A documentary about housing on Channel 4 is usually the cue for me to look what else is on TV. This time I watched the programme – and the reaction to it.
Inside my Twitter feed, the debate was about whether How to Get a Council House (watch again here) presented a realistic but depressing portrait of life on the waiting list or trivialised the issues by ignoring the reasons why the wait is so long.
Outside my feed, the racists, kippers and anti-welfarists were in full cry. Search under the hashtag #howtogetacouncilhouse and you will quickly see what I mean: in this world council housing is the preserve of immigrants and scroungers. All of the public prejudices against people on benefits are simply transferred to council tenants.
The programme looked at Tower Hamlets in London, where 24,000 people are on the housing register. The queue is getting longer all the time because for every 40 properties that become available, 60 new people are joining.
The positive side of the programme was that it showed what life is like for the people waiting for a home and the housing officers doing their best to help them in an impossible situation. It will have shown people in some detail how and why people get priority for housing and hopefully dispel some of the myths (though not on Twitter). Perhaps (as reflected in this Telegraph review) it will make people think about why the system operates as it does.
Choice was a key theme. The council operates a choice-based lettings scheme but it made me wonder about the value of informing people that their bid for a flat came 1,058th in priority and of inviting six families to a viewing when three of them have no chance of getting a home. As Colin Cormack from the council said at the end of the programme, ‘for the majority of people in the queue there is no choice whatsoever’.
The negative was the inevitable tendency of the cameras to focus on the cases that will look good on TV but are not necessarily representative. People who get a new home and thank the housing officer do not make for good telly. People who are picky enough to turn down nine offers or insist on a parking space to go with their brand new three-bedroom flat do.
And the programme was also shorn of any context. I’m not sure what the Tower Hamlets waiting list was like when I lived in Bow in the early 80s but the number of people I knew who managed to get a hard-to-let council flat seems a fair indication. If you had told me then that a flat on the Ocean estate would one day be on sale for almost £500,000 I would never have believed you.
There was little or no explanation of what’s changed in the meantime. The only mention of the right to buy came from a neighbour of a tenant waiting for a ground floor flat. It was never explained that the Bengali population of Tower Hamlets (who prompted many of the racist tweets) has been established for decades. The impact of parachuting Canary Wharf into one of the most deprived areas of London was never examined. Above all, there was the irritating way that each property allocated had its market price juxtaposed with what the council rent was without ever asking why market rents are so high.
However, as I was reminded on Twitter earlier, perhaps that is a different programme entirely and certainly not one that would get an audience of 2 million people. I’m reliably informed that episode 2, which features the impact of the bedroom tax in Manchester, will definitely be worth watching next Thursday night.
If you take even a cursory glance at the circumstances of the 10 families involved in the legal challenge to the bedroom tax you’ll be left wondering how discretionary housing payments can possibly resolve their problems.
I read the High Court ruling painfully aware that I lack the legal expertise to interpret the finer points of the European Convention on Human Rights and Public Sector Equality Duty but with enough experience to know that what is lawful is not necessarily the same as what is fair.
The background to the case has already been covered in detail elsewhere. As Inside Housing reports, although the judges said that new measures must be introduced to protect disabled children who need their own room, housing groups were left bitterly disappointed by the dismissal of the other part of the judicial review and lawyers plan to appeal. Read this excellent blog by Kate Webb of Shelter or see statements by the solicitors involved here and here if you haven’t already for the background.
The Department for Work and Pensions (DWP) said that it was ‘pleased to learn that the court has found in our favour and agreed that we have fulfilled our equality duties to disabled people’ but also announced an extra £35 million of in-year discretionary housing payments (DHPs) for what it calls the ‘spare room subsidy’. Given that previous announcements on extra money and concessions have been made under political and media pressure, was this one made with one eye on the appeal (or even a different result)?
The case appeared to turn on whether the DWP’s strategy of relying on DHPs demonstrated that it had acted with sufficient regard to discrimination considerations and was adequate mitigation. The judges accepted the DWP’s argument that it was too difficult to come up with definitions of the degree of disability or adaptation of a property that would justify exemptions for adults. Unlike children who cannot share a bedroom by reason of their disabilities, there was no such ‘discrete group’ of adults. See this blog by Sue Marsh for an alternative take on that.
That leaves most of the 10 families involved in the case relying on discretionary housing payments that are being applied under policies that (as evidence presented by Shelter to the court showed) vary widely between different local authorities.
An annex to the ruling describes their circumstances in some detail:
- Jacqueline Carmichael, a woman with spina bifida who lives in a two-bed flat with her husband who is also her full-time carer. Their housing benefit has been reduced by 14 per cent but they have a six-month DHP to cover the shortfall.
- Richard Rourke, a disabled man in a wheelchair, lives in a three-bed bungalow with his step-daughter, who stays in university accommodation during the week in term time and over some weekends. He sleeps in one bedroom, his daughter in another and he uses the third to store equipment. He is appealing against a 25 per cut in his housing benefit and has requested a DHP that is not yet decided but is accruing arrears in the meantime.
- Melvyn Drage, a man with significant mental health problems and various physical difficulties, lives in a three-bed flat on his own. His conditions are exacerbated by stress and he is very anxious about having to move. He has a six-month DHP covering the shortfall on one bedroom but has rising rent arrears for the other.
- JD and her disabled adult daughter AD live in a specially adapted three-bed property. AD’s twin brother had lived in the house but has now moved out. AD has severe physical disabilities, learning disabilities and visual impairment and needs 24-hour care and is unable to move herself without assistance. After housing benefit was reduced by 14 per cent, JD appealed, but the local authority has deferred consideration of that until the outcome of this case. She has a six-month DHP until the end of September but has been told it is unlikely to continue after that.
The other six cases all involve children and presumably have some grounds for hope that they will be exempted from the bedroom tax given the judges’ comments. However, they too face varying degrees of uncertainty over their DHPs and are also part of the appeal because they still do not know whether they will be entitled to full housing benefit or when any new regulations will be made.
That brief summary reiterates just how much depends on what happens when the existing DHPs run out. This was also very much the case for residents of Aragon Housing Association who I blogged about last week. The crunch time for many people seems to be the end of September, which is when 26-week awards will run out. The ‘urgent appeal’ sought by the bedroom tax lawyers will I assume be heard before then.
But there will still be time to wonder at the logic of the judges who made today’s ruling, who appeared to argue that it was not their job to intervene at the level of principle or of detail. On the one hand, they said that lawyers for the 10 claimants ‘overlook or underestimate the strategic aims of the policy: not only to save public funds, but also to shift the place of social security support in society’. On the other, they said that even though the equality impact assessment of the policy did not address the implications for disabled people, it was not the job of the court to ‘micro-manage’ the policy making process.
All those high earners with social tenancies seem to be slowly melting away ahead of the government’s plan to implement ‘pay to stay’ market rents.
I’m not just talking about the impact of the policy itself and the incentive for tenants to declare an income of £59,999 or even to cut the number of hours they work to get out of paying a market rent for their homes.
Rather I’m talking about the government’s own estimates of the number of high earners. When the policy was first floated at the Conservative Party conference in October 2011, the Telegraph was briefed that there were 6,000 ‘fat cat’ tenants earning more than £100,000 a year.
By the time the government published a consultation paper on the plan in June 2012, it emerged that this was actually the high estimate of the number of households where the household reference person and their partner earn six figures. The low estimate was only 1,000.
Little wonder then that ministers had turned their attention to people a household income of more than £60,000. The consultation paper’s estimates of these slightly svelter cats ranged from 12,000 to 34,000.
And now the numbers have been reduced still further in the summary of responses published by DCLG last week. By combining new data from the 2010/11 English Housing Survey with the two previous surveys, the government now estimates there are now a maximum of 5,000 households earning £100,000 or more.
The estimates for £60,000 earners have also been cut significantly. The low estimate is reduced from 12,000 to 11,000 and the high estimate by 38 per cent from 34,000 to 21,000.
As I’ve blogged before, the reduction to £60,000 introduced more contradictions into a policy that was already riddled with them. However, it’s clear that many people disagree and support for the policy seems greater than for most of the other coalition housing reforms.
According to the summary of responses:
‘Around a quarter of respondents agreed with the principle that very high earners living in taxpayer-subsidised social housing should pay higher rents and were supportive of the proposal, while around one-third said that they agreed in principle but had some practical concerns. Over a third were opposed.’
Leaving aside that loaded use of taxpayer-subsidised (see my earlier blog for arguments on that), that leaves it unclear whether they were talking about a specific income threshold or just the principle but it does indicate reasonable support from social landlords.
This is not the first time that the principle of high earners living in social housing has become an issue. In the 1960s, the People campaigned for years on ‘the scandal of the wealthy tenant living in a council house at a subsidised rent’. However, nothing ever came of it after the Conservative government of the early 1970s used the issue as one of the justifications for a general increase in council rents.
As Inside Housing reports today, the government is proposing that high-earning tenants should be legally obliged to declare their income:
‘We also want to make sure it is the responsibility of those high-income social tenants to ensure they are making a fairer contribution. We intend to seek a legislative opportunity to place the onus on tenants earning over the threshold to declare their income, when parliamentary time allows.’
That sounds less cumbersome (and certainly less expensive) than the alternative of getting landlords to verify the income of all their tenants but it creates all sorts of incentives for tenants to take steps to minimise their earnings – or else just under-declare. And will it really be worth it for landlords to investigate? Details will follow on the potentially thorny issue of what constitutes ‘income’. Either way it seems likely to lead to another reduction in the number of high earners.
Another key issue in the consultation was whether pay to stay should be voluntary for landlords, which would be consistent with localism and the way that other reforms such as fixed-term tenancies have been introduced, or a compulsory national scheme. The wording in the summary of responses is ambiguous on this point:
‘We will take steps towards removing the regulatory controls preventing private registered providers charging market rents to social tenant households on incomes of more than £60,000 per year; and will set out revised rent guidance for local authorities’.
The ultimate justification for pay to stay would of course be if it raised significant extra revenue. The document pledges that ‘all additional income from the policy will be available for reinvestment in affordable housing’.
However, how much extra revenue will we really be talking about from a total of high-earning tenants that seems to be shrinking all the time? One of the biggest logical flaws with the whole policy is that it is ‘unfair’ for high earners to benefit from a subsidised rent but ‘fair’ for the same people to benefit from a subsidised purchase through the right to buy. The logical response of anyone who does face a market rent would surely be to apply for their (newly increased) discount.
That’s not the only way in which the policy contradicts itself. As Steve Hilditch argues on Red Brick, it also leaves social landlords even deeper in the mess that is government policy on rents. With rent convergence abandoned, landlords will be left with a patchwork of social rents, sub-social rents that have not converged, ‘affordable’ rents of up to 80 per cent of market rents and market rents. Surely it’s way past time that rents were based on what tenants can afford rather than set in relation to an unaffordable market where prices and rents are driven by other considerations.
Finally, the £60,000 threshold was apparently chosen because it is in line with the income eligibility limit for schemes like shared ownership. However, higher limits of up to £80,000 already apply for the First Steps programme in London and the government has blown even those out of the water by extending eligibility for Help to Buy to households earning up to £150,000.
Pay to stay has probably already achieved its political purpose in generating headlines about Bob Crow and Frank Dobson. As a housing policy it is at best a contradictory distraction from the real issues.
With the Institute of Directors on one side and Simon Jenkins on the other, where is a safe place to stand?
