Monday, 27 February 2017

Inside edge

All posts from: August 2012

Economic ally

Thu, 30 Aug 2012

Housing has gained an unexpected new ally in the battle to convince the government to fund more affordable new homes.

City broker Tullett Prebon is better known for its warnings of financial Armageddon and for shoot-from-the-hip appearances on the Today programme by its chief executive Terry Smith. It has even argued that financial austerity and severe cuts in public spending are a myth spun by the government to the bond markets.

But now a report by its global head of research Tim Morgan argues not only that a house building programme is one the few options left for the government, but also that it must be social housing funded by public investment.

The less good news (apart from some apocalyptic warnings about the economy) is that he also supports housing benefit cuts in high-value areas and swallows wholesale the case made by Policy Exchange last week for all ‘expensive’ social home to be sold as they become vacant. However, that still does not completely drown out the good.

What’s intriguing is to see the case for a fundamental change in our housing system being made by someone outside the sector – and on strictly economic grounds with barely a mention of housing need or homelessness.

Morgan argues that ‘for at least two decades, Britain’s housing policy has been a disaster’. It has ignored the relationship between supply, demand and price, put excessive faith in the private rented sector, fallen into the trap of favouring current over capital investment, failed to recognise inter-generational inequalities and lacked the courage to tackle vested interests.

We have deluded ourselves that high property prices are a good thing, he argues. Instead, they swallow up capital that could have been used for more productive purposes and, although they may temporarily boost demand, they inflate debt. Meanwhile, they price out and blight the lives of young people and even the older generations who imagine they will fund their retirement will find that nobody younger can afford to buy.

Morgan claims that house prices are over-valued by at least 25 per cent in relation to incomes and possibly by as much as 40 per cent. Meanwhile low interest rates have blinded us to the size of the mortgage debt we have taken on as a result: a 1 per cent increase in mortgage rates would put 24 per cent of mortgages at risk while a 3 per cent increase would put 69 per cent at risk.

We have not just put too much faith in owning houses but also cast tenants into a limbo of insecurity and high rents by favouring private renting over social renting. That has been compounded the shift from bricks and mortar to personal subsidies as the government expands demand, drives up prices (rents) and bails out buy-to-let landlords by paying housing benefit.

As I argued earlier this week on my other blog, the housing market is dysfunctional because house prices are too high, propped up by emergency financial support, and yet there is no easy way to allow them to fall without replacing one set of problems with another. The government’s solution of hoping that prices will slowly fall back in relation to incomes while it encourages a private housebuilding stimulus to boost supply looks a longshot at best. Another City firm, Fathom Consulting, has been touting a plan based on forcing the banks to repossess people and then indemnifying them against the losses (for more on this unpalatable proposal listen again to the second half of this item on Wednesday’s Today programme).

Morgan’s overall case is that Britain is in trouble because of a decade of dependence on private borrowing and public spending. Conventional fiscal and monetary policies have been ineffective in tackling a deleveraging recession. In these circumstances, a housebuilding stimulus is one of the few viable ways of kick-starting the economy. Most of the benefits will go to the domestic economy rather than leak into imports (as would happen with the alternative of a cut in VAT) and the Treasury will get back most of the costs in reduced benefits and increased taxes.

The report is not without its problems: Morgan’s approach is broad brush and he mixes up starts and completions at one point; he fails to consider that rising housing benefit might be a consequence of rising property prices and rents as much as a cause; and he grasps at Policy Exchange’s plan to sell off expensive social homes as they become vacant without taking into account the practical or social problems of the policy.

However, he goes on:

‘We would be inclined to go rather further than this, adding directly-funded capital investment of £4bn to the £6bn projected by the Policy Exchange report to lift the annual investment programme to £10bn. This could be supplemented by a new levy on second homes.

‘We would stress that this investment should be undertaken by local authorities or housing associations, and not through private-public gimmicks like PFI. The government and social sectors should act as owners and commissioners of new housing, whilst the role of the private sector would be to build the new homes as contractors.’

Just for good measure, he adds that the government should take on NIMBY resistance to new social housing with a new wave of planning reforms.

It’s a case that’s been made before by many people in the housing world but it’s all the more powerful coming from a City firm that otherwise sees public spending as the problem. Whether the government is listening or not, the case for investment in housing has never been stronger.

Economic ally

Thu, 30 Aug 2012

Housing has gained an unexpected new ally in the battle to convince the government to fund more affordable new homes.

City broker Tullett Prebon is better known for its warnings of financial Armageddon and for shoot-from-the-hip appearances on the Today programme by its chief executive Terry Smith. It has even argued that financial austerity and severe cuts in public spending are a myth spun by the government to the bond markets.

But now a report by its global head of research Tim Morgan argues not only that a house building programme is one the few options left for the government, but also that it must be social housing funded by public investment.

The less good news (apart from some apocalyptic warnings about the economy) is that he also supports housing benefit cuts in high-value areas and swallows wholesale the case made by Policy Exchange last week for all ‘expensive’ social home to be sold as they become vacant. However, that still does not completely drown out the good.

What’s intriguing is to see the case for a fundamental change in our housing system being made by someone outside the sector – and on strictly economic grounds with barely a mention of housing need or homelessness.

Morgan argues that ‘for at least two decades, Britain’s housing policy has been a disaster’. It has ignored the relationship between supply, demand and price, put excessive faith in the private rented sector, fallen into the trap of favouring current over capital investment, failed to recognise inter-generational inequalities and lacked the courage to tackle vested interests.

We have deluded ourselves that high property prices are a good thing, he argues. Instead, they swallow up capital that could have been used for more productive purposes and, although they may temporarily boost demand, they inflate debt. Meanwhile, they price out and blight the lives of young people and even the older generations who imagine they will fund their retirement will find that nobody younger can afford to buy.

Morgan claims that house prices are over-valued by at least 25 per cent in relation to incomes and possibly by as much as 40 per cent. Meanwhile low interest rates have blinded us to the size of the mortgage debt we have taken on as a result: a 1 per cent increase in mortgage rates would put 24 per cent of mortgages at risk while a 3 per cent increase would put 69 per cent at risk.

We have not just put too much faith in owning houses but also cast tenants into a limbo of insecurity and high rents by favouring private renting over social renting. That has been compounded the shift from bricks and mortar to personal subsidies as the government expands demand, drives up prices (rents) and bails out buy-to-let landlords by paying housing benefit.

As I argued earlier this week on my other blog, the housing market is dysfunctional because house prices are too high, propped up by emergency financial support, and yet there is no easy way to allow them to fall without replacing one set of problems with another. The government’s solution of hoping that prices will slowly fall back in relation to incomes while it encourages a private housebuilding stimulus to boost supply looks a longshot at best. Another City firm, Fathom Consulting, has been touting a plan based on forcing the banks to repossess people and then indemnifying them against the losses (for more on this unpalatable proposal listen again to the second half of this item on Wednesday’s Today programme).

Morgan’s overall case is that Britain is in trouble because of a decade of dependence on private borrowing and public spending. Conventional fiscal and monetary policies have been ineffective in tackling a deleveraging recession. In these circumstances, a housebuilding stimulus is one of the few viable ways of kick-starting the economy. Most of the benefits will go to the domestic economy rather than leak into imports (as would happen with the alternative of a cut in VAT) and the Treasury will get back most of the costs in reduced benefits and increased taxes.

The report is not without its problems: Morgan’s approach is broad brush and he mixes up starts and completions at one point; he fails to consider that rising housing benefit might be a consequence of rising property prices and rents as much as a cause; and he grasps at Policy Exchange’s plan to sell off expensive social homes as they become vacant without taking into account the practical or social problems of the policy.

However, he goes on:

‘We would be inclined to go rather further than this, adding directly-funded capital investment of £4bn to the £6bn projected by the Policy Exchange report to lift the annual investment programme to £10bn. This could be supplemented by a new levy on second homes.

