All posts from: January 2009
Somewhere in a dusty corridor in Whitehall sits a grey-faced civil servant whose job is to seek out heresy and ensure that dangerous ideas do not take hold.
The existence of some sort of inquisitor general, probably in the Treasury, is the only reason I can think of as to why advocates of two of the most blindingly obvious policies in housing repeatedly bash their heads against a brick wall.
Policy one is allowing local authorities to build homes. Housing starts are plummeting, housing associations are struggling with business plans reliant on cross-subsidy from home ownership, waiting lists are rising. So let councils borrow against their existing stock and make a contribution too.
Policy two is reducing the rate of VAT on refurbishment and renovations. As Inside Housing’s new campaign argues today, it could help bring thousands of empty homes back into use. But it would also create jobs in the building sector, help combat the black economy and give homeowners an incentive to tackle the biggest contributor to carbon emissions - their existing homes.
For as long as I can remember, those two ideas have made it as far as the dusty office in Whitehall and come back marked rejected. Naturally, the government would love to help, but the local authority finance system (council houses) and European law (VAT) mean our hands are tied.
Both arguments are of course nonsense. There are any number of ways to reform local authority finance and the public sector borrowing rules that suit other European countries perfectly well and if cutting VAT is so difficult for the UK, why did our government allow the Isle of Man to do precisely that?
On council housing the message is, finally, getting through. Tentative moves by Margaret Beckett were backed in a speech by Gordon Brown [download word doc here] to the Local Government Network yesterday.
‘In the past we have placed restrictions on local authorities delivering social housing,’ he admitted. ‘Of course investment in social housing must be aligned with reform so that for example social housing providers working with local authorities and Jobcentre Plus address the high levels of worklessness that can be concentrated in parts of this sector.’
‘But,’ he went on, ‘let me today be clear, if local authorities can convince us that they can deliver quickly and cost effectively more of the housing that Britain needs, and if local authorities can build social housing in sustainable communities that meets the aspirations of the British people for the 21st century, then we will be prepared to give you our full backing and put aside any of the barriers that stand in the way of this happening. We will not allow old arguments and old ideologies to stop us getting on with the job together when there are families who need homes, when there are bricklayers, carpenters and electricians ready and willing to work, when there are construction companies that are ready to build houses.’
Given the experience of the last 25 years, campaigners are unsurprisingly cautious about the details. Will the government really change the rules so that, crucially, local authorities can borrow against their existing stock as well as new homes? Do they have the skills and the capacity to deliver? Will the government’s apparent obsession with security of tenure get in the way?
However, with the review of the housing revenue account, the speech marks the most hopeful sign that things may at last be about to change. In that spirit, why not change the rules to allow local authorities to start offering competitive mortgages again too - or even to guarantee loans for local residents?
And if the government can tolerate heresy in one area, why not elsewhere too? If it will not allow old arguments to get in the way of producing homes for families who need them, then cut VAT on repairs and maintenance now. Backed by grants to social landlords to buy and repair empty homes and better guidance to local authorities to use their powers, it could help bring thousands of empty homes back into use.
It may have taken the prospect of the worst recession to the 1930s to do it, but that civil servant could finally be out of a job.
Can the Tenant Services Authority really be a ‘champion for tenants’ at the same time as it has ‘an unapologetic focus on financial viability during these difficult economic times’?
The new regulator’s pink camper van is continuing its tour round England as part of a ‘national conversation’ ahead of drawing up a new corporate plan.
Source: Anna Branthwaite
An interim plan published this week sets out its twin-track approach in the meantime. ‘In being a champion for tenants and people in housing need, providers of affordable housing services need to meet or exceed the highest standards of organisational effectiveness and service delivery – and the current heightened risk to financial viability means there is no cause for complacency,’ said chief executive Peter Marsh.
But will it be any different from the Corpie? Will it really give a new voice to tenants of housing associations and, later on, almos and local authorities? Or will it be the same paternalistic hand on the tiller?
