The big shift from owning to renting revealed in the census has potentially massive implications for government spending on housing costs.
The headline results revealed by the Office for National Statistics last week were that home ownership fell from 68.3 per cent of households if England and Wales in 2001 to 63.5 per cent in 2011. Private renting increased from 9 per cent to 15 per cent and social renting fell from 19.3 per cent to 17.6 per cent.
However, within that total for home ownership, the proportion of households owning outright actually increased, so the really significant change was the fall in the number buying with a mortgage from 8.4 million (38.8 per cent of households) in 2001 to 7.6 million (32.7 per cent) in 2011.
As I highlight on my other blog, if mortgaged ownership had maintained its 2001 share of total tenure, there would now be an extra 1.4 million households with between one and ten years on the housing ladder. Instead they are tenants, mostly of buy-to-let landlords. The number of outstanding buy-to-let mortgages in 2011 was – by complete coincidence of course – 1.4 million. I also have more analysis of the overall trends in tenure, including the areas with the highest and lowest owning and renting.
In this blog I want to concentrate on two long-term consequences of this change.
The first is obviously the growth of the private rented sector beyond what might be considered its traditional role as a flexible housing option for the young. As research by Shelter – and last week’s Labour policy paper – highlighted the sector is now home to more than a million families with children and its short-term tenancies look increasingly ill-suited to people who need long-term stability.
At the same time, the government appears to want an increase in private renting financed by pension funds and institutions along the lines recommended by the Montague report. So with mortgage lending constrained and social housing investment in short supply, further growth in private renting looks inevitable. Many housing associations are seeing an opportunity for expansion by applying professional management standards to a portfolio that can be used to diversify their business and cross subsidise their affordable housing. And changes to the homelessness legislation will create expanding demand for private rented homes for homeless families from local authorities.
Which brings me to the second long-term consequence of the change in tenure. Expanding home ownership has formed a key part of moves towards asset-based welfare over the last 20 years. Owners have an asset to fall back on later in life. Once they have paid off their mortgage, their only housing costs are council tax and repair and maintenance, and when it comes to long-term care or income in retirement, the equity in their home is a potential source of income.
In contrast, renters not only have no asset to fall back on and use to pay for their care or living expenses, but they also have to continue to pay rent in retirement. Unless they have built up substantial pension assets – and all the trends are against this too – that means the state will have to step in and help with housing benefit. The more private renting continues to grow, the higher that housing benefit bill will be.
The census confirms that home ownership is shrinking and so is the scope for asset-based welfare. A report by the Strategic Society Centre in the summer highlighted this issue alongside the long-term growth in the number of pensioners from 12.6 million now to 15.9 million in 2020 and 18.8 million in 2060 (when today’s 20-year-olds will be over 70).
In 2009/10, 1.5 million pensioner households received housing benefit and up to another 390,000 were entitled to claim but did not do so. They claimed an average of £69 a week at a total cost of £5.3 billion.
The report projected that by 2060 around 40 per cent of pensioners – 7.5 million – will be renting and that around half of them will receive housing benefit. It put the total cost of pensioner housing benefit in 2060 at £13.4 billion or £8.1 billion a year more than now.
However, even that projection was based on some very conservative assumptions about tenure and rents. For a start, it was based on a forecast that home ownership in England would fall to 63.8 per cent in 2021. Last week’s Census revealed that it was already lower than that in 2011.
As things stand, home ownership looks certain to fall even more over the next ten years. A report for the Joseph Rowntree Foundation in June warned of a looming housing crisis with an extra 1.5 million under-30s forced into private renting by 2020. Another out today from the Building Societies Association says that one in four prospective first-time buyers believes that it will take them at least 10 years to save a deposit.
Second, the estimate was based on the same £69 a week average pensioner housing benefit claim as now. While that allows a comparison in today’s terms, it does not reflect the continuing shift in tenure within renting. About 11 per cent of current pensioners receiving housing benefit rent privately compared to 28 per cent of non-pensioners. If the shift to private renting (and even within social housing to higher rents) continues, the proportion of pensioners paying higher private rents looks set to rise significantly in the longer term and so does the housing benefit bill.
So that projection that the housing benefit bill will rise by 40 per cent as a result of changes in tenure and demographics is likely to prove a highly conservative estimate. Faced with those kind of numbers, what should the government do?
The Strategic Society Centre argued for ‘aggressive steps to increase rates of ownership’: ‘Since declining rates of home-ownership will have severe fiscal consequences in the long-term, policymakers should therefore explicitly target the highest possible rates of owner-occupation consistent with economic stability (i.e. a lack of “housing bubbles”, or high-rates of foreclosures) and labour market flexibility. In short, policymakers should not be neutral to tenure. Higher rates of home-ownership are ultimately cheaper for the taxpayer.’
It added that policy makers should also look at over-consumption and multiple ownership of housing including second homes and buy-to-let investment. As I argued on my other blog, the census results show less a fall in home ownership than a fall in owner-occupation. Many of those 1.4 million buy-to-let mortgages are being paid by people who see their investment as their pension. Far better, surely, to come up with incentives for pension investment that do not push up house prices and leave the taxpayer to pick up much of the long-term bill. Alongside the increases in housing supply now supported by all parties, the job of government would be to strike the right long-term balance between tenures.
The looming housing timebomb should also mean increased investment in genuinely affordable housing and intervention in the private rented sector to go with measures to make it easier to get on the housing ladder at affordable prices. There is a debate to be had about whether that should just mean increased regulation and greater security or rent control too but it is one that is needed urgently.
The complete opposite, in other words, of what we currently do: short-term schemes to boost ownership for a few that just increase prices and make it less accessible for everyone else; laissez-faire policies for the private rented sector; and the slow death of social housing.
Oh yes, and squeezing entitlement to housing benefit, first for the under-25s, then for the under-35s, then for private tenants, then for social tenants. So far pensioners have been protected from any cuts – but for how much longer if nothing changes?
A combination of the recession, welfare reform and localism is set to generate increases in almost all forms of homelessness in England, according to comprehensive new analysis.
Homelessness Monitor: England 2012 published yesterday by Crisis is the full version of an academic study from which headline findings were released last week (equivalents will also be published for Wales and Scotland). It draws together evidence not only on what we normally think of as homelessness – rough sleeping and homeless acceptances – but also more hidden forms too such as concealed households, sharing and overcrowding.
On almost every measure, the study concludes that homelessness has got worse over the last year and is set to get much worse over the next three. The headline figures quoted in the report are already bad enough:
- Rough sleeping up by 23 per cent in the year to Autumn 2011- the most dramatic growth since the 1990s. Recorded rough sleeping is up by 48 per cent in London, although No Second Night Out is having an impact on long-term street homelessness.
- Homelessness acceptances up 34 per cent since bottoming out in late 2009.
- Temporary accommodation and bed and breakfast placements are both on the increase. Last week’s homelessness statistics, published too late for this report, showed that the number of families with children in B&B has risen from 740 in second quarter of 2010 when the coalition took power to 2,020 in the third quarter of 2012. The number in B&B beyond the legal limit of six weeks has quintupled from 160 to 880 over the same period.
- 1.5 million concealed households involving single people and 214,00 involving couples and long parents in 2012
- An increase in the number of sharing households between 2007 and 2010 after a long-term decline
- Overcrowding affecting 670,000 households according to the latest figures.
- Homelessness resulting from the termination of assured shorthold tenancies up 156 per cent in London in the two years to 2011/12.
The report by academics from Heriot-Watt and York concludes that the combination of the downturn plus continuing welfare reform ‘seems certain to drive homelessness up yet further over the next few years’. In the last housing market recession, statutory homelessness fell because falling house prices eased access to home ownership and freed up additional social and private lets but ‘no such benign impact …is likely this time
They say the full effects of the first wave of cuts in housing benefit in April 2011 – the bedroom caps in local housing allowance – will not be felt until later in 2012/13 because of transitional protection and the way that London boroughs have extended it to the maximum with technical breaks in tenancies.
The shared accommodation rate extended to 25 to 34 year olds in January is seen as ‘disastrous’ by charities working in the sector because it increases pressure on a supply of property that is already very constrained. Meanwhile increased conditionality and tougher benefit sanctions are having a negative impact on homeless people with chaotic lifestyles.
In next year’s wave of welfare reforms, the study says:
- there is ‘little doubt’ that the bedroom tax will ‘drive up rent arrears and/or evictions’ in less pressured parts of the UK
- the benefit cap will hit higher cots areas and one effect will be to drive up the number of out-of-area placements of homeless families
- major concerns remain about the universal credit, especially on online claiming, monthly budgeting and direct payment of housing costs to tenants.
On top of all that though the coalition’s localism reforms could make things much worse. The report argues that up to now our housing system – a combination of housing benefit, social housing and the homelessness legislation - has given poorer households greater protection than is true in many other countries.
It goes on: ‘Moves towards fixed-term tenancies in the social rented sector, and rents at up to 80 per cent of market levels, will in time weaken the sector’s safety net function, while local restrictions on eligibility for social housing risk excluding some marginalised groups in high housing need. ‘
Breaking the link between statutory homelessness and social lettings ‘appears designed to render “minimal” the number of new homelessness applications’ and to discourage family exclusions of young people based on the assumption made with scant evidence that they are jumping the queue.
That implies that there could be an apparent reduction in homelessness as measured by statutory homelessness applications. Allowing local authorities to discharge their duty into the private rented sector creates a mechanism for minimising homelessness applications in the first place and therefore one perception of the problem without doing much at all about the reality.
Ironically, the one form of homelessness that it concludes is not rising is the one that attracts most media attention: middle class homelessness. Thanks to a combination of low interest rates and lender forbearance, mortgage repossessions of well-paid professionals have not reached the levels seen in the early 1990s recession.
Otherwise though the study concludes that the period from now until the next election ‘is a crucial time period over which the homelessness impacts of the recession are likely to intensify, and be severely exacerbated by the government’s radical welfare and housing reforms’.
Ministers at the DWP routinely dismiss warnings like this as ‘scaremongering’ or – if they are really close to the mark – ‘irresponsible scaremongering’. We shall see.
In the meantime, I’ll be watching Panorama tonight for more on Britain’s Hidden Housing Crisis.
I’d love to give three cheers for Labour’s new approach to the private rented sector but I can only manage two.
Yesterday it published a policy review paper on stability and affordability for renters and families. This is the second of three policy review papers on private renting: the first covered management and letting agents, the third will cover standards and rogue landlords.
My first cheer is for the party’s analysis of the problems faced by private tenants.
The statistics provide strong backing for a new approach. Figures just published from the 2011 census reveal that private renting now accounts for almost 17 per cent of housing in England and Wales compared to just 9 per cent in 2001.
We know that there are 1.1 million families with children in the private rented sector and that six-month assured shorthold tenancies do absolutely nothing to give them the stability they need. Private renters with children are 11 times more likely to have moved within the last year than home owners with children.
Projections of future trends make an overwhelming case for reform: the policy document quotes predictions of a million people locked out of home ownership by 2020 and 27 per cent of low to middle income families in the private rented sector by 2025. A new report from the IPPR yesterday revealed the impact that these trends are having on young people in particular.
My second cheer is for the future it envisages of greater stability with longer-term tenancies and predictable rents very much along the lines of the one proposed by Shelter recently.
The policy document says: ‘We need real change in the housing market so that private renters can, where they want to, gain access to longer tenancies and obtain greater financial certainty. When renters and landlords enter into these longer tenancies, rent could be indexed for the duration of that tenancy – we will consider the most appropriate type of indexation to allow the market to operate as freely as possible, while giving certainty over future rent levels for renters and landlords.’
It makes a wholly convincing case for longer-term tenancies, one that is overwhelmingly backed by tenants and is also supported by many landlords who see that they could also benefit through reduced costs and greater ability to plan ahead. It is often the practices of letting agents and the conditions imposed by lenders for buy to let mortgages, rather than the preferences of landlords, that get in the way of this.
