All posts from: March 2010
Suddenly mutualism and cooperatives are everywhere. No sooner has Labour promised a ‘moment for mutualism’ than the Conservatives are pledging to train a volunteer army to set up community groups.
The mutual manifesto launched by Cabinet Office minister Tessa Jowell today promises to make it easier for people to take control of public services like health and social care, sure start centres and housing. The plan would see ‘new and improved opportunities for tenants to manage their own homes and housing services’ alongside a range of other reforms that will see public services managed by the community.
At the same time David Cameron was promising to create a neighbourhood army of 5,000 community organisers to ‘give communities the help they need to work together and tackle their problems’.
The Tories had already put localism at the heart of their green papers on planning and housing, which proposed fresh support for community land trusts.
Jowell’s mutual manifesto also cites approvingly the record of tenant management organisations, housing co-ops and community land trusts around the country and promises reforms including:
- a new fast-track route for tenants to take control of services like gardening and cleaning
- improved opportunities for communities to build and run homes on a co-operative basis, with easier access to HCA funding and public land.
Although the manifesto does not actually mention Lambeth, advance reports quoted approvingly the south London borough’s plans for a model of John Lewis-style services. If all goes to plan it is set to relaunch itself as Britain’s first co-operative council in August.
Lambeth leader Steve Reed sees the plan specifically in the context of the cuts facing local authorities after the election – and as a way of protecting public services against the no-frills approach adopted by Tory Barnet.
Back with the Conservatives, Cameron sees his plan to let charities and communities take control of services as part of a ‘big society’ approach to fixing ‘Broken Britain’.
It’s not at all clear how much real power either party will really give to tenants. The plans come after all just before an election and just before sweeping public spending cuts and neither of them has a great record on protecting or creating mutual building societies. But the opportunities are opening up.
More 90% mortgages for first-time buyers and more financial inclusion from the Post Office sound like a great idea – except for one thing.
The plan announced by business secretary Lord Mandelson on Monday will see the Post Office offer a new range of 90% mortgages to first-time buyers and double its mortgage lending by 2010/11.
Alongside that are a range of financial exclusion measures building on those announced in last week’s Budget. There will be a new weekly budgeting account for people on low incomes, a children’s savings account and a new current account.
The one thing? It’s not the fact that its mortgages actually come from the Bank of Ireland and appear to be regulated in Dublin (its website includes the caveat that the ‘Post Office is an appointed representative of Bank of Ireland which is authorised by the Irish Financial Regulator and authorised and subject to limited regulation by the Financial Services Authority’).
Nor the fact that the Post Office used to do exactly the same things – it was the first in the world to offer free banking – before its National Giro/Girobank subsidiary was sold off under a previous government.
It’s more the fact that the Post Office/Bank of Ireland’s existing range of mortgages specifically excludes the one group of first-time buyers who arguably most need support and would benefit most from the planned ‘neighbourhood banking service’.
The list includes most of the standard exclusions made by mortgage lenders plus a refusal to accept ‘properties being purchased under a Right-to-Buy, shared ownership, or shared equity arrangement’.
Time for a change of heart?
Free at last? Not quite. But council housing may be closer to freedom now than at any time since Labour took power in 1997.
That’s the hope after housing minister John Healey’s announcement of a new deal to dismantle the housing revenue account (HRA) even if it was mixed with some disappointment that it will involve yet another round of consultation Supporters of the change had hoped for a deal that would allow local authorities to sign up in principle, putting pressure on the next government to follow through.
Now the whole package could be contingent on what happens in the next spending review on grants for the decent homes backlog and the existing programme of major repairs. Severe cuts might dissuade many local authorities from signing up.
However, that aside, there is little doubt that John Healey’s package is the closest Labour has come to fulfilling the hopes raised by deputy prime minister John Prescott. In opposition he had argued for council housing to be freed from restrictive rules on public borrowing . In power, the Treasury blocked any prospect of that.
The release of accumulated capital receipts meant the decent homes programme could get going but it soon became clear that the government remained as pro-stock transfer as its Conservative predecessor.
The position gradually thawed under successive housing ministers until the government finally conceded that there could be a fourth option (stock retention) for council housing and began to see that there might be a role for councils in new development. Even then, there seemed little appetite for HRA reform.
Campaigners give John Healey a lot of the credit for pushing the reform through, alongside other changes giving councils a role in new development. ‘Earlier ministers did not appreciate the significance of the change to local authorities,’ said one. ‘It was in the political doldrums and it’s down to Healey that it’s come to life.’
There’s still a long way to go. There is concern about the level of extra debt involved for local authorities, there’s the election and then there’s the spending review.
Meanwhile, as the CIH points out, council housing will never be totally free until the government removes those restrictions on public borrowing. That may still be a step too far for Labour and the Conservatives but it is the official policy of the party that could end up holding the balance of power in a hung parliament, the Liberal Democrats.
