All posts from: July 2012
As the Olympics gives a daily boost to London’s image as a global city, how long will it be before the government acts on overseas property ownership?
The evidence on the scale of the ‘investment’ and the impact on the rest of the London housing market is mounting steadily. In March, I blogged about a report from the IPPR arguing that London property has become a sort of global reserve currency for the wealthy elite and warned about the effect on housing across the capital as billionaires price out millionaires and the effect works right down the system to priced-out first-time buyers, ripped-off private renters and forced-out housing benefit claimants.
A report from the Smith Institute last week concluded that over 60 per cent of new homes in central London are currently being bought by overseas investors and that a large proportion of them are being kept empty. And it warned that the growth in overseas investment (mainly from the Far East) is set to continue despite the new 7 per cent stamp duty rate on property over £2 million and levy on property bought through companies. That brings with it a real risk of a new house price bubble and of a further fall in home ownership in the capital (it is already down to 52.5 per cent).
The sums of money involved are colossal. The IPPR estimated that the amount of foreign capital flowing into prime London property rose 72 per cent to £5.2 billion in 2011. The Smith Institute points out that this is five times more than the annual investment in affordable homes in London and a third of all loans made for house purchases.
Money like that is impossible for developers to ignore. Take the huge Nine Elms regeneration plan between Battersea Park and Lambeth Bridge. As the Financial Times reported yesterday, it’s a chance of a new South Bank a stone’s throw from some of most expensive property markets in London.
One developer, Ballymore Group, plans 2,000 homes by 2015 and is already selling in south-east Asia with 260 out of 314 properties it will only start building next month already pre-sold. Another, St George South London, feels the need to point out that Asian purchasers are often buying not just for investment reasons but in many cases to house their children who are studying in London. ‘There’s not a lot of liquidity in this part of the world but international money is prepared to invest in the area,’ managing director Mark Griffiths told the FT. ‘It’s not just south-east Asia. When you get to £3m-plus properties you’re looking at Russia and the Middle East.’
From the point of view of a developer, it’s all perfectly understandable. You market your ‘units’ where the money is and pre-selling them takes the risk out of building them. However, from the point of view of London and the country as a whole, it means that provision of new homes is even more inadequate to meet levels of domestic demand than the headline figures suggest and that house prices and rents will continue to increase beyond the means of local incomes. At Nine Elms, Lambeth is pushing for 40 per cent affordable housing and Wandsworth 15 per cent – but what about the rest? Should they also be worrying about the percentage of local buyers - or even how many of the homes will actually be occupied?
Figures from Hometrack yesterday suggest that the London market is starting to cool at last but a survey of prime property in 27 global cities by Knight Frank revealed that London came fifth with a 10.5 per cent increase in prices in the year to June thanks to its reputation as a safe haven for investment.
Knight Frank says that the prospects for the rest of the year are ‘muted’ thanks to the Eurozone crisis and ‘protectionist’ measures in Asia-Pacific. Governments across the region have moved to cool down their property markets, with controls on lending, new taxes and restrictions on second-home ownership and foreign buyers. According to its Asia-Pacific Residential Review in December 2011, Singapore introduced an additional buyer’s stamp duty of 10 per cent for foreigners. From May 2012, Australia removed the 50 per cent capital gains tax discount for non-residents (foreign buyers have been restricted to new build properties only since 2010). The new chief executive in Hong Kong wants to restrict purchases of certain classes of new housing development to residents. In Malaysia, the government could double the minimum price of properties that foreigners can buy from RM500K (around £100,000) to RM1 million.
The measures seem to be working so far too. In Singapore the number of units sold to foreign (non-permanent resident) buyers fell 76 per cent between the fourth quarter of 2011 and the first quarter of 2012. Knight Frank concludes that ‘continued intervention across Asia-Pacific to cool markets, reduce speculation or limit foreign buyers will continue to be an important factor in the region’s property markets’. Asian governments are acting to take control of their housing markets while Asian buyers enjoy unrestricted access to ours.
The property firm comments that: ‘Most of these measures and sentiment comes as a popular backlash from domestic buyers who feel priced out of their birth right by foreign buyers. This swing towards populism underlines how property booms have impacted affordability, especially for first time domestic buyers.’ How long before there is a similar backlash here? ‘Protectionism’ is seen as a bad thing because it restricts free trade but we are talking about a limited supply of homes not an export good where production can be increased to meet demand.