Labour will look at options ranging from a voluntary incentive-based approach and a ‘something for something’ deal with landlords to one that gives renters greater legal rights to longer tenancies and predictable rents. And it quotes the examples of Germany, where private tenants have a high level of security and there are limits on rent increases, and France, where the minimum term is three years and rents cannot increase by more than the increase in the reference rent index.
The party will work with mortgage lenders to ensure that buy-to-let mortgages do not prevent landlords offering longer tenancies. And it will look at options including the direct payment of housing benefit and tax incentives to landlords who do offer them.
As shadow housing minister Jack Dromey sums it up: ‘With longer term tenancies and predicable rents, the private rented sector will offer the affordable and stable homes that renters need. Families will feel that their rented house is a home and it will help strengthen communities as people put down roots and get to know their neighbours.’
As for my third cheer, I can’t quite give that because I still have a nagging doubt about Labour’s ultra-cautious approach.
The party is quite right to be concerned about the impact that talk of greater regulation in general and of rent control in particular could have on the supply of privately rented homes. It’s also right that ‘all too often, private renting is unaffordable, unstable and subject to poor conditions and bad management’.
However, when it claims that ‘our first Policy Review paper on housing set out steps to tackle unscrupulous letting agents and to end rip-off charges’, er, no it didn’t. It actually promised to ‘consider’ different models to improve standards, to ‘work in partnership with the sector to develop solutions’ and to ‘consider’ how compliance could be monitored, for example by a regulatory body with enforcement powers’. Again, it was hard to disagree with the content but there were no definite proposals and no actual policy commitments.
It could be argued that two and a half years before the next election is not the time to expect an opposition party to make those sort of commitments. However, when it comes to making all the right noises about private renting and then doing very little, Labour has previous.
Remember the Law Commission’s 2006 report on Renting Homes with its proposals for a shake-up and simplification of the law relating to all forms of renting? The last Labour government let the proposals gather dust on the shelf alongside the draft Bill that would have implemented them.
Remember the Rugg review, the independent report commissioned by Labour that in 2008 proposed regulation of letting agents and registration of landlords? As I blogged in July, the last government produced a green paper in May 2009 pledging mandatory regulation of letting agents and management agents’ but had done nothing by the time it lost power a year later.
The Labour government in Wales is now about to implement most of these proposals through its Housing Bill and Rented Homes Bill. The party in England is making all the right noises and some of what it is talking about could go still further if it wins power in 2015 – but will it actually be prepared to act next time around?
16:04: Right, time to pull a few things together. At the start of this blog I posed eight questions that might or might not be resolved in the Autumn Statement. Here’s my assessment of what we know so far:
- What will he do about those £10 billion cuts in welfare apparently needed in the next spending review period? Have the Lib Dems beaten off calls for cuts in housing benefit for the under-25s and benefits for large families and a freeze on all working age benefits? Even if they have, is something nasty still lurking in the fine print?
There was no mention of the under-25s or large families but there was still something very nasty indeed. Limiting increases in the local housing allowance to 1 per cent was at least balanced by some recognition of its disastrous impact in high rent areas. There was also no mention of housing benefit in the social sector so (presumably) the government has decided against breaking the link with actual rents and the RPI +1 formula that funds new homes. At least I hope so - but what about under universal credit?
However, restricting the increases in other working age benefits and tax credits and the universal credit from 2014 will put even more pressure on household budgets that are already at breaking point. Any cut in any benefit could trigger rent arrears when direct payment of the housing element goes to the tenant.
‘Tough for everyone – but toughest for those at the bottom,’ is how Julia Unwin of the Joseph Rowntree Foundation sums it up.
- Will he give any sort of signal about what will happen to housing investment after 2015? Social landlords badly need some certainty.
Nope. Talk of single housing pots under local enterprise partnerships could even add an extra institutional uncertainty.
- Will he give some detail about those guarantees for housebuilding?
- Will housing gain at all from the rumoured extra £5 billon of capital spending or will it all go to non-housing infrastructure?
In between all the re-announcements about support for 50,000 (or was it 120,000 homes) it’s hard to tell what is really new. As Gav Hollander is reporting, there does seem to be some new cash to unblock small sites and release public sector land. Whether that amounts to anything more than yet more subsidies to housebuilders remains to be seen.
- Will he and Iain Duncan Smith give some answers to the remaining questions about universal credit?
There were more details – and that 1 per cent uprating – but the devil really is in the detail on this one and I’ll await the verdict of the experts.
- Will the almost inevitable home ownership wheeze be anything more than window dressing?
Surprisingly perhaps there was no new initiative (SecondBuy had a good ring to it too). However, one of the more surprising aspects of the statement was that Osborne found extra money to extend support for mortgage interest concessions for an extra two years at a time when repossessions are falling and there are cuts everywhere else. Fear of them rising again before the election? Brilliant lobbying by the Council of Mortgage Lenders? Or both?
- Will he really clamp down on tax avoidance by buyers of high value homes and put any money raised to good use?
Osborne promised no new property taxes but there was no detail that I could see on proposals to levy an annual charge on homes owned through offshore companies.
- This one is a long shot but will the government finally admit that any serious plan for housebuilding has to include allowing local authorities more freedom to borrow and invest?
I had it about right with long shot, it seems, although the Greater London Authority is being allowed to borrow £1 billion for the Northern Line extension.
Overall then, there was nothing much on new homes even though there was money to build new schools to replace ones that already exist and roads that take much longer to get off the ground and create fewer jobs per pound spent. And the squeeze continues on working-age benefits and local government spending. Despite all the talk from Nick Clegg and Nick Boles about garden cities there was nothing about them either.
Better hope it works this time. Independent estimates from the Office for Budget Responsibility reveal that the rising caseloads mean the housing benefit bill is higher than it thought only six months ago. And its fiscal forecasts for the future appear to rely on a wildly optimistic expectation of improvement in the housing market, with the take from stamp duty on house sales doubling between 2011/12 and 2017/18.
15:12: Treasury expectations of housing benefit savings in the Autumn Statement will be far outweighed by the cost of more people claiming it, according to forecasts from the Office of Budget Responsibility.
The Autumn Statement documents say that uprating the local housing allowance by only 1 per cent will save £105 millon in 2014/15, £225 million in 2015/16, £245 million in 2016/17 and £260 million in 2017/18. Total saving over those four years: £835 million.
However, the OBR’s Economic and Fiscal Outlook says that higher caseloads mean that housing benefit will cost £600 million more in 2012/13 than it forecast at the time of the Budget in March, £700 million more in 2013/14, £600 million more in 2014/15, £500 million more in 2015/16 and £400 million more in 2016/17.
Those are remarkable figures when you consider that the March forecasts will have included all of the cuts announced so far. Housing benefit will cost a total of £2.8 billion more over the next five years than it forecast just six months ago.
14:42: The National Housing Federation welcomed Osborne’s commitment to building 120,000 homes and the extra money for the DCLG to buy surplus public sector land.
However, it warned that the below inflation increases in benefits created a very real risk of rising debt and arrears that could damage housing associations’ income streams and result in fewer homes being built.
The NHF added that the proposal to create a single housing pot for local enterprise partnerships raised important questions such as whether the money would be ring-fenced and whether there would be flexibility to move money to areas of greatest need.
14:37: The government still has not recognised the scale of the housing crisis, says the Chartered Institute of Housing.
It said the Autumn Statement’s £225 million to boost construction of 50,000 homes was welcome but only a small contribution, while it was disappointing that there was no more detail on the £10 billion loan guarantee fund put forward in September and Osborne had ignored calls to lift local authority borrowing caps.
14:10: The tables at the back of the Autumn Statement documents reveal the sheer scale of the savings that Osborne will be making from uprating benefits by 1 per cent from 2014/15.
On the local housing allowance, the expected saving is £105 million in 2014/15 rising to £260 million in 2017/18. The really serious savings come from working age discretionary benefits and tax credits (£505 million this year rising to £2.6 billion in 2017/18) and universal credit (£170 million in 2014/15 rising to £1.2 billion in 2017/18).
By contrast, only increasing the higher rate tax threshold by 1 per cent saves £295 million in 2014/15 rising to £1.1 billion in 2017/18. And similar restrictions on the thresholds for inheritance tax and capital gains tax raise only £40 million between them by 2017/18.
13:55: Is this good news for supported housing on the benefit cap? ’Housing payments for those in supported exempt accommodation will be disregarded for the purpose of the benefit cap. Funds available for Discretionary Housing Payments will be reduced by £10 million in 2013-14 and 2014-15, and by £5 million in 2015-16 and 2016-17, to fund this measure.’
13:38: Looking at the main Autumn Statement documents now. Here are some highlights:
- There will be ‘a temporary increase in capital spending to promote growth. This funds £5.5 billion of additional investment in infrastructure and support for businesses, including investment in roads, housing and local infrastructure, regional growth and business, exports, science, and schools and colleges.’ Sounds like quite a shopping list.
- Some extra funding for housing? ‘To support both housing and commercial development and support growth and jobs, the Government is providing a further £683 million through capital grants and financial transactions. In England, the Government will invest £474 million in local infrastructure on a recoverable basis. Around £60 million of this will be made available to support infrastructure in a limited number of Enterprise Zones. Around £225 million will be used to accelerate delivery of large housing sites, supporting around 50,000 homes. Around £190 million of the funding will be used to de-risk public sector land and enable the quicker disposal of surplus sites for new homes. Alongside this, the Government will provide £100 million to bring forward public sector sites for development.
- On housing benefit, the government will ‘uprate Local Housing Allowance rates in line with the previously announced policy in April 2013, but will cap increases to 1 per cent in most areas in 2014-15 and 2015-16’
- However, it will also ‘use 30 per cent of the potential savings to exempt rates in those areas where rent increases are highest, in recognition of the fact that rental markets differ across the country’
- support for mortgage interest ‘will now be continued at the current level through the SMI scheme to March 2015’
- More on pay to stay: ‘The Government will respond to this consultation by Budget 2013 to ensure the best use of social housing assets and that those who can afford to make a greater contribution do so, while ensuring that tenants on low incomes are not affected.’
13:25: As George Osborne sits down, that 1 per cent increase in local housing allowance looks worse and worse. Bear in mind that when it was linked to CPI rather than RPI inflation, research by Shelter and the CIH estimated that a private rented home would be unaffordable on LHA in 34 per cent of all local authority districts in England by 2023.
13:09: So far then, there seems to be a re-annouucement of housebuilding guarantees, a pledge of no new property taxes and benefits will be cut in real terms - no more than 1 per cent in the next three years, including the local housing allowance.
12.51: This being brought to you courtesy of Virgin Cross-Country Wi-fi, which is less reliable than George Osborne’s spending plans, so bear with me.
12.25 So here it is, the moment of truth. After all the advance speculation, George Osborne is finally about to give us some answers.
Probably not, in fact. That will have to wait until full details are published in the Autumn statement documents later and perhaps in departmental announcements to follow over the next few days.
However, most of the housing interest centres on key questions:
- What will he do about those £10 billion cuts in welfare apparently needed in the next spending review period? Have the Lib Dems beaten off calls for cuts in housing benefit for the under-25s and benefits for large families and a freeze on all working age benefits? Even if they have, is something nasty still lurking in the fine print?
- Will he give any sort of signal about what will happen to housing investment after 2015? Social landlords badly need some certainty?
- Will he give some detail about those guarantees for housebuilding?
- Will housing gain at all from the rumoured extra £5 billon of capital spending or will it all go to non-housing infrastructure?
- Will he and Iain Duncan Smith give some answers to the remaining questions about universal credit?
- Will the almost inevitable home ownership wheeze be anything more than window dressing?
- Will he really clamp down on tax avoidance by buyers of high value homes and put any money raised to good use?
