Friday, 28 April 2017

Inside edge

All posts from: March 2012

Happy returns

Mon, 26 Mar 2012

Can anyone seriously imagine the bankers and super-rich of today following the example of George Peabody?

Today is the 150th anniversary of the announcement in The Times that the American banker was donating £150,000 to form the Peabody Trust ‘to ameliorate the condition of the poor and needy’ in London.

He went on to top that up to £500,000 before his death in 1869, which is the equivalent of several hundred million pounds today. As The Times said: ‘He abandons a sum which is a fortune in itself, in order that the poor of that vast, dirty, ill-built, ill-kept city which the wealthier classes never see shall have among them one great range of dwellings provided with the necessaries of comfort.’

Nobody who works in housing or who walks around the streets of London will need much reminding that Peabody went on to become one of England’s largest housing associations. It now owns 20,000 homes with 55,000 residents.

You can find out more on Peabody’s anniversary website here while Martin Hilditch looked at the history of the trust in this Inside Housing piece earlier this month.

However, this was just one example of George Peabody’s philanthropy – he gave away $9 million in gifts and legacies and in the United States is better known for his funding of education, with schools and libraries and museums and his home town in Massachusetts that was renamed after him.

Peabody Trust was also just one of the first wave of what we now call housing associations. However, the difference was that donation. Many of the other semi-charitable dwellings companies formed at around the same time were designed to offer returns to investors. And such model housing often carried with it a political agenda of tackling crime and unrest or a moral one of controlling the behaviour of their residents or a policy of only housing the ‘respectable poor’.  

The efforts of bankers like Samuel Lewis and Sir Sydney Waterlow and business tycoons like William Sutton and the Earl of Iveagh led to the creation of tens of thousands of homes, especially in London. Even though it took action by local authorities to tackle the housing problems of the mass of the population, even though their motives were sometimes loaded when seen through modern eyes, they made a real contribution.

Last year’s BBC documentary by Ian Hislop, When Bankers Were Good, gave a fascinating insight into the thinking of George Peabody and other 19th century philanthropists.

And yet for all the generous business contributions to charities like Shelter where are the 21st century equivalents? Bill Gates and his foundation perhaps? But in housing there is no Bernie Ecclestone Trust, no Sir Philip Green Model Dwellings Company and no Sir Richard Branson Industrial Improvement Society. Footballers are more likely to benefit from the beneficence of foreign tycoons than homeless people. 

As for the bankers, they are still celebrating the complete opposite of philanthropy and counting the money they made from trading in sub-prime mortgages and billions of pounds worth of taxpayer-funded bail-outs.

Happy returns

Mon, 26 Mar 2012

Can anyone seriously imagine the bankers and super-rich of today following the example of George Peabody?

Today is the 150th anniversary of the announcement in The Times that the American banker was donating £150,000 to form the Peabody Trust ‘to ameliorate the condition of the poor and needy’ in London.

He went on to top that up to £500,000 before his death in 1869, which is the equivalent of several hundred million pounds today. As The Times said: ‘He abandons a sum which is a fortune in itself, in order that the poor of that vast, dirty, ill-built, ill-kept city which the wealthier classes never see shall have among them one great range of dwellings provided with the necessaries of comfort.’

Nobody who works in housing or who walks around the streets of London will need much reminding that Peabody went on to become one of England’s largest housing associations. It now owns 20,000 homes with 55,000 residents.

You can find out more on Peabody’s anniversary website here while Martin Hilditch looked at the history of the trust in this Inside Housing piece earlier this month.

However, this was just one example of George Peabody’s philanthropy – he gave away $9 million in gifts and legacies and in the United States is better known for his funding of education, with schools and libraries and museums and his home town in Massachusetts that was renamed after him.

Peabody Trust was also just one of the first wave of what we now call housing associations. However, the difference was that donation. Many of the other semi-charitable dwellings companies formed at around the same time were designed to offer returns to investors. And such model housing often carried with it a political agenda of tackling crime and unrest or a moral one of controlling the behaviour of their residents or a policy of only housing the ‘respectable poor’.  

The efforts of bankers like Samuel Lewis and Sir Sydney Waterlow and business tycoons like William Sutton and the Earl of Iveagh led to the creation of tens of thousands of homes, especially in London. Even though it took action by local authorities to tackle the housing problems of the mass of the population, even though their motives were sometimes loaded when seen through modern eyes, they made a real contribution.

Last year’s BBC documentary by Ian Hislop, When Bankers Were Good, gave a fascinating insight into the thinking of George Peabody and other 19th century philanthropists.

And yet for all the generous business contributions to charities like Shelter where are the 21st century equivalents? Bill Gates and his foundation perhaps? But in housing there is no Bernie Ecclestone Trust, no Sir Philip Green Model Dwellings Company and no Sir Richard Branson Industrial Improvement Society. Footballers are more likely to benefit from the beneficence of foreign tycoons than homeless people. 

As for the bankers, they are still celebrating the complete opposite of philanthropy and counting the money they made from trading in sub-prime mortgages and billions of pounds worth of taxpayer-funded bail-outs.

Ill behaviour

Tue, 20 Mar 2012

Has anyone watched the video for ill Manors yet? Or heard the song on the radio? If not, you should.

If you need enlightening, ill Manors is the new single from the rap and soul star Plan B that is officially released next Monday ahead of a film of the same name that is due out soon.

The reason it’s relevant here is because it’s about kids who are ‘Council Housed and Violent’ or rather kids who are labelled as chavs by a media and respectable society that gets surprised when they then act like it. And so it’s also about the summer riots and looting and the problems that have not gone away and how they might be tackled.

It’s been hailed by Guardian music critic Dorian Lynskey as the most important British protest song in years while Ben Drew himself spoke it at a TEDx/Observer conference last week. 

I’ve blogged before about the way that the media and TV negatively stereotypes council estates and the people that live on them. To illustrate the point, just see the portrayal of the Farmead Estate in recent episodes of Casualty. ill Manors turns that representation on its head in a way that is shocking and is meant to be shocking but also in ways that make you think. Many people are not going to like it and some probably will hate it, but you should watch.

Anyway, enough from me. Here’s the official video (by the director of Top Boy).

But before you make your mind up, listen to this interview with Plan B on Radio 1Xtra, where he explains the intentions behind it. 

I’m guessing opinions on this are going to split on similar lines to opinions on the events of last summer: criminality by a feral youth that just needs a strong police response or an expression of anger by a group that feels ignored and marginalised by the rest of society or varying combinations of the two. Or as Plan B puts it in the song: ‘There’s no such thing as broken Britain, we’re just broke in Britain’.

We’ve been here before, of course, when Ghost Town was the sound track to the riots of the early 1980s, but this feels very different and something important for everyone to understand. That applies especially to 50-somethings like me and to everyone who works in social housing, so that initiatives like Inside Housing’s Riot Report can be built on and make a difference. As Plan B puts it: ‘Let me make my point first, let me raise the issue, then if anybody wants to talk to me about how we can change these things I’m ready.’

Otherwise, as Iain Duncan Smith put it last summer, the inner city will come calling again.

Ill behaviour

Tue, 20 Mar 2012

Has anyone watched the video for ill Manors yet? Or heard the song on the radio? If not, you should.

If you need enlightening, ill Manors is the new single from the rap and soul star Plan B that is officially released next Monday ahead of a film of the same name that is due out soon.

The reason it’s relevant here is because it’s about kids who are ‘Council Housed and Violent’ or rather kids who are labelled as chavs by a media and respectable society that gets surprised when they then act like it. And so it’s also about the summer riots and looting and the problems that have not gone away and how they might be tackled.

It’s been hailed by Guardian music critic Dorian Lynskey as the most important British protest song in years while Ben Drew himself spoke it at a TEDx/Observer conference last week. 