‘We would stress that this investment should be undertaken by local authorities or housing associations, and not through private-public gimmicks like PFI. The government and social sectors should act as owners and commissioners of new housing, whilst the role of the private sector would be to build the new homes as contractors.’

Just for good measure, he adds that the government should take on NIMBY resistance to new social housing with a new wave of planning reforms.

It’s a case that’s been made before by many people in the housing world but it’s all the more powerful coming from a City firm that otherwise sees public spending as the problem. Whether the government is listening or not, the case for investment in housing has never been stronger.

Give Montague a chance

Fri, 24 Aug 2012

Here’s why I think the housing backlash against the Montague report is being overdone.

From some of the reactions so far, the review group seem to a bunch of pin-striped latter-day Rachmans intent on squeezing out affordable housing and trousering the profits in between slaughtering the first born and unleashing plague, pestilence and famine. 

I’ve been trying to reserve judgement until I had time to read the report.  I have to say that I now think the people who have most to fear from this are not housing associations and local authorities but buy-to-let landlords and letting agents who will face professional competition. The plague and pestilence people this week were Policy Exchange, not Montague.

The fuss has all been about Montague’s proposal on section 106. The leaks in advance of publication suggested that he would want market housing to count as affordable in planning deals, raising fears that it would squeeze out the funding stream that has underpinned around half of social housing over the last few years (rising to more than 60 per cent in 2008/09). However, I think that stems from a misunderstanding both of what the report says about section 106 and about what is already happening on the ground.

Montague recommends that local authorities should be able to use existing flexibilities in the planning system to enable the development of private rented homes where they can meet local needs. Government guidance should also include a strong steer to specify private rental needs as part of their strategic housing market assessments.

However, the report as a whole argues that the fundamental reason why build for let has not taken off so far is that the income yield is too low. Although the total return on investment in residential has beaten every other kind of property investment over the last ten years, most of it has come from an increase in capital values. Institutional investors want a steady income so they will choose the 5.6 per cent income return and 1.6 per cent capital growth seen in retail over the 3.5 per cent income return and 5.9 per cent capital growth seen in residential. As in the rest of the housing market, the fundamental problem is that house prices and land values are too high. Build to let will only work if land values are based on rental tenure rather than theoretical valuations based on sale.

Montague argues that the section 106 and community infrastructure levy negotiations on build to let sites should take this into account and that the need for affordable housing should be weighed against the benefits build into market rent developments. ‘In many cases, it will be appropriate for authorities to waive affordable housing requirements in relation to schemes for private rental, or to the private rental component of larger schemes also including an owner-occupied component. And local authorities should review stalled sites to engage the potential of private rented units to engage the potential of private rented units to accelerate delivery.’

Much of the criticism seems to be based on the assumption that the report is calling for a general relaxation of section 106 in a way that will damage affordable housing. In fact, it is only calling for a relaxation for the private rental element.

In the meantime, and in a way that has nothing to do with Montague, a general relaxation of section 106 is already happening and is set to become even more damaging for affordable housing. For examples, just see what has happened with the redevelopment of Tottenham Hotspur’s stadium or plans by its former manager Harry Redknapp for a new apartment building in Portsmouth or the surge in the number of councils taking cash contributionsin place of affordable homes.

This is partly a result of the downturn in the housing market undermining the viability of schemes (Tottenham’s classier rival Arsenal, for example, delivered 40 per cent affordable housing on its stadium scheme but that was during the boom). However, it is also the result of a drive by the government to cut ‘red tape’ for housebuilders. As I’ve previously argued, this has made their land holdings hugely more profitable without leading to the construction of any extra homes. The latest developments include a subtle but profound change in the definition of ‘affordable’ in the National Planning Policy Framework and the implementation of previous plans to force the renegotiation of section 106 agreements made before 2010.

Some of this is necessary to make schemes viable and get building started. Some of it is simply giving housebuilders what they want without any guarantee of any more homes in return. It’s hard to predict the overall impact but the chief executive of one major housebuilder, David Ritchie of Bovis Homes, said earlier this week that the result could actually be to reduce the number of completions.

Ironically, this general relaxation of section 106 requirements could also undermine the proposals in the Montague report because it would remove the proposed land value advantage for private renting. What’s bad for affordable housing is also bad for build to let.

All previous attempts to revive institutional investment in private renting have failed, partly because of investor suspicion about the regulatory regime but mostly because of the house price/income return conundrum. The Homes and Communities Agency tried very hard with its private rented sector initiative in 2009 but it found that it could not make development viable without subsidy. Montague’s way round this is for the public sector to bring forward land using build now, pay later and joint venture models to share the risk and the profits and for the government to adopt a broader definition of value for money so that land does not have to be sold for the highest possible price. Once the model is established, the hope is that build to let will have enough of a track record to attract more investors.

It remains to be seen if this will work and recent history suggests it will be an uphill struggle. The Montague report is far from perfect. It is intentionally short but so light on evidence in places that it does not answer some of the questions in its original terms of reference – it is less a ‘blueprint’ than an outline sketch. It is largely silent on conditions for tenants apart from a vague-sounding voluntary code of practice. A doubt remains in my mind about the identity of the institutional investors: will they be pension funds or commercial insurance companies or could they be rather less desirable housing partners? Sir Adrian Montague himself represents the respectable end of the private equity industry but the more rapacious end of the sector seems to have its eyes on housing in the United States and eastern Europe.

However, despite these doubts, the Montague report deserves a chance. For better or worse, the lines between social and private renting are blurring all the time. It would be a tragedy if misplaced criticism about section 106 helped to undermine a desperately needed source of new investment for housing.

Give Montague a chance

Fri, 24 Aug 2012

Here’s why I think the housing backlash against the Montague report is being overdone.

From some of the reactions so far, the review group seem to a bunch of pin-striped latter-day Rachmans intent on squeezing out affordable housing and trousering the profits in between slaughtering the first born and unleashing plague, pestilence and famine. 

I’ve been trying to reserve judgement until I had time to read the report.  I have to say that I now think the people who have most to fear from this are not housing associations and local authorities but buy-to-let landlords and letting agents who will face professional competition. The plague and pestilence people this week were Policy Exchange, not Montague.

The fuss has all been about Montague’s proposal on section 106. The leaks in advance of publication suggested that he would want market housing to count as affordable in planning deals, raising fears that it would squeeze out the funding stream that has underpinned around half of social housing over the last few years (rising to more than 60 per cent in 2008/09). However, I think that stems from a misunderstanding both of what the report says about section 106 and about what is already happening on the ground.

Montague recommends that local authorities should be able to use existing flexibilities in the planning system to enable the development of private rented homes where they can meet local needs. Government guidance should also include a strong steer to specify private rental needs as part of their strategic housing market assessments.

However, the report as a whole argues that the fundamental reason why build for let has not taken off so far is that the income yield is too low. Although the total return on investment in residential has beaten every other kind of property investment over the last ten years, most of it has come from an increase in capital values. Institutional investors want a steady income so they will choose the 5.6 per cent income return and 1.6 per cent capital growth seen in retail over the 3.5 per cent income return and 5.9 per cent capital growth seen in residential. As in the rest of the housing market, the fundamental problem is that house prices and land values are too high. Build to let will only work if land values are based on rental tenure rather than theoretical valuations based on sale.

Montague argues that the section 106 and community infrastructure levy negotiations on build to let sites should take this into account and that the need for affordable housing should be weighed against the benefits build into market rent developments. ‘In many cases, it will be appropriate for authorities to waive affordable housing requirements in relation to schemes for private rental, or to the private rental component of larger schemes also including an owner-occupied component. And local authorities should review stalled sites to engage the potential of private rented units to engage the potential of private rented units to accelerate delivery.’

