Amid all the rhetoric about those £10 billion cuts in welfare, what’s not being said could ultimately turn out to be more significant.
We’ve become so accustomed to welfare cuts that it’s easy to assume that another £10 billion is just more of the same. It isn’t and it is not at all clear where the savings will come from.
The cut would apply after the current spending review period ends in 2014/15 and, according to George Osborne yesterday, in the first full year of the next parliament, which I assume means 2016/17.
However, to put the £10 billion in context, we are talking about a cut on the same scale as was imposed in the June 2010 emergency budget and over what will be a shorter time period. The June 2010 cuts totalled £11 billion by 2014/15 and the spending review that followed in September added a further £7 billion.
Housing’s share of the June Budget savings was £1.8 billion by 2014/15, with the £490 million bedroom tax, £425 million reduction of the local housing allowance to the 30th percentile and £390 million uprating by CPI rather than RPI the three biggest elements in that. The spending review cut another £485 million from housing benefit (the single room rent and total benefit cap) and also cut council tax benefit by £490 million. Many of those cuts do not even take effect until April 2013 and we already talking about more.
In his speech to the Conservative conference yesterday, Osborne singled out three areas for attention and stressed that it was not just about saving money:
‘Iain Duncan Smith and I are committed to finding these savings while delivering the most radical reform of our welfare system for generations with a Universal Credit so work always pays. Because it’s not just about the money - it comes back to fairness and enterprise.
‘For how can we justify the incomes of those out of work rising faster than the incomes of those in work?
‘How can we justify giving flats to young people who have never worked, when working people twice their age are still living with their parents because they can’t afford their first home?
How can we justify a system where people in work have to consider the full financial costs of having another child, whilst those who are out of work don’t?’
On the Andrew Marr show yesterday, David Cameron was more specific (see my other blog for more). His comments about going ‘further’ on welfare reform went back to his speech in June that trailed the idea of removing housing benefit from the under 25s. To put this in context, the estimate at the time was that this would save £2 billion a year, which is almost as much as all the other housing benefit cuts so far put together.
IDS had previously resisted the £10 billion cuts but (in a joint article in the Daily Mail yesterday with Osborne) now agrees it is possible. That leaves the Liberal Democrats as the main political obstacle. Even though Osborne rejected the mansion tax that Nick Clegg said at the Lib Dem conference two weeks ago would be the price of his support, things seem to be moving towards a fudged compromise.
There is no shortage of warnings about the impact and the practicalities of the cuts. As I argued on my other blog on Sunday, the idea that you can simply make the under-25s live with their mum and dad bears no relation to reality. For the Joseph Rowntree Foundation, Helen Barnard highlights that too plus evidence that many people are trapped in poverty despite finding work, with an estimated six million underemployed who want to work more but can’t. For Shelter, Kate Webb argues that over half of the under 25s on housing benefit have children and that living with their parents is ‘not an option for those whose parents have died, divorced or downsized, been abusive towards them or simply don’t have the room’. For the TUC, Richard Exell highlights the amount of housing benefit that goes to people in work and what happened the last time a Conservative government cut benefits for young people in the 1980s. Blogger Joe Halewood argues that jobless families with large families will already be hit by the overall benefit cap – what he calls the fundamental flaw in universal credit.
Given all that, I was looking out for any specifics in the speech by Iain Duncan Smith to the conference yesterday. There was plenty of rhetoric about strivers and ‘families trying to do the right thing’. There were plenty of attacks on Labour for opposing previous reforms. There was plenty of boasting about the impact of the reforms so far and the benefits of the universal credit. But IDS said absolutely nothing about which benefits would be cut and where the savings would come from.
That silence is highly significant, I think. Part of this debate is obviously political, with the Conservatives positioning themselves for the next election and trotting out the familiar exaggerations about the culture of dependency and families who have never worked while ignoring unemployment, underemployment and (as David Cameron did again on the Today programme this morning) the fact that housing benefit is also paid to people in work. However, the numbers are real and will be in spending plans by the next election.
The key point is that it is not clear to anyone where the £10 billion will come from. Analysis by the Institute for Fiscal Studies suggests that freezing all working age benefits and tax credits would save £2 billion a year but probably substantially less than that if the chancellor limits it to out of work benefits. However, would this apply to housing benefit? Increases in the local housing allowance are already restricted to CPI rather than RPI inflation until 2014/15. Extending that would save around £400 million a year and may seem like an obvious source of savings. However, the price would be that over time the gap between benefit levels and actual rents would grow wider and wider and that it will become harder and harder to find landlords willing to rent to tenants on benefit.
The IFS confirms that scrapping housing benefit for the under-25s would save £2 billion but questions how the government could distinguish between ‘those who can and cannot reasonably be expected to live with their parents’ and therefore how much it will be possible to save in practice. Saving £1 billion on benefits to large families would mean cutting £3,000 a year from each of 330,000 out of work families with at least three children. Is that really feasible?
Little wonder then that IDS cannot be specific and that the IFS says that ‘it is clear…that there is more we have yet to hear about if the government is to cut the welfare budget by an additional £10 billion per year’.
Given all that, and with ministers from David Cameron down singling out the housing benefit budget for attention, housing organisations can take absolutely nothing for granted about the way housing benefit will operate in future. If these cuts can be on the agenda, so is anything else you care to think of.
Or maybe there is now a window of opportunity to argue for an alternative. The housing benefit bill is over £20 billion because of high unemployment, low pay and rents that continue to rise ahead of inflation. Why not reform the private rented sector, shift the balance back to bricks and mortar subsidies and, as a united front of housing organisations is arguing in Birmingham this week, build some homes for Britain?
There is good news and bad news in a Shelter survey about rogue landlords out today but neither is quite what it appears at first glance.
The bad news is that complaints by tenants to their local authority about their private landlord are up 27 per cent in the last three years.
Worse, of 85,000 complaints in the last 12 months, 62 per cent related to category I and II hazards – things like dangerous electrics and damp that are serious or life-threatening, And there were 781 cases where health services had to get involved because of the behaviour or neglect of private landlords.
However, the 27 per cent increase in complaints may not be quite as large as it appears when you take into account the rapid increase in the number of private tenants. Over the last three years for which figures are available, the stock of private rented homes in England has increased by 20 per cent.
The good news is that successful prosecutions against private landlords are up 77 per cent in the last year. The figures are based on freedom of information requests to 326 English local authorities, with responses received from 310.
Successful enforcement is not just good news for tenants but for good landlords too because otherwise they are left paying the costs of compliance with the leglislation while others ignore it and undercut them.
However, the sheen is slightly taken off that increase in enforcement by the fact that it comes from such a low base. The actual total of successful prosecutions last year was just 487, and Shelter says most of them were carried out by a handful of authorities such as Newham, Leeds, Salford and Manchester.
When Shelter asked local authorities about rogue landlords in their area, they identified 1,449 who had given them continued cause for concern over the last year. Again, on the face of it, that ought to make it easier to target enforcement action but it’s unclear whether that represents the true scale of the problem or is just the total from councils who have got their act together on the private rented sector.
Put the good news and the bad news together and the picture is more blurred but it is still undoubtedly evidence that Shelter’s Evict Rogue Landlords campaign is paying off.
And despite fears that public spending cuts would render local authorities less able to enforce the law, there have been several high-profile legal cases recently:
- A landlord in Brent in London was ordered to pay a fine of £1.4 million last week for illegally converting a house in Willesden into 12 flats. The fine is believed to be the highest confiscation order ever granted for a planning offence and is based on the assumed benefit that Salah Ali gained from breaching planning regulations. According to Brent council, he had continuously flouted them over the last ten years. Its planning enforcement team used powers that enable councils to recover the ‘proceeds of crime’.
- In Sheffield last week, a bullying landlord who unlawfully evicted a tenant was jailed for nine months and a friend who helped him got a six-month suspended sentence. The landlord, Jay Allen, forcibly evicted Chris Blades after he ran up £900 in rent arrears and arrived with a friend to push him out of the door. According to the Sheffield Star, Allen has previous convictions for assault and affray and when Blades protested that he was breaking the laws he replied: ‘Do I look like I care?’ Judge Roger Keen told Allen: ‘You decided that because the rent had not been paid you were going to evict the tenant unless he came up with the money immediately, which was impossible. Using your considerable presence, together with that of your co-accused, you went to dominate, frighten and overwhelm Mr Blades.’
- In Birmingham in August, a trainee BBC presenter was ordered to pay damages of £26,000 for attempting to unlawfully evict a tenant after her housing benefit stopped for a month. Nearly Legal reports that, despite being warned about her conduct by a council tenancy relations officer, Samina Amreen turned up with several members of her family including an uncle, Raja Amin, who was a magistrate. The tenant, Beckie Webb, had called the police and the TRO. However, under the pressure of a stand-off in which Amin refused to leave and threatened the police with TV coverage if they arrested him, she decided to leave with her children and the belongings she could carry.
Those are three tales from the rogue landlord frontline that actually made it to court. Good news, you might think, except when you bear in mind that the Birmingham case happened over four years ago in June 2008 and that Beckie Webb sofa surfed while her children stayed with her family until November 2008 when she was given temporary accommodation.
In ten years of rapid growth in the private rented sector and burgeoning housing need, the suspicion has been that rogue landlords have been free to do pretty much as they please regardless of the impact on their tenants and on good landlords who play by the rules. Today’s survey confirms that local authorities (or at least some of them) are getting their act together at last but there is still a long way to go.
It’s great to see Ed Balls putting his - or rather mobile phone companies’ - money where his mouth is on housing but his speech still begs some big questions.
It’s good news too see housing finally making the headlines at the start of a Labour party conference rather than becoming a footnote before they sing The Red Flag at the end.
Media briefing ahead of the speech by the shadow chancellor was all about housing and his call for the £3-4 billion proceeds of the sale of 4G mobile phone licenses to be spent on 100,000 affordable homes and a new stamp duty holiday for first-time buyers. The idea seemed to go down pretty well with delegates judging from the applause in the hall.
The politics of this is important. Labour’s relative silence on housing over the last year has enabled the Conservative side of the coalition to make the running with its social housing reforms.
Coming on top of last week’s Lib Dem conference of a policy paper calling for 300,000 homes a year and calls by Vince Cable for 100,000 affordable homes, this makes clear that there is an alternative.
The financial side of it is much less clear. The 4G auction is due to happen next year so, unless I’m missing something, by the time of the next election in 2015 George Osborne will almost certainly have spent it on other things. If you read his speech carefully (my italics added for emphasis) this point is clear:
‘Let’s use that money from the 4G sale and build over the next two years: 100,000 new homes – affordable homes to rent and to buy - creating hundreds of thousands of jobs and getting our construction industry moving again. Add to that a stamp duty holiday for first time buyers buying homes up to £250,000 and we can deliver real help for people aspiring to get on the property ladder.’
Looked at like that, today’s statement by Balls is not a spending commitment at all, more a statement of intent about what Labour’s priorities will be when there is no money around to spend and a challenge to the government to do things differently.
