The London mayoral race is throwing up some interesting new ideas on how to tackle the housing crisis in the capital – but will they make any difference?
Thanks to the voting system (the supplementary vote, which gives people two votes in order of preference), the race is not just about Boris Johnson and Ken Livingstone, even if one of them will eventually become the mayor (see part one of my blog here). And, thanks to the mayor’s new powers over investment and land, housing policy features heavily in the manifestos of many of the other candidates too.
For the Lib Dems Brian Paddick is promising not just 360,000 homes of all types over the next decade but also to work to ensure that half of new homes affordable. A bit like Livingstone, he also wants to establish a new ‘living rent’ standard, with ‘the goal that Londoners should pay no more than one-third of their take-home pay on rent costs’. He would set a benchmark guideline that half of homes should be affordable, with the detail left to boroughs. He would create a London Housing Company as a vehicle to assemble public land and match it with private investment and give smaller housing associations the chance to raise loan capital through a London Housing Bond supported by City Hall.
In the private rented sector, he would promote ‘the effective registration of private landlords’ by using existing powers for the selective licensing of all private rented housing in specific areas, as pioneered by Newham. Finally, in an interesting indication of Lib Dem thinking on a national coalition policy, ‘until national laws are changed’ he would encourage landlords to offer longer minimum tenancies, especially those landlords being used to discharge councils’ homeless rehousing duties’.
For the Greens, Jenny Jones signals the importance of housing in the subtitle of her manifesto (‘Our vision for a more equal, healthy and affordable London’). She pledges to build at least 15,000 ‘genuinely affordable’ homes per year, of which 40 per cent would be family-sized. She would calculate an annual London Affordable Rent for the average household while using public land to keep rents at or below that cap. A London Mutual Housing Company would help councils, housing associations and co-operatives to assemble sites for development and there would be a ‘much more concerted’ programme of public compulsory purchase. She would set up a clearing house to offer publicly-owned derelict land to community land trusts. And there are specific green pledges on energy efficiency, fuel poverty and empty homes.
Action in the private rented sector would include lobbying for ‘smart reforms’ to bring down rents and the introduction of a default five-year tenancy. She would create a new ethical lettings agency and work with boroughs on ‘blanket licensing for landlords’. In the longer term she promised to campaign for more radical reforms including land value taxation and a ban on foreign investors.
The independent Siobhan Benita makes housing a to priority with a pledge to create Homes for London as a new department at City Hall (a key part of Shelter’s campaign of the same name). Even more intriguingly she proposes the creation of a new ‘fixed-price housing market’ where Londoners would be able to buy or rent at half of commercial rents. The GLA would gift land for development but on a leasehold basis so that it retains ultimate ownership. Any homes built on it would have to be sold into a regulated, secondary market under the control of Homes for London.
Buyers would have to be London residents with the winners drawn by ballot. Anyone wishing to sell would have to offer it back into the fixed-price market at the original price plus an annual uplift agreed by Homes for London. Anyone wishing to rent would have to charge a regulated rent expressed as a fixed proportion of the fixed price value. Social landlords would also be able to buy the properties on the same basis but the right to buy would be a right in the regulated rather than commercial market. Her target would be 80,000 fixed-price homes by the end her mayoralty.
Put it all together and there is no shortage of ideas about what the new mayor should do on housing. There is also a growing consensus about the need to push to the limit of the mayor’s powers and beyond and to do something radical about affordability and housing supply. If you happen to be a London voter (I’m not) today is the last day to register to vote.
The big question is whether all of that new thinking will make much difference to the result. For one thing, all the attention from the candidates does not seem to be generating much interest in the mainstream media. According to the FT’s Westminster blog, Ken Livingstone complained at a lunch yesterday that only one journalist attended the launch of his housing manifesto.
For another, the one mainstream candidate who seems to be offering nothing more than the current status quo on housing (excluding UKIP and the BNP who don’t have much to offer either) is the one currently leading in the polls: Boris Johnson.
How much of a role will housing play in the election for the politician with the second most say over housing in England?
It’s easy to dismiss the London mayoral election as the Boris v Ken show, a contest between two big personalities and the current and former mayors. That’s understandable in view of media coverage dominated by who paid how much tax, what Boris called Ken in that lift and the people in that election broadcast that made Ken cry. However, that risks obscuring some fascinating ways in which housing is emerging as an issue in the election and some interesting new ideas from the candidates.
For starters, housing organisations are engaging with this election in a way that it’s hard to remember for years. That’s hardly surprising when the new mayor will have significant new powers over London’s housebuilding budget and a significant landbank in addition to their existing powers over planning.
Shelter led the way with homesforlondon.org.uk, a dedicated website aimed at making housing as much of a priority for London as transport already is under Transport for London. The National Housing Federation (NHF) has published a poll today revealing that four out of five London parents are worried that their children will be priced out of living in the capital and its own manifesto. And a coalition of organisations called Family Friendly London has released another poll showing that more affordable housing is the top priority for families with children and that 140,000 of them are still undecided.
Despite all that, housing barely featured as an issue in an Evening Standard mayoral election debate held before Easter until it was raised by hecklers right at the end. It’s hard to find on Boris Johnson’s website until you look more closely at his manifesto on Growing the London Economy.
On housing at least, Johnson seems to be presenting himself almost as the opposition candidate despite being the incumbent. His key claim is that he has delivered and secured new powers where Ken Livingstone was ‘not trusted by his own party to run housing’. That’s a theme hammered home in a Guardian piece by Conservative London Assembly member Andrew Boff today.
Johnson says he persuaded the coalition government to give him control of the HCA’s £3 billion investment programme for London plus control of 530 ha of land and also intervened to ensure that the NewBuy guarantee scheme covers flats as well as houses. He claims he has already delivered 52,000 new affordable homes and is on course to deliver 100,000 by 2015. In contrast, he says Livingstone promised a 50 per cent target for social housing in new planning applications but only delivered 32 per cent.
In social housing, Johnson pledges new higher space and design standards including a ‘significant proportion of family-sized housing’, another round of his First Steps home ownership programme and to explore ‘rent to save’ schemes that enable people to build up a deposit. On the private rented sector, Johnson promises a London Rental Standard and a single acceditation body for the capital. He also says he will ‘campaign against’ the rent control that Livingstone says he will campaign for on the grounds that it has reduced supply in the past – when neither has the power to do anything beyond campaigning at this stage.
In contrast, Ken Livingstone makes the London housing crisis a central feature of his campaign. His two key manifesto pledges are to drive down costs and drive up standards across all tenures and to build more new homes by making maximum use of land controlled by the Mayor and ‘enforcing tough planning regulations so that private developments reflect the needs of all Londoners, not just the very wealthy’. Supporters argue that Johnson’s record on new homes so far is mostly the result of Livingstone’s efforts because of time lags In construction. The key stat for Steve Hilditch of Red Brick is 56: the number of affordable housing starts in the first six months of 2011/12, the first year where development was the result of the policies of Johnson and Grant Shapps rather than Livingstone and Gordon Brown.
On housing supply, Livingstone says he achieved 32,000 new homes in his final year in office but that construction has ‘fallen through the floor’ under Johnson while relaxations in planning rules mean that only half of new homes are affordable to people on average incomes. He will also:
- release GLA land on a shared equity basis to housing associations and other developers ‘so London taxpayers get their money back’.
- work with London boroughs looking to build new council houses, with developers to remove barriers to new schemes and with pension funds to encourage them to invest.
- re-establish affordable home targets for all boroughs and will expect 50 per cent of new homes to be affordable ‘and will move as rapidly as possible towards ensuring that at least one third of new homes are for social rent’ with targets for family homes too.
- use the Mayor’s planning powers to block private development schemes that involve the loss of social rented or affordable housing.
In the private rented sector, he is promising a London Lettings Agency to free landlords and tenants from unregulated private letting agents. Only landlords will that sign up to a new Tenants’ Charter setting out minimum standards of what tenants can expect will be eligible to be listed via the new agency. Livingstone will also push for a London-wide landlord registration scheme, campaign for a London Living Rent and lobby for better regulation of the sector.
So Livingstone too is running as the opposition candidate (which he is), opposed not just to Johnson and his record but to the national coalition government too (with pledges like a campaign against the housing benefit cuts).
The two different stances could well indicate the shape of the next general election campaign too, with Labour bidding to run against the coalition’s record, the Conservatives playing up the problems they inherited from Labour for all they are worth and an argument in between about who really delivered. That is one that has already been rehearsed several times in the debate over the affordable rent programme.
Judging by the opinion polls so far, Johnson’s strategy of turning the election into a choice between ‘Boris’ and ‘Ken’ rather than between two different sets of policies seems to be working (look for that to be repeated in Dave v Ed). He may be far more vulnerable if Livingstone succeeds in using issues like housing against him.
However, unlike the general election, the race for London mayor will use the supplementary vote, which allows voters to vote for someone other than the main two candidates but still give a second preference to Livingstone or Johnson. As I’ll be explaining in part two of this blog, those other candidates have some interesting things to say about housing too.
Twice before governments have attempted to force through improvements to the energy efficiency of existing homes and then backed down. Now the backlash is building again.
In both 2002 and 2006 the plan was to amend Part L of the Building Regulations so that home owners building an extension or replacing the windows or the boiler would also have to address the efficiency of the rest of the house. Both times vested interests and political cowardice killed the idea off.
Six years on and a consultation has just finished on a similar idea – but with three crucial differences. First, it’s being proposed by the coalition, not Labour. Second, the backlash is exposing Conservative and Lib Dem divisions. Third, and perhaps most importantly, a link to the Green Deal provides a way to spread the cost of the work for owners who cannot afford to pay for it up-front.
