Friday, 28 April 2017

Inside edge

All posts from: May 2013

Going hungry

Thu, 30 May 2013

It’s shocking but sadly not surprising to see the impact of changes to benefits on the soaring number of people relying on food banks.

Shocking because this is happening only two months in to cuts such as the bedroom tax and four weeks into the start of the benefit cap in four London boroughs, not surprising because the pressure has been building for months. This is the start of the ‘decade of destitution’ that Julia Unwin of the Joseph Rowntree Foundation has been warning about.

Church Action on Poverty and Oxfam, the two organisations behind the Walking the Breadline report, are calling for a parliamentary inquiry into the relationship between benefit delays and the rising numbers.

They say and says changes to the benefit system are the most common reason why people go to food banks. These include changes to crisis loan eligibility rules, delays in payments, Jobseeker’s Allowance sanctions and sickness benefit reassessments. However, the case studies in the report also show the growing impact of housing benefit changes too.  

The largest provider, Trussell Trust, says 350,000 people visited its food banks last year, almost three times the number it saw the year before. The report estimates that the number of people relying on food banks as a whole could be more than half a million.

Niall Cooper, Church Action on Poverty CEO, and the report’s lead author, says: ‘The safety net that was there to protect people is being eroded to such an extent that we are seeing a rise in hunger. Food banks are not designed to, and should not, replace the “normal” safety net provided by the state in the form of welfare support.’

Housing features in the report as a driver of demand for food banks and through the organisations including housing associations and community groups that are providers and funders of them. See here and here for recent coverage of the issue in Inside Housing.

Some of the main case studies show the bedroom tax in particular is making an already bad situation even worse.

In one, a school dinner lady was referred to a food bank by her disabled son’s school after she kept him at home for two days because she could not afford a packed lunch and was ashamed to send him without one. Now she’s waiting for a three-bedroom flat so that he can have the room to himself he needs because of his disability but the bedroom tax will leave her with virtually no money for food.

In another, a woman suffering from Crohn’s disease, osteoarthritis and depression who needs to sleep in the spare bedroom because of her illness now has to pay an extra £40 a month in bedroom tax. She was turned down for discretionary housing payments despite the support of her doctor. She paid April’s bedroom tax out of her ESA and lived on toast for three days so rest of her family could eat properly.

They are the sort of stories that have become depressingly familiar over the last few weeks and we are barely two months in to the bedroom tax and below-inflation increases in other working-age benefits.

However, the report is a powerful reminder of the combined impact of all the welfare changes plus benefit sanctions, delays and underpayments.

And all of this is before the introduction of the universal credit and those breezy DWP assumptions that 85 per cent of claims will be made online and that people will cope with being paid monthly rather than fortnightly. With direct payment of the housing element to tenants the choice between paying the rent and buying food will become even starker. 

The report calls for an urgent inquiry by the House of Commons work and pensions committee, publication of data on claimants denied benefits by sanctions, delays and errors and on referrals to food banks and independent monitoring of the implementation of universal credit – plus action on tax evasion to reduce food poverty.

Going hungry

Thu, 30 May 2013

It’s shocking but sadly not surprising to see the impact of changes to benefits on the soaring number of people relying on food banks.

Shocking because this is happening only two months in to cuts such as the bedroom tax and four weeks into the start of the benefit cap in four London boroughs, not surprising because the pressure has been building for months. This is the start of the ‘decade of destitution’ that Julia Unwin of the Joseph Rowntree Foundation has been warning about.

Church Action on Poverty and Oxfam, the two organisations behind the Walking the Breadline report, are calling for a parliamentary inquiry into the relationship between benefit delays and the rising numbers.

They say and says changes to the benefit system are the most common reason why people go to food banks. These include changes to crisis loan eligibility rules, delays in payments, Jobseeker’s Allowance sanctions and sickness benefit reassessments. However, the case studies in the report also show the growing impact of housing benefit changes too.  

The largest provider, Trussell Trust, says 350,000 people visited its food banks last year, almost three times the number it saw the year before. The report estimates that the number of people relying on food banks as a whole could be more than half a million.

Niall Cooper, Church Action on Poverty CEO, and the report’s lead author, says: ‘The safety net that was there to protect people is being eroded to such an extent that we are seeing a rise in hunger. Food banks are not designed to, and should not, replace the “normal” safety net provided by the state in the form of welfare support.’

Housing features in the report as a driver of demand for food banks and through the organisations including housing associations and community groups that are providers and funders of them. See here and here for recent coverage of the issue in Inside Housing.

Some of the main case studies show the bedroom tax in particular is making an already bad situation even worse.

In one, a school dinner lady was referred to a food bank by her disabled son’s school after she kept him at home for two days because she could not afford a packed lunch and was ashamed to send him without one. Now she’s waiting for a three-bedroom flat so that he can have the room to himself he needs because of his disability but the bedroom tax will leave her with virtually no money for food.

In another, a woman suffering from Crohn’s disease, osteoarthritis and depression who needs to sleep in the spare bedroom because of her illness now has to pay an extra £40 a month in bedroom tax. She was turned down for discretionary housing payments despite the support of her doctor. She paid April’s bedroom tax out of her ESA and lived on toast for three days so rest of her family could eat properly.

They are the sort of stories that have become depressingly familiar over the last few weeks and we are barely two months in to the bedroom tax and below-inflation increases in other working-age benefits.

However, the report is a powerful reminder of the combined impact of all the welfare changes plus benefit sanctions, delays and underpayments.

And all of this is before the introduction of the universal credit and those breezy DWP assumptions that 85 per cent of claims will be made online and that people will cope with being paid monthly rather than fortnightly. With direct payment of the housing element to tenants the choice between paying the rent and buying food will become even starker. 

The report calls for an urgent inquiry by the House of Commons work and pensions committee, publication of data on claimants denied benefits by sanctions, delays and errors and on referrals to food banks and independent monitoring of the implementation of universal credit – plus action on tax evasion to reduce food poverty.

Sharper focus

Wed, 29 May 2013

Bit by bit the picture of how housing policy would look under a Labour government is becoming clearer but there are still some blurred areas.

In the latest results from its policy review process, the party has published more new ideas on the private rented sector. Following up on earlier proposals on letting agents and their charges and more stable tenancies for families, this one is all about the case for greater regulation of landlords.

This is of course just part of a much wider review of Labour policy on housing and related areas. On private renting, the argument is that greater regulation will be in the interests of good landlords (because it will help prevent unfair competition from unscrupulous rivals) and amateur landlords (because it will help them avoid unwittingly falling foul of the law) as well as tenants and the taxpayer.

However, the document highlights poor standards in the sector and problems with enforcement action and handling complaints by tenants as the main reasons for intervention. ‘The evidence shows that prosecutions in comparison with the number of complaints and serious issues raised are all too rare and tough enforcement activity only makes up a small proportion of local authorities’ activity,’ it says.

In particular, it says many councils are reluctant to use their powers on selective licensing because ‘they find the conditions for being able to apply selective licensing overly bureaucratic despite being in the clear interests of the tenants, responsible landlords and communities concerned’.

Meanwhile it says many tenants are reluctant to complain for fear of their landlord raising their rent or even evicting them. The report points out that ‘the two months’ notice required to remove a tenant without cause under Section 21 is far shorter than the time it takes for most councils to reach the binding enforcement stage of their enforcement powers’.

Given the wider costs to the taxpayer, Labour is exploring a range of options ‘to ensure we have minimum standards nationally, strong enforcement locally and clear proposals to stamp out bad landlords once and for all’. Options include:

  • A national register of landlords – designed to help local authorities identify them and HMRC with tax evasion estimated at £500 million a year
  • A new national private rented property standard – including things like deposit protection, energy efficiency and property condition
  • Local enforcement – including a review of the conditions under which councils can establish a licensing scheme
  • Tougher actions against bad landlords – including banning landlords convicted of serious criminal behaviour from the register and stamping out retaliatory eviction.

In return, as part of a ‘something for something deal’ for good landlords, Labour would look at options including direct payment of housing benefit, supply of renters from local housing registers and an improved legal process for evicting tenants who do not pay their rent or commit anti-social behaviour.

As I’ve commented before, reform of private renting only made it to the green paper stage under the last Labour government. In the meantime, the Labour government in Wales is taking forward proposals of its own.

This time around the party in England seems determined to act and the package is calibrated to secure change without alienating good landlords. The National Landlords Association has welcomed the focus on bad landlords while questioning the impact of regulation.

What matters of course is the detail that follows those options. One issue could be the attempt to match a national register and standards with local flexibility. The report highlights Newham’s borough-wide licensing scheme and Oxford’s city-wide HMO licensing as examples of local action by Labour councils.

On selective licensing, the report argues that: ‘Local authorities feel that there is too much bureaucracy and red tape in their way if they want to step in and protect tenants, good landlords and their wider communities.’ Landlords will of course see the licensing – rather than the process of applying for it – as the red tape and question the effectiveness of a patchwork of different local systems.

