Friday, 28 April 2017

Inside edge

All posts from: April 2013

Man on a mission

Tue, 30 Apr 2013

So can the Quiet Man with missionary zeal really deliver on the universal credit?

The policy regarded as (depending on your point of view) flagship reform or slow-motion train crash, started in a low-key way in Ashton-under-Lyne on Monday. So low key that, according to the Guardian, nobody turned up for help on the first day.

However, the internal battles over it revealed in Rachel Sylvester’s column in today’s Times (here for those with access) were anything but low key. She describes how Iain Duncan Smith  battled with civil servants, the Treasury and Downing Street to secure what he sees as a moral mission of ‘changing people’. One government source told her:

‘IDS has been an incredibly good minister and really determined to get this reform through, but he has been banging his head against official intransigence, lack of will and at times deception.’

Among the revelations (new to me at any rate):

  • The cabinet secretary Sir Jeremy Heywood waved around ‘blood-curdling warnings’ from the security services of the risk to public order if the system failed and benefits were not paid on time
  • The Treasury tried to kill it off with delaying tactics
  • IDS lost his temper when he heard a member of his team being berated by the Treasury. He apparently picked up the phone and shouted down the line: ‘If you ever speak to my officials like that again I’ll bite your balls off and send them to you in a box’.
  • IDS cancelled the pass giving the official responsible for welfare at the No 10 Policy Unit access to his department.

In Sylvester’s take on the universal credit, IDS is very much the upstanding hero and an example for David Cameron: ‘The prime minister needs to discover a similar missionary zeal.’ Paul Goodman has more on this plus an accusation that civil servants ‘lied’ to Duncan Smith at Conservative Home.

Of course it’s still possible that IDS will be proved right and the civil servants wrong. To me, though, this kind of moralising and the rows behind the scenes do not bode well for implementation.

The same moral overtones were evident in an interview that IDS gave to the Telegraph over the weekend. It was interesting that he identified the ‘big cultural change’ at the heart of the universal credit not as simplicity, transparency or making work pay but as the ‘claim of commitment’ that claimants will have to sign pledging to make themselves available for work, go to interviews, take the first job that becomes available and ‘work hard’.

That conditionality – which will apply for the first time to people working part-time who will have a responsibility to look for extra hours – will be backed by sanctions that could include losing your benefit for up to three years. According to IDS:

‘People will know from day one, for the first time ever, what’s expected of them. They’ll have a sheet of paper which is their contract…. We want to say to people, you’re claiming unemployment benefit but you’re actually in work paid for by the state: you’re in work to find work. That’s your job from now on: to find work.’

Exactly how quickly the universal credit moves from a few hundred of the simplest cases in one town in Lancashire to apply to everyone remains to be seen. It seems a fair bet that the supposed start of the universal credit proper in October will be put back to allow the pathfinders and pilots more time. That could be taken as a perfectly sensible way of avoiding a repeat of the problems with big-bang changes to housing benefit in the 1980s but for the zeal with which IDS embraces each new delay as proof that he was right all along.

In the meantime there are any number of practical concerns about the new credit. On a technical level, will it work at all given the government’s dismal track record with major IT projects? Is it a good idea to introduce such a major change to ‘make work pay’ at a time when there is so little work around?

Even if the answer to both of those questions is yes, there are more practical worries. As a briefing by the Social Market Foundation explains, it will create losers as well as winners, it will improve work incentives for some but worsen them for others and there are concerns about how it will interact with council tax support and free school meals. Put that way you have to wonder whether the net change in culture will really be as great as is being made out.

Even if it is, there are major concerns about how it will be administered: the impact of paying it monthly, paying it to a single member of the household and dealing with all claims online. And then there is the major concern for landlords and tenants: the payment of the housing element direct to the tenant except in the case of ill-defined ‘vulnerable’ claimants. The evidence from the direct payment pathfinders so far suggests that an increase in rent arrears and evictions is inevitable.

All of these – plus the advisability of introducing such a huge change in the middle of a recession – are practical policy considerations that were no doubt raised by some of the civil servants that IDS saw as so obstructive. For housing organisations, they will be matched by a long-term worry that once housing costs are paid out through one credit it will become much easier to detach them from the rents that tenants actually pay. Meanwhile direct payment will mean that any cut to any element of the universal credit will mean potential rent arrears.

Finally, however, I wonder what the end result of all that cultural change will be. IDS seems to believe that the layabouts and scroungers will rediscover their moral purpose and work ethic – and that the lessons he learned on the Road to Easterhouse mean he will save them from themselves and a life of benefit dependency.

But things may look very different to the potential converts. The conditionality and sanctions attached to the universal credit mean there will be a risk of many people being denied part or all of their benefit for months or even years. What will the long-term impact of that be on tenants, communities and landlords?

The original missionaries of the 19th and early 20th centuries went out to Africa and China filled with religious conviction that there were souls to be converted and saved and free from any doubts that what they were doing might be morally dubious.

As 21st century claimants await their salvation, is it too much to hope for a little more administrative and IT expertise and competence and a little less missionary zeal?

Man on a mission

Tue, 30 Apr 2013

So can the Quiet Man with missionary zeal really deliver on the universal credit?

The policy regarded as (depending on your point of view) flagship reform or slow-motion train crash, started in a low-key way in Ashton-under-Lyne on Monday. So low key that, according to the Guardian, nobody turned up for help on the first day.

However, the internal battles over it revealed in Rachel Sylvester’s column in today’s Times (here for those with access) were anything but low key. She describes how Iain Duncan Smith  battled with civil servants, the Treasury and Downing Street to secure what he sees as a moral mission of ‘changing people’. One government source told her:

‘IDS has been an incredibly good minister and really determined to get this reform through, but he has been banging his head against official intransigence, lack of will and at times deception.’

Among the revelations (new to me at any rate):

  • The cabinet secretary Sir Jeremy Heywood waved around ‘blood-curdling warnings’ from the security services of the risk to public order if the system failed and benefits were not paid on time
  • The Treasury tried to kill it off with delaying tactics
  • IDS lost his temper when he heard a member of his team being berated by the Treasury. He apparently picked up the phone and shouted down the line: ‘If you ever speak to my officials like that again I’ll bite your balls off and send them to you in a box’.
  • IDS cancelled the pass giving the official responsible for welfare at the No 10 Policy Unit access to his department.

In Sylvester’s take on the universal credit, IDS is very much the upstanding hero and an example for David Cameron: ‘The prime minister needs to discover a similar missionary zeal.’ Paul Goodman has more on this plus an accusation that civil servants ‘lied’ to Duncan Smith at Conservative Home.

Of course it’s still possible that IDS will be proved right and the civil servants wrong. To me, though, this kind of moralising and the rows behind the scenes do not bode well for implementation.

The same moral overtones were evident in an interview that IDS gave to the Telegraph over the weekend. It was interesting that he identified the ‘big cultural change’ at the heart of the universal credit not as simplicity, transparency or making work pay but as the ‘claim of commitment’ that claimants will have to sign pledging to make themselves available for work, go to interviews, take the first job that becomes available and ‘work hard’.

That conditionality – which will apply for the first time to people working part-time who will have a responsibility to look for extra hours – will be backed by sanctions that could include losing your benefit for up to three years. According to IDS:

‘People will know from day one, for the first time ever, what’s expected of them. They’ll have a sheet of paper which is their contract…. We want to say to people, you’re claiming unemployment benefit but you’re actually in work paid for by the state: you’re in work to find work. That’s your job from now on: to find work.’

Exactly how quickly the universal credit moves from a few hundred of the simplest cases in one town in Lancashire to apply to everyone remains to be seen. It seems a fair bet that the supposed start of the universal credit proper in October will be put back to allow the pathfinders and pilots more time. That could be taken as a perfectly sensible way of avoiding a repeat of the problems with big-bang changes to housing benefit in the 1980s but for the zeal with which IDS embraces each new delay as proof that he was right all along.

In the meantime there are any number of practical concerns about the new credit. On a technical level, will it work at all given the government’s dismal track record with major IT projects? Is it a good idea to introduce such a major change to ‘make work pay’ at a time when there is so little work around?

Even if the answer to both of those questions is yes, there are more practical worries. As a briefing by the Social Market Foundation explains, it will create losers as well as winners, it will improve work incentives for some but worsen them for others and there are concerns about how it will interact with council tax support and free school meals. Put that way you have to wonder whether the net change in culture will really be as great as is being made out.

Even if it is, there are major concerns about how it will be administered: the impact of paying it monthly, paying it to a single member of the household and dealing with all claims online. And then there is the major concern for landlords and tenants: the payment of the housing element direct to the tenant except in the case of ill-defined ‘vulnerable’ claimants. The evidence from the direct payment pathfinders so far suggests that an increase in rent arrears and evictions is inevitable.

All of these – plus the advisability of introducing such a huge change in the middle of a recession – are practical policy considerations that were no doubt raised by some of the civil servants that IDS saw as so obstructive. For housing organisations, they will be matched by a long-term worry that once housing costs are paid out through one credit it will become much easier to detach them from the rents that tenants actually pay. Meanwhile direct payment will mean that any cut to any element of the universal credit will mean potential rent arrears.

Finally, however, I wonder what the end result of all that cultural change will be. IDS seems to believe that the layabouts and scroungers will rediscover their moral purpose and work ethic – and that the lessons he learned on the Road to Easterhouse mean he will save them from themselves and a life of benefit dependency.

But things may look very different to the potential converts. The conditionality and sanctions attached to the universal credit mean there will be a risk of many people being denied part or all of their benefit for months or even years. What will the long-term impact of that be on tenants, communities and landlords?

The original missionaries of the 19th and early 20th centuries went out to Africa and China filled with religious conviction that there were souls to be converted and saved and free from any doubts that what they were doing might be morally dubious.

As 21st century claimants await their salvation, is it too much to hope for a little more administrative and IT expertise and competence and a little less missionary zeal?