The relevant part of the consultation launched by the Lib Dem communities minister Andrew Stunell at the end of January (regulations on consequential improvements for domestic extensions) finished on March 27. The government’s preferred timetable is for the change on ‘consequential improvements’ to come into force in October so that it can be linked to the introduction of the Green Deal and give householders a way to invest in energy efficiency and pay for it from the resulting savings as a charge on their energy bill.
The case in favour of the policy is clear. A quarter of the UK’s carbon emissions coming from existing homes, so action is essential if we are to stand any chance of meeting our international obligations to cut them. If the government is correct that ‘the measures will pay for themselves in fuel savings’ through the Green Deal then who has a problem with that?
The papers are against it on a ‘home is your castle’ platform. For Christopher Booker, the EU-hating Mail columnist, the idea amounts to a ‘green tax’ that will mean a ‘red tape nightmare for home owners’. However, he also broadens the attack to include the Green Deal in general and plans to require landlords to improve the energy efficiency of any home they want to rent in particular.
On the Today programme Tim Yeo said he sympathised with the aim but that the way forward was to make people enthusiastic about energy saving. Compulsion might not be the best way to do this.
But other Conservative backbenchers seem to have made a more nakedly political calculation. The Green Deal was all the idea of Lib Dem Chris Huhne, the Part L consultation is piloted by Lib Dem Andrew Stunell. Tory MPs like the one quoted by Sky News think this is not just a ‘daft idea’ but a Lib Dem one to boot.
Even more worrying for defenders of the idea is the criticism of compulsion coming from organisations such as Consumer Focus and Which quoted in the Mail story and signs that the government is struggling to convince people that energy efficiency really will pay for itself from savings in fuel bills.
In speech in February (thanks to @melstarrs on twitter for the link), Andrew Stunell was adamant that the consequential improvements policy will go ahead and that the government will resist the u-turns of the past. ‘It’s the grand old Duke of York of building regulations policy,’ he said. ‘But this time we’re going to do it.
Let’s hope he’s not compelled to get to the top of the hill and march back down again. Let’s hope that Conservative MPs remember that it was not a Lib Dem or a junior minister who promised this would be ‘the greenest government ever’.
First it was a revolution, then a reboot. Now it is a relaunch and a revamp.
The language has shifted considerably since David Cameron made the right to buy a key part of the ‘housing revolution’ he pledged in his Conservative conference speech in October.
Last month the policy was styled as a ‘reboot’. This month it’s so 21st century it’s even got it’s own Facebook page. The good news for the government is that it has 225 likes and news of happy council house buyers Mr and Mrs Watkins from Whitburn, South Tyneside. The bad news is that mixed in with some enthusiastic comments are a series of negative comments questioning the ‘back of a fag packet calculations’ and who is going to lend the money. Oh, and the fact that the Watkinses are actually £1 million lottery winners.
The reception was just as mixed in the national media. Yesterday brought dutiful advance headlines but the news editors’ hearts did not seem in it, possibly because they knew that the announcement had been made three times already (at the Tory conference, in the consultation before Christmas and last month). Those that do cover it today are on the look out for a fresh angle. ‘Mortgage fears cloud right-to-buy relaunch,’ reports the FT, quoting Hometrack calculations that only a small proportion of tenants will be able to get a loan.
On TV, the repeat announcement seemed to be ignored by both the BBC News at Ten and Newsnight last night. Channel 4 News did cover the pictures of Cameron and Shapps having tea with tenants in Wandsworth but rather cruelly juxtaposed with archive footage of Mrs Thatcher having tea with the original right-to-buy family. Not so much 21st century revolution as 1980s rehash.
Even Ravi Govindia, the Conservative leader of Wandsworth Council who has seemed so on-message with other government policies such as evicting the families of rioters, seemed equivocal when questioned by Michael Crick about one-for-one replacement on more expensive rents.
‘The tenants will have to pay more but that is in fact going to be the case for all new social lettings including ones that are existing lettings,’ he attempted to explain, ‘so that when they are recycled into new lettings they will be under the new regime that the government has come up with.’
It was hardly a ringing endorsement and Crick interjected: ‘Sounds like bad news for your tenants.
’Govindia responded: ‘Not necessarily because I think the key issue in London is to find proper and decent housing. For those who can’t afford the rent, housing benefit will be able to support them through that.’
Whether Iain Duncan Smith will agree remains to be seen. Right to Buy 2 is effectively Affordable Rent 2 and despite tortuous attempts in the impact assessment to prove that it offers value for money the calculations on housing benefit were less than convincing.
The government is clearly hoping that a bit of the Thatcher stardust will rub off now. ‘I want many more people to achieve the dream of home ownership,’ said Cameron, donning his gold lamé suit. ‘In the 80s, Right to Buy helped millions of people living in council housing achieve their aspiration of owning their own home. It gave something back to families who worked hard, paid their rent and played by the rules.’
Never knowingly out-clichéd, Shapps added: ‘This country was built on aspiration: men and women who looked to the future and resolved to make a better life for themselves and their families. But years of punitive limitations on the level of discounts under Right to Buy have sabotaged the aspirations of hardworking council tenants who want to take their first step on the property ladder. This government wants to help everyone achieve their aspirations - so I’m delighted to announce that from today these miserly restrictions on discounts are history.’
If it really were a revolution the right to buy would have been extended to the one million housing association tenants who are currently excluded from the scheme (as advocated by David Davis and Frank Field in January and as once promised by the Conservatives). As Shapps and Cameron know that would have caused all kinds of problems, so they have settled for a milder version that still raises doubts about how many tenants will be able to buy without co-purchasers, whether one-for-one replacement is really possible and how much damage it will cause to self-financing.
Whether you call it a revamp, a relaunch, a reinvigoration or even a resurrection, those doubts are not going to go away.
Can anyone seriously imagine the bankers and super-rich of today following the example of George Peabody?
Today is the 150th anniversary of the announcement in The Times that the American banker was donating £150,000 to form the Peabody Trust ‘to ameliorate the condition of the poor and needy’ in London.
He went on to top that up to £500,000 before his death in 1869, which is the equivalent of several hundred million pounds today. As The Times said: ‘He abandons a sum which is a fortune in itself, in order that the poor of that vast, dirty, ill-built, ill-kept city which the wealthier classes never see shall have among them one great range of dwellings provided with the necessaries of comfort.’
Nobody who works in housing or who walks around the streets of London will need much reminding that Peabody went on to become one of England’s largest housing associations. It now owns 20,000 homes with 55,000 residents.
However, this was just one example of George Peabody’s philanthropy – he gave away $9 million in gifts and legacies and in the United States is better known for his funding of education, with schools and libraries and museums and his home town in Massachusetts that was renamed after him.
Peabody Trust was also just one of the first wave of what we now call housing associations. However, the difference was that donation. Many of the other semi-charitable dwellings companies formed at around the same time were designed to offer returns to investors. And such model housing often carried with it a political agenda of tackling crime and unrest or a moral one of controlling the behaviour of their residents or a policy of only housing the ‘respectable poor’.
The efforts of bankers like Samuel Lewis and Sir Sydney Waterlow and business tycoons like William Sutton and the Earl of Iveagh led to the creation of tens of thousands of homes, especially in London. Even though it took action by local authorities to tackle the housing problems of the mass of the population, even though their motives were sometimes loaded when seen through modern eyes, they made a real contribution.
Last year’s BBC documentary by Ian Hislop, When Bankers Were Good, gave a fascinating insight into the thinking of George Peabody and other 19th century philanthropists.
And yet for all the generous business contributions to charities like Shelter where are the 21st century equivalents? Bill Gates and his foundation perhaps? But in housing there is no Bernie Ecclestone Trust, no Sir Philip Green Model Dwellings Company and no Sir Richard Branson Industrial Improvement Society. Footballers are more likely to benefit from the beneficence of foreign tycoons than homeless people.
As for the bankers, they are still celebrating the complete opposite of philanthropy and counting the money they made from trading in sub-prime mortgages and billions of pounds worth of taxpayer-funded bail-outs.
Has anyone watched the video for ill Manors yet? Or heard the song on the radio? If not, you should.
If you need enlightening, ill Manors is the new single from the rap and soul star Plan B that is officially released next Monday ahead of a film of the same name that is due out soon.
The reason it’s relevant here is because it’s about kids who are ‘Council Housed and Violent’ or rather kids who are labelled as chavs by a media and respectable society that gets surprised when they then act like it. And so it’s also about the summer riots and looting and the problems that have not gone away and how they might be tackled.
I’ve blogged before about the way that the media and TV negatively stereotypes council estates and the people that live on them. To illustrate the point, just see the portrayal of the Farmead Estate in recent episodes of Casualty. ill Manors turns that representation on its head in a way that is shocking and is meant to be shocking but also in ways that make you think. Many people are not going to like it and some probably will hate it, but you should watch.
Anyway, enough from me. Here’s the official video (by the director of Top Boy).
But before you make your mind up, listen to this interview with Plan B on Radio 1Xtra, where he explains the intentions behind it.
I’m guessing opinions on this are going to split on similar lines to opinions on the events of last summer: criminality by a feral youth that just needs a strong police response or an expression of anger by a group that feels ignored and marginalised by the rest of society or varying combinations of the two. Or as Plan B puts it in the song: ‘There’s no such thing as broken Britain, we’re just broke in Britain’.
We’ve been here before, of course, when Ghost Town was the sound track to the riots of the early 1980s, but this feels very different and something important for everyone to understand. That applies especially to 50-somethings like me and to everyone who works in social housing, so that initiatives like Inside Housing’s Riot Report can be built on and make a difference. As Plan B puts it: ‘Let me make my point first, let me raise the issue, then if anybody wants to talk to me about how we can change these things I’m ready.’
Otherwise, as Iain Duncan Smith put it last summer, the inner city will come calling again.
So George Osborne will come down ‘like a ton of bricks’ on people who avoid stamp duty by buying homes through offshore companies. What took so long?
