All posts from: October 2010
For a government that does not believe in targets the coalition has not done too badly over the last week.
First we had George Osborne pledging that the spending review would generate 150,000 affordable homes over the next four years. Then we had Grant Shapps backing him up.
And Nick Clegg went even further with a pledge of 400,000 affordable homes over the next 10 years.
But, call them targets, aspirations, vague hopes, do they stack up any more than Labour’s target of 240,000 additional homes a year? The credit crunch did for that and in figures released last week the total fell to just 128,000 in 2009/10.
On the face of it, the chances look slim. The spending review saw investment cut by 60% or more, from £8.6bn over three years to £4.5bn over four. The Homes and Communities Agency (HCA) managed 56,000 completions in 2009/10
Here’s where creative finance and some creative vocabulary come to the help of the government. Extra borrowing capacity from a new generation of housing association ‘affordable’ lets set at 80% of market rates should go some way to bridging the gap.
However, initial projections by the Chartered Institute of Housing suggest that the new regime will enable 15,000 new homes a year to be built and it has since emerged that the new lets could be at 80% of local housing allowance rather than market rates.
Full detail of the spending review settlement has yet to emerge but it seems that the £4.5bn includes £2.3bn of agreed spending, £200m for mortgage rescue, £100m for empty homes and £1.9bn for new ‘affordable’ homes.
Target or not, the pressure will be on the HCA to get close to that 150,000 total by in turn increasing the pressure on housing associations to sweat their assets. It remains to be seen how much of the budget will go into renting and how much into shared equity.
In the background all the time, though, is the wider question of ‘affordabilty’. A report released today by the Home Builders Federation warns that first-time buyers would have to save every penny they earn for two years to be able to get on to the housing ladder.
The solutions, says executive chairman Stewart Baseley, are a properly functioning mortgage market and more new homes. ‘The government must ensure that the new planning policy and incentives they are basing the success of their housing plans on are put in place immediately. Without more houses and more mortgages, young families will be unable to have the security of a roof over their heads and the housing crisis will very quickly reach the point of no return.’
However, ‘affordability’ could also be eased if the spending review austerity drive results in an economic slowdown and a new downturn in the housing market. Prices fell 0.7% in October and 1.5% over the last three months, according to the Nationwide this morning.
Price falls to, say, 80% of current market rates are not exactly unknown in recent years. Prices fell 20% in real terms between 2007 and 2009 and by 37% in real terms between 1989 and 1995.
So all it will take is something on the same lines over the spending review period between 2011 and 2014 and, hey presto, we have 19m ‘affordable’ homes.
Judging from Nick Clegg’s wobbly in parliament yesterday the pressure is telling on ministers over the effects of housing benefit cuts.
The deputy prime minister angrily rejected claims by Labour’s Chris Bryant that the poor are being ‘socially engineered and sociologically cleansed out of London’ as ‘outrageous’ and ‘offensive to people who have ethnic cleansing in other parts of the world’.
He went on: ‘We are simply suggesting that there should be a cap for family homes with four bedrooms of £400 a week. That is £21,000 a year. Does the hon. Gentleman really think it is wrong that the state should not subsidise people to the tune of more than £21,000, when people cannot afford to live privately in those areas? I do not think so.’
Downing Street later rejected Bryant’s claim that 200,000 people will be affected (London Councils’ estimate based on 88,000 households in the capital receiving more than the bedroom caps) and argued that the true figure is 21,000 households. However, that only covers people affected by the £400 cap on four-bed homes.
The exchange followed increasing signs of unrest on the Lib Dem backbenches, with deputy leader Simon Hughes condemning the cuts as ‘harsh and draconian’ over the weekend.
The BBC reported yesterday that work and pensions secretary Iain Duncan Smith was listening to the concerns of Conservative MPs and London mayor Boris Johnson while Channel 4 News reported that special measures were being considered for the capital - either a delay in the introduction of the cut or a higher cap.
But this morning Downing Street moved to deny reports of a climbdown, with a spokesman insisting that it was ‘absolutely committed’ to the reforms. And that was repeated later by David Cameron at a prime minister’s questions in which Labour leader Ed Miliband devoted all of his alloted time to housing benefit. ‘I know you don’t like the answer “we’re sticking to our plans”,’ said Cameron, ‘but we’re sticking to our plans.’
Denial it may have been but it was also evidence of the pressure being felt at a national level.
The impact on local Conservatives was illustrated in an interesting interview on the Today programme this morning with Cllr Timothy Coleridge, cabinet member for housing at Kensington & Chelsea.
Coleridge said the borough had 3,000 households in receipt of housing benefit in the private rented sector and that about 2,000 of those would be affected by the caps. ‘We reckon that about 1,000 of those would be people we consider to be in priority need, people who would find it particularly difficult to move because they may be elderly, they may have children, they may be ill, all sorts of reasons.’
He said he broadly supported the principle of the caps because housing allowances had gone so high (rising 20% in three months following their introduction in 2008) that they had priced out people in North Kensington who were working.
‘What we’re saying is that a number of people will be able to move out, should be able to find alternative accommodation elsewhere in London. However, we would like the government to be as flexible as possible for those people who are particularly vulnerable.’
Coleridge also explained if the changes went ahead unamended Kensington & Chelsea would be forced to give the homeless priority for its own stock over people on the waiting list and that people who became homeless as a result of the cap would have to be housed outside the borough perhaps for several years.
Given those local pressures, will the government really make no more concessions beyond a bit more money for discretionary funds?
The caps have been by far the most controversial of the housing benefit cuts so far, but the £70m a year savings are only a fraction of the total £2bn a year savings the coalition is planning to make from housing benefit as a whole.
In all the debate about fairness and the spending review, how fair is it between different housing tenures?
