Tuesday, 02 September 2014

Inside edge

Sold short

Mon, 24 Jun 2013

A stark warning of the consequences of market failure in the housing system comes from an independent commission today.

The broad-based group set up by the Royal Institution of Chartered Surveyors is chaired by Michael Newey, RICS president elect and chief executive of Broadland Housing Group, and also includes Mark Clare of Barratt, Nick Jopling of Grainger, James Pargeter of Deloitte Real Estate, Paul Tennant of Orbit and Duncan Maclennan of the University of St Andrews.

They argue that: ‘High house prices, complemented with high levels of housing unaffordability are the greatest signs of market failure. This in turn has an adverse effect on labour mobility, commuting, productivity and job creation. This commission recognises the negative impact that a poor housing system has on the wider economy and hopes to see it elevated still higher on government agendas.

In other words, what the commission argues are ‘clear signs of market failure’ include negative externalities that go far beyond housing and require a switch away from the ‘short-termism’ that has characterised policy for the last 50 years.

However, in an illustration of just how difficult it is to break away from a short-term approach, the commission seems to face both ways on current government policies. For example, it manages to ‘welcome’ help to buy as one of several ‘positive initiatives to help the state of housing supply’ and as ‘making a positive impact’ while virtually everyone else has criticised it for boosting demand while doing nothing for supply. And it ‘welcomes the gradual departure from falling house prices across most UK regions’ while warning of ‘signs of the next boom already emanating from faster growth regions’.

There are similar problems with some of the recommendations. For example, the last government considered allowing self-invested private pension schemes (SIPPS) to invest in housing only to drop the idea over fears of a massive new, tax-subsidised boom in buy-to-let. The commission says that this should be restricted to newly developed property, but unlike the build to rent schemes that are specifically for rentals, this could still mean affluent holders of SIPPS pricing out owner-occupiers in the new-build market.

However, those caveats aside, the report offers a compelling analysis of why governments need to tackle housing and some good ideas on how to make policy more effective.

Alongside a call for better policy scrutiny, there is a stark warning to the government about the ‘unintended consequences’ of welfare reform that is all the more powerful for coming from such a broad-based group. ‘The UK government has to recognise that driving down capital subsidies, in the context of changing welfare support for rents, will expose not-for-profit housing providers, who continue to house low-income families, to excessive risk,’ it says. The report calls for the scrapping of the under-occupation penalty in cases where tenants are unlikely to secure another home in the same travel to work area – and especially in smaller communities and rural areas.

More radically, it calls for the right to buy to be replaced with a new portable home ownership discount for tenants that could be integrated with help to Buy. That would represent the end of the Conservatives most iconic (and controversial) housing policy but the commission argues this would preserve low-income homes while giving more choice to people who aspire to buy.

And it makes the case for bricks and mortar subsidies too: ‘Decent housing for poorer households always requires subsidies. The least expensive form of subsidy for low-income housing provision in the long term is often still likely to be a capital subsidy to providers, as rent levels can then be cheaper.’

To help pay for that, the UK administrations should give social landlords at least 15 years of certainty on rent setting to help ensure the attractiveness of the sector for private investors and funders. However, the report warns that has to take account of welfare policy. ‘If rental levels exceed maximum housing revenue subsidies, the element of risk introduced will make the affordable housing sector unattractive to third party investors, as well as putting strain on the collective financial viability of the sector.’

Extra investment would come too from allowing local authorities to use their prudential borrowing capacity to build homes and to introduce additional council tax bands on high-value homes with the extra money ring-fenced for affordable housing.

The report calls for a doubling of targets for the release of public land, backed by assumptions that it will be for residential purposes except where demand should not exist, an that a third of homes will be affordable and that it will be on a pay as you go basis. Land owners in general would be ‘required to use their best endeavours’ to ensure that construction starts within three years.

More controversially, the commission recommends a new ‘affordable rented housing’ planning class for fringe sites on the edge of existing settlements that would not easily get permission for full market activities. The homes would be let at 80 per cent of market rent for at least 15 years before being sold or let at higher rents. It’s an idea that sounds like it has potential to open up more sites but it sounds like a red rag to Simon Jenkins and co.

On private renting, the commission says the government should review tenancy arrangements for longer-term lets ‘that recognise tenants’ interests without reducing landlords’ rights’. If you’re thinking that sounds easier said than done, it proposes a ‘rental covenant’ within section 106 arrangements guaranteeing that homes will be available for rent for a specific period.

There is also a plea to all political parties to ‘make a commitment not to introduce rent controls’ as this would reduce supply. Opinion within the Labour Party has recently been moving in the opposite direction.

On energy efficiency of existing homes, the commission proposes some radical action on VAT, stamp duty, rental levels in social housing and Green Deal interest rates. It also recommends an idea that seems certain to annoy Eric Pickles: that anyone building an extension should be required to improve the standard of the rest of their home to at least EPC level C.

I suspect most people will disagree with some things in this report. However, despite my own earlier caveats, the fact that such a diverse commission can agree on the need for policies ‘to facilitate housing supply of all tenures rather than showing bias to just one or two’ is still real progress. 

Own goal

Mon, 17 Jun 2013

As average asking prices pass £250,000 for the first time, two-thirds of the under-45s seem to have given up on the idea of ever owning a home.

Two surveys out today underline the point that what’s ‘good news’ for existing owners is exactly the opposite for people struggling to get on to the housing ladder.

Rightmove says that the market in the ‘under-priced’ (its word not mine) South East has ‘lifted off’ with asking prices rising by 14.8 per cent in the first six months of 2013 alone. However, the average increase across England and Wales is 10.4 per cent and the increase is even 5.8 per cent in the least buoyant region, the East Midlands.

If anything like that was repeated across the whole 12 months, 2013 would be appear to be set for a boom unlike anything seen since the credit crunch hit in 2007. True these are asking prices and prices actually achieved are still in the relative doldrums but they indicate that existing owners are reacting predictably to the start of Help to Buy by ramping up their demands.

Contrast that with another survey out today from the Halifax. Its Generation Rent report shows that only 32 per cent of non-owners aged 20-45 have a realistic plan to buy within the next five years. The remaining 68 per cent are split between those who like to buy but don’t think they will ever be able to (36 per cent), those who have given up because they were rejected for a mortgage (2 per cent) and those who don’t want to buy and haven’t tried (29 per cent, up from 23 per cent in 2011).

Deep pessimism about earning enough to buy is one reason for the split: the average mortgage that they think they can afford is £425 a month whereas the amount currently required by the average first-time buyer is £580 a month.

Problems obtaining a mortgage are another: over half of Generation Rent and an even higher proportion of their parents think it is ‘very hard’ or ‘virtually impossible’ to get one.

And Help to Buy does not seem to have changed the mood among buyers as much as it obviously has among sellers: 30 per cent of 20-45 year olds think it and similar schemes will work but 30 per cent believe the opposite.

Surveys like this can usually be taken with a pinch of salt but this one has some worrying implications for the future too. Some 71 per cent of Generation Rent fear that the country is in danger of being divided by social and economic differences between owners and non-owners and 58 per cent think it will create long-term social problems.

Perhaps most alarmingly, 57 per cent in the Generation Rent survey think that without a foothold on the property ladder they will be unable to retire. That perhaps shows a very low awareness of housing benefit and, as I’ve blogged before, the financial consequences of falling ownership will be huge for the Treasury.

That’s just one of the implications for the housing market and for the housing system as a whole.

Some 52 per cent of Generation Rent think Britain will become a nation of renters within the next generation – up from 46 per cent in 2011. And more people think Britain is becoming more like Europe, where renting is the norm.

However, as the report points out, European law means rental agreements are much longer than the six and 12 months contracts that are the norm in the UK. Pressure for reform can only grow.

So too is the evidence that Britain’s housing market has moved beyond dysfunctionality into something even worse. Last week, the National Housing Federation published figures showing that the number of people aged 30-44 has fallen by 9 per cent in rural areas thanks to soaring prices.

Meanwhile the Intermediary Mortgage Lenders Association published a discussion document warning that the regulatory response to the financial crisis has ‘hard wired’ a lower level of ownership into the system. It points out that on current trends only a third of 25-34 year olds will be owners by the end of the decade. That is half the level seen in 1993.

Warning that the regulatory response an imbalance between the regulated mortgage market and the unregulated buy to let, with the continuing availability of interest-only mortgages giving landlords a marked competitive advantage over would-be first-time buyers.

If nothing else will, perhaps the prospect of that soaring benefit bill for pensioners will concentrate government attention on more fundamental and long-term reforms to the whole housing system?

The big switch

Thu, 6 Jun 2013

Ed Miliband has ended three decades of political consensus that it’s better to subsidise rents than new homes but changing course will not be easy. 

The Labour leader’s speech in Newham this morning is significant in all kinds of ways: for the party’s positioning ahead of the next election; for the implied switch to contributory benefits and ‘something for something’; for tackling low pay; and for the careful use of ‘social security’ to avoid the loaded term ‘welfare’.

Even the setting – Newham Dockside – is significant since it looks very much like an endorsement of the more proactive but harsher approach to benefit claimants adopted by its mayor Sir Robin Wales.

All of those things could have major implications for housing but none so much as the plan to shift spending back from housing benefit to bricks and mortar – the end of ‘letting housing benefit take the strain’ and admitting the failure over decades to build enough homes.

Ed Miliband argues that:

‘We can’t afford to pay billions on ever-rising rents, when we should be building homes to bring down the bill.
Thirty years ago for every £100 we spent on housing, £80 was invested in bricks and mortar and £20 was spent on housing benefit. Today, for every £100 we spend on housing, just £5 is invested in bricks and mortar and £95 goes on housing benefit.

 There’s nothing to be celebrated in that.
 And as a consequence we are left with a housing benefit bill that goes up higher and higher.
For the simple reason, that we have built too few homes in this country and therefore we see higher and higher prices, particularly in the private sector.’

The numbers come from a report by the IPPR last year and this video makes the point very effectively.

It is a very welcome and long overdue move but, rather like getting toothpaste back into the tube, it will not be simple to achieve the switch. First, although it makes sound financial sense over the long term (see the work by PWC for L&Q quoted in the g15’s spending review submission) it will not deliver savings in the short term given the upfront capital grant required.

Second, unless the switch is carefully handled, it risks creating losers among tenants still dependent on housing benefit to pay their high rents.

Labour seems to have two mechanisms in mind. The first is to get local authorities to negotiate down the cost of rents through bulk purchasing from landlords. Miliband said:

‘At the moment, we expect individual families to negotiate with their landlords.
In these circumstances, it is almost inevitable that tenants end up paying over the odds. 
And so does the taxpayer, in the housing benefit bill.
It’s time to tackle this problem at source.

 So a Labour government would seek a radical devolution to local authorities.
And Labour councils in Lewisham, Liverpool, Leeds, Manchester, Sheffield and Birmingham have all come to us and said that if they had power to negotiate on behalf of tenants on housing benefit, they could get far greater savings than the individual on their own.
 So a Labour government would give councils this power.
Bringing the cost of housing benefit down.
 And what is more, we would let them keep some of the savings they make on the condition that they invested that money in helping build new homes. 
This is the way we can start to bring about the shift from benefits to building.’

That begs the question of why councils are not doing this already but under the current system they do not have much incentive to do so. The IPPR advocated localising housing benefit as part of a new system of affordable housing grants (the opposite of what is happening under universal credit). It’s not clear whether Labour would go that far but there would have to be some mechanism for verifying the savings and creating the incentive.