The chancellor confirmed in TV interviews over the weekend that the loophole beloved of celebrities, rock stars and the global super-rich will be closed in the Budget on Wednesday.
The loophole relies on the difference between the rate of stamp duty on property purchases paid by companies (0.5 per cent if they are registered in the UK, nothing if they are a trust or company registered offshore) and individuals (4 per cent on homes above £500,000, 5 per cent above £1 million).
Reports in the weekend paper speculate that avoidance could now be worth more up to £1 billion. According to the Mail on Sunday, 95,000 homes are owned offshore by people like Mick Jagger, Bob Geldof, Ringo Star and steel tycoon Lakshmi Mittal. The Sunday Times found that rich home owners have registered £200 billion of property in 122 different locations over the last 12 years and that more than 23,000 homes are owned by companies registered in the Isle of Man alone. For every home worth £1 million in offshore ownership, the taxpayer is losing out on £20,000 worth of stamp duty.
However, the details of Osborne’s clampdown remain to be seen. Will it just be on offshore companies or on UK companies too? Will it only apply to future sales or will there be full retrospective action? Anything other than that hardly qualifies as acting ‘extremely aggressively’ and ‘coming down like a ton of bricks’ but if it was easy to trace what has happened to UK property owned by companies in the British Virgin Islands and Guernsey and the number of times ownership has been transferred (or laundered) it would sort of defeat the object of offshore tax havens.
Either way, it seems ridiculously overdue. As long ago as 2007, contenders for the Labour leadership were calling for the loophole to be closed and it seems highly unlikely that Treasury and HMRC officials were not aware of it long before that. An explosion of evasion/avoidance was inevitable when the new 5 per cent rate for homes worth over £1 million was introduced in 2010 but by last year it was spreading further down the income scale via a new breed of specialist tax company. That ton of bricks has taken an incredibly long time to fall.
However, the issues involved with overseas and offshore ownership of UK homes are about more than just stamp duty avoidance. Take a look at any of the estate agent surveys of ‘prime’ central London property (mainly Kensington and Westminster but beginning to spread beyond that) over the last few years and you will find a market dominated by overseas buyers. The think-tank IPPR argues that London properties have become a sort of global reserve currency for the wealthy elite. The amount of foreign capital flowing into prime London property rose 71 per cent to £5.2 billion in 2011 – a sum the IPPR estimates is a quarter of all the money spent in the 14 inner London boroughs.
Without wanting to overstate it, this has an effect on the entire London market as billionaires price out millionaires, millionaires price out the merely rich and the process feeds all the way down the income scale to priced-out first-time buyers, ripped-off private renters and forced-out housing benefit claimants. Some time ago London house prices stopped being set according to what people working in London could afford and became a global investment market. This trend was exacerbated by the financial crisis, with the fall in the value of the pound making London much more affordable to overseas buyers and financial and political volatility around the world making London increasingly attractive as a safe (and tax-free) haven. And there are no statistics on overseas investment in non-prime London property.
An upcoming report from the IPPR on the London housing market groups the overseas investors into three categories: European and American buyers looking for homes to live or invest in; buyers from outside the OECD (led by Russians) looking for properties worth over £2 million as a hedge against potential problems at home; and yield-based investors from the Far East looking for new-build property they can rent out and sell at a profit later.
Aside from using offshore companies to evade stamp duty, the report says the overseas buyers benefit from a tax and regulatory regime is highly favourable compared with other countries. The Czech Republic, Switzerland and Denmark, for example, all have strict controls on foreign nationals buying residential property where we have none. A report by Taxand, a tax advisor on international real estate investment, looked at tax on residential sales and rents in 29 different countries. The UK had the lowest tax on sale of flats, the second lowest on residential sales (behind Malaysia) and the second lowest on residential rents (behind Cyprus).
The stamp duty clampdown will go some way to helping with that but it is not the only tax advantage to overseas buyers. For example, in contrast to the USA, Australia, Canada, Cyprus, Hungary, Iceland, Ireland and Spain, the UK charges overseas owners and property-owning vehicles no capital gains tax.
The IPPR wants any revenue raised from increasing tax on overseas owners to be ring-fenced for housing in the areas worst affected and is also calling for a new additional holding tax on overseas buyers of property worth over £2 million. If investors pay 1 to 2 per cent fees on stock market funds, why not make them pay the same on their residential investments? It sounds a bit like a mansion tax but one targeted on the overseas buyers who are treating London homes as an investment market and helping to drive prices and rents out of reach of everyone else.
Earlier this month, Italians took over from Russians as the leading buyers of prime London property. The motivation for the splurge seems to be desire to get their money out of the country in the wake of the Euro crisis but it may come to an end as a result of austerity measures being introduced by the Italian government. These involve not just the reintroduction of a tax on first homes but a new, higher tax on second homes within Italy and overseas. Ironically, Italian owners of UK property will be paying a mansion tax (set at 0.81 per cent a year on the value of second homes abroad) but to the Italian government, not ours.
It’s way past time that the UK government tackled the issue of the tax treatment of overseas buyers of UK homes. However, this is only one small step. The suspicion must be that it is also a headline-grabbing measure designed to distract attention from the fact that George Osborne is not going to introduce a mansion tax on Wednesday and is going to cut the 50p rate of income tax.
I’m never quite sure about those ‘buy one, get one free’ offers in the supermarket. So can I really believe in ‘buy one, build one free’?
My local Shapps & Cameron hyperstore is offering me a ‘rebooted’ right to buy. Is it like it sounds - a desperate attempt of a 21st century marketeer to rebrand a tired old product from the 1980s as something exciting and new - or is there something in it?
Before I go loading up my car with pies I’ll never eat and bananas that will go off before I munch my way through them, in this case I already know there are some big catches. The ‘terms and conditions may apply’ in small print below this particular offer includes the fact that this is more ‘buy one, build a bit of one free’ provided I put up free land and borrow a lot more. If I want it to be affordable rather than ‘affordable’ I’ll have to do even more. And it could play havoc with my sums on self-financing.
But, hey, beggars can’t be choosers and these supermarket promotions look like running out soon. I’ve cashed in my clubcard points from last year’s ‘affordable’ range and there are few signs of any other special offers from Shapps & Cameron. Certainly till 2015 and probably beyond. Isn’t BOBOF better than nothing?
So far, reactions have been mixed. The CIH supports anything that will boost investment but said there were ‘both pluses and minuses’ in the announcement. The LGA wanted areas to be able to determine their own discounts, criticised the centralised way the system was being implemented and warned that ‘some areas in need of affordable homes may actually be left with fewer’. The NHF also warned that receipts in low-value areas may not be enough for replacements.
I’ve been looking at more of the small print after noting the rather curious way that Shapps answered a question in parliament on Monday. His former Labour shadow Alison Seabeck asked him to clarify. ‘He spoke today of replacement on a one for one basis. Does that mean he does not mean like-for-like replacement in the same area?’
Any supermarket customer service person would have been proud of the evasive and non-committal answer from Shapps. ‘Where local authorities can provide the new homes in the same area, we will certainly look to keep the money locally and build in the area,’ he said.
Back to that small print. It was always clear from the original consultation published on December 22 that BOBOF will only apply to homes sold ‘above current predicted levels’. And the Inside Housing feature by Gavriel Hollander in January revealed the depth of the scepticism on the ground.
It’s clear the changes go beyond just tweaking the government’s preferred option of the existing discount rate with a £50,000 cap to the existing discount rate with a £75,000 cap. That’s important in itself of course and on the face of it makes one for one replacement even harder.
The official explanation in the new impact assessment (IA2) is that: ‘It was considered to best meet the policy objectives, in particular the potential to increase take-up of right to buy whilst at the same time ensuring that receipts would be sufficient to enable one of one replacement with affordable rent properties. The £75,000 cash cap also limits the potential for large windfall gains that an “uncapped policy” would lack. The 30-year net present value under this approach is positive and the policy option results in significant economic benefits.’
However, there is an interesting change to the way that this option is evaluated. IA1 said that the implied average net sale receipt after paying local authority debt would be £55,500. It went on: ‘This would be sufficient for one for one replacement without the need for conversions beyond the current Spending Review period, but we estimate that there could be a small funding gap within the current Spending Review period under this policy option.’
IA2 also predicts an average net sale receipt of £55,500 but goes on: ‘Under our central assumptions we estimate that this would be sufficient for one for one replacement without the need for conversions within and beyond the current Spending Review period.’ I’ve asked the DCLG why the ‘small funding gap’ has disappeared and am waiting to hear back.
The sums have also changed on the assumed costs. The net present value of the £75k option after 30 years has reduced from £21,100 to £19,800 per home while after 60 years it has reduced from £100 to -£700. The explanation for this appears to lie in two changed assumptions about housing benefit.
First, like virtually everyone apart from Joe Halewood, the DCLG had missed the freeze in local housing allowance rates announced by the DWP for 2012/13 in IA1. IA2 corrects this by reducing the LHA rent inflation assumption from 3.7 per cent to 2.0 per cent for this year. That will presumably reduce the housing benefit saving from people on LHA moving in to the replacement homes.
Second, IA1 had assumed that many of those exercising the right to buy would be on partial housing benefit and estimated this would be the equivalent of 15 per cent of them on full housing benefit. Following discussions with the DWP that has been changed to 10 per cent. This reduces the housing benefit saving that comes from these tenants becoming RTB owners.
On the central assumption, IA1 estimated that the housing benefit impact per unit would be +£3,000 over the three-year spending review period and +£600 on 30-year net present value but -£12,300 on 60-year net present value. IA2 revises those figures significantly so that there is a positive impact of +£2,100 per unit over the spending review but a negative impact of -£3,100 over 30 years and -£16,100 over 60.
Another significant change, presumably after lobbying from the NHF about public-private status, is that there is explicit statement in IA2 that ‘housing associations are independent organisations and we cannot therefore mandate the use of any receipts from right to buy sales that they retain, including for one for one replacement’. The government expects that receipts will be recycled in practice but a proposal in IA1 to ‘incentivise’ developing associations to do so through the affordable housing programme seem to have been dropped.
