Monday, 27 February 2017

Inside edge

All posts from: August 2010

Big bang

Tue, 31 Aug 2010

Build 100,000 social homes a year while saving £20bn a year. That’s the startling proposal put forward by the think-tank Policy Exchange today.

In the process, house price inflation would be abolished. Housing association and council homes would be nationalised and 84% of them sold off to tenants. Homeownership would expand to 80% of the population.

All this from the think-tank that is probably closest to the Cameroons. One of the previous major housing reforms it proposed - the right to move in 2009 - became Conservative party policy within three months.

So who pays the price for all that? First, people who currently qualify for social housing through needs-based allocations. These would be abolished and homes would go first to the severely disabled and then to people who’ve been on the waiting list for longest or who have the greatest local connections to the area. Other vulnerable tenants, such as those with children, would get three-year tenancies in the private rented sector with their landlords getting a £4,000 one-off payment. 

Second, housing associations and local authorities. They would continue to manage homes but would see their stock and debt taken over by central government and their debts paid off with the rents from existing tenants. In the meantime, the government would offer homeownership direct to tenants. 

Central government would then issue short-term bonds to finance the construction of new social homes with the initial social rent covering the interest payments. Rising rents would also generate a surplus that would pay off the principal debt and give any tenant paying their own rent a path to ownership. Government would pay maintenance costs of up to £2,000 a year until their ownership share reached 50%. If their circumstances improved, tenants could take out a mortgage and buy the home outright and they would also get improved right to buy discounts and a right to move and buy.

The existing social housing stock would be sold off as it became vacant - either through the path to ownership or on the open market. 

So far, so free market, but Making Housing Affordable challenges many of the ideas at the heart of the coalition government’s thinking too:

‘The idea that government can seriously “push down” claimants’ rents via cuts in Housing Benefit is largely false,’ says the report - arguing that housing benefit claimants do not make up enough of the market to set market prices.

‘Ending security of tenure in social housing is a mistake,’ it adds. It would mean anyone who improved their circumstances would face losing their home and in any case would only have a marginal impact as it would only apply to new tenants. 

The current reaction to the scrapping of house building targets, with almost all councils promising no new homes in their area, ‘should be ringing very loud alarm bells in government’.

There’s no way that the report can be accused of lacking ambition or pandering to vested interests. It rightly identifies new homes and house price inflation as crucial issues. But could its big bang proposals really work?

First, the assumptions about the number of sales of social homes seem optimisitc to say the least. The report claims that the net result would be 146,000 homes a year bought by tenants. ‘This is not that much higher than the first decade of Right to Buy sales (106,000 or so a year) despite the ease with which working tenants will be able to buy and the support available.’

Not that much higher? That’s 40% higher than at the height of the biggest housing sell-off ever when millions of existing tenants were actually in a position to buy.

If that’s over-optimistic, then it would impact on the financial assumptions behind the plan: £8bn a year proceeds  from stock sales when tenants die plus £10-15bn a year from sales to existing tenants. 

Second, there are big assumptions about the savings to be made from changing incentives and improving the proportion of social tenants in jobs but not much is said about the families that would have qualified for social housing but would now be stuck in expensive private lets facing even steeper disincentives to work.

Third, the plan relies on some heroic assumptions about big improvements to the supply of new homes and the end of house price inflation. 

The government would get two new targets just at the point it finishes abolishing the ones it inherited: that anyone working full time on the minimum wage should be able to afford an average UK lower quartile property by 2030; and that there should be ‘rough annual house price stability over the next two decades’.

The report points out that UK house prices rose by 133% in real terms between 1995 and 2006 and argues that the main reason was lack of new supply rather than excessive lending or immigration. 

That would be tacked through ‘real localism’ and ‘community-controlled planning’. Decentralising planning under the current system will just give nimbys more power, says the report.

Instead, homeowners directly impacted by a development would be balloted. The development would go ahead unless more than 50% vote against it. The costs of ballots would be paid by developers who would also be free to offer financial incentives (which sound pretty much like bribes) to those voting. 

While 75% of undeveloped land would be protected, the report argues that the result would be more homes of better quality, since residents would only vote for schemes that they approve of and will create a better quality of life all round. 

The report cites Kate Barker’s work on the effect of new supply on house prices and argues: ‘If supply had run at 1960s levels since 1980, around 175,000 extra dwellings would have been built a year, and real terms house prices would have risen much less than they did – from £75-80,000 to just £105-110,000. This would have brought the UK more in line with other countries – where they did build more homes.’

Ignore for the moment the fact that almost all of that extra supply in the 1960s came from council housing and that the private sector has never built anything approaching that number of homes. Even if housebuilders could be persuaded to rapidly expand, doesn’t this sound like the exact opposite of what Conservative MPs were celebrating with the end of regional strategies?

Big bang

Tue, 31 Aug 2010

Build 100,000 social homes a year while saving £20bn a year. That’s the startling proposal put forward by the think-tank Policy Exchange today.

In the process, house price inflation would be abolished. Housing association and council homes would be nationalised and 84% of them sold off to tenants. Homeownership would expand to 80% of the population.

All this from the think-tank that is probably closest to the Cameroons. One of the previous major housing reforms it proposed - the right to move in 2009 - became Conservative party policy within three months.

So who pays the price for all that? First, people who currently qualify for social housing through needs-based allocations. These would be abolished and homes would go first to the severely disabled and then to people who’ve been on the waiting list for longest or who have the greatest local connections to the area. Other vulnerable tenants, such as those with children, would get three-year tenancies in the private rented sector with their landlords getting a £4,000 one-off payment. 

Second, housing associations and local authorities. They would continue to manage homes but would see their stock and debt taken over by central government and their debts paid off with the rents from existing tenants. In the meantime, the government would offer homeownership direct to tenants. 