An early test of that came today. What would it have to say about the fact that tenants are facing a 5.5% rent increase in April at a time when inflation could be zero?
As with local authorities, the guideline rent increase figure is the result of using last September’s 5% figure for retail price inflation (RPI). The formula for associations is RPI plus 0.5%. However, inflation has since fallen to just 0.9% and could be close to zero by the time the increase comes into effect.
All of which poses quite a dilemma for the TSA. A tenants’ champion should surely be railing against an iniquitous increase that will hit people hard in the pocket just at a time they can least afford it. But those same rent increases will also improve the financial viability of the organisations it regulates. Exactly the same dilemma is being faced by local authorities, except that they arguably have less room for manoeuvre.
The TSA response today looks like a classic piece of fence-sitting. Associations are reminded ‘that they are not obliged to apply the full 5.5% guideline limit for rent increases’. And a statement noticeably free of references to tenants or their interests goes on: ‘Some registered providers will opt to increase rents by less than the guideline limit in 2009-10. However, for others this will not be a viable option having already suffered the higher inflationary levels through the impact on their cost bases.’
All that is perfectly understandable. At a time when it is busy lining up cab ranks and rescue deals, you can hardly expect the regulator to advocate rent levels that might damage associations’ finances. But it sounds very much like the sort of response you would expect from the grey old Corpie - not the new, hot-pink TSA.
Make the most of the next two years. Public investment is set to face the mother of all squeezes in the next spending review and capital-intensive programmes like housing will suffer the most.
Those are the grim conclusions today from the Institute for Fiscal Studies. Its Green Budget 2009 says that the government was already projecting slower growth in public spending than in any of its previous spending and slower than under the Conservatives between 1979 and 1997.
But it says the squeeze on Whitehall departments could be even more severe than that because of the effects of the credit crunch and recession on social security and tax credit costs and debt interest payments. ‘Total departmental spending will have to be frozen in real terms over the next three years,’ it says.
That would leave most departments facing real cuts, with only high priority areas like health and education being allocated any real growth. ‘Capital-intensive departments, such as transport and housing, are likely to suffer more than most due to the planned cash freeze on investment spending.’
The squeeze would start in 2010/11, according to the IFS, with last year’s pre-Budget report pencilling in lower than previously announced spending. But it would really set in during the next spending review period between 2011/12 and 2013/14.
To put that into perspective, a 1.1% annual growth in public spending would be about the same as that seen in Labour’s first two years between 1997 and 1999, when it stuck to Conservative spending plans with deep cuts in housing. The Tories oversaw annual growth of 1.5% between 1979 and 1997.
The biggest impact would be on capital investment, with public sector net investment set to fall by an annual 2.4% during the next spending review.
So the clock is ticking fast. With one year until the cuts starts and two until the squeeze sets in, there should be real urgency in all of the efforts to free up local authority investment and get the regime for housing associations right. Surely if there was ever a time to reform the public sector borrowing restrictions on local authorities, this is it.
How much do the banks think house prices will fall? A big clue comes in mortgage approval figures from the British Bankers Association.
Although approvals were up slightly in December, the figures show that the banks approved less than half the loans for house purchase in 2008 that they made in 2007. They also reveal that the average value of a loan fell by 25.5% over the year, from £155,900 in December 2007 to £116,100 last month.
The huge fall reflects both the fall in house prices and the fall the percentage advances that banks are prepared to make alongside the withdrawal of the majority of loans offering more than 90% loan to value.
It’s surely not a coincidence that 25% was also the commonest forecast for the peak to trough fall in prices made in interviews last year by senior banking executives. Most of the fall in the average advances (24%) has happened in the last six months, indicating a dramatic fall in confidence since the summer and suggesting that an even lower figure should be pencilled in.
