Silly? Naïve? Bonkers? Proposals by the RICS for managing house price inflation are getting about as warm a welcome in the property industry as the UN got at Conservative HQ.
Some of the reactions are just as self-interested too since an end to house price volatility would be good news for people who want to buy but very bad news for some of those queuing up to say the whole idea is crazy. While some critics point with good reason to the practical difficulties of implementing the idea, others seem personally offended by the very idea of putting a stop to the house price gravy train.
The proposal follows a wider-ranging report on housing in June by an independent commission set up by the RICS and chaired by incoming president Michael Newey, the chief executive of Broadland Housing Group. That concluded that: ‘High house prices, complemented with high levels of housing unaffordability, are the greatest signs of market failure.’.
The proposal is that house price inflation of 5 per cent should trigger action by the Bank of England, which currently has no explicit policy on asset prices and house prices to go with its target on inflation. Rather than increase interest rates, it should use macroprudential tools such as caps on the term of a mortgage, loan to value or loan to income caps and changing banks’ capital requirements. These would act like ‘speed bumps’ for the market and also help prevent inflationary expectations.
This is not the first time that ideas like this have been put forward. A range of options were put forward in early drafts of the Mortgage Market Review before it was watered down. Mark Carney told MPs yesterday that the Bank would consider loan to value ratios and ‘more intensive supervision’ of the banks to rein in mortgage lending. And caps on the term of a mortgage were used in Canada when he ran the central bank there.
Ken Gibb has an excellent discussion of the policy options and difficulties on his blog, where he makes the case for going further with real house price stability, matching general price inflation over the longer term.
The RICS stresses that it is not wedded the 5 per cent limit but chose it to reflect 3 per cent average annual wage growth seen since 1998 plus a 2 per cent premium to reflect the impact of the shortage of new supply.
To give some idea of the potential gains from that I took a quick look at the Halifax house price index. The average UK house price was £72,000 in 1998. If it had risen by 5 per cent a year, it would now be around £142,000. Instead the average is now £167,000 and that is after a substantial correction following the credit crunch. Homes would still be expensive but still more within reach.
But my choice of the Halifax index and 1998 reveals some of the practical difficulties with the idea. A range of other indices and starting points could be used with very different results.
Above all, there is that UK average. What is the use of a 5 per cent national cap if prices are rising 10 per cent a year in London and standing still elsewhere? The RICS acknowledges that regional caps may be needed but there would be practical difficulties with them too.
On the implementation side, tackling house price inflation through action on mortgages would do nothing to deal with cash buyers or buyers from overseas, who account for sizeable proportions of the market. It would not necessarily do anything about buy to let, which is not financed through conventional mortgages. And the example of Canada may not be quite such a good one to cite given that its house prices seem even more over-valued than ours.
Those are formidable difficulties, as the RICS acknowledges, but does that mean it is not worth discussing the plan, as the critics imply? Those who argue that this would be interfering in the free market have to face the fact that it has not worked out so well so far, that it is currently operating in the entirely artificial conditions of 0.5 per cent base rates, and that the government is already interfering in the opposite direction through Funding for Lending and Help to Buy.
Those who argue that the whole idea is crazy when the real issue is supply have an obvious point that was covered in some detail in the first RICS report. However, as I argued on my other blog yesterday, there is no immediate prospect within the current housebuilding system of supply increasing to the levels needed. A report out today from London Councils argues that 809,000 new homes will be needed in the capital between now and 2021 to meet new demand and the backlog of housing need. On current projections we will only build 250,000. New supply is vital but concentrating on supply alone risks exacerbating the problems we already face. It has to make sense to look at demand too and to find ways to stop house prices escalating ever further out of reach, especially in London.
Finally, if you haven’t already, I urge you to brighten up your day by reading Jeremy Warner’s column on the RICS in the Telegraph. He makes the supply argument very powerfully and argues that ‘as silly suggestions go, they don’t come much sillier than the RICS’s proposed 5 per cent house price gap’. This being the Telegraph, he also has to have a go at planning minister Nick Boles for his latest ‘war on the countryside’ speech (this time an alleged all-out offensive on our national parks).
Then he brings the silliness full circle by quoting an exchange on twitter in which Boles claims that he only does it to wind up Simon Jenkins, the nimby-in-chief at the National Trust. Except for one thing: all along he had been speaking to the excellent (but not entirely genuine) @GeneralBoles.
Just when you were beginning to miss him, Grant Shapps is back with a bang and a complaint to the United Nations about that ‘woman from Brazil’.
The Conservative Party chairman brought an international twist to his old housing stomping ground in a Today programme interview that pitted him against Raquel Rolnik, the UN’s special rapporteur on adequate housing. Readers will need no reminding that in a preliminary statement following a two-week visit to the UK she is calling for the bedroom tax to be suspended immediately and fully re-evaluated.
Shapps described it as ‘an absolute disgrace’ and accused Rolnik of having an ‘agenda’. He went on:
‘It is completely wrong and an abuse of the process for somebody to come over, to fail to meet with government ministers, to fail to meet with the department responsible, to produce a press release two weeks after coming, even though the report is not due out until next spring, and even to fail to refer to the policy properly throughout the report. That is why I am writing to the secretary general today to ask for an apology and an investigation as to how this came about.’
Earlier, a DWP spokesperson had joined in the attack on the UN envoy with a statement that: ‘It is surprising to see these conclusions being drawn from anecdotal evidence and conversations after a handful of meetings, instead of actual hard research and data.’ Coming from the department headed by Iain ‘I believe I am right’ Duncan Smith that was quite a claim.
At a press conference this morning, Rolnik said it was ‘absolutely not true she had come with an agenda and that ‘this was an official visit – I was invited by the UK government and it was organized by the UK government’. It’s since emerged that Rolnik did meet Shapps’s former boss, communities secretary Eric Pickles, as well as officials from the DWP and three other UK government departments, the Welsh, Scottish and Northern Irish governments, plus numerous other government agencies, local authorities, housing associations and charities, lawyers and academics. For a flavour of some of the discussion, see Ken Gibb’s blog here and for more of the context see Grainia Long’s blog for Inside Housing here.
Rolnik’s full statement is a fascinating read that reveals the high opinion the rest of the world has about housing in the UK:
‘The United Kingdom has much to be proud of in the provision of affordable housing. It has had a history of ensuring that low-income households are not obliged to cope with insecure tenure and poor housing conditions, and can be well-housed. Some of the policies and practices that have played a role in providing social housing include the construction and further regeneration of a large social housing stock as well as a welfare system which covers housing as part of a social safety net. These can serve as an inspiration to other parts of the world.
She was assessing the UK’s performance under international human rights law and specifically the International Covenant on Economic, Cultural and Social Rights. The UK ratified this in 1976 and accepted obligations ‘to take steps to ensure and sustain the progressive realization of the right to adequate housing, making use of the maximum of its available resources’. In addition, governments cannot ‘move backward without offering a strict, evidence-based justification of the need to take such measures and without having weighted various alternatives’ and must protect the most vulnerable members of society. As such that would appear to make the inadequacies of Brazil’s record on housing cited by Shapps irrelevant in a UK or UN context.
In a statement covering a whole range of housing issues and government policies, Rolnik found ‘signs of retrogression in the enjoyment of the right to adequate housing’ and says ‘it is not clear that every effort has been made to protect the most vulnerable’.
She found ‘the so-called bedroom tax, or the spare bedroom under-occupancy penalty’ to be ‘especially worrisome’:
‘In only a few months of its implementation the serious impacts on very vulnerable people have already been felt and the fear of future impacts are a source of great stress and anxiety. Of the many testimonies I have heard, let me say that I have been deeply touched by persons with physical and mental disabilities who have felt targeted instead of protected; of the grandmothers who are carers of their children and grandchildren but are now feeling they are forced to move away from their life-long homes due to a spare bedroom or to run the risk of facing arrears; of the single parents who will not have space for their children when they come to visit; of the many people who are increasingly having to choose between food and paying the penalty. Those who are impacted by this policy were not necessarily the most vulnerable a few months ago, but they were on the margins, facing fragility and housing stress, with little extra income to respond to this situation and already barely coping with their expenses.’
None of that will be news to anyone with a passing knowledge of the issues but such a verdict from a UN official, let alone one from Brazil, was bound to be a red rag to the Conservative half of the coalition. As I understand it, the UN Covenant is not enforceable in UK law but her report will undoubtedly be drawn to the attention of judges considering bedroom tax cases and it will only add to Tory suspicion of anything that includes those pesky ‘human rights’
However, before Shapps seals the envelope on his letter of complaint to UN secretary general Ban Ki-Moon he might want to read Rolnik’s statement in full. She has two other recommendations apart from the one about suspending the bedroom tax.
First, ‘I would recommend that the government puts in place a system of regulation for the private rent sector, including clear criteria about affordability, access to information and security of tenure’. Which housing minister was it, I wonder, who rejected any idea of PRS regulation as ‘red tape’?
Second, ‘I would encourage a renewal of the government’s commitment to significantly increasing the social housing stock and a more balanced public funding for the stimulation of supply of social and affordable housing which responds to the needs.’ Shapps had already protested about his ‘170,000 affordable homes’ in the Today interview but it sounds very much like she was familiar with the nuances behind that number.
Housing and philanthropy seemed to go together naturally in the 19th century. Can they do it again in the 21st?
An interesting report out today from the Smith Institute, New Philanthropy Institute and Peabody Trust sets out to answer that question and in the process asks some more of its own about what the relationship should be between the state, housing providers and the private sector.
Peabody is of course one of the prime examples of Victorian philanthropy. American banker George Peabody donated a total of £500,000 (the equivalent of £40 million now) to ‘ameliorate the condition of the poor and needy’ in London. Thanks to careful management of its money, requiring a return of 3 per cent on its capital, it developed into an organisation with 20,000 properties housing 55,000 people.
Yet, as I blogged in celebration of Peabody’s 150th anniversary last year, that begs the question of why there are no equivalents today. Inequality is back to levels last seen in the 1920s and the super-rich grow ever more super and richer. So why is there no contemporary equivalent of Peabody or William Sutton or Octavia Hill? Why is there no Richard Branson Trust or Fred Goodwin Model Dwellings Society? The last major housing development funded by a philanthropist was Silver Edge, a model village in Essex founded by window magnate Francis Crittall – and that was in 1925.
The obvious answer – but not the only one - is that the state took over. The philanthropists were squeezed out as council housing took off in the 20th century. Things may be different now, with new provision dominated by housing associations as social businesses, but philanthropists are still reluctant to fund things they consider government’s responsibility. It’s certainly not hard to imagine a future government using any charitable windfall as an excuse to cut public grant still further.