Central government would then issue short-term bonds to finance the construction of new social homes with the initial social rent covering the interest payments. Rising rents would also generate a surplus that would pay off the principal debt and give any tenant paying their own rent a path to ownership. Government would pay maintenance costs of up to £2,000 a year until their ownership share reached 50%. If their circumstances improved, tenants could take out a mortgage and buy the home outright and they would also get improved right to buy discounts and a right to move and buy.

The existing social housing stock would be sold off as it became vacant - either through the path to ownership or on the open market. 

So far, so free market, but Making Housing Affordable challenges many of the ideas at the heart of the coalition government’s thinking too:

‘The idea that government can seriously “push down” claimants’ rents via cuts in Housing Benefit is largely false,’ says the report - arguing that housing benefit claimants do not make up enough of the market to set market prices.

‘Ending security of tenure in social housing is a mistake,’ it adds. It would mean anyone who improved their circumstances would face losing their home and in any case would only have a marginal impact as it would only apply to new tenants. 

The current reaction to the scrapping of house building targets, with almost all councils promising no new homes in their area, ‘should be ringing very loud alarm bells in government’.

There’s no way that the report can be accused of lacking ambition or pandering to vested interests. It rightly identifies new homes and house price inflation as crucial issues. But could its big bang proposals really work?

First, the assumptions about the number of sales of social homes seem optimisitc to say the least. The report claims that the net result would be 146,000 homes a year bought by tenants. ‘This is not that much higher than the first decade of Right to Buy sales (106,000 or so a year) despite the ease with which working tenants will be able to buy and the support available.’

Not that much higher? That’s 40% higher than at the height of the biggest housing sell-off ever when millions of existing tenants were actually in a position to buy.

If that’s over-optimistic, then it would impact on the financial assumptions behind the plan: £8bn a year proceeds  from stock sales when tenants die plus £10-15bn a year from sales to existing tenants. 

Second, there are big assumptions about the savings to be made from changing incentives and improving the proportion of social tenants in jobs but not much is said about the families that would have qualified for social housing but would now be stuck in expensive private lets facing even steeper disincentives to work.

Third, the plan relies on some heroic assumptions about big improvements to the supply of new homes and the end of house price inflation. 

The government would get two new targets just at the point it finishes abolishing the ones it inherited: that anyone working full time on the minimum wage should be able to afford an average UK lower quartile property by 2030; and that there should be ‘rough annual house price stability over the next two decades’.

The report points out that UK house prices rose by 133% in real terms between 1995 and 2006 and argues that the main reason was lack of new supply rather than excessive lending or immigration. 

That would be tacked through ‘real localism’ and ‘community-controlled planning’. Decentralising planning under the current system will just give nimbys more power, says the report.

Instead, homeowners directly impacted by a development would be balloted. The development would go ahead unless more than 50% vote against it. The costs of ballots would be paid by developers who would also be free to offer financial incentives (which sound pretty much like bribes) to those voting. 

While 75% of undeveloped land would be protected, the report argues that the result would be more homes of better quality, since residents would only vote for schemes that they approve of and will create a better quality of life all round. 

The report cites Kate Barker’s work on the effect of new supply on house prices and argues: ‘If supply had run at 1960s levels since 1980, around 175,000 extra dwellings would have been built a year, and real terms house prices would have risen much less than they did – from £75-80,000 to just £105-110,000. This would have brought the UK more in line with other countries – where they did build more homes.’

Ignore for the moment the fact that almost all of that extra supply in the 1960s came from council housing and that the private sector has never built anything approaching that number of homes. Even if housebuilders could be persuaded to rapidly expand, doesn’t this sound like the exact opposite of what Conservative MPs were celebrating with the end of regional strategies?

Ups and downs

Tue, 31 Aug 2010

Rising rents are going hand in hand with falling prices as the housing market adjusts to shifts in supply and demand.

Two surveys over the last few days show the impact on tenants and landlords as well as home buyers and sellers. 

On Friday, in its latest residential lettings survey, the Royal Institution of Chartered Surveyors (RICS) said increased tenant demand and a shortage of properties were pushing rents higher. 

Demand increased in all regions but was strongest in London and the East of England. The RICS said demand stemmed from problems in getting a mortgage, worries over double dip price falls and the large deposits being required by lenders. At the same time, landlords looking to cash in were having difficulties getting a buy-to-let mortgage.

It’s an illustration of how interdependent the rental and sales market have become in the wake of the buy-to-let boom and the increase in the size of the private rented sector. But the shortage of social housing is also having an impact: 11% of demand for private lets now comes from social tenants, almost double the level two years ago.

With few signs of an improvement in the mortgage market any time soon - and suggestions over the weekend that the Bank of England may impose new restrictions - the impact is being felt in the sales market too.

In its latest survey published this morning Hometrack hardens its view of what happening and concludes that a re-pricing of housing is now underway. The annual rate of house price inflation remains positive at 1.5% but almost all of Hometrack’s indicators are pointing to a deterioration and the monthly fall in August was the biggest for 16 months.

The proportion of postcodes reporting price falls surged from 12% in July to 30% in August while only 3% of postcodes reported an increase. The sales price as a percentage of asking price and the number of new buyers registering both fell for the second month in a row.  Homes are taking longer to sell.

In the meantime, the supply of homes for sale grew by 2.4% in August - well above average for what is traditionally a quiet month.

Hometrack director of research Richard Donnell says that ‘modest re-pricing’ is likely to continue for the next six to 12 months. The recovery in prices over the last 18 months and the abolition of home information packs had led to a surge in new properties coming on to the market at the same time as growing weakness on the demand side. 

At some stage those supply and demand factors will shift again. Some tenants who can get a mortgage but are choosing to rent at the moment may see falling prices as a chance to buy. Homeowners may decide to rent out their property rather than accept a lower price.

Ahead of the spending review though the signs are not looking good for the government’s revenue from stamp duty on house sales or its spending on housing benefit to cover rising rents. 

