All posts from: October 2009
The battle lines on housing between Labour and the Conservatives are getting sharper by the day and there is also an emerging second front between the two main parties and the Liberal Democrats.
There may not be an issue quite as iconic as the right to buy was in 1979 but political divisions certainly seem stronger than in the eighties, nineties and noughties. The key issue is new homes and the way things are shaping up it is set to pitch that most Tory of industries, housebuilding, into the Labour camp.
That is remarkable for anyone who remembers the mutual admiration society between Margaret Thatcher and the housebuilding and construction tycoons Sir Lawrie Barratt and Frank Taylor in the 1980s. Thatcher famously bought a Barratt house to retire to while Taylor was a key Tory donor.
Flash forward 25 years and the Labour communities secretary was able to seize gleefully on comments by the chief executive of the firm that Taylor founded in this week’s communities and local government questions. ‘It was not me but the chief executive of Taylor Wimpey who described his party’s policies as “scary as hell” because of the uncertainty being created,’ John Denham told shadow planning minister Bob Neill.
The issue was of course the Conservatives’ pledge to abolish regional spatial strategies. For the Tories it’s all about giving power over planning decisions back to local communities; for their opponents (and more than a few housebuilders) the result will be disastrous for new homes.
A succession of Conservatives questioned Denham and housing minister John Healey on the issue. While they came from all around the country, the region seeing the most controversy is the South West, where a legal challenge to the strategy means it will not be finalised until next (election) year.
With Labour holding only a handful of seats in the region, the main battle in the South West is between the Conservatives and the Lib Dems, who have to steer a delicate line between being pro-housing and being out-nimbied. Denham’s Lib Dem shadow, Julia Goldsworthy, said the regional spatial strategy process had undermined confidence in the political system and made many people angry.
Denham’s answer summed up the Labour case against the Tories. ‘We need to ensure that we have sufficient land for housing, growth, economic development and jobs for the future,’ he said. ‘That cannot be a purely local decision; it must have regional and national elements. I hope that she is not joining with the incredibly damaging position of Conservative front benchers in saying, “Jobs don’t matter. Housing doesn’t matter. Growth doesn’t matter.” All they want is local populism. There are difficult choices to be made, and we need political parties in this country that, unlike the party opposite, will face up to those difficult choices.’
While Goldsworthy and other Lib Dems pressed home the attack over the fact that the strategy for the South West is determining planning policy despite being only a draft, a succession of Conservatives attacked the government over the strategies which shadow communities minister Stewart Jackson alleged were ‘deleting the green belt across the country’.
But there was time too for a Labour-Lib Dem bust-up centred on Liverpool. Labour MP Peter Kilfoyle attacked the Lib Dem city council for not applying to join the council house building programme but appointing an assistant executive director of housing on £102,000. Healey told him: ‘I was disappointed that it chose not to see the chance to build new council homes for people in the city as a priority, and that, like other flagship Liberal councils in Hull and Newcastle, it did not bid.’
All in all it’s shaping up to be the biggest election for housing in England since 1979 and the right to buy - which the SNP is about to abolish in Scotland.
Property speculation on expenses has always seemed to me to be more serious than the odd bathplug or moat, so the leak that MPs will be banned from claiming for second home mortgages is welcome news.
Reports say the ban will be one of the key recommendations made by Sir Christopher Kelly when he publishes the results of his inquiry next week. But what took so long? Why did it need an independent inquiry to recommend that what is good enough for MSPs in Edinburgh should also do for MPs in London? And why were the Lib Dems the only party calling for a ban?
As I pointed out five months ago, changes in the rules at the Scottish parliament made the Westminster look untenable. From 2011 mortgage claims by MSPs will be banned to stop them profiting from property speculation using public money. Those with constituencies more than 90 miles away from Edinburgh will be able to claim an accommodation allowance but they will have to use it to rent or get a hotel.
Any ban at Westminster would have to be phased in too, which means new MPs will be able to sit in their rented rooms and contemplate profits made by their predecessors that run into millions of pounds. More than 400 MPs made mortgage claims of more than £15,000 last year. To take one example from the Telegraph, one Tory shadow minister made a £320,000 profit on a flat on which he had claimed more than £40,000 in purchase and mortgage costs.
Meanwhile MPs who made their profit and evaded paying capital gains tax on it by flipping the designation of their second home look set to get away with it after the Speaker ruled against broadening the scope of the Legg inquiry.
It’s almost as though the notion of the right to profit from home ownership had become so embedded at Westminster that it needed an outsider to point out the obvious.
One way or another localism is going to be crucial in the next decade but does anyone know what it really means?
The Conservative vision put forward in the party’s white papers on planning and housing seems to offer an attractive alternative to top-down targets and centralised funding. The flagship policy of matching the additional council tax for each new home built for six years should give local communities an incentive to be pro-development (although most of it is not new money).