New Philanthropy Capital also argues that funders are nervous to take on housing because they see the issue as too big and the cost of making a difference as prohibitively high. Homes and land simply cost too much.
From a housing point of view this is not necessarily a bad thing. Peter Malpass argues that Victorian philanthropy never succeeded in generating enough money to achieve decent standards at affordable rents. ‘The question asked in this pamphlet is: “Can we rebuild the relationship between philanthropy and affordable housing?” And my answer is “I sincerely hope not”!’ writes Lord Best, chair of Hanover Housing. He argues that housing traded the old relationship for one with the state. That had its downsides but ‘it has led to a massive increase in the size and importance of non-profit housing providers’.
However, he says philanthropy can still have a role, perhaps in funding new, smaller specialist or co-operative housing bodies or in ‘mission-related investment’ in particular projects.
David Orr of the National Housing Federation argues that housing associations have transformed the philanthropy of the past into a new kind of ‘entrepreneurial philanthropy’ with commercial activities supporting their core social purpose. However, he still sees space for philanthropists in backing supported housing and perhaps in donating land and room for new approaches such as crowdfunding and social impact bonds and for philanthropy targeted at schemes where it can have the most impact.
Examples such as the Real Lettings Property Fund, set up by homelessness charity Broadway with funding from many different foundations, and Golden Lane Housing, set up by Mencap with the first retail bond issued by a national charity, show what can be achieved through social investment.
Meanwhile five charitable investors find the Community Land Trust pilot fund operated by the Charities Aid Foundation’s Venturesome fund. The idea is to support the CLT model by providing access to finance, building 150 affordable homes in the process and demonstrating to commercial funds that the idea can work.
So if we seem unlikely to return to the days of the Victorian philanthropists any time soon (or hope that we’re not) there still seems plenty of room for new relationships between philanthropy and housing to develop. The report argues that the NHF and and New Philanthropy Capital could work on a memorandum of understanding and an organising framework for a new partnership between housing and philanthropy.
But you don’t have to go back nearly as far as George Peabody to find examples of what can happen with a little money and determination. This year sees the 50th anniversary of two organisations that started out with one house apiece and grew into two of our biggest housing associations: London & Quadrant and Notting Hill Housing. For good measure, Rev Bruce Kenrick, who is said to have started Notting Hill with a soiled 10s (50p) note, went on to found Shelter three years later. Not philanthropy in its traditional Victorian sense, perhaps, but examples of people getting togther to solve problems in the spirit of their times.
Yes to Homes is a campaign message that seems to be gaining support but it also begs some obvious questions about what comes next.
As David Orr explained on his blog, the National Housing Federation wanted last week to be a grassroots campaign to mobilise local support and sees it as ‘an opportunity to turn up the volume and ensure our politicians hear the clamour’. The simple message to local councillors of all parties is that ‘your vote and their seats depend on them saying Yes to Homes’, which has to be a good move given that the voices of objectors to new housing are too often the only ones they hear.
At a national level the signs are promising too. Planning minister Nick Boles, shadow housing minister Jack Dromey and Lib Dem president Tim Farron all said Yes to Homes on behalf of their parties in blogs for the campaign website.
That is perhaps reflecting housing’s new importance in the opinion polls. Ben Marshall of Ipsos MORI writes in a guest post for Shelter’s policy blog that housing is now rated as an important issue by 14 per cent of voters. That may not sound like much but that is the highest rating since 2008 and it puts housing only just behind education and law and order and ahead of pensions and benefits and inflation and prices.
Meanwhile the case for housing supply is being backed not just by the usual suspects in the left and centre but also by a range of different groups on the right. In just the latest example, the Adam Smith Institute, the free market thinktank, attacked Help to Buy as a demand-side intervention in a supply-side problem. So far, so good but the question is what comes next. As I blogged last month, Eric Pickles and other ministers are very quick to choose the most flattering statistics on the supply of new homes while conveniently ignoring the fact that completions are still down on a year ago and even on the total when the coalition took power.
Recent results and trading statements by major housebuilders do suggest that they are at last increasing production rather than simply rebuilding their profit margins. The Home Builders Federation unsurprisingly takes a much rosier view of Help to Buy and promised housing minister Mark Prisk last week that ‘we will build more’.
However, we are still only building half the homes we need and, as the DCLG acknowledges, even if housebuilders increase their output by 4.5 per cent a year it will take until 2022 to get back to 2007 levels. Given past history that is an optimistic assumption and in the meantime we will have fallen another 500,000 homes behind the level needed to meet demand.
In that context Yes to Homes has to be about investment as well as planning. As David Orr says in his blog, the transport lobby has been far more successful than housing in making its case: ‘Politicians pay attention to what their electors say – and they don’t hear enough of us telling them they have to say yes to building more homes.’
And that in turn begs the question of what kind of homes we are saying yes to. If you read their Yes to Homes blogs carefully it becomes clear that the three party representatives answer that question in completely different ways.
For Nick Boles, it is all about freeing up the planning system and extending the home owning democracy. ‘The desire to provide a secure home for yourself and your family is one of the most fundamental human urges,’ he says. ‘People love their homes, take pride in them, invest in them. If you know that you are likely to stay in your home for some time, you are more likely to meet your neighbours, support local community groups and get involved in local schools.’ Not much room for that kind of involvement if you have an insecure private let or one of the coalition’s new fixed-term social tenancies.
For Jack Dromey ‘putting housing centre stage’ is about building more homes and creating a secure and affordable private rented sector. And he repeats a line quoted by shadow Treasury ministers Ed Balls and Rachel Reeves last week: if the £10 billion boost to infrastructure recommended by the IMF was invested in housing, the government could build 400,000 affordable homes.
For Tim Farron, ‘the housing debate isn’t about buildings, it’s about people’ and ‘too much emphasis is put on the concept that building affordable homes is like a mathematical formula dictated by central government, when it shouldn’t be’. There are things national government can do, such as a plan to build 25,000 new council houses, but the housing crisis has to be tackled locally with councillors working with local people.
Those three very different ways of saying ‘Yes to Homes’ confirm the obvious point that the next stage in the campaign could be rather more difficult. As Ben Marshall points out:
‘The challenge remains to frame and articulate housing as the kind of mass issue that gets high profile coverage in an election campaign. This is likely to involve engaging the electorally more powerful owner and mortgagee groups (as well as mobilising renters) and using a local slant in the style of “Bank of Mum and Dad” and “Yes to Homes”. Housing’s stock does appear to be on the rise. Current political, media and public interest is an opportunity and something to build on, and it will be interesting to see what is made of housing at the upcoming party conferences.’
However, as we gear up for the conference season starting with the Lib Dems next week, perhaps the most significant thing in the three blogs is the way that Boles makes a party political case for more homes:
‘The Conservative Party wins elections when it backs people’s ambitions to create a good life for themselves and their families. It loses them when it defends the privileges of a comfortable elite. As the next election approaches, David Cameron is clear that the Conservative Party should be saying Yes to Homes.’
Considering that ‘comfortable elite’ include many Conservative voters, that really is quite a statement even if more nimby-friendly voices within the party balance out Boles. There is still a long way to go but it is clearly no longer enough for politicians to say ‘next question’ when asked to say ‘Yes to Homes’.
Take your pick of today’s official criticisms of the universal credit. It was over-ambitious and high risk, it had no clear plan and it has offered poor value for money.
Has the National Audit Office (NA0) ever delivered a more damning verdict on a key government policy than the one it has just published?
Think of just about every rumour you’ve heard about the IT system, every assumption about the chaos behind the scenes and every time you reacted sceptically to DWP assurances that the latest changes to the timetable were all part of the original plan, and you will find them all in the report published today.
What you won’t find is anything on the issues of most pressing concern to housing organisations such as the introduction of direct payment to tenants and the measures the DWP is introducing to minimise the impact on landlords’ finances. But that’s only because there are so many problems with the underlying systems that it’s still unclear when that will happen on any significant scale.
Based on this report, further delays look inevitable despite those familiar assurances from the DWP that it is committed to delivering on time and on budget. The universal credit is still adjusting to the ‘reset’ insisted on by the Cabinet Office between February and May and Howard Shiplee, the fifth ‘senior responsible owner’ in charge of the project in a year, completes his 100-day planning period at the end of this month. The DWP will not have approval for further spending until after November, when it asks the Treasury to approve a new business case.
According to the original plan the new system was meant to be introduced for all new out-of-work claims from October. They would be followed by all new in-work claims from April 2014 and all migrating benefit claims by October 2017. Instead next month will merely see another six pathfinder sites added to the four already running on a very limited basis handling the simplest claims.
The NAO says ‘it is likely that universal credit will not be able to take all new claims and provide the full planned service until at least December 2014’. The reset team considered scenarios including ‘complete migration later than October 2017’ and the senior responsible owner is currently ‘looking at different options for timing of full roll-out’. The NAO comments that ‘to keep to the 2017 completion date, the department would have to migrate a large volume of claimants within a short time frame’, which hardly sounds like a vote of confidence.
Many of the problems go back right to the start of the project when the DWP adopted that ambitious timetable. The NAO says that: ‘The department was unable to explain to us how it originally decided on October 2013 or how it evaluated the feasibility of roll-out by this basis. The ambitious timetable created pressure on the department to act quickly and meant that it needed to manage progress tightly.’
It does not comment further but one clue is that the traditional ‘Waterfall’ approach to programme management, where IT projects are developed in sequential steps, would have been much slower and only allowed roll-out in April 2015. Is it too much to imagine that a month before the general election was seen as bad timing?
The DWP instead used a different approach where processes and systems are developed at the same time as defining policy requirements. This ‘Agile’ approach seems to be a perfectly respectable way of running IT projects but the DWP was unfamiliar with the methodology and no government project of this size had used it before.
By January 2012 the DWP was introducing Agile 2.0 in an attempt to integrate the two approaches. The result seems to be a complete mess where short-term systems were developed separately and with limited functionality for the pathfinders and the DWP ‘does not yet know the extent to which its new IT systems will support national roll-out’.
The current system cannot identify potentially fraudulent claims and without that in place the department will be unable to deliver the savings it promised. Under the pathfinder system, claimants cannot register changes in circumstances online and the work has to be done manually instead, adding to costs.
In May, the DWP identified a need to write off £34 million (17 per cent) of its new IT assets but the waste could go much further than that. The reports also says that the DWP currently estimates that its IT assets are worth just 53 per cent (£162 million) of the £303 million it has invested in universal credit systems so far and remedial work could increase the budget still further.