Many of the same arguments about tax and spending apply to owners, private tenants and social tenants in the same way as they do to different income groups: the increase in the top rate of tax hits high earners and many homeowners while cuts in housing benefit hit the unemployed, the lowest earners and many tenants. But there are also some housing-specific things that give a new twist to the debate about tenure.
The first is that even after the tax increases and the spending cuts, most people with a mortgage have done very well out of the financial crisis.
The banks may not have passed on all of the fall in the base rate to 0.5% but homeowners have still made a massive saving: according to the Halifax average mortgage payments fell 19% from £4,548 in April 2008 to £3,667 in April 2010. The bigger the mortgage, the bigger the saving.
All this while record low interest rates and increased affordability limited the fall in house prices and a range of measures under Labour gave extra help to homeowners with payment problems.
As for homeowners facing unemployment, it was easy to miss but last week’s spending review actually contained two bits of good news for homeowners that were buried in the detail of the review.
The Council of Mortgage Lenders (CML) lobbied successfully for an extension of temporary concessions on support for mortgage interest (SMI) that will see it available after 13 weeks rather than 39 and on mortgages up to £200,000 for another 12 months until January 2012. The £90m cost over the next two years is relatively modest and may anticipate problems to come but still came at a time when virtually everything else was cut.
More surprisingly perhaps, the government also retained £200m for mortgage rescue - reformed from a Labour scheme that Grant Shapps attacked on the basis that it had ‘hardly rescued anyone’.
Less surprisingly, the government failed to take the best opportunity for years to tackle the under-taxation of homeownership. The chance was there to raise badly needed tax and direct investment into savings and pensions rather than higher house prices but in a supposedly comprehensive review it was not taken.
Contrast that with what happened to tenants. Thousands of private tenants who might have expected to buy their first home have been denied by the need to stump up a 25% deposit and their increased demand has led to higher rents.
Any of them who lose their job over the next few years face a range of cuts in the local housing allowance. Even just the first wave including the bedroom caps will cost 939,000 private tenants an average of £12 a week and there are more to come such as switching to CPI indexation (£390m a year by 2014/15) and last week’s extension in the shared room rent to the under-35s that is forecast to reduce the average claim of 88,000 people by £47 a week.
Add further cuts in deductions for non-dependents (saving £425m a year by 2014/15), limiting housing benefit to reflect the size of the family for those of working age (£490m) and a 10% cut in housing benefit for anyone unemployed for more than 12 months (£110m) and the disparity between tenures grows even more.
All this while new supply falls and even those new social tenants in work who are lucky enough to qualify for an ‘affordable’ home may be puzzled by the definition of affordable when they see rents set at up to 80% of the market rate.
Families squeezed out by the move upmarket will find themselves competing for scarce homes at the bottom end of the private rented sector or shipped out to temporary accommodation in cheaper areas. And homeless people face a wave of cuts to services funded by local authorities.
So it’s clear that the housing tenures are far from ‘in this together’ but there is of course one group of people who have done even better than owners with a mortgage.
Bailed out by the taxpayer and about to celebrate £7bn bonuses worth the same as last week’s cut in benefits, maybe even considering whether to invest in yet more property, the bankers are laughing all the way to, well, the bank. Just for good measure, they have more than doubled their margins on most mortgages, making an extra £150 a month in interest on a £150,000 mortgage since the base rate cut.
12:40: More on that extension of the single room rate to people under 35.
Spending review documents estimate this will save £215m a year by 2013/14 – implying that the 88,000 people affected will lose an average of £2,400 a year each.
Citizens Advice described it as ‘an extraordinary decision’ that would ‘lead to an explosion of homelessness and will hit single working people on low incomes as well as the single unemployed’.
George Osborne said yesterday would ‘reflect the housing expectations of people of asimilar age not on benefits’. What he did not say was that shared accommodation is already in short supply in towns and cities and often does not exist at all in rural areas.
Research for the Department of Work and Pensions (DWP) in 2005 showed that 87% of single room rate claimants facing a shortfall even then and that they were having to find an average of £35 a week out of their other benefits to pay their rent.
11:10am: A letter from Grant Shapps sets out more details of the spending review settlement for housing.
‘I believe that we have secured a package that will help deliver the homes this country needs over the Spending Review period,’ he says. ‘Despite the fiscal constraints, the Government is still investing nearly £6.5 billion of taxpayers’ money in housing, with £4.5 billion to fund new affordable homes over the Spending Review period.’
So that’s £4.5bn for new homes over four years compared to £8.6bn over the previous three – a cut of 60%. But what about the other £2bn for housing, a figure that the Shapps letter says includes £200m for mortgage rescue and £100m to bring empty homes back into use?
That implies a gaping hole in the rest of the housing budget. To put it in perspective, the HCA’s direct budget alone was £5.5bn for the previous three years on top of the £8.6bn for the national affordable homes programme. It also had other programme expenditure (resources not directly under HCA control) of another £4.5bn on programmes like ALMOs and housing PFI credits.
The letter goes on to say that the government has set aside £900m for the new homes bonus from April 2011 (presumably out of the £4.5bn for new homes?) and that local authorities will get new powers to borrow against future tax revenues for schemes that will support new homes. The HCA will become ‘a much smaller investment and enabling agency, tasked with working more closely with local authorities’.
Shapps says explicitly that existing tenants will retain their security of tenure but that ‘different households have different needs and not all families will need lifelong subsidy’.
Housing associations will be able to offer a new fixed-term option (‘we are calling it affordable rent’) to ‘allow greater flexibility, focus greater support on those in greatest need as long as they need it and secure greater value for money for taxpayers’.
He says the government will invest £2bn towards completing the decent homes programme and confirms plans to reform the housing revenue account system.
Homelesness grant has been ‘protected with investment of £400m’ with ‘reductions to the supporting people programme have been minimised with £6.5bn investment secured over the next four years’.
