So here it is: what by my reckoning the coalition government’s third housing strategy in two and a half years.
Mark one was the assumption that implementing the coalition’s programme for government would do the trick. The ‘powerful new incentive’ of the new homes bonus would persuade local authorities to approve more homes and get housebuilding moving. The Localism Act would turn help turn NIMBYs into YIMBYs. And FirstBuy would give a time-limited kick-start to the housing market with equity loans for first-time buyers.
When that didn’t work, Mark two came last November. The big idea was NewBuy, a government-backed mortgage indemnity scheme to give 95 per cent mortgages on new homes to up to 100,000 buyers. That was backed up by funds for custom homes and empty homes, a consultation on right to buy 2 and another review of investment in the private rented sector.
When that didn’t work, Mark three was announced this morning in what David Cameron said was evidence that ‘this government is serious about rolling its sleeves up and doing all it can to kick-start the economy’.
Details so far are pretty thin on the ground to put it mildly but here are some initial comments from the No 10 statement [see below for the parliamentary statement by Eric Pickles]:
• Removing restrictions on stalled sites by removing ‘costly affordable housing requirements’ where developers can prove they make the project unviable. This has been coming for a while as part of a consultation on renegotiating section 106 deals prior to 6 April 2010 that runs until October 8. It sounds like the outcome has already been decided. The No 10 press release says this will help unlock 75,000 homes but it’s not clear how this figure is calculated. It’s also not clear how the system will work since it is already quite possible to renegotiate section 106 agreements and only three weeks ago Eric Pickles was sending in ‘expert brokers’ to sort it out.
• Confirmation of government guarantees of up to £10 billion for new homes. This was the announcement that was expected earlier in the summer and delayed. This will be part of the Infrastructure (Financial Assistance) Bill and include guaranteeing the debt of housing associations and private developers. The thinking seems to be that this will bring lending rates down close to those enjoyed by the government while remaining off the public balance sheet. It’s not clear though what the balance will be between associations and developers or how much of the lending will be new and how much will replace existing bank loans.
• An extra £300 million in ‘new capital funding’ for up to 15,000 affordable homes and 5,000 empty homes brought back into use. This is good news and seems to be the Lib Dem price for agreeing to the section 106 changes. However, note the ‘up to’ and the clear implication that this will be more affordable rent when many of the scrapped agreements will have specified social rent. It’s also not at all clear what will happen to section 106 in the longer term.
• An additional 5,000 homes for market rent in line with the proposals in the Montague report. Again, no more detail yet but the speculation is that the government will agree to Montague’s proposals including removing affordable housing requirements on schemes that are for market rent.
• Including big residential schemes in the planning fast-track for major infrastructure schemes so that ‘where councils are poor’ developers can go straight to the Planning Inspectorate. Again there are no more details so we do not know what counts as big but perhaps this could clear the way for future new garden cities and urban extensions?
• Putting the worst-performing planning departments into special measures and setting up a fast-track appeal process. This assumes that planning is the problem but, as the LGA points out in research out today, housebuilders already have planning permission on 400,000 homes and are taking up to nine years to build homes in some cases.
• A £280 million extension of the FirstBuy scheme to help 16,500 first-time buyers. Again there are no more details but this marks a change from the statement in last year’s housing strategy was a ‘fixed term measure’. FirstBuy mark two is also much less generous: FirstBuy mark one provided £400 million for 10,500 first-time buyers to give them a 20 per cent equity loan of almost £40,000 each; FirstBuy mark two works out at at an average of around £17,000 each
• Freeing up the planning rules on extensions and improvements for a time-limited period. As reported, this will allow single-storey extensions of up to 8 metres without permission. This appears to represent not one by two u-turns: one of the government’s first acts was to ban garden grabbing for new homes but now it seems they can be grabbed for extensions; and only last week ministers were launching a clampdown on beds in sheds but now it seems they will be allowed if they are attached to the main house. The consequences of this remain to be seen. Ironically, it could turn us from NIMBYs quite literally into YIMBYs. However, it could also reduce housing market transactions still further as people decide not to move and spark off a wave of cowboy conversion work in city suburbs with big gardens.
That’s all the detail so far. Overall, this strategy seems rather less full of hype than the last two, as does the promise of ‘up to 70,000 homes’. But maybe that’s no bad thing. I’ll add more when there is more detail.
A parliamentary statement by Eric Pickles has more detail on the package. Here are some highlights:
• Montague and the private rented sector: the government is ‘investing £200 million in housing sites to ensure that the high-quality rented homes that are needed are available to institutional investors quickly’. A taskforce of developers, management bodies and institutional investors will broker deals. Providers who commit to invest in additional new-build rented homes will be be eligible to raise debt with government guarantee from the £10 billion fund. Expressions of interest will be invited from tomorrow and ‘it is expected that housing associations, property management companies and developers will be amongst those to benefit’.
• Affordable housing, the government will be inviting bids for up to 15,000 extra affordable homes ‘through the use of loan guarantees, asset management flexibilites and capital funding’. The £300 million extra government funding will also cover brining an extra 5,000 empty homes back into use.
• FirstBuy: the extra £280 million will enable the scheme to be extended to March 2014.
• Large housing schemes: the government will look to work in partnership with developers and local authorities to do more deals like Ebbsfleet.
• Off-site construction: Pickles revives memories of John Prescott’s campaign for off-site construction, with the creation of an industry-led group convened by DCLG and BIS to look at barriers to the growth of the sector and how increase incentives to use off-site techniques. This will make proposals by Budget 2013.
• Public land: the role of the HCA outside London will be strengthened with a ‘targeted programme of transfers from other government departments and agencies’. Pickles adds: ‘We will also work to accelerate disposals by preparing the land for market and providing a single ‘shop window’ for all surplus public sector land.’
• Planning:Pickles confirms the plan to allow applications to be decided by the Planning Inspectorate ‘if the local authority has a poor track record of consistently poor performance in the speed or quality of its decisions’. However, unlike the statement by No 10, Pickles does not mention housing in the definition of major infrastructure projects that will be able to use fast-track planning procedures.
• Section 106: the government will introduce legislation effective from early 2013 that ‘will allow any developer of sites which are unviable because of the number of affordable homes to appeal with immediate effect’. Pickles goes on: ‘The Planning Inspectorate will be instructed to assess how many affordable homes would need to be removed from the Section 106 agreement for the site to be viable in current economic conditions. The Planning Inspectorate would then, as necessary, set aside the existing Section 106 agreement for a three year period, in favour of a new agreement with fewer affordable homes. We would encourage councils to take the opportunity before legislation comes into effect to seek negotiated solutions where possible.’ This is in addition to the consultation on non-viable section 106 agreements made before April 2010. This appears to signal that all section 106 agreements are potentially up for grabs and it poses all sorts of questions, not least about the ability and expertise of planning inspectors to rule on viability. Sounds like good news for lawyers.
• Green Belt: Pickles says the coalition agreement ‘safeguarding the Green Belt and other environmental designations’ but says the government will ‘encourage councils to use the flexibilities set out in the National Planning Policy Framework to tailor the extent of Green Belt land in their areas to reflect local circumstances’ and to make better use of previously developed land.
• Empty offices: ‘We will introduce permitted development rights to enable change of use from commercial to residential purposes, while providing the opportunity for authorities to seek a local exemption where they believe there will be an adverse economic impact. This common sense measure will help the regeneration of our towns and cities. Our high streets will benefit from a greater resident population, increasing footfall and supporting local shops.’
It’s still very early days but the appointments of the new ministerial team at the DCLG team are already raising some questions for me.
According the line being spun by the new Conservative chair Grant Shapps on the Today programme this morning, the government is now at the delivery stage. Within that context, new housing minister Mark Prisk’s previous job as construction minister should bode well for the top priority of building more homes. Meanwhile the appointment of Nick Boles as planning minister looks to signal a fresh emphasis on reforming the planning system to boost the economy.
However, a brief look at their track record suggests some intriguing possibilities on policy – as well as some potential tensions. Here are three initial questions that occur to me:
What about the green belt? There could, to say the least, be some creative tension here.
Chancellor George Osborne sees relaxing planning controls as one way to generate growth. That’s a view shared by Policy Exchange, the influential think-tank founded by Boles. In Cities for Growth, a report published last November, it argued that ‘green belts are not that green and make our cities greyer’ by forcing the development of playing fields and gardens and assume that ‘development is always a negative’. It called for a new generation of garden cities and city suburbs with large financial incentives for local residents who approve them.
I’m guessing that will not go down too well with constituents in Mark Prisk’s semi-rural constituency of Hertford and Stortford who will be looking nervously at the nearby new towns of Stevenage, Harlow, Welwyn and Hatfield. A quick look at his website reveals his backing for local campaigns against the last Labour government’s plans for 80,000 homes in the county and proposals by developers for a green belt development at Harlow North.
What then will he and his constituents make of the way Boles describes countryside campaigners and opponents of planning reform? As the Daily Mail reports this morning, he told the Tory Reform Group last year that they were ‘hysterical, scare-mongering, latter-day luddites’.
Prisk may also have a particular problem with an idea floated by Osborne over the weekend. The chancellor cited the example of Cambridge. He told Andrew Marr: ‘They have been pretty smart about swapping some bits of the green belt for other bits – in other words allowing some development on the green belt if you bring in new pieces of land into the green belt. Those powers already exist but are not widely used. I would like to see more.’
In 2005, spurred on by the 1,500 acres in his own constituency that he said were under threat, Prisk promoted a private member’s Green Belt Reform Bill. This sought to abolish flexibility introduced by Labour that sounds uncannily close to the swapping described by Osborne and re-establish the ‘permanent character of the green belt’. He told MPs: ‘In a county such as Hertfordshire, it means that land can be released for development if land elsewhere in the region—near Peterborough, for example—is rebadged as green belt,’ he said. ‘As hon. Members will realise, that entirely undermines the idea of a permanent green belt that shapes a city. Indeed, what it leaves us with is more like an elastic band, something that is continually stretched as more and more development is forced in.’
What about the private rented sector? Despite the apparent contradiction of support for the green belt, Prisk is strongly in favour of deregulation and liberalisation as a rule. As a business minister he dealt with selling off the assets of regional development agencies and replacing them with local enterprise partnerships and was also involved in freeing up regulations to allow social housing tenants to start businesses from home.
However, there is one other exception to his suspicion of regulation. In 2007 he tried unsuccessfully to amend Labour’s Consumer, Estate Agents and Redress Bill to regulate lettings agents in the same way as estate agents and give trading standards officers and the Office of Fair Trading powers to tackle rogue firms. He argued:
‘As a Conservative, I am instinctively cautious about arguing for more regulation. However, as a chartered surveyor and a constituency member of parliament, I know that we need to put lettings on the same regulatory footing as sales. The fact that the National Association of Estate Agents, the Royal Institution of Chartered Surveyors and the rest of the industry agree shows that the measure is long overdue.’
He also quoted approvingly the argument put by Shelter about the negative effects of high letting agent fees on tenants struggling to pay their rent and the ‘opportunity to improve regulation of this sector and ensure consistency and affordability of letting agent practice’. At the time the Labour government dismissed his amendments as a ‘cynical manoeuvre’ that was about ‘who represents consumers’ interests’.
However, five years on, does this open up space for movement on the issue that had been closed off by Shapps, who dismissed any kind of private rented sector regulation as ‘red tape’?
The problem, after all, has been getting worse for the last five years: as Shelter revealed yesterday, one in four people feel they have been charged unfair fees.
Another encouraging sign that the new minister may be prepared to listen to the concerns of tenants came just before the election when he was one of 34 Conservatives to support an early day motion moved by Labour’s Brian Iddon calling for more protection for tenants whose landlords are repossessed. Iddon’s Mortgage Repossession (Protection Of Tenants Etc) Act subsequently passed with all-party support.
What about housebuilding? With his construction minister background, Prisk will already be familiar with the issues when the government launches its latest attempt to kick-start more housebuilding on Thursday. The Home Builders Federation was quick to tweet that it had ‘already done some good de-regulatory work with him’ as construction minister and says his priorities should be maintaining funding for FirstBuy, boosting mortgage finance, improving planning and cutting regulatory costs..
