All posts from: May 2009
Now we know what people working in housing associations have in common with soldiers, sailors and teachers in public schools.
It’s not the low pay or even the dangers they face doing their job but the fact that all of them have been opened up to potential identity theft within the last six months after laptops containing their personal details were stolen.
As Inside Housing reports today, a laptop containing details of 50,000 members of the Social Housing Pension Scheme and 7,000 members of the Scottish Federation Housing Association Scheme was stolen from the offices of a software provider to the Pensions Trust, which administers the schemes. According to the BBC, another 52,000 people, including staff at independent schools, had their details on the same laptop.
As with a litany of other incidents involving stolen laptops over the last 12 months, the potentially compromised information includes bank accounts details, personal information such as names, addresses, dates of birth and salary details. The Pensions Trust has written to everyone affected.
According to the Pensions Trust, police believe that the laptop itself was the target of the thieves rather than the information on it, but that is hardly much reassurance to anyone whose personal details are now out there.
Nor is the fact that the laptop is password protected since the odds are that if the thieves are sophisticated enough to go in for identity theft they will know their way around a computer.
And the theft comes at a time when housing associations and their staff were having to digest the news a month ago that the deficit on the Social Housing Pension Scheme has increased by almost £400m and that their contributions will have to rise.
It is astonishing that a laptop containing such sensitive information was not also encrypted but this is far from an isolated case. Unencrypted laptops with the personal details of serving soldiers and naval personnel and major private sector companies have been stolen recently - and it’s only 18 months since HM Revenue & Customs lost two computer discs containing the details of 25m people.
Before I get too morally superior about incompetence and lax procedures, the news made me realise that my own laptop probably contains more than enough of my personal details to fund a holiday for any thief out there. And, yes, it is password protected but not encrypted. But it probably doesn’t matter anyway - a laptop containing the bank details of all suppliers was stolen from a company I used to work for six months ago.
On current trends mortgage approvals will pass a significant milestone next month: for the first time in three years they will be higher than 12 months before. Will this be a key turning point for lending?
Figures published yesterday by the British Bankers Association show that 27,685 loans were approved for house purchase in April. On a seasonally adjusted basis, that’s up 4% on March. Although the total is still down 15% on a year ago, the annual rate of decline is slowing and the monthly total for May will almost certainly exceed the 27,380 loans seen in May 2008. Approvals have now risen in four of the last five months.
Time to call the end of the downturn? Almost certainly not. Mortgage approvals are still 60% below the levels seen at the peak of the market in 2007 and 55% below the average since the BBA started releasing monthly totals in 1997. Approvals could rise for the rest of the year and still indicate that house prices are more likely to rise than fall.
The obvious explanation is that the banks will only lend where they can be certain that they will make rather than lose money and that this caution will last until house prices are clearly on an upward trend and unemployment stops rising.
There are other theories too. One goes that house sellers and buyers are living in dreamland. Sellers are refusing to adjust to reality by dropping their asking price and buyers are making offers higher than lenders think are unrealistic.
But another piece of news yesterday suggests another reason. The Spanish bank Santander announced that it will drop the brand names of the three British banks it owns: Abbey, Alliance & Leicester and Bradford & Bingley.
Combine that with the nationalisation of Northern Rock, the merger of HBOS and Lloyds, the swallowing up of several building societies by Nationwide and the disappearance of specialist lenders and the market is now dominated by a few big banks.
The boom was led by small banks like Northern Rock and Bradford and Bingley that went for spectacular growth. The bust happened when everyone realised how spectacularly stupid that strategy was, including the wholesale markets they raised their money from. The recovery will not happen until rising house prices offer the prospect of high enough returns to make lenders forget or ignore that.
The manifesto is supported not just from leading developers but also from major retailers, the Homes and Communities Agency and three big city councils and it proposes a range of reforms to kick-start major regeneration projects that have stalled around the country.
American-style tax increment financing should pay for infrastructure through local government-issued bonds, it says. Councils should be encouraged to donate land and take equity stakes in schemes. Funding for school and hospital building should be used to lever in more investment. EU procurement legislation should be reformed to cut red tape.
On housing in particular, the BPF wants measures to encourage a professional rented sector including cuts in stamp duty land tax on bulk purchases of property and reforms to real estate investment trusts (REITs) to attract greater institutional investment in the residential sector.
Taken in conjunction with the private rented sector initiative launched by the Homes and Communities Agency, which drew enthusiastic support from the BPF, and there is a very real sense that the stage could at last be set for that to happen.