This year more than ever, the Budget was as much about what it didn’t say as what it did.
The big news came on stamp duty and housing benefit: the politics of cutting costs for first-time buyers and neutralising headlines about claimants living in mansions.
They are not unrelated, since the stamp duty cut for first-time buyers will be paid for by a new 5% rate on sales of homes worth more than £1m. The biggest concentration of those is in central London boroughs like Westminster, many of them the self-same properties with the rents that generated all the headlines in the first place.
Reports ahead of the Budget suggested that stamp duty would be cut on all properties worth up to £250,000 and that the top 1% of rents in each area might be excluded from local housing allowance calculations. In fact, the stamp duty holiday will only apply to first-time buyers and it seems that only the top 1% of rents in England will be excluded.
That should mean the impact will largely be confined to the central London broad rental market area but it could lead to cuts in allowance rates of up to a third in boroughs like Westminster. Reports suggested payments would be capped at £1,100 a week.
For Lib Dem leader Nick Clegg that summed up a Budget that did nothing for affordable homes. ‘The Chancellor has added to that by a change to housing benefit announced today that will make life impossible for low-income families in high-price areas such as London,’ he said.
Liz Phelps of Citizens Advice describes the cut as ‘the least worst option’ but is worried that it could still lead to big problems. ‘The key question that we don’t have the answer to is what impact it’s going to have on affordable accommodation in central London,’ she says. ‘It’s really important that it doesn’t become a no-go area for people on benefit. It’s crucial to manage a change of that magnitude effectively to help people find something that’s affordable and give transitional relief.’
The other concern is that the change creates an easy mechanism for future housing benefit cuts. What’s to stop a future government looking at the £250m saving from excluding the top 1% and the total bill of £17bn and then deciding to exclude the top 5% or 10% of rents?
And cuts are of course the main thing that the Budget didn’t say. There were £11bn of efficiency savings, including £200m at Communities and Local Government that the department did its best to make sound pain-free.
Lurking unmentioned are the rest of the cuts that are to come (up to £25bn according to the Conservatives) and those stark warnings from the Institute for Fiscal Studies that protecting budgets like health and education will require cuts of around 25% in other areas and from the National Housing Federation of the risk of an 18% cut in the housing budget.
There was more good news yesterday with the extension of higher payments on support for mortgage interest and action on financial exclusion and there may be more today with an announcement due on council housing finance. But how much bad news is just around the corner?
The stamp duty cut looks like good politics and is already generating some good headlines but it remains to be seen how much difference it will really make to first-time buyers.
Increasing the threshold to £250,000 for the next two years will save them a maximum of £1,250 since properties worth up to £125,000 are already exempt [EDIT: that should have read £2,500 since the duty is on the whole amount].
However, the price of the average house has increased by around five times that amount since April last year (based on the Halifax house price index).
And the average deposit needed by a first-time buyer to get into the market in the first place is currently £33,000 according to Council of Mortgage Lenders (CML) figures. That’s 13 times the stamp duty saving and an increase of £20,000 on two years ago.
As Liz Peace of the British Property Federation points out, it’s enough to knock 18 months off the 18 years it would take a typical 25-year-old to save the deposit.
That said, the concession is still a boost both for first-time buyers and for housing associations looking to boost their shared ownership sales.
The political dimension is that it borrows an existing Conservative policy and guards against the potential charge of being opposed to aspiration and owning your own home.
In contrast to previous stamp duty holidays this one will be restricted just to first-time buyers, which should reduce the chances of it helping to inflate a new bubble at a time when the market is already recovering.
According to HM Revenue & Customs guidance the holiday excludes any buyers who ‘either alone or with others, have previously acquired a major interest in land which includes residential property, or an equivalent interest in land situated anywhere in the world’ and anyone not occupying it as their main home.
That begs the obvious question of how the system will be policed and verified - especially for people who have previously owned property abroad and for parents who buy in the name of their kids.
Estimating how many buyers will benefit and what the total cost will be are both difficult since the usual estimates of first-time buyers include a high proportion of returners - people who previously owned a home but have since been renting.
However, the CML’s best guess is that 136,000 buyers will be newly exempt from stamp duty at a total cost of £224m over the next 12 months. That’s roughly the amount it thinks will be raised by increasing stamp duty on homes above £1m from 4% to 5%.
Any policy that reduces fuel poverty and deaths in cold weather at the same time as it cuts carbon emissions from the least energy efficient homes seems an obvious winner.
But the Communities and Local Government (CLG) committee says in a report today that ‘we consider it a huge missed opportunity that the considerable political will demonstrated by the government in raising social sector housing to the decent homes standard has not been matched by similar energies with respect to the private sector; and that the policy in the private sector appears to have failed’.
According to the last English house condition survey in 2007, more than a third of homes in the private sector were non-decent. Meanwhile, half of vulnerable households in the private rented sector and two-thirds of vulnerable home owners lived in non-decent homes. Older people - those most vulnerable to this winter’s cold weather - are most likely to be affected and least likely to be able to afford improvements.