10:15am: New CLG stats show that net housing supply in England fell to just 128,680 homes in 2009/10 - the lowest level since 2000/01. If anyone remembers now, that’s barely half of the Labour government’s target of 240,000 net additional homes per year. Housing groups may see it as yet more evidence of the growing crisis but I suspect the government will argue that it is yet another argument in favour of its policies.
9.55am: Housing was up front and centre in George Osborne’s Today programme interview on Radio 4 this morning as the chancellor was questioned about the fairness of yesterday’s measures. The 8.10 slot is probably the most prominent for a political interview on TV or radio and discussion of housing benefit and social housing dominated about three quarters of the interview.
As soon as presenter Evan Davis raised the cuts in welfare payments (about three minutes in), Osborne immediately focussed on housing benefit.
‘If we don’t deal with the rapid rise in things like our housing benefit bill, which is now considerably more than we spend on the police, for example, then we’re going to have a real problem,’ he said. ‘We’ve got to put our welfare state on a sustainable footing and we’ve got to reform it so that it always pays to work.’
Davis asked him specifically about the extension in the age threshold for the single room rate from 25 to 35. What would he do if that led to an increase in homelessness? Did he have a Plan B?
‘I am saying that for people under the age of 35 we should pay them through the housing benefit system to rent a room in shared accommodation,’ said Osborne. ‘Now for most people under the age of 35 that is that they can afford, they share houses with other people. Our housing benefit had got completely out of control and we were paying through some families to landlords £50-60-70,000 a year in benefits. That is paid for by many, many people listening to this programme going out to work, paying their taxes so that you pay one housing benefit bill of £100,000. That’s just totally unsustainable.’
Davis pressed him again on the specific measure of people under 35 renting a room in shared accommodation (‘with a shared living area’, interjected Osborne). If that led to the increase in homelessness that some were predicting would he be prepared to look at that particular provision again?
‘I don’t accept that,’ said Osborne. ‘We are trying to reform social housing. In this country we have very high housing waiting lists which have been created over many years. Over the last 13 years only 18,000 net social homes were created. Out plans set out yesterday create more than that in each and every year of the four-year plan, 150,000 new social properties. I think people have got to be reasonable and say can this country go on paying for people under the age of 35 without dependents to have a flat or house all to themselves or do they have to share with other people like working people do? Can we afford housing benefit bills of £60-70,000?
‘What about the simple principle that a family, assuming they haven’t got a disabled person in their family, on out of work benefits should not earn more than the average family that goes out to work? That is a perfectly reasonable situation to ask for when this country is borrrowing £1 in every £4 or £5 that it spends.’
Davis asked him the same question again. ‘If the consequences turn out to be worse than you expected will you look at this again? Your answer seems to be that you don’t want to look at it again. You don’t want a Plan B because you want to stick to Plan A. You don’t know what’s going to happen to the economy, you don’t know what’s going to happen to homelessness, you can’t be sure.’
Osborne replied: ‘I do know two things. One is that out there in the real world there is a very high concern about countries with high budget deficits and we’ve got one of the largest. I also know that the social housing system has not served people well in recent years and needs reform and I also know that the welfare state has not served people as well as it could which is why we are reforming it and why I’ve set aside £2bn so that it always pays to work.’
15:00: The National Housing Federation says the spending review amounts to a 60% cut in the affordable housing budget – one of the biggest cuts for any frontline service.
It welcomed the proposals for new flexibility on rents and the length of tenures for new lets but warned that if associations felt compelled to charge 80% of the market rate to make up for the capital funding shortfall thousands of tenants would be trapped in a lifetime of poverty and benefit dependency.
The NHF said rents at that level could cost low-income families £9,000 a year. The average rent for a three-bed social home is currently £85 a week but that could triple to £250 a week.
This when total benefits will be capped at £500 a week.
Chief executive David Orr said: ‘Most tenants simply won’t be able to cover these extra costs, and as a consequence make it more difficult than ever for people to escape the poverty trap and benefits dependency that the Government has repeatedly said it wants to tackle.’
He went on: ‘We are prepared to look at anything that increases flexibility in the provision of social housing, but we would not support anything that undermines tenants’ sense of being safe and secure in their homes.’
The NHF also warned that supporting people was being cut by 11.5% but individual local authorities would now have the freedom to make even bigger cuts.
Meanwhile, it said total funding for housing market renewal was being cut, putting plans to build or improve 23,000 social homes at risk.
14:35pm: The squeeze on local authorities will see their capital spending fall by 30% by 2014/15 while central government capital funding for councils will fall by 45%. Priority will go to ‘areas of greatest economic value, such as high value transport’.
14:30pm: Lobbying by the Council of Mortgage Lenders on support for mortgage interest (SMI) seems to have paid off. Temporary changes in the size of a mortgage eligible and a reduction in the waiting period from 39 weeks to 13 weeks have been extended from January 2011 to January 2012. The total cost is put at £90m over the next two years.
14:25pm: The full spending review document also confirms plans for reform of the council housing finance system ‘so local authorities have greater control over their own finances, and can reinvest to meet local housing need’ and for a new homes bonus ‘to support economic growth and increase housing supply’.
The bonus will ‘directly reward and incentivise local authorities and local communities to be supportive of housing growth, equivalent to matching the additional council tax from every new home for each of the following six years.
As part of the settlement, ‘programmes including the working neighbourhoods fund, growth area funding and Thames Gateway programme will end, in order to rationalise funding streams, make savings and introduce a more disciplined approach to government spending’.
14:15pm: Here’s a table breaking down those cuts in the CLG budget (see 13:55pm):
14.10pm: That increase in the age threshold for the single room rent (see 13:10) is forecast to save £130m in 2012/13, £225m in 2013/14 and £215m in 2014/15.
