go into a double dip recession.
Some might say about time too but it’s still good to see some Lib Dem influence on housing at last.
This week has already seen signs of the party’s influence within government (with the announcement of council tax changes on second homes and empty property) and on the backbenches (praying against cuts to the shared room rate).
Unfortunately, it has also seen the Lib Dems accused of sabotaging amendments to the Legal Aid Bill that would have helped people facing repossession.
It’s a pattern that has become familiar under the coalition with Lib Dem ministers emerging from near invisibility to nudge things in their direction or put a questionable gloss on government policy and and backbenchers promising principled opposition only to melt away when it comes to the crunch.
Those council tax changes first. At first glance, the plans announced by Eric Pickles on Monday actually look like like a real achievement for Lib Dem housing minister Andrew Stunell. A consultation paper proposes that councils should have the option to charge full council tax on second homes and empty homes and seeks views on whether councils should be able to levy an empty homes premium on homes empty for more than two years. At the moment second homes get a 10 to 50 per cent council tax discount and empty ones a 100 per cent discount.
Both are Lib Dem priorities, as Stunell was not slow to argue in his speech to the party conference in September or in a piece on Tuesday for the Libdemvoice website. They will not go far enough for many party members - at CLG questions on Monday Pickles squashed a suggestion by Lib Dem MP Stephen Gilbert that councils should have the power to limit the number of second and holiday homes in their area as ‘rather difficult and open to abuse - but, hey, that’s the nature of coalition.
More troubling for the party in the long term may be the spin that sources close to Pickles applied to the announcement in advance: that the coalition’s decision not to conduct a council tax revaluation effectively rules out the Lib Dem case for a mansion tax on homes worth more than £2 million. That also scuppers the party’s fairness argument that if the Tories want to scrap the 50p tax rate they should replace it with the new property tax.
The opposition to the shared room rent cuts emerged in an early day motion sponsored by Lib Dem backbenchers John Leech and Adrian Sanders plus Labour’s Jeremy Corbyn and Alan Meale and the Green Party’s Caroline Lucas. Since signed by five more MPs including two more Lib Dems (Gilbert and Andrew George) it’s a technical move to ‘pray against’ or oppose a cut that will otherwise be introduced by secondary legislation. Gilbert tells Inside Housing that he hopes it will make the government think again.
It remains to be seen whether it will make any real difference. Time after time in the Commons over the last year Lib Dem backbenchers have spoken out against other housing benefit cuts in the Welfare Reform Bill or housing changes in the Localism Bill only for most of them to melt away when it actually comes to a vote.
And that seems to be what happened in the Commons on Monday night in the report stage debate on the Legal Aid Bill. The Lib Dems had put down amendments preserving legal aid in cases including earlier advice for people facing repossession.
However, a furious Labour justice spokesman Andy Slaughter told The Guardian: ‘Several times last night Liberal Democrats made speeches lauding legal aid, but when asked if they would push their amendments to the vote, declined and said they hoped the Lords would intervene.
’They then voted against Labour amendments that had the same effect as their own amendments. As the day drew to a close, they further allied with their Tories to filibuster so we wouldn’t reach social welfare legal aid. It’s all part of a disgraceful new set of tactics designed to allow Liberal Democrats to have their cake and eat it too.’
A Lib Dem spokesman said they may have been probing amendments to stimulate debate and that their MPs may have taken the view that the government might change its mind once the legislation reached the House of Lords.
It’s hard being the junior partner in a coalition. You have to negotiate things in the background and it’s hard to make rebellions in parliament count when half of your MPs are on the government payroll and bound to vote for it.
Sometimes you retreat into self-delusion about your real achievements (as with Stunell’s glossing over of the difference between social and affordable rent and Steve Webb’s claim that criticism of housing benefit cuts is ‘exaggerated’).
But the strategy of waiting for the government to change its mind does not seem to be a great success so far.
It was debut day yesterday for Labour’s new team at communities and local government (CLG) questions yesterday. Can they do better in challenging the Tory dominance of the debate on housing?
As I blogged a couple of weeks ago, the Conservatives have been very successful in advancing an agenda that looks remarkably similar to the one put forward by think-tanks like Localis and Policy Exchange. That’s been due in part to a lack of effective opposition from a Labour party still recovering from election defeat. Was it also due to a lacklustre performance from Caroline Flint and Alison Seabeck?