Much of the criticism seems to be based on the assumption that the report is calling for a general relaxation of section 106 in a way that will damage affordable housing. In fact, it is only calling for a relaxation for the private rental element.

In the meantime, and in a way that has nothing to do with Montague, a general relaxation of section 106 is already happening and is set to become even more damaging for affordable housing. For examples, just see what has happened with the redevelopment of Tottenham Hotspur’s stadium or plans by its former manager Harry Redknapp for a new apartment building in Portsmouth or the surge in the number of councils taking cash contributionsin place of affordable homes.

This is partly a result of the downturn in the housing market undermining the viability of schemes (Tottenham’s classier rival Arsenal, for example, delivered 40 per cent affordable housing on its stadium scheme but that was during the boom). However, it is also the result of a drive by the government to cut ‘red tape’ for housebuilders. As I’ve previously argued, this has made their land holdings hugely more profitable without leading to the construction of any extra homes. The latest developments include a subtle but profound change in the definition of ‘affordable’ in the National Planning Policy Framework and the implementation of previous plans to force the renegotiation of section 106 agreements made before 2010.

Some of this is necessary to make schemes viable and get building started. Some of it is simply giving housebuilders what they want without any guarantee of any more homes in return. It’s hard to predict the overall impact but the chief executive of one major housebuilder, David Ritchie of Bovis Homes, said earlier this week that the result could actually be to reduce the number of completions.

Ironically, this general relaxation of section 106 requirements could also undermine the proposals in the Montague report because it would remove the proposed land value advantage for private renting. What’s bad for affordable housing is also bad for build to let.

All previous attempts to revive institutional investment in private renting have failed, partly because of investor suspicion about the regulatory regime but mostly because of the house price/income return conundrum. The Homes and Communities Agency tried very hard with its private rented sector initiative in 2009 but it found that it could not make development viable without subsidy. Montague’s way round this is for the public sector to bring forward land using build now, pay later and joint venture models to share the risk and the profits and for the government to adopt a broader definition of value for money so that land does not have to be sold for the highest possible price. Once the model is established, the hope is that build to let will have enough of a track record to attract more investors.

It remains to be seen if this will work and recent history suggests it will be an uphill struggle. The Montague report is far from perfect. It is intentionally short but so light on evidence in places that it does not answer some of the questions in its original terms of reference – it is less a ‘blueprint’ than an outline sketch. It is largely silent on conditions for tenants apart from a vague-sounding voluntary code of practice. A doubt remains in my mind about the identity of the institutional investors: will they be pension funds or commercial insurance companies or could they be rather less desirable housing partners? Sir Adrian Montague himself represents the respectable end of the private equity industry but the more rapacious end of the sector seems to have its eyes on housing in the United States and eastern Europe.

However, despite these doubts, the Montague report deserves a chance. For better or worse, the lines between social and private renting are blurring all the time. It would be a tragedy if misplaced criticism about section 106 helped to undermine a desperately needed source of new investment for housing.

The road home

Wed, 22 Aug 2012

If the government can change the public borrowing rules for roads, why not for council housing?

The papers this morning (see here and here) have been briefed that the government growth package to be launched when parliament returns next month will include not just a housebuilding stimulus but a radical new plan to boost road building.

The plan involves reforming the Highways Agency, which is responsible for the major road network, to turn it into a government-owned company or public trust so that it can borrow money without increasing the public sector deficit.

If that sounds somehow familiar, that’s because the housing sector has spent the last 20 years or so banging its head against a Treasury brick wall to achieve exactly the same for council housing.

With the possible exception of institutional investment in private renting (of which more on Thursday), it’s the probably the subject I have returned to most in all my years of blogging.

The planned ‘horizon shift’ for the Highways Agency is a sign of the desperation within government to stimulate growth in the wake of yesterday’s figures showing an unexpected increase in borrowing in July as tax receipts slumped. It also shows how much things have changed even since April, when the government still seemed to be resisting the case for a construction stimulus.

But that begs a big question: if the Treasury can make one u-turn on what counts as public borrowing then why not another?

It is a case that has been made by a succession of housing experts (see p6 of this briefing paper by Steve Wilcox and Hal Pawson for a fuller explanation of the differences between Britain and the rest of the EU). It is also a long-cherished ambition of Labour and Liberal Democrat reformers. Briefly, in 2009, it even seemed that the Gordon Brown government would take the plunge.

However, cross-party support has grown since then. In 2009, the Conservative-dominated Local Government Association said councils could build 300,000 additional homes after HRA reform if they were allowed to borrow against their assets.

Last year Conservative-controlled Westminster City Council argued for it too in a report saying that councils could raise an extra £1 billion for housing if the government agreed to remove their debt from the public sector balance sheet.

As Philippa Roe, then the cabinet member for housing, now the leader of Westminster, put it at the time: ‘There is a great deal of sensitivity around changing borrowing rules in the current climate, but what we are saying is that it will not affect the credit rating of the UK.’

Since then, of course, the government has reformed the housing revenue account but retained caps on borrowing so it may seem a stretch to expect more radical reform so soon.

The 2010 Lib Dem manifesto included a commitment to ‘investigate reforming public sector borrowing requirements to free councils to borrow money against their assets in order to build a new generation of council homes, and allow them to keep all the revenue from these new homes’. The party’s former Treasury spokesman Lord Oakeshott tells The Guardian this morning: “We need two big bazookas – making the banks lend, with RBS nationalised, and building 100,000 more houses a year, led by desperately needed social house building.’

Changing the public borrowing rules for housing would represent a massive u-turn on 35 years of Treasury orthodoxy but, as I blogged last month, my understanding is that it has not been altogether ruled out within government, with George Osborne agnostic about the idea. The real barriers are said to be the need for the UK Statistics Authority and Office for Budget Responsibility to agree to reclassification of the sector and government wariness of market reaction to Spanish-style financial chicanery by local government.

However, both of these barriers have presumably been overcome for the Highways Agency and the case is actually stronger for council housing. Unlike roads, housing generates revenue in the form of rents and it is already classified as a public trading activity in much of the rest of Europe. Clever ways have also been found for the government to guarantee mortgages under NewBuy and, it is believed, to guarantee housing association loans under next month’s package without an impact on the deficit.

Things are changing so rapidly that nothing can be completely ruled out. The trouble is that both the other major events this week seem to be moving in the opposite direction. On Monday the government made favourable noises about the Policy Exchange report calling for forced sales of expensive council housing to reinvest the proceeds elsewhere. Leaks ahead of Thursday’s Montague report suggest that it will include relaxing section 106 affordable housing requirements and using public land for market rented housing.  Both seem to be about cannibalising the council housing asset base for the short term rather than borrowing against it to invest for long-term gain.  

The road home

Wed, 22 Aug 2012

If the government can change the public borrowing rules for roads, why not for council housing?

The papers this morning (see here and here) have been briefed that the government growth package to be launched when parliament returns next month will include not just a housebuilding stimulus but a radical new plan to boost road building.

The plan involves reforming the Highways Agency, which is responsible for the major road network, to turn it into a government-owned company or public trust so that it can borrow money without increasing the public sector deficit.

If that sounds somehow familiar, that’s because the housing sector has spent the last 20 years or so banging its head against a Treasury brick wall to achieve exactly the same for council housing.

With the possible exception of institutional investment in private renting (of which more on Thursday), it’s the probably the subject I have returned to most in all my years of blogging.

The planned ‘horizon shift’ for the Highways Agency is a sign of the desperation within government to stimulate growth in the wake of yesterday’s figures showing an unexpected increase in borrowing in July as tax receipts slumped. It also shows how much things have changed even since April, when the government still seemed to be resisting the case for a construction stimulus.

But that begs a big question: if the Treasury can make one u-turn on what counts as public borrowing then why not another?