The Olympics is providing a daily reminder of the attractions of London and ministers are pulling out all the stops to attract overseas investment. After a wonderful opening ceremony that celebrated London’s diversity and enthused everyone apart from the odd Tory MP, this is emphatically not a call for the restoration of a xenophobic Little England but how much of that ‘investment’ will merely add to domestic demand for a stock of homes that is already inadequate? And is that ‘investment’ at all?
If the case for a housing stimulus was already unanswerable, today’s confirmation of the depth of the recession makes the lack of one unfathomable.
It’s not just the 0.7 per cent fall in GDP in the second quarter or the 0.3 per cent falls in the two previous quarters or that this is the first double dip recession since the 1930s. It’s not even the fact that the construction industry’s 5.2 per cent fall in output between April and June and 4.9 per cent in the first quarter is one of the major reasons why it happened.
It’s more that, as Brian Green argues over at Brickonomics , the numbers were so predictable. Anyone keeping half an eye on the construction numbers knew things were bad (if not quite this bad) and knew that private sector orders were not making up for cuts in government investment. As I argued, the case for housing was blindingly obvious when the first quarter GDP figures were published in April.
The government will argue that it has responded to this crisis with a growth package for the industry but the closer you examine last week’s measures the less they stand up to scrutiny. They started to unravel for me when I discovered that ‘the greatest investment in the railways since the Victorian age’ was going to mean a 30 per cent cut in direct trains between Cornwall and London. Less parochially, and at a time when a stimulus needs to work quickly, the package seemed to prioritise precisely the sort of large-scale infrastructure projects that take longest to get off the ground because they have the longest lead times.
The announcement on the UK Guarantees Scheme may have won plaudits from groups like the CBI that have argued consistently for a housing-free investment programme. Granted the first guarantees will be awarded in the Autumn and to qualify projects must be ready to start within 12 months of a guarantee being given but the detail hardly inspired confidence of its their ability to make a difference now, when they are most needed.
The only mention of housing was in the section on a temporary lending programme to help public private partnership infrastructure projects that are struggling to raise enough private finance to go ahead. The Treasury said an estimated £6 billion of projects could be eligible, including schemes in transport, health, housing and education. The trouble is, of course, that housing has very few PPP projects because the alternative model of housing associations raising private finance has been so successful. Housing, it seems, was as much of an afterthought this time around as DCLG director general Peter Schofield has admitted it was when he worked on the original Treasury plan for growth.
To the surprise of everyone (including me) there was no mention at all of a scheme to guarantee housing associations loans to bring interest rates down to as low as 20 basis points above gilts. This was the centrepiece of my attempt last week to build a ‘good news’ case for housing and I was confidently expecting to see it there. It remains to be seen whether this measure has been delayed until the Autumn for some technical reason or it has been shelved for some other reason (Treasury nervousness about keeping it off balance sheet?). However, the effect is still to delay the one form of new construction that would deliver growth and jobs most quickly and effectively. As the DCLG has been telling everyone who will listen, every 100,000 new homes means 1 per cent on the GDP, but the opposite applies when 100,000 homes are not built. Next time you go past a big rail or road construction site look at how much of the work is done by big yellow machines made abroad – in contrast housebuilding is relatively labour intensive. The big direct stimulus for housebuilding that we have seen so far is NewBuy but as I have argued many times before it does not follow that what is good for housebuilders is also good for housebuilding.
There are also worrying signals emerging ahead of the second part of my good news case: the Montague report on institutional investment in private renting. Extra investment by pension funds and insurers in private rented housing has to be good news on the face of it, and even more so if housing associations win a major role in provision that allows them to cross-subsidise other activities. But what if the recommendations amount to allowing the private rented sector to cannibalise the funding streams of the social sector. That’s exactly why leaks about changes to section 106 rules to allow private rented homes to count as ‘affordable’ and loans to private renting squeezing out grants to social renting are so worrying (see Inside Housing’s story on this from the end of June and The Guardian’s from Saturday).
That is very much a debate to come when the Montague report is published (this month seems to have slipped into the next few weeks on that). For the moment, the crucial issue surely has to be that it is in the government’s own interests to boost construction of new homes and it is not yet doing remotely enough. Only one thing would generate growth and jobs more quickly – cutting VAT on repairs and maintenance, maybe on a time-limited basis – but the politics of that one did not seem to work out too well for David Gauke yesterday.
Labour’s plan to regulate letting and managing agents is a good start to its policy review on housing – but no more than a start.
The idea enjoys widespread support – not just from private tenants who are fed up with being ripped off by outrageous fees but from private landlords and reputable agents too. As Labour points out: ‘It’s a peculiarity of current policy that while estate agents, who hold very little money on behalf of their clients, are regulated, letting agents who hold significant sums on behalf of landlords and tenants are not.’
