Friday, 28 April 2017

Inside edge

All posts from: March 2014

Housing nations

Thu, 27 Mar 2014

What would a Yes vote to Scottish independence mean for housing in the rest of the UK?

With less than six months to go until the referendum, it’s not just in Scotland that the issues are being debated. While England may feel it can mostly ignore what’s happening north of the Tweed the question is perhaps felt more deeply in the other UK nations.

In Northern Ireland, a research institute has just warned of ‘substantial’ political, economic and social effects. And in Wales the issues were addressed directly this week in a debate at the TAI 2014 conference in Cardiff on the motion ‘This house believes an independent Scotland would be good for Wales.’

Each side had a Scottish and a Welsh speaker. Professor Douglas Robertson of the University of Stirling and Bethan Jenkins of Plaid Cymru argued in favour, while Jim Strang of Parkhead Housing Association and Keith Edwards of CIH Cymru were opposing.

A quick show of hands among the CIH Cymru conference audience indicated that the Yes camp would be facing an uphill battle to win them over but the debate itself raised some fascinating issues about the future and housing’s place within it.

Douglas Robertson said that the crux of the argument was not about ethnicity and identity but about social welfare standards: ‘What sort of Scotland do we want?’ and in turn ‘What sort of society do we want?’

For him the choice for Scotland boiled down to becoming a Scandinavian country rather than a neo-liberal American one. And a Yes vote in Scotland would show there were different ways of doing things in Wales.

That was a point picked up by Bethan Jenkins, who argued that a Yes vote would create space for a debate about more powers for Wales and would also mean more UK focus on Wales.

But Jim Strang said the consequences of a Yes would be dire for the UK as a whole. ’Wales and the rest of the UK cannot afford Scottish independence,’ he said. Issues of poverty and unemployment were the same in Birmingham, Cardiff and Glasgow and a No vote would mean a chance to build a fairer UK. ‘I’m a proud Glaswegian and a proud Scotsman but I’m also proud to be called British.’

And Keith Edwards said extra Welsh bargaining power from a Yes vote would end up being far outweighed by the long-term consequences for social justice.

What was interesting was the concern about social justice that ran through the case made by both sides. The Yes camp in Scotland looks at its one Conservative MP (‘we have more pandas than Tories,’ said Douglas Robertson) yet sees austerity imposed from Westminster. Most on the No side are just as opposed to austerity but argue the way to resist it is through opposition across the UK.

Another show of hands at the end of the debate showed perhaps only 10 per cent of the audience saying a Yes vote would be good for Wales. However, social justice, and housing’s role within it, has been a key theme in much of the rest of the conference.

Wales is part way through a major programme of housing and planning legislation that is the result of new devolved powers and also featured heavily on the agenda this week.  However, it is grappling not just with austerity but also with the question of how to increase housing supply at a time when money is tight.

The conference heard a warning from England about the consequences of the affordable rent programme. Tom Murtha of HACT chaired a session on alternatives to austerity and made a passionate speech about the importance of social housing and the dangers of accepting ‘affordable’ housing that is not affordable at all.

In another session veteran activist Peter Tatchell had praise for the efforts the housing sector has made on equalities and made a wide-ranging speech and Q&A covering everything from the Heygate estate to media demonising of the poor.

His alternatives to austerity were to cancel Trident, close down Boots if it avoids tax in Switzerland, levy a financial transactions tax and impose a one-off wealth tax on the richest 10 per cent.

As the countdown continues to the Scottish independence vote, the debate on social justice in the UK as a whole continues.

Housing nations

Thu, 27 Mar 2014

What would a Yes vote to Scottish independence mean for housing in the rest of the UK?

With less than six months to go until the referendum, it’s not just in Scotland that the issues are being debated. While England may feel it can mostly ignore what’s happening north of the Tweed the question is perhaps felt more deeply in the other UK nations.

In Northern Ireland, a research institute has just warned of ‘substantial’ political, economic and social effects. And in Wales the issues were addressed directly this week in a debate at the TAI 2014 conference in Cardiff on the motion ‘This house believes an independent Scotland would be good for Wales.’

Each side had a Scottish and a Welsh speaker. Professor Douglas Robertson of the University of Stirling and Bethan Jenkins of Plaid Cymru argued in favour, while Jim Strang of Parkhead Housing Association and Keith Edwards of CIH Cymru were opposing.

A quick show of hands among the CIH Cymru conference audience indicated that the Yes camp would be facing an uphill battle to win them over but the debate itself raised some fascinating issues about the future and housing’s place within it.

Douglas Robertson said that the crux of the argument was not about ethnicity and identity but about social welfare standards: ‘What sort of Scotland do we want?’ and in turn ‘What sort of society do we want?’

For him the choice for Scotland boiled down to becoming a Scandinavian country rather than a neo-liberal American one. And a Yes vote in Scotland would show there were different ways of doing things in Wales.

That was a point picked up by Bethan Jenkins, who argued that a Yes vote would create space for a debate about more powers for Wales and would also mean more UK focus on Wales.

But Jim Strang said the consequences of a Yes would be dire for the UK as a whole. ’Wales and the rest of the UK cannot afford Scottish independence,’ he said. Issues of poverty and unemployment were the same in Birmingham, Cardiff and Glasgow and a No vote would mean a chance to build a fairer UK. ‘I’m a proud Glaswegian and a proud Scotsman but I’m also proud to be called British.’

And Keith Edwards said extra Welsh bargaining power from a Yes vote would end up being far outweighed by the long-term consequences for social justice.

What was interesting was the concern about social justice that ran through the case made by both sides. The Yes camp in Scotland looks at its one Conservative MP (‘we have more pandas than Tories,’ said Douglas Robertson) yet sees austerity imposed from Westminster. Most on the No side are just as opposed to austerity but argue the way to resist it is through opposition across the UK.

Another show of hands at the end of the debate showed perhaps only 10 per cent of the audience saying a Yes vote would be good for Wales. However, social justice, and housing’s role within it, has been a key theme in much of the rest of the conference.

Wales is part way through a major programme of housing and planning legislation that is the result of new devolved powers and also featured heavily on the agenda this week.  However, it is grappling not just with austerity but also with the question of how to increase housing supply at a time when money is tight.