It is a case that has been made by a succession of housing experts (see p6 of this briefing paper by Steve Wilcox and Hal Pawson for a fuller explanation of the differences between Britain and the rest of the EU). It is also a long-cherished ambition of Labour and Liberal Democrat reformers. Briefly, in 2009, it even seemed that the Gordon Brown government would take the plunge.

However, cross-party support has grown since then. In 2009, the Conservative-dominated Local Government Association said councils could build 300,000 additional homes after HRA reform if they were allowed to borrow against their assets.

Last year Conservative-controlled Westminster City Council argued for it too in a report saying that councils could raise an extra £1 billion for housing if the government agreed to remove their debt from the public sector balance sheet.

As Philippa Roe, then the cabinet member for housing, now the leader of Westminster, put it at the time: ‘There is a great deal of sensitivity around changing borrowing rules in the current climate, but what we are saying is that it will not affect the credit rating of the UK.’

Since then, of course, the government has reformed the housing revenue account but retained caps on borrowing so it may seem a stretch to expect more radical reform so soon.

The 2010 Lib Dem manifesto included a commitment to ‘investigate reforming public sector borrowing requirements to free councils to borrow money against their assets in order to build a new generation of council homes, and allow them to keep all the revenue from these new homes’. The party’s former Treasury spokesman Lord Oakeshott tells The Guardian this morning: “We need two big bazookas – making the banks lend, with RBS nationalised, and building 100,000 more houses a year, led by desperately needed social house building.’

Changing the public borrowing rules for housing would represent a massive u-turn on 35 years of Treasury orthodoxy but, as I blogged last month, my understanding is that it has not been altogether ruled out within government, with George Osborne agnostic about the idea. The real barriers are said to be the need for the UK Statistics Authority and Office for Budget Responsibility to agree to reclassification of the sector and government wariness of market reaction to Spanish-style financial chicanery by local government.

However, both of these barriers have presumably been overcome for the Highways Agency and the case is actually stronger for council housing. Unlike roads, housing generates revenue in the form of rents and it is already classified as a public trading activity in much of the rest of Europe. Clever ways have also been found for the government to guarantee mortgages under NewBuy and, it is believed, to guarantee housing association loans under next month’s package without an impact on the deficit.

Things are changing so rapidly that nothing can be completely ruled out. The trouble is that both the other major events this week seem to be moving in the opposite direction. On Monday the government made favourable noises about the Policy Exchange report calling for forced sales of expensive council housing to reinvest the proceeds elsewhere. Leaks ahead of Thursday’s Montague report suggest that it will include relaxing section 106 affordable housing requirements and using public land for market rented housing.  Both seem to be about cannibalising the council housing asset base for the short term rather than borrowing against it to invest for long-term gain.  

End game

Mon, 20 Aug 2012

Policy Exchange is well known for its opposition to the Green Belt but that has not stopped it proposing what amounts to a Blue Belt in expensive areas of the country.

The influential right-wing think tank published a report this morning calling for social rented homes that become vacant expensive areas to be sold off to fund the construction of more homes in cheaper areas.

Ending Expensive Social Tenancies makes a superficially attractive case for the policy and speaks some undeniable truths about the current housing crisis. Waiting lists are much too high, a shortage of new homes boosts house prices and rents and construction of new homes will create desperately needed jobs. More contentiously perhaps, it says that ‘government needs to make even more cuts in future’ and ‘housing cannot realistically expect more money’.

Reaction so far has ranged from a cautiously enthusiastic Grant Shapps (who says it is ‘blindingly obvious’ that £1 million homes should be sold) to a critical David Orr (the idea is ‘fundamentally flawed’).

There appears to be strong public support. In a poll commissioned by Policy Exchange, 73 per cent of voters agreed that ‘people should not be offered council houses that are worth more than the average house in their local authority’ while 60 per cent agreed that ‘people should not be offered council housing in expensive areas by social class, housing tenure and region’. I wasn’t quite sure what the second one meant either but it was actually a misprint for ‘by voting intention’.

Policy Exchange proposes that ‘expensive social housing’ should be defined as above a regional median - £290,000 in London, £190,000 in the South West, £119,000 in the South West – and then be adjusted for bedroom size It argues that ‘expensive areas are close to cheaper ones across the country’ so that ‘new tenants would be housed close to where they want – near friends and family’. As an additional safeguard, if there was no social housing within 30 miles or no replacement stock could be built within 30 miles, there would be no sale.

The total value of this ‘expensive social housing’ is calculated at £159 billion and at a turnover rate of 3.5 per cent, 28,500 homes a year could be sold off to raise £5.5 billion a year. Once debt was written off, that would generate £4.5 billion a year and fund the construction of between 80,000 and 170,000 new homes a year.

With a range of other beneficial impacts, Policy Exchange argues that ‘the biggest question is why DCLG civil servants have not proposed this policy before’.

Here are a few reasons why off the top of my head:

  • Most obviously, it conflicts with any attempt to maintain mixed communities. How many social rented homes will be left in Kensington & Chelsea, Westminster, Hammersmith & Fulham, Islington and Camden after this? Despite that 30-mile rule, the impact on rural communities in the South West could be even more devastating. Policy Exchange rejects the idea of using a national median because it mean selling off virtually all social housing in London and the South East and would be unfair but seems prepared to accept the same unfairness within regions. Listen again here to Neil O’Brien of Policy Exchange and Labour MP Karen Buck debate the report on the Today programme this morning.
  • It accentuates the social divisions already built into the housing benefit system, with claimants forced out of expensive areas by local housing allowance caps and the overall housing benefit cap.
  • It would accentuate social divisions in education by forcing the sale of social housing in the catchment areas of ‘good’ schools (house prices in these areas are already inflated and so any social housing in them will automatically be ‘expensive’).
  • It conflicts with regeneration policy in other areas. What would be the future for the plans of boroughs like Southwark and Newham to regenerate council estates with new mixed tenure developments when they would become the destinations for people forced out of more expensive areas?
  • Could this Policy Exchange be by any chance related to the Policy Exchange that argued four years ago that there should be a mass migration from failing northern cities like Liverpool and Sunderland to London, Cambridge and Oxford? Even David Cameron called that “insane”. The effect of the latest policy must be to encourage the concentration of social housing in cheaper areas with higher unemployment – although Policy Exchange denies there is any correlation.
  • Could this Policy Exchange be by any chance related to the Policy Exchange that argued two years ago for all council and housing association homes should be nationalised so that 84 per cent of them could be sold off to tenants? If at first you don’t succeed.

Policy Exchange cuts through all these objections by arguing that ‘ending expensive social housing will allow real mixed communities’ because there will be larger amounts of social housing in cheaper areas and because allocation policies would be changed to prioritise those in work. Social tenants, it argues, are more likely to mix with people in cheaper private housing.

However, that ignores changes that are already underway in the section 106 rules for new development. Last week, Eric Pickles announced he was sending in specialist advisers to help unlock stalled housing schemes in a move that will almost certainly reduce agreed affordable housing requirements. The Montague report on institutional investment in private renting is expected to propose that the definition of ‘affordable’ should be extended to cover market rented homes too. The long-term result will surely be a minimal proportion of social housing in any new schemes that are built (as is already happening in Hammersmith & Fulham) and no guarantee that replacement homes will be social or even ‘affordable’.

Above all, perhaps, the Policy Exchange report ignores what is already happening on the ground. Individual landlords already have asset management policies: it may well make sense to sell off a vacant street property that is expensive to maintain but has a high resale value and then reinvest the proceeds. However, those decisions are made within the context of overall aims and objectives that will include a commitment to a mix of housing in their local area as well as broader financial objectives. This idea would simply impose damaging and divisive long-term impacts from above in the end game for what Policy Exchange regards as the mistake of ‘socialist’ housing policy.

