Here are some thoughts on an event I’ve just chaired for the Resolution Foundation yesterday on the scale of the housing crisis and how to fix it.
Rather like most of my blogs, I thought it would be stronger on the first bit than the second, but the debate revealed a new willingness to look for solutions as well as more reasons to be gloomy.
The centerpiece was a sneak preview of some forthcoming research from the Resolution Foundation and Hometrack on the housing plight of low and middle income households. The foundation is a think tank focused on the 5.6 million people caught in the squeezed middle between stagnating wages and rising costs.
The conclusion is that 1.3 million of them face unaffordable housing costs. That is a very conservative estimate as it is based on some cautious assumptions such as lower quartile house prices. Of these, 590,000 are private renters, 585,000 are owners with a mortgage and 100,000 are social renters.
Almost half of them (570,000) are younger families where the head of the household is under 35 and two thirds are outside London and the South East. One particularly dramatic graphic in the final report shows how unaffordable housing (defined as more than 35 per cent of net household income) is spreading rapidly to other parts of the country.
A key message is that, while a deposit on home ownership remains out of reach (the average time needed to save for one is now 22 years), private renting is now more expensive than paying a mortgage in all but a handful of local authorities in Britain. Another is that shared ownership – the often forgotten form of tenure – is the most affordable and warrants fresh scrutiny.
That was followed by responses from three panelists that revealed some serious doubts about whether the solution to the crisis really is more investment in private renting (even if it comes from institutions rather than buy to let landlords). After all, as Vidhya Alakeson of the Resolution Foundation pointed out, it emerges from the research as ‘overwhelmingly the most expensive tenure’.
Keith Exford of Affinity Sutton and the G15 group of housing associations made a powerful case for more investment in social renting. He said the Treasury’s discounting of investment by 50 per cent significantly undervalues the real impact and cited research showing that it offers the best value for money in the long term. He was also sceptical about Build to Rent delivering enough new supply quickly enough.
Natalie Elphicke of Million Homes, which aims to find ways to harness new social investment with little or no government grant and mixing private and social renting, argued for ‘progressive ownership’ that would allow people to move from renting to owning. She also had some harsh words for buy-to-let landlords who allow their tenants to pay their mortgage while offering them no security in return.
Campbell Robb of Shelter said debates were needed on what we want out of home ownership, what we really mean by affordable, more freedom to borrow for council housing and, above all, land. If compulsory purchase can be used for the HS2 rail line in some of the safest Conservative seats in the country, he asked, then why not for new homes?
The debate that followed ranged far and wide from the banks to Nigel Farrage, self-build to tax and the role of local authorities to rent control. The encouraging thing for me was not so much that magical solutions are appearing – that would be expecting too much – but that people are looking at all the issues in new ways.
That’s a reflection of the fact that things are changing around the country too. For one example, see Gentoo’s launch this week of its Genie structured home purchase plan. For another, see this week’s report of the London Finance Commission. This comes up with the remarkable stat that the last 10 years have seen £17 billion investment in affordable housing in the capital while £50 billion in housing benefit has been paid to landlords. Who would have thought a couple of years ago that a report for a Conservative mayor would argue that ‘the relaxation of borrowing controls is the only obvious solution to enable the delivery of greater supply’? For more on the report, see Steve Hilditch’s blog for Red Brick.
The big question is whether this new thinking is going to be enough to counteract the damage caused by George Osborne’s reckless Help to Buy policy and whatever he has in store for us in the spending review. Fans of it were certainly in short supply at the Resolution Foundation event yesterday. For a sneak preview ahead of Mark Carney’s arrival at the Bank of England, see this Money Week blog on the housing market consequences of Canadian state guarantees for mortgages.
As for the spending review, there are crucial issues to be settled not just on the prospects for housing investment and housing benefit, but on social sector rents and investment in private renting too.
New thinking on the housing crisis is tantalisingly within reach but, as yet more dismal housebuilding figures underlined as the event was taking place, the crisis itself is getting worse all the time.
‘She was fine before this bedroom tax. It was dreamt up in London, by people in offices and big houses. They have no idea the effect it has on people like my mum.’
I’m not sure how the architects of what ministers prefer to call the spare room subsidy will react to the words of Steven Bottrill or the tragic suicide of his mother Stephanie. A spokesman for the Department of Work and Pensions (DWP) told BBC radio news yesterday that it would be ‘inappropriate to comment’ on an individual case but that did not stop a ‘source’ from adding that the government had made discretionary help available.
You can read more about the awful story in yesterday’s Sunday People and a fuller interview with Steven Bottrill in today’s Mirror. With her two children grown up and left home, Stephanie Bottrill, 53, faced a £20 a week under-occupation penalty on her three-bedroom home in Solihull. She left a notes to family and friends including one telling her son ‘don’t blame yourself for me ending my life, it’s my life, the only people to blame are the government’. Then she left the house and it’s believed she walked into the path of a lorry on the nearby M6.
Among the many heartbreaking details, one that really sticks in my mind was the way that she had her things packed in boxes marked ‘kitchen’ and ‘bathroom’ even though she had nowhere else to go. She wanted to be prepared in case the council found her a smaller place.
From the reports, it’s not clear what advice and support or what offers of alternative accommodation she received. What seems a little clearer is that she was under severe financial strain even before having to find that extra £20 a week and facing the prospect of having to leave her home of 18 years. Perhaps more will emerge at the inquest.
In the wider context of welfare reform, will there be more individual tragedies like this? As I blogged in November, there have already been several awful cases and more look both inevitable and predictable.
However, the sad story of Stephanie Bottrill illustrates particular problems with the bedroom tax. Her circumstances were not those of the worst cases that have attracted all the publicity so far: the couples with a ‘spare’ room given over to medical equipment or who needed to sleep in separate rooms; the families with disabled children living in specially adapted homes; the victim of domestic violence facing a penalty for her panic room; or the fathers who have their kids to stay three days a week.
According to the reports, despite a debilitating illness that meant she could not work, she was not registered as disabled. After her daughter moved out, she was under-occupying her house by two bedrooms. It’s not clear whether she was offered discretionary help or whether she would have been entitled to it.
She would not even have been helped by the key amendment to the under-occupation penalty voted through in the House of Lords in the final stages of the Welfare Reform Bill debates in 2011 but reversed in the House of Commons. This would have exempted anyone under-occupying by one bedroom if no suitable accommodation was available.
However, her story prompted me to look back at the arguments made for and against that at the time. Welfare reform minister Lord Freud argued in the Lords that the exemption would be ‘too broad and would be complex and costly to administer’. He went on:
‘In most cases where there is no suitable accommodation, we expect that claimants and their partners will find ways of meeting the shortfall—through employment, we hope, or through increased earnings. For those who are genuinely struggling to meet the shortfall and who have exhausted all possible options, the local authority might consider a discretionary housing payment.’
In the Commons work and pensions minister Maria Miller trotted out the familiar line that:
‘If social sector tenants choose to continue to live in accommodation that is larger than they need, it is only right that they make a contribution towards the cost. They can meet any shortfall through employment or other means. Those are the sorts of everyday choices that people living in the private rented sector and those who are not getting housing benefit have to make every day.’
However, even at the time it was clear that the bedroom tax would be about much more than that for its victims. As Lord Best put it moving the amendment in the Lords:
‘Houses and flats provided by councils and housing associations represent people’s homes. They are not transit camps or hostels, with people constantly on the move as families expand and contract, but places to settle, put down roots and overcome some of the disadvantages that life has thrown at them.’
And Andrew Percy, one of two Conservative MPs who voted against the government in the Commons, made a similar and powerful point:
‘I am sure that the ministers understand this, but I plead with them to take account of the fact that houses are not only public assets; they are also people’s homes, and people have an attachment to them. This is not a simple matter to resolve, even though we should encourage an end to under-occupancy.’
They were both making the point that there are better, and fairer, ways to tackle under-occupancy than using the blunt instrument of the bedroom tax. Instead, despite a Conservative manifesto pledge to ‘respect the tenures and rents of social housing tenants’, the government is forcing people into a choice between giving up their homes (if something smaller is available) or paying the penalty. These are people’s homes, with all the emotions tied up in that idea, not just an aggregation of rooms.
Six weeks in, the rent arrears are already mounting and demand for discretionary housing payments is far outstripping supply. We are left with a policy dreamt up in London with little idea of what the impact would be around the country. Or of the effect it has already had so tragically on Stephanie Bottrill and her family.
So, three years after it was pronounced dead, can anything stop buy to let squeezing out owner-occupation?
Figures from the Council of Mortgage Lenders (CML) yesterday showed that loans to landlords accounted for 13.4 per cent of the £165.6 billion worth of outstanding mortgages in the first quarter of the year. That’s up from 13.0 per cent in the fourth quarter of 2012 and just 9.8 per cent at the start of the credit crunch in 2007.
All of which makes it easy to forget that it was only three years ago when the last rites were being delivered for buy to let by probably its best-known pioneers, Fergus and Judith Wilson. The former teachers built a 700-home empire but by 2010 they were bailing out and telling The Guardian that buy to let was ‘absolutely dead and will never return’.
They were selling up and retiring after starting into the abyss as the financial crisis hit its worst point in 2008. Ironically, the thing that saved them and thousands of other landlords was the collapse of Lehman Brothers and the way that the Bank of England responded by cutting interest rates to 0.5 per cent.
Seen from the perspective of 2013 that all seems a long time ago. There are now almost 1.5 million buy-to-let mortgages outstanding, 49 per cent more than in 2007 and 14 per cent more than in 2010.
Although the CML figures show the pace of growth has slowed slightly, cheerleading articles like this are appearing again in the national media as though 2008 never happened. A one-bedroom flat in Wales is apparently ‘the secret to buy-to-let riches’.
The market continues to be underpinned by ultra-low mortgage rates. As with the wider market, that may beg all sorts of questions about what will happen if and when they go back up to pre-crunch levels but in the meantime landlords have had a captive market of renters unable to raise a deposit to buy.
Meanwhile buy to let has received two significant boosts in the last month. First, agreement in Europe on a new mortgage credit directive confirmed that buy to let will not be subject to the same regulation as ordinary lending to homeowners. Second, the Bank of England extended its Funding for Lending Scheme to non-banks and expanded the definition of small and medium and businesses to include property investors. There are already signs that buy-to-let mortgage rates have begun to fall.
In the meantime, the decline of owner-occupation continues. Yesterday’s CML figures also showed that there are now 9.8 million owner-occupied mortgages, a fall of 2 per cent on a year ago and 8.4 per cent since early 2008. Overall, there are now 900,000 fewer owner-occupiers than at the start of the credit crunch.
Recent CML figures do at least show some signs of life in lending to first-time buyers. However, with Help to Buy set to extend help to all buyers and go higher up the income scale, they look set to be priced even further out of our dysfunctional and artificially inflated housing market.
The interest-only mortgage is the housing scandal that just keeps coming back.
In the 1980s it was all about the mis-selling of endowment mortgages. In the 2000s it was about selling as many mortgages as possible without caring too much about whether there was a way to repay them. In the 2010s and 2020s it will be about dealing with the consequences – and who pays for them.
A report out today from the Financial Conduct Authority (FCA – no relation to the FSA that was the regulator in the 2000s) reveals that there are around 1.3 million people who are only paying the interest on their mortgage and could struggle to pay back the amount their borrowed at the end of their term. With an average shortfall of £71,000 that implies a total liability of £71 billion.
The FCA identifies three different waves of interest-only liabilities that will hit over the next 30 years. The best off are those who (like me) were mis-sold endowments in the 1990s but find that the endowments will not pay out enough to repay the mortgage let alone deliver the extra lump sum they were told about. The FCA expects that most of them will have backup options, not least because of the amount house prices have risen since then.
Next come people who took out interest-only mortgages between 2003 and 2009. In the lax lending conditions of the time very few questions were asked and interest-only loans were often the only way to be able to afford to get on the housing ladder. Finally come people who have converted to interest-only because they could not afford their monthly payments.
The FCA estimates that around 2.6 million UK households have interest-only mortgages and that around half of those do not have believe they will not have enough money to pay off the final bill when their mortgage term comes to an end. Around one in ten – 260,000 families – have no repayment strategy at all.