- This one is a long shot but will the government finally admit that any serious plan for housebuilding has to include allowing local authorities more freedom to borrow and invest?
More to come, including a few answers hopefully.
Inside Housing’s account of Pat Ritchie’s departure from the HCA only adds to the eerie sense of familiarity that struck me when the news first broke.
According to Nick Duxbury’s story for IH, the interim chief executive turned down the chance to take the job on a permanent basis because the pay was not high enough. The £142,000 salary on offer is lower than other executive salaries at Maple House. It is lower than the £163,904 a year paid to Barry Rowland, who she will succeed as chief executive of Newcastle City Council (a fine city but one that is also facing a budget crisis).
It is also considerably less than the £233,000 paid to her predecessor at the HCA Sir Bob Kerslake. That was before Kerslake took a £50,000 pay cut to become permanent secretary at the DCLG. The job has also changed but the job has grown also changed with the HCA taking over the regulatory functions of the TSA but losing responsibility for London to the mayor.
The problem seems to be the government’s drive to drive down the pay of top public servants. This is on the basis that none of them should be paid more than David Cameron (even though prime ministers get free housing and can cash in with book deals, lucrative speaking engagements and charitable foundations when they leave office).
However, two other things strike me about the situation looking at it from the outside. First, two years is an awfully long time to be an ‘interim’ chief executive. Second, there are huge parallels with what happened five years ago at the Housing Corporation.
Cast your mind back to March 2007. As the merger with English Partnerships loomed (called Communities England at the time but to be renamed the HCA), Corpie chief executive Jon Rouse resigned to become chief executive of a local authority (Croydon).
According to Inside Housing’s account at the time, pay was a big factor then too. The departure came within months of the DCLG turning down a bid by Corpie chair Peter Dixon to get Rouse a 15 per cent rise on his £150,000 salary. The Croydon job reportedly paid £180,000 but it’s interesting that the Corpie one paid more five years ago than the HCA one does now.
Over at English Partnerships, not just the chief executive but most of the other directors were on more than that. Within a year, the new chief executive of the HCA, Sir Bob Kerslake, was appointed on £220,000 plus a £20,000 bonus.
As news emerged of Rouse’s departure, Inside Housing feared a power vacuum and loss of focus at the top. However, that was a time when housing investment was still expanding and the new agency was an enticing enough prospect to attract Sir Bob from local government.
The opposite is true now. The cliff edge of 2015 looms and uncertainty continues about the future of grant funding. Housing associations are battening down the hatches fearing restrictions on future rent increases. Housebuilders are warning that social landlords are reluctant to commit to section 106 purchases. Talk of transferring investment to the regions may also have an impact. And back at the HCA there are fears about the resources devoted to regulation.
Despite all the noises coming out of government about the importance of housing, none of this is sending positive signals about the importance of housing’s principal agency. It can’t be doing much for morale within the organisation. And it would seem to make the search for a high-powered successor to Pat Ritchie both more important and more difficult.
The awful story of Malcolm Frost, who was evicted and found dead in his garden shed 10 days later, has implications that go beyond one individual tragedy.
The details as reported from the inquest by The Sentinel are these. The 61-year-old former painter and decorator was evicted from his home in Alsager, Cheshire in March for not paying the rent. Roy Edwards, a friend and neighbour, had called the council to register concern about his welfare three months before but staff took no action. He told the inquest that he had been buying Mr Frost food every day because he had no money. He found him living in his shed after he was evicted and the locks were changed and when he went to check on him a few days later he was dead.
The house from which Mr Frost was evicted was his childhood home. It emerged at the inquest that he had stopped working a few years before his death and money worries had prompted him to sell his house to a private landlord and pay rent to live there. Then he fell into arrears.
The coroner recorded an open verdict in the inquest. According to The Sentinel, the case has already led to changes in Cheshire East council’s adult services department and the council is in the process of trying to trace the landlord that evicted him.
Apart from the identity of the landlord, many of the other details are unclear, including when Mr Frost sold his house and rented it back and what the details of the arrangement were. However, was there a more systemic failure on top of falings in procedures at the council and a human tragedy?
This sounds very much like a sale and rent back (or leaseback) deal of the kind that was more or less outlawed by the Financial Services Authority in February. However, that was four and a half years after the Council of Mortgage Lenders, Citizens Advice and Shelter first called on the Treasury to allow the FSA to regulate.
Comments by former CML director general Michael Coogan in October 2007 seem horribly pertinent now. ‘Controls exist for action taken by mortgage lenders when customers are in arrears but there are no such safeguards for customers entering into sale-and-leaseback schemes,’ he said. ‘In a climate of rising repossession, consumers in financial difficulty need to be well informed and protected. The government needs to consider urgently whether regulation of sale-and-leaseback schemes by the Financial Services Authority is appropriate because it would provide protection for potentially vulnerable consumers.’
As I’ve blogged several times since then for Inside Housing, the action actually taken by the authorities was anything but urgent. The Treasury finally asked the OFT to investigate in March 2008. The FSA launched a consultation in September 2009. The FSA got oversight of the sector in June 2010 and in August 2011 the Treasury introduced new regulations requiring anyone purchasing a sale and rent back home to be authorized by the regulator. In February 2012 the FSA published a report showing that most sale and rent back deals were either unaffordable or unsuitable and should never have been sold and announced what it described as a temporary closure of the sector.
Whatever the precise circumstances in the case of Mr Frost, this is not the only such tragedy involving housing over the last year or so.
Keith Cooper reported for Inside Housing last month on the child who starved to death in Westminster after a benefits delay. That was blamed on flaws in the support system for successful asylum seekers.
Richard Sanderson, 44, committed suicide at his home in Southfields, south London, in May 2011, weeks after being told that his housing benefit was to be cut by £30 a week. He left a note saying he could not face the thought of his family being homeless. In the background to this case were job centre rules and local housing allowance bedroom caps.
Peter Williams, 63, took his own life in February 2012 on the day he was due to be evicted from his home in Langford, Bedfordshire over non-payment of council tax. According to the most recent press report I can find, he owed £70,000 in legal fees over an original debt of £1,500 from the 1990s. He was a talented engineer who owned his house of more than 30 years outright but the council refused to drop the case despite being told by his MP, his GP and his friends that he suffered from mental illness.
All of these were individual tragedies and all of them happened in very different circumstances. Looking at them with hindsight, all of them may have been avoidable in the sense that someone somewhere could have done something before it was too late. However, looking at them with foresight, to what extent were they predictable too?
Consider all that in the context of next year’s welfare reforms. As vulnerable families face cuts in income and an increased risk of rent arrears and eviction, more individual tragedies look not just predictable but inevitable. The same is already true for other aspects of welfare reform, such as the administration of the work capability assessment by Atos and the case of Brian McArdle, who collapsed and died on the day his benefits were axed.
To say that is to risk the standard government accusation of ‘scaremongering’. That was the response from the DWP to last month’s warning from three charities that 450,000 disabled people and their families could lose out under the universal credit. It was also how the department described last week’s statement by Community Housing Cymru comparing the impact of the bedroom tax on people in Wales with Hurricane Sandy.
Ministers point to safeguards for vulnerable households and the pot of discretionary housing payments that is there to help. However, as the government, local authorities and landlords grapple with the implementation of next year’s cuts and reforms, tragedies like these are a powerful reminder of the potential human impact of the decisions they make and the procedures they adopt. These can seem very different seen from an office and seen from the home of a vulnerable person affected by the changes.
When issues such as retaining direct payment of housing costs for vulnerable households and the procedure for claiming the universal credit are under discussion, this is why they matter so much. That was brought home to me all too clearly in a reply to one of my tweets on Friday from Bradford District Tenants and Residents Federation quoting the reaction of one addict to the prospect of direct payment to tenants: ’Month one I’ll pay, month two in pub, month three dead.’
Decidedly mixed signals are emerging from different parts of the government over cutting housing benefit for the under-25s.
David Cameron seems determined to press ahead with the idea he first raised in April and then again at the Conservative conference in October. At prime minister’s questions yesterday he told Labour MP Mary Glindon: ‘I know that housing benefit is a very important issue, but there is a problem, which needs proper attention: we seem to give some young people a choice today, in that if they are on jobseeker’s allowance they can have access to housing benefit, but if they are living at home and trying to work they cannot. We need to recognise that in many cases we are sending a negative signal to young people through our welfare system.’
If that sounds like full steam ahead, Mary Glindon was getting some very different signals barely an hour earlier during a Westminster Hall debate she secured on the issue. Lib Dem communities minister Don Foster told her: ‘The hon. Member for North Tyneside said that the idea is something that the Government might effect, but the fact that something was said at a Conservative party conference does not mean that it becomes coalition policy. At the moment, it certainly is not.’
MPs had been briefed with arguments against the cut put not just by Crisis as part of its No Going Home campaign but also by Shelter, the National Housing Federation, Places for People and the Prince’s Trust, the charity founded by Prince Charles to help young people start their own business.
Out of 383,000 people under 25 claiming housing benefit, 204,000 have children themselves and 66,000 are in work. ‘Most young people who claim housing benefit are not in work, but young people all want to work,’ said Glindon. ‘In a recent survey by the Prince’s Trust, young people who had previously been unemployed were asked how many jobs they had applied for, and the most common response was that they had made more than 100 applications… The Prince’s Trust has also pointed out that young people who want to strike out on their own in business, and take up the trust’s enterprise programme, are often lone parents who claim housing benefit. They need housing benefit to supplement their incomes until their business is profitable enough to allow them enough salary to cover accommodation costs.’
Another key issue is what would happen to vulnerable young people who do not have a parental home to go back to or who have been forced to leave. Conservative backbencher Steve Brine raised his concern about the impact on a night shelter in his Winchester constituency and the possibility of exemptions for supported accommodation. And Mary Glindon cited the work of a support project run by Places for People in her constituency with case studies of a young woman who had suffered domestic abuse and of a young man with cerebral palsy whose support had relied on housing benefit.
In his response, Foster said that both Cameron and Nick Clegg had stressed that ‘were such a move to become reality, vulnerable groups, particularly those in care, will be protected’. He listed everything that the government is doing on youth homelessness and argued: ‘England has one of the strongest safety nets in the world for families with children and for vulnerable people who become homeless through no fault of their own. Sixteen and 17-year-olds, care leavers under the age of 21 and people over 21 who are vulnerable as a result of being in care are priority groups and, as such, should they find themselves without a roof over their head, they will be housed by local authorities.’
That sounds at first like the usual ministerial bluster that does not address the issue. However, Foster was warming to his theme: ‘We have funded youth homelessness charity St Basils to support local authorities and their partners in that work. Thanks to the work of young people’s homelessness charities such as St Basils, Centrepoint and Depaul… and to the work of local authorities, it is now very rare for young people under 18 to end up on our streets.
‘Many people experiencing homelessness have had a range of negative experiences in their childhood or youth. We accept that young people are a key risk group—35 per cent of those accepted by local authorities as homeless in 2011-12 were under 25. As the hon. Lady rightly said, family breakdown is a prime cause of youth homelessness. Young people with experience of care are particularly vulnerable, with 16 per cent of rough sleepers surveyed by a recent study having experienced care at some point during their childhood.’
It was not exactly off message – since there is no agreed coalition message – but in defence of a hypothetical coalition policy that has not yet been agreed Foster was actually putting some very impressive arguments against the cut. As Mary Glindon pointed out: ‘What commitment is there to keeping housing benefit for those young people under 25? Once they have benefited from all the support, not being able to work may stop those in rented accommodation being able to pay the full rent. What assurance is there that that cushion will remain for as long as people need it so they can live in a home of their own?’