I’ve blogged before about the way that the media and TV negatively stereotypes council estates and the people that live on them. To illustrate the point, just see the portrayal of the Farmead Estate in recent episodes of Casualty. ill Manors turns that representation on its head in a way that is shocking and is meant to be shocking but also in ways that make you think. Many people are not going to like it and some probably will hate it, but you should watch.

Anyway, enough from me. Here’s the official video (by the director of Top Boy).

But before you make your mind up, listen to this interview with Plan B on Radio 1Xtra, where he explains the intentions behind it. 

I’m guessing opinions on this are going to split on similar lines to opinions on the events of last summer: criminality by a feral youth that just needs a strong police response or an expression of anger by a group that feels ignored and marginalised by the rest of society or varying combinations of the two. Or as Plan B puts it in the song: ‘There’s no such thing as broken Britain, we’re just broke in Britain’.

We’ve been here before, of course, when Ghost Town was the sound track to the riots of the early 1980s, but this feels very different and something important for everyone to understand. That applies especially to 50-somethings like me and to everyone who works in social housing, so that initiatives like Inside Housing’s Riot Report can be built on and make a difference. As Plan B puts it: ‘Let me make my point first, let me raise the issue, then if anybody wants to talk to me about how we can change these things I’m ready.’

Otherwise, as Iain Duncan Smith put it last summer, the inner city will come calling again.

Rubber stamp

Mon, 19 Mar 2012

So George Osborne will come down ‘like a ton of bricks’ on people who avoid stamp duty by buying homes through offshore companies. What took so long?

The chancellor confirmed in TV interviews over the weekend that the loophole beloved of celebrities, rock stars and the global super-rich will be closed in the Budget on Wednesday.

The loophole relies on the difference between the rate of stamp duty on property purchases paid by companies (0.5 per cent if they are registered in the UK, nothing if they are a trust or company registered offshore) and individuals (4 per cent on homes above £500,000, 5 per cent above £1 million).

Reports in the weekend paper speculate that avoidance could now be worth more up to £1 billion. According to the Mail on Sunday, 95,000 homes are owned offshore by people like Mick Jagger, Bob Geldof, Ringo Star and steel tycoon Lakshmi Mittal. The Sunday Times found that rich home owners have registered £200 billion of property in 122 different locations over the last 12 years and that more than 23,000 homes are owned by companies registered in the Isle of Man alone. For every home worth £1 million in offshore ownership, the taxpayer is losing out on £20,000 worth of stamp duty.

However, the details of Osborne’s clampdown remain to be seen. Will it just be on offshore companies or on UK companies too? Will it only apply to future sales or will there be full retrospective action? Anything other than that hardly qualifies as acting ‘extremely aggressively’ and ‘coming down like a ton of bricks’ but if it was easy to trace what has happened to UK property owned by companies in the British Virgin Islands and Guernsey and the number of times ownership has been transferred (or laundered) it would sort of defeat the object of offshore tax havens.

Either way, it seems ridiculously overdue. As long ago as 2007, contenders for the Labour leadership were calling for the loophole to be closed and it seems highly unlikely that Treasury and HMRC officials were not aware of it long before that. An explosion of evasion/avoidance was inevitable when the new 5 per cent rate for homes worth over £1 million was introduced in 2010 but by last year it was spreading further down the income scale via a new breed of specialist tax company. That ton of bricks has taken an incredibly long time to fall.

However, the issues involved with overseas and offshore ownership of UK homes are about more than just stamp duty avoidance. Take a look at any of the estate agent surveys of ‘prime’ central London property (mainly Kensington and Westminster but beginning to spread beyond that) over the last few years and you will find a market dominated by overseas buyers. The think-tank IPPR argues that London properties have become a sort of global reserve currency for the wealthy elite. The amount of foreign capital flowing into prime London property rose 71 per cent to £5.2 billion in 2011 – a sum the IPPR estimates is a quarter of all the money spent in the 14 inner London boroughs.

Without wanting to overstate it, this has an effect on the entire London market as billionaires price out millionaires, millionaires price out the merely rich and the process feeds all the way down the income scale to priced-out first-time buyers, ripped-off private renters and forced-out housing benefit claimants. Some time ago London house prices stopped being set according to what people working in London could afford and became a global investment market. This trend was exacerbated by the financial crisis, with the fall in the value of the pound making London much more affordable to overseas buyers and financial and political volatility around the world making London increasingly attractive as a safe (and tax-free) haven. And there are no statistics on overseas investment in non-prime London property.

An upcoming report from the IPPR on the London housing market groups the overseas investors into three categories: European and American buyers looking for homes to live or invest in; buyers from outside the OECD (led by Russians) looking for properties worth over £2 million as a hedge against potential problems at home; and yield-based investors from the Far East looking for new-build property they can rent out and sell at a profit later.

Aside from using offshore companies to evade stamp duty, the report says the overseas buyers benefit from a tax and regulatory regime is highly favourable compared with other countries. The Czech Republic, Switzerland and Denmark, for example, all have strict controls on foreign nationals buying residential property where we have none. A report by Taxand, a tax advisor on international real estate investment, looked at tax on residential sales and rents in 29 different countries. The UK had the lowest tax on sale of flats, the second lowest on residential sales (behind Malaysia) and the second lowest on residential rents (behind Cyprus).

The stamp duty clampdown will go some way to helping with that but it is not the only tax advantage to overseas buyers. For example, in contrast to the USA, Australia, Canada, Cyprus, Hungary, Iceland, Ireland and Spain, the UK charges overseas owners and property-owning vehicles no capital gains tax.

The IPPR wants any revenue raised from increasing tax on overseas owners to be ring-fenced for housing in the areas worst affected and is also calling for a new additional holding tax on overseas buyers of property worth over £2 million. If investors pay 1 to 2 per cent fees on stock market funds, why not make them pay the same on their residential investments? It sounds a bit like a mansion tax but one targeted on the overseas buyers who are treating London homes as an investment market and helping to drive prices and rents out of reach of everyone else.

Earlier this month, Italians took over from Russians as the leading buyers of prime London property. The motivation for the splurge seems to be desire to get their money out of the country in the wake of the Euro crisis but it may come to an end as a result of austerity measures being introduced by the Italian government. These involve not just the reintroduction of a tax on first homes but a new, higher tax on second homes within Italy and overseas. Ironically, Italian owners of UK property will be paying a mansion tax (set at 0.81 per cent a year on the value of second homes abroad) but to the Italian government, not ours.

It’s way past time that the UK government tackled the issue of the tax treatment of overseas buyers of UK homes. However, this is only one small step. The suspicion must be that it is also a headline-grabbing measure designed to distract attention from the fact that George Osborne is not going to introduce a mansion tax on Wednesday and is going to cut the 50p rate of income tax.

Rubber stamp

Mon, 19 Mar 2012

So George Osborne will come down ‘like a ton of bricks’ on people who avoid stamp duty by buying homes through offshore companies. What took so long?

The chancellor confirmed in TV interviews over the weekend that the loophole beloved of celebrities, rock stars and the global super-rich will be closed in the Budget on Wednesday.

The loophole relies on the difference between the rate of stamp duty on property purchases paid by companies (0.5 per cent if they are registered in the UK, nothing if they are a trust or company registered offshore) and individuals (4 per cent on homes above £500,000, 5 per cent above £1 million).

Reports in the weekend paper speculate that avoidance could now be worth more up to £1 billion. According to the Mail on Sunday, 95,000 homes are owned offshore by people like Mick Jagger, Bob Geldof, Ringo Star and steel tycoon Lakshmi Mittal. The Sunday Times found that rich home owners have registered £200 billion of property in 122 different locations over the last 12 years and that more than 23,000 homes are owned by companies registered in the Isle of Man alone. For every home worth £1 million in offshore ownership, the taxpayer is losing out on £20,000 worth of stamp duty.

