Monday, 03 August 2015

Inside edge

Beyond help

Sun, 21 Apr 2013

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Putting the cap on it

Thu, 18 Apr 2013

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Taking the strain

Wed, 10 Apr 2013

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Buy, buy, buy

Tue, 9 Apr 2013

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.

Waiting game

Thu, 4 Apr 2013

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.

First reported by the Financial Times on Monday, official confirmation of the Pru’s £105 million deal with Berkeley Homes is extensively covered in today’s papers. See Inside Housing’s story here.

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.

Bedroom cracks

Thu, 28 Mar 2013

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.

Shappsenfreude

Wed, 27 Mar 2013

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?

Local priority

Mon, 25 Mar 2013

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.  

Osborne's choice

Thu, 21 Mar 2013

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.

Budget 2013 - live blog

Wed, 20 Mar 2013

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. 

The name game

Mon, 11 Mar 2013

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.

Dynamic duo

Wed, 6 Mar 2013

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. 

Owning fall-out

Mon, 4 Mar 2013

Should we simply be accepting the continuing shift from home ownership to private renting as somehow inevitable?

That’s one of the many housing questions posed in the latest edition of the UK Housing Review. Now in its 21st edition and published by the Chartered Institute of Housing, the review has long been the bible for housing nerds but it is the best source of authoritative information on tenure and any other aspect of housing you care to think of.

The CIH has press released the story that home ownership has slumped among the young: from 39 to 14 per cent for the 16-24s and 67 to 43 per cent among the 25-34s. However, the rate is falling for older people too. Age-specific home ownership rates derived from Labour Force Survey data analysed by Glen Bramley shows that even 35-44 years olds were less likely to own from the early 90s onwards. In 1992, 79 per cent owned but that had fallen to 69 per cent by 2008 and 63 per cent by 2012.

There was even a fall for 45-54 year olds in the 2000s, with the rate falling from a peak of 80 per cent in 2002 to 75 per cent in 2008 and 71 per cent in 2012.

That leaves those aged over 65 as the only group who have seen rates continuing to climb, from 60 per cent in 1992 to 73 per cent in 2008 and 76 per cent in 2012.

It’s been obvious for some time that the fall in ownership is about much more than the problems seen in the mortgage market since the credit crunch. Thanks to ever-rising house prices, mortgaged ownership and first-time buyers were both falling from the early 2000s, although the scale of the total decline was obscured by a continuing rise in outright ownership.

These new figures confirm the way that the decline has rippled up through the age groups – and the review points out that it will continue to do so unless some fundamental things change.

First, the growth of private renting: the review shows that this has happened across the country and not just mainly in London and the South East. The fastest growth came in Northern Ireland, where the size of the sector increased six-fold between 1991 and 2011. The largest percentage increases in England came in the North East (202 per cent), the North West (170 per cent) and Yorkshire & Humber (150 per cent). The review points out that these were also the regions that saw the biggest decline in social housing, so clearly the tenure shift is about much more than just a fall in ownership.

Second, the housing stock: most of the growth in private renting is happening as a result of the transfer of formerly owner-occupied stock as people decide to rent rather than sell rather than the construction of new homes. Based on an estimate that just 10 per cent of buy to let ‘investment’ goes to new build, the review estimates that only 14,000 of the 246,000 rise in private renting in 2011 represented additional homes.

Third, government moves to support the sort of mortgage lending at high loan to values have largely failed to deliver the sort of funding that first-time buyers need. Loans of 90 per cent fell from 14.9 per cent of all lending in 2007 to just 1.5 per cent in 2009 thanks to the financial crisis. However, despite all the rhetoric and initiatives from ministers, the rate had only risen to 2.5 per cent by 2012.

Fourth, the climate continues to favour buy-to-let landlords over young buyers. Mortgage lending is tightly regulated and now mostly on a repayment basis. That means repayment costs are typically 50 per cent more than on unregulated, interest-only buy-to-let loans. 

Fifth, the continuing fiscal bias towards home ownership: the government took £5.3 billion in inheritance tax and stamp duty out of the sector in 2011/12. However, tax reliefs on imputed rental returns and capital gains tax on first homes (allowing for rollover relief) totally £19.4 billion. The review argues that the importance of this has not been recognised and goes on: ‘It is also notable that these reliefs are almost entirely regressive and favour most those households owning the most expensive dwellings in the country. They have also become part of the barrier that must be crossed by young households entering the sector, as the benefits of limited taxation for existing owners have effectively been factored into the higher house prices they face.’

Put that all together and you have not just an explanation for the shift in tenure over the last 20 years but a powerful argument that it will continue over the next 20 if nothing else changes. The consequences of that will not just be felt by young renters priced out of the market but, as I’ve argued before, by society as a whole in a burgeoning housing benefit bill for people who do not have a home as an asset to fall back on in retirement.

However, is this inevitable? The review says ‘moralistic voices’ are calling for young people to save for a deposit before they become owners but given their savings behaviour and rising student debt, but it argues that this would ‘effectively deny a high proportion of young households – those who cannot draw on parental help – from ever becoming homeowners’.