On wider housing policy, the review process continues. Ahead of a conference in Manchester next month, the Labour Housing Group is consulting on 50 policies for ‘One Nation Housing’. It’s a pretty comprehensive list including everything from changing the public borrowing rules to tenancy reform and restricting giveaway right to buy discounts to a new rent to buy scheme for first-time buyers.

It also calls for many of the coalition’s housing reforms to be reversed. In social housing, security of tenure would be restored to social housing tenants and social tenancies converted to affordable rent converted back to social rent. On housing benefit, the bedroom tax would be scrapped in favour of a national scheme to tackle under-occupation, the benefit cap would be regionalised to take account of different rent levels, direct payment would be restored, and the local housing allowance would be increased from the 30th percentile to the median.

It remains to be seen of course how much of that will make it into party policy for the next election. Much will obviously depend on Labour’s stance on the wider economy.

But much will depend too on a wider Labour rethink about the welfare state. While there seems to be a new willingness to consider a shift back from personal to bricks and mortar subsidies, and an awareness of the dangers of doing so too quickly, Radio 4’s Analysis programme this week covered the deeper debate within the party about moving back to benefits based on contributions.

The programme included Lord Glasman, who coined the term Blue Labour, Jon Cruddas, Labour’s policy coordinator and Sir Robin Wales, Mayor of Newham. The key idea seems to be to move away from a centralised system to deliver welfare at a local level, with Newham’s employment-linked housing policies cited as an example.

Exactly how contributions-based welfare would work is not clear and also (as Ian Mulheirn outlined for The Guardian earlier this week) fraught with pitfalls. It would also have profound implications for housing.

Sharper focus

Wed, 29 May 2013

Bit by bit the picture of how housing policy would look under a Labour government is becoming clearer but there are still some blurred areas.

In the latest results from its policy review process, the party has published more new ideas on the private rented sector. Following up on earlier proposals on letting agents and their charges and more stable tenancies for families, this one is all about the case for greater regulation of landlords.

This is of course just part of a much wider review of Labour policy on housing and related areas. On private renting, the argument is that greater regulation will be in the interests of good landlords (because it will help prevent unfair competition from unscrupulous rivals) and amateur landlords (because it will help them avoid unwittingly falling foul of the law) as well as tenants and the taxpayer.

However, the document highlights poor standards in the sector and problems with enforcement action and handling complaints by tenants as the main reasons for intervention. ‘The evidence shows that prosecutions in comparison with the number of complaints and serious issues raised are all too rare and tough enforcement activity only makes up a small proportion of local authorities’ activity,’ it says.

In particular, it says many councils are reluctant to use their powers on selective licensing because ‘they find the conditions for being able to apply selective licensing overly bureaucratic despite being in the clear interests of the tenants, responsible landlords and communities concerned’.

Meanwhile it says many tenants are reluctant to complain for fear of their landlord raising their rent or even evicting them. The report points out that ‘the two months’ notice required to remove a tenant without cause under Section 21 is far shorter than the time it takes for most councils to reach the binding enforcement stage of their enforcement powers’.

Given the wider costs to the taxpayer, Labour is exploring a range of options ‘to ensure we have minimum standards nationally, strong enforcement locally and clear proposals to stamp out bad landlords once and for all’. Options include:

  • A national register of landlords – designed to help local authorities identify them and HMRC with tax evasion estimated at £500 million a year
  • A new national private rented property standard – including things like deposit protection, energy efficiency and property condition
  • Local enforcement – including a review of the conditions under which councils can establish a licensing scheme
  • Tougher actions against bad landlords – including banning landlords convicted of serious criminal behaviour from the register and stamping out retaliatory eviction.

In return, as part of a ‘something for something deal’ for good landlords, Labour would look at options including direct payment of housing benefit, supply of renters from local housing registers and an improved legal process for evicting tenants who do not pay their rent or commit anti-social behaviour.

As I’ve commented before, reform of private renting only made it to the green paper stage under the last Labour government. In the meantime, the Labour government in Wales is taking forward proposals of its own.

This time around the party in England seems determined to act and the package is calibrated to secure change without alienating good landlords. The National Landlords Association has welcomed the focus on bad landlords while questioning the impact of regulation.

What matters of course is the detail that follows those options. One issue could be the attempt to match a national register and standards with local flexibility. The report highlights Newham’s borough-wide licensing scheme and Oxford’s city-wide HMO licensing as examples of local action by Labour councils.

On selective licensing, the report argues that: ‘Local authorities feel that there is too much bureaucracy and red tape in their way if they want to step in and protect tenants, good landlords and their wider communities.’ Landlords will of course see the licensing – rather than the process of applying for it – as the red tape and question the effectiveness of a patchwork of different local systems.

On wider housing policy, the review process continues. Ahead of a conference in Manchester next month, the Labour Housing Group is consulting on 50 policies for ‘One Nation Housing’. It’s a pretty comprehensive list including everything from changing the public borrowing rules to tenancy reform and restricting giveaway right to buy discounts to a new rent to buy scheme for first-time buyers.

It also calls for many of the coalition’s housing reforms to be reversed. In social housing, security of tenure would be restored to social housing tenants and social tenancies converted to affordable rent converted back to social rent. On housing benefit, the bedroom tax would be scrapped in favour of a national scheme to tackle under-occupation, the benefit cap would be regionalised to take account of different rent levels, direct payment would be restored, and the local housing allowance would be increased from the 30th percentile to the median.

It remains to be seen of course how much of that will make it into party policy for the next election. Much will obviously depend on Labour’s stance on the wider economy.

But much will depend too on a wider Labour rethink about the welfare state. While there seems to be a new willingness to consider a shift back from personal to bricks and mortar subsidies, and an awareness of the dangers of doing so too quickly, Radio 4’s Analysis programme this week covered the deeper debate within the party about moving back to benefits based on contributions.

The programme included Lord Glasman, who coined the term Blue Labour, Jon Cruddas, Labour’s policy coordinator and Sir Robin Wales, Mayor of Newham. The key idea seems to be to move away from a centralised system to deliver welfare at a local level, with Newham’s employment-linked housing policies cited as an example.

Exactly how contributions-based welfare would work is not clear and also (as Ian Mulheirn outlined for The Guardian earlier this week) fraught with pitfalls. It would also have profound implications for housing.

Renting reform

Thu, 23 May 2013

Wales is set to go where England failed to tread on tenancy reform under plans put forward this week.

The Renting Homes white paper published by the Welsh Government is an updated version of the Law Commission proposals that the previous government in England seemed to like at first, then dithered over and finally allowed to lapse at the last election.

So now Wales is set to reap the benefits of two simple and clearly understood forms of tenancy while England continues to cope with a mess of different ones. These are more than just technical, legal changes. The white paper argues that: ‘The current differences between renting a home from a local authority, housing association or private landlord contribute to weaknesses in the way the whole housing system works. Renting a home is not always seen as a good choice. Indeed, it is sometimes considered to be the last option.’

It says the consequences of that include: angst and worry for renters and sometimes for landlords; unnecessary legal costs to resolve difficulties; a reluctance to move between different forms of renting, limiting labour mobility; and confusion for landlords and tenants about their rights and responsibilities.

The plan is to replace most tenancies with one of two types: a secure contract based on the local authority secure tenancy for all long-term housing by councils and housing associations; and a standard contract similar to the assured shorthold used in the private rented sector.

As well as making the law easier to understand, the white paper says the changes will reduce costs, make it easier for landlords to recover abandoned properties and make it harder for bad landlords to undercut good ones. There will be a requirement in all contracts for landlords to maintain the property and ensure there are no serious health and safety risks. A ‘prohibited conduct’ term in every contract will make it easier to deal with domestic abuse and anti-social behaviour. Renting will be easier for 16 and 17 year olds and people wanting short-term lets and it will also be easier for people to leave or join joint rental contracts.

The white paper argues:

‘Our proposals will not fundamentally alter the balance of rights and responsibilities of tenants and landlords from those that currently exist. Rather, they are designed to create a simpler, more logical and clearer legal framework to replace the complexity of current law. Our goal is a fair, simple, and effective legal basis for renting a home, making it understandable to both landlords and people who rent a home now and in the future.’

However, there are two more contentious elements. First, the new secure contract will mean that housing associations will no longer have Ground 8 mandatory grounds for possession. Ground 8 is not often invoked in Wales but, as Martin Hilditch’s feature in Inside Housing last week revealed, use of it is growing rapidly in England in response to welfare reform.

Second, the standard contract would remove the six-month moratorium that currently prevents a court ordering a no-fault possession in first six months of an assured shorthold. Shelter Cymru is worried that this will increase insecurity but the white paper argues that it will benefit tenants looking for a short-term let and that it will still be possible to set a minimum term.

The proposals have received a generally warm welcome so far, though the Residential Landlords Association is a dissenting voice, claiming that the changes will cost £45 million to implement.

However, this is just the start of the reform of renting in Wales. A white paper last year proposed a national, mandatory registration and licensing scheme for landlords, letting agents and managing agents and a Housing Bill is due to be published in the Autumn.