However, the details of Osborne’s clampdown remain to be seen. Will it just be on offshore companies or on UK companies too? Will it only apply to future sales or will there be full retrospective action? Anything other than that hardly qualifies as acting ‘extremely aggressively’ and ‘coming down like a ton of bricks’ but if it was easy to trace what has happened to UK property owned by companies in the British Virgin Islands and Guernsey and the number of times ownership has been transferred (or laundered) it would sort of defeat the object of offshore tax havens.

Either way, it seems ridiculously overdue. As long ago as 2007, contenders for the Labour leadership were calling for the loophole to be closed and it seems highly unlikely that Treasury and HMRC officials were not aware of it long before that. An explosion of evasion/avoidance was inevitable when the new 5 per cent rate for homes worth over £1 million was introduced in 2010 but by last year it was spreading further down the income scale via a new breed of specialist tax company. That ton of bricks has taken an incredibly long time to fall.

However, the issues involved with overseas and offshore ownership of UK homes are about more than just stamp duty avoidance. Take a look at any of the estate agent surveys of ‘prime’ central London property (mainly Kensington and Westminster but beginning to spread beyond that) over the last few years and you will find a market dominated by overseas buyers. The think-tank IPPR argues that London properties have become a sort of global reserve currency for the wealthy elite. The amount of foreign capital flowing into prime London property rose 71 per cent to £5.2 billion in 2011 – a sum the IPPR estimates is a quarter of all the money spent in the 14 inner London boroughs.

Without wanting to overstate it, this has an effect on the entire London market as billionaires price out millionaires, millionaires price out the merely rich and the process feeds all the way down the income scale to priced-out first-time buyers, ripped-off private renters and forced-out housing benefit claimants. Some time ago London house prices stopped being set according to what people working in London could afford and became a global investment market. This trend was exacerbated by the financial crisis, with the fall in the value of the pound making London much more affordable to overseas buyers and financial and political volatility around the world making London increasingly attractive as a safe (and tax-free) haven. And there are no statistics on overseas investment in non-prime London property.

An upcoming report from the IPPR on the London housing market groups the overseas investors into three categories: European and American buyers looking for homes to live or invest in; buyers from outside the OECD (led by Russians) looking for properties worth over £2 million as a hedge against potential problems at home; and yield-based investors from the Far East looking for new-build property they can rent out and sell at a profit later.

Aside from using offshore companies to evade stamp duty, the report says the overseas buyers benefit from a tax and regulatory regime is highly favourable compared with other countries. The Czech Republic, Switzerland and Denmark, for example, all have strict controls on foreign nationals buying residential property where we have none. A report by Taxand, a tax advisor on international real estate investment, looked at tax on residential sales and rents in 29 different countries. The UK had the lowest tax on sale of flats, the second lowest on residential sales (behind Malaysia) and the second lowest on residential rents (behind Cyprus).

The stamp duty clampdown will go some way to helping with that but it is not the only tax advantage to overseas buyers. For example, in contrast to the USA, Australia, Canada, Cyprus, Hungary, Iceland, Ireland and Spain, the UK charges overseas owners and property-owning vehicles no capital gains tax.

The IPPR wants any revenue raised from increasing tax on overseas owners to be ring-fenced for housing in the areas worst affected and is also calling for a new additional holding tax on overseas buyers of property worth over £2 million. If investors pay 1 to 2 per cent fees on stock market funds, why not make them pay the same on their residential investments? It sounds a bit like a mansion tax but one targeted on the overseas buyers who are treating London homes as an investment market and helping to drive prices and rents out of reach of everyone else.

Earlier this month, Italians took over from Russians as the leading buyers of prime London property. The motivation for the splurge seems to be desire to get their money out of the country in the wake of the Euro crisis but it may come to an end as a result of austerity measures being introduced by the Italian government. These involve not just the reintroduction of a tax on first homes but a new, higher tax on second homes within Italy and overseas. Ironically, Italian owners of UK property will be paying a mansion tax (set at 0.81 per cent a year on the value of second homes abroad) but to the Italian government, not ours.

It’s way past time that the UK government tackled the issue of the tax treatment of overseas buyers of UK homes. However, this is only one small step. The suspicion must be that it is also a headline-grabbing measure designed to distract attention from the fact that George Osborne is not going to introduce a mansion tax on Wednesday and is going to cut the 50p rate of income tax.

BOGOF to BOBOF

Thu, 15 Mar 2012

I’m never quite sure about those ‘buy one, get one free’ offers in the supermarket. So can I really believe in ‘buy one, build one free’?

My local Shapps & Cameron hyperstore is offering me a ‘rebooted’ right to buy. Is it like it sounds - a desperate attempt of a 21st century marketeer to rebrand a tired old product from the 1980s as something exciting and new - or is there something in it?

Before I go loading up my car with pies I’ll never eat and bananas that will go off before I munch my way through them, in this case I already know there are some big catches. The ‘terms and conditions may apply’ in small print below this particular offer includes the fact that this is more ‘buy one, build a bit of one free’ provided I put up free land and borrow a lot more. If I want it to be affordable rather than ‘affordable’ I’ll have to do even more. And it could play havoc with my sums on self-financing. 

But, hey, beggars can’t be choosers and these supermarket promotions look like running out soon. I’ve cashed in my clubcard points from last year’s ‘affordable’ range and there are few signs of any other special offers from Shapps & Cameron. Certainly till 2015 and probably beyond. Isn’t BOBOF better than nothing?

So far, reactions have been mixed. The CIH supports anything that will boost investment but said there were ‘both pluses and minuses’ in the announcement. The LGA wanted areas to be able to determine their own discounts, criticised the centralised way the system was being implemented and warned that ‘some areas in need of affordable homes may actually be left with fewer’. The NHF also warned that receipts in low-value areas may not be enough for replacements.

I’ve been looking at more of the small print after noting the rather curious way that Shapps answered a question in parliament on Monday. His former Labour shadow Alison Seabeck asked him to clarify. ‘He spoke today of replacement on a one for one basis. Does that mean he does not mean like-for-like replacement in the same area?’

Any supermarket customer service person would have been proud of the evasive and non-committal answer from Shapps. ‘Where local authorities can provide the new homes in the same area, we will certainly look to keep the money locally and build in the area,’ he said.

Back to that small print. It was always clear from the original consultation published on December 22 that BOBOF will only apply to homes sold ‘above current predicted levels’. And the Inside Housing feature by Gavriel Hollander in January revealed the depth of the scepticism on the ground.

I’ve been looking at the discrepancies between the draft impact assessment published in December (IA1) and the revised impact assessment published when the consultation ended on Monday (IA2).

It’s clear the changes go beyond just tweaking the government’s preferred option of the existing discount rate with a £50,000 cap to the existing discount rate with a £75,000 cap. That’s important in itself of course and on the face of it makes one for one replacement even harder.

The official explanation in the new impact assessment (IA2) is that: ‘It was considered to best meet the policy objectives, in particular the potential to increase take-up of right to buy whilst at the same time ensuring that receipts would be sufficient to enable one of one replacement with affordable rent properties. The £75,000 cash cap also limits the potential for large windfall gains that an “uncapped policy” would lack. The 30-year net present value under this approach is positive and the policy option results in significant economic benefits.’

However, there is an interesting change to the way that this option is evaluated. IA1 said that the implied average net sale receipt after paying local authority debt would be £55,500. It went on: ‘This would be sufficient for one for one replacement without the need for conversions beyond the current Spending Review period, but we estimate that there could be a small funding gap within the current Spending Review period under this policy option.’

IA2 also predicts an average net sale receipt of £55,500 but goes on: ‘Under our central assumptions we estimate that this would be sufficient for one for one replacement without the need for conversions within and beyond the current Spending Review period.’ I’ve asked the DCLG why the ‘small funding gap’ has disappeared and am waiting to hear back.

The sums have also changed on the assumed costs. The net present value of the £75k option after 30 years has reduced from £21,100 to £19,800 per home while after 60 years it has reduced from £100 to -£700. The explanation for this appears to lie in two changed assumptions about housing benefit.