And should we be accepting it? The review questions the cross-party consensus about backing private renting to support housing mobility and goes on:

‘There has not been any real debate about the pros and cons of the consequences of the policies now in place that effectively constrain many younger households to remain in the rented sector, without the same alternative available to their predecessors to enter the owner-occupied market. There also seems to a sense of fatalism about this outcome in reports from the ‘policy lobby’ that focus on the case for improving the private rented sector offer, but without questioning why younger households that have adequate, secure incomes – but limited savings or access to parental support – should be denied the opportunity to own rather than rent when that is their preference.’

And it also questions the almost universal support for institutional investment in private renting. ‘This is rather a strange obsession given that there is no evidence that consumers prefer institutional landlords, and given that the predominance of small landlords is the norm in other countries, including Germany,’ it says.

For more on this and much more the full 2013 edition of the UK Housing Review is available to buy here. Most of it is online here

Looking again

Thu, 28 Feb 2013

With even the Monster Raving Loonies calling it a crazy policy, is there still time for changes to the bedroom tax?

It’s a measure of how big a political issue it’s become that it was one of only three nominated by voters in Eastleigh for the BBC to put to the 15 candidates in today’s by-election. Ten came out against the bedroom tax, with Howling Laud Hope of the Monster Raving Loony William Hill Party making the far too sensible point that ‘this is like going back to the pre-Victorian window tax.’ The coalition parties could only rely on the backing of the Beer, Baccy and Crumpet Party, the Christian Party (Proclaiming Christ’s Lordship) and an independent.

The by-election winner will enter a House of Commons that is at last giving the bedroom tax the sort of scrutiny it deserves. The Welfare Reform Act packed so many changes in to one piece of legislation that there was little time for detailed debate on each of them. Even when contradictions and unintended consequences were picked up in the Lords, the amendments were reversed in the Commons.

However, the closer we get to April 1, the more bedroom tax victims are appearing in MPs’ surgeries, in the newspapers and on TV and the harder it becomes for ministers to defend. That’s transmitted into questions and debates in the Commons as MPs take the chance to express the anger and fear of their constituents.

Yesterday saw the bedroom tax feature in eight exchanges at Welsh questions and another four at prime minister’s questions. David Cameron was presented with the plight of foster carers, armed service families, a man near pension age who had lived in the same house for his whole life, a wheelchair-bound sufferer with brittle bones who needs a spare room on health grounds and a blind couple who rely on their family and neighbours. Cameron stuck to his formula about case-by-case assistance with discretionary help and the need to act on the deficit and the housing benefit bill while attacking Labour profligacy.

That was followed by an opposition debate led by the SNP, Plaid Cymru and the Green Party that saw MP after MP get to their feet to quote cases from their own constituencies. The debate took over six hours so I’ve only got space for a selection but this should give a flavour:

  • A homeless woman from Corby who was offered a two-bedroom property and was told that if she refused it she would be told she had not accepted re-housing
  • A woman from Glasgow who is a full-time carer for her father who lives nearby but now faces having to downsize to the other side of the city
  • A couple from Newport where the husband’s had his ESA wrongly cut after an Atos assessment, successfully appealed only for his wife to be diagnosed with myleopathy, and then received a bedroom tax letter
  • The man from Carmathernshire who has turned his spare bedroom into a sterile room for his dialysis treatment but now faces the penalty
  • A woman from Rutherglen who has fostered more than 50 children over the last 30 years who’s been told she has three spare bedrooms
  • A disabled man from Bolton who lives in a specially adapted house and lives close to his family and needs their support, who says he’s contemplating suicide if he is forced to downsize.

MPs also queued up to expose the contradictions in the policy. Jim Shannon (DUP) said he had spent 20 years as a councillor upgrading one-bed bungalows to two bedrooms only to find that the very thing he pushed for has to be turned back. Angus Bredan MacNeil (SNP) pointed out that people from rural areas have nowhere else to go. Karen Buck (Labour) argued that if the policy worked and encouraged people to downsize if would not save any money and Dr Eilidh Whiteford (SNP) that ‘the great irony of the bedroom tax is that it will not save any money’. Julie Hilling (Lab) pointed out that when size criteria were introduced by Labour for private tenants (one of minsters’ key arguments for introducing it for social tenants) they did not affect existing tenancies.

MP after MP argued that discretionary housing payments will only cover a fraction of those affected: Labour’s John Healey quoted NHF figures that £50 million of help would only cover 73,000 disabled people, leaving more than half of those on disability living allowance with no help at all.

However, some of the most interesting exchanges for me came between Lib Dem work and pensions minister Steve Webb and MPs including his own backbenchers. The government eventually won the vote by 41 votes and was never in any real danger of losing but is was notable that all of the Lib Dem backbenchers abstained and all of them were pressing for concessions.

Webb began by using the Grant Shapps rebranding of the under-occupation penalty – the spare room subsidy – and making all the usual noises about the deficit, fairness for private tenants and discretionary help. However, challenged directly by Labour’s Liam Byrne on whether he was 100 per cent sure that the policy would deliver the savings set out by the Chancellor he seemed a little less than convincing: ‘Our impact assessment is out best estimate based on what we expect the impact of the policy to be.’