The conference heard a warning from England about the consequences of the affordable rent programme. Tom Murtha of HACT chaired a session on alternatives to austerity and made a passionate speech about the importance of social housing and the dangers of accepting ‘affordable’ housing that is not affordable at all.

In another session veteran activist Peter Tatchell had praise for the efforts the housing sector has made on equalities and made a wide-ranging speech and Q&A covering everything from the Heygate estate to media demonising of the poor.

His alternatives to austerity were to cancel Trident, close down Boots if it avoids tax in Switzerland, levy a financial transactions tax and impose a one-off wealth tax on the richest 10 per cent.

As the countdown continues to the Scottish independence vote, the debate on social justice in the UK as a whole continues.

Does the cap fit?

Wed, 26 Mar 2014

The debate about the welfare cap seems to be all about the politics. It should be about the contradictions at the heart of the policy too.

The coalition parties and the opposition are all supporting the measure that will place a legal restriction on most welfare spending from 2015/16 so, despite an expected Labour rebellion, it seems more or less certain to go through.

The cap started off as a political trap set by the Conservatives and Labour support reflects a determination not to fall into it.

Judging from his appearance on the Today programme this morning, Iain Duncan Smith seems determined to act as though Labour doesn’t really mean its support. But the example he chose says much about his priorities and the way the cap will operate.

IDS cited Labour’s pledge to repeal what he calls the removal of the spare room subsidy. Only JSA-passported housing benefit will be outside the cap, so his point was that ending the bedroom tax will automatically increase spending within the cap and Labour should have to say what it will cut instead.

The contradictions of such an arbitrary measure begin with the way that pressures on spending caused by an ageing population or unemployment are not capped, while those triggered by housing tenure and disability are not.

Despite government rhetoric about worklessness and ‘out of control’ welfare spending, the cap targets benefits and tax credits for people who are in work or who cannot work.

The basic state pension is not capped but pension credits are. As Chris Goulden of the Joseph Rowntree Foundation points out, that means that the cap will protect the wealthiest claimants not those in the greatest need.

And Evan Davis identified another contradiction on the Today programme this morning: what happens if the cap stops the government from fulfilling its equally legally binding commitment to end child poverty by 2020. IDS fell back on his faith-based formula of ‘I believe we will’ (while trying to move the goalposts on the definition of child poverty in the meantime).

But there are plenty of other contradictions if you focus more closely on housing:

  • Apart from the misery and debt it’s causing (see today’s latest Real Life Reform report on that), one of the main arguments against the bedroom tax is that it will simply transfer costs from housing benefit elsewhere. The cap actually gives future governments an even greater incentive to do the same thing and ‘save money’ by transferring costs to local authorities, social landlords and the voluntary sector.
  • When it comes to repealing the bedroom tax, most housing benefit is capped but (as I read it) discretionary housing payments are not. The temptation for Labour could therefore be to rely on the DHP route to fulfilling its pledge despite all the problems inherent in a system that relies on local discretion.
  • We know that the long-term shift in housing tenure will mean a rising housing benefit bill for private tenant pensioners. While the basic state pension is uncapped, their housing benefit is within the cap.
  • The cap covers the UK, yet housing policy decisions taken by individual nations will have an impact on it. For example, as the English government forces landlords to build for more expensive affordable rents, and sell off and convert their social rent homes, that will put up rents and the housing benefit bill. That means English decisions on housing could potentially trigger cuts in welfare for Scotland and Wales.
  • The overall cap level is made up of forecasts of the costs of individual benefits. However, as I blogged last week, when you look at how the Office for Budget Responsibility’s estimates of the cost of housing benefit keep changing with every Budget and Autumn Statement, this does not fill you with confidence.

Exactly how the cap will operate remains to be seen. We know the basics: governments will have to set cap targets five years ahead and come back to parliament for approval if capped spending exceeds them by more than 2 per cent.

However, it could be that a future government will introduce measures such as the living wage or (we hope) greater investment in social housing that will reduce the pressure on benefits spending and make the cap less onerous than it appears.
Equally, as Kate Webb noted last week, coming elections could see parties pledging to reduce the cap without having to spell out any detail of how.

Today’s vote may seem to be all about a cap that offers a clear and easy to understand way to control public spending. But it could turn out to be anything but and the implications could be felt for years to come.

Does the cap fit?

Wed, 26 Mar 2014

The debate about the welfare cap seems to be all about the politics. It should be about the contradictions at the heart of the policy too.

The coalition parties and the opposition are all supporting the measure that will place a legal restriction on most welfare spending from 2015/16 so, despite an expected Labour rebellion, it seems more or less certain to go through.

The cap started off as a political trap set by the Conservatives and Labour support reflects a determination not to fall into it.

Judging from his appearance on the Today programme this morning, Iain Duncan Smith seems determined to act as though Labour doesn’t really mean its support. But the example he chose says much about his priorities and the way the cap will operate.

IDS cited Labour’s pledge to repeal what he calls the removal of the spare room subsidy. Only JSA-passported housing benefit will be outside the cap, so his point was that ending the bedroom tax will automatically increase spending within the cap and Labour should have to say what it will cut instead.

The contradictions of such an arbitrary measure begin with the way that pressures on spending caused by an ageing population or unemployment are not capped, while those triggered by housing tenure and disability are not.

Despite government rhetoric about worklessness and ‘out of control’ welfare spending, the cap targets benefits and tax credits for people who are in work or who cannot work.

The basic state pension is not capped but pension credits are. As Chris Goulden of the Joseph Rowntree Foundation points out, that means that the cap will protect the wealthiest claimants not those in the greatest need.

And Evan Davis identified another contradiction on the Today programme this morning: what happens if the cap stops the government from fulfilling its equally legally binding commitment to end child poverty by 2020. IDS fell back on his faith-based formula of ‘I believe we will’ (while trying to move the goalposts on the definition of child poverty in the meantime).