The reset team recommended that the DWP should replace ‘digital by default’, a key principle of the universal credit, with ‘digital as appropriate’. This is something the DWP consistently denied at the time but the NAO says it is now reviewing which activities should be conducted online.
Things might have been better with adequate management systems in place. Instead the opposite happened, right down to invoices being paid without checks on whether the services had been delivered. The report says that:
‘Given the tight timetable, unfamiliar programme management approach and lack of a detailed operating model, it was critical that the department should have good progress information and effective controls. In practice the department did not have any adequate measures of progress.’
The NAO identifies weaknesses including:
- Lack of transparency and challenge. There was a ‘fortress mentality’ in the programme team and a ‘good news’ reporting culture that ‘limited open discussion of risks’. (This is a criticism that might just as easily be made of the whole DWP and its repeated claims that everything is on track.)
- Inadequate financial control including poorly managed and documented financial governance and insufficient review of contractor performance before making payment.
- Ineffective departmental oversight. The DWP never had a detailed plan or management information and so could never measure progress effectively.
- Failure to address recommendations from assurance reviews.
The report concludes that ‘at this early stage of the universal credit programme the department has not achieved value for money’. It is still possible that it may achieve its aims with ‘considerable benefits for society’ but ‘to do so the department will need to learn from its early mistakes’.
The NAO says the DWP must produce a realistic plan with clear programme objectives linked to policy design and service requirements. It should use a management approach that allows policy experts, operational teams and systems developers to work together. And it should establish effective governance processes and structure and tighten financial management.
All of which sound like fairly basic things that should have been in place right from the beginning rather than be recommended a month before the original roll-out date.
Much now depends on Howard Shiplee, the former construction director of the 2012 Olympics who was brought in to lead the project at the end of March. In a piece for the Telegraph on Monday he candidly admitted the ‘missteps’ and ‘bad luck’ that have dogged progress so far. If he can put things right he will deserve a medal all to himself.
However, the points raised by the NAO are all to do with the implementation of the universal credit rather than how it will operate once it is up and running. I’ve blogged before many times about the serious concerns raised in many different quarters about what happens once it is up and running. These cover not just the implications of digital by default and direct payment but monthly payment and payment to a single member of the household and the awful precedent of the chaos that followed major administrative changes to housing benefit in the 1980s.
All of that is yet to come.
Shared ownership seems an obvious solution to the housing problems of people on low and middle incomes – so why does it remain on the margins?
A report out this week from Shelter looks at perceptions of and problems with the part rent-part buy tenure and ways that it could be reformed to take it into the mainstream.
In the process, it makes a pretty convincing case that the piecemeal, alphabet soup of government ownership schemes has done little to make housing more affordable for the squeezed middle and more to create confusion about the options available. In particular, it shows how shared ownership could make more homes in more places more affordable for more people than either version of Help to Buy. The report finds that almost eight out of 10 low to middle income families could not afford a family home with a 95 per cent Help to Buy mortgage.
So what are the problems with shared ownership? According to Shelter, one is scale: there are now 174,000 shared owners in England, just 0.8 per cent of all households, and not many of them have moved up to full ownership. And every time the government creates a new scheme, the eligibility rules change, creating confusion for prospective buyers and extra work for lenders.
Another is the way the market works. Buying and selling a shared ownership home is much more complicated, and finding information and getting a mortgage can be harder, than for conventional ownership.
A third is that because shared ownership focuses on new build it brings with it many of the same problems: the 10 per cent new build premium means you get less for your money and you can quickly go into negative equity; and new build economics can put a squeeze on space.
The report argues that the housing options for low to middle income families will not improve on their own and that the market will not fix itself. Unless the government acts, more and more of them will be forced into insecure private rented accommodation. Instead:
‘A bigger, better shared ownership market could provide these families with the balance of affordability, flexibility and stability that they need in their home. But it cannot be done by halves. A functional middle market needs scale to work like a proper market and move from being a rationed, niche part of housing in England. Shared ownership needs a bold, long-term commitment from policy-markets to make this happen.’
The scale could come from the case made by business secretary Vince Cable for one per cent of GDP to be spent on direct capital investment in house building. A £12 billion budget would be enough for 600,000 homes at £20,000 per home, a grant rate that Shelter argues would give providers the flexibility to offer lower initial shares for sale (as low as 12 per cent).
Much of the confusion could be swept away by having one scheme with clear eligibility rules and a buying and selling process that emulates the mainstream market more closely. Increasing the size of the sector could enable homes to be sold back into a larger secondary market that is less restricted than the current one.
Problems with new build could be tackled by making criteria for setting headline values and a requirement to meet sensible space standards a condition of getting grant.
The report has much to commend it but, as the title (Towards a mainstream shared ownership market) implies, it is just a beginning.
Media reports like this of shared owners’ problems with rising rents, repair bills and service charges and complaints about inflexible contract terms suggest that providers have some way to go with improving the consumer experience. Are those issues that can be ironed out or do they suggest a more fundamental problem?
The legal position of shared owners is another major concern. Do they have the best or the worst of both worlds? In particular, if the provider takes out a possession action for rent arrears, what happens to the tenant/owner’s share in the property? In the best (only?) known case so far (Richardson v Midland Heart), the tenant/owner faced losing all of her original capital outlay of almost £30,000 over £3,000 of rent arrears incurred when she fled her home in fear of violence and her rent was no longer covered by housing benefit. It was apparently only because the housing association offered an ex gratia payment that she got anything back – and even then nowhere near her capital stake in the property at the time. The message to shared owners seems to be that they risk losing everything if they fall into rent arrears but some of the details remain unclear and the case does not seem to have gone to appeal. Clarification of the legal position is surely needed before a major programme of investment. See here and here for more on the case.
A report last year by the Cambridge Centre for Housing and Planning Research for Thames Valley Housing Association and the NHF highlighted problems with the secondhand market for shared ownership homes. It called for action to improve mobility, encourage staircasing and improve the sales process.
And then there is the money. Despite that quote from Vince Cable, the case for massive investment will seem unconvincing to a Treasury that has found £15.5 billion for Help to Buy equity loans and mortgage guarantees without it counting as public borrowing. The investment that is being made by the coalition is going into Affordable Rent at a similar £20,000 per home grant rate.
Finally, even if a future Treasury accepted the case for investment, would it be at a scale big enough to change the market given the desperate need for homes to rent for people on even lower incomes? As the report accepts, both are needed.
But the alternative is to continue with piecemeal ownership schemes that fail to address the housing shortage or improve the options for people on low to middle incomes. The report offers a big housing idea that could have wide political appeal and appears to go with the grain of the housing aspirations of people on low and middle incomes. Staircasing receipts offer a future income stream to providers. And for those politicians prepared to look beyond the next election the report has a long-term warning about the costs of doing nothing and letting the private rented sector (or Affordable Rent) take even more of the strain.
As I’ve blogged before, the implication of falling ownership and rising private renting is a burgeoning housing benefit bill once renters reach retirement. The report estimates that if just half of today’s Generation Rent never buy a home the housing benefit bill for them alone will be £16 billion a year. Shared ownership could halve rents – and that bill - in retirement and be a key way of shifting subsidy back from benefits to bricks and mortar.
Finally I’ve found somebody who thinks that Help to Buy 2 is a good idea: the private equity owners of Foxtons.
I’m obviously exaggerating for effect here (I was just reminded of Simon Jenkins too for starters) but the London estate agent is famous for three things: its flashy sponsored Mini Coopers; the pushiness of its staff; and the timing of its sale in 2007. The founder of the company sold out to private equity firm BC Partners for £360 million just months before house prices and transactions crashed.
After a rare apology from BC Partners to its investors, and a rocky road to recovery, Foxtons is set to return to the stock market next month with a valuation of up to £500 million. That spectacular turnaround may have a bit to do with some canny financial engineering but, as the Financial Times reports this morning, it has far more to do with the fact that its timing could hardly be better.
London house prices are up 8 per cent in the last year and significantly above their peak. And, as the FT comments:
‘Moreover, the government has introduced a multitude of stimulus measures to underpin a housing market recovery. In doing so, it has reignited investor appetite for the span of businesses with exposure to property. Foxtons’ IPO follows that of rival estate agent Countrywide and housebuilder Crest Nicholson – both of which were over subscribed.’
But what is good news for those firms and their investors in particular and for estate agents and housebuilders in general offers more mixed prospects for the people that are supposedly being helped to buy.
A survey out today from the Intermediary Mortgage Lenders Association (IMLA) finds that lenders and brokers think first-time buyers will be the biggest beneficiaries of Help to Buy but that artificially inflated house prices are the biggest threats to its success.
Lenders already expect a 2.7 per cent increase this year and if that rate was maintained for the duration of Help to Buy, house prices would rise 11 per cent to pass their 2007 peak by the end of 2016.
That is a national average of course and first-time buyers in Foxtons’ London heartlands have seen that happen already. However, it could be just the beginning: lenders are worried that the launch of Help to Buy 2 (mortgage guarantees) in January 2014 could send prices even higher.
As Peter Williams, executive director of IMLA points out: ‘There is a clear consensus that first-time buyers stand to benefit most from the second part of Help to Buy. But if house prices continue to rise for the duration of the scheme, then in essence we will be giving with one hand and taking away with the other.’
Help to Buy 2 is available to everyone, not just first-time buyers, and is designed to boost mortgage lending at higher loan to values. In the example quoted in the Treasury’s scheme outline, it would enable someone to buy a £100,000 home with a deposit of £5,000 or 5 per cent. The guarantee bridges the gap between that and the 20 per cent deposit that lenders have typically demanded since the credit crunch.
Lots of the detail remains to be settled in the next few months ahead of the launch. However, the IMLA survey points to the danger that rising house prices will simply wipe out the value of the guarantee and make that deposit harder to save. At best that will benefit some first-timers while leaving others no better off than before; at worst it will trigger a bust to go with the boom that will hurt all of them.
And in the meantime they will be able to look at the homes priced out of their reach in the window of one of 50 new branches owned by Foxtons.
You know the formula by now: take a provocative premise, add three claimants selected to provoke different reactions, stir in the reaction on Twitter, then stand back and watch the viewing figures mount up.
As with How to Get a Council House, Benefits Britain 1949 suffers from all the faults that are seemingly hard-wired into Channel 4 reality shows. The opening episodes showed them both at their worst (see me on How to Get a Council House and Frances Ryan on Benefits Britain 1949) but with time they evolved into something that went beyond the format and the premise.
I’ve just caught up with the second episode of Benefits Britain 1949 and if you haven’t seen it I recommend a viewing in conjunction with the third and final episode of How to Get a Council Housebecause they neatly bookend the whole debate about social housing and its place in the welfare state.