He argued that the government could address ‘the issue of the shortfall’ in two ways, through blanket exemptions and through DHPs. On foster carers, he said that the government saw local discretionary help as the best way forward but both he and Iain Duncan Smith were ‘entirely open to discussing whether that is the most effective way of delivering that support’. Simon Hughes (LD) asked if that meant they ‘would be willing to look at the categories defining which people need a bedroom’. Webb replied that: ‘I can see the attraction of that approach… We could say that a bedroom used for a foster child is a bedroom, so no deduction applies.’

Webb also clarified his position on whether people evicted for bedroom tax arrears would be counted as intentionally homeless. ‘If the only reason for the person’s homelessness is a reduction in benefit that is outside their control they should not be considered intentionally homeless by the local authority. I can put that on the record and hope that is helpful.’

There are no firm commitments here even if the tone suggests a willingness to make concessions. In many ways it was a repeat of comments by Iain Duncan Smith that he had asked DWP officials to ‘look again’ at how the bedroom tax applies to disabled people. The BBC reported that as a small u-turn following a letter from seven charities but the DWP press office tweeted that there was ’no change in spare bedroom policy, as with all reforms we will monitor closely as it comes in this April’. The promise of discretionary help and reviews to follow offers plenty of wriggle room for ministers.

However, another Lib Dem backbencher, Greg Mulholland, put his finger on the problem with the government’s approach. ‘I do not think that the government has got it right, and I ask them to address the issue compassionately and with common sense, not only through the application of discretionary housing payments… but through the provision of further exemptions for certain categories.’ He nominated partners who need separate rooms for medical reasons, disabled children who need a separate bedroom (an issue before the Supreme Court), foster carers and separated parents who have their kids to stay for part of the week. ‘If the exemptions that should be in place are there, the question of where local discretion should be used becomes discretionary rather than a set of difficult choices,’ he said.

It was all a belated attempt to inject some sense into a policy that even the Monster Raving Loonies recognise is crazy. With just 32 days left until April 1, MPs and campaigners need to keep up the pressure to convert the vague assurances and promises to look again at aspects of the bedroom tax into firm commitments.

Sales pitch

Tue, 26 Feb 2013

So how is it going so far for two ‘ambitious schemes’ that we were told would ‘unlock the aspirations of a new generation of home buyers’?

It was March 2012 when David Cameron and Grant Shapps launched NewBuy and the ‘reinvigorated’ Right to Buy 2. ‘This government doesn’t just talk about expanding home ownership: we’re making it happen,’ said the prime minister.

Even as he was speaking it all seemed a tad ambitious. No wonder, when the English Housing Survey has just shown that home ownership fell again in 2011/12.

Flash forward almost a year and Mark Prisk, the successor to Shapps as housing minister, is hailing a doubling in right to buy sales and the highest number of sales since 2007. He said: ‘The reinvigorated right to buy has opened the door to home ownership for thousands of tenants across the country and I’m delighted to see so many taking up this opportunity.’

So far, so good for the government. Figures from the Council of Mortgage Lenders also show a rise in the number of first-time buyers. However, a quick look at today’s figures suggests it may not be time to break out the champagne just yet.

It’s true that right to buy sales have doubled but that’s only if you compare sales between July to September 2012 (1,041) and October to December 2012 (2,100). Might the summer holidays and the Olympics just possibly have had something to do with those figures?

In the nine months since the reinvigoration (with an increase in the right to buy cap to £75,000) sales total 3,495. That is indeed more than in any full year since 2007/08 but on current trends the total for 2012/13 will still be less than half the 12,250 sales achieved five years ago and around 10 per cent of the total seen before the Labour government introduced caps on discounts in the late 2000s.

Despite ‘200,000 hits’ on the DCLG website, that does not seem much of a return on all that initial hype, a discount that is three times what it was in some areas, and a marketing campaign costing close to £1 million. The impact assessment had estimated that 300,000 tenants both have the right to buy and can afford to exercise it.

The housing minister has even less to boast about with NewBuy. Figures released today show that there were just 1,522 sales in the first nine months of the scheme between March and December 2012.

It’s true that the Home Builders Federation said last month that NewBuy reservations now total 3,000 but even that does not come close to matching the hype generated a year ago when Shapps and Cameron boasted that the scheme would enable ‘100,000 prospective and existing homeowners to buy their dream home with much smaller deposits than currently required’.

If sales continue at the current rate, that target will be achieved some time in 2063 – but the scheme ends in March 2015. The only way that sales could get even close to the March 2012 aspiration would be if they continue to double quarter on quarter for the next two years (as they did between the second and third quarters of 2012/13).

However, as with Right to Buy 2, much of the initial enthusiasm was based on pent-up demand that would supposedly be unlocked by the new schemes. It seems just as likely to expect a flood of initial sales followed by a leveling off later as it does to expect such continuing growth.

Little wonder then that the government moved last month to boost sales with the launch of NewBuy Part Exchange. This will make people looking to trade in their existing home for a new one eligible for a mortgage with a 5 per cent deposit. That may be a useful option for second steppers stuck in their first home because they do not have enough equity to move but it will do little for the ‘new generations of home buyers’ that the scheme was meant to help.