However, that is still important, especially when combined with the statement by Labour leader Ed Miliband yesterday that housing would be a beneficiary of a tax on bankers’ bonuses.
Balls is promising a zero-based spending review if Labour wins the next election. That could be seen as a political device to avoid having to make spending commitments now but it’s also a signal that departments will have to justify all of their spending programmes from scratch.
The statements by Balls and Miliband therefore give housing an edge in the list of priorities but they do not answer all the questions. Just to take one example, even if the 4G money is still there to spend by the next election it will not mean anything unless it is additional to, rather than instead of, any spending review allocation. If it just means the latter, that would leave Labour spending less than the coalition.
Then there’s the question of whether it’s really worth spending £500 million on another stamp duty holiday. Individual first-time buyers may benefit by up to £1,250 each but would it really do more than just bring transactions forward?
There are much bigger questions for Labour to answer on housing. Will it go for IPPR’s idea of shifting spending from housing benefit to building homes? Will it finally free local authorities from the public borrowing rules (surely a prerequsitie for a serious housing policy)? Will it use quantitative easing for housing rather than boosting bankers’ bonuses? Where does it stand on affordable rent (Martin Hildtich is reporting that the 4G programme would be a mix of shared ownership, affordable rent and social rent)?
I’m hoping we get some answers this week. But this is still a great start and a big improvement on Labour conferences gone by when the housing debate was buried away in the final session and the leadership paid lip service to what its delegates said.
Five years ago this month I started this blog wondering how I would ever find enough interesting things to say. I needn’t have worried.
Fortunately for me (bad news is always good news for bloggers and journalists) and unfortunately for everyone else, the week before I wrote my first post a small bank called Northern Rock went bust. The consequences of that still dominate my blogging five years later (and hopefully that makes it interesting enough to keep reading).
In the first year, as the credit crunch got worse and worse, and the entire financial system teetered on the brink, it seemed that the housing market would experience a crash as bad if not worse than the one it went through in the 1990s.
The banks were quick to try to pin the blame for the crisis on sub-prime lending in America but their own activities did not stand much scrutiny: 125 per cent mortgages, self-certified mortgages and mortgages handed out at five or six times income were all part of a deregulated splurge in lending.
The main people in the firing line appeared to be people who had bought at the tail end of the boom. If house prices really were over-valued by up to 30 per cent, the crash seemed set to lead to widespread negative equity and soaring repossessions among both home owners and buy-to-let landlords. Most of my blogs from 2007 and 2008 are lost somewhere in the depths of the Inside Housing website but here’s a couple of examples of how bad things looked at the time.
As things turned out, the worst fears were misplaced. The government reacted to the crisis with a series of emergency measures that bailed out bankers, home owners and landlords alike. The cut in interest rates to a record low 0.5 per cent reduced mortgage payments by billions of pounds a year, hundreds of millions more were poured in to mortgage and home owner support schemes and the banks had learned forbearance can be cheaper than eviction. There were still tens of thousands of repossessions but the total was about half that seen in the early 1990s
Housebuilders too teetered on the brink. Stuck with houses they could not sell built on land they had paid too much for, several household names were only kept afloat at the discretion of banks who knew that letting them go bust would increase their own losses. Remarkably, HBOS (now part of Lloyds) had decided that it could go against all previous norms by buying up sizeable stakes in several of its own housebuilding customers but it, and they, were rescued by the taxpayer. Meanwhile the housebuilding industry as a whole benefitted from the first in a series of schemes backed by government cash.
Attention then turned to the next set of potential housing victims: housing associations that could not sell their shared ownership homes. Thanks to prompt action by the Homes and Communities Agency and Tenant Services Authority and extra funding from the government, this crisis too was averted.
In the meantime, though, the credit crunch was feeding through into mortgage lending with a vengeance. Banks that had happily handed out mortgages at 100 per cent loan to value or more in the boom now demanded deposits of up to 25 per cent in the bust.
The picture varied around the country but, especially in London and the South East, would-be first-time buyers faced having to raise a deposit of around a year’s salary before they could get into the market. Transactions plummeted to less than half previous levels but, thanks to low interest rates, there was no collapse in prices. That meant that tens of thousands and, in time, hundreds of thousands of young people were locked out of home ownership and forced to rent.
The opportunities were clear for buy-to-let landlords as rents soared, especially in London. Fergus Wilson, the buy-to-let poster boy, said in 2010 that the sector was ‘absolutely dead and will never return’. But by 2011 lending was booming again. The number of buy-to-let mortgages is now up 45 per cent since the credit crunch.
For a while, the crisis prompted the Labour government to pump more money into affordable housing. However, as 2008 and 2009 gave way to 2010 and the general election drew near it became clear that whichever party won there would be huge cuts in public spending to cut the deficit. All three were careful not to spell out in any detail where the axe would fall and who would be paying the bill for the bail-out of the banks and the housebuilders and landlords and home owners.
So who would pay for it all? The coalition’s first spending review the answer was none of the above. The price would instead be paid by savers as interest rates on their savings dwindled to nothing, by private tenants as rents soared and home ownership became ever more inaccessible, and by anyone on benefits as a result of welfare reform. And they will carry on paying: many of the decisions taken then and in subsequent budgets have yet to be implemented and the introduction of the bedroom tax and household benefit cap looms every closer in April 2013. Bankers, home owners, buy-to-let landlords and housebuilders are doing very nicely by comparison.
I started this blog five years ago with the vague aim of showing how the whole system is inter-connected and it’s no longer possible to talk of social housing in isolation from other tenures. I did not foresee how big the changes would be in the housing landscape, with home ownership shrinking, private renting set to overtake social renting for the first time in 50 years and the boundary between the two disappearing. Or just how big the gap would become between housing haves and housing have-nots. Or that five years later the fundamental problem would remain that house prices are too high.
So here’s to the start of my sixth year of blogging for Inside Housing, with no sign that the issues that dominated the first five are going away any time soon.
Nick Clegg’s ‘pensions for property’ plan is the most breathtakingly stupid idea since, well, the last time a government proposed something similar.
Liberal Democrat leader Nick Clegg and Treasury chief secretary Danny Alexander put forward the proposal in interviews on Sunday as a way of allowing parents and grandparents to use their pension fund to guarantee a deposit for their children and grandchildren.
Party sources briefed the media that they believe 250,000 people with a pension pot of more than £40,000 could potentially benefit and that about 5 per cent of them (12,500) were likely to take it up.
The idea seems to be that the lump sum element of the pension – usually about 25 per cent – could be used as a deposit, so someone with a £40,000 pot could use it to allow their child or grandchild could borrow a deposit of £10,000
Reports suggest that the mortgage deposit scheme is more than just a Lib Dem conference idea and is being looked at by both the Treasury and DWP.
At first glance, and unless I’m missing something, this looks exactly the sort of tinkering with the housing market that politicians love because it puts them on the side of aspiration - but then they fail to think through the consequences.
First, what happens if things go wrong? What if the doomsters prove correct and house prices fall by 20 per cent? That would jeopardise the retirement income of parents or grandparents.
Many with spare cash outside their pension will already be using it to help so (as presented) this looks like it applies to people without many other assets. Since the income from their pension pot would already be tiny (a fund of £40,000 is tiny in the scheme of things and would deliver an income of about £40 a week) presumably that would force them to rely more on the state minimum income guarantee. Effectively the state would be paying for negative equity.
Second, what if things go right? Deposits guaranteed by the pension pots of parents and desperate grandparents desperate to help their kids simply help prop up house prices.
If house prices rise, that just increases the exclusion of young would-be buyers with no parental help. The divide between housing haves and have-nots grows ever wider and social mobility – something that Lib Dems are meant to be in favour of – slows down even more.
Just about the best that can be said for the pensions for property proposal is that it is too small to make much difference – though once accountants get to work on it who is to say that it could not end up applying to more pensioners too and have a much bigger impact?
Reaction within the pension industry so far has ranged from caution to hostility, with one anonymous expert describing it as ‘Maxwellesque’, Ros Altmann of Saga calling it ‘a political gimmick’ and the National Association of Pension funds saying that ‘at first glance this idea leaves us feeling slightly uneasy’.
Another downside could be that it concentrates the minds of pension funds on housing risks at exactly the time that the government is desperately trying to persuade them to invest directly in (private rented) housing.
The last time a government tried to relax the rules on pension funds for property it changed its mind at the last minute.
This was the idea proposed by Gordon Brown and the Treasury in 2005 to make residential property one of the eligible categories for investment by people with self-invested personal pensions (SIPPs). The changes were due to take effect in April 2006.
Campaigners warned over and over again that the consequences would be a boom in ownership of second homes and holiday homes fuelled by tax breaks on investment in pensions.
Finally, in the pre-Budget report in December 2005, the Treasury came to its senses and ruled that residential property (along with fine wine, antiques and racehorses) would not be eligible for investment.
Clegg’s ‘pension for property’ idea may not be quite as monumentally stupid as the SiPPs plan but the implication that it is being examined across government suggests that ministers have learned nothing in the seven years since Brown’s u-turn and the five since the credit crunch.
And the real shame is that the Liberal Democrats seem set to debate some sensible new housing policies later in the week.
The universal credit was meant to be the great prize that would make up for all the pain of welfare cuts but what if it just adds to it?
A range of evidence about the past, present and future of welfare is published today and the results suggest a system that is cracking under the strain even before the big wave of cuts due next April and the phased introduction of the universal credit starting at the same time.
The National Housing Federation (NHF) is highlighting the impact of the first wave of cuts on the number of homeless families living in bed and breakfast. The 44 per cent increase has come in the year since the caps on local housing allowance began.
However, the latest Social Attitudes survey out today suggests welfare reform still enjoys broad public support and that there is less sympathy for the unemployed now than at any time over the last 30 years.
The proportion of people saying that if benefits were less generous people would stand on their own two feet has doubled from 26 per cent in 1991 to 54 per cent in 2011. In previous downturns, public support for more spending on welfare benefits has grown but this time around support is down from 43 per cent in 2001 to just 28 per cent in 2011.
The report suggests that this shift in opinion was nurtured by a tougher stance towards welfare under the last Labour government and has continued under the coalition.
In that context, the universal credit was meant to be the big reform of the system: a new benefit that would make work pay and give claimants a new sense of personal financial responsibility.
The cracks in that façade have been deepening over the last few weeks:
- Divisions have appeared within the government, with a failed attempt to move Iain Duncan Smith from the DWP in the reshuffle and cabinet secretary Sir Jeremy Heywood apparently expressing scepticism about the policy.
- Responses to the detail from councils, charities and other groups have raised a whole host of concerns about implementation.
- Labour is calling for the whole thing to be delayed by a year amid concern about whether the complex computer system will actually work.
- The Social Security Advisory Committee is reported to be warning IDS that the reforms will be ‘unworkable and unfair’.
- And, most spectacularly, Frank Field, the government’s welfare reform tsar, says the universal credit will be a ‘disaster’ that will ‘rot the soul of the low paid’.
Now a report from the Social Market Foundation (SMF) warns that the universal credit will backfire without significant improvements and undermine the government’s aim of boosting people’s sense of personal responsibility by pushing them into debt.