The £26,000 cap on the total benefits a family can receive will save £225m in 2013/14 and £270m in 2014/15.
14.05pm: More on that headline proposal for rent increases for new tenants and 150,000 new affordable homes over the next four years.
The full Spending Review 2010 document [downloadable here] says it ‘makes social housing more responsive, flexible and fair so that more people can access social housing in ways that better reflect their needs. In future, social housing will more effectively reflect individual needs and changing circumstances. Social landlords will be able to offer a growing proportion of new social tenants new intermediate rental contracts that are more flexible, at rent levels between current market and social rents. The terms of existing social tenancies and their rent levels remain unchanged. Taken together with continuing, but more modest, capital investment in social housing, this will allow the Government to deliver up to 150,000 new affordable homes over the Spending Review period.’
13:55pm: Now that Osborne has sat down the detail is starting to emerge in the full spending review documents. Headline figures for departmental budgets (PDF here) do not make good reading for Communities and Local Government (CLG).
The capital departmental expenditure limit (DEL) for the communities side of the department will be cut by 74% between 2010/11 and 2014/15 from £6.8bn to £2.0bn. So a much bigger cut for housing than 50%?
The local government side of the department will see its resource departmental expenditure limit (DEL) less depreciation cut by 27% from £28.5bn to £22.9bn. The communities side will see its resource DEL less depreciation slashed by 51% from £2.2bn to £1.1bn.
13:10pm: Osborne says new welfare cuts will include increasing the age threshold for the single room rent from 25 to 35 to ‘reflect the housing aspirations’ of people of the same age who are working.
He also confirms the Tory conference announcement of a cap on the total benefits any family can receive.
12:54pm: Osborne says social housing system has failed to address needs of country. Rents of existing social tenants will be unchanged but new tenants will pay intermediate rents set at 80% of the market rent. Combined with £4.4bn of government funding, this will enable the construction of 150,000 new affordable homes over the next four years.
12:50pm: George Osborne says council spending to be cut by 7.1% a year for next four years with ringfencing of most revenue grants removed.
12.30pm: David Cameron just told MPs at PMQs that we would be hearing about ‘bold housing reforms’ that would lead to more social homes being built and that ‘that doesn’t actually involve changes to tenure’.
11.35am: Housing and aircraft carriers? See today’s Steve Bell cartoon on the spending review
10.20am: On a day that seems set to be dominated by some unremittingly bad news, here is an attempt at some good news.
First, if the new homes budget has to be cut at all, at least it is being cut from a relative high point. The £8.4bn national affordable housing programme (NAHP) for 2008/09 to 2010/11 represented Labour’s belated recognition of the importance of new homes and was a 49% increase on the £5.6bn allocated over the three years from 2005/06 to 2007/08.
As for that rumoured 50% cut, that would be far from unprecedented. In fact it has happened twice before in the last 20 years.
The previous high point for the new homes budget was 1992/93, when what was then the Housing Corporation’s approved development programme stood at £2.4bn. Much of that came from the one-off housing market package and funding fell to just £1.2bn over the next three years - a cut of 50%.
It happened again over the next three years under first the Conservatives and then Labour (who had promised to stick to Conservative spending plans). That £1.2bn in 1995/96 fell to just £621m in 1998/99 - another cut of 50%.
That’s the end of the good news though. The consequences of that last Tory/Labour cut were dire. They were directly responsible for the current affordable homes crisis.
The new homes budget did not return to the level of 1995/96 until 2003/04. The peak of 1992/93 was not matched until 2008/09. And those figures make no allowance for inflation.
Meanwhile, the cut this time could be more than 50%. Richard Capie of the CIH told a conference last week that he would be ‘very,very pleased’ by 50%.
He feared that the cuts will be based on the spending review settlement of £3.9bn for the two years between 2006-08 rather than the £8.4bn for the three years between 2008/09 and 2010/11. That could make the real cut anything up to 80%.
And even if 50% cuts have happened before, they did not happen at the same time as major cuts in everything else from housing benefit to local government spending. Or at the same time as the removal of ringfencing threatens local funding streams for housing and homelessness.
Or at the same time as 490,000 job losses in the public sector. Or at the same time as the housing market is entering a fresh downturn (the CML said today that gross mortgage lending in September was at its lowest level for 10 years).
5.15pm: Intriguing dissent over the leaked plan to increase social rents to close to market levels. Alex Morton, the research fellow focussing on housing at Policy Exchange, is urging the government to think again about what he says would be ‘a costly mistake’.
‘These proposals thus drive a coach and horses straight through the work of Iain Duncan Smith at the DWP,’ he says. ‘On top of the fact that they may end up costing more than they save they will heavily increase the rents of the ‘working poor’ – e.g. families on the minimum wage who go out to work rather than live off welfare.
‘In addition, as these changes will only apply to new tenancies, existing social tenants will be reluctant to move – because they would lose the benefits of their existing tenancy. To take just one example, over half of all new tenants move into a social property where the previous tenants have moved into the private sector. Under these rules, social tenants wouldn’t leave the sector unless they were very sure they wouldn’t have to rely on social housing in future. So while the government might gain by kicking new working tenants out of their homes after a few years, it will lose because fewer existing tenants would move out of the sector.’
It’s a bit early to comment about a policy that hasn’t been announced yet but it sounds awfully like the plan put forward by Stephen Greenhalgh and John Moss for Localis last year.
1.05pm: Back to that report from Policy Exchange - Controlling Public Spending: How to Cut 25%.
There’s no way of knowing if this is what will happen tomorrow but many of the think-tank’s previous recommendations have made a quick transition from idea to Conservative party policy. The report is also a handy summary of the numbers behind the overall Treasury demands that non-protected departments submit ideas for cuts.
In terms of the CLG that means target cuts of £7.5bn to cut 25% and £11.9bn to reach 40%. Savings already announced including pay freezes and grant reductions total around £3bn.