One year on from their launch, Right to Buy 2 and NewBuy are still good news for some buyers: council tenants who can afford to buy (and perhaps do not want to pay to stay); first-time buyers who cannot raise a deposit; and now second steppers who cannot otherwise move.

However, sales are already looking much more modest than Shapps and Cameron made out and the results in terms of new homes look like being even more modest.

Even if NewBuy sales continue to rise thanks to the new part-exchange option, it remains to be seen how many of them will truly be additional and how many will simply replace transactions that would have been made anyway under housebuilders’ existing incentive schemes. This week’s results from the major firms are again showing bumper increases in margins and profits on much lower rises in completions.

As for Right to Buy 2, one thing is missing from today’s announcement. As I blogged last year, the idea that each home sold would be replaced on a one-for-one basis by a new affordable home stretched credulity even at the time.

Shapps boasted in March 2012 that ‘we are determined to maintain the number of affordable homes for rent - so for the first time, homes that are sold will be replaced by new affordable homes, helping councils meet housing need and getting the nation building again’.

A year on, the DCLG says that the receipts from Right to Buy 2 sales will be ‘recycled back into new affordable homes for rent’ but any notion of one-for-one replacement seems to have been quietly dropped. 

False start

Fri, 22 Feb 2013

It’s half time for a government that promised to make us ‘a nation of homebuilders’. The crowd are – to put it mildly - not happy.

Figures released yesterday show the performance of the coalition in the first two and a half years of its five-year term. By now its abolition of ‘Stalinist’ top-down regional strategies and creation of the ‘powerful new incentive’ of the new homes bonus and the National Planning Policy Framework should be working.

Instead housebuilding in England is flat-lining at less than half of the level required. The 26,830 housing starts in the fourth quarter of 2012 were up by 180 on the previous three months but down by 400 on a year ago.

Just 98,280 homes were started in the whole of 2012. That is the third quarter in a row when starts have fallen below six figures and is even 11 per cent below the miserable total for 2011, when David Cameron and Nick Clegg proposed their ‘radical and unashamedly ambitious’ housing strategy.

The yardstick for judging the coalition’s performance on housebuilding was set by former housing minister Grant Shapps with his ‘gold standard’ of building more homes than Labour.

The first half of the coalition has seen 261,940 housing starts, a little more than the 253,500 in the second half of the last government. However, that included the worst period of the global financial crisis when mortgage lending seized up and several major housebuilders were on the brink of collapse.

The gold standard was – or should have been – quite a modest ambition but the coalition is slipping behind the required rate all the time.

Looking forward, to match the 695,000 starts seen over the whole of the last Labour government, the coalition needs to see something like 43,000 starts a quarter between now and 2015. That’s an increase of 65 per cent on current levels.  To match the average rate seen between 1997 and 2010 (147,000 a year or 37,000 a quarter) the coalition needs 47,000 starts a quarter or an increase of 80 per cent.

The figures would once have sparked a battle of statistics between Labour and the government. Ex-housing minister Grant Shapps would surely have found a way to spin some good news.

Instead, while Labour’s Jack Dromey accused the government of ‘making the biggest housing crisis in a generation worse, not better’, the reaction from Mark Prisk and the DCLG was silence.

Do they prefer to let actions speak louder than words? Would they rather work on solutions rather than make rash promises? Or do they not have a clue? .

All of the coalition’s policies and housing strategies so far have been based on four things: reforming the planning system to encourage local communities to see the advantages of new homes rather than fight plans imposed from above; reducing the burdens on housebuilders; coming up with ways to tempt institutional investors in to private renting; and, above all, austerity to get the public finances under control and mortgage rates low.

The jury is still out on the first with some tentative signs of post-NPPF growth in permissions matched by the sort of continuing nimbyism that is only too evident in the Eastleigh by-election.

The second has worked spectacularly well – but only if you measure success on the profit margins and share prices of the major housebuilders. If they have found a way to make money out of building 80,000 or so homes a year, why should they build any more if there is no quid pro quo for the government’s help?

It’s too early to tell with the third. Again there are promising signs and the appointment of Andy Rose as the new chief executive of the HCA suggests that it remains a big priority but we’ve heard it all before about institutional investment.

On the fourth, austerity continues with few signs that is succeeding in tackling the deficit. Mortgages remain at a record low but the benefits are going to existing home owners and buy-to-let landlords rather than first-time buyers.

It is clearer than ever that a complete change of tactics is required. There is no shortage of new ideas out there - freedom for council housing; new garden cities; new flexibilities for housing associations; quantitative easing for new housing - and ministers have even talked about some of them.  

The whistle has already blown for the second half.

Bedtime stories

Thu, 21 Feb 2013

It seems remarkable that with less than 40 days to go until we start taxing them we still don’t really know for certain what a bedroom is.

So it’s not surprising that the move by Knowsley Housing Trust to reclassify 566 of its two- and three-bed homes as one- and two-bed has attracted so much attention. Chief executive Bob Taylor told Inside Housing that a stock review showed some homes are currently classified as having more bedrooms than they actually have, because tenants are not using the extra rooms as bedrooms and were therefore paying too much rent.

As I understand it, reclassification affects only some of KHT’s tenants who are facing by the bedroom tax. KHT also seems to be in a minority of landlords intending to reclassify: those I have spoken to have said that they will consider it in extremis but that their hands are effectively tied because of the impact on their rental income and therefore their loan agreements.