However, as I argued yesterday in my blog on Grant Shapps, one of the big problems so far is that the government has been too ready to assume that what is good for big housebuilders will be good for housebuilding. Deregulation such as the relaxation of section 106 and sustainability requirements have boosted the value of their land and their profit margins while housing starts have remained stubbornly stuck at half the level needed. Will Prisk and the DCLG continue to favour the bigger housebuilders or will they be bolder in encouraging smaller firms and new entrants into the market?
That’s just a flavour of the questions that Prisk and Boles will face as they attempt to implement the government’s housing strategy that is expected tomorrow (and answer questions in a Labour debate today).
However, action to deliver an effective housing strategy has to come from across government – not just the DCLG. On that front could the new boys have some questions of their own to add? Less than a year ago Nick Boles joked that he was ‘committing career suicide’ by publicly backing the idea of a land value tax (LVT). It didn’t seem to do his prospects too much harm on Tuesday.
Many people will be celebrating the departure of Grant Shapps today. My own feelings are much more mixed.
I’ve disagreed with the housing minister on most of the major policy changes he’s made, from ending security of tenure to affordable rent and from watering down the homelessness legislation to pay to stay, as well as those he hasn’t like greater regulation of the private rented sector.
However, I’ve never agreed with those who regard him as a few sheets short of a ministerial brief: the Stan Laurel to the Oliver Hardy of Eric Pickles. Entertaining as the comparison was at the time, amusing as it may be to play #shappstistics and #shappsbingo on twitter, if he was just a figure of fun would he have been able to deliver the most radical change in social housing policy for 30 years?
In doing so he has taken an agenda devised in Conservative west London and implemented it with astonishing speed. He’s used the prospect of ‘localism’ to hoodwink the Lib Dems into agreeing to policies they opposed and he’s easily beaten off a Labour opposition that still does not know where it stands on the key issues.
Grant Shapps is a far more complex character than he first appeared. I’ve blogged before about his many faces and his many more faces as Bumptious Shapps jostles for position with Political Shapps, Shameless Shapps, Comedy Shapps and Rapping Shapps. But none of that had prepared me for the appearance over the weekend of his business alter-egos, Michael Green and Sebastian Fox.
For a while it seemed that they might even be enough to wipe him from Downing Street’s reshuffle whiteboard but it’s just been confirmed that he will indeed be replacing Baroness Warsi as Conservative Party co-chair. Who knows, maybe those cheesy books about How to Bounce Back from Recession could even come in handy?
But what about his record as housing minister? As I may have mentioned once or twice, the statistics on housebuilding, homelessness, affordable homes and private sector rents all have to go in the minus column (despite his valiant attempts to spin a good news story out of them). None of his confident pronouncements about the impact of the new homes bonus or building more homes than Labour show any signs of delivering. On just about every measure, the housing crisis has got worse under his stewardship (although in fairness it was always likely to with the economy in recession and housing investment cut by 65 per cent).
Later this week his successor will presumably help to launch the coalition’s housing strategy mark 3 in hopes that stats do not emerge a few days later showing a 97 per cent fall in affordable housing starts. Throughout his term in office, Shapps showed a naïve faith that giving housebuilders everything they want would do the trick when the evidence suggests that they are intent on building their profit margins rather than homes. On what is currently the biggest housing issue facing the country, his time in office has to go down as two wasted years.
On the plus side, at least he has been in the job for over two years (five if you include his time as shadow housing minister). Compared to the revolving door comings and goings under Labour that makes him a veteran who knows his brief. That, plus an ability to charm his critics, was much in evidence at the CIH conference in Manchester in June. Easy as it was to deride many of his initiatives, some of them (like self-build) have still made progress thanks to him.
Shapps has also been refreshingly honest about the fundamental problem in our housing system: that house prices are too high and need to come down. He deserves great credit for speaking out against the assumption that ever-rising prices are a good thing (even if he’s failed to see that this contradicts his argument that everything that is not a market rent is a ‘subsidy’).
He’s said that homelessness is what got him into politics and (discharge of the homelessness duty aside in my opinion) has done some good work in office. It’s worth pointing out that his final public act as housing minister was to announce that homelessness prevention grant will be protected until 2015. I’ve got no inside knowledge but that does seem like an unusual move by an outgoing minister and it was accompanied by confirmation of plans for StreetLink, a new service to be run by Homeless Link and Broadway that aims to ensure that as few people as possible face spending Christmas on the streets. That’s not a bad legacy to leave behind and it’s not hard to see that a new minister could be bad news for homelessness and supported housing.
Even his more grandiose statements are not necessarily a bad thing. His ‘gold standard’ of building more homes than Labour looks about as likely as his pledge to make us a nation of homebuilders but they were both ways of holding him to account and highlighting his record. So was his statement at the CIH conference about grant funding after 2015. A new minister will simply be able to shrug them off as nothing to do with them.
So for all of those reasons, plus a more personal one that he has given me so much to write about over the last five years, I will regret the departure of Grant Shapps.
The appointment of a new minister (not expected until tomorrow) presents opportunities as well as dangers. Maybe they will be open to movement in territory that was closed off until now – notably (as I was reminded on twitter this morning) on the need for greater regulation in the private rented sector that Shapps dismissed as ‘red tape’. Maybe they will not be quite so effective in driving through measures that undermine social housing. Maybe they will be prepared to admit that relying on housebuilders and the market is no solution to the housing crisis. Maybe they will even be part of a beefed-up housing department and have cabinet status. But I’m not holding my breath.
Housing has gained an unexpected new ally in the battle to convince the government to fund more affordable new homes.
City broker Tullett Prebon is better known for its warnings of financial Armageddon and for shoot-from-the-hip appearances on the Today programme by its chief executive Terry Smith. It has even argued that financial austerity and severe cuts in public spending are a myth spun by the government to the bond markets.
But now a report by its global head of research Tim Morgan argues not only that a house building programme is one the few options left for the government, but also that it must be social housing funded by public investment.
The less good news (apart from some apocalyptic warnings about the economy) is that he also supports housing benefit cuts in high-value areas and swallows wholesale the case made by Policy Exchange last week for all ‘expensive’ social home to be sold as they become vacant. However, that still does not completely drown out the good.
What’s intriguing is to see the case for a fundamental change in our housing system being made by someone outside the sector – and on strictly economic grounds with barely a mention of housing need or homelessness.
Morgan argues that ‘for at least two decades, Britain’s housing policy has been a disaster’. It has ignored the relationship between supply, demand and price, put excessive faith in the private rented sector, fallen into the trap of favouring current over capital investment, failed to recognise inter-generational inequalities and lacked the courage to tackle vested interests.
We have deluded ourselves that high property prices are a good thing, he argues. Instead, they swallow up capital that could have been used for more productive purposes and, although they may temporarily boost demand, they inflate debt. Meanwhile, they price out and blight the lives of young people and even the older generations who imagine they will fund their retirement will find that nobody younger can afford to buy.
Morgan claims that house prices are over-valued by at least 25 per cent in relation to incomes and possibly by as much as 40 per cent. Meanwhile low interest rates have blinded us to the size of the mortgage debt we have taken on as a result: a 1 per cent increase in mortgage rates would put 24 per cent of mortgages at risk while a 3 per cent increase would put 69 per cent at risk.
We have not just put too much faith in owning houses but also cast tenants into a limbo of insecurity and high rents by favouring private renting over social renting. That has been compounded the shift from bricks and mortar to personal subsidies as the government expands demand, drives up prices (rents) and bails out buy-to-let landlords by paying housing benefit.
As I argued earlier this week on my other blog, the housing market is dysfunctional because house prices are too high, propped up by emergency financial support, and yet there is no easy way to allow them to fall without replacing one set of problems with another. The government’s solution of hoping that prices will slowly fall back in relation to incomes while it encourages a private housebuilding stimulus to boost supply looks a longshot at best. Another City firm, Fathom Consulting, has been touting a plan based on forcing the banks to repossess people and then indemnifying them against the losses (for more on this unpalatable proposal listen again to the second half of this item on Wednesday’s Today programme).
Morgan’s overall case is that Britain is in trouble because of a decade of dependence on private borrowing and public spending. Conventional fiscal and monetary policies have been ineffective in tackling a deleveraging recession. In these circumstances, a housebuilding stimulus is one of the few viable ways of kick-starting the economy. Most of the benefits will go to the domestic economy rather than leak into imports (as would happen with the alternative of a cut in VAT) and the Treasury will get back most of the costs in reduced benefits and increased taxes.
The report is not without its problems: Morgan’s approach is broad brush and he mixes up starts and completions at one point; he fails to consider that rising housing benefit might be a consequence of rising property prices and rents as much as a cause; and he grasps at Policy Exchange’s plan to sell off expensive social homes as they become vacant without taking into account the practical or social problems of the policy.
However, he goes on:
‘We would be inclined to go rather further than this, adding directly-funded capital investment of £4bn to the £6bn projected by the Policy Exchange report to lift the annual investment programme to £10bn. This could be supplemented by a new levy on second homes.
‘We would stress that this investment should be undertaken by local authorities or housing associations, and not through private-public gimmicks like PFI. The government and social sectors should act as owners and commissioners of new housing, whilst the role of the private sector would be to build the new homes as contractors.’
Just for good measure, he adds that the government should take on NIMBY resistance to new social housing with a new wave of planning reforms.
It’s a case that’s been made before by many people in the housing world but it’s all the more powerful coming from a City firm that otherwise sees public spending as the problem. Whether the government is listening or not, the case for investment in housing has never been stronger.
Here’s why I think the housing backlash against the Montague report is being overdone.
From some of the reactions so far, the review group seem to a bunch of pin-striped latter-day Rachmans intent on squeezing out affordable housing and trousering the profits in between slaughtering the first born and unleashing plague, pestilence and famine.
I’ve been trying to reserve judgement until I had time to read the report. I have to say that I now think the people who have most to fear from this are not housing associations and local authorities but buy-to-let landlords and letting agents who will face professional competition. The plague and pestilence people this week were Policy Exchange, not Montague.
The fuss has all been about Montague’s proposal on section 106. The leaks in advance of publication suggested that he would want market housing to count as affordable in planning deals, raising fears that it would squeeze out the funding stream that has underpinned around half of social housing over the last few years (rising to more than 60 per cent in 2008/09). However, I think that stems from a misunderstanding both of what the report says about section 106 and about what is already happening on the ground.
Montague recommends that local authorities should be able to use existing flexibilities in the planning system to enable the development of private rented homes where they can meet local needs. Government guidance should also include a strong steer to specify private rental needs as part of their strategic housing market assessments.
However, the report as a whole argues that the fundamental reason why build for let has not taken off so far is that the income yield is too low. Although the total return on investment in residential has beaten every other kind of property investment over the last ten years, most of it has come from an increase in capital values. Institutional investors want a steady income so they will choose the 5.6 per cent income return and 1.6 per cent capital growth seen in retail over the 3.5 per cent income return and 5.9 per cent capital growth seen in residential. As in the rest of the housing market, the fundamental problem is that house prices and land values are too high. Build to let will only work if land values are based on rental tenure rather than theoretical valuations based on sale.
Montague argues that the section 106 and community infrastructure levy negotiations on build to let sites should take this into account and that the need for affordable housing should be weighed against the benefits build into market rent developments. ‘In many cases, it will be appropriate for authorities to waive affordable housing requirements in relation to schemes for private rental, or to the private rental component of larger schemes also including an owner-occupied component. And local authorities should review stalled sites to engage the potential of private rented units to engage the potential of private rented units to accelerate delivery.’
Much of the criticism seems to be based on the assumption that the report is calling for a general relaxation of section 106 in a way that will damage affordable housing. In fact, it is only calling for a relaxation for the private rental element.
In the meantime, and in a way that has nothing to do with Montague, a general relaxation of section 106 is already happening and is set to become even more damaging for affordable housing. For examples, just see what has happened with the redevelopment of Tottenham Hotspur’s stadium or plans by its former manager Harry Redknapp for a new apartment building in Portsmouth or the surge in the number of councils taking cash contributionsin place of affordable homes.