While lenders and potential buyers think house prices will fall, they will. The banks may be erring on the side of that caution but the caution itself is driving prices down and they seem unlikely to rise until the sums being approved for mortgages increase.
Another factor is sheer lack of competition. According to the BBA, gross mortgage lending by the main high street banks fell 23% in 2008 but lending by the rest of the mortgage market was less than half 2007 levels.
The December loans for house purchase total actually shows an increase on November but the BBA said this was more likely to reflect activity delayed from November (by the financial sector turmoil and interest rate cuts) than any real improvement.
Although the rate of decline in approvals seems to be slowing, the seasonally adjusted September total was half the level seen in 2007, a third of the total seen in 2005 and 2006 and a quarter of that seen in 2001 and 2003.
The slump in housing starts by the private house builders is accelerating so fast that they will soon be overtaken by housing associations.
Figures published by the National House-Building Council show that it received just 106,894 applications to start new homes in 2008, a drop of 47 per cent on 2007 and the lowest it has ever recorded. Within that though, private sector starts fell 56 per cent to 63,535 while housing association starts fell just 6 per cent to 34,780.
No regional split between the sector is available but in terms of total starts the north east (down 67 per cent) saw the biggest slump last year and London (20 per cent) the smallest fall.
But the slump got much, much worse in the final quarter - in the north east only 187 homes were started by anyone, a fall of 90 per cent on last year. In the UK as a whole, private sector starts fell 76 per cent from 36,241 to just 8,646 while housing associations starts fell 5 per cent from 7,601 to 7,233.
In December, housing associations started only 263 fewer homes than the private sector. If starts continue to fall at the same rate, associations will overtake private builders this month.
Can things get any worse? Yes, says the American experience. Even though the housing slump started earlier there, housing starts have just fallen to another record low.
Yes, say the forecasters here. If they are correct, 2009 will see more repossessions (75,000, according to the Council of Mortgage Lenders) than new homes built (70,000, according to the Construction Products Association).
If the white working class are losing out, who is gaining at their expense?
The Runnymede Trust, a charity that exists to promote a multi-ethnic Britain, steps into the contentious debate about social housing allocations and immigration with a new report today that seeks to put class rather than race at the heart of it.
The report looks at what’s happened in a whole range of areas of life, including education, youth culture and personal identity as well as housing. As the introduction puts it: ‘The white working classes are discriminated against on a range of different fronts, including their accent, their style, the food they eat, the clothes they wear, the social spaces they frequent, the postcode of their homes, possibly even their names. But they are not discriminated against because they are white.’
Steve Garner of Aston University conducted a series of interviews on estates around Britain and found a widespread belief that recent immigrants were getting a better deal and resentment against the authorities perceived to be allowing it - and even cases of white tenants voting against regeneration schemes for fear that they will lose out once the money goes in. He concludes: ‘Housing is not the be-all and end-all of why so many white working-class British people feel abandoned, but it occupies a special place in the emotional chain of attachments to the State and to other people, standing where “community” meets “society’.’
The clear danger is ceding ground to the BNP, he says, but that only becomes possible because we have allowed a shortage of social housing to develop and unaffordable house prices since the 1980s.
But the chapter that should probably be required reading for anyone working in housing or local politics comes from Danny Dorling of Sheffield University, who sets himself a series of provocative questions to answer about everything from white flight to speaking English to Polish workers to multiculturalism.
Without immigration many homes in the north would have been demolished, he points out. We do not have enough social housing to meet people’s needs - but we do have enough housing in general. Why not expand the stock during the downturn by giving people a ‘right to sell’ and expanding mortgage rescue - and couple that with help for people with multiple homes to give up some of their spare ones and single people in large homes to downsize?
The problem is that people are looking in the wrong place and blaming the wrong people for the shortage, he argues. ‘Thinking that your neighbours are your problem is a distraction from looking out at who really has what you don’t have.’ Look at the second home owners, the international super-rich with homes in London, the conversion of sub-divided houses back to their original size.