First, like virtually everyone apart from Joe Halewood, the DCLG had missed the freeze in local housing allowance rates announced by the DWP for 2012/13 in IA1. IA2 corrects this by reducing the LHA rent inflation assumption from 3.7 per cent to 2.0 per cent for this year. That will presumably reduce the housing benefit saving from people on LHA moving in to the replacement homes.

Second, IA1 had assumed that many of those exercising the right to buy would be on partial housing benefit and estimated this would be the equivalent of 15 per cent of them on full housing benefit. Following discussions with the DWP that has been changed to 10 per cent. This reduces the housing benefit saving that comes from these tenants becoming RTB owners.

On the central assumption, IA1 estimated that the housing benefit impact per unit would be +£3,000 over the three-year spending review period and +£600 on 30-year net present value but -£12,300 on 60-year net present value. IA2 revises those figures significantly so that there is a positive impact of +£2,100 per unit over the spending review but a negative impact of -£3,100 over 30 years and -£16,100 over 60.

Another significant change, presumably after lobbying from the NHF about public-private status, is that there is explicit statement in IA2 that ‘housing associations are independent organisations and we cannot therefore mandate the use of any receipts from right to buy sales that they retain, including for one for one replacement’. The government expects that receipts will be recycled in practice but a proposal in IA1 to ‘incentivise’ developing associations to do so through the affordable housing programme seem to have been dropped.

However, there are all sorts of issues not covered in the impact assessment. All of the comparisons are with an alternative of keeping the sold-off home in the social rented sector. Little wonder the comparison looks favourable, when the alternative does not include any residual long-term value for the home. And are the BOBOF homes really additional when all the free land would probably have been used for new homes anyway?

Strangest of all, in what is meant to be an impact assessment, there is no attempt to estimate the number of people who will buy (which may depend not just on individual tenants but perhaps their families too). Or when they will do it – there is no time limit so some people who can buy may prefer to wait until after the recession. Or how long the likely purchasers have been tenants – and therefore how much discount they will get. Or where they will do it, because the sums will stack up very differently between high and low value areas and between authorities with headroom to borrow under self-financing and those with little scope to borrow.

Perhaps, in fairness, the vague answer from Shapps on Monday reflects some of those uncertainties. Some authorities may be able to build a replacement home in the same area but others will not and wouldn’t it be better for housing as a whole if their receipts are recycled elsewhere?

Back in the Shapps & Cameron store, the managers are hoping that the £75,000 headline offer and BOBOF will be enough to tempt the punters. But they don’t really know because nobody really knows.

Only one thing really seems certain. Love it or hate it, Right to Buy 2 looks like being the only special offer around for some time to come.

 

BOGOF to BOBOF

Thu, 15 Mar 2012

I’m never quite sure about those ‘buy one, get one free’ offers in the supermarket. So can I really believe in ‘buy one, build one free’?

My local Shapps & Cameron hyperstore is offering me a ‘rebooted’ right to buy. Is it like it sounds - a desperate attempt of a 21st century marketeer to rebrand a tired old product from the 1980s as something exciting and new - or is there something in it?

Before I go loading up my car with pies I’ll never eat and bananas that will go off before I munch my way through them, in this case I already know there are some big catches. The ‘terms and conditions may apply’ in small print below this particular offer includes the fact that this is more ‘buy one, build a bit of one free’ provided I put up free land and borrow a lot more. If I want it to be affordable rather than ‘affordable’ I’ll have to do even more. And it could play havoc with my sums on self-financing. 

But, hey, beggars can’t be choosers and these supermarket promotions look like running out soon. I’ve cashed in my clubcard points from last year’s ‘affordable’ range and there are few signs of any other special offers from Shapps & Cameron. Certainly till 2015 and probably beyond. Isn’t BOBOF better than nothing?

So far, reactions have been mixed. The CIH supports anything that will boost investment but said there were ‘both pluses and minuses’ in the announcement. The LGA wanted areas to be able to determine their own discounts, criticised the centralised way the system was being implemented and warned that ‘some areas in need of affordable homes may actually be left with fewer’. The NHF also warned that receipts in low-value areas may not be enough for replacements.

I’ve been looking at more of the small print after noting the rather curious way that Shapps answered a question in parliament on Monday. His former Labour shadow Alison Seabeck asked him to clarify. ‘He spoke today of replacement on a one for one basis. Does that mean he does not mean like-for-like replacement in the same area?’

Any supermarket customer service person would have been proud of the evasive and non-committal answer from Shapps. ‘Where local authorities can provide the new homes in the same area, we will certainly look to keep the money locally and build in the area,’ he said.

Back to that small print. It was always clear from the original consultation published on December 22 that BOBOF will only apply to homes sold ‘above current predicted levels’. And the Inside Housing feature by Gavriel Hollander in January revealed the depth of the scepticism on the ground.

I’ve been looking at the discrepancies between the draft impact assessment published in December (IA1) and the revised impact assessment published when the consultation ended on Monday (IA2).

It’s clear the changes go beyond just tweaking the government’s preferred option of the existing discount rate with a £50,000 cap to the existing discount rate with a £75,000 cap. That’s important in itself of course and on the face of it makes one for one replacement even harder.

The official explanation in the new impact assessment (IA2) is that: ‘It was considered to best meet the policy objectives, in particular the potential to increase take-up of right to buy whilst at the same time ensuring that receipts would be sufficient to enable one of one replacement with affordable rent properties. The £75,000 cash cap also limits the potential for large windfall gains that an “uncapped policy” would lack. The 30-year net present value under this approach is positive and the policy option results in significant economic benefits.’

However, there is an interesting change to the way that this option is evaluated. IA1 said that the implied average net sale receipt after paying local authority debt would be £55,500. It went on: ‘This would be sufficient for one for one replacement without the need for conversions beyond the current Spending Review period, but we estimate that there could be a small funding gap within the current Spending Review period under this policy option.’

IA2 also predicts an average net sale receipt of £55,500 but goes on: ‘Under our central assumptions we estimate that this would be sufficient for one for one replacement without the need for conversions within and beyond the current Spending Review period.’ I’ve asked the DCLG why the ‘small funding gap’ has disappeared and am waiting to hear back.

The sums have also changed on the assumed costs. The net present value of the £75k option after 30 years has reduced from £21,100 to £19,800 per home while after 60 years it has reduced from £100 to -£700. The explanation for this appears to lie in two changed assumptions about housing benefit.

First, like virtually everyone apart from Joe Halewood, the DCLG had missed the freeze in local housing allowance rates announced by the DWP for 2012/13 in IA1. IA2 corrects this by reducing the LHA rent inflation assumption from 3.7 per cent to 2.0 per cent for this year. That will presumably reduce the housing benefit saving from people on LHA moving in to the replacement homes.

Second, IA1 had assumed that many of those exercising the right to buy would be on partial housing benefit and estimated this would be the equivalent of 15 per cent of them on full housing benefit. Following discussions with the DWP that has been changed to 10 per cent. This reduces the housing benefit saving that comes from these tenants becoming RTB owners.

On the central assumption, IA1 estimated that the housing benefit impact per unit would be +£3,000 over the three-year spending review period and +£600 on 30-year net present value but -£12,300 on 60-year net present value. IA2 revises those figures significantly so that there is a positive impact of +£2,100 per unit over the spending review but a negative impact of -£3,100 over 30 years and -£16,100 over 60.

Another significant change, presumably after lobbying from the NHF about public-private status, is that there is explicit statement in IA2 that ‘housing associations are independent organisations and we cannot therefore mandate the use of any receipts from right to buy sales that they retain, including for one for one replacement’. The government expects that receipts will be recycled in practice but a proposal in IA1 to ‘incentivise’ developing associations to do so through the affordable housing programme seem to have been dropped.