The second mechanism would be a cap on structural benefits. This seems to be different from the regional caps on overall benefits that were the subject of advance press speculation and the cap proposed by Iain Duncan Smith on annual managed expenditure (AME). As Miliband put it:

‘The next Labour government will use a three-year cap on structural welfare spending to help control costs. 
Such a cap will alert the next Labour government to problems coming down the track.
 And ensure that we make policy to keep the social security budget in limits. 
Introducing greater discipline, as ministers from across departments will be led to control the big drivers of spending.  

‘Structural’ welfare spending means benefits that are not a function of unemployment and the state of the economy. That would appear to include housing benefit. The dots would be joined at last between a rising housing benefit bill and not building enough homes but would the sums stack up over the three years?

In the social sector, an obvious issue is how the cap could be reconciled with social rents rising in line with the RPI plus 0.5 per cent formula that is due for renewal in 2015. If rent levels were capped that would help control housing benefit but it would come at the cost of lower borrowing capacity and lower investment in new homes. Bricks and mortar and personal subsidies can merge with each other in complex ways.

In the private sector, it begs the question of what happens if councils have wrung all they can out of bulk purchasing and rents and the housing benefit bill still keeps on rising. On the Today programme this morning shadow work and pensions secretary Liam Byrne put it this way:

‘The housing benefit bill is going up and up and up. We’re spending 95 per cent of the money we spend on housing on housing benefit and only 5 per cent on building houses. That doesn’t make sense and what a lot of councils are saying to us is if they had more power to regulate and control prices in the private rented sector they could create some savings which we could recycle into building more homes.’

‘The power to regulate and control prices’ certainly made me wake up since it implies the end of another 35 years of political consensus on housing. As Evan Davis asked, did he mean the return of rent control? Byrne replied:

‘I think that might be going a bit far. What I’m saying is that local councils are saying they’ve got lots of ideas of how they can make savings and they’d be prepared to crack on with that if there’s a deal on the table to share in the savings to build more houses. The reason why we’re saying a long-term cap on social security spending makes sense is that it forces you to engage in these long-term reforms.’

‘Might be going a bit far’ does not sound to me like rent control is being ruled out completely (and later on the Today programme Polly Toynbee argued that it was definitely on the table). How else will Labour keep within the cap if rents and housing benefit are still rising unless it wants to land tenants with further shortfalls?

Decline and fall

Tue, 4 Jun 2013

Coalition ministers rarely fail to taunt Labour with the fact that the number of affordable homes fell under the last government. 

Conservative housing minister Mark Prisk and Lib Dem junior communities minister Don Foster deployed it yet again at DCLG questions yesterday.

Labour’s Jack Dromey attacked the government’s record on housebuilding and called for a rejection of the ‘economic illiteracy of austerity, which is pushing up the costs of failure through additional borrowing and soaring housing benefit bills’. He asked: ‘Does the housing minister agree that the time has come to invest in badly needed social and affordable homes to rent or buy, creating jobs and apprenticeships, bringing down the costs of failure and getting our economy moving?’

In response Foster was quick to deploy the favourite stat:

‘I think that the whole House will have been somewhat amused by the cheek of the hon. Gentleman, given that under his party’s administration we saw a reduction of 421,000 in the number of affordable homes. This government have introduced measures to reverse that trend, and we hope to announce further measures in the near future.’

Later Mark Prisk also had the number to hand to reply to an attack on Conservative Hammersmith & Fulham council by local Labour MP Andy Slaughter. ‘We are delivering on the completion of 170,000 more affordable homes; the Labour Government presided over the loss of 421,000 homes,’ said the housing minister.

These are just the two latest examples of the way that Tory and Lib Dem ministers alike use the 421,000 figure to attack Labour. With good reason too, since it is a very rare example of a government statistic that is both accurate and has been endorsed by the independent UK Statistics Authority.

Following a complaint from Dromey last year about misuse of statistics by former housing minister Grant Shapps, UKSA chair Andrew Dilnot replied that: ‘Official estimates of net change are available for social rented dwellings, but not for the wider stock of “affordable” housing beyond this category. They show an overall reduction of 421,000 in the stock of homes rented from local authorities and housing associations over the period 1997 to 2010.’

For the record, DCLG dwelling estimates show that there were 4,386,000 council and housing association homes when Labour came to office in 1997 and 3,966,000 when it lost power in 2010 – a fall of 420,000. The reductions were 150,000 in its first term, 268,000 in its second and 3,000 in its third.

On the face of it, then it’s game, set and match to Shapps and Prisk – and also to Foster and his Lib Dem predecessor Andrew Stunell.

But there are good reasons why the 421,000 figure could be a hostage to fortune.

First, will the coalition actually achieve the 170,000 affordable homes quoted by Prisk? Ministers insist they will but the programme has been slow to get off the ground to put it mildly. As the National Audit Office noted last year, more than half of the output is scheduled for the final year of the programme.

Second, as Dilnot pointed out, the 421,000 figure refers to ‘social rented’ rather than ‘affordable’ homes. The coalition’s 170,000 figure does include some social rented (a legacy of previous Labour plans) and some shared ownership homes but 80,000 homes for affordable rent. As I’ve argued before, the new programme also relies on the conversion of up to 80,000 existing social rented properties to affordable rent.

Third, though Labour now admits it did not do enough on new homes, one of the main reasons why the affordable housing stock fell between 1997 and 2010 was that right to buy sales exceeded new starts. Between 1997/98 and 2009/10 600,000 council and housing association homes were sold to tenants. Sales peaked at 84,000 in 2003/04 but after Labour introduced caps on discounts, the numbers fell dramatically and, following the credit crunch, they slumped to just 3,000 a year.

However, elsewhere in yesterday’s DCLG questions Prisk was boasting about the impact of coalition measures to boost right to buy sales:

‘Since we reinvigorated the right to buy last year, sales have more than doubled, to the highest level in six years. We believe it is vital to ensure that all eligible tenants know exactly how to exercise their right, which is why this month we are writing directly to more than 500,000 households right across England.’

Figures released last month show that there were 5,942 sales in 2012/13 – and that the 2,449 sales in the fourth quarter was more than four times the total in the same period of 2011/12. That’s before Prisk’s publicity drive and before measures announced in the Queen’s Speech to reduce the eligibility period from five years to three.

The coalition inherited a council and housing association stock of 3,966,000 in 2010. In its first two years, despite some of the lowest right to buy sales in the last 35 years, the total stock increased by just 27,000 to 3,993,000.

So Prisk is trying to have his cake and eat it too. The main reason for the 421,000 fall under Labour was a policy that he strongly supports. It was around half the fall seen under the Conservatives between 1979 and 1997 when right to buy sales were at their peak.

However, there was also one brighter piece of news in yesterday’s DCLG questions: a hint from Don Foster about the spending review. Asked by Green MP Caroline Lucas whether the government would ‘look again at lifting the current cap on council borrowing for house building’, Foster replied that ‘We are looking at the point the Hon. Lady has raised and an announcement will be made on 26 June.’

That and much more will be required in the review. Otherwise, if the government succeeds in reinvigorating the right to buy as much as Prisk boasts, the social housing stock will continue to shrink under his government just as it has under the last two. Even as the need for it increases exponentially.

Help to Build

Mon, 3 Jun 2013

Grant Britain Homes logo

So, George Osborne, what about some Help to Build to go with all that Help to Buy?

The chancellor’s multi-billion flagship housing policy is under fire from virtually everyone because they can see what the result will be of stoking up demand while doing nothing about supply.

Now the CIH, NHF and g15 are all calling on Osborne to fund an expansion of affordable housing in the spending review for 2015/16 that will be published later this month. That is what they always do ahead of spending reviews of course, but they are deploying some powerful arguments.

The CIH argues that there is little prospect of private developers building the homes we need. We have only ever built enough homes when the state has played an active role and doing so would deliver wider benefits for the economy: every £1 of spending on construction generates £2.84 of economic activity; and 56p of every £1 invested in housing returns to the Treasury.

The NHF quotes figures from the IPPR showing that for every £1 spent on housing, 95p goes on housing benefit and only 5p on new homes. ‘The simplest and most effective way of redressing the balance and reducing the housing benefit bill is build more affordable homes.’

The g15 cites modelling by L&Q and accountancy firm PwC that looked at three different scenarios for financing affordable housing beyond 2015: a continuation of affordable rent; a return to higher capital grant plus lower social rents; and a move to full market rents with housing benefit taking the strain. The best value option for the taxpayer is higher grant with lower social rents.

The next three weeks will tell whether the government is listening or turning its usual deaf ear to those arguments. Recent history suggests the latter but the arguments are being made with renewed confidence given the growing political importance of housing. When Osborne reveals some of the detail on June 26, it’s worth looking out for six things in particular:

Housing’s place within infrastructure spending. The coalition admits that it cut capital spending too much in its first spending review and seems receptive to arguments made by the CBI and others about the economic impact of big infrastructure projects. Part of the justification for those is the supply-side impact of road and rail schemes on business costs and efficiency. A strong case can be made that new homes do the same, not just in terms of the direct impact on jobs and growth, but the benefits to employers too (see the NHF’s survey showed last week). The spending review will set out plans until 2020/21 ‘for the most economically valuable areas of capital expenditure’. As the NHF argues, that should include housing.

The future of subsidy. For a long time after the 2010 spending review it looked like there might not be one. Many people feared that capital subsidy would disappear altogether in the one to follow. A statement by Grant Shapps at the CIH conference last year (‘In all honesty I find it difficult to imagine a world with no government grant for housing’) was interpreted optimistically by many people but what will his successor Mark Prisk be saying as Osborne reveals the spending review in the middle of this year’s conference? It’s worth noting that virtually all of the new schemes announced by Osborne in the last 12 months, including Help to Buy, have relied on financial wheezes such as government guarantees rather than direct spending.

Meanwhile, if grant does continue, what will it fund: more affordable rent, a return of social rent or low-cost home ownership? The CIH calls for a £2 billion per year programme to deliver 55-65,000 homes a year in a mixture of the three, with a separate funding stream within it reserved for specialist and supported housing at social rent levels. However, it adds that affordable rent is unlikely to be sustainable for long given the rate at which it consumes providers’ financial capacity,  and calls for a fundamental review of  longer-term funding for sub-market housing.

What happens in London. Mayor Boris Johnson wants to take control of the multi-billion revenue generated in the capital through stamp duty and other taxes and decide how they are spent. The G15 is calling for a capital subsidy funded affordable and social rent programme funded with the money coming from discounted land or from grant that could be financed by ring-fencing stamp duty. It may make sense to use the receipts from taxes on London’s soaring house price  to solve the affordability crisis that they have created but will the Treasury really be prepared to give up control? And should it, given that the effects are felt well beyond the capital too?

The future of council housing. It seems like a no-brainer to allow local authorities to borrow more to build affordable homes. The CIH argues that raising housing revenue account (HRA) borrowing caps by an additional £7 billion would allow councils to build 75,000 homes over five years, creating 23,500 jobs and generating £5.6 billion of economic activity. Boris Johnson’s London Finance Commission also called for the caps to be lifted. Given the low levels of existing debt on council housing, that would be easily sustainable within their financial capacity. However, will Osborne and the Treasury really be prepared to go against 35 years of financial orthodoxy that says council housing is bad news and borrowing for it even worse?