‘There is enough housing in Britain for everyone to be housed. There are at least twice as many bedrooms in homes in Britain as there are people to sleep in those bedrooms. The same can be said of school books, of medicines, of jobs, of money.’
He argues that our inability to share breeds mistrust and fear - of the poor by the rich and of immigrants by the poor. ‘We live mostly in fear of monsters we have created in our dreams, but those monsters then become very real. It is our ignorance and stupidity, and our ability to be taken for a ride by those who already have most, which we should be most frightened of.’
Bit by bit, regulation by regulation, council housing is being freed from the shackles that have dragged it down over the last 30 years.
The latest change proposed by Communities and Local Government is to allow local authorities to ‘keep all the rental income from any homes they build, as well as keep the receipts from any of those homes which are later sold through right to buy’.
It’s not exactly the rebirth of council housing that seemed to be on offer from John Prescott when Labour first took power in 1997 but it’s a start. Especially when combined with other changes like prudential borrowing, allowing local authorities to bid for social housing grant and a new funding body that does not also exist to regulate housing associations.
After a long struggle for the fourth option, the tide seems to have turned in favour of supporters of council housing - as Alan Walter of Defend Council Housing argues today.
It’s not just that they’ve won the argument within the Labour party, embarrassed the leadership into abandoning its attempts to block change and broadened their support within housing and local government. It’s also that the lending crisis means the private sector and housing association alternatives no longer seem so obvious.
In an environment like that, perhaps the time has come to think even more radically about the local authority role in housing - it should not just be about defending the council housing that’s left but using all the resources and borrowing freedoms they can to improve housing for their communities.
Many fundamental decisions - such as stopping the ‘daylight robbery’ of tenants’ rents and what to do about historic debt - are still to be made by the CLG/Treasury review of council housing finance. Is it too much to hope that in an era when banks can be nationalised and the national debt soar by billions without anyone thinking it unusual, the government might at free council housing borrowing from public debt restrictions?
In the meantime, the economic crisis is getting worse, house building is slumping and unrest is growing over the 6 per cent increase in rents faced by council tenants from April (based on 5 per cent inflation in September that fell to less than 1 per cent in December). More questions were asked on that in Parliament yesterday.
But in the meantime the clock is ticking. Time is running out before the next election. A new government may need convincing all over again. And whoever wins will put the squeeze on public spending.
Just one of the many startling aspects of the latest bail-out package to boost lending is just how few lenders there really are.
Go back to before the credit crunch and the top UK 10 mortgage lenders were the Halifax, the Nationwide, Northern Rock, the Woolwich, Bradford & Bingley, Abbey, HSBC, Royal Bank of Scotland, Lloyds TSB and Alliance and Leicester.
Together they had the bulk of the market and the top five of them accounted for 75 per cent of it. The number of lenders had already shrunk dramatically over the previous ten years - Halifax had merged with Bank of Scotland, Woolwich was owned by Barclays and Abbey by Santander - but look at the list now.
Halifax Bank of Scotland has merged with Lloyds TSB, Northern Rock has gone bust and been nationalised, Bradford & Bingley has been split between Santander and a nationalised rump, RBS has all but been nationalised and Alliance and Leicester has been swallowed up by Santander.
Which leaves the package to rescue lending being discussed almost entirely in terms of just six institutions: RBS, Barclays, Lloyds Banking Group, HSBC and Santander.
Yesterday’s package seemed to have everything but the kitchen sink in it - asset protection insurance, Crosby-style guarantees for mortgage-backed securities, more help for RBS.
It remains to be seen how much it will help given that, as Alistair Darling told the Commons yesterday, over the last ten years 45 per cent of mortgage lending came from foreign banks (presumably Santander plus foreign banks lending to ours) and non-bank institutions. With the economy and the pound slumping, which foreign banks will be keen now?