However, there are all sorts of issues not covered in the impact assessment. All of the comparisons are with an alternative of keeping the sold-off home in the social rented sector. Little wonder the comparison looks favourable, when the alternative does not include any residual long-term value for the home. And are the BOBOF homes really additional when all the free land would probably have been used for new homes anyway?

Strangest of all, in what is meant to be an impact assessment, there is no attempt to estimate the number of people who will buy (which may depend not just on individual tenants but perhaps their families too). Or when they will do it – there is no time limit so some people who can buy may prefer to wait until after the recession. Or how long the likely purchasers have been tenants – and therefore how much discount they will get. Or where they will do it, because the sums will stack up very differently between high and low value areas and between authorities with headroom to borrow under self-financing and those with little scope to borrow.

Perhaps, in fairness, the vague answer from Shapps on Monday reflects some of those uncertainties. Some authorities may be able to build a replacement home in the same area but others will not and wouldn’t it be better for housing as a whole if their receipts are recycled elsewhere?

Back in the Shapps & Cameron store, the managers are hoping that the £75,000 headline offer and BOBOF will be enough to tempt the punters. But they don’t really know because nobody really knows.

Only one thing really seems certain. Love it or hate it, Right to Buy 2 looks like being the only special offer around for some time to come.

 

Shaky start

Mon, 12 Mar 2012

If NewBuy really is to be about supporting buyers and new homes rather than just subsidising housebuilders here are 10 questions that need answers.

The launch of the scheme this morning got off to a somewhat shaky start, with many reports claiming (wrongly) that it is for first-time buyers and others (rightly) pointing out the advantages for builders.

The basic details are that the scheme has been designed by the Home Builders Federation and Council of Mortgage Lenders (CML). It will be available for an estimated 100,000 mortgages on any new build property in England up to £500,000 constructed by a builder who is in the scheme. Shared ownership and shared equity are excluded and so are second home owners and buy-to-let investors.

NewBuy will underwrite 95 per cent mortgages, with housebuilders putting up 3.5 per cent of the sale price into an indemnity fund and the government providing an additional 5.5 per cent guarantee. Any loss will come first from the buyer’s deposit, then the housebuilder’s fund and only then from the government guarantee.

So far, so good. If the scheme really does result in 100,000 homes that would not otherwise have been built then it will help support jobs and growth and bridge some of the huge gap between current output and demand from new households. Despite the first-time buyer spin put on it by David Cameron and Grant Shapps, some of the biggest beneficiaries could be frustrated second steppers, people who bought their first home at the top of the market, may now need a bigger home for a growing family and do not have enough equity for a deposit. The website for the scheme already has 28,000 people interested.

But now for the questions: 

First, and most obviously, why is the government intervening in what is meant to be a free market? Isn’t it better to let house prices fall to an affordable level rather than prop them up artificially? In the name of the (housing) market, the scheme seems to offend basic principles of free-market economics.

Second, will the 100,000 homes really be additional? There seems to be no guarantee of that and no undertakings from the companies involved. As I blogged last week, the business strategies of the major housebuilders are based on increasing their margins rather than their output. They also seem free to choose which homes they include and set their prices knowing they have desperate buyers. Even if the homes are additional, what’s to stop them manipulating the prices? If the homes are not additional supply, the effect of the increased demand surely has to be to boost house prices and those margins even more.

Third, why is a new-build guarantee needed when lenders are increasingly making 90-95% mortgages available for secondhand homes? I asked on twitter earlier whether this was because they are worried new build prices will fall by more in a downturn. The CML responded that ‘new build value can be less easy to benchmark for lending purposes’ and the disparity is ‘a consequence of constrained/cautious market’. It remains to be seen how attractive the rates on offer will really be.

Fourth, won’t this discriminate against existing owners of secondhand homes? Imagine you are someone trying to sell a secondhand home when just down the road a housebuilder launches NewBuy. Will you have to cut your asking price because of a scheme paid for by your taxes?

Fifth, why such a high limit? A 95 per cent mortgage on a £500,000 house would be worth £475,000. What is the justification for the taxpayer underwriting the mortgage of someone earning £150,000? 

Sixth, why is it being launched now? At the moment only seven housebuilders – Barratt, Bellway, Bovis, Linden Homes, Persimmon, Redrow and Taylor Wimpey – and three lenders – Barclays, Nationwide and NatWest – are taking part. They will be joined in the next few months by two more banks (Santander and Halfax) are set to join. It may make sense because of the Spring selling season or for Budget- or local election-related reasons but it seems somewhat premature.

Seventh, where are the small builders and potential new entrants to the market? Although the DCLG says that ‘other leading names, including smaller housebuilders, are expected to follow their lead in the coming weeks and months’ the big players that dominate the market are in there first. If the government has subsidy available, why not concentrate it on companies you know will build additional homes?

Eighth, why is there apparently no role at all for social landlords? The scheme does not cover shared ownership but there are plenty of housing associations out there who might be interested in mortgage guarantees on homes they build for outright sale.

Ninth, where is the impact assessment? If the government is guaranteeing 5.5 per cent of 100,000 mortgages worth an average of, say, £200,000 then £1.1 billion of taxpayer’s money is potentially at risk. Yet the DCLG has published no impact assessment yet and (amazingly) its press office cannot say whether there is one.

Tenth, how will the guarantee be accounted for under public borrowing rules? If it is extra borrowing, what about the deficit reduction programme? If not, why is there flexibility in the rules for NewBuy but not for local government? What else could be done with more flexibility?

And that’s just for starters. 

Shaky start

Mon, 12 Mar 2012

If NewBuy really is to be about supporting buyers and new homes rather than just subsidising housebuilders here are 10 questions that need answers.

The launch of the scheme this morning got off to a somewhat shaky start, with many reports claiming (wrongly) that it is for first-time buyers and others (rightly) pointing out the advantages for builders.

The basic details are that the scheme has been designed by the Home Builders Federation and Council of Mortgage Lenders (CML). It will be available for an estimated 100,000 mortgages on any new build property in England up to £500,000 constructed by a builder who is in the scheme. Shared ownership and shared equity are excluded and so are second home owners and buy-to-let investors.

NewBuy will underwrite 95 per cent mortgages, with housebuilders putting up 3.5 per cent of the sale price into an indemnity fund and the government providing an additional 5.5 per cent guarantee. Any loss will come first from the buyer’s deposit, then the housebuilder’s fund and only then from the government guarantee.

So far, so good. If the scheme really does result in 100,000 homes that would not otherwise have been built then it will help support jobs and growth and bridge some of the huge gap between current output and demand from new households. Despite the first-time buyer spin put on it by David Cameron and Grant Shapps, some of the biggest beneficiaries could be frustrated second steppers, people who bought their first home at the top of the market, may now need a bigger home for a growing family and do not have enough equity for a deposit. The website for the scheme already has 28,000 people interested.

But now for the questions: 

First, and most obviously, why is the government intervening in what is meant to be a free market? Isn’t it better to let house prices fall to an affordable level rather than prop them up artificially? In the name of the (housing) market, the scheme seems to offend basic principles of free-market economics.

Second, will the 100,000 homes really be additional? There seems to be no guarantee of that and no undertakings from the companies involved. As I blogged last week, the business strategies of the major housebuilders are based on increasing their margins rather than their output. They also seem free to choose which homes they include and set their prices knowing they have desperate buyers. Even if the homes are additional, what’s to stop them manipulating the prices? If the homes are not additional supply, the effect of the increased demand surely has to be to boost house prices and those margins even more.

Third, why is a new-build guarantee needed when lenders are increasingly making 90-95% mortgages available for secondhand homes? I asked on twitter earlier whether this was because they are worried new build prices will fall by more in a downturn. The CML responded that ‘new build value can be less easy to benchmark for lending purposes’ and the disparity is ‘a consequence of constrained/cautious market’. It remains to be seen how attractive the rates on offer will really be.