Letting go

Fri, 26 Apr 2013

Things are slowly changing for the better for tenants in the private rented sector. It’s about time.

A series of small but significant things have happened over the last couple of weeks that suggest that even the government is waking up to the fact that it cannot continue to leave customers of a multi-billion pound industry to fend for themselves.

Ever since 1988, when the Thatcher government deregulated the sector and introduced assured shorthold tenancies, the orthodoxy has been that government should keep out of private renting. That continued largely unchanged under Labour. Some modest changes proposed in the Rugg Review, including regulation of letting agents, were overtaken by the 2010 election and then airily dismissed as ‘red tape’ by former housing minister Grant Shapps:

‘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.’

However, as the sector (and the housing benefit bill) continued its rapid expansion that position looked increasingly untenable. The case for more protection for tenants was being made not just by the usual suspects but by trade organisations like the RICS and British Property Federation (BPF). The Communities and Local Government committee is in the middle of an inquiry on the sector. The Labour Party toughened its position.  And a report from the Office of Fair Trading in February highlighted a growing number of consumer complaints.

However, while the government has done plenty on investment in private renting and new supply, ministers continued to resist greater protection for tenants, arguing that existing regulations are enough. That all changed earlier this month when the House of Lords passed an amendment to the Enterprise and Regulatory Reform Bill extending consumer protection against estate agents to letting and managing agents as well. For more on the background on all this, see this House of Commons Library briefing note.

The government overturned the vote in the Commons but introduced its own amendment requiring letting and managing agents to sign up to a recognised ombudsman scheme to give tenants and landlords access to a complaints system. It’s a modest proposal that does not go far enough for reputable agents and the RICS and BPF, let alone tenants, but it still a major shift on the ‘no more red tape’ position adopted by Shapps.

(I should add that I am talking about England here. Scotland already has tighter regulation, for example on letting agent fees, while Wales is poised to implement a system based on the Rugg proposals and reform tenancies based on Law Commission recommendations.)

This week saw another positive development when Genesis, one of several housing associations that are expanding into private renting, announced plans to offer tenancies of up to five years with yearly agreed rent increases. It may be only one landlord but that’s a major step forward on the private rented norm of six-month tenancies and unpredictable rent hikes. As Robbie de Santos blogs for Shelter, stable renting and longer tenancies are the future – and that should start with the 10,000 homes that will be built under the £1 billion build to rent fund too

With London rents rising eight times faster than wages to reach yet another record high, the pressure for change can only grow. Good landlords and agents understand this and know that a more stable industry that treats its customers better can be good for them too. They also know that if change does not come, or does not come fast enough, support for more radical options will increase. 

For one example of that, see Labour MP Jeremy Corbyn’s Regulation of the Private Rented Sector Bill that is due for a second reading debate in the Commons today. As a private members bill not supported by the government it stands little chance of becoming law but his agenda of secure five-year tenancies, fair rents and greater protection for tenants is gaining in support.

For another example, see the day of action against high rents and letting agent fees planned by tenants themselves in London tomorrow. For more information on a singalong in Herne Hill, community housing inspections in Haringey and Brixton and a Monopoly-themed tour of letting agents at The Angel, Islington see the Let Down blog.

The changes in the private rented sector may be minor so far but as tenants get more organised there are at last things apart from their rents that are starting to look up. 

Letting go

Fri, 26 Apr 2013

Things are slowly changing for the better for tenants in the private rented sector. It’s about time.

A series of small but significant things have happened over the last couple of weeks that suggest that even the government is waking up to the fact that it cannot continue to leave customers of a multi-billion pound industry to fend for themselves.

Ever since 1988, when the Thatcher government deregulated the sector and introduced assured shorthold tenancies, the orthodoxy has been that government should keep out of private renting. That continued largely unchanged under Labour. Some modest changes proposed in the Rugg Review, including regulation of letting agents, were overtaken by the 2010 election and then airily dismissed as ‘red tape’ by former housing minister Grant Shapps:

‘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.’

However, as the sector (and the housing benefit bill) continued its rapid expansion that position looked increasingly untenable. The case for more protection for tenants was being made not just by the usual suspects but by trade organisations like the RICS and British Property Federation (BPF). The Communities and Local Government committee is in the middle of an inquiry on the sector. The Labour Party toughened its position.  And a report from the Office of Fair Trading in February highlighted a growing number of consumer complaints.

However, while the government has done plenty on investment in private renting and new supply, ministers continued to resist greater protection for tenants, arguing that existing regulations are enough. That all changed earlier this month when the House of Lords passed an amendment to the Enterprise and Regulatory Reform Bill extending consumer protection against estate agents to letting and managing agents as well. For more on the background on all this, see this House of Commons Library briefing note.

The government overturned the vote in the Commons but introduced its own amendment requiring letting and managing agents to sign up to a recognised ombudsman scheme to give tenants and landlords access to a complaints system. It’s a modest proposal that does not go far enough for reputable agents and the RICS and BPF, let alone tenants, but it still a major shift on the ‘no more red tape’ position adopted by Shapps.

(I should add that I am talking about England here. Scotland already has tighter regulation, for example on letting agent fees, while Wales is poised to implement a system based on the Rugg proposals and reform tenancies based on Law Commission recommendations.)

This week saw another positive development when Genesis, one of several housing associations that are expanding into private renting, announced plans to offer tenancies of up to five years with yearly agreed rent increases. It may be only one landlord but that’s a major step forward on the private rented norm of six-month tenancies and unpredictable rent hikes. As Robbie de Santos blogs for Shelter, stable renting and longer tenancies are the future – and that should start with the 10,000 homes that will be built under the £1 billion build to rent fund too

With London rents rising eight times faster than wages to reach yet another record high, the pressure for change can only grow. Good landlords and agents understand this and know that a more stable industry that treats its customers better can be good for them too. They also know that if change does not come, or does not come fast enough, support for more radical options will increase. 

For one example of that, see Labour MP Jeremy Corbyn’s Regulation of the Private Rented Sector Bill that is due for a second reading debate in the Commons today. As a private members bill not supported by the government it stands little chance of becoming law but his agenda of secure five-year tenancies, fair rents and greater protection for tenants is gaining in support.

For another example, see the day of action against high rents and letting agent fees planned by tenants themselves in London tomorrow. For more information on a singalong in Herne Hill, community housing inspections in Haringey and Brixton and a Monopoly-themed tour of letting agents at The Angel, Islington see the Let Down blog.

The changes in the private rented sector may be minor so far but as tenants get more organised there are at last things apart from their rents that are starting to look up. 

Debating downsizing

Wed, 24 Apr 2013

So it turns out that the Daily Mash has the answer to the housing crisis: build more bungalows but make them stackable.

As ever, Policy Exchange has succeeded in identifying a problem – the distribution of housing between old and young - and coming up with a media-friendly solution that sees planning as the villain of the piece. The ‘return of the bungalow’ for elderly downsizers has duly made all the headlines this week.

The problem with bungalows – and the reason why so few are now built - is that they don’t make financial sense in areas with high land prices where the affordability crisis is most acute. No housebuilder or housing association in their right mind would use scarce and expensive land in such an inefficient way. Existing bungalows tend to cost more than bigger terraced homes but only because of the potential to knock them down and redevelop their large plots. As the RIBA revealed yesterday, the average new-build one-bedroom home is now not the size of a spacious bungalow with a garden but of a London tube train carriage.

For Policy Exchange the cost of land – and the size of homes - is the result of the restrictive planning system introduced in 1947. So why not remove the restrictions and give more say to local communities but give them an incentive to approve new development because it’s what people want, in this case bungalows? If only it was so simple. Land ownership and taxation may just come into the equation (as Winston Churchill was arguing long before 1947) and planning is a way of making decisions about land use in a democratic society.

It reminds me of a plan put forward by Alfred Sherman of the Centre for Policy Studies, the think tank that was as much a favourite of Margaret Thatcher in the 1980s as Policy Exchange is of David Cameron now. Sherman wanted to concrete over the Birmingham to London Marylebone train line and turn it into a motorway. Only when cartoons appeared suggesting that perhaps the cars could be coupled together so that you only needed one driver did the full lunacy of the idea become clear. For coupled cars, think stacked bungalows (though, to its credit, Policy Exchange tweeted the Daily Mash link). In housing, as in transport, the free market and deregulation cannot solve everything.

However, all the publicity about bungalows has drawn attention to the vital issue of housing and inter-generational fairness. This is addressed both by Policy Exchange and the Fabian Society in think pieces for Hanover Housing’s 50th birthday debate. Another eight think tanks are due to publish their thoughts over the next two months.

Policy Exchange sets a scene in which home ownership is expanding among the elderly and shrinking among the young, who can only afford to buy with help from homeowning family. Housing wealth is fuelling inequality that is ‘dangerous both politically and economically above a certain level’. That is as much a concern for the right – because ‘it destroys the aspiration and opportunity that provide the moral backbone of Tory thought’ – as it is for the left.

This is far more than just a housing problem. Policy Exchange argues that high house prices could be driving a brain drain of the brightest young people from Britain even as it discourages the brightest coming from abroad to work here. In the end, the result could be ‘social and economic disaster’.

The solution, it argues, could be ‘a grand bargain’ housing. Much of this is familiar from countless other PX reports that have argued for liberalising the ‘dysfunctional planning system’ to allow enough new homes to be built to bring down, or at least stabilise, house prices. That means dealing with ‘the local issues that make reasonable people into NIMBYs’. Why not build the bungalows that elderly people tell opinion polls they like to enable them to downsize from their 25 million spare bedrooms?

The Fabians also call for a ‘grand bargain’ though theirs is based on tax as well as new homes and is much more connected to the debate about austerity and the way that pensioners have been protected from cuts so far. Governments should pursue policies to meet an affordability target for first homes, they argue, including increasing supply and taxing property wealth to suppress rises in asset prices. Options might include a land value tax or replacing council tax with an annual property tax that could be a charge against the property of older households but only payable when they sell.