And even if the Tories do not win the general election, a consensus is emerging across the political spectrum about the need for more autonomy for local authorities and stronger public-private partnerships.
A clutch of reports and consultation responses out this week show just how widespread that debate is becoming - and how complex some of the issues are.The British Property Federation (BPF) responded to the Conservative white papers by welcoming localism and ‘plans to pay councils to build’. But its response - for some reason accompanied by a picture of the Spitting Image puppet of Margaret Thatcher - is also a plea to the party to adopt existing BPF priorities such as tax increment financing, build to let and empty rate relief on new development.
The New Local Government Network (NLGN) published a report yesterday warning of a public sector ‘tsunami’ next year as public spending cuts hit investment in transport, schools, housing and other facilities and calling for new freedoms for local authorities to raise funds.
Local authorities get 75% of their funding from central government, it points out. Much of the rest is dependent on the market and income from capital receipts and section 106 contributions has slumped. Unless action is taken, it warns of a return to the 1990s backlog of public investment.The report calls for a range of innovations including reform of the private finance initiative (PFI), user charging, municipal bonds, mutualisation and new forms of partnership with the private sector. ‘The constitutional circumstances which have created a local government community almost totally reliant on Whitehall now risk leaving much of our public services and facilities bereft of investment,’ said NLGN director Chris Leslie. ‘We urge preparedness within the sector for the looming political obsession with national debt which could see a Treasury cutting capital grant and loan availability severely.’
All of those proposals can be lumped together under the heading ‘localism’ but so too can freeing local communities to be nimbys. So can the government’s ‘total place’ initiative to treat local government spending as a single sum rather than separate ring-fenced budgets.
Localis, the think-tank at the heart of the debate within the Conservative party, has called for more radical localism and much greater devolution of financial power. It is also one of several right-wing think-tanks calling for local authorities to be freed from national obligations on allocations and security of tenure.Scrapping top-down targets and making funding less centralised is one thing but abandoning control from Whitehall and national legislation is quite another. How local will the -ism really be?
What is it about housing benefit that produces so much misery and so many well-intentioned plans that go wrong? Yesterday a report by Shelter has found that a quarter of private tenants are falling behind with their rent as a result of direct payment of the local housing allowance and Grant Shapps pledged to let tenants choose to get it paid direct to their landlord.
Today Inside Housing has revealed the plight of vulnerable housing association tenants left facing rent shortfalls of £10,000 a year. This time last year the furore was all about tenants getting paid too much - the government was forced to announce caps on the allowance after media reports of a family that received payments of nearly £3,000 a week to rent a seven-bedroom home in Ealing, west London. Over the last few years take your pick from the problems caused by the single room rent, broad rental market areas, the verification framework, benefit administration chaos, the housing association rent formula…the list goes on.
This time next year there will probably be a Conservative government with Iain Duncan Smith in charge of mending ‘broken Britain’ and drawing on radical plans by his Centre for Social Justice think tank for a universal life credit combining housing benefit, council tax benefit and working family and child tax credits for all low earners. How long before that too falls victim to the problems that seem to dog any reform plan? And will people out of work be ‘supported’ back into it by cutting their benefit and undermining their security of tenure?
The problems facing housing benefit/local housing allowance are bad in the social sector, worse in supported housing and even worse in the private sector. The root cause is that housing costs linked to market rates inevitably rise faster than politicians and taxpayers are prepared to pay for them. The problems will get even worse at a time of rising unemployment and shrinking public spending.
Add to the equation the steady shift from bricks and mortar to personal subsidies and the accompanying slowdown in social sector development and widespread use of the private rented sector to house homeless families and problems like the ones revealed this week are more or less inevitable. Somehow, somewhere there must be a system that allows landlords a reasonable return without letting them charge what they like, that pays reasonable rents for tenants without trapping them on benefit and that controls costs for the taxpayer without creating misery for claimants. But that’s what the architects of the local housing allowance thought they had designed and probably what the social security commissioners involved in the latest debacle thought they were doing.
Reports that HBOS is in talks to hand over its land holdings to a group of leading housebuilders sound like just another piece of fall-out from the housing market crash - until you ask yourself who really owns that land.
The holdings are the legacy of the bank’s disastrous strategy of making direct investments in a clutch of leading property developers and housebuilders as well as lending money to them. The strategy contributed to the multi-million losses that led to HBOS having to be bailed out first by Lloyds and then by the taxpayer.
Before the shit hit the fan, HBOS had built up stakes of up to 50% in four of the top 20 housebuilders (Miller, Crest Nicholson, Countryside, Cala) plus other companies including Tulloch and Kenmore.
On the latest figures I can find, between them they own land with planning permission for more than 40,000 homes and their total land holdings are enough up to 150,000 homes. That’s not in the league of the Barratts and Taylor Wimpeys but it’s still a significant proportion of the housing land held by private builders and is the equivalent of a year’s production at pre-crash levels or two years at current levels.
