Friday, 28 November 2014

Inside edge

Full value

Tue, 22 Apr 2014

With 13 months left until the general election, how can housing demonstrate its economic, social and political value?

Ruth Davison of the National Housing Federation was in no doubt speaking to the annual conference of the Housing Studies Association in York last week. ‘It’s time to stop researching and start broadcasting,’ she told the assembled academics.

I’m not sure anyone in the audience was ready to go quite that far, but her underlying point was well made. The evidence about the beneficial impact that housing can have across a vast range of fields is out there and the political parties seem at least for the moment prepared to listen. So why not shout about it?

The evidence and the politics both emerged in a debate chaired at the conference on ‘who is best placed to judge the value of housing – the state or the consumer’. It produced some expected and some very unexpected results.

The event brought together Bristol University professor Alex Marsh, Vidhya Alakeson of the Resolution Foundation, CIH president Paul Tennant and Conservative councillor John Moss. To add a bit of context, Alex also writes a must-read housing blog, Vidhya leads the RF’s work on housing which includes recent reports on build to rent and shared ownership, John is a regeneration consultant who co-authored an influential report for Localis that foreshadowed many of the coalition’s housing reforms and Paul is of course also group chief executive of Orbit.

The debate inevitably produced as many questions raised as answers. Value is a slippery word that can mean many different things and the basic question raises others about the role of markets and governments, whether we should subsidise homes or people and the future of social and affordable housing.

Alex Marsh analysed the different ways of looking at value and the conditions under which the state or the consumer is better placed to judge it. With growing evidence that supply subsidies are more efficient over the long term, can we come up with new ways of targeting them such as revolving funds? You can read his contribution on his blog here.

Vidhya Alakeson used the bedroom tax as a particular example of how leaving things to the market doesn’t work and economic incentives for people to move have failed. In the wider market people on low and middle incomes are left with no housing choices in today’s market.

John Moss put the pro-market, pro-welfare reform case. He conceded that the under-occupation penalty was ‘a little crude perhaps’ but had most of the audience wincing as he implied that 30 per cent of under-occupiers are unlawfully subletting and London council flats were full of bankers.

And Paul Tennant put the case for value that goes beyond money alone. ‘Value is how I feel about where I live,’ he said. Government had to recognise how much housing associations were generating from their own resources and the dangers of driving down grant so that people were either priced out of homes or priced in to a poverty trap.

The desperate need for new supply was the common ground between them even though there was disagreement about the means. For Paul Tennant, it’s land rather than planning per se that is the problem, where John Moss sees the post-war planning system as the villain of the piece and put a thoughtful case in favour of the coalition’s reforms and estate regeneration. However, he also spoke strongly in favour not just of new towns and community land trusts but of using compulsory purchase to buy agricultural land at agricultural prices.

Disagreements may continue about many things but when a Conservative makes that argument you begin to think that radical solutions really can be found.

Which is just as well, because the conference also heard a grim warning from Julia Unwin about the dangers of allowing housing to crumble as the fourth pillar of the welfare state.

The chief executive of the Joseph Rowntree Foundation argued that providing housing only at the point of need – using housing as a form of A&E – would not deliver thriving communities let alone help tackle the complex problems of an ageing society.

One of the proudest achievements of the welfare state had been to break the link between squalor and poverty but now we were in danger of reverting back, she argued. The changing nature of work meant that it was no longer a route out of poverty, in contrast to government rhetoric on welfare reform.

And she warned that the 2015 comprehensive spending review could turn out to be even more important than the general election: unless it came up with the right policies all the conditions were there for housing associations to start vacating the territory of housing the poorest.

If that was a sombre closing message, the conference itself showed that housing research seems to be in pretty good health. This blog covers only a couple of the plenary sessions with no space for workshops that featured contributions from across the academic spectrum and around the world and some talented young researchers coming through to join the veterans of the scene.

As Ken Gibb points out, all that attention may in part reflect the scale of the current housing crisis but his blog gives a flavour of the breadth of the research that is going on. The conference programme shows the many different ways of looking at value. 

It’s clear that the electorate and therefore the politicians sense there are questions that need to be answered urgently. The temptation to offer simplistic solutions to problems that are complex and inter-related is equally clear: the latest #howtogetacouncilhouse twitterstorm shows how many people think housing is part of the problem.

The continuing challenge – for everyone, not just researchers – is to show the value of housing in providing the answers.

Housing review offers complete picture

Tue, 15 Apr 2014

As ever the new UK Housing Review offers a mix of authoritative statistics and some fascinating new insights on housing across all tenures.

Published this week, the 2014 edition of the bible for housing types edited by Steve Wilcox and John Perry mixes a compendium of statistics plus several chapters of expert commentary. It’s also one of the few publications to compare housing in the different nations of the UK. All that’s missing is an index.

Reports elsewhere have highlighted the bias in the mortgage market towards landlords and the threat to the affordable homes programme after 2015 but I’ve picked out three more themes to illustrate the breadth of what’s on offer in the review.

1) If you think we’ve got problems…

This year’s UK Housing Review includes a detailed chapter on the housing situation in Ireland, which author Eddie Lewis likens to ‘the last reel of a disaster movie’.

To UK eyes there are some familiar trends and some very unfamiliar ones and the comparison says much about housing in both countries. Consider, for example, this graph on housebuilding.

building

Housebuilding in Ireland peaked at 93,000 in 2006 and slumped to just 7,500 last year. But Ireland’s population is 4.5 million against England’s 53 million: if we had built the same number of homes per head completions would have peaked at an incredible 1.1 million. The equivalent of the Irish slump would have been 90,000, which is only a little short of what we are currently building.

That says much about the speculative building boom in Ireland, with completions far outstripping demand, and it also helps explain the 50 per cent slump in house prices there following the boom. However, it also shows just how unresponsive the English housebuilding model is to market conditions.

2) The income gulf between tenures

Once upon a time there was little difference between the incomes of council tenants, private renters and outright owners and even people buying with a mortgage earned less than twice as much. This graph from the review shows how that has changed over the last 40 years.

Gulf

It shows the incomes of people in other tenures relative to those of council tenants. The introduction of the right to buy explains the growing gap in the 1980s as the proportion of working households declined in the social rented sector.

However, as the review points out, this proportion has not declined any further since 1991 but the gap with private tenants and outright owners continued to grow until 2004 and the gap with homebuyers is still rising.

The graph illustrates not just the rising inequality highlighted by Danny Dorling in his recent book but just how far we are running to stand still or go backwards with ‘affordable’ housing.

3) When is a bubble not a bubble?

The third and final graph taken from the review shows house prices and mortgage costs in relation to individual earnings.

HPI

Note how the two were broadly similar in the boom of the late 1980s but have since grown apart thanks to lower interest rates. Mortgage costs were getting close to the peak of the late 1980s during the latest boom but have since fallen back again thanks to record low rates and schemes such as Funding for Lending. In contrast, house prices are back at their 2007 peak.

For Steve Wilcox this is clear evidence that any talk of a housing bubble outside London is nonsense. However, does the gap between the two measures also show the potential problems stored up when interest rates eventually rise again?

The full version of the UK Housing Review is available to order from the CIH. Previous editions are online here.

Help or hindrance?

Fri, 11 Apr 2014

So a year in to Help to Buy, who has it helped and what has the impact been so far?

Those are the questions I set out to answer in my feature in this week’s Inside Housing. It concludes that the limited number of Help to Buy transactions seen so far cannot have been enough on their own to account for what’s happened in the market in its first year. What’s been far more significant is the impact on the behaviour of buyers, sellers and housebuilders of a signal from the government that it will do everything it can to generate a housing market recovery. That, combined with a range of other government policies (and non-policies) and the favourable environment of record low interest rates, has duly produced one.

Culture secretary Sajid Javid did not seem to convince many people in the Question Time audience last night that there is no housing bubble. As financial secretary to the Treasury until Wednesday he was intimately involved with Help to Buy so he should be in a position to know. But his ‘inconvenient facts’ about low inflation and prices still being below their 2007 peak prompted incredulity from the rest of the panel. You might expect that from Billy Bragg and Harriet Harman, but the most telling put-down came from advertising boss Sir Martin Sorrell, who pointed out that the fact that prices are rising so quickly at a time of low inflation is more rather than less evidence of a bubble.

However, there is new evidence today the CIH’s annual UK Housing Review that the problems in the housing market go a lot deeper than Help to Buy and have been brewing for much longer than the last year. The average first-time buyer house price has risen by 120 per cent since 2001 while the cost of their average mortgage has risen by 110 per cent. While mortgage payments are more affordable than at the peak of the market in 2007, that is only thanks to record low interest rates: the ratio of the average mortgage advance to incomes is now almost back at peak levels. And remember that 2007 was the peak of one of the biggest bubbles in housing market history (one that did not fully deflate) rather than the benchmark of normality implied by Sajid Javid.

Add the long-term under-provision of new homes, a broken model of housebuilding, a tax system that encourages investment and speculation in housing, the rise of buy to let and London’s global status and you have the much larger backdrop for Help to Buy.

There was much that I had to leave out of my piece in the print version of Inside Housing and lots more that I did not have space to examine in any detail. This blog is an attempt to fill some of those gaps and bring the story up to date with some of the stats published since the article went to press:

  • The numbers so far. The first 11 months of Help to Buy 1 (equity loans) saw 16,465 properties bought in England (schemes in Scotland and Wales started later). The first four months of Help to Buy 2 (mortgage guarantees) saw 2,572 completions. Those 19,037 transactions supported by Help to Buy compare to 1.1 million in the market as a whole so they cannot be enough on their own to explain the rise in house prices. In addition, more than three-quarters of them were outside London and the South East, the regions that have seen the strongest price growth. However, house prices are fuelled by expectations for the future as well as current supply and demand and the impact of Help to Buy is about the signals it sends out as well as the deals completed.
  • First-time buyers. Around 88 per cent of households who’ve benefitted from Help to Buy have been first-time buyers. Assuming two buyers per household, that’s just over 30,000 people. However, calculations by the Priced Out campaign suggest that the increase in prices since March 2013 had put home ownership beyond the reach of more than 250,000 renters by the end of January. Based on the Office for Budget Responsibility’s forecast for prices and earnings, that figure will be 450,000 by the end of this year. These are national figures that do not take account of huge variation between prices in different regions but even so they beg a very big question about the ‘help’ in Help to Buy.
  • Help to Buy 1. The saving grace of the equity loan scheme is that it only applies to new homes. The government has been quick to claim credit for the 23 per cent increase in housing starts seen over the last year even though completions are still flatlining. Help to Buy has supported a much greater proportion of sales of new homes than in the market as a whole. However, the big unanswered questions are how many of them would have been built anyway and how far housebuilders have simply used Help to Buy to scale back their own discounts and sales incentives. The rise in the share prices of the major housebuilders over the last year suggests that the City thinks they will do pretty well put of it.
  • The land market. Housebuilders hailed the unexpected extension of Help to Buy 1 from 2016 to the end of the decade as ‘providing certainty for the industry’. The danger is that the only certainty will be rising land prices. The Knight Frank Residential Development Land Index shows that land prices fell slightly in 2012 but rose 7.1 per cent in 2013. We now know that the taxpayer will back new home sales until 2020, giving landowners every reason to hold out for as much as they can get for their sites.
  • Help to Buy 2. The mortgage guarantee element of Help to Buy is bigger and far more controversial than Help to Buy 1. It’s been decried for stoking up demand while doing little about supply and for potentially leaving taxpayers on a £12.5 billion hook if it stimulates a boom and then a bust. However, the evidence so far suggests that the impact may be less than feared. Even taking account of the time it took for mortgage lenders to get up and running following the accelerated launch in October, 2,572 sales in four months is a long way from initial estimates of up to 190,000 a year. One reason for that, highlighted by figures from Hometrack, could be that Help to Buy 2 mortgage rates look very expensive by comparison with renting and other ways of buying. Another is that 90 and 95 per cent mortgages are now available outside of Help to Buy.