Despite the obvious precedent of the bedroom tax politicians of all parties are likely to view that with some caution given that older people are more likely to vote than the young and that they grey vote is rising as a proportion of the electorate. However, to go with that stick, the Fabians say better options for downsizing need to be developed to provide homes that people want to move to. That might mean better models of equity release or housing providers developing new models for homeowners in mixed tenure communities.

As the population ages and home ownership continues to shrink among younger people, the issues raised in the two reports are only going to grow in importance. Some of them will be highly controversial (as coverage of a report by the Intergenerational Foundation showed in 2011) but there are already proposals out there for what to do next. See the Housing our Ageing Population: Panel for Innovation (HAPPI) report from 2009 and the update on progress on that from Lord Best’s All-Party Parliamentary Group on Housing and Care published in February. That showed how good design can challenge preconceptions of housing for older people and deliver homes that they want but also highlighted the financial insecurities that are hampering progress.

Solutions are required urgently and Hanover, Policy Exchange and the Fabians have given new impetus to the debate. If bungalows achieve nothing else at least they have got people talking. 

Debating downsizing

Wed, 24 Apr 2013

So it turns out that the Daily Mash has the answer to the housing crisis: build more bungalows but make them stackable.

As ever, Policy Exchange has succeeded in identifying a problem – the distribution of housing between old and young - and coming up with a media-friendly solution that sees planning as the villain of the piece. The ‘return of the bungalow’ for elderly downsizers has duly made all the headlines this week.

The problem with bungalows – and the reason why so few are now built - is that they don’t make financial sense in areas with high land prices where the affordability crisis is most acute. No housebuilder or housing association in their right mind would use scarce and expensive land in such an inefficient way. Existing bungalows tend to cost more than bigger terraced homes but only because of the potential to knock them down and redevelop their large plots. As the RIBA revealed yesterday, the average new-build one-bedroom home is now not the size of a spacious bungalow with a garden but of a London tube train carriage.

For Policy Exchange the cost of land – and the size of homes - is the result of the restrictive planning system introduced in 1947. So why not remove the restrictions and give more say to local communities but give them an incentive to approve new development because it’s what people want, in this case bungalows? If only it was so simple. Land ownership and taxation may just come into the equation (as Winston Churchill was arguing long before 1947) and planning is a way of making decisions about land use in a democratic society.

It reminds me of a plan put forward by Alfred Sherman of the Centre for Policy Studies, the think tank that was as much a favourite of Margaret Thatcher in the 1980s as Policy Exchange is of David Cameron now. Sherman wanted to concrete over the Birmingham to London Marylebone train line and turn it into a motorway. Only when cartoons appeared suggesting that perhaps the cars could be coupled together so that you only needed one driver did the full lunacy of the idea become clear. For coupled cars, think stacked bungalows (though, to its credit, Policy Exchange tweeted the Daily Mash link). In housing, as in transport, the free market and deregulation cannot solve everything.

However, all the publicity about bungalows has drawn attention to the vital issue of housing and inter-generational fairness. This is addressed both by Policy Exchange and the Fabian Society in think pieces for Hanover Housing’s 50th birthday debate. Another eight think tanks are due to publish their thoughts over the next two months.

Policy Exchange sets a scene in which home ownership is expanding among the elderly and shrinking among the young, who can only afford to buy with help from homeowning family. Housing wealth is fuelling inequality that is ‘dangerous both politically and economically above a certain level’. That is as much a concern for the right – because ‘it destroys the aspiration and opportunity that provide the moral backbone of Tory thought’ – as it is for the left.

This is far more than just a housing problem. Policy Exchange argues that high house prices could be driving a brain drain of the brightest young people from Britain even as it discourages the brightest coming from abroad to work here. In the end, the result could be ‘social and economic disaster’.

The solution, it argues, could be ‘a grand bargain’ housing. Much of this is familiar from countless other PX reports that have argued for liberalising the ‘dysfunctional planning system’ to allow enough new homes to be built to bring down, or at least stabilise, house prices. That means dealing with ‘the local issues that make reasonable people into NIMBYs’. Why not build the bungalows that elderly people tell opinion polls they like to enable them to downsize from their 25 million spare bedrooms?

The Fabians also call for a ‘grand bargain’ though theirs is based on tax as well as new homes and is much more connected to the debate about austerity and the way that pensioners have been protected from cuts so far. Governments should pursue policies to meet an affordability target for first homes, they argue, including increasing supply and taxing property wealth to suppress rises in asset prices. Options might include a land value tax or replacing council tax with an annual property tax that could be a charge against the property of older households but only payable when they sell.

Despite the obvious precedent of the bedroom tax politicians of all parties are likely to view that with some caution given that older people are more likely to vote than the young and that they grey vote is rising as a proportion of the electorate. However, to go with that stick, the Fabians say better options for downsizing need to be developed to provide homes that people want to move to. That might mean better models of equity release or housing providers developing new models for homeowners in mixed tenure communities.

As the population ages and home ownership continues to shrink among younger people, the issues raised in the two reports are only going to grow in importance. Some of them will be highly controversial (as coverage of a report by the Intergenerational Foundation showed in 2011) but there are already proposals out there for what to do next. See the Housing our Ageing Population: Panel for Innovation (HAPPI) report from 2009 and the update on progress on that from Lord Best’s All-Party Parliamentary Group on Housing and Care published in February. That showed how good design can challenge preconceptions of housing for older people and deliver homes that they want but also highlighted the financial insecurities that are hampering progress.

Solutions are required urgently and Hanover, Policy Exchange and the Fabians have given new impetus to the debate. If bungalows achieve nothing else at least they have got people talking. 

Beyond help

Sun, 21 Apr 2013

It’s hard to remember a more damning select committee report than the one just published on Help to Buy – and it has not even started yet.

You don’t even have to read between the lines of the Treasury committee report on the Budget to detect its doubts about a policy announced by chancellor George Osborne last month. It leaves him with a string of questions about how it will work and a list of concerns about unintended consequences.

The critical report will only add to wider concern about Help to Buy. Even before its launch home sellers already seem to be raising their asking prices, analysts say housebuilding shares are set for further gains and wealthy and even foreign home buyers are looking into how they can take advantage. As Alex Marsh points out on his blog, it’s never a good sign when the only people supporting a policy are those that stand to benefit from it (in this case housebuilders and mortgage lenders).

Government intervention in the housing market is nothing new of course. In the UK, mortgage interest tax relief subsidised home owners right up to 2000 and most previous governments have introduced limited schemes to support ownership. However, the Help to Buy equity loan and mortgage guarantee schemes will be worth £15.5 billion over three years from January 2014. That step change in scale has led many to compare them to the American institutions Fannie Mae and Freddie Mac, which both had to be bailed out by the government after the financial crisis. For more on the UK/US comparison, see this piece by Jim Pickard in the Financial Times.

A key concern for the committee is that – as in the United States - the government will find it very hard to get out of Help to Buy once it has started. Any extension will require the approval of the Bank of England’s new Financial Policy Committee (FPC) but, as the all-party committee of MPs points out, even raising that as a possibility creates an element of doubt about the temporary nature of the scheme. They say ‘it is not clear that, given its remit, the FPC is best-placed to take this decision, nor that the decision should be out-sourced at all’.

Osborne’s justification for the mortgage guarantee scheme is that it ‘corrects a market failure’: the reduction in high loan-to-value mortgage lending and associated reduction in the number of first-time buyers. The MPs directly contradict that:

‘Our concern is that, should the current scarcity of high loan-to-value mortgages reflect structural rather than cyclical factors, the pressure for Government to extend the scheme in three years time will be immense. The unintended and unwelcome outcome could well be that a scheme designed to deal with a supposedly temporary problem in the UK housing market becomes a permanent feature of the UK housing market.’

They express doubts both about the principle of the scheme and the mechanism that is meant to cover the taxpayer for losses:

‘The appropriateness of the taxpayer amassing contingent liabilities in this way needs careful scrutiny. The Chancellor says that expected losses under the scheme will be covered by the commercial fee charged to participating lenders. No details of the proposed level of the fee nor how it will be structured in practice are yet available. Nor has a date been given.’

And they are worried too about the impact of the government becoming ‘an active player in the mortgage market’. Politically and economically, ‘the committee is concerned that the Treasury now has a financial interest in maintaining house prices to limit losses to the taxpayer.’ Financially:

‘There is a risk that if mortgage lenders begin to exercise reduced levels of forbearance, repossessions may rise and house prices subsequently be lower than they would otherwise. If this happened, and unless this risk was fully priced into the fee, then the Treasury could end up facing large losses on those mortgages it has guaranteed.’

In terms of the housing market impact, much depends on whether you believe that house prices are over-valued. If so, the scheme may just increase demand at a time when supply is constrained and boost house prices. As the committee puts it:

‘It is by no means clear that a scheme, whose primary outcome may be to support house prices, will ultimately be in the interests of first time buyers. This is the group the Government says it wants to help.’

The MPs are also severely sceptical about the claim by Osborne that Help to Buy will boost the supply of new homes. The chancellor told them that  ‘the positive reaction from the builders suggests that this will happen’ and that boosting mortgage demand would generate a supply response. However, the report goes on:

‘The committee finds the Chancellor’s assertion that increased demand for home ownership and rising prices, resulting from the mortgage guarantee scheme, will trigger a corresponding supply response, unconvincing, at least for the short term. In the longer-term there may be an effect. This would be likely in a well-functioning market. However, the housing market contains severe supply constraints… Overall, though, if the Government’s priority was housing supply, its housing measures should have concentrated there.’