I blogged about Help to Buy 2 earlier this week the day before the breakfast meeting at which George Osborne would apparently reveal full details of the mortgage guarantee that will be available in January.
Nothing that happened over the coffee and croissants has changed my view about the dangers of increasing demand for housing while doing nothing about supply. The schemes that it replaces are open to criticism too but at least they were targeted at first-time buyers and new-build homes. Help to Buy 2 will available to all buyers and on secondhand properties too – and it extends state support to people on household incomes of up to £150,000. Will it trigger a boom and bust that leaves the government picking up the bill or (perhaps more likely) give future governments a direct stake in propping up house prices?
The Treasury press release following the breakfast came complete with endorsements from the big housebuilders but that is hardly a big surprise given the billions of pounds worth of direct and indirect subsidy they have received over the last five years. Treasury minister Sajid David was particularly unconvincing when he told the Today programme on Tuesday that it was ‘self-evident’ that if you boost demand you also boost supply.
Lenders seemed less convinced. The Council of Mortgage Lenders struck a noticeably neutral tone in its response, setting out criteria for success including that Help to Buy ‘be accompanied by an equivalent government focus on the supply of new housing (not just the supply of credit), to avoid the unwelcome effects that stimulating demand without also increasing supply would create’. The Building Societies Association argued that if the banks had applied the same lending criteria as its members over the last few years there would be no need for Help to Buy.
We now know slightly more details about how the mortgage guarantee will work. Applications will be subject to income verification and stress testing and people with impaired credit will not be eligible. On one level, that should help to ensure that lending is responsible, but on another it could mean that many of the people who most need help will not get it. Borrowers will also have to sign a declaration that the guarantee is not for a buy to let property or second home. This prompted an entertaining exchange on the World at One, when housing minister Mark Prisk insisted there would be no return to the self-certified mortgages of the past and was then forced to deny that the borrower’s declaration that they have ‘no interest in a property anywhere else in the world’ amounts to exactly that.
But we still do not know some crucial details. Lenders will want to see what the Prudential Regulation Authority says about capital relief before deciding whether to take part. They will also be charged a commercial fee if they do but this has not yet been set and the cost will presumably be passed on to borrowers in mortgage fees and/or higher interest rates.
Back with the bigger picture, criticism of Help to Buy continues to come from all sides, including many people who you might think would be natural supporters of the government and George Osborne. The loudest of these was Graeme Leach, chief economist of the Institute of Directors, who supplied the soundbite of the week by saying that ‘the world must have gone mad for us to now be discussing endless taxpayer guarantees for mortgages’. From an IoD perspective Help to Buy goes directly against the need to leave everything to the market: ‘Instead of trying to pump-up prices, the government should focus on relaxing planning laws and reducing local authority charges on developers to make it easier to build more homes.’
That argument has been heard many times before in the debate within the Conservative Party about the NPPF in which free market fundamentalists argue for ‘socialist’ planning to be swept away while the Telegraph, National Trust and CPRE fight any attempt to release more land for new homes. And sure enough the Trust chairman Sir Simon Jenkins rides to the rescue of Help to Buy in today’s Guardian, leaving me feeling stuck between a rock and a hard place.
With a questionable claim that the scheme is somehow Keynesian, our nimby in chief argues that it is better to throw money at the real economy than print it through quantitative easing. Dismissing the case for 250,000 homes a year as a lobbying tool for volume housebuilders, he argues that:
‘Such new building is near irrelevant to the housing market. It is less than 1% of the total stock and under 10% of daily housing transactions. But Osborne’s scheme may at least be pushing up prices. This will not help first-time buyers, let alone the social housing sector, but it should bring to market the half a million homes lying idle in builders’ property banks. That is a good thing. It may even encourage building on marginal sites in cities, where most poor people live.’
Osborne should instead stop ‘dancing to the tune of Barratt and Persimmon’ and subsidise the renovation and renewal of existing homes and development on brownfield land. So far, so semi-plausible, except that you know that this is part of a case against new homes being built anywhere else.
‘Why taxpayers should pump money into boosting house prices is a puzzle buried deep in Britons’ desire to hold and profit from land,’ he argues. ‘It makes no economic sense.’ Better to be like the Scandinavians and Germans who rent and spend on goods and services rather than ploughing their money into ‘inert lifetime investment’.
You might think that sounds like a very good argument against Help to Buy – but you would be wrong. His conclusion is that: ‘At least Osborne is pumping liquidity into something other than bank vaults. He is gambling that a revival in the “sub-prime” mortgage market will boost confidence, gambling that inflationary expectation spurs growth. It is an acknowledged theory.’
The piece struck me as vaguely unhinged until the real agenda struck me. For people like Simon Jenkins, the fact that Help to Buy will boost demand and inflate house prices while doing very little to encourage new supply is most definitely a good thing. Maybe the IoD is not so bad after all.
Every time I think I’ve got my head around the pernicious impacts of the bedroom tax something new emerges to make me think again.
The trigger this time is an excellent report from Aragon Housing Association on the first 100 days of what the government calls the spare room subsidy. But that also sent me back to several conversations I had at the CIH conference in Manchester and reports published while I was on holiday from the National Housing Federation (twice), Chartered Institute of Housing and Convention of Scottish Local Authorities.
Even before that the evidence was accumulating from around the country that the effects are at least as bad, and probably worse, than most people expected or feared. From rent arrears in Newcastle and Ayrshire to fears of more suicides in Birmingham to criticism of the Labour leadership’s stance on the issue in Liverpool, the effects of the bedroom tax continue to be felt emotionally, financially and politically.
Aragon’s study caught my attention because of its dispassionate tone and the way it focuses in on the impacts on one relatively small organisation. It currently believes that 461 of its 6,500 tenants are affected and that they face an average shortfall of £18.01 per week.
As elsewhere, they essentially face a choice between trying to stay in their home and trying to move. Of the first group, 107 are living in specially adapted properties, protected for the moment by 26 weeks of discretionary housing payments.
Of the second, only 41 have managed to move to a smaller property in line with the stated rationale of the policy and bids for two-bed homes under the local choice-based lettings scheme are treble what they were last year.
Rent arrears rose by 9 per cent between the start of the bedroom tax in April and the end of June. However, most tenants had two rent-free weeks at the start of April and the increase since then is 24 per cent. The number of tenants affected by the bedroom tax and in arrears has risen from 187 to 279.
Much of this will be familiar from around the country. But the report also has evidence of some knock-on effects of the bedroom tax that were not widely foreseen even in the welter of parliamentary and press attention over the last few months.
First up, as seen elsewhere, is the increasing difficulty of letting three-bed homes. Most bedroom tax victims are not the large families of media stereotype and cannot afford to pay a rent shortfall for the larger homes that were built as a matter of longstanding policy in the area.
However, the downsizing so far has had unpredictable results (at least they are to me). Under choice-based lettings, three of the three-bed homes had to be relisted because there was no suitable bidder for them. Of the 41 vacated larger properties, 15 have gone to Band 3 (low needs) priority applicants and seven have gone to Band 4 (no needs). Another 15 have gone in mutual exchanges. So much for the government’s argument that the bedroom tax will free up homes for desperately overcrowded families. That does not seem to apply even as close to London as rural Bedfordshire.
Voids of larger homes are an issue around the country. One landlord in the NHF Merseyside report saw its three-bedroom voids double in the first three months of the tax and another estimates each one costs £3,000 in repairs, lost rent and staff costs. As Inside Housing reported two weeks ago, some landlords in the North West and North East are already considering options including demolition of homes – something that would really put the government’s supposed aim of encouraging more efficient use of the housing stock into perspective.
Second, the dilemmas facing someone who decides to look at downsizing into the private rented sector are more acute than I had realised before. It’s clear that in most parts of the country that will mean trading security of tenure and a shortfall for a more expensive six-month tenancy that will cost the government more than it saves through the bedroom tax. However, in Bedfordshire and many other parts of the country it will also mean a shortfall for the tenant because of the way the local housing allowance (LHA) works.
Compare LHA rates and actual rents in the local area, and someone downsizing to a private rented home would face a £16.15 shortfall in Stevenage, £22.66 in Bedford and £29.35 in Milton Keynes. That Bedford shortfall is 15 per cent, which is more than the 14 per cent deduction for under-occupying by one bedroom under the bedroom tax. The net result would therefore cost the tenant more as well as the taxpayer.
Little wonder then that staying put and finding the money somehow looks like the best option for many people. Though Aragon operates relatively close to London, the largest town has 310 jobseekers and just 30 new jobs that became available in the first week of July. It’s also a rural area where, as MPs on the environment committee calling for a rural bedroom tax exemption this week recognised, communities face particular problems.
Like landlords all over the country, Aragon has put in place a whole range of measures to help, including advice on benefits, bills and employment, food parcels and food growing projects, working with a local credit union and IT training courses.
However, as the effects of the bedroom tax continue to work their way through the system the big question for landlords and tenants all over the country is when the next big change will come. At the moment, the impact is being financed by a combination of discretionary housing payments, tenants scrimping and saving and landlords incurring rent arrears.
Sooner or later tenants will have nothing left to scrimp and landlords will be forced to recover those arrears. I spoke to some in Manchester who anticipated their first possession actions this month for people who were already in arrears. It will take until the Autumn for bedroom tax shortfalls to reach the two month arrears threshold that can be the trigger for a Ground 8 claim. What will judges decide? How will local authorities respond to any homelessness applications by evicted tenants? And what will be the political impact of media coverage of evictions?
Sooner or later DHPs will run out and the delayed effects of the bedroom tax will start to play out. In many areas the most vulnerable under-occupiers, including disabled people living in specially adapted properties, are protected for now. Unless more money is found, or there are successful legal challenges, that will not last.
One potential piece of good news is that by October the universal credit will start to apply to some people with new and more generous rules on income from lodgers. What will be the impact of that? And of the combination of the bedroom tax with direct payment and the new accelerated recovery system for arrears revealed by Lord Freud in Manchester? Or his threats against landlords that reclassify their homes?
The pernicious effects of the bedroom tax will continue to play out in predictable and unpredictable ways.
Is it too late to mitigate the impact of the impending disaster that is Help to Buy?
As the government prepares to reveal more details of the mortgage guarantee element of the controversial scheme (probably tomorrow), the evidence is already accumulating of the effect of early impact of Help to Buy plus the boost to mortgages delivered by the Funding for Lending scheme.
Mortgage lending is up, asking prices are up for seven months in a row and reservations under the equity loan part of Help to Buy are up by almost three times on the more limited and targeted FirstBuy scheme that it replaced.
So too are forecasts of what will happen to prices over the next few years. The National Housing Federation warned in a report today that our failure to build enough homes means that the average price of a first-time buyer home could rise by 42 per cent by 2020 and average rents by 46 per cent.
Last week Savills increased its forecast for the increase in house prices up to 2017 from 11. 5 per cent to 18.1 per cent. ‘A combination of low interest rates and stimulus measures means there is capacity for improved price growth over the next three years or so,’ it said.
An increase on that scale would take prices above their 2007 peak by 2015. Although Savills points out that the increase after taking inflation into account would be just 2.3 per cent, that still looks dangerously high at a time when earnings are falling in real terms and mortgage affordability relies on interest rates that must rise sooner or later.