However, all of this assumes that Help to Buy actually is a housing policy and that the real aims are to help first-time buyers and boost housebuilding rather than existing home owners and the government’s electoral prospects. As Sir Martin Sorrell put it on last night’s Question Time: ‘Help to Buy was a political move. It was done in order to stimulate electoral support because it will be extremely popular. The problem is be careful what you wish for.’

Frank words

Wed, 9 Apr 2014

Getting the same criticism from different people is usually a sign you’ve got something wrong. How about for IDS and the DWP?

Three different reports published this morning amplify earlier warnings about the implementation of the bedroom tax, the wider impact of welfare reform on tenants and landlords and the prospects for universal credit. But it would surprise nobody if the work and pensions secretary saw them as yet more evidence that his reforms are a success.

Two of them come from the Joseph Rowntree Foundation (JRF). Steve Wilcox finds that what he neutrally calls the ‘housing benefit size criteria’ has affected fewer people than expected but that half of those are in arrears and 100,000 who want to downsize are trapped and unable to move. Anne Power concludes that welfare reforms may end up making tenants more, rather than less, dependent and are making them more vulnerable.

The third is from the work and pensions committee and warns that it is still not clear that universal credit will work. The MPs on the all-party committee think that implementation will be delayed even further and have some strong words about Iain Duncan Smith’s attitude towards their scrutiny.

It is of course less than a week since the work and pensions committee published its highly critical report on the bedroom tax. The JRF report identifies many of the same weaknesses in the policy and options for reform.

On top of concerns about the operation for discretionary housing payments (DHPs), the shortage of smaller homes for downsizers and the extra costs imposed on landlords, it also identifies concerns about the size criteria, including a failure to specify minimum sizes for single or shared bedrooms.

It also puts the bedroom tax into perspective by pointing out almost three-quarters of households in Britain under-occupy their homes based on the size criteria. Of these, just 3 per cent are the working age social housing tenants on housing benefit.

Thanks to a fall in the numbers affected, the report concludes that DWP may make direct savings of around £330 million in 2013/14 net of DHP costs, £115 million less than originally expected. It adds: ‘Those savings will decline over time, but they have been achieved at considerable costs for tenants and landlords.’

Options for reform include:

  • allowing an extra bedroom for households with someone on higher rate DLA
  • clearer provision for households with carers and shared responsibility for children
  • stronger guidance abut the treatment of DLA awards in income assessment for DHPs
  • reforming the DHP system to allow longer-term awards
  • introducing minimum sizes for single and double bedrooms based on the statutory overcrowding provisions
  • increasing the bedroom standard to one bedroom above the current standard
  • requiring landlords to offer suitable alternative accommodation before applying the size criteria.

Many of these changes were also recommended by the work and pensions committee last week and some were in the ultimately unsuccessful House of Lords amendments to the Welfare Reform Act. The agenda for bedroom tax mitigation is now pretty clear if anyone wants to implement it.

The second JRF report is based on interviews with tenants and landlords about the combined impact of all the different welfare reforms affecting social housing. There are obvious and alarming financial impacts – tenants cutting back on food and heating, relying on food banks and extra costs undermining landlords’ ability to build new homes – but non-financial ones too.    

For tenants, the whole system harder to navigate, the private contractors running larger parts of it are distrusted and the ‘digital by default’ approach to accessing benefits is causing anxiety.

For landlords: ‘To ensure viability, housing associations are intensifying scrutiny of new tenants’ finances. Some of the poorest applicants (whether in work or not) are being rejected and told to apply elsewhere.’

And for the DWP: ‘It is possible that welfare reform will cost the government more as reliance on private renting grows due to social housing shortages, leading to higher housing benefit costs. Costs for extra support also go up for housing associations, councils, and tenants.’

The work and pensions committee report shifts the focus from reforms that have already been implemented to the biggest of all, which famously has not been. Universal credit was meant to begin for all new claims from October last year but as of March 20 this year only applied to 4,280 people with the simplest sort of claims.

Much of the report covers the same ground as the National Audit Office on the delays and IT problems that have dogged the project. The DWP changed the timetable significantly in July 2013 and again in December 2013 and the whole process will not be completed until after 2017. However, the committee concludes:

‘Whilst it is essential to ensure that the system works effectively for claimants before it is extended, DWP needs to be clear about all the implications of the delays. Due to the very slow pace of the roll-out to date, it is difficult to envisage how the volumes required to meet the most recent timetable can be achieved.’

The MPs also take the DWP to task over ‘regrettable’ waste in the two parallel IT systems for universal credit and urge it to detail financial support to local authorities to cover the additional costs of the administration of housing benefit up to 2017. Lack of clarity on the Local Support Services Framework for vulnerable claimants is also ‘regrettable’.

However, for me the most remarkable section of the report is about Iain Duncan Smith personally. At a hearing in February when members challenged his lack of disclosure of key information about the problems the DWP was encountering, he told them:

‘I do not have to tell the committee everything that is happening in the department until we have reached a conclusion about what is actually happening. I will take those decisions myself and account for the decisions that were taken, and I have done that.’

He added that ‘I do not think this committee can run the department’.

The all too obvious tension arose after a series of delays in IDS’s appearances before the committee and a number of occasions when major changes to universal credit implementation were announced just before he did. The MPs say ‘effective scrutiny by select committees relies on government departments providing them with accurate, timely and detailed information’ and ‘this has not always happened to date’.

Coming on the day that Maria Miller had to resign in part over her high-handed response to scrutiny, this is powerful stuff. Remember too that this report comes from a committee that supports the general principles of universal credit and on which coalition MPs are in the majority. In that context these are very strong words indeed:

‘It is not acceptable for ministers to provide information about changes to major policy implementation to this committee, and indeed to parliament and the public more broadly, only when forced to do so by the imminent prospect of being held to account in a public oral evidence session. We recommend that, in response to this report, DWP sets out how it will improve the frankness, accuracy and timeliness of the information it provides to us, to ensure that it meets the required levels of transparency between the government and select committees, and that we are not hampered in trying to carry out our role effectively.’

Landlords and tenants coping with the disaster of the bedroom tax and uncertainty about what could yet prove to be the disaster of the universal credit deserve nothing less.

But frankness, accuracy and timeliness are not often evident in the approach taken so far by a minister who responds to inconvenient facts with ‘I believe I am right’ and a department that polishes its discredited responses with each new setback. Reports are ‘simply wrong’ while policies are ‘very clearly working well’. 

 

Paying the rent

Tue, 8 Apr 2014

The affordable v social debate took centre stage in the Commons yesterday and also emerged as an issue in the prospectus for new borrowing for council housing.

Communities and Local Government questions initially saw the usual routine in which a Labour MP asks a question about social rented housing and coalition ministers boast about the affordable homes programme.

Yesterday was different. Perhaps it was because Labour’s Heidi Alexander challenged the obfuscation directly:

‘I asked the Minister about social rented housing, not just affordable housing. The truth is that this Government do not want to build social housing; they want to decimate it. Will he tell me why the number of social rented homes being built in London last year was roughly one tenth of the number being built in the capital in 2009?’

And perhaps it was because the minister answering the question was not the housing minister Kris Hopkins but his fellow junior communities minister Stephen Williams. Hopkins seemed to be confined to questions about private renting and self build and, disappointingly, was not asked about his contention on Newsnight that rising house prices are ‘a good thing’.

As a Lib Dem, the affordable/social distinction is perhaps more sensitive for Williams than it would be for a Conservative.

He boasted that: ‘We will be the first Government to leave office at the end of a Parliament with a greater stock of affordable homes, including council houses.’ Not only that but the DCLG and Treasury had just published the prospectus for £300 million of extra borrowing to allow councils to build new homes.

His reply to the next question – ‘I stress yet again that this Government are committed to building new affordable homes, including social homes’ – prompted Alexander to shake her head and Williams to add:

‘I remind her that the latest statement on housing policy from her own party says that it wants 100,000 new affordable homes, of which half would be shared ownership, 35 per cent would be affordable and only 15 per cent would be social rented homes. She should have a word with those on her own Front Bench.’

This was indeed the breakdown specified by Labour after Ed Balls’s conference speech in 2012 but it also misses out an extra 25,000 social rented homes on top of that financed by a tax on bankers’ bonuses. The balance between affordable and social in the final programme may depend on the outcome of the Lyons Review. 

Shadow housing minister Emma Reynolds challenged Williams on the coalition’s 60 per cent cut in the affordable homes programme and the watering down of section 106 agreements. ‘Was it a surprise to the Minister that last year they built the lowest number of homes for social rent for more than 20 years, or was that in fact the Government’s plan?’

Williams replied that ‘I do not recognise those figures’ and said the coalition was delivering ‘the fastest rate of building in 20 years’. And he evaded the question about section 106 by saying it was all a matter for local government.

Reynolds hit back that: ‘The truth is that this Government are not building social homes: Labour councils across the country are out-building Tory and Lib Dem councils.’

Former Lib Dem communities minister Sir Andrew Stunell brought up the issue again later, asking what steps he was taking to increase the supply of social housing. ‘The Government have one of the most ambitions programmes of delivery for affordable and social homes of any Government,’ boasted Williams. 

And Stunell raised what the Lib Dems see as the real point when he followed up by asking: ‘Will he join me in congratulating Stockport Homes on opening its 4 millionth social and affordable home for rent? Does he see that as a really stark contrast with the performance of the Labour Government in reducing the housing stock by more than 400,000?

I was puzzled by that ‘4 millionth home’ reference as there are only 120,000 homes in the whole of Stockport. However, it seems to be a reference to what Stunell and Williams have claimed was ‘the historic moment’ when England’s affordable housing stock went back above four million when they opened one in the town. For all that he is correct about Labour’s record, it seemed pretty desperate stuff but it produced this pledge from Williams:

‘It is certainly the case that this Government, at the end of this Parliament in 2015, will be the first for generations to leave more social and affordable homes in stock than we found five years ago in 2010.’

If that does prove to be the case, it will be because because right to buy sales will not have had chance to recover following the increase in discounts and above all because of the controversial switch from social to affordable rent.

As Colin Wiles blogged last week, the result is that we are building affordable housing that in the most expensive parts of the country isn’t affordable at all. His FOI requests revealed that the average ‘affordable’ rent for a three-bed home is £191 per week when even the Living Wage assumes a rent of £115. Disturbingly, neither the HCA or GLA could provide any information about the number of existing social rent homes converted to affordable rent.

Yesterday also saw the publication of the prospectus for the extra £300 million of local authority borrowing announced in last year’s Autumn Statement. At the time this was seen as a Lib Dem gain in return for allowing the Conservatives to increase right to buy discounts. However, it soon became clear that not only did the extra borrowing only apply in the next parliament (£150 million in 2015/16 and 2016/17) but also that there were strings attached, especially on the sale of ‘high-value’ existing stock.

The prospectus confirms all this. The government expects the £300 million to deliver 10,000 new affordable homes and a cost of £30,000 per home implies a high proportion of ‘affordable’ rent. And in the introduction Kris Hopkins says that:

‘The Government wants to see active asset management and the disposals of high value vacant stock forming part of any bid as well as public sector land being brought forward – councils should be using their land proactively and not just mowing it.’

The prospectus continues:

‘As part of a local authority’s wider approach to asset management, local authorities are required to consider the contribution that disposal of some vacant properties (both within and outside the social housing sector) can make to support the delivery of new homes. This could include homes that are uneconomic as social housing properties and homes with particularly high market values where greater value to the business could be achieved if they were sold and the receipts reinvested in new housing.

‘Already some councils are taking a positive approach to asset management. Others are not. We believe asset management is a necessary part of social housing for all providers. All bids must show how they have considered the contribution of land and receipts from the disposal of stock, including, in particular, high value vacant stock. If contributions from land and asset disposal are not part of the bids local authorities must explain how they have arrived at this conclusion.’