This is partly a result of the downturn in the housing market undermining the viability of schemes (Tottenham’s classier rival Arsenal, for example, delivered 40 per cent affordable housing on its stadium scheme but that was during the boom). However, it is also the result of a drive by the government to cut ‘red tape’ for housebuilders. As I’ve previously argued, this has made their land holdings hugely more profitable without leading to the construction of any extra homes. The latest developments include a subtle but profound change in the definition of ‘affordable’ in the National Planning Policy Framework and the implementation of previous plans to force the renegotiation of section 106 agreements made before 2010.
Some of this is necessary to make schemes viable and get building started. Some of it is simply giving housebuilders what they want without any guarantee of any more homes in return. It’s hard to predict the overall impact but the chief executive of one major housebuilder, David Ritchie of Bovis Homes, said earlier this week that the result could actually be to reduce the number of completions.
Ironically, this general relaxation of section 106 requirements could also undermine the proposals in the Montague report because it would remove the proposed land value advantage for private renting. What’s bad for affordable housing is also bad for build to let.
All previous attempts to revive institutional investment in private renting have failed, partly because of investor suspicion about the regulatory regime but mostly because of the house price/income return conundrum. The Homes and Communities Agency tried very hard with its private rented sector initiative in 2009 but it found that it could not make development viable without subsidy. Montague’s way round this is for the public sector to bring forward land using build now, pay later and joint venture models to share the risk and the profits and for the government to adopt a broader definition of value for money so that land does not have to be sold for the highest possible price. Once the model is established, the hope is that build to let will have enough of a track record to attract more investors.
It remains to be seen if this will work and recent history suggests it will be an uphill struggle. The Montague report is far from perfect. It is intentionally short but so light on evidence in places that it does not answer some of the questions in its original terms of reference – it is less a ‘blueprint’ than an outline sketch. It is largely silent on conditions for tenants apart from a vague-sounding voluntary code of practice. A doubt remains in my mind about the identity of the institutional investors: will they be pension funds or commercial insurance companies or could they be rather less desirable housing partners? Sir Adrian Montague himself represents the respectable end of the private equity industry but the more rapacious end of the sector seems to have its eyes on housing in the United States and eastern Europe.
However, despite these doubts, the Montague report deserves a chance. For better or worse, the lines between social and private renting are blurring all the time. It would be a tragedy if misplaced criticism about section 106 helped to undermine a desperately needed source of new investment for housing.
If the government can change the public borrowing rules for roads, why not for council housing?
The papers this morning (see here and here) have been briefed that the government growth package to be launched when parliament returns next month will include not just a housebuilding stimulus but a radical new plan to boost road building.
The plan involves reforming the Highways Agency, which is responsible for the major road network, to turn it into a government-owned company or public trust so that it can borrow money without increasing the public sector deficit.
If that sounds somehow familiar, that’s because the housing sector has spent the last 20 years or so banging its head against a Treasury brick wall to achieve exactly the same for council housing.
With the possible exception of institutional investment in private renting (of which more on Thursday), it’s the probably the subject I have returned to most in all my years of blogging.
The planned ‘horizon shift’ for the Highways Agency is a sign of the desperation within government to stimulate growth in the wake of yesterday’s figures showing an unexpected increase in borrowing in July as tax receipts slumped. It also shows how much things have changed even since April, when the government still seemed to be resisting the case for a construction stimulus.
But that begs a big question: if the Treasury can make one u-turn on what counts as public borrowing then why not another?
It is a case that has been made by a succession of housing experts (see p6 of this briefing paper by Steve Wilcox and Hal Pawson for a fuller explanation of the differences between Britain and the rest of the EU). It is also a long-cherished ambition of Labour and Liberal Democrat reformers. Briefly, in 2009, it even seemed that the Gordon Brown government would take the plunge.
However, cross-party support has grown since then. In 2009, the Conservative-dominated Local Government Association said councils could build 300,000 additional homes after HRA reform if they were allowed to borrow against their assets.
Last year Conservative-controlled Westminster City Council argued for it too in a report saying that councils could raise an extra £1 billion for housing if the government agreed to remove their debt from the public sector balance sheet.
As Philippa Roe, then the cabinet member for housing, now the leader of Westminster, put it at the time: ‘There is a great deal of sensitivity around changing borrowing rules in the current climate, but what we are saying is that it will not affect the credit rating of the UK.’
Since then, of course, the government has reformed the housing revenue account but retained caps on borrowing so it may seem a stretch to expect more radical reform so soon.
The 2010 Lib Dem manifesto included a commitment to ‘investigate reforming public sector borrowing requirements to free councils to borrow money against their assets in order to build a new generation of council homes, and allow them to keep all the revenue from these new homes’. The party’s former Treasury spokesman Lord Oakeshott tells The Guardian this morning: “We need two big bazookas – making the banks lend, with RBS nationalised, and building 100,000 more houses a year, led by desperately needed social house building.’
Changing the public borrowing rules for housing would represent a massive u-turn on 35 years of Treasury orthodoxy but, as I blogged last month, my understanding is that it has not been altogether ruled out within government, with George Osborne agnostic about the idea. The real barriers are said to be the need for the UK Statistics Authority and Office for Budget Responsibility to agree to reclassification of the sector and government wariness of market reaction to Spanish-style financial chicanery by local government.
However, both of these barriers have presumably been overcome for the Highways Agency and the case is actually stronger for council housing. Unlike roads, housing generates revenue in the form of rents and it is already classified as a public trading activity in much of the rest of Europe. Clever ways have also been found for the government to guarantee mortgages under NewBuy and, it is believed, to guarantee housing association loans under next month’s package without an impact on the deficit.
Things are changing so rapidly that nothing can be completely ruled out. The trouble is that both the other major events this week seem to be moving in the opposite direction. On Monday the government made favourable noises about the Policy Exchange report calling for forced sales of expensive council housing to reinvest the proceeds elsewhere. Leaks ahead of Thursday’s Montague report suggest that it will include relaxing section 106 affordable housing requirements and using public land for market rented housing. Both seem to be about cannibalising the council housing asset base for the short term rather than borrowing against it to invest for long-term gain.
Policy Exchange is well known for its opposition to the Green Belt but that has not stopped it proposing what amounts to a Blue Belt in expensive areas of the country.
The influential right-wing think tank published a report this morning calling for social rented homes that become vacant expensive areas to be sold off to fund the construction of more homes in cheaper areas.
Ending Expensive Social Tenancies makes a superficially attractive case for the policy and speaks some undeniable truths about the current housing crisis. Waiting lists are much too high, a shortage of new homes boosts house prices and rents and construction of new homes will create desperately needed jobs. More contentiously perhaps, it says that ‘government needs to make even more cuts in future’ and ‘housing cannot realistically expect more money’.
Reaction so far has ranged from a cautiously enthusiastic Grant Shapps (who says it is ‘blindingly obvious’ that £1 million homes should be sold) to a critical David Orr (the idea is ‘fundamentally flawed’).
There appears to be strong public support. In a poll commissioned by Policy Exchange, 73 per cent of voters agreed that ‘people should not be offered council houses that are worth more than the average house in their local authority’ while 60 per cent agreed that ‘people should not be offered council housing in expensive areas by social class, housing tenure and region’. I wasn’t quite sure what the second one meant either but it was actually a misprint for ‘by voting intention’.
Policy Exchange proposes that ‘expensive social housing’ should be defined as above a regional median - £290,000 in London, £190,000 in the South West, £119,000 in the South West – and then be adjusted for bedroom size It argues that ‘expensive areas are close to cheaper ones across the country’ so that ‘new tenants would be housed close to where they want – near friends and family’. As an additional safeguard, if there was no social housing within 30 miles or no replacement stock could be built within 30 miles, there would be no sale.
The total value of this ‘expensive social housing’ is calculated at £159 billion and at a turnover rate of 3.5 per cent, 28,500 homes a year could be sold off to raise £5.5 billion a year. Once debt was written off, that would generate £4.5 billion a year and fund the construction of between 80,000 and 170,000 new homes a year.
With a range of other beneficial impacts, Policy Exchange argues that ‘the biggest question is why DCLG civil servants have not proposed this policy before’.
Here are a few reasons why off the top of my head:
- Most obviously, it conflicts with any attempt to maintain mixed communities. How many social rented homes will be left in Kensington & Chelsea, Westminster, Hammersmith & Fulham, Islington and Camden after this? Despite that 30-mile rule, the impact on rural communities in the South West could be even more devastating. Policy Exchange rejects the idea of using a national median because it mean selling off virtually all social housing in London and the South East and would be unfair but seems prepared to accept the same unfairness within regions. Listen again here to Neil O’Brien of Policy Exchange and Labour MP Karen Buck debate the report on the Today programme this morning.
- It accentuates the social divisions already built into the housing benefit system, with claimants forced out of expensive areas by local housing allowance caps and the overall housing benefit cap.
- It would accentuate social divisions in education by forcing the sale of social housing in the catchment areas of ‘good’ schools (house prices in these areas are already inflated and so any social housing in them will automatically be ‘expensive’).
- It conflicts with regeneration policy in other areas. What would be the future for the plans of boroughs like Southwark and Newham to regenerate council estates with new mixed tenure developments when they would become the destinations for people forced out of more expensive areas?
- Could this Policy Exchange be by any chance related to the Policy Exchange that argued four years ago that there should be a mass migration from failing northern cities like Liverpool and Sunderland to London, Cambridge and Oxford? Even David Cameron called that “insane”. The effect of the latest policy must be to encourage the concentration of social housing in cheaper areas with higher unemployment – although Policy Exchange denies there is any correlation.
- Could this Policy Exchange be by any chance related to the Policy Exchange that argued two years ago for all council and housing association homes should be nationalised so that 84 per cent of them could be sold off to tenants? If at first you don’t succeed.
Policy Exchange cuts through all these objections by arguing that ‘ending expensive social housing will allow real mixed communities’ because there will be larger amounts of social housing in cheaper areas and because allocation policies would be changed to prioritise those in work. Social tenants, it argues, are more likely to mix with people in cheaper private housing.
However, that ignores changes that are already underway in the section 106 rules for new development. Last week, Eric Pickles announced he was sending in specialist advisers to help unlock stalled housing schemes in a move that will almost certainly reduce agreed affordable housing requirements. The Montague report on institutional investment in private renting is expected to propose that the definition of ‘affordable’ should be extended to cover market rented homes too. The long-term result will surely be a minimal proportion of social housing in any new schemes that are built (as is already happening in Hammersmith & Fulham) and no guarantee that replacement homes will be social or even ‘affordable’.
Above all, perhaps, the Policy Exchange report ignores what is already happening on the ground. Individual landlords already have asset management policies: it may well make sense to sell off a vacant street property that is expensive to maintain but has a high resale value and then reinvest the proceeds. However, those decisions are made within the context of overall aims and objectives that will include a commitment to a mix of housing in their local area as well as broader financial objectives. This idea would simply impose damaging and divisive long-term impacts from above in the end game for what Policy Exchange regards as the mistake of ‘socialist’ housing policy.
Meanwhile, of course, social tenants will be gradually excluded from areas of expensive housing leaving mixed communities of overseas property investors, bankers and lawyers free to flourish and grow. Welcome to the Blue Belt.
Behind the good news story of falling mortgage repossessions a different tale is starting to emerge of rising possession actions against tenants.
Figures published by the Council of Mortgage Lenders (CML) yesterday showed that its members repossessed 8,500 homes in the three months to June. That was the lowest quarterly total since the final quarter of 2010 and implies that the total for the year is likely to undershoot the CML’s forecast of 45,000.
Considering the grim forecasts made in the depths of the financial crisis, that is very good news indeed. A combination of record low interest rates, forbearance by lenders and reforms of legal procedures that led to a dramatic fall in possession actions in 2008 look the most likely explanations. However, that did not stop Grant Shapps from claiming that it was actually down to the government’s action to tackle the deficit.
Things look much less rosy for tenants. Separate figures produced by the Ministry of Justice show that, after falling every year bar one between 2002 and 2010, the number of landlord possession claims rose in 2011 and that the upward trend has continued in the first half of 2012.
