Inside edge
All posts from: July 2009
Multiple problems
It’s been clear for months that licensing of homes in multiple occupation (HMOs) is in deep trouble. Inside Housing’s lead story today lays bare the extent of the failure. But the situation may be even worse than that.
According to the report, landlords of 35,000 HMOs are still not licensed and 25,000 have not even applied. That means that three years after licensing began well over half of the 56,000 estimated to be covered by the scheme are operating illegally.
Landlords have applied for licenses for 31,345 HMOs over those three years - just under 900 a month. And local authorities have issued 21,688 licenses - about 600 a month.
However, a parliamentary answer in December put the totals then at 29,254 applications and 19,208 issued. This is a back of the envelope calculation, but call it six months since then and the rate per month has slowed to 350 per month for applications and 400 per month for licenses issued.
At that rate it will take at least another eight years for the sector to be fully licensed - and it’s not difficult to imagine that the rate will slow down even further as we get down to the dodgiest landlords and the most snail-like councils.
And how reliable are the licenses? Inside Housing’s story does not contain a figure for the number of applications refused but the total for England in December was just 84 - or 0.2%.
New guidance from Communities and Local Government will hopefully help but tenants are rightly calling the system totally ineffective and good landlords who have complied with and paid for it will be rightly be asking what is going on.
Kicking off
Does the housing market need a kickstart? The question has to be asked after the Nationwide said today that there is now a good chance of what seemed unthinkable a few months ago: that house prices will end 2009 higher than where they started.
More than a good chance on current trends. As I pointed out three weeks ago, both the Nationwide and Halifax indices showed that prices were up in the first six months of the year. The 1.3% rise revealed by the Nationwide this morning is the third monthly rise in a year and it means the average price is now £158,871. That’s 3.8% higher than in December 2008.
Why has this happened at a time of continuing recession? The Nationwide says it’s down to a combination of pent-up demand - a pool of buyers who held off taking the plunge following the banking crisis - and very low levels of properties coming on to the market.
However, that ignores the effect of the lowest interest rates in history. There seems little doubt now that the emergency measures taken by the government and Bank of England have not just put a floor under prices but actually sparked a modest improvement. How long will rates stay at 0.5%?
So what about the £925m kickstart programme launched on Monday? Given the improving market - ‘unthinkable’ at the time the programme was being drawn up - is the ‘appetite and capacity’ of the housebuilding industry detected by the Homes and Communities Agency any real surprise?
Except of course that housebuilders are interested in rising profits, not just rising house prices. Those profits depend on all sort of other factors like their borrowing, the price they paid for the land, the mix of homes they build, their section 106 obligations and so on. Those who over-borrowed at the height of the boom are still ruthlessly holding down costs - and jobs.
A good case can be made that the kickstart should actually have been bigger - and quicker. Much of the investment will go back to the Treasury in increased tax revenue and reduced spending on benefits. About half of the £925m is in any case loans repayable in five years.
Housing starts are not going to recover from their lowest level since the 1920s to pre-recession levels - let alone the government’s 240,000 target - any time soon. But leaving the housebuilding market to its own devices would just reinforce the shortage of supply in the wider housing market.
High fives
The banks are rightly facing some tough questions about why they are charging more than 5% for mortgages when interest rates are at a record low of just 0.5%. But what about the loans taken out by the poorest tenants at rates of more than 500%?
A call from Barnardo’s yesterday to call for an OFT investigation into high-interest lenders coincided with the interim results of one of the biggest, Provident Financial. The company reported a 5.3% increase in customers to 2.1m and a 3.5% increase in profits to £53.1m.
That’s pretty impressive in a recession and little wonder at the rates it charges. Examples from the Barnardo’s report include a £500 loan over 31 weeks with a total amount payable of £775% - an APR of 365.1% - and a £500 loan over 23 weeks that turned into £747.50 at an APR of 545.2%.
In fairness to Provident, it’s not the only high-interest lender, just the best known, and the rates charged for credit by many high street retailers are equally extortionate. The case for stronger regulation of their business practices seems unanswerable but there is also a deeper issue about why people are forced to use them in the first place.
Many of the more progressive social landlords are tackling the problem by setting up credit unions and other financial inclusion initiatives. But the the same major banks - many of them state-owned that were called into the Treasury this week for questioning about their lending to homeowners and small businesses also deserve some scrutiny for their attitude to low-income households.