I use the term ‘welfare state’ advisedly for two reasons: first, its supposed inventor William Beveridge hated the term because of its ‘Santa Claus state’ connotations; second, it seems that whenever TV (here or by John Humphrys) uses the term it comes complete with the baggage of ‘scrounger’ connotations. The language used matters.
The premise of Benefits Britain 1949 is that present day claimants agree to live under the rules that were applied 64 years ago, The results (and especially the benefit levels uprated for inflation) usually come as a shock.
I’m not sure how accurate the results are and would be interested to see the calculations behind the uprating and some of the more questionable assertions such as ‘housing single mothers costs £4 billion a year’. However, I think I spotted two or maybe three definite mistakes in the programme: first, I’d be surprised if there were many integrated ‘labour and welfare’ offices in 1949; second, even if there were they would have said ‘social security’ not ‘welfare’; and third they would definitely not have covered housing allocations made by local councils. Making ‘housing’ part of ‘welfare’ may seem like TV shorthand but it reveals some dangerous underlying assumptions.
That said, the programme revealed some fascinating insights into the post-war system and some about the 2013 version too. As I’ve blogged before, the comprehensive system of social insurance devised by Beveridge and implemented with some changes by the Labour government had many virtues but some blindspots too. It struggled to cope with the needs of married women, single parents and the civilian disabled and never came to grips with how to pay for housing costs. Most importantly, Beveridge assumed that there would be full employment and council housing for all.
That was all too apparent in the treatment of Nichola, a single parent with two young children who was top of the priority list in 2013 but as an unmarried mother was not entitled to anything except discretionary or charitable assistance in 1949. Or Matson, a political refugee from Zimbabwe, was only entitled to minimal help in 1949 and was turned away by the racist landlord of a hostel, but then found happiness through work.
But there was more surprising news for Matt and Heidi and their kids. On the surface they seemed handpicked to play the undeserving claimants: he hadn’t worked for six years and their house and garden were a tip. In the Britain of 1949 that prompted a visit from the ‘rehabilitation officer’ to teach them how to keep their home clean and tidy and avoid losing their tenancy.
These are the kind of stories recalling a more moral and self-reliant welfare state that have prompted approving reviews in papers like the Telegraph because they offer implicit support for Iain Duncan Smith’s reforms. However, poverty and need are never quite so simple or straightforward, and neither are benefit systems designed to alleviate it. Paternalism has its upsides and its downsides and the programme showed both.
That was demonstrated most clearly in the story of Nichola. In 1949, she would have received temporary assistance or perhaps been sent to a hostel for unmarried mothers but she would have faced a real risk of having her children taken into care because she could not house them. The key moment in the programme came when the former benefits officer applying the rules from 1949, Anne Townsend, grudgingly revealed that where there was a genuine bond between mother and children, she could use her discretion to find charitable help. As she left, her austere mask slipped and she started crying. It turned out that her own mother had experienced many of the same problems. By the end of the programme, it turned out that 1949 had one advantage over 2013 for Nichola: wartime assistance with childcare costs was still in operation then and she could afford to work.
Nichola’s story had real echoes for me of the experience of the family at the centre of Ken Loach’s iconic Cathy Come Home. That starts when Reg is injured and loses his job, and he and Cathy are evicted from their home. Let down by an inadequate system of discretionary help, they face up to a life of poverty and homelessness and after living in a succession of hostels, squats and empty houses, their children are taken into care. The outcry that prompted and the campaigning of Shelter led eventually to the landmark legislation of 1977 that gave local authorities an obligation to house homeless families.
The final episode of How to Get a Council House looked on what happens to homeless families now, focusing on Tower Hamlets. An uninformed viewer would have come away puzzled at the title of the programme since it became clear that it should really have been called How to Get a Private Rented Flat at an Extortionate Rent (If You’re Lucky). What had changed since 1949 is not just the shift from mass council housing to the dire shortage revealed in the first episode but also the coalition’s changes to allow the discharge of the homelessness duty into the private rented sector.
The programme had the usual Channel 4 mix of ‘deserving’ (woman fleeing domestic violence), heartbreaking (father caring for son with spina bifida) and ‘undeserving’ (alcoholic who broke the hostel rules) cases. As with previous episodes, it showed housing staff doing a professional job against the odds.
I still have severe reservations about the way that complex issues are given the Channel 4 treatment and, as Abigail Scott-Paul of the Joseph Rowntree Foundation points out, that is part of a much wider debate about ‘poverty porn’ on television. The obvious danger is that programmes like this merely reinforce the media and political message about strivers and scroungers.
But both programmes told another story if you were watching closely enough. The most telling moment in that final episode of How to Get a Council House came when the homelessness officer rang a local private landlord to secure temporary accommodation and was turned down despite offering a fee of more than £2,000 on top of the rent.
That said it all to me (and I hope others) about the true beneficiaries of Benefits Britain 2013.
Plans to ‘end rabbit hutch homes’ made all the headlines but the government’s consultation on new housing standards is about much more – and maybe not even that.
The housing standards review was launched in the wake of the government’s housing and construction red tape challenge, which itself was part of a wider drive to eliminate over-regulation in the economy.
Don Foster duly hailed the results published this week as ‘cutting red tape to help build more affordable homes’. Rules on safety and accessibility would not be changed but the number of housing standards that councils are allowed to apply locally would be reduced from more than 100 to fewer than 10.
Nothing wrong with that, you might think. A patchwork of different requirements in different local areas increases design and construction costs for house builders and that means new homes cost more. Instead the Building Regulations will be backed by nationally agreed standards on issues such as security and accessibility.
If that steam rolls its way through the localist principles that supposedly unite the Conservatives and Liberal Democrats, so be it. After all, the coalition did pretty much the same thing on planning with the national planning policy framework for councils that fail to agree a local plan.
But look a little deeper beneath the surface of the documents published this week and it becomes clear that the issues involved in ‘cutting red tape’ and ‘taking off the bureaucratic handbrake’ are highly complex.
First, as the consultation document acknowledges, the costs and benefits are about far more than just the construction cost of a new home. Any consideration of the standards of new homes has to balance a range of different policy considerations for society as a whole against that headline calculation. Sometimes requirements can vary between regions for good reasons and imposing a national standard can lead to increased costs in some areas.
Second, much of the patchwork of local standards that the coalition now wants to scrap is the direct result of its own actions. According to the consultation: ‘One key driver for the increasing adoption of space standards is the NPPF which requires that local authorities have due regard to the nature of housing development in relation to current and future demand.’
Meanwhile the adoption of higher minimum space standards for affordable housing in London than elsewhere followed the decision to hand the Homes and Communities Agency’s London operations over to the Greater London Authority in 2011.
Third, ‘red tape’ is very much in the eye of the beholder. The consultation that is supposedly reducing it actually proposes a new requirement on developers to provide waste storage for new homes to avoid bins dominating street frontages (reducing ‘bin blight’ is an obsession of Conservative communities secretary Eric Pickles) and raises the possibility of new national space standards (supposedly a victory for the Lib Dem half of the coalition). As ‘red’ tape is swept away, blue and yellow tape seems to be taking its place.
Fourth, those plans to ‘end rabbit hutch houses’ (presumably because ‘hobbit homes’ are Boris Johnson™) are not at all that they appear to be. The section of the consultation paper on space states that the main purpose is to look at the issues in principle and ‘as a result, government does not have a preferred approach on space standards at this time’. However, six pages later the document states that:
‘The government’s preferred approach would be for market led, voluntary mechanisms such as space labelling, in order to meet consumer needs rather than mandatory application of space standards.’
Space labelling is a scheme put forward by house builders to allow consumers to compare different properties more easily but clearly it could work as an alternative or an adjunct to space standards. My guess is that the confusion could be down to the fact that the Conservatives support the house builders but the Lib Dems are refusing to give up on space standards. As the consultation points out: ‘The degree to which space standards should be developed or mandated is hotly contested and views for and against are very polarised.’
The impact assessment sheds further murky light on the space proposals. It does not include space standard impacts ‘because there is no firm proposal at this stage for a specific space element in the proposed nationally described housing standard and the evidence base on the costs and benefits of different standards is still at an early stage’. A preliminary analysis is tacked on to the end of the main statement. Space standards will be the subject of a huge battle over the next few months but supporters will have to overcome the presumption against them in the consultation.
Fifth, the consultation and impact assessment confirm moves to water down previous commitments on the sustainability and energy efficiency of new homes while still using the same terminology. The code for sustainable homes, which was set up to blaze a trail ahead of minimum standards laid down in the Building Regulations is seen as responsible for ‘a proliferation of local design standard requirements’ that have added to costs. It will now be phased out and the impact assessment states that ‘code levels 4, 5 and 6 do not now fit in with, or represent the government’s definition of zero carbon’. The Planning and Energy Act 2008, which allows local authorities to set requirements for on-site renewables, ‘may need to be amended or removed’.
The UK Green Building Council, founded by industry and environmental groups, argues that the proposals ‘fail to provide a vision for sustainable homes’ and exclude key sustainability requirements such as responsible sourcing of materials and ecology. Chief executive Paul King said these omissions plus the demise of the code risk ‘losing a momentum that has transformed the way homes have been built over the last seven years. The government claims its plans will take off the bureaucratic handbrake that holds back housebuilding, but it is in danger of letting key sustainability requirements roll away completely.’
Just as well then that my final point is that the environmental impact will not be as great as it seemed it would be when the UK-GBC was founded in 2007 and output of new homes was around 180,000. Completions are of course currently running at around 110,000 or half the level needed to achieve 250,000 net additions to the stock per year. The impact assessment includes an estimate of housing growth over the next 10 years. Under the (optimistic?) midpoint estimate of 4.5 per cent growth a year it will take until 2022 to get back to 2007 levels.
Communities and Local Government department ministers claim that policies to boost house building such as the elimination of ‘red tape’ proposed in this consultation are working. Their own civil servants estimate that England will fall at least another 500,000 homes behind the level needed to meet demand over the next 10 years.
For all the rhetoric from ministers, house building in England is still running at half the level needed to meet demand.
Earlier this week communities secretary Eric Pickles boasted that house building and new supply were ‘on the up’ and that the government had delivered ‘almost a third of a million additional homes in the last two years’.
He quoted National House Building Council registrations, gross affordable housing supply, net additional dwellings and the number of new homes bonus awards to justify that claim. Every housing statistic you can shake a stick at in other words with just one small exception: the house building figures produced by his own department.