But, as one observer put it, there are still several chickens and several eggs. The stock can’t be built without the investment but institutions won’t invest they have the vehicles to operate with but neither of those can happen without the stock to invest in.
All that will take a change of heart at the Treasury, which has traditionally been suspicious that tax breaks for developers and investors today mean tax leaking out of the system tomorrow. That mindset still seems to be very much in place if last-minute changes to last month’s Budget that watered down the stimulus package and dropped changes to stamp duty were anything to go by.
The surveys may show that the rate of decline in housebuilding and construction is slowing but, with public investment about to be slashed, it’s hard to see where else the revival is going to come from.
As new revelations about second home flipping and unpaid capital gains tax engulf one of the frontrunners to become Speaker, the stench of hypocrisy surrounding the whole issue is growing by the day.
Just like communities secretary Hazel Blears, Tory MP John Bercow has voluntarily agreed to pay tax on the profit from a property sale. According to the Telegraph, he sold two properties in 2003 but switched the designation of his second home between London and his constituency and did not pay tax on either.
The first example of hypocrisy comes from the leaderships of the main parties. Labour and the Conservatives both agree that flipping should be banned in future but their attitude on how individual flippers should be treated seems rather more ambivalent.
But neither of the main parties has addressed an even bigger issue: whether MPs should be banned from making any profit on property speculation at public expense. That’s exactly the restriction being introduced in the Scottish Parliament but only the Lib Dems seem to support it at Westminster.
But an even stronger whiff of hypocrisy is coming from the national press. The Telegraph has of course played the leading role in exposing MPs expenses but the Mail reported almost a year ago that more than 100 MPs were dodging tax on second homes.
Can this possibly be the same Telegraph that two years ago advised its readers that ‘with a little shrewd planning potentially sky-high capital gains tax bills can be cut drastically, thanks to a range of little-known tax breaks’? Its top two tips? Don’t forget to claim expenses and ‘become a butterfly and flit between homes’.
Or the same Mail whose personal finance section gives helpful advice to readers on how to cut their tax on buy to let and second homes? Use the two-year period to elect which of your homes is your principal residence, it says.
‘Many people do not realise that the two-year election period applies and fail to take advantage, however it is possible to revive it if a third property is purchased, or if the second home becomes your principle residence for a time. This involves transferring bank, postal and electoral details for the period to prove that you were resident and perhaps even renting out your main home. Moving into a second home will mean that a person’s other home becomes liable for capital gains tax for that period, however as this will later return to being their main residence issues should be minimal.’
With neat irony the National Housing Federation (NHF) is complaining about prejudice against shared ownership by the banks just as one of the biggest launches a new mortgage offering the best rates to buyers who can get someone else to put up 20% of the cost of their home.
Buyers who only have a 5% deposit can get a Lend a Hand Mortgage from Lloyds TSB with rates normally only available to someone with a 25% deposit provided they have the backing of someone willing to put up savings equal to 20% of the property value as additional security for the loan.
The deal was hailed as a positive step in freeing up the market in loans of 90% of 95%, which had dried up in the wake of the credit crunch. It’s basically the Bank of Mum and Dad, except that the parents get interest on their savings rather than giving them to their son or daughter.
But on the same day the mortgage was launched, the NHF was complaining about prejudice against another group of buyers who can only afford a share of a home. It claimed that the banks are turning away more than £1bn of mortgage business by refusing to lend to people wanting to buy through shared ownership because they mistakenly view it as sub-prime.
According to chief executive David Orr said: ‘Lenders are now reluctant to provide mortgages for shared ownership, because of a prejudiced assumption that its buyers – people on low and moderate incomes – are more likely to default on their mortgages.’
The NHF argues that the government should ensure that banks that have received public money - Northern Rock, Lloyds, RBS and Bradford & Bingley - should take on a social purpose and lend to people on low to moderate incomes who can afford shared ownership.
That point is particularly relevant to Lloyds since its HBOS subsidiary was the biggest lender on shared ownership before the credit crunch, providing up to half of mortgages around the country and all of them in some areas. The combined bank is also the biggest lender to housing associations.
According to a Treasury select committee report on the banking crisis published in May, an agreement signed between Lloyds TSB and the Treasury set conditions for government support including support for shared equity and shared ownership initiatives tentatively set at £15m-£20m. But this is a drop in the ocean compared to what the NHF says is needed - £480m for 9,000 low-cost homes that are vacant and another £1bn for the 15,000 due to be built this year.