Meanwhile it is still not clear whether the mortgage guarantee element will be open to owners of second homes or not. Osborne told the committee that he did not want to rule out ‘cases where people have two mortgages, not because they want a second home but because their family is breaking up, they are moving job’. In a damning verdict both for him and for Treasury civil servants, the committee says this lack of clarity ‘is a reflection of the need to think schemes through carefully before announcing them’. They argue:

‘We struggle to see the rationale for the taxpayer to stand behind loans for people wishing to own a second property, especially given that the Chancellor has repeatedly stated that the scheme is primarily designed to help people onto the property ladder as well as those who wish to move property.’

Damning select committee reports on the failure of government policies are nothing new. What makes this one different is not so much that it comes from a committee chaired by a Conservative MP (Andrew Tyrie) but that it is being published before the policy has even been implemented. Normally committees publish reports on fiascos after the event but Help to Buy is barely off the drawing board.

However, that is perhaps the point. The housing section of the report ends with 17 ‘questions that require answers to allay concerns that the scheme may have unintended and unwelcome consequences’. Questions such as the impact on house prices, the likely supply response and the level of the fee to be paid to be lenders are all ones that you might reasonably have expected the Treasury to ask – and answer – before it announced the policy. That the committee is raising them at all speaks volumes about its confidence in Help to Buy.

There are many other questions that could be asked too. For example, why is the government replacing schemes reserved for first-time buyers (FirstBuy) and new-build homes (NewBuy) with ones that are available to anyone if its supposed priorities are people trying to get on the housing ladder and new supply? And why has it suddenly decided to take on all of the risk of the mortgage guarantee when under NewBuy it was shared with housebuilders? Say what you like about those previous policies but at least they targeted the help where the government believed it was needed rather than giving a boost to the entire market.

However, perhaps it is wrong to judge Help to Buy as a housing policy at all. Regardless of the long-term consequences for house prices and the dangers of too much government involvement, every additional home sale after January 2014 generates more consumer spending and creates a satisfied buyer and seller. An improving economy by, say, May 2015 is just what the government needs politically. That is surely the point for George Osborne.

Beyond help

Sun, 21 Apr 2013

It’s hard to remember a more damning select committee report than the one just published on Help to Buy – and it has not even started yet.

You don’t even have to read between the lines of the Treasury committee report on the Budget to detect its doubts about a policy announced by chancellor George Osborne last month. It leaves him with a string of questions about how it will work and a list of concerns about unintended consequences.

The critical report will only add to wider concern about Help to Buy. Even before its launch home sellers already seem to be raising their asking prices, analysts say housebuilding shares are set for further gains and wealthy and even foreign home buyers are looking into how they can take advantage. As Alex Marsh points out on his blog, it’s never a good sign when the only people supporting a policy are those that stand to benefit from it (in this case housebuilders and mortgage lenders).

Government intervention in the housing market is nothing new of course. In the UK, mortgage interest tax relief subsidised home owners right up to 2000 and most previous governments have introduced limited schemes to support ownership. However, the Help to Buy equity loan and mortgage guarantee schemes will be worth £15.5 billion over three years from January 2014. That step change in scale has led many to compare them to the American institutions Fannie Mae and Freddie Mac, which both had to be bailed out by the government after the financial crisis. For more on the UK/US comparison, see this piece by Jim Pickard in the Financial Times.

A key concern for the committee is that – as in the United States - the government will find it very hard to get out of Help to Buy once it has started. Any extension will require the approval of the Bank of England’s new Financial Policy Committee (FPC) but, as the all-party committee of MPs points out, even raising that as a possibility creates an element of doubt about the temporary nature of the scheme. They say ‘it is not clear that, given its remit, the FPC is best-placed to take this decision, nor that the decision should be out-sourced at all’.

Osborne’s justification for the mortgage guarantee scheme is that it ‘corrects a market failure’: the reduction in high loan-to-value mortgage lending and associated reduction in the number of first-time buyers. The MPs directly contradict that:

‘Our concern is that, should the current scarcity of high loan-to-value mortgages reflect structural rather than cyclical factors, the pressure for Government to extend the scheme in three years time will be immense. The unintended and unwelcome outcome could well be that a scheme designed to deal with a supposedly temporary problem in the UK housing market becomes a permanent feature of the UK housing market.’

They express doubts both about the principle of the scheme and the mechanism that is meant to cover the taxpayer for losses:

‘The appropriateness of the taxpayer amassing contingent liabilities in this way needs careful scrutiny. The Chancellor says that expected losses under the scheme will be covered by the commercial fee charged to participating lenders. No details of the proposed level of the fee nor how it will be structured in practice are yet available. Nor has a date been given.’

And they are worried too about the impact of the government becoming ‘an active player in the mortgage market’. Politically and economically, ‘the committee is concerned that the Treasury now has a financial interest in maintaining house prices to limit losses to the taxpayer.’ Financially:

‘There is a risk that if mortgage lenders begin to exercise reduced levels of forbearance, repossessions may rise and house prices subsequently be lower than they would otherwise. If this happened, and unless this risk was fully priced into the fee, then the Treasury could end up facing large losses on those mortgages it has guaranteed.’

In terms of the housing market impact, much depends on whether you believe that house prices are over-valued. If so, the scheme may just increase demand at a time when supply is constrained and boost house prices. As the committee puts it:

‘It is by no means clear that a scheme, whose primary outcome may be to support house prices, will ultimately be in the interests of first time buyers. This is the group the Government says it wants to help.’

The MPs are also severely sceptical about the claim by Osborne that Help to Buy will boost the supply of new homes. The chancellor told them that  ‘the positive reaction from the builders suggests that this will happen’ and that boosting mortgage demand would generate a supply response. However, the report goes on:

‘The committee finds the Chancellor’s assertion that increased demand for home ownership and rising prices, resulting from the mortgage guarantee scheme, will trigger a corresponding supply response, unconvincing, at least for the short term. In the longer-term there may be an effect. This would be likely in a well-functioning market. However, the housing market contains severe supply constraints… Overall, though, if the Government’s priority was housing supply, its housing measures should have concentrated there.’

Meanwhile it is still not clear whether the mortgage guarantee element will be open to owners of second homes or not. Osborne told the committee that he did not want to rule out ‘cases where people have two mortgages, not because they want a second home but because their family is breaking up, they are moving job’. In a damning verdict both for him and for Treasury civil servants, the committee says this lack of clarity ‘is a reflection of the need to think schemes through carefully before announcing them’. They argue:

‘We struggle to see the rationale for the taxpayer to stand behind loans for people wishing to own a second property, especially given that the Chancellor has repeatedly stated that the scheme is primarily designed to help people onto the property ladder as well as those who wish to move property.’

Damning select committee reports on the failure of government policies are nothing new. What makes this one different is not so much that it comes from a committee chaired by a Conservative MP (Andrew Tyrie) but that it is being published before the policy has even been implemented. Normally committees publish reports on fiascos after the event but Help to Buy is barely off the drawing board.

However, that is perhaps the point. The housing section of the report ends with 17 ‘questions that require answers to allay concerns that the scheme may have unintended and unwelcome consequences’. Questions such as the impact on house prices, the likely supply response and the level of the fee to be paid to be lenders are all ones that you might reasonably have expected the Treasury to ask – and answer – before it announced the policy. That the committee is raising them at all speaks volumes about its confidence in Help to Buy.

There are many other questions that could be asked too. For example, why is the government replacing schemes reserved for first-time buyers (FirstBuy) and new-build homes (NewBuy) with ones that are available to anyone if its supposed priorities are people trying to get on the housing ladder and new supply? And why has it suddenly decided to take on all of the risk of the mortgage guarantee when under NewBuy it was shared with housebuilders? Say what you like about those previous policies but at least they targeted the help where the government believed it was needed rather than giving a boost to the entire market.

However, perhaps it is wrong to judge Help to Buy as a housing policy at all. Regardless of the long-term consequences for house prices and the dangers of too much government involvement, every additional home sale after January 2014 generates more consumer spending and creates a satisfied buyer and seller. An improving economy by, say, May 2015 is just what the government needs politically. That is surely the point for George Osborne.

Putting the cap on it

Thu, 18 Apr 2013

Amid claim and counter-claim the benefit cap began this week with a deepening mystery about how many people will be affected and how much it will really save.

As the four guinea pig boroughs in London – Haringey, Croydon, Enfield and Bromley – began applying the cap on Monday, the Department for Work and Pensions revealed in ad hoc analysis that it now expects 16,000 fewer households to be affected by the time when it is introduced in the whole country over the next few months.

In media interviews, ministers hailed the reduction to 40,000 (from 56,000 in an impact assessment in July 2012) as evidence that the policy was encouraging people to get back into work. From Iain Duncan Smith in the Daily Mail to employment minister Mark Hoban on the Today programme they have claimed it had already encouraged 8,000 claimants who would have been capped to find jobs.

That appeared to be on the basis of ad hoc statistics on Jobcentre Plus activity that referred to ‘8,000 claimants identified as potentially capped households’ who had been helped into work out of 82,000 contacted between May 2012 and March 2013.

However, there was no attempt to compare that to the normal flows of people in and out of work that might be expected in a 10-month period. A second DWP ad hoc analysis was careful to stress that it had assumed ‘no behavioural change’. And the DWP press release quoted IDS as saying that ‘it will provide clear incentives for people to get into employment’ rather than claiming that it had already worked.

That’s led to extensive criticism that ministers have misused the statistics. For more on the detail of that see Declan Gaffney here, Gaffney and former DWP chief economist Jonathan Portes here and Nicola Smith of the TUC here.

All of which leads a real mystery about the numbers and what is really happening on the ground. The reduction in the headline number is maybe not so surprising since it has already gone up and down several times since the cap was first announced in responses to changes in its scope and to the exemptions. The ad hoc analysis cites the disregard for supported exempt accommodation announced in the Autumn Statement plus changes to benefit uprating and methodological improvements as the reasons for the fall to 40,000.

Even before the latest reduction, the national estimate was initially 50,000, then rose to 67,000, then fell to 56,000 (after the government agreed a nine-month grace period for people who have been continuously employed for the previous 12 months).