The interest-only fiasco will play out over the next 20 years or so, with peaks in 2017/18, 2027/28 and 2032. The point of the FCA’s warning is to give lenders and borrowers a wake-up call to act now to organise their finances and mitigate the problems over the long term.
The Council of Mortgage Lenders (CML) says its members will be contacting borrowers who are at risk and it has worked with the Money Advice Service on a practical action plan on options such as remortgaging and switching to a repayment mortgage.
Hopefully those efforts, plus much stricter controls on interest-only lending from next year, will help prevent some of the worst problems. The bigger question though is what happens to the people who still cannot repay their mortgage.
Some may be struggling so much that they may not make it to the end of their 25-year term – even though lenders are desperate to avoid repossessing people. Others may make it to the end and still have no way to pay back the original sum they borrowed. In the 80s and 90s that might not have been a problem because high inflation would have shrunk the debt in real terms but that no longer applies in the low inflation environment of the last few years.
So what happens then? Presumably the lender would repossess the house and get back an asset almost certainly worth more than the amount that was borrowed 25 years before. It may not be much compensation to the former owner losing their home but they will have enjoyed 25 years living in it and probably have paid less in mortgage interest than they would have done in rent.
The repossessed owner may apply as homeless, triggering immediate costs for their local authority. Or they may simply move into rented accommodation when they are close to retirement, storing up a long-term liability for housing benefit on top of the huge bill that is already coming from the fall in home ownership.
And so ultimately the taxpayer will be left picking up the bill for the lax lending that inflated the housing boom. It’s not just lenders and borrowers who need a wake-up call but the government too.
The plight of families with children highlighted in a report from Shelter illustrates yet again why private renting in England so urgently needs reform.
If the experiences of tenants facing damp and disrepair and soaring rents are depressingly familiar, the report adds detail to what has become a way of life for the one in five families with children who now rent their home privately.
The insecurity inherent in short-term tenancies means that one in 10 of 4,000 families surveyed have had to change their children’s school as a result of moving. They were nine times as likely to have moved in the last year as families who own their own homes.
While 44 per cent of parents feel their children would have a better childhood if they had more stability in their home, less than 10 per cent said they valued the freedom and flexibility that renting gives them.
The report quotes the case of Helen, who has lived in nine different houses with her family since her eight-year-old daughter was born. The daughter has already moved school once and now they face moving again because the landlord has stopped paying the mortgage and there are no other rentals available nearby. Helen now has two other children at school but the chances of placing all three children in the same school are very unlikely.
Add cases of sudden rent rises, rip-off letting agent fees, losing your home for complaining about disrepair and the everyday struggle of affording the rent and you have millions of people crying out for more stability but unable to afford to buy or stuck on the waiting list for social housing.
Shelter is promoting a stable rental contract that would ‘give renters five years in their home during which they could not be evicted without good reason’ and a guarantee that rents would rise by no more than CPI during the five years. Renters would be able to give two months’ notice to end the tenancy at any point but landlords would have the right to end the tenancy if they sell the property.
As I blogged on Friday, there are signs that some small things are starting to improve for private renters including some (limited) action at last from the government on letting agents and a pledge by Genesis, one of several housing associations expanding into private renting, to offer tenancies of up to five years with yearly agreed rent increases.
On Monday, Labour published an alternative Queen’s Speech including a Housing Bill to tackle problems in the private rented sector. As well as a national register of landlords and action to tackle ‘rip-off letting agents’ this would ‘seek to give greater security to families who rent and remove the barriers that stand in the way of longer term tenancies’.
One of the biggest barriers is the way that buy-to-let mortgage lenders insist on assured shortholds, giving landlords no choice but to offer six or 12-month tenancies even where they can see the benefits of having longer-term more secure tenants.
However, another is landlord attitudes. While landlord organisations have not rejected Shelter’s idea out of hand even the most sympathetic have doubts about how it would work in practice. The least sympathetic will see restricting rent increases to CPI inflation as a form of rent control and complain that they will not have enough remedies if things go wrong. Longer-term tenancies may work very well in other countries but, as Alex Marsh argues on his blog:
‘Just because German landlords will happily offer multi-year tenancies with built in inflationary uplift doesn’t mean British landlords will do the same, if they consider it their God-given right to extract as much money from tenants as they can get away with and dispose of their property at short notice as they see fit.’
This is perhaps where housing associations - and institutional investors - could take a lead. The funding of their schemes should mean they are free from the restrictions imposed by buy-to-let lenders and they ought to welcome the reduction in voids and management costs that should come with longer-term tenancies. However, are their new-build schemes more likely to be aimed at young professionals rather than families with children?
If it chose, the government could do more too. It could encourage longer-term tenancies as part of its build to rent guarantee programme and it still owns a sizeable stake in two of the biggest mortgage lenders. However, this response from the DCLG to the Shelter report hardly suggests that action is imminent:
‘There is no legal barrier to long-term tenancies. However, restrictive laws making this compulsory would mean fewer homes to rent, less choice and higher rents. With 75 per cent of tenants moving out of choice, and only nine per cent of tenancies ended by the landlord, we are determined to do all we can to help tenants and landlords get a fair deal in a way that doesn’t jeopardize that flexibility or strangle the industry in red tape.’
So change is clearly going to take time but in that time the rise and rise of private renting will continue and so too will the number of families with children in insecure tenancies and uncertain schooling. As Shelter says, private renting was never intended to be a long-term home for families with children. It has become so by default while offering little of the stability that most of us take for granted in a ‘home’. Today’s report is just the start of its 9 Million Renters campaign.
So can the Quiet Man with missionary zeal really deliver on the universal credit?
The policy regarded as (depending on your point of view) flagship reform or slow-motion train crash, started in a low-key way in Ashton-under-Lyne on Monday. So low key that, according to the Guardian, nobody turned up for help on the first day.
However, the internal battles over it revealed in Rachel Sylvester’s column in today’s Times (here for those with access) were anything but low key. She describes how Iain Duncan Smith battled with civil servants, the Treasury and Downing Street to secure what he sees as a moral mission of ‘changing people’. One government source told her:
‘IDS has been an incredibly good minister and really determined to get this reform through, but he has been banging his head against official intransigence, lack of will and at times deception.’
Among the revelations (new to me at any rate):
- The cabinet secretary Sir Jeremy Heywood waved around ‘blood-curdling warnings’ from the security services of the risk to public order if the system failed and benefits were not paid on time
- The Treasury tried to kill it off with delaying tactics
- IDS lost his temper when he heard a member of his team being berated by the Treasury. He apparently picked up the phone and shouted down the line: ‘If you ever speak to my officials like that again I’ll bite your balls off and send them to you in a box’.
- IDS cancelled the pass giving the official responsible for welfare at the No 10 Policy Unit access to his department.
In Sylvester’s take on the universal credit, IDS is very much the upstanding hero and an example for David Cameron: ‘The prime minister needs to discover a similar missionary zeal.’ Paul Goodman has more on this plus an accusation that civil servants ‘lied’ to Duncan Smith at Conservative Home.
Of course it’s still possible that IDS will be proved right and the civil servants wrong. To me, though, this kind of moralising and the rows behind the scenes do not bode well for implementation.
The same moral overtones were evident in an interview that IDS gave to the Telegraph over the weekend. It was interesting that he identified the ‘big cultural change’ at the heart of the universal credit not as simplicity, transparency or making work pay but as the ‘claim of commitment’ that claimants will have to sign pledging to make themselves available for work, go to interviews, take the first job that becomes available and ‘work hard’.
That conditionality – which will apply for the first time to people working part-time who will have a responsibility to look for extra hours – will be backed by sanctions that could include losing your benefit for up to three years. According to IDS:
‘People will know from day one, for the first time ever, what’s expected of them. They’ll have a sheet of paper which is their contract…. We want to say to people, you’re claiming unemployment benefit but you’re actually in work paid for by the state: you’re in work to find work. That’s your job from now on: to find work.’
Exactly how quickly the universal credit moves from a few hundred of the simplest cases in one town in Lancashire to apply to everyone remains to be seen. It seems a fair bet that the supposed start of the universal credit proper in October will be put back to allow the pathfinders and pilots more time. That could be taken as a perfectly sensible way of avoiding a repeat of the problems with big-bang changes to housing benefit in the 1980s but for the zeal with which IDS embraces each new delay as proof that he was right all along.
In the meantime there are any number of practical concerns about the new credit. On a technical level, will it work at all given the government’s dismal track record with major IT projects? Is it a good idea to introduce such a major change to ‘make work pay’ at a time when there is so little work around?
Even if the answer to both of those questions is yes, there are more practical worries. As a briefing by the Social Market Foundation explains, it will create losers as well as winners, it will improve work incentives for some but worsen them for others and there are concerns about how it will interact with council tax support and free school meals. Put that way you have to wonder whether the net change in culture will really be as great as is being made out.
Even if it is, there are major concerns about how it will be administered: the impact of paying it monthly, paying it to a single member of the household and dealing with all claims online. And then there is the major concern for landlords and tenants: the payment of the housing element direct to the tenant except in the case of ill-defined ‘vulnerable’ claimants. The evidence from the direct payment pathfinders so far suggests that an increase in rent arrears and evictions is inevitable.
All of these – plus the advisability of introducing such a huge change in the middle of a recession – are practical policy considerations that were no doubt raised by some of the civil servants that IDS saw as so obstructive. For housing organisations, they will be matched by a long-term worry that once housing costs are paid out through one credit it will become much easier to detach them from the rents that tenants actually pay. Meanwhile direct payment will mean that any cut to any element of the universal credit will mean potential rent arrears.
Finally, however, I wonder what the end result of all that cultural change will be. IDS seems to believe that the layabouts and scroungers will rediscover their moral purpose and work ethic – and that the lessons he learned on the Road to Easterhouse mean he will save them from themselves and a life of benefit dependency.
But things may look very different to the potential converts. The conditionality and sanctions attached to the universal credit mean there will be a risk of many people being denied part or all of their benefit for months or even years. What will the long-term impact of that be on tenants, communities and landlords?
The original missionaries of the 19th and early 20th centuries went out to Africa and China filled with religious conviction that there were souls to be converted and saved and free from any doubts that what they were doing might be morally dubious.
As 21st century claimants await their salvation, is it too much to hope for a little more administrative and IT expertise and competence and a little less missionary zeal?
Things are slowly changing for the better for tenants in the private rented sector. It’s about time.
A series of small but significant things have happened over the last couple of weeks that suggest that even the government is waking up to the fact that it cannot continue to leave customers of a multi-billion pound industry to fend for themselves.
Ever since 1988, when the Thatcher government deregulated the sector and introduced assured shorthold tenancies, the orthodoxy has been that government should keep out of private renting. That continued largely unchanged under Labour. Some modest changes proposed in the Rugg Review, including regulation of letting agents, were overtaken by the 2010 election and then airily dismissed as ‘red tape’ by former housing minister Grant Shapps:
‘With the vast majority of England’s three million private tenants happy with the service they receive, I am satisfied that the current system strikes the right balance between the rights and responsibilities of tenants and landlords. So today I make a promise to good landlords across the country: the Government has no plans to create any burdensome red tape and bureaucracy, so you are able to continue providing a service to your tenants.’
However, as the sector (and the housing benefit bill) continued its rapid expansion that position looked increasingly untenable. The case for more protection for tenants was being made not just by the usual suspects but by trade organisations like the RICS and British Property Federation (BPF). The Communities and Local Government committee is in the middle of an inquiry on the sector. The Labour Party toughened its position. And a report from the Office of Fair Trading in February highlighted a growing number of consumer complaints.
However, while the government has done plenty on investment in private renting and new supply, ministers continued to resist greater protection for tenants, arguing that existing regulations are enough. That all changed earlier this month when the House of Lords passed an amendment to the Enterprise and Regulatory Reform Bill extending consumer protection against estate agents to letting and managing agents as well. For more on the background on all this, see this House of Commons Library briefing note.