However, one of the most eye-catching features for me was the decision to encourage Northern Rock to lend again - and to consider how it can support loans to creditworthy mortgage customers without a big deposit.
When the Rock was first nationalised it was told to run down its mortgage book by raising its rates and showing the door to any borrower who came to the end of a fixed rate deal.
The idea at the time was to avoid unfair competition with other lenders but for months it’s been clear that there is too little competition rather than too much. Britain’s mortgage borrowers (and housing associations) are in the grip of a small group of banks who can charge pretty much what they want for the limited number of loans available.
So encouraging Northern Rock is definitely good news. In the short term the government can play a big part in boosting lending through the nationalised banks. But in the longer term perhaps we could learn something from the only one of that top 10 list whose shares have not nose-dived.
What we need in the current situation is a series of institutions like the Nationwide dedicated to providing decent savings products and then using the proceeds to lend to people who want to buy homes without any of the greed of the high street banks.
Perhaps we could call them building societies?
Margaret Beckett seems to have well and truly dropped herself in it with her claim that there are signs of an ‘upturn’ in the property market over the weekend.
If they were reported correctly in The Sunday Times they show an astonishing failure to grasp what’s really happening and one that goes much deeper than just the latest so-called gaffe about ‘green shoots’ of recovery.
First, there’s her apparent warning to first-time buyers not to delay in the hope of further price falls because ‘when the upturn comes, there will probably be a mad rush’.
Coming a day before the respected Ernst & Young ITEM Club forecast a 16 per cent fall in house prices in 2009 and another 6 per cent in 2010, the message seems irresponsible in the extreme. ‘Although bargain hunters are active, there seems very little reason to buy until house prices stop falling,’ says the forecast. ‘The ITEM Club does not see that happening until the end of 2010, by which time prices will have fallen back by a third from the peak in the autumn of 2007.’
Second, her warning about another house price boom to follow this bust seems sensible enough. So much, so obvious, but it would be good to think that someone at the heart of government was actually working on a plan to stop it rather than seeming to accept it as some sort of natural phenomenon.
Third, there’s her message that the construction industry was left to founder in previous recessions and the government cannot risk that happening again. This at a time when the industry is being devastated on a scale not seen since the early 1980s and things are forecast to get much, much worse.
She admits to being ‘peeved’ that her department is not getting more credit for its measures to buy up unsold housing stock. ‘The message of how much we are trying to do across a range of fronts seems to me to be getting lost. We’ve just bought up 4,800 properties and another tranche of stock for a scheme for first-time buyers.’
True, the government is doing some good things, but the recession is already happening. According to last week’s forecasts from the Construction Products Association put that in true perspective: housing starts will fall from 181,000 in 2007 to 103,000 in 2008 to 70,000 in 2009 before a slight recovery to 85,000 in 2010 and 104,000 in 2011.
Beckett’s comments suggest that the government still does not get how bad things are - let alone how bad they will get. Bringing forward £200m of funding here, £200m there and introducing some new initiatives all make it sound like it is doing something - but not of a scale to make much difference.
Fourth, there’s the government’s whole attitude to high house prices. Are they a good or a bad thing? Shouldn’t we forget our obsession with home ownership and adopt a German-style attitude to renting?
‘You could turn the question on its head,’ she says. ‘Why is it that people in places like France or Germany or the Netherlands, or wherever, don’t want to, don’t care, about owning their own homes? Maybe it’s they who are the people whose attitudes are a bit surprising.’
She may just be reflecting the British attitude that renting is ‘money down the drain’, she may be looking to raise standards in the private rented sector, but that suggests that we are as far away as ever from an end to our housing market insanity.
If rent rises of 6 per cent feel outrageous now, what will they feel like when inflation falls to zero or even less and unemployment rises to 3 million?
The economy is slowing down so fast that respected forecasters predict the inflation rate could turn negative by the summer. By April, when an average 6.2 per cent rent rise is due to be imposed in England, it seems certain that the rate will be much lower than the current 3 per cent.