An insight into the attitude of the banks came in an article published by the Council of Mortgage Lenders published in March. It argued that the complexity of the schemes on offer, the small size of the market and of individual loans and lack of reliable information on the risk and customer profile and volume of transactions were all putting off lenders.
Shared ownership was a particular problem because there was no clear process for dealing with borrowers who cannot keep up with payments. ‘That can lead to difficulties between the lender and the housing association in working out a solution if the borrower defaults,’ said the CML.
That suggests that it will take far more government arm-twisting to make the banks rethink their attitude. It seems that lending to buyers supported by their parents is one thing but lending to buyers supported by housing associations and the taxpayer is quite another - even for banks that are themselves supported by the taxpayer.
Politicians, journalists and traffic wardens eat your heart out. A new group of people are making a strong bid to steal your crown as the most hated in the country: letting agents.
A report from Citizens Advice today reveals a litany of abuse, greed and chicanery enough to make even an MP blush. The worst abuses by estate agents were tackled by legislation in 2007 but the government has only just proposed statutory regulation for letting agents (many firms do both) in a green paper last week.
About two-thirds of private lettings are made through agents, who typically charge landlords 15% of the rent for their services and tenants a deposit and rent in advance yet do not have to have any professional qualifications.
But Citizens Advice found that 94% of letting agents impose additional charges on top of that. There are non-returnable holding deposits, deposit administration charges, charges for reference checks, administration fees, charges for check-in inventories and check-out inventories and tenancy renewal fees.
Tenants were paying average extra charges of £200 each. Some agents were charging tenants a modest £25 while others were raking in almost £700. The charge for a reference check ranged from £10 to £275 and for renewing a tenancy from £12 to £220. Less than a third of agents willingly provided full written details of their charges to CAB workers.
While some agents were providing a great service that was appreciated by tenants, others did nothing about repairs and unsafe appliances, refused to respond to complaints and failed to have any money protection arrangements. Tenants reported losing their deposit, their rent, their council tax when agents went bankrupt or simply disappeared.
Bear in mind that it’s not just tenants who are unhappy with agents and the case for statutory regulation is overwhelming. Landlords say agents in London and the South East typically charge them 11% of the annual rent just to renew a tenancy agreement - from their perspective that amounts to money for nothing.
In fairness, trade organisations like the Association of Residential Letting Agents (ARLA) have launched their own bid to clean up the sector and have as much interest as anyone in driving the unscrupulous and unethical out of business.
The crucial question now is the form that statutory regulation will take. The licensing scheme that ARLA launched earlier this month included professional qualifications, client money protection, independent audits, professional indemnity insurance, an independent redress scheme and a strict code of practice.
But Citizens Advice wants regulation to go further: no charges for functions that are part of routine letting and management like checking references and inventories; a requirement to ensure that properties meet basic safety standards; clear standards for getting repairs done speedily; an end to blanket restrictions on housing benefit complaints; an independent regulator with tools to enforce compliance; and a ban on threatening tenants who complain or try to enforce their rights with eviction.
Three buckets of cold water this morning for hopes of a housing market upturn: downbeat results from Britain’s biggest private landlord; the lowest US housing starts for 50 years; and predictions of years of stagnation in a key regeneration area.
Grainger, the largest quoted residential property owner, posted a pre-tax loss of £143m in the six months to the end of March thanks to factors that are becoming familiar to some housing associations: mark to market adjustments on financial instruments, property valuation deficits and impairment provisions. It also deferred its half-year dividend but said it hoped to pay out at the end of the year
Acting chief executive Andrew Cunningham told Reuters: ‘If market conditions continue to improve, and they have improved somewhat over the last six weeks, then I think we will be pretty confident of announcing a dividend.’
However, with the housing derivatives market still predicting a potential 20% fall in house prices by the end of 2010, that remains an if rather than a when. ‘It’s still too early to say that the market is on an upward trend because prices are still falling,’ he said. ‘We still need to see sustained growth and stability in the housing market, and a recovery in mortgage financing.’
The fall in US housing starts in April - the ninth fall in the last 10 months - was seen as particularly sobering news since analysts had expected them to rise. Prices of existing homes are also still falling across the Atlantic.
Given that the world financial crisis started in the US housing market, a recovery would be seen as a strong indicator of recovery to come here. The fact that prices and starts are still falling suggests it will be a while yet.