But what took so long? The Rugg review commissioned by the Labour government proposed regulation of agents plus registration of landlords when it was published in October 2008. It took the government seven months to respond. A green paper in May 2009 included a pledge to introduce ‘full mandatory regulation of private sector letting agents and management agents’. But there was no Housing Bill in Labour’s final Queen’s Speech and the plan was still pending when it lost power a year later.
One of the first things Grant Shapps did when he became housing minister was to drop the plan completely, without actually mentioning letting agents. He said in June 2010: ‘With the vast majority of England’s three million private tenants happy with the service they receive, I am satisfied that the current system strikes the right balance between the rights and responsibilities of tenants and landlords. So today I make a promise to good landlords across the country: the government has no plans to create any burdensome red tape and bureaucracy, so you are able to continue providing a service to your tenants.’
Two years on, at a time when England has 1.4 million landlords and 3.6 million households living in the private rented sector and when the evidence has piled up about the rip-off fees imposed on both of them by unscrupulous agents, and Labour is pledging action again.
It may be sensible to start with a measure that will enjoy broad support across the industry but there is no mention of registration of landlords or some of the things that the light-touch system envisaged by the Rugg review ruled out, such as controls on retaliatory eviction. Shadow communities secretary Hilary Benn hinted at more to come in an interview with The Guardian yesterday. While he rejected calls for rent controls (‘we don’t want to return to that because [the rental sector] is meeting a demand for housing’) he said he would consider linking rents to inflation ‘on an annual basis’.
The caution is perhaps understandable in a month when the Montague review is due to publish its report on attracting institutional investment into private renting. The Resolution Foundation published a report on this today proposing a new build to let model with debt and equity investment by institutions and a new role for housing associations in getting schemes built that can be sold on to funds. Political uncertainty is one of the factors regularly cited by institutions as a reason why they do not invest and no party wants to cause more uncertainty at a time when public investment is in such short supply.
However, in the meantime the rest of the UK has been leaving England behind. In Wales, for example, the Labour government has just published plans for a national, mandatory registration and licensing scheme for landlords, lettings and management agents.
And, as Robbie de Santos points out in a blog for Shelter, there are signs that tenants in England are beginning to organise and call for action. The Cally Cows campaign was set up after the TV programme The Secret History of Our Streets exposed a landlord who said that if a cow is producing milk ‘you keep milking’. The Haringey Housing Action Group protested outside a letting agent over fees. And the Housing for the 99% campaign demonstrated outside the National Landlords Association.
However, one big problem is that the politicians know that millions of private renters are not eligible to vote. It could even be one reason why Boris Johnson won the London mayoral election despite Ken Livingstone’s private tenant friendly policies.
As I argued on my other blog in May, millions of people have effectively been disenfranchised by our housing system – by the unstoppable growth of private renting. A report published by the Electoral Commission in December 2011 estiamted that six million people were not registered to vote on December 2010 registers. While 89 per cent of outright property owners and 87 per cent of people with a mortgage were registered, just 56 per cent of private renters could vote. This disenfranchisement of millions of private tenants is only set to get worse as the sector grows and it could be permanently locked into the system if changes are adopted to define constituencies according to the number of people registered (as opposed to eligible) to vote.
The treatment of private tenants has broken through as a political issue but tenants need to keep up the pressure and politicians need to know they will take it to the ballot box.
This blog has a tendency to be negative at times so I’ve been trying to accentuate the positive ahead of the announcement on housebuilding expected later this week.
The good news is that the government is definitely taking housing seriously. Peter Schofield, director-general of the DCLG, confessed at the CIH conference last month that the Treasury had barely considered housing when it drew up its original plan for growth last year. In the run-up to the growth plan mark 2 and publication of the Montague report on the private rented sector, I’m told that David Cameron has been making the point that ‘all roads lead back to housing’ while Nick Clegg was using housing to rally his party faithful over the weekend at the Social Liberal Forum.
After the draconian spending review and underwhelming housing strategy, it’s taken the coalition just over two years to realise that more - much more - is required. That’s happened considerably quicker than under the last Labour government: acceptance of draconian Conservative cuts in housing investment in its first term; semi-successful promotion of a ‘step change’ in housebuilding delivery in its second term; belated realisation that it had not done remotely enough on affordable housing in the third term.