The government had originally set a target of 70% of vulnerable households in the private sector living in decent homes by 2010 but since the 2007 spending review there has been no specific goal. The MPs conclude that ‘the downgrading of the target for decency in the private sector has weakened local authorities’ already patchy engagement with their responsibilities towards private sector housing’.
The committee acknowledges several positive signs, including the government’s response to the Rugg review and the household energy management strategy that will pay for energy efficiency work through a combination of a levy on the energy companies and pay as you save financing for homeowners.
Obstacles including funding, enforcement and lack of clear information on conditions will make progress an uphill struggle but the MPs call on the government to commit itself to a programme of measures to ‘raise these problems up the political agenda’.
An early opportunity to do that will come in tomorrow’s Budget, when the chancellor has the chance to act on what is surely one of the most longstanding demands in housing: cutting VAT on improvement works.
The MPs conclude there’s a good case for that but not in the current economic circumstances but say the government should make equalising the VAT rate between new build and improvements a medium-term policy goal.
That will disappoint campaigners who have been banging their heads against a brick wall on the issue for so long. But at least they would only pay 5% VAT to rebuild it.
So it’s finally clear: the Conservatives will scrap the Tenant Services Authority (TSA) if they win the election. But what they will put in its place?
Shadow communities minister Stewart Jackson confirmed at a delegated legislation committee hearing 10 days ago that ‘for the avoidance of doubt, a future Conservative government will abolish the TSA’.
He argued that oversight of housing associations should involve tenants working through ‘properly elected boards with professional officers’ while the best regulator of local authority landlords was the voter - ‘whether they are delivering the goods at election time’.
Waste is the major issue for the Conservatives, with Jackson quoting TSA decisions to pay a public affairs consultancy ‘£100,000 to arrange meeting with influential ministers’ and a human resources expert ‘£89,000 to advise on and oversee the entire recruitment process’ of its board when it was ‘made up of two constituent predecessor bodies’.
So far, so clear, but what comes next? ‘We believe that if there is malfeasance and maladministration, it is proper for Ministers to be responsible for intervening in extremis, for the local government ombudsman to be charged with the responsibility of ensuring that tenants are treated fairly and with equanimity and for the Audit Commission to have a role. It could be argued—as some have—that even the Homes and Communities Agency should have a role across the country on matters of oversight and assessment of the performance of those who used to be called registered social landlords.’
Hmm. Except that those options were considered by the independent review that led to the creation of the TSA.
The Cave review also considered regulation by the HCA (then called Communities England) and concluded that this was ‘not viable because of the conflict of interest created between an investment body and a regulator covering all providers of social housing, not all of which are capable in practice of undertaking development. A further conflict arises from the danger of the social housing investment programme dominating the agenda to the detriment of regulation.’
The review said that the Audit Commission was capable of being the regulator ‘but it has limited experience of housing regulation beyond what is involved in inspection; has little previous contact with for-profit providers (other than as a purchaser of services) and has little support from stakeholders’.
It also recommended a single ombudsman for all social housing tenants - but stressed that an ombudsman deals with individual complaints rather than collective rights.
Which is why it came down in favour of an independent regulator. The fact that it was newly created would enable it to take a fresh approach. It would be focussed solely on social housing regulation. And it would put an end to the ‘silo’ approach of separate regulation of each sector that ‘generates systematically unequal outcomes for tenants, rather than the best available for all’.
The recommendation came from an expert on the regulation of other sectors such as airports, broadcasting, legal services, telecoms and water and was intended to give tenants the same sort of consumer rights as customers in those sectors. He saw an independent regulator as just part of a system that would genuinely empower tenants, promote different forms of ownership and create more diversity in management.
That sounds in tune with Conservative principles - and particularly the party’s big idea of giving tenants a right to move - but Jackson says ‘we do not believe that the Cave review has sufficiently made the case for an extra level of bureaucracy’.
However, if the driver behind the decision is financial rather than philosophical, the party would be introducing yet more change to the sector just at the point when it has agreed the TSA’s new regulatory framework and ending the era of tenant empowerment before it has really begun.
And there are other financial considerations too. The Council of Mortgage Lenders tells this week’s Inside Housing that the party needed to consider carefully ‘the availability and terms of private finance’.
Scrapping the TSA is one thing. Deciding what to replace it with is quite another.
Young people are gloomier than ever about their prospects of getting on the housing ladder, according to a new poll today. But are they actually being too optimistic?
The YouGov survey commissioned by the National Housing Federation finds that 86% of 18-30 year olds who do not already own their home cannot afford to buy. This despite the first house price falls most of them will be able to remember.
The poll also finds that 54% say they will only be able to afford to buy with help from their family, 37% think it will take them 10 years to get on the ladder, 12% think it could take 20 years and 6% think they never will.