That too is territory where England failed to tread. Plans to regulate letting agents and license landlords made it as far as a green paper in 2009 but were quickly dropped by the coalition after the election. 

Tenancy reform had stalled in Whitehall long before that, a casualty not so much of a change of heart as of the rotating door that operated for housing ministers under the Labour government and of changes within the civil service. At a Communities and Local Government Committee hearing in February Martin Partington, the former Law Commissioner, gave a fascinating insight into what happened (or rather didn’t happen):

‘The then minister, Nick Raynsford, commissioned the work from us and he was working with the social rented side of the house, as it were. Years went on, and housing ministers came and went like water down the drain-that might be slightly unfair, but they did come and go with extraordinary regularity. There was a point at which we suddenly discovered, without any consultation with us, that we were going to be masterminded by the private sector side of what was then still the ODPM. This had the effect that the interest that existed among civil servants for the work that we were doing and the contribution that we might make to overall global social policy became, from my perspective, a narrower one about whether what we were recommending might or might not facilitate the private rented sector.

‘Frankly, once we had got to this stage, civil servants started saying things to us like, “Hmm, this is all very difficult,” or “I don’t think we’re going to make much progress unless you get political engagement by ministers.” My difficulty was, because ministers were coming and going every eight or nine months, you know that the shorthand is that if civil servants tell you “You have to get political engagement,” they have no interest in taking it forwards themselves. That is where I got slightly hacked off about the process that we were going through.

‘I have to say I went to the retirement party of one of the civil servants who had been leading for DCLG, and he took me aside at the end and said, “Do you know, Martin? I do feel a bit guilty that I didn’t really push the Law Commission stuff as hard as I might have done.” My heart did sink, but I then perked up every time I went to Cardiff and officials in the Welsh Government kept on saying things like, “This is frightfully good. We cannot understand why they are not doing it in Whitehall.” I live to fight another day, and I am not an embittered old Law Commissioner. I do think that what we were trying to do required a bit of imagination and input and, for whatever reason, we lost the political impetus through the way it was managed within the department, as we were going through the work.’

Back in Wales, the country is using its new legislative powers to develop policies on housing that are quite different from those in England. Wales is going its own way, as Westminster communities secretary Eric Pickles seems to have noticed.

Renting reform

Thu, 23 May 2013

Wales is set to go where England failed to tread on tenancy reform under plans put forward this week.

The Renting Homes white paper published by the Welsh Government is an updated version of the Law Commission proposals that the previous government in England seemed to like at first, then dithered over and finally allowed to lapse at the last election.

So now Wales is set to reap the benefits of two simple and clearly understood forms of tenancy while England continues to cope with a mess of different ones. These are more than just technical, legal changes. The white paper argues that: ‘The current differences between renting a home from a local authority, housing association or private landlord contribute to weaknesses in the way the whole housing system works. Renting a home is not always seen as a good choice. Indeed, it is sometimes considered to be the last option.’

It says the consequences of that include: angst and worry for renters and sometimes for landlords; unnecessary legal costs to resolve difficulties; a reluctance to move between different forms of renting, limiting labour mobility; and confusion for landlords and tenants about their rights and responsibilities.

The plan is to replace most tenancies with one of two types: a secure contract based on the local authority secure tenancy for all long-term housing by councils and housing associations; and a standard contract similar to the assured shorthold used in the private rented sector.

As well as making the law easier to understand, the white paper says the changes will reduce costs, make it easier for landlords to recover abandoned properties and make it harder for bad landlords to undercut good ones. There will be a requirement in all contracts for landlords to maintain the property and ensure there are no serious health and safety risks. A ‘prohibited conduct’ term in every contract will make it easier to deal with domestic abuse and anti-social behaviour. Renting will be easier for 16 and 17 year olds and people wanting short-term lets and it will also be easier for people to leave or join joint rental contracts.

The white paper argues:

‘Our proposals will not fundamentally alter the balance of rights and responsibilities of tenants and landlords from those that currently exist. Rather, they are designed to create a simpler, more logical and clearer legal framework to replace the complexity of current law. Our goal is a fair, simple, and effective legal basis for renting a home, making it understandable to both landlords and people who rent a home now and in the future.’

However, there are two more contentious elements. First, the new secure contract will mean that housing associations will no longer have Ground 8 mandatory grounds for possession. Ground 8 is not often invoked in Wales but, as Martin Hilditch’s feature in Inside Housing last week revealed, use of it is growing rapidly in England in response to welfare reform.

Second, the standard contract would remove the six-month moratorium that currently prevents a court ordering a no-fault possession in first six months of an assured shorthold. Shelter Cymru is worried that this will increase insecurity but the white paper argues that it will benefit tenants looking for a short-term let and that it will still be possible to set a minimum term.

The proposals have received a generally warm welcome so far, though the Residential Landlords Association is a dissenting voice, claiming that the changes will cost £45 million to implement.

However, this is just the start of the reform of renting in Wales. A white paper last year proposed a national, mandatory registration and licensing scheme for landlords, letting agents and managing agents and a Housing Bill is due to be published in the Autumn.

That too is territory where England failed to tread. Plans to regulate letting agents and license landlords made it as far as a green paper in 2009 but were quickly dropped by the coalition after the election. 

Tenancy reform had stalled in Whitehall long before that, a casualty not so much of a change of heart as of the rotating door that operated for housing ministers under the Labour government and of changes within the civil service. At a Communities and Local Government Committee hearing in February Martin Partington, the former Law Commissioner, gave a fascinating insight into what happened (or rather didn’t happen):

‘The then minister, Nick Raynsford, commissioned the work from us and he was working with the social rented side of the house, as it were. Years went on, and housing ministers came and went like water down the drain-that might be slightly unfair, but they did come and go with extraordinary regularity. There was a point at which we suddenly discovered, without any consultation with us, that we were going to be masterminded by the private sector side of what was then still the ODPM. This had the effect that the interest that existed among civil servants for the work that we were doing and the contribution that we might make to overall global social policy became, from my perspective, a narrower one about whether what we were recommending might or might not facilitate the private rented sector.

‘Frankly, once we had got to this stage, civil servants started saying things to us like, “Hmm, this is all very difficult,” or “I don’t think we’re going to make much progress unless you get political engagement by ministers.” My difficulty was, because ministers were coming and going every eight or nine months, you know that the shorthand is that if civil servants tell you “You have to get political engagement,” they have no interest in taking it forwards themselves. That is where I got slightly hacked off about the process that we were going through.

‘I have to say I went to the retirement party of one of the civil servants who had been leading for DCLG, and he took me aside at the end and said, “Do you know, Martin? I do feel a bit guilty that I didn’t really push the Law Commission stuff as hard as I might have done.” My heart did sink, but I then perked up every time I went to Cardiff and officials in the Welsh Government kept on saying things like, “This is frightfully good. We cannot understand why they are not doing it in Whitehall.” I live to fight another day, and I am not an embittered old Law Commissioner. I do think that what we were trying to do required a bit of imagination and input and, for whatever reason, we lost the political impetus through the way it was managed within the department, as we were going through the work.’

Back in Wales, the country is using its new legislative powers to develop policies on housing that are quite different from those in England. Wales is going its own way, as Westminster communities secretary Eric Pickles seems to have noticed.

Too close for comfort

Mon, 20 May 2013

Sir Mervyn King’s weekend criticism of Help to Buy leaves George Osborne looking more isolated than ever in his plan for government mortgage guarantees. 

King steps down as governor of the Bank of England at the end of June but even so his comments on Murnaghan on Sky News on Sunday are quite a parting shot. Asked how the Bank of England would end a scheme of which it is the ultimate guarantor, he said that:

‘Well I’m sure that there is no place in the long run for a scheme of this kind, this scheme is a little too close for comfort to a general scheme to guarantee mortgages. We had a very healthy mortgage market with competing lenders attracting borrowers before the crisis and we need to get back to that healthy mortgage market. We do not want what the United States have which is a government guaranteed mortgage market and they are desperately trying to find a way out of that position so we mustn’t let this scheme turn into a permanent scheme.’

Help to Buy has already been heavily criticised on the same and other grounds by the all-party Treasury committee of MPs and it’s next to impossible to find a reputable economist who supports the policy. Mortgage lenders and estate agents are expressing caution and even housebuilders seem faintly embarrassed by this latest example of government largesse. Osborne has even drawn criticism from Migration Watch and the TaxPayers Alliance over claims that foreign buyers will be able to benefit. 

However, Help to Buy already seems to be having an impact on buyer demand and on prices. A survey out this morning from Rightmove shows that seller’s asking prices rose by 2.1 per cent in May alone after the strongest start to a year since 2004. The average asking price in London is now more than £500,000.

It’s perfectly possible that Help to Buy will be the long-term disaster that everyone fears at the same time as it is a short term success for the government in boosting activity in the housing market and the wider economy in the run-up to the next election.