For tenants still in work, the consequences of the recession are likely to be no pay rises, no over-time and reduced hours. That will mean ever-greater reliance on credit cards, doorstep lenders and other extortionate forms of credit to pay the rent. Local authorities could be forced to choose between tolerating big increases in rent arrears or taking possession action.
But many more tenants will be out of work too, meaning a soaring housing benefit bill. And how many will want to take the risk of taking a new job and risking their home as the recession gathers pace?
As things stand, rents have to go up by 6.2 per cent this year and 6.1 per cent next because last September’s inflation rate was 5.1 per cent.
Concern about that high inflation was the reason why the Bank of England kept interest rates too high for too long in spite of mounting concern about a downturn. The bank realised it had got it wrong and changed its mind. The Communities and Local Government department should too.
Barratt makes a brave attempt at some good news for the battered house building sector today.
But it’s yet another measure of how dire things are that the things it has to boast about to the City in its trading statement are bad news for housing as a whole.
As with its rivals, the key priority has been to generate cash to repay its huge debts. It has managed to reduce its net debt by £230m over the last six months but the total was still £1.42bn at the end of December - the legacy of its total misreading of the market in 2007.
The ‘good news’ was that sales rates and completions were ‘ahead of expectations’. Completions were down 24% on the same period last year and visitors per site down just 2%. Not that the City seemed too impressed by that or news that the company’s group finance director is leaving in June or the likelihood of more write-downs on land values: Barratt’s shares were down another 5% at one stage after losing more than 90% of their value over the last 18 months.
The bad news for the company is what it has had to do to generate that cash: the decline in its selling prices appears to be accelerating. It admitted to a ‘significant increase in price discounting in the last quarter as the industry moved to reduce selling prices’. In the six months to the end of December, average selling prices were down 10%, but private sector prices were down 15%. It is also not clear how much the mix of homes sold changed - if Barratt sold more larger properties, or more in the South East, that would make the fall seem less steep - or what the level of sales incentives was.
The company says the outlook is that: ‘Market conditions remain challenging, impacted by a combination of poor buyer confidence and restricted access to mortgage finance. Until these issues ease we remain of the view that there will be no sustained recovery in the housing market.’
The bad news for housing as a whole is not so much the fall in total completions (only to be expected) but a 52% slump in social housing completions to just 908 in the first half (compared to 1,879 in 2007). An illustration if any were needed of the dangers of relying on section 106 for output.
That mix of private and social completions should change next year thanks to Barratt’s participation in HomeBuy Direct. The company has been allocated funding for 3,000 homes on 138 developments with an approximate sales value of £520m.
Which sounds like good news if you are a first-time buyer who cannot get a mortgage and pretty good news for the company itself - that 3,000 homes in the pipeline compares to total completions in the six months to December of just under 7,000.
But it won’t sound like quite such good news to anyone trying to sell a house in the same areas as the developments covered by the scheme. Or to anyone waiting for social rented housing watching the affordable housing budget being spread even thinner.
What’s housing got to do with social mobility? Not much, according to the new opportunities white paper.
Housing gets just nine mentions in 108 pages and one new policy - a £15 million new communities fund to support the work of the Homes and Communities Agency and 10 local authority pilot programmes.
Contrast that with yesterday’s report of the Social Mobility Commission (sponsored by the Lib Dems). Housing gets 54 mentions in 85 pages and is recognised as one of six key drivers.
‘Being in social housing as a child increases the risk of multiple disadvantage in adulthood and being in social housing as a young adult increases the risk of multiple disadvantage later,’ it argues.
‘This association holds in relation to health, education, self-efficacy as well as economic disadvantage. Such an association is not inevitable: longitudinal analysis shows that the disadvantages of growing up in social housing have increased with the growth of owner occupation, suggesting that it is not social housing per se which is disadvantageous but its relative status in the housing market.’