The results prompt the NHF to call on all the main parties to build more homes for first-time buyers and address the shortage of new homes and to give the housing budget the same untouchable status in the next spending round as health, education and policing.
It’s a good argument but the results also prompt a deeper question about what the next government will do because the truth is that young people’s prospects are even worse than they think.
There are roughly 11m people aged 18-30 in the UK. Loans to first-time buyers are currently running at under 200,000 a year. Make whatever assumptions you like about how many of them will buy together, how many first-time buyers are actually older (the average age is 28) and lending increasing when the recovery starts and their prospects still look grim.
Meanwhile, thanks to the shortage of high loan-to-value mortgages, the average deposit they need to buy is currently more than a year’s salary. The Council of Mortgage Lenders estimates that the proportion needing parental help is now 80%.
One way forward is the one put proposed by the NHF - build more homes in general and affordable homes in particular.
Another would be to do everything possible to kick the mortgage market back into life - and get first-time buyer loans back up the level of 500,000 and more seen in the mid noughties. However, many of them only got on to the ladder thanks to sub-prime lenders and the securitisation that triggered the financial crisis.
However, as Adair Turner, chairman of the Financial Services Authority, argued in a speech yesterday to do that would be to risk repeating the whole depressing cycle of boom and bust all over again.
He wants a range of ‘macro prudential policy tools’ to stop future asset price bubbles, with one of the best options being maximum limits on loan-to-value ratios applied either continuously or varied through the cycle.
That would certainly help stop future boom and busts and repossessions but it won’t do much for young people’s prospects of getting on the ladder.
Put that together with the fact that homeownership has already been falling for the last five years and they look more than ever like a generation of renters than owners.
What if the answer to the housing shortage is not national targets or local incentives but both - or neither?
That’s the intriguing question raised in a new report by the Centre for Cities that argues there is no shortage of land for new building - just a failure of the system that controls it. If the UK was a football pitch, all the developed land would fit into one penalty area and all the housing would cover just a third of the centre circle.
None of the main parties has the solution, it argues: Labour’s targets were ‘cumbersome and bureaucratic’ but failed to recognise the importance of building in the areas of highest demand; Tory council tax incentives won’t be remotely enough to encourage development when local power to resist it will be strengthened by the abolition of regional planning; and Lib Dem reliance on filling empty homes would only solve a fraction of the problem.
The alternative? Scrap the brownfield land target, and relax green belt protection and devolve power over both to local authorities. Give them real incentives to build and reduce their discretion over new development.
The big (though not totally new) idea is local land auctions that would work a bit like the mobile phone auctions that raised billions for the Treasury.
A council would announce a periodic land auction, perhaps every five years. Landowners would offer land for development and the price they would accept. The council decides which land to allocate for development as part of the local plan. Then it specifies what kind of development will be acceptable, what infrastructure will be provided by the developer or by public agencies and offers the land for sale to the highest bidder.
The council earns the difference between the sell price of the landowner and the buy price of the developer, which the report estimates would work out at £76,000 per home in the South East (compared to £7,000 under the Conservative council tax plan and £10,000 under the community infrastructure levy).
The report argues that the current system has consistently favoured the interests of people who already own houses against the interests of those who don’t. It quotes example after example of towns and cities in high-demand areas of the south and east of England where building is below the national average and crammed on to brownfield sites while the surrounding green belt is left untouched.
Problem solved? Not quite - it’s hard to see any of the main parties going for diluting protection of the green built for starters and another obvious problem is the incentive for developers to build as cheaply as possible - but why not pilot the idea and see if it works?
Rising stamp duty, falling mortgage availability and now rising rents. Life doesn’t get any easier for would-be first-time buyers.
The residential lettings survey published by the RICS this morning shows a shift in the balance of supply and demand in the rental market that’s the mirror image of what’s been happening in the sales market. Demand from tenants are rising while new instructions to rent are falling. For the first time in 18 months more surveyors say rents are rising than falling and a healthy balance of surveyors expects them to go higher in the next six months.
The RICS interprets all that as a clear sign that reluctant landlords are returning to the sales market. ‘If demand remains strong, which it is likely to as many first time buyers are still finding themselves priced out of the housing market, then rents should continue to rise as would be tenants compete for fewer properties.’
Figures from the Council of Mortgage Lenders (CML) last week showed that the number of loans to first-time buyers in January was down 54% on December. True, December’s figure was artificially high because buyers were rushing to beat the end of the stamp duty holiday on properties valued at between £125,000 and £175,000, but there are few signs of much recovery in the lending market before the election.
The number of first-time buyers is up on the lows seen in 2008 but still far below the average seen over the last decade. With deposits now averaging more than a year’s salary, up to 80% of them are dependent on help from their families and it will take several more months of falling prices for that to change.