However, there are all sorts of issues not covered in the impact assessment. All of the comparisons are with an alternative of keeping the sold-off home in the social rented sector. Little wonder the comparison looks favourable, when the alternative does not include any residual long-term value for the home. And are the BOBOF homes really additional when all the free land would probably have been used for new homes anyway?
Strangest of all, in what is meant to be an impact assessment, there is no attempt to estimate the number of people who will buy (which may depend not just on individual tenants but perhaps their families too). Or when they will do it – there is no time limit so some people who can buy may prefer to wait until after the recession. Or how long the likely purchasers have been tenants – and therefore how much discount they will get. Or where they will do it, because the sums will stack up very differently between high and low value areas and between authorities with headroom to borrow under self-financing and those with little scope to borrow.
Perhaps, in fairness, the vague answer from Shapps on Monday reflects some of those uncertainties. Some authorities may be able to build a replacement home in the same area but others will not and wouldn’t it be better for housing as a whole if their receipts are recycled elsewhere?
Back in the Shapps & Cameron store, the managers are hoping that the £75,000 headline offer and BOBOF will be enough to tempt the punters. But they don’t really know because nobody really knows.
Only one thing really seems certain. Love it or hate it, Right to Buy 2 looks like being the only special offer around for some time to come.
If NewBuy really is to be about supporting buyers and new homes rather than just subsidising housebuilders here are 10 questions that need answers.
The launch of the scheme this morning got off to a somewhat shaky start, with many reports claiming (wrongly) that it is for first-time buyers and others (rightly) pointing out the advantages for builders.
The basic details are that the scheme has been designed by the Home Builders Federation and Council of Mortgage Lenders (CML). It will be available for an estimated 100,000 mortgages on any new build property in England up to £500,000 constructed by a builder who is in the scheme. Shared ownership and shared equity are excluded and so are second home owners and buy-to-let investors.
NewBuy will underwrite 95 per cent mortgages, with housebuilders putting up 3.5 per cent of the sale price into an indemnity fund and the government providing an additional 5.5 per cent guarantee. Any loss will come first from the buyer’s deposit, then the housebuilder’s fund and only then from the government guarantee.
So far, so good. If the scheme really does result in 100,000 homes that would not otherwise have been built then it will help support jobs and growth and bridge some of the huge gap between current output and demand from new households. Despite the first-time buyer spin put on it by David Cameron and Grant Shapps, some of the biggest beneficiaries could be frustrated second steppers, people who bought their first home at the top of the market, may now need a bigger home for a growing family and do not have enough equity for a deposit. The website for the scheme already has 28,000 people interested.
But now for the questions:
First, and most obviously, why is the government intervening in what is meant to be a free market? Isn’t it better to let house prices fall to an affordable level rather than prop them up artificially? In the name of the (housing) market, the scheme seems to offend basic principles of free-market economics.
Second, will the 100,000 homes really be additional? There seems to be no guarantee of that and no undertakings from the companies involved. As I blogged last week, the business strategies of the major housebuilders are based on increasing their margins rather than their output. They also seem free to choose which homes they include and set their prices knowing they have desperate buyers. Even if the homes are additional, what’s to stop them manipulating the prices? If the homes are not additional supply, the effect of the increased demand surely has to be to boost house prices and those margins even more.
Third, why is a new-build guarantee needed when lenders are increasingly making 90-95% mortgages available for secondhand homes? I asked on twitter earlier whether this was because they are worried new build prices will fall by more in a downturn. The CML responded that ‘new build value can be less easy to benchmark for lending purposes’ and the disparity is ‘a consequence of constrained/cautious market’. It remains to be seen how attractive the rates on offer will really be.
Fourth, won’t this discriminate against existing owners of secondhand homes? Imagine you are someone trying to sell a secondhand home when just down the road a housebuilder launches NewBuy. Will you have to cut your asking price because of a scheme paid for by your taxes?
Fifth, why such a high limit? A 95 per cent mortgage on a £500,000 house would be worth £475,000. What is the justification for the taxpayer underwriting the mortgage of someone earning £150,000?
Sixth, why is it being launched now? At the moment only seven housebuilders – Barratt, Bellway, Bovis, Linden Homes, Persimmon, Redrow and Taylor Wimpey – and three lenders – Barclays, Nationwide and NatWest – are taking part. They will be joined in the next few months by two more banks (Santander and Halfax) are set to join. It may make sense because of the Spring selling season or for Budget- or local election-related reasons but it seems somewhat premature.
Seventh, where are the small builders and potential new entrants to the market? Although the DCLG says that ‘other leading names, including smaller housebuilders, are expected to follow their lead in the coming weeks and months’ the big players that dominate the market are in there first. If the government has subsidy available, why not concentrate it on companies you know will build additional homes?
Eighth, why is there apparently no role at all for social landlords? The scheme does not cover shared ownership but there are plenty of housing associations out there who might be interested in mortgage guarantees on homes they build for outright sale.
Ninth, where is the impact assessment? If the government is guaranteeing 5.5 per cent of 100,000 mortgages worth an average of, say, £200,000 then £1.1 billion of taxpayer’s money is potentially at risk. Yet the DCLG has published no impact assessment yet and (amazingly) its press office cannot say whether there is one.
Tenth, how will the guarantee be accounted for under public borrowing rules? If it is extra borrowing, what about the deficit reduction programme? If not, why is there flexibility in the rules for NewBuy but not for local government? What else could be done with more flexibility?
And that’s just for starters.
Can cutting red tape for housebuilders deliver the new homes and growth the government needs? Here’s why I’m sceptical.
Clive Betts summed up the problem neatly when Grant Shapps appeared before the Communities and Local Government committee at the end of January. With household formation running at 250,000 a year, social sector output around 40,000 to 50,000 a year and the private sector never building more than 150,000 in recent times, the committee chair asked who would build the rest?
The answer from Shapps was that the housing strategy listed 100 different ways to fill the gap. Reform of planning, 100,000 right to buy sales to generate the money for 100,000 homes, 100,000 homes on public sector land and the mortgage indemnity scheme were just four of them. When pressed he added ‘not piling costs on developers’ to the list. ‘That was completely counter-productive and led to the lowest house building since the 1920s. If you keep saying to developers, “Oh, and by the way, whilst you are building these homes, we also expect you to deliver X, Y, Z in addition,” then unsurprisingly you get to the point where it is just unsustainable for them to build the homes. I have been trying to loosen the load on developers in order for them to get the homes built, and there is a commitment in the last Budget to make sure that we are not loading on new bureaucracy and red tape. Indeed, we are cutting it by 2015.’
Nobody could accuse him of failing to back his words with actions. Even before the housing strategy was published, the government was introducing changes likely to boost the value of housebuilders’ land holdings by hundreds of millions of pounds. Design and sustainability standards, a weaker definition of zero carbon and reform of section 106 were all targetted from 2010. Labour’s HomeBuy Direct gave way to the coalition’s FirstBuy and record low interest rates continued to put a floor under house prices.
The housing strategy extended the subsidy still further. There was not just the £400m Get Britain Building Fund and NewBuy, as mentioned by Shapps, and confirmation of the other deregulation, but a new consultation on proposals to allow developers to require local authorities to reconsider section 106 agreements agreed in more prosperous market conditions prior to April 2010. To give some idea of the scale of that last subsidy, research for the DCLG estimates that section 106 deals worth £9 billion were agreed in 2006/07 and 2007/08.
Put all that together and you have what amounts to a corporate welfare package worth several billion pounds. That’s something that would require intense scrutiny even if housebuilders were delivering on their side of the bargain by building more homes. It isn’t getting any and they aren’t delivering. But far from changing course the government is preparing to hand over even more goodies through the red tape challenge. In the short term, the effect of all this will be to boost margins for the major firms. In the longer term, although it may make some sites more viable to develop, it will also increase the value of that land – and increase land prices in general.
As I argued last week, all of the major housebuilders are concentrating on increasing their margins through tight control of costs and careful management of their land and what and where they build. The strategy is working with increased profits and, in the case of Persimmon, a nine-year programme to return £1.9 billion to shareholders. The one thing they are not doing is building a lot more homes (a few more but nowhere near enough to meet the aspirations of the government).
Given how close they came to disaster in the wake of the credit crunch, that is a perfectly understandable strategy. And it’s clear from recent statements that they are not planning to change it any time soon. Persimmon, for example, currently has a land bank of 63,300 plots. ‘Whilst this currently represents over six and a half years forward land supply, our longer term objective remains to return to a five year supply,’ said chief executive Mike Farley in its results last week. ‘We expect to achieve this through both the expansion of our output as the market allows and the selective replacement of the plots we legally complete each year.’ The clear implication is that it will only expand its output from 9,360 homes in 2011 to a maximum of 12-13,000.
Taylor Wimpey made the same point even more explicitly in a presentation at the Bank of America Merrill Lynch building conference in October. The company said that it ‘won’t return to the volume-driven mentality of the last cycle’ although this ‘does not mean that we will not grow volumes from current level’. Growth would come naturally from new sites and an uplift in sales rates as the market recovers but the company sees ‘c 14,000 plots as a soft cap on volume, even in strong markets’. To put those figures in perspective, Taylor Wimpey was building 21-22,000 homes a year in 2007 and 2009 while Persimmon was building 16-17,000.