But there are plenty of other contradictions if you focus more closely on housing:

  • Apart from the misery and debt it’s causing (see today’s latest Real Life Reform report on that), one of the main arguments against the bedroom tax is that it will simply transfer costs from housing benefit elsewhere. The cap actually gives future governments an even greater incentive to do the same thing and ‘save money’ by transferring costs to local authorities, social landlords and the voluntary sector.
  • When it comes to repealing the bedroom tax, most housing benefit is capped but (as I read it) discretionary housing payments are not. The temptation for Labour could therefore be to rely on the DHP route to fulfilling its pledge despite all the problems inherent in a system that relies on local discretion.
  • We know that the long-term shift in housing tenure will mean a rising housing benefit bill for private tenant pensioners. While the basic state pension is uncapped, their housing benefit is within the cap.
  • The cap covers the UK, yet housing policy decisions taken by individual nations will have an impact on it. For example, as the English government forces landlords to build for more expensive affordable rents, and sell off and convert their social rent homes, that will put up rents and the housing benefit bill. That means English decisions on housing could potentially trigger cuts in welfare for Scotland and Wales.
  • The overall cap level is made up of forecasts of the costs of individual benefits. However, as I blogged last week, when you look at how the Office for Budget Responsibility’s estimates of the cost of housing benefit keep changing with every Budget and Autumn Statement, this does not fill you with confidence.

Exactly how the cap will operate remains to be seen. We know the basics: governments will have to set cap targets five years ahead and come back to parliament for approval if capped spending exceeds them by more than 2 per cent.

However, it could be that a future government will introduce measures such as the living wage or (we hope) greater investment in social housing that will reduce the pressure on benefits spending and make the cap less onerous than it appears.
Equally, as Kate Webb noted last week, coming elections could see parties pledging to reduce the cap without having to spell out any detail of how.

Today’s vote may seem to be all about a cap that offers a clear and easy to understand way to control public spending. But it could turn out to be anything but and the implications could be felt for years to come.

Budget 2014: the next five years

Wed, 19 Mar 2014

Never mind today and tomorrow: what does the Budget mean for housing over the longer term?

As usual, some of the most revealing information comes not in the speech or the Treasury’s background documents but in the Economic and Fiscal Outlook published by the Office for Budget Responsibility. This time around the detail and the forecasts for the next five years have a lot to say about housing benefit, the welfare cap and the housing market. 

On the welfare cap, the OBR has a detailed breakdown of the benefits and tax credits that will and won’t be included:

Cap

We already knew that ‘the vast majority’ of housing benefit would be covered. This shows that 86 per cent of the current housing benefit bill will be within the cap – but that that the proportion will rise to 90 per cent by the end of the decade as the uncapped bit linked to unemployment falls.

The figures could also answer my question in my Budget live blog about the impact of above-inflation social rent rises: policy decisions like these seem to be already factored in to the cap level.

Which might be ok were it not for the fact that the OBR has constantly changed its forecasts of the housing benefit bill. It now says the total cost will be £1 billion more over the next five years than it forecast at the time of the Autumn Statement in December. However, that figure was itself £6 billion higher over five years than it estimated at the time of the Budget a year ago, which in turn was £3.7 billion higher than it said at the 2012 Autumn Statement.

Unforeseen increases in any capped benefits could automatically trigger cuts under the new system. The OBR’s forecasting difficulties on housing benefit highlight the fact that increases are quite likely not to be foreseen. As the Centre for Economic and Social Exclusion points out, these sort of problems go well beyond the 2 per cent per year tolerance for breach built into the cap.

And a separate part of the report on trends in welfare spending makes clear that these problems are directly related to our housing system.

While the government has consistently claimed that the housing benefit bill is ‘out of control’, the OBR points out that:

‘The largest driver of the rise in spending on housing benefit has been caseload growth in the private rented sector. This reflects both a rising share of households living in private rented accommodation and a rising proportion of those households claiming housing benefit. As a result, the share of spending accounted for by the private rented sector is forecast to rise from 30 per cent in 2007-08 to 40 per cent by 2018-19.’

The main reason for that is of course the long-term shift from owner-occupation to private renting that began long before the recession but accelerated in the last five years. The OBR says that:

‘The rising proportion of the renting population claiming housing benefit may be related to the weakness of average wage growth relative to rent inflation. This explanation is supported by DWP data, which suggest that almost all the recent rise in the private-rented sector housing benefit caseload has been accounted for by people in employment. We expect the share of claimants in the private rented sector to continue rising over the forecast period, but for average awards to rise more slowly than nominal GDP per capita due to policy, including on uprating.’

So much for being ‘out of control’ or the product of the so-called ‘dependency culture’. The OBR sees the growth in the housing benefit bill as a direct consequence of shifting tenure and rents rising faster than wages as more people in work have to claim. The total bill will keep on rising but that last bit on policy and uprating could suggest that if the bill does fall as a proportion of GDP it will be because more people will face greater shortfalls between their housing benefit and their rent.

And will it fall even in those terms? Elsewhere in the report, the OBR forecasts big increases in house prices as a result of the economic recovery and policies like Help to Buy:

Price

Annual house price inflation will rise from the current 5.5 per cent (using the ONS index) to a peak of 9.2 per cent in the third quarter of 2014. Over the next year or so prices will rise significantly more than it expected three months ago. Over the next five years, prices will rise by 30 per cent to reach a level of just 0.5 per cent below their pre-crisis peak in real terms.

When ministers argue that their policies are not generating a boom they tend to rely on the real terms comparison with 2007 to reassure us all. However, if this forecast is correct, we will be all but back at the house price levels that triggered the sub-prime mortgage crisis, the credit crunch and the financial crisis within five years.

Bear in mind too that earnings have been falling in real terms ever since the crash, so house prices will actually be more unaffordable than they were at the peak of the boom. I find that alarming rather than reassuring. 

However, long-term trends in the housing system may not matter so much to the chancellor if the OBR is correct in its forecasts about rising tax receipts from stamp duty. As house prices and transactions both rise, the OBR says the £6.9 billion receipts from stamp duty in 2012/13 will rise to £9.5 billion in 2013/14 and £12.7 billion in 2014/15. By 2018.19 total receipts will stand at £18.1 billion.

That’s £9 billion more over the next five years than it was forecasting three months ago. The OBR notes: ‘The housing market, particularly in London, has continued to outperform our forecast and receipts have been higher than expected.’ Little wonder that Osborne resisted calls for reductions in this Budget – and housing is also generating more modest but still significant gains for him in inheritance tax. Could it be time to reinvest some of it?