But what about the banks? If the major high street banks - many of them state-owned - deserved to be called into the Treasury this week to be criticised about their lending to homeowners and small businesses, what about their attitude to low-income households?
Despite the government’s best efforts on basic bank accounts, there are still 1.9m people without them in Britain and mounting evidence that the mainstream banks have used red tape to obstruct access and leave them little alternative to those 500% loans.
Back to the future
It’s been clear for months that major insurers and pension funds are about to re-enter the residential property market but there’s still something deeply symbolic about the news that Aviva is to set up a £1bn fund to do just that.
Companies like Prudential and Norwich Union (as Aviva was called before its vacuous rebranding) were major private landlords but began to run down their stock in the 1950s amid concern about rent control and new rights for tenants. Nothing, be it the scrapping of fair rent legislation, the 1988 Housing Act and assured shorthold tenancies or various tax wheezes, has persuaded them back - until the housing market crash, the housebuilding slump and he Homes and Communities Agency’s private rented initiative.
Aviva, which is in a consortium with surveyor CB Richard Ellis and an American property firm, is the first to break cover. However, the British Property Federation (BPF) said when the HCA initiative was launched that eight organisations including two institutions, two investors and a big name pension funds were in discussions about it.
That initiative aside, the state of the housing market must also be a major driver of the institutional interest. As Nick Jopling of CB Richard Ellis explained in Inside Housing in May, one key issue is that institutions want to invest in homes in the same way they do in offices - buying up whole blocks. During the boom, blocks were sold off piecemeal to buy-to-let investors (who would presumably pay higher prices) but the bust has killed off that market and housebuilders will be more prepared to do bulk business.
And by coincidence, on the same day as news of the Aviva plan emerged, CB Richard Ellis published a survey forecasting that the housing market may have reached the bottom of the trough, which makes now seem like a good time to invest.
Still outstanding is the BPF’s complaint that current rules on stamp duty create a perverse disincentive to large-scale investment. Changes that would have allowed investors to pay the duty at a marginal, per unit basis were dropped from the Budget at the last minute.
Going sideways
In the last housing market crash it took nine years for house prices to regain their 1989 peak as initial falls were followed by years of stagnation. Will history repeat itself?
The latest survey from Hometrack out this morning shows that prices flat-lined for the third month in a row in July. While the market showed improvement in terms of the percentage of the asking price being achieved and the average time to sell, there was also a divide between southern England, where scarcity of supply is pushing up prices, and northern England, where there is more stock but weaker demand.
But director of research Richard Donnell argues that all the talk of green shoots in the first half of this year is likely to prove to be ‘little more than an unsustainable and short-term blip…fed by pent-up demand feeding back into the market from opportunistic cash buyers and households looking for family homes in southern England where supply is most constrained’.
The improvement may be real but off a very low base, he says. The market remains fragile and any increase in the supply of homes for sale could easily undermine the firmer prices seen over the last few months.
It’s hard to argue with his case that any broad-based recovery needs an improving economic outlook availability of mortgages. Instead, unemployment is set to rise to 3m next year and any improvement could easily be choked off by a rise in rock-bottom interest rates. The prospects of a public sector pay freeze and a wave of job cuts to come will only add to that.
And then there’s history. On the Halifax index, prices peaked in July 1989 and did not regain that level until March 1998. But as Donnell points out, it was five years for a sustainable recovery to get underway and we are only two years into this crash.
Facing the axe
A week after the government revealed what will be cut to pay for its pledge of £1.5bn extra for new homes the shock waves are still being felt around the housing world.
As Inside Housing reports today, the losers include ‘stunned’ almos facing cuts in decent homes funding, growth areas who say losing funding amounts to ‘robbing Peter to pay Paul’ and a squeeze on parts of the the Homes and Communities Agency’s budget.
Yesterday, the cuts were the subject of a rare Times leader on social housing. Today London Councils has written to housing minister John Healey warning that 80,000 homes in the capital could miss out on vital improvements.
In that context it’s easy to forget that £930m out of the £1.5bn is actually coming from cuts in other departments rather than cuts in housing programmes - a rare acknowledgment of housing’s importance in the general scheme of things.
It probably feels worse because, with a few exceptions, this is pretty much the first time in ten years that housing budgets have been cut. Labour took power in 1997 committed to sticking with Conservative spending plans that involved deep cuts in the new homes budget but bolstering investment in the existing stock by releasing accumulated capital receipts.