And, as Inside Housing reports, there was also a sobering message today about the prospects for regeneration in the Thames Gateway. Peter Andrews, chief executive of the development corporation, told an all-party group of MPs that its capacity to deliver would be ‘extremely limited for the next five to 10 years’.
The reason, he said, was the planned volume of high-density housing, which was dependent on a business model relying on pre-agreed sales based on the assumption that property prices would rise that was ‘effectively broken with no hope of replacement’.
The worst may be over for the housing market thanks to emergency economic surgery from the Treasury and Bank of England but with mounting job losses yet to come that does not mean it will return to ‘normal’ any time soon.
Prices falling at their fastest pace since 1948 is good news for anyone with a mortgage but bad news for housing associations and anyone expecting a pay increase.
Retail price inflation (RPI) was -1.2% in the year to April - the lowest since records began in 1948 - thanks to falling mortgage interest payments plus strong downward pressure on house depreciation, council tax and dwelling insurance. It was -0.4% in March.
Consumer price inflation (CPI) fell to +2.3%, down more than expected from +2.9% in March. The 3.5% difference between the two - another record high - is almost all explained by the fact that the CPI does not include housing costs apart from rents.
The crazy situation that contributed to the housing bubble leaves us with record deflation on one measure, inflation that is still above the Bank of England’s 2% target on the other and interest rates that look set to stay very low well into 2010.
That’s good news for people with mortgages. Mortgage interest payments fell 46.9% in the year to April and 7.7% in April alone and they do not look like going up any time soon.
But falling RPI is bad for anyone expecting an annual pay rise. It’s more likely to accelerate the number of firms imposing pay freezes or pay cuts.
And it is a major worry for housing associations. Their rents can only increase by a maximum of RPI in September plus 0.5% plus £2 per week. The Tenant Services Authority says that inflation would have to fall to -4% before actual rents would have to fall.
That would have serious consequences for business plans and associations could face a double whammy of inflation and costs rising again in the following 12 months. It’s a scenario that is still some way off but it got a bit closer today.
How long before MPs are banned from having taxpayer-funded mortgages on their second homes and are forced to pay back the profits they make when they sell them?
Two weeks ago such a radical reform of parliamentary expenses would have seemed inconceivable. But bear in mind that two months ago the Communities and Local Government department rejected a a trial of new planning rules in national parks limiting the number of homes in part-time occupation on the grounds that it would interfere with the ‘legitimate rights of second home owners’.
A statement like that now seems equally inconceivable after the flood of revelations about second home-flipping, tax avoiding, moat-cleaning, non-existent mortgage claiming MPs - and the decision by the boss of the CLG, communities secretary Hazel Blears, to pay £13,000 in capital gains tax on the sale of her London flat.
The debate in the Scottish parliament is already way ahead of the one at Westminster. From 2011 mortgage claims by MSPs will be banned to stop them profiting from property speculation using public money. Only those with constituencies more than 90 miles from Edinburgh will be eligible to claim an accommodation allowance and they will have to use it to rent or get a hotel.
That seems squeakily clean by comparison with Westminster but it has not stopped a storm in the Scottish press about what will happen to the profits some MSPs have already made - and even about the level of rent they are claiming.
The Sunday Herald reported yesterday that 29 MSPs including six SNP ministers have claimed for help with their mortgages on second homes under the existing rules in the last financial year. It estimated that they are sitting on £2m of profit between them. As things stand they will not have to repay it but the pressure is already mounting.
Translate that into a Westminster context and the potential profit will be astronomically higher. It’s not clear exactly how many MPs were claiming for a mortgage or how much but 139 claimed the maximum additional cost allowance of £23,083, another 229 claimed more than £20,000 and another 73 claimed more than £15,000.
Any MP who bought a second home after the 2005 election is unlikely to have made much of a profit and may even be nursing a small loss. Those who bought earlier will be sitting on a huge profit - the Telegraph alleges that shadow climate change minister Greg Barker made £320,000 on a flat on which he had claimed £15,875 in purchase costs and £27,928 in mortgage costs - and it’s not hard to imagine the total running to tens of millions of pounds.
So far only Liberal Democrats have called for Westminster to adopt the Scottish system and ban taxpayer-funded mortgages. Lib Dem leader Nick Clegg has also pledged that his MPs will repay any profits they make.
However reluctant the Conservative and Labour parties may be to follow suit, the alternative may be even more unpalatable for them: a fresh wave of front-page shame every time an MP sells a second home.