Another DWP report reveals that between May and September it sent letters to 89,000 households who data scans suggested could theoretically be affected by the cap. Limitations on the data meant that it could not identify two groups who are exempt (those in receipt of a widows or widowers pension and those within the employment grace period). However, the figures also illustrate the fact that new households are becoming potentially subject to the cap all the time: 14,000 in the three months between May and July 2012 and another 12,000 between July and September 2012.

Figures like those put ministers’ claim that the prospect of the cap has encouraged 8,000 people into employment into perspective. They are not so surprising when you consider how many people move in and out of employment and have insecure jobs with hours that fluctuate (you have to work at least 16 hours a week to be exempt from the cap). For example, the number of workers on zero hours contracts doubled to a record high of 200,000 in 2012.

The same mystery surrounds the numbers affected by the cap at a local level. The estimates are understood to have fallen in three of the guinea pig boroughs but risen in the fourth. In Haringey, for example, the council’s estimate has fallen from 1,300 at the beginning of the process to 993 now. A dedicated hub in Tottenham with staff from the council, the DWP and Job Centre Plus has helped 109 potentially capped households into work. With new households becoming unemployed, the net reduction due to finding work could be smaller than that and in any case that still leaves two-thirds of the reduction unexplained. 

Westminster – the borough with the most households affected by the cap in Britain – has also seen a large and unexplained reduction. The number of people facing the cap has fallen from around 2,200 in the Autumn to around 1,300 now, with 390 believed to have gone into work. With the same caveat about newly unemployed people joining the list, that leaves an unexplained reduction of 500.

So what’s going on? Some of the variation may simply reflect the fall in the national estimate at a local level. Some was predictable given the imperfections in the data being used, with some people dropping off the list and others not where the scans say they should be, and even the current numbers are eight weeks out of date. But are there other explanations?

One possibility is that the bedroom caps already imposed on the local housing allowance have reduced the numbers affected by the overall cap. Another is that people are moving ahead of the cap (and in the wake of the bedroom caps) to cheaper areas. The housing benefit stats show that claims in outer London are rising much faster than those in inner London. People could be deciding for themselves to move and anecdotally some authorities in Essex and Kent report that they are seeing people turn up in their areas.

However, councils with large numbers of capped families have limited options. They can use discretionary housing payments (DHPs) but these will only last for a limited time. They face costs for housing newly homeless families and caps on the rents of those they have already placed in temporary accommodation. Given the stream of reports about London boroughs exporting their homeless families elsewhere, and the lack of accommodation affordable within the cap in many areas, an increase in the out-of-area placements that are already happening looks inevitable despite ministers’ insistence that they have put guidance in place.

In the longer term housing directors think it is just a matter of time before overcrowding and sharing increase as capped families try anything to avoid moving miles from friends, families and children’s schools. They also expect another increase in unorthodox housing: beds in sheds, garages, retail units and offices.

Figures from Haringey illustrate the scale of the problem. The council has pledged not to move anyone out of London during the pilot. Some 294 of the 993 households currently affected (30 per cent) are living in temporary accommodation. The council has £2.4 million of DHPs for 2013/14 of which £1.4 million is specifically to cover the costs of the cap. However, it estimates that its extra liabilities because of the cap will be £8.2 million over 2013/14, leaving it with a shortfall of around £7 million. That’s roughly £7,000 for each capped family.

Figures like those suggest that the costs to individual boroughs will far outweigh savings to the Treasury that are now estimated at £110 million in 2013/14 and £185 million in subsequent years. Those have been reduced from £270 million a year savings in the July 2012 impact assessment.

They are also a reminder of the warning in the letter between the private offices of Eric Pickles and David Cameron that was leaked to the Observer in July 2011. The letter from Pickles’s private secretary said:

‘We are concerned that the savings from this measure, currently estimated ay £270m savings p.a from 2014-2015 does not take account of the additional costs to local authorities (through homelessness and temporary accommodation). In fact we think it is likely that the policy as it stands will generate a net cost. In addition Local Authorities will have to calculate and administer reduced Housing Benefit to keep within the cap and this will mean both demands on resource and difficult handling locally.’

Ministers see the benefit cap as good politics, especially when they can portray Labour as opposing it. However, it seems equally clear that it is a very bad policy that is being introduced at a very bad time. Leave aside the mystery about the figures, ignore for a moment the likelihood that it will cost more than it saves and turn a temporary blind eye to the fact that it contradicts the move to higher ‘affordable’ rents by the DCLG. The local authorities that will have to implement the cap and bear the extra costs are already seeing their budgets squeezed everywhere else. And they are having to implement a major change in the administration of housing benefit only months before they start to lose that role under the universal credit. 

Putting the cap on it

Thu, 18 Apr 2013

Amid claim and counter-claim the benefit cap began this week with a deepening mystery about how many people will be affected and how much it will really save.

As the four guinea pig boroughs in London – Haringey, Croydon, Enfield and Bromley – began applying the cap on Monday, the Department for Work and Pensions revealed in ad hoc analysis that it now expects 16,000 fewer households to be affected by the time when it is introduced in the whole country over the next few months.

In media interviews, ministers hailed the reduction to 40,000 (from 56,000 in an impact assessment in July 2012) as evidence that the policy was encouraging people to get back into work. From Iain Duncan Smith in the Daily Mail to employment minister Mark Hoban on the Today programme they have claimed it had already encouraged 8,000 claimants who would have been capped to find jobs.

That appeared to be on the basis of ad hoc statistics on Jobcentre Plus activity that referred to ‘8,000 claimants identified as potentially capped households’ who had been helped into work out of 82,000 contacted between May 2012 and March 2013.

However, there was no attempt to compare that to the normal flows of people in and out of work that might be expected in a 10-month period. A second DWP ad hoc analysis was careful to stress that it had assumed ‘no behavioural change’. And the DWP press release quoted IDS as saying that ‘it will provide clear incentives for people to get into employment’ rather than claiming that it had already worked.

That’s led to extensive criticism that ministers have misused the statistics. For more on the detail of that see Declan Gaffney here, Gaffney and former DWP chief economist Jonathan Portes here and Nicola Smith of the TUC here.

All of which leads a real mystery about the numbers and what is really happening on the ground. The reduction in the headline number is maybe not so surprising since it has already gone up and down several times since the cap was first announced in responses to changes in its scope and to the exemptions. The ad hoc analysis cites the disregard for supported exempt accommodation announced in the Autumn Statement plus changes to benefit uprating and methodological improvements as the reasons for the fall to 40,000.

Even before the latest reduction, the national estimate was initially 50,000, then rose to 67,000, then fell to 56,000 (after the government agreed a nine-month grace period for people who have been continuously employed for the previous 12 months).

Another DWP report reveals that between May and September it sent letters to 89,000 households who data scans suggested could theoretically be affected by the cap. Limitations on the data meant that it could not identify two groups who are exempt (those in receipt of a widows or widowers pension and those within the employment grace period). However, the figures also illustrate the fact that new households are becoming potentially subject to the cap all the time: 14,000 in the three months between May and July 2012 and another 12,000 between July and September 2012.

Figures like those put ministers’ claim that the prospect of the cap has encouraged 8,000 people into employment into perspective. They are not so surprising when you consider how many people move in and out of employment and have insecure jobs with hours that fluctuate (you have to work at least 16 hours a week to be exempt from the cap). For example, the number of workers on zero hours contracts doubled to a record high of 200,000 in 2012.

The same mystery surrounds the numbers affected by the cap at a local level. The estimates are understood to have fallen in three of the guinea pig boroughs but risen in the fourth. In Haringey, for example, the council’s estimate has fallen from 1,300 at the beginning of the process to 993 now. A dedicated hub in Tottenham with staff from the council, the DWP and Job Centre Plus has helped 109 potentially capped households into work. With new households becoming unemployed, the net reduction due to finding work could be smaller than that and in any case that still leaves two-thirds of the reduction unexplained. 

Westminster – the borough with the most households affected by the cap in Britain – has also seen a large and unexplained reduction. The number of people facing the cap has fallen from around 2,200 in the Autumn to around 1,300 now, with 390 believed to have gone into work. With the same caveat about newly unemployed people joining the list, that leaves an unexplained reduction of 500.

So what’s going on? Some of the variation may simply reflect the fall in the national estimate at a local level. Some was predictable given the imperfections in the data being used, with some people dropping off the list and others not where the scans say they should be, and even the current numbers are eight weeks out of date. But are there other explanations?

One possibility is that the bedroom caps already imposed on the local housing allowance have reduced the numbers affected by the overall cap. Another is that people are moving ahead of the cap (and in the wake of the bedroom caps) to cheaper areas. The housing benefit stats show that claims in outer London are rising much faster than those in inner London. People could be deciding for themselves to move and anecdotally some authorities in Essex and Kent report that they are seeing people turn up in their areas.

However, councils with large numbers of capped families have limited options. They can use discretionary housing payments (DHPs) but these will only last for a limited time. They face costs for housing newly homeless families and caps on the rents of those they have already placed in temporary accommodation. Given the stream of reports about London boroughs exporting their homeless families elsewhere, and the lack of accommodation affordable within the cap in many areas, an increase in the out-of-area placements that are already happening looks inevitable despite ministers’ insistence that they have put guidance in place.

In the longer term housing directors think it is just a matter of time before overcrowding and sharing increase as capped families try anything to avoid moving miles from friends, families and children’s schools. They also expect another increase in unorthodox housing: beds in sheds, garages, retail units and offices.

Figures from Haringey illustrate the scale of the problem. The council has pledged not to move anyone out of London during the pilot. Some 294 of the 993 households currently affected (30 per cent) are living in temporary accommodation. The council has £2.4 million of DHPs for 2013/14 of which £1.4 million is specifically to cover the costs of the cap. However, it estimates that its extra liabilities because of the cap will be £8.2 million over 2013/14, leaving it with a shortfall of around £7 million. That’s roughly £7,000 for each capped family.