But it’s just a taste of what lies ahead in what the Institute for Fiscal Studies says could be eight years of pain for the public sector. With both parties pledged to stick to spending plans on health, schools and overseas aid, it says spending on other services will have to fall by 16.3% over the next spending review period between 2011 and 2014.
Cuts like that could take housing into new territory that not even those old enough to remember the early 1980s have experienced before.
Long way back
Is mortgage lending really starting to return to normal? Figures from the British Bankers Association (BBA) today showing mortgage approvals at their highest level since March 2008 seem to suggest as much but the overall picture is still dysfunctional.
The BBA says 35,235 loans for house purchase were approved in June. That’s 10% up on May and 65% up on June 2008 by number. Those approvals were worth £4.7bn in June - a rise of 47% on last year. This was the main factor driving ‘modest’ increases in gross and net mortgage lending.
To put that in perspective, the average number of loans for house purchase approved since the BBA started releasing stats in 1997 is 61,073. Even after a substantial increase since last year, the current total is 42% below average.
The years between 1997 and 2007 saw a continual increase in house prices so it’s possible that total may be distorted a little by the boom.
However, the lending figures released by the Council of Mortgage Lenders (CML) show a similar picture over a much longer period. CML members have approved an average of a little over 200,000 loans for house purchase per quarter since 1974. The total for the first quarter of this year was just 78,300. Things are improving, as its figures on gross lending showed on Monday, but the second quarter total will still be little more than 100,000.
Lending is improving but we are still a long way from conditions that suggest a boom in house prices to come.
Free at last
Anyone looking for any more things in favour of freeing local authorities from the housing revenue account can find another five billion of them in the detailed consultation just published by the government.
That’s the net benefit of self-financing envisaged over the next 30 years by the impact assessment of the review of council housing. According to the assessment total costs would be £12.3bn plus any cost of rescuing failing local authorities.
However, the benefits are estimated at £17.4bn. That’s made up of £5.2bn efficiency savings from the ability to plan for the long term and optimise the cycle of repairs and replacements planned over 30 years plus £12.2bn from maintaining homes to the Decent Homes standard and saving the need for a large separate capital programme.
And the benefits could be even higher than that. The £12.2bn figure is based on the assumption that a new Decent Homes programme will be needed in 30 years time. If there are more homes to work on, or greater expectations of what a decent home should be, then the benefit will be even greater. In addition, it was impossible to monetise the benefits to health, work and education opportunities for tenants and their families and of councils’ greater ability to build rent-generating new homes.
Freedom for council housing, which is seen as part of much wider freedom for local government, seems so obvious now that it’s easy to forget all those years when ministers were insisting there was no fourth option. All that detailed research and spadework seems to have finally paid off with a case to convince the Treasury.
Not that it will all be plain sailing from here - breaking free of a complex system was never going to be anything but complex, as anyone can see from the incredibly detailed consultation and research published by Communities and Local Government yesterday.
Experts say the key problem remains the distribution of debt. The consultation proposes a one-off redistribution and argues that even debt-free authorities will benefit over time but it’s not at all clear that they will be persuaded to see it that way. If councils can agree among themselves, John Healey has said the change can be introduced quickly; if not, what will be the attitude of a new and probably Conservative government?
And then there is the law of unintended consequences? Could the new settlement end up with cash leaking out of housing rather than flowing into it? That possibility seems to be in mind with the proposed ring-fencing for housing of the 75% of capital receipts that currently go to central government.
What will it do to stock transfer? Will it really become become a thing of the past, as some experts have claimed, or might the detail give even more encouragement to some councils? Even if ownership is not affected, might self-financing also make contracting out of housing services more likely in the name of even more efficiency?
All of those questions and more that are certain to emerge will be keeping plenty of people busy until the consultation ends in October.
Business as usual
Ever so slowly a consensus is starting to emerge about what to do to stop the sub-prime lending disaster and banking crisis from happening again. The signs do not look promising.
Under a plan published yesterday, the Conservatives want to scrap the Financial Services Authority (FSA), handing its regulating role to the Bank of England and its consumer role to a new Consumer Protection Agency (CPA). The party’s Plan for Sound Banking also makes two proposals that ought to make a big difference to the mortgage and housing markets.
First, it will end the ridiculous situation whereby first charge mortgages are regulated by the FSA but second (and subsequent) charge mortgages are regulated by the Office for Fair Trading. Both will instead be covered by the new CPA.