Considered judgement will have to wait for the substance of this week’s announcement and what follows. As Inside Housing is reporting today, it seems clear that the plan will include a scheme to reduce the cost of borrowing for housing associations. Ministers argue that it is now time to use the government’s hard-won credibility on public borrowing and that it could be possible to guarantee associations borrowing to bring rates down to as little as 20 basis points above gilts. That would be somewhere over 2 per cent rather than the current 4.5 to 5 per cent or more. If it’s not quite the quantitative easing for housing that I’ve been advocating, it does look like a creative idea. The alternative of writing off associations’ historic debt appears to have been ruled out as too complicated and expensive.
Beyond that, I’m told ministers are willing to look at any ideas to get housebuilding moving provided they do not risk undermining that fiscal credibility– and there is a recognition that housing projects are a far better way of delivering growth than large-scale infrastructure projects that take much longer to get off the ground. That looks like a reversal of the presumption in favour of infrastructure with a bit of rhetoric about housebuilding that made up the original plan for growth. When the economy is still shrinking, the argument that 100,000 new homes means 1 per cent growth in the GDP is bound to carry some weight (even if there is also a good case can be made that most of the deficit reduction so far has come from cutting public investment).
The other key announcement to look forward to is publication of the report of the Montague review on the private rented sector. If Sir Adrian and his team can really find a way to attract institutional investment they will have solved a conundrum that has defeated all previous attempts and opened up a major new source of finance for new homes. I understand that one of the key problems is that institutions will want to buy stock of 2,000 homes or more and at the moment there is nobody around to build them. One solution could be to incentivise housebuilders to do so. A leak to Inside Housing last month suggested that the review could recommend changing the definition of affordable housing for planning purposes to include private renting and government loans to promote new large-scale construction.
Another way of boosting housebuilding would be to promote the construction of new towns – or new garden cities as they were carefully branded by David Cameron in a major speech in March. The idea is being pushed not just by the usual suspects like the TCPA but by the influential right-wing think-tank Policy Exchange too. I’m told that work continues to get medium-sized schemes like Northstowe and Ebbsfleet moving but that grander ideas for using compulsory purchase to kickstart new towns on the scale of the post-war programme have been considered but rejected as politically impossible.
My understanding is that even an old faithful from the housing lobby - a change in the public sector borrowing rules - has not been ruled out altogether. The assumption within the housing world may be that the key obstacle is the Treasury but it seems that chancellor George Osborne is agnostic about the idea and there has even been lobbying in favour of it from within Conservative local government. The two barriers are first that the UK Statistics Authority and Office for Budget Responsibility would have to agree to the reclassification and second that even if they did the markets might hear too many echoes of the profligacy of Spanish regional government for comfort.
So there you have it: the case for a bit more positivity about the prospects for more homes. I won’t be shaking off the negative habits of a lifetime, I am worried by the mood music about yet more subsidies for the major housebuilders that have already received billions in subsidies and I’m prepared for some of the over-hyping that accompanied the ‘greatest investment since the Victorian age’ rail plan earlier. But at least there is a positive case to be made.
So is affordable rent value for money? After two hours of scrutiny from MPs we are still not much closer to an answer.
What seems clear is that between them the DCLG, HCA and housing sector have done a pretty good job of making the best of a grim situation up to 2015. What is far from clear is what that means over the next 10, 20 or 30 years.
The influential public accounts committee spent yesterday afternoon questioning experts from the sector plus Sir Bob Kerslake of the DCLG and Pat Ritchie of the HCA. This follows publication of a report by the National Audit Office that, as I blogged last week, left several key questions about the programme unanswered. By my reckoning I now have partial answers to two out of five questions, some more information on another two but an even more confused picture on the fifth.
Is it risky to weight the programme so much towards the end of the spending review period with construction of 45,000 of the 80,000 homes planned to start in the final year? Pat Ritchie said that another 6,500 starts have now been brought forward to earlier years. However, it’s still a concern and I learned a new phrase from David Montague of L&Q and the G15 Group of the largest associations. ‘The big issue we have is the drop dead date in 2015,’ he said. ‘If developments fall a few days after that date there is no funding.’
Is the programme repeatable? David Montague said that the sector as a whole was borrowing £15 billion and was approaching the limits of its gearing covenants and going beyond them would mean renegotiation with lenders. Would that mean re-pricing of existing loans? Sir Bob argued that: ‘We do know there is some headroom available. The key question is what things will look like in the next spending review. No decisions have been made on size, scale, and form of next programme. We do know there is still some capacity in the housing association sector to do more along these lines.’
