Monday, 27 March 2017

Inside edge

All posts from: July 2013

Rule of law

Wed, 31 Jul 2013

If you take even a cursory glance at the circumstances of the 10 families involved in the legal challenge to the bedroom tax you’ll be left wondering how discretionary housing payments can possibly resolve their problems.

I read the High Court ruling painfully aware that I lack the legal expertise to interpret the finer points of the European Convention on Human Rights and Public Sector Equality Duty but with enough experience to know that what is lawful is not necessarily the same as what is fair.

The background to the case has already been covered in detail elsewhere. As Inside Housing reports, although the judges said that new measures must be introduced to protect disabled children who need their own room, housing groups were left bitterly disappointed by the dismissal of the other part of the judicial review and lawyers plan to appeal. Read this excellent blog by Kate Webb of Shelter or see statements by the solicitors involved here and here if you haven’t already for the background.

The Department for Work and Pensions (DWP) said that it was ‘pleased to learn that the court has found in our favour and agreed that we have fulfilled our equality duties to disabled people’ but also announced an extra £35 million of in-year discretionary housing payments (DHPs) for what it calls the ‘spare room subsidy’. Given that previous announcements on extra money and concessions have been made under political and media pressure, was this one made with one eye on the appeal (or even a different result)?

The case appeared to turn on whether the DWP’s strategy of relying on DHPs demonstrated that it had acted with sufficient regard to discrimination considerations and was adequate mitigation. The judges accepted the DWP’s argument that it was too difficult to come up with definitions of the degree of disability or adaptation of a property that would justify exemptions for adults. Unlike children who cannot share a bedroom by reason of their disabilities, there was no such ‘discrete group’ of adults. See this blog by Sue Marsh for an alternative take on that.

That leaves most of the 10 families involved in the case relying on discretionary housing payments that are being applied under policies that (as evidence presented by Shelter to the court showed) vary widely between different local authorities.

An annex to the ruling describes their circumstances in some detail:

  • Jacqueline Carmichael, a woman with spina bifida who lives in a two-bed flat with her husband who is also her full-time carer. Their housing benefit has been reduced by 14 per cent but they have a six-month DHP to cover the shortfall.
  • Richard Rourke, a disabled man in a wheelchair, lives in a three-bed bungalow with his step-daughter, who stays in university accommodation during the week in term time and over some weekends. He sleeps in one bedroom, his daughter in another and he uses the third to store equipment. He is appealing against a 25 per cut in his housing benefit and has requested a DHP that is not yet decided but is accruing arrears in the meantime.
  • Melvyn Drage, a man with significant mental health problems and various physical difficulties, lives in a three-bed flat on his own. His conditions are exacerbated by stress and he is very anxious about having to move. He has a six-month DHP covering the shortfall on one bedroom but has rising rent arrears for the other.
  • JD and her disabled adult daughter AD live in a specially adapted three-bed property. AD’s twin brother had lived in the house but has now moved out. AD has severe physical disabilities, learning disabilities and visual impairment and needs 24-hour care and is unable to move herself without assistance. After housing benefit was reduced by 14 per cent, JD appealed, but the local authority has deferred consideration of that until the outcome of this case. She has a six-month DHP until the end of September but has been told it is unlikely to continue after that.

The other six cases all involve children and presumably have some grounds for hope that they will be exempted from the bedroom tax given the judges’ comments. However, they too face varying degrees of uncertainty over their DHPs and are also part of the appeal because they still do not know whether they will be entitled to full housing benefit or when any new regulations will be made.

That brief summary reiterates just how much depends on what happens when the existing DHPs run out. This was also very much the case for residents of Aragon Housing Association who I blogged about last week. The crunch time for many people seems to be the end of September, which is when 26-week awards will run out. The ‘urgent appeal’ sought by the bedroom tax lawyers will I assume be heard before then.

But there will still be time to wonder at the logic of the judges who made today’s ruling, who appeared to argue that it was not their job to intervene at the level of principle or of detail. On the one hand, they said that lawyers for the 10 claimants ‘overlook or underestimate the strategic aims of the policy: not only to save public funds, but also to shift the place of social security support in society’.  On the other, they said that even though the equality impact assessment of the policy did not address the implications for disabled people, it was not the job of the court to ‘micro-manage’ the policy making process.

Rule of law

Wed, 31 Jul 2013

If you take even a cursory glance at the circumstances of the 10 families involved in the legal challenge to the bedroom tax you’ll be left wondering how discretionary housing payments can possibly resolve their problems.

I read the High Court ruling painfully aware that I lack the legal expertise to interpret the finer points of the European Convention on Human Rights and Public Sector Equality Duty but with enough experience to know that what is lawful is not necessarily the same as what is fair.

The background to the case has already been covered in detail elsewhere. As Inside Housing reports, although the judges said that new measures must be introduced to protect disabled children who need their own room, housing groups were left bitterly disappointed by the dismissal of the other part of the judicial review and lawyers plan to appeal. Read this excellent blog by Kate Webb of Shelter or see statements by the solicitors involved here and here if you haven’t already for the background.

The Department for Work and Pensions (DWP) said that it was ‘pleased to learn that the court has found in our favour and agreed that we have fulfilled our equality duties to disabled people’ but also announced an extra £35 million of in-year discretionary housing payments (DHPs) for what it calls the ‘spare room subsidy’. Given that previous announcements on extra money and concessions have been made under political and media pressure, was this one made with one eye on the appeal (or even a different result)?

The case appeared to turn on whether the DWP’s strategy of relying on DHPs demonstrated that it had acted with sufficient regard to discrimination considerations and was adequate mitigation. The judges accepted the DWP’s argument that it was too difficult to come up with definitions of the degree of disability or adaptation of a property that would justify exemptions for adults. Unlike children who cannot share a bedroom by reason of their disabilities, there was no such ‘discrete group’ of adults. See this blog by Sue Marsh for an alternative take on that.

That leaves most of the 10 families involved in the case relying on discretionary housing payments that are being applied under policies that (as evidence presented by Shelter to the court showed) vary widely between different local authorities.

An annex to the ruling describes their circumstances in some detail:

  • Jacqueline Carmichael, a woman with spina bifida who lives in a two-bed flat with her husband who is also her full-time carer. Their housing benefit has been reduced by 14 per cent but they have a six-month DHP to cover the shortfall.
  • Richard Rourke, a disabled man in a wheelchair, lives in a three-bed bungalow with his step-daughter, who stays in university accommodation during the week in term time and over some weekends. He sleeps in one bedroom, his daughter in another and he uses the third to store equipment. He is appealing against a 25 per cut in his housing benefit and has requested a DHP that is not yet decided but is accruing arrears in the meantime.
  • Melvyn Drage, a man with significant mental health problems and various physical difficulties, lives in a three-bed flat on his own. His conditions are exacerbated by stress and he is very anxious about having to move. He has a six-month DHP covering the shortfall on one bedroom but has rising rent arrears for the other.
  • JD and her disabled adult daughter AD live in a specially adapted three-bed property. AD’s twin brother had lived in the house but has now moved out. AD has severe physical disabilities, learning disabilities and visual impairment and needs 24-hour care and is unable to move herself without assistance. After housing benefit was reduced by 14 per cent, JD appealed, but the local authority has deferred consideration of that until the outcome of this case. She has a six-month DHP until the end of September but has been told it is unlikely to continue after that.

The other six cases all involve children and presumably have some grounds for hope that they will be exempted from the bedroom tax given the judges’ comments. However, they too face varying degrees of uncertainty over their DHPs and are also part of the appeal because they still do not know whether they will be entitled to full housing benefit or when any new regulations will be made.