Fair or unfair? Yesterday was the first big opportunity to find out as Labour’s new CLG team - Hilary Benn captaining the side from the back, Jack Dromey promoted to play up front and Roberta Blackman-Woods, Helen Jones and Chris Williamson drafted in to harry the Tories in midfield - went head to head with Eric Pickles and Grant Shapps and their water-carriers Andrew Stunell and Greg Clark.
With Benn, Jones and Williamson asking local government questions, it was Blackman-Woods who got the first chance to put a tackle in on housing (in this case the NPPF). Were the fears of the National Trust and the CPRE likely to be allayed, she asked Greg Clark, ‘by the revelation that Treasury officials were much more involved in writing the national [planning] policy framework than were enviornmental planners’.
It was predictable stuff from an opposition looking to embarrass the government but depressing for anyone who believes in the need for more homes. There are plenty of problems with the NPPF, especially on affordable housing, but it remains an essential counterweight to some of the nimbier elements of the Localism Bill.
In any case Clark neatly eluded the tackle by claiming that the report was incorrect: officials from many different departments, including the environment ministry DEFRA, had taken part.
Next up was the big clash between Dromey and Shapps. The Labour man went on the attack accusing the government of mismanaging the economy so that house prices and housebuilding are falling and people cannot get mortgages. The housebuilding industry would be on its knees without the 60,000 homes commissioned and paid for by the Labour government.
‘Will the housing minister now back Labour’s call to repeat the bankers’ bonus tax in order to build 25,000 homes and create tens of thousands of jobs and apprenticeships? Will he also work with lenders and the house building industry to introduce a mortgage scheme that will offer hope to those who wish to buy their own home that they will be able to realise their dream?’
The response from Shapps was the equivalent of a player who stops and puts his foot on the ball to taunt the opposition. He welcomed Dromey as ‘the eighth housing spokesman or deputy on the Labour side whom I have faced in government or in opposition. I hope he stays there longer than the previous incumbents.’
Shapps went on: ‘I think the main questions are about the new homes bonus, the HomeSwap Direct scheme, the opposition to £100,000-salaried tenants in council homes and whether the gap in policy and the constant switching of Ministers are going to come to an end, because without that the Opposition have nothing to say about housing policy at all. We are starting to get homes built in this country for the first time in years.’
Over on twitter Shapps and Dromey have been involved in a lengthy dispute on twitter about HomeSwap, leaving many to wonder if this is really the big issue facing housing at the moment.
And Dromey was back on twitter later with a barb about the latest house price figures from the Land Registry: ‘Government mismanagement of economy pushes house prices ever downwards. 2.8% fall,’ he tweeted. ‘The 1980s negative equity spectre haunts Britain again.’
Again, this is predictable but depressing. Does anyone seriously believe that a gradual fall in house prices that makes homes more affordable again is a bad thing?
Shapps can, and should, be accused of many things but he still deserves credit for admitting the fundamental problem that house prices (and rents) are too high. By attacking him over that 2.8 per cent fall Dromey seems to be indicating that he has learned very little from the boom and bust under the last government.
Rather like a football team that surges forward and gets picked off on the break, Labour seems to have got its tactics badly wrong. It has got itself into a place where it is opposing the wrong things at the same time as Ed Miliband’s stance against ‘something for nothing’ appears to endorse further Conservative attacks on the most vulnerable.
As its policy review continues, has Labour got anything new to say about housing? Or is Shapps right?
How do you get the genie back in the bottle? How do you reverse the shift from bricks and mortar to personal subsidies that’s happened over the last 35 years?
For me that’s the most interesting question posed by the IPPR in a new report out today on how to fund new housing supply.
The think-tank assesses all the options at a time when there seems little option of a straightforward increase in public investment but focuses in on three main areas:
- Institutional investment - by domestic pension and insurance funds in general and local authority pension schemes in particular
- A more active role for local authorities - freeing up their land for developers in return for an equity stake, pressuring others to develop private land in a ‘use it or lose it’ approach and piloting land auctions
- A long-term reversal of the shift to a demand-side subsidy system.
The IPPR sees those, plus further work on the idea of a National Investment Bank and reform of the development industry, as the ideas with the most potential for generating new supply.
Some of it is familiar stuff (as I’ve blogged before waiting for institutional investment in private renting is much like waiting for godot) but the proposals on shifting back to bricks and mortar subsidy are much less so.