An under-reported aspect of the housing market crash is the extent to which the lending and borrowing binge was fuelled by second charge loans. The results are being played out in repossession hearings around the country and advisers estimate that the total of repossessions could be significantly higher than the widely quoted stats produced by the Council of Mortgage Lenders (CML), which only cover first charge loans. It seems obvious that all lending secured against homes should be regulated by the same agency and to the same standards.
Second, the Tories signalled that they are likely to move away from setting an inflation target based on the consumer prices index (CPI), which does not include any housing costs. They would probably revert to using the RPIX, a version of the retail prices index that does not include mortgage costs but does include other housing costs. That ought to ensure that the Bank of England at least pays some attention to the effect of interest rate decisions on the housing market.
What they did not say, as they attacked Labour’s tripartitie system of regulation for being responsible for the crisis, was that they were creating a tripartite system of their own.
Labour published its own white paper on Reforming Financial Markets earlier this month. It was long on identifying the problems caused by the buy-to-let, self-certified, high income multiple, securitised lending bubble and what the government has done to tackle the crisis but a bit shorter on long-term solutions.
But a number of measures that are crucial for housing are up for review over the summer with decisions due in the next pre-Budget report. These include the case for transferring regulation of second-charge lending the the FSA and for new powers for the agency to regulated buy-to-let lending.
Meanwhile, the FSA itself is due to publish a paper on mortgage market reform in September. This will cover the crucial issue of lending limits and a ban on loans of over 100% of the value of a home that provoked howls of outrage from estate agents and mortgage brokers when the idea was floated earlier this year.
With the FSA under a death sentence from the probable next government, the tide seems to have turned against measures to control Britain’s housing market, just as the issue of its tax treatment compared to other forms of investment has not made it beyond a few think-tanks. Without either, it seems to me that borrowers and lenders will always find a way to pump more money into the next housing bubble.
Welcome though some of the reforms being planned may be, the case for anything more radical appears to have been dropped in favour of business as usual.
Not impressed
The final housing debate of this parliamentary session was more interesting for what it said about Conservative plans for housing than Labour ones.
Grant Shapps was the only Tory to speak in a Westminster Hall debate that was ostensibly about the Communities and Local Government committee’s latest report on housing and the credit crunch. But his persistent attacks on the government drew questioning in turn from Labour and Lib Dem MPs. It was too much to expect many policy commitments but what did we find out?
We already knew from April’s housing green paper that the Conservatives want to replace ‘top-down targets’ with ‘a system of incentives that would allow communities to make some of their own decisions in return for money’ and that local authorities would get to keep 100% of the council tax from new homes they approve.
Shapps gave the example of the new eco-town at North West Bicester. If approved, the town would get £45-£50m ‘for the local area’ over the next six years. ‘That would be a huge incentive for local communities to develop and get something in return.’
The green paper had hinted at extra incentives for affordable housing and Shapps added that local authorities would get 125% of the council tax for any affordable homes they approve.
So what would happen if his bottom-up local initiatives did not deliver the number of homes needed? Shapps said Labour was obsessed with targets and the Tories would not increase them, but ‘if we find that not enough housing is being built, including affordable housing, we will increase the incentives’.
How will we know if the Tories have been successful if there are no targets? ‘The measure will be whether we have built more homes,’ he said. We will ‘know whether a future Conservative Government have been more successful because we will have built more homes and reduced the housing waiting list—two things that were achieved under previous Conservative governments’.
He was pressed by Nick Raynsford about Tory policy on the Homes and Communities Agency (HCA). Though it was a ‘huge quango’ there would be no ‘barbecue of quangos’, he said. The HCA would have to prove itself between now and the next election by delivering but ‘I am not impressed when I see an agency that has 20 offices and spends £4.5m a month on salaries alone’.
And he had similarly lukewarm support for the Tenant Services Authority (TSA). ‘I am not terribly impressed that the authority has so far spent its time surveying 27,000 tenants to get responses and then writing a draft report about what it might do,’ he said. Ouch. He added that he wanted to get first-class service for almo and council tenants too and ‘I am concerned that it is taking so long to get things going’.
All at once
Phew! From the rate John Healey is chalking up the announcements this week anyone would think that MPs are about to go on holiday for three months.
The hyperactive housing minister despatched another set of loose ends into his out tray this morning in ‘a further boost for housing’ that made a clutch of new announcements and also filled in the blanks of some old ones.