The bump in confidence in the market is being fuelled partly by equity loans and Funding for Lending (which was also meant to be about loans to small businesses but seems to be ending up mostly in mortgages). However, it must also be in anticipation of the launch of the much bigger element of Help to Buy, £12 billion of mortgage guarantees in January 2014.
Buyers under that will have to put up a minimum 5 per cent deposit which will be forfeit first if the boom is followed by a bust. The obvious danger is that the bigger the boom in prices in the meantime, the more the share of the mortgage guaranteed by the state could be at risk in a subsequent bust.
Tomorrow’s announcement could reveal more on many of the details left unclear at the time of the announcement in the Budget, including the fee payable by lenders, the effect on their capital adequacy requirements and the government’s exit strategy at the end of the scheme.
These are important issues but it seems unlikely that the government will change its mind on the most important one: the advisability of having the scheme at all. I’ve never been a great fan of government home ownership schemes but at least the previous ones were too small to do much damage. Help to Buy is bigger both in scale (homes up to £600,000) and scope (extending assistance beyond first-time buyers and new homes).
So it is all too late? Is potentially the biggest housing policy disaster since the double mortgage tax relief debacle of 1988 now inevitable? With almost six months to go there must still be options that will boost housing supply rather than just increase prices.
However, there are problems with most of the alternatives too. The most obvious might seem to be to restrict Help to Buy to new build homes, especially if that could be used as a way of encouraging new entrants into the market. However, the billions of pounds worth of subsidies and deregulation that the government has showered on housebuilders so far have inflated their profits rather than encouraged them to build more homes. Might increased transactions achieve more?
Similarly, restricting the scheme to first-time buyers might just inflate prices in that part of the market. Lowering the £600,000 threshold would definitely be an idea but could also create distortions at lower price points. One possible measure, suggested by Toby Lloyd of Shelter, might be to beef up the law on restrictive covenants to ensure that government help remains targeted on the next generation of buyers who need help as well.
The best option would be to scrap the mortgage guarantee element of Help to Buy on the basis that the mortgage and housing markets already seem to be on the move without it.
However, the chances of that happening seem to be zero. Help to Buy should, as critics point out, be called Help to Sell, but the scheme is really about the wider economy and the government’s electoral prospects.
If it works on the scale suggested, then rising transactions and house moves will feed through into increased spending on household goods, perhaps delivering enough of a boost to the economy as a whole for ministers to be able to claim that the recovery is well under way by the next election in May 2015.
Combine that with the feel-good factor generated by all those first-time buyers helped on to the housing ladder, and all those existing home owners feeling the paper wealth of increased house prices, and you have the real motivation for Help to Buy.
There is still time to address some of the technical issues about Help to Buy, and in particular the need for an exit strategy to stop it developing into permanent government intervention in the housing market. However, the brief interlude in which the government seemed to understand that what we need is house price stability now seems a very long time ago.
So where are the 250,000 homes going to come from? And what are the consequences of not building them?
Almost ten years after the Barker review set that benchmark for housing provision in England to keep house price inflation under control, a new report out from Shelter points out that we are already a million homes behind. If we carry on building at today’s miserable levels the shortfall will rise by another million homes every six and a half years.
In Getting Serious About the Housing Shortage, Matt Griffith and Pete Jefferys argue this would mean accepting a continued fall in home ownership and an ever-rising housing benefit bill while increasing individual and national vulnerability to economic shocks.
The alternative, which they set out in more detail than I’ve seen elsewhere, would involve reforms that go beyond ‘narrowly targeted interventions and short-term gimmicks’.
The report argues that even on a relatively optimistic assumption of increases in private housebuilding, total output will still be almost 100,000 homes short of what is needed by 2017/18.
However, the gap can be made up through a combination of short-term changes and longer-term structural reforms. In the short term these include:
- Direct investment by central government. A programme of £12 billion of investment or 1 per cent of GDP every four years, as advocated by Vince Cable, would deliver 51,000 homes a year.
- Reform of local authority borrowing. Councils could deliver 12,000 homes a year based on prudential accounting or 17,000 with the adoption of European borrowing rules.
- Planning reforms. Commercial to residential property conversions could deliver 10,000 homes a year whole more flexibility on the green belt could deliver 33,000.
In the longer term, measures include developing garden cities and new towns and supporting self-build. Done in combination with community land auctions and greater use of compulsory purchase, these have the potential to deliver another 62,000 homes.
Totted up like that you can see just how much would be required to reach the 250,000 homes threshold – and how powerful the temptation is for governments like this one to tinker round the edges instead and store up even bigger problems for the future.
A key theme of the report is that new players are needed since ‘our current actors cannot, by themselves, make up the housing shortage’.
These could include contractors and smaller builders, reversing the concentration of the housebuilding industry into a handful of major firms that have failed to increase supply despite billions of pounds worth of government support since 2008.
Local authorities – seen as sleeping giants - could play a major role both through their increased borrowing powers and through taking a more proactive role in land assembly, as is common in the Netherlands and Germany.
And new strategic development vehicles, perhaps operating off balance sheet or with private backing, could drive the creation of new towns and garden cities using powers to acquire land at close to existing use values.
Meanwhile government could go much further with schemes to guarantee investment and find ways to promote supply without increasing borrowing (both Help to Buy and Build to Rent do not count as public borrowing).
The report sets out an agenda that could, and should, have been adopted at any time since the financial crisis hit in 2008. There may be little prospect of action under the current government but a new administration after 2015 could be a different matter.
The proposals centre on supply, and there is only brief consideration of demand for housing through tackling under-occupation and the taxation of land. How about promoting growth in regions outside London, which have land available and also have thousands of empty homes? How about, as Savills suggested last week, investing in more student accommodation to free up around 66,000 homes around the country?
For my money too, the report takes rather too much for granted on the capacity of the construction industry to deliver 250,000 homes a year.
Investment in housing looks like a great proposition when every £1 spent generates an additional £2.09 of additional economic output and 92p of it stays in the UK.
However, as Chris Blythe of the Chartered Institute of Building pointed out at the CIH conference last month, construction has an ageing workforce and skills shortages could be a major issue. Meanwhile, in a market dominated by big housebuilders intent on maximising profitability rather than output, materials suppliers have adjusted capacity accordingly.
So there must be a danger that an expanded housing programme would suck in imports of foreign labour and materials. Why not then combine it with an expanded programme of training and apprenticeships to tackle youth unemployment and measures to give materials suppliers the confidence to invest? That way housing could deliver far more than just 250,000 homes a year, however desperately they are needed, and be even more attractive to a future government.
Overall though this is a major report that sets out a clear agenda for tackling a housing crisis that will otherwise just continue to get worse. As Matt Griffith argues on Shelter’s policy blog: ‘These options all involve hard choices and significant changes. Yet the worst option of all would be to do nothing.’
Returning from holiday this morning to hear Iain Duncan Smith mouth half-truths and dodgy stats about benefits on the Today programme it felt like I had never been away.
In an astonishing interview IDS packed in so many questionable claims that it seemed he was determined to establish a decisive lead in the Department for Work and Pensions (DWP) game of dodgy stats bingo.
The idea of the competition is to pack as many misleading claims and figures into a broadcast interview as you can and score one point for each one that goes unchallenged. I have absolutely no evidence of course that such a thing exists but I believe that it may.
This after all is that same standard of evidence that IDS applies himself. Questioned by John Humphrys about the UK Statistics Authority’s refutation of his claim in May that 8,000 people have already returned to work as a result of the cap, he simply asserted: ‘I believe this to be right’.
With faith-based politics like that in action there seems no limit to what he can achieve. Hey presto, claimed IDS, ‘every week something like half a million new jobs are in the job centres’. At that rate there should be no unemployment within a few weeks.
Abracadabra! There is no problem getting affordable housing in London. ‘We believe that there is plenty of accommodation available. A third of all rental accommodation in the private sector is available for those who are on social rents.’ Even allowing for him tripping over his own tongue at the end, that’s quite a claim.
Shazzam! ‘The homelessness figures have hardly moved at all’ in response to the housing benefit cuts so far. In fact, homeless acceptances have risen 34 per cent since the election.
Open sesame! This will stop councils putting people in homes they cannot afford in work – conveniently forgetting that this is exactly what the government is doing with affordable rent.
Behold! Fairness means the old dodgy chestnut of ‘not living, for example, in some cases living in houses costing £50-£100,000 a year in rent’.
When Humphrys quoted figures from Haringey (one of the four pilot areas) showing that in only 4 per cent of capped families had someone found paid employment, IDS fell back on what other people believe.
‘Let’s reverse this argument and put it to you that there are plenty of families out there working and paying their taxes who will be asking this question: ‘why are we arguing about this, why are we having a debate as to whether or not somebody should be earning more than they are on welfare payments not working?’
This shifts the proof from ‘I believe this to be right’ to ‘lots of other people believe it to be right’ and lots of opinion polls about the popularity of the cap would appear to bear this out regardless of the facts. The principle that nobody should earn more out of work than average earnings for someone in work does get wide support, especially among people who cannot conceive how much rents cost in London. Except of course that it a false comparison based on a fictional benefit system. Anyone in work with a high rent or a large family (the two main groups affected by the cap) will also be getting tax credits and housing and other benefits too.
All of which is why the benefit cap and the faith-based politics of IDS are so pernicious. Using the same logic, he could just as easily argue that it is wrong that someone working part-time should apparently get more than someone working full-time, or that the cap should be reduced still further (which is already a serious proposition among some Conservative MPs).
So now we know: 10 years of certainty on rents, five years on grant and who knows how many more years of welfare ‘reform’.
The future has come into much clearer focus this week following the spending round on Wednesday and the investment announcement on Thursday. And, as luck would have it, all of this coincided with the biggest housing conference of the year.
The CPI plus 1 per cent rent formula from 2015/16 is pretty good news for social landlords that had been planning for something less generous. On current levels of inflation it’s actually more than RPI plus 0.5 per cent. However that misses out the +£2 a week bit of the old formula and perhaps that, plus different forecasts of the gap between the two measures, explains why the Treasury also expects to save around £1 billion over the spending round period.
I had to leave Manchester before Mark Prisk delivered the sting in the tail of the good news about the £3.3 billion affordable housing programme from 2015/16: faster disposal and conversion of vacant stock.
The last thing I heard was Lord Freud attempting to reassure providers about the universal credit and struggling to reassure anyone about the bedroom tax. As others have pointed out already, his justification for something that will drive many tenants into the hands of doorstep lenders charging 5,000 per cent was that it is needed to keep interest rates low. He is not the first work and pensions minister to use this dubious argument incidentally – it’s part of a much bigger process and more benefit cuts are to come.
Put all of that together and this was a momentous week for housing. It could also hasten the commercialisation of many housing associations and accelerate the slow death of what we used to call social housing in England.
‘Affordable’ rent now seems to have moved from being a temporary policy to keep the show on the road to a more long-term plan for near-market rents that defines affordability in relation to the market rather than what people can actually afford to pay. As research published by the Joseph Rowntree Foundation today shows, rising rents are part of a much bigger inflationary squeeze on people on low incomes and that is set to get worse.
The new affordable housing programme will apparently deliver 165,000 affordable homes for £2.8 billion of grant. As Pete Jefferys points out on Shelter’s policy blog, that implies an average grant of £17,400, compared to £22,000 under the 2011-2015 programme and £60,000 under the 2008-2011 one.
Treasury chief secretary Danny Alexander hailed it as ‘the biggest public housing programme for over 20 years’. Judged strictly in terms of the number of units, he’s right – is it completely ridiculous to imagine that the starting point was being able to make that claim?