That brief summary reiterates just how much depends on what happens when the existing DHPs run out. This was also very much the case for residents of Aragon Housing Association who I blogged about last week. The crunch time for many people seems to be the end of September, which is when 26-week awards will run out. The ‘urgent appeal’ sought by the bedroom tax lawyers will I assume be heard before then.

But there will still be time to wonder at the logic of the judges who made today’s ruling, who appeared to argue that it was not their job to intervene at the level of principle or of detail. On the one hand, they said that lawyers for the 10 claimants ‘overlook or underestimate the strategic aims of the policy: not only to save public funds, but also to shift the place of social security support in society’.  On the other, they said that even though the equality impact assessment of the policy did not address the implications for disabled people, it was not the job of the court to ‘micro-manage’ the policy making process.

Paying the price

Mon, 29 Jul 2013

All those high earners with social tenancies seem to be slowly melting away ahead of the government’s plan to implement ‘pay to stay’ market rents.

I’m not just talking about the impact of the policy itself and the incentive for tenants to declare an income of £59,999 or even to cut the number of hours they work to get out of paying a market rent for their homes.

Rather I’m talking about the government’s own estimates of the number of high earners. When the policy was first floated at the Conservative Party conference in October 2011, the Telegraph was briefed that there were 6,000 ‘fat cat’ tenants earning more than £100,000 a year.

By the time the government published a consultation paper on the plan in June 2012, it emerged that this was actually the high estimate of the number of households where the household reference person and their partner earn six figures. The low estimate was only 1,000.

Little wonder then that ministers had turned their attention to people a household income of more than £60,000. The consultation paper’s estimates of these slightly svelter cats ranged from 12,000 to 34,000.

And now the numbers have been reduced still further in the summary of responses published by DCLG last week. By combining new data from the 2010/11 English Housing Survey with the two previous surveys, the government now estimates there are now a maximum of 5,000 households earning £100,000 or more.

The estimates for £60,000 earners have also been cut significantly. The low estimate is reduced from 12,000 to 11,000 and the high estimate by 38 per cent from 34,000 to 21,000.  

As I’ve blogged before, the reduction to £60,000 introduced more contradictions into a policy that was already riddled with them. However, it’s clear that many people disagree and support for the policy seems greater than for most of the other coalition housing reforms.

According to the summary of responses:

‘Around a quarter of respondents agreed with the principle that very high earners living in taxpayer-subsidised social housing should pay higher rents and were supportive of the proposal, while around one-third said that they agreed in principle but had some practical concerns. Over a third were opposed.’

Leaving aside that loaded use of taxpayer-subsidised (see my earlier blog for arguments on that), that leaves it unclear whether they were talking about a specific income threshold or just the principle but it does indicate reasonable support from social landlords.

This is not the first time that the principle of high earners living in social housing has become an issue. In the 1960s, the People campaigned for years on ‘the scandal of the wealthy tenant living in a council house at a subsidised rent’. However, nothing ever came of it after the Conservative government of the early 1970s used the issue as one of the justifications for a general increase in council rents.

As Inside Housing reports today, the government is proposing that high-earning tenants should be legally obliged to declare their income:

‘We also want to make sure it is the responsibility of those high-income social tenants to ensure they are making a fairer contribution. We intend to seek a legislative opportunity to place the onus on tenants earning over the threshold to declare their income, when parliamentary time allows.’

That sounds less cumbersome (and certainly less expensive) than the alternative of getting landlords to verify the income of all their tenants but it creates all sorts of incentives for tenants to take steps to minimise their earnings – or else just under-declare. And will it really be worth it for landlords to investigate?  Details will follow on the potentially thorny issue of what constitutes ‘income’. Either way it seems likely to lead to another reduction in the number of high earners.

Another key issue in the consultation was whether pay to stay should be voluntary for landlords, which would be consistent with localism and the way that other reforms such as fixed-term tenancies have been introduced, or a compulsory national scheme. The wording in the summary of responses is ambiguous on this point:

‘We will take steps towards removing the regulatory controls preventing private registered providers charging market rents to social tenant households on incomes of more than £60,000 per year; and will set out revised rent guidance for local authorities’.

The ultimate justification for pay to stay would of course be if it raised significant extra revenue. The document pledges that ‘all additional income from the policy will be available for reinvestment in affordable housing’.

However, how much extra revenue will we really be talking about from a total of high-earning tenants that seems to be shrinking all the time? One of the biggest logical flaws with the whole policy is that it is ‘unfair’ for high earners to benefit from a subsidised rent but ‘fair’ for the same people to benefit from a subsidised purchase through the right to buy. The logical response of anyone who does face a market rent would surely be to apply for their (newly increased) discount.

That’s not the only way in which the policy contradicts itself. As Steve Hilditch argues on Red Brick, it also leaves social landlords even deeper in the mess that is government policy on rents. With rent convergence abandoned, landlords will be left with a patchwork of social rents, sub-social rents that have not converged, ‘affordable’ rents of up to 80 per cent of market rents and market rents. Surely it’s way past time that rents were based on what tenants can afford rather than set in relation to an unaffordable market where prices and rents are driven by other considerations.

Finally, the £60,000 threshold was apparently chosen because it is in line with the income eligibility limit for schemes like shared ownership. However, higher limits of up to £80,000 already apply for the First Steps programme in London and the government has blown even those out of the water by extending eligibility for Help to Buy to households earning up to £150,000.

Pay to stay has probably already achieved its political purpose in generating headlines about Bob Crow and Frank Dobson. As a housing policy it is at best a contradictory distraction from the real issues.  

Paying the price

Mon, 29 Jul 2013

All those high earners with social tenancies seem to be slowly melting away ahead of the government’s plan to implement ‘pay to stay’ market rents.

I’m not just talking about the impact of the policy itself and the incentive for tenants to declare an income of £59,999 or even to cut the number of hours they work to get out of paying a market rent for their homes.

Rather I’m talking about the government’s own estimates of the number of high earners. When the policy was first floated at the Conservative Party conference in October 2011, the Telegraph was briefed that there were 6,000 ‘fat cat’ tenants earning more than £100,000 a year.

By the time the government published a consultation paper on the plan in June 2012, it emerged that this was actually the high estimate of the number of households where the household reference person and their partner earn six figures. The low estimate was only 1,000.

Little wonder then that ministers had turned their attention to people a household income of more than £60,000. The consultation paper’s estimates of these slightly svelter cats ranged from 12,000 to 34,000.

And now the numbers have been reduced still further in the summary of responses published by DCLG last week. By combining new data from the 2010/11 English Housing Survey with the two previous surveys, the government now estimates there are now a maximum of 5,000 households earning £100,000 or more.

The estimates for £60,000 earners have also been cut significantly. The low estimate is reduced from 12,000 to 11,000 and the high estimate by 38 per cent from 34,000 to 21,000.  

As I’ve blogged before, the reduction to £60,000 introduced more contradictions into a policy that was already riddled with them. However, it’s clear that many people disagree and support for the policy seems greater than for most of the other coalition housing reforms.

According to the summary of responses:

‘Around a quarter of respondents agreed with the principle that very high earners living in taxpayer-subsidised social housing should pay higher rents and were supportive of the proposal, while around one-third said that they agreed in principle but had some practical concerns. Over a third were opposed.’

Leaving aside that loaded use of taxpayer-subsidised (see my earlier blog for arguments on that), that leaves it unclear whether they were talking about a specific income threshold or just the principle but it does indicate reasonable support from social landlords.