King’s comments seem more than a little self-serving. His claim that there was a ‘healthy mortgage market’ stretches credulity when you remember the surge of lending that inflated the housing bubble before 2007 on his watch. To give just one example, half of all mortgages lent in that year were self-certified.

However, his warning also points up just how big a mistake Osborne could be about to make. Ironically, just as the chancellor prepares to offer state guarantees for mortgages in the UK, politicians in the United States are desperately searching for ways to get out of offering them.

The Federal National Mortgage Association (Fannie Mae) was set up in the wake of the 1930s depression as part of the New Deal to provide local banks with federal money to finance mortgages. After 75 years, it is still going, alongside its counterpart the Federal Home Loan Mortgage Corporation (Freddie Mac), showing just how difficult it is for a government to exit the mortgage market once they have entered it.

The agencies were privatised in the late 1960s, invented mortgage-backed securities in the 1980s and were used to expand home ownership to low-income households in the 1990s. In the wake of the sub-prime mortgage crisis and credit crunch, they had to be taken back into public ownership in 2008. They currently guarantee half of all American mortgages worth about $5 trillion.

However, there is another example of a government guaranteeing mortgages that King tactfully (or pointedly) did not mention. Canada has its own equivalent of Fannie Mae:  the state-owned Canada Mortgage and Housing Corp set up in 1946 that now guarantees half of all mortgages but the government also guarantees two private sector insurers.

Canada is of course the home country of King’s successor Mark Carney. He got the job at the Bank of England after being credited with rescuing the country from the financial crisis as governor of the Bank of Canada by rapidly cutting interest rates. As he gets set to arrive in London things are not looking nearly so rosy back home. Critics say those mortgage guarantees helped to inflate a housing bubble.

In a survey of the world’s 18 biggest housing markets by The Economist this week, Canada has the most over-valued house prices when judged against rents (by 73 per cent compared to 19 per cent in Britain) and the third most overvalued prices judged against incomes (32 per cent against 11 per cent). Where house prices in Britain have fallen by 11 per cent since the start of the credit crunch, Canada’s are up 18 per cent.

The Economist concludes:

‘On this basis Canada’s market is especially vulnerable. A large bubble now looks set to burst. Home sales in March were 15 per cent down on a year earlier. Buyers are in short supply. A recent poll showed that only 15 per cent of Canadians are likely to buy a home in the next two years, down from 27 per cent last year—the steepest decline in the 20-year history of the survey. After a big boom, the housing bust will be a wrenching affair.’

With Carney finding London house prices so extortionate that he demanded a £250,000 a year housing allowance, is he jumping from the frying pan into the fire or the other way around?

MORE: It’s not just Help to Buy mortgage guarantees that are under fire. Analysis just released by the g15 group of London’s largest housing associations shows that Help to Buy equity loans will be of minimal help to average earners in the capital.

The group looked at all properties for sale across London advertised on the main property portals between January and April 2013 and modelled their affordability based on a 20 per cent Help to Buy equity loan, a 5 per cent deposit and a standard mortgage of 3.5 times earnings.

A single person with an average income of £26,499 would be able to buy a property worth £125,000 but only 2,963 (2.5 per cent) of the advertised homes were in that price bracket.

The choices are almost as restricted for someone on the median income in London of £33,308. They would be able to buy homes up to £135,000 but that applied to just 4,176 (3.5 per cent) of those available.

As Keith Exford, chair of the g15 and chief executive of Affinity Sutton, points out, average earners will be left with the most undesirable property: flats above shops, properties in poor repair and flats with short leases.

The g15 is calling on the government to focus investment on low cost home ownership instead, arguing that the £3.5 billion allocated to Help to Buy equity loans could fund 175,000 affordable homes.

Too close for comfort

Mon, 20 May 2013

Sir Mervyn King’s weekend criticism of Help to Buy leaves George Osborne looking more isolated than ever in his plan for government mortgage guarantees. 

King steps down as governor of the Bank of England at the end of June but even so his comments on Murnaghan on Sky News on Sunday are quite a parting shot. Asked how the Bank of England would end a scheme of which it is the ultimate guarantor, he said that:

‘Well I’m sure that there is no place in the long run for a scheme of this kind, this scheme is a little too close for comfort to a general scheme to guarantee mortgages. We had a very healthy mortgage market with competing lenders attracting borrowers before the crisis and we need to get back to that healthy mortgage market. We do not want what the United States have which is a government guaranteed mortgage market and they are desperately trying to find a way out of that position so we mustn’t let this scheme turn into a permanent scheme.’

Help to Buy has already been heavily criticised on the same and other grounds by the all-party Treasury committee of MPs and it’s next to impossible to find a reputable economist who supports the policy. Mortgage lenders and estate agents are expressing caution and even housebuilders seem faintly embarrassed by this latest example of government largesse. Osborne has even drawn criticism from Migration Watch and the TaxPayers Alliance over claims that foreign buyers will be able to benefit. 

However, Help to Buy already seems to be having an impact on buyer demand and on prices. A survey out this morning from Rightmove shows that seller’s asking prices rose by 2.1 per cent in May alone after the strongest start to a year since 2004. The average asking price in London is now more than £500,000.

It’s perfectly possible that Help to Buy will be the long-term disaster that everyone fears at the same time as it is a short term success for the government in boosting activity in the housing market and the wider economy in the run-up to the next election.

King’s comments seem more than a little self-serving. His claim that there was a ‘healthy mortgage market’ stretches credulity when you remember the surge of lending that inflated the housing bubble before 2007 on his watch. To give just one example, half of all mortgages lent in that year were self-certified.

However, his warning also points up just how big a mistake Osborne could be about to make. Ironically, just as the chancellor prepares to offer state guarantees for mortgages in the UK, politicians in the United States are desperately searching for ways to get out of offering them.

The Federal National Mortgage Association (Fannie Mae) was set up in the wake of the 1930s depression as part of the New Deal to provide local banks with federal money to finance mortgages. After 75 years, it is still going, alongside its counterpart the Federal Home Loan Mortgage Corporation (Freddie Mac), showing just how difficult it is for a government to exit the mortgage market once they have entered it.

The agencies were privatised in the late 1960s, invented mortgage-backed securities in the 1980s and were used to expand home ownership to low-income households in the 1990s. In the wake of the sub-prime mortgage crisis and credit crunch, they had to be taken back into public ownership in 2008. They currently guarantee half of all American mortgages worth about $5 trillion.

However, there is another example of a government guaranteeing mortgages that King tactfully (or pointedly) did not mention. Canada has its own equivalent of Fannie Mae:  the state-owned Canada Mortgage and Housing Corp set up in 1946 that now guarantees half of all mortgages but the government also guarantees two private sector insurers.

Canada is of course the home country of King’s successor Mark Carney. He got the job at the Bank of England after being credited with rescuing the country from the financial crisis as governor of the Bank of Canada by rapidly cutting interest rates. As he gets set to arrive in London things are not looking nearly so rosy back home. Critics say those mortgage guarantees helped to inflate a housing bubble.

In a survey of the world’s 18 biggest housing markets by The Economist this week, Canada has the most over-valued house prices when judged against rents (by 73 per cent compared to 19 per cent in Britain) and the third most overvalued prices judged against incomes (32 per cent against 11 per cent). Where house prices in Britain have fallen by 11 per cent since the start of the credit crunch, Canada’s are up 18 per cent.

The Economist concludes:

‘On this basis Canada’s market is especially vulnerable. A large bubble now looks set to burst. Home sales in March were 15 per cent down on a year earlier. Buyers are in short supply. A recent poll showed that only 15 per cent of Canadians are likely to buy a home in the next two years, down from 27 per cent last year—the steepest decline in the 20-year history of the survey. After a big boom, the housing bust will be a wrenching affair.’

With Carney finding London house prices so extortionate that he demanded a £250,000 a year housing allowance, is he jumping from the frying pan into the fire or the other way around?

MORE: It’s not just Help to Buy mortgage guarantees that are under fire. Analysis just released by the g15 group of London’s largest housing associations shows that Help to Buy equity loans will be of minimal help to average earners in the capital.

The group looked at all properties for sale across London advertised on the main property portals between January and April 2013 and modelled their affordability based on a 20 per cent Help to Buy equity loan, a 5 per cent deposit and a standard mortgage of 3.5 times earnings.

A single person with an average income of £26,499 would be able to buy a property worth £125,000 but only 2,963 (2.5 per cent) of the advertised homes were in that price bracket.

The choices are almost as restricted for someone on the median income in London of £33,308. They would be able to buy homes up to £135,000 but that applied to just 4,176 (3.5 per cent) of those available.

As Keith Exford, chair of the g15 and chief executive of Affinity Sutton, points out, average earners will be left with the most undesirable property: flats above shops, properties in poor repair and flats with short leases.

The g15 is calling on the government to focus investment on low cost home ownership instead, arguing that the £3.5 billion allocated to Help to Buy equity loans could fund 175,000 affordable homes.

Squeezed out

Fri, 17 May 2013

Here are some thoughts on an event I’ve just chaired for the Resolution Foundation yesterday on the scale of the housing crisis and how to fix it.