Complex issues are involved here that are covered in much more detail elsewhere. Joe Halewood has blogged extensively about landlords and the bedroom definition issue, including a post about KHT here. A recent post on the Nearly Legal blog sums up the murky legal position here.

However, the wider significance of KHT’s move may lie in the fact that is based on how tenants actually use their home. That is exactly in line with a legal opinion from senior counsel obtained by Glasgow Advice Agency (GAA). A headline in the Herald over the weekend that this meant ‘100,000 Scots could cash in on bedroom tax loophole’ has met with some scepticism. However, Mike Dailly of Govan Law Centre and the GAA says the legal opinion could offer a lifeline for many Scots and especially for disabled tenants. If that’s correct, the same applies to the rest of the UK.

The opinion by Jonathan Mitchell QC covers both what counts as a bedroom and who should decide. He says that under the Housing Benefit (Amendment) Regulations 2012: ‘It is for local authorities, who administer housing benefit and are accordingly the relevant authorities for the purposes of regulation b13, to determine “the number of bedrooms” in a dwelling; so, to do so, they must determine whether a particular room is or is not a bedroom.’

While that might seem obvious, there are obvious grey areas when it comes to box rooms and rooms used for something else. Yet the regulations do not define what counts as a bedroom. According to the opinion, what counts is not the design of the home but how it is actually used: ‘It cannot be conclusive to ask simply, “is this room being used as a bedroom” or “is this room being slept in”.’

Jonathan Mitchell could only find one government publication that addresses the definition of a bedroom: the Rent Officer Handbook produced by the Valuation Office Agency of HMRC. In a section on ‘deciding what constitutes a room/bedroom’ it says that ‘at least a small single bed will fit into it, and in most cases it will have a window’ and that anything smaller than 2m by 2m is ‘probably’ not a bedroom. That contrasts with the space standard in the Housing Act 1985 (and Scottish equivalent) that excludes anything under 50 square feet (4.65 sq m) and counts anything under 70 square feet (6.5 sq m) as half a bedroom.

The size question is clearly a very grey area indeed (as one landlord told me recently, ‘if a bedroom has to be big enough for two 15-year-old boys, then we have lots of zero-bed houses’). However, the legal opinion goes on to address ‘the fitting out and use of the room’. If it contains a bed and somebody regularly sleeps there, it is almost certainly a bedroom. But what about one used as a child’s playroom or study or one that is full of therapeutic equipment with no room for a bed? It concludes that:

Ultimately… this is a matter of judgment for the authority. It would be going wrong in law if it determined that it would reach its decisions with the aim of minimising the number of bedrooms calculated so as to defeat the regulation; the consequences of the determination are a matter of law and cannot be for the local authority to take into account. But, equally, it would be going wrong in law if it determined that every room which could possibly be slept in would be classified as a bedroom, whatever its characteristics or actual use. I emphasise that this is a matter of judgment, rather than discretion, because the ultimate question in every case is “do we regard this room as a bedroom”, it is not “do we want to regard this room as a bedroom”.’

Jonathan Mitchell is also very clear that:

‘I cannot see at present how a social landlord which is not the relevant authority for the purposes of the regulations could sensibly develop policies in this regard. It is not the decision maker. Nor would a lease which asserted that a property had a particular number of rooms free the relevant authority from its statutory duty to make up its own mind.’

All of which creates uncertainties for landlords, local authorities and tenants alike that I have not seen addressed anywhere else. The opinion points out that a family whose disabled child sleeps in the living room could be counted as having an extra bedroom whereas one that has turned a bedroom into a therapy or care room could be counted as having one less. ‘For this reason, it might well be helpful if local authorities could develop and publish guidance as to how they will make decisions in such circumstances.’

Glasgow Advice Association is calling for exactly that sort of formal guidance in Scotland, with the Scottish Government taking a lead to ensure a consistent approach by local authorities. It argues that there is an obvious application for disabled tenants who use a ‘spare’ room for therapy, storing wheelchairs or medical equipment or undertaking medical procedures but that other tenants may be able to avoid the bedroom tax too. Mike Dailly explains:

‘Essentially, GAA understand that it is a matter for each local authority as “the relevant authority” under the regulations to determine what is and is not a “bedroom”, and that the actual use of a room by a particular household will be critical in deciding whether that room is a bedroom or not. Accordingly, GAA believes it is possible for tenants to change the use of what might be regarded as a “spare bedroom” in terms of the regulations into something that need not be counted as such, and not be subject to the housing benefit under-occupancy deductions (bedroom tax). In that regard, the guidance and approach of individual local authorities will be critical.’

In the meantime, Govan Law Centre is also coordinating a ‘No evictions for bedroom tax’ petition to the Scottish parliament calling for an amendment to the Housing (Scotland) Act 2001 that would mean landlords would be unable to use rent arrears caused by the under-occupation penalty in eviction actions but would have to pursue them as ordinary debt instead. The petition already has the backing of Shelter Scotland, the Scottish TUC and Oxfam Scotland.