The results are all the more startling coming from a think-tank that has been supportive of the broad thrust of welfare reform and because the research is based on detailed interviews with claimants themselves about how the universal credit will work.
On the credit in general, the SMF warns that moving to a single monthly payment for all benefits will remove the markers and aids that families rely on to budget effectively with little evidence that it will prepare them for going into work.
‘Our research shows this will throw people in at the deep end leaving them to either sink or swim,’ says SMF deputy director Nigel Keohane. And the impact will be felt not just by the families themselves but by those they will end up owning money to, including social landlords.
The report finds widespread mystification about the key housing reforms including the one that has most exercised landlords: the direct payment of money to cover the rent to claimants. As one claimant put it: ‘I just think, it’s not your money is it? So why does it have to pass through your hands if it’s not your money? You haven’t earned it, you haven’t done anything for it.’
Some people worried about the effect on them personally whole others worried about the effect on other claimants if ‘everyone is going to be in arrears’. The SMF comments that: ‘More generally, the proposal was met with considerable surprise and many were unable to understand what would motivate such a change.’
Where claimants did identify responsibility as an issue, they saw it in terms of the government trying to avoid the administrative work of processing payments rather than trying to boost personal responsibility. Most thought it would just put them under even greater pressure and risk of hardship and debt.
The SMF says that the research results, plus the experience of private landlords and tenants under the local housing allowance, ‘suggest that it will be extremely hard to make the existing universal credit proposal work’ and that it risks undermining the finances of social landlords.
The report proposes that there should be an online budgeting portal. The idea is that claimants would be able to opt in to it and make changes to the way their benefit money was directed before it came into their bank account. That would mean they could choose to have their rent direct paid direct to their landlord and choose to get their benefit weekly rather than monthly.
Iain Duncan Smith and the DWP will no doubt continue to resist calls for changes and stick to their line that the universal credit will make work pay and boost personal responsibility. However, the reform is looking increasingly like a slow motion train crash that everyone else can see is going to happen.
Benefit cuts are already biting and are set to affect far more families from next April with the bedroom tax and benefit cap. The danger is that IDS’s flagship reform will make things worse rather than better. There is still time to stop the train before it is too late.
The government is missing the chance to tackle housing market volatility and its damaging consequences for households and the wider economy.
Co-authors of the report, senior housing academics Mark Stephens and Peter Williams, say that the government has demonstrated it can take tough decisions in other areas ‘but it continues to be too timid concerning actions that are needed to bring about greater housing market stability’.
The report measures progress on tackling volatility since the taskforce published its main report last year. In the long run that will come through increasing housing supply and in the short run through financial regulation and the tax system, protecting homeowners from the consequences of volatility and developing alternatives to home ownership.
And it may be time to look at the short run more urgently because things do not look too good in the long run: ‘The serious shortfall in housing supply has worsened, exacerbating our exposure to housing market cycles, with all the consequences this has for households, communities and the economy.’ (I have some more on the supply shortage and one more possible reason for it on my other blog here).
First up is financial regulation and taxation. Its failings made a significant contribution to the financial crisis and the government is in the midst of replacing the FSA with a new financial policy committee (FPC) at the Bank of England. The FPC’s remit includes the control of systemic risks but consultations so far under the FSA’s Mortgage Market Review (MMR) have backed away from counter-cyclical credit controls such as maximum loan to value (LTV) ratios amid fears that this would squeeze lending still further on those locked out of the market.
The report argues that there is a good case for using LTV limits as part of macro-prudential policy and that it is vital that the government and regulators keep a full range of instruments available. It warns of the dangers of neglecting sectors like housing with ‘great destabilising potential’ and it goes on: ‘The continued neglect of the role that property taxation might play is an obvious concern. The taskforce report showed how the council tax could evolve into a national property tax. By neglecting the management of the housing market as a whole there is a danger that it will reveal the next hole in the system of regulation.’
The taskforce recommends that there should be a council tax revaluation followed by its gradual transformation into a national land and property value tax. Both would be politically contentious: successive governments have backed away from council tax revaluation for fear of creating too many losers (even though an estimated 3.7 million households are worse off as a result of the failure to revalue); and new planning minister Nick Boles joked last year when he publicly backed a land value tax that he was ‘committing career suicide’. His prediction proves untrue but tax reform still seems to fall into the category that civil servants in Yes, Minister would call ‘brave’ and that Malcolm Tucker in The Thick of It might have a stronger word for.
On protection for homeowners, the report says that the current safety net is ‘inadequate’ and it warns of that it is important that discretion given to lenders under the MMR ‘does not facilitate a return to any irresponsible lending’. It concludes that; ‘A a rethink is required to find a solution that improves security for home-owners faced with reductions in income, whilst also meeting the Government’s objective of making work pay.’
On alternatives to owning, private renting is growing rapidly while any scope for expansion of social renting and shared ownership is limited. The report welcomes the prospect of REITs and the Montague review’s call for more institutional investment but argues that any concessions on section 106 and affordable homes should be conditional on tenants getting greater security. And it argues that housing subsidies should be switched away from a reliance on housing benefit and back towards housing supply ‘as part of a new model for financing new affordable housing’.
Stephens and Williams believe that ‘the downward trend in homeownership may be hardening into a structural change’, highlighting the need for alternatives. However, there are serious problems with all of them: ‘The government’s efforts have focused on identifying ways to attract institutional investment into the private rental sector, which even if successful, does not address the chronic insecurity that prevails there. Moreover, the housing benefit cuts will serve to make tenants less, rather than more, secure. With low-cost home-ownership always likely to be a minority tenure and with the security that is traditionally associated with social renting being diluted, this is an area where we are rapidly moving backwards. A key challenge remains to find ways to make private renting more secure without prompting mass landlord exits from the sector.’
The warnings in the report are all the more striking for being expressed in such measured language. With the housing market flat-lining and the deficit the key political priority, the temptation for the government will be to do nothing that rocks the boat, especially on housing market taxation, but the history of successive boom and busts and their damaging consequences suggests that would be a serious mistake that we will all come to regret.
So here it is: what by my reckoning the coalition government’s third housing strategy in two and a half years.
Mark one was the assumption that implementing the coalition’s programme for government would do the trick. The ‘powerful new incentive’ of the new homes bonus would persuade local authorities to approve more homes and get housebuilding moving. The Localism Act would turn help turn NIMBYs into YIMBYs. And FirstBuy would give a time-limited kick-start to the housing market with equity loans for first-time buyers.
When that didn’t work, Mark two came last November. The big idea was NewBuy, a government-backed mortgage indemnity scheme to give 95 per cent mortgages on new homes to up to 100,000 buyers. That was backed up by funds for custom homes and empty homes, a consultation on right to buy 2 and another review of investment in the private rented sector.
When that didn’t work, Mark three was announced this morning in what David Cameron said was evidence that ‘this government is serious about rolling its sleeves up and doing all it can to kick-start the economy’.
Details so far are pretty thin on the ground to put it mildly but here are some initial comments from the No 10 statement [see below for the parliamentary statement by Eric Pickles]:
• Removing restrictions on stalled sites by removing ‘costly affordable housing requirements’ where developers can prove they make the project unviable. This has been coming for a while as part of a consultation on renegotiating section 106 deals prior to 6 April 2010 that runs until October 8. It sounds like the outcome has already been decided. The No 10 press release says this will help unlock 75,000 homes but it’s not clear how this figure is calculated. It’s also not clear how the system will work since it is already quite possible to renegotiate section 106 agreements and only three weeks ago Eric Pickles was sending in ‘expert brokers’ to sort it out.
• Confirmation of government guarantees of up to £10 billion for new homes. This was the announcement that was expected earlier in the summer and delayed. This will be part of the Infrastructure (Financial Assistance) Bill and include guaranteeing the debt of housing associations and private developers. The thinking seems to be that this will bring lending rates down close to those enjoyed by the government while remaining off the public balance sheet. It’s not clear though what the balance will be between associations and developers or how much of the lending will be new and how much will replace existing bank loans.
• An extra £300 million in ‘new capital funding’ for up to 15,000 affordable homes and 5,000 empty homes brought back into use. This is good news and seems to be the Lib Dem price for agreeing to the section 106 changes. However, note the ‘up to’ and the clear implication that this will be more affordable rent when many of the scrapped agreements will have specified social rent. It’s also not at all clear what will happen to section 106 in the longer term.
• An additional 5,000 homes for market rent in line with the proposals in the Montague report. Again, no more detail yet but the speculation is that the government will agree to Montague’s proposals including removing affordable housing requirements on schemes that are for market rent.
• Including big residential schemes in the planning fast-track for major infrastructure schemes so that ‘where councils are poor’ developers can go straight to the Planning Inspectorate. Again there are no more details so we do not know what counts as big but perhaps this could clear the way for future new garden cities and urban extensions?
• Putting the worst-performing planning departments into special measures and setting up a fast-track appeal process. This assumes that planning is the problem but, as the LGA points out in research out today, housebuilders already have planning permission on 400,000 homes and are taking up to nine years to build homes in some cases.
• A £280 million extension of the FirstBuy scheme to help 16,500 first-time buyers. Again there are no more details but this marks a change from the statement in last year’s housing strategy was a ‘fixed term measure’. FirstBuy mark two is also much less generous: FirstBuy mark one provided £400 million for 10,500 first-time buyers to give them a 20 per cent equity loan of almost £40,000 each; FirstBuy mark two works out at at an average of around £17,000 each
• Freeing up the planning rules on extensions and improvements for a time-limited period. As reported, this will allow single-storey extensions of up to 8 metres without permission. This appears to represent not one by two u-turns: one of the government’s first acts was to ban garden grabbing for new homes but now it seems they can be grabbed for extensions; and only last week ministers were launching a clampdown on beds in sheds but now it seems they will be allowed if they are attached to the main house. The consequences of this remain to be seen. Ironically, it could turn us from NIMBYs quite literally into YIMBYs. However, it could also reduce housing market transactions still further as people decide not to move and spark off a wave of cowboy conversion work in city suburbs with big gardens.
That’s all the detail so far. Overall, this strategy seems rather less full of hype than the last two, as does the promise of ‘up to 70,000 homes’. But maybe that’s no bad thing. I’ll add more when there is more detail.
A parliamentary statement by Eric Pickles has more detail on the package. Here are some highlights:
• Montague and the private rented sector: the government is ‘investing £200 million in housing sites to ensure that the high-quality rented homes that are needed are available to institutional investors quickly’. A taskforce of developers, management bodies and institutional investors will broker deals. Providers who commit to invest in additional new-build rented homes will be be eligible to raise debt with government guarantee from the £10 billion fund. Expressions of interest will be invited from tomorrow and ‘it is expected that housing associations, property management companies and developers will be amongst those to benefit’.
• Affordable housing, the government will be inviting bids for up to 15,000 extra affordable homes ‘through the use of loan guarantees, asset management flexibilites and capital funding’. The £300 million extra government funding will also cover brining an extra 5,000 empty homes back into use.
• FirstBuy: the extra £280 million will enable the scheme to be extended to March 2014.