What on earth were mortgage lenders and regulators thinking when they allowed the buy-to-let boom?
The greed of individual wannabe landlords was perhaps understandable when the media was full of stories of how easy it was to make a mint. The professionals should have known better.
The consequences of the boom are there for all to see in the latest statistics published by the Council of Mortgage Lenders. Amateur landlords saw 1,700 of their properties repossessed in the first quarter of the year - up 31% on the final quarter of 2008 and 89% on a year ago.
For the second quarter in a row the repossession rate among buy-to-let landlords was higher (0.15%) than in the mortgage market as a whole (0.11%). The arrears rate was also much higher - though the CML detected some signs that it was falling.
But the real picture is even worse than that. The arrears and repossessions stats do not include cases where the courts have appointed receivers of rent to collect tenants’ rent and pass it on to lenders.
According to CML buy-to-let stats, in the first quarter of 2009 there were 2,400 buy-to-let mortgages more than three months in arrears with a newly appointed receiver of rent. That was up 50% on the end of last year and eight times the level seen a year ago.
Bear in mind that this increase happened at a time when falling interest rates will have taken the pressure off many landlords - and that neither of these totals includes borrowers who have rented out their property without telling their lender.
For an illustration of just how mind-bogglingly stupid some lenders were and just how heedless the regulators were, the story of one of the million amateur landlord in the third episode of the BBC’s Propertywatch says it all (start watching 15 minutes in).
Six years ago, Amanda, a single mother of two from Gloucester was earning £22,000 a year working for a local authority. She re-mortgaged her house to buy her first buy-to-let property, then remortgaged them to buy five. ‘It was like a shopping addiction,’ she says.
By the end of the boom she had borrowed an astonishing £7.5m to buy an empire of 50 properties from Manchester to Cornwall.
Today 17 of them have receivers of rent appointed. She can’t sell the others to pay her debts because she is in negative equity and is at the mercy of a lender deciding to make her bankrupt.
Dumb? Greedy? Bonkers? All three? But what about the banks that lent her the money and what about the regulators that let them? Words fail me.
Why is light-touch regulation so discredited in the financial world yet apparently still the only option for the private rented sector?
Ministers used to boast about their light touch in the City. That was before the system allowed sub-prime mortgages and liar loans that could never be repaid and let the banks trade in billions of pounds worth of worthless mortgage securities.
But as yesterday’s green paper shows, they are still boasting about it in the private rented sector, for fear of implying anything like a return to the over-regulation of the past or of jeopardising the increase in supply that is desperately needed.
In fairness, a light touch was exactly what the independent review conducted by Julie Rugg and David Rhodes recommended and many of the measures in the green paper have been welcomed by consumer groups.
Rugg and Rhodes said that all landlords should have to have a license and it should be impossible to let property without one. Landlords would be charged a low, annual fee in return for a landlord number that would appear on all official documentation.
They also said that ‘inadequate sanctions are available where a landlord is judged to be in serious breach of the regulations’ and ‘landlords who choose not to respect the regulations should be excluded from the sector’.
But effective redress for tenants would be balanced by light-touch licensing: ‘any scheme that is put in place must not stifle commercial activity or place an undue burden on statutory authorities with regard to implementation’.
That’s pretty much what the green paper says should happen - there will be a national register of private landlords with no barriers to entry and the aim will be to isolate those operating outside the law rather than penalise all of them - but with one crucial difference.
The section of the green paper on ‘improved redress for tenants and landlords’ is actually all about landlords and the timescales they have to make a possession claim. And there is no mention of the ‘effective redress for tenants’ that Rugg and Rhodes linked explicitly to light-touch licensing - almost as though a section of the green paper was cut before publication.
You will look in vain for any development of the idea in the independent review that ‘landlord licence fees could contribute to the development of a housing justice network, which should be effectively linked to the licensing framework. A single property tribunal might be easier for tenants to access, and could be connected to a specialised housing court.’
The CLG press release mentions ‘an improved complaints and redress procedure for tenants’. It says that: ‘For the first time, the government will look to set up a mechanism whereby tenants are able to register official complaints about sub-standard landlords, and if these complaints are substantial and proven then landlords may be removed from the national register.’
So far, so good. But how many tenants will be brave and persistent enough to pursue a complaint? After all, the green paper has nothing to say about retaliatory evictions, where tenants who complain to their landlord about repairs find themselves evicted and unable to do anything about it.