In that environment, sales by reluctant landlords - or ones like Fergus and Judith Wilson who’ve decided to get out of the market - seem as much if not more likely to go to other landlords as first-time buyers. Especially if, as the Priced Out campaign argues, landlords benefit from extra tax incentives. All of which means the number of reluctant tenants will continue to grow.
The way things are shaping up housing is going to be a bigger issue than at any general election for the last 50 years.
Back in the 50s and 60s the parties competed with each other on how many hundred thousand council houses they would build - the legacy of Macmillan claimed by Grant Shapps in his Tory conference speech last year. This time around there won’t be a single issue like that but the 2010 election still promises to be very different to those of the 80s and 90s when the right to buy and the votes of homeowners dominated the debate.
On a national level, it’s the first election in living memory to be fought against a background of falling homeownership - Shapps was quick to accuse John Healey of opposing aspiration when he argued that might not be a bad thing. The state of the housing market could also have a big impact - Labour’s poll ratings have risen since house prices started rising again so any repeat of last month’s fall could be bad news for the government.
At a local level, the most obvious starting point is Barking, where allocations and immigration are at the heart of a battle between sitting Labour MP Margaret Hodge and BNP leader Nick Griffin. According to an excellent article by John Harris in Saturday’s Guardian, Hodge is absolutely no doubt about the key issue.
‘We failed to realise the importance of the quality of life on council estates and the importance of affordable housing… I think we got that wrong,’ she says. ‘From 2001, I was saying, “Housing is the key issue.” I showed all the decision-makers in the party my research and they all thought it was very interesting. Did it change what they did? No.’
The same themes will be played out in other constituencies around the country. The discontent among social housing tenants that Hodge argues needs to be addressed with changes to the allocations system may sometimes express itself in apparent apathy and non-voting, sometimes in support for the BNP.
Over on the other side of London, a different issue is playing out on the doorsteps of Hammersmith, where sitting Labour MP Andy Slaughter claims that estate redevelopment plans by the Tory-council amount to social cleansing that will see tenants lose their homes. Hammersmith & Fulham leader Stephen Greenhalgh was of course the co-author of a radical think-tank plan to deregulate social housing and the pantomine villain of last year’s Labour conference.
Outside the cities, planning for new homes is a key issue - especially perhaps in Tory/Lib Dem marginals in the South West, where the regional spatial strategy has not yet been adopted. Will Conservative plans to scrap top-down targets and let local councils decide how many homes to allow prove a vote-winner?
The party played down the national launch of its planning policies recently but it is getting lots of coverage locally - take this example from Torbay where shadow planning minister Bob Neill has just pledged to abolish the council’s 15,000-home target. How will that play with the voters of Torbay, held by Adrian Sanders for the Lib Dems but 54th on the Tory target list?
Just to turn that situation on its head, back over in Essex Bob Spink, the independent MP for Castle Point, has just launched a save our green belt party. The twist is that it’s green belt development plans by the Conservatives that he’s campaigning against - and he used to be a Tory himself.
Those are just a few examples but what they demonstrate is the way that housing issues could swing the vote in many seats around the country.
Three huge numbers thumped into the in-tray of the next housing minister this week: 270,000, 1,000,000 and 300,000,000,000.
They come from the election manifesto from the Home Builders Federation (HBF) and a pre-Budget submission from the Council of Mortgage Lenders (CML) that amounts to the same thing. Together they make clear just how big the challenges are going to be over the next five years.
The 270,000 represents repossessions. It’s the number of families who lost their home in the five years after repossessions started falling in the last housing market crash. If you read 2009 for 1991, then the five-year term of the next government represents the equivalent period this time around.
The CML says lenders are managing the problem better now and is forecasting 53,000 repossessions in 2010 - lower than the 69,000 seen in 1992. At the moment that looks if anything too pessimistic although things could still be derailed by a double dip recession.
So far, so good, but history also shows that ‘there is likely to be a long tail with elevated possession levels for a number of years after the depth of the recession, as some borrowers kept in their homes in the initial period of the downturn are unable to get back on their feet and repay their arrears’. Longer-term arrears are building up, says the CML, and in many cases involve people with multiple debts.
It warns that avoiding a repeat of 1992-1996 in 2010-2014 will mean extending the time-limited rescue measures introduced by the government: support for mortgage interest after three months, not nine; retaining the higher limit of £200,000 to help people with larger loans; and keeping the standard mortgage rate at 6.08% to help borrowers stuck on higher rates. ‘We are not out of the woods yet, and there are real downside risks to be carefully managed over a period of years after the general election,’ says the CML.
The 1m represents the shortfall in new homes identified by the HBF and the economic and social consequences of higher waiting lists, more overcrowding, young people unable to afford to buy and hundreds of thousands of job losses in the housebuilding industry.
The HBF says the next government must ensure the planning system delivers enough developable land, cut the cost of regulation on new homes, address the lack of mortgage availability, give more financial help to first-time buyers and (you guessed it) retain funding for Kickstart and Homebuy Direct.