A quick look at the second quarter figures published by the Communities and Local Government department this morning shows that was probably a wise choice. The apparent good news is that starts are up 6 per cent and completions 9 per cent on the previous quarter but that comparison is subject to all kinds of distortions caused by the cold winter disrupting production.
The better news is that the 29,510 starts between April and June is up by a third on the same quarter of 2012. However, that could also be distorted by last year’s extra Jubilee bank holiday and the run-up to the Olympics. And before Mr Pickles boasts about that too much, he might want to look at the total for the April to June 2010 quarter when his government took office: 30,350.
The bad news is that, after a very disappointing January to March quarter, the 27,270 completions between April and June were down both on a year ago and on the quarterly total when the coalition took office.
In the last 12 months there have been a total of 110,000 starts and 107,000 completions. While both have at least limped above 100,000, and starts indicate a modest recovery in the pipeline, they are basically flatlining. For a more detailed look at the numbers, see this post by Brian Green on Brickonomics.
Readers may remember that Grant Shapps became housing minister in 2010 promising to make us ‘a nation of home builders’ and with a ‘gold standard’ of building more homes than Labour. Given that Labour had presided over the lowest annual total of house building in peacetime since the early 1920s it sounded like it should be achievable.
The claim by Mr Pickles of a third of a million homes in two years that I quoted earlier was based on homes qualifying for the new homes bonus. In a report earlier this year, the National Audit Office said that the CLG’s estimate of the increase in house building as a result of the bonus was ‘unreliable’ and based on ‘unrealistic’ assumptions.
The CLG house building statistics show that in the first three years of the coalition there have been 333,000 completions compared to 416,000 in Labour’s last three years. To match the 750,000 completions seen under Labour in the five years between 2005 and 2010, the coalition now needs more than 200,000 completions a year in its last two years, almost double what it has managed so far.
If that sounds completely implausible, the sobering thing is to realise is that this was about the level needed to get to the 240,000 additions a year to the stock target set by Labour in 2007. It hoped for 3 million new homes by 2016 but the recession and falling construction rates mean we could miss that by up to a million.
The target was in turn based on analysis by Kate Barker in a report for the Treasury in 2004 of the level of new supply needed to keep house price inflation under some level of control. As the government stokes up demand through funding for lending and help to buy, we are still falling further and further behind what we need on supply and, as I blogged on Tuesday, prices are on the rise once again.
As the evidence for a housing market recovery mounts by the day, so is the impression that an old-fashioned dose of house price inflation is now seen as a very good thing by the government.
In a survey out this morning, members of the Royal Institution of Chartered Surveyors report that activity is rising around the country and prices are up for the fourth month in a row. Yesterday, the Council of Mortgage Lenders reported that the number of loans to first-time buyers was up 30 per cent on a year ago to its highest level since the credit crunch in 2007. On Friday, CML said buy to let lending topped £5.1 billion in the second quarter of the year, the highest since 2008.
Also, the Communities and Local Government department published figures showing that 10,000 people have registered for a help to buy equity loan in the last four months. Whether by coincidence or design, that was neatly calculated to capitalise on a housing market feel-good factor that was sent into overdrive by last week’s forward guidance from Bank of England governor Mark Carney that interest rates will stay at a record low until unemployment falls below 7 per cent (widely interpreted as meaning until 2016 at least).
This does not yet amount to a new boom: transactions are still well down on the early 2000s and, according to the Halifax, prices rose 4.6 per cent in the year to July, significantly ahead of inflation but well short of the increases seen up to 2007. However, house price inflation is steadily gathering momentum and, as Sunday’s Observer showed, it is well into boom territory in parts of London.
However, all this is happening at a time when wages are falling in real terms and growth in the rest of the economy is weak at best. Can it really be only two and a half years ago that Grant Shapps, then housing minister but now Conservative Party chairman, argued that the government should use policy levers to ensure ‘house price stability’? In a ‘rational’ market, he said, prices would rise by 2 per cent while earnings rose by 4 per cent, so that they fell in real terms over time. He went on:
‘It would foolish to go as far as to say that you can simply end boom and bust but there are policies that can have an impact and they include things like housing supply, the way that mortgages operate and whether there are exterior policies such as the pension raid that can have an impact on where people invest their money.’
As I argued at the time, it was a spot-on analysis but it seemed wishful thinking even in 2011. Things look very different in 2013: the Bank of England’s funding for lending scheme is fuelling a surge in mortgage lending at lower rates while another 63,000 help to buy equity loans are still available.
In the CLG’s statement last night Eric Pickles valiantly attempted to make the case that the new confidence in the market is being matched by successful attempts to boost supply. That is important to defend the government against the accusation that it is merely boosting demand and therefore prices. However, to make that claim, `Mr Pickles has to use National House Building Council registrations rather than his own department’s house building stats and to argue that official stats on new affordable homes from the Homes and Communities Agency and Greater London Authority understate the true figure. Ministers are now using new homes bonus statistics to argue that almost 320,000 additional homes have been provided over the last two years. The press release does come complete with endorsements from the chief executives of Barratt, Persimmon and Taylor Wimpey, but that is not entirely surprising given that their companies are enjoying the benefits of yet more government subsidy with few strings attached.
However, all of this is relatively small beer by comparison with the January 2014 launch of £12 billion of help to buy mortgage guarantees (which are not restricted to new build homes) and with Mark Carney’s pledge on interest rates. As I argued last week, this amounts to official encouragement for a boom in buy to let and it also sends a strong message to anyone looking to buy that they had better do so as soon as possible before prices rise.
The government and the Bank of England still have options if they want to prevent another boom and eventual bust. They could cancel Help to Buy given that confidence has already returned to the market (one of the biggest increases in demand recorded by the RICS was in Wales, which does not yet have any form of help to buy) and that mortgage availability has already improved. As The Economist argues this week, the Bank could restrict funding for lending to loans to small businesses rather than mortgages. And Mr Carney’s low rates pledge did come with a caveat about threats to financial stability.
None of these looks very likely as things stand. The short-term feel-good factor of rising house prices and the boost to the economy from higher transactions ahead of the election look far too tempting to the politicians to worry about the long-term consequences. And Mr Carney, who left a house price boom behind him in Canada, seems surprisingly unconcerned about the dangers of another one here.
Channel 4’s ‘How to get a council house’ broke free of its dodgy title and format last night, butt the same cannot be said for the reaction on Twitter.
The second episode in the series was set in Manchester and followed tenants and staff of Northwards Housing as the bedroom tax loomed earlier this year (watch again here). It gave some real insights into the way the system works and the good job that housing officers do in very difficult circumstances.
As I blogged last week, I thought the first episode also did well at showing the impossible situation in Tower Hamlets, where just 40 properties a week become available as 60 new families join the 24,000 others on the waiting list. But I criticised the trivialising commentary and the lack of any context that might have explained why. Matthew Warburton of the Association of Retained Council Housing was much kinder in his blog here.
Last night, though, the positives far outweighed the negatives. True, the commentary still made my teeth grind with irritating comparisons between council rents and house prices. True, I still wondered whether some of the editing was designed to hit the Shameless stereotypes and stir up the reaction it got on Twitter (the same production company was responsible for Benefit Busters in 2009).
And while there was some attempt to explain the context of the bedroom tax, an uninformed viewer could still have come away with the impression that if the tenant on TV could successfully downsize then so could everyone else. In fact Northwards has 3,000 facing an under-occupation penalty and only 58 of them have moved to date. Another 207 have registered to move but three quarters of them need a scarce one-bed home.
But for all those criticisms, and the way that reality TV techniques like the commentary end up distorting reality, there was a real human story and a genuine documentary that did break through. Council housing and the ‘spare room subsidy’ look very different seen through the eyes of people in desperate need of it and with no choice but to pay it.
Above all, though, it was the professionalism of the housing staff involved that shone through. Where the star of Benefit Busters was the scrounger-haranguing Hayley Taylor, the star last night was Lisa Jenkinson, neighbourhood housing manager at Northwards.
I’m guessing she will have spoken for a lot of people dealing with welfare reform when she told a team meeting:
‘You’re always depressed. You’re no longer doing anything good. I mean you are doing good but you’re not doing good because every door you knock on you’re just giving them bad news. We’ve just met a family where he’s lost his job, benefits are all messed up, wife’s going to lose disability living allowance and now the bedroom tax. What else, what other bad news could I possibly think to give them?’
The last bit of the programme brought some better news for the downsizer I mentioned earlier. Alan, a tenant facing the bedroom tax on his two-bed flat in a tower block, was facing up to the prospect of having to abandon the tenancy and move back to the box room at his parents’ house. Finally, he got a call with the good news of a smaller place. His old flat went to a single male who will not face the bedroom tax because he is working. The spare room will still be spare.
And the final scene saw Lisa Jenkinson again expressing what must be the feelings of many people. ‘I find it quite a frustrating topic to talk about,’ she said. ‘To me personally it doesn’t make sense but we’re left to pick it up and deal with it. But at least someone who’s working’s got a flat… which is good.’
Fair play to the TV producers: that was a perfect ambivalent note on which to end the programme. It also strikes me that picking it up and dealing with it is unfortunately a pretty accurate description of what many people in housing do. The staff of Northwards Housing showed last night that it is a difficult, sometimes impossible, job that can still be done with professionalism and respect for tenants.
If only the same could be said for Twitter. If you do take a dip in the cesspool that is the hashtag #howtogetacouncilhouse make sure you have plenty of hot water and disinfectant handy. Yes, the title of the programme provokes that reaction, but it also reveals the scale of the ignorance and bigotry that is fuelling support for welfare reform and antipathy to ‘scroungers’. Those who believe everyone has a right to a decent home at an affordable price and that this cannot be left to the market alone have an uphill struggle on their hands.
Away from the TV cameras, the work continues, the unintended consequences of the bedroom tax continue to kick in and the housing crisis keeps getting worse. With How to get a council house and ITV’s Tonight earlier in the evening, at least housing has the media spotlight and the chance to get its message across.
Next week’s final episode focuses on the homelessness service in Tower Hamlets.
Mark Carney’s pledge on interest rates can only make buy to let look even more of a one-way bet for landlords and the banks who lent them a cool £5 billion in the second quarter of 2013.
Figures published by the Council of Mortgage Lenders a day after the Bank of England governor made his announcement show a new surge in loans. In the three months from April to June its members made 40,000 gross advances to buy to let landlords worth £5.1 billion. Both are the highest quarterly figures seen since 2008. The number of loans was up 19 per cent and their combined value was up 21 per cent on the previous quarter. Loans were up 19 per cent by volume and 31 per cent by value on a year ago.