Policy Exchange says the 25% target could be met by cutting the HCA budget by 50%, reducing the CLG contribution to the Olympics by 25% and cutting the formula grant to local authorities by 17% (a huge cut in funding of more than £4bn).
That 50% cut is in line with the BBC report this morning but Policy Exchange’s justification for it is interesting.
‘The HCA has had a little effect on the supply of UK social housing,’ it argues, ‘with waiting lists continuing to be long and many existing homes failing to meet the ‘decent homes’ standard. It has proven unsuccessful in delivering money savings targets and raising the contribution of private finance.’
It’s a long-term programme that can be ‘reactivated when economic conditions improve’.
‘If there is demand for additional housing, prices should rise and expand private sector construction without the HCA. Existing planning law mandates the construction of low cost housing as part of any new development in any case.
‘It may also have ‘crowded out’ private sector construction of low cost housing. One way to improve private sector construction might to be increase compulsory social housing provision in planning agreements.
‘A localist agenda might involve allowing councils to take over the social housing role of the HCA.’
Policy Exchange does highlight some arguments against too - affordability, the size of the waiting list, the threat that cuts will make things worse and damage the construction industry - but overall it says the budget is easy to cut because most of the spending is discretionary.
The intrinsic merit of the programme is low - ‘it has been argued that central government should not have such a direct role in the provision of social housing’ - and there’s high scope for alternative provision through local authorities and charities.
While the impact on the department’s objective will be high - improving housing is a core function - Policy Exchange says that it is ‘intrinsically desirable to cut’.
It argues: ‘There may be several options to deliver social housing in a more effective way, such as devolving the responsibility to local authorities, using the reduced budget to provide incentives to local areas rather than funding projects directly and creating new ﬁnancial instruments to discount the costs of such projects over time. Devolving social housing may allow innovative ways for local authorities to provide local solutions to housing needs – particularly if done alongside central government reforms to “tenancy for life”.’
Which links back to those other leaks about lifetime tenancies and is eerily reminiscent of what happened in Canada in the 1990s, when all federal funding for housing was cut and responsibility devolved to provincial and local government.
But Policy Exchange is not finished yet. Maybe the CLG could be cut altogether. ‘Some may find it contradictory that there is a central government department whose objectives are decentralisation and localism. The main CLG function is ‘cheque writing’ – providing central government money in the form of grants to local authorities and housing associations.’
And if the CLG budget is to be cut by 40% rather than 25% to help pay for lower savings elsewhere, the report says that would mean cutting the HCA budget by 80%.
12.10pm: So will tomorrow’s spending review be Doomsday, Armageddon or just the Day of Judgement?
The leaks are coming thick and fast and none of them offer much in the way of good news. Here are the stories so far:
The BBC reported this morning that the new homes budget will be cut by 50% and lifetime tenancies will be phased out.
That tallied with a warning yesterday from the National Housing Federation of ‘Doomsday’ cuts of 50% in the new homes budget meaning that affordable housebuilding will ‘virtually grind to a halt’. Only 243 additional homes would be possible in London and the South East on top of those already planned, it warned.
The 50% cut figure tallies exactly with the one proposed by the influential think-tank Policy Exchange in a report on Sunday – of which more later.
However, Channel 4 News went even further with a report that funding for new homes could be cut by 80% - the figure identified by Policy Exchange as necessary if the total Communities and Local Government budget is to be cut by 40%.
Yesterday’s Telegraph forecast not just the end of council housing for life but rent increases that will leave existing tenants paying 80 to 90% of the market rent and action on under-occupation by the elderly.
And this morning it ups the ante even more with a report based on a freedom of information request that 90,000 people have inherited social tenancies. It calculates those homes are worth £9bn and that the annual rent subsidy for them is worth £300m.
The Times reported yesterday (behind a paywall unfortunately) that the Treasury will lift ringfencing on £7bn of council finance. ‘Specific grants for schools, the police and fire services will be protected,’ it said. ‘But the rules that forced councils to spend money on other areas such as travellers, homelessness and the disabled, often by commissioning voluntary groups, look likely to be relaxed. The number of protected grants will drop from 90 to 10.’
We’ll have to wait until tomorrow to find out how much of all that is actually true. It’s not exactly unknown for governments to manage expectations ahead of budgets and spending reviews so that anything slightly better than what is leaked beforehand comes across as good news on the day. This time though I am not holding my breath.
The Housing Corporation was always the great survivor whenever any government attempted to abolish quangos - and now it’s back from beyond the grave.
The Cabinet Office confirmed this morning that the Tenant Services Authority (TSA) will indeed be toast. Its regulatory functions will go to the Homes and Communities Agency (HCA), which will be become a ‘smaller enabling and investment body working for local communities’.
The Corpie in other words before it was split into the HCA and TSA - with extra bits added on from the merger with English Partnerships and the HCA’s responsibilities lopped off and devolved to the Mayor.
Which means an old favourite from the 80s is sort of back too - the Mayor of London/Greater London Authority will now have more of the housing responsibilities of the old Greater London Council.
The ironies do not stop there. Whenever rumours circulated about the future of the Corpie in the 90s or 00s (roughly once every 37 days I seem to remember) there was one organisation that was always tipped to take over its regulatory role.
The Audit Commission was a shiny new quango set up by the Michael Heseltine and the Conservatives in 1983 but now killed off by Eric Pickles and the Conservatives in 2010 with its its audit practice transferred into private ownership.
Heseltine and the Tories spent the rest of the 80s creating development corporations to bypass local government and, you guessed it, they are now being scrapped and transferred back to local government. What remains to be seen is what happens to the bits of the TSA that are not ‘regulatory functions’.