Behind the scenes, and sometimes in front of them, talks continue between the Conservatives and Liberal Democrats about the extra £10 billion of welfare cuts (and maybe even more) that projections of the public finances say will be needed after 2015. Cutting housing benefit for the under-25s is the most prominent of the Tory suggestions and obviously has Cameron’s personal backing. However, work and pensions secretary Iain Duncan Smith has already said that any cut would only apply to new claimants, which dramatically reduces the scope for savings and will put the pressure on other parts of the budget, and as the debate showed the campaign against is gaining momentum. The Lib Dems say they will only agree to more welfare cuts for the poor if they are accompanied by tax increases on the rich.
As Foster replied to Mary Glindon’s questions: ‘I cannot give her an assurance one way or the other. All I can do is tell her that that is not currently the Government’s policy. We will both have to wait to see what emerges.’
A year ago this week some devastating statistics were published that undermined everything that the government was saying in its housing strategy. Has anything changed 12 months on?
The 97 per cent fall in starts of affordable homes (to just 454 in the whole of England) between April to September 2010 and the same six months in 2011 was published the day after David Cameron and Grant Shapps launched a strategy they claimed was ‘radical and unashamedly ambitious’. Whether the timing was coincidence, cock-up or conspiracy it caused acute embarrassment for the government.
After that, the only way was up. Starts duly picked up in the second half of the year but the acid test was always going to be the number of starts a year later.
Stats published by the DCLG reveal that there were 3,735 starts of affordable homes in April-September 2012. The good news for the government is that is almost eight times more than the record low of April to September 2011 (now revised upwards slightly to 480). Starts of homes for social rent and affordable home ownership both improved but most of the increase came from 2,608 homes for affordable rent.
The bad news is that the total is still 72 per cent down on April to September 2010. Starts for affordable home ownership are down 80 per cent from 3,197 to 629 over the last two years while starts for social rent are down 95 per cent at 490.
The pattern is clearly illustrated in the graph below showing the 12-month rolling totals of starts every six months since the end of March 2010 (just before the election). The Labour programme dominated by social rent but also including significant number of homes for affordable home ownership and intermediate rent has tailed away and the smaller coalition one dominated by affordable rent is only just getting going.
This is also the first set of stats since the London mayor Boris Johnson took over responsibility for the affordable housing programme in the capital from the HCA in April. No London-only figures have yet been published that I can find but it’s simple enough to work them out from the DCLG stats for the whole of England and the HCA stats for England outside of London. [EDIT: The London stats with borough breakdown are available here.]
Affordable housing starts totalled 4,341 in London in April-September 2010 and fell to just 56 a year ago (all of them for social rent). The figures for April-September 2012 show an improvement but only to 425 for the whole of London.
This second graph shows the 12-month rolling totals for starts of affordable homes in London for each six-month period back to March 2010. The pattern is the same as for the national graph, with a steep decline setting in from April 2011 as social rent starts fall away dramatically from 2,563 in April to September 2010 to 56 in the same period last year and 117 in April to September 2012.
However, the fall in starts in London has been much steeper than in the rest of the country. In April-September 2010 33 per cent of all starts were in the capital. That proportion fell to 12 per cent in 2011 and fell again to 11 per cent in 2012.
The stats for completions in England (which I don’t have space to go into in detail here) show a decline from 19,565 in April to September 2010 to 12,788 in 2011 and 11,432 in 2012. For London only, completions fell from 3,965 in 2010 to 2887 in 2011 and 1,558 in 2012. The capital accounted for more than 20 per cent of completions between 2009 and 2011 but its share fell to just 14 per cent in 2012.
If the affordable rent programme delivers as planned, we can expect to see the numbers improve in the run-up to 2015. The public accounts committee said last month that delays in agreeing contracts mean delivery is skewed to the final year of the programme.
What’s striking is that the biggest falls so far are in the most affordable type of home (social rent) and in the least affordable region (London). That’s not a big surprise given that the focus of the programme is on keeping numbers up despite a 60 per cent cut in investment. Some of the lost ground should be made up by 2015. However, it’s still a stark illustration of the impact on affordable housing construction – and this at a time when it could have made the most difference to the economy.
Halfway through the parliament and the traffic lights seem to be taking for ever to change from red to green for housing.
It also looks like a good time to judge the record of this government and a time to stand back and admit that whoever had been in charge over the last two and a half years would have struggled against the grim backdrop of austerity.
Those are points well made by the CIH, NHF and Shelter in their third Housing Report. The good news is that ministers are at last making the right noises about the positive effects of housing investment but, as the report says, pledges and policies are not proof of progress.
On a traffic light system, the report gives the coalition four red lights, four ambers and two greens. On the face of it, not much has changed since the first report in October 2011 (four red lights, three ambers, two greens) and the second in May 2012 (five reds, three ambers and two greens).
It’s certainly hard to argue with the red light verdicts on overcrowding, homelessness, help with housing costs and affordability in the private rented sector. Green looks right on empty homes and evictions, repossessions and arrears while a non-committal amber looks appropriate for planning and mobility.
So for the real debate is about the final two categories given amber. On home ownership, that’s unchanged on the previous two reports and this one balances the continuing fall in home ownership with a slight improvement in house sales and relative stability in house prices.
It’s true that existing home owners are doing quite nicely thanks to low interest rates but that is reflected in the stats on arrears and repossessions. All the political rhetoric about Right to Buy 2 and all the millions of pounds poured into initiatives like FirstBuy and NewBuy have not made much difference to people who want to buy and are stuck paying extortionate rents. And the slow decline in owner-occupation masks a more pronounced fall in those buying with a mortgage rather than owning outright.
If the colour of the traffic light is debatable there, I find it harder to understand why the CIH, NHF and Shelter conclude that housing supply has improved from red in the first two reports to amber now. (Though I do now with the comment below from Toby Lloyd: amber means no progress whereas red means getting worse).
True, David Cameron promised in September ‘to unleash one of the biggest housebuilding programmes this country has seen in a generation’ but the rhetoric only showed up the stunning lack of progress since the original housing strategy in November 2011. True, ministers have made themselves busy announcing the initiatives like the Get Britain Building Fund, the debt guarantee, the Montague report and the self-build fund the progress on the ground has been modest at best.
As I blogged a couple of weeks ago there is some good news, some bad news and some very bad news in the latest figures on net additional housing supply. Total supply in 2011/12 was up 11 per cent on 2010/11 at 135,000 but that is still more than 100,000 short of the level needed to meet demand, which means the housing shortage is still getting worse. Affordable housing supply was down 4 per cent.
And what is there to show for all the initiatives and money ploughed into housebuilding? Figures on construction output released earlier this month show that new work on housing is down by 13 per cent since the government launched its Plan for Growth in March 2011 and 12 per cent since the housing strategy a year ago.
However, I may be looking in the wrong place for good news. The Financial Times reported earlier this week that the major housebuilders say government incentives to boost housebuilding are paying off. Sales numbers are up but it’s telling that the article sees rising sale prices (and margins) as a yardstick for success.
According to one city analyst: ‘Rising profits translated into rising share prices in 2012 and we would expect this to repeat in 2013, although it is unlikely that the sector would record another increase of over 50 per cent in the year.’
A 50 per cent increase in share prices in the first year of the housing strategy certainly seems to deserve a green light. The boss of Persimmon predicts a wave of takeovers as housebuilders chase land and prepares to return £1.9 billion to shareholders. Profits at Barratt are up 159 per cent over the last year on the back of 24 per cent of sales supported by the taxpayer.
As the housing sector sits at the traffic lights waiting for them to change, housebuilders are shooting straight through them in the inside lane.
As Crisis launches a campaign against ‘unworkable and irresponsible’ cuts in housing benefit for the under-25s, there is another scary reminder today of the bleak prospects for the next spending review.
Fiscal Fallout, a report from the Social Market Foundation and Royal Society of the Arts, concludes that the flat-lining economy will make the structural deficit significantly higher than forecast in the Budget in March.
Things were already bad enough then, with £26 billion of cuts from annual spending pencilled in for the three years after 2014/15 and the detail left until the next spending review. But the report warns that lower than forecast growth and higher borrowing means the government will need to make another £22 billion of cuts on top of that to get its public spending plans back on truck to meet its deficit reduction target.
The current government plan is to leave taxes unchanged and cut welfare payments by £10.5 billion a year, which is where the proposal that Crisis is campaigning against comes from. According to estimates by the Institute for Fiscal Studies, Cutting housing benefit for the under 25s would save £2.3 billion a year while a two-year freeze in working age benefits, another proposal with major implications for housing, would save £4.5 billion. Cuts to pensioner benefits and child benefit could make up the rest of the total. If pensioner benefits were protected, as they have been so far, then the impact elsewhere would be much higher.
And that is not the end of it. Departmental expenditure would still have to fall by £37 billion between 2014/15 and 2017/18 – a fall of 11 per cent a year in real terms. For the Department for Communities and Local Government that translates as cuts of either £2.8 billion. If health, education and international aid continue to be protected, the real terms cut would be 23 per cent and £5.9 billion at the DCLG. With figures like this, the 2010 spending review begins to look generous and the chances of further grant for new homes begin to look even more slender.
Ahead of the autumn statement on December 5, the Crisis campaign includes a parliamentary briefing that reveals just how ‘arbitrary, unworkable and irresponsible’ a housing benefit cut for the under-25s would be. As I’ve blogged before (here and here), the effects would be felt by people with no parents to go back to, by victims of abuse, by people who are working but can’t afford their rent and by people who have children themselves. The briefing groups all the stats together on the 383,440 people under 25 currently claiming housing benefit.
With other policies like the bedroom tax meaning that downsizing parents will have even less room for their grown-up children, the result would be an explosion of youth homelessness and rough sleeping. As the briefing argues: ‘If this cut is brought in then there will be significant knock on costs which would potentially outweigh any savings. Homelessness is expensive to the taxpayer and society and this proposal would also risk frustrating claimants’ attempts to secure training and employment undermining their potential to contribute to the economy.’
In public statements, the DWP insists that it any cut for the under-25s would only apply to new claimants. Iain Duncan Smith repeated this at work and pensions questions last week:
‘As I said previously, we are looking at all this. Anyway, entitlement would never be removed from those who are already on housing benefit. The review is about flow and about re-establishing fairness in a system which many think has become unfair and does not help those who are not eligible for such benefits. I accept that there would be people who would be ineligible. That is the point of examining the system and figuring out how the policy would go, but like all policy reports, it is worth looking at. It deals with an element of unfairness and the thing about the benefits system is that if it is unfair, people who should support it will not support it, such as taxpayers.’
Whether you believe the assurances and that rather convoluted answer or not, it still raises a big question about what else would have to be cut given that the bulk of the £2.3 billion would still be going to existing claimants. That implies that virtually everything about the welfare budget in general and the housing benefit budget in particular will be up for grabs and nothing is safe.
Fiscal Fallout concludes that neither the cuts in annual managed expenditure nor more cuts in departmental expenditure limits ‘are sustainable fiscal solutions’ and calls for ‘a frank discussion about the way we make policy, how we deliver it, and what we measure and value in public services’.
I don’t have space to go into the details here, and the report is more about principles than specifics, but the gist appears to be to build on the Total Place approach to local budgeting, with decision making devolved from Whitehall so that growth can be driven by several cities not just London. Cities and counties would get more control over spending and maybe the chance to keep some of the savings in return for efficiencies gained from integrated working and preventative spending. ‘Future demand will swamp the health, social care and housing sectors without better integration across organisations and sectors,’ warns the report.
All of which could be an opportunity for housing to argue the case for the wider benefits of investment in a way that is not possible as things stand, perhaps along the lines of the ‘progressive localism’ proposed by the IPPR in the summer. However, the report concludes that this is all a debate for the future and that the 2013 spending review is more likely to on conventional departmental lines.
Which means that the battle over housing benefit for the under-25s could be just the start of much, much worse to come.
Anyone applying to their local authority as homeless faces a new regime from today and there are real doubts about how it will work on the ground.
The new power for local authorities to discharge their duty to homeless people into the private rented sector represents a fundamental break with the system established in the Housng (Homeless Persons) Act in 1977.