‘Light touch’ is all very well and a balance has to be struck between the interests of tenants and landlords. But it must not be just another way of saying ‘soft touch’.
House building was where the recession began. Given that, it’s where the recovery should show up first too, so the news from the leading companies over the last few days seems positive.
This morning Barratt revealed rises in visitor and reservation rates are both up. Yesterday Redrow said it was restarting work on some sites it had mothballed and starting it on some new ones too. Galliford Try said it would review a four-day week it introduced in January in the summer.
Last week Taylor Wimpey unveiled plans for a £500m rights issue after reaching preliminary agreement with its creditors on a refinancing package last month. Those positive signs follow the green shoots in the housing market revealed in the RICS monthly survey yesterday.
There is optimistic news for housing associations too, with the Tenant Services Authority saying today that they have made a ‘promising start’ to clearing the backlog of unsold shared ownership homes.
But caution is still the watchword for house builders - and understandably so when the latest unemployment figures (2.2m and rising) show almost all of the biggest increases happening in occupations linked to the industry.
‘Pricing remains fragile though the pace of house price falls has abated in recent months,’ says Redrow. The restart of construction on some sites followed a period in which ‘we have remained tightly focused upon reducing work in progress to appropriate levels for the prevailing environment’.
Barratt saw ‘early signs that some stability is returning to the new homes market’. It has also reduced its unsold stock - though not without some local objections. However, it adds: ‘Volumes are currently at low levels, mortgage finance remains constrained and visibility is limited. We therefore remain cautious as to near term trading prospects.’
Group chief executive Mark Clare said it had sold 4,600 homes since the New Year at ‘acceptable’ prices but that the market was still ‘constrained by a lack of mortgage finance on appropriate terms’.
That remains the bottom line for the industry. With the lowest interest rates in history, hundreds of millions poured into buying unsold stock (not without some local objections) and HomeBuy Direct and countless billions poured in to kick-start lending, things seem to be getting better rather than worse for the first time in 18 months. But it really would be time to despair if they had not - it’s still a long way back.
After the credit crunch, the bank bail-outs, the housing market crash and the recession, is Britain ready for mandatory curbs on mortgage lending?
A report by the think-tank Institute for Public Policy Research argues that reckless lending, especially by demutualised former building societies, was a major factor in the latest boom and bust and that history is doomed to repeat itself without regulatory intervention.
Professor Chris Hamnett of King’s College London admits the proposals may limit the level of mortgage lending but argues that the market is already depressed anyway.
His headline proposals are to limit loans to four times single incomes or three times joint incomes and to make the maximum loan-to-value ratio 95% or even 90%.
But that would just be the start. There would also be restrictions on self-certified and buy-to-let mortgages and on commercial lending. Wholesale funding would be limited to 20% of retail deposits for specialist mortgage lenders. Lenders would not be able to offer bulk mortgage deals to developers or buy mortgage portfolios from other lenders. New demutualisations and performance-related bonuses and stock options that encourage over-lending would be banned.
The proposals would undoubtedly do much to curb both lending and future house price growth. But given the reaction to similar ideas floated in the Turner review in March they will face ferocious opposition from powerful vested interests.
The long-term benefits of reduced house price growth and improved affordability would be clear for the housing market and for the economy as a whole.
But curing our addiction to the house price drugs would also bring short-term pain. First-time buyers with no family help with their deposit could be left out in the cold - funding for government shared equity programmes has already run out.
The slow death of council housing started in the borrowing crisis of 1976. What a neat symmetry if the rebirth of council housing started in the borrowing crisis of 2009.
The public spending cuts that followed the Labour government’s decision to go to the IMF were the start of a remorseless rundown of local authority housing that accelerated with the introduction of the right to buy in 1980, further Conservative spending cuts in the 1980s and the advent of stock transfer in 1988.
Flash forward 21 years and the government is poised to publish its review of council housing finance. Hopes of a rebirth of council housing have been raised and dashed so many times since Labour was elected in 1997 - most recently the advance spin that the Budget would lead to thousands of new council homes - that it’s hard to expect too much.
In a report published today, the House of Commons council housing group calls on the government to:
- resolve fair sustainable funding of existing council homes to make new-build financially viable
- change the way public sector borrowing is calculated
- substantially increase the grant funding available.
Having spent years banging their heads against a brick wall, the advocates for council housing are at last making their voices heard.
Their hand has been strengthened in a negative sense by the way the credit crunch and recession have undermined the model for delivering new homes through private housebuilders and housing associations.