The commission calls for a new target to end overcrowding in rented accommodation by 2020 and steps to make housing more affordable including giving greater priority to more social rented accommodation.
And yet the white paper also contains something that could make a huge difference to all public authorities dealing with housing (and maybe even housing associations too if they fail to preserve their public but not public, private but not private status).
‘We will consider legislating to make clear that tackling socio-economic disadvantage and narrowing gaps in outcomes for people from different backgrounds is a core function of key public services,’ it says. In the Guardian Polly Toynbee calls it ‘Labour’s biggest idea in 11 years’ while the Standard reports that one Cabinet minister describes it as ‘socialism in one clause’.
It remains to be seen whether such a duty will ever be implemented as part of the Equalities Bill but what if it was?
Take the right to buy. Does it enhance social mobility - it has enabled millions of tenants to buy their homes - or stall it by reducing the stock of affordable rented homes?
Or schools admissions policies. Surely they widen gaps in outcomes by allowing parents to buy homes in the catchment areas of the best schools? The Social Mobility Commission advocates admissions ballots to reduce segregation (a recommendation immediately rejected by the Lib Dems).
Or the whole debate about secure tenancies. Would abandoning them for new tenants promote mobility for some by making them more independent and aspirational or reduce mobility for others by removing a secure base to look for work.
Or Treasury policies that have increased the threshold for inheritance tax and reinforced the fact that the only first-time buyers able to access the housing market are those with help from their families.
And what about policy as a whole? Despite the recent fall in house prices, the gap between home owners and social tenants has grown exponentially over the last 11 years. None of the laudable things that the government has done on decent homes, sure start or community regeneration can disguise that.
More radical New Labour thinkers like Alan Milburn (newly returned to the government fold as an adviser on social mobility) once believed that the answer was to extend the right to buy and promote yet more home ownership. ‘We are just scratching the surface,’ he said in a 2003 lecture. ‘You only have to look across the Atlantic to see what could be done. US government-sponsored enterprise companies have helped 58 million low- and moderate-income families buy their own homes.’
Five years and millions of sub-prime foreclosures later that agenda seems dead in the water. What will take its place?
If you thought 2008 was bad, just wait for 2009 and 2010, according to gloom-ridden new construction industry forecasts this morning.
The Construction Products Association says housing starts will fall to just 70,000 in 2009 - the lowest peacetime level since 1924 - and 85,000 the following year.
Rising investment in social housing will offset some of the calamitous slump in private housing output – 20 per cent in 2008, 34 per cent in 2009 and 5 per cent in 2010 - but falling section 106 output means the number of new social homes will peak at just 36,000 rather than the government’s 45,000 target.
The association’s annual forecasts are highly respected in the construction sector and envisage that total industry output will fall by 8.5 per cent in 2009, the biggest decline since the early 1980s. Private housing repair and maintenance work will slump by 15 per cent in 2009.
The pain will be felt across the sector but especially by house builders. Little wonder that their trading updates are revealing desperate measures like working a four-day week, halving staff numbers and slashing completions.
But it’s not just the next two years or the business prospects for house builders that should be setting the alarm bells ringing. The association says housing starts will only recover to 2008 levels in 2011 and will still be 20 per cent below 2007 levels in 2013. In total, the six years between 2008 and 2013 will leave the government more than 600,000 homes short of its long-term target. And provision of affordable homes will rise steadily to 2010 but peak well short of the government’s ambitions.
And all of that is despite everything the Bank of England and government have done to try to revive the housing market. The association says ‘recovery is only likely in 2010 if the credit situation improves and the economy begins to recover’.
Failing that, and with house building capacity devastated by the recession, the stage will be set for a whole new set of housing supply shortages, booming prices - and an inevitable bust to follow. Why isn’t the government under much more pressure to invest some of the billions of pounds it has committed to VAT cuts and propping up the banks - with more to come soon - in building more homes to avoid that?