Under the previous law, anyone accepted as homeless could wait for a social tenancy and the council had to provide temporary accommodation until one came up. Increasingly, councils have offered applicants private tenancies under housing options work but people could still choose to reject them and apply as homeless instead.
The crucial change under the new regulations is that councils now have the power to discharge their duty into the private sector without the applicant’s consent. The private tenancy must be for at least 12 months and if the family becomes unintentionally homeless again within two years then the duty recurs.
This would once have been hugely controversial. The 1977 Act was the end product of a long campaign that followed Cathy Come Home and the establishment of Shelter. When the Conservative government introduced something similar in the 1990s there were a record number of objections and the legislation was quickly repealed under Labour. This time around protests have been much more muted and few people are even talking about it. The change seems to have quiet acquiescence from most of the housing world and enthusiastic support from local authorities in high demand areas.
The new regime comes complete with regulations and guidance that in theory should provide some protection and guarantees of basic standards for homeless people. However, nobody really knows how it will work out in practice. The government estimates around 18,000 homeless people a year will go through the new system but that’s only an estimate. It’s even possible, ironically, that this could lead to a reduction in homelessness as more people accept housing options offers rather than apply as homeless and risk getting no help if they are turned down.
The final version of the supplementary guidance on the suitability of the private accommodation was only published yesterday. This stresses that this is a power, not a duty, and councils should consider whether to arrange a private tenancy based on individual circumstances and have clear policies on its use.
On location – the most controversial aspect of the new regime after successive controversies about London councils exporting their homeless people – the supplementary guidance significantly strengthens previous guidance. This follows the pledges by Grant Shapps in response to the Newham controversy in April that homeless people would not be sent miles away from home.
The supplementary guidance says that ‘in so far as is reasonably practical, secure accommodation within the authority’s own district’. Where that is not possible ‘the authority is required to take into account the distance of that accommodation from the district of the authority’. The accommodation is ‘not likely to be suitable’ if other accommodation is available nearer to the authority’s district.
Authorities are also required to:
- try to secure accommodation ‘as close as possible to where an applicant was previously living’
- take into account ‘the significance of any disruption’ to employment, caring and education and links to medical facilities and other support. This has to include consideration of the applicant’s need to reach their normal workplace, the education of young people especially at critical points like GCSEs.
There are also clauses covering the physical condition of the property, health and safety, landlord behaviour and managemement and tenancy deposits.
In its now familiar style the government published its response to the consultation on the suitability order today – after the new regime had already come into effect. Among the dissenting voices, a quarter of consulteees wanted stronger guidance on health and safety and a number of local authorities wanted guidance on affordability updated to reflect welfare reform and the balance between affordability and location. It’s perhaps telling that although 57 per cent of local authorities were in favour of strengthening the guidance on suitability of location, 33 per cent felt it should not be changed on the grounds that it would make the new discharge power more difficult to use.
In its response, the government stresses that the power is not a requirement and some authorities may choose not to use it at all. It argues that ‘the order strikes the right balance between the protecting of the individual and allowing local authorities the freedoms they need to effectively use the Localism Act power and better manage their housing stock’. On location, it says:
‘Government has made it clear that it is neither acceptable nor fair for local authorities to place households many miles away from their previous home where it is avoidable. Given the vulnerability of this group it is essential that local authorities take into account the potential disruption such a move could have on the household. This Order will strengthen existing legislation in that it states the specific matters local authorities must take into account when considering the suitability of accommodation. This Order does not prevent or prohibit out of borough placements where they are unavoidable nor where they are the choice of the applicant. Some households will wish to leave their current district as such a move can have a positive effect for those escaping violence or those seeking to move to take advantage of employment opportunities.’
All of which sounds great in theory and like it should be enough to stop homeless people being put in sub-standard homes and prevent councils like Newham and Westminster from sending their homeless people to places like Stoke and Nottingham.
Or will it? This is the crucial question examined in this week’s report by the Child Poverty Action Group (CPAG) and to which the answer could well be no based on The Guardian’s story about London councils acquiring properties in cheaper areas all over the country. The crucial thing, which I examine in more detail on my other blog, is the interaction between the new homelessness regime and cuts in housing benefit. It is already impossible in many parts of London to find private tenancies affordable within the local housing allowance cuts and caps introduced in April 2011 and this situation will get dramatically worse with a new round of cuts in April 2013.
Given the conflict between affordability and suitability of location, the CPAG report says that authorities will be caught between a rock and a hard place and could face a wave of legal challenges. For individual families it will all boil down to individual circumstances and some heartbreaking questions such as: is disruption to a child’s education significant if it is not a GCSE year; does travel from home to job reflect the cost of train fares; is being miles away from family a significant enough impact on caring responsibilities and so on.
Clearly many London authorities feel they have to look outside London to find affordable temporary accommodation and private tenancies. The consequences of this for the homeless families concerned remain to be seen as does the long-term potential for even greater concentration of deprivation in poor areas. Add the April 2013 cuts to the equation and things look even bleaker.
In the Lords this week, welfare reform minister Lord Freud gave his optimistic gloss on things. He suggested rather disingenuously that the latest round of stories about people being sent out of London concerns people who arrive in the capital from elsewhere without a local connection. In fact, as Baroness Lister reminded him ‘we are talking about people with local links that matter to them for all sorts of reasons. This policy will destroy those links’.
Freud reiterated that under today’s homelessness changes ‘the council has to consider whether the location is suitable for the household’s individual circumstances, including the significance of any disruption to employment, education and caring responsibilities. Local authorities are required to carry out a full impact assessment before moving people out to other boroughs.’
On the particular issue of temporary accommodation, he said that the DWP was consulting on how rents and management costs will be paid under universal credit – while quietly ignoring the fact that it will not even begin to be introduced until six months after the April 2013 cuts that will cause the problems that councils are worried about.
All of which means an uncertain future for homeless families and some tough choices for local authorities. However, trapped as they are between sky-high private rents, rising homelessness and cuts in housing benefit they do still have choices. In the short term, they can choose how to spend their discretionary housing payments. In the longer term they can choose how they manage their scarce social tenancies. Do they prioritise basic housing need or people who are working? Do they retain and increase their social stock or sacrifice it to new development? As Westminster plans new council homes for people earning £40,000 to £60,000 and Newham plans to knock down a council estate to build a new university campus, it seems some have already decided.
EDIT Monday, November 12: This post was written before the Guardian’s story on Saturday about the DCLG’s briefing to council officers that confirms many of the inferences I was drawing about how the new system will work in practice. See this post at Nearly Legal for more detail on that and this post on Shelter’s blog on the prospects of a return to revolving door homelessness.
The government’s plans on section 106 and affordable housing came under fire from all sides of both houses of parliament this week – and no wonder.
In the Commons, communities secretary Eric Pickles said the Growth and Infrastructure Bill would cut red tape by allowing the renegotiation of ‘economically unrealistic’ section 106 agreements. ‘In our sights particularly are affordable housing requirements that were negotiated at the height of Labour’s unsustainable housing boom. Now that the Brown bubble has burst, bringing us back to reality with a bump, we recognise that 75,000 homes, with planning permission, are lying unbuilt.’
Pickles dismissed the argument made by the National Housing Federation that abolition of section 106 agreements would cost 35,000 affordable homes a year as ‘only in the fantasy housing figures’. The truth was that 41 per cent of planning authorities had already started negotiations and dropped their affordable homes targets, he said.
But how do we know all this? Lib Dem deputy leader Simon Hughes said that nobody wanted stalled sites but he called for much more transparency to check what developers say about viability. ‘Our experience on the south bank is that they say certain things are not economically viable. They then build the housing and flog it off at higher prices that were not revealed at the beginning.’
Pickles responded that viability would not just be judged on the basis of a developer’s word but would have to be proved to the satisfaction of a planning inspector.
Shadow communities secretary Hilary Benn questioned the focus on affordable housing. ‘If section 106 really was the cause of stalled housing developments, why does the clause focus only on the affordable housing requirements, rather than other section 106 requirements— for example, contributing to transport, other infrastructure or new schools?’
He went on: ‘Where is the evidence? This will be a familiar theme in this debate. We are told that there are 1,200 sites and 75,000 homes that are stalled. Apparently the figure comes from something called the Glenigan database. When I asked the planning minister if he would publish it so that we could see for ourselves the information on which the statement is based, he refused to do so.’
Benn argued that the result could actually be further stalling: ‘A developer that hopes to reduce the affordable housing obligation will now have a clear incentive to wait for the Bill to reach the statute book rather than entering into negotiations with the local authority—in other words, delay.’
Concern about lack of evidence did not just come from Labour MPs. Lib Dem Annette Brooke was also worried: ‘If renegotiation outcomes were in line with local planning policies, I cannot see why a local council would not renegotiate on a voluntary basis. Developers’ profits will rise, but how transparent and independent will the appraisals be of the viability of a development with and without the section 106 obligations?’
Labour’s Clive Betts, chair of the communities and local government select committee, took up the same theme: ‘Where is the evidence that there is a problem? Local authorities are renegotiating the agreements where appropriate and in line with local circumstances, but why determine the viability of individual schemes in different localities on a national basis? That is simply not acceptable. The danger is that if developers think they will get a better deal by delaying and going to the Planning Inspectorate once the Bill is enacted because fewer affordable homes will be required, the result of the measure will be the opposite of that intended.’
Tory MP Mark Pawsey, another member of the select committee, said the measure was necessary but he still had concerns. ‘I would like the minister’s reassurance that, when a developer comes forward with a request to renegotiate a section 106 agreement, there will be an evidence base when making a determination. We heard about the issue of developers coming forward looking for a better deal. One concern I have is that that opportunity to come forward for a better deal may prevent some developers from going ahead with an existing section 106 agreement that is eminently deliverable.’
Over in the Lords, peers were making similar concerns in a debate about planning. Lib Dem peer Lord Shipley highlighted the cross-party call from the Local Government Association for a rethink on section 106. ‘Who will be the judge of viability of a scheme containing affordable homes?’ he asked. ‘Is there evidence that central government knows better than local government? I do not think that the case is proven. There is now evidence to suggest that, when voluntary renegotiation has happened, on average councils are accepting a level of affordable housing around one-third lower than stated in their local plan. If plans in relation to Section 106 renegotiations are continued, a system of independent verification of claims of unviability should be established, possibly through the Homes and Communities Agency.’
Cross-bencher Lord Best said there are 400,000 homes with planning permission and local authorities are approving 87 per cent of planning applications. ‘It does not sound as if local authorities are putting up unreasonable barriers to housing activity,’ he argued. ‘I think that 75,000 homes are supposedly held up because the Section 106 agreements now look too onerous. The hope on the part of many developers is that, having got their planning consent, they will be able to negotiate down the affordable elements within those sites and therefore obviously increase the profit margins for those developments.
And Tory peer Lord True, the leader of Richmond council in London, said he supported other government planning changes but was ‘far more cautious’ on section 106 and affordable housing. ‘This is already possible and many local authorities are doing it; some developers engage and some do not. I am not sure that we should reward speculators who are unwilling to play by the rules that other developers accept.’
Labour’s Lord Mackenzie pressed communities minister Baroness Hanham directly on the issue: ‘Could the minister confirm that the 1,400 sites are all stalled for economic reasons because of affordable housing? Or is it for other reasons as well?’
Her less than convincing reply was: ‘There are 1,400 sites with 75,000 units on them. It does not necessarily say that they are stalled for any reason. They need to be unlocked to get that housing out but there may be other things that are also tied up with it as well. However, that is the number of units that we know could be built.’
If that sounds a weak argument for a change in the law, back in the Commons business minister Michael Fallon summed up the debate on the Bill like this: ‘Affordable housing that is stalled for a minimum period of five years is not affordable housing—it is non-existent housing. We already know there are 1,400 sites comprising some 75,000 homes waiting to be unlocked.’