This is not the first time that the principle of high earners living in social housing has become an issue. In the 1960s, the People campaigned for years on ‘the scandal of the wealthy tenant living in a council house at a subsidised rent’. However, nothing ever came of it after the Conservative government of the early 1970s used the issue as one of the justifications for a general increase in council rents.

As Inside Housing reports today, the government is proposing that high-earning tenants should be legally obliged to declare their income:

‘We also want to make sure it is the responsibility of those high-income social tenants to ensure they are making a fairer contribution. We intend to seek a legislative opportunity to place the onus on tenants earning over the threshold to declare their income, when parliamentary time allows.’

That sounds less cumbersome (and certainly less expensive) than the alternative of getting landlords to verify the income of all their tenants but it creates all sorts of incentives for tenants to take steps to minimise their earnings – or else just under-declare. And will it really be worth it for landlords to investigate?  Details will follow on the potentially thorny issue of what constitutes ‘income’. Either way it seems likely to lead to another reduction in the number of high earners.

Another key issue in the consultation was whether pay to stay should be voluntary for landlords, which would be consistent with localism and the way that other reforms such as fixed-term tenancies have been introduced, or a compulsory national scheme. The wording in the summary of responses is ambiguous on this point:

‘We will take steps towards removing the regulatory controls preventing private registered providers charging market rents to social tenant households on incomes of more than £60,000 per year; and will set out revised rent guidance for local authorities’.

The ultimate justification for pay to stay would of course be if it raised significant extra revenue. The document pledges that ‘all additional income from the policy will be available for reinvestment in affordable housing’.

However, how much extra revenue will we really be talking about from a total of high-earning tenants that seems to be shrinking all the time? One of the biggest logical flaws with the whole policy is that it is ‘unfair’ for high earners to benefit from a subsidised rent but ‘fair’ for the same people to benefit from a subsidised purchase through the right to buy. The logical response of anyone who does face a market rent would surely be to apply for their (newly increased) discount.

That’s not the only way in which the policy contradicts itself. As Steve Hilditch argues on Red Brick, it also leaves social landlords even deeper in the mess that is government policy on rents. With rent convergence abandoned, landlords will be left with a patchwork of social rents, sub-social rents that have not converged, ‘affordable’ rents of up to 80 per cent of market rents and market rents. Surely it’s way past time that rents were based on what tenants can afford rather than set in relation to an unaffordable market where prices and rents are driven by other considerations.

Finally, the £60,000 threshold was apparently chosen because it is in line with the income eligibility limit for schemes like shared ownership. However, higher limits of up to £80,000 already apply for the First Steps programme in London and the government has blown even those out of the water by extending eligibility for Help to Buy to households earning up to £150,000.

Pay to stay has probably already achieved its political purpose in generating headlines about Bob Crow and Frank Dobson. As a housing policy it is at best a contradictory distraction from the real issues.  

Rock and hard place

Fri, 26 Jul 2013

With the Institute of Directors on one side and Simon Jenkins on the other, where is a safe place to stand?

I blogged about Help to Buy 2 earlier this week the day before the breakfast meeting at which George Osborne would apparently reveal full details of the mortgage guarantee that will be available in January.

Nothing that happened over the coffee and croissants has changed my view about the dangers of increasing demand for housing while doing nothing about supply. The schemes that it replaces are open to criticism too but at least they were targeted at first-time buyers and new-build homes. Help to Buy 2 will available to all buyers and on secondhand properties too – and it extends state support to people on household incomes of up to £150,000. Will it trigger a boom and bust that leaves the government picking up the bill or (perhaps more likely) give future governments a direct stake in propping up house prices?

The Treasury press release following the breakfast came complete with endorsements from the big housebuilders but that is hardly a big surprise given the billions of pounds worth of direct and indirect subsidy they have received over the last five years. Treasury minister Sajid David was particularly unconvincing when he told the Today programme on Tuesday that it was ‘self-evident’ that if you boost demand you also boost supply.

Lenders seemed less convinced. The Council of Mortgage Lenders struck a noticeably neutral tone in its response, setting out criteria for success including that Help to Buy ‘be accompanied by an equivalent government focus on the supply of new housing (not just the supply of credit), to avoid the unwelcome effects that stimulating demand without also increasing supply would create’. The Building Societies Association argued that if the banks had applied the same lending criteria as its members over the last few years there would be no need for Help to Buy.

We now know slightly more details about how the mortgage guarantee will work. Applications will be subject to income verification and stress testing and people with impaired credit will not be eligible. On one level, that should help to ensure that lending is responsible, but on another it could mean that many of the people who most need help will not get it. Borrowers will also have to sign a declaration that the guarantee is not for a buy to let property or second home. This prompted an entertaining exchange on the World at One, when housing minister Mark Prisk insisted there would be no return to the self-certified mortgages of the past and was then forced to deny that the borrower’s declaration that they have ‘no interest in a property anywhere else in the world’ amounts to exactly that.

But we still do not know some crucial details. Lenders will want to see what the Prudential Regulation Authority says about capital relief before deciding whether to take part. They will also be charged a commercial fee if they do but this has not yet been set and the cost will presumably be passed on to borrowers in mortgage fees and/or higher interest rates.

Back with the bigger picture, criticism of Help to Buy continues to come from all sides, including many people who you might think would be natural supporters of the government and George Osborne. The loudest of these was Graeme Leach, chief economist of the Institute of Directors, who supplied the soundbite of the week by saying that ‘the world must have gone mad for us to now be discussing endless taxpayer guarantees for mortgages’. From an IoD perspective Help to Buy goes directly against the need to leave everything to the market: ‘Instead of trying to pump-up prices, the government should focus on relaxing planning laws and reducing local authority charges on developers to make it easier to build more homes.’

That argument has been heard many times before in the debate within the Conservative Party about the NPPF in which free market fundamentalists argue for ‘socialist’ planning to be swept away while the Telegraph, National Trust and CPRE fight any attempt to release more land for new homes. And sure enough the Trust chairman Sir Simon Jenkins rides to the rescue of Help to Buy in today’s Guardian, leaving me feeling stuck between a rock and a hard place. 

With a questionable claim that the scheme is somehow Keynesian, our nimby in chief argues that it is better to throw money at the real economy than print it through quantitative easing. Dismissing the case for 250,000 homes a year as a lobbying tool for volume housebuilders, he argues that:

‘Such new building is near irrelevant to the housing market. It is less than 1% of the total stock and under 10% of daily housing transactions. But Osborne’s scheme may at least be pushing up prices. This will not help first-time buyers, let alone the social housing sector, but it should bring to market the half a million homes lying idle in builders’ property banks. That is a good thing. It may even encourage building on marginal sites in cities, where most poor people live.’

Osborne should instead stop ‘dancing to the tune of Barratt and Persimmon’ and subsidise the renovation and renewal of existing homes and development on brownfield land. So far, so semi-plausible, except that you know that this is part of a case against new homes being built anywhere else.

‘Why taxpayers should pump money into boosting house prices is a puzzle buried deep in Britons’ desire to hold and profit from land,’ he argues. ‘It makes no economic sense.’ Better to be like the Scandinavians and Germans who rent and spend on goods and services rather than ploughing their money into ‘inert lifetime investment’.

You might think that sounds like a very good argument against Help to Buy – but you would be wrong. His conclusion is that: ‘At least Osborne is pumping liquidity into something other than bank vaults. He is gambling that a revival in the “sub-prime” mortgage market will boost confidence, gambling that inflationary expectation spurs growth. It is an acknowledged theory.’

The piece struck me as vaguely unhinged until the real agenda struck me. For people like Simon Jenkins, the fact that Help to Buy will boost demand and inflate house prices while doing very little to encourage new supply is most definitely a good thing. Maybe the IoD is not so bad after all. 