Ups and downs

Tue, 31 Aug 2010

Rising rents are going hand in hand with falling prices as the housing market adjusts to shifts in supply and demand.

Two surveys over the last few days show the impact on tenants and landlords as well as home buyers and sellers. 

On Friday, in its latest residential lettings survey, the Royal Institution of Chartered Surveyors (RICS) said increased tenant demand and a shortage of properties were pushing rents higher. 

Demand increased in all regions but was strongest in London and the East of England. The RICS said demand stemmed from problems in getting a mortgage, worries over double dip price falls and the large deposits being required by lenders. At the same time, landlords looking to cash in were having difficulties getting a buy-to-let mortgage.

It’s an illustration of how interdependent the rental and sales market have become in the wake of the buy-to-let boom and the increase in the size of the private rented sector. But the shortage of social housing is also having an impact: 11% of demand for private lets now comes from social tenants, almost double the level two years ago.

With few signs of an improvement in the mortgage market any time soon - and suggestions over the weekend that the Bank of England may impose new restrictions - the impact is being felt in the sales market too.

In its latest survey published this morning Hometrack hardens its view of what happening and concludes that a re-pricing of housing is now underway. The annual rate of house price inflation remains positive at 1.5% but almost all of Hometrack’s indicators are pointing to a deterioration and the monthly fall in August was the biggest for 16 months.

The proportion of postcodes reporting price falls surged from 12% in July to 30% in August while only 3% of postcodes reported an increase. The sales price as a percentage of asking price and the number of new buyers registering both fell for the second month in a row.  Homes are taking longer to sell.

In the meantime, the supply of homes for sale grew by 2.4% in August - well above average for what is traditionally a quiet month.

Hometrack director of research Richard Donnell says that ‘modest re-pricing’ is likely to continue for the next six to 12 months. The recovery in prices over the last 18 months and the abolition of home information packs had led to a surge in new properties coming on to the market at the same time as growing weakness on the demand side. 

At some stage those supply and demand factors will shift again. Some tenants who can get a mortgage but are choosing to rent at the moment may see falling prices as a chance to buy. Homeowners may decide to rent out their property rather than accept a lower price.

Ahead of the spending review though the signs are not looking good for the government’s revenue from stamp duty on house sales or its spending on housing benefit to cover rising rents. 

North of the border

Thu, 26 Aug 2010

Being in Edinburgh for the last week felt a bit like being in a parallel universe.

It’s not just that you can’t move for jugglers, fire-eaters and people doing headstands inside buckets at this time of year or even the fact that the whole city is still plastered with reminders of the hubris of the Royal Bank of Scotland.

It’s more that most of the things we’ve come to take for granted in England since the general election do not apply yet in Scotland. Many of them never will.

There have been few cuts so far - Scotland’s budget for 2010/11 was set before the cuts imposed in the Labour Budget in April and the coalition emergency Budget in June.

Most of the quangos that are being abolished in England do not work north of the border. The names Eric Pickles and Grant Shapps prompt puzzled looks.

The big reforms announced in England for the health service and education do not apply in Scotland. Neither does the abolition of regional strategies and creation of the new homes bonus.

Thanks to different electoral cycles, Scotland even has a Labour party with a realistic chance of returning to power when the elections for the Scottish Parliament are held next May.

The big thing that will apply - housing benefit cuts - is not yet provoking the same concern in Scotland, possibly because the caps that have received most publicity are seen as a London problem.

In the meantime, housing policy continues on a very different course to the one being taken by the coalition in England.

Progress continues towards the national homelessness target of abolishing priority need by 2012. Despite some local authorities lagging behind, Scotland as a whole is perhaps 80% of the way there.

Bills going through the Scottish Parliament will phase out the right to buy for new build homes and for new tenancies and give councils new powers to take action against bad landlords.

In September a new pre-action requirement will give new legal protection to homeowners facing repossession. The fact that it’s a requirement gives it the legislative teeth that the pre-action protocol in England and Wales lacks and there is a good chance that similar measures will be introduced to protect social tenants from eviction too.

But everyone knows it cannot last. Scotland will lurch uncomfortably back into some kind of sync with England on October 24, when the UK spending review will determine a large part of the budget that Scottish politicians and civil servants will have just four weeks to prepare.

Cuts are inevitable from 2011/12 and the postponement of this year’s round in Scotland will make next year’s even worse.

But the politics will be very different, with the SNP government and Labour opposition able to blame decisions by the Tory-Lib Dem government in London in the run-up to the Scottish elections in May. 

Whoever wins will still face some tough choices on spending and possibly tax too - will the SNP be able to maintain its council tax freeze and will either party dare to use devolved powers to increase income tax?

North of the border

Thu, 26 Aug 2010

Being in Edinburgh for the last week felt a bit like being in a parallel universe.

It’s not just that you can’t move for jugglers, fire-eaters and people doing headstands inside buckets at this time of year or even the fact that the whole city is still plastered with reminders of the hubris of the Royal Bank of Scotland.

It’s more that most of the things we’ve come to take for granted in England since the general election do not apply yet in Scotland. Many of them never will.

There have been few cuts so far - Scotland’s budget for 2010/11 was set before the cuts imposed in the Labour Budget in April and the coalition emergency Budget in June.

Most of the quangos that are being abolished in England do not work north of the border. The names Eric Pickles and Grant Shapps prompt puzzled looks.

The big reforms announced in England for the health service and education do not apply in Scotland. Neither does the abolition of regional strategies and creation of the new homes bonus.

Thanks to different electoral cycles, Scotland even has a Labour party with a realistic chance of returning to power when the elections for the Scottish Parliament are held next May.

The big thing that will apply - housing benefit cuts - is not yet provoking the same concern in Scotland, possibly because the caps that have received most publicity are seen as a London problem.

In the meantime, housing policy continues on a very different course to the one being taken by the coalition in England.