What happens to rents. The current rent formula for social housing (rent rises of RPI plus 0.5 per cent +/- £2 a week) expires in 2015. A chancellor looking to cut spending, who has already restricted the increases in other benefits to the lower CPI rate of inflation, might well see that as a target. As the NHF and CIH submissions point out, that would be disastrous for future lending and business and investment plans. The chancellor promised in the Budget to set out a ten-year rental settlement and they say it is vital that this is based on the existing formula, which should be extended until 2025. The G15 calls for:  ‘A new settlement on rents which strikes a balance between what people can afford to pay and the need for investment in new homes. For now the current formula should be extended allowing time for discussion about what our residents can afford to pay.  Only then should we reset the target rent and move towards it in a way which is fair for residents and viable for housing providers.’

The implications for housing benefit of a cap on AME spending. The cap on annually managed expenditure (AME) announced by Osborne in the Budget may have sounded for a few micro-seconds like a purely technical measure but it is one that could have massive implications for housing. AME accounts for around half of all government expenditure and two thirds of that is social security and tax credits. So, although reports suggest Osborne has ruled out further cuts in working age benefits thanks to opposition from the Lib Dems, the AME cap suggests the opposite. As the CIH points out, that would have implications both for tenants’ wellbeing and landlords’ business plans (Moody’s has already downgraded the credit rating of 29 housing associations because of other welfare reform).

Inside Housing is calling for a long-term commitment to grant funding for affordable homes in the spending review. Support the Grant Britain Homes campaign.

Going hungry

Thu, 30 May 2013

It’s shocking but sadly not surprising to see the impact of changes to benefits on the soaring number of people relying on food banks.

Shocking because this is happening only two months in to cuts such as the bedroom tax and four weeks into the start of the benefit cap in four London boroughs, not surprising because the pressure has been building for months. This is the start of the ‘decade of destitution’ that Julia Unwin of the Joseph Rowntree Foundation has been warning about.

Church Action on Poverty and Oxfam, the two organisations behind the Walking the Breadline report, are calling for a parliamentary inquiry into the relationship between benefit delays and the rising numbers.

They say and says changes to the benefit system are the most common reason why people go to food banks. These include changes to crisis loan eligibility rules, delays in payments, Jobseeker’s Allowance sanctions and sickness benefit reassessments. However, the case studies in the report also show the growing impact of housing benefit changes too.  

The largest provider, Trussell Trust, says 350,000 people visited its food banks last year, almost three times the number it saw the year before. The report estimates that the number of people relying on food banks as a whole could be more than half a million.

Niall Cooper, Church Action on Poverty CEO, and the report’s lead author, says: ‘The safety net that was there to protect people is being eroded to such an extent that we are seeing a rise in hunger. Food banks are not designed to, and should not, replace the “normal” safety net provided by the state in the form of welfare support.’

Housing features in the report as a driver of demand for food banks and through the organisations including housing associations and community groups that are providers and funders of them. See here and here for recent coverage of the issue in Inside Housing.

Some of the main case studies show the bedroom tax in particular is making an already bad situation even worse.

In one, a school dinner lady was referred to a food bank by her disabled son’s school after she kept him at home for two days because she could not afford a packed lunch and was ashamed to send him without one. Now she’s waiting for a three-bedroom flat so that he can have the room to himself he needs because of his disability but the bedroom tax will leave her with virtually no money for food.

In another, a woman suffering from Crohn’s disease, osteoarthritis and depression who needs to sleep in the spare bedroom because of her illness now has to pay an extra £40 a month in bedroom tax. She was turned down for discretionary housing payments despite the support of her doctor. She paid April’s bedroom tax out of her ESA and lived on toast for three days so rest of her family could eat properly.

They are the sort of stories that have become depressingly familiar over the last few weeks and we are barely two months in to the bedroom tax and below-inflation increases in other working-age benefits.

However, the report is a powerful reminder of the combined impact of all the welfare changes plus benefit sanctions, delays and underpayments.

And all of this is before the introduction of the universal credit and those breezy DWP assumptions that 85 per cent of claims will be made online and that people will cope with being paid monthly rather than fortnightly. With direct payment of the housing element to tenants the choice between paying the rent and buying food will become even starker. 

The report calls for an urgent inquiry by the House of Commons work and pensions committee, publication of data on claimants denied benefits by sanctions, delays and errors and on referrals to food banks and independent monitoring of the implementation of universal credit – plus action on tax evasion to reduce food poverty.

Sharper focus

Wed, 29 May 2013

Bit by bit the picture of how housing policy would look under a Labour government is becoming clearer but there are still some blurred areas.

In the latest results from its policy review process, the party has published more new ideas on the private rented sector. Following up on earlier proposals on letting agents and their charges and more stable tenancies for families, this one is all about the case for greater regulation of landlords.

This is of course just part of a much wider review of Labour policy on housing and related areas. On private renting, the argument is that greater regulation will be in the interests of good landlords (because it will help prevent unfair competition from unscrupulous rivals) and amateur landlords (because it will help them avoid unwittingly falling foul of the law) as well as tenants and the taxpayer.

However, the document highlights poor standards in the sector and problems with enforcement action and handling complaints by tenants as the main reasons for intervention. ‘The evidence shows that prosecutions in comparison with the number of complaints and serious issues raised are all too rare and tough enforcement activity only makes up a small proportion of local authorities’ activity,’ it says.

In particular, it says many councils are reluctant to use their powers on selective licensing because ‘they find the conditions for being able to apply selective licensing overly bureaucratic despite being in the clear interests of the tenants, responsible landlords and communities concerned’.

Meanwhile it says many tenants are reluctant to complain for fear of their landlord raising their rent or even evicting them. The report points out that ‘the two months’ notice required to remove a tenant without cause under Section 21 is far shorter than the time it takes for most councils to reach the binding enforcement stage of their enforcement powers’.

Given the wider costs to the taxpayer, Labour is exploring a range of options ‘to ensure we have minimum standards nationally, strong enforcement locally and clear proposals to stamp out bad landlords once and for all’. Options include:

  • A national register of landlords – designed to help local authorities identify them and HMRC with tax evasion estimated at £500 million a year
  • A new national private rented property standard – including things like deposit protection, energy efficiency and property condition
  • Local enforcement – including a review of the conditions under which councils can establish a licensing scheme
  • Tougher actions against bad landlords – including banning landlords convicted of serious criminal behaviour from the register and stamping out retaliatory eviction.

In return, as part of a ‘something for something deal’ for good landlords, Labour would look at options including direct payment of housing benefit, supply of renters from local housing registers and an improved legal process for evicting tenants who do not pay their rent or commit anti-social behaviour.

As I’ve commented before, reform of private renting only made it to the green paper stage under the last Labour government. In the meantime, the Labour government in Wales is taking forward proposals of its own.

This time around the party in England seems determined to act and the package is calibrated to secure change without alienating good landlords. The National Landlords Association has welcomed the focus on bad landlords while questioning the impact of regulation.

What matters of course is the detail that follows those options. One issue could be the attempt to match a national register and standards with local flexibility. The report highlights Newham’s borough-wide licensing scheme and Oxford’s city-wide HMO licensing as examples of local action by Labour councils.

On selective licensing, the report argues that: ‘Local authorities feel that there is too much bureaucracy and red tape in their way if they want to step in and protect tenants, good landlords and their wider communities.’ Landlords will of course see the licensing – rather than the process of applying for it – as the red tape and question the effectiveness of a patchwork of different local systems.

On wider housing policy, the review process continues. Ahead of a conference in Manchester next month, the Labour Housing Group is consulting on 50 policies for ‘One Nation Housing’. It’s a pretty comprehensive list including everything from changing the public borrowing rules to tenancy reform and restricting giveaway right to buy discounts to a new rent to buy scheme for first-time buyers.

It also calls for many of the coalition’s housing reforms to be reversed. In social housing, security of tenure would be restored to social housing tenants and social tenancies converted to affordable rent converted back to social rent. On housing benefit, the bedroom tax would be scrapped in favour of a national scheme to tackle under-occupation, the benefit cap would be regionalised to take account of different rent levels, direct payment would be restored, and the local housing allowance would be increased from the 30th percentile to the median.

It remains to be seen of course how much of that will make it into party policy for the next election. Much will obviously depend on Labour’s stance on the wider economy.

But much will depend too on a wider Labour rethink about the welfare state. While there seems to be a new willingness to consider a shift back from personal to bricks and mortar subsidies, and an awareness of the dangers of doing so too quickly, Radio 4’s Analysis programme this week covered the deeper debate within the party about moving back to benefits based on contributions.

The programme included Lord Glasman, who coined the term Blue Labour, Jon Cruddas, Labour’s policy coordinator and Sir Robin Wales, Mayor of Newham. The key idea seems to be to move away from a centralised system to deliver welfare at a local level, with Newham’s employment-linked housing policies cited as an example.

Exactly how contributions-based welfare would work is not clear and also (as Ian Mulheirn outlined for The Guardian earlier this week) fraught with pitfalls. It would also have profound implications for housing.

Renting reform

Thu, 23 May 2013

Wales is set to go where England failed to tread on tenancy reform under plans put forward this week.

The Renting Homes white paper published by the Welsh Government is an updated version of the Law Commission proposals that the previous government in England seemed to like at first, then dithered over and finally allowed to lapse at the last election.

So now Wales is set to reap the benefits of two simple and clearly understood forms of tenancy while England continues to cope with a mess of different ones. These are more than just technical, legal changes. The white paper argues that: ‘The current differences between renting a home from a local authority, housing association or private landlord contribute to weaknesses in the way the whole housing system works. Renting a home is not always seen as a good choice. Indeed, it is sometimes considered to be the last option.’

It says the consequences of that include: angst and worry for renters and sometimes for landlords; unnecessary legal costs to resolve difficulties; a reluctance to move between different forms of renting, limiting labour mobility; and confusion for landlords and tenants about their rights and responsibilities.

The plan is to replace most tenancies with one of two types: a secure contract based on the local authority secure tenancy for all long-term housing by councils and housing associations; and a standard contract similar to the assured shorthold used in the private rented sector.

As well as making the law easier to understand, the white paper says the changes will reduce costs, make it easier for landlords to recover abandoned properties and make it harder for bad landlords to undercut good ones. There will be a requirement in all contracts for landlords to maintain the property and ensure there are no serious health and safety risks. A ‘prohibited conduct’ term in every contract will make it easier to deal with domestic abuse and anti-social behaviour. Renting will be easier for 16 and 17 year olds and people wanting short-term lets and it will also be easier for people to leave or join joint rental contracts.

The white paper argues:

‘Our proposals will not fundamentally alter the balance of rights and responsibilities of tenants and landlords from those that currently exist. Rather, they are designed to create a simpler, more logical and clearer legal framework to replace the complexity of current law. Our goal is a fair, simple, and effective legal basis for renting a home, making it understandable to both landlords and people who rent a home now and in the future.’

However, there are two more contentious elements. First, the new secure contract will mean that housing associations will no longer have Ground 8 mandatory grounds for possession. Ground 8 is not often invoked in Wales but, as Martin Hilditch’s feature in Inside Housing last week revealed, use of it is growing rapidly in England in response to welfare reform.

Second, the standard contract would remove the six-month moratorium that currently prevents a court ordering a no-fault possession in first six months of an assured shorthold. Shelter Cymru is worried that this will increase insecurity but the white paper argues that it will benefit tenants looking for a short-term let and that it will still be possible to set a minimum term.