That point would apply in Scotland only. However, the wider considerations apply across the UK. According to the Herald, the Convention of Scottish Local Authorities said it would have to examine the legal opinion before commenting, while the DWP insisted that the decision was up to the landlord: ‘If a social landlord says it is a two-bedroomed house, regardless what happens to it subsequently, it is a two-bedroomed house and that is what housing benefit will be judged on.’

However, if the legal opinion from senior counsel is correct that the decision is up to local authorities rather than landlords, what should they be doing now?

After all, the bedroom tax will hit tenants first but it is local authorities that will have to pick up the knock-on costs so it is in their own interests to do as much to mitigate the impact as they can. While it would be unlawful to set out to evade the tax, the more families that could be classified as having one less bedroom, the fewer will end up being evicted and applying as homeless to that same authority. And the more vulnerable and disabled tenants that can be helped to stay in their adapted homes, the further meagre discretionary housing payments will go in helping everyone else.

Worst fears

Tue, 19 Feb 2013

So the government has finally admitted the potentially devastating consequences of welfare reform in a cumulative impact assessment.

Before anyone starts to think that Iain Duncan Smith has undergone a dramatic change of heart, I should add that I am of course taking about the Welsh Government, not the UK one.

The second stage review of the impact of welfare reform in Wales is accompanied by an analysis by the Institute for Fiscal Studies (IFS) of the effects of welfare reform on labour supply in Wales.

Hard numbers about the impacts are difficult to come by because of uncertainties about behavioural change and the interplay of different factors on each other. And with the UK government adding more cuts with each autumn statement and budget, the analysis does not have definitive answers. 

However, the IFS study estimates that the aggregate impact of welfare reform excluding the universal credit and the additional cuts announced by George Osborne in December will reduce household incomes in Wales by around £590 million in 2014/15. Introduction of the universal credit will reduce that to £525 million but further cuts are already in the pipeline.

Welsh education and skills minister Leighton Andrews said welfare reform would have ‘a huge and damaging effect on Wales as a whole’ and the analysis confirmed the devolved administration’s ‘worst fears about the changes’. He added: ‘From the most vulnerable in our society, through to low-middle income families, these cuts from the UK government are devastating.’

It’s a predictable reaction from what is after all a Labour government responding to cuts imposed by the Conservatives and Liberal Democrats in London. However, it is based on work by the scrupulously independent IFS and by rigorous analysis by neutral civil servants that is all the more striking because of its cautious approach.

In the context of the Westminster debate about ‘strivers’ and ‘scroungers’ and ‘hard-working families’, the IFS analysis is especially interesting when it says:

‘We find that the biggest average losses are experienced not by the very poorest households, but by the lower-middle of the income distribution. This is partly because in-work support (particularly Working Tax Credit) is being cut more sharply than out-of-work support, and partly because universal credit is a giveaway primarily to the lowest-income third of families, partly offsetting the losses those families experience from the wider welfare cuts.’

The Welsh Government’s second stage review is couched in language like ‘could’ and ‘may’. However, it brings together all of the individual welfare reforms and assesses their impact both directly on families and indirectly on other public services and the economy. So far the Westminster government has confined itself to impact assessments of individual measures and not attempted anything so comprehensive.

Seeing everything in one place brings home the full scale of cuts that will total £16 billion across the UK (£18 billion minus £2 billion invested in the universal credit). They also emphasise that some of the reforms that get the most publicity are not the ones that will have the greatest impact.

Of the main housing reforms, the April 2011 changes (including the bedroom caps and 30th percentile) will cost Wales £23 million, the shared accommodation rate £4 million and the household benefit cap £5 million. The bedroom tax (which affects Wales proportionately more than anywhere else) and CPI uprating of the local housing allowance will cost £40 million.

However, the analysis is also a sobering reminder of the much greater impact of cuts in tax credits, reforms affecting disabled people and changes to benefits uprating. To give one example, income losses in Wales from CPI uprating of working age benefits are estimated at £90 million in 2011/12 rising to £600 million in 2015/16. With worse to come under the 1 per cent uprating announced by Osborne in December, these will become even more relevant to housing organisations once direct payment starts under the universal credit.

And then there are the wider economic and social impacts. These are occasionally hinted at in the individual impact assessments produced by the Department for Work and Pensions and referred to directly in the leaked letter from the private office of Eric Pickles to Downing Street.

The Welsh Government analysis highlights impacts including:

  • There could be a potentially direct negative impact on claimants’ health through a reduction or loss of benefit income and increased poverty and the knock-on effects of migration of claimants into ‘cheaper, poorer-quality and possibly overcrowded housing’
  • Social care services could come under increased pressure, especially in the longer term, from factors including claimants forced to migrate away from informal support networks and foster carers hit by the bedroom tax. ‘Families with children are expected to be hardest hit by the benefit changes, which may put particular pressure on children’s services,’ it says. And: ‘If the net cumulative impact of the welfare reforms is poorer health outcomes, this will lead to even greater pressures in the longer term on social services.’
  • Housing could be hit by worsening affordability and increased rent arrears, evictions and homelessness due to benefit cuts, direct and monthly payments and benefit sanctions creating budgeting problems. ‘The squeeze on  household budgets may increase the risk of young people being forced to leave home as parents are unable to support them.’
  • A reduction in private rented supply and shortage of properties available at the shared accommodation rent could force families into cheaper (and already deprived) areas and lead to overcrowding in poorer-quality homes. ‘In some cases, claimants may have to move outside an affordable commute to their current jobs, and to areas with fewer labour market opportunities.’
  • Educational outcomes could be affected by reduced income and increased poverty and by migration effects from the housing benefit reforms. ‘This may lead to an increased concentration of workless, low-income and larger families in less-expensive and already-deprived areas in Wales with reduced access to high-performing schools and their associated positive educational outcomes.’ House moves could also result in the loss of a spare room used as a study area and could ‘in some cases may affect the ability of non-dependant children to stay at home and attend further education’.
  • Economic development will benefit slightly from improved work incentives but the Welsh economy as a whole will suffer as benefits and tax credits are cut by 1 per cent of GDP. According to the Office for Budget Responsibility that will lead to an immediate reduction in GDP of 0.6 per cent in the short run but the report points to international evidence that the multiplier effects may be even larger as ‘a £1 change in the income of a low-income family leads to a bigger change in their spending than a £1 change in the income of a higher-income family’.

That’s just a flavour of a report that does not sensationalise and also presents the potential positive impacts of improved work incentives. It will be followed by a third stage of research analysing the impact of welfare reform by gender, ethnicity, age and disability and at a local authority level plus more detailed work on individual areas such as housing benefit.

All of these points and more of course apply just as much to the rest of the UK as they do to Wales. However, while the Northern Irish and Scottish governments are also doing work of their own, in London the cuts just keep on coming.

One-way street

Thu, 14 Feb 2013

Repossessions are at their lowest and loans to first-time buyers are at their highest since 2007. Has the housing market finally turned the corner?

That’s certainly one interpretation of stats released by the Council of Mortgage Lenders (CML) this week showing big improvements since the year the credit crunch hit.

On Tuesday it revealed that 216,200 first-time buyers became homeowners in 2012. That was a 12 per cent rise on 2011 and it’s the first time since 2007 that the annual total has exceeded 200,000.

The figures even prompted a rare foray on to twitter by housing minister Mark Prisk. He used only his 26th tweet to broadcast the ‘Good news for first-time buyers from @CMLpressoffice. Highest since 2007.’

If he gets a moment this morning, he might want to look at the figures on repossessions too. The number of people losing their homes fell from 37,300 in 2011 to 33,900 in 2012, the third annual fall in a row. And the CML highlighted the 7,700 total for the final three months of the year as the lowest quarterly figure since the final quarter of 2007.

But a few notes of caution before he gets too carried away. First, that 9 per cent fall in annual repossessions leaves the total not just 31 per cent higher than in 2007 but higher than in any of the eight years before that too.

Second, although mortgage arrears also fell slightly, the number of households most seriously behind with their mortgage (with arrears of more than 10 per cent of their balance) rose.

Third, both of those improvements have happened under the benign conditions of the lowest interest rates ever. Any increase back to pre-crisis levels would bring increases in both and this week has also seen a warning about the ‘ticking time bombs’ of a million people on interest-only mortgages.

Fourth, that improvement in the number of first-time buyers has to be put in context. It may be the highest total since 2007 but it is still down by 55 per cent on the 359,900 loans made that year and at the current rate of increase it will take till close to the end of the decade to reach that level again.

Fifth, even that total was well down on what would traditionally be regarded as a healthy total. The years between 1997 and 2002 each saw more than 500,000 first-time buyers but in the final few years of the housing boom the numbers started to plummet.  

Sixth – and linked to that – CML figures also published today show yet another increase in buy-to-let lending. The 136,900 advances made to landlords in 2012 was the highest since 2008 (although it is still well down on the boom years of 2006 and 2007).

There are now over 1.4 million buy to let mortgages outstanding. That’s up 4 per cent on 2011 but 48 per cent since the credit crunch. It is only just over two years since one of its pioneers pronounced the sector ‘absolutely dead and will never return’.

Put all that together and the picture revealed in the English Housing Survey last week is not in the least bit surprising. The survey saw something I’ve predicted for some time: private renting overtook social renting for the first time since the 1960s.

However, there has been another shift of even greater significance: the total number of renters (7.6 million) overtook the number of people buying with a mortgage (7.4 million) for the first time since the mid-1980s, when the right to buy was in full swing. Instead of Margaret Thatcher’s nation of home owners we are becoming a nation of private renters.

This week’s reports from the ONS (saying that real wages have fallen to 2003 levels) and Resolution Foundation (predicting an even longer and deeper squeeze on living standards than it previously forecast) suggest that is not about to change any time soon.

The fall in mortgaged home ownership was happening long before the credit crunch though. It has now fallen as a proportion of housing tenure since 2000 and the boom in mortgage lending in the decade that followed appears to have merely boosted house prices without helping more people on to the housing ladder.

Despite the apparent good news this week, despite funding for lending and all the government’s home ownership wheezes, that trend is set to continue with far-reaching consequences for our dysfunctional housing market and beyond.

Capital crisis

Tue, 12 Feb 2013

The scale of the housing crisis facing London is hitting home with both Londoners and their political leaders.