Progress continues towards the national homelessness target of abolishing priority need by 2012. Despite some local authorities lagging behind, Scotland as a whole is perhaps 80% of the way there.

Bills going through the Scottish Parliament will phase out the right to buy for new build homes and for new tenancies and give councils new powers to take action against bad landlords.

In September a new pre-action requirement will give new legal protection to homeowners facing repossession. The fact that it’s a requirement gives it the legislative teeth that the pre-action protocol in England and Wales lacks and there is a good chance that similar measures will be introduced to protect social tenants from eviction too.

But everyone knows it cannot last. Scotland will lurch uncomfortably back into some kind of sync with England on October 24, when the UK spending review will determine a large part of the budget that Scottish politicians and civil servants will have just four weeks to prepare.

Cuts are inevitable from 2011/12 and the postponement of this year’s round in Scotland will make next year’s even worse.

But the politics will be very different, with the SNP government and Labour opposition able to blame decisions by the Tory-Lib Dem government in London in the run-up to the Scottish elections in May. 

Whoever wins will still face some tough choices on spending and possibly tax too - will the SNP be able to maintain its council tax freeze and will either party dare to use devolved powers to increase income tax?

Can we fix it?

Wed, 25 Aug 2010

Suddenly everything looks rosy again for housebuilders but how long can it last?

Results from Persimmon yesterday and from Bovis on Monday show that both firms had a good first half of 2010. 

Persimmon, the largest housebuilder by market value, is paying a dividend to shareholders for the first time since the crash and is also writing back the value of its land. 

Little wonder when it turned an underlying loss of £16.7m in 2009 into an underlying profit of £39.4m in 2010, increased its average selling price by 8.6% and increased its operating marginns from 1.6% to 8%.

Bovis also went back into profit and increased its margins and said it would reinstate its dividend at the end of the year. Chief executive David Ritchie said: ‘The group has the ability to increase its output capacity and profitability in the future supported by a larger land bank across an increased number of housing sites, without reliance on a general housing market recovery.’

That optimism was reflected in housebuilding figures from Communities and Local Government (CLG) last week. Starts in the second quarter were up 13% on the first quarter and 56% on the same period a year ago.

And yet the figures as a reflection of the recovery so far and it’s hard not to see them in the context of other indicators about the market in general that are turning from amber to red. House prices are on the turn. Mortgage approvals - one of the best indicators of what will happen over the rest of the year - fell for the second month in a row to the lowest level seen since May 2009. Surveyors are becoming much gloomier about the prospects for the rest of the year and 2011. 

Nobody needs any reminding of the austerity to come in the UK and the international context is looking even worse, with US home sales slumping 27% in July. 

In that context, it’s just as well that the housebuilders believe they’ve found a way to insulate themselves from what happens in the market in general, through careful buying and selling of land and by switching to building fewer, but more expensive homes. Austerity may be on the way but they believe they are set to benefit once the uncertainty is over.

They had better be right because if things do go pear-shaped for them again there is no chance of a second bail-out by the Homes and Communities Agency. 

Can we fix it?

Wed, 25 Aug 2010

Suddenly everything looks rosy again for housebuilders but how long can it last?

Results from Persimmon yesterday and from Bovis on Monday show that both firms had a good first half of 2010. 

Persimmon, the largest housebuilder by market value, is paying a dividend to shareholders for the first time since the crash and is also writing back the value of its land. 

Little wonder when it turned an underlying loss of £16.7m in 2009 into an underlying profit of £39.4m in 2010, increased its average selling price by 8.6% and increased its operating marginns from 1.6% to 8%.

Bovis also went back into profit and increased its margins and said it would reinstate its dividend at the end of the year. Chief executive David Ritchie said: ‘The group has the ability to increase its output capacity and profitability in the future supported by a larger land bank across an increased number of housing sites, without reliance on a general housing market recovery.’

That optimism was reflected in housebuilding figures from Communities and Local Government (CLG) last week. Starts in the second quarter were up 13% on the first quarter and 56% on the same period a year ago.

And yet the figures as a reflection of the recovery so far and it’s hard not to see them in the context of other indicators about the market in general that are turning from amber to red. House prices are on the turn. Mortgage approvals - one of the best indicators of what will happen over the rest of the year - fell for the second month in a row to the lowest level seen since May 2009. Surveyors are becoming much gloomier about the prospects for the rest of the year and 2011. 

Nobody needs any reminding of the austerity to come in the UK and the international context is looking even worse, with US home sales slumping 27% in July. 

In that context, it’s just as well that the housebuilders believe they’ve found a way to insulate themselves from what happens in the market in general, through careful buying and selling of land and by switching to building fewer, but more expensive homes. Austerity may be on the way but they believe they are set to benefit once the uncertainty is over.

They had better be right because if things do go pear-shaped for them again there is no chance of a second bail-out by the Homes and Communities Agency. 

Turning a blind eye

Tue, 24 Aug 2010

With the spending review now only 60 days away, is there really no alternative to the huge cuts that are seen as inevitable across the political spectrum?

The coalition government wants cuts of at least 25% in all departmental budgets except health and overseas aid. Labour warns of the dangers of cutting too soon but had proposed cuts that were almost as big before the election. That consensus has left precious little room for debate when it comes to particular budgets – even though there must be doubt about whether any government can really follow through once the effects of the cuts start to be felt. For a preview, look at what happened in Canada when the government ended all federal support for new homes and devolved responsibility for the soaring homelessness that followed to provincial and local governments.

A spending review submission from the Building and Social Housing Foundation puts the case for a different approach, one that starts with taxation and not spending.

The BSHF argues the steps to neutralise the tax advantages of owner-occupation over private renting that are still worth £15.9bn a year with the housing market in the doldrums and were worth almost twice that during the boom years. These cannot be justified in the current economic circumstances, it argues.