Figures like those suggest that the costs to individual boroughs will far outweigh savings to the Treasury that are now estimated at £110 million in 2013/14 and £185 million in subsequent years. Those have been reduced from £270 million a year savings in the July 2012 impact assessment.

They are also a reminder of the warning in the letter between the private offices of Eric Pickles and David Cameron that was leaked to the Observer in July 2011. The letter from Pickles’s private secretary said:

‘We are concerned that the savings from this measure, currently estimated ay £270m savings p.a from 2014-2015 does not take account of the additional costs to local authorities (through homelessness and temporary accommodation). In fact we think it is likely that the policy as it stands will generate a net cost. In addition Local Authorities will have to calculate and administer reduced Housing Benefit to keep within the cap and this will mean both demands on resource and difficult handling locally.’

Ministers see the benefit cap as good politics, especially when they can portray Labour as opposing it. However, it seems equally clear that it is a very bad policy that is being introduced at a very bad time. Leave aside the mystery about the figures, ignore for a moment the likelihood that it will cost more than it saves and turn a temporary blind eye to the fact that it contradicts the move to higher ‘affordable’ rents by the DCLG. The local authorities that will have to implement the cap and bear the extra costs are already seeing their budgets squeezed everywhere else. And they are having to implement a major change in the administration of housing benefit only months before they start to lose that role under the universal credit. 

Taking the strain

Wed, 10 Apr 2013

If the housing legacy of Margaret Thatcher Mark I was about dismantling much of what had gone before, Mark II created even more of what we have now.

Thatcher’s first two terms saw the right to buy, cuts in subsidies to council housing and the promotion of home ownership (see the first part of this blog). Mark II added big changes for private renting, housing associations and housing benefit, though not without some hiccups along the way.

The politician with a reputation for boldly acting on conviction could be cautious when she wanted to be too. It seems remarkable in retrospect that she left it until her third term before she fully deregulated the private rented sector (testament perhaps to the continuing power of accusations of Rachmanism). Market rents on new-build properties owned by approved bodies (but not individuals) were allowed from 1980 but few actually built any. It was not until 1988, nine years after becoming prime minister, that her government deregulated all new lets and introduced the assured shorthold tenancy. It did not seem so at the time, or for several years after, but those measures enabled the later creation of buy to let and the boom in the private rented sector that is still continuing now.

The same Act created the conditions for housing associations to become the major players in affordable housing that they are now. Private finance had existed before but the Act required them to use it as part of a mixed finance system with Housing Corporation grant. This was the first and probably the most successful example of public-private partnership seen in any part of the economy.

Both moves were part of a renewed radicalism in Thatcher’s third term. The right to buy had shrunk council housing in the 1980s but new housing minister William Waldegrave said that ‘the next big push after the right to buy should be to get rid of the state as a big landlord’.

However, things did not exactly go according to plan. Schemes like Tenants Choice and Housing Action Trusts flopped as tenants stubbornly refused to vote for a new landlord despite the promise of cash to improve their homes. Ironically, the most famous example of Tenants Choice came when tenants of flagship Conservative authority Westminster City Council used it to frustrate rather than enable a transfer of their homes to a private developer.

Ironically again the solution came from the original targets of the policy. local authorities began to see the advantages of transferring their stock to a housing association or setting up their own to free themselves from central government controls on government borrowing.

The Thatcher housing legacy is a powerful one. It would be wrong to say it was all down to her or her government (many of the same changes were introduced in other countries) and it was not all in one direction (it was Thatcher who introduced security of tenure for council tenants, for example). Nor was it all bad: the attack on council housing was about rolling back the state but it also brought improvements in management and financial innovation. 

The legacy was modified under Labour, with the Decent Homes programme and almos, cuts in right to buy discounts and restoration of the homelessness safety net weakened by Major (not Thatcher), but not fundamentally reversed. It was not until 2006 that Labour managed to build start more new social homes (in England) than the 20,000 achieved in 1990, Thatcher’s final year. 

So the Thatcher Mark II system that her government put in place 25 years ago is still the basis of the one we have now, though the coalition’s programme of near-market rents and fixed-term tenancies look very much like a Mark III.

However, the Thatcher legacy also includes another key area of policy that resonates to this day. The result of Mark II was higher rents. The housing benefit bill almost doubled – not in the 10 years that the coalition is now using as justification for its cuts - but in a mere five years.

John Moore, the new secretary of state for health and social security in 1987, believed he knew what the problem was. Much as Iain Duncan Smith argues 25 years later, he thought it was a ‘culture of dependency’. Claimants had to be moved from ‘dependence to independence’ and ‘help targeted where need is greatest’. The problem, then as now, was that a combination of his own government’s housing, economic and labour market policies meant that more and more people became reliant on the state to pay their rent. The rising housing benefit bill was the result of deliberate choices by the government.

The answer, then as now, was seen to be benefit reform. However, as IDS is discovering 25 years later, that is easier said than done. When a limited form of housing benefit was introduced in 1983 the Times called it ‘the biggest administrative fiasco in the history of the welfare state’. It was introduced in a huge rush, with endless amendments to the computer system (sound familiar?) and with such a focus on reducing civil service jobs that the result was disaster.

According to Nicholas Timmins (whose Five Giants: A Biography of the Welfare State I am again using as a key source for this blog):

‘Across the country, dozens of council housing offices locked their doors early, took phones off the hook and locked long queues outside as they attempted to sort out backlogs which left claimants without rent and rate payments for weeks and in some cases for months. In places the police had to be called to quell disturbances. Evictions mounted. Private as well as public landlords were in despair.’

The full system of housing benefit as we know it today was agreed in 1985 and introduced in April 1988 accompanied by cuts of £650 million in funding. The results were again disastrous and again have contemporary resonance.  According to Timmins:

‘In the Autumn of 1987 the scale of what that meant became clear: close to six million losers from housing benefit alone, one million of whom would be losing the benefit entirely. Come April, MPs found themselves deluged with letters from those affected. People on incomes of as little as £100 a week found themselves £10 worse off.’

Two weeks after implementation, Moore was forced into a u-turn that restored £100 million of the cuts. However, another of his changes, the withdrawal of benefits from the under-18s in 1988 that triggered an explosion of youth homelessness, came back to haunt him. A year later he was sacked and replaced by Tony Newton.

If the contemporary parallels are not clear enough already, a few weeks before his death in March 2012, the now Lord Newton had some advice for current ministers in one of the final House of Lords debates on the bedroom tax:

‘I am slightly scarred by one bit of experience. As part of the social security reforms in which I played a modest part alongside my noble friend Lord Fowler in the mid-1980s, we proposed some fairly draconian changes in housing benefit, which were, to be blunt, forced on us by the Treasury… In my recollection, although I have not checked the books, the impact of those changes was such that the then Prime Minister ordered their reversal within a month because the flak simply could not be withstood. That is the risk the Government are running here, and I hope they will think about it very hard.’

By November 1990 the era of Margaret Thatcher was over. A few months later we had a new housing minister, Sir George Young, telling us that ‘housing benefit will take the strain’. It seemed unlikely even at the time. 

Taking the strain

Wed, 10 Apr 2013

If the housing legacy of Margaret Thatcher Mark I was about dismantling much of what had gone before, Mark II created even more of what we have now.

Thatcher’s first two terms saw the right to buy, cuts in subsidies to council housing and the promotion of home ownership (see the first part of this blog). Mark II added big changes for private renting, housing associations and housing benefit, though not without some hiccups along the way.

The politician with a reputation for boldly acting on conviction could be cautious when she wanted to be too. It seems remarkable in retrospect that she left it until her third term before she fully deregulated the private rented sector (testament perhaps to the continuing power of accusations of Rachmanism). Market rents on new-build properties owned by approved bodies (but not individuals) were allowed from 1980 but few actually built any. It was not until 1988, nine years after becoming prime minister, that her government deregulated all new lets and introduced the assured shorthold tenancy. It did not seem so at the time, or for several years after, but those measures enabled the later creation of buy to let and the boom in the private rented sector that is still continuing now.

The same Act created the conditions for housing associations to become the major players in affordable housing that they are now. Private finance had existed before but the Act required them to use it as part of a mixed finance system with Housing Corporation grant. This was the first and probably the most successful example of public-private partnership seen in any part of the economy.

Both moves were part of a renewed radicalism in Thatcher’s third term. The right to buy had shrunk council housing in the 1980s but new housing minister William Waldegrave said that ‘the next big push after the right to buy should be to get rid of the state as a big landlord’.

However, things did not exactly go according to plan. Schemes like Tenants Choice and Housing Action Trusts flopped as tenants stubbornly refused to vote for a new landlord despite the promise of cash to improve their homes. Ironically, the most famous example of Tenants Choice came when tenants of flagship Conservative authority Westminster City Council used it to frustrate rather than enable a transfer of their homes to a private developer.

Ironically again the solution came from the original targets of the policy. local authorities began to see the advantages of transferring their stock to a housing association or setting up their own to free themselves from central government controls on government borrowing.

The Thatcher housing legacy is a powerful one. It would be wrong to say it was all down to her or her government (many of the same changes were introduced in other countries) and it was not all in one direction (it was Thatcher who introduced security of tenure for council tenants, for example). Nor was it all bad: the attack on council housing was about rolling back the state but it also brought improvements in management and financial innovation. 

The legacy was modified under Labour, with the Decent Homes programme and almos, cuts in right to buy discounts and restoration of the homelessness safety net weakened by Major (not Thatcher), but not fundamentally reversed. It was not until 2006 that Labour managed to build start more new social homes (in England) than the 20,000 achieved in 1990, Thatcher’s final year. 

So the Thatcher Mark II system that her government put in place 25 years ago is still the basis of the one we have now, though the coalition’s programme of near-market rents and fixed-term tenancies look very much like a Mark III.