The government overturned the vote in the Commons but introduced its own amendment requiring letting and managing agents to sign up to a recognised ombudsman scheme to give tenants and landlords access to a complaints system. It’s a modest proposal that does not go far enough for reputable agents and the RICS and BPF, let alone tenants, but it still a major shift on the ‘no more red tape’ position adopted by Shapps.
(I should add that I am talking about England here. Scotland already has tighter regulation, for example on letting agent fees, while Wales is poised to implement a system based on the Rugg proposals and reform tenancies based on Law Commission recommendations.)
This week saw another positive development when Genesis, one of several housing associations that are expanding into private renting, announced plans to offer tenancies of up to five years with yearly agreed rent increases. It may be only one landlord but that’s a major step forward on the private rented norm of six-month tenancies and unpredictable rent hikes. As Robbie de Santos blogs for Shelter, stable renting and longer tenancies are the future – and that should start with the 10,000 homes that will be built under the £1 billion build to rent fund too
With London rents rising eight times faster than wages to reach yet another record high, the pressure for change can only grow. Good landlords and agents understand this and know that a more stable industry that treats its customers better can be good for them too. They also know that if change does not come, or does not come fast enough, support for more radical options will increase.
For one example of that, see Labour MP Jeremy Corbyn’s Regulation of the Private Rented Sector Bill that is due for a second reading debate in the Commons today. As a private members bill not supported by the government it stands little chance of becoming law but his agenda of secure five-year tenancies, fair rents and greater protection for tenants is gaining in support.
For another example, see the day of action against high rents and letting agent fees planned by tenants themselves in London tomorrow. For more information on a singalong in Herne Hill, community housing inspections in Haringey and Brixton and a Monopoly-themed tour of letting agents at The Angel, Islington see the Let Down blog.
The changes in the private rented sector may be minor so far but as tenants get more organised there are at last things apart from their rents that are starting to look up.
So it turns out that the Daily Mash has the answer to the housing crisis: build more bungalows but make them stackable.
As ever, Policy Exchange has succeeded in identifying a problem – the distribution of housing between old and young - and coming up with a media-friendly solution that sees planning as the villain of the piece. The ‘return of the bungalow’ for elderly downsizers has duly made all the headlines this week.
The problem with bungalows – and the reason why so few are now built - is that they don’t make financial sense in areas with high land prices where the affordability crisis is most acute. No housebuilder or housing association in their right mind would use scarce and expensive land in such an inefficient way. Existing bungalows tend to cost more than bigger terraced homes but only because of the potential to knock them down and redevelop their large plots. As the RIBA revealed yesterday, the average new-build one-bedroom home is now not the size of a spacious bungalow with a garden but of a London tube train carriage.
For Policy Exchange the cost of land – and the size of homes - is the result of the restrictive planning system introduced in 1947. So why not remove the restrictions and give more say to local communities but give them an incentive to approve new development because it’s what people want, in this case bungalows? If only it was so simple. Land ownership and taxation may just come into the equation (as Winston Churchill was arguing long before 1947) and planning is a way of making decisions about land use in a democratic society.
It reminds me of a plan put forward by Alfred Sherman of the Centre for Policy Studies, the think tank that was as much a favourite of Margaret Thatcher in the 1980s as Policy Exchange is of David Cameron now. Sherman wanted to concrete over the Birmingham to London Marylebone train line and turn it into a motorway. Only when cartoons appeared suggesting that perhaps the cars could be coupled together so that you only needed one driver did the full lunacy of the idea become clear. For coupled cars, think stacked bungalows (though, to its credit, Policy Exchange tweeted the Daily Mash link). In housing, as in transport, the free market and deregulation cannot solve everything.
However, all the publicity about bungalows has drawn attention to the vital issue of housing and inter-generational fairness. This is addressed both by Policy Exchange and the Fabian Society in think pieces for Hanover Housing’s 50th birthday debate. Another eight think tanks are due to publish their thoughts over the next two months.
Policy Exchange sets a scene in which home ownership is expanding among the elderly and shrinking among the young, who can only afford to buy with help from homeowning family. Housing wealth is fuelling inequality that is ‘dangerous both politically and economically above a certain level’. That is as much a concern for the right – because ‘it destroys the aspiration and opportunity that provide the moral backbone of Tory thought’ – as it is for the left.
This is far more than just a housing problem. Policy Exchange argues that high house prices could be driving a brain drain of the brightest young people from Britain even as it discourages the brightest coming from abroad to work here. In the end, the result could be ‘social and economic disaster’.
The solution, it argues, could be ‘a grand bargain’ housing. Much of this is familiar from countless other PX reports that have argued for liberalising the ‘dysfunctional planning system’ to allow enough new homes to be built to bring down, or at least stabilise, house prices. That means dealing with ‘the local issues that make reasonable people into NIMBYs’. Why not build the bungalows that elderly people tell opinion polls they like to enable them to downsize from their 25 million spare bedrooms?
The Fabians also call for a ‘grand bargain’ though theirs is based on tax as well as new homes and is much more connected to the debate about austerity and the way that pensioners have been protected from cuts so far. Governments should pursue policies to meet an affordability target for first homes, they argue, including increasing supply and taxing property wealth to suppress rises in asset prices. Options might include a land value tax or replacing council tax with an annual property tax that could be a charge against the property of older households but only payable when they sell.
Despite the obvious precedent of the bedroom tax politicians of all parties are likely to view that with some caution given that older people are more likely to vote than the young and that they grey vote is rising as a proportion of the electorate. However, to go with that stick, the Fabians say better options for downsizing need to be developed to provide homes that people want to move to. That might mean better models of equity release or housing providers developing new models for homeowners in mixed tenure communities.
As the population ages and home ownership continues to shrink among younger people, the issues raised in the two reports are only going to grow in importance. Some of them will be highly controversial (as coverage of a report by the Intergenerational Foundation showed in 2011) but there are already proposals out there for what to do next. See the Housing our Ageing Population: Panel for Innovation (HAPPI) report from 2009 and the update on progress on that from Lord Best’s All-Party Parliamentary Group on Housing and Care published in February. That showed how good design can challenge preconceptions of housing for older people and deliver homes that they want but also highlighted the financial insecurities that are hampering progress.
Solutions are required urgently and Hanover, Policy Exchange and the Fabians have given new impetus to the debate. If bungalows achieve nothing else at least they have got people talking.
It’s hard to remember a more damning select committee report than the one just published on Help to Buy – and it has not even started yet.
You don’t even have to read between the lines of the Treasury committee report on the Budget to detect its doubts about a policy announced by chancellor George Osborne last month. It leaves him with a string of questions about how it will work and a list of concerns about unintended consequences.
The critical report will only add to wider concern about Help to Buy. Even before its launch home sellers already seem to be raising their asking prices, analysts say housebuilding shares are set for further gains and wealthy and even foreign home buyers are looking into how they can take advantage. As Alex Marsh points out on his blog, it’s never a good sign when the only people supporting a policy are those that stand to benefit from it (in this case housebuilders and mortgage lenders).
Government intervention in the housing market is nothing new of course. In the UK, mortgage interest tax relief subsidised home owners right up to 2000 and most previous governments have introduced limited schemes to support ownership. However, the Help to Buy equity loan and mortgage guarantee schemes will be worth £15.5 billion over three years from January 2014. That step change in scale has led many to compare them to the American institutions Fannie Mae and Freddie Mac, which both had to be bailed out by the government after the financial crisis. For more on the UK/US comparison, see this piece by Jim Pickard in the Financial Times.
A key concern for the committee is that – as in the United States - the government will find it very hard to get out of Help to Buy once it has started. Any extension will require the approval of the Bank of England’s new Financial Policy Committee (FPC) but, as the all-party committee of MPs points out, even raising that as a possibility creates an element of doubt about the temporary nature of the scheme. They say ‘it is not clear that, given its remit, the FPC is best-placed to take this decision, nor that the decision should be out-sourced at all’.
Osborne’s justification for the mortgage guarantee scheme is that it ‘corrects a market failure’: the reduction in high loan-to-value mortgage lending and associated reduction in the number of first-time buyers. The MPs directly contradict that:
‘Our concern is that, should the current scarcity of high loan-to-value mortgages reflect structural rather than cyclical factors, the pressure for Government to extend the scheme in three years time will be immense. The unintended and unwelcome outcome could well be that a scheme designed to deal with a supposedly temporary problem in the UK housing market becomes a permanent feature of the UK housing market.’
They express doubts both about the principle of the scheme and the mechanism that is meant to cover the taxpayer for losses:
‘The appropriateness of the taxpayer amassing contingent liabilities in this way needs careful scrutiny. The Chancellor says that expected losses under the scheme will be covered by the commercial fee charged to participating lenders. No details of the proposed level of the fee nor how it will be structured in practice are yet available. Nor has a date been given.’
And they are worried too about the impact of the government becoming ‘an active player in the mortgage market’. Politically and economically, ‘the committee is concerned that the Treasury now has a financial interest in maintaining house prices to limit losses to the taxpayer.’ Financially:
‘There is a risk that if mortgage lenders begin to exercise reduced levels of forbearance, repossessions may rise and house prices subsequently be lower than they would otherwise. If this happened, and unless this risk was fully priced into the fee, then the Treasury could end up facing large losses on those mortgages it has guaranteed.’
In terms of the housing market impact, much depends on whether you believe that house prices are over-valued. If so, the scheme may just increase demand at a time when supply is constrained and boost house prices. As the committee puts it:
‘It is by no means clear that a scheme, whose primary outcome may be to support house prices, will ultimately be in the interests of first time buyers. This is the group the Government says it wants to help.’
The MPs are also severely sceptical about the claim by Osborne that Help to Buy will boost the supply of new homes. The chancellor told them that ‘the positive reaction from the builders suggests that this will happen’ and that boosting mortgage demand would generate a supply response. However, the report goes on:
‘The committee finds the Chancellor’s assertion that increased demand for home ownership and rising prices, resulting from the mortgage guarantee scheme, will trigger a corresponding supply response, unconvincing, at least for the short term. In the longer-term there may be an effect. This would be likely in a well-functioning market. However, the housing market contains severe supply constraints… Overall, though, if the Government’s priority was housing supply, its housing measures should have concentrated there.’
Meanwhile it is still not clear whether the mortgage guarantee element will be open to owners of second homes or not. Osborne told the committee that he did not want to rule out ‘cases where people have two mortgages, not because they want a second home but because their family is breaking up, they are moving job’. In a damning verdict both for him and for Treasury civil servants, the committee says this lack of clarity ‘is a reflection of the need to think schemes through carefully before announcing them’. They argue:
‘We struggle to see the rationale for the taxpayer to stand behind loans for people wishing to own a second property, especially given that the Chancellor has repeatedly stated that the scheme is primarily designed to help people onto the property ladder as well as those who wish to move property.’
Damning select committee reports on the failure of government policies are nothing new. What makes this one different is not so much that it comes from a committee chaired by a Conservative MP (Andrew Tyrie) but that it is being published before the policy has even been implemented. Normally committees publish reports on fiascos after the event but Help to Buy is barely off the drawing board.
However, that is perhaps the point. The housing section of the report ends with 17 ‘questions that require answers to allay concerns that the scheme may have unintended and unwelcome consequences’. Questions such as the impact on house prices, the likely supply response and the level of the fee to be paid to be lenders are all ones that you might reasonably have expected the Treasury to ask – and answer – before it announced the policy. That the committee is raising them at all speaks volumes about its confidence in Help to Buy.
There are many other questions that could be asked too. For example, why is the government replacing schemes reserved for first-time buyers (FirstBuy) and new-build homes (NewBuy) with ones that are available to anyone if its supposed priorities are people trying to get on the housing ladder and new supply? And why has it suddenly decided to take on all of the risk of the mortgage guarantee when under NewBuy it was shared with housebuilders? Say what you like about those previous policies but at least they targeted the help where the government believed it was needed rather than giving a boost to the entire market.
However, perhaps it is wrong to judge Help to Buy as a housing policy at all. Regardless of the long-term consequences for house prices and the dangers of too much government involvement, every additional home sale after January 2014 generates more consumer spending and creates a satisfied buyer and seller. An improving economy by, say, May 2015 is just what the government needs politically. That is surely the point for George Osborne.