Fourth, won’t this discriminate against existing owners of secondhand homes? Imagine you are someone trying to sell a secondhand home when just down the road a housebuilder launches NewBuy. Will you have to cut your asking price because of a scheme paid for by your taxes?

Fifth, why such a high limit? A 95 per cent mortgage on a £500,000 house would be worth £475,000. What is the justification for the taxpayer underwriting the mortgage of someone earning £150,000? 

Sixth, why is it being launched now? At the moment only seven housebuilders – Barratt, Bellway, Bovis, Linden Homes, Persimmon, Redrow and Taylor Wimpey – and three lenders – Barclays, Nationwide and NatWest – are taking part. They will be joined in the next few months by two more banks (Santander and Halfax) are set to join. It may make sense because of the Spring selling season or for Budget- or local election-related reasons but it seems somewhat premature.

Seventh, where are the small builders and potential new entrants to the market? Although the DCLG says that ‘other leading names, including smaller housebuilders, are expected to follow their lead in the coming weeks and months’ the big players that dominate the market are in there first. If the government has subsidy available, why not concentrate it on companies you know will build additional homes?

Eighth, why is there apparently no role at all for social landlords? The scheme does not cover shared ownership but there are plenty of housing associations out there who might be interested in mortgage guarantees on homes they build for outright sale.

Ninth, where is the impact assessment? If the government is guaranteeing 5.5 per cent of 100,000 mortgages worth an average of, say, £200,000 then £1.1 billion of taxpayer’s money is potentially at risk. Yet the DCLG has published no impact assessment yet and (amazingly) its press office cannot say whether there is one.

Tenth, how will the guarantee be accounted for under public borrowing rules? If it is extra borrowing, what about the deficit reduction programme? If not, why is there flexibility in the rules for NewBuy but not for local government? What else could be done with more flexibility?

And that’s just for starters. 

Losing the plot

Tue, 6 Mar 2012

Can cutting red tape for housebuilders deliver the new homes and growth the government needs? Here’s why I’m sceptical.

Clive Betts summed up the problem neatly when Grant Shapps appeared before the Communities and Local Government committee at the end of January. With household formation running at 250,000 a year, social sector output around 40,000 to 50,000 a year and the private sector never building more than 150,000 in recent times, the committee chair asked who would build the rest?

The answer from Shapps was that the housing strategy listed 100 different ways to fill the gap. Reform of planning, 100,000 right to buy sales to generate the money for 100,000 homes, 100,000 homes on public sector land and the mortgage indemnity scheme were just four of them. When pressed he added ‘not piling costs on developers’ to the list. ‘That was completely counter-productive and led to the lowest house building since the 1920s. If you keep saying to developers, “Oh, and by the way, whilst you are building these homes, we also expect you to deliver X, Y, Z in addition,” then unsurprisingly you get to the point where it is just unsustainable for them to build the homes. I have been trying to loosen the load on developers in order for them to get the homes built, and there is a commitment in the last Budget to make sure that we are not loading on new bureaucracy and red tape. Indeed, we are cutting it by 2015.’

Nobody could accuse him of failing to back his words with actions. Even before the housing strategy was published, the government was introducing changes likely to boost the value of housebuilders’ land holdings by hundreds of millions of pounds. Design and sustainability standards, a weaker definition of zero carbon and reform of section 106 were all targetted from 2010. Labour’s HomeBuy Direct gave way to the coalition’s FirstBuy and record low interest rates continued to put a floor under house prices.  

The housing strategy extended the subsidy still further. There was not just the £400m Get Britain Building Fund and NewBuy, as mentioned by Shapps, and confirmation of the other deregulation, but a new consultation on proposals to allow developers to require local authorities to reconsider section 106 agreements agreed in more prosperous market conditions prior to April 2010. To give some idea of the scale of that last subsidy, research for the DCLG estimates that section 106 deals worth £9 billion were agreed in 2006/07 and 2007/08.

Put all that together and you have what amounts to a corporate welfare package worth several billion pounds. That’s something that would require intense scrutiny even if housebuilders were delivering on their side of the bargain by building more homes. It isn’t getting any and they aren’t delivering. But far from changing course the government is preparing to hand over even more goodies through the red tape challenge. In the short term, the effect of all this will be to boost margins for the major firms. In the longer term, although it may make some sites more viable to develop, it will also increase the value of that land – and increase land prices in general.

As I argued last week, all of the major housebuilders are concentrating on increasing their margins through tight control of costs and careful management of their land and what and where they build. The strategy is working with increased profits and, in the case of Persimmon, a nine-year programme to return £1.9 billion to shareholders. The one thing they are not doing is building a lot more homes (a few more but nowhere near enough to meet the aspirations of the government).

Given how close they came to disaster in the wake of the credit crunch, that is a perfectly understandable strategy. And it’s clear from recent statements that they are not planning to change it any time soon. Persimmon, for example, currently has a land bank of 63,300 plots. ‘Whilst this currently represents over six and a half years forward land supply, our longer term objective remains to return to a five year supply,’ said chief executive Mike Farley in its results last week. ‘We expect to achieve this through both the expansion of our output as the market allows and the selective replacement of the plots we legally complete each year.’ The clear implication is that it will only expand its output from 9,360 homes in 2011 to a maximum of 12-13,000.

Taylor Wimpey made the same point even more explicitly in a presentation at the Bank of America Merrill Lynch building conference in October. The company said that it ‘won’t return to the volume-driven mentality of the last cycle’ although this ‘does not mean that we will not grow volumes from current level’. Growth would come naturally from new sites and an uplift in sales rates as the market recovers but the company sees ‘c 14,000 plots as a soft cap on volume, even in strong markets’. To put those figures in perspective, Taylor Wimpey was building 21-22,000 homes a year in 2007 and 2009 while Persimmon was building 16-17,000.

Of all the schemes and subsidies introduced by the government, NewBuy looks like the most promising scheme at first glance. Available on new-build homes worth up to £500,000, it will allow lenders to offer 95 per cent mortgages to up to 100,000 buyers with builders (3.5 per cent) and the taxpayer (5.5 per cent) underwriting some of the risks. In theory, that should help not just first-time buyers but also ‘second steppers’, people trapped in their first home with insufficient equity to move, and get the whole market moving. The obvious objection is that it could just give builders the chance to raise their prices but the scheme seems to be facing more fundamental problems ahead of its launch next Monday. The Financial Times reported yesterday that the scheme is being rushed through ahead of the Budget despite concerns from lenders, regulatory hurdles and IT problems. It also revealed a row over the price that banks will charge, with housebuilders arguing that the premium being charged by lenders could make the whole scheme unattractive. There are also worries from smaller builders that the rush to get the scheme in place has put them at a disadvantage to the major firms.

If NewBuy is running into problems like that, there have to be worries about the government’s approach in general – and about its reliance on major housebuilders in particular. There are some exceptions to the rule (for example, Galliford Try, the 11th biggest housebuilder by turnover, increased its output by 59 per cent last year) but most of the major firms are concentrating on a strategy of building their margins and rebuilding their balance sheets rather than building new homes. That is perfectly logical and perfectly understandable but it does not offer much encouragement for the government’s housing strategy.

In a report that did not get enough attention when it was published between Christmas and New Year, the IPPR think-tank concluded that reform of the housebuilding industry is urgently required if we are to avoid the lost decade that followed the two previous downturns in 1974 and 1990. ‘We cannot afford a repeat. And yet, if we duck reform at this critical juncture, that is exactly where we are heading, only, this time, worse,’ it said. ‘But the government’s new Housing Strategy does not demand the reform that is needed. Instead, it offers the major housebuilders public land, money and guarantees without articulating a serious quid pro quo. The result, as things stand, is likely, as in the past, to be subsidised stagnation. If we want a can-do supply-side response, government must demand more bang for the taxpayer’s buck.’