However, it rejects the obvious approach of imposing capital gains tax on first homes as too blunt an instrument that would hamper social mobility. Instead, it says the old Schedule A tax on the value of imputed rents should be reintroduced.

The favourable tax treatment of owner-occupiers hurts tenants as well as landlords since they end up paying higher rents – and that in turn means a higher housing benefit bill, another area where the BSHF challenges the current orthodoxy.

Cuts on the current scale will only lead to problems elsewhere with financial consequences that will outweigh any savings, it argues. Most of the increased housing benefit bill has come from an increase in the number of claimants due to higher unemployment rather than from higher rents. Instead the government should adopt a more nuanced approach that phases in any changes and takes account of the effects in particular areas.

The prospects of the government listening to that advice would seem to rank somewhere between slim and zero, but perhaps it should for all our sakes.

I heard a lecture by the Nobel Prize-winning economist Joseph Stiglitz in Edinburgh this week in which he was asked what he would do in response to the austerity budgets being planned by European governments like ours. His response was one word: pray.

Stiglitz believes that there is a better than even chance of a double-dip recession and that governments have still not learned the lesson of the 1929, when they cut public spending in response to the stock market crash only to trigger the Great Depression.

He argues that governments have let the banks carry on with business as usual and done little to tackle the causes of the credit crisis – and that they are now set to cut spending at just the wrong time.

His alternative approach would start with progressive taxation to take money away from the rich (who save it) and redistribute it to the poor (who will spend it and increase demand in the economy).

And he would maintain spending on programmes that create jobs, tackle climate change and develop skills.All of which is in stark contrast to what we are set to do in October. Cuts in investment in new homes, funding for housing support and housing benefit for tenants seem inevitable.

But can we afford to continue to turn a blind eye to the tax advantages that force up land and house prices and make all of them cost more? 

Turning a blind eye

Tue, 24 Aug 2010

With the spending review now only 60 days away, is there really no alternative to the huge cuts that are seen as inevitable across the political spectrum?

The coalition government wants cuts of at least 25% in all departmental budgets except health and overseas aid. Labour warns of the dangers of cutting too soon but had proposed cuts that were almost as big before the election. That consensus has left precious little room for debate when it comes to particular budgets – even though there must be doubt about whether any government can really follow through once the effects of the cuts start to be felt. For a preview, look at what happened in Canada when the government ended all federal support for new homes and devolved responsibility for the soaring homelessness that followed to provincial and local governments.

A spending review submission from the Building and Social Housing Foundation puts the case for a different approach, one that starts with taxation and not spending.

The BSHF argues the steps to neutralise the tax advantages of owner-occupation over private renting that are still worth £15.9bn a year with the housing market in the doldrums and were worth almost twice that during the boom years. These cannot be justified in the current economic circumstances, it argues.

However, it rejects the obvious approach of imposing capital gains tax on first homes as too blunt an instrument that would hamper social mobility. Instead, it says the old Schedule A tax on the value of imputed rents should be reintroduced.

The favourable tax treatment of owner-occupiers hurts tenants as well as landlords since they end up paying higher rents – and that in turn means a higher housing benefit bill, another area where the BSHF challenges the current orthodoxy.

Cuts on the current scale will only lead to problems elsewhere with financial consequences that will outweigh any savings, it argues. Most of the increased housing benefit bill has come from an increase in the number of claimants due to higher unemployment rather than from higher rents. Instead the government should adopt a more nuanced approach that phases in any changes and takes account of the effects in particular areas.

The prospects of the government listening to that advice would seem to rank somewhere between slim and zero, but perhaps it should for all our sakes.

I heard a lecture by the Nobel Prize-winning economist Joseph Stiglitz in Edinburgh this week in which he was asked what he would do in response to the austerity budgets being planned by European governments like ours. His response was one word: pray.

Stiglitz believes that there is a better than even chance of a double-dip recession and that governments have still not learned the lesson of the 1929, when they cut public spending in response to the stock market crash only to trigger the Great Depression.

He argues that governments have let the banks carry on with business as usual and done little to tackle the causes of the credit crisis – and that they are now set to cut spending at just the wrong time.

His alternative approach would start with progressive taxation to take money away from the rich (who save it) and redistribute it to the poor (who will spend it and increase demand in the economy).

And he would maintain spending on programmes that create jobs, tackle climate change and develop skills.All of which is in stark contrast to what we are set to do in October. Cuts in investment in new homes, funding for housing support and housing benefit for tenants seem inevitable.

But can we afford to continue to turn a blind eye to the tax advantages that force up land and house prices and make all of them cost more? 

Through the looking glass

Thu, 19 Aug 2010

Financial meltdown? Check. Housing market boom and bust? Check. Housebuilding halt? Check. But the housing crisis in Ireland is very different to the one on this side of the Irish Sea.

If our planning system can be blamed for exacerbating the long-term under-supply of new homes, theirs led to a development frenzy that produced an over-supply of homes (as well as offices, shops and hotels) in almost all parts of the country.

Between 1996 and 2005, at the height of the Celtic Tiger boom, the Irish built 550,000 new homes, an average of 55,000 homes a year.

Taking the relative populations into account, that’s the equivalent of England building more than 600,000 a year. Only Spain built an equivalent number of homes per head and that was helping to satisfy apparently insatiable demand for holiday homes.

Over the same decade the population rose by only 350,000 - making a huge surplus inevitable. And yet between 2006 and 2009, the Irish built another 250,000 homes.

According to a recent report by the National Institute for Regional and Spatial Analysis (NIRSA), there are currently 300,000 empty homes in the country and more than 600 ‘ghost estates’ of new homes that are more than 50% empty or unfinished. 

Incredibly, the counties with the most vacant stock in 2006 went on to build the most new homes - often encouraged to do so by tax incentive schemes. 

In the absence of a way to move those empty homes this side of the Irish Sea, the solutions to the country’s problems are far from obvious but the NIRSA team say they have to start with substantive change to a planning system that was driven by the demands of developers and speculators and ambitious, localised growth plans. 