Details about the proposed deal are sketchy but the idea seems to be that HBOS would hand over the land to companies like Barratt, Persimmon and Bellway and homes would be built in a series of profit-sharing joint ventures.
That seems to work for Lloyds in terms of repairing its balance sheet and it works for the housebuilders too because a sell-off could trigger a further fall in land values.
But does it work for the majority owner of Lloyds? Perhaps, if it leads to the government and taxpayer recouping the cash. But how far is a deal that further concentrates the ownership of housebuilding land really in the public interest? Why not deal instead with the new developers that are already expressing an interest in the Homes and Communities Agency’s public land initiative? Why not make the HBOS land part of that initiative?
It could be that a deal with the big companies still makes the most financial sense but not without at least considering the alternatives first.
The retreat from the lofty ideals of the local housing allowance continues today with a pledge by the Conservatives to give private tenants the right to have their benefit paid direct to their landlord.
Shadow housing minister Grant Shapps said the current situation was ‘bad for everyone’ and the switch would destigmatise a system that has led to landlords pulling out of the market and increase the supply of homes available to tenants on benefit.
It’s hard to disagree with that but then direct payment has looked pretty pointless ever since the government scrapped shopping incentives in the Budget. The allowance was already up for review by April 2010 and last week the work and pensions select committee announced its own inquiry.
The whole point of the allowance in the private rented sector was that tenants would get a flat-rate sum paid direct to them and be able to choose whether to rent a more expensive home and top it up or rent a cheaper one and keep any surplus up to a maximum of £15 a week.
Supporters argued this would give tenants a greater sense of financial responsibility at the same time as introducing more choice and competition - although a backbench revolt over the scrapping of the £15 a week incentive has not materialised yet.
However, landlords have never liked direct payment despite some encouraging results from areas that piloted it. The National Landlords Association argued this week that landlords are owed £220m in rent arrears on local housing allowance tenancies.
If direct payment follows shopping incentives into the dustbin all that will be left will be to find a new name for the local housing allowance. How about housing benefit?
MPs from all parties sprang to the defence of sheltered housing residents and their resident wardens yesterday in one of those debates that shows that parliament is actually about more than the expenses scandal.
Tory backbencher Geoffrey Cox kicked off a Westminster Hall debate on a subject that has been covered extensively in Inside Housing in recent months and MPs produced a litany of complaints including wardens told they will be sacked or disciplined if they speak to anyone about changes in the system and residents being consulted on a switch to floating support after the decision has already been made.
The MPs heard that 500,000 people, or 7% of the retired population, already rely on sheltered accommodation. Yet Help the Aged estimates that changes to supporting people will drive a massive switch from resident to floating support - from 5% of schemes now to 40% within the next two to three years.
Several backbenchers supported the general drift of changes to Supporting People but warned that administering authorities were being too intransigent in inisisting that floating support is always best and were not dealing with the costs of not having wardens.
Cox accused the government of abdicating responsibility by leaving the decision to individual authorities. And he and other MPs accused providers of denying elderly residents their consumer rights. ‘Individuals have made important decisions to their detriment, based on the understanding that 24-hour wardens would be present, and then they find that those wardens are removed,’ he complained. ‘That cannot be right. In particular,it cannot be right when written or oral representations have been made to residents saying that the 24-hour warden will be there and that there is no risk of them being removed from that particular housing development. How can it be right then to break those representations? It cannot be right, and I apprehend that the legitimate expectations to which such situations have given rise are the basis of some of the cases before the High Court now.’
There was also a shot across the bows of providers moving to a more business-oriented model from Lib Dem MP Dr John Pugh. ‘Sheltered housing providers need to think hard about their mission,’ he said. ‘They are identified with a particular product and a particular kind of client relationship. I know that some of the larger ones want to change the nature of that relationship, and are more attracted to the provision of peripatetic care packages than to the traditional role of providing sheltered housing in the understood sense. However, such providers risk becoming more business-like and losing some of their original sense of mission or soul. One thing weighing heavily on people who complain about what sheltered housing provides is the very high salaries paid by some of the bigger housing associations to their chief executives.’
The MPs calling for change did not get much out of junior housing minister Ian Austin, who insisted that everyone agreed that ‘local authorities are best placed to identify the services that are required to meet the needs of their local areas and to balance local priorities’.
But he did have a pledge about consultation. ‘However, we are equally clear that in developing and commissioning local services, local authorities should take into account the views and experiences of local service providers, local people and especially of service users,’ he added.
What that will amount to in practice remains to be seen but Austin also said that the working group on sheltered housing chaired by junior communities minister Lord McKenzie would provide ‘precisely the sort of leadership that has been called for in this debate’ and would also address points about lack of consultation and lack of clarity in complaints procedures by providers.
Whether or not that will be enough to satisfy campaigners remains to be seen. However, there is no doubt that the debate was well timed. New population projections released today that show the number of people over 75 will grow by 1m over the next ten years and 4m over the next 25. Who will look after them and how?