The second quarter saw 14,614 mortgage possession claims issued, a fall of 20 per cent on a year ago and a rate of 0.63 per 1,000 households. In contrast, landlords issued 34,554 possession claims, an increase of 4 per cent and a rate per 1,000 households that is two and a half times as high at 1.50.
Meanwhile there were 11,328 mortgage claims leading to possession orders made in the second quarter, a fall of 17 per cent and a rate of 0.49 per 1,000 households. That contrasts with 24,441 landlord claims leading to possession orders, an increase of 8 per cent and a rate of 1.06 per 1,000 households.
Mortgage possession orders made in the second quarter were down in every region of the country compared to a year ago. Landlord possession orders made fell in the North East and were unchanged in the West Midlands and the East, but rose everywhere else.
Landlord orders made rose 15 per cent in London (2.21 per 1,000 households) and by 21 per cent in Inner London (2.55). In contrast, mortgage orders made fell by 17 per cent in London (0.43) and 22 per cent in Inner London (0.31).
Is it just coincidence that London is the region most affected by the housing benefit cuts introduced so far? Or that the possession order made rate per 1,000 households is eight times higher for tenants in Inner London than it is for people with a mortgage?
The disparity also reflects structural changes in the housing market. As I report on my other blog, buy-to-let lending continues to rise remorselessly and landlords now account for one in eight of all outstanding mortgages. That has happened despite the fact that lenders are almost twice as likely to repossess a buy-to-let landlord (the repossession rate in the second quarter was 0.12 per cent) as they are an owner-occupier (0.7 per cent). Clearly both landlords and tenants are more likely to face possession claims than people wth a mortgage.
The figures are more startling when you consider that this does not include cases where an assured shorthold tenancy comes to an end and the landlord decides not to renew.
Figures broken down by type of landlord suggest that a rising proportion of possession claims are coming from private landlords. Second quarter claims by social landlords using the standard procedure were down slightly on a year ago. Claims by private landlords using the standard procedure were up slightly. However, claims under the accelerated procedure rose by 25 per cent to 7,765. The Ministry of Justice says these are by private landlords against tenants with assured shorthold tenancies but I think they include Ground 8 claims by housing associations too.
Social and private landlords both had slightly more claims leading to orders using the standard procedure in the second quarter than a year ago. Orders made using the accelerated procedure were up by 24 per cent.
The contrast between mortgage and landlord possessions also applies when you look back over a longer period.
Mortgage possession claims issued are down by 22 per cent since the election in the second quarter of 2010 and by 63 per cent since the depths of the financial crisis in the second quarter of 2008. Mortgage possession orders made are down by 16 per cent and 62 per cent.
Landlord possession claims issued and orders made are down 5 per cent and 3 per cent since 2008 but up by 10 per cent and 9 per cent since the election.
Before ministers congratulate themselves too much over the fall in the politically sensitive mortgage repossession statistics, they might want to take a look at this worrying rise in possession actions against tenants. And consider that the cuts in housing benefit introduced as part of the deficit reduction that supposedly cut mortgage repossessions have only just begun to bite.
If the Devil is in the detail then he is dancing a jig around the regulations for the universal credit and the benefit cap.
Ok, I am exaggerating for effect but by how much? Take a look at the response (PDF here) from the Council of Mortgage Lenders (CML) to the consultation by the Social Security Advisory committee that closed on the opening day of the Olympics and you decide.
Many of the same points are being made by the CIH, NHF and others but they have an added impact coming from the organisation representing lenders that have invested £60 billion in social housing and cannot be easily dismissed by ministers as coming from the ‘housing industry’.
The CML accepts the time for debating the policy has passed and says it is encouraged by Lord Freud’s commitment not to implement the changes in a way that will undermine the financial viability of the sector.
But it warns: ‘We continue to be concerned that the combined effect of these changes…could be to destabilise landlords’ income streams with consequential impacts on lender and investor confidence in the sector as a whole, particularly the smaller to medium sized housing associations.’
It adds that the overall package of the universal credit plus other welfare reform and council tax benefit changes ‘could be disjointed and bring unintended consequences’.
And it criticises ‘the quality and limited extent of the impact assessments….which suggest only a patchy understanding of how the effects of this package will play out and take no account of how they will interact with other changes in welfare reform on the near horizon’.
Many people have highlighted the contradictions and the problems with the different elements of the package but the lenders have more reason than most to be concerned about the sector’s financial viability.
On the treatment of service charges, the CML warns that streamlining to just three eligible types ‘is a simplification too far and could leave landlords out of pocket with knock-on effects on their cash flow’. It is even concerned that shortfalls could impact on the maintenance of essential safety systems like fire detection and suppression and put homes at increased risk of damage and deterioration and mean landlords face hefty fines for health and safety failures. The DWP says there will be more detail in future guidance, but the CML ‘is concerned that vague specification in the regulations and reliance on guidance for this major cost element for landlords will ultimately lead to more charges being excluded than included’.
The same points are being made powerfully by charities running women’s refuges. Women’s Aid warns that the reduction in eligible service charges’ could make refuges financially unsustainable and Refuge says this plus the impact of the benefit cap could result in the closure of its 297 refuges. Rhiannon Bury blogged yesterday about the continuing debate about the definition of ‘vulnerable’ and the imposition of the benefit cap.
On the bedroom tax, the CML is worried both about the regulations themselves and their implementation by landlords. It welcomes the fact that there is no prescriptive designation of what constitutes a bedroom but it is concerned about ‘widescale redesignation of properties of some properties in certain areas and the impact that this could have on landlord income’. It calls for a commitment from the DWP that the deduction rates will not be increased in the review of the operation of the size criteria.
It shares the concerns of the NHF that the definition of ‘exempt accommodation’ like supported and sheltered housing may exclude some schemes where support and care is provided separately and that this could ‘significantly undermine the viability of such schemes’.
What about others living in the ‘under-occupied’ home? Welfare reform minister Lord Freud has repeatedly pointed out that affected tenants could take in a lodger and that the universal credit regime will disregard their rent payment. However, the CML points out the absurdity that a tenant with a lodger will still be treated as an under-occupier: ‘it is slightly perverse that the claiming tenant should still be treated as under-occupying when an otherwise unused room is being let’. It also calls for clarity on the temporary absence rules: if students are away at college in term time but back in the holidays will there be a deduction when they are absent?
And how many people will really be affected? The number of people that the DWP estimates will lose their housing benefit entirely doubled from 20,000 in the first impact assessment in February 2011 to 40,000 in the latest in July 2012. ‘This all adds to unease in the sector (and which might also manifest in investor reticence) and an overall lack of confidence that government knows with certainty what the effect of measures such as this will be.’ Meanwhile the effect of the interaction of the benefit cap, the bedroom tax and rent direct ‘will be extremely difficult to predict and quantify’.
The CML says that all this uncertainty – different impacts in different areas, tensions between the DWP wanting to cut the benefit bill and the DCLG wanting associations to go for affordable rent and the fact that the results of demonstration projects and pathfinders will only be available after the regulations have been passed – leads to ‘lenders and investors in the sector viewing it as increasingly risky’ at a time when the government wants to build more affordable homes to stimulate growth.
It concludes that all the changes are so significant that the DWP needs to get them right from the outset. That will take more time than has been allowed and there are still ‘too many variables and too many blanks’ to be filled in later:
‘The social housing sector is an intricate machine; significant manipulation of policy and funding levers without fully understanding the potential impacts, is likely to cause major disruption to the way the sector works, both in terms of its ability to support its tenants and its ability to attract investment for development of new affordable housing.’
As the universal credit moves closer, the doubts about the details grow larger. There is still widespread concern about the impact of direct payment. The great prize is meant to be simplicity for claimants and clarity that they will always be better off in work. However, the CIH points out that even this is contradicted by the proposed abolition of extended payments for the long-term unemployed.
And all of that is before we get to the worries about whether the IT system will actually work. There is still time to find the devil in the detail but it is beginning to run out.
Even as the Olympics provide compelling evidence that Britain is not as broken as the government makes out, the anniversary of the riots is a reminder that it is not fixed either.
In the glow from the marvellous opening ceremony and the stellar performances of the athletes it’s easy to forget that we are a country in austerity and recession. Perhaps that’s because we weren’t when we won the games and when the stadia and all the other facilities were funded.
The Olympics and the Paralympics that follow are like a holiday from the cuts, unemployment and welfare ‘reform’. The thousands of volunteers who are being hailed as a living embodiment of the Big Society are happily working for nothing for the common good rather than being made to work for nothing for private contractors. And the homes that will be built at the athletes village and on the Olympic park will be a lasting legacy of all that investment.
What a contrast with a year ago today when the riots and looting led to (depending on your point of view) either despair about the deprivation and inequality that lay behind them or anger at the feral, feckless youth who caused all the damage. As this blog argued at the time, the truth was always much more complex than the kneejerk calls to evict the families of rioters made out.
When the independent Riots Communities and Victims Panel delivered its final report to David Cameron, Nick Clegg and Ed Miliband in March, it concluded that the main lesson was that everyone, and especially young people, need to feel they have a stake in society. In contrast to the Broken Britain propaganda, it found limited overlap between the rioters and the government’s 120,000 ‘troubled families’ and called for more help for 500,000 ‘forgotten families’ to turn their lives around. A month before, Inside Housing’s Riot Report had highlighted the positive work being done by housing organisations all over the country.
So far the Olympics have been a powerful antidote to the negativity about Broken Britain. The opening ceremony was an inclusive celebration of multicultural Britain that delighted everyone apart from the odd Nazi uniform-wearing Tory MP and Daily Mail columnist. It gave us an optimistic vision of ourselves that most of us did not fully realise was there.
At the games themselves, there are the thousands of enthusiastic volunteers, many of them drawn from deprived communities around the Olympic Park. Give or take the odd bit of dodgy timekeeping in the fencing they really do seem to have been a success.
And then there are the athletes. At first we were regaled with stories of public school domination in sports like rowing. The only mention of social housing seemed to be as a launching pad for missiles. But medallists like Bradley Wiggins and Louis Smith (and previous ones like Dame Kelly Holmes and Liz McColgan) have shown that success comes from state schools too – and from council estates.
The games will have a strong housing legacy too. The athletes village will be converted into 2,800 mixed tenure homes including 1,479 that will be affordable. Of these, 675 will be for social rent, 354 for intermediate rent and 350 for shared ownership or shared equity.
Another 6,800 homes will be built in five neighbourhoods across the Olympic Park. Last week, the London Legacy Development Corporation appointed Taylor Wimpey and L&Q to build 870 homes in the first of them, Chobham Manor. Of these 28 per cent will be affordable and a community land trust could be part of the deal. In a real sense, as Ricky Burdett of the LSE (a former chief advisor to the Olympic Delivery Authority) argued last week, London is taking the first step to its Great Leap Eastwards.
As Gavriel Hollander reported in June, the athletes village is likely to be England’s last large-scale social housing development. The affordable homes in Chobham Manor and the rest of the park will of course be ‘affordable’. Residents of the Carpenters Estate on the periphery of the park say that its 500 council homes will be replaced by just 80 once it is demolished and redeveloped after the games. Newham will be using the Localism Act to prioritise people who are in employment or actively pursuing it for the new homes. No matter what you think of some of the detail, London 2012 will at least leave lots of homes behind.
However, when the glow of the Olympics and Paralympics wears off, cold reality will reassert itself and we will be back in the same austerity and recession as before. How long will it be before we hear the rhetoric about Broken Britain all over again? Are we prepared to do something about inequality? When senior police officers and politicians like Tottenham MP David Lammy tell is that ‘the conditions that led up to the riots still exist now’, are we really listening?
As the Olympics gives a daily boost to London’s image as a global city, how long will it be before the government acts on overseas property ownership?
The evidence on the scale of the ‘investment’ and the impact on the rest of the London housing market is mounting steadily. In March, I blogged about a report from the IPPR arguing that London property has become a sort of global reserve currency for the wealthy elite and warned about the effect on housing across the capital as billionaires price out millionaires and the effect works right down the system to priced-out first-time buyers, ripped-off private renters and forced-out housing benefit claimants.