Of all the schemes and subsidies introduced by the government, NewBuy looks like the most promising scheme at first glance. Available on new-build homes worth up to £500,000, it will allow lenders to offer 95 per cent mortgages to up to 100,000 buyers with builders (3.5 per cent) and the taxpayer (5.5 per cent) underwriting some of the risks. In theory, that should help not just first-time buyers but also ‘second steppers’, people trapped in their first home with insufficient equity to move, and get the whole market moving. The obvious objection is that it could just give builders the chance to raise their prices but the scheme seems to be facing more fundamental problems ahead of its launch next Monday. The Financial Times reported yesterday that the scheme is being rushed through ahead of the Budget despite concerns from lenders, regulatory hurdles and IT problems. It also revealed a row over the price that banks will charge, with housebuilders arguing that the premium being charged by lenders could make the whole scheme unattractive. There are also worries from smaller builders that the rush to get the scheme in place has put them at a disadvantage to the major firms.
If NewBuy is running into problems like that, there have to be worries about the government’s approach in general – and about its reliance on major housebuilders in particular. There are some exceptions to the rule (for example, Galliford Try, the 11th biggest housebuilder by turnover, increased its output by 59 per cent last year) but most of the major firms are concentrating on a strategy of building their margins and rebuilding their balance sheets rather than building new homes. That is perfectly logical and perfectly understandable but it does not offer much encouragement for the government’s housing strategy.
In a report that did not get enough attention when it was published between Christmas and New Year, the IPPR think-tank concluded that reform of the housebuilding industry is urgently required if we are to avoid the lost decade that followed the two previous downturns in 1974 and 1990. ‘We cannot afford a repeat. And yet, if we duck reform at this critical juncture, that is exactly where we are heading, only, this time, worse,’ it said. ‘But the government’s new Housing Strategy does not demand the reform that is needed. Instead, it offers the major housebuilders public land, money and guarantees without articulating a serious quid pro quo. The result, as things stand, is likely, as in the past, to be subsidised stagnation. If we want a can-do supply-side response, government must demand more bang for the taxpayer’s buck.’
The report called for measures to stop developers ‘playing the land market and the planning system’ rather than building homes, with strict conditions applied to public sector land release including rapid build-out and lower profit margins. A fifth of the land should be earmarked for self-build and all of it should go to joint venture partnerships that would share the uplift in value between the government, communities and developers. Financially unviable builders should be allowed to go bust and their land banks redistributed. Community land auctions and modern garden cities should be on the agenda. And land should be de-risked by splitting the development process into land trading and housebuilding – in much the same way as the banks are being made to split their investment and retail operations.
The government has flirted with some of those options, such as community land auctions, and the Treasury is said to be studying a report by Policy Exchange calling for new garden cities. However, its strategy looks dangerously over-reliant on the handful of major firms that dominate the market. Deregulation and the housing strategy are giving the big housebuilders practically everything they want without being committed to anything in return: why are there no building targets to match the lending targets imposed on (and largely ignored by) the big banks? If billions of pounds worth of subsidy is available, why not use it to encourage new players to enter the market? If red tape needs to be cut, take a look at the barriers to entry? If cheap public land is available, use it to attract new players rather than hand it over to the big firms, who will simply use it instead of their existing land?
The government is throwing billions of pounds worth of corporate subsidy at major firms that will not deliver the numbers needed for its growth strategy to work. If it has to subsidise anyone, it should be looking at smaller builders, housing associations and new entrants to the market.
And so, having ‘done this to death’, the bedroom tax and the Welfare Reform Bill have passed their final parliamentary hurdle.
The quote came from welfare reform minister Lord Freud as peers debated a final attempt to amend the under-occupation penalty. It may have been accurate in terms of the parliamentary procedure but it will have a hollow ring for landlords and tenants as they spend the next 13 months agonising about how a measure that will cost 670,000 people £14 per week will be implemented.
Freud was responding to an amendment by Lord Best seeking an independent review of the impact of the measure on poverty, homelessness, under-occupancy, local authority resources and rent arrears six months after the tax is implemented.
Lord Best had begun with an (unnecessary) apology ‘to those who hoped that this House would save the day but will now be deeply disappointed’. The Commons had rejected his two previous amendments and even the apparent concession of £30 million in discretionary housing payments for disabled people and foster carers was funded by increasing the bedroom tax on everyone else. So now he changed tack with the call for a research.
Lord Freud pledged an evaluation that would involve key stakeholders in developing evaluation research that would include the wider social impacts, the implementation strategy and draft guidance. But he said the key issue was that not about making people move but making social as well as private tenants make informed choices about ‘where they live and what they can afford’. People could choose to stay and meet the shortfall with options including employment, increasing their working hours, asking others in the household or extended family to contribute or taking in a lodger although he did not add his statement two weeks ago that ‘the designation of property size is another area where there may be flexibility’. The minister concluded: ‘We have now done this to death and I close by asking the noble Lord to withdraw his amendment.’
Lord Best did so but he still had time for one last telling speech on the issue. He had received an email from a woman with a partially disabled husband who was also a full-time carer for her mother living nearby. She faced a charge of an extra £25 per week. ‘She has looked into the possibility of moving elsewhere and she can move some miles away. However, she is not going to be able to get back to see her mother twice or three times a day. She cannot afford that £25 a week and is going to have to do something. These are the kinds of social network issues that are raised by this measure.’
He went on: ‘I hope that the minister does not get the blame when the housing benefit bill does not fall.’
And so now it’s over to landlords and tenants to decide how the bedroom tax will work on the ground when it is implemented from April 2013.
As MPs and peers have argued, this is a Treasury-dictated measure that is all about cutting the housing benefit bill. If it were about fairness (to private sector tenants who already get charged for under-occupancy) there would be exemptions for people who cannot be offered alternative accommodation and transitional arrangements for existing tenants. Instead, we are left with a crude and arbitrary tax that threatens to drive tenants into the arms of doorstep lenders and landlords reluctantly into the courts.
The implications for disabled people, for people who were allocated a larger home as part of their landlord’s policy, for single parents and for all the other people affected (as Lord Freud complacently put it: ‘on this measure, of the 3.3 million tenants living in the social rented sector and receiving housing benefit, only about one in five is expected to be affected by this change’) have only been worked out on the back of an envelope so far. Other impending changes such as cuts in council tax benefit will complicate things even further.
And that’s before we get to the rest of the Welfare Reform Bill and especially the sections on disability. A report out today from the parliamentary joint committee on human rights concludes that ‘the range of reforms proposed to housing benefit, disability living allowance, the independent living find, and changes to eligibility criteria risk interacting in a particularly harmful way for disabled people’. And it warns that the cumulative impact risks the UK being in breach of the United Nations Convention on the Rights of People with Disabilities giving disabled people a human right to independent living. .
That’s just one example of how a consideration of the implications of the bedroom tax and the rest of the Bill are about as far from being ‘done to death’ as it is possible to get.
Britain’s housebuilders are starting to do very nicely thankyou. If only the same could be said for housebuilding.
A succession of leading firms have revealed healthy results in the last two weeks featuring increased profits and margins, reduced debts and in one case a £1.9 billion dividend for shareholders.
The strategy in all cases is pretty much the same: increase margins through tight control of costs, building on land bought at cheaper prices since the downturn and building more houses than flats and more in the south than the north. The one thing they are not doing is increasing production. As Taylor Wimpey sums it up in its results today: ‘Our priorities remain value creation and margin improvement ahead of volume growth.’ Here’s a brief selection of the highlights from the results of five of the top 10 firms:
Taylor Wimpey: Profit before tax and exceptional items £89.9m in 2011 (2010: £27.9m loss). Achieved double-digit operating margin ahead of 2012 target with 10.1 per cent in H2 2011. Resumed paying dividend. Completions up 2 per cent to 10,180 of which 8,075 were private and 2,048 affordable.
Barratt: Interim pre-tax profit for six months to 31 December £21.6m in (2010: £4.6m loss). Operating margins up from 5.0 per cent to 6.4 per cent. No dividend. Now operating from 400 sites with capacity to go to 460 active outlets ‘as a maximum – but this will only happen if market demand supports it’. Completed 5,117 homes jn first half (4,796) of which 1,089 were social housing and 545 supported by FirstBuy or HomeBuy Direct. Looking to take advantage of ‘build now, pay later’ initiative.
Persimmon: Underlying pre-tax profits up 55 per cent to £148.1 million for 2011. Operating margins up from 8.2 per cent to 10 per cent. Dividend up 33 per cent and programme to return £1.9 billion to shareholders over next nine years. 9,360 completions in 2011 (2010: 9,384).
Redrow: Interim pre-tax profit for six months to 31 December 2011 up 80 per cent at £15.3m. Operating margin up from 5.6 per cent to 7.5 per cent. Completions down 11 per cent at 1,168 following sale of Scottish business. No dividend.
Bovis Homes: Pre-tax profit for 2011 up 74 per cent to £32.1 million. Operating margin up from 7.2 per cent to 10.0 per cent. Completions up 8 per cent to 2,045 homes, of which 21 per cent were social housing. ‘With a clear focus on controlling the capital employed of the Group through rigorous management of the landbank and tight control of work in progress, the Group expects to deliver a strong improvement in returns in 2012 and beyond.’
Between them the top 10 housebuilders dominate the market. The top three (Taylor Wimpey, Barratt, and Persimmon) accounted for at least a quarter of completions in 2007 and about the same now. The top 10 account for around 40 per cent.
Last year saw just 109,000 completions in England. The top 10 are concentrating on building their margins rather than homes. That is a perfectly understandable business strategy given how close they came to annihilation when they expanded output up to 2007. However, it makes the prospects of matching the rate of new household formation (240,000 a year) look bleak for the foreseeable future.
The government is hoping that November’s housing strategy in general and its new mortgage indemnity scheme in particular will help to bridge the gap. I’ll be looking at the chances of success in another blog soon.
So here is the predictable pong to the Lords’ ping: the bedroom tax amendment rejected in the House of Commons.
The vote by 316-263 is hardly a surprise given the coalition’s majority in the Commons and the payroll vote. Even Sarah Teather voted with the government this time although there were at least nine Lib Dem rebels that I could count plus two Conservatives.