Except of course that we don’t really know that at all. The source for the claim that there are 1,400 stalled sites and 75,000 stalled homes is research by the construction information firm Glenigan based on its database of planning applications. I can find no details anywhere of how ‘stalled sites’ was defined or the reasons why they stalled. Odder still, I have yet to see a specific example cited of a site that is stalled solely because a local authority refuses to budge on affordable housing (if there was one then you can be sure that ministers would have mentioned it over and over again on Monday) but I have seen plenty of cases where the section 106 has been successfully renegotiated.
All of which brings us back to the real reasons why those sites are now unviable. There are lots of sites out there where housebuilders paid too much for the land at the peak of the market and/or the scheme as originally planned is uneconomic because of the mix and density. However, any section 106 agreement that is now seen as uneconomic was freely entered into by private housebuilders based on market conditions at the time. In addition, the price they paid for the land will have been lower to reflect the lower development value as a result of this over-burden.
The consultation paper over the summer proposed forced renegotiation of agreements signed before April 2010 by allowing an appeal on viability grounds to the Planning Inspectorate. However, the Bill goes further and applies to all section 106s that have an affordable housing requirement. Lobbying by housing organisations may have helped to stop the government introducing a complete section 106 holiday and Lib Dem pressure may have secured an extra £300 million of funding to make up for the loss of affordable homes, but the net effect is stil highly favourable to housebuilders.
Even if you justify all of this on the pragmatic grounds that the country needs homes to be built, then surely any renegotiation must recognise the potential windfall gain being made by the companies and their shareholders rather than simply hand them all the best cards and bail them out from their own poor commercial decisions.
The Growth and Infrastructure Bill duly received its second reading in the Commons on Monday but the doubts about this change in policy and the breathtaking lack of evidence for it are not going away.
Every time you think you have got your head around the impact of the April 2013 welfare changes you realise you have forgotten something that makes it even worse.
I don’t need reminding that there are now just 147 days until the bedroom tax and overall benefit cap take affect. I know that increases in the local housing allowance will be restricted to CPI inflation from the same date. I realise that a range of other cuts in benefits and the localisation of council tax benefit and the social fund with reduced funding come in at the same time.
However, that is only the changes introduced by the Department for Work and Pensions. On top of that, I knew that local authorities had suffered deep cuts in their overall funding and I’ve been following closely the change in the Localism Act to allow them to discharge their homelessness duty into the private rented sector (which applies from this time next week). And I was aware that the Ministry of Justice was cutting legal aid to remove funding for most housing and welfare cases without quite realising that also applied from April (for obvious reasons).
The potential for all of those individual factors to interact with each other and the potential for unintended consequences is clear. However, until I read today’s report from the Child Poverty Action Group (CPAG), I had not fully thought through the extent to which this will create difficult and sometimes impossible dilemmas on the ground.
Even then, the focus of the report is mainly on London (because that is where the biggest impacts will be felt) and on the private rented sector (because that will have to cope – or not – with the fall-out). So it does not really cover concerns about the bedroom tax and the switch to universal credit.
The headlines generated by the report include warnings about the extent of out-of-area placements being planned by councils (with a Guardian survey finding widespread plans) and the potential for conflict with the troubled families programme (in Inside Housing). In the first case, the concern is that Newham was just ahead of the game when it contacted housing organisations throughout the Midlands and North about housing its homeless families. In the second, the worry is that councils face a choice between keeping ‘troubled families’ in their homes and potentially rewarding anti-social behaviour or allowing them to be evicted and to lose contact with the intensive programme of support that is meant to help them.
The most immediate priority, according to CPAG, is changing the regulations for the overall benefit cap so that it does not apply to temporary accommodation. Otherwise, with rising private rents making the procurement of affordable accommodation in London unsustainable, both families made homeless by the cap and those already in temporary accommodation could face double homelessness as they are evicted for rent arrears.
Little wonder then that the report found that London councils are looking to the North and Midlands for both private and temporary accommodation. Except that the whole thing could be open to legal challenge under strengthened guidance on ‘suitability’ proposed by Grant Shapps after the original furore about Newham.
The consequences for tenants are grim even with moves that are closer to home – as revealed in The Guardian’s story about a mother with two children from Waltham Forest. She was rehoused 37 miles away in Luton but the move split up her family so that her older daughter could stay in school.
However, the report reveals the pressures that will leave councils ‘between a rock and a hard place’. London Councils has already estimated that 133,000 workless households in London, including 63,000 with children, will be unable to afford their current rent as a result of the bedroom caps and overall benefit cap. Surveys also show a growing proportion of London landlords will either not extend existing tenancies or consider not renting at all to people on benefit.
Research so far into the impact of the 2011 changes (the bedroom caps and cut to 30th percentile) suggests that most tenants will look to make up rent shortfalls from elsewhere rather than move. The proportion moving out of the borough has been lower than expected so far, perhaps because transitional protection means the impact of the bedroom caps on existing claimants is only just being felt. However, staying put will become increasingly difficult as further cuts bite and larger families face the biggest shortfalls – and there is no transitional protection under the April 2013 cuts.
The officers interviewed for the report said that elected councillors had yet to realise the full implications of the changes. ‘While several officers had received a strong steer from elected members that they did not want to see families moved out of the borough, officers are struggling to see how they could achieve this,’ says the report. Officers were ‘unclear’ as to how claimants could avoid moving out of the borough without significantly increased overcrowding.
Come April 2013, families will have three options: look for cheaper accommodation near to home or elsewhere; look for work of over 24 hours a week to avoid the benefit cap; or present as homeless to their local authority. If they are vulnerable and not intentionally homeless, then the council has to find them a suitable home and provide temporary accommodation in the meantime. From next week the home can be private rented.
Some councils are using discretionary housing payments to pay deposits or offer incentives to encourage landlords to take claimants – but this is only ever a short-term solution. Meanwhile, even outer London boroughs are finding they cannot match a supply of affordable accommodation to demand.
The report goes on: ‘Given the pressures on private rents, most authorities felt that it would not be possible to do this to any large scale within London, particularly for families whose benefits are capped at £500 a week. This led to discussions about procurement of private sector properties elsewhere – locations cited included Nottingham, Derby, the Midlands and Wales.’
Many councils believe that the government’s suitability consultation on the discharged duty, which says that ‘it is not acceptable for local authorities to make compulsory placements automatically hundreds of miles away’, leaves them in an impossible position.
The benefit cap will leave families in temporary accommodation with a shortfall against their rent that councils cannot ask them to make up if it would deprive them of other essentials. The report goes on: ‘Applying the benefit cap to families in temporary accommodation effectively means that families who are accepted as homeless, could be made homeless once more due to their inability to pay the costs of temporary accommodation.’
And what about people who local authorities persuade not to make a homelessness application and accept help through prevention and relief work? Do they accept stay put and find a way to make up the rent shortfall, move into sub-standard and overcrowded accommodation or move far away from their communities and children’s schools? None of the choices look good and the scope for choice is narrowing all the time.
Housing is the big thing missing from today’s major report on living standards from the Resolution Foundation.
The final report of its Commission on Living Standards looks at the plight of low and middle income families. Things were bad even before the crash with average incomes falling by £570 between 2003 and 2008 as growing inequality meant that prosperity was not shared around. The gap was only made up by a £730 a year increase in tax credits.
However, incomes have fallen even more since 2008 and in the run-up to 2020 tax credits are being cut. Even on optimistic growth assumptions, says the commission, low income households are see their incomes fall 15 per cent over the next eight years, back to levels last seen in 1993, and middle income families will see their incomes fall 3 per cent to 2001 levels. That is a fall unprecedented in modern times.
To put that in financial terms, a low income household (the 10th percentile, or in the bottom 10 per cent) had an income of £10,600 a year in 2008/09. By 2020/21 that will have fallen to just £9,000 a year (at 2008/09 prices). A middle income household (at the 50th percentile) will see their income fall from £22,9000 to £22,100 over the same period.
The commission calls for a series of measures to boost wages for the bottom half of earners, with improved training and skills, a stronger Low Pay Commission to take a view on sectors of the economy that can pay an ‘affordable wage’ higher than the legal minimum and measures to help employers reduce their reliance on low pay. That needs to be backed by measures to boost employment including support for parents and second earners with more free childcare, higher child tax credit for younger children and higher universal credit disregards.
That brief summary scarcely does justice to a report that analyses why the middle is being squeezed throughout the western world and why things are worse in the United States and Britain. The Resolution Foundation is doing a range of other work on housing policy but, since it was outside the commission’s scope, the report only touches on the way that housing costs have exacerbated the problem of the squeezed middle and the way that housing could contribute to a solution.
It describes the squeezed middle as ‘a group whose members are in work but on low pay; who work across all sectors, especially those – like retail and hospitality – that are rarely discussed in relation to policy; and who struggle to get on the housing ladder, to secure promotion and to save’. They are in other words very close to the ‘hard-working families’ and ‘strivers’ so heavily featured in coalition welfare reform rhetoric.
That’s backed with analysis of the mortgage costs, which shows that repayments are higher as a proportion of income now with base rates of 0.5 per cent than they were in the mid-1990s when rates were 7 per cent. Meanwhile other research for the commission concluded that: ‘mortgaged home ownership among low to middle income families will fall consistently over the next decade as more and more families are forced into the private rented sector’. Even with moderate growth in real incomes, 18 per cent of households will be renting privately by 2025 and that proportion could reach 22 per cent if income growth does not resume by then.
The report goes on: ‘Given the importance of housing to labour mobility, ensuring that supply can respond to projected patterns of demand will be very important not just to living standards but also to economic growth. Even so, it seems likely that under any reasonable scenario many more low to middle income households will find themselves raising children in rented accommodation. This will necessitate a change in the quality and security that the rented sector is able to offer.’
It’s interesting too that the start of the squeeze on lower and middle incomes identified by the commission coincides with the final stage of the last housing boom and the start of the boom in buy to let that have ensured that more and more low and middle income earners are priced out of the market. However, the analysis appears to assume that home ownership and private renting are the only two housing options available. One big reason why lower and middle income families have been squeezed is that social housing has been squeezed too. Almost a third of households were social tenants in 1981 and average household incomes were the same as those of private tenants. Flash forward 30 years and only 17 per cent of households are social tenants and their incomes are half those of private tenants.
The explanations for that are complex – the right to buy, residualisation of the social sector, deregulation of the private sector, the squeeze on mortgages and the rest – but it has squeezed lower and middle income families as surely as more general economic factors. That squeeze will only get worse if real incomes continue to fall as the report fears and the shortage of housing supply continues.
Any reversal in that trend relies on reversing the orthodoxy of the last 30 years: that personal subsidies are more efficient than bricks and mortar subsidies because people only get support when they need it.
That may seem unlikely and a throwback to the world before the 1980s. However, if that orthodoxy was already shaky – it’s one big reason why housebuilding has slumped after all – then it has surely disappeared with the end of security of tenure in the social sector.
On the same day as the commission published its final report, the Telegraph reported a new initiative by the three Conservative-controlled west London councils that have embraced the social housing reforms most enthusiastically. Behind the headline about ‘council homes for middle class professionals’ like teachers and nurses, Westminster, Hammersmith and Fulham and Kensington & Chelsea are pressing for freedom to borrow against their housing stock. This will presumably be to build homes for affordable rent. Jonathan Glanz, Westminster’s cabinet member for housing, tells the paper: ‘We need to continue ensuring that we provide for a wide range of people and maintain mixed communities, including middle-class people on middle-range salaries.’
Whatever you think of five-year tenancies and the housing policies and priorities of the councils concerned, it seems like social housing of a sort is definitely back on the agenda for the squeezed middle. Even if the options for those below the squeezed middle look more limited than ever.
As the slow motion train crash of welfare reform continues, the driver is ignoring a succession of people desperately waving as he passes them.