• Large housing schemes: the government will look to work in partnership with developers and local authorities to do more deals like Ebbsfleet.
• Off-site construction: Pickles revives memories of John Prescott’s campaign for off-site construction, with the creation of an industry-led group convened by DCLG and BIS to look at barriers to the growth of the sector and how increase incentives to use off-site techniques. This will make proposals by Budget 2013.
• Public land: the role of the HCA outside London will be strengthened with a ‘targeted programme of transfers from other government departments and agencies’. Pickles adds: ‘We will also work to accelerate disposals by preparing the land for market and providing a single ‘shop window’ for all surplus public sector land.’
• Planning:Pickles confirms the plan to allow applications to be decided by the Planning Inspectorate ‘if the local authority has a poor track record of consistently poor performance in the speed or quality of its decisions’. However, unlike the statement by No 10, Pickles does not mention housing in the definition of major infrastructure projects that will be able to use fast-track planning procedures.
• Section 106: the government will introduce legislation effective from early 2013 that ‘will allow any developer of sites which are unviable because of the number of affordable homes to appeal with immediate effect’. Pickles goes on: ‘The Planning Inspectorate will be instructed to assess how many affordable homes would need to be removed from the Section 106 agreement for the site to be viable in current economic conditions. The Planning Inspectorate would then, as necessary, set aside the existing Section 106 agreement for a three year period, in favour of a new agreement with fewer affordable homes. We would encourage councils to take the opportunity before legislation comes into effect to seek negotiated solutions where possible.’ This is in addition to the consultation on non-viable section 106 agreements made before April 2010. This appears to signal that all section 106 agreements are potentially up for grabs and it poses all sorts of questions, not least about the ability and expertise of planning inspectors to rule on viability. Sounds like good news for lawyers.
• Green Belt: Pickles says the coalition agreement ‘safeguarding the Green Belt and other environmental designations’ but says the government will ‘encourage councils to use the flexibilities set out in the National Planning Policy Framework to tailor the extent of Green Belt land in their areas to reflect local circumstances’ and to make better use of previously developed land.
• Empty offices: ‘We will introduce permitted development rights to enable change of use from commercial to residential purposes, while providing the opportunity for authorities to seek a local exemption where they believe there will be an adverse economic impact. This common sense measure will help the regeneration of our towns and cities. Our high streets will benefit from a greater resident population, increasing footfall and supporting local shops.’
It’s still very early days but the appointments of the new ministerial team at the DCLG team are already raising some questions for me.
According the line being spun by the new Conservative chair Grant Shapps on the Today programme this morning, the government is now at the delivery stage. Within that context, new housing minister Mark Prisk’s previous job as construction minister should bode well for the top priority of building more homes. Meanwhile the appointment of Nick Boles as planning minister looks to signal a fresh emphasis on reforming the planning system to boost the economy.
However, a brief look at their track record suggests some intriguing possibilities on policy – as well as some potential tensions. Here are three initial questions that occur to me:
What about the green belt? There could, to say the least, be some creative tension here.
Chancellor George Osborne sees relaxing planning controls as one way to generate growth. That’s a view shared by Policy Exchange, the influential think-tank founded by Boles. In Cities for Growth, a report published last November, it argued that ‘green belts are not that green and make our cities greyer’ by forcing the development of playing fields and gardens and assume that ‘development is always a negative’. It called for a new generation of garden cities and city suburbs with large financial incentives for local residents who approve them.
I’m guessing that will not go down too well with constituents in Mark Prisk’s semi-rural constituency of Hertford and Stortford who will be looking nervously at the nearby new towns of Stevenage, Harlow, Welwyn and Hatfield. A quick look at his website reveals his backing for local campaigns against the last Labour government’s plans for 80,000 homes in the county and proposals by developers for a green belt development at Harlow North.
What then will he and his constituents make of the way Boles describes countryside campaigners and opponents of planning reform? As the Daily Mail reports this morning, he told the Tory Reform Group last year that they were ‘hysterical, scare-mongering, latter-day luddites’.
Prisk may also have a particular problem with an idea floated by Osborne over the weekend. The chancellor cited the example of Cambridge. He told Andrew Marr: ‘They have been pretty smart about swapping some bits of the green belt for other bits – in other words allowing some development on the green belt if you bring in new pieces of land into the green belt. Those powers already exist but are not widely used. I would like to see more.’
In 2005, spurred on by the 1,500 acres in his own constituency that he said were under threat, Prisk promoted a private member’s Green Belt Reform Bill. This sought to abolish flexibility introduced by Labour that sounds uncannily close to the swapping described by Osborne and re-establish the ‘permanent character of the green belt’. He told MPs: ‘In a county such as Hertfordshire, it means that land can be released for development if land elsewhere in the region—near Peterborough, for example—is rebadged as green belt,’ he said. ‘As hon. Members will realise, that entirely undermines the idea of a permanent green belt that shapes a city. Indeed, what it leaves us with is more like an elastic band, something that is continually stretched as more and more development is forced in.’
What about the private rented sector? Despite the apparent contradiction of support for the green belt, Prisk is strongly in favour of deregulation and liberalisation as a rule. As a business minister he dealt with selling off the assets of regional development agencies and replacing them with local enterprise partnerships and was also involved in freeing up regulations to allow social housing tenants to start businesses from home.
However, there is one other exception to his suspicion of regulation. In 2007 he tried unsuccessfully to amend Labour’s Consumer, Estate Agents and Redress Bill to regulate lettings agents in the same way as estate agents and give trading standards officers and the Office of Fair Trading powers to tackle rogue firms. He argued:
‘As a Conservative, I am instinctively cautious about arguing for more regulation. However, as a chartered surveyor and a constituency member of parliament, I know that we need to put lettings on the same regulatory footing as sales. The fact that the National Association of Estate Agents, the Royal Institution of Chartered Surveyors and the rest of the industry agree shows that the measure is long overdue.’
He also quoted approvingly the argument put by Shelter about the negative effects of high letting agent fees on tenants struggling to pay their rent and the ‘opportunity to improve regulation of this sector and ensure consistency and affordability of letting agent practice’. At the time the Labour government dismissed his amendments as a ‘cynical manoeuvre’ that was about ‘who represents consumers’ interests’.
However, five years on, does this open up space for movement on the issue that had been closed off by Shapps, who dismissed any kind of private rented sector regulation as ‘red tape’?
The problem, after all, has been getting worse for the last five years: as Shelter revealed yesterday, one in four people feel they have been charged unfair fees.
Another encouraging sign that the new minister may be prepared to listen to the concerns of tenants came just before the election when he was one of 34 Conservatives to support an early day motion moved by Labour’s Brian Iddon calling for more protection for tenants whose landlords are repossessed. Iddon’s Mortgage Repossession (Protection Of Tenants Etc) Act subsequently passed with all-party support.
What about housebuilding? With his construction minister background, Prisk will already be familiar with the issues when the government launches its latest attempt to kick-start more housebuilding on Thursday. The Home Builders Federation was quick to tweet that it had ‘already done some good de-regulatory work with him’ as construction minister and says his priorities should be maintaining funding for FirstBuy, boosting mortgage finance, improving planning and cutting regulatory costs..
However, as I argued yesterday in my blog on Grant Shapps, one of the big problems so far is that the government has been too ready to assume that what is good for big housebuilders will be good for housebuilding. Deregulation such as the relaxation of section 106 and sustainability requirements have boosted the value of their land and their profit margins while housing starts have remained stubbornly stuck at half the level needed. Will Prisk and the DCLG continue to favour the bigger housebuilders or will they be bolder in encouraging smaller firms and new entrants into the market?
That’s just a flavour of the questions that Prisk and Boles will face as they attempt to implement the government’s housing strategy that is expected tomorrow (and answer questions in a Labour debate today).
However, action to deliver an effective housing strategy has to come from across government – not just the DCLG. On that front could the new boys have some questions of their own to add? Less than a year ago Nick Boles joked that he was ‘committing career suicide’ by publicly backing the idea of a land value tax (LVT). It didn’t seem to do his prospects too much harm on Tuesday.
Many people will be celebrating the departure of Grant Shapps today. My own feelings are much more mixed.
I’ve disagreed with the housing minister on most of the major policy changes he’s made, from ending security of tenure to affordable rent and from watering down the homelessness legislation to pay to stay, as well as those he hasn’t like greater regulation of the private rented sector.
However, I’ve never agreed with those who regard him as a few sheets short of a ministerial brief: the Stan Laurel to the Oliver Hardy of Eric Pickles. Entertaining as the comparison was at the time, amusing as it may be to play #shappstistics and #shappsbingo on twitter, if he was just a figure of fun would he have been able to deliver the most radical change in social housing policy for 30 years?
In doing so he has taken an agenda devised in Conservative west London and implemented it with astonishing speed. He’s used the prospect of ‘localism’ to hoodwink the Lib Dems into agreeing to policies they opposed and he’s easily beaten off a Labour opposition that still does not know where it stands on the key issues.
Grant Shapps is a far more complex character than he first appeared. I’ve blogged before about his many faces and his many more faces as Bumptious Shapps jostles for position with Political Shapps, Shameless Shapps, Comedy Shapps and Rapping Shapps. But none of that had prepared me for the appearance over the weekend of his business alter-egos, Michael Green and Sebastian Fox.
For a while it seemed that they might even be enough to wipe him from Downing Street’s reshuffle whiteboard but it’s just been confirmed that he will indeed be replacing Baroness Warsi as Conservative Party co-chair. Who knows, maybe those cheesy books about How to Bounce Back from Recession could even come in handy?
But what about his record as housing minister? As I may have mentioned once or twice, the statistics on housebuilding, homelessness, affordable homes and private sector rents all have to go in the minus column (despite his valiant attempts to spin a good news story out of them). None of his confident pronouncements about the impact of the new homes bonus or building more homes than Labour show any signs of delivering. On just about every measure, the housing crisis has got worse under his stewardship (although in fairness it was always likely to with the economy in recession and housing investment cut by 65 per cent).
Later this week his successor will presumably help to launch the coalition’s housing strategy mark 3 in hopes that stats do not emerge a few days later showing a 97 per cent fall in affordable housing starts. Throughout his term in office, Shapps showed a naïve faith that giving housebuilders everything they want would do the trick when the evidence suggests that they are intent on building their profit margins rather than homes. On what is currently the biggest housing issue facing the country, his time in office has to go down as two wasted years.
On the plus side, at least he has been in the job for over two years (five if you include his time as shadow housing minister). Compared to the revolving door comings and goings under Labour that makes him a veteran who knows his brief. That, plus an ability to charm his critics, was much in evidence at the CIH conference in Manchester in June. Easy as it was to deride many of his initiatives, some of them (like self-build) have still made progress thanks to him.
Shapps has also been refreshingly honest about the fundamental problem in our housing system: that house prices are too high and need to come down. He deserves great credit for speaking out against the assumption that ever-rising prices are a good thing (even if he’s failed to see that this contradicts his argument that everything that is not a market rent is a ‘subsidy’).