Meanwhile, of course, social tenants will be gradually excluded from areas of expensive housing leaving mixed communities of overseas property investors, bankers and lawyers free to flourish and grow. Welcome to the Blue Belt.

End game

Mon, 20 Aug 2012

Policy Exchange is well known for its opposition to the Green Belt but that has not stopped it proposing what amounts to a Blue Belt in expensive areas of the country.

The influential right-wing think tank published a report this morning calling for social rented homes that become vacant expensive areas to be sold off to fund the construction of more homes in cheaper areas.

Ending Expensive Social Tenancies makes a superficially attractive case for the policy and speaks some undeniable truths about the current housing crisis. Waiting lists are much too high, a shortage of new homes boosts house prices and rents and construction of new homes will create desperately needed jobs. More contentiously perhaps, it says that ‘government needs to make even more cuts in future’ and ‘housing cannot realistically expect more money’.

Reaction so far has ranged from a cautiously enthusiastic Grant Shapps (who says it is ‘blindingly obvious’ that £1 million homes should be sold) to a critical David Orr (the idea is ‘fundamentally flawed’).

There appears to be strong public support. In a poll commissioned by Policy Exchange, 73 per cent of voters agreed that ‘people should not be offered council houses that are worth more than the average house in their local authority’ while 60 per cent agreed that ‘people should not be offered council housing in expensive areas by social class, housing tenure and region’. I wasn’t quite sure what the second one meant either but it was actually a misprint for ‘by voting intention’.

Policy Exchange proposes that ‘expensive social housing’ should be defined as above a regional median - £290,000 in London, £190,000 in the South West, £119,000 in the South West – and then be adjusted for bedroom size It argues that ‘expensive areas are close to cheaper ones across the country’ so that ‘new tenants would be housed close to where they want – near friends and family’. As an additional safeguard, if there was no social housing within 30 miles or no replacement stock could be built within 30 miles, there would be no sale.

The total value of this ‘expensive social housing’ is calculated at £159 billion and at a turnover rate of 3.5 per cent, 28,500 homes a year could be sold off to raise £5.5 billion a year. Once debt was written off, that would generate £4.5 billion a year and fund the construction of between 80,000 and 170,000 new homes a year.

With a range of other beneficial impacts, Policy Exchange argues that ‘the biggest question is why DCLG civil servants have not proposed this policy before’.

Here are a few reasons why off the top of my head:

  • Most obviously, it conflicts with any attempt to maintain mixed communities. How many social rented homes will be left in Kensington & Chelsea, Westminster, Hammersmith & Fulham, Islington and Camden after this? Despite that 30-mile rule, the impact on rural communities in the South West could be even more devastating. Policy Exchange rejects the idea of using a national median because it mean selling off virtually all social housing in London and the South East and would be unfair but seems prepared to accept the same unfairness within regions. Listen again here to Neil O’Brien of Policy Exchange and Labour MP Karen Buck debate the report on the Today programme this morning.
  • It accentuates the social divisions already built into the housing benefit system, with claimants forced out of expensive areas by local housing allowance caps and the overall housing benefit cap.
  • It would accentuate social divisions in education by forcing the sale of social housing in the catchment areas of ‘good’ schools (house prices in these areas are already inflated and so any social housing in them will automatically be ‘expensive’).
  • It conflicts with regeneration policy in other areas. What would be the future for the plans of boroughs like Southwark and Newham to regenerate council estates with new mixed tenure developments when they would become the destinations for people forced out of more expensive areas?
  • Could this Policy Exchange be by any chance related to the Policy Exchange that argued four years ago that there should be a mass migration from failing northern cities like Liverpool and Sunderland to London, Cambridge and Oxford? Even David Cameron called that “insane”. The effect of the latest policy must be to encourage the concentration of social housing in cheaper areas with higher unemployment – although Policy Exchange denies there is any correlation.
  • Could this Policy Exchange be by any chance related to the Policy Exchange that argued two years ago for all council and housing association homes should be nationalised so that 84 per cent of them could be sold off to tenants? If at first you don’t succeed.

Policy Exchange cuts through all these objections by arguing that ‘ending expensive social housing will allow real mixed communities’ because there will be larger amounts of social housing in cheaper areas and because allocation policies would be changed to prioritise those in work. Social tenants, it argues, are more likely to mix with people in cheaper private housing.

However, that ignores changes that are already underway in the section 106 rules for new development. Last week, Eric Pickles announced he was sending in specialist advisers to help unlock stalled housing schemes in a move that will almost certainly reduce agreed affordable housing requirements. The Montague report on institutional investment in private renting is expected to propose that the definition of ‘affordable’ should be extended to cover market rented homes too. The long-term result will surely be a minimal proportion of social housing in any new schemes that are built (as is already happening in Hammersmith & Fulham) and no guarantee that replacement homes will be social or even ‘affordable’.

Above all, perhaps, the Policy Exchange report ignores what is already happening on the ground. Individual landlords already have asset management policies: it may well make sense to sell off a vacant street property that is expensive to maintain but has a high resale value and then reinvest the proceeds. However, those decisions are made within the context of overall aims and objectives that will include a commitment to a mix of housing in their local area as well as broader financial objectives. This idea would simply impose damaging and divisive long-term impacts from above in the end game for what Policy Exchange regards as the mistake of ‘socialist’ housing policy.

Meanwhile, of course, social tenants will be gradually excluded from areas of expensive housing leaving mixed communities of overseas property investors, bankers and lawyers free to flourish and grow. Welcome to the Blue Belt.

Rise and fall

Fri, 10 Aug 2012

Behind the good news story of falling mortgage repossessions a different tale is starting to emerge of rising possession actions against tenants.

Figures published by the Council of Mortgage Lenders (CML) yesterday showed that its members repossessed 8,500 homes in the three months to June. That was the lowest quarterly total since the final quarter of 2010 and implies that the total for the year is likely to undershoot the CML’s forecast of 45,000.

Considering the grim forecasts made in the depths of the financial crisis, that is very good news indeed. A combination of record low interest rates, forbearance by lenders and reforms of legal procedures that led to a dramatic fall in possession actions in 2008 look the most likely explanations. However, that did not stop Grant Shapps from claiming that it was actually down to the government’s action to tackle the deficit.

Things look much less rosy for tenants. Separate figures produced by the Ministry of Justice show that, after falling every year bar one between 2002 and 2010, the number of landlord possession claims rose in 2011 and that the upward trend has continued in the first half of 2012. 

The second quarter saw 14,614 mortgage possession claims issued, a fall of 20 per cent on a year ago and a rate of 0.63 per 1,000 households. In contrast, landlords issued 34,554 possession claims, an increase of 4 per cent and a rate per 1,000 households that is two and a half times as high at 1.50.

Meanwhile there were 11,328 mortgage claims leading to possession orders made in the second quarter, a fall of 17 per cent and a rate of 0.49 per 1,000 households. That contrasts with 24,441 landlord claims leading to possession orders, an increase of 8 per cent and a rate of 1.06 per 1,000 households.

Mortgage possession orders made in the second quarter were down in every region of the country compared to a year ago. Landlord possession orders made fell in the North East and were unchanged in the West Midlands and the East, but rose everywhere else.

Landlord orders made rose 15 per cent in London (2.21 per 1,000 households) and by 21 per cent in Inner London (2.55). In contrast, mortgage orders made fell by 17 per cent in London (0.43) and 22 per cent in Inner London (0.31).

Is it just coincidence that London is the region most affected by the housing benefit cuts introduced so far? Or that the possession order made rate per 1,000 households is eight times higher for tenants in Inner London than it is for people with a mortgage?