However, the Thatcher legacy also includes another key area of policy that resonates to this day. The result of Mark II was higher rents. The housing benefit bill almost doubled – not in the 10 years that the coalition is now using as justification for its cuts - but in a mere five years.

John Moore, the new secretary of state for health and social security in 1987, believed he knew what the problem was. Much as Iain Duncan Smith argues 25 years later, he thought it was a ‘culture of dependency’. Claimants had to be moved from ‘dependence to independence’ and ‘help targeted where need is greatest’. The problem, then as now, was that a combination of his own government’s housing, economic and labour market policies meant that more and more people became reliant on the state to pay their rent. The rising housing benefit bill was the result of deliberate choices by the government.

The answer, then as now, was seen to be benefit reform. However, as IDS is discovering 25 years later, that is easier said than done. When a limited form of housing benefit was introduced in 1983 the Times called it ‘the biggest administrative fiasco in the history of the welfare state’. It was introduced in a huge rush, with endless amendments to the computer system (sound familiar?) and with such a focus on reducing civil service jobs that the result was disaster.

According to Nicholas Timmins (whose Five Giants: A Biography of the Welfare State I am again using as a key source for this blog):

‘Across the country, dozens of council housing offices locked their doors early, took phones off the hook and locked long queues outside as they attempted to sort out backlogs which left claimants without rent and rate payments for weeks and in some cases for months. In places the police had to be called to quell disturbances. Evictions mounted. Private as well as public landlords were in despair.’

The full system of housing benefit as we know it today was agreed in 1985 and introduced in April 1988 accompanied by cuts of £650 million in funding. The results were again disastrous and again have contemporary resonance.  According to Timmins:

‘In the Autumn of 1987 the scale of what that meant became clear: close to six million losers from housing benefit alone, one million of whom would be losing the benefit entirely. Come April, MPs found themselves deluged with letters from those affected. People on incomes of as little as £100 a week found themselves £10 worse off.’

Two weeks after implementation, Moore was forced into a u-turn that restored £100 million of the cuts. However, another of his changes, the withdrawal of benefits from the under-18s in 1988 that triggered an explosion of youth homelessness, came back to haunt him. A year later he was sacked and replaced by Tony Newton.

If the contemporary parallels are not clear enough already, a few weeks before his death in March 2012, the now Lord Newton had some advice for current ministers in one of the final House of Lords debates on the bedroom tax:

‘I am slightly scarred by one bit of experience. As part of the social security reforms in which I played a modest part alongside my noble friend Lord Fowler in the mid-1980s, we proposed some fairly draconian changes in housing benefit, which were, to be blunt, forced on us by the Treasury… In my recollection, although I have not checked the books, the impact of those changes was such that the then Prime Minister ordered their reversal within a month because the flak simply could not be withstood. That is the risk the Government are running here, and I hope they will think about it very hard.’

By November 1990 the era of Margaret Thatcher was over. A few months later we had a new housing minister, Sir George Young, telling us that ‘housing benefit will take the strain’. It seemed unlikely even at the time. 

Buy, buy, buy

Tue, 9 Apr 2013

The first part of my analysis of Margaret Thatcher’s housing legacy looks at the right to buy and the property-owning democracy.

The death of the former prime minister got me thinking in what I hope is a dispassionate way about what her time in office meant to housing.

What seems to be undeniable is that the right to buy represented a sea change. Many people would nominate British Gas or British Airways or BT as her greatest privatisation but council housing was bigger than any of them. Some 1.5 million homes were sold between 1979 and 1990 (500,000 of those between 1979 and 1983). Capital receipts from the right to buy totalled £17.6 billion between 1979 and 1989 compared to £23.5 billion from all the other privatisations put together.

It is the one housing policy that is being mentioned in all of the obituaries and hagiographies in the national media but the truth about Thatcher and the right to buy is more complex that you might think.

It’s not just that there were thousands of council house sales long before she became Tory leader. It’s more that when the idea of a right to buy (as opposed to voluntary sales by landlords) was first proposed one of its most prominent opponents was a shadow environment secretary called Margaret Thatcher. For most of the details that follow I am indebted to the brilliant Five Giants: A Biography of the Welfare State by Nicholas Timmins.

When Edward Heath wanted to include the right to buy in the Conservative manifesto for the October 1974 manifesto he was proposing something that directly impacted on her shadow environment secretary portfolio. She believed that it would be unfair to people who had to save to buy their homes. ‘What will they say on my Wates estates?’ she asked at the time.

When she took over from Heath as Tory leader there were even more radical ideas knocking around. Peter Walker, an archetypal ‘wet’ who she had sacked from the shadow Cabinet, proposed that council houses should just be given to anyone who had paid their rent for 20 years and that the rent should be treated as a mortgage for anyone else. He argued that it would make sense financially because councils would no longer have to meet management and repair costs. However, Thatcher again opposed the idea. According to Walker: ‘Margaret was against it because she felt it would upset “our” people who had struggled to pay their mortgages.’

Meanwhile, according to Timmins, something similar to the right to buy came very close to being Labour policy first. The message came over loud and clear on the doorsteps at the 1974 election that tenants wanted to own their homes and Downing Street advisors worked on a scheme for ‘lifetime enfranchisement’. It had the enthusiastic backing of prime minister Harold Wilson but foundered on opposition from advisers and ministers at the Department of the Environment.

So history could easily have been very different at the 1979 election. Instead the right to buy went on to become indelibly associated with a politician who had at first opposed the idea and arguably became a key factor in her three election victories as aspirational working class voters in places like Basildon switched to the Tories.

However, as Steve Hilditch points out over at Red Brick, the truth is again a bit more complicated. The 1979 manifesto did not make a big deal out of the right to buy and it included all sorts of safeguards on sheltered housing, rural areas and resales. There was also no mention of what would go with it: dramatic cuts in housing subsidies that would help cut public spending but also push up rents and encourage more sales.  The big differences with what had gone before were the scale of the sales and the fact that the proceeds were not reinvested in housing.

The combined result was a decisive break with the housing policy consensus that had operated since 1945. From 1980/81 council house sales outstripped new council homes built and they have done so ever since. The discount was gradually increased until by 1986 it was 60 per cent after 30 years’ tenancy on houses and 70 per cent after 15 years for a flat. Some 32 per cent of England’s stock was sold between 1979 and 1990. Academics Ray Forrest and Alan Murie conclude in Built to Last, ROOF’s book on housing policy:  ‘There is no doubt that if the local authority housing programme is treated as self-contained, the term “asset-stripping” is perfectly appropriate.’

Among the consequences in the 1980s were increased residualisation in council housing and increased homelessness across the country but these were not concerns for Margaret Thatcher. As she said in a famous interview in 1987:

‘I think we have gone through a period when too many children and people have been given to understand “I have a problem, it is the government’s job to cope with it!” or “I have a problem, I will go and get a grant to cope with it!”; “I am homeless, the government must house me!” and so they are casting their problems on society and who is society? There is no such thing! There are individual men and women and there are families, and no government can do anything except through people and people look to themselves first.’

The other major theme of what I think of as Margaret Thatcher Mark I was the rise of home ownership. In her very first speech as Tory leader, Thatcher had proclaimed her belief in the old Tory idea of a ‘property-owning democracy’. As her original opposition to the right to buy showed, she was instinctively on the side of ‘our people’ and that meant people who were saving to buy a new home. She was enthusiastically backed by the major housebuilders. In part they were reacting against Labour’s flirtation with nationalising them but few things summed up the sprit of buccaneering capitalism better than the TV adverts featuring Lawrie Barratt (the founder of Barratts who died last year) in a helicopter flying over his building sites. Barratt homes divided opinion but Thatcher liked them so much that she knighted him and bought one for her retirement.

Home ownership grew by more than three million homes between 1979 and 1990 (more than a third of them right to buy tenants). That was all supported by increasingly deregulated mortgage lending and lavish mortgage tax relief that was giving almost 10 million home owners an average of £800 a year each at a cost of almost £8 billion by 1990.  Unsurprisingly house prices grew rapidly too, culminating in an almighty boom and bust in 1989 and 1990 and repossessions that were double the levels seen in the recent crash.  

So that was Thatcherism Mark I. Mark II would have to wait until 1988 when her government created the conditions for the rise of housing associations, private renting, housing benefit and the housing system we have today. More on that tomorrow.

Buy, buy, buy

Tue, 9 Apr 2013

The first part of my analysis of Margaret Thatcher’s housing legacy looks at the right to buy and the property-owning democracy.

The death of the former prime minister got me thinking in what I hope is a dispassionate way about what her time in office meant to housing.

What seems to be undeniable is that the right to buy represented a sea change. Many people would nominate British Gas or British Airways or BT as her greatest privatisation but council housing was bigger than any of them. Some 1.5 million homes were sold between 1979 and 1990 (500,000 of those between 1979 and 1983). Capital receipts from the right to buy totalled £17.6 billion between 1979 and 1989 compared to £23.5 billion from all the other privatisations put together.

It is the one housing policy that is being mentioned in all of the obituaries and hagiographies in the national media but the truth about Thatcher and the right to buy is more complex that you might think.

It’s not just that there were thousands of council house sales long before she became Tory leader. It’s more that when the idea of a right to buy (as opposed to voluntary sales by landlords) was first proposed one of its most prominent opponents was a shadow environment secretary called Margaret Thatcher. For most of the details that follow I am indebted to the brilliant Five Giants: A Biography of the Welfare State by Nicholas Timmins.

When Edward Heath wanted to include the right to buy in the Conservative manifesto for the October 1974 manifesto he was proposing something that directly impacted on her shadow environment secretary portfolio. She believed that it would be unfair to people who had to save to buy their homes. ‘What will they say on my Wates estates?’ she asked at the time.