He’s said that homelessness is what got him into politics and (discharge of the homelessness duty aside in my opinion) has done some good work in office. It’s worth pointing out that his final public act as housing minister was to announce that homelessness prevention grant will be protected until 2015. I’ve got no inside knowledge but that does seem like an unusual move by an outgoing minister and it was accompanied by confirmation of plans for StreetLink, a new service to be run by Homeless Link and Broadway that aims to ensure that as few people as possible face spending Christmas on the streets. That’s not a bad legacy to leave behind and it’s not hard to see that a new minister could be bad news for homelessness and supported housing.
Even his more grandiose statements are not necessarily a bad thing. His ‘gold standard’ of building more homes than Labour looks about as likely as his pledge to make us a nation of homebuilders but they were both ways of holding him to account and highlighting his record. So was his statement at the CIH conference about grant funding after 2015. A new minister will simply be able to shrug them off as nothing to do with them.
So for all of those reasons, plus a more personal one that he has given me so much to write about over the last five years, I will regret the departure of Grant Shapps.
The appointment of a new minister (not expected until tomorrow) presents opportunities as well as dangers. Maybe they will be open to movement in territory that was closed off until now – notably (as I was reminded on twitter this morning) on the need for greater regulation in the private rented sector that Shapps dismissed as ‘red tape’. Maybe they will not be quite so effective in driving through measures that undermine social housing. Maybe they will be prepared to admit that relying on housebuilders and the market is no solution to the housing crisis. Maybe they will even be part of a beefed-up housing department and have cabinet status. But I’m not holding my breath.
Housing has gained an unexpected new ally in the battle to convince the government to fund more affordable new homes.
City broker Tullett Prebon is better known for its warnings of financial Armageddon and for shoot-from-the-hip appearances on the Today programme by its chief executive Terry Smith. It has even argued that financial austerity and severe cuts in public spending are a myth spun by the government to the bond markets.
But now a report by its global head of research Tim Morgan argues not only that a house building programme is one the few options left for the government, but also that it must be social housing funded by public investment.
The less good news (apart from some apocalyptic warnings about the economy) is that he also supports housing benefit cuts in high-value areas and swallows wholesale the case made by Policy Exchange last week for all ‘expensive’ social home to be sold as they become vacant. However, that still does not completely drown out the good.
What’s intriguing is to see the case for a fundamental change in our housing system being made by someone outside the sector – and on strictly economic grounds with barely a mention of housing need or homelessness.
Morgan argues that ‘for at least two decades, Britain’s housing policy has been a disaster’. It has ignored the relationship between supply, demand and price, put excessive faith in the private rented sector, fallen into the trap of favouring current over capital investment, failed to recognise inter-generational inequalities and lacked the courage to tackle vested interests.
We have deluded ourselves that high property prices are a good thing, he argues. Instead, they swallow up capital that could have been used for more productive purposes and, although they may temporarily boost demand, they inflate debt. Meanwhile, they price out and blight the lives of young people and even the older generations who imagine they will fund their retirement will find that nobody younger can afford to buy.
Morgan claims that house prices are over-valued by at least 25 per cent in relation to incomes and possibly by as much as 40 per cent. Meanwhile low interest rates have blinded us to the size of the mortgage debt we have taken on as a result: a 1 per cent increase in mortgage rates would put 24 per cent of mortgages at risk while a 3 per cent increase would put 69 per cent at risk.
We have not just put too much faith in owning houses but also cast tenants into a limbo of insecurity and high rents by favouring private renting over social renting. That has been compounded the shift from bricks and mortar to personal subsidies as the government expands demand, drives up prices (rents) and bails out buy-to-let landlords by paying housing benefit.
As I argued earlier this week on my other blog, the housing market is dysfunctional because house prices are too high, propped up by emergency financial support, and yet there is no easy way to allow them to fall without replacing one set of problems with another. The government’s solution of hoping that prices will slowly fall back in relation to incomes while it encourages a private housebuilding stimulus to boost supply looks a longshot at best. Another City firm, Fathom Consulting, has been touting a plan based on forcing the banks to repossess people and then indemnifying them against the losses (for more on this unpalatable proposal listen again to the second half of this item on Wednesday’s Today programme).
Morgan’s overall case is that Britain is in trouble because of a decade of dependence on private borrowing and public spending. Conventional fiscal and monetary policies have been ineffective in tackling a deleveraging recession. In these circumstances, a housebuilding stimulus is one of the few viable ways of kick-starting the economy. Most of the benefits will go to the domestic economy rather than leak into imports (as would happen with the alternative of a cut in VAT) and the Treasury will get back most of the costs in reduced benefits and increased taxes.
The report is not without its problems: Morgan’s approach is broad brush and he mixes up starts and completions at one point; he fails to consider that rising housing benefit might be a consequence of rising property prices and rents as much as a cause; and he grasps at Policy Exchange’s plan to sell off expensive social homes as they become vacant without taking into account the practical or social problems of the policy.
However, he goes on:
‘We would be inclined to go rather further than this, adding directly-funded capital investment of £4bn to the £6bn projected by the Policy Exchange report to lift the annual investment programme to £10bn. This could be supplemented by a new levy on second homes.
‘We would stress that this investment should be undertaken by local authorities or housing associations, and not through private-public gimmicks like PFI. The government and social sectors should act as owners and commissioners of new housing, whilst the role of the private sector would be to build the new homes as contractors.’
Just for good measure, he adds that the government should take on NIMBY resistance to new social housing with a new wave of planning reforms.
It’s a case that’s been made before by many people in the housing world but it’s all the more powerful coming from a City firm that otherwise sees public spending as the problem. Whether the government is listening or not, the case for investment in housing has never been stronger.
Here’s why I think the housing backlash against the Montague report is being overdone.
From some of the reactions so far, the review group seem to a bunch of pin-striped latter-day Rachmans intent on squeezing out affordable housing and trousering the profits in between slaughtering the first born and unleashing plague, pestilence and famine.
I’ve been trying to reserve judgement until I had time to read the report. I have to say that I now think the people who have most to fear from this are not housing associations and local authorities but buy-to-let landlords and letting agents who will face professional competition. The plague and pestilence people this week were Policy Exchange, not Montague.
The fuss has all been about Montague’s proposal on section 106. The leaks in advance of publication suggested that he would want market housing to count as affordable in planning deals, raising fears that it would squeeze out the funding stream that has underpinned around half of social housing over the last few years (rising to more than 60 per cent in 2008/09). However, I think that stems from a misunderstanding both of what the report says about section 106 and about what is already happening on the ground.
Montague recommends that local authorities should be able to use existing flexibilities in the planning system to enable the development of private rented homes where they can meet local needs. Government guidance should also include a strong steer to specify private rental needs as part of their strategic housing market assessments.
However, the report as a whole argues that the fundamental reason why build for let has not taken off so far is that the income yield is too low. Although the total return on investment in residential has beaten every other kind of property investment over the last ten years, most of it has come from an increase in capital values. Institutional investors want a steady income so they will choose the 5.6 per cent income return and 1.6 per cent capital growth seen in retail over the 3.5 per cent income return and 5.9 per cent capital growth seen in residential. As in the rest of the housing market, the fundamental problem is that house prices and land values are too high. Build to let will only work if land values are based on rental tenure rather than theoretical valuations based on sale.
Montague argues that the section 106 and community infrastructure levy negotiations on build to let sites should take this into account and that the need for affordable housing should be weighed against the benefits build into market rent developments. ‘In many cases, it will be appropriate for authorities to waive affordable housing requirements in relation to schemes for private rental, or to the private rental component of larger schemes also including an owner-occupied component. And local authorities should review stalled sites to engage the potential of private rented units to engage the potential of private rented units to accelerate delivery.’
Much of the criticism seems to be based on the assumption that the report is calling for a general relaxation of section 106 in a way that will damage affordable housing. In fact, it is only calling for a relaxation for the private rental element.
In the meantime, and in a way that has nothing to do with Montague, a general relaxation of section 106 is already happening and is set to become even more damaging for affordable housing. For examples, just see what has happened with the redevelopment of Tottenham Hotspur’s stadium or plans by its former manager Harry Redknapp for a new apartment building in Portsmouth or the surge in the number of councils taking cash contributionsin place of affordable homes.
This is partly a result of the downturn in the housing market undermining the viability of schemes (Tottenham’s classier rival Arsenal, for example, delivered 40 per cent affordable housing on its stadium scheme but that was during the boom). However, it is also the result of a drive by the government to cut ‘red tape’ for housebuilders. As I’ve previously argued, this has made their land holdings hugely more profitable without leading to the construction of any extra homes. The latest developments include a subtle but profound change in the definition of ‘affordable’ in the National Planning Policy Framework and the implementation of previous plans to force the renegotiation of section 106 agreements made before 2010.
Some of this is necessary to make schemes viable and get building started. Some of it is simply giving housebuilders what they want without any guarantee of any more homes in return. It’s hard to predict the overall impact but the chief executive of one major housebuilder, David Ritchie of Bovis Homes, said earlier this week that the result could actually be to reduce the number of completions.
Ironically, this general relaxation of section 106 requirements could also undermine the proposals in the Montague report because it would remove the proposed land value advantage for private renting. What’s bad for affordable housing is also bad for build to let.
All previous attempts to revive institutional investment in private renting have failed, partly because of investor suspicion about the regulatory regime but mostly because of the house price/income return conundrum. The Homes and Communities Agency tried very hard with its private rented sector initiative in 2009 but it found that it could not make development viable without subsidy. Montague’s way round this is for the public sector to bring forward land using build now, pay later and joint venture models to share the risk and the profits and for the government to adopt a broader definition of value for money so that land does not have to be sold for the highest possible price. Once the model is established, the hope is that build to let will have enough of a track record to attract more investors.
It remains to be seen if this will work and recent history suggests it will be an uphill struggle. The Montague report is far from perfect. It is intentionally short but so light on evidence in places that it does not answer some of the questions in its original terms of reference – it is less a ‘blueprint’ than an outline sketch. It is largely silent on conditions for tenants apart from a vague-sounding voluntary code of practice. A doubt remains in my mind about the identity of the institutional investors: will they be pension funds or commercial insurance companies or could they be rather less desirable housing partners? Sir Adrian Montague himself represents the respectable end of the private equity industry but the more rapacious end of the sector seems to have its eyes on housing in the United States and eastern Europe.
However, despite these doubts, the Montague report deserves a chance. For better or worse, the lines between social and private renting are blurring all the time. It would be a tragedy if misplaced criticism about section 106 helped to undermine a desperately needed source of new investment for housing.
If the government can change the public borrowing rules for roads, why not for council housing?
The papers this morning (see here and here) have been briefed that the government growth package to be launched when parliament returns next month will include not just a housebuilding stimulus but a radical new plan to boost road building.
The plan involves reforming the Highways Agency, which is responsible for the major road network, to turn it into a government-owned company or public trust so that it can borrow money without increasing the public sector deficit.
If that sounds somehow familiar, that’s because the housing sector has spent the last 20 years or so banging its head against a Treasury brick wall to achieve exactly the same for council housing.