The proposals have received a generally warm welcome so far, though the Residential Landlords Association is a dissenting voice, claiming that the changes will cost £45 million to implement.

However, this is just the start of the reform of renting in Wales. A white paper last year proposed a national, mandatory registration and licensing scheme for landlords, letting agents and managing agents and a Housing Bill is due to be published in the Autumn.

That too is territory where England failed to tread. Plans to regulate letting agents and license landlords made it as far as a green paper in 2009 but were quickly dropped by the coalition after the election. 

Tenancy reform had stalled in Whitehall long before that, a casualty not so much of a change of heart as of the rotating door that operated for housing ministers under the Labour government and of changes within the civil service. At a Communities and Local Government Committee hearing in February Martin Partington, the former Law Commissioner, gave a fascinating insight into what happened (or rather didn’t happen):

‘The then minister, Nick Raynsford, commissioned the work from us and he was working with the social rented side of the house, as it were. Years went on, and housing ministers came and went like water down the drain-that might be slightly unfair, but they did come and go with extraordinary regularity. There was a point at which we suddenly discovered, without any consultation with us, that we were going to be masterminded by the private sector side of what was then still the ODPM. This had the effect that the interest that existed among civil servants for the work that we were doing and the contribution that we might make to overall global social policy became, from my perspective, a narrower one about whether what we were recommending might or might not facilitate the private rented sector.

‘Frankly, once we had got to this stage, civil servants started saying things to us like, “Hmm, this is all very difficult,” or “I don’t think we’re going to make much progress unless you get political engagement by ministers.” My difficulty was, because ministers were coming and going every eight or nine months, you know that the shorthand is that if civil servants tell you “You have to get political engagement,” they have no interest in taking it forwards themselves. That is where I got slightly hacked off about the process that we were going through.

‘I have to say I went to the retirement party of one of the civil servants who had been leading for DCLG, and he took me aside at the end and said, “Do you know, Martin? I do feel a bit guilty that I didn’t really push the Law Commission stuff as hard as I might have done.” My heart did sink, but I then perked up every time I went to Cardiff and officials in the Welsh Government kept on saying things like, “This is frightfully good. We cannot understand why they are not doing it in Whitehall.” I live to fight another day, and I am not an embittered old Law Commissioner. I do think that what we were trying to do required a bit of imagination and input and, for whatever reason, we lost the political impetus through the way it was managed within the department, as we were going through the work.’

Back in Wales, the country is using its new legislative powers to develop policies on housing that are quite different from those in England. Wales is going its own way, as Westminster communities secretary Eric Pickles seems to have noticed.

Too close for comfort

Mon, 20 May 2013

Sir Mervyn King’s weekend criticism of Help to Buy leaves George Osborne looking more isolated than ever in his plan for government mortgage guarantees. 

King steps down as governor of the Bank of England at the end of June but even so his comments on Murnaghan on Sky News on Sunday are quite a parting shot. Asked how the Bank of England would end a scheme of which it is the ultimate guarantor, he said that:

‘Well I’m sure that there is no place in the long run for a scheme of this kind, this scheme is a little too close for comfort to a general scheme to guarantee mortgages. We had a very healthy mortgage market with competing lenders attracting borrowers before the crisis and we need to get back to that healthy mortgage market. We do not want what the United States have which is a government guaranteed mortgage market and they are desperately trying to find a way out of that position so we mustn’t let this scheme turn into a permanent scheme.’

Help to Buy has already been heavily criticised on the same and other grounds by the all-party Treasury committee of MPs and it’s next to impossible to find a reputable economist who supports the policy. Mortgage lenders and estate agents are expressing caution and even housebuilders seem faintly embarrassed by this latest example of government largesse. Osborne has even drawn criticism from Migration Watch and the TaxPayers Alliance over claims that foreign buyers will be able to benefit. 

However, Help to Buy already seems to be having an impact on buyer demand and on prices. A survey out this morning from Rightmove shows that seller’s asking prices rose by 2.1 per cent in May alone after the strongest start to a year since 2004. The average asking price in London is now more than £500,000.

It’s perfectly possible that Help to Buy will be the long-term disaster that everyone fears at the same time as it is a short term success for the government in boosting activity in the housing market and the wider economy in the run-up to the next election.

King’s comments seem more than a little self-serving. His claim that there was a ‘healthy mortgage market’ stretches credulity when you remember the surge of lending that inflated the housing bubble before 2007 on his watch. To give just one example, half of all mortgages lent in that year were self-certified.

However, his warning also points up just how big a mistake Osborne could be about to make. Ironically, just as the chancellor prepares to offer state guarantees for mortgages in the UK, politicians in the United States are desperately searching for ways to get out of offering them.

The Federal National Mortgage Association (Fannie Mae) was set up in the wake of the 1930s depression as part of the New Deal to provide local banks with federal money to finance mortgages. After 75 years, it is still going, alongside its counterpart the Federal Home Loan Mortgage Corporation (Freddie Mac), showing just how difficult it is for a government to exit the mortgage market once they have entered it.

The agencies were privatised in the late 1960s, invented mortgage-backed securities in the 1980s and were used to expand home ownership to low-income households in the 1990s. In the wake of the sub-prime mortgage crisis and credit crunch, they had to be taken back into public ownership in 2008. They currently guarantee half of all American mortgages worth about $5 trillion.

However, there is another example of a government guaranteeing mortgages that King tactfully (or pointedly) did not mention. Canada has its own equivalent of Fannie Mae:  the state-owned Canada Mortgage and Housing Corp set up in 1946 that now guarantees half of all mortgages but the government also guarantees two private sector insurers.

Canada is of course the home country of King’s successor Mark Carney. He got the job at the Bank of England after being credited with rescuing the country from the financial crisis as governor of the Bank of Canada by rapidly cutting interest rates. As he gets set to arrive in London things are not looking nearly so rosy back home. Critics say those mortgage guarantees helped to inflate a housing bubble.

In a survey of the world’s 18 biggest housing markets by The Economist this week, Canada has the most over-valued house prices when judged against rents (by 73 per cent compared to 19 per cent in Britain) and the third most overvalued prices judged against incomes (32 per cent against 11 per cent). Where house prices in Britain have fallen by 11 per cent since the start of the credit crunch, Canada’s are up 18 per cent.

The Economist concludes:

‘On this basis Canada’s market is especially vulnerable. A large bubble now looks set to burst. Home sales in March were 15 per cent down on a year earlier. Buyers are in short supply. A recent poll showed that only 15 per cent of Canadians are likely to buy a home in the next two years, down from 27 per cent last year—the steepest decline in the 20-year history of the survey. After a big boom, the housing bust will be a wrenching affair.’

With Carney finding London house prices so extortionate that he demanded a £250,000 a year housing allowance, is he jumping from the frying pan into the fire or the other way around?

MORE: It’s not just Help to Buy mortgage guarantees that are under fire. Analysis just released by the g15 group of London’s largest housing associations shows that Help to Buy equity loans will be of minimal help to average earners in the capital.

The group looked at all properties for sale across London advertised on the main property portals between January and April 2013 and modelled their affordability based on a 20 per cent Help to Buy equity loan, a 5 per cent deposit and a standard mortgage of 3.5 times earnings.

A single person with an average income of £26,499 would be able to buy a property worth £125,000 but only 2,963 (2.5 per cent) of the advertised homes were in that price bracket.

The choices are almost as restricted for someone on the median income in London of £33,308. They would be able to buy homes up to £135,000 but that applied to just 4,176 (3.5 per cent) of those available.

As Keith Exford, chair of the g15 and chief executive of Affinity Sutton, points out, average earners will be left with the most undesirable property: flats above shops, properties in poor repair and flats with short leases.

The g15 is calling on the government to focus investment on low cost home ownership instead, arguing that the £3.5 billion allocated to Help to Buy equity loans could fund 175,000 affordable homes.

Squeezed out

Fri, 17 May 2013

Here are some thoughts on an event I’ve just chaired for the Resolution Foundation yesterday on the scale of the housing crisis and how to fix it.

Rather like most of my blogs, I thought it would be stronger on the first bit than the second, but the debate revealed a new willingness to look for solutions as well as more reasons to be gloomy.

The centerpiece was a sneak preview of some forthcoming research from the Resolution Foundation and Hometrack on the housing plight of low and middle income households. The foundation is a think tank focused on the 5.6 million people caught in the squeezed middle between stagnating wages and rising costs.

The conclusion is that 1.3 million of them face unaffordable housing costs. That is a very conservative estimate as it is based on some cautious assumptions such as lower quartile house prices. Of these, 590,000 are private renters, 585,000 are owners with a mortgage and 100,000 are social renters.

Almost half of them (570,000) are younger families where the head of the household is under 35 and two thirds are outside London and the South East. One particularly dramatic graphic in the final report shows how unaffordable housing (defined as more than 35 per cent of net household income) is spreading rapidly to other parts of the country.

A key message is that, while a deposit on home ownership remains out of reach (the average time needed to save for one is now 22 years), private renting is now more expensive than paying a mortgage in all but a handful of local authorities in Britain. Another is that shared ownership – the often forgotten form of tenure – is the most affordable and warrants fresh scrutiny.

That was followed by responses from three panelists that revealed some serious doubts about whether the solution to the crisis really is more investment in private renting (even if it comes from institutions rather than buy to let landlords). After all, as Vidhya Alakeson of the Resolution Foundation pointed out, it emerges from the research as ‘overwhelmingly the most expensive tenure’.

Keith Exford of Affinity Sutton and the G15 group of housing associations made a powerful case for more investment in social renting. He said the Treasury’s discounting of investment by 50 per cent significantly undervalues the real impact and cited research showing that it offers the best value for money in the long term. He was also sceptical about Build to Rent delivering enough new supply quickly enough.

Natalie Elphicke of Million Homes, which aims to find ways to harness new social investment with little or no government grant and mixing private and social renting, argued for ‘progressive ownership’ that would allow people to move from renting to owning. She also had some harsh words for buy-to-let landlords who allow their tenants to pay their mortgage while offering them no security in return.

Campbell Robb of Shelter said debates were needed on what we want out of home ownership, what we really mean by affordable, more freedom to borrow for council housing and, above all, land. If compulsory purchase can be used for the HS2 rail line in some of the safest Conservative seats in the country, he asked, then why not for new homes?

The debate that followed ranged far and wide from the banks to Nigel Farrage, self-build to tax and the role of local authorities to rent control. The encouraging thing for me was not so much that magical solutions are appearing – that would be expecting too much – but that people are looking at all the issues in new ways.

That’s a reflection of the fact that things are changing around the country too. For one example, see Gentoo’s launch this week of its Genie structured home purchase plan. For another, see this week’s report of the London Finance Commission. This comes up with the remarkable stat that the last 10 years have seen £17 billion investment in affordable housing in the capital while £50 billion in housing benefit has been paid to landlords. Who would have thought a couple of years ago that a report for a Conservative mayor would argue that ‘the relaxation of borrowing controls is the only obvious solution to enable the delivery of greater supply’? For more on the report, see Steve Hilditch’s blog for Red Brick.

The big question is whether this new thinking is going to be enough to counteract the damage caused by George Osborne’s reckless Help to Buy policy and whatever he has in store for us in the spending review. Fans of it were certainly in short supply at the Resolution Foundation event yesterday. For a sneak preview ahead of Mark Carney’s arrival at the Bank of England, see this Money Week blog on the housing market consequences of Canadian state guarantees for mortgages.