Stripping out remortgaging, there were 20,430 loans for house purchase to landlords in the second quarter worth £2.3 billion. These are also the highest levels seen since the third quarter of 2008.
Overall buy to let lending is now running at double the level seen in early 2010, when (at the risk of sounding like a broken record) Fergus and Judith Wilson, the king and queen of buy to let, pronounced that the sector was ‘absolutely dead and will never return’. At the time they were talking about selling their property empire but earlier this year they still owned 1,000 homes and were complaining about London boroughs ‘dumping’ their homeless households in Kent.
To put that turnaround in perspective, buy to let now accounts for 13.3 per cent of all mortgage lending, up from 13.1 per cent in the first quarter of 2013, 12.9 per cent a year ago and just 9.4 per cent in 2007, when the credit crunch was about to hit. There are now almost 1.5 million buy to let mortgages outstanding and they are worth £168 billion, meaning that the total market has broadly doubled since 2006.
Even though conventional mortgage lending has recovered recently and buy to let’s share has grown at a slower rate in the last two years, landlords still look set to be grabbing one in six new mortgages by the end of the decade.
Can that extraordinary growth continue? Everything about current economic policy suggests that it can. New Bank of England governor Mark Carney revealed that interest rates will not rise above their record low 0.5 per cent until unemployment falls below 7 per cent. On current trends that is highly unlikely to happen until at least 2016.
In one sense this only formalises what many economists expected anyway. However, I would suggest that it is likely to give a powerful new impetus to buy to let (and to house prices). This morning’s papers are full of headlines like ‘Interest rates frozen for three years’. That conveys a powerful message to people that now is a very good time to borrow as much as possible – and that the Bank of England will support you.
Even before the Bank’s latest intervention the property website Rightmove was arguing that its Funding for Lending Scheme had created an ‘arbitrage of immediate return’ for buy to let investors. By making £80 bn of loans available to banks at rock bottom rates, the scheme had driven down mortgage rates to as little as 2 per cent at a time when rents were delivering average gross yields of 5.9 per cent. That seemingly guaranteed profit can only increase the temptation for home owners to buy another one to rent or as a holiday let. If they have enough equity in their first home they could even bypass buy to let by remortgaging it to buy another one outright.
The Bank’s new policy can only intensify that effect by sending mortgage rates even lower, reducing still further the miserable sub-inflation returns available to savers and voicing both messages loud and clear in the national media. With what consequences for the housing system?
A documentary about housing on Channel 4 is usually the cue for me to look what else is on TV. This time I watched the programme – and the reaction to it.
Inside my Twitter feed, the debate was about whether How to Get a Council House (watch again here) presented a realistic but depressing portrait of life on the waiting list or trivialised the issues by ignoring the reasons why the wait is so long.
Outside my feed, the racists, kippers and anti-welfarists were in full cry. Search under the hashtag #howtogetacouncilhouse and you will quickly see what I mean: in this world council housing is the preserve of immigrants and scroungers. All of the public prejudices against people on benefits are simply transferred to council tenants.
The programme looked at Tower Hamlets in London, where 24,000 people are on the housing register. The queue is getting longer all the time because for every 40 properties that become available, 60 new people are joining.
The positive side of the programme was that it showed what life is like for the people waiting for a home and the housing officers doing their best to help them in an impossible situation. It will have shown people in some detail how and why people get priority for housing and hopefully dispel some of the myths (though not on Twitter). Perhaps (as reflected in this Telegraph review) it will make people think about why the system operates as it does.
Choice was a key theme. The council operates a choice-based lettings scheme but it made me wonder about the value of informing people that their bid for a flat came 1,058th in priority and of inviting six families to a viewing when three of them have no chance of getting a home. As Colin Cormack from the council said at the end of the programme, ‘for the majority of people in the queue there is no choice whatsoever’.
The negative was the inevitable tendency of the cameras to focus on the cases that will look good on TV but are not necessarily representative. People who get a new home and thank the housing officer do not make for good telly. People who are picky enough to turn down nine offers or insist on a parking space to go with their brand new three-bedroom flat do.
And the programme was also shorn of any context. I’m not sure what the Tower Hamlets waiting list was like when I lived in Bow in the early 80s but the number of people I knew who managed to get a hard-to-let council flat seems a fair indication. If you had told me then that a flat on the Ocean estate would one day be on sale for almost £500,000 I would never have believed you.
There was little or no explanation of what’s changed in the meantime. The only mention of the right to buy came from a neighbour of a tenant waiting for a ground floor flat. It was never explained that the Bengali population of Tower Hamlets (who prompted many of the racist tweets) has been established for decades. The impact of parachuting Canary Wharf into one of the most deprived areas of London was never examined. Above all, there was the irritating way that each property allocated had its market price juxtaposed with what the council rent was without ever asking why market rents are so high.
However, as I was reminded on Twitter earlier, perhaps that is a different programme entirely and certainly not one that would get an audience of 2 million people. I’m reliably informed that episode 2, which features the impact of the bedroom tax in Manchester, will definitely be worth watching next Thursday night.
If you take even a cursory glance at the circumstances of the 10 families involved in the legal challenge to the bedroom tax you’ll be left wondering how discretionary housing payments can possibly resolve their problems.
I read the High Court ruling painfully aware that I lack the legal expertise to interpret the finer points of the European Convention on Human Rights and Public Sector Equality Duty but with enough experience to know that what is lawful is not necessarily the same as what is fair.
The background to the case has already been covered in detail elsewhere. As Inside Housing reports, although the judges said that new measures must be introduced to protect disabled children who need their own room, housing groups were left bitterly disappointed by the dismissal of the other part of the judicial review and lawyers plan to appeal. Read this excellent blog by Kate Webb of Shelter or see statements by the solicitors involved here and here if you haven’t already for the background.
The Department for Work and Pensions (DWP) said that it was ‘pleased to learn that the court has found in our favour and agreed that we have fulfilled our equality duties to disabled people’ but also announced an extra £35 million of in-year discretionary housing payments (DHPs) for what it calls the ‘spare room subsidy’. Given that previous announcements on extra money and concessions have been made under political and media pressure, was this one made with one eye on the appeal (or even a different result)?
The case appeared to turn on whether the DWP’s strategy of relying on DHPs demonstrated that it had acted with sufficient regard to discrimination considerations and was adequate mitigation. The judges accepted the DWP’s argument that it was too difficult to come up with definitions of the degree of disability or adaptation of a property that would justify exemptions for adults. Unlike children who cannot share a bedroom by reason of their disabilities, there was no such ‘discrete group’ of adults. See this blog by Sue Marsh for an alternative take on that.
That leaves most of the 10 families involved in the case relying on discretionary housing payments that are being applied under policies that (as evidence presented by Shelter to the court showed) vary widely between different local authorities.
An annex to the ruling describes their circumstances in some detail:
- Jacqueline Carmichael, a woman with spina bifida who lives in a two-bed flat with her husband who is also her full-time carer. Their housing benefit has been reduced by 14 per cent but they have a six-month DHP to cover the shortfall.
- Richard Rourke, a disabled man in a wheelchair, lives in a three-bed bungalow with his step-daughter, who stays in university accommodation during the week in term time and over some weekends. He sleeps in one bedroom, his daughter in another and he uses the third to store equipment. He is appealing against a 25 per cut in his housing benefit and has requested a DHP that is not yet decided but is accruing arrears in the meantime.
- Melvyn Drage, a man with significant mental health problems and various physical difficulties, lives in a three-bed flat on his own. His conditions are exacerbated by stress and he is very anxious about having to move. He has a six-month DHP covering the shortfall on one bedroom but has rising rent arrears for the other.
- JD and her disabled adult daughter AD live in a specially adapted three-bed property. AD’s twin brother had lived in the house but has now moved out. AD has severe physical disabilities, learning disabilities and visual impairment and needs 24-hour care and is unable to move herself without assistance. After housing benefit was reduced by 14 per cent, JD appealed, but the local authority has deferred consideration of that until the outcome of this case. She has a six-month DHP until the end of September but has been told it is unlikely to continue after that.
The other six cases all involve children and presumably have some grounds for hope that they will be exempted from the bedroom tax given the judges’ comments. However, they too face varying degrees of uncertainty over their DHPs and are also part of the appeal because they still do not know whether they will be entitled to full housing benefit or when any new regulations will be made.
That brief summary reiterates just how much depends on what happens when the existing DHPs run out. This was also very much the case for residents of Aragon Housing Association who I blogged about last week. The crunch time for many people seems to be the end of September, which is when 26-week awards will run out. The ‘urgent appeal’ sought by the bedroom tax lawyers will I assume be heard before then.
But there will still be time to wonder at the logic of the judges who made today’s ruling, who appeared to argue that it was not their job to intervene at the level of principle or of detail. On the one hand, they said that lawyers for the 10 claimants ‘overlook or underestimate the strategic aims of the policy: not only to save public funds, but also to shift the place of social security support in society’. On the other, they said that even though the equality impact assessment of the policy did not address the implications for disabled people, it was not the job of the court to ‘micro-manage’ the policy making process.
All those high earners with social tenancies seem to be slowly melting away ahead of the government’s plan to implement ‘pay to stay’ market rents.
I’m not just talking about the impact of the policy itself and the incentive for tenants to declare an income of £59,999 or even to cut the number of hours they work to get out of paying a market rent for their homes.
Rather I’m talking about the government’s own estimates of the number of high earners. When the policy was first floated at the Conservative Party conference in October 2011, the Telegraph was briefed that there were 6,000 ‘fat cat’ tenants earning more than £100,000 a year.
By the time the government published a consultation paper on the plan in June 2012, it emerged that this was actually the high estimate of the number of households where the household reference person and their partner earn six figures. The low estimate was only 1,000.
Little wonder then that ministers had turned their attention to people a household income of more than £60,000. The consultation paper’s estimates of these slightly svelter cats ranged from 12,000 to 34,000.
And now the numbers have been reduced still further in the summary of responses published by DCLG last week. By combining new data from the 2010/11 English Housing Survey with the two previous surveys, the government now estimates there are now a maximum of 5,000 households earning £100,000 or more.
The estimates for £60,000 earners have also been cut significantly. The low estimate is reduced from 12,000 to 11,000 and the high estimate by 38 per cent from 34,000 to 21,000.
As I’ve blogged before, the reduction to £60,000 introduced more contradictions into a policy that was already riddled with them. However, it’s clear that many people disagree and support for the policy seems greater than for most of the other coalition housing reforms.
According to the summary of responses:
‘Around a quarter of respondents agreed with the principle that very high earners living in taxpayer-subsidised social housing should pay higher rents and were supportive of the proposal, while around one-third said that they agreed in principle but had some practical concerns. Over a third were opposed.’