Heedless of the big red flags they are holding, Iain Duncan Smith and his conductor Lord Freud sometimes even wave back and blow the whistle of their sleekly designed train in acknowledgement of what they see as the congratulations of the crowd.
All along they have argued that the universal credit – the one genuine reform amid all the welfare cuts – will make all the pain worthwhile and ensure that work pays and nobody is worse off.
Yet the warnings are now coming thick and fast and not just from the usual doom-mongers and government IT system sceptics. As I blogged last month, the people lining the track include former welfare reform tsar Frank Field, the Social Market Foundation, the Social Security Advisory Committee and maybe even cabinet secretary Sir Jeremy Heywood as well as councils, charities and housing organisations.
Now new research for the Joseph Rowntree Foundation acknowledges the advantages of the design of the new system in terms of streamlined administration and integration of in and out of work benefits but argues that these risk being undermined by the details of implementation. In particular, it highlights the dangers of:
- Requiring people to claim online when only 20 per cent do at the moment and only 40 per cent are ready and able to do so in future
- Paying out monthly when most people on low incomes budget on a weekly or daily basis
- Paying out in a lump sum to the head of the household rather than paying individual elements separately with increased risks of budgeting problems, arrears and financial exclusion.
Amy Tarr and Dan Finn of the Centre for Social and Economic Inclusion recommend a series of steps that the government could take to mitigate the risk that the new system will leave people worse off than before and trap them in poverty. Better financial support and advice, reconsideration of the impact of localising council tax benefit and the social fund and a more visible ombudsman for the whole benefit system are just some of them while the report also calls for more information on the back-up arrangements in case the IT system fails.
But are IDS and Freud listening to the key message that their sleek new train needs a few design changes and that ‘making work pay’ has to be about more than just toughening the sanctions regime for people on benefit?
The complacent response so far from the DWP (see the standard line to the Telegraph that ‘Universal Credit will help millions of people by making them better off in work than on benefits’) and the rose-tinted view of lessons from the direct payment pilots might suggest not. However, behind the scenes there are signs of movement on some of housing’s biggest concerns about the new system.
The Northern Ireland government has won three significant concessions: housing costs will continue to be paid direct to the landlord with an opt-out for tenants, rather than the other way around; universal credit will be paid fortnightly rather than monthly; and introduction of the new system will be delayed six months from October 2013 to April 2014.
Social security minister Nelson McCausland says the concessions are a recognition of the ‘unique circumstances’ of Northern Ireland, which is presumably a reference to the politics (of the coalition) and the institutional setting (with the Northern Ireland Housing Executive) in the province.
However, all three of the concessions would go some way to addressing the criticisms of the new system in the rest of the UK too and the second and third dangers highlighted by today’s research. It’s worth noting that there also seem to be ‘unique circumstances’ throughout the UK for mortgage lenders, since mortgage interest payments will continue to go direct to banks and building societies under the new system.
So it’s not too late for ministers to take heed of the people waving red flags beside the track. Getting the detail of the universal credit right will not solve the more fundamental problems of welfare ‘reform’ – the assumptions that making work pay can be achieved by cuts in benefits alone and that work alone can raise everyone out of poverty – but it may just avoid a preventable train crash.
Is it possible to ‘hard-wire common sense’ into a mortgage market that has a track record of irrational excess?
The Financial Services Authority (FSA) launched the final version of its Mortgage Market Review (MMR) this morning after a marathon round of consultation with lenders and consumer groups.
As from the very beginning, with the Turner Review in 2009, the key task is to find a way to prevent a repeat of the irresponsible surge in lending up to 2007 without choking off the supply of mortgages and making the housing market even more dysfunctional as a result.
Along the way, the idea of explicit limits on loan to value ratios has been dropped in favour of more stringent checking of affordability, the virtual abolition of self-certified mortgages and much stricter control of interest-only loans. The new regime will apply from 2014.
However the final version also contains transitional protection to make life easier for ‘mortgage prisoners’ – customers trapped on existing loan terms and unable to remortgage or move. These will apply straight away.
Reactions so far suggest that the FSA has got the balance about right but I wonder if that will be the long-term verdict. Discounting the fact that it will be much more difficult for someone like me (in their 50s and self-employed) to get a mortgage in future, the package is geared to avoid future mistakes.
As for the consequences of the past, mortgage prisoners will be helped by new transitional rules that allow lenders to ignore the new rules on affordability and interest-only loans for existing borrowers who want to remortgage for the same amount or less and who have a good payment history.
Given that up to half of new mortgages in 2007 were self-certified, that will help a lot of borrowers. However, it does nothing for those locked out of the housing market and frustrated would-be first-time buyers may look askance at extra help for people who may have borrowed unwisely while they are protected from themselves and stuck paying rent.
Reaction from lenders and brokers is generally positive. They argue that most lenders are already operating most of the new rules. The Council of Mortgage Lenders said today that the rules would bring certainty and had avoided elements in the original draft that would have been difficult to implement or unduly restrictive. On the face of it, the proposal that lenders must verify borrowers’ income and that the mortgage is affordable taking into account their net income ought to prevent the abuses of the past. Making them take into account the impact on mortgage costs of future interest rate rises looks sensible. Making ‘a clearly understood and believable alternative source of capital repayment’ a condition of getting an interest-only loan does too – even if that leaves some room for interpretation, not to mention amazement that it is necessary to say so.
However, as I’ve blogged before, the problem with the new regime could be more what it does not cover than what it does. In December 2011, plans to regulate buy-to-let lending were dropped with the explanation that this was a ‘decision for the lending’. Similarly, proposals to regulate second charge lending were put off pending a wider review of consumer credit that is not due until at least April 2014. Neither is mentioned in the final version of the MMR. That is two major parts of the market that will not be connected to the hard wiring
Meanwhile, as the Joseph Rowntree Foundation’s housing market taskforce said in September, regulation of the mortgage market is only one element in tackling housing market volatility. It warned that overall the government was being too timid and that ‘in some ways we are moving further away from this goal’.
Lenders and regulators told us after the 1990s crash that they had learned their lessons, only to forget them a decade later. The final version of the MMR may be the best compromise currently available between over-and under-regulation but it does little to make the wider housing market any less dysfunctional or any less stacked against the housing have-nots. Addressing that will take more than common sense, no matter how hard-wired.
‘We’re not in any way complacent,’ Mark Prisk told the Today programme this morning – having spent his interview being just that.
It’s the first time I’ve caught a media appearance by the successor to Grant Shapps, who was so ever-present in the radio and TV studios that he was dubbed the minister for Daybreak. Prisk is not on twitter either so other than a few brief interviews and a few blogs he is still a bit of a mystery to me.
The housing minister was reacting to the latest Home Truths report from the National Housing Federation, which includes the stat picked up everywhere that the number of people in work on housing benefit is rising by 10,000 a month.
The report forecasts that private rents will rise almost as quickly (35 per cent) over the next five years as they have over the last five (37 per cent). If that’s correct, then even more people will have to rely on housing benefit even if they are working. The total of in-work household claimants has grown by 417,830 or 86 per cent since 2009.
In previous years, Home Truths has concentrated more on the plight of first-time buyers and the falling proportion of home owners so this year’s report and the extensive coverage it is getting in the media feel like a major change in perceptions of the housing crisis. The Prisk interview was preceded by one with Milly, a single parent in the South East who is working but recently had to move because of restrictions on the local housing allowance. The only way she could find new accommodation was to lie to her landlord about being on housing benefit and to share with another single parent.
As I blogged after David Cameron’s speech at the Conservative conference too, there are clear signs that the government at last gets the fact that it has to increase housebuilding even if that means offending the nimbys. There are also signs that things are changing underneath the surface, as in Isabel Hardman’s report on Friday about a proposal by Jake Berry, parliamentary private secretary to Shapps, to penalise developers who landbank sites without building on them.
So it was intriguing to see what Prisk had to say (listen here from about 2 hours, 15 minutes in). His response to the interview with Milly was that:
‘We’ve had many years of low rates of housebuilding. I think it fell to the lowest rate since the 1920s under the last administration. So this is a systemic problem of a dysfunctional market and as they’ve said the key issue is getting more homes built both for sale and to rent. You heard from Milly’s point of view that the best way to help tenants is to expand the private rented sector so she has much more choice. It’s quite clear from what she was saying that she has very little choice at the moment to be able to shop around and get a better deal.’
So, asked interviewer Sarah Montague, the answer is to build an awful lot more homes?
‘Well I think we certainly do. Obviously it’s a controversial issue but I think when you look at the long-term problem, the fact that the number of homes built has been something like less than half the number of households formed, you’ve got to do that and that’s why we’re putting significant money into the affordable homes programme, 170,000 additional houses, and also particularly for private renting which I think is really important for the first time putting a debt guarantee which sounds technical but essentially it’s allowing much more investment to come into this market. Get some of the experienced players in Germany, Sweden and America and elsewhere to really help people like Milly.’
Let’s leave aside that the coalition’s share of the affordable homes programme is actually 80,000, there are intriguing hints here of the way that private renting is now at the top of the government agenda. It’s telling though that he thinks it will be the Germans, Swedes and Americans that will come to the rescue rather than our own investment-shy institutions?
Sarah Montague then pressed him on affordable rent. As the public accounts committee pointed out last week, if you finance them with higher rents you simply add to the housing benefit bill and the problem. Prisk replied:
‘There’s a flaw in their report which I think is that they’re making an assumption that every local authority will charge 80 per cent of market rents in order to deliver that extra £15 billion of private investment. In fact when you look at the numbers it’s much more like 65 per cent so I think they’ve got that number wrong.’
This is weak even if you leave aside the fact that it’s not local authorities that will be charging the higher rents. For the record the PAC actually said: ‘The Department has not done enough to understand the full impact of higher rent levels on tenants. Housing providers can charge higher rents than before (on average 65% of market rents in London and up to 80% elsewhere).’ According to Prisk’s own department’s reply to a freedom of information request, the average proportion of market rent in regions outside London ranges from 77.7 per cent in the North East to 79.5 per cent in the North West.
In any case, said Sarah Montague, we know that [market] rents are going up so even if it’s a lower percentage it’s still of a higher rent. Prisk replied:
‘We come back to several things. One, make sure the rented market is growing so there are more properties. Two, add that extra 170,000 on the affordable homes programme. Three, as the federation rightly say, let’s get that public land that’s been idle for too long sold – we’ve got land out there for about 33,000 houses sold now, get that into the market, get that underway. That’s the way to tackle this and make sure for example you help first-time buyers some of whom want to buy but are staying in rented property making more problems in the rented sector because they can’t raise a deposit.’
Montague pressed him again – ‘so public accounts committee are just wrong and have their facts wrong?’ – and Prisk replied:
‘Well they’re making assumptions about what councils are going to do on the basis that they’re going to charge 80 per cent. The evidence at the moment is that that is not the case. So I think that is where we differ with them. But we’re not in any way complacent about the challenge, people like Milly highlight the fact that for years the last government, all governments, have actually failed to build enough homes. We want to change that.’
Leave aside a second mistake about councils setting affordable rents and you’re left with an implicit acknowledgment that this government as well as the last one has failed on housebuilding. But is it really true that all governments failed? Between 1945 and 1979 they seemed to do pretty well and John Major didn’t do too badly. Gordon Brown (despite presiding over the lowest number of starts since the 1920s) at least did something in response to the crash. The problems have been mainly down to just three governments: those of Margaret Thatcher, Tony Blair and David Cameron (in that order).
Not in any way complacent? As Brian Green blogs over at Brickonomics, even the big housebuilders believe they can produce no more than 160,000 homes a year by 2017 without a significant change in land availability. That leaves a huge gap for the Swedish, German and American cavalry to fill – and that is just to stop things getting even worse. It does nothing about high house and land prices. It does nothing to resolve the problems faced by private tenants like Milly in a landlords’ market or the soaring rents that have defied David Cameron’s attempts to argue they are falling. As with the energy market, it’s one thing to say you want to bring charges by private suppliers down, quite another to achieve it.