Work and pensions minister Chris Grayling dismissed the Lords amendments on straight financial grounds – ‘we simply do not have a blank cheque that will cover the costs of the amendments’.
He also rejected claims that the change could end up costing more money if many of the 670,000 social tenants affected decide to move to smaller, but more expensive, private lets on the grounds that the homes would then go to people in temporary accommodation.
But if any peers were listening in and marking the debate on points to report back next week there can be little doubt which side won.
Simon Hughes, the Lib Dem who never ceases to remind us that his constituency has the greatest proportion of social housing tenants in England, questioned why the government was refusing to exempt the categories of people who were being exempted from the benefit cap. Reassurances from Grayling that the government would continue a dialogue seemed enough to convince him to fail to vote either way rather than rebel.
Stephen Timms for Labour outlined the effect on terminally ill tenants who would not be helped by discretionary funds designed to help foster carers and disabled tenants with adapted homes. And he attacked the claim that the cut was somehow a work incentive: ‘Let us call a spade a spade. This is a spiteful cut in people’s income.’
Conservative rebel Andrew Percy – who must surely deserve some kind of housing award - said that yet again he could not support the measure. ‘When we talk about people’s homes we need to remember that they are exactly that – people’s homes, not just a public asset that we need to release.’
He was speaking from personal experience as a councillor trying to tackle under-occupancy on an estate in Hull. ‘It was incredibly complicated and difficult to deal with. It is a fallacy to think that we will suddenly be able to move all these people out into more suitable accommodation.’
Labour’s Frank Field, a supporter of other aspects of welfare reform, called this one ‘shameful’.
‘Anyone who has sat through debates on the Bill will know that the Government’s body language is totally different to that in respect of other measures. They have been forced to take this measure by the Treasury. It goes against all that the Bill tries to achieve, which is to work with the grain of human nature. This proposal, which has been forced on the Department for Work and Pensions, works against that grain.’
He demolished the government’s arguments one by one. ‘This is not a welfare reform measure. It will be a recruiting sergeant to the money lenders and will be looked on as an eviction measure.’
And Lib Dem rebel David Ward quoted the stats from the largest landlord in his Bradford constituency: with 3,800 under-occupied households it would take three years with no re-lets or new lets to re-house them all.
If parliamentary debates were scored on points like boxing matches, Grayling would have been stopped to save him further punishment. But unfortunately they are won on government majorities, the payroll vote and pressure on rebels.
And so, with thanks to those coalition MPs who did rebel, the ping-pong ball is sent back with interest to the Lords.
The end game on the bedroom tax is going to be about more than just whether the House of Commons continues the parliamentary ping-pong.
The Lords smashed the ball back over the net last night. They voted 236-226 for an amendment moved by crossbench peer Lord Best that will exempt groups including disabled people, war widows and foster carers from the under-occupation penalty where there is no suitable alternative accommodation available.
Reflecting the fact that the government had claimed financial privilege in the Lords, that was a much smaller majority than the 258-190 vote before Christmas for an amendment that would have exempted everyone with no more than one spare bedroom if there is no suitable alternative. Only six Lib Dem peers rebelled against the government this time around but that was enough.
Three cheers for that. The DWP says it will lob the ball back over to the Lords when the Commons returns next week although campaigners are still hopeful it will offer more concessions rather than risk going through the same thing again.
However, regardless of what happens, 670,000 tenants still face an average cut of £14 a week or £728 a year from April 2013 and social landlords still face a series of uncomfortable dilemmas over arrears and evictions.
Moving the amendment, Lord Best said he was hoping to ‘salvage something’ but ‘I deeply regret abandoning hundreds of thousands of households who, even if the amendment is approved, will still be caught by the penalty charge from 1 April next year’.
And even a government concession had a sting in the tail: ‘I confess to having been thankful for this small mercy—until I learnt that the £30 million for these discretionary housing payments is to be paid for not by the Treasury accepting any reduction in the gains achieved through the bedroom tax but by increasing the tax for the other tenants by another £50 per annum from the previous £13 per week to the new £14 per week.’
Backing him up, Baroness Hollis said the penalty had ‘fundamental dishonesty’ at its core because it said that people must downsize while the government acknowledged that the ‘smaller flats and houses to which people should move do not exist’.
And as chair of Broadland Housing Association she outlined the dilemmas facing landlords. ‘Either I evict a family with a disabled child into temporary accommodation or bed and breakfast—how I can do this to them?—or they stay put and arrears mount. I have already trebled the amount in my accounts for increased arrears… that money is not available to pay the debt charges of new building which alone will solve the problems of getting our stock right in the longer term.’
There was an interesting intervention from former Conservative social security minister Lord (Tony) Newton, who warned that ‘the government are playing a very dangerous political game, without quite knowing that will hit them when this comes into force’ and recalled a previous Treasury-inspired cut to housing benefit in the 1980s that Margaret Thatcher had to order to be reversed within a month once the impact became clear. He still voted with the government later but it was not exactly a vote of confidence.
It was a measure of the position welfare minister Lord Freud found himself in, stuck between losing the argument in the Lords and Treasury insistence on the cut, that he told Lord Best he had over-estimated the cost of his own amendment (it was up to £100 million not £150 million) and that he left no stone unturned in trying to find a non-financial way out.
The idea of taking in a lodger – first raised in a throwaway line by Steve Webb in the Commons – now seems to be a major part of the government’s toolkit. Any tenant who did take in a lodger see the first £20 a week in income disregarded from their own housing benefit, he said, and ‘we will expect social landlords to take a pretty liberal line on this’.
As Lord Best pointed out, it would not be appropriate for the disabled and vulnerable tenants covered in his amendment to take in a lodger. At the very least, any tenant will need some good benefits advice first.
However, Lord Freud had another idea too. ‘One aspect that has not been explored in our debates is the response from social landlords,’ he said. ‘The rent they receive reflects the size of their property. If there were, for example, a very small room such as a box room that the landlord called a bedroom, they might reconsider, if they have not done so already, whether to count that room when deciding on the number of bedrooms that should be written into the tenancy, as well as on the rent associated with it. The designation of property size is another area where there may be flexibility. We are exploring this with social landlords as part of our implementation work.’
Leaving aside the question of how many social rented homes really have a box room bedroom, is he really suggesting a way out for landlords and a way to evade his own bedroom tax?
A mass downsizing by landlords seems unlikely given the potential effect on rental incomes, property valuations and loan agreements, but is there scope for some creative thinking? If a three-bed flat is hard to let now, it could become even harder to let under the bedroom tax, so why not call it a two-bed in the tenancy? Is the bedroom with a computer in it proof of under-occupation or an office that is proof the tenant is doing what the government wants and preparing to launch a business from home? Is that smaller room used by your disabled tenant really a spare bedroom or a wheelchair storage area?
• There was no such excitement on the bedroom cap, where a Labour amendment was easily defeated, but there were a few more concessions. In addition to the original exemptions, the government had already pledged a nine-month grace period for anyone who has been in work for the previous 12 months, plus more discretionary payments plus an evaluation of the impact after a year. In the Commons it added an exemption for households with someone who get the support component of ESA who is not in receipt of DLA.
Last night Freud confirmed that the grace period will apply to couples where just one of them meets the criteria and added that he saw no reason why it should not apply to people whose hours are reduced as well as those who lose their jobs.
The Bank of England seems set to announce another round of quantitative easing on Thursday. Is that good news or bad news for housing - and is it time to consider an alternative?
QE is presented as the Bank’s only option for stimulating the economy given that it has already cut interest rates to a record low of 0.5 per cent. To simplify massively, it creates liquidity by creating money to buy assets like government bonds. The institutions holding the bonds then have new money in their accounts, which they use to buy other bonds and shares. The net effect is to reduce long-term interest rates and stimulate the economy.
The scheme boosts asset prices and increases inflation but that is seen to be a price worth paying for getting the economy out of the hole it fell into after the collapse of Lehman Brothers. The Bank released £200 billion of QE in 2009 and 2010 and another £75 billion in October. Following figures last week showing a big fall in the money supply it is set to do more on Thursday.
But what about the effect on housing? QE is generally credited with putting a floor under house prices, which is good news if you already own a home but very bad news if you are struggling to get on to the housing ladder and paying a high rent. House prices, remember, are already propped up by ultra low interest rates that have reduced mortgage payments by thousands of pounds for anyone who can raise a deposit.
The problems don’t stop there. According to the Bank’s own analysis QE has increased the rate of inflation by between 0.75 and 1.5 percentage points. That has led to direct increases in rents for social tenants because they are linked to a formula of RPI inflation plus 0.5 per cent. If QE had never happened, landlords around the country would not need to be imposing such large rent increases at a time when their tenants are already suffering from falling incomes.
So what’s the alternative? It’s one I’ve mentioned before that is slowly gaining some traction. What if quantitative easing could be used to invest in new homes rather than buy financial assets?
Instead of government bonds, the Bank could buy bonds in a public interest company with a remit to build homes for future sale to the private or social sectors. A public interest company would be at arm’s length from the government and therefore not caught by restrictions on public borrowing. remit not to hold
A £50 billion scheme could potentially finance 500,000 homes, create 20,000 jobs and generate £10 billion for the Treasury in taxes generated and benefits saved without taking account of the knock-on effects for the wider economy. Rents on the homes could pay any interest in the short term and in the longer term the sales proceeds could go back to the Bank.
The scheme could be tied into some of the innovations in housing finance being developed by social landlords. It could generate the type and scale of stock that institutional investors say they need before they take the plunge into the private rented sector and be a way for the government to de-risk private rented investment without using public money. It’s surely also a good way of using the precious resource of public land.
The obvious objections seem to be more ones of mind-set than substance. A backdoor scheme for increased borrowing? Not if all the money was repaid on the sale of the properties and it generated a healthy return for the taxpayer in the meantime. Wrongful use of a scheme intended purely for financial instruments? It may be difficult for the Bank to move outside its financial comfort zone but it would still be buying financial instruments and this would give the Bank a more varied range of assets to sell when the time comes to unwind QE.