This after a week that had already seen him unveil approval for the first four eco-towns and a planning policy statement, a new defintion of zero carbon homes, a new planning regime for major infrastructure projects.
He also found the time to tell MPs on the Communities and Local Government committee that local authorities can fast-track their way out of the housing revenue account (HRA) and endure a Conservative barrage over eco-towns on the airwaves yesterday.
In today’s announcement [should be here later] Healey revealed £1.7bn for the housing private finance initiative and allocations for housing market renewal pathfinders plus more details about how the Homes and Communities Agency is splashing all that cash.
He confirmed a -2% floor for housing association rents next year, which he said ‘strikes a balance between the interests of tenants, and the need to support investment in new affordable housing as well as improving existing homes and services’.
Given that he’s also revealed plans to scrap the HRA and spend an extra £1.5bn on new homes recently, it’s hard to believe he’s only been in the job for six weeks.
He also gave a tantalizing glimpse of the struggle to come across several different departments and agencies to fund that £1.5bn. Some £930m will come from the departments of Business, Innovation and Skills, Transport, Children, Schools and Families, Home Office and Health. CLG money will be switched from the growth fund, the decent homes ALMO programme and private sector renewal. And the HCA will have to deliver 3% efficiency savings ‘plus the requirement to find £183m through efficient and flexible management of its housing and regeneration programmes’.
Sounds like it’s well past time for a holiday. Except of course if you’re a civil servant or official charged with achieving all that, in which case you’ll probably be chained to your desk for the summer.
But consider this. Parliament goes into recess on Tuesday with Healey six weeks into his job as housing minister. If he lasts as long as the last two, by the time MPs return in October he will only have six weeks left in the job.
Opening bids
It wasn’t meant to be like this. The successful eco-town bidders were meant to cross the finishing line in triumph and kickstart a green revolution. Instead they have staggered over the line in front of a crowd that is either hostile or indifferent to the whole idea.
The longer the process has carried on, the clearer it has become that the concept was fundamentally flawed. Stipulating that the schemes should be additional settlements not extensions to existing towns ensured that many would be on greenfield sites and raise real questions about how residents would travel to work. Insisting that they should be additional to existing plans led to inevitable accusations about ignoring the planning process and local democracy.
The four schemes announced by housing minister John Healey are the least objectionable and all are supported by their local authority. Whitehill-Bordon is even conditionally supported by the Campaign to Protect Rural England and the organisation is also sympathetic to the St Austell China Clay Community in Cornwall. North West Bicester was put forward as an alternative to the controversial Weston Otmoor scheme. And Rackheath in Norfolk was the only one to get a top rating in an independent appraisal last year.
Yet even these four have problems that need to be addressed. The detailed location decision statement recalls the findings of the independent appraisal that:
- At Whitehill-Bordon ‘trying to create an eco-town by grafting on development to an existing town will pose particular challenges and it may be more difficult to achieve a strong sense of living within an eco-town’.
- North West Bicester ‘is adjacent to Bicester and, as such, it may be challenging to fully realise the eco-towns concept’.
- At St Austell, ‘development over several sites is unlikely to deliver the critical mass required to support a stand alone sustainable community’.
- At Rackheath ‘the location is split into two sites extending either side of the proposed Northern Distributor Road (NDR)’.
The truth is that any site that had been chosen would have problems that need to be addressed. Designing and building eco or sustainable or zero carbon communities, whatever you call them, was always going to be infintiely more complicated than any previous new town or new settlement proposal.
The selection process, however flawed, has amply demonstrated that plus some other valuable lessons on issues like public transport. It’s also raised the prospect of an alternative approach - eco-quarters to existing towns and cities that provide zero carbon new homes and address the much bigger issue of emissions from existing homes.
The announcement envisages a second wave of eco-towns from 2010 onwards, which sounds optimistic given Conservative hostility. But the idea of sustainable new communities, and the need for them, are not going to go away.
Rates and rents
Three months to go and the clock is ticking. The inflation rate that matters to housing associations and their tenants is now -1.6% and by September forecasters say it could be almost -3%.
According to a report in Inside Housing last week, that will mean rent cuts of 2%. Associations’ rents are set according to a formula of the RPI in September plus 0.5% and seeing trouble on the way they have been trying for months to convince the government to keep rents flat. But sources said that the government was set to unveil a rental floor of -2% - hardly surprising when rents went up so much last year.