Sooner or later a government will have to take much more radical action than anything that is being contemplated by this one. That won’t happen until ministers realise just how much they are still being complacent about when it comes to the housing crisis.
Remember when David Cameron claimed that housing benefit cuts were bringing down rent levels? I bet he doesn’t now either.
Cameron said at prime minister’s questions in January that: ‘What we have seen so far, as housing benefit has been reformed and reduced, is that rent levels have come down, so we have stopped ripping off the taxpayer.’
The claim provoked almost universal derision at the time but (ex) housing minister Grant Shapps backed up his boss and said he had been referring to a survey by LSL Property Services showing that the average rent fell 0.8 per cent between November and December.
Nine months on and the latest LSL survey has just revealed a 3.2 per cent rise in the average private rent in England and Wales to a new record of £741 a month. Rents soared by 1.1 per cent in September alone.
In London, where the bedroom size caps in local housing allowance hailed by Cameron should have had the most impact, rents rose almost twice as quickly. The average rent is now 6.2 per cent higher than a year ago at £1,092.
The one bright spot in the survey is that the 9.1 per cent of rent that was late or went unpaid was slightly below the 12-month average of 9.5 per cent.
However, that was put into context by a survey yesterday from the Money Advice Trust showing that calls to its national debtline about rent arrears have increased by 99 per cent since 2007.
Almost 10 per cent of callers between January and August 2012 had rent arrears compared to 8 per cent in 2011 and 6 per cent in 2007. And renters made up more than half of callers for the first time ever.
Joanna Elson, chief executive of the Money Advice Trust, warned of a ‘dangerous spiral’ as stagnant earnings growth and sharp jumps in rental costs risked pushing people over the edge.
The really worrying thing is that all this pressure is building up before the firestorm of welfare reform hits next April. Social tenants face massive problems of their own with the bedroom tax but social and private tenants will both be hit the overall benefit cap and cuts in council tax benefit. Six months later the universal credit starts and there were more dire warnings of the effect on disabled people and their families this week.
Far from the reductions in rents claimed by the prime minister and the new Conservative party chairman, welfare reform is looking exactly as critics claimed it would be: a guaranteed way of ringing up arrears and eventual homelessness.
Just as well then that Cameron has turned his attention to bringing down gas and electricity bills – but then that doesn’t seem to be working out too well so far either.
Bit by bit the facts about the affordable rent programme are leaking out but far too much remains hidden or unclear.
On Friday, in the typically under-stated style of all-party committees, MPs published their verdict so far. The public accounts committee concludes that ‘it is not yet clear whether the programme will deliver value for money in the long term’ and that ‘the department needs to do more work to understand the impact of the programme on tenants and its interaction with wider welfare reforms’.
It is still worried about slippage because the delivery of new homes is heavily skewed towards the end of the programme and warns that it may be a one-off way to take advantage of housing providers’ balance sheets.
All of this is worrying even though it is perhaps the understandable result of a programme developed in a hurry to keep the affordable housing show on the road. From the government’s point of view it delivers more homes for less money and, while the pressure will undoubtedly be on in the final year of the programme, it also again illustrates the ability of the Homes and Communities Agency and social landlords to deliver what they are told.
But deliver for what? Hard information about affordable rent is only just trickling out. The PAC report tells us very little that we did not already know: it repeats the DCLG’s impact assessment claim that the housing benefit bill will rise by £1.4 billion over 30 years as a result of the programme without questioning any of the assumptions behind that; an appendix quotes the headline figures that the average affordable rent will be £182 a week in London (65 per cent of market rent) and £133 a week in England (73 per cent); and it says that 63 per cent of homes in England and 5 per cent in London will be at the maximum 80 per cent of market rent.
That’s what we do know. However, the information is based on the original bids and not the final contracts that were signed and so may have changed again (as Inside Housing reports, a quarter of the London providers originally planned to charge higher rents when their bids were submitted). In addition, the DCLG did not collect information on the rent charged by bedroom size and we still do not know how the distribution of the homes, their size and their rent between the different London boroughs. Given the back-loading of the programme is it possible we will not know the full facts for another three years?
In some parts of the country, where social rents are already reasonably close to market rents, it may be hard to see the difference with affordable rent (though the new programme may also not be that viable). In other, more expensive, regions and especially in London we still do not know the answer to another question either: will the new homes be let to tenants who can afford the higher rents or will they do to tenants who are in the most housing need? If it’s the former, then more homeless households and people in the most need will be forced into the private rented sector and the housing benefit bill will be that much higher and the benefit trap that much bigger. If it’s the latter, the housing benefit hit will be smaller but still substantial and there will still be huge barriers to employment.
The PAC concludes that the DCLG ‘has not done enough to understand the full impact of higher rent levels on tenants’. It goes on:
‘The Department does not hold information on the rent levels being charged for individual properties and it has not considered the impact on tenants or prospective tenants of these rent levels or the interaction with wider Housing Benefit reforms. The Department should consult tenants and providers to understand the impact of the higher rent levels on tenants, and commission research into the financial and other characteristics of those tenants living in ‘affordable rent’ homes and build the results into future programmes.’
Apart from the danger of the new homes going to ‘the richest of the poor’ rather than those in the most need, there is also an issue about the allocation of the larger (and therefore more expensive) homes. ‘We are aware of cases where four bedrooms homes have gone to a couple with no children or a couple with one child,’ say the MPs.
Put this all together and we have a programme being developed in conditions of considerable secrecy and with seemingly very little attention being paid to what happens after the buildings are completed. However, the fundamental problem of what counts as ‘affordable’ is not new.
The most expensive shared ownership flats left behind the definition of affordable long ago. A quick look at First Steps London, the website for Boris Johnson’s ‘affordable housing programme’, reveals this £570,000 three-bed flat in Hackney. It can be yours for a deposit of £14,250 and a mortgage of £128,250 to buy a 25 per cent share. If you can get a mortgage, the monthly repayments will be at least £750 a month on top of the rent for the remaining 75 per cent of £1,048.27 and the service charge of £155.89. According to the website that requires household earnings of £60,935 a year, but that would mean that the estimated monthly cost of £1,954 would account for 56 per cent of take-home pay of £3,510.
Again, the housing organisations involved are doing their best to deliver new homes within the bounds of what is financially feasible and the tenants and shared owners will be paying less than they would be on the open market. However, that brings me back to the definition of ‘affordable’.
The only real way to guarantee that homes are affordable is to base the price or the rent on what people can afford to pay. That, broadly speaking, is how social rent works, with rents calculated on a 70:30 formula local earnings to market values. The minute you define ‘affordable’ solely in relation to market values that link is broken, especially when it happens at a time when many incomes are frozen or falling. And, as I blogged in June, the social – genuinely affordable – sector is set to shrink by around 250,000 homes over this parliament as a result of the combination of affordable rent re-lets, the right to buy, regeneration schemes and asset management by landlords.
In the meantime, UK house prices are propped up by ultra-low interest rates and quantitative easing. Whether you believe the warnings that prices are over-valued by 20 per cent or not, you have to wonder what will happen when interest rates eventually rise. There are big regional variations and rents are historically more stable than house prices but you have to wonder whether rents at (up to) 80 per cent of the market level will really seem so ‘affordable’ then, let alone affordable.
It’s great news that David Cameron used his conference speech to criticise nimbys and call for more homes but does he really get the problem?
In the week that has seen the launch of the pan-housing Homes for Britain campaign it was significant that the prime minister went beyond the odd dutiful word in his leader’s speech at Birmingham. The bit that really struck me was this:
‘There are those who say “yes of course we need more housing”…but “no” to every development - and not in my backyard. Look - it’s OK for my generation. Many of us have got on the ladder. But you know the average age that someone buys their first home today, without any help for their parents? 33 years old. We are the party of home ownership - we cannot let this carry on.
‘So yes - we’re doubling the discount for buying your council house…we’re helping first-time buyers get a 95 per cent mortgage…but there’s something else we need to do - and that’s accept we need to build more houses in Britain. There are young people who work hard year after year but are still living at home. They sit in their childhood bedroom, looking out of the window dreaming of a place of their own. I want us to say to them - you are our people, we are on your side, we will help you reach your dreams.’
I’m not at the conference myself but I’ve had some positive reports about Homes for Britain and this section of the speech is further evidence of that. Ok, there are no specific policies, but this is still Cameron taking a stance on the issue and showing that he gets the point about generational fairness when he knows many (or even most) in his party are eager to find reasons to oppose new homes in their backyards.
So where’s the problem with all of this? First off, housing benefit. I’ve already covered this extensively this week here and here but Cameron again contrasted people who commute to work and pay their taxes with the ‘families – individual families – getting 40, 50, 60 thousand pounds of housing benefit to live in homes that these hard working people could never afford themselves’. He again contrasted the choice facing young people:
‘Choice one: Work hard. Go to college. Get a job. Live at home. Save up for a flat. And as I’ve just said, that can feel like forever. Or: Don’t get a job. Sign on. Don’t even need to produce a CV when you do sign on. Get housing benefit. Get a flat. And then don’t ever get a job or you’ll lose a load of housing benefit. We must be crazy.
‘So this is what we’ve done. Now you have to have to sign a contract that says: you do your bit and we’ll do ours. It requires you to have a real CV and it makes clear: you have to seek work and take work - or you will lose your benefit. And we’re going to look at ending automatic access to housing benefit for people under 25 too. If hard-working young people have to live at home while they work and save, why should it be any different for those who don’t?’
The phrasing on the under-25s was interesting. The government will ‘look at’ ending ‘automatic’ access sounds to me like a retreat from suggestions that it will be scrapped altogether. Perhaps the message is sinking in that more than half of the under-25s on housing benefit have children and that there may be good reasons why the rest cannot move back in with their mum and dad?
However, the rest of it was the familiar mix of exaggeration and generalisation from a tiny minority of cases. Never mind that only a miniscule number of claims ever amount to £60,000. Never mind that the fastest growing group of housing claimants is people in work who need it because wages are low and rents are high. Never mind that fact that all of the housing benefit goes to the landlord not the tenant. Never mind that, as the Priced Out campaign revealed this week, one in four Conservative MPs are landlords themselves. By my reckoning they include 13 of the ministers sat around the Cabinet table and Cameron himself.
Cameron clearly sees the ‘strivers’ as people struggling to pay the mortgage and justifies the government’s stance on austerity on the grounds that it has delivered ultra-low interest rates:
‘If we did what Labour want, and watered down our plans, the risk is that the people we borrow money from would start to question our ability and resolve to pay off our debts. Some may actually refuse to lend us that money. Others would only lend it to us at higher interest rates. That would hurt the economy and hit people hard. If you have a mortgage of £100,000, just a 1 per cent interest rate rise would mean an extra thousand pounds to pay each year.’
However, there are now as many tenants out there (7.4 million and rising) as people buying with a mortgage (7.4 million and falling). That means the ‘strivers’ are just as likely to be renters who have faced ever-increasing rents even though their landlords’ mortgage payments have fallen. The ‘strivers’ may even include many of the very people whose housing benefit Cameron wants to cut in the name of fairness.
And it seems to me that same logical disconnect applies when it comes to nimbyism. As I was reminded on twitter earlier, the problem is that being the ‘party of home ownership’ also makes you the party of nimbys. For every Tory MP like Nick Boles who is pressing the free market case for more new homes there are 10 like Mark Prisk with constituencies full of people opposing them because they know that new development will harm their house prices.
So two cheers for the anti-nimby rhetoric but it remains to be seen whether it turns into action on the ground. Is Cameron really prepared to take on the massed ranks of the National Trust and the CPRE? Is he prepared for decisions that will be opposed in a swathe of key seats in the South East? Does he see the way that high house prices, high rents, a high housing benefit bill and low housebuilding rates are connected?