As house prices rise, so more and more homes cost more than the thresholds for higher rates of stamp duty. The average house price is expected to pass £250,000 this year, meaning that buyers will have to pay 3 per cent duty on the whole amount. The average effective rate of stamp duty is expected to rise from 1.7 per cent in 2008/09 to over 3 per cent in 2018/19. 

The bigger question is what this will mean for levels of home ownership and ultimately for the housing benefit bill. The government may hope that extending Help to Buy 1 will create 120,000 new owners but those unaffordable house prices would be creating many more new renters who need help with their rent.

It’s not housing benefit that is out of control but our whole housing system. 

Budget 2014: the next five years

Wed, 19 Mar 2014

Never mind today and tomorrow: what does the Budget mean for housing over the longer term?

As usual, some of the most revealing information comes not in the speech or the Treasury’s background documents but in the Economic and Fiscal Outlook published by the Office for Budget Responsibility. This time around the detail and the forecasts for the next five years have a lot to say about housing benefit, the welfare cap and the housing market. 

On the welfare cap, the OBR has a detailed breakdown of the benefits and tax credits that will and won’t be included:

Cap

We already knew that ‘the vast majority’ of housing benefit would be covered. This shows that 86 per cent of the current housing benefit bill will be within the cap – but that that the proportion will rise to 90 per cent by the end of the decade as the uncapped bit linked to unemployment falls.

The figures could also answer my question in my Budget live blog about the impact of above-inflation social rent rises: policy decisions like these seem to be already factored in to the cap level.

Which might be ok were it not for the fact that the OBR has constantly changed its forecasts of the housing benefit bill. It now says the total cost will be £1 billion more over the next five years than it forecast at the time of the Autumn Statement in December. However, that figure was itself £6 billion higher over five years than it estimated at the time of the Budget a year ago, which in turn was £3.7 billion higher than it said at the 2012 Autumn Statement.

Unforeseen increases in any capped benefits could automatically trigger cuts under the new system. The OBR’s forecasting difficulties on housing benefit highlight the fact that increases are quite likely not to be foreseen. As the Centre for Economic and Social Exclusion points out, these sort of problems go well beyond the 2 per cent per year tolerance for breach built into the cap.

And a separate part of the report on trends in welfare spending makes clear that these problems are directly related to our housing system.

While the government has consistently claimed that the housing benefit bill is ‘out of control’, the OBR points out that:

‘The largest driver of the rise in spending on housing benefit has been caseload growth in the private rented sector. This reflects both a rising share of households living in private rented accommodation and a rising proportion of those households claiming housing benefit. As a result, the share of spending accounted for by the private rented sector is forecast to rise from 30 per cent in 2007-08 to 40 per cent by 2018-19.’

The main reason for that is of course the long-term shift from owner-occupation to private renting that began long before the recession but accelerated in the last five years. The OBR says that:

‘The rising proportion of the renting population claiming housing benefit may be related to the weakness of average wage growth relative to rent inflation. This explanation is supported by DWP data, which suggest that almost all the recent rise in the private-rented sector housing benefit caseload has been accounted for by people in employment. We expect the share of claimants in the private rented sector to continue rising over the forecast period, but for average awards to rise more slowly than nominal GDP per capita due to policy, including on uprating.’

So much for being ‘out of control’ or the product of the so-called ‘dependency culture’. The OBR sees the growth in the housing benefit bill as a direct consequence of shifting tenure and rents rising faster than wages as more people in work have to claim. The total bill will keep on rising but that last bit on policy and uprating could suggest that if the bill does fall as a proportion of GDP it will be because more people will face greater shortfalls between their housing benefit and their rent.

And will it fall even in those terms? Elsewhere in the report, the OBR forecasts big increases in house prices as a result of the economic recovery and policies like Help to Buy:

Price

Annual house price inflation will rise from the current 5.5 per cent (using the ONS index) to a peak of 9.2 per cent in the third quarter of 2014. Over the next year or so prices will rise significantly more than it expected three months ago. Over the next five years, prices will rise by 30 per cent to reach a level of just 0.5 per cent below their pre-crisis peak in real terms.

When ministers argue that their policies are not generating a boom they tend to rely on the real terms comparison with 2007 to reassure us all. However, if this forecast is correct, we will be all but back at the house price levels that triggered the sub-prime mortgage crisis, the credit crunch and the financial crisis within five years.

Bear in mind too that earnings have been falling in real terms ever since the crash, so house prices will actually be more unaffordable than they were at the peak of the boom. I find that alarming rather than reassuring. 

However, long-term trends in the housing system may not matter so much to the chancellor if the OBR is correct in its forecasts about rising tax receipts from stamp duty. As house prices and transactions both rise, the OBR says the £6.9 billion receipts from stamp duty in 2012/13 will rise to £9.5 billion in 2013/14 and £12.7 billion in 2014/15. By 2018.19 total receipts will stand at £18.1 billion.

That’s £9 billion more over the next five years than it was forecasting three months ago. The OBR notes: ‘The housing market, particularly in London, has continued to outperform our forecast and receipts have been higher than expected.’ Little wonder that Osborne resisted calls for reductions in this Budget – and housing is also generating more modest but still significant gains for him in inheritance tax. Could it be time to reinvest some of it?

As house prices rise, so more and more homes cost more than the thresholds for higher rates of stamp duty. The average house price is expected to pass £250,000 this year, meaning that buyers will have to pay 3 per cent duty on the whole amount. The average effective rate of stamp duty is expected to rise from 1.7 per cent in 2008/09 to over 3 per cent in 2018/19. 

The bigger question is what this will mean for levels of home ownership and ultimately for the housing benefit bill. The government may hope that extending Help to Buy 1 will create 120,000 new owners but those unaffordable house prices would be creating many more new renters who need help with their rent.

It’s not housing benefit that is out of control but our whole housing system. 

Budget 2014 - live blog

Wed, 19 Mar 2014

15:40: Kate Webb of Shelter has just posted a blog about a Budget that provided welcome support for homeowners but laid the groundwork for a future squeeze in support for renters.

The good news for owners and those wanting to get on the ladder comes on SMI, self build and Help to Buy plus a range of other measures I summarised earlier.

The bad news for renters is the welfare cap. Current spending projections are built in but if welfare spending rises faster than expected a future government will have to find savings elsewhere: 

‘Crucially the pressure to bring spending back under the limit of the cap falls entirely on the DWP, rather than, for example, rising housing benefit expenditure triggering action in CLG to increase supply of genuinely affordable housing to reduce the HB bill.’