The results of the speculative bubble were even worse than over here. A state-owned asset management company has acquired £88bn of property debt. Banks were reacpitalised or nationalised with public money.

By the end of 2009, house prices had fallen up to 40% from their peak. Meanwhile, severe cuts in public spending have led to rapidly rising unemployment. NIRSA says there needs to be an inquiry into a planning system riddled with peverse incentives and cronyism to match those already carried out on financial and banking regulation. 

But Ireland could take years to recover from its planning mistakes. Nationally, there is enough excess land zoned for housing to last 17 years and despite the empty homes developers continue to build new ones - 11,000 over the last 15 months. By head of population, that’s still the equivalent of the 100,000 that England managed last year.

Through the looking glass

Thu, 19 Aug 2010

Financial meltdown? Check. Housing market boom and bust? Check. Housebuilding halt? Check. But the housing crisis in Ireland is very different to the one on this side of the Irish Sea.

If our planning system can be blamed for exacerbating the long-term under-supply of new homes, theirs led to a development frenzy that produced an over-supply of homes (as well as offices, shops and hotels) in almost all parts of the country.

Between 1996 and 2005, at the height of the Celtic Tiger boom, the Irish built 550,000 new homes, an average of 55,000 homes a year.

Taking the relative populations into account, that’s the equivalent of England building more than 600,000 a year. Only Spain built an equivalent number of homes per head and that was helping to satisfy apparently insatiable demand for holiday homes.

Over the same decade the population rose by only 350,000 - making a huge surplus inevitable. And yet between 2006 and 2009, the Irish built another 250,000 homes.

According to a recent report by the National Institute for Regional and Spatial Analysis (NIRSA), there are currently 300,000 empty homes in the country and more than 600 ‘ghost estates’ of new homes that are more than 50% empty or unfinished. 

Incredibly, the counties with the most vacant stock in 2006 went on to build the most new homes - often encouraged to do so by tax incentive schemes. 

In the absence of a way to move those empty homes this side of the Irish Sea, the solutions to the country’s problems are far from obvious but the NIRSA team say they have to start with substantive change to a planning system that was driven by the demands of developers and speculators and ambitious, localised growth plans. 

The results of the speculative bubble were even worse than over here. A state-owned asset management company has acquired £88bn of property debt. Banks were reacpitalised or nationalised with public money.

By the end of 2009, house prices had fallen up to 40% from their peak. Meanwhile, severe cuts in public spending have led to rapidly rising unemployment. NIRSA says there needs to be an inquiry into a planning system riddled with peverse incentives and cronyism to match those already carried out on financial and banking regulation. 

But Ireland could take years to recover from its planning mistakes. Nationally, there is enough excess land zoned for housing to last 17 years and despite the empty homes developers continue to build new ones - 11,000 over the last 15 months. By head of population, that’s still the equivalent of the 100,000 that England managed last year.

Bad to worse

Wed, 18 Aug 2010

If you think our housing crisis is bad, consider this: American police in riot gear were called out to deal with 30,000 people queuing to join the waiting list for housing assistance in a suburb of Atlanta this week.

The hopefuls chasing federal housing vouchers included pregnant women, elderly people in wheelchairs and people who had driven hundreds of miles to be there. Some had camped out for nearly three days in near 100 degree temperatures. 

All this to join the waiting list for just 455 vouchers to cover part of their rent in East Point, Georgia (population 45,000). Small wonder that the mood turned angry: some were treated for injuries as scuffles broke out, others were suffering from heat exhaustion. Or that TV news reporters questioned whether what they were seeing was really happening in America:

The numbers may have been bigger in East Point but the same thing has been happening in communities around the country, according to the Wall Street Journal. Anyone who makes it on to the waiting list - and lists in most major cities have been closed for years - can wait up to ten years to get a voucher that guarantees that the local housing authority will pay part of their rent. 

The US crisis doesn’t stop there. In just the last seven days, new stats confirmed that foreclosure filings are still rising and are up 10% on a year ago in contrast to the fall in repossession actions reported here. That’s despite huge federal funding to help people stay in their homes: the Obama administration allocated another $2bn to its Hardest Hit Fund this week. The Federal Housing Administration is also guaranteeing a third of all mortgages outstanding. 

It’s all been too much for Carl R Greene, the head of America’s fourth largest housing authority, Philadelphia. The $300,000 a year executive director disappeared after it was revealed he was facing foreclosure over $386,000 in mortgage arrears on his $600,000 condominium. 

 

Bad to worse

Wed, 18 Aug 2010

If you think our housing crisis is bad, consider this: American police in riot gear were called out to deal with 30,000 people queuing to join the waiting list for housing assistance in a suburb of Atlanta this week.

The hopefuls chasing federal housing vouchers included pregnant women, elderly people in wheelchairs and people who had driven hundreds of miles to be there. Some had camped out for nearly three days in near 100 degree temperatures. 

All this to join the waiting list for just 455 vouchers to cover part of their rent in East Point, Georgia (population 45,000). Small wonder that the mood turned angry: some were treated for injuries as scuffles broke out, others were suffering from heat exhaustion. Or that TV news reporters questioned whether what they were seeing was really happening in America:

The numbers may have been bigger in East Point but the same thing has been happening in communities around the country, according to the Wall Street Journal. Anyone who makes it on to the waiting list - and lists in most major cities have been closed for years - can wait up to ten years to get a voucher that guarantees that the local housing authority will pay part of their rent. 

The US crisis doesn’t stop there. In just the last seven days, new stats confirmed that foreclosure filings are still rising and are up 10% on a year ago in contrast to the fall in repossession actions reported here. That’s despite huge federal funding to help people stay in their homes: the Obama administration allocated another $2bn to its Hardest Hit Fund this week. The Federal Housing Administration is also guaranteeing a third of all mortgages outstanding. 