There are limits on conversions. Borrowing caps will remain in place and the prospectus says that the government does not receive bids funded ‘on the back of additional borrowing capacity provided by conversions to affordable rent’. However, they only apply to local authorities. Where councils are working with a housing association on the proposed scheme, the association ‘is encouraged to consider conversions to affordable rent to generate additional financial capacity

In addition the prospectus sets out the process to allow local authorities to claim housing benefit subsidy above the limit rent for affordable rent properties.

And ‘a primary metric for assessment of value for money will be the level of additional Housing Revenue Account borrowing requested to deliver the scheme as a whole and per new affordable housing unit’.

In summary, it seems that an apparent concession to council housing could in fact see an even greater shift from social to affordable rent.

As the argument between the parties about social and affordable housing continues ahead of the election, that makes it all the more vital that we don’t allow the distinction to be forgotten.  

One size does not fit all

Wed, 2 Apr 2014

Today’s report from the work and pensions committee is an all-party challenge to the fundamental principles of the government’s reforms of housing benefit.

To my mind it is the most serious attack on the bedroom tax, the benefit cap and a swathe of other reforms since the government was forced to overturn House of Lords amendments to the Welfare Reform Act on the grounds of financial privilege.

But you would not guess it from reports in the national media this morning. On Radio 4’s Today programme it was only judged the third most important select committee report of the day and the second most important housing story behind the Nationwide house price index. It’s also downplayed elsewhere with headlines about ‘distress’ and ‘hardship’ or even stolen by Tim Farron rather than about the committee’s call for wholesale changes that could benefit hundreds of thousands of people.

That could be because most outlets have already run bedroom tax stories connected to yesterday’s first birthday (Today’s was last week). It could also be because there is no single eye-catching recommendation in the report that makes for a big headline.

Instead the MPs make a series of smaller recommendations. Their combined impact may be harder to grasp but, taken together, they undermine both the policies themselves and the government’s reliance on discretionary housing payments (DHPs) as its main line of defence against any criticism of them.

Take the social sector size criteria (the neutral name the MPs agreed to use for the bedroom tax). The committee split on party lines to reject a Labour attempt to recommend that it should be scrapped. However, the report highlights the impact on people ‘who are unlikely to be able to move house or enter work’ and recommends:

  • An exemption for disabled people living in homes that have been significantly adapted for them
  • An exemption for all households that contain somebody who is in receipt of the higher level mobility or care component of disability living allowance (DLA) and personal independence payment (PIP). If the government is unwilling to do this, it should exempt adults unable to share a bedroom because of their severe disabilities or who need a room for medical equipment or for a carer, including a partner who is a carer.

The Chartered Institute of Housing is still calling for the bedroom tax to be scrapped but it estimates that these measures would exempt around a third of households currently affected. Some people put the figure even higher.

However, the recommendations on the social sector size criteria do not stop there. They also include:

  • A detailed assessment of the available social housing stock in each local authority area. Where there is clear evidence there is insufficient smaller stock, the government should consider allowing affected households more time to adjust before the reduction in benefit is applied. Where a household is under-occupying but there is no suitable, reasonable accommodation available, the reduction should not be applied.
  • The government should use the DCLG standard of bed spaces rather than the number of bedrooms to determine whether a household is under-occupying. This will address cases where two children are being expected to share a room that was designed for one child.
  • The government should produce a full cost-effectiveness review of the policy by March 2015, including DHPs and costs incurred by local authorities and social landlords to assess the overall impact on the public purse.
  • The government should consider allocating extra funding to social housing providers in areas where significant extra costs are identified to mitigate the impact and ensure that capacity to build new homes is not compromised.

On the benefit cap, the MPs warn that it is ‘having a negative impact on some vulnerable households who were not the intended targets’. They recommend:

  • An exemption for full-time carers living with a disabled adult who is not their partner
  • An exemption for households in temporary accommodation ‘because these claimants have no choice about where they are housed and few options for reducing their housing costs’.

In both these cases, they explicitly reject the government’s argument that DHPs are a better way of helping people than exemptions. In the first case, they say that: ‘DHPs cannot act as an effective long-term mitigation because they are intended to be temporary and not all carers in this situation are considered to be eligible.’ In the second, ‘local authorities often then have to fund the difference between the capped benefit paid and the rent due, and so there is likely to be no overall saving in public funds from the inclusion of these claimants in temporary accommodation within the scope of the cap’.

The MPs broaden the attack on DHPs in a section of the report on transitional protection and warn that the discretion allowed to local authorities ‘is resulting in access to DHP funding depending heavily on where a claimant lives’. They are ‘especially concerned’ about councils means testing disability benefits when they determine eligibility and recommend new government guidance that they should be disregarded.

They say discretionary help is inappropriate for people including those with disabilities who have ‘little expectation of finding work or moving house’.  Responses other than DHPs, preferably the exemptions recommended in the report, should be used to support claimants facing long-term hardship because of the reforms. If the government does not accept the exemptions, then it should increase funding to prevent hardship.

All of these recommendations are a fundamental challenge to government policy. All along ministers have resisted any idea of exemptions from the policies beyond those agreed at the start (people of pension age for the bedroom tax, people receiving working tax credit and a limited range of other benefits from the benefit cap). Just about the only exception to this, an exemption from the bedroom tax for severely disabled children who are unable to share a bedroom, had to be dragged out of them after defeat in the High Court.

DHPs have been not just their chosen alternative but their main line of defence against criticism of individual cuts. They are also one of the major reasons why first the High Court and then the Appeal Court rejected legal challenges against the bedroom tax and benefit cap and decided that discrimination against disabled people and women was lawful.

A DWP statement after the hearing demonstrated only too clearly how DHPs have become their main line of defence for their housing benefit reforms: ‘Reform of housing benefit in the social sector is essential to ensure the long-term sustainability of the benefit. But we have ensured extra discretionary housing support is available for vulnerable people.’

The work and pensions committee has now said loud and clear that discretionary help is inadequate. Reading the report under embargo yesterday, I wondered what the DWP’s response would be. It can hardly fall back on its second line of defence – the accusation of partiality it used against housing associations and University of York researchers – when the committee has a coalition majority (five Labour MPs, five Conservatives and one Lib Dem).

Judging from the Today programme’s scant coverage of the report this morning, it seems to be continuing to rely on the line about discretionary help and hoping that nobody will notice it no longer has any clothes. Another option might be to use the lack of media coverage and simply ignore the report and its recommendations.

It would be a tragedy if that happened. This is a major report that goes well beyond what I have room for here, with major recommendations on the local housing allowance, council tax support and the universal credit as well as the points I’ve highlighted. The housing organisations that contributed to the report have convinced an all-party group of MPs that major changes are needed. The pressure on the DWP needs to be intensified. 

Many unhappy returns

Tue, 1 Apr 2014

Stop carping, you lot. The removal of the spare room subsidy is a success.

Today is of course the first of the month as well as the first anniversary of the introduction of the bedroom tax and a wave of other welfare reforms. But I am paraphrasing Iain Duncan Smith and Esther McVey rather than making a token effort at an April Fool.

Yesterday’s work and pensions questions brought inevitable attacks on the policy that has caused so much controversy since its introduction a year ago.

Labour’s Kate Green quoted last week’s reports from the BBC that just 6 per cent of households affected by the bedroom tax have managed to move and from Real Life Reform that eight out of ten are in debt and their borrowing is increasing by £52 a week. ‘Rather than preaching about careful budgeting, why do Ministers not just scrap this hated and unworkable tax, which is sending people spiralling into debt?

IDS’s reply is worth quoting in full:

‘It is interesting that the Opposition and the hon. Lady take the view that people moving is a bad thing. Let me just tell her—[Interruption.] It is interesting that they say that, but 30,000-plus people—I will repeat that: 30,000 people—who were in overcrowded accommodation have now had the opportunity for the first time to move into houses where they are not overcrowded. The hon. Lady and the Opposition left us with a quarter of a million people in that position— 250,000—so in 10 months over 10% have had the opportunity to move and we are saving over £1 million a day. I call that a success.’

That £1 million a day savings is one of those DWP statistics that it gives to the press without ever publishing on its own website so there is no way of checking it. Presumably it simply reflects the saving to the DWP housing benefit budget for social tenants without including any of the other costs that will eventually fall on taxpayers.

The 30,000 figure is 6 per cent of the 498,000 households currently affected by the bedroom tax. Note first that there is no attempt to repeat McVey’s claim on the Today programme last week that the real figure is 8 per cent or acknowledge that the more people that move the less money the DWP will save. But more importantly note the careful phrasing of the answer. The matching 30,000 people in overcrowded accommodation ‘have had the opportunity to move’. He can hardly say more than that given the regional mismatch between overcrowding and under-occupation and all those newly empty three-bed homes in the North. ‘I call that a success.’

But IDS seemed so pleased with his success that the careful phrasing went out of the window when he was asked a friendlier question later on. Conservative MP Philip Davies asked if he had noticed that the ‘Labour BBC’ had at first complained that too many people would be removed from their homes yet was now complaining that too few had moved. ‘In the interests of fairness, surely taxpayers not on housing benefit who cannot afford a spare bedroom should not be expected to pay for a spare bedroom for people on housing benefit,’ he said.

IDS’s reply is again worth quoting in full:

‘The first and principal point is that this programme is saving over £1 million a day for hard-pressed taxpayers, many of whom, as my hon. Friend said, cannot afford a spare room themselves but were paying taxes to subsidise those who had spare rooms. The second point is that over 30,000 people who were once in overcrowded accommodation, left behind by Labour in terrible conditions, are now moving into better houses. This programme is a success. The Opposition did nothing about those people the whole time they were in government. ‘

More importantly, note how in the time between the two questions those 30,000 overcrowded families have gone from having ‘the opportunity to move’ to ‘moving into better houses’. As far as I am aware there is absolutely no evidence for this – and lots of evidence of bedroom tax victims who want to move but can’t because no smaller homes are available - but ‘this programme is a success.’

The bedroom tax is of course only one of a wave of welfare reforms introduced under the coalition. It probably won’t surprise you to learn that most of these have also been successes.

Take the Work programme and its record on helping disabled people find a job. According to IDS, ‘it has been successful for those who are furthest from the labour market’. According to shadow work and pensions secretary Rachel Reeves: ‘The truth is that just 5 per cent of disabled people on the Work programme end up in work. If that is a success, I would like to know what failure is.’

Take Universal Jobsmatch, the programme on which it emerged recently that 60 per cent of jobs are bogus (MI6 was not really seeking a ‘target elimination specialist’). That ‘revolutionises the way jobseekers look for work’, said Esther McVey. ‘Shame on you!’ she told the Labour MP who questioned it.

Or take Universal Credit. Labour’s Chi Onwurah asked whether the government would ‘continue the development of the existing, discredited universal credit IT system while building a new system in parallel’. How much would the double development costs and how it was going to recruit the skills it needs ‘given the current shambles’? IDS’s answer will not surprise you. Recruitment has been ‘a big success’ and the system is ‘not ‘discredited’.

Labour’s Chris Bryant pointed out that the government originally promised that a million people would be on universal credit from today. The actual figure is less than 4,000.

Instead of moaning, said IDS, he should get out and ‘see how successful its rolling out has been’. 

After all that success, it was some relief to hear Mike Penning, the minister for disabled people, admit to problems with the work capability assessment and personal independence payment and failures by Atos and Capita as a succession of MPs complained about delays.

As we uncelebrate the bedroom tax’s first birthday, it’s vital to remember that it is just one of a whole range of welfare reforms and that, as the FT reported yesterday, 60 per cent of coalition spending cuts are yet to come. 

Housing nations

Thu, 27 Mar 2014

What would a Yes vote to Scottish independence mean for housing in the rest of the UK?

With less than six months to go until the referendum, it’s not just in Scotland that the issues are being debated. While England may feel it can mostly ignore what’s happening north of the Tweed the question is perhaps felt more deeply in the other UK nations.