The shift to personal subsidy has been the orthodoxy under both Conservative and Labour governments ever since the big cuts to the local authority building programme began in the wake of the financial crisis in 1976. Some 35 years later, and in the middle of another financial crisis, could it be time at last to consider whether this was such a good idea?
Yes, says a quick look at the numbers on supply. We’ve rarely come close to achieving the IPPR’s estimate that of the 250,000 new homes a year we need in the 35 years since the council house building programme was cut.
No, says recent government policy. Affordable rent is a shift even further towards personal subsidy and even if higher rents mean extra borrowing capacity the programme also requires the conversion of existing tenancies to higher rents. Money saved from cuts in housing benefit could have been ploughed back into new supply at higher rents but is instead being used to pay down the deficit.
And yet the policy has left us with a massive and politically contentious housing benefit bill and has also reduced new supply. The IPPR investigates six options for resetting government spending:
- Setting a single housing strategy and budget across government. Tax breaks, capital investment and benefit spending should all be drawn together to let informed decisions be made across government.
- Regulating rents. A nationally agreed framework for the social sector and a system that goes further than the LHA caps in the private sector.
- Reducing housing benefit expenditure. The idea is to release money to finance new supply but ideas such as not paying full benefit for the more expensive properties and setting a fixed envelope for housing benefit spending would still be contentious to say the least.
- Dealing with private landlords. Could the government leverage a greater impact from what it spends in the private rented sector? Private sector leasing schemes could be expanded to guarantee income streams for landlords in return for lower rents and the savings ploughed back into new supply. Perhaps bricks and mortar subsidies could even go to private landlords, as in Germany where ‘social housing’ includes homes with subsidised rents provided by social landlords for a period before they revert back to full rent.
- Giving social landlords more freedom to use their rental income. Could the government take a tougher line on what it gets in return for its housing benefit spending?
- Localising spending on housing, starting in London. Local councils or consortiums of councils and landlords could be given responsibility for spending on housing benefit and investment and the power to make decisions about whether to subsidise rents or new supply.
Just that brief overview reveals the size of the obstacles in the way, especially during the transition. Even if the proceeds would be ploughed back into new supply, many people will feel that further cuts in housing benefit and fixed budgets are steps too far.
And yet as the IPPR argues: ‘We are currently stuck in a negative cycle, delivering poor value for money for the taxpayer: not enough housing supply, rising house prices and rents, poor work incentives, unemployment and an ever-rising HB bill. We need to aim for a positive cycle, delivering better value for money: higher house-building, stable rents, better work incentives, higher employment and a lower HB bill.’
Rival think-tanks on the right have been making the running with their arguments that all social housing is ‘subsidised’ and that the solution to the crisis is an even greater shift to personal subsidy. It’s good to see the left begin to articulate a response.
Much of the debate about the National Planning Policy Framework (NPPF) so far been about the choice between homes or no homes. Not enough of it has been about what kind of homes.
Yesterday saw both the end of the consultation on the document that will underpin planning policy and a confrontation between the pros and the antis at the Communities and Local Government select committee.
In the event, the committee hearing didn’t tell us much we didn’t already now and the debate still seems polarised between housebuilders and developers and the National Trust and Campaign to Protect Rural England. One key question now seems to be whether the government can find a compromise involving a return to the previous ‘brownfield first’ policy (as favoured by the environmentalists) without causing the ‘house building ice age’ feared by the Home Builders Federation.
For anyone who believes in the need for more affordable housing, the choice seems clear: homes are better than no homes. But what about affordable homes?
As the joint response from the National Housing Federation, Chartered Institute of Housing, Crisis, Shelter, the Northern Housing Consortium and Homeless Link to the NPPF makes clear, over half of all affordable homes are currently delivered on planning gain sites. Even if that figure dipped during the downturn (from 62 per cent in 2008/09 to 56 per cent in 2009/10) the planning system is still supporting new affordable housing to the tune of £2 billion a year.
That makes what the NPPF says about affordable housing absolutely crucial. As currently drafted, the document has 21 references to ‘affordable’ or ‘affordability’ but 11 of those are in the glossary.
And one of those references says this: ‘To ensure viability, the costs of any requirements likely to be applied to development, such as requirements for affordable housing, local standards, infrastructure contributions or other requirements should, when taking account of the normal cost of development and on-site mitigation, provide acceptable returns to a willing land owner and willing developer to enable the development to be deliverable.’
The viability issue is crucial. For developers, it’s all about removing barriers to development and making sensible decisions about risk and margins.