Rather like most of my blogs, I thought it would be stronger on the first bit than the second, but the debate revealed a new willingness to look for solutions as well as more reasons to be gloomy.

The centerpiece was a sneak preview of some forthcoming research from the Resolution Foundation and Hometrack on the housing plight of low and middle income households. The foundation is a think tank focused on the 5.6 million people caught in the squeezed middle between stagnating wages and rising costs.

The conclusion is that 1.3 million of them face unaffordable housing costs. That is a very conservative estimate as it is based on some cautious assumptions such as lower quartile house prices. Of these, 590,000 are private renters, 585,000 are owners with a mortgage and 100,000 are social renters.

Almost half of them (570,000) are younger families where the head of the household is under 35 and two thirds are outside London and the South East. One particularly dramatic graphic in the final report shows how unaffordable housing (defined as more than 35 per cent of net household income) is spreading rapidly to other parts of the country.

A key message is that, while a deposit on home ownership remains out of reach (the average time needed to save for one is now 22 years), private renting is now more expensive than paying a mortgage in all but a handful of local authorities in Britain. Another is that shared ownership – the often forgotten form of tenure – is the most affordable and warrants fresh scrutiny.

That was followed by responses from three panelists that revealed some serious doubts about whether the solution to the crisis really is more investment in private renting (even if it comes from institutions rather than buy to let landlords). After all, as Vidhya Alakeson of the Resolution Foundation pointed out, it emerges from the research as ‘overwhelmingly the most expensive tenure’.

Keith Exford of Affinity Sutton and the G15 group of housing associations made a powerful case for more investment in social renting. He said the Treasury’s discounting of investment by 50 per cent significantly undervalues the real impact and cited research showing that it offers the best value for money in the long term. He was also sceptical about Build to Rent delivering enough new supply quickly enough.

Natalie Elphicke of Million Homes, which aims to find ways to harness new social investment with little or no government grant and mixing private and social renting, argued for ‘progressive ownership’ that would allow people to move from renting to owning. She also had some harsh words for buy-to-let landlords who allow their tenants to pay their mortgage while offering them no security in return.

Campbell Robb of Shelter said debates were needed on what we want out of home ownership, what we really mean by affordable, more freedom to borrow for council housing and, above all, land. If compulsory purchase can be used for the HS2 rail line in some of the safest Conservative seats in the country, he asked, then why not for new homes?

The debate that followed ranged far and wide from the banks to Nigel Farrage, self-build to tax and the role of local authorities to rent control. The encouraging thing for me was not so much that magical solutions are appearing – that would be expecting too much – but that people are looking at all the issues in new ways.

That’s a reflection of the fact that things are changing around the country too. For one example, see Gentoo’s launch this week of its Genie structured home purchase plan. For another, see this week’s report of the London Finance Commission. This comes up with the remarkable stat that the last 10 years have seen £17 billion investment in affordable housing in the capital while £50 billion in housing benefit has been paid to landlords. Who would have thought a couple of years ago that a report for a Conservative mayor would argue that ‘the relaxation of borrowing controls is the only obvious solution to enable the delivery of greater supply’? For more on the report, see Steve Hilditch’s blog for Red Brick.

The big question is whether this new thinking is going to be enough to counteract the damage caused by George Osborne’s reckless Help to Buy policy and whatever he has in store for us in the spending review. Fans of it were certainly in short supply at the Resolution Foundation event yesterday. For a sneak preview ahead of Mark Carney’s arrival at the Bank of England, see this Money Week blog on the housing market consequences of Canadian state guarantees for mortgages.

As for the spending review, there are crucial issues to be settled not just on the prospects for housing investment and housing benefit, but on social sector rents and investment in private renting too.

New thinking on the housing crisis is tantalisingly within reach but, as yet more dismal housebuilding figures underlined as the event was taking place, the crisis itself is getting worse all the time. 

Squeezed out

Fri, 17 May 2013

Here are some thoughts on an event I’ve just chaired for the Resolution Foundation yesterday on the scale of the housing crisis and how to fix it.

Rather like most of my blogs, I thought it would be stronger on the first bit than the second, but the debate revealed a new willingness to look for solutions as well as more reasons to be gloomy.

The centerpiece was a sneak preview of some forthcoming research from the Resolution Foundation and Hometrack on the housing plight of low and middle income households. The foundation is a think tank focused on the 5.6 million people caught in the squeezed middle between stagnating wages and rising costs.

The conclusion is that 1.3 million of them face unaffordable housing costs. That is a very conservative estimate as it is based on some cautious assumptions such as lower quartile house prices. Of these, 590,000 are private renters, 585,000 are owners with a mortgage and 100,000 are social renters.

Almost half of them (570,000) are younger families where the head of the household is under 35 and two thirds are outside London and the South East. One particularly dramatic graphic in the final report shows how unaffordable housing (defined as more than 35 per cent of net household income) is spreading rapidly to other parts of the country.

A key message is that, while a deposit on home ownership remains out of reach (the average time needed to save for one is now 22 years), private renting is now more expensive than paying a mortgage in all but a handful of local authorities in Britain. Another is that shared ownership – the often forgotten form of tenure – is the most affordable and warrants fresh scrutiny.

That was followed by responses from three panelists that revealed some serious doubts about whether the solution to the crisis really is more investment in private renting (even if it comes from institutions rather than buy to let landlords). After all, as Vidhya Alakeson of the Resolution Foundation pointed out, it emerges from the research as ‘overwhelmingly the most expensive tenure’.

Keith Exford of Affinity Sutton and the G15 group of housing associations made a powerful case for more investment in social renting. He said the Treasury’s discounting of investment by 50 per cent significantly undervalues the real impact and cited research showing that it offers the best value for money in the long term. He was also sceptical about Build to Rent delivering enough new supply quickly enough.

Natalie Elphicke of Million Homes, which aims to find ways to harness new social investment with little or no government grant and mixing private and social renting, argued for ‘progressive ownership’ that would allow people to move from renting to owning. She also had some harsh words for buy-to-let landlords who allow their tenants to pay their mortgage while offering them no security in return.

Campbell Robb of Shelter said debates were needed on what we want out of home ownership, what we really mean by affordable, more freedom to borrow for council housing and, above all, land. If compulsory purchase can be used for the HS2 rail line in some of the safest Conservative seats in the country, he asked, then why not for new homes?

The debate that followed ranged far and wide from the banks to Nigel Farrage, self-build to tax and the role of local authorities to rent control. The encouraging thing for me was not so much that magical solutions are appearing – that would be expecting too much – but that people are looking at all the issues in new ways.

That’s a reflection of the fact that things are changing around the country too. For one example, see Gentoo’s launch this week of its Genie structured home purchase plan. For another, see this week’s report of the London Finance Commission. This comes up with the remarkable stat that the last 10 years have seen £17 billion investment in affordable housing in the capital while £50 billion in housing benefit has been paid to landlords. Who would have thought a couple of years ago that a report for a Conservative mayor would argue that ‘the relaxation of borrowing controls is the only obvious solution to enable the delivery of greater supply’? For more on the report, see Steve Hilditch’s blog for Red Brick.

The big question is whether this new thinking is going to be enough to counteract the damage caused by George Osborne’s reckless Help to Buy policy and whatever he has in store for us in the spending review. Fans of it were certainly in short supply at the Resolution Foundation event yesterday. For a sneak preview ahead of Mark Carney’s arrival at the Bank of England, see this Money Week blog on the housing market consequences of Canadian state guarantees for mortgages.

As for the spending review, there are crucial issues to be settled not just on the prospects for housing investment and housing benefit, but on social sector rents and investment in private renting too.

New thinking on the housing crisis is tantalisingly within reach but, as yet more dismal housebuilding figures underlined as the event was taking place, the crisis itself is getting worse all the time. 

Tragic lessons

Mon, 13 May 2013

‘She was fine before this bedroom tax. It was dreamt up in London, by people in offices and big houses. They have no idea the effect it has on people like my mum.’

I’m not sure how the architects of what ministers prefer to call the spare room subsidy will react to the words of Steven Bottrill or the tragic suicide of his mother Stephanie. A spokesman for the Department of Work and Pensions (DWP) told BBC radio news yesterday that it would be ‘inappropriate to comment’ on an individual case but that did not stop a ‘source’ from adding that the government had made discretionary help available.

You can read more about the awful story in yesterday’s Sunday People and a fuller interview with Steven Bottrill in today’s Mirror. With her two children grown up and left home, Stephanie Bottrill, 53, faced a £20 a week under-occupation penalty on her three-bedroom home in Solihull. She left a notes to family and friends including one telling her son ‘don’t blame yourself for me ending my life, it’s my life, the only people to blame are the government’. Then she left the house and it’s believed she walked into the path of a lorry on the nearby M6.

Among the many heartbreaking details, one that really sticks in my mind was the way that she had her things packed in boxes marked ‘kitchen’ and ‘bathroom’ even though she had nowhere else to go. She wanted to be prepared in case the council found her a smaller place.