Just as we had grown used to the idea of a rank of taxis waiting to rescue struggling housing associations, it emerges that some of the drivers will offer you cash back as well as a lift to your destination.
Who would have imagined a year, six months, even a month ago that, as Inside Housing reports today, housing associations would be lending each other millions of pounds and considering the merits of lender option borrower options (LOBOs) and Bermudan cancellable swaps?
It’s yet another measure of the scale and pace of the financial crisis that terms that were once known only to a small group of finance directors and consultants are now creeping into common parlance in the housing world.
As Malcolm Levi argues today, the ‘golden age’ is well and truly over. It’s been replaced by an age of uncertainty in which the situation is changing so rapidly that it defies any attempt to predict what will happen next.
The only real comparison I can think of is the early stages of the credit crunch, when it emerged that devices that most people had never heard of - collateralised debt obligations and mortgage-backed securities - had brought the financial system to its knees.
The housing sector is not there yet, but when the regulator admits to a watch list of six associations, a leading house builder says he knows of 22 that are in ‘dire straits’, and an anonymous housing expert tells the Financial Times that the state will have to ‘consider recapitalising the biggest, weakest RSLs’ there is no room for complacency.
Meanwhile, the immediate cause of the problems - the collapse of the housing market and its effect on low-cost home ownership sales - continues to get worse. According to today’s Herald, there are problems even in the relatively robust Scottish market, with 20 per cent of the 1,324 homes built for shared equity since 2005 lying empty.
The underlying cause - the credit crunch - shows no signs of improvement. And the cure prescribed - dramatically lower interest rates - has led to a whole new set of problems for associations.
In that environment, only time will tell the real risks posed by the emergency loans plan (which in many ways is an admirable example of solidarity in the sector) or those LOBOs.
On the one hand, LOBOs appear to have been a perfectly acceptable alternative to loans from the public works loan board for local authorities and police and fire authorities since at least 2002. If they are the only lending on offer, then needs must. From a local authority perspective, the advantages are attractive rates and the option to repay the loan if the lender increases them and the disadvantages are lack of certainty, inability to repay the loan if the rate is not changed and high minimum principal sums.
On the other, as Traderisks points out in Inside Housing, LOBOs do not provide transparency and ‘housing associations are replacing safe 30-year facilities with new facilities that could end in five years time, thus creating a significant refinancing risk in this very uncertain future’.
Little wonder that the Tenant Services Authority will be spending more on regulation than the Housing Corporation. What ever happened to the old certainty that recessions are good for social housing?
After today’s 0.5 per cent cut in interest rates prepare for a new round of advice that now is the time to buy.
Anyone with an average mortgage of just over £100,000 will be about £30 better off as a result of the cut - and about £200 a month better off than this time last year.
By any conventional measure the record low in rates ought to lead to a surge in demand for homes and a recovery in house prices.
Except that it assumes that lenders will pass on the cut in full. As the Council of Mortgage Lenders pointed out in its reaction, they also have savers and their profit margins to consider.
Except that the savings on a mortgage would be more than wiped out by a 5 per cent fall in house prices (£5,000) let alone the 10 per cent or 15 per cent currently being predicted.
Except that few of those lucky buyers will be able to get a mortgage without a hefty deposit - and many existing borrowers are on fixed rate deals.
Except that house prices in the US are still falling despite interest rates that are close to zero - and the experience of Japan’s lost decade in the 1990s. The experience from both suggests that low interest rates are not enough.
Meanwhile, falling interest rates are not much consolation if you are a social tenant whose rent increases by RPI plus 0.5 per cent watching your mortgage-paying neighbours celebrate their windfall.
Or if you are a housing association whose income is linked to that rent formula; whose shared ownership products will be left looking much less attractive; and whose fixed-rate interest rate strategy looked prudent six months ago.