It’s all been too much for Carl R Greene, the head of America’s fourth largest housing authority, Philadelphia. The $300,000 a year executive director disappeared after it was revealed he was facing foreclosure over $386,000 in mortgage arrears on his $600,000 condominium. 

 

Minding the gap

Tue, 17 Aug 2010

If the golden age of home ownership is over then nobody appears to have told second home owners.

On the same day that the Chartered Institute of Housing (CIH) published a report calling for a new range of renting options for people who don’t qualify for social housing but can’t afford to buy, a survey by estate agent Knight Frank revealed that second home ownership has reached a record high.  

The CIH report is a thoughtful attempt to address the housing needs of what it calls the ‘in-betweens’ at a time when home ownership is shrinking and funding for social housing is about to be cut. 

In particular, it says there could be a new role for social housing providers to broaden their role, meeting the needs of more households at the same time as generating income to support affordable provision.

That might involve a level of asset ‘churn’ - selling off some properties and re-investing the capital gains - but also offering longer tenancies to renters.  

The work was supported by London & Quadrant, which today extended its UpToYou rent to purchase scheme aimed at households earning between £12,000 and £25,000.

However, the Knight Frank survey reveals that demand from the housing ‘haves’ is set to intensify even as new ways are developed to cater for the ‘have-nots’.

Second home ownership in Britain rose 2.6% in 2009 to reach a record 245,384 homes and Knight Frank is predicting a further 2% rise this year to take the total above a quarter of a million for the first time. 

The growth is especially marked in the new-build market for holiday homes, where the coalition government has said owners will continue to enjoy tax advantages that Labour was set to scrap. 

In popular holiday home hotspots supply is well down while demand continues to grow. In the meantime of course, second home owners look set to be able to take advantage of record low interest rates for some time to come.

And the same will apply to buy-to-let investors (CML figures last week showed more are starting to appear again) and the 80% of first-time buyers who get help from their parents to buy.

All of which suggests that the needs of the have-nots and the in-betweeners will become even more acute over the next few years. 

Minding the gap

Tue, 17 Aug 2010

If the golden age of home ownership is over then nobody appears to have told second home owners.

On the same day that the Chartered Institute of Housing (CIH) published a report calling for a new range of renting options for people who don’t qualify for social housing but can’t afford to buy, a survey by estate agent Knight Frank revealed that second home ownership has reached a record high.  

The CIH report is a thoughtful attempt to address the housing needs of what it calls the ‘in-betweens’ at a time when home ownership is shrinking and funding for social housing is about to be cut. 

In particular, it says there could be a new role for social housing providers to broaden their role, meeting the needs of more households at the same time as generating income to support affordable provision.

That might involve a level of asset ‘churn’ - selling off some properties and re-investing the capital gains - but also offering longer tenancies to renters.  

The work was supported by London & Quadrant, which today extended its UpToYou rent to purchase scheme aimed at households earning between £12,000 and £25,000.

However, the Knight Frank survey reveals that demand from the housing ‘haves’ is set to intensify even as new ways are developed to cater for the ‘have-nots’.

Second home ownership in Britain rose 2.6% in 2009 to reach a record 245,384 homes and Knight Frank is predicting a further 2% rise this year to take the total above a quarter of a million for the first time. 

The growth is especially marked in the new-build market for holiday homes, where the coalition government has said owners will continue to enjoy tax advantages that Labour was set to scrap. 

In popular holiday home hotspots supply is well down while demand continues to grow. In the meantime of course, second home owners look set to be able to take advantage of record low interest rates for some time to come.

And the same will apply to buy-to-let investors (CML figures last week showed more are starting to appear again) and the 80% of first-time buyers who get help from their parents to buy.

All of which suggests that the needs of the have-nots and the in-betweeners will become even more acute over the next few years. 

Out of commission

Mon, 16 Aug 2010

Does anyone believe that privatised auditors would have held Shirley Porter to account for the homes for votes scandal?

The Audit Commission may have drawn a big target on its back with its decisions to pay its prospective chief executive £240,000 and spend £55,000 to lobby its own government and £8,000 at Newmarket racecourse, but its abolition will leave serious questions to be answered about the future accountability of local government.

This at a time when localism will give councils more freedom from central control and austerity will make value for money more important than ever. There were plenty of warning signals from Eric Pickles, who attacked the lobbying in opposition and blocked the appointment of a new chief exec in government.

The Commission had also been given a big role in ensuring local compliance with government targets that the coalition is busily dismantling. But even so the announcement that was leaked on Friday came as a shock to staff.

The quango published a statement that highlights its role not just in Westminster but in the surcharging of councillors in Lambeth and Liverpool and in uncovering the scale of the crisis at Doncaster council.

And it argued that it was its own success in improving the performance of local government that had enabled the coalition to give it more autonomy. But that seems not to have counted for much as the government pressed ahead with the abolition of targets and comprehensive area assessment and with the publication of the all spending over £500 by government departments and agencies and by local authorities.

Who needs the Audit Commission when making that information publicly available will empower an army of armchair auditors who will hold the bureaucrats to account? Pickles said that the Commission’s in-house audit practice - the fifth largest in the country - would be transferred out of public ownership and sold or otherwise transferred to the private sector.

The Commission already contracts out some of its work. But anyone who followed the long homes for votes saga will question whether private auditors would have shown a fraction of the tenacity of district auditor John Magill in surcharging Porter and other Westminster councillors and then fighting to uphold his decision through the High Court, the Court of Appeal, the House of Lords and the European Court of Human Rights. 

On a more routine level, consider the role that district auditors played in housing issues at HullBrentwoodWest WiltshireNorth East Somerset….the list goes on. Would private auditors from the same multinational giants that failed to spot problems at Royal Bank of Scotland, Northern Rock, Lehman Brothers and Enron be interested in much more than pocketing their fees and moving on to the next client?