With barely two months to go before the end of the stamp duty holiday, the chorus is growing for another extension. But can the government afford it when official figures show it lost almost £4bn in receipts from the tax last year?
The threshold where buyers start paying stamp duty was temporarily raised from £125,000 to £175,000 for a year from September 2008. This was extended to the end of the year in the Budget in April.
According to the Halifax, the result was that an extra 31% of buyers paid no stamp duty. Overall, 63% of all buyers and 83 per cent of first-time buyers were exempt. Just one more reason why the housing market has been so resilient recently.
But the holiday is not the reason why total receipts have fallen so sharply - on those figures it has cost something like £200m.
Compare that with the latest figures from HM Revenue and Customs. They show that the total stamp duty yield attributable to residential property fell from £6.7bn in 2007/08 to just £2.9bn in 2008/09, blowing a £3.8bn hole in the government’s finances thanks to the fall in house prices and (especially) transactions.
Stamp duty has been a huge cash cow for Labour, raising more than £40bn since 1997 thanks to the introduction of higher rates for more expensive homes. Since 2000, stamp duty has been 3% on properties worth over £250,000 and 4% on those worth over £500,000.
Those slabs create all kinds of distortions around the thresholds but it has produced a tax that has three pretty good things going for it in my book - it is next to impossible to avoid and the bill is higher for the rich and for people in London and the South East. Almost half of the take in 2008/09 came from sales in those two regions and from houses worth over £500,000.
Those kind of figures make it hard to see the government bowing to pressure from the 1808 Coalition to abolish the tax in its current form - the fact that 86% of estate agents think it is unfair is another good reason in favour - even if the arguments in favour of a more general reform of property taxation are pretty overwhelming.
However, the coalition might have stronger arguments for extending the holiday - on the one hand, it would benefit thousands of buyers without losing too much; on the other if it helps underpin a recovery that gets transactions going again it could even lead to an increase in the total take.
Top marks to the Financial Services Authority (FSA) for resisting the temptation to allow a return to business as usual in the mortgage market.
In a discussion paper published this morning, the regulator proposed a range of measures that in effect will save borrowers and lenders from themselves. They include:
- affordability tests for all mortgages that make lenders ultimately responsible for assessing a borrower’s ability to pay
- a ban on self-certified mortgages - the so-called liar’s loans that accounted for half of the market in 2007
- no specific controls on loan to value or loan to income but stopping loans that show toxic combinations of risk factors
- banning lenders from making arrears charges on customers in arrears who are repaying them
- making all mortgage advisors personally responsible to the FSA
- regulating buy to let and second charge loans for the first time.
In doing so, the FSA has resisted pressure from mortgage lenders and brokers to rein back from the approach advocated by the Turner review earlier in the year. Instead it will take a new regulatory approach. ‘We shall no longer intervene based solely on observable facts but will be proactively analysing risks at an individual firm level, making judgements about the prudential and conduct risks firms and consumers may face through,for example,high-risk lending strategies. We will intervene where necessary.’
As FSA chief executive Hector Sants told the Today programme this morning it’s extraordinary that banks need to be told not to lend to people who cannot afford to repay or that borrowers need to be stopped from taking out unaffordable loans - but the lesson of the crash is that they do.
The controls will operate in addition to prudential reforms that will increase the amount and quality of capital that banks have to maintain for their mortgage lending. And it does not rule out future caps on loan to value, loan to income or debt to income as part of that broader framework in future.
The measures were ‘welcomed’ by the Council of Mortgage Lenders (CML) despite its plea to the FSA last week not to regulate self-cert and buy-to-let loans. However, it pointed out the irony of proposing new controls on irresponsible lending at the same time as politicians call for more lending.
Other responses today have focussed on the potential plight of self-employed people, for whom self-cert mortgages were often the only route into the housing market. However, the FSA denies the ban will effectively freeze them out. ‘Self-cert mortgages were designed by the market to meet the needs of self-employed borrowers but grew waybeyond the consumer groups for which they were originally intended,’ points out the discussion paper.
It also remains to be seen what effect the new regime will have on lending for shared ownership and shared equity. Neither is mentioned in the discussion paper beyond the inclusion of shared ownership rent in a best practice test of free disposable income.
The FSA proposals now go out to consultation until the end of January and a feedback statement will be published in March - just weeks before a general election and a possible Conservative government that is pledged to scrap the regulator and give control back to the Bank of England.
Two tax agendas. One could help prevent boom and bust in the market, reduce risks for developers, boost investment in rented homes and maybe even solve some of the government’s financial problems. The other could boost profits for estate agents and existing homeowners.
No prizes for guessing which is more likely to happen.
The first is one of eight key proposals in a new report from the Building and Social Housing Foundation (BSHF) for reform of Britain’s dysfunctional housing system. Taxation based on property or land values could help to prevent crashes by discouraging speculative purchase of assets, it says. The reduced volatility would reduce risks for developers and therefore the returns they require and increase scope for investment in long-term rental.