The report called for measures to stop developers ‘playing the land market and the planning system’ rather than building homes, with strict conditions applied to public sector land release including rapid build-out and lower profit margins. A fifth of the land should be earmarked for self-build and all of it should go to joint venture partnerships that would share the uplift in value between the government, communities and developers. Financially unviable builders should be allowed to go bust and their land banks redistributed. Community land auctions and modern garden cities should be on the agenda. And land should be de-risked by splitting the development process into land trading and housebuilding – in much the same way as the banks are being made to split their investment and retail operations.

The government has flirted with some of those options, such as community land auctions, and the Treasury is said to be studying a report by Policy Exchange calling for new garden cities. However, its strategy looks dangerously over-reliant on the handful of major firms that dominate the market. Deregulation and the housing strategy are giving the big housebuilders practically everything they want without being committed to anything in return: why are there no building targets to match the lending targets imposed on (and largely ignored by) the big banks?  If billions of pounds worth of subsidy is available, why not use it to encourage new players to enter the market? If red tape needs to be cut, take a look at the barriers to entry? If cheap public land is available, use it to attract new players rather than hand it over to the big firms, who will simply use it instead of their existing land?

The government is throwing billions of pounds worth of corporate subsidy at major firms that will not deliver the numbers needed for its growth strategy to work. If it has to subsidise anyone, it should be looking at smaller builders, housing associations and new entrants to the market.

Losing the plot

Tue, 6 Mar 2012

Can cutting red tape for housebuilders deliver the new homes and growth the government needs? Here’s why I’m sceptical.

Clive Betts summed up the problem neatly when Grant Shapps appeared before the Communities and Local Government committee at the end of January. With household formation running at 250,000 a year, social sector output around 40,000 to 50,000 a year and the private sector never building more than 150,000 in recent times, the committee chair asked who would build the rest?

The answer from Shapps was that the housing strategy listed 100 different ways to fill the gap. Reform of planning, 100,000 right to buy sales to generate the money for 100,000 homes, 100,000 homes on public sector land and the mortgage indemnity scheme were just four of them. When pressed he added ‘not piling costs on developers’ to the list. ‘That was completely counter-productive and led to the lowest house building since the 1920s. If you keep saying to developers, “Oh, and by the way, whilst you are building these homes, we also expect you to deliver X, Y, Z in addition,” then unsurprisingly you get to the point where it is just unsustainable for them to build the homes. I have been trying to loosen the load on developers in order for them to get the homes built, and there is a commitment in the last Budget to make sure that we are not loading on new bureaucracy and red tape. Indeed, we are cutting it by 2015.’

Nobody could accuse him of failing to back his words with actions. Even before the housing strategy was published, the government was introducing changes likely to boost the value of housebuilders’ land holdings by hundreds of millions of pounds. Design and sustainability standards, a weaker definition of zero carbon and reform of section 106 were all targetted from 2010. Labour’s HomeBuy Direct gave way to the coalition’s FirstBuy and record low interest rates continued to put a floor under house prices.  

The housing strategy extended the subsidy still further. There was not just the £400m Get Britain Building Fund and NewBuy, as mentioned by Shapps, and confirmation of the other deregulation, but a new consultation on proposals to allow developers to require local authorities to reconsider section 106 agreements agreed in more prosperous market conditions prior to April 2010. To give some idea of the scale of that last subsidy, research for the DCLG estimates that section 106 deals worth £9 billion were agreed in 2006/07 and 2007/08.

Put all that together and you have what amounts to a corporate welfare package worth several billion pounds. That’s something that would require intense scrutiny even if housebuilders were delivering on their side of the bargain by building more homes. It isn’t getting any and they aren’t delivering. But far from changing course the government is preparing to hand over even more goodies through the red tape challenge. In the short term, the effect of all this will be to boost margins for the major firms. In the longer term, although it may make some sites more viable to develop, it will also increase the value of that land – and increase land prices in general.

As I argued last week, all of the major housebuilders are concentrating on increasing their margins through tight control of costs and careful management of their land and what and where they build. The strategy is working with increased profits and, in the case of Persimmon, a nine-year programme to return £1.9 billion to shareholders. The one thing they are not doing is building a lot more homes (a few more but nowhere near enough to meet the aspirations of the government).

Given how close they came to disaster in the wake of the credit crunch, that is a perfectly understandable strategy. And it’s clear from recent statements that they are not planning to change it any time soon. Persimmon, for example, currently has a land bank of 63,300 plots. ‘Whilst this currently represents over six and a half years forward land supply, our longer term objective remains to return to a five year supply,’ said chief executive Mike Farley in its results last week. ‘We expect to achieve this through both the expansion of our output as the market allows and the selective replacement of the plots we legally complete each year.’ The clear implication is that it will only expand its output from 9,360 homes in 2011 to a maximum of 12-13,000.

Taylor Wimpey made the same point even more explicitly in a presentation at the Bank of America Merrill Lynch building conference in October. The company said that it ‘won’t return to the volume-driven mentality of the last cycle’ although this ‘does not mean that we will not grow volumes from current level’. Growth would come naturally from new sites and an uplift in sales rates as the market recovers but the company sees ‘c 14,000 plots as a soft cap on volume, even in strong markets’. To put those figures in perspective, Taylor Wimpey was building 21-22,000 homes a year in 2007 and 2009 while Persimmon was building 16-17,000.

Of all the schemes and subsidies introduced by the government, NewBuy looks like the most promising scheme at first glance. Available on new-build homes worth up to £500,000, it will allow lenders to offer 95 per cent mortgages to up to 100,000 buyers with builders (3.5 per cent) and the taxpayer (5.5 per cent) underwriting some of the risks. In theory, that should help not just first-time buyers but also ‘second steppers’, people trapped in their first home with insufficient equity to move, and get the whole market moving. The obvious objection is that it could just give builders the chance to raise their prices but the scheme seems to be facing more fundamental problems ahead of its launch next Monday. The Financial Times reported yesterday that the scheme is being rushed through ahead of the Budget despite concerns from lenders, regulatory hurdles and IT problems. It also revealed a row over the price that banks will charge, with housebuilders arguing that the premium being charged by lenders could make the whole scheme unattractive. There are also worries from smaller builders that the rush to get the scheme in place has put them at a disadvantage to the major firms.

If NewBuy is running into problems like that, there have to be worries about the government’s approach in general – and about its reliance on major housebuilders in particular. There are some exceptions to the rule (for example, Galliford Try, the 11th biggest housebuilder by turnover, increased its output by 59 per cent last year) but most of the major firms are concentrating on a strategy of building their margins and rebuilding their balance sheets rather than building new homes. That is perfectly logical and perfectly understandable but it does not offer much encouragement for the government’s housing strategy.

In a report that did not get enough attention when it was published between Christmas and New Year, the IPPR think-tank concluded that reform of the housebuilding industry is urgently required if we are to avoid the lost decade that followed the two previous downturns in 1974 and 1990. ‘We cannot afford a repeat. And yet, if we duck reform at this critical juncture, that is exactly where we are heading, only, this time, worse,’ it said. ‘But the government’s new Housing Strategy does not demand the reform that is needed. Instead, it offers the major housebuilders public land, money and guarantees without articulating a serious quid pro quo. The result, as things stand, is likely, as in the past, to be subsidised stagnation. If we want a can-do supply-side response, government must demand more bang for the taxpayer’s buck.’

The report called for measures to stop developers ‘playing the land market and the planning system’ rather than building homes, with strict conditions applied to public sector land release including rapid build-out and lower profit margins. A fifth of the land should be earmarked for self-build and all of it should go to joint venture partnerships that would share the uplift in value between the government, communities and developers. Financially unviable builders should be allowed to go bust and their land banks redistributed. Community land auctions and modern garden cities should be on the agenda. And land should be de-risked by splitting the development process into land trading and housebuilding – in much the same way as the banks are being made to split their investment and retail operations.