The Cabinet Office statement says that ‘independent economic regulation’ will be ‘safeguarded’ - presumably within the HCA - and ‘consumer regulation slimmed down’. Consumer regulation - acting in the interests of tenants - was meant to be what made the TSA different from the Corpie even though to my mind it was never very clear what that meant.
Among the other quangos with a housing role, some will still act on behalf of consumers. The Independent Housing Ombudsman will will still be there to act on complaints. The future of two more is still under consideration: the Leasehold Advisory Service may still be there to do what its name implies the Commission for Architecture and the the Built Environment may still be around to help ensure that new developments are actually designed with residents in mind.
But with National Tenant Voice abolished and with the economic situation surely set to encourage more landlord mergers that will make them bigger and still more remote, who will speak for tenants? The Cabinet Office statement should be available here if its website stops crashing (maybe Whitehall needs a web quango?) but the list is available here.
Well done Grant Shapps for saying that homes are too expensive and house price inflation is a bad thing.
The housing minister told yesterday’s Housing Market Intelligence conference that buying a home ‘shouldn’t be like playing the lottery’.
He went on: ‘Sometimes it seems like we’ve all forgotten what our housing market is actually for. To provide a home.’
It’s obvious stuff but still pretty unusual for a government minister. Shapps said his ambition was for ‘a period of house price stability’ - a message bound to go down well with an audience of housebuilders who have just suffered from boom and bust.
And I’m told his remarks as delivered actually went much further than the advance version of his speech available online. He said he would like to see average earnings rise faster than house prices.
That’s pretty revolutionary given that house prices have risen by inflation plus 2.9% per year ever since 1975. Average earnings have increased by 40% since 2000 whereas house prices have more than doubled.
Little wonder that at least one housebuilder in the audience took that to mean that ‘basically he’s saying house prices should fall’.
Of course it’s easy to say that now. Prices look set to stagnate over the next few years anyway thanks to a combination of restrictions on mortgage lending and the coalition’s austerity drive.
It’s much harder to say when house prices are rising strongly and the majority of voters (and the government through stamp duty receipts) have a financial stake in it.
It’s still harder for any government to do something about it when prices inevitably do start rising again. It would help if coalition economic policies engineered the sort of housing market collapse and stagnation seen under the last Conservative government between 1991 and 1996 but that only came at the cost of hundreds of thousands of repossessions.
The only way that Shapps will be able to realise his dreams of an ‘age of aspiration’ is if homes become less expensive relative to earnings over the long term.
That means his policy on new homes has to work (something Home Builders Federation executive chairman Stewart Baseley is still deeply sceptical about).
But it also means the end of a different kind of aspiration: by existing homeowners dreaming of ill-gotten gains from house price inflation.
I wonder what prominent Tory supporter and property porn presenter Kirstie Allsopp will make of that.
It’s not just the public sector that’s waiting for the axe to fall in the spending review next week - the housing market seems to be too.
The latest survey from the Royal Institution of Chartered Surveyors (RICS) out this morning is nothing like as dramatic as last week’s record house price fall recorded by the Halifax but it provides further evidence of a housing market on the brink of a double dip.
The net balance of surveyors saying that prices fell rather than rose declined to -36% in September from -32% in August, the third monthly fall in succession.
Meanwhile the net balance on changes in prices over the next three months fell for the fourth month in a row to -41. That’s the lowest level seen since before the 2009/10 mini-boom began in March 2009.
The RICS blamed an imbalance between supply and demand. It said new instructions to sell rose sharply as homeowners tested the market ahead of the spending review but demand remained subdued as buyers waited to see what happens in the wake of the cuts.
The one ray of hope for estate agents and sellers was that the decline in the number of new buyers slowed in September.
All of which ought to be good news for first-time buyers, except that the mortgage market seems as tight as ever. As one surveyor put it: ‘The whole issue is the lack of mortgage availability over 80% loan to value. Potential buyers without at least a 20% deposit just cannot buy even if they can afford the repayments. The demand is there, it is the means to turn that into sales that is missing.’
That is confirmed by other figures out today from the Council of Mortgage Lenders (CML) that show the number of loans to first-time buyers in August was 4% down on July and 3% down on a year ago. The total number of loans for house purchase was down 8% on July but up 3% on August 2009.
There are few signs that the mortgage market is going to change any time soon. One factor limiting any downturn is that there is not much sign of an increase in repossessions either. Record low interest rates mean monthly repayments are lowers and it is in the interests of the banks to help owners keep their homes rather than risk an increase in forced sales that would trigger a new decline in prices and damage the asset values on the rest of their lending portfolio.
In the meantime all eyes are on next week’s spending review. According to one surveyor it has ‘spooked the autumn market’ into wondering what further horrors await.
‘Government austerity measures coupled with fears of unemployment and a genuine fear that house prices may well fall further is stifling the market,’ said another.
And (bear in mind that it is in their job description to be upbeat) another says: ‘Once again the voices of doom are crying loud. The market although subdued is active but we may end up talking ourselves into the famed “double dip”.’
Caroline Flint’s appointment as shadow communities secretary prompted me to re-read her controversial speech as housing minister and wonder what would happen if she said the same thing now.
In national terms her eight-month stint in the job in 2008 will probably be best remembered for some careless handling of her papers on the way to a Cabinet meeting. Photographs of her notes about the housing market crisis (‘we can’t know how bad it will get’) appeared on the front pages.
But it was her views on making tenants look for work that caused the biggest stir in the sector and she seemed to be going out of her way to challenge received wisdom in her first speech as minister.
Speaking to the Fabian Society, she highlighted the voluntary contracts being pioneered by Notting Hill Housing Trust that committed tenants to self-improvement.
‘Are these contracts something that could be used more widely?’ she said. ‘Or are there other kinds of incentives and conditions which could be built into tenancy agreements or the benefits system?