A report from the Smith Institute last week concluded that over 60 per cent of new homes in central London are currently being bought by overseas investors and that a large proportion of them are being kept empty. And it warned that the growth in overseas investment (mainly from the Far East) is set to continue despite the new 7 per cent stamp duty rate on property over £2 million and levy on property bought through companies. That brings with it a real risk of a new house price bubble and of a further fall in home ownership in the capital (it is already down to 52.5 per cent).
The sums of money involved are colossal. The IPPR estimated that the amount of foreign capital flowing into prime London property rose 72 per cent to £5.2 billion in 2011. The Smith Institute points out that this is five times more than the annual investment in affordable homes in London and a third of all loans made for house purchases.
Money like that is impossible for developers to ignore. Take the huge Nine Elms regeneration plan between Battersea Park and Lambeth Bridge. As the Financial Times reported yesterday, it’s a chance of a new South Bank a stone’s throw from some of most expensive property markets in London.
One developer, Ballymore Group, plans 2,000 homes by 2015 and is already selling in south-east Asia with 260 out of 314 properties it will only start building next month already pre-sold. Another, St George South London, feels the need to point out that Asian purchasers are often buying not just for investment reasons but in many cases to house their children who are studying in London. ‘There’s not a lot of liquidity in this part of the world but international money is prepared to invest in the area,’ managing director Mark Griffiths told the FT. ‘It’s not just south-east Asia. When you get to £3m-plus properties you’re looking at Russia and the Middle East.’
From the point of view of a developer, it’s all perfectly understandable. You market your ‘units’ where the money is and pre-selling them takes the risk out of building them. However, from the point of view of London and the country as a whole, it means that provision of new homes is even more inadequate to meet levels of domestic demand than the headline figures suggest and that house prices and rents will continue to increase beyond the means of local incomes. At Nine Elms, Lambeth is pushing for 40 per cent affordable housing and Wandsworth 15 per cent – but what about the rest? Should they also be worrying about the percentage of local buyers - or even how many of the homes will actually be occupied?
Figures from Hometrack yesterday suggest that the London market is starting to cool at last but a survey of prime property in 27 global cities by Knight Frank revealed that London came fifth with a 10.5 per cent increase in prices in the year to June thanks to its reputation as a safe haven for investment.
Knight Frank says that the prospects for the rest of the year are ‘muted’ thanks to the Eurozone crisis and ‘protectionist’ measures in Asia-Pacific. Governments across the region have moved to cool down their property markets, with controls on lending, new taxes and restrictions on second-home ownership and foreign buyers. According to its Asia-Pacific Residential Review in December 2011, Singapore introduced an additional buyer’s stamp duty of 10 per cent for foreigners. From May 2012, Australia removed the 50 per cent capital gains tax discount for non-residents (foreign buyers have been restricted to new build properties only since 2010). The new chief executive in Hong Kong wants to restrict purchases of certain classes of new housing development to residents. In Malaysia, the government could double the minimum price of properties that foreigners can buy from RM500K (around £100,000) to RM1 million.
The measures seem to be working so far too. In Singapore the number of units sold to foreign (non-permanent resident) buyers fell 76 per cent between the fourth quarter of 2011 and the first quarter of 2012. Knight Frank concludes that ‘continued intervention across Asia-Pacific to cool markets, reduce speculation or limit foreign buyers will continue to be an important factor in the region’s property markets’. Asian governments are acting to take control of their housing markets while Asian buyers enjoy unrestricted access to ours.
The property firm comments that: ‘Most of these measures and sentiment comes as a popular backlash from domestic buyers who feel priced out of their birth right by foreign buyers. This swing towards populism underlines how property booms have impacted affordability, especially for first time domestic buyers.’ How long before there is a similar backlash here? ‘Protectionism’ is seen as a bad thing because it restricts free trade but we are talking about a limited supply of homes not an export good where production can be increased to meet demand.
The Olympics is providing a daily reminder of the attractions of London and ministers are pulling out all the stops to attract overseas investment. After a wonderful opening ceremony that celebrated London’s diversity and enthused everyone apart from the odd Tory MP, this is emphatically not a call for the restoration of a xenophobic Little England but how much of that ‘investment’ will merely add to domestic demand for a stock of homes that is already inadequate? And is that ‘investment’ at all?
If the case for a housing stimulus was already unanswerable, today’s confirmation of the depth of the recession makes the lack of one unfathomable.
It’s not just the 0.7 per cent fall in GDP in the second quarter or the 0.3 per cent falls in the two previous quarters or that this is the first double dip recession since the 1930s. It’s not even the fact that the construction industry’s 5.2 per cent fall in output between April and June and 4.9 per cent in the first quarter is one of the major reasons why it happened.
It’s more that, as Brian Green argues over at Brickonomics , the numbers were so predictable. Anyone keeping half an eye on the construction numbers knew things were bad (if not quite this bad) and knew that private sector orders were not making up for cuts in government investment. As I argued, the case for housing was blindingly obvious when the first quarter GDP figures were published in April.
The government will argue that it has responded to this crisis with a growth package for the industry but the closer you examine last week’s measures the less they stand up to scrutiny. They started to unravel for me when I discovered that ‘the greatest investment in the railways since the Victorian age’ was going to mean a 30 per cent cut in direct trains between Cornwall and London. Less parochially, and at a time when a stimulus needs to work quickly, the package seemed to prioritise precisely the sort of large-scale infrastructure projects that take longest to get off the ground because they have the longest lead times.
The announcement on the UK Guarantees Scheme may have won plaudits from groups like the CBI that have argued consistently for a housing-free investment programme. Granted the first guarantees will be awarded in the Autumn and to qualify projects must be ready to start within 12 months of a guarantee being given but the detail hardly inspired confidence of its their ability to make a difference now, when they are most needed.
The only mention of housing was in the section on a temporary lending programme to help public private partnership infrastructure projects that are struggling to raise enough private finance to go ahead. The Treasury said an estimated £6 billion of projects could be eligible, including schemes in transport, health, housing and education. The trouble is, of course, that housing has very few PPP projects because the alternative model of housing associations raising private finance has been so successful. Housing, it seems, was as much of an afterthought this time around as DCLG director general Peter Schofield has admitted it was when he worked on the original Treasury plan for growth.
To the surprise of everyone (including me) there was no mention at all of a scheme to guarantee housing associations loans to bring interest rates down to as low as 20 basis points above gilts. This was the centrepiece of my attempt last week to build a ‘good news’ case for housing and I was confidently expecting to see it there. It remains to be seen whether this measure has been delayed until the Autumn for some technical reason or it has been shelved for some other reason (Treasury nervousness about keeping it off balance sheet?). However, the effect is still to delay the one form of new construction that would deliver growth and jobs most quickly and effectively. As the DCLG has been telling everyone who will listen, every 100,000 new homes means 1 per cent on the GDP, but the opposite applies when 100,000 homes are not built. Next time you go past a big rail or road construction site look at how much of the work is done by big yellow machines made abroad – in contrast housebuilding is relatively labour intensive. The big direct stimulus for housebuilding that we have seen so far is NewBuy but as I have argued many times before it does not follow that what is good for housebuilders is also good for housebuilding.
There are also worrying signals emerging ahead of the second part of my good news case: the Montague report on institutional investment in private renting. Extra investment by pension funds and insurers in private rented housing has to be good news on the face of it, and even more so if housing associations win a major role in provision that allows them to cross-subsidise other activities. But what if the recommendations amount to allowing the private rented sector to cannibalise the funding streams of the social sector. That’s exactly why leaks about changes to section 106 rules to allow private rented homes to count as ‘affordable’ and loans to private renting squeezing out grants to social renting are so worrying (see Inside Housing’s story on this from the end of June and The Guardian’s from Saturday).
That is very much a debate to come when the Montague report is published (this month seems to have slipped into the next few weeks on that). For the moment, the crucial issue surely has to be that it is in the government’s own interests to boost construction of new homes and it is not yet doing remotely enough. Only one thing would generate growth and jobs more quickly – cutting VAT on repairs and maintenance, maybe on a time-limited basis – but the politics of that one did not seem to work out too well for David Gauke yesterday.
Labour’s plan to regulate letting and managing agents is a good start to its policy review on housing – but no more than a start.
The idea enjoys widespread support – not just from private tenants who are fed up with being ripped off by outrageous fees but from private landlords and reputable agents too. As Labour points out: ‘It’s a peculiarity of current policy that while estate agents, who hold very little money on behalf of their clients, are regulated, letting agents who hold significant sums on behalf of landlords and tenants are not.’
But what took so long? The Rugg review commissioned by the Labour government proposed regulation of agents plus registration of landlords when it was published in October 2008. It took the government seven months to respond. A green paper in May 2009 included a pledge to introduce ‘full mandatory regulation of private sector letting agents and management agents’. But there was no Housing Bill in Labour’s final Queen’s Speech and the plan was still pending when it lost power a year later.
One of the first things Grant Shapps did when he became housing minister was to drop the plan completely, without actually mentioning letting agents. He said in June 2010: ‘With the vast majority of England’s three million private tenants happy with the service they receive, I am satisfied that the current system strikes the right balance between the rights and responsibilities of tenants and landlords. So today I make a promise to good landlords across the country: the government has no plans to create any burdensome red tape and bureaucracy, so you are able to continue providing a service to your tenants.’
Two years on, at a time when England has 1.4 million landlords and 3.6 million households living in the private rented sector and when the evidence has piled up about the rip-off fees imposed on both of them by unscrupulous agents, and Labour is pledging action again.
It may be sensible to start with a measure that will enjoy broad support across the industry but there is no mention of registration of landlords or some of the things that the light-touch system envisaged by the Rugg review ruled out, such as controls on retaliatory eviction. Shadow communities secretary Hilary Benn hinted at more to come in an interview with The Guardian yesterday. While he rejected calls for rent controls (‘we don’t want to return to that because [the rental sector] is meeting a demand for housing’) he said he would consider linking rents to inflation ‘on an annual basis’.
The caution is perhaps understandable in a month when the Montague review is due to publish its report on attracting institutional investment into private renting. The Resolution Foundation published a report on this today proposing a new build to let model with debt and equity investment by institutions and a new role for housing associations in getting schemes built that can be sold on to funds. Political uncertainty is one of the factors regularly cited by institutions as a reason why they do not invest and no party wants to cause more uncertainty at a time when public investment is in such short supply.
However, in the meantime the rest of the UK has been leaving England behind. In Wales, for example, the Labour government has just published plans for a national, mandatory registration and licensing scheme for landlords, lettings and management agents.
And, as Robbie de Santos points out in a blog for Shelter, there are signs that tenants in England are beginning to organise and call for action. The Cally Cows campaign was set up after the TV programme The Secret History of Our Streets exposed a landlord who said that if a cow is producing milk ‘you keep milking’. The Haringey Housing Action Group protested outside a letting agent over fees. And the Housing for the 99% campaign demonstrated outside the National Landlords Association.
However, one big problem is that the politicians know that millions of private renters are not eligible to vote. It could even be one reason why Boris Johnson won the London mayoral election despite Ken Livingstone’s private tenant friendly policies.
As I argued on my other blog in May, millions of people have effectively been disenfranchised by our housing system – by the unstoppable growth of private renting. A report published by the Electoral Commission in December 2011 estiamted that six million people were not registered to vote on December 2010 registers. While 89 per cent of outright property owners and 87 per cent of people with a mortgage were registered, just 56 per cent of private renters could vote. This disenfranchisement of millions of private tenants is only set to get worse as the sector grows and it could be permanently locked into the system if changes are adopted to define constituencies according to the number of people registered (as opposed to eligible) to vote.
The treatment of private tenants has broken through as a political issue but tenants need to keep up the pressure and politicians need to know they will take it to the ballot box.
This blog has a tendency to be negative at times so I’ve been trying to accentuate the positive ahead of the announcement on housebuilding expected later this week.