In Northern Ireland, a research institute has just warned of ‘substantial’ political, economic and social effects. And in Wales the issues were addressed directly this week in a debate at the TAI 2014 conference in Cardiff on the motion ‘This house believes an independent Scotland would be good for Wales.’

Each side had a Scottish and a Welsh speaker. Professor Douglas Robertson of the University of Stirling and Bethan Jenkins of Plaid Cymru argued in favour, while Jim Strang of Parkhead Housing Association and Keith Edwards of CIH Cymru were opposing.

A quick show of hands among the CIH Cymru conference audience indicated that the Yes camp would be facing an uphill battle to win them over but the debate itself raised some fascinating issues about the future and housing’s place within it.

Douglas Robertson said that the crux of the argument was not about ethnicity and identity but about social welfare standards: ‘What sort of Scotland do we want?’ and in turn ‘What sort of society do we want?’

For him the choice for Scotland boiled down to becoming a Scandinavian country rather than a neo-liberal American one. And a Yes vote in Scotland would show there were different ways of doing things in Wales.

That was a point picked up by Bethan Jenkins, who argued that a Yes vote would create space for a debate about more powers for Wales and would also mean more UK focus on Wales.

But Jim Strang said the consequences of a Yes would be dire for the UK as a whole. ’Wales and the rest of the UK cannot afford Scottish independence,’ he said. Issues of poverty and unemployment were the same in Birmingham, Cardiff and Glasgow and a No vote would mean a chance to build a fairer UK. ‘I’m a proud Glaswegian and a proud Scotsman but I’m also proud to be called British.’

And Keith Edwards said extra Welsh bargaining power from a Yes vote would end up being far outweighed by the long-term consequences for social justice.

What was interesting was the concern about social justice that ran through the case made by both sides. The Yes camp in Scotland looks at its one Conservative MP (‘we have more pandas than Tories,’ said Douglas Robertson) yet sees austerity imposed from Westminster. Most on the No side are just as opposed to austerity but argue the way to resist it is through opposition across the UK.

Another show of hands at the end of the debate showed perhaps only 10 per cent of the audience saying a Yes vote would be good for Wales. However, social justice, and housing’s role within it, has been a key theme in much of the rest of the conference.

Wales is part way through a major programme of housing and planning legislation that is the result of new devolved powers and also featured heavily on the agenda this week.  However, it is grappling not just with austerity but also with the question of how to increase housing supply at a time when money is tight.

The conference heard a warning from England about the consequences of the affordable rent programme. Tom Murtha of HACT chaired a session on alternatives to austerity and made a passionate speech about the importance of social housing and the dangers of accepting ‘affordable’ housing that is not affordable at all.

In another session veteran activist Peter Tatchell had praise for the efforts the housing sector has made on equalities and made a wide-ranging speech and Q&A covering everything from the Heygate estate to media demonising of the poor.

His alternatives to austerity were to cancel Trident, close down Boots if it avoids tax in Switzerland, levy a financial transactions tax and impose a one-off wealth tax on the richest 10 per cent.

As the countdown continues to the Scottish independence vote, the debate on social justice in the UK as a whole continues.

Does the cap fit?

Wed, 26 Mar 2014

The debate about the welfare cap seems to be all about the politics. It should be about the contradictions at the heart of the policy too.

The coalition parties and the opposition are all supporting the measure that will place a legal restriction on most welfare spending from 2015/16 so, despite an expected Labour rebellion, it seems more or less certain to go through.

The cap started off as a political trap set by the Conservatives and Labour support reflects a determination not to fall into it.

Judging from his appearance on the Today programme this morning, Iain Duncan Smith seems determined to act as though Labour doesn’t really mean its support. But the example he chose says much about his priorities and the way the cap will operate.

IDS cited Labour’s pledge to repeal what he calls the removal of the spare room subsidy. Only JSA-passported housing benefit will be outside the cap, so his point was that ending the bedroom tax will automatically increase spending within the cap and Labour should have to say what it will cut instead.

The contradictions of such an arbitrary measure begin with the way that pressures on spending caused by an ageing population or unemployment are not capped, while those triggered by housing tenure and disability are not.

Despite government rhetoric about worklessness and ‘out of control’ welfare spending, the cap targets benefits and tax credits for people who are in work or who cannot work.

The basic state pension is not capped but pension credits are. As Chris Goulden of the Joseph Rowntree Foundation points out, that means that the cap will protect the wealthiest claimants not those in the greatest need.

And Evan Davis identified another contradiction on the Today programme this morning: what happens if the cap stops the government from fulfilling its equally legally binding commitment to end child poverty by 2020. IDS fell back on his faith-based formula of ‘I believe we will’ (while trying to move the goalposts on the definition of child poverty in the meantime).

But there are plenty of other contradictions if you focus more closely on housing:

  • Apart from the misery and debt it’s causing (see today’s latest Real Life Reform report on that), one of the main arguments against the bedroom tax is that it will simply transfer costs from housing benefit elsewhere. The cap actually gives future governments an even greater incentive to do the same thing and ‘save money’ by transferring costs to local authorities, social landlords and the voluntary sector.
  • When it comes to repealing the bedroom tax, most housing benefit is capped but (as I read it) discretionary housing payments are not. The temptation for Labour could therefore be to rely on the DHP route to fulfilling its pledge despite all the problems inherent in a system that relies on local discretion.
  • We know that the long-term shift in housing tenure will mean a rising housing benefit bill for private tenant pensioners. While the basic state pension is uncapped, their housing benefit is within the cap.
  • The cap covers the UK, yet housing policy decisions taken by individual nations will have an impact on it. For example, as the English government forces landlords to build for more expensive affordable rents, and sell off and convert their social rent homes, that will put up rents and the housing benefit bill. That means English decisions on housing could potentially trigger cuts in welfare for Scotland and Wales.
  • The overall cap level is made up of forecasts of the costs of individual benefits. However, as I blogged last week, when you look at how the Office for Budget Responsibility’s estimates of the cost of housing benefit keep changing with every Budget and Autumn Statement, this does not fill you with confidence.

Exactly how the cap will operate remains to be seen. We know the basics: governments will have to set cap targets five years ahead and come back to parliament for approval if capped spending exceeds them by more than 2 per cent.

However, it could be that a future government will introduce measures such as the living wage or (we hope) greater investment in social housing that will reduce the pressure on benefits spending and make the cap less onerous than it appears.
Equally, as Kate Webb noted last week, coming elections could see parties pledging to reduce the cap without having to spell out any detail of how.

Today’s vote may seem to be all about a cap that offers a clear and easy to understand way to control public spending. But it could turn out to be anything but and the implications could be felt for years to come.

Budget 2014: the next five years

Wed, 19 Mar 2014

Never mind today and tomorrow: what does the Budget mean for housing over the longer term?

As usual, some of the most revealing information comes not in the speech or the Treasury’s background documents but in the Economic and Fiscal Outlook published by the Office for Budget Responsibility. This time around the detail and the forecasts for the next five years have a lot to say about housing benefit, the welfare cap and the housing market. 

On the welfare cap, the OBR has a detailed breakdown of the benefits and tax credits that will and won’t be included:

Cap

We already knew that ‘the vast majority’ of housing benefit would be covered. This shows that 86 per cent of the current housing benefit bill will be within the cap – but that that the proportion will rise to 90 per cent by the end of the decade as the uncapped bit linked to unemployment falls.

The figures could also answer my question in my Budget live blog about the impact of above-inflation social rent rises: policy decisions like these seem to be already factored in to the cap level.

Which might be ok were it not for the fact that the OBR has constantly changed its forecasts of the housing benefit bill. It now says the total cost will be £1 billion more over the next five years than it forecast at the time of the Autumn Statement in December. However, that figure was itself £6 billion higher over five years than it estimated at the time of the Budget a year ago, which in turn was £3.7 billion higher than it said at the 2012 Autumn Statement.

Unforeseen increases in any capped benefits could automatically trigger cuts under the new system. The OBR’s forecasting difficulties on housing benefit highlight the fact that increases are quite likely not to be foreseen. As the Centre for Economic and Social Exclusion points out, these sort of problems go well beyond the 2 per cent per year tolerance for breach built into the cap.

And a separate part of the report on trends in welfare spending makes clear that these problems are directly related to our housing system.

While the government has consistently claimed that the housing benefit bill is ‘out of control’, the OBR points out that:

‘The largest driver of the rise in spending on housing benefit has been caseload growth in the private rented sector. This reflects both a rising share of households living in private rented accommodation and a rising proportion of those households claiming housing benefit. As a result, the share of spending accounted for by the private rented sector is forecast to rise from 30 per cent in 2007-08 to 40 per cent by 2018-19.’

The main reason for that is of course the long-term shift from owner-occupation to private renting that began long before the recession but accelerated in the last five years. The OBR says that:

‘The rising proportion of the renting population claiming housing benefit may be related to the weakness of average wage growth relative to rent inflation. This explanation is supported by DWP data, which suggest that almost all the recent rise in the private-rented sector housing benefit caseload has been accounted for by people in employment. We expect the share of claimants in the private rented sector to continue rising over the forecast period, but for average awards to rise more slowly than nominal GDP per capita due to policy, including on uprating.’

So much for being ‘out of control’ or the product of the so-called ‘dependency culture’. The OBR sees the growth in the housing benefit bill as a direct consequence of shifting tenure and rents rising faster than wages as more people in work have to claim. The total bill will keep on rising but that last bit on policy and uprating could suggest that if the bill does fall as a proportion of GDP it will be because more people will face greater shortfalls between their housing benefit and their rent.

And will it fall even in those terms? Elsewhere in the report, the OBR forecasts big increases in house prices as a result of the economic recovery and policies like Help to Buy:

Price

Annual house price inflation will rise from the current 5.5 per cent (using the ONS index) to a peak of 9.2 per cent in the third quarter of 2014. Over the next year or so prices will rise significantly more than it expected three months ago. Over the next five years, prices will rise by 30 per cent to reach a level of just 0.5 per cent below their pre-crisis peak in real terms.

When ministers argue that their policies are not generating a boom they tend to rely on the real terms comparison with 2007 to reassure us all. However, if this forecast is correct, we will be all but back at the house price levels that triggered the sub-prime mortgage crisis, the credit crunch and the financial crisis within five years.

Bear in mind too that earnings have been falling in real terms ever since the crash, so house prices will actually be more unaffordable than they were at the peak of the boom. I find that alarming rather than reassuring. 

However, long-term trends in the housing system may not matter so much to the chancellor if the OBR is correct in its forecasts about rising tax receipts from stamp duty. As house prices and transactions both rise, the OBR says the £6.9 billion receipts from stamp duty in 2012/13 will rise to £9.5 billion in 2013/14 and £12.7 billion in 2014/15. By 2018.19 total receipts will stand at £18.1 billion.

That’s £9 billion more over the next five years than it was forecasting three months ago. The OBR notes: ‘The housing market, particularly in London, has continued to outperform our forecast and receipts have been higher than expected.’ Little wonder that Osborne resisted calls for reductions in this Budget – and housing is also generating more modest but still significant gains for him in inheritance tax. Could it be time to reinvest some of it?

As house prices rise, so more and more homes cost more than the thresholds for higher rates of stamp duty. The average house price is expected to pass £250,000 this year, meaning that buyers will have to pay 3 per cent duty on the whole amount. The average effective rate of stamp duty is expected to rise from 1.7 per cent in 2008/09 to over 3 per cent in 2018/19. 

The bigger question is what this will mean for levels of home ownership and ultimately for the housing benefit bill. The government may hope that extending Help to Buy 1 will create 120,000 new owners but those unaffordable house prices would be creating many more new renters who need help with their rent.

It’s not housing benefit that is out of control but our whole housing system. 

Budget 2014 - live blog

Wed, 19 Mar 2014

15:40: Kate Webb of Shelter has just posted a blog about a Budget that provided welcome support for homeowners but laid the groundwork for a future squeeze in support for renters.

The good news for owners and those wanting to get on the ladder comes on SMI, self build and Help to Buy plus a range of other measures I summarised earlier.