The government has flirted with some of those options, such as community land auctions, and the Treasury is said to be studying a report by Policy Exchange calling for new garden cities. However, its strategy looks dangerously over-reliant on the handful of major firms that dominate the market. Deregulation and the housing strategy are giving the big housebuilders practically everything they want without being committed to anything in return: why are there no building targets to match the lending targets imposed on (and largely ignored by) the big banks?  If billions of pounds worth of subsidy is available, why not use it to encourage new players to enter the market? If red tape needs to be cut, take a look at the barriers to entry? If cheap public land is available, use it to attract new players rather than hand it over to the big firms, who will simply use it instead of their existing land?

The government is throwing billions of pounds worth of corporate subsidy at major firms that will not deliver the numbers needed for its growth strategy to work. If it has to subsidise anyone, it should be looking at smaller builders, housing associations and new entrants to the market.

Last post

Thu, 1 Mar 2012

And so, having ‘done this to death’, the bedroom tax and the Welfare Reform Bill have passed their final parliamentary hurdle.

The quote came from welfare reform minister Lord Freud as peers debated a final attempt to amend the under-occupation penalty. It may have been accurate in terms of the parliamentary procedure but it will have a hollow ring for landlords and tenants as they spend the next 13 months agonising about how a measure that will cost 670,000 people £14 per week will be implemented.

Freud was responding to an amendment by Lord Best seeking an independent review of the impact of the measure on poverty, homelessness, under-occupancy, local authority resources and rent arrears six months after the tax is implemented.

Lord Best had begun with an (unnecessary) apology ‘to those who hoped that this House would save the day but will now be deeply disappointed’. The Commons had rejected his two previous amendments and even the apparent concession of £30 million in discretionary housing payments for disabled people and foster carers was funded by increasing the bedroom tax on everyone else. So now he changed tack with the call for a research.

Lord Freud pledged an evaluation that would involve key stakeholders in developing evaluation research that would include the wider social impacts, the implementation strategy and draft guidance. But he said the key issue was that not about making people move but making social as well as private tenants make informed choices about ‘where they live and what they can afford’. People could choose to stay and meet the shortfall with options including employment, increasing their working hours, asking others in the household or extended family to contribute or taking in a lodger although he did not add his statement two weeks ago that ‘the designation of property size is another area where there may be flexibility’. The minister concluded: ‘We have now done this to death and I close by asking the noble Lord to withdraw his amendment.’

Lord Best did so but he still had time for one last telling speech on the issue. He had received an email from a woman with a partially disabled husband who was also a full-time carer for her mother living nearby. She faced a charge of an extra £25 per week. ‘She has looked into the possibility of moving elsewhere and she can move some miles away. However, she is not going to be able to get back to see her mother twice or three times a day. She cannot afford that £25 a week and is going to have to do something. These are the kinds of social network issues that are raised by this measure.’

He went on: ‘I hope that the minister does not get the blame when the housing benefit bill does not fall.’

And so now it’s over to landlords and tenants to decide how the bedroom tax will work on the ground when it is implemented from April 2013.

As MPs and peers have argued, this is a Treasury-dictated measure that is all about cutting the housing benefit bill. If it were about fairness (to private sector tenants who already get charged for under-occupancy) there would be exemptions for people who cannot be offered alternative accommodation and transitional arrangements for existing tenants. Instead, we are left with a crude and arbitrary tax that threatens to drive tenants into the arms of doorstep lenders and landlords reluctantly into the courts.

The implications for disabled people, for people who were allocated a larger home as part of their landlord’s policy, for single parents and for all the other people affected (as Lord Freud complacently put it: ‘on this measure, of the 3.3 million tenants living in the social rented sector and receiving housing benefit, only about one in five is expected to be affected by this change’) have only been worked out on the back of an envelope so far. Other impending changes such as cuts in council tax benefit will complicate things even further.

And that’s before we get to the rest of the Welfare Reform Bill and especially the sections on disability. A report out today from the parliamentary joint committee on human rights concludes that ‘the range of reforms proposed to housing benefit, disability living allowance, the independent living find, and changes to eligibility criteria risk interacting in a particularly harmful way for disabled people’. And it warns that the cumulative impact risks the UK being in breach of the United Nations Convention on the Rights of People with Disabilities giving disabled people a human right to independent living. .

That’s just one example of how a consideration of the implications of the bedroom tax and the rest of the Bill are about as far from being ‘done to death’ as it is possible to get. 

Last post

Thu, 1 Mar 2012

And so, having ‘done this to death’, the bedroom tax and the Welfare Reform Bill have passed their final parliamentary hurdle.

The quote came from welfare reform minister Lord Freud as peers debated a final attempt to amend the under-occupation penalty. It may have been accurate in terms of the parliamentary procedure but it will have a hollow ring for landlords and tenants as they spend the next 13 months agonising about how a measure that will cost 670,000 people £14 per week will be implemented.

Freud was responding to an amendment by Lord Best seeking an independent review of the impact of the measure on poverty, homelessness, under-occupancy, local authority resources and rent arrears six months after the tax is implemented.

Lord Best had begun with an (unnecessary) apology ‘to those who hoped that this House would save the day but will now be deeply disappointed’. The Commons had rejected his two previous amendments and even the apparent concession of £30 million in discretionary housing payments for disabled people and foster carers was funded by increasing the bedroom tax on everyone else. So now he changed tack with the call for a research.

Lord Freud pledged an evaluation that would involve key stakeholders in developing evaluation research that would include the wider social impacts, the implementation strategy and draft guidance. But he said the key issue was that not about making people move but making social as well as private tenants make informed choices about ‘where they live and what they can afford’. People could choose to stay and meet the shortfall with options including employment, increasing their working hours, asking others in the household or extended family to contribute or taking in a lodger although he did not add his statement two weeks ago that ‘the designation of property size is another area where there may be flexibility’. The minister concluded: ‘We have now done this to death and I close by asking the noble Lord to withdraw his amendment.’

Lord Best did so but he still had time for one last telling speech on the issue. He had received an email from a woman with a partially disabled husband who was also a full-time carer for her mother living nearby. She faced a charge of an extra £25 per week. ‘She has looked into the possibility of moving elsewhere and she can move some miles away. However, she is not going to be able to get back to see her mother twice or three times a day. She cannot afford that £25 a week and is going to have to do something. These are the kinds of social network issues that are raised by this measure.’

He went on: ‘I hope that the minister does not get the blame when the housing benefit bill does not fall.’

And so now it’s over to landlords and tenants to decide how the bedroom tax will work on the ground when it is implemented from April 2013.

As MPs and peers have argued, this is a Treasury-dictated measure that is all about cutting the housing benefit bill. If it were about fairness (to private sector tenants who already get charged for under-occupancy) there would be exemptions for people who cannot be offered alternative accommodation and transitional arrangements for existing tenants. Instead, we are left with a crude and arbitrary tax that threatens to drive tenants into the arms of doorstep lenders and landlords reluctantly into the courts.

The implications for disabled people, for people who were allocated a larger home as part of their landlord’s policy, for single parents and for all the other people affected (as Lord Freud complacently put it: ‘on this measure, of the 3.3 million tenants living in the social rented sector and receiving housing benefit, only about one in five is expected to be affected by this change’) have only been worked out on the back of an envelope so far. Other impending changes such as cuts in council tax benefit will complicate things even further.

And that’s before we get to the rest of the Welfare Reform Bill and especially the sections on disability. A report out today from the parliamentary joint committee on human rights concludes that ‘the range of reforms proposed to housing benefit, disability living allowance, the independent living find, and changes to eligibility criteria risk interacting in a particularly harmful way for disabled people’. And it warns that the cumulative impact risks the UK being in breach of the United Nations Convention on the Rights of People with Disabilities giving disabled people a human right to independent living. .

That’s just one example of how a consideration of the implications of the bedroom tax and the rest of the Bill are about as far from being ‘done to death’ as it is possible to get. 

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