Allowing him some leeway, I’ll ignore the fact that most of the money will come from private finance and delivery will mostly be through housing associations that count as private for public borrowing purposes. However, he over-egged the hype when he also claimed it was ‘the most ambitious and significant investment in affordable housing for a generation’. In fact, in real terms it is not just a cut on the previous spending round but probably the smallest investment since the mid-2000s.
It would seem that the Treasury and DCLG decided to ignore warnings from housing associations that they do not have the capacity for another round of affordable rent. That sounds logical when they have cried wolf many times before over the last 25 years only to fall into line and compete for the cash when it becomes available. However, the fact that the DCLG considered tweaking the rent formula to disadvantage non-developing associations might be seen as evidence that this remains a background concern.
The new programme already appears to include about three times as many affordable rent homes as in the existing one (much of which was social rent inherited from Labour). However, yesterday’s speech from Mark Prisk indicated that the spending round will extend affordable rent even further and faster than before:
‘With all this money and this commitment, there will be expectations about efficiencies. We will need to maximise the value we get out of every taxpayers’ pound… In considering bids for grant, we will expect providers to bring forward ambitious plans for maximising their own financial contribution – and we will expect this to include a rigorous approach to efficiency, along with plans to maximise cross subsidy from your existing stock. We expect providers to take a rigorous approach when looking at every relet and asking how they can use them to build more homes for more families. I expect the result to be a significant change in the number of homes that are either converted to be let at affordable rent or are sold when they become vacant.’
Under the existing programme, relets are limited to around 2 per cent of the existing stock (around 80,000 homes). An increase would mark a significant acceleration of the vanishing act for traditional social housing that I mapped out a year ago.
However, it would also have a much greater impact on the housing benefit bill – and those savings the Treasury is expecting from the rent formula. A recent report by the Future of London found that the proportion of tenants on benefits in affordable rent properties was the same as in traditional social housing. It found that even though rents were nowhere near the 80 per cent of market rent maximum, they were still on average 40 per cent higher than social rents. That means tenants in ‘affordable’ housing are in effect being condemned to the welfare dependency the government claims it is dedicated to defeating.
And the future of welfare will have a profound impact on the policy too. Housing associations will be taking part in affordable rent knowing that they can no longer rely on housing benefit to ‘take the strain’. More and more rents will start to hit the household benefit cap and and housing benefit will also be part of the overall welfare cap that threatens to leave tenants with rising shortfalls year on year. As Matthew Gardiner says in his assessment of the week: ‘you can charge it, but can you collect it?’ could now be the question asked by boards and funders.
Given all that, why take part at all? Why not simply concentrate on development for sale and proper market renting and for working households and use the profits to cross-subsidise their other work? That assumes that this can be squared with the regulator (who they will now have to pay) of course. Just as well then that Julian Ashby made a similar point this week, arguing that social housing could just become a ‘legacy’ for some organisations as they become more commercial.
One potential solution, according to Future of London, would be to make affordable rent a more explicit intermediate tenure for people in low-paid employment, alongside traditional social rents for those on benefits. That sounds logical and it may well be where we are heading. However, given it would be happening alongside a continuing reduction in social rent, it also implies that people on benefits will in reality be corralled into the lowest cost and lowest quality end of the private rented sector.
The government has also rejected the case for more borrowing freedom for council housing. That is a no-brainer that could have delivered tens of thousands more homes and generated growth and jobs much more quickly than the grand infrastructure projects featured in the rest of the Treasury’s Investing in Britain’s Future document.
The Treasury’s hostility to anything that smacks of a return to the past seems to have killed that idea. However, it also seems to have rejected the carefully reasoned arguments put forward by larger housing associations for the freedom to raise their rents and borrow against the income streams to fund more homes. That would still have been unpalatable to some but it would at least have been based on a definition of ‘affordable’ that relates to incomes rather than market rents.
Given that Labour is implying it will stick to the government plans, the spending round has set the ground rules for housing for the next five years at least (though it could at least address the borrowing cap on councils). Despite the good news on the rent formula and future availability of grant, that can only intensify the dilemmas facing housing associations that are already struggling to balance being socially hearted and commercially minded.
16:55 A final thought on that £3 billion for affordabie housing. We won’t know more details until tomorrow when they seem set to be part of the government’s Investing in Britain’s Future announcement. What we do know, though, from the full spending round document, is that the DCLG Communities capital budget will see the second biggest cut across the whole of Whitehall. it will fall 35.6 per cent from £4.7 billion in 2014/15 to £3.1 billion in 2015/16. The smoke and mirrors - and more - will no doubt be revealed tomorrow.
16:30 Although the Lib Dems and Conservatives could not agree on more benefit cuts, that did not stop George Osborne announcing yet more ‘welfare reform’. On top of the long-term cap on benefits including housing benefit, he revealed that new claimants will have to wait seven days before receiving job seekers allowance in future.
Alison Garnham of the Child Poverty Action Group attached that as a ‘foodbanks first’ policy that would hurt families stuck in the low pay, no pay cycle. Once direct payment comes in it also looks like a guaranteed way of generating rent arrears - and/or businsess for payday lenders.
16:15 Back from speaking about blogging to doing the thing itself and we don’t seem much closer to clarity on some of the key spending review issues. Reaction so far is subject to detail that should start to emerge from tomorrow.
As David Orr of the National Housing Federation puts it: ‘The Chancellor has made some broadly positive announcements for housing and health and social care today. But we need the full details of the capital settlement for developing new homes to really understand what impact today’s announcements will have on our ailing housing market.’
And Grainia Long of the CIH said it was unclear whether the spending round passed test it had set that housing should be recognised as an important form of infrastrucutre with detail still to emerge on the £3 billion mentioned by Osborne.
David Orr saw the CPI+1% rent formula as a ‘positive step’ that could help housing associations plan for building more homes but Grainia Long was concerned that it could reduce landlords’ income and therefore their ability to deliver more homes.
Nick Duxbury reports for Inside Housingthat the formula could save the Treasury £540 million a year by 2017/18. the figure comes from policy costings attached to the spending round that say ‘there is expected to be a reduction in local authority current receipts and capital expenditure’.
13:45: Signing out for now to talk about blogging at Manchester 2013 - back here later. Highlights so far are that extra £3 billion for affordable housing (is it new money? grant? guarantees?) and the new CPI plus 1 per cent rent formula (rather than RPI plus 0.5 per cent plus £2 - how will it work, especially with housing benefit included in the welfare cap linked to inflation?). No mention (that I can see so far) of council housing borrowing cap.
13:30 Some highlights from the spending review documents just published here:
‘The Government is today publishing capital allocations for all departments for 2015-16 and will set out shortly how over £100 billion of capital will be invested over the next Parliament in transport, science, schools, housing, broadband and flood defences.
‘The Government is committing to a significant package of capital spending on housing. The Government will set out its approach to affordable housing in Investing in Britain’s Future.This will include giving certainty that social rents will increase by CPI plus 1 per cent a year from 2015-16 to 2024-25.’
13:20 Osborne confirms housing benefit will be included in welfare cap. Will apply from April 2015 set for four years, reflecting inflation but in cash terms. More pain for tenants - and for landlords too?
12:47: Osborne pledges ‘over £3 billion of affordable housing investment’ to balance 10 per cent cut in DCLG’s resource budget. More details to come.
11.55: Interesting quote from Philippa Roe, Conservative leader of Westminster City Council, on council borrowing reported on Andrew Sparrow’s Guardian Live blog:
‘It’s now down to us as local authorities to behave differently when it comes to delivering services, and that covers everything from social finance schemes to early intervention on troubled families. Freeing up restrictions and allowing councils to borrow against their assets is key. That will allow us to build more houses, get more people into work, save money and deliver better public services. The chancellor has an opportunity with the spending round to do exactly this, but he needs to be radical and not let the opportunity slip.’
10:45: Just under two hours to go and here are some of the many key spending review questions for housing:
1) Is housing infrastructure? The good news story coming out of the review will undoubtedly be extra investment in infrastructure (full details of projects tomorrow). However, that tends to mean big-ticket items like roads and rail that deliver easily measured benefits to business while housing tends to be mentioned as an afterthought. How much (if any) housing grant will Osborne retain – and could he even attempt to spin a cut as an investment boost?
2) Where will the cap fall? Osborne is said to be about to spell out the details of how a cap on many working-age benefits will operate. Much of this will be after housing benefit is absorbed into universal credit. Are we set for years of below-inflation and below-rent increases in housing payments to private tenants – and how far will the cap extend to the social sector too?
3) What about rents? Speaking of which, the social sector will be watching closely for signals on the future of ‘affordable’ rent and the government’s renewal or otherwise of the RPI plus 0.5 per cent rent formula. Where will the balance be struck between the needs of landlords for certainty about future revenue and investment, Treasury concerns about rising housing benefit and the needs of tenants whose incomes are set to rise by much less than that? Will the government attempt to squeeze non-developing associations through the formula?
4) What about council borrowing? If Osborne and the coalition are even remotely serious about tackling the affordable housing crisis, they have to set local authorities free. The CIH argues that raising the borrowing cap by £7 billion could generate 75,000 homes in the next five years. Surely nothing can stand in the way of such a no-brainer – or can it?
5) What about London? It’s where the housing crisis is most acute and a certain mayor wants to take control of the capital’s stamp duty and other taxes. The G15 argues a major programme of affordable housing could be funded by discounted land and ring-fenced stamp duty receipts. Will Osborne really hand over the money or put the idea quietly on a Treasury shelf?
8.30: Here are the highlights of the advance speculation in this morning’s media.
Most Whitehall departments face cuts of 8-10 per cent in the review covering 2015/16, according to Nick Robinson of the BBC. Health, schools and overseas aid are protected. Robinson says Osborne will announce more long-term plans to ‘to invest more in Britain’s infrastructure in building roads, railways and housing’ plus more details of a long-term cap on much of benefits spending.
The Financial Times says Osborne will sweeten the £11.5 billion of cuts by promising ‘long-term capital commitments to road, rail, energy, housing and broadband projects’. Capital spending priorities for the next five years will be detailed later, with details of which specific infrastructure projects will be funded to follow on Thursday. While energy infrastructure will be high on the list, George Parker and Elizabeth Rigby say: ‘Housebuilders will also be given a boost as the government outlines details for the next cycle of the affordable homes programme.’ Let’s hope it’s not just housebuilders.
Osborne will unveil details of a consultation on a long-term welfare spending cap, which would cover disability and housing benefits, according to The Guardian. Though the review will only cover 2015/16, Patrick Wintour says Osborne will try to put Labour on the back foot by challenging it to accept the need for more cuts in the two years after that and has more on the politics of that here. As local government looks set to be in the firing line for more cuts, The Guardian says Osborne will set out the size of the single local growth fund while Treasury chief secretary Danny Alexander is expected to reveal details of the extension of community budgets in a bid to save £4 billion by ending duplication of services. A separate ‘good news’ announcement on infrastructure projects will follow on Thursday.
Just to lighten the mood, Andrew Grice in The Independent has experts forecasting that further cuts and tax rises will have to follow after 2015/16 whoever wins the next election, while Allister Heath in the Telegraph says turmoil in the financial markets could torpedo Osborne’s plans before they have even been published.