As for the spending review, there are crucial issues to be settled not just on the prospects for housing investment and housing benefit, but on social sector rents and investment in private renting too.

New thinking on the housing crisis is tantalisingly within reach but, as yet more dismal housebuilding figures underlined as the event was taking place, the crisis itself is getting worse all the time. 

Tragic lessons

Mon, 13 May 2013

‘She was fine before this bedroom tax. It was dreamt up in London, by people in offices and big houses. They have no idea the effect it has on people like my mum.’

I’m not sure how the architects of what ministers prefer to call the spare room subsidy will react to the words of Steven Bottrill or the tragic suicide of his mother Stephanie. A spokesman for the Department of Work and Pensions (DWP) told BBC radio news yesterday that it would be ‘inappropriate to comment’ on an individual case but that did not stop a ‘source’ from adding that the government had made discretionary help available.

You can read more about the awful story in yesterday’s Sunday People and a fuller interview with Steven Bottrill in today’s Mirror. With her two children grown up and left home, Stephanie Bottrill, 53, faced a £20 a week under-occupation penalty on her three-bedroom home in Solihull. She left a notes to family and friends including one telling her son ‘don’t blame yourself for me ending my life, it’s my life, the only people to blame are the government’. Then she left the house and it’s believed she walked into the path of a lorry on the nearby M6.

Among the many heartbreaking details, one that really sticks in my mind was the way that she had her things packed in boxes marked ‘kitchen’ and ‘bathroom’ even though she had nowhere else to go. She wanted to be prepared in case the council found her a smaller place.

From the reports, it’s not clear what advice and support or what offers of alternative accommodation she received. What seems a little clearer is that she was under severe financial strain even before having to find that extra £20 a week and facing the prospect of having to leave her home of 18 years. Perhaps more will emerge at the inquest. 

In the wider context of welfare reform, will there be more individual tragedies like this? As I blogged in November, there have already been several awful cases and more look both inevitable and predictable.

However, the sad story of Stephanie Bottrill illustrates particular problems with the bedroom tax. Her circumstances were not those of the worst cases that have attracted all the publicity so far: the couples with a ‘spare’ room given over to medical equipment or who needed to sleep in separate rooms; the families with disabled children living in specially adapted homes; the victim of domestic violence facing a penalty for her panic room; or the fathers who have their kids to stay three days a week.

According to the reports, despite a debilitating illness that meant she could not work, she was not registered as disabled. After her daughter moved out, she was under-occupying her house by two bedrooms. It’s not clear whether she was offered discretionary help or whether she would have been entitled to it.

She would not even have been helped by the key amendment to the under-occupation penalty voted through in the House of Lords in the final stages of the Welfare Reform Bill debates in 2011 but reversed in the House of Commons. This would have exempted anyone under-occupying by one bedroom if no suitable accommodation was available.

However, her story prompted me to look back at the arguments made for and against that at the time. Welfare reform minister Lord Freud argued in the Lords that the exemption would be ‘too broad and would be complex and costly to administer’. He went on:

‘In most cases where there is no suitable accommodation, we expect that claimants and their partners will find ways of meeting the shortfall—through employment, we hope, or through increased earnings. For those who are genuinely struggling to meet the shortfall and who have exhausted all possible options, the local authority might consider a discretionary housing payment.’

In the Commons work and pensions minister Maria Miller trotted out the familiar line that:

‘If social sector tenants choose to continue to live in accommodation that is larger than they need, it is only right that they make a contribution towards the cost. They can meet any shortfall through employment or other means. Those are the sorts of everyday choices that people living in the private rented sector and those who are not getting housing benefit have to make every day.’

However, even at the time it was clear that the bedroom tax would be about much more than that for its victims. As Lord Best put it moving the amendment in the Lords:

‘Houses and flats provided by councils and housing associations represent people’s homes. They are not transit camps or hostels, with people constantly on the move as families expand and contract, but places to settle, put down roots and overcome some of the disadvantages that life has thrown at them.’

And Andrew Percy, one of two Conservative MPs who voted against the government in the Commons, made a similar and powerful point:

‘I am sure that the ministers understand this, but I plead with them to take account of the fact that houses are not only public assets; they are also people’s homes, and people have an attachment to them. This is not a simple matter to resolve, even though we should encourage an end to under-occupancy.’

They were both making the point that there are better, and fairer, ways to tackle under-occupancy than using the blunt instrument of the bedroom tax. Instead, despite a Conservative manifesto pledge to ‘respect the tenures and rents of social housing tenants’, the government is forcing people into a choice between giving up their homes (if something smaller is available) or paying the penalty. These are people’s homes, with all the emotions tied up in that idea, not just an aggregation of rooms. 

Six weeks in, the rent arrears are already mounting and demand for discretionary housing payments is far outstripping supply. We are left with a policy dreamt up in London with little idea of what the impact would be around the country. Or of the effect it has already had so tragically on Stephanie Bottrill and her family.

Dead cert

Fri, 10 May 2013

So, three years after it was pronounced dead, can anything stop buy to let squeezing out owner-occupation?

Figures from the Council of Mortgage Lenders (CML) yesterday showed that loans to landlords accounted for 13.4 per cent of the £165.6 billion worth of outstanding mortgages in the first quarter of the year. That’s up from 13.0 per cent in the fourth quarter of 2012 and just 9.8 per cent at the start of the credit crunch in 2007.

All of which makes it easy to forget that it was only three years ago when the last rites were being delivered for buy to let by probably its best-known pioneers, Fergus and Judith Wilson. The former teachers built a 700-home empire but by 2010 they were bailing out and telling The Guardian that buy to let was ‘absolutely dead and will never return’.

They were selling up and retiring after starting into the abyss as the financial crisis hit its worst point in 2008. Ironically, the thing that saved them and thousands of other landlords was the collapse of Lehman Brothers and the way that the Bank of England responded by cutting interest rates to 0.5 per cent.

Seen from the perspective of 2013 that all seems a long time ago. There are now almost 1.5 million buy-to-let mortgages outstanding, 49 per cent more than in 2007 and 14 per cent more than in 2010.

Although the CML figures show the pace of growth has slowed slightly, cheerleading articles like this are appearing again in the national media as though 2008 never happened. A one-bedroom flat in Wales is apparently ‘the secret to buy-to-let riches’.

The market continues to be underpinned by ultra-low mortgage rates. As with the wider market, that may beg all sorts of questions about what will happen if and when they go back up to pre-crunch levels but in the meantime landlords have had a captive market of renters unable to raise a deposit to buy.

Meanwhile buy to let has received two significant boosts in the last month. First, agreement in Europe on a new mortgage credit directive confirmed that buy to let will not be subject to the same regulation as ordinary lending to homeowners. Second, the Bank of England extended its Funding for Lending Scheme to non-banks and expanded the definition of small and medium and businesses to include property investors. There are already signs that buy-to-let mortgage rates have begun to fall.

In the meantime, the decline of owner-occupation continues. Yesterday’s CML figures also showed that there are now 9.8 million owner-occupied mortgages, a fall of 2 per cent on a year ago and 8.4 per cent since early 2008. Overall, there are now 900,000 fewer owner-occupiers than at the start of the credit crunch.

Recent CML figures do at least show some signs of life in lending to first-time buyers. However, with Help to Buy set to extend help to all buyers and go higher up the income scale, they look set to be priced even further out of our dysfunctional and artificially inflated housing market. 

Wake-up call

Thu, 2 May 2013

The interest-only mortgage is the housing scandal that just keeps coming back.

In the 1980s it was all about the mis-selling of endowment mortgages. In the 2000s it was about selling as many mortgages as possible without caring too much about whether there was a way to repay them. In the 2010s and 2020s it will be about dealing with the consequences – and who pays for them.

A report out today from the Financial Conduct Authority (FCA – no relation to the FSA that was the regulator in the 2000s) reveals that there are around 1.3 million people who are only paying the interest on their mortgage and could struggle to pay back the amount their borrowed at the end of their term. With an average shortfall of £71,000 that implies a total liability of £71 billion.

The FCA identifies three different waves of interest-only liabilities that will hit over the next 30 years. The best off are those who (like me) were mis-sold endowments in the 1990s but find that the endowments will not pay out enough to repay the mortgage let alone deliver the extra lump sum they were told about. The FCA expects that most of them will have backup options, not least because of the amount house prices have risen since then.

Next come people who took out interest-only mortgages between 2003 and 2009. In the lax lending conditions of the time very few questions were asked and interest-only loans were often the only way to be able to afford to get on the housing ladder. Finally come people who have converted to interest-only because they could not afford their monthly payments.

The FCA estimates that around 2.6 million UK households have interest-only mortgages and that around half of those do not have believe they will not have enough money to pay off the final bill when their mortgage term comes to an end.  Around one in ten – 260,000 families – have no repayment strategy at all.

The interest-only fiasco will play out over the next 20 years or so, with peaks in 2017/18, 2027/28 and 2032. The point of the FCA’s warning is to give lenders and borrowers a wake-up call to act now to organise their finances and mitigate the problems over the long term.

The Council of Mortgage Lenders (CML) says its members will be contacting borrowers who are at risk and it has worked with the Money Advice Service on a practical action plan on options such as remortgaging and switching to a repayment mortgage.

Hopefully those efforts, plus much stricter controls on interest-only lending from next year, will help prevent some of the worst problems. The bigger question though is what happens to the people who still cannot repay their mortgage.

Some may be struggling so much that they may not make it to the end of their 25-year term – even though lenders are desperate to avoid repossessing people. Others may make it to the end and still have no way to pay back the original sum they borrowed. In the 80s and 90s that might not have been a problem because high inflation would have shrunk the debt in real terms but that no longer applies in the low inflation environment of the last few years.

So what happens then? Presumably the lender would repossess the house and get back an asset almost certainly worth more than the amount that was borrowed 25 years before. It may not be much compensation to the former owner losing their home but they will have enjoyed 25 years living in it and probably have paid less in mortgage interest than they would have done in rent.

The repossessed owner may apply as homeless, triggering immediate costs for their local authority. Or they may simply move into rented accommodation when they are close to retirement, storing up a long-term liability for housing benefit on top of the huge bill that is already coming from the fall in home ownership.

And so ultimately the taxpayer will be left picking up the bill for the lax lending that inflated the housing boom. It’s not just lenders and borrowers who need a wake-up call but the government too.

Learning lessons

Wed, 1 May 2013

The plight of families with children highlighted in a report from Shelter illustrates yet again why private renting in England so urgently needs reform.

If the experiences of tenants facing damp and disrepair and soaring rents are depressingly familiar, the report adds detail to what has become a way of life for the one in five families with children who now rent their home privately.

The insecurity inherent in short-term tenancies means that one in 10 of 4,000 families surveyed have had to change their children’s school as a result of moving. They were nine times as likely to have moved in the last year as families who own their own homes.

While 44 per cent of parents feel their children would have a better childhood if they had more stability in their home, less than 10 per cent said they valued the freedom and flexibility that renting gives them.

The report quotes the case of Helen, who has lived in nine different houses with her family since her eight-year-old daughter was born. The daughter has already moved school once and now they face moving again because the landlord has stopped paying the mortgage and there are no other rentals available nearby. Helen now has two other children at school but the chances of placing all three children in the same school are very unlikely.