From the reports, it’s not clear what advice and support or what offers of alternative accommodation she received. What seems a little clearer is that she was under severe financial strain even before having to find that extra £20 a week and facing the prospect of having to leave her home of 18 years. Perhaps more will emerge at the inquest. 

In the wider context of welfare reform, will there be more individual tragedies like this? As I blogged in November, there have already been several awful cases and more look both inevitable and predictable.

However, the sad story of Stephanie Bottrill illustrates particular problems with the bedroom tax. Her circumstances were not those of the worst cases that have attracted all the publicity so far: the couples with a ‘spare’ room given over to medical equipment or who needed to sleep in separate rooms; the families with disabled children living in specially adapted homes; the victim of domestic violence facing a penalty for her panic room; or the fathers who have their kids to stay three days a week.

According to the reports, despite a debilitating illness that meant she could not work, she was not registered as disabled. After her daughter moved out, she was under-occupying her house by two bedrooms. It’s not clear whether she was offered discretionary help or whether she would have been entitled to it.

She would not even have been helped by the key amendment to the under-occupation penalty voted through in the House of Lords in the final stages of the Welfare Reform Bill debates in 2011 but reversed in the House of Commons. This would have exempted anyone under-occupying by one bedroom if no suitable accommodation was available.

However, her story prompted me to look back at the arguments made for and against that at the time. Welfare reform minister Lord Freud argued in the Lords that the exemption would be ‘too broad and would be complex and costly to administer’. He went on:

‘In most cases where there is no suitable accommodation, we expect that claimants and their partners will find ways of meeting the shortfall—through employment, we hope, or through increased earnings. For those who are genuinely struggling to meet the shortfall and who have exhausted all possible options, the local authority might consider a discretionary housing payment.’

In the Commons work and pensions minister Maria Miller trotted out the familiar line that:

‘If social sector tenants choose to continue to live in accommodation that is larger than they need, it is only right that they make a contribution towards the cost. They can meet any shortfall through employment or other means. Those are the sorts of everyday choices that people living in the private rented sector and those who are not getting housing benefit have to make every day.’

However, even at the time it was clear that the bedroom tax would be about much more than that for its victims. As Lord Best put it moving the amendment in the Lords:

‘Houses and flats provided by councils and housing associations represent people’s homes. They are not transit camps or hostels, with people constantly on the move as families expand and contract, but places to settle, put down roots and overcome some of the disadvantages that life has thrown at them.’

And Andrew Percy, one of two Conservative MPs who voted against the government in the Commons, made a similar and powerful point:

‘I am sure that the ministers understand this, but I plead with them to take account of the fact that houses are not only public assets; they are also people’s homes, and people have an attachment to them. This is not a simple matter to resolve, even though we should encourage an end to under-occupancy.’

They were both making the point that there are better, and fairer, ways to tackle under-occupancy than using the blunt instrument of the bedroom tax. Instead, despite a Conservative manifesto pledge to ‘respect the tenures and rents of social housing tenants’, the government is forcing people into a choice between giving up their homes (if something smaller is available) or paying the penalty. These are people’s homes, with all the emotions tied up in that idea, not just an aggregation of rooms. 

Six weeks in, the rent arrears are already mounting and demand for discretionary housing payments is far outstripping supply. We are left with a policy dreamt up in London with little idea of what the impact would be around the country. Or of the effect it has already had so tragically on Stephanie Bottrill and her family.

Tragic lessons

Mon, 13 May 2013

‘She was fine before this bedroom tax. It was dreamt up in London, by people in offices and big houses. They have no idea the effect it has on people like my mum.’

I’m not sure how the architects of what ministers prefer to call the spare room subsidy will react to the words of Steven Bottrill or the tragic suicide of his mother Stephanie. A spokesman for the Department of Work and Pensions (DWP) told BBC radio news yesterday that it would be ‘inappropriate to comment’ on an individual case but that did not stop a ‘source’ from adding that the government had made discretionary help available.

You can read more about the awful story in yesterday’s Sunday People and a fuller interview with Steven Bottrill in today’s Mirror. With her two children grown up and left home, Stephanie Bottrill, 53, faced a £20 a week under-occupation penalty on her three-bedroom home in Solihull. She left a notes to family and friends including one telling her son ‘don’t blame yourself for me ending my life, it’s my life, the only people to blame are the government’. Then she left the house and it’s believed she walked into the path of a lorry on the nearby M6.

Among the many heartbreaking details, one that really sticks in my mind was the way that she had her things packed in boxes marked ‘kitchen’ and ‘bathroom’ even though she had nowhere else to go. She wanted to be prepared in case the council found her a smaller place.

From the reports, it’s not clear what advice and support or what offers of alternative accommodation she received. What seems a little clearer is that she was under severe financial strain even before having to find that extra £20 a week and facing the prospect of having to leave her home of 18 years. Perhaps more will emerge at the inquest. 

In the wider context of welfare reform, will there be more individual tragedies like this? As I blogged in November, there have already been several awful cases and more look both inevitable and predictable.

However, the sad story of Stephanie Bottrill illustrates particular problems with the bedroom tax. Her circumstances were not those of the worst cases that have attracted all the publicity so far: the couples with a ‘spare’ room given over to medical equipment or who needed to sleep in separate rooms; the families with disabled children living in specially adapted homes; the victim of domestic violence facing a penalty for her panic room; or the fathers who have their kids to stay three days a week.

According to the reports, despite a debilitating illness that meant she could not work, she was not registered as disabled. After her daughter moved out, she was under-occupying her house by two bedrooms. It’s not clear whether she was offered discretionary help or whether she would have been entitled to it.

She would not even have been helped by the key amendment to the under-occupation penalty voted through in the House of Lords in the final stages of the Welfare Reform Bill debates in 2011 but reversed in the House of Commons. This would have exempted anyone under-occupying by one bedroom if no suitable accommodation was available.

However, her story prompted me to look back at the arguments made for and against that at the time. Welfare reform minister Lord Freud argued in the Lords that the exemption would be ‘too broad and would be complex and costly to administer’. He went on:

‘In most cases where there is no suitable accommodation, we expect that claimants and their partners will find ways of meeting the shortfall—through employment, we hope, or through increased earnings. For those who are genuinely struggling to meet the shortfall and who have exhausted all possible options, the local authority might consider a discretionary housing payment.’

In the Commons work and pensions minister Maria Miller trotted out the familiar line that:

‘If social sector tenants choose to continue to live in accommodation that is larger than they need, it is only right that they make a contribution towards the cost. They can meet any shortfall through employment or other means. Those are the sorts of everyday choices that people living in the private rented sector and those who are not getting housing benefit have to make every day.’

However, even at the time it was clear that the bedroom tax would be about much more than that for its victims. As Lord Best put it moving the amendment in the Lords:

‘Houses and flats provided by councils and housing associations represent people’s homes. They are not transit camps or hostels, with people constantly on the move as families expand and contract, but places to settle, put down roots and overcome some of the disadvantages that life has thrown at them.’

And Andrew Percy, one of two Conservative MPs who voted against the government in the Commons, made a similar and powerful point:

‘I am sure that the ministers understand this, but I plead with them to take account of the fact that houses are not only public assets; they are also people’s homes, and people have an attachment to them. This is not a simple matter to resolve, even though we should encourage an end to under-occupancy.’

They were both making the point that there are better, and fairer, ways to tackle under-occupancy than using the blunt instrument of the bedroom tax. Instead, despite a Conservative manifesto pledge to ‘respect the tenures and rents of social housing tenants’, the government is forcing people into a choice between giving up their homes (if something smaller is available) or paying the penalty. These are people’s homes, with all the emotions tied up in that idea, not just an aggregation of rooms. 

Six weeks in, the rent arrears are already mounting and demand for discretionary housing payments is far outstripping supply. We are left with a policy dreamt up in London with little idea of what the impact would be around the country. Or of the effect it has already had so tragically on Stephanie Bottrill and her family.

Dead cert

Fri, 10 May 2013

So, three years after it was pronounced dead, can anything stop buy to let squeezing out owner-occupation?

Figures from the Council of Mortgage Lenders (CML) yesterday showed that loans to landlords accounted for 13.4 per cent of the £165.6 billion worth of outstanding mortgages in the first quarter of the year. That’s up from 13.0 per cent in the fourth quarter of 2012 and just 9.8 per cent at the start of the credit crunch in 2007.

All of which makes it easy to forget that it was only three years ago when the last rites were being delivered for buy to let by probably its best-known pioneers, Fergus and Judith Wilson. The former teachers built a 700-home empire but by 2010 they were bailing out and telling The Guardian that buy to let was ‘absolutely dead and will never return’.

They were selling up and retiring after starting into the abyss as the financial crisis hit its worst point in 2008. Ironically, the thing that saved them and thousands of other landlords was the collapse of Lehman Brothers and the way that the Bank of England responded by cutting interest rates to 0.5 per cent.