Even worse, Kate warns that one or more parties may promise in their next election manifesto to reduce the cap, locking cuts into the system without having to set out any detail at the time:

‘Reducing the welfare cap by £12 billion probably sounds abstractedly palatable to the average person on the street. Spelling out that this would entail the complete withdrawal of housing benefit for young families or cuts to benefits that enable disabled people to work may be a harder sell.’ 

Meanwhile Leslie Morphy of Crisis makes a similar point about the dangers implicit in the cap:

‘Though the maths might look solid today, we fear that predicting something as complex as national demand for benefits five years in advance is incredibly risky. If the sums do turn out to be wrong, in four of five years’ time it will cause poverty, misery and homelessness.’

14:40: Some reactions so far. David Orr of the NHF says it’s a missed opportunity:

‘We welcome the Chancellor’s focus on housing and the announcement of a new garden city, but we think the Budget is a missed opportunity. Measures like Help to Buy are likely to stimulate demand for housing but the Budget does not go far enough to boost the supply of homes needed to meet that demand.’

Grainia Long of the CIH welcomes the extra help for small and medium sized housebuilders and some of the other specific measures on garden cities and support for mortgage interest. She concludes:

‘In his Budget speech the Chancellor claimed that the measures he announced would deliver 200,000 new homes, including the 120,000 homes supported by the extension of Help to Buy equity loans. This would be an important step along the road to addressing out housing crisis, but it still leaves us with much to do.’

14:32: Here’s some more detail from the ‘Housing and local growth’ section of the main Budget document:

  • Help to Buy: equity loan scheme – extended to March 2020 to help a further 120,000 households to buy a new-build home.
  • Ebbsfleet Garden City – Government will form an Urban Development Corporation, in consultation with local MPs, councils and residents, to deliver it and support the scheme with up to £200 million of infrastructure funding to kickstart development.
  • Barking Riverside – The government will work with the Greater London Authority (GLA) to develop proposals for extending the Gospel Oak to Barking line to Barking Riverside to unlock up to 11,000 new homes.
  • Brent Cross regeneration scheme – The government will work with the London Borough of Barnet and the GLA to look at proposals for the Brent Cross regeneration scheme, subject to value for money and affordability.
  • Estate regeneration – A £150 million fund to kick start regeneration of social housing estates. This will be repayable loans  and bids will shortly be invited from private sector developers, working with local authorities on estates that might be able to benefit. Following the Autumn Statement, expressions of interest have already been made through the Greater London Authority relating to the Aylesbury Estate, Blackwall Reach and Grahame Park regeneration projects in London.
  • Builders’ Finance Fund – To support SME access to finance, the government will create a £500 million Builders’ Finance Fund. This ‘will provide loans to developers to unlock 15,000 housing units stalled due to difficulty in accessing finance’.
  • Custom build – Consultation on a new Right to Build giving custom builders a right to a plot from councils and test the operation of this approach with vanguard local authorities. The government will also create a £150 million repayable loan scheme to provide up to 10,000 serviced plots, and will look to extend the Help to Buy: equity loan scheme to cover custom build.
  • Strategic Land and Property Review – The Government Property Unit has concluded its Strategic Land and Property Review which has identified scope to release £5 billion from government land and property, creating opportunities for housing and economic development. Departments have already committed to £3.5 billion of that and a further £1.5 billion will be identified. ‘By Autumn Statement 2014 the government will look to quantify its housing and growth ambitions for this new surplus land programme.’
  • Zero carbon homes – ‘At Budget 2013 the government committed to implement ‘zero carbon homes’ from 2016. The government will shortly publish its response to last year’s consultation.’
  • Right to Move – The government will shortly consult on the design of a priority ‘Right to Move’ for social tenants to increase their mobility for work-related reasons. Options will include giving such tenants priority when a new social home becomes available, and setting aside a pool of vacant lets to enable them to move across local authority boundaries.
  • Development benefits – Government-funded staged pilot for passing a share of the benefits of development directly to individual households, including further research and evaluation of the approach.
  • Garden City prospectus – The government will publish a prospectus by Easter 2014 setting out how interested local authorities could develop their own, locally-led proposals for bringing forward new garden cities.
  • More planning reform - including consultation on change of use measures to make it easier to change to residential use, for example from warehpuses and light industry structures.
  • Support for mortgage interest (SMI) scheme to remain at higher £200,000 capital limit until March 2016 at a cost of £90 million - not clear if shorter waiting period of 13 weeks is also being extended.
  • Higher rate 15% stamp duty on homes owned by companies extended to homes worth over £500,000 and  the Annual Tax on Enveloped Dwellings to be extended to homes worth £1-2 million from April 2015 and £500,000-£1 million from April 2016. The original tax on homes worth over £2 million raised five times more than expected in the 2012 Budget because there were ‘significantly more properties above £2 million than expected’.

14:12: Looking at the Budget documents now. Here’s the full list of the benefits and tax credits covered by the welfare cap:

Cap

We know from the Autumn Statement that ‘the vast majority’ of housing benefit will be in the cap. Apart from the obvious trap for Labour (repeal the bedroom tax and you have to cut something else) this raises a big question about social rent policy: if rents rise by CPI plus one per cent but the cap rises by CPI, does that means other benefits will have to be cut to make up for it?

13:40: Here’s they key passage on housing from Osborne’s speech:

Mr Deputy Speaker, our country needs to export more – and it also needs to build more.

‘House building is up 23%. But that’s not enough. That’s why we’re making further reforms to our planning system and offering half a billion pounds of finance to small house building firms. It’s why we’re signing city deals across the country to get more built – with a new funding deal this week for Cambridge. And it’s why we’re giving people a new Right to Build their own homes and providing £150 million of finance today to support that.

‘It’s why we’re funding regeneration of some of the urban housing estates that are in the worst condition, and we’re extending the current Support for Mortgage Interest Scheme to 2016.

‘And it’s why we’ve got Help to Buy. We’re extending the Help to Buy equity loan scheme for the rest of the decade, so we get 120,000 new homes built.