And it’s clear that the government has been listening, not just on the NPPF but in a range of other decisions on issues such as local building standards, the code for sustainable homes, the definition of ‘affordable’ and the renegotiation of section 106 deals on existing sites.
With that kind of dilution going on, what the NPPF says about affordable homes and viability is vital. For the housing and homelessness organisations it does not say nearly enough and they want a series of changes including:
- a statement about the importance of mixed and balanced communities - and the need for affordable, specialist and supported housing - as part of the core principles
- a statutory obligation on local authorities to carry out proper assessments of the full range of housing needs
- the inclusion of affordable housing targets in local plans
- stronger emphasis that affordable housing should be provided on site
- more balance between viability and proper planning judgement.
The groups argue: ‘Although viability is a significant factor in planning determinations, there should be no general assumption that planning requirements, including affordable housing, should be waived if they cannot immediately be afforded. In some cases it will be better to redesign or re-phase a development rather than to permit an inadequate development, allowing other sites to come forward instead.”
The NPPF currently says that local authorities should ‘where they have identified affordable housing is required, set policies for meeting this need on site, unless off-site provision or a financial contribution of broadly equivalent value can be robustly justified’.
However, the six groups say the idea of ‘equivalent value’ is wrong. If a local planning policy requires 40 per cent affordable housing then on a 60-unit scheme provision should be 24 affordable homes on-site or 40 off-site (40 per cent of the combined total of 100 homes).
These are vital points which have been not been much heard in a debate dominated by the clash between developers and countryside campaigners.
But it’s worth noting that the calls for more clarity on affordable housing do not just come from the usual suspects. Even the National Trust is calling for ‘strengthening the policy of provision of affordable homes in the NPPF’ and criticising the withdrawal of the minimum site size threshold of 15 homes.
Three very different verdicts on coalition housing policy provide an interesting perspective on what’s happened so far under this government and maybe on where we’re heading.
The first came from the Guardian social affairs commentator Polly Toynbee over the weekend. In a piece inspired by re-watching Cathy Come Home, she contrasts the escalating private sector rents exposed by Shelter last week with the coalition’s housing benefit cuts.
The government points to the soaring cost of housing benefit without acknowledging the cost only rises because rents rise,’ she says. ‘To cut it without offering any other social option is shocking. Before long, they will re-learn the Cathy Come Home lesson. There is no cheap answer, only a decision about how far the poorest must pay the price for property booms and housing shortages: the growing squalor of overcrowding by rogue landlords will not go unseen for long. Now the children of the middle classes feel it too, watch housing become a hot political issue.’
The second comes in the first Housing Report from the National Housing Federation (NHF), Shelter and Chartered Institute of Housing. It’s an attempt to measure the coalition’s performance in 10 key areas according to a traffic light system: with red lights for housing supply, homelessness, help with housing costs and affordability in the private rented sector, green for empty homes and social housing mobility, amber for planning, evictions and arrears and home ownership and a don’t know on overcrowding (because the data is not available yet).
It’s a pretty fair summary from organisations with their own agenda who still want to work with the government, although as they acknowledge it’s hard to judge policies that may have a big time lag before they take effect.
The third comes from John Moss on the Conservativehome website and is more about the underlying agenda. Moss is a Conservative candidate in the Greater London Assembly elections next year but his views carry more weight than that alone might imply.
Far more significantly, he was one of the authors (with Hammersmith & Fulham council leader Stephen Greenhalgh) of one of the key think-tank reports published in the run-up to the last election.
Principles for Social Housing Reform was published by Localis in April 2009. My summary written at the time said that it called for the complete deregulation of social housing, with the end of security of tenure and national allocations policy. Most tenants would pay near-market rents with housing benefit paying up to 85 per cent of housing costs after tax and benefits. Subsidies for capital investment would be scrapped to pay the increased housing benefit bill and social landlords would be allowed to borrow against the increased asset value of their homes to build new ones. Sound familiar?
For Moss, the policy announcements at the Conservative conference are welcome steps in the right direction. The revived right to buy, the ‘pay to stay’ plan for high-earning council tenants, and the clampdown on unlawful sub-letters and tenants who own a second home are part of a bigger reform agenda that sees ‘subsidised’ social tenancies as the problem.
And he credits Grant Shapps with ‘doing it without the sort of furore which has accompanied health reform and changes to higher education funding’.