But is that quite it? What about associations and homes (about 850,000) that are below target rent? As Peter Marsh of the Tenant Services Authority has been telling conferences over the last few months [download here], the maximum increase allowed in any one year for these is actually RPI plus 0.5% plus £2 - meaning that RPI would have to be below -4% in September before those rents have to fall.
Confused? The official inflation rate (CPI) does not include housing costs and that has only just fallen below the government’s target of +2% at 1.8%. That’s the one that the Bank of England has used to set interest rates at a record low 0.5%. That means mortgage costs are well down on this time last year and that is the main reason why the RPI (which includes housing costs) is at its lowest in 48 years.
So rents for housing association tenants will effectively be determined by the mortgage costs of home owners. And this at a time when research for the Joseph Rowntree Foundation has just shown that the real inflation rate for someone on a minimum income is actually +5% because they spend more of their budget on food, domestic fuel and public transport and not on paying a mortgage or running a car.
If it’s any consolation, the falling RPI is not just causing problems for associations and tenants. Train companies set their fares according to the July RPI plus 1%, which means they will have to fall from January.
And the uprating of social security benefits from April 2009 is based on inflation in the year to September 2008. Pensions rise by that or 2.5%, whichever is higher.
Benefits such as incapacity benefit, child benefit, and disability living allowance are uprated in line with RPI but it’s hard to see the government risking a political storm by cutting them. Means-tested benefits like JSA, housing benefit and income support rise according to the Rossi Index (the RPI not including housing costs) - and the RPIX (excluding mortgages) is still in positive territory.
And pay negotiations are usually conducted using the RPI. Inflation falling by that much will increase the pressure from employers for pay freezes - or even cuts.
Must do better
MPs give their end of term report on housing and the credit crunch today and it does not give much encouragement to hopes that things are going to get much better any time soon.
The Communities and Local Government (CLG) committee heard evidence
from across the housing spectrum in an update of its report earlier this year. On three crucial areas, the government gets marks for effort but results are a different matter:
New homes. The MPs say: ‘There seems to be a general acceptance that the government has done a lot to try to arrest and ameliorate the fall-off in housebuilding, but the availability of public funding is simply not enough to overcome the impact of the credit crunch on the industry.’
Mortgage finance. Crucial to achieving the CLG’s housing goals even though it’s the Treasury’s responsibility. But the MPs say the asset-backed securities guarantee market, which was meant to kickstart the home loans market, ‘is not working’.
Tenure. The credit crunch exposed the fact that home ownership is not appropriate for ‘a significant proportion of the population who need homes’. The MPs say there is ‘no immutable law that owner-occupation should increase’ and that ‘insufficient attention’ has been given to the rented sectors.
The MPs recommend further steps to shore up capacity in the housebuilding industry and ’ to enable housebuilders to sell the homes they build and to allow housing need to be expressed as economic demand’.
They say CLG ministers and officials ‘must continue to work closely with the Treasury and keep up the pressure to ensure that mortgage funding flows more easily and to more mortgage providers’.
And the government must ‘debate and decide on its medium- to long-term policy with regard to the balance of tenure’.
Almost two years since the credit crisis began, the report is a sobering reminder that, despite the green shoots in parts of the housing market, housing as a whole is effectively still crunched.
Capital solution
Could tax on housing be a way to help fill the black hole in the public finances at the same time as curing our national obsession with home ownership?
An intriguing policy paper published by a Liberal thinktank this morning argues that cuts in public spending can be only part of the solution. CentreForum says that Labour plans amount to even deeper cuts in public spending than the Conservatives managed under Margaret Thatcher after 1979 - and without a stock of state-owned industries and council houses around to raise cash.
That means taxes will have to rise too, it says - in complete contrast to Conservative plans for cuts in inheritance and savings tax - and that housing is the best way to raise it. Even after the housing market crash, our homes are probably still worth £3.5bn out of a total national wealth of £7bn.
Author Giles Wilkes proposes two key measures:
- Phasing out the loophole that exempts primary residences from capital gains tax (CGT) - raising £3-6bn a year
- Introducing a flat-rate levy to supplement council tax on homes above a threshold - a 0. 5% levy on the value of homes above £500,000 would raise £3-4bn.
A solution that prevents £6-10bn a year being cut from public spending has much to recommend it. One that tackles our addiction to property speculation by taxing it in the same way as every other form of investment is even more compelling.