Seen from the perspective of 2013 that all seems a long time ago. There are now almost 1.5 million buy-to-let mortgages outstanding, 49 per cent more than in 2007 and 14 per cent more than in 2010.

Although the CML figures show the pace of growth has slowed slightly, cheerleading articles like this are appearing again in the national media as though 2008 never happened. A one-bedroom flat in Wales is apparently ‘the secret to buy-to-let riches’.

The market continues to be underpinned by ultra-low mortgage rates. As with the wider market, that may beg all sorts of questions about what will happen if and when they go back up to pre-crunch levels but in the meantime landlords have had a captive market of renters unable to raise a deposit to buy.

Meanwhile buy to let has received two significant boosts in the last month. First, agreement in Europe on a new mortgage credit directive confirmed that buy to let will not be subject to the same regulation as ordinary lending to homeowners. Second, the Bank of England extended its Funding for Lending Scheme to non-banks and expanded the definition of small and medium and businesses to include property investors. There are already signs that buy-to-let mortgage rates have begun to fall.

In the meantime, the decline of owner-occupation continues. Yesterday’s CML figures also showed that there are now 9.8 million owner-occupied mortgages, a fall of 2 per cent on a year ago and 8.4 per cent since early 2008. Overall, there are now 900,000 fewer owner-occupiers than at the start of the credit crunch.

Recent CML figures do at least show some signs of life in lending to first-time buyers. However, with Help to Buy set to extend help to all buyers and go higher up the income scale, they look set to be priced even further out of our dysfunctional and artificially inflated housing market. 

Dead cert

Fri, 10 May 2013

So, three years after it was pronounced dead, can anything stop buy to let squeezing out owner-occupation?

Figures from the Council of Mortgage Lenders (CML) yesterday showed that loans to landlords accounted for 13.4 per cent of the £165.6 billion worth of outstanding mortgages in the first quarter of the year. That’s up from 13.0 per cent in the fourth quarter of 2012 and just 9.8 per cent at the start of the credit crunch in 2007.

All of which makes it easy to forget that it was only three years ago when the last rites were being delivered for buy to let by probably its best-known pioneers, Fergus and Judith Wilson. The former teachers built a 700-home empire but by 2010 they were bailing out and telling The Guardian that buy to let was ‘absolutely dead and will never return’.

They were selling up and retiring after starting into the abyss as the financial crisis hit its worst point in 2008. Ironically, the thing that saved them and thousands of other landlords was the collapse of Lehman Brothers and the way that the Bank of England responded by cutting interest rates to 0.5 per cent.

Seen from the perspective of 2013 that all seems a long time ago. There are now almost 1.5 million buy-to-let mortgages outstanding, 49 per cent more than in 2007 and 14 per cent more than in 2010.

Although the CML figures show the pace of growth has slowed slightly, cheerleading articles like this are appearing again in the national media as though 2008 never happened. A one-bedroom flat in Wales is apparently ‘the secret to buy-to-let riches’.

The market continues to be underpinned by ultra-low mortgage rates. As with the wider market, that may beg all sorts of questions about what will happen if and when they go back up to pre-crunch levels but in the meantime landlords have had a captive market of renters unable to raise a deposit to buy.

Meanwhile buy to let has received two significant boosts in the last month. First, agreement in Europe on a new mortgage credit directive confirmed that buy to let will not be subject to the same regulation as ordinary lending to homeowners. Second, the Bank of England extended its Funding for Lending Scheme to non-banks and expanded the definition of small and medium and businesses to include property investors. There are already signs that buy-to-let mortgage rates have begun to fall.

In the meantime, the decline of owner-occupation continues. Yesterday’s CML figures also showed that there are now 9.8 million owner-occupied mortgages, a fall of 2 per cent on a year ago and 8.4 per cent since early 2008. Overall, there are now 900,000 fewer owner-occupiers than at the start of the credit crunch.

Recent CML figures do at least show some signs of life in lending to first-time buyers. However, with Help to Buy set to extend help to all buyers and go higher up the income scale, they look set to be priced even further out of our dysfunctional and artificially inflated housing market. 

Wake-up call

Thu, 2 May 2013

The interest-only mortgage is the housing scandal that just keeps coming back.

In the 1980s it was all about the mis-selling of endowment mortgages. In the 2000s it was about selling as many mortgages as possible without caring too much about whether there was a way to repay them. In the 2010s and 2020s it will be about dealing with the consequences – and who pays for them.

A report out today from the Financial Conduct Authority (FCA – no relation to the FSA that was the regulator in the 2000s) reveals that there are around 1.3 million people who are only paying the interest on their mortgage and could struggle to pay back the amount their borrowed at the end of their term. With an average shortfall of £71,000 that implies a total liability of £71 billion.

The FCA identifies three different waves of interest-only liabilities that will hit over the next 30 years. The best off are those who (like me) were mis-sold endowments in the 1990s but find that the endowments will not pay out enough to repay the mortgage let alone deliver the extra lump sum they were told about. The FCA expects that most of them will have backup options, not least because of the amount house prices have risen since then.

Next come people who took out interest-only mortgages between 2003 and 2009. In the lax lending conditions of the time very few questions were asked and interest-only loans were often the only way to be able to afford to get on the housing ladder. Finally come people who have converted to interest-only because they could not afford their monthly payments.

The FCA estimates that around 2.6 million UK households have interest-only mortgages and that around half of those do not have believe they will not have enough money to pay off the final bill when their mortgage term comes to an end.  Around one in ten – 260,000 families – have no repayment strategy at all.

The interest-only fiasco will play out over the next 20 years or so, with peaks in 2017/18, 2027/28 and 2032. The point of the FCA’s warning is to give lenders and borrowers a wake-up call to act now to organise their finances and mitigate the problems over the long term.

The Council of Mortgage Lenders (CML) says its members will be contacting borrowers who are at risk and it has worked with the Money Advice Service on a practical action plan on options such as remortgaging and switching to a repayment mortgage.

Hopefully those efforts, plus much stricter controls on interest-only lending from next year, will help prevent some of the worst problems. The bigger question though is what happens to the people who still cannot repay their mortgage.

Some may be struggling so much that they may not make it to the end of their 25-year term – even though lenders are desperate to avoid repossessing people. Others may make it to the end and still have no way to pay back the original sum they borrowed. In the 80s and 90s that might not have been a problem because high inflation would have shrunk the debt in real terms but that no longer applies in the low inflation environment of the last few years.

So what happens then? Presumably the lender would repossess the house and get back an asset almost certainly worth more than the amount that was borrowed 25 years before. It may not be much compensation to the former owner losing their home but they will have enjoyed 25 years living in it and probably have paid less in mortgage interest than they would have done in rent.

The repossessed owner may apply as homeless, triggering immediate costs for their local authority. Or they may simply move into rented accommodation when they are close to retirement, storing up a long-term liability for housing benefit on top of the huge bill that is already coming from the fall in home ownership.

And so ultimately the taxpayer will be left picking up the bill for the lax lending that inflated the housing boom. It’s not just lenders and borrowers who need a wake-up call but the government too.

Wake-up call

Thu, 2 May 2013

The interest-only mortgage is the housing scandal that just keeps coming back.

In the 1980s it was all about the mis-selling of endowment mortgages. In the 2000s it was about selling as many mortgages as possible without caring too much about whether there was a way to repay them. In the 2010s and 2020s it will be about dealing with the consequences – and who pays for them.

A report out today from the Financial Conduct Authority (FCA – no relation to the FSA that was the regulator in the 2000s) reveals that there are around 1.3 million people who are only paying the interest on their mortgage and could struggle to pay back the amount their borrowed at the end of their term. With an average shortfall of £71,000 that implies a total liability of £71 billion.

The FCA identifies three different waves of interest-only liabilities that will hit over the next 30 years. The best off are those who (like me) were mis-sold endowments in the 1990s but find that the endowments will not pay out enough to repay the mortgage let alone deliver the extra lump sum they were told about. The FCA expects that most of them will have backup options, not least because of the amount house prices have risen since then.

Next come people who took out interest-only mortgages between 2003 and 2009. In the lax lending conditions of the time very few questions were asked and interest-only loans were often the only way to be able to afford to get on the housing ladder. Finally come people who have converted to interest-only because they could not afford their monthly payments.

The FCA estimates that around 2.6 million UK households have interest-only mortgages and that around half of those do not have believe they will not have enough money to pay off the final bill when their mortgage term comes to an end.  Around one in ten – 260,000 families – have no repayment strategy at all.

The interest-only fiasco will play out over the next 20 years or so, with peaks in 2017/18, 2027/28 and 2032. The point of the FCA’s warning is to give lenders and borrowers a wake-up call to act now to organise their finances and mitigate the problems over the long term.

The Council of Mortgage Lenders (CML) says its members will be contacting borrowers who are at risk and it has worked with the Money Advice Service on a practical action plan on options such as remortgaging and switching to a repayment mortgage.

Hopefully those efforts, plus much stricter controls on interest-only lending from next year, will help prevent some of the worst problems. The bigger question though is what happens to the people who still cannot repay their mortgage.