Amid claim and counter-claim the benefit cap began this week with a deepening mystery about how many people will be affected and how much it will really save.
As the four guinea pig boroughs in London – Haringey, Croydon, Enfield and Bromley – began applying the cap on Monday, the Department for Work and Pensions revealed in ad hoc analysis that it now expects 16,000 fewer households to be affected by the time when it is introduced in the whole country over the next few months.
In media interviews, ministers hailed the reduction to 40,000 (from 56,000 in an impact assessment in July 2012) as evidence that the policy was encouraging people to get back into work. From Iain Duncan Smith in the Daily Mail to employment minister Mark Hoban on the Today programme they have claimed it had already encouraged 8,000 claimants who would have been capped to find jobs.
That appeared to be on the basis of ad hoc statistics on Jobcentre Plus activity that referred to ‘8,000 claimants identified as potentially capped households’ who had been helped into work out of 82,000 contacted between May 2012 and March 2013.
However, there was no attempt to compare that to the normal flows of people in and out of work that might be expected in a 10-month period. A second DWP ad hoc analysis was careful to stress that it had assumed ‘no behavioural change’. And the DWP press release quoted IDS as saying that ‘it will provide clear incentives for people to get into employment’ rather than claiming that it had already worked.
That’s led to extensive criticism that ministers have misused the statistics. For more on the detail of that see Declan Gaffney here, Gaffney and former DWP chief economist Jonathan Portes here and Nicola Smith of the TUC here.
All of which leads a real mystery about the numbers and what is really happening on the ground. The reduction in the headline number is maybe not so surprising since it has already gone up and down several times since the cap was first announced in responses to changes in its scope and to the exemptions. The ad hoc analysis cites the disregard for supported exempt accommodation announced in the Autumn Statement plus changes to benefit uprating and methodological improvements as the reasons for the fall to 40,000.
Even before the latest reduction, the national estimate was initially 50,000, then rose to 67,000, then fell to 56,000 (after the government agreed a nine-month grace period for people who have been continuously employed for the previous 12 months).
Another DWP report reveals that between May and September it sent letters to 89,000 households who data scans suggested could theoretically be affected by the cap. Limitations on the data meant that it could not identify two groups who are exempt (those in receipt of a widows or widowers pension and those within the employment grace period). However, the figures also illustrate the fact that new households are becoming potentially subject to the cap all the time: 14,000 in the three months between May and July 2012 and another 12,000 between July and September 2012.
Figures like those put ministers’ claim that the prospect of the cap has encouraged 8,000 people into employment into perspective. They are not so surprising when you consider how many people move in and out of employment and have insecure jobs with hours that fluctuate (you have to work at least 16 hours a week to be exempt from the cap). For example, the number of workers on zero hours contracts doubled to a record high of 200,000 in 2012.
The same mystery surrounds the numbers affected by the cap at a local level. The estimates are understood to have fallen in three of the guinea pig boroughs but risen in the fourth. In Haringey, for example, the council’s estimate has fallen from 1,300 at the beginning of the process to 993 now. A dedicated hub in Tottenham with staff from the council, the DWP and Job Centre Plus has helped 109 potentially capped households into work. With new households becoming unemployed, the net reduction due to finding work could be smaller than that and in any case that still leaves two-thirds of the reduction unexplained.
Westminster – the borough with the most households affected by the cap in Britain – has also seen a large and unexplained reduction. The number of people facing the cap has fallen from around 2,200 in the Autumn to around 1,300 now, with 390 believed to have gone into work. With the same caveat about newly unemployed people joining the list, that leaves an unexplained reduction of 500.
So what’s going on? Some of the variation may simply reflect the fall in the national estimate at a local level. Some was predictable given the imperfections in the data being used, with some people dropping off the list and others not where the scans say they should be, and even the current numbers are eight weeks out of date. But are there other explanations?
One possibility is that the bedroom caps already imposed on the local housing allowance have reduced the numbers affected by the overall cap. Another is that people are moving ahead of the cap (and in the wake of the bedroom caps) to cheaper areas. The housing benefit stats show that claims in outer London are rising much faster than those in inner London. People could be deciding for themselves to move and anecdotally some authorities in Essex and Kent report that they are seeing people turn up in their areas.
However, councils with large numbers of capped families have limited options. They can use discretionary housing payments (DHPs) but these will only last for a limited time. They face costs for housing newly homeless families and caps on the rents of those they have already placed in temporary accommodation. Given the stream of reports about London boroughs exporting their homeless families elsewhere, and the lack of accommodation affordable within the cap in many areas, an increase in the out-of-area placements that are already happening looks inevitable despite ministers’ insistence that they have put guidance in place.
In the longer term housing directors think it is just a matter of time before overcrowding and sharing increase as capped families try anything to avoid moving miles from friends, families and children’s schools. They also expect another increase in unorthodox housing: beds in sheds, garages, retail units and offices.
Figures from Haringey illustrate the scale of the problem. The council has pledged not to move anyone out of London during the pilot. Some 294 of the 993 households currently affected (30 per cent) are living in temporary accommodation. The council has £2.4 million of DHPs for 2013/14 of which £1.4 million is specifically to cover the costs of the cap. However, it estimates that its extra liabilities because of the cap will be £8.2 million over 2013/14, leaving it with a shortfall of around £7 million. That’s roughly £7,000 for each capped family.
Figures like those suggest that the costs to individual boroughs will far outweigh savings to the Treasury that are now estimated at £110 million in 2013/14 and £185 million in subsequent years. Those have been reduced from £270 million a year savings in the July 2012 impact assessment.
They are also a reminder of the warning in the letter between the private offices of Eric Pickles and David Cameron that was leaked to the Observer in July 2011. The letter from Pickles’s private secretary said:
‘We are concerned that the savings from this measure, currently estimated ay £270m savings p.a from 2014-2015 does not take account of the additional costs to local authorities (through homelessness and temporary accommodation). In fact we think it is likely that the policy as it stands will generate a net cost. In addition Local Authorities will have to calculate and administer reduced Housing Benefit to keep within the cap and this will mean both demands on resource and difficult handling locally.’
Ministers see the benefit cap as good politics, especially when they can portray Labour as opposing it. However, it seems equally clear that it is a very bad policy that is being introduced at a very bad time. Leave aside the mystery about the figures, ignore for a moment the likelihood that it will cost more than it saves and turn a temporary blind eye to the fact that it contradicts the move to higher ‘affordable’ rents by the DCLG. The local authorities that will have to implement the cap and bear the extra costs are already seeing their budgets squeezed everywhere else. And they are having to implement a major change in the administration of housing benefit only months before they start to lose that role under the universal credit.
If the housing legacy of Margaret Thatcher Mark I was about dismantling much of what had gone before, Mark II created even more of what we have now.
Thatcher’s first two terms saw the right to buy, cuts in subsidies to council housing and the promotion of home ownership (see the first part of this blog). Mark II added big changes for private renting, housing associations and housing benefit, though not without some hiccups along the way.
The politician with a reputation for boldly acting on conviction could be cautious when she wanted to be too. It seems remarkable in retrospect that she left it until her third term before she fully deregulated the private rented sector (testament perhaps to the continuing power of accusations of Rachmanism). Market rents on new-build properties owned by approved bodies (but not individuals) were allowed from 1980 but few actually built any. It was not until 1988, nine years after becoming prime minister, that her government deregulated all new lets and introduced the assured shorthold tenancy. It did not seem so at the time, or for several years after, but those measures enabled the later creation of buy to let and the boom in the private rented sector that is still continuing now.
The same Act created the conditions for housing associations to become the major players in affordable housing that they are now. Private finance had existed before but the Act required them to use it as part of a mixed finance system with Housing Corporation grant. This was the first and probably the most successful example of public-private partnership seen in any part of the economy.
Both moves were part of a renewed radicalism in Thatcher’s third term. The right to buy had shrunk council housing in the 1980s but new housing minister William Waldegrave said that ‘the next big push after the right to buy should be to get rid of the state as a big landlord’.
However, things did not exactly go according to plan. Schemes like Tenants Choice and Housing Action Trusts flopped as tenants stubbornly refused to vote for a new landlord despite the promise of cash to improve their homes. Ironically, the most famous example of Tenants Choice came when tenants of flagship Conservative authority Westminster City Council used it to frustrate rather than enable a transfer of their homes to a private developer.
Ironically again the solution came from the original targets of the policy. local authorities began to see the advantages of transferring their stock to a housing association or setting up their own to free themselves from central government controls on government borrowing.
The Thatcher housing legacy is a powerful one. It would be wrong to say it was all down to her or her government (many of the same changes were introduced in other countries) and it was not all in one direction (it was Thatcher who introduced security of tenure for council tenants, for example). Nor was it all bad: the attack on council housing was about rolling back the state but it also brought improvements in management and financial innovation.
The legacy was modified under Labour, with the Decent Homes programme and almos, cuts in right to buy discounts and restoration of the homelessness safety net weakened by Major (not Thatcher), but not fundamentally reversed. It was not until 2006 that Labour managed to build start more new social homes (in England) than the 20,000 achieved in 1990, Thatcher’s final year.
So the Thatcher Mark II system that her government put in place 25 years ago is still the basis of the one we have now, though the coalition’s programme of near-market rents and fixed-term tenancies look very much like a Mark III.
However, the Thatcher legacy also includes another key area of policy that resonates to this day. The result of Mark II was higher rents. The housing benefit bill almost doubled – not in the 10 years that the coalition is now using as justification for its cuts - but in a mere five years.
John Moore, the new secretary of state for health and social security in 1987, believed he knew what the problem was. Much as Iain Duncan Smith argues 25 years later, he thought it was a ‘culture of dependency’. Claimants had to be moved from ‘dependence to independence’ and ‘help targeted where need is greatest’. The problem, then as now, was that a combination of his own government’s housing, economic and labour market policies meant that more and more people became reliant on the state to pay their rent. The rising housing benefit bill was the result of deliberate choices by the government.
The answer, then as now, was seen to be benefit reform. However, as IDS is discovering 25 years later, that is easier said than done. When a limited form of housing benefit was introduced in 1983 the Times called it ‘the biggest administrative fiasco in the history of the welfare state’. It was introduced in a huge rush, with endless amendments to the computer system (sound familiar?) and with such a focus on reducing civil service jobs that the result was disaster.
According to Nicholas Timmins (whose Five Giants: A Biography of the Welfare State I am again using as a key source for this blog):
‘Across the country, dozens of council housing offices locked their doors early, took phones off the hook and locked long queues outside as they attempted to sort out backlogs which left claimants without rent and rate payments for weeks and in some cases for months. In places the police had to be called to quell disturbances. Evictions mounted. Private as well as public landlords were in despair.’
The full system of housing benefit as we know it today was agreed in 1985 and introduced in April 1988 accompanied by cuts of £650 million in funding. The results were again disastrous and again have contemporary resonance. According to Timmins:
‘In the Autumn of 1987 the scale of what that meant became clear: close to six million losers from housing benefit alone, one million of whom would be losing the benefit entirely. Come April, MPs found themselves deluged with letters from those affected. People on incomes of as little as £100 a week found themselves £10 worse off.’
Two weeks after implementation, Moore was forced into a u-turn that restored £100 million of the cuts. However, another of his changes, the withdrawal of benefits from the under-18s in 1988 that triggered an explosion of youth homelessness, came back to haunt him. A year later he was sacked and replaced by Tony Newton.
If the contemporary parallels are not clear enough already, a few weeks before his death in March 2012, the now Lord Newton had some advice for current ministers in one of the final House of Lords debates on the bedroom tax:
‘I am slightly scarred by one bit of experience. As part of the social security reforms in which I played a modest part alongside my noble friend Lord Fowler in the mid-1980s, we proposed some fairly draconian changes in housing benefit, which were, to be blunt, forced on us by the Treasury… In my recollection, although I have not checked the books, the impact of those changes was such that the then Prime Minister ordered their reversal within a month because the flak simply could not be withstood. That is the risk the Government are running here, and I hope they will think about it very hard.’