Rock and hard place

Fri, 26 Jul 2013

With the Institute of Directors on one side and Simon Jenkins on the other, where is a safe place to stand?

I blogged about Help to Buy 2 earlier this week the day before the breakfast meeting at which George Osborne would apparently reveal full details of the mortgage guarantee that will be available in January.

Nothing that happened over the coffee and croissants has changed my view about the dangers of increasing demand for housing while doing nothing about supply. The schemes that it replaces are open to criticism too but at least they were targeted at first-time buyers and new-build homes. Help to Buy 2 will available to all buyers and on secondhand properties too – and it extends state support to people on household incomes of up to £150,000. Will it trigger a boom and bust that leaves the government picking up the bill or (perhaps more likely) give future governments a direct stake in propping up house prices?

The Treasury press release following the breakfast came complete with endorsements from the big housebuilders but that is hardly a big surprise given the billions of pounds worth of direct and indirect subsidy they have received over the last five years. Treasury minister Sajid David was particularly unconvincing when he told the Today programme on Tuesday that it was ‘self-evident’ that if you boost demand you also boost supply.

Lenders seemed less convinced. The Council of Mortgage Lenders struck a noticeably neutral tone in its response, setting out criteria for success including that Help to Buy ‘be accompanied by an equivalent government focus on the supply of new housing (not just the supply of credit), to avoid the unwelcome effects that stimulating demand without also increasing supply would create’. The Building Societies Association argued that if the banks had applied the same lending criteria as its members over the last few years there would be no need for Help to Buy.

We now know slightly more details about how the mortgage guarantee will work. Applications will be subject to income verification and stress testing and people with impaired credit will not be eligible. On one level, that should help to ensure that lending is responsible, but on another it could mean that many of the people who most need help will not get it. Borrowers will also have to sign a declaration that the guarantee is not for a buy to let property or second home. This prompted an entertaining exchange on the World at One, when housing minister Mark Prisk insisted there would be no return to the self-certified mortgages of the past and was then forced to deny that the borrower’s declaration that they have ‘no interest in a property anywhere else in the world’ amounts to exactly that.

But we still do not know some crucial details. Lenders will want to see what the Prudential Regulation Authority says about capital relief before deciding whether to take part. They will also be charged a commercial fee if they do but this has not yet been set and the cost will presumably be passed on to borrowers in mortgage fees and/or higher interest rates.

Back with the bigger picture, criticism of Help to Buy continues to come from all sides, including many people who you might think would be natural supporters of the government and George Osborne. The loudest of these was Graeme Leach, chief economist of the Institute of Directors, who supplied the soundbite of the week by saying that ‘the world must have gone mad for us to now be discussing endless taxpayer guarantees for mortgages’. From an IoD perspective Help to Buy goes directly against the need to leave everything to the market: ‘Instead of trying to pump-up prices, the government should focus on relaxing planning laws and reducing local authority charges on developers to make it easier to build more homes.’

That argument has been heard many times before in the debate within the Conservative Party about the NPPF in which free market fundamentalists argue for ‘socialist’ planning to be swept away while the Telegraph, National Trust and CPRE fight any attempt to release more land for new homes. And sure enough the Trust chairman Sir Simon Jenkins rides to the rescue of Help to Buy in today’s Guardian, leaving me feeling stuck between a rock and a hard place. 

With a questionable claim that the scheme is somehow Keynesian, our nimby in chief argues that it is better to throw money at the real economy than print it through quantitative easing. Dismissing the case for 250,000 homes a year as a lobbying tool for volume housebuilders, he argues that:

‘Such new building is near irrelevant to the housing market. It is less than 1% of the total stock and under 10% of daily housing transactions. But Osborne’s scheme may at least be pushing up prices. This will not help first-time buyers, let alone the social housing sector, but it should bring to market the half a million homes lying idle in builders’ property banks. That is a good thing. It may even encourage building on marginal sites in cities, where most poor people live.’

Osborne should instead stop ‘dancing to the tune of Barratt and Persimmon’ and subsidise the renovation and renewal of existing homes and development on brownfield land. So far, so semi-plausible, except that you know that this is part of a case against new homes being built anywhere else.

‘Why taxpayers should pump money into boosting house prices is a puzzle buried deep in Britons’ desire to hold and profit from land,’ he argues. ‘It makes no economic sense.’ Better to be like the Scandinavians and Germans who rent and spend on goods and services rather than ploughing their money into ‘inert lifetime investment’.

You might think that sounds like a very good argument against Help to Buy – but you would be wrong. His conclusion is that: ‘At least Osborne is pumping liquidity into something other than bank vaults. He is gambling that a revival in the “sub-prime” mortgage market will boost confidence, gambling that inflationary expectation spurs growth. It is an acknowledged theory.’

The piece struck me as vaguely unhinged until the real agenda struck me. For people like Simon Jenkins, the fact that Help to Buy will boost demand and inflate house prices while doing very little to encourage new supply is most definitely a good thing. Maybe the IoD is not so bad after all. 

Stay or go?

Thu, 25 Jul 2013

Every time I think I’ve got my head around the pernicious impacts of the bedroom tax something new emerges to make me think again.

The trigger this time is an excellent report from Aragon Housing Association on the first 100 days of what the government calls the spare room subsidy. But that also sent me back to several conversations I had at the CIH conference in Manchester and reports published while I was on holiday from the National Housing Federation (twice), Chartered Institute of Housing and Convention of Scottish Local Authorities.

Even before that the evidence was accumulating from around the country that the effects are at least as bad, and probably worse, than most people expected or feared. From rent arrears in Newcastle and Ayrshire to fears of more suicides in Birmingham to criticism of the Labour leadership’s stance on the issue in Liverpool, the effects of the bedroom tax continue to be felt emotionally, financially and politically.

Aragon’s study caught my attention because of its dispassionate tone and the way it focuses in on the impacts on one relatively small organisation. It currently believes that 461 of its 6,500 tenants are affected and that they face an average shortfall of £18.01 per week.

As elsewhere, they essentially face a choice between trying to stay in their home and trying to move. Of the first group, 107 are living in specially adapted properties, protected for the moment by 26 weeks of discretionary housing payments.

Of the second, only 41 have managed to move to a smaller property in line with the stated rationale of the policy and bids for two-bed homes under the local choice-based lettings scheme are treble what they were last year.

Rent arrears rose by 9 per cent between the start of the bedroom tax in April and the end of June. However, most tenants had two rent-free weeks at the start of April and the increase since then is 24 per cent. The number of tenants affected by the bedroom tax and in arrears has risen from 187 to 279.

Much of this will be familiar from around the country. But the report also has evidence of some knock-on effects of the bedroom tax that were not widely foreseen even in the welter of parliamentary and press attention over the last few months.

First up, as seen elsewhere, is the increasing difficulty of letting three-bed homes. Most bedroom tax victims are not the large families of media stereotype and cannot afford to pay a rent shortfall for the larger homes that were built as a matter of longstanding policy in the area.

However, the downsizing so far has had unpredictable results (at least they are to me). Under choice-based lettings, three of the three-bed homes had to be relisted because there was no suitable bidder for them. Of the 41 vacated larger properties, 15 have gone to Band 3 (low needs) priority applicants and seven have gone to Band 4 (no needs). Another 15 have gone in mutual exchanges. So much for the government’s argument that the bedroom tax will free up homes for desperately overcrowded families. That does not seem to apply even as close to London as rural Bedfordshire. 