Above all, perhaps, there seems no chance of the government achieving its ambition of using housing as a key part of its growth strategy without an extra weapon like this at its disposal. Brian Green argues on his Brickonomics blog that the scheme could be just the ‘big bazooka’ that Grant Shapps needs to stand a chance of meeting the target against which he said he wanted to be judged: building more homes than Labour. He also has more detail about how a public interest company might work and roles for the Bank, Treasury and HCA.
Without something like QE for housing, we seem stuck with housing completions at half the level needed to meet demand (even in 2016 Savills is predicting just 125,000). With it, and with the right approach to land assembly and managing the construction programme, we stand a chance of building the homes and delivering the growth we need.
The scheme has just won the backing of one of the leading trade bodies in the construction industry. The Construction Products Association, which represents the firms that make the materials and products that go into new homes, says it will be writing to the Chancellor to point out the advantages. Time for housing organisations to do the same?
The details would need to be worked up by people with more financial expertise than me. It’s possible that there is a fundamental flaw that I have missed. But doesn’t a QE that builds homes and creates jobs sound a hell of a lot better than a QE that boosts house prices and raises rents?
Yesterday’s events in the House of Commons have left me looking for some good news among the bad.
As if the reversal of the Lords amendments on the benefit cap and the bedroom tax were not enough to depress all those who have campaigned against them, the government has now claimed financial privilege to kill off any further debate on the Welfare Reform Bill.
On the housing clauses, David Orr has condemned the ‘economically suspect and socially divisive’ policy. On the wider Bill, campaigner Sue Marsh has angrily accused the government of lying and betrayal.
So what are my two bits of good news? I don’t mean the usual mix of discretionary housing payments and reviews that were a feature of last year’s housing benefit cuts and seem to have been enough to buy off enough Lib Dem opposition yesterday.
On the cap, the good news is the nine-month grace period for anyone who loses their job. That is three months more than the period sought by Lord Best in an amendment that he withdrew in the Lords last week and it should help limit the number of families who risk losing first their job and then their home.
Work and pensions minister Chris Grayling explained yesterday: ‘We will not penalise those who are in work and doing the right thing. We will put in place a nine-month grace period for those who have been in work for the previous 12 months and lose their job through no fault of their own. We have always intended to make this measure, and I am happy to make that clear to the House today.’
Questions remain. It’s easy to see how the grace period will apply to people in continuous full-time work but what happens to people who can’t get enough hours to be exempt from the cap (16? 23?) and do people who’ve lost one job and then found another still get the grace period? However, nine months is still better than six and considerably better than nothing.
My second piece of good news is on the bedroom tax, though admittedly this is scraping the barrel a bit. Despite the defeat, it’s worth noting that there were not just 14 Lib Dem MPs who rebelled against the coalition but two Conservatives as well.
It’s maybe no coincidence that both of them have strong connections with social housing. Gordon Henderson, MP for Sittingbourne and Sheppey, grew up on a council estate, while Andrew Percy, MP for Brigg and Goole, was previously a councillor representing the estate where his father grew up and his grandmother still lived.
This is not the first time that Andrew Percy has rebelled on a housing issue. During the third reading debate on the Localism Bill last year, he voted against the government on scrapping security of tenure on the grounds that we were talking about ‘homes’ and ‘not merely a facility that belongs to the council’.
He made a similar point yesterday: ‘I am sure that the ministers understand this, but I plead with them to take account of the fact that houses are not only public assets; they are also people’s homes, and people have an attachment to them. This is not a simple matter to resolve, even though we should encourage an end to under-occupancy.’
In the scheme of things it’s a very small compensation that the housing message has got through to at least some government MPs and that not all of them (to quote work and pensions minister Maria Miller) regard claimants and tenants as ‘these people’. But it’s still good to see.
Today is the 21st anniversary of perhaps the most significant statement in the recent history of housing.
On 30 January 1991 the then housing minister Sir George Young was asked in parliament what the government was going to do about unaffordable rents. ‘Housing benefit will underpin market rents - we have made that absolutely clear,’ he said. ‘If people cannot afford to pay that market rent, housing benefit will take the strain.’
Housing benefit has indeed taken the strain ever since - of deregulation and soaring rents in the private rented sector and private finance and stock transfer in the social sector. In the process the annual bill has risen from £6bn to £22bn and it has come to underpin not just rents but the entire delivery of affordable housing too.
But for how much longer? Today, 21 years to the day since Sir George made that statement, a group of housing associations is warning that welfare reform by the DWP could make the housing plans of the DCLG unworkable.
The Consortium of Associations in the South East (CASE) represents nine different landlords providing affordable homes. Their report examines the unintended consequences of three different elements of the Welfare Reform Bill: the under-occupation penalty, direct payment of housing benefit to tenants and the household benefit cap. All three sound superficially sensible until you examine the detail and the implications.
Most of the arguments will be familiar to anyone reading this but in a week that sees the government pledge to reverse House of Lords defeats on under-occupation and the cap when the Bill returns to the Commons it’s worth a re-cap.
On the under-occupation penalty, there may be good reasons why a bedroom is not ‘spare’ and why a landlord has deliberately chosen to reduce child density on a particular estate.
But it’s the sheer numbers of people affected - 670,000 households - that are maybe of the greatest concern.
CASE members say it will simply be unworkable unless introduction is phased from April 2013. There are not enough one-bedroom properties for under-occupying tenants to move to and they would have to spend the next two years on the crazy strategy of building nothing but one-bed flats to make it work. The turnover rate of tenancies is half what would be required to meet the deadline and arrears are bound to increase.
On direct payments, the associations warn of significantly higher arrears and administrative costs.
They say that once the household benefit cap is in place all four-bedroom properties in the South East built for Affordable Rent will become unaffordable. And they are already reviewing whether to continue building three-bed homes that already threaten the cap and will exceed it if the cap does not rise with inflation. Financial considerations driven by the cap will override any local strategic tenancy policies.
However, the implications of the three measures go well beyond that and will directly impact on associations’ ability to finance and build new homes. They conclude that direct payments and the under-occupation penalty will result will cut new build capacity by 12 per cent and that this could get even worse if lenders react to perceived extra risk by increasing the cost of borrowing. Capacity would fall by 11 per cent for a 0.2 per cent increase in borrowing costs and 28 per cent for a 0.2 per cent drop.
‘As CLG embarks on a programme to increase housing supply, its sister department - DWP - is preparing to implement a policy that is certain to do the opposite,’ they say.
On under-occupation, the associations want the government to stick with the Lords amendment tenants with only one ‘spare’ bedroom and to phase in the cut for everyone else. On the cap, they want a relaxation for larger properties and a commitment to index it for inflation. On direct payments, they say that none of the concessions announced so far will work and that the plan should just be scrapped.
Hopefully the government is listening to at least some of that and CLG ministers have been making the same arguments to their DWP colleagues that Eric Pickles made in his leaked letter last year.
Or has the idea first proposed by Sir George Young 21 years ago today now itself collapsed under the strain?
If history repeats itself, first as tragedy and then as farce, then the politicians seem intent on doing both at the same time with the benefit cap.
This weekend work and pensions secretary Iain Duncan Smith and his Labour shadow Liam Byrne compete with each other to demonstrate either complete ignorance of their brief or a cynical disregard for the facts. Or both.
Byrne kicked off on Saturday by accusing the Conservatives of ‘playing politics’ with the benefits cap. In piece for the Conservative-supporting Daily Telegraph – no hint of playing politics there - he set out Labour’s case for agreeing to the need for a cap in principle but adapting the system with a series of regional caps that could take account of differing housing costs.
He argued: ‘Most of the benefits paid under the cap are for housing. But these are far higher in places like London than in other areas. While all that £500 a week might get you in central London is a one-bedroom apartment, in Rotherham, Yorkshire it would get you a six-bedroom house. How can a “one-size-fits-all” cap be fair to working people in both London and Rotherham?’
All very reasonable, you might think. Except that housing benefit rates are already not just regionalised but localised in broad rental market areas and as anyone who reads Inside Housing knows only too well there are bedroom-size caps on what anyone can receive. The maximum for a one-bedroom flat anywhere in the country is not £500 a week but £250 a week.
So Byrne was talking nonsense (and not for the first time) about a cap that is being imposed on top of a housing benefit system that has already been reformed. But he is not the only one.
On Sunday, Iain Duncan Smith appeared on the Andrew Marr Show and said that the government will look to reverse all its defeats in the Lords when the Welfare Reform Bill comes back to the Commons. You can watch from about 45 minutes in on iPlayer but you may want to move any heavy objects out of throwing range of your computer first.
Pressed by Marr about the cap and the Labour plan, IDS said: ‘The overall level is critical because we’ve got some people living in London in some cases in flats that are costing over £100,000 a year in rent. I know that’s at the extreme but that’s the kind of nonsense we got into under the last government. So it’s important we settle the London issue.’
That line about people on £100,000 a year has been trotted out again and again. The amount paid to the landlords of five families in London has been a devastatingly effective weapon in the debate on welfare reform.
Except of course that the bedroom caps that IDS himself introduced mean that the maximum that anyone can now receive in housing benefit is £400 a week or £20,800 a year.
In fairness, Byrne did a rather better job of explaining Labour’s position on Murnaghan on Sky on Sunday and IDS did signal that there would be concessions when the Bill returns to the Commons this week. ‘I’ve always been clear from when I made the speech at third reading that we will be looking at transitional measures and where there are people falling out of work we will be looking at grace periods,’ he said.