The bad news for renters is the welfare cap. Current spending projections are built in but if welfare spending rises faster than expected a future government will have to find savings elsewhere: 

‘Crucially the pressure to bring spending back under the limit of the cap falls entirely on the DWP, rather than, for example, rising housing benefit expenditure triggering action in CLG to increase supply of genuinely affordable housing to reduce the HB bill.’

Even worse, Kate warns that one or more parties may promise in their next election manifesto to reduce the cap, locking cuts into the system without having to set out any detail at the time:

‘Reducing the welfare cap by £12 billion probably sounds abstractedly palatable to the average person on the street. Spelling out that this would entail the complete withdrawal of housing benefit for young families or cuts to benefits that enable disabled people to work may be a harder sell.’ 

Meanwhile Leslie Morphy of Crisis makes a similar point about the dangers implicit in the cap:

‘Though the maths might look solid today, we fear that predicting something as complex as national demand for benefits five years in advance is incredibly risky. If the sums do turn out to be wrong, in four of five years’ time it will cause poverty, misery and homelessness.’

14:40: Some reactions so far. David Orr of the NHF says it’s a missed opportunity:

‘We welcome the Chancellor’s focus on housing and the announcement of a new garden city, but we think the Budget is a missed opportunity. Measures like Help to Buy are likely to stimulate demand for housing but the Budget does not go far enough to boost the supply of homes needed to meet that demand.’

Grainia Long of the CIH welcomes the extra help for small and medium sized housebuilders and some of the other specific measures on garden cities and support for mortgage interest. She concludes:

‘In his Budget speech the Chancellor claimed that the measures he announced would deliver 200,000 new homes, including the 120,000 homes supported by the extension of Help to Buy equity loans. This would be an important step along the road to addressing out housing crisis, but it still leaves us with much to do.’

14:32: Here’s some more detail from the ‘Housing and local growth’ section of the main Budget document:

  • Help to Buy: equity loan scheme – extended to March 2020 to help a further 120,000 households to buy a new-build home.
  • Ebbsfleet Garden City – Government will form an Urban Development Corporation, in consultation with local MPs, councils and residents, to deliver it and support the scheme with up to £200 million of infrastructure funding to kickstart development.
  • Barking Riverside – The government will work with the Greater London Authority (GLA) to develop proposals for extending the Gospel Oak to Barking line to Barking Riverside to unlock up to 11,000 new homes.
  • Brent Cross regeneration scheme – The government will work with the London Borough of Barnet and the GLA to look at proposals for the Brent Cross regeneration scheme, subject to value for money and affordability.
  • Estate regeneration – A £150 million fund to kick start regeneration of social housing estates. This will be repayable loans  and bids will shortly be invited from private sector developers, working with local authorities on estates that might be able to benefit. Following the Autumn Statement, expressions of interest have already been made through the Greater London Authority relating to the Aylesbury Estate, Blackwall Reach and Grahame Park regeneration projects in London.
  • Builders’ Finance Fund – To support SME access to finance, the government will create a £500 million Builders’ Finance Fund. This ‘will provide loans to developers to unlock 15,000 housing units stalled due to difficulty in accessing finance’.
  • Custom build – Consultation on a new Right to Build giving custom builders a right to a plot from councils and test the operation of this approach with vanguard local authorities. The government will also create a £150 million repayable loan scheme to provide up to 10,000 serviced plots, and will look to extend the Help to Buy: equity loan scheme to cover custom build.
  • Strategic Land and Property Review – The Government Property Unit has concluded its Strategic Land and Property Review which has identified scope to release £5 billion from government land and property, creating opportunities for housing and economic development. Departments have already committed to £3.5 billion of that and a further £1.5 billion will be identified. ‘By Autumn Statement 2014 the government will look to quantify its housing and growth ambitions for this new surplus land programme.’
  • Zero carbon homes – ‘At Budget 2013 the government committed to implement ‘zero carbon homes’ from 2016. The government will shortly publish its response to last year’s consultation.’
  • Right to Move – The government will shortly consult on the design of a priority ‘Right to Move’ for social tenants to increase their mobility for work-related reasons. Options will include giving such tenants priority when a new social home becomes available, and setting aside a pool of vacant lets to enable them to move across local authority boundaries.
  • Development benefits – Government-funded staged pilot for passing a share of the benefits of development directly to individual households, including further research and evaluation of the approach.
  • Garden City prospectus – The government will publish a prospectus by Easter 2014 setting out how interested local authorities could develop their own, locally-led proposals for bringing forward new garden cities.
  • More planning reform - including consultation on change of use measures to make it easier to change to residential use, for example from warehpuses and light industry structures.
  • Support for mortgage interest (SMI) scheme to remain at higher £200,000 capital limit until March 2016 at a cost of £90 million - not clear if shorter waiting period of 13 weeks is also being extended.
  • Higher rate 15% stamp duty on homes owned by companies extended to homes worth over £500,000 and  the Annual Tax on Enveloped Dwellings to be extended to homes worth £1-2 million from April 2015 and £500,000-£1 million from April 2016. The original tax on homes worth over £2 million raised five times more than expected in the 2012 Budget because there were ‘significantly more properties above £2 million than expected’.

14:12: Looking at the Budget documents now. Here’s the full list of the benefits and tax credits covered by the welfare cap:

Cap

We know from the Autumn Statement that ‘the vast majority’ of housing benefit will be in the cap. Apart from the obvious trap for Labour (repeal the bedroom tax and you have to cut something else) this raises a big question about social rent policy: if rents rise by CPI plus one per cent but the cap rises by CPI, does that means other benefits will have to be cut to make up for it?

13:40: Here’s they key passage on housing from Osborne’s speech:

Mr Deputy Speaker, our country needs to export more – and it also needs to build more.

‘House building is up 23%. But that’s not enough. That’s why we’re making further reforms to our planning system and offering half a billion pounds of finance to small house building firms. It’s why we’re signing city deals across the country to get more built – with a new funding deal this week for Cambridge. And it’s why we’re giving people a new Right to Build their own homes and providing £150 million of finance today to support that.

‘It’s why we’re funding regeneration of some of the urban housing estates that are in the worst condition, and we’re extending the current Support for Mortgage Interest Scheme to 2016.

‘And it’s why we’ve got Help to Buy. We’re extending the Help to Buy equity loan scheme for the rest of the decade, so we get 120,000 new homes built.

‘In the South East where the pressure is greatest we’re going to build new homes in Barking Riverside, regenerate Brent Cross, and build the first new Garden City in almost a hundred years at Ebbsfleet. We’re going to build 15,000 homes there, put in the infrastructure, set up the development corporation and make it happen. I thank my Honourable Friends for Dartford and Gravesham for their tremendous support. And we will be publishing a prospectus on the future of Garden Cities.

Taken all together, the housing policies I announce today will support over 200,000 new homes for families. We’re getting Britain building.’

So that seems to mean that the non-Help to Buy announcements will generate 80,000 homes. It was interesting there was no mention of changes to Help to Buy 2. The Budget documents should help show how much of this is new. 

Elsewhere in the speech, Osborne confirmed that the welfare cap will include housing benefit (it was the first benefit he mentioned) and extended the 15 per cent rate of stamp duty on homes bought through companies. 

10:05: George Osborne is due to start his Budget speech at 12.30. Here are some more pre-Budget articles and blogs that are worth a read in the meantime.

On the housing market, Ken Gibb of Glasgow University asks whether Osborne will cool of fuel the housing market and warns that without a political consensus on housing policy the danger is more political short-termism, chronic under-supply and market volatility. Meanwhile Neal Hudson of Savills looks at what the Bank of England can do to control the market and at the prospects for the Mortgage Market Review in April. If that does not succeed in curbing riskier lending he warns that it may ‘go head-to-head with the government by intervening in the mortgage market later this year’. (Mark Carney warned of the housing-related risks ahead yesterday).

On social housing, David Orr wants ‘more homes please’ and pleads with Osborne to address three barriers that are holding back housing associations: land and improvements in the release of public land; access to finance by reforming restrictions on the way homes are valued; and the extension of guarantees to the refinancing of existing debt. 

And ahead of a Budget that looks like it is set to make you feel sick of hearing the word ‘resilient’, Julia Unwin has a message for Osborne that cost-effective spending in areas like childcare and social housing can not only reduce poverty but also boost the economy.

For a look at the CIH’s Budget submission go here

08:50: Here’s my summary of the housing-related news and speculation ahead of the Budget. More to follow later.

Housing has of course already been at the centre of the pre-Budget spin. George Osborne made two big announcements on morning television on Sunday: Help to Buy 1 – the equity loan scheme – will be extended from 2016 to 2020 in England; and we will also see what’s claimed to be ‘the first new garden city for 100 years’ at Ebbsfleet in Kent.

On the first, it’s worth noting that housebuilders were only asking for the scheme to be tapered off after 2016 rather than extended. The government’s argument is that investing another £6 billion to help 120,000 more households buy a new-build home will provide greater certainty to developers so they can invest in building more homes. Critics warn that it’s a subsidy that will go to many homes that would have been built anyway and that in the long term it will simply inflate land prices. The instant verdict from the City was a £900 million increase in the share prices of the major builders. On the second, the plan for 15,000 new homes in Kent seems to be smaller than plans approved in 2012 and it is hard to see how many of the original garden city principles are being applied.

With those announcements already out of the way, Noble Francis asks whether we have heard it already when it comes to the Budget. It’s possible we’ll hear more on both of them later. However, other speculation centres on:

  • Help to Buy 2. The extension of its less contentious partner be accompanied by changes to the heavily criticised mortgage guarantee scheme? And if they are will they curb it – or extend it?
  • The welfare cap. Osborne is due to reveal more detail of how the cap on non-cyclical spending on benefits and tax credits will operate. The idea is that a future Chancellor will either have to balance cost increases with savings elsewhere or seek parliamentary approval to lift the cap. The big question for housing is of course what that will mean for housing benefit and the housing element of universal credit. We know from the Autumn Statement that ‘the vast majority’ of housing benefit will be covered – only JSA-passported housing benefit will be outside the cap – but how will that interact with other housing policies such as the social housing rent formula? The FT has a bit more on the cap this morning.
  • Stamp duty. There have been unheeded calls for reform ahead of every Budget that I can remember but with the average asking price for a home now having passed the £250,000 threshold at which stamp duty hits 3 per cent, will Osborne finally listen? The FT speculates on a new 2 per cent rate for homes between £250,000 and £300,000 Could we see other changes to property tax?
  • Land auctions. A feasibility study on the scheme to reform incentives for communities to accept development is due to be published.
  • Right to buy: Will Osborne announce Conservative-pleasing increases to discounts? Will the Lib Dems let him or ask for something in return?
  • Borrowing cap: Osborne announced a slight lifting in the cap in the Autumn Statement and the Lib Dems and everyone in housing want him to go further.
  • Tax relief on investment in social enterprises: Osborne is due to reveal more detail and it will be interesting to see what scope the scheme offers for housing. The Guardian has a report explaining a bit more.
  • The Policy Exchange agenda: the Autumn Statement adopted several policies promoted by the think thank including selling high-value social housing. Alex Morton has since joined the No 10 Policy Unit so will we see more? Perhaps the announcement on garden cities already offers evidence of that.
  • Troubled families: many of this morning’s papers report that the scheme will be brought forward for another 40,000 families. 

We’ll have to wait for the Budget speech – or more likely the small print of the Budget documents – to hear more on those points.

Making the move

Thu, 13 Mar 2014

Forced out of area moves are on the increase and they are not just happening in London.

The Oxford Times reports this week on cases of people being offered homes as far away in Cardiff, Cheltenham and Birmingham. The council blames the cuts in housing benefit and the benefit cap that make it impossible to find affordable private rented accommodation but a local solicitor has accused it of dumping people outside the area.