We learned little more about the things the NAO report failed to mention. There is still no detail on the warning from providers in London may not be able to charge the rents they agreed although David Lunts, executive director of housing and regeneration at the Greater London Authority, said larger homes were being let at lower rents than smaller ones and he did not think that was sustainable in the longer term. There was only one mention of the implications of converting existing homes to affordable rent and none at all of the fact that homes sold under Right to Buy 2 are also supposed to be replaced by affordable rent homes.
On housing benefit costs, it’s still no clearer why the DCLG estimated that the first 56,000 homes will cost just under £10,000 extra each over the next 30 years but that the next 24,000 will cost £35,000. And there is still no estimate of the extra cost of up to another 180,000 conversions and Right to Buy 2 replacements. Sir Bob said that the extra cost of affordable rent worked out at around £45 million a year, which made it a minor concern in the context of a total housing benefit bill of £22 billion a year. That seems to take account of the savings that will be made when tenants in the private rented sector transfer to affordable rent but it’s not clear to me that it includes the extra costs of the homeless families who would have got social rent tenancies but will now go into private ones. There was no clear answer either to questions from Labour’s Meg Hillier about the effect of higher rents on work incentives.
Finally, is affordable rent value for money? This boils down to the difference between upfront capital grant subsidy and continuing revenue subsidy through housing benefit. The NAO report concluded that a hypothetical social rent programme costing the same as affordable rent over 30 years would have delivered 8,200 more homes and £700 million more benefits but, crucially, it would have required grant funding of £4.3 billion rather than the £1.8 billion available. The £1.8 billion would only have delivered 27,000 homes under the previous programmes.
Professor Christine Whitehead of the London School of Economics said there was nothing new about affordable rent. It was merely a continuation of the shift from public to private finance and supply side to demand side subsidy seen over the last 30 years. ‘Most of us thought we would be here ten years ago,’ she said.
David Orr of the National Housing Federation said shifting from capital to revenue subsidy meant less value for money in the longer term. Previous work by the NHF showed that revenue subsidy was more effective for the first seven or eight years but for any longer than that capital subsidy was better. David Montague said his current modelling showed that after seven to 10 years capital subsidy was more effective.
However, when Conservative MP Matthew Hancock raised this point later, Sir Bob Kerslake responded: ‘We’d challenge that particular argument. The NAO report captures that pretty well. If you take it over a 30-year period the old funding model comes out ahead, not by much but it comes out ahead, but if your judgement is that you want to see a housing impact now there is a strong case for reducing capital subsidy and increasing rents.’
If that is the pragmatic argument against capital subsidy, Christine Whitehead put the economic one. ‘It does matter how much the tenancy changes because tenants may not need subsidy over whole time they are there,’ she said. This is the argument that capital subsidy ends up going to tenants who do not need it whereas personal subsidy is targeted at those in need. However, it may need some re-thinking in the light of the introduction of fixed-term five-year tenancies and pay-to-stay rents for higher-earning tenants.
Labour members of the committee seemed impressed by the way the DCLG and HCA had implemented the programme but less so by its long-term implications. When David Orr pointed to the impact of rising rents on the housing benefit bill, committee chair Margaret Hodge referred to it as ‘PFI under another name’. The verdict of Labour member Austin Mitchell was that: ‘Sir Bob has done a wonderful job in producing something out of nowt. But these are hypothetical homes based on a hypothetical idea of what’s affordable. Under this system Cathy is not going to come home, is she?’
However, Conservative members Richard Bacon and Matthew Hancock were more intent on taking things back to first principles. If the market for food and shoes worked and there was equilibrium between demand and supply, asked Bacon, why couldn’t we get equilibrium in the housing market? Christine Whitehead suggested that supply was slow to respond to demand, incomes were unevenly distributed and land prices reflected what richer people would pay for their housing: ‘The market is fundamentally out of kilter’.
Hancock asked if the ‘value for taxpayers’ money’ solution might not be to grant more planning permissions. David Lunts told him there were 200,000 consented plots in London but they were being built out slowly if at all. ‘The structure of the housebuilding industry in this country means they are more interested in delivering margins than volume,’ he said.
Cue an outburst from Bacon. ‘It’s an oligopoly, basically. What you’ve just described is the absence of competition. In conditions of reasonable competition you could not do that, just protect your margins.’