Except for two things. First, CGT may not be as simple to introduce or as profitable as CentreForum makes out - a whole range of tax reliefs and tapers would see to that.
Second, even when presented with a response to the crisis in the public finances that might actually help reform the housing system too, it’s hard to see either of the other two main parties dropping their worship of home ownership and the votes that go with it.
Fall guys
Is what’s good for housebuilders good for housing? There may be encouraging news for shareholders of three leading companies today but their results also show an accelerating fall in completions of new homes.
In 2007/08, Barratt, Redrow and Galliford Try built just over 25,000 homes between them - about one in eight of completions in Britain. In 2008/09, their combined total fell 32% to just over 17,000.
That’s not a surprise in itself. All leading housebuilders have followed a strategy of cutting back on production and their debts.
But the fall in completions actually accelerated in the second half of the year. Barratt’s completions in the first half (to the end of December) were down 24% on the previous year. Its second half completion were down 34% on the previous year and 9% on the first half.
That was in a period when both leading house prices indices show that house prices rose and the stats on mortgage lending were improving too. As Barratt’s Mark Clare sees it: ‘During the last six months, the early signs of stability we saw at the start of 2009 in the new housing market have continued, underpinned by limited stock and improved customer sentiment. We have seen higher sales rates, lower cancellations and prices leveling. We are not however going to see a sustained improvement in trading conditions until the availability of mortgage finance, particularly in the higher loan to value segment, recovers.’
Clearly we are not going to see a sustained improvement in starts and completions either. The Construction Products Association forecast earlier this week that only 72,000 new homes will be built in 2009 - the lowest since 1924 and a 20% fall on a miserable 2008.
Downs and ups
Halfway into 2009 is a good time to take stock of what’s happening to house prices. Smooth out the monthly ups and downs and both the major indices agree: prices have risen in the last six months.
That’s despite a 0.5% fall in June revealed by the Halifax this morning. The rest of the year has seen monthly falls of up to 2.3% and rises of up to 2.6% but the end result is that prices are up 1.5% in the first half.
The Nationwide reported a 0.9% rise for June but, with three monthly rises and two other falls since December, prices are 2.2% higher than six months ago.
That’s pretty good evidence that record low interest rates have put a floor under prices - the annual rate of decline is now down from 17.6% in February to -9.3% now according to the Nationwide. And the volatility and modest rise are the produce of abnormally low sales in a market with restricted supply.
The last housing market crash also saw period when prices were rising. According to the Nationwide prices rose 3.4% in 1993 and 1.2% in 1994 before falling 2.5% in 1995. The Halifax says prices rose 1.2% in 1993 before rising 0.2% in 1994 and -1.2% in 1995.
The difference this time is that prices fell much more in the first part of the crash and that inflation is much lower - those small rises were actually falls in real terms.
In the short to medium term the odds must still be on a period in the doldrums - unemployment is still rising but once the economy starts to improve it will only be a matter of time before the measures that have propped up the market are withdrawn.
In the long term though the rise in prices in the last six months and the slump in new supply are yet another reminder of the need for measures to stop the whole depressing cycle of boom and bust starting all over again.
Spend to save
As public spending cuts loom, you’d have thought ministers would be pinching themselves at the thought of a programme that saves more than £2 for every £1 spent.
That is what Supporting People delivers according to work by consultant Capgemini for Communities and Local Government (CLG). Total costs add up to £2.9bn - the £1.6bn cost of providing services plus £600m in housing costs, £400m in social services care and £200m in benefits and related services.
The benefits total £6.3bn, including £5.4bn on residential care, £100m on homelessness, £50m tenancy failure costs, £300m health service costs and £400m crime costs.
That net saving of £3.4bn is even higher than suggested in previous work by the same consultant. Although it makes a few assumptions that will be questioned by some people, it begs the question of why has cut the government cut funding for Supporting People by £200m at an apparent cost of up to £500m and what the effect of removing ring-fencing will be.
It’s an issue that not just relevant to Supporting People. Take last week’s £1.5bn housing package for 30,000 new homes. The government claimed at the time that it would create 45,000 additional jobs over three years.
Brian Green’s Brickonomics blog calculates the Treasury loses £20,000 for each construction worker on the dole in lost taxes and extra benefits, meaning that the creation of 45,000 jobs saves the Treasury £2.7bn (3 x 45,000 x £20,000).