However, the housebuilders sit firmly on the fence over the issue of Tory targets and Labour localism. The formula ‘encourage and incentivise the timely adoption and maintenance of up to date local plans to meet identified housing requirements’ neatly fits both parties’ policies but it’s the results that matter.
The £300bn represents the amount of money that lenders will have to repay between 2011 and 2014 for support given under the Bank of England’s special liquidity scheme (SLS - expires between 2011 and 2012) and Treasury’s credit guarantee scheme (CGS - expires between 2012 and 2014). That’s the equivalent of a quarter of all UK residential mortgage lending, with the two schemes effectively making up for the collapse of the wholesale funding market in 2007.
With the Bank of England making it clear that the SLS will not be extended, the CML wants urgent talks about how to manage the expiry of the two schemes and more help to re-open access to the securitisation and covered bond markets. It warns that doing nothing risks sending the tentative improvement in the mortgage market into reverse.
What might seem like high finance and therefore a matter for the next chancellor will have knock-on effects for the rest of the housing system: ‘It will be less easy to fund joint initiatives with the industry to increase low cost home ownership schemes; the cost of funding of social housing providers is likely to rise impacting on their capacity to increase housing provision to match demand; and funding of small scale private landlords will continue to be more limited.’
According to CML director general Michael Coogan: ‘At the moment we cannot see how to square the circle between increasing demand for housing, constraints on the necessary finance to deliver it, the repayment of £300 billion of lending support between 2011 and 2014, and reductions in public spending as the fiscal deficit is addressed. And all of these features apply at a time when more people are going to need housing help.’
So over to you, housing minister. No pressure, then.
So is buy to let dead as a dodo or was the coffin not nailed down well enough?
The first view came in a Guardian interview at the weekend with Fergus Wilson, the former maths teacher who bought up 700 houses with his wife Judith to rent out but are now selling them all off. Buy to let is, he says, ‘absolutely dead and will never return’.
That’s backed up by a truly heartrending interview with Grant Bovey (aka Mr Anthea Turner) in the Mail in which he decribes the ‘humiliation’ of being declared bankrupt with £50m of debts after the collapse of his property company Imagine Homes. ‘One day you were worth more than £100million, as I was, then it was gone,’ he says.
Fergus Wilson says they almost went under too and were only saved by the sheer scale of the financial crisis. After the collapse of Lehman Brothers in September 2008, the Bank of England cut interest rates to 0.5% and they were able to refinance almost all of their loans. ‘We were going to be, to put it bluntly, stuffed,’ he says. ‘The reason we were saved was the drop in interest rates.’
That’s a tale that will be familiar to buy-to-let landlords around the country. Arrears, repossessions and appointments of receivers of rent were all rising up to that point but then started to ease off and there are now signs of revival. The latest figures from the Council of Mortgage Lenders (CML) show a slight increase in buy-to-let lending at the end of 2009 and there is also evidence that lenders are beginning to relax some borrowing restrictions.
Another indication that the phenomenon is not dead comes with the CML’s continuing opposition to Treasury and FInancial Services Authority plans to regulate buy-to-let loans in the same way as normal mortgages on the grounds that they should be treated the same as investments.
None of that has stopped the Wilsons dismantling their empire though. They are currently selling two properties a week in Kent, prompting Ashford Borough Council to write to them pleading for ‘staggered serving of notices on tenants’ to ‘give us some time to prepare options with future families that may become homeless’.
That’s a graphic illustration of the implications of buy to let for the rest of the housing system: it priced out of the housing market thousands of potential first-time buyers; it boosted house price inflation and put off genuine property investors and institutions who see the rental yield as paramount; and it was based on speculation not investment. However, it also played a vital part in the 50% growth of the private rented sector in the noughties (partly thanks to demand from those priced out) and arguably reduced the impact of the repossessions crisis.
Buy to let is not about to lose its bad reputation any time soon (Wilson comments that ‘one or two people want to douse us with petrol and set us on fire, but I think that’s going a bit too far’). But with homeownership shrinking, social housing investment about to be cut and institutional investment in private renting yet to get going, where else will new homes come from?
It had to happen sooner or later and the latest RICS survey this morning confirms it: supply is finally outstripping demand in the housing market.
The February survey shows both new buyer inquiries and new seller instructions rebounding from a January when activity was depressed by the end of the stamp duty holiday and the weather. But the growth in supply was much stronger than the rather anaemic bounceback in demand.
Put that together with a continuing slowdown in new mortgage lending - Bank of England figures last week showed approvals in January were 17% down on December and fell to their lowest level for eight months - and it’s not surprising that both the major lender house prices indices showed that prices fell too. On Friday the Halifax revealed a 1.5% fall in February and earlier the Nationwide said prices fell 1%.
That sparked media speculation over the weekend about a ‘lost decade’ of stagnation for house prices. This may be putting it too strongly, especially when you bear in mind that the annual rate of house price inflation actually increased to 4.5% on the Halifax measure because prices fell by more last February.