The good news is that the government is definitely taking housing seriously. Peter Schofield, director-general of the DCLG, confessed at the CIH conference last month that the Treasury had barely considered housing when it drew up its original plan for growth last year. In the run-up to the growth plan mark 2 and publication of the Montague report on the private rented sector, I’m told that David Cameron has been making the point that ‘all roads lead back to housing’ while Nick Clegg was using housing to rally his party faithful over the weekend at the Social Liberal Forum.
After the draconian spending review and underwhelming housing strategy, it’s taken the coalition just over two years to realise that more - much more - is required. That’s happened considerably quicker than under the last Labour government: acceptance of draconian Conservative cuts in housing investment in its first term; semi-successful promotion of a ‘step change’ in housebuilding delivery in its second term; belated realisation that it had not done remotely enough on affordable housing in the third term.
Considered judgement will have to wait for the substance of this week’s announcement and what follows. As Inside Housing is reporting today, it seems clear that the plan will include a scheme to reduce the cost of borrowing for housing associations. Ministers argue that it is now time to use the government’s hard-won credibility on public borrowing and that it could be possible to guarantee associations borrowing to bring rates down to as little as 20 basis points above gilts. That would be somewhere over 2 per cent rather than the current 4.5 to 5 per cent or more. If it’s not quite the quantitative easing for housing that I’ve been advocating, it does look like a creative idea. The alternative of writing off associations’ historic debt appears to have been ruled out as too complicated and expensive.
Beyond that, I’m told ministers are willing to look at any ideas to get housebuilding moving provided they do not risk undermining that fiscal credibility– and there is a recognition that housing projects are a far better way of delivering growth than large-scale infrastructure projects that take much longer to get off the ground. That looks like a reversal of the presumption in favour of infrastructure with a bit of rhetoric about housebuilding that made up the original plan for growth. When the economy is still shrinking, the argument that 100,000 new homes means 1 per cent growth in the GDP is bound to carry some weight (even if there is also a good case can be made that most of the deficit reduction so far has come from cutting public investment).
The other key announcement to look forward to is publication of the report of the Montague review on the private rented sector. If Sir Adrian and his team can really find a way to attract institutional investment they will have solved a conundrum that has defeated all previous attempts and opened up a major new source of finance for new homes. I understand that one of the key problems is that institutions will want to buy stock of 2,000 homes or more and at the moment there is nobody around to build them. One solution could be to incentivise housebuilders to do so. A leak to Inside Housing last month suggested that the review could recommend changing the definition of affordable housing for planning purposes to include private renting and government loans to promote new large-scale construction.
Another way of boosting housebuilding would be to promote the construction of new towns – or new garden cities as they were carefully branded by David Cameron in a major speech in March. The idea is being pushed not just by the usual suspects like the TCPA but by the influential right-wing think-tank Policy Exchange too. I’m told that work continues to get medium-sized schemes like Northstowe and Ebbsfleet moving but that grander ideas for using compulsory purchase to kickstart new towns on the scale of the post-war programme have been considered but rejected as politically impossible.
My understanding is that even an old faithful from the housing lobby - a change in the public sector borrowing rules - has not been ruled out altogether. The assumption within the housing world may be that the key obstacle is the Treasury but it seems that chancellor George Osborne is agnostic about the idea and there has even been lobbying in favour of it from within Conservative local government. The two barriers are first that the UK Statistics Authority and Office for Budget Responsibility would have to agree to the reclassification and second that even if they did the markets might hear too many echoes of the profligacy of Spanish regional government for comfort.
So there you have it: the case for a bit more positivity about the prospects for more homes. I won’t be shaking off the negative habits of a lifetime, I am worried by the mood music about yet more subsidies for the major housebuilders that have already received billions in subsidies and I’m prepared for some of the over-hyping that accompanied the ‘greatest investment since the Victorian age’ rail plan earlier. But at least there is a positive case to be made.
So is affordable rent value for money? After two hours of scrutiny from MPs we are still not much closer to an answer.
What seems clear is that between them the DCLG, HCA and housing sector have done a pretty good job of making the best of a grim situation up to 2015. What is far from clear is what that means over the next 10, 20 or 30 years.
The influential public accounts committee spent yesterday afternoon questioning experts from the sector plus Sir Bob Kerslake of the DCLG and Pat Ritchie of the HCA. This follows publication of a report by the National Audit Office that, as I blogged last week, left several key questions about the programme unanswered. By my reckoning I now have partial answers to two out of five questions, some more information on another two but an even more confused picture on the fifth.
Is it risky to weight the programme so much towards the end of the spending review period with construction of 45,000 of the 80,000 homes planned to start in the final year? Pat Ritchie said that another 6,500 starts have now been brought forward to earlier years. However, it’s still a concern and I learned a new phrase from David Montague of L&Q and the G15 Group of the largest associations. ‘The big issue we have is the drop dead date in 2015,’ he said. ‘If developments fall a few days after that date there is no funding.’
Is the programme repeatable? David Montague said that the sector as a whole was borrowing £15 billion and was approaching the limits of its gearing covenants and going beyond them would mean renegotiation with lenders. Would that mean re-pricing of existing loans? Sir Bob argued that: ‘We do know there is some headroom available. The key question is what things will look like in the next spending review. No decisions have been made on size, scale, and form of next programme. We do know there is still some capacity in the housing association sector to do more along these lines.’
We learned little more about the things the NAO report failed to mention. There is still no detail on the warning from providers in London may not be able to charge the rents they agreed although David Lunts, executive director of housing and regeneration at the Greater London Authority, said larger homes were being let at lower rents than smaller ones and he did not think that was sustainable in the longer term. There was only one mention of the implications of converting existing homes to affordable rent and none at all of the fact that homes sold under Right to Buy 2 are also supposed to be replaced by affordable rent homes.
On housing benefit costs, it’s still no clearer why the DCLG estimated that the first 56,000 homes will cost just under £10,000 extra each over the next 30 years but that the next 24,000 will cost £35,000. And there is still no estimate of the extra cost of up to another 180,000 conversions and Right to Buy 2 replacements. Sir Bob said that the extra cost of affordable rent worked out at around £45 million a year, which made it a minor concern in the context of a total housing benefit bill of £22 billion a year. That seems to take account of the savings that will be made when tenants in the private rented sector transfer to affordable rent but it’s not clear to me that it includes the extra costs of the homeless families who would have got social rent tenancies but will now go into private ones. There was no clear answer either to questions from Labour’s Meg Hillier about the effect of higher rents on work incentives.
Finally, is affordable rent value for money? This boils down to the difference between upfront capital grant subsidy and continuing revenue subsidy through housing benefit. The NAO report concluded that a hypothetical social rent programme costing the same as affordable rent over 30 years would have delivered 8,200 more homes and £700 million more benefits but, crucially, it would have required grant funding of £4.3 billion rather than the £1.8 billion available. The £1.8 billion would only have delivered 27,000 homes under the previous programmes.
Professor Christine Whitehead of the London School of Economics said there was nothing new about affordable rent. It was merely a continuation of the shift from public to private finance and supply side to demand side subsidy seen over the last 30 years. ‘Most of us thought we would be here ten years ago,’ she said.
David Orr of the National Housing Federation said shifting from capital to revenue subsidy meant less value for money in the longer term. Previous work by the NHF showed that revenue subsidy was more effective for the first seven or eight years but for any longer than that capital subsidy was better. David Montague said his current modelling showed that after seven to 10 years capital subsidy was more effective.
However, when Conservative MP Matthew Hancock raised this point later, Sir Bob Kerslake responded: ‘We’d challenge that particular argument. The NAO report captures that pretty well. If you take it over a 30-year period the old funding model comes out ahead, not by much but it comes out ahead, but if your judgement is that you want to see a housing impact now there is a strong case for reducing capital subsidy and increasing rents.’
If that is the pragmatic argument against capital subsidy, Christine Whitehead put the economic one. ‘It does matter how much the tenancy changes because tenants may not need subsidy over whole time they are there,’ she said. This is the argument that capital subsidy ends up going to tenants who do not need it whereas personal subsidy is targeted at those in need. However, it may need some re-thinking in the light of the introduction of fixed-term five-year tenancies and pay-to-stay rents for higher-earning tenants.
Labour members of the committee seemed impressed by the way the DCLG and HCA had implemented the programme but less so by its long-term implications. When David Orr pointed to the impact of rising rents on the housing benefit bill, committee chair Margaret Hodge referred to it as ‘PFI under another name’. The verdict of Labour member Austin Mitchell was that: ‘Sir Bob has done a wonderful job in producing something out of nowt. But these are hypothetical homes based on a hypothetical idea of what’s affordable. Under this system Cathy is not going to come home, is she?’
However, Conservative members Richard Bacon and Matthew Hancock were more intent on taking things back to first principles. If the market for food and shoes worked and there was equilibrium between demand and supply, asked Bacon, why couldn’t we get equilibrium in the housing market? Christine Whitehead suggested that supply was slow to respond to demand, incomes were unevenly distributed and land prices reflected what richer people would pay for their housing: ‘The market is fundamentally out of kilter’.
Hancock asked if the ‘value for taxpayers’ money’ solution might not be to grant more planning permissions. David Lunts told him there were 200,000 consented plots in London but they were being built out slowly if at all. ‘The structure of the housebuilding industry in this country means they are more interested in delivering margins than volume,’ he said.
Cue an outburst from Bacon. ‘It’s an oligopoly, basically. What you’ve just described is the absence of competition. In conditions of reasonable competition you could not do that, just protect your margins.’
And when Margaret Hodge attempted to draw the session to a close by telling him ‘this is getting a bit theoretical’, he responded: ‘It’s not theoretical at all. It’s the absolute essence of the way the housing market hasn’t worked and why hundreds of thousands of people have nowhere to live. It’s not theoretical at all and we spend billions of pounds of taxpayers’ money on it. We have got representatives here of an industry that’s failed for 30-40 years to deliver enough housing in this country. And you call it theoretical. I’m sorry, it’s not and if you think I’ve got a bee in my bonnet you’re right.’
This diatribe against housebuilders was rather bizarrely delivered to an academic, two senior housing association people and Boris Johnson’s head of housing but it was still a point well made. No one part of the failing housing system can be considered in isolation from the rest and until we find a way to tackle the whole thing the search for value for money seems doomed.
The verdict from the National Audit Office (NAO) on the affordable rent programme is generally positive but it still leaves several key questions unanswered.
The financial watchdog says that the DCLG has ‘so far achieved its policy objective to maximise the number of homes delivered within the available grant funding’. Grant per home was a third of previous levels, the programme was over-subscribed and 80,000 homes are being delivered against an initial target of 56,000.
The NAO concludes that: ‘The Department and the [Homes and Communities] Agency selected a design for the Programme that is projected to maximise benefits and the number of homes delivered within the constraints of the £1.8 billion capital funding available. The launch of the Programme has been successful. Providers have committed to building some 80,000 homes for the £1.8 billion of government investment, approximately 24,000 more homes than first expected. In this respect, the Programme has made a good start.’
So far, so good but the NAO also reveals several risks:
- 18 per cent of contracts had not been signed as at April 2012 (mostly local authorities that needed to confirm their borrowing capacity following HRA reform)
- more than half of the homes are planned for the final year of the programme ‘so slippage would put at risk achievement…of the planned 80,000 homes’
- some providers in London are worried they will not be able to charge the rents they originally agreed
- the DCLG needs to carry out ‘a thorough analysis of the financial position of providers to assess the repeatability’ of the programme after 2015.
In the process, the report reveals details about the programme that I at least have not seen before but it also begs some more questions.
First, it shows just how far the programme is weighted towards the end of the spending review period – and therefore why starts have fallen so much recently. Completions are set to rise from 2,200 last year to 9,800 in 2012/13 to 23,000 in 2013/14 and then 45,000 in 2014/15 (56 per cent of the entire programme). Little wonder that the NAO warns of the risk of slippage. However, has the result also been to delay the construction work beyond the time when it is most needed to give the economy a boost?