The disparity also reflects structural changes in the housing market. As I report on my other blog, buy-to-let lending continues to rise remorselessly and landlords now account for one in eight of all outstanding mortgages. That has happened despite the fact that lenders are almost twice as likely to repossess a buy-to-let landlord (the repossession rate in the second quarter was 0.12 per cent) as they are an owner-occupier (0.7 per cent). Clearly both landlords and tenants are more likely to face possession claims than people wth a mortgage.

The figures are more startling when you consider that this does not include cases where an assured shorthold tenancy comes to an end and the landlord decides not to renew.

Figures broken down by type of landlord suggest that a rising proportion of possession claims are coming from private landlords. Second quarter claims by social landlords using the standard procedure were down slightly on a year ago. Claims by private landlords using the standard procedure were up slightly. However, claims under the accelerated procedure rose by 25 per cent to 7,765. The Ministry of Justice says these are by private landlords against tenants with assured shorthold tenancies but I think they include Ground 8 claims by housing associations too.

Social and private landlords both had slightly more claims leading to orders using the standard procedure in the second quarter than a year ago. Orders made using the accelerated procedure were up by 24 per cent.

The contrast between mortgage and landlord possessions also applies when you look back over a longer period.

Mortgage possession claims issued are down by 22 per cent since the election in the second quarter of 2010 and by 63 per cent since the depths of the financial crisis in the second quarter of 2008. Mortgage possession orders made are down by 16 per cent and 62 per cent.

Landlord possession claims issued and orders made are down 5 per cent and 3 per cent since 2008 but up by 10 per cent and 9 per cent since the election.

Before ministers congratulate themselves too much over the fall in the politically sensitive mortgage repossession statistics, they might want to take a look at this worrying rise in possession actions against tenants. And consider that the cuts in housing benefit introduced as part of the deficit reduction that supposedly cut mortgage repossessions have only just begun to bite.

Rise and fall

Fri, 10 Aug 2012

Behind the good news story of falling mortgage repossessions a different tale is starting to emerge of rising possession actions against tenants.

Figures published by the Council of Mortgage Lenders (CML) yesterday showed that its members repossessed 8,500 homes in the three months to June. That was the lowest quarterly total since the final quarter of 2010 and implies that the total for the year is likely to undershoot the CML’s forecast of 45,000.

Considering the grim forecasts made in the depths of the financial crisis, that is very good news indeed. A combination of record low interest rates, forbearance by lenders and reforms of legal procedures that led to a dramatic fall in possession actions in 2008 look the most likely explanations. However, that did not stop Grant Shapps from claiming that it was actually down to the government’s action to tackle the deficit.

Things look much less rosy for tenants. Separate figures produced by the Ministry of Justice show that, after falling every year bar one between 2002 and 2010, the number of landlord possession claims rose in 2011 and that the upward trend has continued in the first half of 2012. 

The second quarter saw 14,614 mortgage possession claims issued, a fall of 20 per cent on a year ago and a rate of 0.63 per 1,000 households. In contrast, landlords issued 34,554 possession claims, an increase of 4 per cent and a rate per 1,000 households that is two and a half times as high at 1.50.

Meanwhile there were 11,328 mortgage claims leading to possession orders made in the second quarter, a fall of 17 per cent and a rate of 0.49 per 1,000 households. That contrasts with 24,441 landlord claims leading to possession orders, an increase of 8 per cent and a rate of 1.06 per 1,000 households.

Mortgage possession orders made in the second quarter were down in every region of the country compared to a year ago. Landlord possession orders made fell in the North East and were unchanged in the West Midlands and the East, but rose everywhere else.

Landlord orders made rose 15 per cent in London (2.21 per 1,000 households) and by 21 per cent in Inner London (2.55). In contrast, mortgage orders made fell by 17 per cent in London (0.43) and 22 per cent in Inner London (0.31).

Is it just coincidence that London is the region most affected by the housing benefit cuts introduced so far? Or that the possession order made rate per 1,000 households is eight times higher for tenants in Inner London than it is for people with a mortgage?

The disparity also reflects structural changes in the housing market. As I report on my other blog, buy-to-let lending continues to rise remorselessly and landlords now account for one in eight of all outstanding mortgages. That has happened despite the fact that lenders are almost twice as likely to repossess a buy-to-let landlord (the repossession rate in the second quarter was 0.12 per cent) as they are an owner-occupier (0.7 per cent). Clearly both landlords and tenants are more likely to face possession claims than people wth a mortgage.

The figures are more startling when you consider that this does not include cases where an assured shorthold tenancy comes to an end and the landlord decides not to renew.

Figures broken down by type of landlord suggest that a rising proportion of possession claims are coming from private landlords. Second quarter claims by social landlords using the standard procedure were down slightly on a year ago. Claims by private landlords using the standard procedure were up slightly. However, claims under the accelerated procedure rose by 25 per cent to 7,765. The Ministry of Justice says these are by private landlords against tenants with assured shorthold tenancies but I think they include Ground 8 claims by housing associations too.

Social and private landlords both had slightly more claims leading to orders using the standard procedure in the second quarter than a year ago. Orders made using the accelerated procedure were up by 24 per cent.

The contrast between mortgage and landlord possessions also applies when you look back over a longer period.

Mortgage possession claims issued are down by 22 per cent since the election in the second quarter of 2010 and by 63 per cent since the depths of the financial crisis in the second quarter of 2008. Mortgage possession orders made are down by 16 per cent and 62 per cent.

Landlord possession claims issued and orders made are down 5 per cent and 3 per cent since 2008 but up by 10 per cent and 9 per cent since the election.

Before ministers congratulate themselves too much over the fall in the politically sensitive mortgage repossession statistics, they might want to take a look at this worrying rise in possession actions against tenants. And consider that the cuts in housing benefit introduced as part of the deficit reduction that supposedly cut mortgage repossessions have only just begun to bite.

Credit crunch

Wed, 8 Aug 2012

If the Devil is in the detail then he is dancing a jig around the regulations for the universal credit and the benefit cap.

Ok, I am exaggerating for effect but by how much? Take a look at the response (PDF here) from the Council of Mortgage Lenders (CML) to the consultation by the Social Security Advisory committee that closed on the opening day of the Olympics and you decide.

Many of the same points are being made by the CIH, NHF and others but they have an added impact coming from the organisation representing lenders that have invested £60 billion in social housing and cannot be easily dismissed by ministers as coming from the ‘housing industry’.

The CML accepts the time for debating the policy has passed and says it is encouraged by Lord Freud’s commitment not to implement the changes in a way that will undermine the financial viability of the sector.

But it warns: ‘We continue to be concerned that the combined effect of these changes…could be to destabilise landlords’ income streams with consequential impacts on lender and investor confidence in the sector as a whole, particularly the smaller to medium sized housing associations.’

It adds that the overall package of the universal credit plus other welfare reform and council tax benefit changes ‘could be disjointed and bring unintended consequences’.

And it criticises ‘the quality and limited extent of the impact assessments….which suggest only a patchy understanding of how the effects of this package will play out and take no account of how they will interact with other changes in welfare reform on the near horizon’.

Many people have highlighted the contradictions and the problems with the different elements of the package but the lenders have more reason than most to be concerned about the sector’s financial viability.

On the treatment of service charges, the CML warns that streamlining to just three eligible types ‘is a simplification too far and could leave landlords out of pocket with knock-on effects on their cash flow’. It is even concerned that shortfalls could impact on the maintenance of essential safety systems like fire detection and suppression and put homes at increased risk of damage and deterioration and mean landlords face hefty fines for health and safety failures. The DWP says there will be more detail in future guidance, but the CML ‘is concerned that vague specification in the regulations and reliance on guidance for this major cost element for landlords will ultimately lead to more charges being excluded than included’.