‘In the South East where the pressure is greatest we’re going to build new homes in Barking Riverside, regenerate Brent Cross, and build the first new Garden City in almost a hundred years at Ebbsfleet. We’re going to build 15,000 homes there, put in the infrastructure, set up the development corporation and make it happen. I thank my Honourable Friends for Dartford and Gravesham for their tremendous support. And we will be publishing a prospectus on the future of Garden Cities.

Taken all together, the housing policies I announce today will support over 200,000 new homes for families. We’re getting Britain building.’

So that seems to mean that the non-Help to Buy announcements will generate 80,000 homes. It was interesting there was no mention of changes to Help to Buy 2. The Budget documents should help show how much of this is new. 

Elsewhere in the speech, Osborne confirmed that the welfare cap will include housing benefit (it was the first benefit he mentioned) and extended the 15 per cent rate of stamp duty on homes bought through companies. 

10:05: George Osborne is due to start his Budget speech at 12.30. Here are some more pre-Budget articles and blogs that are worth a read in the meantime.

On the housing market, Ken Gibb of Glasgow University asks whether Osborne will cool of fuel the housing market and warns that without a political consensus on housing policy the danger is more political short-termism, chronic under-supply and market volatility. Meanwhile Neal Hudson of Savills looks at what the Bank of England can do to control the market and at the prospects for the Mortgage Market Review in April. If that does not succeed in curbing riskier lending he warns that it may ‘go head-to-head with the government by intervening in the mortgage market later this year’. (Mark Carney warned of the housing-related risks ahead yesterday).

On social housing, David Orr wants ‘more homes please’ and pleads with Osborne to address three barriers that are holding back housing associations: land and improvements in the release of public land; access to finance by reforming restrictions on the way homes are valued; and the extension of guarantees to the refinancing of existing debt. 

And ahead of a Budget that looks like it is set to make you feel sick of hearing the word ‘resilient’, Julia Unwin has a message for Osborne that cost-effective spending in areas like childcare and social housing can not only reduce poverty but also boost the economy.

For a look at the CIH’s Budget submission go here

08:50: Here’s my summary of the housing-related news and speculation ahead of the Budget. More to follow later.

Housing has of course already been at the centre of the pre-Budget spin. George Osborne made two big announcements on morning television on Sunday: Help to Buy 1 – the equity loan scheme – will be extended from 2016 to 2020 in England; and we will also see what’s claimed to be ‘the first new garden city for 100 years’ at Ebbsfleet in Kent.

On the first, it’s worth noting that housebuilders were only asking for the scheme to be tapered off after 2016 rather than extended. The government’s argument is that investing another £6 billion to help 120,000 more households buy a new-build home will provide greater certainty to developers so they can invest in building more homes. Critics warn that it’s a subsidy that will go to many homes that would have been built anyway and that in the long term it will simply inflate land prices. The instant verdict from the City was a £900 million increase in the share prices of the major builders. On the second, the plan for 15,000 new homes in Kent seems to be smaller than plans approved in 2012 and it is hard to see how many of the original garden city principles are being applied.

With those announcements already out of the way, Noble Francis asks whether we have heard it already when it comes to the Budget. It’s possible we’ll hear more on both of them later. However, other speculation centres on:

  • Help to Buy 2. The extension of its less contentious partner be accompanied by changes to the heavily criticised mortgage guarantee scheme? And if they are will they curb it – or extend it?
  • The welfare cap. Osborne is due to reveal more detail of how the cap on non-cyclical spending on benefits and tax credits will operate. The idea is that a future Chancellor will either have to balance cost increases with savings elsewhere or seek parliamentary approval to lift the cap. The big question for housing is of course what that will mean for housing benefit and the housing element of universal credit. We know from the Autumn Statement that ‘the vast majority’ of housing benefit will be covered – only JSA-passported housing benefit will be outside the cap – but how will that interact with other housing policies such as the social housing rent formula? The FT has a bit more on the cap this morning.
  • Stamp duty. There have been unheeded calls for reform ahead of every Budget that I can remember but with the average asking price for a home now having passed the £250,000 threshold at which stamp duty hits 3 per cent, will Osborne finally listen? The FT speculates on a new 2 per cent rate for homes between £250,000 and £300,000 Could we see other changes to property tax?
  • Land auctions. A feasibility study on the scheme to reform incentives for communities to accept development is due to be published.
  • Right to buy: Will Osborne announce Conservative-pleasing increases to discounts? Will the Lib Dems let him or ask for something in return?
  • Borrowing cap: Osborne announced a slight lifting in the cap in the Autumn Statement and the Lib Dems and everyone in housing want him to go further.
  • Tax relief on investment in social enterprises: Osborne is due to reveal more detail and it will be interesting to see what scope the scheme offers for housing. The Guardian has a report explaining a bit more.
  • The Policy Exchange agenda: the Autumn Statement adopted several policies promoted by the think thank including selling high-value social housing. Alex Morton has since joined the No 10 Policy Unit so will we see more? Perhaps the announcement on garden cities already offers evidence of that.
  • Troubled families: many of this morning’s papers report that the scheme will be brought forward for another 40,000 families. 

We’ll have to wait for the Budget speech – or more likely the small print of the Budget documents – to hear more on those points.

Budget 2014 - live blog

Wed, 19 Mar 2014

15:40: Kate Webb of Shelter has just posted a blog about a Budget that provided welcome support for homeowners but laid the groundwork for a future squeeze in support for renters.

The good news for owners and those wanting to get on the ladder comes on SMI, self build and Help to Buy plus a range of other measures I summarised earlier.

The bad news for renters is the welfare cap. Current spending projections are built in but if welfare spending rises faster than expected a future government will have to find savings elsewhere: 

‘Crucially the pressure to bring spending back under the limit of the cap falls entirely on the DWP, rather than, for example, rising housing benefit expenditure triggering action in CLG to increase supply of genuinely affordable housing to reduce the HB bill.’

Even worse, Kate warns that one or more parties may promise in their next election manifesto to reduce the cap, locking cuts into the system without having to set out any detail at the time:

‘Reducing the welfare cap by £12 billion probably sounds abstractedly palatable to the average person on the street. Spelling out that this would entail the complete withdrawal of housing benefit for young families or cuts to benefits that enable disabled people to work may be a harder sell.’ 