With the possible exception of institutional investment in private renting (of which more on Thursday), it’s the probably the subject I have returned to most in all my years of blogging.
The planned ‘horizon shift’ for the Highways Agency is a sign of the desperation within government to stimulate growth in the wake of yesterday’s figures showing an unexpected increase in borrowing in July as tax receipts slumped. It also shows how much things have changed even since April, when the government still seemed to be resisting the case for a construction stimulus.
But that begs a big question: if the Treasury can make one u-turn on what counts as public borrowing then why not another?
It is a case that has been made by a succession of housing experts (see p6 of this briefing paper by Steve Wilcox and Hal Pawson for a fuller explanation of the differences between Britain and the rest of the EU). It is also a long-cherished ambition of Labour and Liberal Democrat reformers. Briefly, in 2009, it even seemed that the Gordon Brown government would take the plunge.
However, cross-party support has grown since then. In 2009, the Conservative-dominated Local Government Association said councils could build 300,000 additional homes after HRA reform if they were allowed to borrow against their assets.
Last year Conservative-controlled Westminster City Council argued for it too in a report saying that councils could raise an extra £1 billion for housing if the government agreed to remove their debt from the public sector balance sheet.
As Philippa Roe, then the cabinet member for housing, now the leader of Westminster, put it at the time: ‘There is a great deal of sensitivity around changing borrowing rules in the current climate, but what we are saying is that it will not affect the credit rating of the UK.’
Since then, of course, the government has reformed the housing revenue account but retained caps on borrowing so it may seem a stretch to expect more radical reform so soon.
The 2010 Lib Dem manifesto included a commitment to ‘investigate reforming public sector borrowing requirements to free councils to borrow money against their assets in order to build a new generation of council homes, and allow them to keep all the revenue from these new homes’. The party’s former Treasury spokesman Lord Oakeshott tells The Guardian this morning: “We need two big bazookas – making the banks lend, with RBS nationalised, and building 100,000 more houses a year, led by desperately needed social house building.’
Changing the public borrowing rules for housing would represent a massive u-turn on 35 years of Treasury orthodoxy but, as I blogged last month, my understanding is that it has not been altogether ruled out within government, with George Osborne agnostic about the idea. The real barriers are said to be the need for the UK Statistics Authority and Office for Budget Responsibility to agree to reclassification of the sector and government wariness of market reaction to Spanish-style financial chicanery by local government.
However, both of these barriers have presumably been overcome for the Highways Agency and the case is actually stronger for council housing. Unlike roads, housing generates revenue in the form of rents and it is already classified as a public trading activity in much of the rest of Europe. Clever ways have also been found for the government to guarantee mortgages under NewBuy and, it is believed, to guarantee housing association loans under next month’s package without an impact on the deficit.
Things are changing so rapidly that nothing can be completely ruled out. The trouble is that both the other major events this week seem to be moving in the opposite direction. On Monday the government made favourable noises about the Policy Exchange report calling for forced sales of expensive council housing to reinvest the proceeds elsewhere. Leaks ahead of Thursday’s Montague report suggest that it will include relaxing section 106 affordable housing requirements and using public land for market rented housing. Both seem to be about cannibalising the council housing asset base for the short term rather than borrowing against it to invest for long-term gain.
Policy Exchange is well known for its opposition to the Green Belt but that has not stopped it proposing what amounts to a Blue Belt in expensive areas of the country.
The influential right-wing think tank published a report this morning calling for social rented homes that become vacant expensive areas to be sold off to fund the construction of more homes in cheaper areas.
Ending Expensive Social Tenancies makes a superficially attractive case for the policy and speaks some undeniable truths about the current housing crisis. Waiting lists are much too high, a shortage of new homes boosts house prices and rents and construction of new homes will create desperately needed jobs. More contentiously perhaps, it says that ‘government needs to make even more cuts in future’ and ‘housing cannot realistically expect more money’.
Reaction so far has ranged from a cautiously enthusiastic Grant Shapps (who says it is ‘blindingly obvious’ that £1 million homes should be sold) to a critical David Orr (the idea is ‘fundamentally flawed’).
There appears to be strong public support. In a poll commissioned by Policy Exchange, 73 per cent of voters agreed that ‘people should not be offered council houses that are worth more than the average house in their local authority’ while 60 per cent agreed that ‘people should not be offered council housing in expensive areas by social class, housing tenure and region’. I wasn’t quite sure what the second one meant either but it was actually a misprint for ‘by voting intention’.
Policy Exchange proposes that ‘expensive social housing’ should be defined as above a regional median - £290,000 in London, £190,000 in the South West, £119,000 in the South West – and then be adjusted for bedroom size It argues that ‘expensive areas are close to cheaper ones across the country’ so that ‘new tenants would be housed close to where they want – near friends and family’. As an additional safeguard, if there was no social housing within 30 miles or no replacement stock could be built within 30 miles, there would be no sale.
The total value of this ‘expensive social housing’ is calculated at £159 billion and at a turnover rate of 3.5 per cent, 28,500 homes a year could be sold off to raise £5.5 billion a year. Once debt was written off, that would generate £4.5 billion a year and fund the construction of between 80,000 and 170,000 new homes a year.
With a range of other beneficial impacts, Policy Exchange argues that ‘the biggest question is why DCLG civil servants have not proposed this policy before’.
Here are a few reasons why off the top of my head:
- Most obviously, it conflicts with any attempt to maintain mixed communities. How many social rented homes will be left in Kensington & Chelsea, Westminster, Hammersmith & Fulham, Islington and Camden after this? Despite that 30-mile rule, the impact on rural communities in the South West could be even more devastating. Policy Exchange rejects the idea of using a national median because it mean selling off virtually all social housing in London and the South East and would be unfair but seems prepared to accept the same unfairness within regions. Listen again here to Neil O’Brien of Policy Exchange and Labour MP Karen Buck debate the report on the Today programme this morning.
- It accentuates the social divisions already built into the housing benefit system, with claimants forced out of expensive areas by local housing allowance caps and the overall housing benefit cap.
- It would accentuate social divisions in education by forcing the sale of social housing in the catchment areas of ‘good’ schools (house prices in these areas are already inflated and so any social housing in them will automatically be ‘expensive’).
- It conflicts with regeneration policy in other areas. What would be the future for the plans of boroughs like Southwark and Newham to regenerate council estates with new mixed tenure developments when they would become the destinations for people forced out of more expensive areas?
- Could this Policy Exchange be by any chance related to the Policy Exchange that argued four years ago that there should be a mass migration from failing northern cities like Liverpool and Sunderland to London, Cambridge and Oxford? Even David Cameron called that “insane”. The effect of the latest policy must be to encourage the concentration of social housing in cheaper areas with higher unemployment – although Policy Exchange denies there is any correlation.
- Could this Policy Exchange be by any chance related to the Policy Exchange that argued two years ago for all council and housing association homes should be nationalised so that 84 per cent of them could be sold off to tenants? If at first you don’t succeed.
Policy Exchange cuts through all these objections by arguing that ‘ending expensive social housing will allow real mixed communities’ because there will be larger amounts of social housing in cheaper areas and because allocation policies would be changed to prioritise those in work. Social tenants, it argues, are more likely to mix with people in cheaper private housing.
However, that ignores changes that are already underway in the section 106 rules for new development. Last week, Eric Pickles announced he was sending in specialist advisers to help unlock stalled housing schemes in a move that will almost certainly reduce agreed affordable housing requirements. The Montague report on institutional investment in private renting is expected to propose that the definition of ‘affordable’ should be extended to cover market rented homes too. The long-term result will surely be a minimal proportion of social housing in any new schemes that are built (as is already happening in Hammersmith & Fulham) and no guarantee that replacement homes will be social or even ‘affordable’.
Above all, perhaps, the Policy Exchange report ignores what is already happening on the ground. Individual landlords already have asset management policies: it may well make sense to sell off a vacant street property that is expensive to maintain but has a high resale value and then reinvest the proceeds. However, those decisions are made within the context of overall aims and objectives that will include a commitment to a mix of housing in their local area as well as broader financial objectives. This idea would simply impose damaging and divisive long-term impacts from above in the end game for what Policy Exchange regards as the mistake of ‘socialist’ housing policy.
Meanwhile, of course, social tenants will be gradually excluded from areas of expensive housing leaving mixed communities of overseas property investors, bankers and lawyers free to flourish and grow. Welcome to the Blue Belt.
Behind the good news story of falling mortgage repossessions a different tale is starting to emerge of rising possession actions against tenants.
Figures published by the Council of Mortgage Lenders (CML) yesterday showed that its members repossessed 8,500 homes in the three months to June. That was the lowest quarterly total since the final quarter of 2010 and implies that the total for the year is likely to undershoot the CML’s forecast of 45,000.
Considering the grim forecasts made in the depths of the financial crisis, that is very good news indeed. A combination of record low interest rates, forbearance by lenders and reforms of legal procedures that led to a dramatic fall in possession actions in 2008 look the most likely explanations. However, that did not stop Grant Shapps from claiming that it was actually down to the government’s action to tackle the deficit.
Things look much less rosy for tenants. Separate figures produced by the Ministry of Justice show that, after falling every year bar one between 2002 and 2010, the number of landlord possession claims rose in 2011 and that the upward trend has continued in the first half of 2012.
The second quarter saw 14,614 mortgage possession claims issued, a fall of 20 per cent on a year ago and a rate of 0.63 per 1,000 households. In contrast, landlords issued 34,554 possession claims, an increase of 4 per cent and a rate per 1,000 households that is two and a half times as high at 1.50.
Meanwhile there were 11,328 mortgage claims leading to possession orders made in the second quarter, a fall of 17 per cent and a rate of 0.49 per 1,000 households. That contrasts with 24,441 landlord claims leading to possession orders, an increase of 8 per cent and a rate of 1.06 per 1,000 households.
Mortgage possession orders made in the second quarter were down in every region of the country compared to a year ago. Landlord possession orders made fell in the North East and were unchanged in the West Midlands and the East, but rose everywhere else.
Landlord orders made rose 15 per cent in London (2.21 per 1,000 households) and by 21 per cent in Inner London (2.55). In contrast, mortgage orders made fell by 17 per cent in London (0.43) and 22 per cent in Inner London (0.31).
Is it just coincidence that London is the region most affected by the housing benefit cuts introduced so far? Or that the possession order made rate per 1,000 households is eight times higher for tenants in Inner London than it is for people with a mortgage?
The disparity also reflects structural changes in the housing market. As I report on my other blog, buy-to-let lending continues to rise remorselessly and landlords now account for one in eight of all outstanding mortgages. That has happened despite the fact that lenders are almost twice as likely to repossess a buy-to-let landlord (the repossession rate in the second quarter was 0.12 per cent) as they are an owner-occupier (0.7 per cent). Clearly both landlords and tenants are more likely to face possession claims than people wth a mortgage.
The figures are more startling when you consider that this does not include cases where an assured shorthold tenancy comes to an end and the landlord decides not to renew.