When she took over from Heath as Tory leader there were even more radical ideas knocking around. Peter Walker, an archetypal ‘wet’ who she had sacked from the shadow Cabinet, proposed that council houses should just be given to anyone who had paid their rent for 20 years and that the rent should be treated as a mortgage for anyone else. He argued that it would make sense financially because councils would no longer have to meet management and repair costs. However, Thatcher again opposed the idea. According to Walker: ‘Margaret was against it because she felt it would upset “our” people who had struggled to pay their mortgages.’

Meanwhile, according to Timmins, something similar to the right to buy came very close to being Labour policy first. The message came over loud and clear on the doorsteps at the 1974 election that tenants wanted to own their homes and Downing Street advisors worked on a scheme for ‘lifetime enfranchisement’. It had the enthusiastic backing of prime minister Harold Wilson but foundered on opposition from advisers and ministers at the Department of the Environment.

So history could easily have been very different at the 1979 election. Instead the right to buy went on to become indelibly associated with a politician who had at first opposed the idea and arguably became a key factor in her three election victories as aspirational working class voters in places like Basildon switched to the Tories.

However, as Steve Hilditch points out over at Red Brick, the truth is again a bit more complicated. The 1979 manifesto did not make a big deal out of the right to buy and it included all sorts of safeguards on sheltered housing, rural areas and resales. There was also no mention of what would go with it: dramatic cuts in housing subsidies that would help cut public spending but also push up rents and encourage more sales.  The big differences with what had gone before were the scale of the sales and the fact that the proceeds were not reinvested in housing.

The combined result was a decisive break with the housing policy consensus that had operated since 1945. From 1980/81 council house sales outstripped new council homes built and they have done so ever since. The discount was gradually increased until by 1986 it was 60 per cent after 30 years’ tenancy on houses and 70 per cent after 15 years for a flat. Some 32 per cent of England’s stock was sold between 1979 and 1990. Academics Ray Forrest and Alan Murie conclude in Built to Last, ROOF’s book on housing policy:  ‘There is no doubt that if the local authority housing programme is treated as self-contained, the term “asset-stripping” is perfectly appropriate.’

Among the consequences in the 1980s were increased residualisation in council housing and increased homelessness across the country but these were not concerns for Margaret Thatcher. As she said in a famous interview in 1987:

‘I think we have gone through a period when too many children and people have been given to understand “I have a problem, it is the government’s job to cope with it!” or “I have a problem, I will go and get a grant to cope with it!”; “I am homeless, the government must house me!” and so they are casting their problems on society and who is society? There is no such thing! There are individual men and women and there are families, and no government can do anything except through people and people look to themselves first.’

The other major theme of what I think of as Margaret Thatcher Mark I was the rise of home ownership. In her very first speech as Tory leader, Thatcher had proclaimed her belief in the old Tory idea of a ‘property-owning democracy’. As her original opposition to the right to buy showed, she was instinctively on the side of ‘our people’ and that meant people who were saving to buy a new home. She was enthusiastically backed by the major housebuilders. In part they were reacting against Labour’s flirtation with nationalising them but few things summed up the sprit of buccaneering capitalism better than the TV adverts featuring Lawrie Barratt (the founder of Barratts who died last year) in a helicopter flying over his building sites. Barratt homes divided opinion but Thatcher liked them so much that she knighted him and bought one for her retirement.

Home ownership grew by more than three million homes between 1979 and 1990 (more than a third of them right to buy tenants). That was all supported by increasingly deregulated mortgage lending and lavish mortgage tax relief that was giving almost 10 million home owners an average of £800 a year each at a cost of almost £8 billion by 1990.  Unsurprisingly house prices grew rapidly too, culminating in an almighty boom and bust in 1989 and 1990 and repossessions that were double the levels seen in the recent crash.  

So that was Thatcherism Mark I. Mark II would have to wait until 1988 when her government created the conditions for the rise of housing associations, private renting, housing benefit and the housing system we have today. More on that tomorrow.

Waiting game

Thu, 4 Apr 2013

This week’s move by Prudential into the private rented sector one is highly significant for reasons that go far beyond the 500 or so homes involved in the deal.

First reported by the Financial Times on Monday, official confirmation of the Pru’s £105 million deal with Berkeley Homes is extensively covered in today’s papers. See Inside Housing’s story here.

The giant insurer had actually already moved into private renting when its M&G subsidiary invested £125 million in a sale and leaseback deal with Genesis Housing Association at the Stratford Halo development in east London in January. However, the Berkeley money comes directly from its property fund management arm PRUPIM and so represents its first real foray as an institutional investor.

The first reason why this is so significant is symbolic. The Pru was probably the best known of the institutional investors that once owned a sizeable chunk of a UK’s private rented sector that accounted for 76 per cent of homes in 1918.  It was also one of the best-known disinvestors in the sector subsequently as private renting’s share fell to just 10 per cent in 2000.

The second is attitudinal. I remember researching a feature in the 1990s that involved talking to the major institutions about whether they would return to investing in private renting in the wake of the deregulation of the sector in 1988. The Pru was probably the most cautious of the lot at the time, citing the political risk that a future Labour government would reverse the changes and re-regulate.

The third is financial. The other major reason why institutional investors were so reluctant was the way that they measure returns. In their traditional markets – offices and shopping centres – they look purely at the rental yield. Measuring the return in this way makes residential look like a bad investment because it does not include capital growth. It also means that high house prices are a key barrier because the rental yield appears to be too low.

This statement by PRUPIM chief executive Alex Jeffrey turns that thinking on its head by admitting that the returns from residential have historically been higher than from commercial property when you include capital as well as rental growth:

‘The expanding residential rental property market, particularly in London and southern England, is gaining in appeal for institutional investors. We believe that returns from the sector – which have historically outpaced commercial real estate – will continue to be attractive as demand increases. We expect the supply and demand dynamics of the residential property market in London and the South East to remain favourable for investors, with continued strong demand for quality properties.’

Clearly things are changing rapidly in private renting with interest from institutions, local authority pension funds and housing associations. However, they do not yet amount to the build to rent revolution advocated by the British Property Federation and endorsed by the Montague report last year.

The PRUPIM/Berkeley deal is actually the result of the private rented sector initiative by the Homes and Communities Agency in 2009. The portfolio consists of flats and houses that were in 13 different locations. In contrast, the build to rent model involves homes in blocks specifically designed for rental and with consequent savings in management costs.

However, the signs look promising, even if a key Montague recommendation on planning (taking build to rent into account in viability assessments) has still not been implemented. Last month’s Budget increased the size of the government’s build to rent fund, which provides equity or loan finance to developers, from £200 million to £1 billion, saying that the existing fund was over-subscribed.

I’ve written before about how writing about institutional investment in private renting is like Waiting for Godot, the Samuel Beckett play in which the supposed principal character never actually appears. As the Man from the Pru makes his (re)appearance, could the wait finally be over? 

Will it be remotely enough to make up tackle the housing supply crisis? The wait on that question definitely goes on.

Waiting game

Thu, 4 Apr 2013

This week’s move by Prudential into the private rented sector one is highly significant for reasons that go far beyond the 500 or so homes involved in the deal.

First reported by the Financial Times on Monday, official confirmation of the Pru’s £105 million deal with Berkeley Homes is extensively covered in today’s papers. See Inside Housing’s story here.

The giant insurer had actually already moved into private renting when its M&G subsidiary invested £125 million in a sale and leaseback deal with Genesis Housing Association at the Stratford Halo development in east London in January. However, the Berkeley money comes directly from its property fund management arm PRUPIM and so represents its first real foray as an institutional investor.

The first reason why this is so significant is symbolic. The Pru was probably the best known of the institutional investors that once owned a sizeable chunk of a UK’s private rented sector that accounted for 76 per cent of homes in 1918.  It was also one of the best-known disinvestors in the sector subsequently as private renting’s share fell to just 10 per cent in 2000.

The second is attitudinal. I remember researching a feature in the 1990s that involved talking to the major institutions about whether they would return to investing in private renting in the wake of the deregulation of the sector in 1988. The Pru was probably the most cautious of the lot at the time, citing the political risk that a future Labour government would reverse the changes and re-regulate.

The third is financial. The other major reason why institutional investors were so reluctant was the way that they measure returns. In their traditional markets – offices and shopping centres – they look purely at the rental yield. Measuring the return in this way makes residential look like a bad investment because it does not include capital growth. It also means that high house prices are a key barrier because the rental yield appears to be too low.

This statement by PRUPIM chief executive Alex Jeffrey turns that thinking on its head by admitting that the returns from residential have historically been higher than from commercial property when you include capital as well as rental growth:

‘The expanding residential rental property market, particularly in London and southern England, is gaining in appeal for institutional investors. We believe that returns from the sector – which have historically outpaced commercial real estate – will continue to be attractive as demand increases. We expect the supply and demand dynamics of the residential property market in London and the South East to remain favourable for investors, with continued strong demand for quality properties.’

Clearly things are changing rapidly in private renting with interest from institutions, local authority pension funds and housing associations. However, they do not yet amount to the build to rent revolution advocated by the British Property Federation and endorsed by the Montague report last year.

The PRUPIM/Berkeley deal is actually the result of the private rented sector initiative by the Homes and Communities Agency in 2009. The portfolio consists of flats and houses that were in 13 different locations. In contrast, the build to rent model involves homes in blocks specifically designed for rental and with consequent savings in management costs.

However, the signs look promising, even if a key Montague recommendation on planning (taking build to rent into account in viability assessments) has still not been implemented. Last month’s Budget increased the size of the government’s build to rent fund, which provides equity or loan finance to developers, from £200 million to £1 billion, saying that the existing fund was over-subscribed.

I’ve written before about how writing about institutional investment in private renting is like Waiting for Godot, the Samuel Beckett play in which the supposed principal character never actually appears. As the Man from the Pru makes his (re)appearance, could the wait finally be over? 

Will it be remotely enough to make up tackle the housing supply crisis? The wait on that question definitely goes on.

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