Out of commission

Mon, 16 Aug 2010

Does anyone believe that privatised auditors would have held Shirley Porter to account for the homes for votes scandal?

The Audit Commission may have drawn a big target on its back with its decisions to pay its prospective chief executive £240,000 and spend £55,000 to lobby its own government and £8,000 at Newmarket racecourse, but its abolition will leave serious questions to be answered about the future accountability of local government.

This at a time when localism will give councils more freedom from central control and austerity will make value for money more important than ever. There were plenty of warning signals from Eric Pickles, who attacked the lobbying in opposition and blocked the appointment of a new chief exec in government.

The Commission had also been given a big role in ensuring local compliance with government targets that the coalition is busily dismantling. But even so the announcement that was leaked on Friday came as a shock to staff.

The quango published a statement that highlights its role not just in Westminster but in the surcharging of councillors in Lambeth and Liverpool and in uncovering the scale of the crisis at Doncaster council.

And it argued that it was its own success in improving the performance of local government that had enabled the coalition to give it more autonomy. But that seems not to have counted for much as the government pressed ahead with the abolition of targets and comprehensive area assessment and with the publication of the all spending over £500 by government departments and agencies and by local authorities.

Who needs the Audit Commission when making that information publicly available will empower an army of armchair auditors who will hold the bureaucrats to account? Pickles said that the Commission’s in-house audit practice - the fifth largest in the country - would be transferred out of public ownership and sold or otherwise transferred to the private sector.

The Commission already contracts out some of its work. But anyone who followed the long homes for votes saga will question whether private auditors would have shown a fraction of the tenacity of district auditor John Magill in surcharging Porter and other Westminster councillors and then fighting to uphold his decision through the High Court, the Court of Appeal, the House of Lords and the European Court of Human Rights. 

On a more routine level, consider the role that district auditors played in housing issues at HullBrentwoodWest WiltshireNorth East Somerset….the list goes on. Would private auditors from the same multinational giants that failed to spot problems at Royal Bank of Scotland, Northern Rock, Lehman Brothers and Enron be interested in much more than pocketing their fees and moving on to the next client?

Hopes and fears

Fri, 13 Aug 2010

The dire forecasts said repossessions would be higher than in the early 1990s. They are now likely to be about half the level seen then. Crisis over?

As house prices plummeted through 2008 and into 2009, repossessions started to climb and the Council of Mortgage Lenders (CML) forecast they would reach 75,000 in 2009 - only just short of the worst ever total in 1991. 

That would have been a political disaster for the government and a PR disaster for the banks and prompted action on a wide range of fronts: an improved safety net; a pre-action protocol; new support schemes; and increased forebearance measures.

Above all, record low interest rates reduced monthly payments for borrowers in trouble.Compared to those worst fears, the results are a triumph. Lenders repossessed not 75,000 families but 48,000 in 2009 and the CML now forecasts the total will fall to 39,000 in 2010 against the 53,000 it expected at the start of the year.

In the meantime, the coalition government has begun to dismantle much of the safety net and many of the support measures introduced by Labour. The CML published second quarter figures yesterday showing that repossessions were down 4% on the previous quarter and 21% on a year ago.

The number of mortgages more than three months in arrears showed similar falls. But it also warned there is no room for complacency. The number of people with low level of arrears has fallen quite rapidly but the number with arrears worth more than 10% of there mortgage barely fell at all. 

The danger is that many repossessions have just been postponed and that totals could remain high for several years. If the total starts to rise again as public spending cuts bite, then the political risks for the coalition are obvious.

Yet it’s hard to justify maintaining help for homeowners at a time when tenants are about to go through draconian cuts in housing benefit. 

As Michael Coogan, director general of the CML, puts it: ‘While we don’t want to cry wolf, it seems obvious that the ongoing prognosis for arrears and possessions is far from a healthy all-clear. We hope the coalition government will not risk undermining the chances of extending the welcome trends this year by removing support mechanisms that work.’

Hopes and fears

Fri, 13 Aug 2010

The dire forecasts said repossessions would be higher than in the early 1990s. They are now likely to be about half the level seen then. Crisis over?

As house prices plummeted through 2008 and into 2009, repossessions started to climb and the Council of Mortgage Lenders (CML) forecast they would reach 75,000 in 2009 - only just short of the worst ever total in 1991. 

That would have been a political disaster for the government and a PR disaster for the banks and prompted action on a wide range of fronts: an improved safety net; a pre-action protocol; new support schemes; and increased forebearance measures.

Above all, record low interest rates reduced monthly payments for borrowers in trouble.Compared to those worst fears, the results are a triumph. Lenders repossessed not 75,000 families but 48,000 in 2009 and the CML now forecasts the total will fall to 39,000 in 2010 against the 53,000 it expected at the start of the year.

In the meantime, the coalition government has begun to dismantle much of the safety net and many of the support measures introduced by Labour. The CML published second quarter figures yesterday showing that repossessions were down 4% on the previous quarter and 21% on a year ago.

The number of mortgages more than three months in arrears showed similar falls. But it also warned there is no room for complacency. The number of people with low level of arrears has fallen quite rapidly but the number with arrears worth more than 10% of there mortgage barely fell at all. 

The danger is that many repossessions have just been postponed and that totals could remain high for several years. If the total starts to rise again as public spending cuts bite, then the political risks for the coalition are obvious.

Yet it’s hard to justify maintaining help for homeowners at a time when tenants are about to go through draconian cuts in housing benefit. 

As Michael Coogan, director general of the CML, puts it: ‘While we don’t want to cry wolf, it seems obvious that the ongoing prognosis for arrears and possessions is far from a healthy all-clear. We hope the coalition government will not risk undermining the chances of extending the welcome trends this year by removing support mechanisms that work.’

View results 10 per page | 20 per page | 50 per page

Newsletter Sign-up

IH Subscription