Elysha Britnell, a 22 year old mother of two children, was told she would have to move out of her temporary accommodation in Oxford and accept a home in Birmingham. She says she has no family and friends outside Oxford and has never lived anywhere else and is appealing against the decision:

‘I’m Oxford born and bred. If this appeal fails I’ll be completely homeless. I have got nowhere else to go. Even if I go to Birmingham, I may as well be homeless, because I have nobody there.’

Her solicitor John McNulty blames the changes to the discharge of the homelessness duty introduced under the Localism Act:

‘There was a change in the law which now lets councils dump people. Now they can find people out-of-area placements and just discharge their duty to these people.’  

He explains more of the background in an earlier piece for the Oxford Mail.

Scott Seamons, Oxford City Council’s board member for housing, blamed the cap on housing benefit, told the Oxford Times:

‘Due to cuts in the local housing allowance, it’s become increasingly difficult to place people with private landlords in Oxford. There’s too much choice for landlords, so they’re refusing people on benefits. Our first choice is absolutely to keep people in Oxford. I don’t want to see people being pushed out of the city. We’re doing what we can to build new houses. It’s the only way we’re really going to be able to make a difference.’

Whatever the rights and wrongs of this particular case, stories like this have become depressingly familiar in the wake of the Localism Act and the Welfare Reform Act but this is the first I’ve seen outside London. However, it is perhaps not so surprising that it should be happening in Oxford when you consider that a survey last week found that is the least affordable city in the country.

Within London, it was the furore over Newham’s plans to export its homeless families to Stoke-on-Trent that made all the headlines two years ago. However, even at the time it was only one of many boroughs looking outside the capital.

The benefit cap introduced last year has made things even worse.  Amelia Gentleman reported for The Guardian last week on families priced first out of inner London and now facing having to move out of the capital altogether as a result of the benefit cap. Birmingham, Manchester and Grimsby were mentioned as possible destinations.

There are two separate but connected housing issues involved here. The Newham story involved the location of temporary accommodation to people accepted as homeless. The later stories involve the location of private rented accommodation offered as a permanent discharge of the homelessness duty.

On the first issue, as Inside Housing reported recently, the latest government stats show that almost 12,000 families were placed ‘out of borough’ in another local authority area last year. Boroughs have even been gazumping each other to secure the temporary accommodation that is available.

As the graph below shows, that number of households in temporary accommodation outside their local authority district has doubled since the election. The total of 11,860 families outside their area at the end of 2013 represented one in five of all those in temporary accommodation.

The graph also shows a dip in the number following the introduction of the discharge power in November 2012. However, the number has increased by 32 per cent increase in the year since.

Whatever the reasons for this, at least we know the numbers involved. On the second issue, it’s also possible to get the stats on permanent discharges of the homelessness duty.

In theory, they have to take account of the suitability of the location of the new home and avoid disruption to schooling, employment, medical care and support.

The impact on people who have moved area was illustrated in a report on formerly homeless families in the private rented sector published last month by Shelter and Crisis: there were major impacts on schooling and on support that people received from family and friends. In some cases people were so unhappy they tried to move back to their original area, in others they struggled to find a new school place and in one a mother had still not been able to place her child in school 19 months after she moved.

In practice, while ministers publicly disapproved of out of area placements, one of its own advisors was telling councils how to sidestep the safeguards. The DCLG then denied he was an advisor.

Whatever the truth of that, while austerity and the Welfare Reform Act pile the pressure on councils and claimants, the Localism Act has introduced new flexibilities for those that want to use them. Hammersmith & Fulham has, for example, excluded homeless people from its housing list and its policy has so far survived legal challenge.

It’s also hard to assess how many people have been forced to move from their home area by housing benefit cuts – although in 2012 local housing allowance stats were suggesting significant movement from inner to outer London. 

What does seem clear though is that the problem is growing – and that now it is spreading outside London. 

Buy, buy, bye?

Tue, 11 Mar 2014

As George Osborne prepares for next week’s budget, even the people who’ve benefited are calling for changes to help to buy. But is he listening?

A survey out today finds that most mortgage lenders and brokers now believe that help to buy 2 – the more controversial mortgage guarantee element of the scheme - will be scaled back or scrapped before the official end date of 2016.

Last week, the National Audit Office raised concerns about the affordability and value for money of equity loans offered by new homes under help to buy 1. And the RICS called for help to buy to be regionalised on areas with most economic and housing need and focussed on first-time buyers.

Today’s survey by the Intermediary Mortgage Lenders Association found widespread scepticism that the mortgage guarantee scheme announced by Osborne in his budget a year ago and launched at the Conservative conference in October will survive in its current form.

Some 75 per cent of lenders and 54 per cent of brokers think it will be withdrawn early for remortgages, with a further 8 per cent of lenders and 18 per cent of brokers believing it will be scaled back.

Clear majorities of both lenders and brokers also believe it will be withdrawn early or scaled back for 95 per cent mortgages. And, even though more think it will be retained for new build homes, six out of ten think it will be curtailed there too.

Unsurprisingly, since so many of them require the government to guarantee riskier mortgages, 69 per cent of lenders see artificially inflated house prices as the biggest risk to help to buy. That’s up from 60 per cent when they were asked last July.

That’s the biggest worry too for brokers (57 per cent), closely followed by unattractive pricing (51 per cent).

The stats on house prices bear this out. The graph below shows what has happened over the last two years and in particular since George Osborne announced Help to Buy in his March 2013 budget and brought forward the launch of help to buy 2 at the Conservative conference in October 2013. The impact is shown most dramatically in the Nationwide index: in the space of a year house price inflation has gone from zero to almost 10 per cent. However, a similar pattern is evident if you click along the tabs at the top to see the numbers from the Halifax index and from those of the Land Registry and ONS (which have not yet published figures for February).

More usefully perhaps, help to buy has boosted mortgage lending. The Bank of England said last week that mortgage approvals rose to their highest level for six years in January. One of the stated aims of help to buy 2 was to unblock the market in the high loan to value mortgages that had stalled in the wake of the credit crunch.

With 95 per cent mortgages available outside the scheme from lenders like the Nationwide, it’s hard to gauge the exact impact. However, the next graph shows the recovery in lending to first-time buyers in the last year. The numbers may still be well down on pre-credit crunch levels, let alone pre-boom levels, but they have at least recovered from the slump of the last five years that helped to accelerate the decline of home ownership.

The longer-term worry is of course that people are buying into the market at inflated prices at a time when mortgage rates must eventually rise from their current record lows.

More immediately, as Peter Williams of IMLA points out, the challenge is to restore a sustainable mortgage market without government support at the same time as many other regulatory changes are about to be introduced.

However, it’s hard to disagree with Jeremy Warner when he argues in the Telegraph this morning that we have a housing boom but we shouldn’t expect the government to do much about it:

‘In preparing for next week’s budget, Chancellor George Osborne is unlikely to be much concerned with the long-term consequences of another runaway housing market. Instead, he will be focused like a laser on what might revive his dwindling election prospects.’

But then perhaps it is a mistake to see help to buy 2 as a housing policy at all – or to expect it to continue much beyond May 2015. 

Scrutiny of help to buy equity scheme

Thu, 6 Mar 2014

In the furore over the help to buy mortgage guarantee scheme, its equity loan counterpart has escaped much scrutiny. A report out today changes that.

Help to buy 1 started in April last year. Equity loans worth more than £500 million households were made in the first nine months of the scheme to almost 13,000 households. Another 9,600 loans were in the pipeline. If everything goes to plan over the next two years, 74,000 households will eventually benefit from equity loans worth £3.7 billion.

Today’s report from the National Audit Office (NAO) makes you remember that although it is small by comparison with the £12 billion of mortgage guarantees offered by its more controversial sibling, Help to Buy 1 is significantly bigger than the firstbuy scheme that it replaced.

Amyas Morse, head of the NAO, says that although the scheme is for the most part running smoothly, more worh is needed by the DCLG and the HCA on managing the risks because ‘the scheme’s costs, which come in large part from tying up £3.7 million long term in the housing market, will be substantial’.

Margaret Hodge, chair of the public accounts committee, puts it more robustly:

‘I am shocked that the Department for Communities and Local Government is investing up to £3.7 billion without a clear understanding of how Help to Buy will impact the property market.’ The DCLG will be questioned about the report on April 2.

One worry at the time of the launch, that first-time buyers would lose out because anyone can apply for the new equity loans appears not to have been borne out: 89 per cent of buyers so far were first-time buyers.

But other concerns remain. First is affordability. The speed of the launch meant that more than 200 loans were made to buyers with a deposit of less than 5 per cent.

If you assume that is a teething problem, the thing that leapt out at me from the report was how financially stretched many of the buyers are. The average buyer has a mortgage 3.4 times their household income, which sounds reasonable, but that rises to 4.4 times their income when you include the equity loan.

Report

The mortgage plus the equity loan was more than five times the household income for 30 per cent of buyers and more than four times their income for 49 per cent. And the report points out that ‘lower-income households using the scheme have higher average debt, relative to their income, than higher-income households, which might be expected’.

Second is value for money. Firstbuy started in 2011 and the terms were remarkably similar to those offered under the Labour HomeBuy Direct scheme that the then shadow housing minister Grant Shapps had described as ‘a very expensive flop’ in 2009. (The link is to the bit of the Conservative Party website that has since been sanitised for posterity).

However, in both of those schemes, the equity loan was split equally between the developer and the government. In contrast, all of the Help to Buy 1 loan comes from the government. As far as I’m aware no real justification has ever been offered for this and the NAO report doesn’t discuss it either.

The problems do not stop there. One of the most telling parts of the report for me is the description of the way that the government set out its objectives for the scheme.

According to a business case approved on 27 March, 2013, the objectives were to:

  • Support credit worthy but deposit constrained households to buy a newly built property
  • Increase the supply of new housing
  • Contribute to economic growth.

All of these are laudable aims that could well justify help to buy 1. However, less than a month later, on 22 April, a revised business case ‘changed the first of the scheme’s objectives to maximising take-up, rather than focussing on deposit-constrained households’.

Hmm. ‘The department said that this was because the scheme is designed to support all aspiring buyers rather than address any particular group’s housing need.’

If you’re wondering whether that represents a good use of public money you are not the only one. The NAO report goes on: ‘The objectives do not include any value-for-money criteria, such as maximising the impact per person or per pound spent.’

The financial watchdog does conclude that ‘by enabling people to make purchases more easily, the scheme appears to have boosted developers’ confidence’. I think my confidence might just be boosted if I got the same benefits without having to tie up any of my cash and put it at risk – and if this enabled me to scale back my spending on sales incentives. I might also consider increasing the price of homes sold under help to buy – and there is already a new build premium built into the price of new homes.  

But these are not the kind of quips you get in NAO reports. It merely notes that there is no way of telling how many of the purchasers would have bought a home anyway or how many homes have been built that would not have been built otherwise.

No wonder quantifying the scheme’s contribution will be ‘challenging’. Answers to those kind of questions are crucial if you want to assess the value for money offered by help to buy 1. The DCLG’s evaluation of the scheme’s economic costs range from £16 million to £1.2 billion with a central estimate of £494 million. Costs depend on different assumptions about what will happen to house prices and repossession rates.

It’s perfectly possible of course that rising house prices will mean the value of the original equity loans will increase substantially by the time they are paid back (although the money will be tied up in the meantime).  The government will also make money from a fee charged on the loans after the first five years.

However, even this might not be completely good news. The report says that ‘cash flow will vary from year to year and in some years the impact of this could be unaffordable for the Department’. This ‘long-term commitment with uncertain returns’ creates could affect the ability of the DCLG and HCA to manage their budgets since the result could be a risk of over- or under-spending in any one year if income is higher or lower than expected.

More fundamentally, the NAO says that the balance of costs and benefits means that ‘the scheme will only be value for money in broader economic terms if there are substantial benefits beyond the financial returns from fees and sales of equity shares’.

Yet the DCLG ‘has not quantified robustly the scheme’s economic benefits’ and has not evaluated the impact of previous schemes on the behaviour of buyers and builders. It has only done estimates of how many additional homes might be built: if more than 25 per cent of sales result in an additional home being built then benefits will exceed costs.