Voids of larger homes are an issue around the country. One landlord in the NHF Merseyside report saw its three-bedroom voids double in the first three months of the tax and another estimates each one costs £3,000 in repairs, lost rent and staff costs. As Inside Housing reported two weeks ago, some landlords in the North West and North East are already considering options including demolition of homes – something that would really put the government’s supposed aim of encouraging more efficient use of the housing stock into perspective.

Second, the dilemmas facing someone who decides to look at downsizing into the private rented sector are more acute than I had realised before. It’s clear that in most parts of the country that will mean trading security of tenure and a shortfall for a more expensive six-month tenancy that will cost the government more than it saves through the bedroom tax. However, in Bedfordshire and many other parts of the country it will also mean a shortfall for the tenant because of the way the local housing allowance (LHA) works.

Compare LHA rates and actual rents in the local area, and someone downsizing to a private rented home would face a £16.15 shortfall in Stevenage, £22.66 in Bedford and £29.35 in Milton Keynes. That Bedford shortfall is 15 per cent, which is more than the 14 per cent deduction for under-occupying by one bedroom under the bedroom tax. The net result would therefore cost the tenant more as well as the taxpayer.

Little wonder then that staying put and finding the money somehow looks like the best option for many people. Though Aragon operates relatively close to London, the largest town has 310 jobseekers and just 30 new jobs that became available in the first week of July. It’s also a rural area where, as MPs on the environment committee calling for a rural bedroom tax exemption this week recognised, communities face particular problems.

Like landlords all over the country, Aragon has put in place a whole range of measures to help, including advice on benefits, bills and employment, food parcels and food growing projects, working with a local credit union and IT training courses.

However, as the effects of the bedroom tax continue to work their way through the system the big question for landlords and tenants all over the country is when the next big change will come. At the moment, the impact is being financed by a combination of discretionary housing payments, tenants scrimping and saving and landlords incurring rent arrears.

Sooner or later tenants will have nothing left to scrimp and landlords will be forced to recover those arrears. I spoke to some in Manchester who anticipated their first possession actions this month for people who were already in arrears. It will take until the Autumn for bedroom tax shortfalls to reach the two month arrears threshold that can be the trigger for a Ground 8 claim. What will judges decide? How will local authorities respond to any homelessness applications by evicted tenants? And what will be the political impact of media coverage of evictions?

Sooner or later DHPs will run out and the delayed effects of the bedroom tax will start to play out. In many areas the most vulnerable under-occupiers, including disabled people living in specially adapted properties, are protected for now. Unless more money is found, or there are successful legal challenges, that will not last.

One potential piece of good news is that by October the universal credit will start to apply to some people with new and more generous rules on income from lodgers. What will be the impact of that? And of the combination of the bedroom tax with direct payment and the new accelerated recovery system for arrears revealed by Lord Freud in Manchester? Or his threats against landlords that reclassify their homes?

The pernicious effects of the bedroom tax will continue to play out in predictable and unpredictable ways.

Stay or go?

Thu, 25 Jul 2013

Every time I think I’ve got my head around the pernicious impacts of the bedroom tax something new emerges to make me think again.

The trigger this time is an excellent report from Aragon Housing Association on the first 100 days of what the government calls the spare room subsidy. But that also sent me back to several conversations I had at the CIH conference in Manchester and reports published while I was on holiday from the National Housing Federation (twice), Chartered Institute of Housing and Convention of Scottish Local Authorities.

Even before that the evidence was accumulating from around the country that the effects are at least as bad, and probably worse, than most people expected or feared. From rent arrears in Newcastle and Ayrshire to fears of more suicides in Birmingham to criticism of the Labour leadership’s stance on the issue in Liverpool, the effects of the bedroom tax continue to be felt emotionally, financially and politically.

Aragon’s study caught my attention because of its dispassionate tone and the way it focuses in on the impacts on one relatively small organisation. It currently believes that 461 of its 6,500 tenants are affected and that they face an average shortfall of £18.01 per week.

As elsewhere, they essentially face a choice between trying to stay in their home and trying to move. Of the first group, 107 are living in specially adapted properties, protected for the moment by 26 weeks of discretionary housing payments.

Of the second, only 41 have managed to move to a smaller property in line with the stated rationale of the policy and bids for two-bed homes under the local choice-based lettings scheme are treble what they were last year.

Rent arrears rose by 9 per cent between the start of the bedroom tax in April and the end of June. However, most tenants had two rent-free weeks at the start of April and the increase since then is 24 per cent. The number of tenants affected by the bedroom tax and in arrears has risen from 187 to 279.

Much of this will be familiar from around the country. But the report also has evidence of some knock-on effects of the bedroom tax that were not widely foreseen even in the welter of parliamentary and press attention over the last few months.

First up, as seen elsewhere, is the increasing difficulty of letting three-bed homes. Most bedroom tax victims are not the large families of media stereotype and cannot afford to pay a rent shortfall for the larger homes that were built as a matter of longstanding policy in the area.

However, the downsizing so far has had unpredictable results (at least they are to me). Under choice-based lettings, three of the three-bed homes had to be relisted because there was no suitable bidder for them. Of the 41 vacated larger properties, 15 have gone to Band 3 (low needs) priority applicants and seven have gone to Band 4 (no needs). Another 15 have gone in mutual exchanges. So much for the government’s argument that the bedroom tax will free up homes for desperately overcrowded families. That does not seem to apply even as close to London as rural Bedfordshire. 

Voids of larger homes are an issue around the country. One landlord in the NHF Merseyside report saw its three-bedroom voids double in the first three months of the tax and another estimates each one costs £3,000 in repairs, lost rent and staff costs. As Inside Housing reported two weeks ago, some landlords in the North West and North East are already considering options including demolition of homes – something that would really put the government’s supposed aim of encouraging more efficient use of the housing stock into perspective.

Second, the dilemmas facing someone who decides to look at downsizing into the private rented sector are more acute than I had realised before. It’s clear that in most parts of the country that will mean trading security of tenure and a shortfall for a more expensive six-month tenancy that will cost the government more than it saves through the bedroom tax. However, in Bedfordshire and many other parts of the country it will also mean a shortfall for the tenant because of the way the local housing allowance (LHA) works.

Compare LHA rates and actual rents in the local area, and someone downsizing to a private rented home would face a £16.15 shortfall in Stevenage, £22.66 in Bedford and £29.35 in Milton Keynes. That Bedford shortfall is 15 per cent, which is more than the 14 per cent deduction for under-occupying by one bedroom under the bedroom tax. The net result would therefore cost the tenant more as well as the taxpayer.

Little wonder then that staying put and finding the money somehow looks like the best option for many people. Though Aragon operates relatively close to London, the largest town has 310 jobseekers and just 30 new jobs that became available in the first week of July. It’s also a rural area where, as MPs on the environment committee calling for a rural bedroom tax exemption this week recognised, communities face particular problems.

Like landlords all over the country, Aragon has put in place a whole range of measures to help, including advice on benefits, bills and employment, food parcels and food growing projects, working with a local credit union and IT training courses.

However, as the effects of the bedroom tax continue to work their way through the system the big question for landlords and tenants all over the country is when the next big change will come. At the moment, the impact is being financed by a combination of discretionary housing payments, tenants scrimping and saving and landlords incurring rent arrears.

Sooner or later tenants will have nothing left to scrimp and landlords will be forced to recover those arrears. I spoke to some in Manchester who anticipated their first possession actions this month for people who were already in arrears. It will take until the Autumn for bedroom tax shortfalls to reach the two month arrears threshold that can be the trigger for a Ground 8 claim. What will judges decide? How will local authorities respond to any homelessness applications by evicted tenants? And what will be the political impact of media coverage of evictions?