The second calls for the abolition of one of the only existing taxes on house values. The National Association of Estate Agents and Association of Residential Letting Agents want the abolition of stamp duty. They have formed the 1808 Coalition, named after the year it was introduced, to campaign for reform starting with the extension of the stamp duty holiday beyond the end of the year.
Options proposed by the BSHF include:
- Reforming the council tax to make it less regressive or replacing it and stamp duty with one property tax
- Equal tax treatment for owning and renting and for first-time buyers and existing homeowners
- Gradually introducing capital gains tax on first homesInheritance tax incentives for older people to pass on property assets during their lifetime.
Politically impossible? Yes maybe, but the same was said about abolishing mortgage tax relief in the 1990s. It was an unfair subsidy that distorted the housing market and also an absurd one since it was a relief on a tax on imputed rental values that was abolished in the early 1960s.
However, as the report points out, few people noticed when it was finally scrapped because it was phased out over a period when interest rates were falling. Crucially too, it happened in a period when people could remember the crash of the early 1990s and see that it made sense.
The wake of the noughties crash offers an opportunity to go further with reforms that could benefit the housing system as a whole and maybe even help the government out of a financial hole too. If it’s brave enough.
The debate is hotting up ahead of next week’s mortgage review from the Financial Services Authority (FSA) and the focus is firmly on buy-to-let and self-certified loans.
The review will consider a whole range of issues, including limits on loan to value and loan to income ratios. A submission yesterday by the Council of Mortgage Lenders (CML) argues that too much regulation now will limit competition, mean fewer mortgages and hurt first-time buyers. But consumer groups say regulation is essential to stop a repeat of the excesses of the boom and the arrears and repossessions seen since.
Up to a third of new mortgages in 2007 were self-certified, allowing borrowers to get a loan without providing any evidence of their income, while another 12% were buy to let. A report in The Times yesterday suggested that the FSA is about to regulate both.
Buy to let is not currently regulated by the FSA but it’s not just consumer groups who argue that it should be. Earlier this month the British Property Federation (BPF) and estate agent Savills issued a joint call for regulation of the sector, arguing that irresponsible lending damaged the housing sector’s reputation and banks’s ability to lend and that this means professional landlords cannot afford to expand their portfolios despite booming rental demand.
The CML argues that although buy-to-let mortgages ‘are loans against residential property, they can be considered to be more commercial transactions with an investment dimension, and applying mortgage regulation designed to protect consumers appears inappropriate’.
Self-certified mortgages, which critics call ‘liar’s loans’, seem an obvious target for controls. However, the CML says they are needed as a niche product for people with an irregular or unverifiable income and an outright ban would exclude them from the mortgage market altogether.
You sense that this is just the start of what could be a fierce debate and one that will not necessarily end when the FSA makes its final recommendation. Lurking in the background is the pledge by the likely next Conservative government to abolish the regulator and transfer its duties to the Bank of England.
So now we know: unless the government listens to last-minute pleas from the National Housing Federation (NHF) and Council of Mortgage Lenders (CML) housing association rents will fall by 0.9% next year.
The -1.4% September figure for retail price index (RPI) inflation published this morning triggers the RPI plus 0.5% formula that applies to most association rents from next year. However, it could have been much worse for associations: at one stage it looked like prices would be falling by up to -3% by now.
That’s why the Communities and Local Government department proposed a -2% cost floor in a consultation paper in July. In their responses, both the NHF and CML argue that the floor should be 0% and that there should now be a rent freeze.
In a response published yesterday, the NHF argues that CLG has got it wrong: ‘We believe that under the current rent increase formula, a rent floor already applies in the event of negative RPI inflation. The formula was never designed to decrease rents and the guidance refers specifically to the determination of rent increases and not decreases.’
Even since the consultation paper was published, it says that government demands that associations develop apprenticeship and local labour schemes and support family intervention projects and mortgage rescue will all add to their costs.
But the NHF’s core case is that: ‘Our research suggests that a number of housing associations would be forced to make significant cuts to neighbourhood services, stock investment programmes and their plans to develop new homes if rents were cut. In some cases a reduction of this amount could challenge the viability of some organisations or cause them difficulties in complying with lender covenants particularly those relating to stock valuation which are often driven by the value of the rental income derived from properties.’
Even worse, the rent fall would have a continuing effect on business plans well beyond any period in which prices are actually falling.
Tenants who have seen associations increase the pay of their chief executives by an average of 7% may have a hard time sympathising.
However, the irony is that all this is happening because of something that has absolutely nothing to do with housing association rents: mortgage costs Without an 11.2% fall in housing costs - most of which is down to mortgage payments and house depreciation - the RPI figure would have been positive. RPIX, an alternative measure that excludes mortgage costs, rose 1.3%.