Elsewhere, the Centre for Cities has a briefing on the single local growth fund asking whether there will devolution or disappointment. The Social Market Foundation has a briefing putting the spending review in the (depressing) context of more austerity to come after 2015/16.
For more on what’s at stake for housing, including rents, council borrowing and more, see Michael Haddon’s feature in last week’s Inside Housing.
A stark warning of the consequences of market failure in the housing system comes from an independent commission today.
The broad-based group set up by the Royal Institution of Chartered Surveyors is chaired by Michael Newey, RICS president elect and chief executive of Broadland Housing Group, and also includes Mark Clare of Barratt, Nick Jopling of Grainger, James Pargeter of Deloitte Real Estate, Paul Tennant of Orbit and Duncan Maclennan of the University of St Andrews.
They argue that: ‘High house prices, complemented with high levels of housing unaffordability are the greatest signs of market failure. This in turn has an adverse effect on labour mobility, commuting, productivity and job creation. This commission recognises the negative impact that a poor housing system has on the wider economy and hopes to see it elevated still higher on government agendas.
In other words, what the commission argues are ‘clear signs of market failure’ include negative externalities that go far beyond housing and require a switch away from the ‘short-termism’ that has characterised policy for the last 50 years.
However, in an illustration of just how difficult it is to break away from a short-term approach, the commission seems to face both ways on current government policies. For example, it manages to ‘welcome’ help to buy as one of several ‘positive initiatives to help the state of housing supply’ and as ‘making a positive impact’ while virtually everyone else has criticised it for boosting demand while doing nothing for supply. And it ‘welcomes the gradual departure from falling house prices across most UK regions’ while warning of ‘signs of the next boom already emanating from faster growth regions’.
There are similar problems with some of the recommendations. For example, the last government considered allowing self-invested private pension schemes (SIPPS) to invest in housing only to drop the idea over fears of a massive new, tax-subsidised boom in buy-to-let. The commission says that this should be restricted to newly developed property, but unlike the build to rent schemes that are specifically for rentals, this could still mean affluent holders of SIPPS pricing out owner-occupiers in the new-build market.
However, those caveats aside, the report offers a compelling analysis of why governments need to tackle housing and some good ideas on how to make policy more effective.
Alongside a call for better policy scrutiny, there is a stark warning to the government about the ‘unintended consequences’ of welfare reform that is all the more powerful for coming from such a broad-based group. ‘The UK government has to recognise that driving down capital subsidies, in the context of changing welfare support for rents, will expose not-for-profit housing providers, who continue to house low-income families, to excessive risk,’ it says. The report calls for the scrapping of the under-occupation penalty in cases where tenants are unlikely to secure another home in the same travel to work area – and especially in smaller communities and rural areas.
More radically, it calls for the right to buy to be replaced with a new portable home ownership discount for tenants that could be integrated with help to Buy. That would represent the end of the Conservatives most iconic (and controversial) housing policy but the commission argues this would preserve low-income homes while giving more choice to people who aspire to buy.
And it makes the case for bricks and mortar subsidies too: ‘Decent housing for poorer households always requires subsidies. The least expensive form of subsidy for low-income housing provision in the long term is often still likely to be a capital subsidy to providers, as rent levels can then be cheaper.’
To help pay for that, the UK administrations should give social landlords at least 15 years of certainty on rent setting to help ensure the attractiveness of the sector for private investors and funders. However, the report warns that has to take account of welfare policy. ‘If rental levels exceed maximum housing revenue subsidies, the element of risk introduced will make the affordable housing sector unattractive to third party investors, as well as putting strain on the collective financial viability of the sector.’
Extra investment would come too from allowing local authorities to use their prudential borrowing capacity to build homes and to introduce additional council tax bands on high-value homes with the extra money ring-fenced for affordable housing.
The report calls for a doubling of targets for the release of public land, backed by assumptions that it will be for residential purposes except where demand should not exist, an that a third of homes will be affordable and that it will be on a pay as you go basis. Land owners in general would be ‘required to use their best endeavours’ to ensure that construction starts within three years.
More controversially, the commission recommends a new ‘affordable rented housing’ planning class for fringe sites on the edge of existing settlements that would not easily get permission for full market activities. The homes would be let at 80 per cent of market rent for at least 15 years before being sold or let at higher rents. It’s an idea that sounds like it has potential to open up more sites but it sounds like a red rag to Simon Jenkins and co.
On private renting, the commission says the government should review tenancy arrangements for longer-term lets ‘that recognise tenants’ interests without reducing landlords’ rights’. If you’re thinking that sounds easier said than done, it proposes a ‘rental covenant’ within section 106 arrangements guaranteeing that homes will be available for rent for a specific period.
There is also a plea to all political parties to ‘make a commitment not to introduce rent controls’ as this would reduce supply. Opinion within the Labour Party has recently been moving in the opposite direction.
On energy efficiency of existing homes, the commission proposes some radical action on VAT, stamp duty, rental levels in social housing and Green Deal interest rates. It also recommends an idea that seems certain to annoy Eric Pickles: that anyone building an extension should be required to improve the standard of the rest of their home to at least EPC level C.
I suspect most people will disagree with some things in this report. However, despite my own earlier caveats, the fact that such a diverse commission can agree on the need for policies ‘to facilitate housing supply of all tenures rather than showing bias to just one or two’ is still real progress.
As average asking prices pass £250,000 for the first time, two-thirds of the under-45s seem to have given up on the idea of ever owning a home.
Two surveys out today underline the point that what’s ‘good news’ for existing owners is exactly the opposite for people struggling to get on to the housing ladder.
Rightmove says that the market in the ‘under-priced’ (its word not mine) South East has ‘lifted off’ with asking prices rising by 14.8 per cent in the first six months of 2013 alone. However, the average increase across England and Wales is 10.4 per cent and the increase is even 5.8 per cent in the least buoyant region, the East Midlands.
If anything like that was repeated across the whole 12 months, 2013 would be appear to be set for a boom unlike anything seen since the credit crunch hit in 2007. True these are asking prices and prices actually achieved are still in the relative doldrums but they indicate that existing owners are reacting predictably to the start of Help to Buy by ramping up their demands.
Contrast that with another survey out today from the Halifax. Its Generation Rent report shows that only 32 per cent of non-owners aged 20-45 have a realistic plan to buy within the next five years. The remaining 68 per cent are split between those who like to buy but don’t think they will ever be able to (36 per cent), those who have given up because they were rejected for a mortgage (2 per cent) and those who don’t want to buy and haven’t tried (29 per cent, up from 23 per cent in 2011).
Deep pessimism about earning enough to buy is one reason for the split: the average mortgage that they think they can afford is £425 a month whereas the amount currently required by the average first-time buyer is £580 a month.
Problems obtaining a mortgage are another: over half of Generation Rent and an even higher proportion of their parents think it is ‘very hard’ or ‘virtually impossible’ to get one.
And Help to Buy does not seem to have changed the mood among buyers as much as it obviously has among sellers: 30 per cent of 20-45 year olds think it and similar schemes will work but 30 per cent believe the opposite.
Surveys like this can usually be taken with a pinch of salt but this one has some worrying implications for the future too. Some 71 per cent of Generation Rent fear that the country is in danger of being divided by social and economic differences between owners and non-owners and 58 per cent think it will create long-term social problems.
Perhaps most alarmingly, 57 per cent in the Generation Rent survey think that without a foothold on the property ladder they will be unable to retire. That perhaps shows a very low awareness of housing benefit and, as I’ve blogged before, the financial consequences of falling ownership will be huge for the Treasury.
That’s just one of the implications for the housing market and for the housing system as a whole.
Some 52 per cent of Generation Rent think Britain will become a nation of renters within the next generation – up from 46 per cent in 2011. And more people think Britain is becoming more like Europe, where renting is the norm.
However, as the report points out, European law means rental agreements are much longer than the six and 12 months contracts that are the norm in the UK. Pressure for reform can only grow.
So too is the evidence that Britain’s housing market has moved beyond dysfunctionality into something even worse. Last week, the National Housing Federation published figures showing that the number of people aged 30-44 has fallen by 9 per cent in rural areas thanks to soaring prices.
Meanwhile the Intermediary Mortgage Lenders Association published a discussion document warning that the regulatory response to the financial crisis has ‘hard wired’ a lower level of ownership into the system. It points out that on current trends only a third of 25-34 year olds will be owners by the end of the decade. That is half the level seen in 1993.
Warning that the regulatory response an imbalance between the regulated mortgage market and the unregulated buy to let, with the continuing availability of interest-only mortgages giving landlords a marked competitive advantage over would-be first-time buyers.
If nothing else will, perhaps the prospect of that soaring benefit bill for pensioners will concentrate government attention on more fundamental and long-term reforms to the whole housing system?
Ed Miliband has ended three decades of political consensus that it’s better to subsidise rents than new homes but changing course will not be easy.
The Labour leader’s speech in Newham this morning is significant in all kinds of ways: for the party’s positioning ahead of the next election; for the implied switch to contributory benefits and ‘something for something’; for tackling low pay; and for the careful use of ‘social security’ to avoid the loaded term ‘welfare’.
Even the setting – Newham Dockside – is significant since it looks very much like an endorsement of the more proactive but harsher approach to benefit claimants adopted by its mayor Sir Robin Wales.
All of those things could have major implications for housing but none so much as the plan to shift spending back from housing benefit to bricks and mortar – the end of ‘letting housing benefit take the strain’ and admitting the failure over decades to build enough homes.
Ed Miliband argues that:
‘We can’t afford to pay billions on ever-rising rents, when we should be building homes to bring down the bill. Thirty years ago for every £100 we spent on housing, £80 was invested in bricks and mortar and £20 was spent on housing benefit. Today, for every £100 we spend on housing, just £5 is invested in bricks and mortar and £95 goes on housing benefit. There’s nothing to be celebrated in that. And as a consequence we are left with a housing benefit bill that goes up higher and higher. For the simple reason, that we have built too few homes in this country and therefore we see higher and higher prices, particularly in the private sector.’
It is a very welcome and long overdue move but, rather like getting toothpaste back into the tube, it will not be simple to achieve the switch. First, although it makes sound financial sense over the long term (see the work by PWC for L&Q quoted in the g15’s spending review submission) it will not deliver savings in the short term given the upfront capital grant required.
Second, unless the switch is carefully handled, it risks creating losers among tenants still dependent on housing benefit to pay their high rents.
Labour seems to have two mechanisms in mind. The first is to get local authorities to negotiate down the cost of rents through bulk purchasing from landlords. Miliband said:
‘At the moment, we expect individual families to negotiate with their landlords. In these circumstances, it is almost inevitable that tenants end up paying over the odds. And so does the taxpayer, in the housing benefit bill. It’s time to tackle this problem at source. So a Labour government would seek a radical devolution to local authorities. And Labour councils in Lewisham, Liverpool, Leeds, Manchester, Sheffield and Birmingham have all come to us and said that if they had power to negotiate on behalf of tenants on housing benefit, they could get far greater savings than the individual on their own. So a Labour government would give councils this power. Bringing the cost of housing benefit down. And what is more, we would let them keep some of the savings they make on the condition that they invested that money in helping build new homes. This is the way we can start to bring about the shift from benefits to building.’
That begs the question of why councils are not doing this already but under the current system they do not have much incentive to do so. The IPPR advocated localising housing benefit as part of a new system of affordable housing grants (the opposite of what is happening under universal credit). It’s not clear whether Labour would go that far but there would have to be some mechanism for verifying the savings and creating the incentive.