By November 1990 the era of Margaret Thatcher was over. A few months later we had a new housing minister, Sir George Young, telling us that ‘housing benefit will take the strain’. It seemed unlikely even at the time.
The first part of my analysis of Margaret Thatcher’s housing legacy looks at the right to buy and the property-owning democracy.
The death of the former prime minister got me thinking in what I hope is a dispassionate way about what her time in office meant to housing.
What seems to be undeniable is that the right to buy represented a sea change. Many people would nominate British Gas or British Airways or BT as her greatest privatisation but council housing was bigger than any of them. Some 1.5 million homes were sold between 1979 and 1990 (500,000 of those between 1979 and 1983). Capital receipts from the right to buy totalled £17.6 billion between 1979 and 1989 compared to £23.5 billion from all the other privatisations put together.
It is the one housing policy that is being mentioned in all of the obituaries and hagiographies in the national media but the truth about Thatcher and the right to buy is more complex that you might think.
It’s not just that there were thousands of council house sales long before she became Tory leader. It’s more that when the idea of a right to buy (as opposed to voluntary sales by landlords) was first proposed one of its most prominent opponents was a shadow environment secretary called Margaret Thatcher. For most of the details that follow I am indebted to the brilliant Five Giants: A Biography of the Welfare State by Nicholas Timmins.
When Edward Heath wanted to include the right to buy in the Conservative manifesto for the October 1974 manifesto he was proposing something that directly impacted on her shadow environment secretary portfolio. She believed that it would be unfair to people who had to save to buy their homes. ‘What will they say on my Wates estates?’ she asked at the time.
When she took over from Heath as Tory leader there were even more radical ideas knocking around. Peter Walker, an archetypal ‘wet’ who she had sacked from the shadow Cabinet, proposed that council houses should just be given to anyone who had paid their rent for 20 years and that the rent should be treated as a mortgage for anyone else. He argued that it would make sense financially because councils would no longer have to meet management and repair costs. However, Thatcher again opposed the idea. According to Walker: ‘Margaret was against it because she felt it would upset “our” people who had struggled to pay their mortgages.’
Meanwhile, according to Timmins, something similar to the right to buy came very close to being Labour policy first. The message came over loud and clear on the doorsteps at the 1974 election that tenants wanted to own their homes and Downing Street advisors worked on a scheme for ‘lifetime enfranchisement’. It had the enthusiastic backing of prime minister Harold Wilson but foundered on opposition from advisers and ministers at the Department of the Environment.
So history could easily have been very different at the 1979 election. Instead the right to buy went on to become indelibly associated with a politician who had at first opposed the idea and arguably became a key factor in her three election victories as aspirational working class voters in places like Basildon switched to the Tories.
However, as Steve Hilditch points out over at Red Brick, the truth is again a bit more complicated. The 1979 manifesto did not make a big deal out of the right to buy and it included all sorts of safeguards on sheltered housing, rural areas and resales. There was also no mention of what would go with it: dramatic cuts in housing subsidies that would help cut public spending but also push up rents and encourage more sales. The big differences with what had gone before were the scale of the sales and the fact that the proceeds were not reinvested in housing.
The combined result was a decisive break with the housing policy consensus that had operated since 1945. From 1980/81 council house sales outstripped new council homes built and they have done so ever since. The discount was gradually increased until by 1986 it was 60 per cent after 30 years’ tenancy on houses and 70 per cent after 15 years for a flat. Some 32 per cent of England’s stock was sold between 1979 and 1990. Academics Ray Forrest and Alan Murie conclude in Built to Last, ROOF’s book on housing policy: ‘There is no doubt that if the local authority housing programme is treated as self-contained, the term “asset-stripping” is perfectly appropriate.’
Among the consequences in the 1980s were increased residualisation in council housing and increased homelessness across the country but these were not concerns for Margaret Thatcher. As she said in a famous interview in 1987:
‘I think we have gone through a period when too many children and people have been given to understand “I have a problem, it is the government’s job to cope with it!” or “I have a problem, I will go and get a grant to cope with it!”; “I am homeless, the government must house me!” and so they are casting their problems on society and who is society? There is no such thing! There are individual men and women and there are families, and no government can do anything except through people and people look to themselves first.’
The other major theme of what I think of as Margaret Thatcher Mark I was the rise of home ownership. In her very first speech as Tory leader, Thatcher had proclaimed her belief in the old Tory idea of a ‘property-owning democracy’. As her original opposition to the right to buy showed, she was instinctively on the side of ‘our people’ and that meant people who were saving to buy a new home. She was enthusiastically backed by the major housebuilders. In part they were reacting against Labour’s flirtation with nationalising them but few things summed up the sprit of buccaneering capitalism better than the TV adverts featuring Lawrie Barratt (the founder of Barratts who died last year) in a helicopter flying over his building sites. Barratt homes divided opinion but Thatcher liked them so much that she knighted him and bought one for her retirement.
Home ownership grew by more than three million homes between 1979 and 1990 (more than a third of them right to buy tenants). That was all supported by increasingly deregulated mortgage lending and lavish mortgage tax relief that was giving almost 10 million home owners an average of £800 a year each at a cost of almost £8 billion by 1990. Unsurprisingly house prices grew rapidly too, culminating in an almighty boom and bust in 1989 and 1990 and repossessions that were double the levels seen in the recent crash.
So that was Thatcherism Mark I. Mark II would have to wait until 1988 when her government created the conditions for the rise of housing associations, private renting, housing benefit and the housing system we have today. More on that tomorrow.
This week’s move by Prudential into the private rented sector one is highly significant for reasons that go far beyond the 500 or so homes involved in the deal.
The giant insurer had actually already moved into private renting when its M&G subsidiary invested £125 million in a sale and leaseback deal with Genesis Housing Association at the Stratford Halo development in east London in January. However, the Berkeley money comes directly from its property fund management arm PRUPIM and so represents its first real foray as an institutional investor.
The first reason why this is so significant is symbolic. The Pru was probably the best known of the institutional investors that once owned a sizeable chunk of a UK’s private rented sector that accounted for 76 per cent of homes in 1918. It was also one of the best-known disinvestors in the sector subsequently as private renting’s share fell to just 10 per cent in 2000.
The second is attitudinal. I remember researching a feature in the 1990s that involved talking to the major institutions about whether they would return to investing in private renting in the wake of the deregulation of the sector in 1988. The Pru was probably the most cautious of the lot at the time, citing the political risk that a future Labour government would reverse the changes and re-regulate.
The third is financial. The other major reason why institutional investors were so reluctant was the way that they measure returns. In their traditional markets – offices and shopping centres – they look purely at the rental yield. Measuring the return in this way makes residential look like a bad investment because it does not include capital growth. It also means that high house prices are a key barrier because the rental yield appears to be too low.
This statement by PRUPIM chief executive Alex Jeffrey turns that thinking on its head by admitting that the returns from residential have historically been higher than from commercial property when you include capital as well as rental growth:
‘The expanding residential rental property market, particularly in London and southern England, is gaining in appeal for institutional investors. We believe that returns from the sector – which have historically outpaced commercial real estate – will continue to be attractive as demand increases. We expect the supply and demand dynamics of the residential property market in London and the South East to remain favourable for investors, with continued strong demand for quality properties.’
Clearly things are changing rapidly in private renting with interest from institutions, local authority pension funds and housing associations. However, they do not yet amount to the build to rent revolution advocated by the British Property Federation and endorsed by the Montague report last year.
The PRUPIM/Berkeley deal is actually the result of the private rented sector initiative by the Homes and Communities Agency in 2009. The portfolio consists of flats and houses that were in 13 different locations. In contrast, the build to rent model involves homes in blocks specifically designed for rental and with consequent savings in management costs.
However, the signs look promising, even if a key Montague recommendation on planning (taking build to rent into account in viability assessments) has still not been implemented. Last month’s Budget increased the size of the government’s build to rent fund, which provides equity or loan finance to developers, from £200 million to £1 billion, saying that the existing fund was over-subscribed.
I’ve written before about how writing about institutional investment in private renting is like Waiting for Godot, the Samuel Beckett play in which the supposed principal character never actually appears. As the Man from the Pru makes his (re)appearance, could the wait finally be over?
Will it be remotely enough to make up tackle the housing supply crisis? The wait on that question definitely goes on.
Northern Ireland could be set to scrap the bedroom tax as fears grow about the impact on tenants when it is imposed elsewhere from Monday.
The Northern Ireland Assembly has still not approved the Stormont Welfare Reform Bill and is not due to discuss it again until April 16.
However, housing organisations believe the Northern Ireland government is now increasingly likely to decide not to impose the size criteria despite the fact that it will have to meet the £17 million cost from elsewhere in its budget.
Thanks to its devolution settlement, Northern Ireland is the only part of the UK that can go its own way on welfare reform. The government has already decided not to implement key elements of the universal credit, including direct payment of the housing element to tenants.
Until recently, campaigners believed the government would be forced to implement the bedroom tax because of the financial implications. However, political opinion has hardened against it in the wake of UK-wide media coverage of the impact on tenants and both Sinn Fein and the DUP have signalled their opposition.
The Welfare Reform Bill was delayed to allow an ad hoc committee to consider the equality and human rights aspects of the legislation. The Committee for Social Development published a report at the end of February recommending that the clause on the bedroom tax should not be implemented. It said 33,000 tenants would be affected, with landlords signalling that they could not provide alternative accommodation for tenants wanting to downsize.
It went on: ‘The committee also shared concerns of stakeholders that the segregated nature of our society may restrict options that people otherwise would have to move to areas where appropriate, but limited, housing may be available.’
An inter-departmental group is now considering the options and is due to report in April.
The Chartered Institute of Housing in Northern Ireland and Northern Ireland Federation of Housing Associations say 62 per cent of working-age households on housing benefit claimants in social housing could potentially be affected, compared to 33 per cent in Great Britain.
They have put forward a series of options including:
- Not implementing the bedroom tax
- Only applying it to new tenancies
- Delaying it until alternative options for affected households can be affected
- Only applying it to people who refuse a reasonable offer of smaller accommodation
- Only applying it to people under-occupying by two or more bedrooms
- Exempting disabled people who are living in specially adapted accommodation or who need an extra bedroom to facilitate their care and support.
Any of these changes would give tenants in Northern Ireland more protection than tenants in the rest of the UK. However, hopes are rising that the government will drop the bedroom tax completely.
The Welfare Reform Act covering the rest of the UK was passed in 2012 and different devolution arrangements mean Scotland and Wales have to follow Westminster’s lead.
However, the SNP government in Scotland has written to all social landlords urging them to prevent evictions of tenants with bedroom tax arrears, and the Labour government in Wales is being urged to create a Welfare Defence Programme to protect tenants.
In England several local authorities, including Darlington and Bristol, have also pledged there will be no evictions for bedroom tax arrears although it remains to be seen how this will work in practice.
Campaigning and legal action is set to continue up to and beyond Monday’s implementation date.
Yesterday the government failed in an attempt to block ten cases brought by three firms of solicitors and barristers at Doughty Street Chambers. The cases all involve disabled or abused children or disabled adults who have expertly assessed needs for their own bedrooms.
Leigh Day is acting for a severely disabled woman with spina bifida whose husband has to sleep in a separate bedroom and for a disabled widower with a disabled step daughter who cannot find smaller accommodation suitable for his wheelchair.
The cases will now be heard at an urgent three-day hearing at the divisional court in May.
Earlier today the National Housing Federation published a report raising serious doubts about whether the government will achieve its declared aims of tackling over-crowding, encouraging more efficient use of social housing and saving money. It highlights:
- the mismatch in the north of England, where under-occupiers outnumber overcrowded families by three to one
- the lack of smaller social homes for the 660,000 affected families to move to
- the increased costs if they move to the private sector instead
- the impact on disabled families in specially adapted properties and the costs to the taxpayer if they moved to smaller homes.
A survey by Inside Housing shows that just 1 per cent of tenants affected by the bedroom tax have moved so far, 13 per cent want to move but have not found anywhere and 46 per cent say they will stay and pay the extra.
And protestors will make their voice heard at demonstrations in 53 towns and cities across the country on Saturday.