‘If we are giving tenants a stronger voice, greater support and a better service, then it’s only right that we have higher expectations in return.
‘Social housing should be based around the principle of something for something.’
Re-reading it now it doesn’t seem quite as incendiary as it did at the time. ‘Work or lose home, says minister’ was the angle chosen by the BBC. She was strongly attacked by pressure groups and by then shadow housing minister Grant Shapps, who accused her of trying to grab the headlines in a way that could not be legally enforced.
Part of the reason for the furore was that she was speaking in the context of previous Labour flirtation with changes to security of tenure. She felt moved to explain herself more fully in a New Statesman article two weeks later.
‘Social housing will always have a strong role in supporting the most vulnerable,’ she said. ‘I don’t underestimate for one minute the challenges that some people face in their lives, or the levels of support they will need to help them into work. But there are also many who are currently unemployed who could find work with the right training and support. With childcare, in-work credits, transitional grants, and personal advisers, there is more help than ever before. It is not social justice to stand by and watch young people getting left behind as the rest of us share in our country’s rising prosperity.
‘What I want us to consider is whether we can offer new tenants a complete package of incentives and opportunities along with the keys to their new home. In return, is it unreasonable that those who can work, should be actively looking to do so?’
She wasn’t backing down either in an interview with Inside Housing in June 2008. ‘I’ve had lots of emails from people who’ve said it’s absolutely right that we should be looking at addressing the very high levels of unemployment of people of working age who live in social housing,’ she said.
On the face of it that seems very similar to the agenda - social justice, people getting left behind etc etc - being pursued by Iain Duncan Smith at the DWP.
However, Flint has since argued that the idea of work contracts was very different from coalition plans for fixed-term tenancies.
And she’s not the only one concerned about that. At the Lib Dem conference last month welfare and pensions minister Steve Webb expressed reservations of his own about the idea floated by David Cameron.
He told a fringe meeting on welfare reform that ending lifetime tenancies ‘would mean that if someone gets a job, they discover they are going to lose their house. I would be very concerned if they did that.’
Does IDS agree? His Centre for Social Justice argued for the end of security of tenure before the election.
Despite the seemingly similar agendas, ‘work and lose your home’ is the exact opposite of what Flint was arguing back in 2008.
It’s hard for anyone with a stake in the housing market to ignore the record fall in house prices recorded by the Halifax this morning even if it is only one month’s figures. That includes housing associations.
The bank itself was quick to point out prices are still 2.6% higher than a year ago despite a 3.6% price fall in September (the largest since records began in 1983). Prices fell by 0.9% in the third quarter but it said this compared to quarterly falls of -5% in late 2008.
But it was interesting that it did not repeat its longstanding forecast that prices will be ‘flat’ this year. That’s hardly surprising: prices were rising strongly in the last three months of 2009 so even if prices stay the same as they are now the annual rate will be -4% by the end of the year.
And it did not point out that the previous record fall of -3% happened in September 1992, the month of Black Wednesday when the Bank of England lost £3.3bn trying to defend the pound and the government was forced to raise interest rates to 15%.
The Halifax figures are consistent with, if more dramatic then, other recent surveys suggesting that increased supply and falling demand have combined with a tight lending market to send the housing market back into negative territory. Today also sees a warning from the IMF of a double dip in the property market.
Homeowners and potential buyers will make their own judgements on that but where would it leave housing associations?
In its quarterly survey last month the Tenant Services Authority said they were ‘continuing to demonstrate resilience in a challenging environment’. In particular the number of unsold low-cost homeownership homes fell for the seventh successive quarter.
But there were emerging signs of concern too. Two thirds of those homes were unsold for more than three months. For the first time this year some respondents (15%) believed that finance and housing markets had deteriorated. And slightly more associations (72) now anticipate reporting an impairment charge in their 2010 accounts.
The credit crunch left some associations with a huge homeownership headache that the sector managed to solve. According to the TSA: ‘By remodelling their assumptions around sales volumes and tenure mix, providers have been able to smooth out some of the cash flow volatility and ensure there has been a steady flow of new supply. In many cases this has been done in partnership with the Homes and Communities Agency (HCA) through the provision of additional grant funding.’
Most associations seem to be taking a cautious approach to future sales levels and Inside Housing’s survey this week shows that they are they have bumper surpluses to fall back on, so it may be a case of once bitten, twice shy.
That’s just as well because if the housing market really does tip into a deeper downturn again, that HCA grant will not be available to come to the rescue and the TSA will not be around to do quarterly surveys or organise the taxi rank.
If anyone believed that the government might change its mind on housing benefit caps, the new £26,000 limit on total benefits is their answer.
Details of the policy announced by George Osborne on Monday are still sketchy and it was barely mentioned in Iain Duncan Smith’s speech to the Conservative conference yesterday.
Hardly surprising since it was barely mentioned in the papers yesterday either as coverage concentrated on the effect of the withdrawal of child benefit from higher rate taxpayers.
What we do know is that total benefits will be capped at the level of the average take-home pay of working households (estimated by the Treasury to be £500 a week or £26,000 a year) from 2013.
That sounds fair – until you consider the detail. The cap will include all income replacement benefits (income support, jobseekers allowance etc), housing benefit, council tax benefit, child benefit and child tax credit and other benefits including carer’s allowance and industrial injury disablement benefit. Claimants of disability living allowance, war widows and working families in receipt of working tax credit will be exempt.
Because it takes no account of variations in housing costs that amounts to another huge cut in housing benefit for anyone in expensive areas with children. In June the government introduced a range of cuts including caps on local housing allowance. What’s less clear is exactly how big the new cut will be.
On the face of it, an unemployed family with three children currently gets around £300 a week in benefits before paying their rent and council tax. That appears to mean that the new £500 a week limit effectively caps their housing benefit at around £180 a week – less than the average rent anywhere in London.