The second mechanism would be a cap on structural benefits. This seems to be different from the regional caps on overall benefits that were the subject of advance press speculation and the cap proposed by Iain Duncan Smith on annual managed expenditure (AME). As Miliband put it:
‘The next Labour government will use a three-year cap on structural welfare spending to help control costs. Such a cap will alert the next Labour government to problems coming down the track. And ensure that we make policy to keep the social security budget in limits. Introducing greater discipline, as ministers from across departments will be led to control the big drivers of spending.
‘Structural’ welfare spending means benefits that are not a function of unemployment and the state of the economy. That would appear to include housing benefit. The dots would be joined at last between a rising housing benefit bill and not building enough homes but would the sums stack up over the three years?
In the social sector, an obvious issue is how the cap could be reconciled with social rents rising in line with the RPI plus 0.5 per cent formula that is due for renewal in 2015. If rent levels were capped that would help control housing benefit but it would come at the cost of lower borrowing capacity and lower investment in new homes. Bricks and mortar and personal subsidies can merge with each other in complex ways.
In the private sector, it begs the question of what happens if councils have wrung all they can out of bulk purchasing and rents and the housing benefit bill still keeps on rising. On the Today programme this morning shadow work and pensions secretary Liam Byrne put it this way:
‘The housing benefit bill is going up and up and up. We’re spending 95 per cent of the money we spend on housing on housing benefit and only 5 per cent on building houses. That doesn’t make sense and what a lot of councils are saying to us is if they had more power to regulate and control prices in the private rented sector they could create some savings which we could recycle into building more homes.’
‘The power to regulate and control prices’ certainly made me wake up since it implies the end of another 35 years of political consensus on housing. As Evan Davis asked, did he mean the return of rent control? Byrne replied:
‘I think that might be going a bit far. What I’m saying is that local councils are saying they’ve got lots of ideas of how they can make savings and they’d be prepared to crack on with that if there’s a deal on the table to share in the savings to build more houses. The reason why we’re saying a long-term cap on social security spending makes sense is that it forces you to engage in these long-term reforms.’
‘Might be going a bit far’ does not sound to me like rent control is being ruled out completely (and later on the Today programme Polly Toynbee argued that it was definitely on the table). How else will Labour keep within the cap if rents and housing benefit are still rising unless it wants to land tenants with further shortfalls?
Coalition ministers rarely fail to taunt Labour with the fact that the number of affordable homes fell under the last government.
Conservative housing minister Mark Prisk and Lib Dem junior communities minister Don Foster deployed it yet again at DCLG questions yesterday.
Labour’s Jack Dromey attacked the government’s record on housebuilding and called for a rejection of the ‘economic illiteracy of austerity, which is pushing up the costs of failure through additional borrowing and soaring housing benefit bills’. He asked: ‘Does the housing minister agree that the time has come to invest in badly needed social and affordable homes to rent or buy, creating jobs and apprenticeships, bringing down the costs of failure and getting our economy moving?’
In response Foster was quick to deploy the favourite stat:
‘I think that the whole House will have been somewhat amused by the cheek of the hon. Gentleman, given that under his party’s administration we saw a reduction of 421,000 in the number of affordable homes. This government have introduced measures to reverse that trend, and we hope to announce further measures in the near future.’
Later Mark Prisk also had the number to hand to reply to an attack on Conservative Hammersmith & Fulham council by local Labour MP Andy Slaughter. ‘We are delivering on the completion of 170,000 more affordable homes; the Labour Government presided over the loss of 421,000 homes,’ said the housing minister.
These are just the two latest examples of the way that Tory and Lib Dem ministers alike use the 421,000 figure to attack Labour. With good reason too, since it is a very rare example of a government statistic that is both accurate and has been endorsed by the independent UK Statistics Authority.
Following a complaint from Dromey last year about misuse of statistics by former housing minister Grant Shapps, UKSA chair Andrew Dilnot replied that: ‘Official estimates of net change are available for social rented dwellings, but not for the wider stock of “affordable” housing beyond this category. They show an overall reduction of 421,000 in the stock of homes rented from local authorities and housing associations over the period 1997 to 2010.’
For the record, DCLG dwelling estimates show that there were 4,386,000 council and housing association homes when Labour came to office in 1997 and 3,966,000 when it lost power in 2010 – a fall of 420,000. The reductions were 150,000 in its first term, 268,000 in its second and 3,000 in its third.
On the face of it, then it’s game, set and match to Shapps and Prisk – and also to Foster and his Lib Dem predecessor Andrew Stunell.
But there are good reasons why the 421,000 figure could be a hostage to fortune.
First, will the coalition actually achieve the 170,000 affordable homes quoted by Prisk? Ministers insist they will but the programme has been slow to get off the ground to put it mildly. As the National Audit Office noted last year, more than half of the output is scheduled for the final year of the programme.
Second, as Dilnot pointed out, the 421,000 figure refers to ‘social rented’ rather than ‘affordable’ homes. The coalition’s 170,000 figure does include some social rented (a legacy of previous Labour plans) and some shared ownership homes but 80,000 homes for affordable rent. As I’ve argued before, the new programme also relies on the conversion of up to 80,000 existing social rented properties to affordable rent.
Third, though Labour now admits it did not do enough on new homes, one of the main reasons why the affordable housing stock fell between 1997 and 2010 was that right to buy sales exceeded new starts. Between 1997/98 and 2009/10 600,000 council and housing association homes were sold to tenants. Sales peaked at 84,000 in 2003/04 but after Labour introduced caps on discounts, the numbers fell dramatically and, following the credit crunch, they slumped to just 3,000 a year.
However, elsewhere in yesterday’s DCLG questions Prisk was boasting about the impact of coalition measures to boost right to buy sales:
‘Since we reinvigorated the right to buy last year, sales have more than doubled, to the highest level in six years. We believe it is vital to ensure that all eligible tenants know exactly how to exercise their right, which is why this month we are writing directly to more than 500,000 households right across England.’
Figures released last month show that there were 5,942 sales in 2012/13 – and that the 2,449 sales in the fourth quarter was more than four times the total in the same period of 2011/12. That’s before Prisk’s publicity drive and before measures announced in the Queen’s Speech to reduce the eligibility period from five years to three.
The coalition inherited a council and housing association stock of 3,966,000 in 2010. In its first two years, despite some of the lowest right to buy sales in the last 35 years, the total stock increased by just 27,000 to 3,993,000.
So Prisk is trying to have his cake and eat it too. The main reason for the 421,000 fall under Labour was a policy that he strongly supports. It was around half the fall seen under the Conservatives between 1979 and 1997 when right to buy sales were at their peak.
However, there was also one brighter piece of news in yesterday’s DCLG questions: a hint from Don Foster about the spending review. Asked by Green MP Caroline Lucas whether the government would ‘look again at lifting the current cap on council borrowing for house building’, Foster replied that ‘We are looking at the point the Hon. Lady has raised and an announcement will be made on 26 June.’
That and much more will be required in the review. Otherwise, if the government succeeds in reinvigorating the right to buy as much as Prisk boasts, the social housing stock will continue to shrink under his government just as it has under the last two. Even as the need for it increases exponentially.
So, George Osborne, what about some Help to Build to go with all that Help to Buy?
The chancellor’s multi-billion flagship housing policy is under fire from virtually everyone because they can see what the result will be of stoking up demand while doing nothing about supply.
Now the CIH, NHF and g15 are all calling on Osborne to fund an expansion of affordable housing in the spending review for 2015/16 that will be published later this month. That is what they always do ahead of spending reviews of course, but they are deploying some powerful arguments.
The CIH argues that there is little prospect of private developers building the homes we need. We have only ever built enough homes when the state has played an active role and doing so would deliver wider benefits for the economy: every £1 of spending on construction generates £2.84 of economic activity; and 56p of every £1 invested in housing returns to the Treasury.
The NHF quotes figures from the IPPR showing that for every £1 spent on housing, 95p goes on housing benefit and only 5p on new homes. ‘The simplest and most effective way of redressing the balance and reducing the housing benefit bill is build more affordable homes.’
The g15 cites modelling by L&Q and accountancy firm PwC that looked at three different scenarios for financing affordable housing beyond 2015: a continuation of affordable rent; a return to higher capital grant plus lower social rents; and a move to full market rents with housing benefit taking the strain. The best value option for the taxpayer is higher grant with lower social rents.
The next three weeks will tell whether the government is listening or turning its usual deaf ear to those arguments. Recent history suggests the latter but the arguments are being made with renewed confidence given the growing political importance of housing. When Osborne reveals some of the detail on June 26, it’s worth looking out for six things in particular:
Housing’s place within infrastructure spending. The coalition admits that it cut capital spending too much in its first spending review and seems receptive to arguments made by the CBI and others about the economic impact of big infrastructure projects. Part of the justification for those is the supply-side impact of road and rail schemes on business costs and efficiency. A strong case can be made that new homes do the same, not just in terms of the direct impact on jobs and growth, but the benefits to employers too (see the NHF’s survey showed last week). The spending review will set out plans until 2020/21 ‘for the most economically valuable areas of capital expenditure’. As the NHF argues, that should include housing.
The future of subsidy. For a long time after the 2010 spending review it looked like there might not be one. Many people feared that capital subsidy would disappear altogether in the one to follow. A statement by Grant Shapps at the CIH conference last year (‘In all honesty I find it difficult to imagine a world with no government grant for housing’) was interpreted optimistically by many people but what will his successor Mark Prisk be saying as Osborne reveals the spending review in the middle of this year’s conference? It’s worth noting that virtually all of the new schemes announced by Osborne in the last 12 months, including Help to Buy, have relied on financial wheezes such as government guarantees rather than direct spending.
Meanwhile, if grant does continue, what will it fund: more affordable rent, a return of social rent or low-cost home ownership? The CIH calls for a £2 billion per year programme to deliver 55-65,000 homes a year in a mixture of the three, with a separate funding stream within it reserved for specialist and supported housing at social rent levels. However, it adds that affordable rent is unlikely to be sustainable for long given the rate at which it consumes providers’ financial capacity, and calls for a fundamental review of longer-term funding for sub-market housing.
What happens in London. Mayor Boris Johnson wants to take control of the multi-billion revenue generated in the capital through stamp duty and other taxes and decide how they are spent. The G15 is calling for a capital subsidy funded affordable and social rent programme funded with the money coming from discounted land or from grant that could be financed by ring-fencing stamp duty. It may make sense to use the receipts from taxes on London’s soaring house price to solve the affordability crisis that they have created but will the Treasury really be prepared to give up control? And should it, given that the effects are felt well beyond the capital too?
The future of council housing. It seems like a no-brainer to allow local authorities to borrow more to build affordable homes. The CIH argues that raising housing revenue account (HRA) borrowing caps by an additional £7 billion would allow councils to build 75,000 homes over five years, creating 23,500 jobs and generating £5.6 billion of economic activity. Boris Johnson’s London Finance Commission also called for the caps to be lifted. Given the low levels of existing debt on council housing, that would be easily sustainable within their financial capacity. However, will Osborne and the Treasury really be prepared to go against 35 years of financial orthodoxy that says council housing is bad news and borrowing for it even worse?