Sooner or later DHPs will run out and the delayed effects of the bedroom tax will start to play out. In many areas the most vulnerable under-occupiers, including disabled people living in specially adapted properties, are protected for now. Unless more money is found, or there are successful legal challenges, that will not last.

One potential piece of good news is that by October the universal credit will start to apply to some people with new and more generous rules on income from lodgers. What will be the impact of that? And of the combination of the bedroom tax with direct payment and the new accelerated recovery system for arrears revealed by Lord Freud in Manchester? Or his threats against landlords that reclassify their homes?

The pernicious effects of the bedroom tax will continue to play out in predictable and unpredictable ways.

Going up

Mon, 22 Jul 2013

Is it too late to mitigate the impact of the impending disaster that is Help to Buy?

As the government prepares to reveal more details of the mortgage guarantee element of the controversial scheme (probably tomorrow), the evidence is already accumulating of the effect of early impact of Help to Buy plus the boost to mortgages delivered by the Funding for Lending scheme.

Mortgage lending is up, asking prices are up for seven months in a row and reservations under the equity loan part of Help to Buy are up by almost three times on the more limited and targeted FirstBuy scheme that it replaced.

So too are forecasts of what will happen to prices over the next few years. The National Housing Federation warned in a report today that our failure to build enough homes means that the average price of a first-time buyer home could rise by 42 per cent by 2020 and average rents by 46 per cent.

Last week Savills increased its forecast for the increase in house prices up to 2017 from 11. 5 per cent to 18.1 per cent. ‘A combination of low interest rates and stimulus measures means there is capacity for improved price growth over the next three years or so,’ it said.

An increase on that scale would take prices above their 2007 peak by 2015. Although Savills points out that the increase after taking inflation into account would be just 2.3 per cent, that still looks dangerously high at a time when earnings are falling in real terms and mortgage affordability relies on interest rates that must rise sooner or later.

The bump in confidence in the market is being fuelled partly by equity loans and Funding for Lending (which was also meant to be about loans to small businesses but seems to be ending up mostly in mortgages). However, it must also be in anticipation of the launch of the much bigger element of Help to Buy, £12 billion of mortgage guarantees in January 2014.

Buyers under that will have to put up a minimum 5 per cent deposit which will be forfeit first if the boom is followed by a bust. The obvious danger is that the bigger the boom in prices in the meantime, the more the share of the mortgage guaranteed by the state could be at risk in a subsequent bust.

Tomorrow’s announcement could reveal more on many of the details left unclear at the time of the announcement in the Budget, including the fee payable by lenders, the effect on their capital adequacy requirements and the government’s exit strategy at the end of the scheme.

These are important issues but it seems unlikely that the government will change its mind on the most important one: the advisability of having the scheme at all. I’ve never been a great fan of government home ownership schemes but at least the previous ones were too small to do much damage. Help to Buy is bigger both in scale (homes up to £600,000) and scope (extending assistance beyond first-time buyers and new homes).

So it is all too late? Is potentially the biggest housing policy disaster since the double mortgage tax relief debacle of 1988 now inevitable? With almost six months to go there must still be options that will boost housing supply rather than just increase prices.

However, there are problems with most of the alternatives too. The most obvious might seem to be to restrict Help to Buy to new build homes, especially if that could be used as a way of encouraging new entrants into the market. However, the billions of pounds worth of subsidies and deregulation that the government has showered on housebuilders so far have inflated their profits rather than encouraged them to build more homes. Might increased transactions achieve more?

Similarly, restricting the scheme to first-time buyers might just inflate prices in that part of the market. Lowering the £600,000 threshold would definitely be an idea but could also create distortions at lower price points. One possible measure, suggested by Toby Lloyd of Shelter, might be to beef up the law on restrictive covenants to ensure that government help remains targeted on the next generation of buyers who need help as well.

The best option would be to scrap the mortgage guarantee element of Help to Buy on the basis that the mortgage and housing markets already seem to be on the move without it.

However, the chances of that happening seem to be zero. Help to Buy should, as critics point out, be called Help to Sell, but the scheme is really about the wider economy and the government’s electoral prospects.

If it works on the scale suggested, then rising transactions and house moves will feed through into increased spending on household goods, perhaps delivering enough of a boost to the economy as a whole for ministers to be able to claim that the recovery is well under way by the next election in May 2015.

Combine that with the feel-good factor generated by all those first-time buyers helped on to the housing ladder, and all those existing home owners feeling the paper wealth of increased house prices, and you have the real motivation for Help to Buy.

There is still time to address some of the technical issues about Help to Buy, and in particular the need for an exit strategy to stop it developing into permanent government intervention in the housing market. However, the brief interlude in which the government seemed to understand that what we need is house price stability now seems a very long time ago.

Going up

Mon, 22 Jul 2013

Is it too late to mitigate the impact of the impending disaster that is Help to Buy?

As the government prepares to reveal more details of the mortgage guarantee element of the controversial scheme (probably tomorrow), the evidence is already accumulating of the effect of early impact of Help to Buy plus the boost to mortgages delivered by the Funding for Lending scheme.

Mortgage lending is up, asking prices are up for seven months in a row and reservations under the equity loan part of Help to Buy are up by almost three times on the more limited and targeted FirstBuy scheme that it replaced.

So too are forecasts of what will happen to prices over the next few years. The National Housing Federation warned in a report today that our failure to build enough homes means that the average price of a first-time buyer home could rise by 42 per cent by 2020 and average rents by 46 per cent.

Last week Savills increased its forecast for the increase in house prices up to 2017 from 11. 5 per cent to 18.1 per cent. ‘A combination of low interest rates and stimulus measures means there is capacity for improved price growth over the next three years or so,’ it said.

An increase on that scale would take prices above their 2007 peak by 2015. Although Savills points out that the increase after taking inflation into account would be just 2.3 per cent, that still looks dangerously high at a time when earnings are falling in real terms and mortgage affordability relies on interest rates that must rise sooner or later.

The bump in confidence in the market is being fuelled partly by equity loans and Funding for Lending (which was also meant to be about loans to small businesses but seems to be ending up mostly in mortgages). However, it must also be in anticipation of the launch of the much bigger element of Help to Buy, £12 billion of mortgage guarantees in January 2014.

Buyers under that will have to put up a minimum 5 per cent deposit which will be forfeit first if the boom is followed by a bust. The obvious danger is that the bigger the boom in prices in the meantime, the more the share of the mortgage guaranteed by the state could be at risk in a subsequent bust.

Tomorrow’s announcement could reveal more on many of the details left unclear at the time of the announcement in the Budget, including the fee payable by lenders, the effect on their capital adequacy requirements and the government’s exit strategy at the end of the scheme.

These are important issues but it seems unlikely that the government will change its mind on the most important one: the advisability of having the scheme at all. I’ve never been a great fan of government home ownership schemes but at least the previous ones were too small to do much damage. Help to Buy is bigger both in scale (homes up to £600,000) and scope (extending assistance beyond first-time buyers and new homes).

So it is all too late? Is potentially the biggest housing policy disaster since the double mortgage tax relief debacle of 1988 now inevitable? With almost six months to go there must still be options that will boost housing supply rather than just increase prices.

However, there are problems with most of the alternatives too. The most obvious might seem to be to restrict Help to Buy to new build homes, especially if that could be used as a way of encouraging new entrants into the market. However, the billions of pounds worth of subsidies and deregulation that the government has showered on housebuilders so far have inflated their profits rather than encouraged them to build more homes. Might increased transactions achieve more?