Leaving aside that loaded use of taxpayer-subsidised (see my earlier blog for arguments on that), that leaves it unclear whether they were talking about a specific income threshold or just the principle but it does indicate reasonable support from social landlords.
This is not the first time that the principle of high earners living in social housing has become an issue. In the 1960s, the People campaigned for years on ‘the scandal of the wealthy tenant living in a council house at a subsidised rent’. However, nothing ever came of it after the Conservative government of the early 1970s used the issue as one of the justifications for a general increase in council rents.
As Inside Housing reports today, the government is proposing that high-earning tenants should be legally obliged to declare their income:
‘We also want to make sure it is the responsibility of those high-income social tenants to ensure they are making a fairer contribution. We intend to seek a legislative opportunity to place the onus on tenants earning over the threshold to declare their income, when parliamentary time allows.’
That sounds less cumbersome (and certainly less expensive) than the alternative of getting landlords to verify the income of all their tenants but it creates all sorts of incentives for tenants to take steps to minimise their earnings – or else just under-declare. And will it really be worth it for landlords to investigate? Details will follow on the potentially thorny issue of what constitutes ‘income’. Either way it seems likely to lead to another reduction in the number of high earners.
Another key issue in the consultation was whether pay to stay should be voluntary for landlords, which would be consistent with localism and the way that other reforms such as fixed-term tenancies have been introduced, or a compulsory national scheme. The wording in the summary of responses is ambiguous on this point:
‘We will take steps towards removing the regulatory controls preventing private registered providers charging market rents to social tenant households on incomes of more than £60,000 per year; and will set out revised rent guidance for local authorities’.
The ultimate justification for pay to stay would of course be if it raised significant extra revenue. The document pledges that ‘all additional income from the policy will be available for reinvestment in affordable housing’.
However, how much extra revenue will we really be talking about from a total of high-earning tenants that seems to be shrinking all the time? One of the biggest logical flaws with the whole policy is that it is ‘unfair’ for high earners to benefit from a subsidised rent but ‘fair’ for the same people to benefit from a subsidised purchase through the right to buy. The logical response of anyone who does face a market rent would surely be to apply for their (newly increased) discount.
That’s not the only way in which the policy contradicts itself. As Steve Hilditch argues on Red Brick, it also leaves social landlords even deeper in the mess that is government policy on rents. With rent convergence abandoned, landlords will be left with a patchwork of social rents, sub-social rents that have not converged, ‘affordable’ rents of up to 80 per cent of market rents and market rents. Surely it’s way past time that rents were based on what tenants can afford rather than set in relation to an unaffordable market where prices and rents are driven by other considerations.
Finally, the £60,000 threshold was apparently chosen because it is in line with the income eligibility limit for schemes like shared ownership. However, higher limits of up to £80,000 already apply for the First Steps programme in London and the government has blown even those out of the water by extending eligibility for Help to Buy to households earning up to £150,000.
Pay to stay has probably already achieved its political purpose in generating headlines about Bob Crow and Frank Dobson. As a housing policy it is at best a contradictory distraction from the real issues.
With the Institute of Directors on one side and Simon Jenkins on the other, where is a safe place to stand?
I blogged about Help to Buy 2 earlier this week the day before the breakfast meeting at which George Osborne would apparently reveal full details of the mortgage guarantee that will be available in January.
Nothing that happened over the coffee and croissants has changed my view about the dangers of increasing demand for housing while doing nothing about supply. The schemes that it replaces are open to criticism too but at least they were targeted at first-time buyers and new-build homes. Help to Buy 2 will available to all buyers and on secondhand properties too – and it extends state support to people on household incomes of up to £150,000. Will it trigger a boom and bust that leaves the government picking up the bill or (perhaps more likely) give future governments a direct stake in propping up house prices?
The Treasury press release following the breakfast came complete with endorsements from the big housebuilders but that is hardly a big surprise given the billions of pounds worth of direct and indirect subsidy they have received over the last five years. Treasury minister Sajid David was particularly unconvincing when he told the Today programme on Tuesday that it was ‘self-evident’ that if you boost demand you also boost supply.
Lenders seemed less convinced. The Council of Mortgage Lenders struck a noticeably neutral tone in its response, setting out criteria for success including that Help to Buy ‘be accompanied by an equivalent government focus on the supply of new housing (not just the supply of credit), to avoid the unwelcome effects that stimulating demand without also increasing supply would create’. The Building Societies Association argued that if the banks had applied the same lending criteria as its members over the last few years there would be no need for Help to Buy.
We now know slightly more details about how the mortgage guarantee will work. Applications will be subject to income verification and stress testing and people with impaired credit will not be eligible. On one level, that should help to ensure that lending is responsible, but on another it could mean that many of the people who most need help will not get it. Borrowers will also have to sign a declaration that the guarantee is not for a buy to let property or second home. This prompted an entertaining exchange on the World at One, when housing minister Mark Prisk insisted there would be no return to the self-certified mortgages of the past and was then forced to deny that the borrower’s declaration that they have ‘no interest in a property anywhere else in the world’ amounts to exactly that.
But we still do not know some crucial details. Lenders will want to see what the Prudential Regulation Authority says about capital relief before deciding whether to take part. They will also be charged a commercial fee if they do but this has not yet been set and the cost will presumably be passed on to borrowers in mortgage fees and/or higher interest rates.
Back with the bigger picture, criticism of Help to Buy continues to come from all sides, including many people who you might think would be natural supporters of the government and George Osborne. The loudest of these was Graeme Leach, chief economist of the Institute of Directors, who supplied the soundbite of the week by saying that ‘the world must have gone mad for us to now be discussing endless taxpayer guarantees for mortgages’. From an IoD perspective Help to Buy goes directly against the need to leave everything to the market: ‘Instead of trying to pump-up prices, the government should focus on relaxing planning laws and reducing local authority charges on developers to make it easier to build more homes.’
That argument has been heard many times before in the debate within the Conservative Party about the NPPF in which free market fundamentalists argue for ‘socialist’ planning to be swept away while the Telegraph, National Trust and CPRE fight any attempt to release more land for new homes. And sure enough the Trust chairman Sir Simon Jenkins rides to the rescue of Help to Buy in today’s Guardian, leaving me feeling stuck between a rock and a hard place.
With a questionable claim that the scheme is somehow Keynesian, our nimby in chief argues that it is better to throw money at the real economy than print it through quantitative easing. Dismissing the case for 250,000 homes a year as a lobbying tool for volume housebuilders, he argues that:
‘Such new building is near irrelevant to the housing market. It is less than 1% of the total stock and under 10% of daily housing transactions. But Osborne’s scheme may at least be pushing up prices. This will not help first-time buyers, let alone the social housing sector, but it should bring to market the half a million homes lying idle in builders’ property banks. That is a good thing. It may even encourage building on marginal sites in cities, where most poor people live.’
Osborne should instead stop ‘dancing to the tune of Barratt and Persimmon’ and subsidise the renovation and renewal of existing homes and development on brownfield land. So far, so semi-plausible, except that you know that this is part of a case against new homes being built anywhere else.
‘Why taxpayers should pump money into boosting house prices is a puzzle buried deep in Britons’ desire to hold and profit from land,’ he argues. ‘It makes no economic sense.’ Better to be like the Scandinavians and Germans who rent and spend on goods and services rather than ploughing their money into ‘inert lifetime investment’.
You might think that sounds like a very good argument against Help to Buy – but you would be wrong. His conclusion is that: ‘At least Osborne is pumping liquidity into something other than bank vaults. He is gambling that a revival in the “sub-prime” mortgage market will boost confidence, gambling that inflationary expectation spurs growth. It is an acknowledged theory.’
The piece struck me as vaguely unhinged until the real agenda struck me. For people like Simon Jenkins, the fact that Help to Buy will boost demand and inflate house prices while doing very little to encourage new supply is most definitely a good thing. Maybe the IoD is not so bad after all.
Every time I think I’ve got my head around the pernicious impacts of the bedroom tax something new emerges to make me think again.
The trigger this time is an excellent report from Aragon Housing Association on the first 100 days of what the government calls the spare room subsidy. But that also sent me back to several conversations I had at the CIH conference in Manchester and reports published while I was on holiday from the National Housing Federation (twice), Chartered Institute of Housing and Convention of Scottish Local Authorities.
Even before that the evidence was accumulating from around the country that the effects are at least as bad, and probably worse, than most people expected or feared. From rent arrears in Newcastle and Ayrshire to fears of more suicides in Birmingham to criticism of the Labour leadership’s stance on the issue in Liverpool, the effects of the bedroom tax continue to be felt emotionally, financially and politically.
Aragon’s study caught my attention because of its dispassionate tone and the way it focuses in on the impacts on one relatively small organisation. It currently believes that 461 of its 6,500 tenants are affected and that they face an average shortfall of £18.01 per week.
As elsewhere, they essentially face a choice between trying to stay in their home and trying to move. Of the first group, 107 are living in specially adapted properties, protected for the moment by 26 weeks of discretionary housing payments.
Of the second, only 41 have managed to move to a smaller property in line with the stated rationale of the policy and bids for two-bed homes under the local choice-based lettings scheme are treble what they were last year.
Rent arrears rose by 9 per cent between the start of the bedroom tax in April and the end of June. However, most tenants had two rent-free weeks at the start of April and the increase since then is 24 per cent. The number of tenants affected by the bedroom tax and in arrears has risen from 187 to 279.
Much of this will be familiar from around the country. But the report also has evidence of some knock-on effects of the bedroom tax that were not widely foreseen even in the welter of parliamentary and press attention over the last few months.
First up, as seen elsewhere, is the increasing difficulty of letting three-bed homes. Most bedroom tax victims are not the large families of media stereotype and cannot afford to pay a rent shortfall for the larger homes that were built as a matter of longstanding policy in the area.
However, the downsizing so far has had unpredictable results (at least they are to me). Under choice-based lettings, three of the three-bed homes had to be relisted because there was no suitable bidder for them. Of the 41 vacated larger properties, 15 have gone to Band 3 (low needs) priority applicants and seven have gone to Band 4 (no needs). Another 15 have gone in mutual exchanges. So much for the government’s argument that the bedroom tax will free up homes for desperately overcrowded families. That does not seem to apply even as close to London as rural Bedfordshire.
Voids of larger homes are an issue around the country. One landlord in the NHF Merseyside report saw its three-bedroom voids double in the first three months of the tax and another estimates each one costs £3,000 in repairs, lost rent and staff costs. As Inside Housing reported two weeks ago, some landlords in the North West and North East are already considering options including demolition of homes – something that would really put the government’s supposed aim of encouraging more efficient use of the housing stock into perspective.