Help to buy 1 may of course still turn out to be a success – especially when judged on the amended business case. It does at least target new homes and most of the loans do seem to be going to first-time buyers.

But that is by no means certain – and the report does not discuss the untargeted and much more controversial help to buy 2. 

Five years on

Wed, 5 Mar 2014

On today’s fifth anniversary of record low interest rates all the talk is about how savers have lost out to borrowers. It should also be about renters and owners.

On 5 March, 2009 the Bank of England cut its main interest rate to 0.5 per cent, the lowest in history, and began its associated policy of quantitative easing in a successful attempt to prevent economic collapse.

But the effects continue to be controversial. The campaign group Save Our Savers estimates that savers have lost £117 billion in lost interest over the last five years plus another £209 billion from the way inflation has reduced the spending power of their money.

In contrast, borrowers have gained billions from lower interest rates. SOS’s message resonates because of the perceived unfairness that prudent savers and are paying to extricate us from a crisis caused by excess borrowing.

But what about the housing impact? In a CIH policy essay a few months ago, I did a rough calculation that mortgage borrowers have saved around £30 billion a year as a result of lower mortgage rates, QE and politcies such as Funding for Lending. Those with larger mortgages and with enough equity to remortgage to lower rates will have gained proportionately the most. The impact has also varied considerably between different regions.

Buy to let landlords, who in 2008 seemed set to become prominent victims of the credit crunch, have gained too. Fergus and Judith Wilson, for example, have gone from fearing they would go bust to expanding their property empire over the last five years. This is the reality of the housing market in 2014.

Falling interest rates have also meant fewer repossessions. At one stage the Council of Mortgage Lenders (CML) was forecasting 75,000 families would lose their home in 2009, as many as in the early 1990s crash. As lower rates reduced repayments, repossessions instead peaked at 50,000 and fell to 29,000 last year.

That is still very bad news for the people who did lose their homes and some borrowers remain trapped on high rates and unable to remortgage. However, it’s good news for owners as a whole and fewer repossessions and forced sales also reduced the downwards pressure on house prices.

In nominal terms, according to the Nationwide, the average UK house price fell 18.6 per cent from a peak of £184,131 in 2007 Q3 to a low if £149,709 in the 2009 Q1. They have since recovered to £174,444, just £9,687 or 5.3 per cent.

In real terms (adjusting for RPI inflation), house prices had fallen 25.8 per cent from their peak by the beginning of 2013 but last year’s recovery means they are now 22.3 per cent below their peak level.

However, compare that with what happened in the early 1990s. Prices fell further in both nominal terms (20.2 per cent) and real terms (37.4 per cent) and they also took 13 years to recover their value in real terms.

Of course they were different times and the crashes had different causes but it’s hard not to conclude that record low interest rates put a floor under property prices, benefitting anyone already on the housing ladder at the expense of people who are not.

That view is backed by a study of the distributional effects of low rates and QE by the consultancy McKinsey Global Institute. It concludes:

‘At the end of 2012, house prices may have been as much as 15 percent higher in the United States and the United Kingdom than they otherwise would have been without ultra-low interest rates, as these rates reduce the cost of borrowing. We based this estimate on academic research using historical data that suggest how housing prices rise as interest rates decline. In the United Kingdom, it is plausible that this relationship holds today.’

What’s good news for most people who already own a home is of course bad news for anyone who wants to buy because they will be paying more than they would have been. True, their mortgage rate will be lower too but first-time buyers with lower deposits typically pay a much higher rate than an existing owner with substantial equity.

And that’s only for people who could get a mortgage; many others have been locked out of the market by the more cautious lending criteria adopted by the banks. These are the priced out households who partly account for the astonishing growth of the private rented sector that I highlighted in my blog last week. Since the credit crunch, the number buying with a mortgage has fallen by just over 1 million while the number renting from a private landlord has risen by almost 1.3 million

These trends began long before low interest rates but that they have accelerated over the last five years, leaving priced out renters paying the mortgage of their buy to let landlord while house prices begin to rise again (9.4 per cent in the last year, according to the Nationwide, compared to 0.0 per cent a year ago).

The combination of low interest rates and QE plus the recession have changed the landscape in other ways too. The ‘real terms’ comparison I quoted earlier is a convenient way of discounting for inflation but it is fairly meaningless in a period when earnings have been falling in real terms. That means housing is become more expensive in relation to earnings now where the opposite was happening in the 1990s.

It’s much harder to work out what’s happened to rents since 2009 because there is so much variation between the different indices. LSL’s buy to let index suggests that the average rent in England and Wales is 13 per cent higher than in 2010. However, the experimental index produced by the ONS suggests that rents in England are about 3 per cent higher now than five years ago.

Whatever the size of the increase, it came during a period when house prices and mortgage rates were both falling. This suggests a direct redistribution  from tenants to landlords.

The impact has fallen most heavily on tenants who rely on housing benefit to pay all or part of their rent. Cuts and welfare reforms imposed since 2010 mean that they have either had to stay put and make up a shortfall between their rent and their housing benefit or move to cheaper accommodation. Amelia Gentleman has a story in The Guardian this morning graphically illustrating this point.

And the justification offered by ministers for the cuts and austerity that are set to continue for the rest of this decade brings this whole debate full circle.   

George Osborne told the 2013 Conservative conference:

‘This battle to turn Britain around - it is not even close to being over. We are going to finish what we have started. What I offer is a serious plan for a grown-up country. An economic plan for hardworking people that will create jobs, keep mortgage rates low.’

Low interest rates and QE have redistributed money from renters and people on benefit to owners and landlords. And now, as I’ve blogged before, renters are paying to keep mortgages low

Double shift

Thu, 27 Feb 2014

Figures published today underline yet again the historic change in the way we are housed in England.

Headline results from the English Housing Survey for 2012-13 confirm not just one but two remarkable trends. I’ve highlighted them in a graph below:

The first is the one happening within renting that I first highlighted on this blog in 2011. There are now more private tenants than social tenants for the first time since the early 1960s and the heyday of Rachmanism. Contrary to some reports, this historic shift actually happened in 2011/12 but 2012/13 saw the gap between the two grow as even more of us rented from a private landlord and social housing continued to decline.

The second less noticed one is happening within owner-occupation. As is widely reported today, the overall rate of home ownership fell to 65.2% in 2012/13, its lowest share since 1987. However, that conceals a deeper underlying shift: the number of outright owners almost overtook the number of households buying with a mortgage in 2012/13. On current trends this will happen next year.

The graph below shows the number of households in each form of tenure going back to 1981, the first year for which the split between owning outright and buying with a mortgage is available. Click on the tabs at the top to see what has happened to each of them:

The number of outright owners has seen a steady increase over the last 32 years as more and more of us pay off the mortgage or can afford to do without one in the first place.

The number of people buying with a mortgage is in stark contrast to this. The 1980s and Margaret Thatcher’s property-owning democracy saw mortgaged ownership rise by about half thanks to policies such as the right to buy and the liberalisation of mortgage lending.

Growth continued more slowly into the 1990s and early 2000s but went into reverse after 2003. The general decline of home ownership is usually seen as the result of the credit crunch and global financial crisis but this shows it began much earlier as young first-time buyers were priced out of the market. Mortgaged ownership is now back at levels last seen before 1988.

That same year was both the post-war low point for the private rented sector (just 1.7 million of us were private tenants) and in retrospect the turning point in its fortunes as the government moved to dismantle security of tenure and deregulate rents. Growth was sluggish at first but really took off after the creation of Buy to Let in the late 1990s. The number of private tenants has doubled in the years since then, with many of those outright owners becoming owner-landlords as well.

Finally, we have social renting. In 1981 it was already declining thanks to the right to buy and cuts in investment. A million homes were lost in the 1980s and the sector has continued to decline ever since under governments of both parties as homes are sold off or demolished faster than new ones are built.

These trends are of course all connected. The explanations are for other blogs but include long-term trends in the labour market, the lending market and the taxation of investments as well as the rising inequality noted in Danny Dorling’s new book. The effects are already being felt but a country that had grown used to home ownership as a right and social housing as a safety net is still making the adjustment.

Housing minister Kris Hopkins has responded to the new figures with the usual bluster about Help to Buy and affordable homes and by pointing out quite correctly that they are a year old.

He might also want to note that the number of households buying with a mortgage fell by 513,000 in the first three years of the coalition. The number who are private tenants rose 601,000. The historic shift in housing tenure continues. 

Unequal shares

Tue, 25 Feb 2014

What if our real housing problem is not a lack of a new homes but the distribution of the ones we already have?

That’s the key premise of All that is Solid: the Great Housing Disaster, an intriguing new book published this week by Danny Dorling, professor of human geography at Oxford University. In it he attacks not just the ‘yes to homes’ consensus about the solution to the housing crisis but the actions of just about all the key people involved. Politicians, housebuilders, landlords and property journalists are all seen as part of the problem but housing associations, the CIH and the voluntary sector also come under fire for accepting the status quo.

Dorling’s starting point is an analysis of Census returns of the number of bedrooms in the UK. We may have been building fewer homes in the last 30 years but we have been busily extending the ones we have with more rooms. On this measure we have never been better housed: the 2011 Census revealed that we have more bedrooms per person than ever before and that even in London there are more bedrooms than people.

But if you look at the distribution of those rooms something has changed in the last 30 years. Through most of the 20th century, society became more equal in the way that people were housed. The number of bedrooms enjoyed by the richest 10 per cent of the population fell to three times as many as the poorest 10 per cent in the Census of 1981. Then it began to rise again, reaching 3.7 times in 2001 and accelerating to five times in 2011.

Dorling argues that this is a manifestation of rising inequality and that this is the real cause of the housing crisis rather than a shortage of homes. As the super-rich consume more housing the effects cascade through society as the very rich feel they need more, the rich aspire to have more and so on. Location becomes ever more important as the well-off and the well-housed cluster near good schools and in safe neighbourhoods. One place to live is no longer enough as those who can afford it buy second homes or become landlords.

As he sums it up: ‘Fundamentally it is the linking of housing to social status that allows prices and rents to be increased beyond what the cost of providing the dwelling might be, or beyond what the value of the land might be if it were turned to other purposes.’

To my mind, Dorling asserts the link between inequality and housing more than he proves it and the effects may go even deeper than he makes out. Liberalisation of mortgage lending, the decline of organised labour and the removal of protection for private tenants all took place over the same period. Are they manifestations of rising inequality or something bigger? However, if you doubt that there is a link, have a quick read of Saturday’s Financial Times about the middle class ‘cling-ons’ being pushed out of London and the ‘über-middle class’ who are reshaping Oxford. ‘Middle class’ in FT headline terms means those in the top 10 per cent of earners but even these people are being priced out by those above them.

Dorling links housing directly to the global financial crisis, not just in the UK but in the US, Spain and Ireland, and suggests that as our economy become ever more reliant on the housing market it has become ‘the defining issue of our times’. Yet this is a book with a difference that he says supports none of the usual solutions offered:

‘Solutions such as home-building, which look as if they might solve some of our present woes, may not be the panacea many imagine if we continue to allow a few to get richer and richer through exploitation of what the housing system has become. Building more may result in the wealthy owning even more homes, more families renting some of those homes, but more being empty at any one time and in greater future inequality, unless we address rising inequalities in how housing is shared out.’

And so Dorling’s solutions are very different too. ‘We have already built enough homes,’ he argues. ‘We have far more bedrooms than we have ever had before. But a few have been taking more than their fair share, increasingly so ever since 1980; and very recently they have been taking far more again with each year that has passed since the crash.’

He argues those at the top of society harm the rest, by evicting the poorest from their homes, penalising people for their spare bedrooms and impoverishing middle earners through high rents and mortgages. We will need to build more homes if more people come to the UK than leave (as has happened in the last few years) but his other solutions are all focussed on housing inequality. They include:

  • Extending current council tax bands to Band Z with a view to transforming it into a national land and property tax
  • Giving people with mortgages a ‘right to sell’ and become tenants rather than be repossessed
  • The reintroduction of rent controls with local housing allowance rates used as the maximum fair rent in an area
  • Decriminalisation of squatting
  • Recognition that housing is central to environmental sustainability so that, when we build, we build for the long term.