Similarly, restricting the scheme to first-time buyers might just inflate prices in that part of the market. Lowering the £600,000 threshold would definitely be an idea but could also create distortions at lower price points. One possible measure, suggested by Toby Lloyd of Shelter, might be to beef up the law on restrictive covenants to ensure that government help remains targeted on the next generation of buyers who need help as well.

The best option would be to scrap the mortgage guarantee element of Help to Buy on the basis that the mortgage and housing markets already seem to be on the move without it.

However, the chances of that happening seem to be zero. Help to Buy should, as critics point out, be called Help to Sell, but the scheme is really about the wider economy and the government’s electoral prospects.

If it works on the scale suggested, then rising transactions and house moves will feed through into increased spending on household goods, perhaps delivering enough of a boost to the economy as a whole for ministers to be able to claim that the recovery is well under way by the next election in May 2015.

Combine that with the feel-good factor generated by all those first-time buyers helped on to the housing ladder, and all those existing home owners feeling the paper wealth of increased house prices, and you have the real motivation for Help to Buy.

There is still time to address some of the technical issues about Help to Buy, and in particular the need for an exit strategy to stop it developing into permanent government intervention in the housing market. However, the brief interlude in which the government seemed to understand that what we need is house price stability now seems a very long time ago.

Missing millions

Wed, 17 Jul 2013

So where are the 250,000 homes going to come from? And what are the consequences of not building them?

Almost ten years after the Barker review set that benchmark for housing provision in England to keep house price inflation under control, a new report out from Shelter points out that we are already a million homes behind. If we carry on building at today’s miserable levels the shortfall will rise by another million homes every six and a half years.

In Getting Serious About the Housing Shortage, Matt Griffith and Pete Jefferys argue this would mean accepting a continued fall in home ownership and an ever-rising housing benefit bill while increasing individual and national vulnerability to economic shocks.

The alternative, which they set out in more detail than I’ve seen elsewhere, would involve reforms that go beyond ‘narrowly targeted interventions and short-term gimmicks’.

The report argues that even on a relatively optimistic assumption of increases in private housebuilding, total output will still be almost 100,000 homes short of what is needed by 2017/18.

However, the gap can be made up through a combination of short-term changes and longer-term structural reforms. In the short term these include:

  • Direct investment by central government. A programme of £12 billion of investment or 1 per cent of GDP every four years, as advocated by Vince Cable, would deliver 51,000 homes a year.
  • Reform of local authority borrowing. Councils could deliver 12,000 homes a year based on prudential accounting or 17,000 with the adoption of European borrowing rules.
  • Planning reforms. Commercial to residential property conversions could deliver 10,000 homes a year whole more flexibility on the green belt could deliver 33,000.

In the longer term, measures include developing garden cities and new towns and supporting self-build. Done in combination with community land auctions and greater use of compulsory purchase, these have the potential to deliver another 62,000 homes.

Totted up like that you can see just how much would be required to reach the 250,000 homes threshold – and how powerful the temptation is for governments like this one to tinker round the edges instead and store up even bigger problems for the future.

A key theme of the report is that new players are needed since ‘our current actors cannot, by themselves, make up the housing shortage’.

These could include contractors and smaller builders, reversing the concentration of the housebuilding industry into a handful of major firms that have failed to increase supply despite billions of pounds worth of government support since 2008.

Local authorities – seen as sleeping giants - could play a major role both through their increased borrowing powers and through taking a more proactive role in land assembly, as is common in the Netherlands and Germany.

And new strategic development vehicles, perhaps operating off balance sheet or with private backing, could drive the creation of new towns and garden cities using powers to acquire land at close to existing use values.

Meanwhile government could go much further with schemes to guarantee investment and find ways to promote supply without increasing borrowing (both Help to Buy and Build to Rent do not count as public borrowing).

The report sets out an agenda that could, and should, have been adopted at any time since the financial crisis hit in 2008. There may be little prospect of action under the current government but a new administration after 2015 could be a different matter.

The proposals centre on supply, and there is only brief consideration of demand for housing through tackling under-occupation and the taxation of land. How about promoting growth in regions outside London, which have land available and also have thousands of empty homes? How about, as Savills suggested last week, investing in more student accommodation to free up around 66,000 homes around the country?

For my money too, the report takes rather too much for granted on the capacity of the construction industry to deliver 250,000 homes a year.

Investment in housing looks like a great proposition when every £1 spent generates an additional £2.09 of additional economic output and 92p of it stays in the UK.

However, as Chris Blythe of the Chartered Institute of Building pointed out at the CIH conference last month, construction has an ageing workforce and skills shortages could be a major issue. Meanwhile, in a market dominated by big housebuilders intent on maximising profitability rather than output, materials suppliers have adjusted capacity accordingly.

So there must be a danger that an expanded housing programme would suck in imports of foreign labour and materials. Why not then combine it with an expanded programme of training and apprenticeships to tackle youth unemployment and measures to give materials suppliers the confidence to invest? That way housing could deliver far more than just 250,000 homes a year, however desperately they are needed, and be even more attractive to a future government.

Overall though this is a major report that sets out a clear agenda for tackling a housing crisis that will otherwise just continue to get worse. As Matt Griffith argues on Shelter’s policy blog: ‘These options all involve hard choices and significant changes. Yet the worst option of all would be to do nothing.’

Missing millions

Wed, 17 Jul 2013

So where are the 250,000 homes going to come from? And what are the consequences of not building them?

Almost ten years after the Barker review set that benchmark for housing provision in England to keep house price inflation under control, a new report out from Shelter points out that we are already a million homes behind. If we carry on building at today’s miserable levels the shortfall will rise by another million homes every six and a half years.

In Getting Serious About the Housing Shortage, Matt Griffith and Pete Jefferys argue this would mean accepting a continued fall in home ownership and an ever-rising housing benefit bill while increasing individual and national vulnerability to economic shocks.

The alternative, which they set out in more detail than I’ve seen elsewhere, would involve reforms that go beyond ‘narrowly targeted interventions and short-term gimmicks’.

The report argues that even on a relatively optimistic assumption of increases in private housebuilding, total output will still be almost 100,000 homes short of what is needed by 2017/18.

However, the gap can be made up through a combination of short-term changes and longer-term structural reforms. In the short term these include:

  • Direct investment by central government. A programme of £12 billion of investment or 1 per cent of GDP every four years, as advocated by Vince Cable, would deliver 51,000 homes a year.
  • Reform of local authority borrowing. Councils could deliver 12,000 homes a year based on prudential accounting or 17,000 with the adoption of European borrowing rules.
  • Planning reforms. Commercial to residential property conversions could deliver 10,000 homes a year whole more flexibility on the green belt could deliver 33,000.

In the longer term, measures include developing garden cities and new towns and supporting self-build. Done in combination with community land auctions and greater use of compulsory purchase, these have the potential to deliver another 62,000 homes.

Totted up like that you can see just how much would be required to reach the 250,000 homes threshold – and how powerful the temptation is for governments like this one to tinker round the edges instead and store up even bigger problems for the future.

A key theme of the report is that new players are needed since ‘our current actors cannot, by themselves, make up the housing shortage’.

These could include contractors and smaller builders, reversing the concentration of the housebuilding industry into a handful of major firms that have failed to increase supply despite billions of pounds worth of government support since 2008.

Local authorities – seen as sleeping giants - could play a major role both through their increased borrowing powers and through taking a more proactive role in land assembly, as is common in the Netherlands and Germany.

And new strategic development vehicles, perhaps operating off balance sheet or with private backing, could drive the creation of new towns and garden cities using powers to acquire land at close to existing use values.