Housing associations and their tenants are not the only ones interested in today’s news. Benefits like incapacity benefit, child benefit, and disability living allowance all rise by zero or September RPI, whichever is greater. However, the chancellor is already under pressure to find room for an increase rather than a freeze.
The NHF had earlier estimated that the Treasury would save £109m in housing benefit from a 2% cut - peanuts compared to the cost of increasing other benefits. My back of an envelope says that it will now save £50m. Even in a financial crisis, is it really impossible to come up with a solution that protects associations without penalising tenants who are working?
First-time buyers now need to raise a deposit of a year’s salary to get a foot on the housing ladder. Are they all effectively shared owners now?
New figures issued by the Council of Mortgage Lenders (CML) today show that the average advance for a first-time buyer in August 2009 was £100,000 and was worth 75% of the value of their home. That means the average deposit was just over £33,000 - the same as the average salary.Contrast that with August 2007, just before boom turned to bust.
The homes first-timers were buying were worth £132,000, about the same as now, but they were getting a 90% mortgage on that worth £119,000.
The average deposit of just over £13,000 represented just over four months’ worth of their slightly higher £35,000 salary.The CML estimates that 80% of first-time buyers are now receiving help from their family compared to a little over 40% two years ago - an extraordinary statistic given that homes have apparently become more rather than less affordable in that time.
Interest payments now take up 15.2% of their income compared to a peak of 20.7 at the end of 2007 while mortgages are worth just over three times their income compared to a peak of 3.38.
The other obvious source of a deposit for first-timers is their local housing association. It remains to be seen whether loans from parents and grandparents will ever actually be repaid but their effect is remarkably similar to the equity loans available through homebuy schemes. Which begs the question of why lenders are apparently more resistant to housing help (especially shared ownership rather than shared equity) when it comes from the state rather than the family.
The other stats show a first-time buyer market that is still sclerotic. The number of first-time buyer loans is up 29% on this time last year but not much more than half what it was in 2007. There is also some evidence that the recent recovery is slowing down - the number of loans was actually down 5% on July.
Housing associations have never had to worry much about Mr Micawber’s famous dictum about happiness and misery before.
Last year was the first time that many of them have faced anything other than comfortable financial circumstances - the last housing market crash happened before most had expanded much into shared ownership and development for sale. For some time it looked like things would be even worse that the 2008/09 account reveal but even so several flirted with turning ‘result: happiness’ into ‘result: misery’.
To pluck one name at random from the list of the top 20 revealed in Inside Housing this week, Genesis had impairment of £6.9m in 2008/09 on top of £5.8m in 2007/08 and a pre-tax surplus of £10.9m became a pre-tax deficit of £1.4m.
But its accounts also suggest that Micawber was right to believe that ‘something will turn up’. The impairment ‘charge was reduced following grant allocations from the Homes and Communities Agency before and after the year end’.
This is not to single out Genesis - in fairness, it tells Inside Housing that some of its joint ventures are ‘different in scale and nature’ from other housing associations and should not be included in the group’s core activities - because 16 of the top 20 developing associations also had impairment.
Meanwhile the problems were not confined to the biggest developers. Outside the top 20, Anchor had impairment of £12.4m, which contributed to a £35m deficit, and Riverside had impairment of £10m thanks to its commercial property arm, Prospect (GB).
And, as Jonathan Pryor points out, worse may be to come next year thanks to falling rents and changing accounting policies.
But just to put all that into happiness and misery into perspective, consider this. The top six housebuilders wrote off £4bn in exceptional items in 2008 including impairment and restructuring costs - that’s more than the total turnover of the top 20 housing associations.
Housing associations get some handy support from mortgage lenders today in the battle over next year’s rents - but do they need it?
The Council of Mortgage Lenders (CML) calls for a rent freeze rather than a maximum cut of 2% in its response to the government consultation on directions to the Tenant Services Authority (TSA).
Rents are set according to a formula of the retail price inflation figure in September plus 0.5% which means they should fall if rents are negative. The consultation paper set a floor of -2%.
The National Housing Federation says a cut will not save much money on the housing benefit bill but will leave a hole in associations’ finances that could mean 40,000 fewer new homes over the next decade.
The CML agrees, arguing in its response: ‘In terms of public finances, although there are potential short-term savings in allowing rent decreases, these would be more than offset in the short and longer term by reducing rental income going forward to support development of new homes, improvement works and additional activities to support training, unemployment and reduce anti-social behaviour.’
Even worse, it argues, could be the impact on the perception of the sector by investors and lenders. ‘The extent of a potential precedent of -2% is unprecedented for the HA sector. The natural query this raises from an institutional investor and/or rating agency is what this precedent implies for future rent settlements.’
A floor of 0% would, it says, ‘limit the impact on delivery of policy, viability and capacity of providers as well as on public finances’.
All eyes now will be on the September RPI figure, which is due next week. Given the August figure was -1.3% it seems unlikely now that the cost floor will be breached but does that make the dilemma for ministers easier or harder?