But the reforms do not go far enough. The right to buy should be extended to all social tenants, the government should write off the grant on housing association balance sheets to free up borrowing power, social landlords should be allowed to set rents at any level they like up to market levels and vary them according to tenants’ income and councils should seek out the 60,000 tenants who allegedly have second homes and put their rents up.
You may agree or disagree. From Moss’s perspective, all that would start the break-up of the culture of dependency, let landlords manage their stock more effectively and allow the construction of thousands of new homes.
It’s one thing to bemoan the impact of the cuts, another to attempt an impartial judgement of the details of the coalition’s record so far, but there is a radical market ideology behind the government’s reforms that is going unchallenged and that is winning the argument.
What are the chances of last-minute concessions on the Welfare Reform Bill?
The omens do not look great as the committee stage of the Bill continues in the House of Lords, but the National Housing Federation (NHF) is looking to make the weather with a Welfare Action Week.
As chief executive David Orr argues in his blog, housing associations ‘get the point’ on deficit reduction and the turmoil in the Eurozone but fundamentally challenge the government’s argument that the cuts are somehow ‘fair’.
The campaign is targeting three changes in particular: the household benefit cap, the cut for under-occupying social tenants and the right for tenants to have their housing benefit paid direct to their landlord.
‘They will be bad for families, bad for disabled people, bad for communities, bad for children,’ says Orr. ‘We’ve heard a lot from the government about the ways in which some welfare benefits are ‘not fair’.
If ever there were changes that are really not fair, these are they. We can’t afford to allow them.’Can it make any difference?
The Lords ought to be the best place to make the powerful case against the changes since peers cannot be as easily whipped into submission as MPs and tend to listen to rational arguments.
The government’s strongest argument - that it is doing all of this reluctantly but has to act because of the financial situation - looks that bit weaker after a Conservative conference week that saw Eric Pickles find £250m down the back of the sofa for weekly bin collections.
David Cameron promised a ‘family test’ for all policies in the wake of the riots and it’s hard to see how these cuts could pass it.
Even the Centre for Social Justice, the think-tank founded by Iain Duncan Smith that invented the centrepiece of the Bill, the universal credit, has criticised the level of the household benefit cap as likely to be ‘devastating’ to families.
There have been some concessions on direct payment and Lord Freud signalled a willingness to listen more in the second reading in the Lords last month, but there were few signs of movement elsewhere.
And if opposition and campaigning really counts in the Lords, then opponents of the Health Bill ought to stand more chance.
But enough Lib Dem and Crossbench peers have already spoken out on the Welfare Reform Bill to suggest that the campaign has at least a fighting chance. Here’s hoping.
By a supreme irony Labour has finally built more affordable homes than the Conservatives - only to have the news welcomed by a Tory housing minister.
Figures released yesterday by the DCLG show that the supply of affordable new homes grew by 5 per cent to 60,630 in 2010/11 - the highest level for 15 years.
Grant Shapps duly welcomed them: ‘Reviving a housebuilding market that was brought to its knees takes time, so I am encouraged by today’s figures which show the highest number of additional affordable homes being delivered over the past year since the mid-1990s.
‘Our efforts to get Britain building again are continuing, with a £4.5 billion Affordable Homes programme set to exceed expectations and deliver up to 170,000 new homes over the next four years.’
Except of course that the increase had little to do with anything done by this government and everything to do with decisions taken by Labour in its final spending review and its subsequent initiatives to boost the economy in the wake of the credit crunch.
The graph below shows total output of affordable homes in England since 1991/92. This year - from beyond the grave - Labour finally produced more affordable homes than the level it inherited from John Major’s Conservatives (56,540 in 1996/97).
Though this was still short of the level achieved by the Tories in the four years before that after output was doubled in the wake of the housing market crash of the early 1990s.
In terms of socially rented homes, the 39,170 social rented homes achieved in 2010/11 represented an 18 per cent increase on the previous year - though still short of the 42,460 achieved under Major in 1996/97.
The initial cause of the slump in affordable homes under Labour was its decision to stick to draconian Conservative spending plans in its first two years in office (total output fell to 33,000 by 1999/2000).
As the party now admits, it was blind to the scale of the problem throughout its early years in office. Output only started to rise from the mid-2000s and only threatened to match the levels of the mid-1990s under Gordon Brown.
Will it be another 15 years before last year’s total is matched - or never?
The revival of the right to buy turns so many assumptions on their head it’s hard to know where to begin.