The bedroom tax may be crumbling in Northern Ireland but the cracks in the policy are continuing to appear everywhere else too.
So, shockingly, it turns out that the government’s ‘powerful new incentive’ to councils to approve more homes may not be working out quite like that.
A damning report on the New Homes Bonus published today by the National Audit Office (NA0) is deeply embarrassing for the DCLG and former housing minister Grant Shapps but it hardly comes as a huge surprise.
The flaws were pretty clear right from the beginning. As I argued when the first allocations were made, it is not really a bonus and it amounts to a mechanism for transferring funding from deprived areas of the north to affluent areas of the south for homes that would have been built anyway.
However, some of the detail revealed by the NAO is still deeply shocking and the report almost amounts to a textbook example of how not to implement evidence-based policy. Here’s a flavour of criticisms that are all the more powerful for being made in the NAO’s usual measured language:
- The DCLG’s estimate of the potential increase in new housebuilding is ‘unreliable’ – the assumptions were ‘unrealistic’ and correcting a calculation that included a ‘substantial arithmetical error’ reduces the estimate by 25 per cent.
- ‘The department’s approach to monitoring and evaluating the Bonus and its effects is neither timely nor adequate.’
- It’s too early to say whether the bonus will increase new housing but ‘we found little evidence that the bonus has yet made significant changes to local authorities’ behaviour towards increasing housing supply
- ‘The Bonus has so far mainly rewarded home creation that was not incentivised by the Bonus.’
- ‘We found little evidence that the influence of the Bonus is reflected in increased planning approvals for housing.’
- The department was aware that the bonus could result in large cumulative losses for some authorities but did not include that in the impact assessment and it has done no analysis of the impact on individual councils.
- Despite introducing a scheme designed to change the behaviour of local authorities and communities, the department did not even consult the Cabinet Office’s Behavioural Insight Team (or Nudge Unit).
- The department’s risk register mentioned pressures on the availability of rented housing and ‘associated impacts from welfare reform’ but these were not mentioned in the impact assessment. The NAO found ‘no evidence’ that it the DCLG and DWP had considered the impacts of their respective policies.
Housing minister Mark Prisk made a valiant attempt to defend his predecessor’s policy to the BBC:
‘This report is unduly negative and unfair. Housing supply is up and planning approvals are up. We are getting Britain building. The reality is that the New Homes Bonus has already rewarded councils for the delivery of 450,000 homes and we are confident that it has the potential to increase supply by at least 100,000 homes over 10 years.’
However, Labour’s Jack Dromey said ministers had been ‘extraordinarily irresponsible’ in not checking whether the scheme was value for money:
‘The New Homes Bonus symbolises the government’s failing housing policies. They are failing to increase housebuilding and the government has grossly overestimated its impact, promising much and delivering little.’
On the plus side for the government, the NAO did find ‘some evidence that the Bonus has given local authorities resources to allow them to protect activities relating to new and empty homes’. I’ve also seen for myself how it has encouraged my local council to get much more serious about developing a register of empty homes and working with the owners to bring them back into use.
Overall, though, the verdict from the head of the NAO, Amyas Morse, is that:
‘Some local authorities could face significant cuts in their funding as a result of the New Homes Bonus scheme. While it is too early for the scheme to have had a discernible impact on the number of new homes, the signs are not encouraging. “The Department must now urgently carry out its proposed review of the scheme to ensure that it successfully encourages the construction of much-needed new homes.’
It’s not hard to see that the £500 million of grant and £1.1 billion of redistributed formula grant that the government is planning to spend on the bonus over the next two years could be better spent in any number of other ways.
And the whole episode raises serious questions about another, potentially even bigger policy disaster in the making: the £15.5 billion Help to Buy scheme.
Critics including most serious economists warn that the scheme could just further inflate a house price bubble that could leave the taxpayer with multi-billion liabilities when it pops. As Julia Unwin of the Joseph Rowntree Foundation argues, the result could be economic disaster followed by human tragedy.
At the Treasury select committee yesterday, George Osborne was denying it all even as the Office for Budget Responsibility, the independent watchdog that he created, was warning that the scheme would drive up house prices while having a limited impact on supply.
Are the mistakes of the New Homes Bonus about to be repeated on an epic scale?
David Cameron’s speech about social housing and immigration today demonstates yet again the gap between perception and reality on the issue.
The prime minister says he wants to introduce an ‘expectation’ that local authorities will introduce a local residency test determining who should qualify for social housing:
‘New migrants should not expect to be given a home on arrival. And yet at present almost one in ten new social lettings go to foreign nationals. So I am going to introduce new statutory housing allocations guidance this spring to create a local residence test. This should mean that local people rightly get priority in the social housing system. And migrants will need to have lived here and contributed to this country for at least two years before they can qualify.’
According to Downing Street, this would mean that migrants would have to live in an area for, say, two years before they could go on the waiting list:
‘This will stop someone from turning up and immediately gaining access to social housing. To ensure UK nationals are protected when they are moving for genuine reasons – for example for work or because of family breakdown – local authorities will have the ability to set exceptions (e.g. in relation to work mobility, armed services personnel, for people escaping domestic violence etc).’
There will also be ‘a new legal requirement on landlords to check the migration status of new tenants, so they are not renting to an illegal immigrant’. Private landlords are warning that this could just drive vulnerable people into the hands of criminal gangs.
The speech, which also includes measures on access to benefits and free healthcare, is clearly designed to stop UKIP exploiting immigration as a political issue, and Cameron is not the only party leader announcing new policies.
However, is it much different to the policy announced by Labour in June 2009 as part of the Building Britain’s Future relaunch of Gordon Brown’s premiership? This pledged that ‘we will change the current rules for allocating council and other social housing, enabling local authorities to give more priority to local people and those who have spent a long time on a waiting list’.
The immediate response from Conservatives then was to claim that this would be illegal under the government’s own Equality Bill and contravene existing legislation too. A certain Grant Shapps, shadow housing minister, said: ‘Gordon Brown’s spin, pitched at Labour’s disillusioned core vote, has been exposed to be a sham. Housing waiting list policies need reform and we need more affordable homes. But Labour are unable to deliver the change we need.’
The move also contradicted research by the Local Government Association and Equality and Human Rights Commission showing that people who were foreign born and had arrived in the UK within the last five years – Cameron’s target group – occupied just 1.8 per cent of social homes. Another 10 per cent were occupied by people who were foreign born and had arrived longer ago than five years.
In total, 11.6 per cent of people who were foreign born and had arrived in the UK in the last five years were social tenants, compared to 16.6 per cent who were owner-occupiers and 63.6 per cent who were private tenants.
Looking at the housing options of all foreign-born nationals, 17.8 per cent were social tenants, 26.9 per cent were private tenants and 51.4 per cent were owner-occupiers.
A press release from Eric Pickles released after Cameron’s statement today claims that the proportion of new social lets to foreign nationals has risen from 6.5 per cent in 2007/08 to 9 per cent in 2011/12. However, that makes no distinction between people who have been in Britain for years and the ‘something for nothng’ recent arrivals singled out by Cameron.
The data comes from parliamentary answer by housing minister Mark Prisk in January that spelt out the rules that already apply to allocations:
‘Most foreign nationals who have recently come to England are not eligible for an allocation of social housing. Broadly speaking, European economic area nationals are eligible if they are working, self-sufficient, or have a permanent right of residence in the UK (after five years lawful residence in the UK). Other foreign nationals are not eligible for social housing unless they have been granted leave to enter or remain in the UK with recourse to public funds (for example, people granted refugee status or humanitarian protection). Where foreign nationals are eligible, they will have their housing needs considered on the same basis as other applicants in accordance with the local authority’s allocation scheme. In this context, the Localism Act gives back to councils the freedom to manage their own waiting list. They will be able to decide who should qualify for social housing in their area, and to develop solutions which make best use of limited social housing stock.
This was a point also made on the World this Weekend yesterday by Mike Jones, the Conservative leader of Cheshire West and Chester Council and the LGA spokesman on housing. He argued that Cameron’s plan would just interfere with councils’ freedom to determine their own priorities without achieving very much.
So if the reality about housing and recent migrants is rather less dramatic than Cameron’s speech makes out, what about the perception? The 2009 report from the LGA and EHRC came up with several reasons why voters might see it as more of a problem than it actually is. These included: the Borders Agency’s use of empty social housing for asylum seekers, key worker schemes for groups such as health and care home workers with high numbers of residents from particular ethnic groups and the fact that on many new developments with mixed tenure it was hard to tell private from social; and the sale of former social homes under the right to buy.
Above all, however, there was the sale of social housing under the right to buy. The report pointed out that this had not just reduced the available stock, and therefore housing options for UK citizens, but:
‘In many parts of the UK, the sale of social housing and its subsequent use as private rental accommodation for migrants has fuelled misconceptions about the allocation of social housing. Perceptions that migrants displace UK-born social housing applicants may arise from the fact that some private rented housing which is now home to migrants is former social housing stock. Local residents may believe it is still “owned by the council” despite it now being in the private sector.’
That seems to be of particular relevance to a government that is now pulling out all the stops to increase right to buy sales. Under last year’s ‘reinvigorated’ right to buy, it increased the maximum discount first to £50,000, then to £75,000.
With sales failing to match ministers’ expectations, George Osborne increased this again to £100,000 in last week’s Budget. He also cut the qualifying period from five to three years and announced a simplified application process.
However, a survey by the Mirror earlier this month revealed that a third of flats sold under the original right to buy are now owned by people with a different address. These included at least 40 flats on one South London estate owned by the son of a former Conservative housing minster who lives in Surrey and another 57 owned by two companies based in Guernsey. There is no way of telling how many of their tenants are foreign nationals who their neighbours may believe have somehow jumped the housing queue.
A private member’s bill from Labour MP Gareth Thomas currently before parliament seeks to restrict sales of former social housing to people with a local connection. It would extend the use of local occupancy clauses, which were allowed under the original right to buy legislation. Local authorities in areas of outstanding natural beauty were able to include a covenant stipulating that the right-to-buy property could only be sold to people living or working in the area.
Although it stands virtually no chance of becoming law, his Housing Market Reform Bill seeks to extend this exemption to other areas of the country where house prices have escalated out of the reach of local people. As he put it at the end of January:
‘Surely, helping local people who are not rich, who have lived and/or worked in an area for a considerable period and who are an integral part of their community to afford to buy by allowing local authorities to designate sales of former social housing to be just for local people was a sensible measure in the 1980s for those living in national parks and would be again now for many other areas of the country, particularly London.’
If Cameron is now so keen on local residency tests and local homes for local people, perhaps he should have a quiet word with his next-door neighbour in Downing Street about the right to buy.
Here’s my take on the four key questions for housing coming out of the Budget so far.
1) Is Osborne just blowing bubbles? There are sound reasons why the government might want to help people buy new homes or help first-time buyers get mortgages. The equity loan and mortgage guarantee schemes under Help to Buy are extensions of the existing FirstBuy and NewBuy schemes.
However, put them together and you have new schemes that will go to more people and go further up the income scale (a mortgage of up to £600,000 would suggest a household income of getting on for £200,000) without any guarantees that they will result in any more new homes being built. The equity loan option will be available on all homes but is designed to exclude second home owners and buy to let landlords. However, where NewBuy only applied to new homes, the mortgage guarantee will apply to the whole market. And on the Today programme this morning George Osborne repeatedly ducked questions about whether second and multiple home owners would be able to apply. It seems that any attempt at targeting new supply or first-time buyers has been abandoned in a desperate attempt to get the housing market moving before the next election.
Perhaps, as with their predecessors, the results will be less than overwhelming. If so, some trapped renters will benefit without much of an overall impact on the market. However, the scale of the package is clearly designed to make a splash. And if they succeed in boosting demand without boosting supply the result will just be higher house prices that leave many other people behind. If that bubble pops later on, the government could be left with a big liability.
In my view, the fundamental problem with the UK housing market (and therefore the rental market too) is that house prices are too high and out of kilter with earnings. The government, encouraged by housebuilders, has decided that the fundamental problem is lack of mortgage lending. This is a huge gamble.