What happens to rents. The current rent formula for social housing (rent rises of RPI plus 0.5 per cent +/- £2 a week) expires in 2015. A chancellor looking to cut spending, who has already restricted the increases in other benefits to the lower CPI rate of inflation, might well see that as a target. As the NHF and CIH submissions point out, that would be disastrous for future lending and business and investment plans. The chancellor promised in the Budget to set out a ten-year rental settlement and they say it is vital that this is based on the existing formula, which should be extended until 2025. The G15 calls for: ‘A new settlement on rents which strikes a balance between what people can afford to pay and the need for investment in new homes. For now the current formula should be extended allowing time for discussion about what our residents can afford to pay. Only then should we reset the target rent and move towards it in a way which is fair for residents and viable for housing providers.’
The implications for housing benefit of a cap on AME spending. The cap on annually managed expenditure (AME) announced by Osborne in the Budget may have sounded for a few micro-seconds like a purely technical measure but it is one that could have massive implications for housing. AME accounts for around half of all government expenditure and two thirds of that is social security and tax credits. So, although reports suggest Osborne has ruled out further cuts in working age benefits thanks to opposition from the Lib Dems, the AME cap suggests the opposite. As the CIH points out, that would have implications both for tenants’ wellbeing and landlords’ business plans (Moody’s has already downgraded the credit rating of 29 housing associations because of other welfare reform).
Inside Housing is calling for a long-term commitment to grant funding for affordable homes in the spending review. Support the Grant Britain Homes campaign.
It’s shocking but sadly not surprising to see the impact of changes to benefits on the soaring number of people relying on food banks.
Shocking because this is happening only two months in to cuts such as the bedroom tax and four weeks into the start of the benefit cap in four London boroughs, not surprising because the pressure has been building for months. This is the start of the ‘decade of destitution’ that Julia Unwin of the Joseph Rowntree Foundation has been warning about.
Church Action on Poverty and Oxfam, the two organisations behind the Walking the Breadline report, are calling for a parliamentary inquiry into the relationship between benefit delays and the rising numbers.
They say and says changes to the benefit system are the most common reason why people go to food banks. These include changes to crisis loan eligibility rules, delays in payments, Jobseeker’s Allowance sanctions and sickness benefit reassessments. However, the case studies in the report also show the growing impact of housing benefit changes too.
The largest provider, Trussell Trust, says 350,000 people visited its food banks last year, almost three times the number it saw the year before. The report estimates that the number of people relying on food banks as a whole could be more than half a million.
Niall Cooper, Church Action on Poverty CEO, and the report’s lead author, says: ‘The safety net that was there to protect people is being eroded to such an extent that we are seeing a rise in hunger. Food banks are not designed to, and should not, replace the “normal” safety net provided by the state in the form of welfare support.’
Housing features in the report as a driver of demand for food banks and through the organisations including housing associations and community groups that are providers and funders of them. See here and here for recent coverage of the issue in Inside Housing.
Some of the main case studies show the bedroom tax in particular is making an already bad situation even worse.
In one, a school dinner lady was referred to a food bank by her disabled son’s school after she kept him at home for two days because she could not afford a packed lunch and was ashamed to send him without one. Now she’s waiting for a three-bedroom flat so that he can have the room to himself he needs because of his disability but the bedroom tax will leave her with virtually no money for food.
In another, a woman suffering from Crohn’s disease, osteoarthritis and depression who needs to sleep in the spare bedroom because of her illness now has to pay an extra £40 a month in bedroom tax. She was turned down for discretionary housing payments despite the support of her doctor. She paid April’s bedroom tax out of her ESA and lived on toast for three days so rest of her family could eat properly.
They are the sort of stories that have become depressingly familiar over the last few weeks and we are barely two months in to the bedroom tax and below-inflation increases in other working-age benefits.
However, the report is a powerful reminder of the combined impact of all the welfare changes plus benefit sanctions, delays and underpayments.
And all of this is before the introduction of the universal credit and those breezy DWP assumptions that 85 per cent of claims will be made online and that people will cope with being paid monthly rather than fortnightly. With direct payment of the housing element to tenants the choice between paying the rent and buying food will become even starker.
The report calls for an urgent inquiry by the House of Commons work and pensions committee, publication of data on claimants denied benefits by sanctions, delays and errors and on referrals to food banks and independent monitoring of the implementation of universal credit – plus action on tax evasion to reduce food poverty.
Bit by bit the picture of how housing policy would look under a Labour government is becoming clearer but there are still some blurred areas.
In the latest results from its policy review process, the party has published more new ideas on the private rented sector. Following up on earlier proposals on letting agents and their charges and more stable tenancies for families, this one is all about the case for greater regulation of landlords.
This is of course just part of a much wider review of Labour policy on housing and related areas. On private renting, the argument is that greater regulation will be in the interests of good landlords (because it will help prevent unfair competition from unscrupulous rivals) and amateur landlords (because it will help them avoid unwittingly falling foul of the law) as well as tenants and the taxpayer.
However, the document highlights poor standards in the sector and problems with enforcement action and handling complaints by tenants as the main reasons for intervention. ‘The evidence shows that prosecutions in comparison with the number of complaints and serious issues raised are all too rare and tough enforcement activity only makes up a small proportion of local authorities’ activity,’ it says.
In particular, it says many councils are reluctant to use their powers on selective licensing because ‘they find the conditions for being able to apply selective licensing overly bureaucratic despite being in the clear interests of the tenants, responsible landlords and communities concerned’.
Meanwhile it says many tenants are reluctant to complain for fear of their landlord raising their rent or even evicting them. The report points out that ‘the two months’ notice required to remove a tenant without cause under Section 21 is far shorter than the time it takes for most councils to reach the binding enforcement stage of their enforcement powers’.
Given the wider costs to the taxpayer, Labour is exploring a range of options ‘to ensure we have minimum standards nationally, strong enforcement locally and clear proposals to stamp out bad landlords once and for all’. Options include:
- A national register of landlords – designed to help local authorities identify them and HMRC with tax evasion estimated at £500 million a year
- A new national private rented property standard – including things like deposit protection, energy efficiency and property condition
- Local enforcement – including a review of the conditions under which councils can establish a licensing scheme
- Tougher actions against bad landlords – including banning landlords convicted of serious criminal behaviour from the register and stamping out retaliatory eviction.
In return, as part of a ‘something for something deal’ for good landlords, Labour would look at options including direct payment of housing benefit, supply of renters from local housing registers and an improved legal process for evicting tenants who do not pay their rent or commit anti-social behaviour.
As I’ve commented before, reform of private renting only made it to the green paper stage under the last Labour government. In the meantime, the Labour government in Wales is taking forward proposals of its own.
This time around the party in England seems determined to act and the package is calibrated to secure change without alienating good landlords. The National Landlords Association has welcomed the focus on bad landlords while questioning the impact of regulation.
What matters of course is the detail that follows those options. One issue could be the attempt to match a national register and standards with local flexibility. The report highlights Newham’s borough-wide licensing scheme and Oxford’s city-wide HMO licensing as examples of local action by Labour councils.
On selective licensing, the report argues that: ‘Local authorities feel that there is too much bureaucracy and red tape in their way if they want to step in and protect tenants, good landlords and their wider communities.’ Landlords will of course see the licensing – rather than the process of applying for it – as the red tape and question the effectiveness of a patchwork of different local systems.
On wider housing policy, the review process continues. Ahead of a conference in Manchester next month, the Labour Housing Group is consulting on 50 policies for ‘One Nation Housing’. It’s a pretty comprehensive list including everything from changing the public borrowing rules to tenancy reform and restricting giveaway right to buy discounts to a new rent to buy scheme for first-time buyers.
It also calls for many of the coalition’s housing reforms to be reversed. In social housing, security of tenure would be restored to social housing tenants and social tenancies converted to affordable rent converted back to social rent. On housing benefit, the bedroom tax would be scrapped in favour of a national scheme to tackle under-occupation, the benefit cap would be regionalised to take account of different rent levels, direct payment would be restored, and the local housing allowance would be increased from the 30th percentile to the median.
It remains to be seen of course how much of that will make it into party policy for the next election. Much will obviously depend on Labour’s stance on the wider economy.
But much will depend too on a wider Labour rethink about the welfare state. While there seems to be a new willingness to consider a shift back from personal to bricks and mortar subsidies, and an awareness of the dangers of doing so too quickly, Radio 4’s Analysis programme this week covered the deeper debate within the party about moving back to benefits based on contributions.
The programme included Lord Glasman, who coined the term Blue Labour, Jon Cruddas, Labour’s policy coordinator and Sir Robin Wales, Mayor of Newham. The key idea seems to be to move away from a centralised system to deliver welfare at a local level, with Newham’s employment-linked housing policies cited as an example.
Exactly how contributions-based welfare would work is not clear and also (as Ian Mulheirn outlined for The Guardian earlier this week) fraught with pitfalls. It would also have profound implications for housing.
Wales is set to go where England failed to tread on tenancy reform under plans put forward this week.
The Renting Homes white paper published by the Welsh Government is an updated version of the Law Commission proposals that the previous government in England seemed to like at first, then dithered over and finally allowed to lapse at the last election.
So now Wales is set to reap the benefits of two simple and clearly understood forms of tenancy while England continues to cope with a mess of different ones. These are more than just technical, legal changes. The white paper argues that: ‘The current differences between renting a home from a local authority, housing association or private landlord contribute to weaknesses in the way the whole housing system works. Renting a home is not always seen as a good choice. Indeed, it is sometimes considered to be the last option.’
It says the consequences of that include: angst and worry for renters and sometimes for landlords; unnecessary legal costs to resolve difficulties; a reluctance to move between different forms of renting, limiting labour mobility; and confusion for landlords and tenants about their rights and responsibilities.
The plan is to replace most tenancies with one of two types: a secure contract based on the local authority secure tenancy for all long-term housing by councils and housing associations; and a standard contract similar to the assured shorthold used in the private rented sector.
As well as making the law easier to understand, the white paper says the changes will reduce costs, make it easier for landlords to recover abandoned properties and make it harder for bad landlords to undercut good ones. There will be a requirement in all contracts for landlords to maintain the property and ensure there are no serious health and safety risks. A ‘prohibited conduct’ term in every contract will make it easier to deal with domestic abuse and anti-social behaviour. Renting will be easier for 16 and 17 year olds and people wanting short-term lets and it will also be easier for people to leave or join joint rental contracts.
The white paper argues:
‘Our proposals will not fundamentally alter the balance of rights and responsibilities of tenants and landlords from those that currently exist. Rather, they are designed to create a simpler, more logical and clearer legal framework to replace the complexity of current law. Our goal is a fair, simple, and effective legal basis for renting a home, making it understandable to both landlords and people who rent a home now and in the future.’
However, there are two more contentious elements. First, the new secure contract will mean that housing associations will no longer have Ground 8 mandatory grounds for possession. Ground 8 is not often invoked in Wales but, as Martin Hilditch’s feature in Inside Housing last week revealed, use of it is growing rapidly in England in response to welfare reform.
Second, the standard contract would remove the six-month moratorium that currently prevents a court ordering a no-fault possession in first six months of an assured shorthold. Shelter Cymru is worried that this will increase insecurity but the white paper argues that it will benefit tenants looking for a short-term let and that it will still be possible to set a minimum term.
The proposals have received a generally warm welcome so far, though the Residential Landlords Association is a dissenting voice, claiming that the changes will cost £45 million to implement.
However, this is just the start of the reform of renting in Wales. A white paper last year proposed a national, mandatory registration and licensing scheme for landlords, letting agents and managing agents and a Housing Bill is due to be published in the Autumn.