And when Margaret Hodge attempted to draw the session to a close by telling him ‘this is getting a bit theoretical’, he responded: ‘It’s not theoretical at all. It’s the absolute essence of the way the housing market hasn’t worked and why hundreds of thousands of people have nowhere to live. It’s not theoretical at all and we spend billions of pounds of taxpayers’ money on it. We have got representatives here of an industry that’s failed for 30-40 years to deliver enough housing in this country. And you call it theoretical. I’m sorry, it’s not and if you think I’ve got a bee in my bonnet you’re right.’
This diatribe against housebuilders was rather bizarrely delivered to an academic, two senior housing association people and Boris Johnson’s head of housing but it was still a point well made. No one part of the failing housing system can be considered in isolation from the rest and until we find a way to tackle the whole thing the search for value for money seems doomed.
The verdict from the National Audit Office (NAO) on the affordable rent programme is generally positive but it still leaves several key questions unanswered.
The financial watchdog says that the DCLG has ‘so far achieved its policy objective to maximise the number of homes delivered within the available grant funding’. Grant per home was a third of previous levels, the programme was over-subscribed and 80,000 homes are being delivered against an initial target of 56,000.
The NAO concludes that: ‘The Department and the [Homes and Communities] Agency selected a design for the Programme that is projected to maximise benefits and the number of homes delivered within the constraints of the £1.8 billion capital funding available. The launch of the Programme has been successful. Providers have committed to building some 80,000 homes for the £1.8 billion of government investment, approximately 24,000 more homes than first expected. In this respect, the Programme has made a good start.’
So far, so good but the NAO also reveals several risks:
- 18 per cent of contracts had not been signed as at April 2012 (mostly local authorities that needed to confirm their borrowing capacity following HRA reform)
- more than half of the homes are planned for the final year of the programme ‘so slippage would put at risk achievement…of the planned 80,000 homes’
- some providers in London are worried they will not be able to charge the rents they originally agreed
- the DCLG needs to carry out ‘a thorough analysis of the financial position of providers to assess the repeatability’ of the programme after 2015.
In the process, the report reveals details about the programme that I at least have not seen before but it also begs some more questions.
First, it shows just how far the programme is weighted towards the end of the spending review period – and therefore why starts have fallen so much recently. Completions are set to rise from 2,200 last year to 9,800 in 2012/13 to 23,000 in 2013/14 and then 45,000 in 2014/15 (56 per cent of the entire programme). Little wonder that the NAO warns of the risk of slippage. However, has the result also been to delay the construction work beyond the time when it is most needed to give the economy a boost?
Second, the report is clear that continuing with the previous funding model would have ‘offered the highest ratio of benefits to costs and hence the best value for money’ over the 30-year period analysed. This was mainly because housing benefit savings would offset much of the initial capital cost. A hypothetical social rent programme costing the same as affordable rent over 30 years would have delivered 8,200 more homes and £700 million more benefits but, crucially, it would have required grant funding of £4.3 billion rather than the £1.8 billion available. Affordable rent was a pragmatic choice by the DCLG that ‘reflected its aim to do the most it could with the limited amount of capital available to it’ and this option ‘represented the best value for money available within the limited amount of capital available’. The £1.8 billion would only have delivered 27,000 homes under the existing programme.
Third, what about those housing benefit costs? The NAO takes the DCLG’s estimates at face value. The initial impact assessment put the extra housing benefit cost at £550 million but then increased this by another £850 million when it became clear the programme could deliver 80,000 homes rather than 56,000. It is not explained why the first 56,000 homes will apparently cost just under £10,000 each over 30 years whereas the next 24,000 will cost £35,000.
The NAO says providers are planning to charge an average rent of 75 per cent of the market rate (in line with DCLG modelling assumptions) with the 80 per cent rate adopted by only 40 per cent of providers and London providers planning for rents at 65 per cent. Based on analysing HCA information, the NAO says that the average weekly rent will range from around £100 a week in the North East and Yorkshire & the Humber to £182 a week in London. But there is a rider to that: ‘However, it does not have information on rent levels charged across homes of different sizes. As a result, we could not compare actual rent charged under the model and rent levels under previous programmes.’
If that sounds rather less than clear, it’s not just you. The public accounts committee will be examining the report and questioning witnesses on Monday. Committee chair Margaret Hodge told The Guardian this morning: ‘The department has refused to be transparent about just how many tenants will be affected and by how much. My committee will want officials to regularly and transparently update their assessment of the costs and benefits of the programme so that we can hold them to account for the social and financial consequences of their decisions, particularly in light of changes to the welfare system.’