Add cases of sudden rent rises, rip-off letting agent fees, losing your home for complaining about disrepair and the everyday struggle of affording the rent and you have millions of people crying out for more stability but unable to afford to buy or stuck on the waiting list for social housing.

Shelter is promoting a stable rental contract that would ‘give renters five years in their home during which they could not be evicted without good reason’ and a guarantee that rents would rise by no more than CPI during the five years. Renters would be able to give two months’ notice to end the tenancy at any point but landlords would have the right to end the tenancy if they sell the property.

As I blogged on Friday, there are signs that some small things are starting to improve for private renters including some (limited) action at last from the government on letting agents and a pledge by Genesis, one of several housing associations expanding into private renting, to offer tenancies of up to five years with yearly agreed rent increases.   

On Monday, Labour published an alternative Queen’s Speech including a Housing Bill to tackle problems in the private rented sector. As well as a national register of landlords and action to tackle ‘rip-off letting agents’ this would ‘seek to give greater security to families who rent and remove the barriers that stand in the way of longer term tenancies’.

One of the biggest barriers is the way that buy-to-let mortgage lenders insist on assured shortholds, giving landlords no choice but to offer six or 12-month tenancies even where they can see the benefits of having longer-term more secure tenants.

However, another is landlord attitudes. While landlord organisations have not rejected Shelter’s idea out of hand even the most sympathetic have doubts about how it would work in practice. The least sympathetic will see restricting rent increases to CPI inflation as a form of rent control and complain that they will not have enough remedies if things go wrong. Longer-term tenancies may work very well in other countries but, as Alex Marsh argues on his blog:

‘Just because German landlords will happily offer multi-year tenancies with built in inflationary uplift doesn’t mean British landlords will do the same, if they consider it their God-given right to extract as much money from tenants as they can get away with and dispose of their property at short notice as they see fit.’

This is perhaps where housing associations - and institutional investors - could take a lead. The funding of their schemes should mean they are free from the restrictions imposed by buy-to-let lenders and they ought to welcome the reduction in voids and management costs that should come with longer-term tenancies. However, are their new-build schemes more likely to be aimed at young professionals rather than families with children?

If it chose, the government could do more too. It could encourage longer-term tenancies as part of its build to rent guarantee programme and it still owns a sizeable stake in two of the biggest mortgage lenders. However, this response from the DCLG to the Shelter report hardly suggests that action is imminent:

‘There is no legal barrier to long-term tenancies. However, restrictive laws making this compulsory would mean fewer homes to rent, less choice and higher rents. With 75 per cent of tenants moving out of choice, and only nine per cent of tenancies ended by the landlord, we are determined to do all we can to help tenants and landlords get a fair deal in a way that doesn’t jeopardize that flexibility or strangle the industry in red tape.’

So change is clearly going to take time but in that time the rise and rise of private renting will continue and so too will the number of families with children in insecure tenancies and uncertain schooling. As Shelter says, private renting was never intended to be a long-term home for families with children. It has become so by default while offering little of the stability that most of us take for granted in a ‘home’. Today’s report is just the start of its 9 Million Renters campaign.

Man on a mission

Tue, 30 Apr 2013

So can the Quiet Man with missionary zeal really deliver on the universal credit?

The policy regarded as (depending on your point of view) flagship reform or slow-motion train crash, started in a low-key way in Ashton-under-Lyne on Monday. So low key that, according to the Guardian, nobody turned up for help on the first day.

However, the internal battles over it revealed in Rachel Sylvester’s column in today’s Times (here for those with access) were anything but low key. She describes how Iain Duncan Smith  battled with civil servants, the Treasury and Downing Street to secure what he sees as a moral mission of ‘changing people’. One government source told her:

‘IDS has been an incredibly good minister and really determined to get this reform through, but he has been banging his head against official intransigence, lack of will and at times deception.’

Among the revelations (new to me at any rate):

  • The cabinet secretary Sir Jeremy Heywood waved around ‘blood-curdling warnings’ from the security services of the risk to public order if the system failed and benefits were not paid on time
  • The Treasury tried to kill it off with delaying tactics
  • IDS lost his temper when he heard a member of his team being berated by the Treasury. He apparently picked up the phone and shouted down the line: ‘If you ever speak to my officials like that again I’ll bite your balls off and send them to you in a box’.
  • IDS cancelled the pass giving the official responsible for welfare at the No 10 Policy Unit access to his department.

In Sylvester’s take on the universal credit, IDS is very much the upstanding hero and an example for David Cameron: ‘The prime minister needs to discover a similar missionary zeal.’ Paul Goodman has more on this plus an accusation that civil servants ‘lied’ to Duncan Smith at Conservative Home.

Of course it’s still possible that IDS will be proved right and the civil servants wrong. To me, though, this kind of moralising and the rows behind the scenes do not bode well for implementation.

The same moral overtones were evident in an interview that IDS gave to the Telegraph over the weekend. It was interesting that he identified the ‘big cultural change’ at the heart of the universal credit not as simplicity, transparency or making work pay but as the ‘claim of commitment’ that claimants will have to sign pledging to make themselves available for work, go to interviews, take the first job that becomes available and ‘work hard’.

That conditionality – which will apply for the first time to people working part-time who will have a responsibility to look for extra hours – will be backed by sanctions that could include losing your benefit for up to three years. According to IDS:

‘People will know from day one, for the first time ever, what’s expected of them. They’ll have a sheet of paper which is their contract…. We want to say to people, you’re claiming unemployment benefit but you’re actually in work paid for by the state: you’re in work to find work. That’s your job from now on: to find work.’

Exactly how quickly the universal credit moves from a few hundred of the simplest cases in one town in Lancashire to apply to everyone remains to be seen. It seems a fair bet that the supposed start of the universal credit proper in October will be put back to allow the pathfinders and pilots more time. That could be taken as a perfectly sensible way of avoiding a repeat of the problems with big-bang changes to housing benefit in the 1980s but for the zeal with which IDS embraces each new delay as proof that he was right all along.

In the meantime there are any number of practical concerns about the new credit. On a technical level, will it work at all given the government’s dismal track record with major IT projects? Is it a good idea to introduce such a major change to ‘make work pay’ at a time when there is so little work around?

Even if the answer to both of those questions is yes, there are more practical worries. As a briefing by the Social Market Foundation explains, it will create losers as well as winners, it will improve work incentives for some but worsen them for others and there are concerns about how it will interact with council tax support and free school meals. Put that way you have to wonder whether the net change in culture will really be as great as is being made out.

Even if it is, there are major concerns about how it will be administered: the impact of paying it monthly, paying it to a single member of the household and dealing with all claims online. And then there is the major concern for landlords and tenants: the payment of the housing element direct to the tenant except in the case of ill-defined ‘vulnerable’ claimants. The evidence from the direct payment pathfinders so far suggests that an increase in rent arrears and evictions is inevitable.

All of these – plus the advisability of introducing such a huge change in the middle of a recession – are practical policy considerations that were no doubt raised by some of the civil servants that IDS saw as so obstructive. For housing organisations, they will be matched by a long-term worry that once housing costs are paid out through one credit it will become much easier to detach them from the rents that tenants actually pay. Meanwhile direct payment will mean that any cut to any element of the universal credit will mean potential rent arrears.

Finally, however, I wonder what the end result of all that cultural change will be. IDS seems to believe that the layabouts and scroungers will rediscover their moral purpose and work ethic – and that the lessons he learned on the Road to Easterhouse mean he will save them from themselves and a life of benefit dependency.

But things may look very different to the potential converts. The conditionality and sanctions attached to the universal credit mean there will be a risk of many people being denied part or all of their benefit for months or even years. What will the long-term impact of that be on tenants, communities and landlords?

The original missionaries of the 19th and early 20th centuries went out to Africa and China filled with religious conviction that there were souls to be converted and saved and free from any doubts that what they were doing might be morally dubious.

As 21st century claimants await their salvation, is it too much to hope for a little more administrative and IT expertise and competence and a little less missionary zeal?

Letting go

Fri, 26 Apr 2013

Things are slowly changing for the better for tenants in the private rented sector. It’s about time.

A series of small but significant things have happened over the last couple of weeks that suggest that even the government is waking up to the fact that it cannot continue to leave customers of a multi-billion pound industry to fend for themselves.

Ever since 1988, when the Thatcher government deregulated the sector and introduced assured shorthold tenancies, the orthodoxy has been that government should keep out of private renting. That continued largely unchanged under Labour. Some modest changes proposed in the Rugg Review, including regulation of letting agents, were overtaken by the 2010 election and then airily dismissed as ‘red tape’ by former housing minister Grant Shapps:

‘With the vast majority of England’s three million private tenants happy with the service they receive, I am satisfied that the current system strikes the right balance between the rights and responsibilities of tenants and landlords. So today I make a promise to good landlords across the country: the Government has no plans to create any burdensome red tape and bureaucracy, so you are able to continue providing a service to your tenants.’

However, as the sector (and the housing benefit bill) continued its rapid expansion that position looked increasingly untenable. The case for more protection for tenants was being made not just by the usual suspects but by trade organisations like the RICS and British Property Federation (BPF). The Communities and Local Government committee is in the middle of an inquiry on the sector. The Labour Party toughened its position.  And a report from the Office of Fair Trading in February highlighted a growing number of consumer complaints.

However, while the government has done plenty on investment in private renting and new supply, ministers continued to resist greater protection for tenants, arguing that existing regulations are enough. That all changed earlier this month when the House of Lords passed an amendment to the Enterprise and Regulatory Reform Bill extending consumer protection against estate agents to letting and managing agents as well. For more on the background on all this, see this House of Commons Library briefing note.

The government overturned the vote in the Commons but introduced its own amendment requiring letting and managing agents to sign up to a recognised ombudsman scheme to give tenants and landlords access to a complaints system. It’s a modest proposal that does not go far enough for reputable agents and the RICS and BPF, let alone tenants, but it still a major shift on the ‘no more red tape’ position adopted by Shapps.

(I should add that I am talking about England here. Scotland already has tighter regulation, for example on letting agent fees, while Wales is poised to implement a system based on the Rugg proposals and reform tenancies based on Law Commission recommendations.)

This week saw another positive development when Genesis, one of several housing associations that are expanding into private renting, announced plans to offer tenancies of up to five years with yearly agreed rent increases. It may be only one landlord but that’s a major step forward on the private rented norm of six-month tenancies and unpredictable rent hikes. As Robbie de Santos blogs for Shelter, stable renting and longer tenancies are the future – and that should start with the 10,000 homes that will be built under the £1 billion build to rent fund too

With London rents rising eight times faster than wages to reach yet another record high, the pressure for change can only grow. Good landlords and agents understand this and know that a more stable industry that treats its customers better can be good for them too. They also know that if change does not come, or does not come fast enough, support for more radical options will increase. 

For one example of that, see Labour MP Jeremy Corbyn’s Regulation of the Private Rented Sector Bill that is due for a second reading debate in the Commons today. As a private members bill not supported by the government it stands little chance of becoming law but his agenda of secure five-year tenancies, fair rents and greater protection for tenants is gaining in support.

For another example, see the day of action against high rents and letting agent fees planned by tenants themselves in London tomorrow. For more information on a singalong in Herne Hill, community housing inspections in Haringey and Brixton and a Monopoly-themed tour of letting agents at The Angel, Islington see the Let Down blog.

The changes in the private rented sector may be minor so far but as tenants get more organised there are at last things apart from their rents that are starting to look up. 