2) What do you call a rebooted reboot? A year after it was relaunched, reinivigorated and rebooted, it’s déjà vu for the right to buy. We already knew about the increase in the maximum discount in London to £100,000 but there were two additional carrots in the Budget that will apply everywhere: a reduction in the qualifying period from five years to three years; plus a look at ways to ‘simplify’ the application process.
According to the Budget document: ‘The additional receipts from increased sales will be used to pay down housing debt and support the Government’s commitment to 1:1 replacement of all additional homes sold.’ However, one for one replacement looked a tall order even at the lower discount. Last year’s impact assessment said that £75,000 ‘was chosen because it was considered to best meet the policy objectives, in particular the potential to increase take up of Right to Buy whilst at the same time ensuring that receipts would be sufficient to enable one for one replacement with affordable rent properties’. This was never true replacement since it involved trading social rent homes for affordable rent. The new policy will mean more sales and more receipts for the Treasury according to Budget forecast but on its own assessment this leaves any notion of one for one replacement further away than ever.
Meanwhile the government is reviving pay to stay, the policy promoted by Grant Shapps to charge tenants earning more than £60,000 a full market rent. I’ve never been a fan of a policy that is cumbersome and full of contradictions. The rebooted right to buy gives anyone affected an obvious alternative – and maybe that is the intention.
3) What about social housing? Billions were found for Help to Buy and Build to Rent to boost home ownership and private renting but what about the money for new affordable homes that was supposedly the Lib Dem price for supporting increased right to buy discounts? The Budget statement mentioned £225 million for 15,000 affordable homes. That would be paltry enough and implies funding at below current affordable rent levels but buried deeper in the Budget tables is a line that puts the additional spending at just £125 million in 2014/15.
The Chancellor may point to the fact that neither Help to Buy nor Build to Rent are public spending in a conventional sense and that neither will count against public sector net borrowing. However, that only underlines the point that the Treasury is now apparently relaxed about using off-balance sheet accounting for everything except the tenure that has the strongest case for it: changing the public borrowing rules for council housing. He also rejected the case made by councils from across the political spectrum for borrowing caps to be raised to enable them to build new homes.
There was a telling moment on the Today programme this morning when Evan Davis asked Osborne why he did not just build more social homes. Osborne responded: ‘I don’t think the solution to our housing situation is to build many, many more social homes.’ The Budget was true to his word: his solution is state support for £600,000 mortgages and mortgage guarantees for second home owners.
4) Where are the cuts still to come? For the second time in six months, the Office for Budget Responsibility has increased its forecast of the cost of housing benefit. The fiscal outlook it published alongside the Budget reveals that, thanks to more detailed modelling of housing benefit entitlement ‘to reflect differences in population and rent growth in different regions’, it now believes the total will be £3.7 billion higher over the next five years than it said in December. The extra cost of £500 million in 2013/14 is more than the saving claimed from the bedroom tax. That would be eye-catching enough on its own. However, the December figure was itself £2.8 billion higher over the next five years than it said in March 2012.
All of which raises the question of the cuts that were not spelt out. The Budget apparently brought no new cuts in welfare – a first for a statement from Osborne – but there was ominous talk of ‘a firm limit on a significant proportion of anually managed expenditure (AME), including areas of welfare expenditure’. The implications for housing benefit are unclear but in the era of the bedroom tax and universal credit any more cuts in benefits could lead to increased rent arrears. We already know that many benefits will be increased by just 1 per cent regardless of the level of inflation but there could be even more pain to come in the spending review in June.
16:23: One more piece of Budget fine print that perhaps suggests the relative importance of affordable homes. The Chancellor will invest an extra £125 million in affordable housing in 2014/15. However, he now expects to make £45 million from the right to buy changes that same year, followed by £40 million in 2015/16 and £50 million in each of the two years after that.
16:03: There’s also some bad news from the OBR for the Chancellor on the cost of housing benefit. Based on new modeling, it now says the total housing benefit bill will be £500 million higher in 2013/14 rising to £1 billion higher in 2017/18 than it forecast in December. The cumulative total is £3.7 billion more over the next five years.
The OBR explains that: ‘Around three quarters of the change reflects more detailed modelling of the housing benefit incapacity group by benefit type, and more detailed modelling of housing benefit entitlement to reflect differences in population and rent growth in different regions.’ I’m not sure what the ‘housing benefit incapacity group’ is either.
The December figure that the OBR now says was an underestimate was itself £2.8 billion higher over the next five years than the one it made at the time of the March 2012 Budget.
15:55: Phew! Beginning to go cross-eyed from Budget detail but here’s more from the independent Office for Budget Responsibility, which has a rather more sober verdict about the chancellor’s ‘dramatic’ housing measures.
Taking Help to Buy and the mortgage guarantee scheme together with the measures on right to buy and build to rent, it argues that: ‘The expansion of the existing schemes is likely to have a relatively small additional impact on transactions and residential investment. The details and timing of the guarantee scheme have yet to be finalised and it is therefore too early to quantify the likely impact. Overall, however, these measures, alongside the Funding for Lending Scheme, should support the significant growth in property transactions and residential investment that we forecast over the next two years.’
That forecast, which includes a near-doubling in receipts from stamp duty over the next five years, had previously looked over-optimistic if not wildly optimistic to many people.
Help to buy and build to rent are not classified as financial transactions and so do not affect public sector net borrowing. However, they will increase the government’s net cash requirement and public sector net debt by £1.3 billion in 2013/14 and £1.9 billion in both 2014/15 and 2015/16.
15:23: Responses to what really was a dramatic Budget for housing are coming thick and fast.
David Orr of the National Housing Federation said the government should be focusing on ways of unlocking investment in new homes giving housing providers more certainty. said: ‘We welcome the Chancellor’s realisation that people around the country are struggling to buy their own homes, and the measures introduced today may help a number of them. But the danger is that if we don’t tackle the fact we’re still not building enough homes, we’ll just create another housing bubble that will continue to push house prices up and out of reach of the majority.’
The Chartered Institute of Housing welcomed moves to boost home ownership plys the announcements on affordable homes, build to rent and social rents. However, chief executive Grainia Long warned that Help to Buy could just push up house prices if it fails to stimulate housebuilding on a big enough scale. ‘Thousands of people have been locked out of home ownership by spiralling prices and these schemes will help to address that,’ she said. ‘However, government will need to monitor the impact of these policies carefully to ensure that they are increasing new house building rather than simply stoking up house prices.’ The CIH was also disappointed that the Chancellor has failed to lift borrowing caps on council housing and said it was still not convinced about right to buy receipts funding replacement homes.
The House Builders Federation must have struggled to keep a straight face when it ‘guardedly welcomed’ the Budget. Exectuive chairman Stewart Baseley said the government had now clearly understood that lack of mortgage availability is the biggest constraint on housing supply and was looking to address it: ‘Extending NewBuy to the second hand market should create churn in the market place and drive up sales across the Board – including for new homes. We do though need to ensure a level playing field across the whole market. Extending FirstBuy is very welcome and will provide a real option for people currently unable to buy – so providing a vital market for the new homes industry. Building the homes the country desperately needs can be a key driver of economic activity. Government must be praised for its attempts to stimulate activity, but must also be wary to get the details right
14:39: Three planning snippets from the main Budget document:
- The government promises more simplicity and clarity and to ‘make greater use of information on prices to ensure that sufficient land is allocated to meet housing and employment need’
- There will be a consultation on further flexibilities between use classes – as in the move on offices to homes – ‘to support change of use from certain agricultural and retail uses to residential use to increase responsiveness within the planning system’.
- The DCLG is working with the Treasury to conduct a feasibility study into wider use of the land auctions model.
14:30: More detail from the main Budget document:
- The equity loan option for Help to Buy will provide £3.5 billion of investment in England, supporting up to 74,000 home home buyers as well as boosting construction.
- The mortgage guarantee option will make available up to £12 billion of government guarantees supporting up to £130 billion of high loan to value mortgages.
- On right to buy, the government will also ‘look at ways to simplify the application process to ensure applicants are not hampered by a burdensome administrative process’.
- ‘The additional receipts from increased sales will be used to pay down housing debt and support the Government’s commitment to 1:1 replacement of all additional homes sold.’
- The £200 million Build to Rent fund announced in the Autumn Statement in 2012 was ‘significantly oversubscribed’. ‘Budget 2013 announces that this fund will be expanded to £1 billion to support the development of more homes in England. The fund will provide equity or loan finance to support the development finance stage of building new homes for private rent.
- A response to the consultation on implementing zero carbon homes from 2016 is promised by May.
- A social rent policy giving social landlords certainty until 2025 is promised at the 2015/16 spending round – in recognition of their concern about uncertainty after 2014/15.
- On pay to stay, the government will ‘shortly take steps’ to allow social landlords to charge market rents to tenants with income of over £60,000. ‘The Government intends to require these tenants to declare their income to ensure they make a fair contribution, with all additional income reinvested in housing.’
14:10: Here’s a summary of key housing points from the main Budget document:
- ‘Budget 2013 announces a reduction in resource Departmental Expenditure Limits (DEL) by £1.1 billion in 2013-14 and £1.2 billion in 2014-15. In the short term, these funds will be used to help support housing.’
- The document values the housing market measures including Help to Buy at £5.4 billion.
- The equity loan Help to Buy does not just increase the maximum home value – it also removes the income cap constraint (which I assume means under FirstBuy).
- The mortgage guarantee will be available for lenders to people with a deposit of between 5 and 20 per cent.
- The re-invigorated re-invigorated right to buy does not just increase the maximum discount cash cap in London to £100,000, it also reduces the qualifying period from five to three years.
- The existing affordable homes guarantee programme will be doubled, ‘providing up to an additional £225 million to support a further 15,000 affordable homes by 2015’.
13:58: A Treasury Q&A on Help to Buy says that the Help to Buy equity loan is for new-build homes only. The loan will be interest-free for the first six years.
Both options will ‘only be available on properties which are occupied by the individual or individuals taking out the mortgage’ so that should rule out buy to let.
13:50:A Treasury infographic reveals more details on Help to Buy.
Both are for people with a deposit of at least 5 per cent and are available on homes with a maximum value of £600,000 (the limit on NewBuy is, I think, £500,000).
The equity loan option effectively replaces FirstBuy and is available to everyone not just first-time buyers. Buyers will get a 20 per equity loan repayable on the sale of their home and so will need a 75 per cent mortgage. It will run from 1 April 2013 for three years and is said to provide £3.5 billion of additional investment.
The mortgage guarantee option is also available to all buyers not just first-time buyers and is designed to boost higher loan to value lending. It will run from January 2014 for three years. On the quoted example, someone buying a £200,000 house would put down a £10,000 deposit and get a mortgage of £190,000. The incentive for the lender is that the first £30,000 of the mortgage would be covered by the government guarantee. Is this effectively a replacement for NewBuy?
13:40 For once the word ‘dramatic’ is not a piece of political hype. George Osborne said extend government support for home ownership in a ‘dramatic way’ and that is exactly what he’s done. The new Help to Buy scheme comes in two parts: a 20 per cent equity loan available for homes up to £600,000 for anyone who has a deposit of 5%; and a mortgage guarantee scheme for people who can’t raise a deposit. Detail- and reservations - to come but Osborne was not joking when he said it would be ‘a Budget for those who aspire to own their own homes’.
That was followed by more modest announcements on renting: 15,000 affordable homes (but how many of them are new?); increasing build to rent by five times; and confimation of that increase in right to buy discounts.
10:05: Here’s my round-up of the news, the speculation and the guesswork ahead of George Osborne’s statement. More to come later.
We know that there will be £2.5 billion of cuts in departmental spending to fund extra spending on infrastructure. However, we don’t know how much of that infrastructure will be housing and we don’t know exactly where the axe will fall either as departments are told to deliver 1 per cent savings in 2013/14 and 2014/15. Funding for local authorities from the Department for Communities and Local Government will be protected for 2013/14 along with some aspects of defence and policing. Health, education, international aid will be continue to be ringfenced. Everywhere else, departmental under-spends will be grabbed back. Significantly, housing has the backing this time around of the Confederation of British Industry. Ahead of previous Budgets the CBI has called for investment in big road and rail schemes but now it is urging the government to invest £1.25 billion in 50,000 affordable homes.