The same points are being made powerfully by charities running women’s refuges. Women’s Aid warns that the reduction in eligible service charges’ could  make refuges financially unsustainable and Refuge says this plus the impact of the benefit cap could result in the closure of its 297 refuges. Rhiannon Bury blogged yesterday about the continuing debate about the definition of ‘vulnerable’ and the imposition of the benefit cap.

On the bedroom tax, the CML is worried both about the regulations themselves and their implementation by landlords. It welcomes the fact that there is no prescriptive designation of what constitutes a bedroom but it is concerned about ‘widescale redesignation of properties of some properties in certain areas and the impact that this could have on landlord income’. It calls for a commitment from the DWP that the deduction rates will not be increased in the review of the operation of the size criteria.

It shares the concerns of the NHF that the definition of ‘exempt accommodation’ like supported and sheltered housing may exclude some schemes where support and care is provided separately and that this could ‘significantly undermine the viability of such schemes’.

What about others living in the ‘under-occupied’ home? Welfare reform minister Lord Freud has repeatedly pointed out that affected tenants could take in a lodger and that the universal credit regime will disregard their rent payment. However, the CML points out the absurdity that a tenant with a lodger will still be treated as an under-occupier: ‘it is slightly perverse that the claiming tenant should still be treated as under-occupying when an otherwise unused room is being let’. It also calls for clarity on the temporary absence rules: if students are away at college in term time but back in the holidays will there be a deduction when they are absent?

And how many people will really be affected? The number of people that the DWP estimates will lose their housing benefit entirely doubled from 20,000 in the first impact assessment in February 2011 to 40,000 in the latest in July 2012. ‘This all adds to unease in the sector (and which might also manifest in investor reticence) and an overall lack of confidence that government knows with certainty what the effect of measures such as this will be.’  Meanwhile the effect of the interaction of the benefit cap, the bedroom tax and rent direct ‘will be extremely difficult to predict and quantify’.

The CML says that all this uncertainty – different impacts in different areas, tensions between the DWP wanting to cut the benefit bill and the DCLG wanting associations to go for affordable rent and the fact that the results of demonstration projects and pathfinders will only be available after the regulations have been passed – leads to ‘lenders and investors in the sector viewing it as increasingly risky’ at a time when the government wants to build more affordable homes to stimulate growth.

It concludes that all the changes are so significant that the DWP needs to get them right from the outset. That will take more time than has been allowed and there are still ‘too many variables and too many blanks’ to be filled in later:

‘The social housing sector is an intricate machine; significant manipulation of policy and funding levers without fully understanding the potential impacts, is likely to cause major disruption to the way the sector works, both in terms of its ability to support its tenants and its ability to attract investment for development of new affordable housing.’

As the universal credit moves closer, the doubts about the details grow larger. There is still widespread concern about the impact of direct payment. The great prize is meant to be simplicity for claimants and clarity that they will always be better off in work. However, the CIH points out that even this is contradicted by the proposed abolition of extended payments for the long-term unemployed.

And all of that is before we get to the worries about whether the IT system will actually work. There is still time to find the devil in the detail but it is beginning to run out.

Credit crunch

Wed, 8 Aug 2012

If the Devil is in the detail then he is dancing a jig around the regulations for the universal credit and the benefit cap.

Ok, I am exaggerating for effect but by how much? Take a look at the response (PDF here) from the Council of Mortgage Lenders (CML) to the consultation by the Social Security Advisory committee that closed on the opening day of the Olympics and you decide.

Many of the same points are being made by the CIH, NHF and others but they have an added impact coming from the organisation representing lenders that have invested £60 billion in social housing and cannot be easily dismissed by ministers as coming from the ‘housing industry’.

The CML accepts the time for debating the policy has passed and says it is encouraged by Lord Freud’s commitment not to implement the changes in a way that will undermine the financial viability of the sector.

But it warns: ‘We continue to be concerned that the combined effect of these changes…could be to destabilise landlords’ income streams with consequential impacts on lender and investor confidence in the sector as a whole, particularly the smaller to medium sized housing associations.’

It adds that the overall package of the universal credit plus other welfare reform and council tax benefit changes ‘could be disjointed and bring unintended consequences’.

And it criticises ‘the quality and limited extent of the impact assessments….which suggest only a patchy understanding of how the effects of this package will play out and take no account of how they will interact with other changes in welfare reform on the near horizon’.

Many people have highlighted the contradictions and the problems with the different elements of the package but the lenders have more reason than most to be concerned about the sector’s financial viability.

On the treatment of service charges, the CML warns that streamlining to just three eligible types ‘is a simplification too far and could leave landlords out of pocket with knock-on effects on their cash flow’. It is even concerned that shortfalls could impact on the maintenance of essential safety systems like fire detection and suppression and put homes at increased risk of damage and deterioration and mean landlords face hefty fines for health and safety failures. The DWP says there will be more detail in future guidance, but the CML ‘is concerned that vague specification in the regulations and reliance on guidance for this major cost element for landlords will ultimately lead to more charges being excluded than included’.

The same points are being made powerfully by charities running women’s refuges. Women’s Aid warns that the reduction in eligible service charges’ could  make refuges financially unsustainable and Refuge says this plus the impact of the benefit cap could result in the closure of its 297 refuges. Rhiannon Bury blogged yesterday about the continuing debate about the definition of ‘vulnerable’ and the imposition of the benefit cap.

On the bedroom tax, the CML is worried both about the regulations themselves and their implementation by landlords. It welcomes the fact that there is no prescriptive designation of what constitutes a bedroom but it is concerned about ‘widescale redesignation of properties of some properties in certain areas and the impact that this could have on landlord income’. It calls for a commitment from the DWP that the deduction rates will not be increased in the review of the operation of the size criteria.

It shares the concerns of the NHF that the definition of ‘exempt accommodation’ like supported and sheltered housing may exclude some schemes where support and care is provided separately and that this could ‘significantly undermine the viability of such schemes’.

What about others living in the ‘under-occupied’ home? Welfare reform minister Lord Freud has repeatedly pointed out that affected tenants could take in a lodger and that the universal credit regime will disregard their rent payment. However, the CML points out the absurdity that a tenant with a lodger will still be treated as an under-occupier: ‘it is slightly perverse that the claiming tenant should still be treated as under-occupying when an otherwise unused room is being let’. It also calls for clarity on the temporary absence rules: if students are away at college in term time but back in the holidays will there be a deduction when they are absent?

And how many people will really be affected? The number of people that the DWP estimates will lose their housing benefit entirely doubled from 20,000 in the first impact assessment in February 2011 to 40,000 in the latest in July 2012. ‘This all adds to unease in the sector (and which might also manifest in investor reticence) and an overall lack of confidence that government knows with certainty what the effect of measures such as this will be.’  Meanwhile the effect of the interaction of the benefit cap, the bedroom tax and rent direct ‘will be extremely difficult to predict and quantify’.

The CML says that all this uncertainty – different impacts in different areas, tensions between the DWP wanting to cut the benefit bill and the DCLG wanting associations to go for affordable rent and the fact that the results of demonstration projects and pathfinders will only be available after the regulations have been passed – leads to ‘lenders and investors in the sector viewing it as increasingly risky’ at a time when the government wants to build more affordable homes to stimulate growth.

It concludes that all the changes are so significant that the DWP needs to get them right from the outset. That will take more time than has been allowed and there are still ‘too many variables and too many blanks’ to be filled in later:

‘The social housing sector is an intricate machine; significant manipulation of policy and funding levers without fully understanding the potential impacts, is likely to cause major disruption to the way the sector works, both in terms of its ability to support its tenants and its ability to attract investment for development of new affordable housing.’

As the universal credit moves closer, the doubts about the details grow larger. There is still widespread concern about the impact of direct payment. The great prize is meant to be simplicity for claimants and clarity that they will always be better off in work. However, the CIH points out that even this is contradicted by the proposed abolition of extended payments for the long-term unemployed.