However, RICS chief economist Simon Rubinsohn is predicting that prices will rise 1-2% this year but be under much more pressure next year. That fits with the pattern of the last crash, which was followed by if not by a lost decade, then certainly by a lost few years when the price falls of 1991 to 1993 were followed by three flat years.
In the absence of a return to the reckless lending seen in the last few years before the crash, prices eventually have to come back into line with earnings - and those are going to be squeezed by public spending cuts and tax rises after the election.
John Healey celebrated nine months as housing minister over the weekend. Not long you might think but in the Communities and Local Government (CLG) department that almost qualifies him for a gold watch - or at least a cake.
As is well known, he took up his new post on 5 June last year to become the fourth housing minister since the CLG department was created in May 2006. There have also been three secretaries of state and three local government ministers (one of them Healey himself, making him a 21-month CLG ministerial veteran).
What’s less well known is that ministers have actually lasted longer in post than their civil servants. A new report from the Communities and Local Government select committee on the department’s performance reveals that the average length of time a CLG official can expect to stay in one post is just nine months.
In part that’s understandable given the amount of new work taken on by the CLG in the wake of the recession and the government’s response to the housing market crash. As CLG permanent secretary Peter Housden told the committee ‘particularly in the housing area where we have taken on completely new areas of work…..that has required us to shift the balance of staff and to move from low priority to higher priority work’.
The committee commends the department for ‘the action which it has taken to meet ministers’ priorities in this very difficult period’ but it backs concern expressed by the Chartered Institute of Housing about the effect of the revolving door approach to staffing on the CLG’s other work - especially the delay to the green paper on private rented sector reform.
The committee goes on: ‘The Department can help itself in the task of improving its capability by improving its workforce planning. Leaving staff in post for an average of just 9 months before moving them on to something new is not a sensible way to run an organisation.’
More worrying for the future perhaps is that, as committee chair Phyllis Starkey puts it: ‘The Department has yet to become the kind of “big hitter” it needs to be within Whitehall and we have yet to see consistent and sustained evidence that the Department possesses the full range of skills required for the effective formulation and delivery of the policies for which it is responsible.’
If the CLG is not a big hitter now, can it avoid become a big loser when the public spending axe falls after the election?
The recovery in house building reached a symbolic point yesterday with the first land value write-back by a major firm but major questions remain about the implications for affordable housing.
House builders have been busily writing down the value of their land ever since the downturn started but Persimmon revalued its assets by £74.8m and reported a £77.8m profit for 2009. This compares with a loss of £780m in 2008.
Rivals Taylor Wimpey and Barratt also saw improvements in their performance but still reported losses of £640.6m and £178.4m respectively. Taylor Wimpey called it a year of two halves, with selling prices continuing to fall in the first six months before rising again in the second half.
Unsurprisingly, completions were down at all three companies as they concentrated on controlling their spending and increasing their margins. Their combined total fell 20% to 24,000 although the prospect of starting work on more sites suggests that will improve this year.
Dig a little deeper though and you discover that completions of affordable homes fell by more. Total affordable completions at the three firms fell 34% from 6,048 to 3,978.
Much of the reduction is to do with changing the product mix away from flats and towards more profitable two-storey houses and the replanning of new sites. A clue as to the effect of replanning comes in Taylor Wimpey’s statement, which describes it as ‘an ongoing process, with successes in changing the product mix on sites within the landbank to be more appropriate to the current market conditions and reducing planning obligations to make sites viable at lower average selling prices [my itals].’
That is set to continue in future too. The statement goes on: ‘We have identified around 60% of the plots with detailed planning in our landbank as being suitable for replanning, with around one-third of those plots having already been replanned successfully.’
All of which is a perfectly logical part of the housebuilders’ road to recovery – but it shows yet again that what is good for housebuilders is not necessarily good for housebuilding or housing.
As if the transformation in the UK housing market were not dramatic enough already, how about this: in the space of a year we’ve gone from having the third biggest fall in house prices in Europe to being one of only five countries to see a rise.
Only Latvia and Estonia saw bigger falls than us in 2008 but the latest edition of the European Housing Review published by the RICS shows that only Norway, Finland, Sweden and Austria saw bigger rises in 2009.
Author Michael Ball concludes that Europe has largely avoided the meltdown seen in the USA, partly because there was much less stress on luring low-income households into home ownership. But the continent has been split between stability at the centre and what he calls an ‘unlucky horseshoe’ from Greece to Spain to Ireland to the Baltic States where price falls were bigger than in 2008.
In 2008 the UK looked right in the middle of the horseshoe but it avoided that fate last year thanks to a combination of lack of property for sale and the resilience of the market in London and the South East.