Second, the report is clear that continuing with the previous funding model would have ‘offered the highest ratio of benefits to costs and hence the best value for money’ over the 30-year period analysed. This was mainly because housing benefit savings would offset much of the initial capital cost. A hypothetical social rent programme costing the same as affordable rent over 30 years would have delivered 8,200 more homes and £700 million more benefits but, crucially, it would have required grant funding of £4.3 billion rather than the £1.8 billion available. Affordable rent was a pragmatic choice by the DCLG that ‘reflected its aim to do the most it could with the limited amount of capital available to it’ and this option ‘represented the best value for money available within the limited amount of capital available’. The £1.8 billion would only have delivered 27,000 homes under the existing programme.
Third, what about those housing benefit costs? The NAO takes the DCLG’s estimates at face value. The initial impact assessment put the extra housing benefit cost at £550 million but then increased this by another £850 million when it became clear the programme could deliver 80,000 homes rather than 56,000. It is not explained why the first 56,000 homes will apparently cost just under £10,000 each over 30 years whereas the next 24,000 will cost £35,000.
The NAO says providers are planning to charge an average rent of 75 per cent of the market rate (in line with DCLG modelling assumptions) with the 80 per cent rate adopted by only 40 per cent of providers and London providers planning for rents at 65 per cent. Based on analysing HCA information, the NAO says that the average weekly rent will range from around £100 a week in the North East and Yorkshire & the Humber to £182 a week in London. But there is a rider to that: ‘However, it does not have information on rent levels charged across homes of different sizes. As a result, we could not compare actual rent charged under the model and rent levels under previous programmes.’
If that sounds rather less than clear, it’s not just you. The public accounts committee will be examining the report and questioning witnesses on Monday. Committee chair Margaret Hodge told The Guardian this morning: ‘The department has refused to be transparent about just how many tenants will be affected and by how much. My committee will want officials to regularly and transparently update their assessment of the costs and benefits of the programme so that we can hold them to account for the social and financial consequences of their decisions, particularly in light of changes to the welfare system.’
Fourth, is the programme really repeatable? Grant Shapps was clear at the CIH conference in Manchester that he thinks it is. The DCLG is clearly confident that if the original programme was over-subscribed by 100,000 homes then a repeat is more than possible. The NAO notes that housing associations’ operating margins increased from 14.2 per cent in 2009 to 21.4 per cent in 2011. Its own consultation found some associations saying a repeat was not possible and others saying there was sufficient capacity.
However, the report also reveals that this will be about more than just grant (£20,000 per home) and borrowing supported from the new rents (£75,000). Another £46,000 comes from ‘other funding’ (an increase of £12,000 per home on the previous programme). The total scheme cost of £141,000 per home is also £14,000 lower than under the previous programme. So the programme relies more on other funding and a reduction in the total cost per home than it does on grant. Is that repeatable?
Fifth, what about the things the report does not mention? There is no more detail on the warning from providers in London that they may not be able to charge the rents they originally agreed. There is no consideration of the implications of converting up to 80,000 existing social rented homes to affordable rent as well as building new ones. And there is no mention of Right to Buy 2, despite the fact that it will effectively be another round of affordable rent.
Like affordable rent itself, the NAO report is a good start but it is very far from a complete answer to all the questions about the programme. It should be an interesting public accounts committee session in Monday.
It was seconds out, round 27 in the Commons yesterday in the housing stats war but where were the two main contenders?
Communities and local government questions has become a stats slugfest between Grant ‘Slasher’ Shapps in the blue trunks and Jack ‘Jabber’ Dromey in the red but yesterday as the theme music from Rocky began to play there were two new boxers in the spotlight. Given everything that’s been happening outside the ring – new and highly contentious stats on affordable housing and homelessness to argue about and an official complaint from Dromey to the referee – was I the only one in the crowd to feel let down?
The warm-up question came from Conservative backbencher (but social housing rebel) Gordon Henderson. What steps was the minister taking to increase the availability of social housing? A golden opportunity surely for Shapps to deploy one of his new stats: the £19.5 billion that government and the private sector combined will invest in the new affordable housing programme to deliver 170,000 affordable homes etc etc. The answer was duly given but by junior (Lib Dem) housing minister Andrew Stunell rather than the man himself. Stunell went on to bat away questions about affordable housing starts, right to buy replacements and the housing benefit implications of affordable rent. He showed he has learned from the master by switching the comparison to affordable housing completions, pledging that replacements would be ‘a new social or affordable home’ and referring to social rent completions that are the legacy of Labour’s programme but it was not the same somehow.
The absence of the reigning champion was even more keenly felt when Labour’s Chris Williamson asked directly about the 68 per cent fall in affordable housing starts. ‘We have heard the minister tell us that everything is fine and dandy, but nobody believes him. I cannot help wondering if he is modelling himself on Voltaire’s hopelessly optimistic Dr Pangloss or on one of George Orwell’s cynical apparatchiks, or is he just plain incompetent?’
It was a good point complete with not one but two literary references but Stunell’s response was workmanlike rather than inspired: ‘The hon. Gentleman left off the correct response, which is that unlike him, I am supervising the development of more social and affordable homes. It was the Government whom he supported who cut the number of social and affordable homes by more than a quarter of a million. If his Government had performed properly in their period of office, we would not be facing that housing crisis now.’
The non-appearance of Shapps seemed especially curious when the next question was about housing support for members of the armed forces and up popped the man himself with an answer about his new statutory guidance on allocations and a pledge that bereaved spouses as well as reservists and those who were actually serving would get priority in future.
That was followed by more questions about affordable housing starts and another stats battle but Shapps had handed back to Stunell and instead of Dromey we got his boss, shadow communities secretary Hilary Benn. Benn kicked off with a direct reference to Shapps: ‘I’m not surprised that the housing minister has chosen not to answer these questions, given that the House knows he has a bit of a problem when it comes to statistics.’ Could Stunell explain how Shapps had claimed a ‘huge decline in affordable housing starts’ was ‘impressive’ and ‘rapid and dramatic progress’?
Stunell said it was rapid and dramatic progress ‘if someone inherits a situation in which they are going backwards’. Plans were on track and the housing sector had ‘risen to the challenge to deliver’.
Benn hit back with a great line suggesting that he should ask Michael Gove about his answer. ‘I suggest that he seeks the help of the Education Secretary and offers to take one of the new mathematics O-levels. I have a question: “If 49,363 affordable houses were started last year and only 15,698 affordable houses were started this year, should Grant describe this as: a) ‘a massive increase’; or b) ‘a 68% decline’? Please show your detailed workings.” Does the Under-Secretary not understand that every time his right hon. Friend does that, it is not just affordable house building that declines, but his credibility? When is the Secretary of State going to get a grip?’
The principle of parliamentary questions is of course that nobody actually answers them and Stunell picked instead a quote from the referee, the UK Statistics Authority. ‘If I may I shall very briefly quote this: “Official estimates of net change are available for social rented dwellings, but not for the wider stock of ‘affordable’ housing beyond this category. They show an overall reduction of 421,000 in the stock of homes rented from local authorities and housing associations over the period 1997 to 2010.” That seems to me a horrific indictment of Opposition Front Benchers, and what Government Members are doing is repairing some of that damage.’
This was much better even if Benn and Stunell do not immediately strike you as natural pugilists. And, finally, in the last two rounds came the Dromey/Shapps clash we had been waiting for. Dromey went on the attack over housing for the under-25s with:
‘Under Labour, homelessness fell by 70%. Under this Government, 1 million people are out of work; house building is falling; homelessness is rising rapidly; and now there is the proposal to punish young people who leave home to find a job or get an apprenticeship by making them lose their housing benefit and therefore the roof over their head. The measure was described as “absurd” by the YMCA because it will drive up homelessness and close the facilities that support those people. The Minister for Housing and Local Government has said that homelessness is what brought him into politics. Is it not becoming increasingly clear that his legacy will be rapidly rising homelessness and should he not concentrate on not making a bad situation worse, but on building homes, creating jobs and driving down homelessness?’
And Shapps hit back with:
‘From the great passion with which the hon. Gentleman speaks, one would imagine that he had a long-term interest in this issue; in fact, he is the eighth Labour shadow housing Minister whom I have faced. During the time the Opposition have been in place, guess how many Opposition day debates there have been in the Chamber about this important subject? Zero, none—there has not been a single such Opposition day debate. That is because the hon. Gentleman has a very loose relationship with statistics himself. Homelessness is lower than it was in 28 of the last 30 years—and it is less than half the level it was in the 13 years of his Government.’
It was an all too brief taster of the grudge match we had been denied earlier but it’s still not clear why we got boxing by proxy instead. One clue perhaps came in a question about the response from the UK Statistics Authority (UKSA) to Dromey’s complaint. Shapps confirmed that, yes, the UKSA had replied. ‘The hon. Member for Birmingham, Erdington (Jack Dromey) pleaded in his letter for an answer on whether I was right to say that the reduction in affordable homes for rent under Labour was 45,000 or 200,000. I am pleased to say that the UKSA wrote back to both him and me and confirmed that the figures showed an overall reduction of 421,000 homes for social rent during Labour’s time in office—a disgrace, and in stark contrast to the 170,000 that we will be building over the next three years alone.’
In the letter [download here], UK Statistics chair Andrew Dilnot confirms that the stock of homes rose by two million between 1997 and 2010 but that there was ‘an overall reduction of 421,000 in the stock of homes rented from local authorities and housing associations over the period from 1997 to 2010’. Dilnot also confirms that Labour provided 557,000 gross additional affordable homes between 1997 and 2010 – more than the 270,000 from affordable rent and right to buy replacement claimed by Shapps between 2010 and 2015 but over different periods. (I have more on the comparison between Labour and the Conservatives on my other blog here.)
On the other points of the complaint, yes, Shapps had chosen to highlight something other than a 23 per cent rise in rough sleeping but ‘the Statistics Authority recognises that Ministers often want to present such published statistical information in ways that best serve their political objectives’. Yes, on the presentation by Shapps of the figures on housing starts ‘the reference period (2009 instead of 2010) has clearly been carefully chosen, but this is not unusual in the context of a political debate’. As to the cost of building your own home ‘as far as we can establish there are no official statistics on the costs of self-building’.
If all of that seems to err very much on the side of civil service caution, the letter also includes earlier correspondence with Labour’s Nick Raynsford in which Dilnot’s predecessor Sir Michael Scholar said that ‘this is a complex picture, and, as so often in the political debate, the statistics are subject to selective use which has given rise to suggestions that they have been referred to in a misleading way’ and that he would ‘continue to press for a clearer and more systematic public presentation of all the relevant statistic material’.
After that he wrote to the DCLG suggesting a formal assessment of the statistics produced by the HCA and former TSA and Shapps requested this in a letter in March [PDF here]. Dilnot confirms that ‘it is our working assumption that the assessment will be taken forward in September 2012’.
Has that extra bit of scrutiny from the referee taken a little of the heat out of the housing stats grudge match? Only time will tell on that one but nobody is betting against several more rounds yet.
It would be easy to criticise the ideas in David Cameron’s speech on welfare reform as half-baked and impractical. They are both but that is not the main point.
One paragraph is missing from the transcript of the speech he gave in Kent today. This is a reference by Cameron to the way that the last Labour government allegedly ran up ‘a huge income transfer industry that they ran from the Treasury pushing tax credits and benefits around in a bid to try hit the poverty targets they’d set up’. This is marked as ‘political content excised’.
It’s a label that might as well apply to the whole speech, given that it’s a vision of what the welfare system would look like under a Conservative, Liberal Democrat-free government. You don’t have to look very far today to find Lib Dem bloggers calling on Nick Clegg to condemn Cameron’s ideas in the strongest language imaginable’ and Lib Dem think-tanks calling them ‘daft’ and ‘unworkable’. For more on the speech and the reaction, see Inside Housing’s stories here and here.
What Cameron said should not have come as a great surprise to anyone. In April plans leaked of a Downing Street/DWP plan to cut housing benefit for the under-25s (see my blog here) as part of a plan to cut welfare by another £10 billion and in May the Telegraph reported plans for lower regional caps and a crackdown on part-time workers as elements of a programme to save £25 billion (here). That’s all in the context of the downgrading of legally-binding targets to eradicate child poverty (here).
However, while those reports were based on off-the-record briefings from advisors and sources, here is the prime minister and Conservative leader saying the same things in a speech that was not just on the record but widely trailed over the weekend.