Meanwhile government could go much further with schemes to guarantee investment and find ways to promote supply without increasing borrowing (both Help to Buy and Build to Rent do not count as public borrowing).

The report sets out an agenda that could, and should, have been adopted at any time since the financial crisis hit in 2008. There may be little prospect of action under the current government but a new administration after 2015 could be a different matter.

The proposals centre on supply, and there is only brief consideration of demand for housing through tackling under-occupation and the taxation of land. How about promoting growth in regions outside London, which have land available and also have thousands of empty homes? How about, as Savills suggested last week, investing in more student accommodation to free up around 66,000 homes around the country?

For my money too, the report takes rather too much for granted on the capacity of the construction industry to deliver 250,000 homes a year.

Investment in housing looks like a great proposition when every £1 spent generates an additional £2.09 of additional economic output and 92p of it stays in the UK.

However, as Chris Blythe of the Chartered Institute of Building pointed out at the CIH conference last month, construction has an ageing workforce and skills shortages could be a major issue. Meanwhile, in a market dominated by big housebuilders intent on maximising profitability rather than output, materials suppliers have adjusted capacity accordingly.

So there must be a danger that an expanded housing programme would suck in imports of foreign labour and materials. Why not then combine it with an expanded programme of training and apprenticeships to tackle youth unemployment and measures to give materials suppliers the confidence to invest? That way housing could deliver far more than just 250,000 homes a year, however desperately they are needed, and be even more attractive to a future government.

Overall though this is a major report that sets out a clear agenda for tackling a housing crisis that will otherwise just continue to get worse. As Matt Griffith argues on Shelter’s policy blog: ‘These options all involve hard choices and significant changes. Yet the worst option of all would be to do nothing.’

Leap of faith

Mon, 15 Jul 2013

Returning from holiday this morning to hear Iain Duncan Smith mouth half-truths and dodgy stats about benefits on the Today programme it felt like I had never been away.

The work and pensions secretary was speaking as the overall benefit cap was introduced in another 335 local authority areas from today. The remaining 40 most affected areas will follow next month.

In an astonishing interview IDS packed in so many questionable claims that it seemed he was determined to establish a decisive lead in the Department for Work and Pensions (DWP) game of dodgy stats bingo.

The idea of the competition is to pack as many misleading claims and figures into a broadcast interview as you can and score one point for each one that goes unchallenged. I have absolutely no evidence of course that such a thing exists but I believe that it may.

This after all is that same standard of evidence that IDS applies himself. Questioned by John Humphrys about the UK Statistics Authority’s refutation of his claim in May that 8,000 people have already returned to work as a result of the cap, he simply asserted: ‘I believe this to be right’.

With faith-based politics like that in action there seems no limit to what he can achieve. Hey presto, claimed IDS, ‘every week something like half a million new jobs are in the job centres’. At that rate there should be no unemployment within a few weeks.

Abracadabra! There is no problem getting affordable housing in London. ‘We believe that there is plenty of accommodation available. A third of all rental accommodation in the private sector is available for those who are on social rents.’ Even allowing for him tripping over his own tongue at the end, that’s quite a claim.

Shazzam! ‘The homelessness figures have hardly moved at all’ in response to the housing benefit cuts so far. In fact, homeless acceptances have risen 34 per cent since the election.

Open sesame! This will stop councils putting people in homes they cannot afford in work – conveniently forgetting that this is exactly what the government is doing with affordable rent. 

Behold! Fairness means the old dodgy chestnut of ‘not living, for example, in some cases living in houses costing £50-£100,000 a year in rent’.

When Humphrys quoted figures from Haringey (one of the four pilot areas) showing that in only 4 per cent of capped families had someone found paid employment, IDS fell back on what other people believe.

‘Let’s reverse this argument and put it to you that there are plenty of families out there working and paying their taxes who will be asking this question: ‘why are we arguing about this, why are we having a debate as to whether or not somebody should be earning more than they are on welfare payments not working?’

This shifts the proof from ‘I believe this to be right’ to ‘lots of other people believe it to be right’ and lots of opinion polls about the popularity of the cap would appear to bear this out regardless of the facts. The principle that nobody should earn more out of work than average earnings for someone in work does get wide support, especially among people who cannot conceive how much rents cost in London. Except of course that it a false comparison based on a fictional benefit system. Anyone in work with a high rent or a large family (the two main groups affected by the cap) will also be getting tax credits and housing and other benefits too.

All of which is why the benefit cap and the faith-based politics of IDS are so pernicious. Using the same logic, he could just as easily argue that it is wrong that someone working part-time should apparently get more than someone working full-time, or that the cap should be reduced still further (which is already a serious proposition among some Conservative MPs).

Leap of faith

Mon, 15 Jul 2013

Returning from holiday this morning to hear Iain Duncan Smith mouth half-truths and dodgy stats about benefits on the Today programme it felt like I had never been away.

The work and pensions secretary was speaking as the overall benefit cap was introduced in another 335 local authority areas from today. The remaining 40 most affected areas will follow next month.

In an astonishing interview IDS packed in so many questionable claims that it seemed he was determined to establish a decisive lead in the Department for Work and Pensions (DWP) game of dodgy stats bingo.

The idea of the competition is to pack as many misleading claims and figures into a broadcast interview as you can and score one point for each one that goes unchallenged. I have absolutely no evidence of course that such a thing exists but I believe that it may.

This after all is that same standard of evidence that IDS applies himself. Questioned by John Humphrys about the UK Statistics Authority’s refutation of his claim in May that 8,000 people have already returned to work as a result of the cap, he simply asserted: ‘I believe this to be right’.

With faith-based politics like that in action there seems no limit to what he can achieve. Hey presto, claimed IDS, ‘every week something like half a million new jobs are in the job centres’. At that rate there should be no unemployment within a few weeks.

Abracadabra! There is no problem getting affordable housing in London. ‘We believe that there is plenty of accommodation available. A third of all rental accommodation in the private sector is available for those who are on social rents.’ Even allowing for him tripping over his own tongue at the end, that’s quite a claim.

Shazzam! ‘The homelessness figures have hardly moved at all’ in response to the housing benefit cuts so far. In fact, homeless acceptances have risen 34 per cent since the election.

Open sesame! This will stop councils putting people in homes they cannot afford in work – conveniently forgetting that this is exactly what the government is doing with affordable rent. 

Behold! Fairness means the old dodgy chestnut of ‘not living, for example, in some cases living in houses costing £50-£100,000 a year in rent’.

When Humphrys quoted figures from Haringey (one of the four pilot areas) showing that in only 4 per cent of capped families had someone found paid employment, IDS fell back on what other people believe.

‘Let’s reverse this argument and put it to you that there are plenty of families out there working and paying their taxes who will be asking this question: ‘why are we arguing about this, why are we having a debate as to whether or not somebody should be earning more than they are on welfare payments not working?’

This shifts the proof from ‘I believe this to be right’ to ‘lots of other people believe it to be right’ and lots of opinion polls about the popularity of the cap would appear to bear this out regardless of the facts. The principle that nobody should earn more out of work than average earnings for someone in work does get wide support, especially among people who cannot conceive how much rents cost in London. Except of course that it a false comparison based on a fictional benefit system. Anyone in work with a high rent or a large family (the two main groups affected by the cap) will also be getting tax credits and housing and other benefits too.

All of which is why the benefit cap and the faith-based politics of IDS are so pernicious. Using the same logic, he could just as easily argue that it is wrong that someone working part-time should apparently get more than someone working full-time, or that the cap should be reduced still further (which is already a serious proposition among some Conservative MPs).

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