Debating downsizing

Wed, 24 Apr 2013

So it turns out that the Daily Mash has the answer to the housing crisis: build more bungalows but make them stackable.

As ever, Policy Exchange has succeeded in identifying a problem – the distribution of housing between old and young - and coming up with a media-friendly solution that sees planning as the villain of the piece. The ‘return of the bungalow’ for elderly downsizers has duly made all the headlines this week.

The problem with bungalows – and the reason why so few are now built - is that they don’t make financial sense in areas with high land prices where the affordability crisis is most acute. No housebuilder or housing association in their right mind would use scarce and expensive land in such an inefficient way. Existing bungalows tend to cost more than bigger terraced homes but only because of the potential to knock them down and redevelop their large plots. As the RIBA revealed yesterday, the average new-build one-bedroom home is now not the size of a spacious bungalow with a garden but of a London tube train carriage.

For Policy Exchange the cost of land – and the size of homes - is the result of the restrictive planning system introduced in 1947. So why not remove the restrictions and give more say to local communities but give them an incentive to approve new development because it’s what people want, in this case bungalows? If only it was so simple. Land ownership and taxation may just come into the equation (as Winston Churchill was arguing long before 1947) and planning is a way of making decisions about land use in a democratic society.

It reminds me of a plan put forward by Alfred Sherman of the Centre for Policy Studies, the think tank that was as much a favourite of Margaret Thatcher in the 1980s as Policy Exchange is of David Cameron now. Sherman wanted to concrete over the Birmingham to London Marylebone train line and turn it into a motorway. Only when cartoons appeared suggesting that perhaps the cars could be coupled together so that you only needed one driver did the full lunacy of the idea become clear. For coupled cars, think stacked bungalows (though, to its credit, Policy Exchange tweeted the Daily Mash link). In housing, as in transport, the free market and deregulation cannot solve everything.

However, all the publicity about bungalows has drawn attention to the vital issue of housing and inter-generational fairness. This is addressed both by Policy Exchange and the Fabian Society in think pieces for Hanover Housing’s 50th birthday debate. Another eight think tanks are due to publish their thoughts over the next two months.

Policy Exchange sets a scene in which home ownership is expanding among the elderly and shrinking among the young, who can only afford to buy with help from homeowning family. Housing wealth is fuelling inequality that is ‘dangerous both politically and economically above a certain level’. That is as much a concern for the right – because ‘it destroys the aspiration and opportunity that provide the moral backbone of Tory thought’ – as it is for the left.

This is far more than just a housing problem. Policy Exchange argues that high house prices could be driving a brain drain of the brightest young people from Britain even as it discourages the brightest coming from abroad to work here. In the end, the result could be ‘social and economic disaster’.

The solution, it argues, could be ‘a grand bargain’ housing. Much of this is familiar from countless other PX reports that have argued for liberalising the ‘dysfunctional planning system’ to allow enough new homes to be built to bring down, or at least stabilise, house prices. That means dealing with ‘the local issues that make reasonable people into NIMBYs’. Why not build the bungalows that elderly people tell opinion polls they like to enable them to downsize from their 25 million spare bedrooms?

The Fabians also call for a ‘grand bargain’ though theirs is based on tax as well as new homes and is much more connected to the debate about austerity and the way that pensioners have been protected from cuts so far. Governments should pursue policies to meet an affordability target for first homes, they argue, including increasing supply and taxing property wealth to suppress rises in asset prices. Options might include a land value tax or replacing council tax with an annual property tax that could be a charge against the property of older households but only payable when they sell.

Despite the obvious precedent of the bedroom tax politicians of all parties are likely to view that with some caution given that older people are more likely to vote than the young and that they grey vote is rising as a proportion of the electorate. However, to go with that stick, the Fabians say better options for downsizing need to be developed to provide homes that people want to move to. That might mean better models of equity release or housing providers developing new models for homeowners in mixed tenure communities.

As the population ages and home ownership continues to shrink among younger people, the issues raised in the two reports are only going to grow in importance. Some of them will be highly controversial (as coverage of a report by the Intergenerational Foundation showed in 2011) but there are already proposals out there for what to do next. See the Housing our Ageing Population: Panel for Innovation (HAPPI) report from 2009 and the update on progress on that from Lord Best’s All-Party Parliamentary Group on Housing and Care published in February. That showed how good design can challenge preconceptions of housing for older people and deliver homes that they want but also highlighted the financial insecurities that are hampering progress.

Solutions are required urgently and Hanover, Policy Exchange and the Fabians have given new impetus to the debate. If bungalows achieve nothing else at least they have got people talking. 

Beyond help

Sun, 21 Apr 2013

It’s hard to remember a more damning select committee report than the one just published on Help to Buy – and it has not even started yet.

You don’t even have to read between the lines of the Treasury committee report on the Budget to detect its doubts about a policy announced by chancellor George Osborne last month. It leaves him with a string of questions about how it will work and a list of concerns about unintended consequences.

The critical report will only add to wider concern about Help to Buy. Even before its launch home sellers already seem to be raising their asking prices, analysts say housebuilding shares are set for further gains and wealthy and even foreign home buyers are looking into how they can take advantage. As Alex Marsh points out on his blog, it’s never a good sign when the only people supporting a policy are those that stand to benefit from it (in this case housebuilders and mortgage lenders).

Government intervention in the housing market is nothing new of course. In the UK, mortgage interest tax relief subsidised home owners right up to 2000 and most previous governments have introduced limited schemes to support ownership. However, the Help to Buy equity loan and mortgage guarantee schemes will be worth £15.5 billion over three years from January 2014. That step change in scale has led many to compare them to the American institutions Fannie Mae and Freddie Mac, which both had to be bailed out by the government after the financial crisis. For more on the UK/US comparison, see this piece by Jim Pickard in the Financial Times.

A key concern for the committee is that – as in the United States - the government will find it very hard to get out of Help to Buy once it has started. Any extension will require the approval of the Bank of England’s new Financial Policy Committee (FPC) but, as the all-party committee of MPs points out, even raising that as a possibility creates an element of doubt about the temporary nature of the scheme. They say ‘it is not clear that, given its remit, the FPC is best-placed to take this decision, nor that the decision should be out-sourced at all’.

Osborne’s justification for the mortgage guarantee scheme is that it ‘corrects a market failure’: the reduction in high loan-to-value mortgage lending and associated reduction in the number of first-time buyers. The MPs directly contradict that:

‘Our concern is that, should the current scarcity of high loan-to-value mortgages reflect structural rather than cyclical factors, the pressure for Government to extend the scheme in three years time will be immense. The unintended and unwelcome outcome could well be that a scheme designed to deal with a supposedly temporary problem in the UK housing market becomes a permanent feature of the UK housing market.’

They express doubts both about the principle of the scheme and the mechanism that is meant to cover the taxpayer for losses:

‘The appropriateness of the taxpayer amassing contingent liabilities in this way needs careful scrutiny. The Chancellor says that expected losses under the scheme will be covered by the commercial fee charged to participating lenders. No details of the proposed level of the fee nor how it will be structured in practice are yet available. Nor has a date been given.’

And they are worried too about the impact of the government becoming ‘an active player in the mortgage market’. Politically and economically, ‘the committee is concerned that the Treasury now has a financial interest in maintaining house prices to limit losses to the taxpayer.’ Financially:

‘There is a risk that if mortgage lenders begin to exercise reduced levels of forbearance, repossessions may rise and house prices subsequently be lower than they would otherwise. If this happened, and unless this risk was fully priced into the fee, then the Treasury could end up facing large losses on those mortgages it has guaranteed.’

In terms of the housing market impact, much depends on whether you believe that house prices are over-valued. If so, the scheme may just increase demand at a time when supply is constrained and boost house prices. As the committee puts it:

‘It is by no means clear that a scheme, whose primary outcome may be to support house prices, will ultimately be in the interests of first time buyers. This is the group the Government says it wants to help.’

The MPs are also severely sceptical about the claim by Osborne that Help to Buy will boost the supply of new homes. The chancellor told them that  ‘the positive reaction from the builders suggests that this will happen’ and that boosting mortgage demand would generate a supply response. However, the report goes on:

‘The committee finds the Chancellor’s assertion that increased demand for home ownership and rising prices, resulting from the mortgage guarantee scheme, will trigger a corresponding supply response, unconvincing, at least for the short term. In the longer-term there may be an effect. This would be likely in a well-functioning market. However, the housing market contains severe supply constraints… Overall, though, if the Government’s priority was housing supply, its housing measures should have concentrated there.’

Meanwhile it is still not clear whether the mortgage guarantee element will be open to owners of second homes or not. Osborne told the committee that he did not want to rule out ‘cases where people have two mortgages, not because they want a second home but because their family is breaking up, they are moving job’. In a damning verdict both for him and for Treasury civil servants, the committee says this lack of clarity ‘is a reflection of the need to think schemes through carefully before announcing them’. They argue:

‘We struggle to see the rationale for the taxpayer to stand behind loans for people wishing to own a second property, especially given that the Chancellor has repeatedly stated that the scheme is primarily designed to help people onto the property ladder as well as those who wish to move property.’

Damning select committee reports on the failure of government policies are nothing new. What makes this one different is not so much that it comes from a committee chaired by a Conservative MP (Andrew Tyrie) but that it is being published before the policy has even been implemented. Normally committees publish reports on fiascos after the event but Help to Buy is barely off the drawing board.

However, that is perhaps the point. The housing section of the report ends with 17 ‘questions that require answers to allay concerns that the scheme may have unintended and unwelcome consequences’. Questions such as the impact on house prices, the likely supply response and the level of the fee to be paid to be lenders are all ones that you might reasonably have expected the Treasury to ask – and answer – before it announced the policy. That the committee is raising them at all speaks volumes about its confidence in Help to Buy.

There are many other questions that could be asked too. For example, why is the government replacing schemes reserved for first-time buyers (FirstBuy) and new-build homes (NewBuy) with ones that are available to anyone if its supposed priorities are people trying to get on the housing ladder and new supply? And why has it suddenly decided to take on all of the risk of the mortgage guarantee when under NewBuy it was shared with housebuilders? Say what you like about those previous policies but at least they targeted the help where the government believed it was needed rather than giving a boost to the entire market.

However, perhaps it is wrong to judge Help to Buy as a housing policy at all. Regardless of the long-term consequences for house prices and the dangers of too much government involvement, every additional home sale after January 2014 generates more consumer spending and creates a satisfied buyer and seller. An improving economy by, say, May 2015 is just what the government needs politically. That is surely the point for George Osborne.

Putting the cap on it

Thu, 18 Apr 2013

Amid claim and counter-claim the benefit cap began this week with a deepening mystery about how many people will be affected and how much it will really save.

As the four guinea pig boroughs in London – Haringey, Croydon, Enfield and Bromley – began applying the cap on Monday, the Department for Work and Pensions revealed in ad hoc analysis that it now expects 16,000 fewer households to be affected by the time when it is introduced in the whole country over the next few months.

In media interviews, ministers hailed the reduction to 40,000 (from 56,000 in an impact assessment in July 2012) as evidence that the policy was encouraging people to get back into work. From Iain Duncan Smith in the Daily Mail to employment minister Mark Hoban on the Today programme they have claimed it had already encouraged 8,000 claimants who would have been capped to find jobs.

That appeared to be on the basis of ad hoc statistics on Jobcentre Plus activity that referred to ‘8,000 claimants identified as potentially capped households’ who had been helped into work out of 82,000 contacted between May 2012 and March 2013.