The speech makes clear that working-age benefits are the main targets for cuts and is littered with comparisons between ‘hard-working families’ and feckless claimants. There’s the working couple taking home £24,000 and the claimant family with four children claiming £27,000 a year. Never mind that the working couple would receive thousands in child benefit and tax credits if they had children and might well get housing benefit too.
Then there’s the woman who’s just left college and forced to live at home contrasted with the 19-year-old who does not have a job but is sharing with friends and claiming housing benefit. No mention again that housing benefit is also an in-work benefit or that most under-25s have a shortfall between their benefit and their rent.
Then there are the commuters travelling long hours each day because they cannot afford to live in central London who are contrasted with high-earning council tenants paying sub-market rent. The government has of course already published plans to make tenants earning more than £60,000 pay to stay, but Cameron criticises ‘people on salaries of £40, 60, £80,000 paying sub-market rents and living in council houses’. Even so this has apparently ‘sent out some incredibly damaging signals. That it pays not to work. That you are owed something for nothing’.
All of which, says someone who moved effortlessly from Eton to Brasenose College, Oxford to the Conservative Research Department, has created a ‘culture of entitlement’.
The most widely trailed idea is to cut housing benefit for the under-25s, which is said to cost £2 billion a year for 210,000 people. Cameron contrasts that with the plight of three million people aged 20-34 who are forced to live at home because they cannot afford their own place. However, he uses a personal example to back this up that either reveals breathtaking ignorance of the benefits system or breathtaking cynicism:
‘Perversely, the benefits system encourages this process from one generation to the next.
‘If a family living on benefits wants their adult child to stay living at home they are actually penalised – as soon as that child does the right thing and goes out to work.
‘You get what’s called a non-dependent deduction, removing up to £74 off your housing benefit each week.
‘I had a heartrending letter from a lady in my constituency a few weeks ago who said that when her son leaves college next month, her housing benefit will drop significantly, meaning her family may have to split up.
This doesn’t seem right.’
Indeed – until you consider who is responsible for the heartrending letter. The man to blame for penalising the child that ‘does the right thing and goes out to work’ is of course his work and pensions secretary, Iain Duncan Smith, who has just increased the non-dependent deduction and will from next April leave thousands of social housing tenants with a choice between that and the bedroom tax.
Cameron does not spell out exactly how he would cut housing benefit for the under-25s, or mention that it is already restricted to the shared accommodation rate in the private sector or that it goes to people in work as well as out of work, or that eliminating it would amount to telling young people not to get on their bikes and look for work. Nicola Hughes of Shelter has five reasons why she thinks it won’t work here while Tim Leunig of Centre Forum has an intriguing argument that the real losers will be the middle aged here.
However, in addition to all that, there are hints of even more radical reform including:
- Uprating benefits in line with inflation or wages, whichever is lower
- Cutting benefit entitlement for long-term claimants (a less harsh version of Clinton-era welfare reforms in the US that saw caseloads fall by over 50 per cent but also saw the number of people with no safety net at all soar).
- Capping benefit entitlement by region.
- Reducing both the overall benefit cap and the bedroom caps for housing benefit. Cameron quotes the maximum housing benefit figure of £20,000 a year and compares it to being on a salary of £80,000.
- Cutting benefits for large families (‘isn’t it right that we ask whether those in the welfare system are faced with the same kinds of decisions that working people have to wrestle with when they have a child?’)
- Applying any cuts to existing as well as new claimants (‘for now, both stock and flow options should be there on the table’.
At one point he even seems to question the principle behind the universal credit:
‘The argument goes that if you give more welfare money to those who are higher up the income scale as well as those at the bottom then you iron out the perverse incentives that encouraged people not to work, not to save, not to do the right thing.
‘Indeed, that’s part of the thinking behind Universal Credit – it’s about helping more people to escape the poverty trap and get on in life.
‘But anyone thinking we can just keep endlessly pumping money in is wrong.’
The point of course is that without tackling the underlying problems of low wages and high housing costs any policy designed to ‘make work pay’ is doomed to lurch from soaring costs to swingeing cuts.
Cameron says he is not making policy prescriptions, just starting a debate, but he is also setting an agenda. This is about a political calculation of the gains that can be made from pitching pensioners against young people, home owners against tenants, commuter towns against the inner cities and ‘hard-working families’ against benefit claimants. And playing to the Conservative backbenches.
A radical new report out today challenges almost 40 years of orthodoxy about how we subsidise housing - and much more besides.
The think-tank Institute for Public Policy Research (IPPR) says it’s time to reverse the shift from bricks and mortar to personal subsidies that began in the 1970s and get back to building homes rather than subsidising rents.
It’s far from the only big idea in the report, which is part of the IPPR’s fundamental review of housing policy, but it is the most eye-catching. In the current spending review period we are spending £94 billon on housing benefit but only £4.5 billion on building new affordable homes. Is there a better way?
The report argues that after 30 years of ‘pessimism and division’ the housing system is no longer fit for purpose and is getting worse rather than better. Home ownership is out of reach for too many, social housing is being residualised and private renting is unprofessional and insecure.
So far, so uncontroversial but if one measure of being radical is how many vested interests you manage to upset then this report is most definitely radical. If you are a housebuilder, a landowner, a National Trust member or a social housing traditionalist prepare for a few shocks. If you are anyone else prepare to be challenged.
The proposals come under three main headings:
Spreading opportunities for sustainable home ownership
The report argues that the housing system should go with the grain of people’s aspirations. It puts a ‘social case’ for increasing home ownership and argues that any attempts to restrict it ‘would effectively encourage the segregation of our society into those for whom home ownership is deemed appropriate and those for whom it is not’.
However, that’s put in a context of identifying new sources of finance for housing as a whole by creating a national investment bank, encouraging local authority pension funds to invest in housing, imposing new taxes on overseas buyers of homes worth over £2 million and using the proceeds to boost housing investment and changing the borrowing rules for councils.
The report says output of new homes should be boosted by shaking up the development industry and a planning system that gives people ‘in need of new housing effectively no say in the process’. The government should allow failing developers to go to the wall and take over their land banks and insist on rapid build-out and lower profit margins on schemes on public land.
Development should be allowed on low-grade green belt land and landowners would face a land value tax on all undeveloped developable land worth more than £2 million.
At the same time a ‘parallel strategic planning system’ would help deliver a new wave of new towns with land compulsorily purchased at a low multiple of its agricultural value.
Among a range of other proposals on home ownership, the report also endorses the extension of the right to buy to all housing association homes – an idea put forward by David Davis and Frank Field in a paper for the IPPR earlier this year.
Ensuring a better, more balanced deal for those who rent
The aim here is decent and affordable housing for everyone, regardless of tenure. The report argues that private tenants need greater control and increased security but that a combination of a sharp drop in supply and needs-based allocations ‘has led to social housing becoming a force for segregation in our society’.
Recommendations on this include:
- creating a new five-year tenancy for private renting families with children with a five-month notice period
- encouraging new ‘something for something’ deals between private landlords and local government with mandatory licensing schemes and rent stabilisation boards for the mid-market
- giving social landlords more control over allocations to give access to social housing to more people while making greater use of private renting to meet housing needs
- making fixed-term tenancies the norm in social housing with the opportunity to pay higher rent or purchase the property for tenants whose circumstances improve.
Shifting from subsidising rents to building homes
The report argues that localism needs to go much further than the coalition managed in the Localism Act and that public spending needs to be rebalanced from subsidising rents to building homes.
The key proposal here is to give local authorities control of a single ‘affordable housing grant’ combining housing benefit and capital investment. This would obviously involve major changes to the universal credit, with housing costs devolved in total or in part to local level, although the report points out the government is already doing this with council tax benefit.
The grant would last three years and be based on a combination of local population, housing costs and relative deprivation and local authorities would have a statutory duty to improve access to decent, secure and affordable housing on their area. They might start by agreeing deals with private landlords to prevent excessive rent rises to begin the process of shifting resources from benefits to building but would also be able to leverage their enhanced resources with wider borrowing powers.
That’s just a flavour of what has to be one of the most far-reaching reports on housing published in recent years. Much of it is controversial. Is there an over-emphasis on home ownership? Does reducing the segregation between private and social renting have to mean accepting most of the coalition’s social housing reforms or should there be more intervention in private renting? Will a move to greater localism really deliver or will it reduce still further the national safety net for the most vulnerable? Is the big idea about housing benefit really deliverable given the fiendish complexities the report acknowledges?
However, it’s also a rare attempt to look at the housing system as a whole and the way that it relates to the rest of society. While it would be easy to criticise some of the proposals in isolation this is about the system as a whole and the politics of how to change it. It’s impossible to argue with the conclusion that: ‘If, as a country, we are to solve the worsening housing crisis we face, we will have to engage a much wider coalition of support for the change that is needed. Housing must be seen as a matter of broad public concern, not just private interest. We need everyone who is interested in the health of English society to be interested in housing. And we need a candid public conversation about all of its dimensions.’
Everywhere I’ve been in Manchester this week it’s hard to avoid falling into the gap between good intentions and cold reality.
It’s there in the underlying theme of the CIH conference (a decade of sector-led solutions) and attempts to find ways forward under continuing austerity as outside the conference chamber the underlying problems just keep getting worse.
It was there in the differing reactions to the affordable housing figures published as the conference opened. As I forecast yesterday, for Grant Shapps they showed a ‘rapid and dramatic increase’ while for Jack Dromey they were ‘disastrous’. In a sense they were both right: they were an improvement on the numbers six months ago but only because they were so catastrophic. Listen again to this morning’s Today programme for more (at about 8.10).
It was there in the call from Louise Casey for the housing sector to take a lead in the troubled families programme even as she dismissed objections to its dubious origins (more detail on that on my other blog here).
As if all that were not enough, Peter Schofield, the new director-general of the DCLG, was on hand to make it clear that the reality gap is going to be here for some time to come. He candidly admitted that housing had barely been considered in last year’s plan for growth, when he was at the Treasury. Now at least it is on the agenda, but he warned that the next spending review would see even less money and that the sector had to ask itself some hard questions.
His hope, with a bit of help from institutional investors, is that the 2010s could come to be seen as a decade of housebuilding in the same way as the 1930s and 1950s. However, given that we are already 25 per cent into the decade and building is still stuck at the lowest level since the war, the reality gap on this is starting to turn into a chasm.
None of which is to argue against the need for sector-led solutions. After two years of relentless cuts and new legislation, there is now some precious time to think, try to get ahead of the curve and map out how the future might look. The government at least looks open to new ideas (provided they don’t involve spending any money and provided they fit within its political framework). Local authorities and housing associations do at least have more freedom to work with (even though they need more). Institutional investors may at last be taking housing seriously again (though I wish I had £10 for every time I have written that).
However, that still leaves the reality gap. All of this would be daunting enough in a stable environment but all the evidence suggests that the underlying housing crisis is getting worse all the time.
A report out today from the Joseph Rowntree Foundation on the housing crisis facing young people that makes the point only too clearly.
A team from Cardiff University forecasts that the number of home owners aged under 30 will halve to just 1.3 million by 2020. An extra 1.8 million 18 to 30-year olds will be forced into private renting and another 500,000 will have to stay with their parents well into their 30s.
All of which is bad enough, and further confirmation of the depressing situation facing Generation Rent (also revealed in a study by the National Centre for Social Research yesterday).
The really bad news though lies in the knock-on effects of that. Private renting will be taking all of the pressure from declining home ownership and austerity-bound social housing. The influx of young people will mean even fiercer competition for a limited number of tenancies and the report warns of a three-tier market developing between young professionals who can afford the rent at the top, young families struggling to afford it in the middle and a bottom run of 400,000 people who could be excluded completely. As Kathleen Kelly of the JRF points out, ‘we need to avoid turning a housing crisis into a homelessness disaster’.
Sector-led solutions can lead to innovation on the ground and slow the pace at which things get worse. Making things better requires government-led solutions too.
As if on cue Lord Freud is in Manchester today and Grant Shapps tomorrow. Time to enter their reality distortion fields.