Some may be struggling so much that they may not make it to the end of their 25-year term – even though lenders are desperate to avoid repossessing people. Others may make it to the end and still have no way to pay back the original sum they borrowed. In the 80s and 90s that might not have been a problem because high inflation would have shrunk the debt in real terms but that no longer applies in the low inflation environment of the last few years.

So what happens then? Presumably the lender would repossess the house and get back an asset almost certainly worth more than the amount that was borrowed 25 years before. It may not be much compensation to the former owner losing their home but they will have enjoyed 25 years living in it and probably have paid less in mortgage interest than they would have done in rent.

The repossessed owner may apply as homeless, triggering immediate costs for their local authority. Or they may simply move into rented accommodation when they are close to retirement, storing up a long-term liability for housing benefit on top of the huge bill that is already coming from the fall in home ownership.

And so ultimately the taxpayer will be left picking up the bill for the lax lending that inflated the housing boom. It’s not just lenders and borrowers who need a wake-up call but the government too.

Learning lessons

Wed, 1 May 2013

The plight of families with children highlighted in a report from Shelter illustrates yet again why private renting in England so urgently needs reform.

If the experiences of tenants facing damp and disrepair and soaring rents are depressingly familiar, the report adds detail to what has become a way of life for the one in five families with children who now rent their home privately.

The insecurity inherent in short-term tenancies means that one in 10 of 4,000 families surveyed have had to change their children’s school as a result of moving. They were nine times as likely to have moved in the last year as families who own their own homes.

While 44 per cent of parents feel their children would have a better childhood if they had more stability in their home, less than 10 per cent said they valued the freedom and flexibility that renting gives them.

The report quotes the case of Helen, who has lived in nine different houses with her family since her eight-year-old daughter was born. The daughter has already moved school once and now they face moving again because the landlord has stopped paying the mortgage and there are no other rentals available nearby. Helen now has two other children at school but the chances of placing all three children in the same school are very unlikely.

Add cases of sudden rent rises, rip-off letting agent fees, losing your home for complaining about disrepair and the everyday struggle of affording the rent and you have millions of people crying out for more stability but unable to afford to buy or stuck on the waiting list for social housing.

Shelter is promoting a stable rental contract that would ‘give renters five years in their home during which they could not be evicted without good reason’ and a guarantee that rents would rise by no more than CPI during the five years. Renters would be able to give two months’ notice to end the tenancy at any point but landlords would have the right to end the tenancy if they sell the property.

As I blogged on Friday, there are signs that some small things are starting to improve for private renters including some (limited) action at last from the government on letting agents and a pledge by Genesis, one of several housing associations expanding into private renting, to offer tenancies of up to five years with yearly agreed rent increases.   

On Monday, Labour published an alternative Queen’s Speech including a Housing Bill to tackle problems in the private rented sector. As well as a national register of landlords and action to tackle ‘rip-off letting agents’ this would ‘seek to give greater security to families who rent and remove the barriers that stand in the way of longer term tenancies’.

One of the biggest barriers is the way that buy-to-let mortgage lenders insist on assured shortholds, giving landlords no choice but to offer six or 12-month tenancies even where they can see the benefits of having longer-term more secure tenants.

However, another is landlord attitudes. While landlord organisations have not rejected Shelter’s idea out of hand even the most sympathetic have doubts about how it would work in practice. The least sympathetic will see restricting rent increases to CPI inflation as a form of rent control and complain that they will not have enough remedies if things go wrong. Longer-term tenancies may work very well in other countries but, as Alex Marsh argues on his blog:

‘Just because German landlords will happily offer multi-year tenancies with built in inflationary uplift doesn’t mean British landlords will do the same, if they consider it their God-given right to extract as much money from tenants as they can get away with and dispose of their property at short notice as they see fit.’

This is perhaps where housing associations - and institutional investors - could take a lead. The funding of their schemes should mean they are free from the restrictions imposed by buy-to-let lenders and they ought to welcome the reduction in voids and management costs that should come with longer-term tenancies. However, are their new-build schemes more likely to be aimed at young professionals rather than families with children?

If it chose, the government could do more too. It could encourage longer-term tenancies as part of its build to rent guarantee programme and it still owns a sizeable stake in two of the biggest mortgage lenders. However, this response from the DCLG to the Shelter report hardly suggests that action is imminent:

‘There is no legal barrier to long-term tenancies. However, restrictive laws making this compulsory would mean fewer homes to rent, less choice and higher rents. With 75 per cent of tenants moving out of choice, and only nine per cent of tenancies ended by the landlord, we are determined to do all we can to help tenants and landlords get a fair deal in a way that doesn’t jeopardize that flexibility or strangle the industry in red tape.’

So change is clearly going to take time but in that time the rise and rise of private renting will continue and so too will the number of families with children in insecure tenancies and uncertain schooling. As Shelter says, private renting was never intended to be a long-term home for families with children. It has become so by default while offering little of the stability that most of us take for granted in a ‘home’. Today’s report is just the start of its 9 Million Renters campaign.

Learning lessons

Wed, 1 May 2013

The plight of families with children highlighted in a report from Shelter illustrates yet again why private renting in England so urgently needs reform.

If the experiences of tenants facing damp and disrepair and soaring rents are depressingly familiar, the report adds detail to what has become a way of life for the one in five families with children who now rent their home privately.

The insecurity inherent in short-term tenancies means that one in 10 of 4,000 families surveyed have had to change their children’s school as a result of moving. They were nine times as likely to have moved in the last year as families who own their own homes.

While 44 per cent of parents feel their children would have a better childhood if they had more stability in their home, less than 10 per cent said they valued the freedom and flexibility that renting gives them.

The report quotes the case of Helen, who has lived in nine different houses with her family since her eight-year-old daughter was born. The daughter has already moved school once and now they face moving again because the landlord has stopped paying the mortgage and there are no other rentals available nearby. Helen now has two other children at school but the chances of placing all three children in the same school are very unlikely.

Add cases of sudden rent rises, rip-off letting agent fees, losing your home for complaining about disrepair and the everyday struggle of affording the rent and you have millions of people crying out for more stability but unable to afford to buy or stuck on the waiting list for social housing.

Shelter is promoting a stable rental contract that would ‘give renters five years in their home during which they could not be evicted without good reason’ and a guarantee that rents would rise by no more than CPI during the five years. Renters would be able to give two months’ notice to end the tenancy at any point but landlords would have the right to end the tenancy if they sell the property.

As I blogged on Friday, there are signs that some small things are starting to improve for private renters including some (limited) action at last from the government on letting agents and a pledge by Genesis, one of several housing associations expanding into private renting, to offer tenancies of up to five years with yearly agreed rent increases.   

On Monday, Labour published an alternative Queen’s Speech including a Housing Bill to tackle problems in the private rented sector. As well as a national register of landlords and action to tackle ‘rip-off letting agents’ this would ‘seek to give greater security to families who rent and remove the barriers that stand in the way of longer term tenancies’.

One of the biggest barriers is the way that buy-to-let mortgage lenders insist on assured shortholds, giving landlords no choice but to offer six or 12-month tenancies even where they can see the benefits of having longer-term more secure tenants.

However, another is landlord attitudes. While landlord organisations have not rejected Shelter’s idea out of hand even the most sympathetic have doubts about how it would work in practice. The least sympathetic will see restricting rent increases to CPI inflation as a form of rent control and complain that they will not have enough remedies if things go wrong. Longer-term tenancies may work very well in other countries but, as Alex Marsh argues on his blog:

‘Just because German landlords will happily offer multi-year tenancies with built in inflationary uplift doesn’t mean British landlords will do the same, if they consider it their God-given right to extract as much money from tenants as they can get away with and dispose of their property at short notice as they see fit.’

This is perhaps where housing associations - and institutional investors - could take a lead. The funding of their schemes should mean they are free from the restrictions imposed by buy-to-let lenders and they ought to welcome the reduction in voids and management costs that should come with longer-term tenancies. However, are their new-build schemes more likely to be aimed at young professionals rather than families with children?

If it chose, the government could do more too. It could encourage longer-term tenancies as part of its build to rent guarantee programme and it still owns a sizeable stake in two of the biggest mortgage lenders. However, this response from the DCLG to the Shelter report hardly suggests that action is imminent:

‘There is no legal barrier to long-term tenancies. However, restrictive laws making this compulsory would mean fewer homes to rent, less choice and higher rents. With 75 per cent of tenants moving out of choice, and only nine per cent of tenancies ended by the landlord, we are determined to do all we can to help tenants and landlords get a fair deal in a way that doesn’t jeopardize that flexibility or strangle the industry in red tape.’

So change is clearly going to take time but in that time the rise and rise of private renting will continue and so too will the number of families with children in insecure tenancies and uncertain schooling. As Shelter says, private renting was never intended to be a long-term home for families with children. It has become so by default while offering little of the stability that most of us take for granted in a ‘home’. Today’s report is just the start of its 9 Million Renters campaign.

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