Meanwhile Leslie Morphy of Crisis makes a similar point about the dangers implicit in the cap:

‘Though the maths might look solid today, we fear that predicting something as complex as national demand for benefits five years in advance is incredibly risky. If the sums do turn out to be wrong, in four of five years’ time it will cause poverty, misery and homelessness.’

14:40: Some reactions so far. David Orr of the NHF says it’s a missed opportunity:

‘We welcome the Chancellor’s focus on housing and the announcement of a new garden city, but we think the Budget is a missed opportunity. Measures like Help to Buy are likely to stimulate demand for housing but the Budget does not go far enough to boost the supply of homes needed to meet that demand.’

Grainia Long of the CIH welcomes the extra help for small and medium sized housebuilders and some of the other specific measures on garden cities and support for mortgage interest. She concludes:

‘In his Budget speech the Chancellor claimed that the measures he announced would deliver 200,000 new homes, including the 120,000 homes supported by the extension of Help to Buy equity loans. This would be an important step along the road to addressing out housing crisis, but it still leaves us with much to do.’

14:32: Here’s some more detail from the ‘Housing and local growth’ section of the main Budget document:

  • Help to Buy: equity loan scheme – extended to March 2020 to help a further 120,000 households to buy a new-build home.
  • Ebbsfleet Garden City – Government will form an Urban Development Corporation, in consultation with local MPs, councils and residents, to deliver it and support the scheme with up to £200 million of infrastructure funding to kickstart development.
  • Barking Riverside – The government will work with the Greater London Authority (GLA) to develop proposals for extending the Gospel Oak to Barking line to Barking Riverside to unlock up to 11,000 new homes.
  • Brent Cross regeneration scheme – The government will work with the London Borough of Barnet and the GLA to look at proposals for the Brent Cross regeneration scheme, subject to value for money and affordability.
  • Estate regeneration – A £150 million fund to kick start regeneration of social housing estates. This will be repayable loans  and bids will shortly be invited from private sector developers, working with local authorities on estates that might be able to benefit. Following the Autumn Statement, expressions of interest have already been made through the Greater London Authority relating to the Aylesbury Estate, Blackwall Reach and Grahame Park regeneration projects in London.
  • Builders’ Finance Fund – To support SME access to finance, the government will create a £500 million Builders’ Finance Fund. This ‘will provide loans to developers to unlock 15,000 housing units stalled due to difficulty in accessing finance’.
  • Custom build – Consultation on a new Right to Build giving custom builders a right to a plot from councils and test the operation of this approach with vanguard local authorities. The government will also create a £150 million repayable loan scheme to provide up to 10,000 serviced plots, and will look to extend the Help to Buy: equity loan scheme to cover custom build.
  • Strategic Land and Property Review – The Government Property Unit has concluded its Strategic Land and Property Review which has identified scope to release £5 billion from government land and property, creating opportunities for housing and economic development. Departments have already committed to £3.5 billion of that and a further £1.5 billion will be identified. ‘By Autumn Statement 2014 the government will look to quantify its housing and growth ambitions for this new surplus land programme.’
  • Zero carbon homes – ‘At Budget 2013 the government committed to implement ‘zero carbon homes’ from 2016. The government will shortly publish its response to last year’s consultation.’
  • Right to Move – The government will shortly consult on the design of a priority ‘Right to Move’ for social tenants to increase their mobility for work-related reasons. Options will include giving such tenants priority when a new social home becomes available, and setting aside a pool of vacant lets to enable them to move across local authority boundaries.
  • Development benefits – Government-funded staged pilot for passing a share of the benefits of development directly to individual households, including further research and evaluation of the approach.
  • Garden City prospectus – The government will publish a prospectus by Easter 2014 setting out how interested local authorities could develop their own, locally-led proposals for bringing forward new garden cities.
  • More planning reform - including consultation on change of use measures to make it easier to change to residential use, for example from warehpuses and light industry structures.
  • Support for mortgage interest (SMI) scheme to remain at higher £200,000 capital limit until March 2016 at a cost of £90 million - not clear if shorter waiting period of 13 weeks is also being extended.
  • Higher rate 15% stamp duty on homes owned by companies extended to homes worth over £500,000 and  the Annual Tax on Enveloped Dwellings to be extended to homes worth £1-2 million from April 2015 and £500,000-£1 million from April 2016. The original tax on homes worth over £2 million raised five times more than expected in the 2012 Budget because there were ‘significantly more properties above £2 million than expected’.

14:12: Looking at the Budget documents now. Here’s the full list of the benefits and tax credits covered by the welfare cap:

Cap

We know from the Autumn Statement that ‘the vast majority’ of housing benefit will be in the cap. Apart from the obvious trap for Labour (repeal the bedroom tax and you have to cut something else) this raises a big question about social rent policy: if rents rise by CPI plus one per cent but the cap rises by CPI, does that means other benefits will have to be cut to make up for it?

13:40: Here’s they key passage on housing from Osborne’s speech:

Mr Deputy Speaker, our country needs to export more – and it also needs to build more.

‘House building is up 23%. But that’s not enough. That’s why we’re making further reforms to our planning system and offering half a billion pounds of finance to small house building firms. It’s why we’re signing city deals across the country to get more built – with a new funding deal this week for Cambridge. And it’s why we’re giving people a new Right to Build their own homes and providing £150 million of finance today to support that.

‘It’s why we’re funding regeneration of some of the urban housing estates that are in the worst condition, and we’re extending the current Support for Mortgage Interest Scheme to 2016.

‘And it’s why we’ve got Help to Buy. We’re extending the Help to Buy equity loan scheme for the rest of the decade, so we get 120,000 new homes built.

‘In the South East where the pressure is greatest we’re going to build new homes in Barking Riverside, regenerate Brent Cross, and build the first new Garden City in almost a hundred years at Ebbsfleet. We’re going to build 15,000 homes there, put in the infrastructure, set up the development corporation and make it happen. I thank my Honourable Friends for Dartford and Gravesham for their tremendous support. And we will be publishing a prospectus on the future of Garden Cities.

Taken all together, the housing policies I announce today will support over 200,000 new homes for families. We’re getting Britain building.’

So that seems to mean that the non-Help to Buy announcements will generate 80,000 homes. It was interesting there was no mention of changes to Help to Buy 2. The Budget documents should help show how much of this is new. 