Figures broken down by type of landlord suggest that a rising proportion of possession claims are coming from private landlords. Second quarter claims by social landlords using the standard procedure were down slightly on a year ago. Claims by private landlords using the standard procedure were up slightly. However, claims under the accelerated procedure rose by 25 per cent to 7,765. The Ministry of Justice says these are by private landlords against tenants with assured shorthold tenancies but I think they include Ground 8 claims by housing associations too.
Social and private landlords both had slightly more claims leading to orders using the standard procedure in the second quarter than a year ago. Orders made using the accelerated procedure were up by 24 per cent.
The contrast between mortgage and landlord possessions also applies when you look back over a longer period.
Mortgage possession claims issued are down by 22 per cent since the election in the second quarter of 2010 and by 63 per cent since the depths of the financial crisis in the second quarter of 2008. Mortgage possession orders made are down by 16 per cent and 62 per cent.
Landlord possession claims issued and orders made are down 5 per cent and 3 per cent since 2008 but up by 10 per cent and 9 per cent since the election.
Before ministers congratulate themselves too much over the fall in the politically sensitive mortgage repossession statistics, they might want to take a look at this worrying rise in possession actions against tenants. And consider that the cuts in housing benefit introduced as part of the deficit reduction that supposedly cut mortgage repossessions have only just begun to bite.
If the Devil is in the detail then he is dancing a jig around the regulations for the universal credit and the benefit cap.
Ok, I am exaggerating for effect but by how much? Take a look at the response (PDF here) from the Council of Mortgage Lenders (CML) to the consultation by the Social Security Advisory committee that closed on the opening day of the Olympics and you decide.
Many of the same points are being made by the CIH, NHF and others but they have an added impact coming from the organisation representing lenders that have invested £60 billion in social housing and cannot be easily dismissed by ministers as coming from the ‘housing industry’.
The CML accepts the time for debating the policy has passed and says it is encouraged by Lord Freud’s commitment not to implement the changes in a way that will undermine the financial viability of the sector.
But it warns: ‘We continue to be concerned that the combined effect of these changes…could be to destabilise landlords’ income streams with consequential impacts on lender and investor confidence in the sector as a whole, particularly the smaller to medium sized housing associations.’
It adds that the overall package of the universal credit plus other welfare reform and council tax benefit changes ‘could be disjointed and bring unintended consequences’.
And it criticises ‘the quality and limited extent of the impact assessments….which suggest only a patchy understanding of how the effects of this package will play out and take no account of how they will interact with other changes in welfare reform on the near horizon’.
Many people have highlighted the contradictions and the problems with the different elements of the package but the lenders have more reason than most to be concerned about the sector’s financial viability.
On the treatment of service charges, the CML warns that streamlining to just three eligible types ‘is a simplification too far and could leave landlords out of pocket with knock-on effects on their cash flow’. It is even concerned that shortfalls could impact on the maintenance of essential safety systems like fire detection and suppression and put homes at increased risk of damage and deterioration and mean landlords face hefty fines for health and safety failures. The DWP says there will be more detail in future guidance, but the CML ‘is concerned that vague specification in the regulations and reliance on guidance for this major cost element for landlords will ultimately lead to more charges being excluded than included’.
The same points are being made powerfully by charities running women’s refuges. Women’s Aid warns that the reduction in eligible service charges’ could make refuges financially unsustainable and Refuge says this plus the impact of the benefit cap could result in the closure of its 297 refuges. Rhiannon Bury blogged yesterday about the continuing debate about the definition of ‘vulnerable’ and the imposition of the benefit cap.
On the bedroom tax, the CML is worried both about the regulations themselves and their implementation by landlords. It welcomes the fact that there is no prescriptive designation of what constitutes a bedroom but it is concerned about ‘widescale redesignation of properties of some properties in certain areas and the impact that this could have on landlord income’. It calls for a commitment from the DWP that the deduction rates will not be increased in the review of the operation of the size criteria.
It shares the concerns of the NHF that the definition of ‘exempt accommodation’ like supported and sheltered housing may exclude some schemes where support and care is provided separately and that this could ‘significantly undermine the viability of such schemes’.
What about others living in the ‘under-occupied’ home? Welfare reform minister Lord Freud has repeatedly pointed out that affected tenants could take in a lodger and that the universal credit regime will disregard their rent payment. However, the CML points out the absurdity that a tenant with a lodger will still be treated as an under-occupier: ‘it is slightly perverse that the claiming tenant should still be treated as under-occupying when an otherwise unused room is being let’. It also calls for clarity on the temporary absence rules: if students are away at college in term time but back in the holidays will there be a deduction when they are absent?
And how many people will really be affected? The number of people that the DWP estimates will lose their housing benefit entirely doubled from 20,000 in the first impact assessment in February 2011 to 40,000 in the latest in July 2012. ‘This all adds to unease in the sector (and which might also manifest in investor reticence) and an overall lack of confidence that government knows with certainty what the effect of measures such as this will be.’ Meanwhile the effect of the interaction of the benefit cap, the bedroom tax and rent direct ‘will be extremely difficult to predict and quantify’.
The CML says that all this uncertainty – different impacts in different areas, tensions between the DWP wanting to cut the benefit bill and the DCLG wanting associations to go for affordable rent and the fact that the results of demonstration projects and pathfinders will only be available after the regulations have been passed – leads to ‘lenders and investors in the sector viewing it as increasingly risky’ at a time when the government wants to build more affordable homes to stimulate growth.
It concludes that all the changes are so significant that the DWP needs to get them right from the outset. That will take more time than has been allowed and there are still ‘too many variables and too many blanks’ to be filled in later:
‘The social housing sector is an intricate machine; significant manipulation of policy and funding levers without fully understanding the potential impacts, is likely to cause major disruption to the way the sector works, both in terms of its ability to support its tenants and its ability to attract investment for development of new affordable housing.’
As the universal credit moves closer, the doubts about the details grow larger. There is still widespread concern about the impact of direct payment. The great prize is meant to be simplicity for claimants and clarity that they will always be better off in work. However, the CIH points out that even this is contradicted by the proposed abolition of extended payments for the long-term unemployed.
And all of that is before we get to the worries about whether the IT system will actually work. There is still time to find the devil in the detail but it is beginning to run out.
Even as the Olympics provide compelling evidence that Britain is not as broken as the government makes out, the anniversary of the riots is a reminder that it is not fixed either.
In the glow from the marvellous opening ceremony and the stellar performances of the athletes it’s easy to forget that we are a country in austerity and recession. Perhaps that’s because we weren’t when we won the games and when the stadia and all the other facilities were funded.
The Olympics and the Paralympics that follow are like a holiday from the cuts, unemployment and welfare ‘reform’. The thousands of volunteers who are being hailed as a living embodiment of the Big Society are happily working for nothing for the common good rather than being made to work for nothing for private contractors. And the homes that will be built at the athletes village and on the Olympic park will be a lasting legacy of all that investment.
What a contrast with a year ago today when the riots and looting led to (depending on your point of view) either despair about the deprivation and inequality that lay behind them or anger at the feral, feckless youth who caused all the damage. As this blog argued at the time, the truth was always much more complex than the kneejerk calls to evict the families of rioters made out.
When the independent Riots Communities and Victims Panel delivered its final report to David Cameron, Nick Clegg and Ed Miliband in March, it concluded that the main lesson was that everyone, and especially young people, need to feel they have a stake in society. In contrast to the Broken Britain propaganda, it found limited overlap between the rioters and the government’s 120,000 ‘troubled families’ and called for more help for 500,000 ‘forgotten families’ to turn their lives around. A month before, Inside Housing’s Riot Report had highlighted the positive work being done by housing organisations all over the country.
So far the Olympics have been a powerful antidote to the negativity about Broken Britain. The opening ceremony was an inclusive celebration of multicultural Britain that delighted everyone apart from the odd Nazi uniform-wearing Tory MP and Daily Mail columnist. It gave us an optimistic vision of ourselves that most of us did not fully realise was there.
At the games themselves, there are the thousands of enthusiastic volunteers, many of them drawn from deprived communities around the Olympic Park. Give or take the odd bit of dodgy timekeeping in the fencing they really do seem to have been a success.
And then there are the athletes. At first we were regaled with stories of public school domination in sports like rowing. The only mention of social housing seemed to be as a launching pad for missiles. But medallists like Bradley Wiggins and Louis Smith (and previous ones like Dame Kelly Holmes and Liz McColgan) have shown that success comes from state schools too – and from council estates.
The games will have a strong housing legacy too. The athletes village will be converted into 2,800 mixed tenure homes including 1,479 that will be affordable. Of these, 675 will be for social rent, 354 for intermediate rent and 350 for shared ownership or shared equity.
Another 6,800 homes will be built in five neighbourhoods across the Olympic Park. Last week, the London Legacy Development Corporation appointed Taylor Wimpey and L&Q to build 870 homes in the first of them, Chobham Manor. Of these 28 per cent will be affordable and a community land trust could be part of the deal. In a real sense, as Ricky Burdett of the LSE (a former chief advisor to the Olympic Delivery Authority) argued last week, London is taking the first step to its Great Leap Eastwards.
As Gavriel Hollander reported in June, the athletes village is likely to be England’s last large-scale social housing development. The affordable homes in Chobham Manor and the rest of the park will of course be ‘affordable’. Residents of the Carpenters Estate on the periphery of the park say that its 500 council homes will be replaced by just 80 once it is demolished and redeveloped after the games. Newham will be using the Localism Act to prioritise people who are in employment or actively pursuing it for the new homes. No matter what you think of some of the detail, London 2012 will at least leave lots of homes behind.
However, when the glow of the Olympics and Paralympics wears off, cold reality will reassert itself and we will be back in the same austerity and recession as before. How long will it be before we hear the rhetoric about Broken Britain all over again? Are we prepared to do something about inequality? When senior police officers and politicians like Tottenham MP David Lammy tell is that ‘the conditions that led up to the riots still exist now’, are we really listening?
As the Olympics gives a daily boost to London’s image as a global city, how long will it be before the government acts on overseas property ownership?
The evidence on the scale of the ‘investment’ and the impact on the rest of the London housing market is mounting steadily. In March, I blogged about a report from the IPPR arguing that London property has become a sort of global reserve currency for the wealthy elite and warned about the effect on housing across the capital as billionaires price out millionaires and the effect works right down the system to priced-out first-time buyers, ripped-off private renters and forced-out housing benefit claimants.
A report from the Smith Institute last week concluded that over 60 per cent of new homes in central London are currently being bought by overseas investors and that a large proportion of them are being kept empty. And it warned that the growth in overseas investment (mainly from the Far East) is set to continue despite the new 7 per cent stamp duty rate on property over £2 million and levy on property bought through companies. That brings with it a real risk of a new house price bubble and of a further fall in home ownership in the capital (it is already down to 52.5 per cent).
The sums of money involved are colossal. The IPPR estimated that the amount of foreign capital flowing into prime London property rose 72 per cent to £5.2 billion in 2011. The Smith Institute points out that this is five times more than the annual investment in affordable homes in London and a third of all loans made for house purchases.