Separately from that it seems odds-on that there will be a boost for housebuilding – or at least that is how it will be presented. The fact that every Budget and Autumn Statement since March 2011 has included one should inject a note of caution here. So far FirstBuy, NewBuy and all the other measures introduced by Osborne have had a major impact on housebuilders’ profit margins but a negligible one on new housing starts. Much of the pre-Budget speculation this time around has centred on extensions to NewBuy, the joint guarantee offered by the government and housebuilders that enables people to buy new homes with a 5 per cent deposit. At one stage there was even speculation that Osborne might extend the scheme to existing homes but the Financial Times reported on Monday that he may stop short of this and announce a public consultation.
We strongly suspect that right to buy discounts will be increased to £100,000 in London. Inside Housing broke the story on Friday that the Conservatives were pressing for this with the Lib Dems holding out for more funding for affordable housing in return.
We don’t know if Osborne will raise caps on local authority borrowing to allow more investment in council housing but he is under pressure from across the political spectrum. On the Conservative side, Merrick Cockell of Kensington and Chelsea and Philippa Roe of Westminster both make the case in Guardian articles. And the leaders of 142 Labour councils are on the letters page calling for that plus much more besides. Peter Hetherington has a good piece on Society Guardian with more of the background. Osborne has of course already accepted most of Lord Heseltine’s recommendations on transferring funding to local level but the long-term implications for housing remain to be sen
Apart from all that, could Osborne have more to say on garden cities, the release of public land and loan guarantees for new homes? Could there be more on empty homes and the post-2015 regime for housing associations? Yet more cuts in welfare or perhaps more in discretionary housing payments? Watch this space.
So three weeks left until the start of the bedroom tax: is there a still a chance of last-minute concessions?
Thanks to a steady stream of heartbreaking real-life cases in the national media, the issue is not going away for the government. Attempts by ministers from David Cameron down to make the fairness argument for the policy continue to founder on inconvenient facts.
Later today Iain Duncan Smith faces an uncomfortable time at work and pensions questions and on Wednesday Cameron is certain to face another grilling at prime minister’s questions.
Saturday will see demonstrations in more than 50 towns and cities around the country in a remarkable show of grassroots organisation that should help keep the issue at the top of the media and political agendas.
That will be quickly followed by Eric Pickles and Mark Prisk on the spot at CLG questions a week today, a housing announcement from Cameron and Clegg and then George Osborne’s Budget next Wednesday, which is surely the ideal opportunity for a concession or two. Alternatively, the clock is counting down on the 14 days the DWP has to make its case against a judicial review on behalf of 10 disabled and vulnerable children.
Wishful thinking? Perhaps but the pressure is growing all the time and the cracks are starting to appear even within in the government. As Inside Housing reported last week, even IDS’s own thinktank now believes that the bedroom tax should only apply to people who turn down an offer of smaller accommodation. Meanwhile Conservative MPs are starting to express doubts on the record in stories like this.
Cameron tied himself in knots with his first answer at last week’s PMQs when he argued that:
‘Pensioners are exempt, people with severely disabled children are exempt and people who need round-the-clock care are exempt. Those categories of people are all exempt, but there is a basic issue of fairness.’
As the National Housing Federation was quick to point out, those claims are all untrue: the government has appealed against a Court of Appeal ruling that disabled children should not be forced to share with a sibling; some people with non-resident carers may be protected but not those whose partner is their carer and needs to sleep in the ‘spare’ room; and pensioners are currently exempt, but mixed-age couples where one is above pension are and the other below will have to pay the bedroom tax once the universal credit begins.
Other coalition MPs are squirming too. On Any Questions over the weekend, Lib Dem cabinet minister Ed Davey’s heart did not seem in it as he stuck to his line that it was all about being fair to families who are overcrowded while completely ignoring objections that only a small proportion of under-occupiers have anywhere to downside into. Meanwhile when up and coming Tory backbencher Andrea Leadsom was challenged on Cameron’s erroneous claim on disabled children she simply made one of her own. ‘The actual case is that if you have disabled children who need for reasons of their disability to have separate bedrooms then that will be accommodated by the local authority,’ she said. The help is of course discretionary and the £30 million budget is only enough to pay for a fraction of the tax faced by the 230,000 disabled people affected.
Both Cameron and Leadsom were pushing the government’s ‘spare room subsidy’ alternative to ‘bedroom tax’. As a piece on Conservative Home on Friday acknowledged, it is really much too late (even if a Tory Batman can be found) to win the name game. However, what’s interesting is the way that it links to the Conservative case that social housing is ‘subsidised’ housing – even as the numbers from the UK Housing Review show that home ownership continues to be the most subsidised tenure.
Leadsom claimed that ‘it is simply not fair’ for the taxpayer to be paying for people to live in homes that are too big for them but who really gets the ‘spare room subsidy’? Under-occupation of social housing is after all lower as judged by the bedroom standard (10 per cent) than for private renting (16 per cent) and many times lower than in owner-occupied homes (49 per cent). However, it seems that under-occupation is only an issue for renters. The bedroom tax does not apply to shared owners who are under-occupying in the same way that support for mortgage interest is not cut for home owners with more bedrooms than they need.
And the real spare room subsidy does not end there: 7.7 million households in England currently receive a single person’s discount of 25 per cent off their council tax. Many will be single adults with children, so not all of them will be under-occupying, but the discount applies regardless of the size of the home. The legislation that transferred council tax benefit to local authorities stipulates the single person discount must continue in their new support schemes. This was presented as a way of avoiding a charge on pensioners living alone but the discount goes to many more people regardless of income.
Work by the Institute for Fiscal Studies estimated that cutting the single person discount from 25 per cent to 17.5 per cent, while exempting pensioners and allowing for increased council tax support to poorer households, would raise enough revenue to cover the £500 million cut in council tax benefit. That is also more than the government claims the bedroom tax will save.
The issues with the council tax and spare rooms do not end there. As Joe Halewood has pointed out, measures exempting empty homes from the council tax make it not just a spare room but a ‘spare home subsidy’. And then there is the way the system itself is designed to avoid big bills for larger homes. As the UK Housing Review points out: ‘The current differentials are regressive, and bear down disproportionately on occupants of low- value properties while providing little disincentive for overconsumption of housing by under-occupiers of large homes.’
Just to bring the argument full circle, the council tax was of course designed as a replacement for another unpopular measure over which a Conservative government lost the name game.
It still seems more likely that the government will react to losing the argument over the bedroom tax by digging in its heels rather than by backtracking and making concessions. However, if the pressure continues to build, especially over the next week, who knows?
After all, even as Margaret Thatcher insisted that there was no question of any change to what she insisted on calling the ‘community charge’, she was losing first the argument, then the policy and finally her job as everyone else protested about the poll tax.
So will the next big housing announcement from David Cameron and Nick Clegg amount to any more than the last three?
The Financial Times reported yesterday that the coalition double act are ‘drawing up schemes to revive the flatlining housebuilding industry and help people get on the housing ladder’. On the eve of the Budget on March 20 they will make a series of announcements including measures on shared equity schemes, social housing and support for first-time buyers.
Despite the scoop, even the FT admits that this ‘may be treated with some scepticism given that such announcements on housebuilding have become a regular feature of the coalition – while the industry has continued to stagnate’.
That’s not surprising: by my reckoning, this is the coalition’s fourth housing strategy or package in under three years. The first was the programme for government (new homes bonus, Localism Act, FirstBuy) in May 2010. The second in November 2011 gave us NewBuy plus consultations on right to buy 2 and investment in private renting. The third in September 2012 brought us government guarantees, measures to unlock stalled sites and the Montague report.
Housing package Mark 4 seems certain to feature the traditional images of Cameron and Clegg in hard hats and high visibility jackets and perhaps taking tea with a ‘hard-working family’. But what will it actually say?
According to the FT, it will include a promise of new ‘garden towns’ (a cuddlier version of garden cities?), more flats above shops and more private renting. Crucially for housing associations, it may also have details of how affordable rent will work after 2015.
Ministers are also said to be discussing an extension of the NewBuy mortgage guarantee scheme to existing homes. Although OldBuy sounds like a contradiction in terms, it’s worth noting that NewBuy was extended to allow part-exchange of existing homes in January. However, going further than that would raise all sorts of questions about the desirability of taxpayers guaranteeing 95 per cent mortgages across the market.
If some of those measures sounds familiar, that’s because, well, they are. In the Commons yesterday even the coalition’s own MPs seemed to be wearying of all the rebranded announcements and initiatives. ‘I would just comment that a couple of those announcements do not seem to be that new, but I hope that when they are made in a couple of weeks’ time, they will be made with a little more commitment and determination than they were before,’ said Conservative MP George Hollingbery. ‘They are keen on recycling,’ agreed his fellow backbencher Stewart Jackson.
MPs were debating last year’s Communities and Local Government committee report on financing new housing supply, which set out starkly the gap between housing need and provision. Although it emphasised that there was ‘no silver bullet’, it did demonstrate a cross-party consensus that more, much more needs to be done on new homes.
What’s happened since is more regress than progress, with housing starts in 2012 down 11 per cent on the miserable total for 2011. As committee chair Clive Betts pointed out: ‘If our recommendations were correct a year ago, they are probably just as correct now.’
However, the debate did at least show a continuing consensus for change and offered some possible hints of what may be announced in a fortnight. There were calls from both sides of the house for more freedom for local authorities to borrow to invest in new homes and praise for housing associations looking to expand into private renting. Betts appeared almost as enthused by the self-build on show at Almere in the Netherlands as former housing minster Grant Shapps. ‘That seemed a brilliant way forward,’ he said. ‘I see no reason why we cannot build 50,000 self-build homes in this country, instead of the 10,000 we build at present.
Conservative MP Mark Pawsey was critical of the forced renegotiation of section 106 agreements. ‘Perhaps the government should be encouraging local authorities to do that rather than dictating to them,’ he said. And he attacked plans to make it easier to convert offices into homes as ‘not helpful’. He also raised the possibility of a tie-up between housing associations and institutional investors on the management of private rented homes.
More evidence of fresh thinking on the Tory side came from James Morris, another committee member, who argued that ‘there is great scope for local authorities to take on more borrowing capacity and leverage pension funds in order to invest further in houses of different sorts’.
However, there was scepticism from Labour’s Nick Raynsford, a former housing minister, about a key element of the first housing package: the new homes bonus. ‘The Government will have been presiding over a lower level of consents for residential planning than ever before, which is extraordinary when they are spending £3.3 billion in supposed incentives to encourage more planning consents,’ he said. He also questioned the value of extending NewBuy to existing homes under Mark 4.
And shadow housing minister Jack Dromey laid down a challenge: ‘The government badly need to come forward with a serious strategy for getting Britain building, and not yet another false dawn.’
Responding for the government, the Lib Dem communities minister Don Foster did his best. ‘Under this coalition government, shovels are in the ground,’ he tried. The new homes bonus ‘is a powerful incentive that is really working,’ he ventured.
Foster told MPs that despite the leak ‘we will just have to wait and see what is around the corner’. He did have an intriguing hint about those garden ‘towns’ even if he did not appear to have received the memo that they are no longer called ‘cities’. ‘The House will be aware that there has not been a single new development of more than 13,500 homes in this country since the 1970s, so we intend to promote and support larger scale garden cities where there is clear local support and private sector appetite,’ he said. ‘We are currently working through the details on that.’
However, the signs look less positive on more freedom for local authority borrowing, a move that councils argue could enable them to build 60,000 homes in five years. Clive Betts pressed him for a direct answer: ‘Is he prepared to look again at the cap on borrowing to fund housing at local authority level? Why is housing the only form of borrowing that local authorities cannot enter into simply because of the prudential rules?
The response? ‘The hon. Gentleman knows part of the answer, because that is the same problem his Government faced, and it is to do with difficulties with the Treasury. Having said that, we are looking at the issues and are willing to look at the possibility of having flexibility in the cap and other ways of moving forward.’
Whatever happens in two weeks’ time, prepare for housing announcement number five some time later in the year.