And all of that is before we get to the worries about whether the IT system will actually work. There is still time to find the devil in the detail but it is beginning to run out.

Broken record

Mon, 6 Aug 2012

Even as the Olympics provide compelling evidence that Britain is not as broken as the government makes out, the anniversary of the riots is a reminder that it is not fixed either.

In the glow from the marvellous opening ceremony and the stellar performances of the athletes it’s easy to forget that we are a country in austerity and recession.  Perhaps that’s because we weren’t when we won the games and when the stadia and all the other facilities were funded.

The Olympics and the Paralympics that follow are like a holiday from the cuts, unemployment and welfare ‘reform’. The thousands of volunteers who are being hailed as a living embodiment of the Big Society are happily working for nothing for the common good rather than being made to work for nothing for private contractors. And the homes that will be built at the athletes village and on the Olympic park will be a lasting legacy of all that investment.

What a contrast with a year ago today when the riots and looting led to (depending on your point of view) either despair about the deprivation and inequality that lay behind them or anger at the feral, feckless youth who caused all the damage. As this blog argued at the time, the truth was always much more complex than the kneejerk calls to evict the families of rioters made out.

When the independent Riots Communities and Victims Panel delivered its final report to David Cameron, Nick Clegg and Ed Miliband in March, it concluded that the main lesson was that everyone, and especially young people, need to feel they have a stake in society. In contrast to the Broken Britain propaganda, it found limited overlap between the rioters and the government’s 120,000 ‘troubled families’ and called for more help for 500,000 ‘forgotten families’ to turn their lives around. A month before, Inside Housing’s Riot Report had highlighted the positive work being done by housing organisations all over the country.

So far the Olympics have been a powerful antidote to the negativity about Broken Britain. The opening ceremony was an inclusive celebration of multicultural Britain that delighted everyone apart from the odd Nazi uniform-wearing Tory MP and Daily Mail columnist. It gave us an optimistic vision of ourselves that most of us did not fully realise was there.

At the games themselves, there are the thousands of enthusiastic volunteers, many of them drawn from deprived communities around the Olympic Park. Give or take the odd bit of dodgy timekeeping in the fencing they really do seem to have been a success.

And then there are the athletes. At first we were regaled with stories of public school domination in sports like rowing. The only mention of social housing seemed to be as a launching pad for missiles. But medallists like Bradley Wiggins and Louis Smith (and previous ones like Dame Kelly Holmes and Liz McColgan) have shown that success comes from state schools too – and from council estates.

The games will have a strong housing legacy too. The athletes village will be converted into 2,800 mixed tenure homes including 1,479 that will be affordable. Of these, 675 will be for social rent, 354 for intermediate rent and 350 for shared ownership or shared equity.

Another 6,800 homes will be built in five neighbourhoods across the Olympic Park. Last week, the London Legacy Development Corporation appointed Taylor Wimpey and L&Q to build 870 homes in the first of them, Chobham Manor. Of these 28 per cent will be affordable and a community land trust could be part of the deal. In a real sense, as Ricky Burdett of the LSE (a former chief advisor to the Olympic Delivery Authority) argued last week, London is taking the first step to its Great Leap Eastwards.

As Gavriel Hollander reported in June, the athletes village is likely to be England’s last large-scale social housing development. The affordable homes in Chobham Manor and the rest of the park will of course be ‘affordable’. Residents of the Carpenters Estate on the periphery of the park say that its 500 council homes will be replaced by just 80 once it is demolished and redeveloped after the games. Newham will be using the Localism Act to prioritise people who are in employment or actively pursuing it for the new homes. No matter what you think of some of the detail, London 2012 will at least leave lots of homes behind.

However, when the glow of the Olympics and Paralympics wears off, cold reality will reassert itself and we will be back in the same austerity and recession as before. How long will it be before we hear the rhetoric about Broken Britain all over again? Are we prepared to do something about inequality? When senior police officers and politicians like Tottenham MP David Lammy tell is that ‘the conditions that led up to the riots still exist now’, are we really listening?

Broken record

Mon, 6 Aug 2012

Even as the Olympics provide compelling evidence that Britain is not as broken as the government makes out, the anniversary of the riots is a reminder that it is not fixed either.

In the glow from the marvellous opening ceremony and the stellar performances of the athletes it’s easy to forget that we are a country in austerity and recession.  Perhaps that’s because we weren’t when we won the games and when the stadia and all the other facilities were funded.

The Olympics and the Paralympics that follow are like a holiday from the cuts, unemployment and welfare ‘reform’. The thousands of volunteers who are being hailed as a living embodiment of the Big Society are happily working for nothing for the common good rather than being made to work for nothing for private contractors. And the homes that will be built at the athletes village and on the Olympic park will be a lasting legacy of all that investment.

What a contrast with a year ago today when the riots and looting led to (depending on your point of view) either despair about the deprivation and inequality that lay behind them or anger at the feral, feckless youth who caused all the damage. As this blog argued at the time, the truth was always much more complex than the kneejerk calls to evict the families of rioters made out.

When the independent Riots Communities and Victims Panel delivered its final report to David Cameron, Nick Clegg and Ed Miliband in March, it concluded that the main lesson was that everyone, and especially young people, need to feel they have a stake in society. In contrast to the Broken Britain propaganda, it found limited overlap between the rioters and the government’s 120,000 ‘troubled families’ and called for more help for 500,000 ‘forgotten families’ to turn their lives around. A month before, Inside Housing’s Riot Report had highlighted the positive work being done by housing organisations all over the country.

So far the Olympics have been a powerful antidote to the negativity about Broken Britain. The opening ceremony was an inclusive celebration of multicultural Britain that delighted everyone apart from the odd Nazi uniform-wearing Tory MP and Daily Mail columnist. It gave us an optimistic vision of ourselves that most of us did not fully realise was there.

At the games themselves, there are the thousands of enthusiastic volunteers, many of them drawn from deprived communities around the Olympic Park. Give or take the odd bit of dodgy timekeeping in the fencing they really do seem to have been a success.

And then there are the athletes. At first we were regaled with stories of public school domination in sports like rowing. The only mention of social housing seemed to be as a launching pad for missiles. But medallists like Bradley Wiggins and Louis Smith (and previous ones like Dame Kelly Holmes and Liz McColgan) have shown that success comes from state schools too – and from council estates.

The games will have a strong housing legacy too. The athletes village will be converted into 2,800 mixed tenure homes including 1,479 that will be affordable. Of these, 675 will be for social rent, 354 for intermediate rent and 350 for shared ownership or shared equity.

Another 6,800 homes will be built in five neighbourhoods across the Olympic Park. Last week, the London Legacy Development Corporation appointed Taylor Wimpey and L&Q to build 870 homes in the first of them, Chobham Manor. Of these 28 per cent will be affordable and a community land trust could be part of the deal. In a real sense, as Ricky Burdett of the LSE (a former chief advisor to the Olympic Delivery Authority) argued last week, London is taking the first step to its Great Leap Eastwards.

As Gavriel Hollander reported in June, the athletes village is likely to be England’s last large-scale social housing development. The affordable homes in Chobham Manor and the rest of the park will of course be ‘affordable’. Residents of the Carpenters Estate on the periphery of the park say that its 500 council homes will be replaced by just 80 once it is demolished and redeveloped after the games. Newham will be using the Localism Act to prioritise people who are in employment or actively pursuing it for the new homes. No matter what you think of some of the detail, London 2012 will at least leave lots of homes behind.

However, when the glow of the Olympics and Paralympics wears off, cold reality will reassert itself and we will be back in the same austerity and recession as before. How long will it be before we hear the rhetoric about Broken Britain all over again? Are we prepared to do something about inequality? When senior police officers and politicians like Tottenham MP David Lammy tell is that ‘the conditions that led up to the riots still exist now’, are we really listening?

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