But the case for council housing is also being made far beyond its original Old Labour/trade union base. Birmingham’s Conservative chair of housing John Lines says the city could spend the entire £100m the Budget allocated for new council homes on its own and local authorities like Preston that have transferred their stock say they should not be discriminated against when it comes to building new.
So much now rests on how bold the government is willing to be. Some sort of funding reform seems a given, however fiendishly complicated the council housing finance regime may be.
Reform of the public borrowing rules is the big prize - and hopes of it were raised considerably by positive statements from Sir Bob Kerslake - and really would provide the neat symmetry with 1976.
Substantial increases in funding seem unlikely given the state of the public finances. But it is precisely that state, and the wave of public spending cuts that are just around the corner, that make the case for radical and urgent action to free up council housing now all but unanswerable.
The gap between rich and poor is now greater than at any time since 1961 and housing policy has created a social apartheid of segregation between them.
Any solutions to the problems revealed in two different reports published today are bound to seem fairly flimsy. Doing nothing seems even flimsier.
The Institute for Fiscal Studies says that despite all Labour’s best efforts poverty and inequality increased for the third year running and that the incomes of poorer households have fallen in real terms since the last election.
And a Fabian Society report highlights the sorry fate of social housing tenants born since the 1970s. A council tenant born in 1970 was 11 times less likely to be in education and employment by the time they were 30 than the population as a whole - and twice as likely to suffer from mental health problems.
Why should that be when an earlier generation of tenants born in 1946 apparently lived in public housing without suffering any social stigma or loss of opportunity? When we seemed close to Bevan’s vision of ‘the doctor, the grocer, the butcher and the farm labourer all lived in the same street’?
James Gregory’s report provides a powerful antidote to the arguments of those who see a ‘broken Britain’ and argue that the way to tackle concentrations of deprivation is to end security of tenure.
As Nick Raynsford argued on the Today programme this morning, council housing of the 40s and 50s was only available to better-off people who passed tests to prove they could look after their homes. The poorest were left to live in slums and the homeless left out altogether.
Gregory argues that the two key changes came in 1977 with the Homeless Persons Act and 1980 with the Housing Act that introduced the right to buy. Together they meant that demand for social housing from the poorest was increased just as the supply was decreased and the more affluent tenants were offered a route out.
His solution? Mixed communities. No more mono tenure estates. Support for shared ownership and shared equity to blur the rigid divide between tenures. An end to the right to buy plus a new ‘right to sell’ for those in mortgage difficulties. A new universal housing credit to replace housing benefit and support for homeowners and break down the stigma of welfare housing.
Nothing startlingly new, much of it already being done somewhere. Put them together though and you just might have the basis of something that Gregory hopes ‘will embed in our society the broad acceptance of our interdependence as equal citizens; rather than a society built upon the premise that turning to the state for assistance is a mark of a second class citizen’.
As the Halifax reveals another big fall in house prices, there’s a timely reminder today about the continuing consequences of lack of housing affordability.
A report from the government’s National Housing and Planning Advice Unit highlights the widening gap between housing ‘haves’ and ‘have nots’ as one of the main effects of long-term affordability problems as the children of affluent owners become still richer and the children of poor non-owners become even more disadvantaged.
Lack of affordability leads to recruitment problems and wage pressures in the public sector. It leads to pressure on the private rented sector and over-crowding in the social sector. Physical and mental health problems multiply.
Meanwhile volatility in the market leads to high borrowing and increased risk of default, with debt lingering for longer because of low inflation. And repossessions and falling house prices dent consumer confidence and cause problems in the real economy.
And the message from the NHPAU is that those problems will re-emerge with a vengeance once this downturn is over and be exacerbated by the fall in housebuilding.
So far, so good, except that the NHPAU has no answers. Set up following the Barker review, its remit adopts the same one-club policy of increasing supply.
Building more new homes has to be part of the solution - just as fewer new homes (70,000 rather than 240,000 forecast this year) is likely to create even more problems.
But if the last 18 months demonstrate anything it is that it is only part. The long boom between 1997 and 2007 surely had more to do with low interest rates and booming credit - and that was exacerbated by homes being seen as investments rather than places to live and by increased demand caused by speculative investment.
That raises all kind of issues about the taxation of housing relative to other forms of investment, about regulation of mortgage lending, about the treatment of inherited housing wealth and the advisability of government targets and incentives to increase homeownership. Increasing supply is fine but we have to tackle demand too.