That too is territory where England failed to tread. Plans to regulate letting agents and license landlords made it as far as a green paper in 2009 but were quickly dropped by the coalition after the election.
Tenancy reform had stalled in Whitehall long before that, a casualty not so much of a change of heart as of the rotating door that operated for housing ministers under the Labour government and of changes within the civil service. At a Communities and Local Government Committee hearing in February Martin Partington, the former Law Commissioner, gave a fascinating insight into what happened (or rather didn’t happen):
‘The then minister, Nick Raynsford, commissioned the work from us and he was working with the social rented side of the house, as it were. Years went on, and housing ministers came and went like water down the drain-that might be slightly unfair, but they did come and go with extraordinary regularity. There was a point at which we suddenly discovered, without any consultation with us, that we were going to be masterminded by the private sector side of what was then still the ODPM. This had the effect that the interest that existed among civil servants for the work that we were doing and the contribution that we might make to overall global social policy became, from my perspective, a narrower one about whether what we were recommending might or might not facilitate the private rented sector.
‘Frankly, once we had got to this stage, civil servants started saying things to us like, “Hmm, this is all very difficult,” or “I don’t think we’re going to make much progress unless you get political engagement by ministers.” My difficulty was, because ministers were coming and going every eight or nine months, you know that the shorthand is that if civil servants tell you “You have to get political engagement,” they have no interest in taking it forwards themselves. That is where I got slightly hacked off about the process that we were going through.
‘I have to say I went to the retirement party of one of the civil servants who had been leading for DCLG, and he took me aside at the end and said, “Do you know, Martin? I do feel a bit guilty that I didn’t really push the Law Commission stuff as hard as I might have done.” My heart did sink, but I then perked up every time I went to Cardiff and officials in the Welsh Government kept on saying things like, “This is frightfully good. We cannot understand why they are not doing it in Whitehall.” I live to fight another day, and I am not an embittered old Law Commissioner. I do think that what we were trying to do required a bit of imagination and input and, for whatever reason, we lost the political impetus through the way it was managed within the department, as we were going through the work.’
Back in Wales, the country is using its new legislative powers to develop policies on housing that are quite different from those in England. Wales is going its own way, as Westminster communities secretary Eric Pickles seems to have noticed.
Sir Mervyn King’s weekend criticism of Help to Buy leaves George Osborne looking more isolated than ever in his plan for government mortgage guarantees.
King steps down as governor of the Bank of England at the end of June but even so his comments on Murnaghan on Sky News on Sunday are quite a parting shot. Asked how the Bank of England would end a scheme of which it is the ultimate guarantor, he said that:
‘Well I’m sure that there is no place in the long run for a scheme of this kind, this scheme is a little too close for comfort to a general scheme to guarantee mortgages. We had a very healthy mortgage market with competing lenders attracting borrowers before the crisis and we need to get back to that healthy mortgage market. We do not want what the United States have which is a government guaranteed mortgage market and they are desperately trying to find a way out of that position so we mustn’t let this scheme turn into a permanent scheme.’
Help to Buy has already been heavily criticised on the same and other grounds by the all-party Treasury committee of MPs and it’s next to impossible to find a reputable economist who supports the policy. Mortgage lenders and estate agents are expressing caution and even housebuilders seem faintly embarrassed by this latest example of government largesse. Osborne has even drawn criticism from Migration Watch and the TaxPayers Alliance over claims that foreign buyers will be able to benefit.
However, Help to Buy already seems to be having an impact on buyer demand and on prices. A survey out this morning from Rightmove shows that seller’s asking prices rose by 2.1 per cent in May alone after the strongest start to a year since 2004. The average asking price in London is now more than £500,000.
It’s perfectly possible that Help to Buy will be the long-term disaster that everyone fears at the same time as it is a short term success for the government in boosting activity in the housing market and the wider economy in the run-up to the next election.
King’s comments seem more than a little self-serving. His claim that there was a ‘healthy mortgage market’ stretches credulity when you remember the surge of lending that inflated the housing bubble before 2007 on his watch. To give just one example, half of all mortgages lent in that year were self-certified.
However, his warning also points up just how big a mistake Osborne could be about to make. Ironically, just as the chancellor prepares to offer state guarantees for mortgages in the UK, politicians in the United States are desperately searching for ways to get out of offering them.
The Federal National Mortgage Association (Fannie Mae) was set up in the wake of the 1930s depression as part of the New Deal to provide local banks with federal money to finance mortgages. After 75 years, it is still going, alongside its counterpart the Federal Home Loan Mortgage Corporation (Freddie Mac), showing just how difficult it is for a government to exit the mortgage market once they have entered it.
The agencies were privatised in the late 1960s, invented mortgage-backed securities in the 1980s and were used to expand home ownership to low-income households in the 1990s. In the wake of the sub-prime mortgage crisis and credit crunch, they had to be taken back into public ownership in 2008. They currently guarantee half of all American mortgages worth about $5 trillion.
However, there is another example of a government guaranteeing mortgages that King tactfully (or pointedly) did not mention. Canada has its own equivalent of Fannie Mae: the state-owned Canada Mortgage and Housing Corp set up in 1946 that now guarantees half of all mortgages but the government also guarantees two private sector insurers.
Canada is of course the home country of King’s successor Mark Carney. He got the job at the Bank of England after being credited with rescuing the country from the financial crisis as governor of the Bank of Canada by rapidly cutting interest rates. As he gets set to arrive in London things are not looking nearly so rosy back home. Critics say those mortgage guarantees helped to inflate a housing bubble.
In a survey of the world’s 18 biggest housing markets by The Economist this week, Canada has the most over-valued house prices when judged against rents (by 73 per cent compared to 19 per cent in Britain) and the third most overvalued prices judged against incomes (32 per cent against 11 per cent). Where house prices in Britain have fallen by 11 per cent since the start of the credit crunch, Canada’s are up 18 per cent.
The Economist concludes:
‘On this basis Canada’s market is especially vulnerable. A large bubble now looks set to burst. Home sales in March were 15 per cent down on a year earlier. Buyers are in short supply. A recent poll showed that only 15 per cent of Canadians are likely to buy a home in the next two years, down from 27 per cent last year—the steepest decline in the 20-year history of the survey. After a big boom, the housing bust will be a wrenching affair.’
With Carney finding London house prices so extortionate that he demanded a £250,000 a year housing allowance, is he jumping from the frying pan into the fire or the other way around?
MORE: It’s not just Help to Buy mortgage guarantees that are under fire. Analysis just released by the g15 group of London’s largest housing associations shows that Help to Buy equity loans will be of minimal help to average earners in the capital.
The group looked at all properties for sale across London advertised on the main property portals between January and April 2013 and modelled their affordability based on a 20 per cent Help to Buy equity loan, a 5 per cent deposit and a standard mortgage of 3.5 times earnings.
A single person with an average income of £26,499 would be able to buy a property worth £125,000 but only 2,963 (2.5 per cent) of the advertised homes were in that price bracket.
The choices are almost as restricted for someone on the median income in London of £33,308. They would be able to buy homes up to £135,000 but that applied to just 4,176 (3.5 per cent) of those available.
As Keith Exford, chair of the g15 and chief executive of Affinity Sutton, points out, average earners will be left with the most undesirable property: flats above shops, properties in poor repair and flats with short leases.
The g15 is calling on the government to focus investment on low cost home ownership instead, arguing that the £3.5 billion allocated to Help to Buy equity loans could fund 175,000 affordable homes.
Here are some thoughts on an event I’ve just chaired for the Resolution Foundation yesterday on the scale of the housing crisis and how to fix it.
Rather like most of my blogs, I thought it would be stronger on the first bit than the second, but the debate revealed a new willingness to look for solutions as well as more reasons to be gloomy.
The centerpiece was a sneak preview of some forthcoming research from the Resolution Foundation and Hometrack on the housing plight of low and middle income households. The foundation is a think tank focused on the 5.6 million people caught in the squeezed middle between stagnating wages and rising costs.
The conclusion is that 1.3 million of them face unaffordable housing costs. That is a very conservative estimate as it is based on some cautious assumptions such as lower quartile house prices. Of these, 590,000 are private renters, 585,000 are owners with a mortgage and 100,000 are social renters.
Almost half of them (570,000) are younger families where the head of the household is under 35 and two thirds are outside London and the South East. One particularly dramatic graphic in the final report shows how unaffordable housing (defined as more than 35 per cent of net household income) is spreading rapidly to other parts of the country.
A key message is that, while a deposit on home ownership remains out of reach (the average time needed to save for one is now 22 years), private renting is now more expensive than paying a mortgage in all but a handful of local authorities in Britain. Another is that shared ownership – the often forgotten form of tenure – is the most affordable and warrants fresh scrutiny.
That was followed by responses from three panelists that revealed some serious doubts about whether the solution to the crisis really is more investment in private renting (even if it comes from institutions rather than buy to let landlords). After all, as Vidhya Alakeson of the Resolution Foundation pointed out, it emerges from the research as ‘overwhelmingly the most expensive tenure’.
Keith Exford of Affinity Sutton and the G15 group of housing associations made a powerful case for more investment in social renting. He said the Treasury’s discounting of investment by 50 per cent significantly undervalues the real impact and cited research showing that it offers the best value for money in the long term. He was also sceptical about Build to Rent delivering enough new supply quickly enough.
Natalie Elphicke of Million Homes, which aims to find ways to harness new social investment with little or no government grant and mixing private and social renting, argued for ‘progressive ownership’ that would allow people to move from renting to owning. She also had some harsh words for buy-to-let landlords who allow their tenants to pay their mortgage while offering them no security in return.
Campbell Robb of Shelter said debates were needed on what we want out of home ownership, what we really mean by affordable, more freedom to borrow for council housing and, above all, land. If compulsory purchase can be used for the HS2 rail line in some of the safest Conservative seats in the country, he asked, then why not for new homes?
The debate that followed ranged far and wide from the banks to Nigel Farrage, self-build to tax and the role of local authorities to rent control. The encouraging thing for me was not so much that magical solutions are appearing – that would be expecting too much – but that people are looking at all the issues in new ways.
That’s a reflection of the fact that things are changing around the country too. For one example, see Gentoo’s launch this week of its Genie structured home purchase plan. For another, see this week’s report of the London Finance Commission. This comes up with the remarkable stat that the last 10 years have seen £17 billion investment in affordable housing in the capital while £50 billion in housing benefit has been paid to landlords. Who would have thought a couple of years ago that a report for a Conservative mayor would argue that ‘the relaxation of borrowing controls is the only obvious solution to enable the delivery of greater supply’? For more on the report, see Steve Hilditch’s blog for Red Brick.
The big question is whether this new thinking is going to be enough to counteract the damage caused by George Osborne’s reckless Help to Buy policy and whatever he has in store for us in the spending review. Fans of it were certainly in short supply at the Resolution Foundation event yesterday. For a sneak preview ahead of Mark Carney’s arrival at the Bank of England, see this Money Week blog on the housing market consequences of Canadian state guarantees for mortgages.
As for the spending review, there are crucial issues to be settled not just on the prospects for housing investment and housing benefit, but on social sector rents and investment in private renting too.
New thinking on the housing crisis is tantalisingly within reach but, as yet more dismal housebuilding figures underlined as the event was taking place, the crisis itself is getting worse all the time.