If the first round of housing benefit caps threatened a migration of claimants from inner to outer London, that seems to suggest an exodus of the poor from London and the South East to cheaper parts of the country – an exodus from areas with plenty of work to those with higher unemployment in the name of making work pay.
All this is admittedly before we have much detail of the policy. The fact that it was announced by Osborne and not Duncan Smith might indicate that these are part of the savings demanded by the Treasury to pay for the upfront costs of the new universal credit – and perhaps those will include extra housing help for working families.
The Treasury estimates that it would leave 50,000 families will lose an average of £93 a week. The Chartered Institute of Housing estimates that it will make one in five broad rental market areas in England hard to afford for a family with three children.
That exemption for working families on working tax credit is perhaps an indication of how the government intends to make the universal credit pay for people in work. (It’s worth bearing in mind that a hard-working family earning £26,000 will already be getting child tax credit if they have kids and may be getting some housing benefit too).
However, it also makes things fiendishly complicated for any family that thinks they might be affected by the cap. Work just enough to still qualify for working tax credit and your housing benefit seems to be ok; earn one extra pound and you will suddenly face a massive shortfall on your rent.
Even HM Revenue and Customs got the calculations wrong on hundreds of thousands of working tax credit claims. What hope is there for local authority housing benefit departments and their outsourced contractors?
The £26,000 cap will also add to the knock-on effects for other services like education and social services – with schools closing in some areas and bursting at the seams in others.
And it must surely increase the likelihood of the government – in the name of localism - watering down the homelessness legislation to save local authorities from extra costs.
Lenders are warning Iain Duncan Smith that his plans for a universal credit could mean the end of private finance for affordable housing and leave more homeowners facing repossession.
The work and pensions secretary is expected to reveal more details of his plans in a speech to the Conservative conference this afternoon.
On housing benefit, it warns: ‘The proposals as set out in the consultation if applied to the payment of housing benefit will result in a loss of confidence and appetite for lending to and investment in the sector. This will end the existing highly effective public/private model for funding affordable housing.
‘Increasingly reliance has been placed on investment through the capital markets as well as established bank lending to deliver new affordable housing for rent and home ownership. The concern is that the welfare reform proposals as set out could fundamentally alter the availability of capital market investment and further restrict bank lending for this market.’
The lenders point out that housing benefit accounts for more than 60% of rent payments to housing associations and is the ultimate source of repayment for their borrowings. It says it is also essential to housing association plans to use more flexibility in their rents to help finance more new homes.
‘If housing benefit is significantly reduced or even if this is the perception of lenders and investors then the credit of the sector will be significantly impaired. This could lead to higher pricing being applied and the prospect of delivering new supply of affordable housing severely restricted.’
The lenders also argue that housing costs should be treated differently under plans to make the credit more conditional on finding a job. And they say any move to abolish direct payment to landlords would be ‘an utterly backward step’.
But the universal credit could pose problems for homeowners too. On support for mortgage interest (SMI), the CML warns: ‘There is a real risk that the proposals as they stand will undermine the work carried out by government, lenders and the advice sector to be proactive in their approaches to avoid rapidly escalating arrears and increasing incidences of loss of home during challenging economic circumstances. For many households to sustain their homes there are a number of key factors and making this specific benefit part of a universal benefit dependent on conditionality and other blanket rules could have unintended consequences leading to increased loss of housing; a basic need.’
The problem as it sees it is that under the universal credit ‘claimant awareness of SMI and its significance could be lost’ – with the implication that this would increase arrears and repossessions.
The CML concludes with a plea to ‘avoid prolonged uncertainty but also avoid decisions made at speed and announced without engagement’.
Given reports that the government plans to phase in the new single credit over two parliaments, there should at least be time to address its concerns. However, the CML response only underlines reports in this week’s Inside Housing that the universal credit could be the most significant thing to happen to social housing finance in decades.
Tentative plans by housing associations to set up their own bank to finance home loans to shared owners look well timed given the state of the rest of the mortgage market.
According to the latest credit conditions survey from the Bank of England at the end of last week said that lenders expect their loan approval rate to fall in the fourth quarter of this year for the first time since early 2009.
While borrowers with low loan to value (LTV) mortgages are getting a better deal, lenders also tightened their credit scoring criteria for the second consecutive quarter and expect to do so again in the fourth quarter.
Some said the changes reflected ‘a more cautious approach to assessing the ability of households undertaking higher LTV mortgages to meet mortgage payments or lending to the self employed’.
That’s hardly surprising given the cuts due in 16 days time. Default rates and losses from mortgages both fell again in the third quarter but ‘some lenders commented that the outlook for defaults would be influenced by the impact of prospective fiscal tightening, the outlook for unemployment and the pace of increases in Bank Rate’.
All that sounds like bad news for shared owners and for the housing associations selling to them. As Inside Housing reports this week in its intermediate housing special, the future of low-cost home ownership is up for grabs and shared ownership faces strong competition from equity loan schemes.
There’s no real sign that much has changed since this time last year, when the National Housing Federation complained in its manifesto that lenders were increasingly reluctant to lend on shared ownership because they mistakenly saw potential buyers as being more likely to default.
At the same time the Council of Mortgage Lenders (CML) was telling the Treasury that a number of shortcomings within the portfolio of low-cost home ownership products continued to limit their participation.
They complained that there were too many different schemes. Shared ownership was too complex and had a higher risk of default. But schemes were too small and funding too short term for lenders to be able to predict future business and invest in complex administrative processes.
‘We believe that more needs to be done, unless this is to be seen as a small business opportunity which will be supported by few lenders.’
Given all that, the plans for a £175m bank sound like just the ticket – even if the initial funding will only be enough for 3,000 mortgages. Will it be enough to convince mainstream lenders to relax their sniffy attitude to shared owners?