However, with even some Labour MPs arguing that the cap should be set lower than £26,000, the debate continues to take place in ignorance or disregard of the facts. Little wonder that there is overwhelming public support for the apparently fair proposition that nobody should receive more on benefit than the average amount earned by someone in work. Even as the Lords were voting to exclude child benefit from the cap last week, Lib Dem peer Lord Kirkwood was virtually alone in declaring that he opposed the cap in principle because it distorts the whole basis of the benefit system.
As I’ve argued before, the apparently simple logic for ‘fairness’ that has built a seemingly unstoppable momentum behind the cap is deeply flawed. For starters, that ‘hard-working family’ earning £26,000 a year may well also be receiving thousands of pounds in housing benefit, child benefit, working tax credit and tax credit.
If you still disagree, you might want to read this brilliant blog by Declan Gaffney first about the ‘bait-and-switch’ tactics employed by ministers: the seemingly pragmatic principle that is based on a rigged comparison. Or take a look at this blog by Alex Marsh on the way that ministers have framed the narrative behind the cap by creating division and sowing dischord.
Gaffney argues that ‘the only truly honest proponents of the benefit cap are those who are too ignorant or too far out of the loop to be party to the backroom consensus: the only truly honest critics are those who refuse to say they support it in principle’.
That backroom consensus sees that the political impetus behind the cap is so strong that it is better to accept false arguments in a pragmatic bid to prevent some of the most arbitrary impacts of the cap. ‘But there are costs attached to this strategy, in terms of the quality of political debate and more generally in the endorsement it gives to a big untruth about the social security system and those who are relying on it. On balance, I think the latter considerations should win out. A little dishonesty only helps if you’ve already decided to go along with the big lie.’
Marsh notes the way the argument has been framed by setting claimants against ‘hard working families’ while ignoring the fact that poverty is dynamic and people’s circumstances change. ‘Yesterday they were the “hard working families” that politicians are so concerned about and so in favour of. Then their luck changed. They haven’t suddenly become benefit-scrounging pondlife overnight. Yet the government proposes to penalise many of them further for their misfortune by rendering them unable to afford to stay in their homes.’
The consequences of all this will be felt not just by claimants and hard-working families and not just in the welfare system. More later on the impact of welfare reform on housing and a report out today from the CASE group of housing associations.
Who has most to celebrate from last night’s defeat for the government on welfare reform?
The obvious answer is families with children who, thanks to the bishops, Labour peers and a significant rebellion by Lib Dem peers in the Lords last night, will see their child benefit exempted from the £26,000 household benefit cap.
But anyone watching David Cameron’s PM Direct appearance in front of workers at ASDA on BBC News yesterday (watch from 4.35 in if you missed it) might come to a very different conclusion.
‘Are you happy that your taxes are going towards families where no-one is working and they’re earning more than £26,000 in benefits?’ Cameron asked them. ‘Is that fair? No. I don’t think it’s fair either and that’s why it’s right to have a welfare cap.’
Cameron was clearly loving the chance to talk to ‘hard-working families who do the right thing and pay their taxes’. He was comfortable in the knowledge that the cap has 76 per cent support in opinion polls and must also be loving the fact that his Lib Dem coalition partners are split down the middle and the Labour opposition are squirming with discomfort.
As Gary Gibbon put it on Channel 4 News, the defeat is more likely to have ministers ‘popping the champagne corks’ at another chance to demonstrate they are on the side of ‘fairness’ and ‘hard-working taxpayers’ than bemoaning a defeat that they look certain to reverse in the House of Commons.
I’m guessing that a majority of you reading this here, possibly more than 76 per cent, can see the problems with all of this. Not just the dozen that I blogged about yesterday but the very obvious one raised by David Cameron’s appearance.
Because the truth is that as a hard-working taxpayer myself I rather resent the fact that ASDA does not pay many (most?) of its staff enough to live on without receiving tax credits and housing benefit from the state.
The profits, dividends and top salaries of managers at its parent company Walmart are effectively subsidised out of my (and your) pockets. Meanwhile, should any of the 5,000 people who get the new jobs announced yesterday have their hours cut to less than 16 hours a week, they will be caught by the benefit cap.
By far the fairest way to deal with the cap would have been to exclude housing costs altogether. Housing benefit is already capped, after all. As Joe Halewood points out on his blog 75 per cent of the 170,000 new claimants since the election are in work. And that’s before you get to arguments about rent levels.
That’s not going to happen now. Instead we are left with a cap on income that is set at the level of the average take-home earnings of someone in work. That sounds simple but fair. But it does not reflect the extra income someone in work will get on top of that from tax credits, housing benefit and child benefit (an average of another £6,000 or so). And it does not cover everyone: there are exemptions from the cap for people on disability living allowance (DLA), war widows and widowers and people working more than 16 hours a week. Both the level and the scope of the cap are, in other words, subjective choices by the government not objective expressions of fairness.
Arguments like those were being put in the Lords yesterday but they have fallen on deaf ears among the electorate as a whole. The cap, which began life in a conference speech by George Osborne and was reportedly opposed even by Duncan Smith at first, has been a devastatingly effective political weapon that has enabled the government to portray itself as on the side of ‘fairness’ and completely wrong-footed the opposition.
That was summed up for me by the way that Duncan Smith was able to quote the support of a vicar yesterday. ‘Interestingly, I have just had an e-mail from a vicar, who wondered why the bishops fail to recognise that he is paid only £22,000 a year. He wonders why they are getting excited about £26,000 being a poverty-level figure.’ The vicar was, of course, conveniently ignoring the fact that his housing is paid for by his employer.
Attention now switches to the transitional arrangements for the cap and here at least there were enough signs of movement for Lord Best to withdraw his amendments on a 26-week grace period and an exemption for temporary accommodation costs pending further announcements from the minister.
As peers prepare for the key debate on the household benefit cap the policy is still begging as many questions as answers.
Ministers appear to have won the battle for public opinion over the principle of having a cap with 76 per cent of voters backing the idea in an opinion poll over the weekend.
However, the battle will be over the details. Labour has said it will not vote against the cap itself but will try to amend the Bill so that extra costs do not fall on council tax payers. Several Lib Dem peers including former party leader Lord Ashdown have said they cannot support the cap as proposed. And Lord Best will be prominent among crossbenchers pressing for changes.
Extra fuel for the fire came in a revised impact assessment published by the Department for Work and Pensions (DWP) this morning. This admitted that 75,000 families will be affected – 25,000 more than in the first version published last year. They will lose an average of £83 a week each - £10 less than before. And the government will save more than previously estimated (£330m in 2014/15 rather than £275m).
Other new details are that more than 1,000 families will be affected in each of 17 London boroughs plus Birmingham and that 5,000 families receiving carer’s allowance will be affected.
However, in many other ways, the key doubts about the policy remain the same. Here are my top 12. The first nine are updated versions of questions raised in committee stage debates in the Commons by either Lib Dem or Labour MPs that I blogged about last year. The other three come from previous comments on my blog and subsequent developments. I stand ready to be corrected but I’ve not seen answers to any of these points yet.
- It may not save much money overall. The new estimate is for cost savings of £330m in 2014/15 but Lib Dem MP Jenny Willott claimed last year that the DCLG estimates that it will increase homelessness by 20,000 people, costing £300m in emergency housing. This was subsequently confirmed in the leaked Pickles letter.
- It may not increase work incentives. Labour’s Karen Buck and Lib Dem Ian Swales both argued that it will incentivise people to move from high-cost housing areas to lower-cost ones where there are fewer jobs.
- It contradicts the aims of the Universal Credit to make it easier into work or work more or less hours without suffering a big drop in income. ‘It creates cliff edges and makes a temporary period of unemployment a catastrophe,’ said Buck last year.
- Even if it does incentivise work, many of the families affected are people the state does not expect to work or who are too sick to work.
- It could penalise people in work who lose hours and cease to qualify for working tax credit and their exemption from the cap.
- It will encourage couples to split up. In the very opposite of a family-friendly policy, a couple’s income will be capped at £500 a week but if they split up into two single households they will each get a maximum of £500 a week if there are children or £350 a week if there are no children.
- It will penalise families with children. Willott said it would hit hard-working families who suddenly lost their job and could not pay their rent. Even two-child families in London face losing a third of their housing benefit. It will push more children into poverty just as the universal credit promises to lift them out of it. The new impact assessment says 90,000 families with 200,000 children will be affected
- It will have a damaging impact on social tenants and landlords. In the committee stage debates MP said that 70% of the 50,000 families affected will be in social housing (or 35,000). The new impact assessment puts this at 40 per cent of 75,000 (or 30,000). The inevitable rent arrears will threaten homelessness for tenants and damage the finances of landlords.
- It contradicts other housing policies like affordable rent - housing associations building homes at up to 80% market rents will find their existing client group will be unable to afford them. There is already anecdotal evidence of associations eliminating larger homes from their schemes.
- It threatens to undermine the economics of refuges and other forms of temporary accommodation. Women fleeing domestic violence will not have their rent paid in full and the consequences of refuges closing or becoming too expensive do not bear thinking about.
- It raises exactly the same issues as the cut to child benefit for higher rate taxpayers that is reportedly the subject of a rethink in government: cliff edges where people risk losing out above a threshold and incentives to split up and form two separate households.
- The ‘fairness’ argument for the cap being set at £26,000 as the take-home pay of the average working household sounds simple – and it seems to be convincing the voters. But it doesn’t include the in-work benefits that those average working households will also receive. And it doesn’t reflect the real world of how high housing costs can turn that into living on 62p a day – as Tim Leunig explains only too well.
Ministers do not seem in much of a mood for compromise if Iain Duncan Smith’s interview on Today this morning was anything to go by (the work and pensions secretary managing to redefine homelessness as ‘about children sharing rooms’.)
However, there were also possible hints of transitional help and it will be interesting to hear more this afternoon when peers debate the key amendments seeking to exclude child benefit from the cap and introduce a 26-week grace period.
Peers showed in the second reading debate last September that they are looking for much more from the government. Let’s hope they get at least some of it.