Dorling argues that it will take another housing market crisis for these sort of solutions to be seriously considered – but that another crisis is what is on the way. ‘The vested interests in British housing are stoking up the embers of the last crash to create a new crisis. But a crisis is as good a time as any to get out house in order.’

This is a book that sometimes shows signs of being written in haste. Housing nerds will spot some errors and questionable assertions, at times I found the structure confusing and repetitive and he is more dismissive of the case for new homes in the book than he was in TV and radio interviews linked to its publication.

A bigger problem for me is that if rising inequality really is at the heart of the housing crisis then surely action on housing alone will not be enough to solve it. Just for starters, we would also need radical reform of the labour market, the financial system and the dominance of London in the UK economy. Dorling discusses all of these points and more in the book yet his conclusions are about housing alone. 

However, as his media appearances over the last week show, All that is Solid is being published at a time when more and more of us sense that business as usual will not provide the answers to the housing crisis that are so desperately needed. It’s well worth a read. 

All that is Solid: the Great Housing Disaster, by Danny Dorling, is published by Allen Lane, RRP £20

 

Pickled homes

Thu, 20 Feb 2014

To hear ministers talk, we are in the middle of a housebuilding boom. Official figures released today beg to differ.

According to the DCLG housebuilding statistics for the fourth quarter of 2013, starts and completions in England were both down 1 per cent on the third quarter. These are only the figures for one quarter but they don’t seem to be in the script. 

While starts for the year as a whole were up 23 per cent on 2012 at 122,800, completions were down 5 per cent at 109,480. True, those starts will soon turn into new homes but this hardly feels like a giant step towards the promised land of 250,000 additional homes a year.

And it doesn’t exactly tally with upbeat statements from ministers either. Here’s Eric Pickles in hyperbolic mood on today’s figures:

‘This government is fixing the broken housing market we inherited in 2010. Last year, we built the most homes since 2007, and even the appalling weather conditions this winter have not stopped our hardy builders from getting the job done.’

Sorry, Eric, but that’s simply not true. Homes built are completions and both private housebuilders and housing associations completed fewer homes in 2013 than in 2012. Total completions were also down on 2008, 2009 and 2011. As for the appalling weather, most of that has been in the past two months, not the end of last year.

David Cameron was more cautious at prime minister’s questions last week:

‘Housing starts are up from the dreadful situation we were left by the previous Government. We are now investing huge amounts into affordable housing. I make no apology for the fact that it is right to deal with the demand side on housing, as well as the supply side. Programmes such as Help to Buy are helping to get builders building, because builders will not build unless they believe that buyers are able to buy. We are fixing this problem and house building is rising.’

The rise in starts in 2013 provides modest support for Cameron’s case: the year did indeed see the highest level since 2007 and starts are up since the start of this Government. However, six years after the start of the financial crisis in 2007, starts would have to rise by another 50 per cent to match the figure achieved then.

Much of the current optimism seems based on sentiment surveys and anecdotal evidence of shortages of bricks and blocks. Two weeks ago, for example, the Markit/CIPS index showed that ‘housing activity growth was the highest in a decade and remains the fastest improving area of construction’.

However, as Brian Green of Brickonomics points out, there is a big difference between what people think is happening and actual activity on the ground. The surge in activity seen in mid-2013 may be more the result of housebuilders catching up from a slow start and restocking their production pipeline.

To put all of this in perspective, if starts continue to rise at the rate seen in 2013, we will get back to 2007 levels by the end of 2016 and get to around the level needed to hit the magic 250,000 by 2018. Completions would take a bit longer to feed through but we might get there by the end of the decade.

However, a five-year period of such sustained growth would be unprecedented in housebuilding history. Given continuing austerity, most of the growth would have to come from the private sector. But what will happen when the taps of Help to Buy are turned off at the end of 2016, or if interest rates rise after that? Can enough people afford to buy new homes at current prices and who will build them if prices fall?

Today’s figures may show an encouraging revival in housebuilding but it is happening from a very low base. We are still a very long way from the ‘gold standard’ set by Grant Shapps of building more homes than Labour, let alone his dream of making us ‘a nation of homebuilders’.

Rent squeeze

Wed, 19 Feb 2014

Why is there so little debate about the fact that social housing rents are set to rise so much faster than prices and earnings?

Figures out this week from the ONS show that CPI inflation rose 1.9 per cent in the year to January and average earnings rose just 1.1 per cent in 2013. Earnings have now been falling in real terms since 2010, the longest period for at least 50 years.

And yet all around the country social landlords are preparing to increase their rents by at least twice the rate of inflation, and many times more than earnings, according to recent surveys by Inside Housing.  

Housing associations are planning an average increase of 3.7 per cent, with some using extra flexibility to charge up to 4.8 per cent more. Only one said it was raising rents by less than the maximum.

Among local authorities the average increase will be 5.16 per cent, rising to a peak of 7.22 per cent in Welwyn & Hatfield, constituency of former Conservative Party chairman and former housing minister Grant Shapps.

These increases are partly down to longstanding government policy and partly down to an abrupt change in the rent-setting formula. Until 2015, social rents in England can rise by RPI inflation plus 0.5 per cent plus an extra £2 a week for those landlords who are not yet charging target rents. In a change announced last year, rents can rise at CPI inflation plus 1 per cent from 2015.  

Rent increases for this April are set according to the RPI figure for last September of 2.7 per cent. However, 2014/15 is also the last year that landlords can use their extra £2 per week flexibility, which has prompted those much bigger increases to fill holes in their business plans. Some even seem to be ignoring the rent increase limits.

Landlords argue that these increases are vital to maintaining development programmes and community activities and to the viability of their business plans. The sudden change in formula has had a particular impact on those who had not yet achieved target rents.

Since most tenants are on housing benefit that means most (but not all) of the increased bill will be picked up by the Department for Work and Pensions (DWP). That’s one reason for the lack of debate, even if it runs directly against what the DWP claims to be doing about controlling the housing benefit bill and reducing benefit dependency. 

However, what about tenants who are working? If the increase in average earnings is only 1.1 per cent, the minimum wage did at least rise by 1.9 per cent last year and even George Osborne says he want to see it rise by more than inflation in future. However, thanks to government pay policy, average earnings of public sector workers rose by just 0.5 per cent last year.

The extra that working tenants will have to find will obviously vary from property to property, region to region and landlord to landlord. As an indication, the average housing association rent in England in 2013 was £88.98, so a 3.7 per cent increase would be £3.29 a week.

Depending on how much they are paid and their circumstances, families with someone in work will also be entitled to tax credits, child benefit and partial housing benefit. However, in-work benefits like tax credits and council tax support have been cut and that rent increase could still eat into a limited budget. Remember too that their rent has been going up by more than inflation for years and more than their earnings since at least 2010 and that the squeeze on low income families is set to continue.

And the rent increase has implications for the bedroom tax too: those deductions of 14 per cent for one ‘spare’ room and 25 per cent come off the eligible rent. The bigger the increase, the more people on partial housing benefit will ‘float off’ any entitlement, and the more people on full housing benefit will lose. The difference between 14 per cent of £88.98 and £92.27 (£46p a week) may not sound like much but only if your budget has not already been squeezed to nothing and your other benefits are not restricted to an increase of just 1 per cent from April. The National Housing Federation revealed last week that two-thirds of tenants affected by the bedroom tax are already in arrears.

At a local level, these sort of issues are being debated. In Cambridge, for example, the Liberal Democrat mayor had to use his casting vote to force through a 5.76 per cent rent increase after tenants and Labour councillors voted for a smaller amount.

Meanwhile Nottingham City Homes says it has no choice but to apply an above-inflation increase but is consulting with tenants on two different options: a 5.47 per cent increase for all tenants; or increases of 4.68 per cent for ‘responsible’ tenants with a £100 credit at Christmas but 7.5 per cent for ‘irresponsible’ tenants. Being ‘irresponsible’ in this context might mean failing to look after your garden, failing to stick to an agreement to pay your rent arrears or committing crime or anti-social behaviour in your neighbourhood. That will clearly generate a debate all of its own.

However, to go back to my original question, the bigger questions about increases in social rents do not often get asked at a national level. Contrast that to the time devoted to talking about a few high-earning tenants. Housing finance requires tenants to pay more and we seem to have become so used to this that we rarely stop to ask why or whether it’s such a good idea.

If austerity and the continuing squeeze on wages and living standards do not give some pause for thought, then what about the prospect of more cuts in housing benefit in future? Increases in the local housing allowance for private tenants are already restricted to just 1 per cent a year (with some relief for high-demand areas). Applying the same to the social sector would play so much havoc with landlords’ finances and run so completely against established government policy that it seems hard to imagine. But would you rule it out? 

Tough times for rough sleepers

Thu, 13 Feb 2014

In a grim few years for housing and homelessness No Second Night Out stands out as a rare bright spot.

The idea behind the scheme, which was extended to 20 areas outside London in 2011, is that the longer someone sleeps rough the greater the risk that they will become trapped on the streets and vulnerable to crime, drug or alcohol issues or mental or physical health problems. No Second Night Out (NSNO) aims to help people off the streets as quickly as possible and ensure that they do not return.

Nobody could hope to be completely successful with that but a report out today from Homeless Link suggests that progress in the 20 areas has still been impressive: 67 per cent of the rough sleepers they worked with were taken off the streets after their first night; and 78 per cent of those did not return once they had been helped.

The 20 areas cover 69 local authorities from Cornwall to Newcastle and between them they account for 38 per cent of rough sleeping outside London. The result is broadly comparable to the one achieved in the capital, where 86 per cent of rough sleepers helped by NSNO services did not sleep rough again.

Finance for the NSNO services outside London comes from the £20 million Homelessness Transition Fund (HTF), provided by the DCLG and administered by Homeless Link, and from local authorities and charities. The 20 areas helped 2,546 rough sleepers over a period of six months plus another 1,498 at risk of rough sleeping. Compared to London, there were more women (17 per cent), under-25s (20 per cent) and UK nationals (75 per cent).

If the results are impressive, the report also identifies some worries. Concern about entrenched rough sleepers emerged across the survey. The biggest obstacle to progress was seen as getting all partners to agree.

And, above all, a big problem is looming in just 13 months’ time: all funding from the Homelessness Transition Fund (HTF) ends in March 2015.

Homeless Link says there is a real risk that all the good work done so far will be undone by lack of funding and is calling on the government and councils across England to protect investment in NSNO services.

And that in turn raises an even bigger issue. As I blogged in December, the government has helped to introduce a better methodology for counting rough sleeping and it has protected central funding for specific services like homelessness prevention. 

However, that ignores what has happened elsewhere, especially with cuts to Supporting People and funding direct from local authorities. The Homelessness Monitor 2013 published by Crisis and the Joseph Rowntree Foundation included concern that cuts in Supporting People funding have weakened the support available and led to more rough sleeping.

While housing minister Kris Hopkins can boast in the NSNO press release about the £470 million the government has invested over four years, that has to be put in the context of cuts in local authority and voluntary services that are happening all over the country. Not to mention cuts in housing benefit from which the government still can’t find a way to protect supported housing.

To take just one example, Nottinghamshire County Council was in the forefront of the first wave of cuts in Supporting People funding and now it wants to cut even more. As Patrick Butler reported for The Guardian yesterday, local housing association Framework is warning this will result in almost all homelessness and housing support services in the county closing down.

Among the services that would close, according to Framework, are all emergency accommodation, all specialist supported housing for people with drug and alcohol problems and people leaving prison, all supported move-on accommodation and almost all the support services that assist vulnerable people in their own homes.

No Second Night Out seems to be a genuine bright spot but against a backdrop as bleak as this is that so surprising? 

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