On the one hand, why should tenants not benefit when the RPI falls, just as they suffered when it rose so much this time last year? On the other, a cut could play havoc with associations’ finances at just the time that public investment is starting to fall. And how absurd that rents are tied to a measure of inflation that is so heavily influenced by mortgage costs and house prices.
One thing the government should probably not do is take everything mortgages lenders say at face value. These, after all, are the companies who have increased their margins on mortgage rates over the last six months - while the base rate has stayed the same record low 0.5%. Any tenant looking to escape their rent and buy a home could easily find themselves paying 10 times that.
Can Grant Shapps and the Conservative Party really turn us into a nation of homebuilders rather than nimbys?
He boldly claimed at the party conference today that the Tories are now the housing party - and in fact have always been thanks to the legacy of Macmillian building 300,000 homes, MacLeod founding Crisis, Thatcher introducing the right to buy and Sir George Young building 90,000 affordable homes in the depths of the last recession.
He said the Tories would deliver by trusting local people rather than imposing top-down Stalinist targets. Instead there would be ‘incentives and planning reforms to build more homes’.
So far, so good - and thanks to the slump in housing starts in the last two years his target of building more homes than Labour may not be so difficult to achieve. The Tories’ pledge to match any extra council tax on new homes for six years certainly sounds like a big incentive and goes with the grain of the argument being made across the political spectrum that local communities need to be given reasons to be pro-development.
But doubts persist about whether this approach will work - not least from some of the major house builders who are normally the Conservatives’ biggest supporters. Scrapping Labour’s regional spatial strategies and targets may be popular on the conference floor but will local incentives really bridge the gap?
It may be popular to promise to protect the green belt at the same time as scrapping density targets on urban sites and stopping garden grabbing in the suburbs but is that a realistic overall policy or a contradictory set of policies designed to appeal to opponents of new homes wherever they are proposed?
Council tax incentives do sound like a great idea but is the money involved really enough to overcome local prejudices - especially when this is not new money but a redistribution of Labour’s housing and planning delivery grant?
Macmillan may have built 300,000 new homes but half of them were council houses. Private sector output has never risen much above 150,000 since the war - so what is the deal with the housing budget?
Shapps has played a great hand in exposing Labour’s record on new homes but when the chips are down does he really have the cards?
The pantomine villain of the Labour party conference has posted an extraordinary 7,000-word online defence of his policies.
Hammersmith & Fulham leader Stephen Greenhalgh faced a barrage of criticism in Brighton over a Localis pamphlet he co-authored calling for radical deregulation of social housing. Housing minister John Healey challenged Tory leader David Cameron to disown what he called ‘secret plans to double or triple the rent for eight million people’. Tenants from the West Kensington estate were also there to protest about redevelopment proposals.
But Greenhalgh quotes former Labour ministers, Labour council leaders, housing associations, the Housing Corporation, the Tenant Services Authority (TSA), the Chartered Institute of Housing (CIH) and left-leaning think-tanks in support of what he’s doing with the borough’s housing in a blog on conservativehome.com.
The council leader argues that Hammersmith & Fulham’s housing strategy is ‘based on empowering individuals and families to help themselves and take up the opportunities that are and will be developed’ and that its estate regeneration plans are similar to those being planned by other boroughs across London.
And he says he is continuing a debate about the future role of social housing that was started by former Labour housing minister Caroline Flint and subsequently taken up by the CIH, TSA, Housing Futures Network and Smith Institute.
Labour and local critics will disagree but, with Conservative delegates due to discuss housing at the party conference in Manchester this morning, it’s a debate that seems set to run and run - up to the election and beyond.
This week’s music issue inspired me to create a personal top 10 of songs related to housing and home. It’s time for number five to number one.
Apart from all being ancient musical history, I think these five (ok, i cheated, six) songs all have something to say about the nature of home and community and perhaps why housing will always be about more than mortgage rates and service users or just a place to live.
All but one are from the 70s and 80s but i think that’s not just to do with my age and tastes since that was exactly the period when the idea of the right to a home and a decent community for all was first articulated.
5) Woman of the Ghetto - Marlena Shaw
You may have seen one ghetto, Marlena Shaw asks the politicians, but have you lived there at all? Home is about far more than four walls.
‘How do you raise your kids in a ghetto?
Do you feed one child and starve another?
Won’t you tell me, legislator?’
4=) George Bush Doesn’t Care About Black People - The Legendary K.O.
Not much had changed in 30 years. In 2005 Gold Digger by Kanye West was number one in the US at the same time as Hurricane Katrina hit New Orleans. The president’s response to the death of a whole community was heavily criticised and West told a televised benefit concert that ‘George Bush doesn’t care about black people’. The result was this mash-up by a Houston hip-hop duo.