In an opinion poll in the Evening Standard published today, half of people in the city say they fear being driven out of their neighbourhood by the cost of housing and six out of ten say there is a crisis in their area.

At one end of the housing scale, soaring demand from global investors is threatening to push house prices even further out of reach of ordinary Londoners. According to a report yesterday from the Home Builders Federation, it now takes the average first-time buyer 24 years to raise a deposit in London.

At the other end, homelessness continues to rise. A report on housing homeless people in London that went to the Leaders’ Committee of London Councils earlier warns that on a pretty conservative estimate of supply and demand the city faces a housing deficit of 221,700 homes by 2020 if nothing changes.

Up to now private rented temporary accommodation paid for by housing benefit has been the increasingly threadbare safety net for London’s councils and homeless families. However, boroughs like Newham and Croydon have been at the forefront of those insisting that they will be forced to place their homeless families outside the capital even though this breaches government guidance on suitability.

Meanwhile, Westminster is among those placing more and more families with children in bed and breakfast beyond the six weeks placement rule. A BBC London report last week said that the council is paying hotel bills of up to £12,000 a month for some families. The government claims this is ‘unacceptable’, Westminster says it is facing an ‘unprecedented’ problem, but, according to the report, was paying £350 a night for a hotel for one family who received £700 a week in housing benefit until it was capped.

While the weakening of the homelessness legislation is giving councils more and families fewer options, things will get even worse when the next round of housing benefit cuts hits in just 48 days’ time. The London Councils report says that the supply of temporary accommodation has already fallen by 20 per cent in the last 18 months as landlords withdraw from the market due to caps on local housing allowance and that the decline will accelerate as welfare reform is rolled out over the next 18 months.

The household benefit cap will have more impact in London than anywhere else but will now be piloted first in Croydon, Haringey, Enfield and Bromley in April before being introduced nationally in September. The delay announced before Christmas – ‘without any prior consultation or advice’, according to the London councils report – is already creating problems of its own, with the four boroughs warning they will face additional costs and unfair competition with other councils where there is not yet a cap. As Carl Brown reported two weeks ago, the four are warning that their entire budget for discretionary housing payments will be exhausted by the time the cap is introduced anywhere else.

Representatives from London local government met housing minister Mark Prisk and officials from the CLG before Christmas and put forward a series of proposals to tackle the bed and breakfast and homelessness crisis. Prisk reminded them of both the six-week rule and their obligations to place homeless families as near as possible to their home borough and not out of London. The councils warned of ‘a sustained increase in the level of homeless presentations and acceptances over the next year’ that will be exacerbated by the cap and the shortage of private rented properties available below LHA levels.

In the short term London Councils is pressing for measures to mitigate the impact of the cuts and additional transitional support and flexibility. However, it says a longer-term housing investment strategy covering public land, the powers of the mayor and boroughs and the balance between investment and housing benefit is needed to meet the scale of the challenge. Specifically, it says that the government should lift caps on housing revenue account borrowing to allow the boroughs to deliver 54,000 affordable homes and give tax relief to private landlords coming into the temporary accommodation market.

Those ideas have support not just from boroughs controlled by all parties but from Boris Johnson too. The Conservative mayor is pressing the government to allow him to keep the receipts from stamp duty in the capital as part of a 25-year plan to build a million homes. He wowed guests at the Chartered Institute of Housing’s presidential dinner last week with a speech telling them that: ‘What is needed now is a radically different approach which optimises City Hall’s role, unlocks the potential of the capital’s boroughs, allows developers including housing associations to up their game and creates a stable supply of land for housing. Above all, London needs a stable funding stream which will support and accelerate its housing and infrastructure delivery.’

It all sounds promising. However, all three of those longer-term solutions will require agreement from the Treasury. Lifting the caps and tax relief have both been suggested – and rejected - many times before. The third would require the transfer of stamp duty receipts estimated at £1.3 billion a year by Johnson. However, if the Treasury ever succeeds in generating any growth in the economy and activity in the housing market, the receipts could easily be worth much more than that. Either way, the move would raise all kinds of issues about the tax and spending relationship between the capital and the rest of the country. 

Meanwhile Johnson’s critics point to his ‘dire’ past record of promising much and delivering little. ‘He is building fewer homes and the ones that are being built are more expensive,’ Len Duvall, leader of the Labour group on the London Assembly said in a Guardian article yesterday. ‘London’s housing crisis just gets worse and worse. Johnson is either out of touch with the realities of the crisis or is deliberately seeking to make housing more expensive.’ Labour is calling for more action to help London’s 800,000 private renting households including projects to research a capital-wide lettings agency and London Living Rent.

The political divisions over housing are evident at borough level too, with Labour councils like Islington determined to maintain social housing even as Tory ones like Hammersmith & Fulham, birthplace of Conservative housing reform, target the ‘Bridget Jones’ generation of young professionals.

The first step to tackling a crisis is acknowledging that one exists. On that level, at least London’s politicians are starting to get their act together and do something to alleviate the supply crisis even if they lack the power to do anything about demand. It’s far harder to find a solution that covers the housing needs of more than just the upwardly mobile and the signs are that things are going to continue to get worse for homeless Londoners and people who need genuinely affordable homes.

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