The Halifax index showed a 1.7% fall in house prices in April, taking the annual rate of decline to 17.7%. Prices are now down £45,000 or 22.5% since the peak of August 2007.
The bank itself says that further price falls are ‘likely’ - an unusually gloomy pronouncement - given the state of the economy and unemployment. The average house price is now 4.26 times average earnings - still above the average since 1983 of 4.00 - and still higher than at any stage between 1991 and 2002.
Housing is too important to be left to a market that has failed. Yet action to tackle the sort of affordability problems revealed by the NHPAU is only politically possible at a time when house prices are falling and voters can see the negative consequences. There is a window of opportunity but it will not be open for long.
Rogue letting agents are a menace for tenants, landlords and reputable agents too. So why wait until a week before the government is due to respond to an independent review of the private rented sector to launch a licensing scheme?
The scheme revealed by the Association of Residential Letting Agents (ARLA) ticks all the right boxes in terms of insisting that agents have professional qualifications, client money protection schemes, annual independent audits, professional indemnity insurance and independent redress and comply with a strict code of practice.
But you have to wonder what it’s been doing for the last ten years when it says tenants and landlords are losing out to cowboy agents through the lack of all those things at the moment.
The Times reports this morning that the government will publish a green paper responding to the Rugg review within the next week and will endorse key recommendations including a license to let for all landlords and statutory regulation of agents.
But if that’s the case why the need for licensing? Peter Bolton-King of ARLA told the Today programme this morning that it was launching the scheme ‘in the absence of any government-led scheme’ and to ‘show the government what can be done’. So does ARLA doubt the government’s will to legislate - or is this just an attempt to influence the agenda in its favour?
One reason could be that it sees it as part of a wider scheme to license estate agents too. But given that ARLA represents only half of agents, it would seem to have every reason to support a statutory scheme. So obviously do tenants. And so do landlords - not least given the recent controversy over renewal fees.
Previous attempts to increase regulation in the private rented sector have been frustrated by self-interested opposition, confusing implementation and lack of enforcement resources. Deregulation may have increased supply but it is now time to shift the balance in favour of tenants and reputable landlords and agents.
The private rented sector initiative being launched today by the Homes and Communities Agency (HCA) sounds like the most significant news on new homes since the start of the credit crunch.
The idea is to give investors like pension funds the chance to enter the private rented sector on a large scale for the first time. According to the British Property Federation (BPF), eight organisations including two institutions, two investors and one of two ‘big name pension funds’ have been in talks with the HCA about building new rented accommodation.
It predicts the project could see thousands of new homes built for long-term rent.The timing certainly seems right. From an investor point of view, the fall in house and land prices has made the potential yields much more attractive. According to BPF director for finance Peter Cosemetatos: ‘There is a rare opportunity at this point in the cycle for institutional investors to invest in an asset class that provides an excellent hedge against inflation at a good price.’
The initiative also addresses what Sir Bob Kerslake believes has been one of the main barriers to institutional investment: scale. More details are expected later on the HCA website.
From a housebuilder point of view, it offers a potentially reliable source of pre-sales to replace the reliance on buy to let that led to the building of thousands of unsaleable flats.
From an HCA and government point of view, in the short term anything that can add to plummeting housing starts is good news. In the longer term the initiative will help housing face up to cuts in public investment - although is there also a danger that a future government could use it as an excuse to cut that investment even more?
Curious then that the government did not address one of investors’ main gripes in the Budget. According to the BPF, changes to stamp duty that would have allowed large investors to pay stamp duty at a marginal, ‘per unit’ cost were removed at the last minute.
Also curious is that the initiative will apparently form a key part of the government’s response to the Rugg Review of the private rented sector. Published six months ago, the review came out against the fiscal incentives and planning changes that the property industry had lobbied for as part of its build to let initiative.
One other thing the government could do is take a close look at one of the recommendations made today by the Treasury select committee on the future of the bank industry. It points out that the government controls at least 20% of the buy-to-let market through its ownership of Bradford & Bingley’s mortgage book and recommends that it assess ‘the impact on the buy-to- let mortgage market of its share of that market, and how it proposes to use the influence it has’.
The fate of Bradford & Bingley should be a permanent reminder of what happens when extra lending and the greed of speculative investors inflates a housing bubble. The whole point of build to let is that it adds to the housing stock rather than driving up demand for what’s already there - and that the investment is for the long term.