Just as I had grown used to the idea that well-off council tenants like Frank Dobson and Bob Crow (even though he isn’t actually a tenant) are subsidy hogs who are unfairly reaping the benefits of low social rents in front of more deserving cases, it seems I must learn to see them as aspirational throwbacks to the 1980s who will selflessly exercise the right to buy so that more homes can be built.
Grant Shapps has briefed this morning’s papers that they will have to ‘pay to stay’ for their subsidy by paying full market rents but not it seems for their right to buy discounts if they choose to buy.
Just as I was beginning to accept that all other council tenants are workshy and that council tenancies themselves are responsible for worklessness, it seems that they are actually hard-working families who can afford to exercise the right to buy.
The DCLG’s briefing tells us that: “38 per cent of social tenants are well-off enough not to need housing benefit and over 800,000 tenants are in full-time work. Nearly 60 per cent of social housing tenants who are couples with children do not claim housing benefit. Therefore many social tenants will be able to meet the cost of the mortgage after allowing for the discount.”
Just as I was thinking that even Conservatives considered the original right to buy to have been a mistake that shrank the social sector, there they go reviving it as a way providing more homes.
Just as I was accepting the Treasury’s decision in last year’s Budget to retain 75 per cent of capital receipts under the new self-financing regime for council housing, it seems to have done a second u-turn in three weeks (following the reversal of the increase in the Public Sector Loans Board interest rate at the Lib Dem conference). As my fellow IH blogger Colin Wiles points out, we don’t know yet if the Treasury really has changed its mind but if it hasn’t the initiative makes no sense.
Which means that just as local government had accepted the ground rules for self-financing and with only six months to go until implementation the rules may have changed completely.
Just as I had accepted the government’s determination to control a housing benefit budget that is ‘out of control’, housing minister Grant Shapps is saying that housing benefit will ‘take the strain’ of increased rents from the deal.
The list goes on. We won’t know most of the detail behind the plan until the government publishes its housing strategy next month but the bare bones revealed so far beg all sorts of questions (Tom Lloyd has more here - there are other blogs on the issue well worth reading from Steve Hilditch and Kevin Gulliver).
We know that the government hopes that more generous right to buy discounts will generate an extra 100,000 sales and that the receipts from those will be enough to finance the construction of 100,000 new homes under the affordable rent programme.
We don’t really know yet if enough of the remaining council tenants can afford to buy given the proportion who are in full-time employment or will want to buy given that most of the best stock has already been sold.
We also don’t know how willing the banks will be to give mortgages. There seems to be an assumption that the discount will enable right to buyers to avoid the need for a large deposit but that is not necessarily the case with shared owners and even before the credit crunch banks would, for example, refuse to lend on blocks more than six storeys high.
It’s also difficult to see how councils could be the providers of the affordable rent homes. That would mean the receipts from the sale of assets financed by local taxpayers being controversially handed over to housing associations or possibly even housebuilders.
The second government announcement (one that has received much less attention so far) is a plan to release enough public sector land to developers on a ‘build now, pay later’ basis to generate another 100,000 homes.
It seems there will be some kind of mechanism that will enable the public sector to benefit from any increase in house prices. What we don’t know is whether there will be any mechanism for ploughing the proceeds back into new homes.
However, we don’t know how much demand there will be from housebuilders and developers. The reason they are not building more homes at the moment is not (in the short term) to do with the planning system. It’s because they know they can’t sell them at current prices. The demand from buyers is not there because the mortgages are not there.
And even if developers were to take up the government’s offer, what’s to stop them simply building on cheap public sector land and sitting on the land they already own?
One possible solution to that conundrum might be that developers like Bellway, Bovis and Persimmon have already bid successfully for affordable rent funding. Put these two initiatives together and juggling cheap land and grant might enable them to bring forward schemes that would otherwise be unviable. Did Jake Berry let the cat out of the parliamentary bag he carries for Grant Shapps when he talked about this at a conference fringe meeting he chaired on Sunday?
My last question is a fundamental one: is this the best way to use precious public sector assets like land and right to buy receipts? The pragmatic case says, yes, some homes are better than no homes. The deeper concern is that the assets are being stripped to pay for an affordable rent programme that will either house people in need who can’t afford rents at up to 80 per cent of market levels and therefore can’t afford to work - or people who can afford the rents at the expense of people in need who will be stuck in an even more unaffordable private sector.
Answers to come in next month’s housing strategy? We shall see.