Second, the dilemmas facing someone who decides to look at downsizing into the private rented sector are more acute than I had realised before. It’s clear that in most parts of the country that will mean trading security of tenure and a shortfall for a more expensive six-month tenancy that will cost the government more than it saves through the bedroom tax. However, in Bedfordshire and many other parts of the country it will also mean a shortfall for the tenant because of the way the local housing allowance (LHA) works.
Compare LHA rates and actual rents in the local area, and someone downsizing to a private rented home would face a £16.15 shortfall in Stevenage, £22.66 in Bedford and £29.35 in Milton Keynes. That Bedford shortfall is 15 per cent, which is more than the 14 per cent deduction for under-occupying by one bedroom under the bedroom tax. The net result would therefore cost the tenant more as well as the taxpayer.
Little wonder then that staying put and finding the money somehow looks like the best option for many people. Though Aragon operates relatively close to London, the largest town has 310 jobseekers and just 30 new jobs that became available in the first week of July. It’s also a rural area where, as MPs on the environment committee calling for a rural bedroom tax exemption this week recognised, communities face particular problems.
Like landlords all over the country, Aragon has put in place a whole range of measures to help, including advice on benefits, bills and employment, food parcels and food growing projects, working with a local credit union and IT training courses.
However, as the effects of the bedroom tax continue to work their way through the system the big question for landlords and tenants all over the country is when the next big change will come. At the moment, the impact is being financed by a combination of discretionary housing payments, tenants scrimping and saving and landlords incurring rent arrears.
Sooner or later tenants will have nothing left to scrimp and landlords will be forced to recover those arrears. I spoke to some in Manchester who anticipated their first possession actions this month for people who were already in arrears. It will take until the Autumn for bedroom tax shortfalls to reach the two month arrears threshold that can be the trigger for a Ground 8 claim. What will judges decide? How will local authorities respond to any homelessness applications by evicted tenants? And what will be the political impact of media coverage of evictions?
Sooner or later DHPs will run out and the delayed effects of the bedroom tax will start to play out. In many areas the most vulnerable under-occupiers, including disabled people living in specially adapted properties, are protected for now. Unless more money is found, or there are successful legal challenges, that will not last.
One potential piece of good news is that by October the universal credit will start to apply to some people with new and more generous rules on income from lodgers. What will be the impact of that? And of the combination of the bedroom tax with direct payment and the new accelerated recovery system for arrears revealed by Lord Freud in Manchester? Or his threats against landlords that reclassify their homes?
The pernicious effects of the bedroom tax will continue to play out in predictable and unpredictable ways.
Is it too late to mitigate the impact of the impending disaster that is Help to Buy?
As the government prepares to reveal more details of the mortgage guarantee element of the controversial scheme (probably tomorrow), the evidence is already accumulating of the effect of early impact of Help to Buy plus the boost to mortgages delivered by the Funding for Lending scheme.
Mortgage lending is up, asking prices are up for seven months in a row and reservations under the equity loan part of Help to Buy are up by almost three times on the more limited and targeted FirstBuy scheme that it replaced.
So too are forecasts of what will happen to prices over the next few years. The National Housing Federation warned in a report today that our failure to build enough homes means that the average price of a first-time buyer home could rise by 42 per cent by 2020 and average rents by 46 per cent.
Last week Savills increased its forecast for the increase in house prices up to 2017 from 11. 5 per cent to 18.1 per cent. ‘A combination of low interest rates and stimulus measures means there is capacity for improved price growth over the next three years or so,’ it said.
An increase on that scale would take prices above their 2007 peak by 2015. Although Savills points out that the increase after taking inflation into account would be just 2.3 per cent, that still looks dangerously high at a time when earnings are falling in real terms and mortgage affordability relies on interest rates that must rise sooner or later.
The bump in confidence in the market is being fuelled partly by equity loans and Funding for Lending (which was also meant to be about loans to small businesses but seems to be ending up mostly in mortgages). However, it must also be in anticipation of the launch of the much bigger element of Help to Buy, £12 billion of mortgage guarantees in January 2014.
Buyers under that will have to put up a minimum 5 per cent deposit which will be forfeit first if the boom is followed by a bust. The obvious danger is that the bigger the boom in prices in the meantime, the more the share of the mortgage guaranteed by the state could be at risk in a subsequent bust.
Tomorrow’s announcement could reveal more on many of the details left unclear at the time of the announcement in the Budget, including the fee payable by lenders, the effect on their capital adequacy requirements and the government’s exit strategy at the end of the scheme.
These are important issues but it seems unlikely that the government will change its mind on the most important one: the advisability of having the scheme at all. I’ve never been a great fan of government home ownership schemes but at least the previous ones were too small to do much damage. Help to Buy is bigger both in scale (homes up to £600,000) and scope (extending assistance beyond first-time buyers and new homes).
So it is all too late? Is potentially the biggest housing policy disaster since the double mortgage tax relief debacle of 1988 now inevitable? With almost six months to go there must still be options that will boost housing supply rather than just increase prices.
However, there are problems with most of the alternatives too. The most obvious might seem to be to restrict Help to Buy to new build homes, especially if that could be used as a way of encouraging new entrants into the market. However, the billions of pounds worth of subsidies and deregulation that the government has showered on housebuilders so far have inflated their profits rather than encouraged them to build more homes. Might increased transactions achieve more?
Similarly, restricting the scheme to first-time buyers might just inflate prices in that part of the market. Lowering the £600,000 threshold would definitely be an idea but could also create distortions at lower price points. One possible measure, suggested by Toby Lloyd of Shelter, might be to beef up the law on restrictive covenants to ensure that government help remains targeted on the next generation of buyers who need help as well.
The best option would be to scrap the mortgage guarantee element of Help to Buy on the basis that the mortgage and housing markets already seem to be on the move without it.
However, the chances of that happening seem to be zero. Help to Buy should, as critics point out, be called Help to Sell, but the scheme is really about the wider economy and the government’s electoral prospects.
If it works on the scale suggested, then rising transactions and house moves will feed through into increased spending on household goods, perhaps delivering enough of a boost to the economy as a whole for ministers to be able to claim that the recovery is well under way by the next election in May 2015.
Combine that with the feel-good factor generated by all those first-time buyers helped on to the housing ladder, and all those existing home owners feeling the paper wealth of increased house prices, and you have the real motivation for Help to Buy.
There is still time to address some of the technical issues about Help to Buy, and in particular the need for an exit strategy to stop it developing into permanent government intervention in the housing market. However, the brief interlude in which the government seemed to understand that what we need is house price stability now seems a very long time ago.
So where are the 250,000 homes going to come from? And what are the consequences of not building them?
Almost ten years after the Barker review set that benchmark for housing provision in England to keep house price inflation under control, a new report out from Shelter points out that we are already a million homes behind. If we carry on building at today’s miserable levels the shortfall will rise by another million homes every six and a half years.
In Getting Serious About the Housing Shortage, Matt Griffith and Pete Jefferys argue this would mean accepting a continued fall in home ownership and an ever-rising housing benefit bill while increasing individual and national vulnerability to economic shocks.
The alternative, which they set out in more detail than I’ve seen elsewhere, would involve reforms that go beyond ‘narrowly targeted interventions and short-term gimmicks’.
The report argues that even on a relatively optimistic assumption of increases in private housebuilding, total output will still be almost 100,000 homes short of what is needed by 2017/18.
However, the gap can be made up through a combination of short-term changes and longer-term structural reforms. In the short term these include:
- Direct investment by central government. A programme of £12 billion of investment or 1 per cent of GDP every four years, as advocated by Vince Cable, would deliver 51,000 homes a year.
- Reform of local authority borrowing. Councils could deliver 12,000 homes a year based on prudential accounting or 17,000 with the adoption of European borrowing rules.
- Planning reforms. Commercial to residential property conversions could deliver 10,000 homes a year whole more flexibility on the green belt could deliver 33,000.
In the longer term, measures include developing garden cities and new towns and supporting self-build. Done in combination with community land auctions and greater use of compulsory purchase, these have the potential to deliver another 62,000 homes.
Totted up like that you can see just how much would be required to reach the 250,000 homes threshold – and how powerful the temptation is for governments like this one to tinker round the edges instead and store up even bigger problems for the future.
A key theme of the report is that new players are needed since ‘our current actors cannot, by themselves, make up the housing shortage’.
These could include contractors and smaller builders, reversing the concentration of the housebuilding industry into a handful of major firms that have failed to increase supply despite billions of pounds worth of government support since 2008.
Local authorities – seen as sleeping giants - could play a major role both through their increased borrowing powers and through taking a more proactive role in land assembly, as is common in the Netherlands and Germany.
And new strategic development vehicles, perhaps operating off balance sheet or with private backing, could drive the creation of new towns and garden cities using powers to acquire land at close to existing use values.
Meanwhile government could go much further with schemes to guarantee investment and find ways to promote supply without increasing borrowing (both Help to Buy and Build to Rent do not count as public borrowing).
The report sets out an agenda that could, and should, have been adopted at any time since the financial crisis hit in 2008. There may be little prospect of action under the current government but a new administration after 2015 could be a different matter.
The proposals centre on supply, and there is only brief consideration of demand for housing through tackling under-occupation and the taxation of land. How about promoting growth in regions outside London, which have land available and also have thousands of empty homes? How about, as Savills suggested last week, investing in more student accommodation to free up around 66,000 homes around the country?
For my money too, the report takes rather too much for granted on the capacity of the construction industry to deliver 250,000 homes a year.
Investment in housing looks like a great proposition when every £1 spent generates an additional £2.09 of additional economic output and 92p of it stays in the UK.
However, as Chris Blythe of the Chartered Institute of Building pointed out at the CIH conference last month, construction has an ageing workforce and skills shortages could be a major issue. Meanwhile, in a market dominated by big housebuilders intent on maximising profitability rather than output, materials suppliers have adjusted capacity accordingly.
So there must be a danger that an expanded housing programme would suck in imports of foreign labour and materials. Why not then combine it with an expanded programme of training and apprenticeships to tackle youth unemployment and measures to give materials suppliers the confidence to invest? That way housing could deliver far more than just 250,000 homes a year, however desperately they are needed, and be even more attractive to a future government.
Overall though this is a major report that sets out a clear agenda for tackling a housing crisis that will otherwise just continue to get worse. As Matt Griffith argues on Shelter’s policy blog: ‘These options all involve hard choices and significant changes. Yet the worst option of all would be to do nothing.’