However, there was no attempt to compare that to the normal flows of people in and out of work that might be expected in a 10-month period. A second DWP ad hoc analysis was careful to stress that it had assumed ‘no behavioural change’. And the DWP press release quoted IDS as saying that ‘it will provide clear incentives for people to get into employment’ rather than claiming that it had already worked.

That’s led to extensive criticism that ministers have misused the statistics. For more on the detail of that see Declan Gaffney here, Gaffney and former DWP chief economist Jonathan Portes here and Nicola Smith of the TUC here.

All of which leads a real mystery about the numbers and what is really happening on the ground. The reduction in the headline number is maybe not so surprising since it has already gone up and down several times since the cap was first announced in responses to changes in its scope and to the exemptions. The ad hoc analysis cites the disregard for supported exempt accommodation announced in the Autumn Statement plus changes to benefit uprating and methodological improvements as the reasons for the fall to 40,000.

Even before the latest reduction, the national estimate was initially 50,000, then rose to 67,000, then fell to 56,000 (after the government agreed a nine-month grace period for people who have been continuously employed for the previous 12 months).

Another DWP report reveals that between May and September it sent letters to 89,000 households who data scans suggested could theoretically be affected by the cap. Limitations on the data meant that it could not identify two groups who are exempt (those in receipt of a widows or widowers pension and those within the employment grace period). However, the figures also illustrate the fact that new households are becoming potentially subject to the cap all the time: 14,000 in the three months between May and July 2012 and another 12,000 between July and September 2012.

Figures like those put ministers’ claim that the prospect of the cap has encouraged 8,000 people into employment into perspective. They are not so surprising when you consider how many people move in and out of employment and have insecure jobs with hours that fluctuate (you have to work at least 16 hours a week to be exempt from the cap). For example, the number of workers on zero hours contracts doubled to a record high of 200,000 in 2012.

The same mystery surrounds the numbers affected by the cap at a local level. The estimates are understood to have fallen in three of the guinea pig boroughs but risen in the fourth. In Haringey, for example, the council’s estimate has fallen from 1,300 at the beginning of the process to 993 now. A dedicated hub in Tottenham with staff from the council, the DWP and Job Centre Plus has helped 109 potentially capped households into work. With new households becoming unemployed, the net reduction due to finding work could be smaller than that and in any case that still leaves two-thirds of the reduction unexplained. 

Westminster – the borough with the most households affected by the cap in Britain – has also seen a large and unexplained reduction. The number of people facing the cap has fallen from around 2,200 in the Autumn to around 1,300 now, with 390 believed to have gone into work. With the same caveat about newly unemployed people joining the list, that leaves an unexplained reduction of 500.

So what’s going on? Some of the variation may simply reflect the fall in the national estimate at a local level. Some was predictable given the imperfections in the data being used, with some people dropping off the list and others not where the scans say they should be, and even the current numbers are eight weeks out of date. But are there other explanations?

One possibility is that the bedroom caps already imposed on the local housing allowance have reduced the numbers affected by the overall cap. Another is that people are moving ahead of the cap (and in the wake of the bedroom caps) to cheaper areas. The housing benefit stats show that claims in outer London are rising much faster than those in inner London. People could be deciding for themselves to move and anecdotally some authorities in Essex and Kent report that they are seeing people turn up in their areas.

However, councils with large numbers of capped families have limited options. They can use discretionary housing payments (DHPs) but these will only last for a limited time. They face costs for housing newly homeless families and caps on the rents of those they have already placed in temporary accommodation. Given the stream of reports about London boroughs exporting their homeless families elsewhere, and the lack of accommodation affordable within the cap in many areas, an increase in the out-of-area placements that are already happening looks inevitable despite ministers’ insistence that they have put guidance in place.

In the longer term housing directors think it is just a matter of time before overcrowding and sharing increase as capped families try anything to avoid moving miles from friends, families and children’s schools. They also expect another increase in unorthodox housing: beds in sheds, garages, retail units and offices.

Figures from Haringey illustrate the scale of the problem. The council has pledged not to move anyone out of London during the pilot. Some 294 of the 993 households currently affected (30 per cent) are living in temporary accommodation. The council has £2.4 million of DHPs for 2013/14 of which £1.4 million is specifically to cover the costs of the cap. However, it estimates that its extra liabilities because of the cap will be £8.2 million over 2013/14, leaving it with a shortfall of around £7 million. That’s roughly £7,000 for each capped family.

Figures like those suggest that the costs to individual boroughs will far outweigh savings to the Treasury that are now estimated at £110 million in 2013/14 and £185 million in subsequent years. Those have been reduced from £270 million a year savings in the July 2012 impact assessment.

They are also a reminder of the warning in the letter between the private offices of Eric Pickles and David Cameron that was leaked to the Observer in July 2011. The letter from Pickles’s private secretary said:

‘We are concerned that the savings from this measure, currently estimated ay £270m savings p.a from 2014-2015 does not take account of the additional costs to local authorities (through homelessness and temporary accommodation). In fact we think it is likely that the policy as it stands will generate a net cost. In addition Local Authorities will have to calculate and administer reduced Housing Benefit to keep within the cap and this will mean both demands on resource and difficult handling locally.’

Ministers see the benefit cap as good politics, especially when they can portray Labour as opposing it. However, it seems equally clear that it is a very bad policy that is being introduced at a very bad time. Leave aside the mystery about the figures, ignore for a moment the likelihood that it will cost more than it saves and turn a temporary blind eye to the fact that it contradicts the move to higher ‘affordable’ rents by the DCLG. The local authorities that will have to implement the cap and bear the extra costs are already seeing their budgets squeezed everywhere else. And they are having to implement a major change in the administration of housing benefit only months before they start to lose that role under the universal credit. 

Taking the strain

Wed, 10 Apr 2013

If the housing legacy of Margaret Thatcher Mark I was about dismantling much of what had gone before, Mark II created even more of what we have now.

Thatcher’s first two terms saw the right to buy, cuts in subsidies to council housing and the promotion of home ownership (see the first part of this blog). Mark II added big changes for private renting, housing associations and housing benefit, though not without some hiccups along the way.

The politician with a reputation for boldly acting on conviction could be cautious when she wanted to be too. It seems remarkable in retrospect that she left it until her third term before she fully deregulated the private rented sector (testament perhaps to the continuing power of accusations of Rachmanism). Market rents on new-build properties owned by approved bodies (but not individuals) were allowed from 1980 but few actually built any. It was not until 1988, nine years after becoming prime minister, that her government deregulated all new lets and introduced the assured shorthold tenancy. It did not seem so at the time, or for several years after, but those measures enabled the later creation of buy to let and the boom in the private rented sector that is still continuing now.

The same Act created the conditions for housing associations to become the major players in affordable housing that they are now. Private finance had existed before but the Act required them to use it as part of a mixed finance system with Housing Corporation grant. This was the first and probably the most successful example of public-private partnership seen in any part of the economy.

Both moves were part of a renewed radicalism in Thatcher’s third term. The right to buy had shrunk council housing in the 1980s but new housing minister William Waldegrave said that ‘the next big push after the right to buy should be to get rid of the state as a big landlord’.

However, things did not exactly go according to plan. Schemes like Tenants Choice and Housing Action Trusts flopped as tenants stubbornly refused to vote for a new landlord despite the promise of cash to improve their homes. Ironically, the most famous example of Tenants Choice came when tenants of flagship Conservative authority Westminster City Council used it to frustrate rather than enable a transfer of their homes to a private developer.

Ironically again the solution came from the original targets of the policy. local authorities began to see the advantages of transferring their stock to a housing association or setting up their own to free themselves from central government controls on government borrowing.

The Thatcher housing legacy is a powerful one. It would be wrong to say it was all down to her or her government (many of the same changes were introduced in other countries) and it was not all in one direction (it was Thatcher who introduced security of tenure for council tenants, for example). Nor was it all bad: the attack on council housing was about rolling back the state but it also brought improvements in management and financial innovation. 

The legacy was modified under Labour, with the Decent Homes programme and almos, cuts in right to buy discounts and restoration of the homelessness safety net weakened by Major (not Thatcher), but not fundamentally reversed. It was not until 2006 that Labour managed to build start more new social homes (in England) than the 20,000 achieved in 1990, Thatcher’s final year. 

So the Thatcher Mark II system that her government put in place 25 years ago is still the basis of the one we have now, though the coalition’s programme of near-market rents and fixed-term tenancies look very much like a Mark III.

However, the Thatcher legacy also includes another key area of policy that resonates to this day. The result of Mark II was higher rents. The housing benefit bill almost doubled – not in the 10 years that the coalition is now using as justification for its cuts - but in a mere five years.

John Moore, the new secretary of state for health and social security in 1987, believed he knew what the problem was. Much as Iain Duncan Smith argues 25 years later, he thought it was a ‘culture of dependency’. Claimants had to be moved from ‘dependence to independence’ and ‘help targeted where need is greatest’. The problem, then as now, was that a combination of his own government’s housing, economic and labour market policies meant that more and more people became reliant on the state to pay their rent. The rising housing benefit bill was the result of deliberate choices by the government.

The answer, then as now, was seen to be benefit reform. However, as IDS is discovering 25 years later, that is easier said than done. When a limited form of housing benefit was introduced in 1983 the Times called it ‘the biggest administrative fiasco in the history of the welfare state’. It was introduced in a huge rush, with endless amendments to the computer system (sound familiar?) and with such a focus on reducing civil service jobs that the result was disaster.

According to Nicholas Timmins (whose Five Giants: A Biography of the Welfare State I am again using as a key source for this blog):

‘Across the country, dozens of council housing offices locked their doors early, took phones off the hook and locked long queues outside as they attempted to sort out backlogs which left claimants without rent and rate payments for weeks and in some cases for months. In places the police had to be called to quell disturbances. Evictions mounted. Private as well as public landlords were in despair.’

The full system of housing benefit as we know it today was agreed in 1985 and introduced in April 1988 accompanied by cuts of £650 million in funding. The results were again disastrous and again have contemporary resonance.  According to Timmins:

‘In the Autumn of 1987 the scale of what that meant became clear: close to six million losers from housing benefit alone, one million of whom would be losing the benefit entirely. Come April, MPs found themselves deluged with letters from those affected. People on incomes of as little as £100 a week found themselves £10 worse off.’

Two weeks after implementation, Moore was forced into a u-turn that restored £100 million of the cuts. However, another of his changes, the withdrawal of benefits from the under-18s in 1988 that triggered an explosion of youth homelessness, came back to haunt him. A year later he was sacked and replaced by Tony Newton.

If the contemporary parallels are not clear enough already, a few weeks before his death in March 2012, the now Lord Newton had some advice for current ministers in one of the final House of Lords debates on the bedroom tax:

‘I am slightly scarred by one bit of experience. As part of the social security reforms in which I played a modest part alongside my noble friend Lord Fowler in the mid-1980s, we proposed some fairly draconian changes in housing benefit, which were, to be blunt, forced on us by the Treasury… In my recollection, although I have not checked the books, the impact of those changes was such that the then Prime Minister ordered their reversal within a month because the flak simply could not be withstood. That is the risk the Government are running here, and I hope they will think about it very hard.’

By November 1990 the era of Margaret Thatcher was over. A few months later we had a new housing minister, Sir George Young, telling us that ‘housing benefit will take the strain’. It seemed unlikely even at the time. 

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