Fourth, is the programme really repeatable? Grant Shapps was clear at the CIH conference in Manchester that he thinks it is. The DCLG is clearly confident that if the original programme was over-subscribed by 100,000 homes then a repeat is more than possible. The NAO notes that housing associations’ operating margins increased from 14.2 per cent in 2009 to 21.4 per cent in 2011. Its own consultation found some associations saying a repeat was not possible and others saying there was sufficient capacity.
However, the report also reveals that this will be about more than just grant (£20,000 per home) and borrowing supported from the new rents (£75,000). Another £46,000 comes from ‘other funding’ (an increase of £12,000 per home on the previous programme). The total scheme cost of £141,000 per home is also £14,000 lower than under the previous programme. So the programme relies more on other funding and a reduction in the total cost per home than it does on grant. Is that repeatable?
Fifth, what about the things the report does not mention? There is no more detail on the warning from providers in London that they may not be able to charge the rents they originally agreed. There is no consideration of the implications of converting up to 80,000 existing social rented homes to affordable rent as well as building new ones. And there is no mention of Right to Buy 2, despite the fact that it will effectively be another round of affordable rent.
Like affordable rent itself, the NAO report is a good start but it is very far from a complete answer to all the questions about the programme. It should be an interesting public accounts committee session in Monday.
It was seconds out, round 27 in the Commons yesterday in the housing stats war but where were the two main contenders?
Communities and local government questions has become a stats slugfest between Grant ‘Slasher’ Shapps in the blue trunks and Jack ‘Jabber’ Dromey in the red but yesterday as the theme music from Rocky began to play there were two new boxers in the spotlight. Given everything that’s been happening outside the ring – new and highly contentious stats on affordable housing and homelessness to argue about and an official complaint from Dromey to the referee – was I the only one in the crowd to feel let down?
The warm-up question came from Conservative backbencher (but social housing rebel) Gordon Henderson. What steps was the minister taking to increase the availability of social housing? A golden opportunity surely for Shapps to deploy one of his new stats: the £19.5 billion that government and the private sector combined will invest in the new affordable housing programme to deliver 170,000 affordable homes etc etc. The answer was duly given but by junior (Lib Dem) housing minister Andrew Stunell rather than the man himself. Stunell went on to bat away questions about affordable housing starts, right to buy replacements and the housing benefit implications of affordable rent. He showed he has learned from the master by switching the comparison to affordable housing completions, pledging that replacements would be ‘a new social or affordable home’ and referring to social rent completions that are the legacy of Labour’s programme but it was not the same somehow.
The absence of the reigning champion was even more keenly felt when Labour’s Chris Williamson asked directly about the 68 per cent fall in affordable housing starts. ‘We have heard the minister tell us that everything is fine and dandy, but nobody believes him. I cannot help wondering if he is modelling himself on Voltaire’s hopelessly optimistic Dr Pangloss or on one of George Orwell’s cynical apparatchiks, or is he just plain incompetent?’
It was a good point complete with not one but two literary references but Stunell’s response was workmanlike rather than inspired: ‘The hon. Gentleman left off the correct response, which is that unlike him, I am supervising the development of more social and affordable homes. It was the Government whom he supported who cut the number of social and affordable homes by more than a quarter of a million. If his Government had performed properly in their period of office, we would not be facing that housing crisis now.’
The non-appearance of Shapps seemed especially curious when the next question was about housing support for members of the armed forces and up popped the man himself with an answer about his new statutory guidance on allocations and a pledge that bereaved spouses as well as reservists and those who were actually serving would get priority in future.
That was followed by more questions about affordable housing starts and another stats battle but Shapps had handed back to Stunell and instead of Dromey we got his boss, shadow communities secretary Hilary Benn. Benn kicked off with a direct reference to Shapps: ‘I’m not surprised that the housing minister has chosen not to answer these questions, given that the House knows he has a bit of a problem when it comes to statistics.’ Could Stunell explain how Shapps had claimed a ‘huge decline in affordable housing starts’ was ‘impressive’ and ‘rapid and dramatic progress’?
Stunell said it was rapid and dramatic progress ‘if someone inherits a situation in which they are going backwards’. Plans were on track and the housing sector had ‘risen to the challenge to deliver’.
Benn hit back with a great line suggesting that he should ask Michael Gove about his answer. ‘I suggest that he seeks the help of the Education Secretary and offers to take one of the new mathematics O-levels. I have a question: “If 49,363 affordable houses were started last year and only 15,698 affordable houses were started this year, should Grant describe this as: a) ‘a massive increase’; or b) ‘a 68% decline’? Please show your detailed workings.” Does the Under-Secretary not understand that every time his right hon. Friend does that, it is not just affordable house building that declines, but his credibility? When is the Secretary of State going to get a grip?’