If you think that sounds counter-intuitive you’re right, since he reckons the government exaggerated the impact on jobs. It takes 1.5 people to build a house but it only takes them a year so 30,000 homes actually equates to 15,000 jobs over three years.
Even so, the Treasury still gets back £900m of that initial £1.5bn investment in benefits not paid and taxes paid. And that does not include extra receipts from Corporation Tax and VAT, stamp duty on the homes sold and the multiplier effect of that extra money in the economy.
Whatever you think of the assumptions behind those two sets of calculations, the point is that investment in new homes and housing services at worst delivers savings and benefits elsewhere and at best saves the government money overall.
That’s the message that has to be hammered home again and again ahead of next year’s public spending cuts.
Two to quango
Quangos seem to grow relentlessly despite every opposition party for the last 40 years pledging to cut them. But Conservative reform plans revealed in a speech by David Cameron today are bound to leave their staff and everyone else wondering what is going to happen in a year’s time.
The latest available figures from the Cabinet Office (for April 2008) reveal that housing does not have as many quangos as other sectors. There are 790 non-departmental public bodies (NDPBs) but almost half of those report to the Ministry for Justice - for example, 145 independent monitoring boards for prisons and immigration centres - and only 18 come under the Communities and Local Government (CLG) department.
However, the influence of the quangocracy is not necessarily defined by the number of bodies operating. You might get the impression that teachers can barely open a textbook without tripping over one, but in fact the Department for Children Schools and Families has fewer quangos reporting to it that the CLG.
So how quangoed up is housing? The CLG has 11 executive NDPBs. The Homes and Communities Agency (HCA) and Tenant Services Authority (TSA) have replaced English Partnerships and the Housing Corporation since the list was published but others with some housing remit are the Community Development Foundation, Independent Housing Ombudsman, Leasehold Advisory Service, Valuation Tribunal Service and the development corporations for Thurrock Thames Gateway and West Northamptonshire.
There are five advisory NDPBs, covering things like beacon status, the planning inspectorate and the building regulations, but also including the National Housing and Planning Advice Unit (NHPAU), and two tribunal NDPBs, including the Residential Property Tribunal Service.
Cameron told the Today programme this morning that what he was proposing was less a bonfire of quangos than a review of what they were meant to be doing. Where they had a clear function (such as inspecting nuclear facilities), promoted fairness (where it was right that decisions should be taken independently of ministers) or created transparency (as with the independent Office for National Statistics) he has no problem.
But he said that they should not be ‘endless making policy’ - that was better done within departments - or creating huge communications departments to do their own lobbying.
On that basis, the HCA, whose creation was opposed by the Conservatives and which took over some CLG responsibilities, looks vulnerable. At Harrogate, Sir Bob Kerslake said that the HCA had been told it would have to justify its existence.
The TSA did not attract the same criticism as the legislation was going through parliament but it may also face hard questions and perhaps yet another turf war with the Audit Commission.
However, would yet another shake-up really be in the interests of either housing or a new Conservative government? Both agencies might have been strangled at birth if the election had been earlier but will the Tories still want to change things in 11 months’ time?
Neither of them looks as vulnerable as the NHPAU. Its remit ‘to improve affordability across the housing market, including by increasing the supply of housing’ will arguably be even more important in 2010 than when it was set up in 2007 but providing advice to the government on supply targets that the Tories are pledged to scrap does not exactly sound like a secure job.
Own goals
What is low-cost home ownership for? A series of developments this week make me wonder whether the attitudes of lenders, providers and the government have ever been further apart.
Conservative housing spokesman Grant Shapps has dubbed HomeBuy Direct ‘a very expensive flop’ this morning as he claimed that nationalised Northern Rock has refused to support it and less than five homes have been bought under the scheme since it was launched in September.
Housing minister John Healey has - putting it mildly - disappointed housing associations by scrapping Open Market HomeBuy to concentrate on new build schemes….like HomeBuy Direct.
In a letter to Inside Housing Steve Howlett, chair of the G15 group of leading associations, accuses lenders of lacking corporate social responsibility by favouring shared equity over shared ownership.
And it emerged that up to two-thirds of first-time buyers who thought they had got an equity loan through MyChoice HomeBuy missed out when it ran out of funding.
So should low-cost home ownership prop up housebuilding? Should it be targetted specifically at low-income households or people on the waiting list? Or should it help anyone who hasn’t got a deposit and can’t get a high loan to value mortgage?
And what happens when the public spending shutters come down?
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