4=) Inner City Blues - Marvin Gaye
Home is about the community around it too, as Marvin Gaye realised when he broke out of the Motown cocoon to ask what’s going on?
‘Crime is increasing
Trigger happy policing
Panic is spreading
God know where we’re heading’
3) Home Is Where the Hatred Is - Esther Phillips
Gil Scott-Heron’s song about heroin addiction (later sampled by Kanye West) is incredibly powerful because of the way it inverts the idea of home as a place of safety. This version is even more chilling
‘Home is where i live inside my white powder dreams
Home was once an empty vacuum that’s filled now with my silent screams’
2) Ain’t Nothin’ Going On But the Rent - Gwen Guthrie
Should this be the theme tune for this week’s Conservative conference? Gwen Guthrie put it much more memorably than David Cameron or Theresa May ever could: ‘You got to have a J.O.B. if you want to be with me’
1) Ghost Town - The Specials
Speaking of jobs, the song that says it all about the the last time there was a new Tory government - let’s just hope we’re not about to be coming like a ghost town all over again.
This week’s special music issue got me thinking about a personal top 10 of songs inspired by housing in its widest sense.
I know the minute I post this I am going to remember other songs that should have been here but here goes with Nos 10-6.
Top five to follow.
10) Back to the Old House - The Smiths
For how it feels when you go past your old place but would rather not go there
‘When you cycled by
Here began all my dreams
The saddest thing I’ve ever seen
And you never knew
How much I really liked you’
9) Lonely Avenue - Ray Charles
The great man was ahead of his time with this lament about the rise of single-person households
‘Well my room has got two windows
The sunlight never comes through
I’m so sad and lonely, baby
Since I broke off baby with you’
8) God Is the House - Nick Cave & the Bad Seeds
A song about people who believe they can insulate themselves from what’s around them
‘Moral sneaks in the White House
Computer geeks in the school house
Drug freaks in the crack house
We don’t have that stuff here
We have a tiny little force
But we need them of course
For the kittens in the trees
And at night we are on our knees
As quiet as a mouse
For God is in the house’7) In Every Dream Home a Heartache - Roxy MusicJust to prove that expensive house is not everything it’s cracked up to be - without that special companion‘The cottage is pretty
The main house a palace
But what goes on
What to do there
Better pray there’6) Johnny Come Home - Fine Young CannibalsA drunk abusive father’s plea to his runaway son‘Johnny
Won’t you come on home?
Won’t you come on’.
Mortgage default rates are falling for the first time in two years and even loan availability could be about to improve. Crisis over and no need for increased regulation?
The improvement in default rates and losses on secured lending reported in today’s credit conditions survey from the Bank of England is against expectations. Mortgages are still in short supply, with a small net balance of lenders saying they had reduced the availability of secured credit to households, but this is expected to improve in the next quarter.
The survey comes as the leading industry organisations respond to government consultation on regulation that was launched when the market was still lurching from worse to worse and options like lending limits and a ban on mortgages of over 100% were being seriously considered.
But the Council of Mortgage Lenders (CML) said yesterday that the government needed to strike the right balance ‘between the promotion of reform and the imposition of costs and regulatory burdens on lenders that might unintentionally slow down recovery within financial markets and the broader economy’.
Responding to a Treasury consultation paper it said mortgage regulation by the Financial Services Authority (FSA) was comprehensive and ‘essentially robust and up to date’ and many lenders were already going beyond regulatory requirements to help customers.
And the Association of Mortgage Intermediaries (AMI), representing brokers, warned the FSA today against the introduction of mortgage product regulation. ‘AMI believes that the ultimate responsibility for a lending decision must rest with the lender and that on-going affordability cannot be regulated,’ it said. ‘Long-term affordability is down to a borrower’s behaviour and changing personal circumstances.’
The CML did back regulation of second charge lending through the FSA but rejected stricter control of buy-to-let loans, which it said were essentially commercial transactions that would be further damaged by inappropriate regulation.
Housing associations are likely to be as disappointed as consumer groups with the industry response. The National Housing Federation (NHF) complained in its manifesto last week that lenders were increasingly reluctant to lend on shared ownership because they mistakenly saw potential buyers as being more likely to default.
It said that if banks lent more on shared ownership associations would provide a buy-back guarantee on any loans that default. The next government should require nationalised banks to lend, it argued.
But lenders tell the Treasury that a number of shortcomings within the portfolio of low-cost home ownership products continue to limit their participation. There were too many different schemes and shared ownership was too complex and had a higher risk of default.
Meanwhile, schemes were too small and funding too short term for lenders to be able to predict future business and invest in complex administrative processes. ‘The CML recognises that the government has genuine difficulties in terms of forward funding commitments. Nevertheless, we believe that more needs to be done, unless this is to be seen as a small business opportunity which will be supported by few lenders,
Despite attempts to work with the Homes and Communities Agency and NHF on improvements to leases, mortgage protection clauses and arrears and possessions, lenders remain keener on shared equity.