The principle of parliamentary questions is of course that nobody actually answers them and Stunell picked instead a quote from the referee, the UK Statistics Authority. ‘If I may I shall very briefly quote this: “Official estimates of net change are available for social rented dwellings, but not for the wider stock of ‘affordable’ housing beyond this category. They show an overall reduction of 421,000 in the stock of homes rented from local authorities and housing associations over the period 1997 to 2010.” That seems to me a horrific indictment of Opposition Front Benchers, and what Government Members are doing is repairing some of that damage.’
This was much better even if Benn and Stunell do not immediately strike you as natural pugilists. And, finally, in the last two rounds came the Dromey/Shapps clash we had been waiting for. Dromey went on the attack over housing for the under-25s with:
‘Under Labour, homelessness fell by 70%. Under this Government, 1 million people are out of work; house building is falling; homelessness is rising rapidly; and now there is the proposal to punish young people who leave home to find a job or get an apprenticeship by making them lose their housing benefit and therefore the roof over their head. The measure was described as “absurd” by the YMCA because it will drive up homelessness and close the facilities that support those people. The Minister for Housing and Local Government has said that homelessness is what brought him into politics. Is it not becoming increasingly clear that his legacy will be rapidly rising homelessness and should he not concentrate on not making a bad situation worse, but on building homes, creating jobs and driving down homelessness?’
And Shapps hit back with:
‘From the great passion with which the hon. Gentleman speaks, one would imagine that he had a long-term interest in this issue; in fact, he is the eighth Labour shadow housing Minister whom I have faced. During the time the Opposition have been in place, guess how many Opposition day debates there have been in the Chamber about this important subject? Zero, none—there has not been a single such Opposition day debate. That is because the hon. Gentleman has a very loose relationship with statistics himself. Homelessness is lower than it was in 28 of the last 30 years—and it is less than half the level it was in the 13 years of his Government.’
It was an all too brief taster of the grudge match we had been denied earlier but it’s still not clear why we got boxing by proxy instead. One clue perhaps came in a question about the response from the UK Statistics Authority (UKSA) to Dromey’s complaint. Shapps confirmed that, yes, the UKSA had replied. ‘The hon. Member for Birmingham, Erdington (Jack Dromey) pleaded in his letter for an answer on whether I was right to say that the reduction in affordable homes for rent under Labour was 45,000 or 200,000. I am pleased to say that the UKSA wrote back to both him and me and confirmed that the figures showed an overall reduction of 421,000 homes for social rent during Labour’s time in office—a disgrace, and in stark contrast to the 170,000 that we will be building over the next three years alone.’
In the letter [download here], UK Statistics chair Andrew Dilnot confirms that the stock of homes rose by two million between 1997 and 2010 but that there was ‘an overall reduction of 421,000 in the stock of homes rented from local authorities and housing associations over the period from 1997 to 2010’. Dilnot also confirms that Labour provided 557,000 gross additional affordable homes between 1997 and 2010 – more than the 270,000 from affordable rent and right to buy replacement claimed by Shapps between 2010 and 2015 but over different periods. (I have more on the comparison between Labour and the Conservatives on my other blog here.)
On the other points of the complaint, yes, Shapps had chosen to highlight something other than a 23 per cent rise in rough sleeping but ‘the Statistics Authority recognises that Ministers often want to present such published statistical information in ways that best serve their political objectives’. Yes, on the presentation by Shapps of the figures on housing starts ‘the reference period (2009 instead of 2010) has clearly been carefully chosen, but this is not unusual in the context of a political debate’. As to the cost of building your own home ‘as far as we can establish there are no official statistics on the costs of self-building’.
If all of that seems to err very much on the side of civil service caution, the letter also includes earlier correspondence with Labour’s Nick Raynsford in which Dilnot’s predecessor Sir Michael Scholar said that ‘this is a complex picture, and, as so often in the political debate, the statistics are subject to selective use which has given rise to suggestions that they have been referred to in a misleading way’ and that he would ‘continue to press for a clearer and more systematic public presentation of all the relevant statistic material’.
After that he wrote to the DCLG suggesting a formal assessment of the statistics produced by the HCA and former TSA and Shapps requested this in a letter in March [PDF here]. Dilnot confirms that ‘it is our working assumption that the assessment will be taken forward in September 2012’.
Has that extra bit of scrutiny from the referee taken a little of the heat out of the housing stats grudge match? Only time will tell on that one but nobody is betting against several more rounds yet.