Money like that is impossible for developers to ignore. Take the huge Nine Elms regeneration plan between Battersea Park and Lambeth Bridge. As the Financial Times reported yesterday, it’s a chance of a new South Bank a stone’s throw from some of most expensive property markets in London.
One developer, Ballymore Group, plans 2,000 homes by 2015 and is already selling in south-east Asia with 260 out of 314 properties it will only start building next month already pre-sold. Another, St George South London, feels the need to point out that Asian purchasers are often buying not just for investment reasons but in many cases to house their children who are studying in London. ‘There’s not a lot of liquidity in this part of the world but international money is prepared to invest in the area,’ managing director Mark Griffiths told the FT. ‘It’s not just south-east Asia. When you get to £3m-plus properties you’re looking at Russia and the Middle East.’
From the point of view of a developer, it’s all perfectly understandable. You market your ‘units’ where the money is and pre-selling them takes the risk out of building them. However, from the point of view of London and the country as a whole, it means that provision of new homes is even more inadequate to meet levels of domestic demand than the headline figures suggest and that house prices and rents will continue to increase beyond the means of local incomes. At Nine Elms, Lambeth is pushing for 40 per cent affordable housing and Wandsworth 15 per cent – but what about the rest? Should they also be worrying about the percentage of local buyers - or even how many of the homes will actually be occupied?
Figures from Hometrack yesterday suggest that the London market is starting to cool at last but a survey of prime property in 27 global cities by Knight Frank revealed that London came fifth with a 10.5 per cent increase in prices in the year to June thanks to its reputation as a safe haven for investment.
Knight Frank says that the prospects for the rest of the year are ‘muted’ thanks to the Eurozone crisis and ‘protectionist’ measures in Asia-Pacific. Governments across the region have moved to cool down their property markets, with controls on lending, new taxes and restrictions on second-home ownership and foreign buyers. According to its Asia-Pacific Residential Review in December 2011, Singapore introduced an additional buyer’s stamp duty of 10 per cent for foreigners. From May 2012, Australia removed the 50 per cent capital gains tax discount for non-residents (foreign buyers have been restricted to new build properties only since 2010). The new chief executive in Hong Kong wants to restrict purchases of certain classes of new housing development to residents. In Malaysia, the government could double the minimum price of properties that foreigners can buy from RM500K (around £100,000) to RM1 million.
The measures seem to be working so far too. In Singapore the number of units sold to foreign (non-permanent resident) buyers fell 76 per cent between the fourth quarter of 2011 and the first quarter of 2012. Knight Frank concludes that ‘continued intervention across Asia-Pacific to cool markets, reduce speculation or limit foreign buyers will continue to be an important factor in the region’s property markets’. Asian governments are acting to take control of their housing markets while Asian buyers enjoy unrestricted access to ours.
The property firm comments that: ‘Most of these measures and sentiment comes as a popular backlash from domestic buyers who feel priced out of their birth right by foreign buyers. This swing towards populism underlines how property booms have impacted affordability, especially for first time domestic buyers.’ How long before there is a similar backlash here? ‘Protectionism’ is seen as a bad thing because it restricts free trade but we are talking about a limited supply of homes not an export good where production can be increased to meet demand.
The Olympics is providing a daily reminder of the attractions of London and ministers are pulling out all the stops to attract overseas investment. After a wonderful opening ceremony that celebrated London’s diversity and enthused everyone apart from the odd Tory MP, this is emphatically not a call for the restoration of a xenophobic Little England but how much of that ‘investment’ will merely add to domestic demand for a stock of homes that is already inadequate? And is that ‘investment’ at all?
If the case for a housing stimulus was already unanswerable, today’s confirmation of the depth of the recession makes the lack of one unfathomable.
It’s not just the 0.7 per cent fall in GDP in the second quarter or the 0.3 per cent falls in the two previous quarters or that this is the first double dip recession since the 1930s. It’s not even the fact that the construction industry’s 5.2 per cent fall in output between April and June and 4.9 per cent in the first quarter is one of the major reasons why it happened.
It’s more that, as Brian Green argues over at Brickonomics , the numbers were so predictable. Anyone keeping half an eye on the construction numbers knew things were bad (if not quite this bad) and knew that private sector orders were not making up for cuts in government investment. As I argued, the case for housing was blindingly obvious when the first quarter GDP figures were published in April.
The government will argue that it has responded to this crisis with a growth package for the industry but the closer you examine last week’s measures the less they stand up to scrutiny. They started to unravel for me when I discovered that ‘the greatest investment in the railways since the Victorian age’ was going to mean a 30 per cent cut in direct trains between Cornwall and London. Less parochially, and at a time when a stimulus needs to work quickly, the package seemed to prioritise precisely the sort of large-scale infrastructure projects that take longest to get off the ground because they have the longest lead times.
The announcement on the UK Guarantees Scheme may have won plaudits from groups like the CBI that have argued consistently for a housing-free investment programme. Granted the first guarantees will be awarded in the Autumn and to qualify projects must be ready to start within 12 months of a guarantee being given but the detail hardly inspired confidence of its their ability to make a difference now, when they are most needed.
The only mention of housing was in the section on a temporary lending programme to help public private partnership infrastructure projects that are struggling to raise enough private finance to go ahead. The Treasury said an estimated £6 billion of projects could be eligible, including schemes in transport, health, housing and education. The trouble is, of course, that housing has very few PPP projects because the alternative model of housing associations raising private finance has been so successful. Housing, it seems, was as much of an afterthought this time around as DCLG director general Peter Schofield has admitted it was when he worked on the original Treasury plan for growth.
To the surprise of everyone (including me) there was no mention at all of a scheme to guarantee housing associations loans to bring interest rates down to as low as 20 basis points above gilts. This was the centrepiece of my attempt last week to build a ‘good news’ case for housing and I was confidently expecting to see it there. It remains to be seen whether this measure has been delayed until the Autumn for some technical reason or it has been shelved for some other reason (Treasury nervousness about keeping it off balance sheet?). However, the effect is still to delay the one form of new construction that would deliver growth and jobs most quickly and effectively. As the DCLG has been telling everyone who will listen, every 100,000 new homes means 1 per cent on the GDP, but the opposite applies when 100,000 homes are not built. Next time you go past a big rail or road construction site look at how much of the work is done by big yellow machines made abroad – in contrast housebuilding is relatively labour intensive. The big direct stimulus for housebuilding that we have seen so far is NewBuy but as I have argued many times before it does not follow that what is good for housebuilders is also good for housebuilding.
There are also worrying signals emerging ahead of the second part of my good news case: the Montague report on institutional investment in private renting. Extra investment by pension funds and insurers in private rented housing has to be good news on the face of it, and even more so if housing associations win a major role in provision that allows them to cross-subsidise other activities. But what if the recommendations amount to allowing the private rented sector to cannibalise the funding streams of the social sector. That’s exactly why leaks about changes to section 106 rules to allow private rented homes to count as ‘affordable’ and loans to private renting squeezing out grants to social renting are so worrying (see Inside Housing’s story on this from the end of June and The Guardian’s from Saturday).
That is very much a debate to come when the Montague report is published (this month seems to have slipped into the next few weeks on that). For the moment, the crucial issue surely has to be that it is in the government’s own interests to boost construction of new homes and it is not yet doing remotely enough. Only one thing would generate growth and jobs more quickly – cutting VAT on repairs and maintenance, maybe on a time-limited basis – but the politics of that one did not seem to work out too well for David Gauke yesterday.
Labour’s plan to regulate letting and managing agents is a good start to its policy review on housing – but no more than a start.
The idea enjoys widespread support – not just from private tenants who are fed up with being ripped off by outrageous fees but from private landlords and reputable agents too. As Labour points out: ‘It’s a peculiarity of current policy that while estate agents, who hold very little money on behalf of their clients, are regulated, letting agents who hold significant sums on behalf of landlords and tenants are not.’
But what took so long? The Rugg review commissioned by the Labour government proposed regulation of agents plus registration of landlords when it was published in October 2008. It took the government seven months to respond. A green paper in May 2009 included a pledge to introduce ‘full mandatory regulation of private sector letting agents and management agents’. But there was no Housing Bill in Labour’s final Queen’s Speech and the plan was still pending when it lost power a year later.
One of the first things Grant Shapps did when he became housing minister was to drop the plan completely, without actually mentioning letting agents. He said in June 2010: ‘With the vast majority of England’s three million private tenants happy with the service they receive, I am satisfied that the current system strikes the right balance between the rights and responsibilities of tenants and landlords. So today I make a promise to good landlords across the country: the government has no plans to create any burdensome red tape and bureaucracy, so you are able to continue providing a service to your tenants.’
Two years on, at a time when England has 1.4 million landlords and 3.6 million households living in the private rented sector and when the evidence has piled up about the rip-off fees imposed on both of them by unscrupulous agents, and Labour is pledging action again.
It may be sensible to start with a measure that will enjoy broad support across the industry but there is no mention of registration of landlords or some of the things that the light-touch system envisaged by the Rugg review ruled out, such as controls on retaliatory eviction. Shadow communities secretary Hilary Benn hinted at more to come in an interview with The Guardian yesterday. While he rejected calls for rent controls (‘we don’t want to return to that because [the rental sector] is meeting a demand for housing’) he said he would consider linking rents to inflation ‘on an annual basis’.
The caution is perhaps understandable in a month when the Montague review is due to publish its report on attracting institutional investment into private renting. The Resolution Foundation published a report on this today proposing a new build to let model with debt and equity investment by institutions and a new role for housing associations in getting schemes built that can be sold on to funds. Political uncertainty is one of the factors regularly cited by institutions as a reason why they do not invest and no party wants to cause more uncertainty at a time when public investment is in such short supply.
However, in the meantime the rest of the UK has been leaving England behind. In Wales, for example, the Labour government has just published plans for a national, mandatory registration and licensing scheme for landlords, lettings and management agents.
And, as Robbie de Santos points out in a blog for Shelter, there are signs that tenants in England are beginning to organise and call for action. The Cally Cows campaign was set up after the TV programme The Secret History of Our Streets exposed a landlord who said that if a cow is producing milk ‘you keep milking’. The Haringey Housing Action Group protested outside a letting agent over fees. And the Housing for the 99% campaign demonstrated outside the National Landlords Association.
However, one big problem is that the politicians know that millions of private renters are not eligible to vote. It could even be one reason why Boris Johnson won the London mayoral election despite Ken Livingstone’s private tenant friendly policies.
As I argued on my other blog in May, millions of people have effectively been disenfranchised by our housing system – by the unstoppable growth of private renting. A report published by the Electoral Commission in December 2011 estiamted that six million people were not registered to vote on December 2010 registers. While 89 per cent of outright property owners and 87 per cent of people with a mortgage were registered, just 56 per cent of private renters could vote. This disenfranchisement of millions of private tenants is only set to get worse as the sector grows and it could be permanently locked into the system if changes are adopted to define constituencies according to the number of people registered (as opposed to eligible) to vote.
The treatment of private tenants has broken through as a political issue but tenants need to keep up the pressure and politicians need to know they will take it to the ballot box.