But at what cost? Another report out today from the Council of Mortgage Lenders asks some hard questions about falling home ownership and concludes that the phenomenon is not going to go away any time soon. The average deposit for a first-time buyers now more than a year’s salary and the CML estimates that 80% of first-time buyers need family help to get on the housing ladder.
With housing supply failing to keep up with household formation and loan finance continuing to be in short supply it concludes that home ownership will continue to fall. There are, it says, ‘still very real questions about how to deliver a significant enough flow of housing in general, of whatever tenure, to meet the needs of the growing population’.
Put in that context, those house price rises seem more like bad news than good. Unless you’re a buy-to-let landlord - if you haven’t already lost a bundle on that sure-fire investment in Latvia, Estonia or Spain.
Crisis, what crisis? Two reports from the Tenant Services Authority (TSA) make it clear that associations have emerged from the credit crunch in pretty good shape, all things considered.
This time last year they were facing problems with impairment, unsold homes, repriced loans and margin calls. There was talk of breaches of loan agreements, rescue plans and stronger associations waiting in a taxi rank for weaker ones.
Things look much better now - the January quarterly survey shows improved access to finance, rising sales receipts and fewer unsold homes and, in a second report, the TSA points out that associations have coped with the credit crunch and recession much better than commercial property companies.
So far, so good, but then it really would have been a crisis if they had suffered as much as the housebuilders and commercial property developers. Their development for sale etc may be an important source of revenue in the good times and part of their identity as businesses but it has only ever been a small part of the overall picture.
‘The RSL sector’s business model means that it has been well placed to deal with the impact of the recession,’ says the TSA. ‘Its core rental income stream accounts for 80% of turnover and is around 65% government funded through Housing Benefit, ensuring that it has a greater degree of certainty over its revenue than most commercial businesses. This stability, in addition to government support for capital investment, means the sector has been able to continue growing during the down turn and enables it to undertake valuable projects which would be untenable in the commercial sector.’
On those figures, that means that £5.20 of every £10 worth of associations’ revenue comes from housing benefit - compared to just £2 that comes from income streams other than rent. Meanwhile expansion depends on government grant and section 106 subsidy from developers.
As the report points out, the future of neither can be taken for granted. Housing benefit provides ‘a solid low-risk foundation’ for associations which cuts could undermine. And cuts in grant could force them to look to increase their exposure to property development, posing more risks if there is a fresh market downturn.
As Inside Housing reports this week, the housing benefit bill - already £17bn and expected to reach £20bn next year - is already under close scrutiny. The cost is highest in the private rented sector, where plans have already been drawn up to cut the highest claims and six London councils are pressing for the power to impose their own restrictions on claimants. That’s before an election that will be followed by big cuts in public spending whichever party wins power and a rent cut determined by last year’s falling prices at a time when inflation is rising again.
Will the public spending squeeze make housing associations - and the rest of us - think back fondly to the credit crunch? And will the TSA still be around to tell us about it?
Take your pick: the first monthly fall in prices since April 2009 or accelerating price increases spreading to more of the country.
It’s not exactly unknown for the different house price indices to point in different directions but this time they appear to have really excelled themselves. On Friday the Nationwide said prices fell 1% in February while the Land Registry said they rose 2.1% in January. This morning Hometrack says that prices rose in a quarter of postcodes in February, up from just 7.6% in January.
Different timings and different methodologies explain some of the differences. Low sales make this far from a normal market. And the situation is complicated even further by possible distortions caused by the end of the stamp duty holiday in December and the bad weather last month keeping buyers away.
Nationwide chief economist Martin Gahbauer said it was too early to say whether the February fall was just a temporary blip or the start of a new trend. But he added that: ‘Even without the impact of stamp duty changes and the snowy weather, it would have been surprising to see house prices maintain the very strong upward momentum seen for most of 2009.’
To put that in perspective, any kind of increase in February would have seen the Nationwide’s annual rate of increase go back above 10%. That’s boom territory at a time when the economy as a whole is only just coming out of recession. However, the annual rate still increased to 9.2% because the 1% fall was less than the 1.5% dip recorded in February 2009.
The Land Registry figures are arguably the most comprehensive but they are also a month behind the two most closely watched indices produced by Nationwide and Halifax and so do not reflect the full impact of the stamp duty holiday and the weather. According to the Land Registry, the annual rate rising to 5.2% in January. Prices rose most in London and the South East but are still falling in the north of England.
Hometrack’s figures, which show the value of all property not just homes that have sold, look buoyant on the surface. There were more new buyers, a reduction in the average time on the market and an increase in the percentage of the asking price being achieved. However, February tends to be a good month for sales recorded in the survey and the 10% increase on January recorded this time was less than the 30% average seen over the last eight years. And the annual rate of house price inflation only moved into positive territory because no change in February was better than a fall this time last year.
Take the three surveys together and they look just about consistent with the data on mortgage lending, which has been slowing down since the end of last year. Will the slowdown become a new downturn? It’s still too early to say and definitely too early for the indices to agree.