Elsewhere in the speech, Osborne confirmed that the welfare cap will include housing benefit (it was the first benefit he mentioned) and extended the 15 per cent rate of stamp duty on homes bought through companies. 

10:05: George Osborne is due to start his Budget speech at 12.30. Here are some more pre-Budget articles and blogs that are worth a read in the meantime.

On the housing market, Ken Gibb of Glasgow University asks whether Osborne will cool of fuel the housing market and warns that without a political consensus on housing policy the danger is more political short-termism, chronic under-supply and market volatility. Meanwhile Neal Hudson of Savills looks at what the Bank of England can do to control the market and at the prospects for the Mortgage Market Review in April. If that does not succeed in curbing riskier lending he warns that it may ‘go head-to-head with the government by intervening in the mortgage market later this year’. (Mark Carney warned of the housing-related risks ahead yesterday).

On social housing, David Orr wants ‘more homes please’ and pleads with Osborne to address three barriers that are holding back housing associations: land and improvements in the release of public land; access to finance by reforming restrictions on the way homes are valued; and the extension of guarantees to the refinancing of existing debt. 

And ahead of a Budget that looks like it is set to make you feel sick of hearing the word ‘resilient’, Julia Unwin has a message for Osborne that cost-effective spending in areas like childcare and social housing can not only reduce poverty but also boost the economy.

For a look at the CIH’s Budget submission go here

08:50: Here’s my summary of the housing-related news and speculation ahead of the Budget. More to follow later.

Housing has of course already been at the centre of the pre-Budget spin. George Osborne made two big announcements on morning television on Sunday: Help to Buy 1 – the equity loan scheme – will be extended from 2016 to 2020 in England; and we will also see what’s claimed to be ‘the first new garden city for 100 years’ at Ebbsfleet in Kent.

On the first, it’s worth noting that housebuilders were only asking for the scheme to be tapered off after 2016 rather than extended. The government’s argument is that investing another £6 billion to help 120,000 more households buy a new-build home will provide greater certainty to developers so they can invest in building more homes. Critics warn that it’s a subsidy that will go to many homes that would have been built anyway and that in the long term it will simply inflate land prices. The instant verdict from the City was a £900 million increase in the share prices of the major builders. On the second, the plan for 15,000 new homes in Kent seems to be smaller than plans approved in 2012 and it is hard to see how many of the original garden city principles are being applied.

With those announcements already out of the way, Noble Francis asks whether we have heard it already when it comes to the Budget. It’s possible we’ll hear more on both of them later. However, other speculation centres on:

  • Help to Buy 2. The extension of its less contentious partner be accompanied by changes to the heavily criticised mortgage guarantee scheme? And if they are will they curb it – or extend it?
  • The welfare cap. Osborne is due to reveal more detail of how the cap on non-cyclical spending on benefits and tax credits will operate. The idea is that a future Chancellor will either have to balance cost increases with savings elsewhere or seek parliamentary approval to lift the cap. The big question for housing is of course what that will mean for housing benefit and the housing element of universal credit. We know from the Autumn Statement that ‘the vast majority’ of housing benefit will be covered – only JSA-passported housing benefit will be outside the cap – but how will that interact with other housing policies such as the social housing rent formula? The FT has a bit more on the cap this morning.
  • Stamp duty. There have been unheeded calls for reform ahead of every Budget that I can remember but with the average asking price for a home now having passed the £250,000 threshold at which stamp duty hits 3 per cent, will Osborne finally listen? The FT speculates on a new 2 per cent rate for homes between £250,000 and £300,000 Could we see other changes to property tax?
  • Land auctions. A feasibility study on the scheme to reform incentives for communities to accept development is due to be published.
  • Right to buy: Will Osborne announce Conservative-pleasing increases to discounts? Will the Lib Dems let him or ask for something in return?
  • Borrowing cap: Osborne announced a slight lifting in the cap in the Autumn Statement and the Lib Dems and everyone in housing want him to go further.
  • Tax relief on investment in social enterprises: Osborne is due to reveal more detail and it will be interesting to see what scope the scheme offers for housing. The Guardian has a report explaining a bit more.
  • The Policy Exchange agenda: the Autumn Statement adopted several policies promoted by the think thank including selling high-value social housing. Alex Morton has since joined the No 10 Policy Unit so will we see more? Perhaps the announcement on garden cities already offers evidence of that.
  • Troubled families: many of this morning’s papers report that the scheme will be brought forward for another 40,000 families. 

We’ll have to wait for the Budget speech – or more likely the small print of the Budget documents – to hear more on those points.

Making the move

Thu, 13 Mar 2014

Forced out of area moves are on the increase and they are not just happening in London.

The Oxford Times reports this week on cases of people being offered homes as far away in Cardiff, Cheltenham and Birmingham. The council blames the cuts in housing benefit and the benefit cap that make it impossible to find affordable private rented accommodation but a local solicitor has accused it of dumping people outside the area.

Elysha Britnell, a 22 year old mother of two children, was told she would have to move out of her temporary accommodation in Oxford and accept a home in Birmingham. She says she has no family and friends outside Oxford and has never lived anywhere else and is appealing against the decision:

‘I’m Oxford born and bred. If this appeal fails I’ll be completely homeless. I have got nowhere else to go. Even if I go to Birmingham, I may as well be homeless, because I have nobody there.’

Her solicitor John McNulty blames the changes to the discharge of the homelessness duty introduced under the Localism Act:

‘There was a change in the law which now lets councils dump people. Now they can find people out-of-area placements and just discharge their duty to these people.’  

He explains more of the background in an earlier piece for the Oxford Mail.

Scott Seamons, Oxford City Council’s board member for housing, blamed the cap on housing benefit, told the Oxford Times:

‘Due to cuts in the local housing allowance, it’s become increasingly difficult to place people with private landlords in Oxford. There’s too much choice for landlords, so they’re refusing people on benefits. Our first choice is absolutely to keep people in Oxford. I don’t want to see people being pushed out of the city. We’re doing what we can to build new houses. It’s the only way we’re really going to be able to make a difference.’

Whatever the rights and wrongs of this particular case, stories like this have become depressingly familiar in the wake of the Localism Act and the Welfare Reform Act but this is the first I’ve seen outside London. However, it is perhaps not so surprising that it should be happening in Oxford when you consider that a survey last week found that is the least affordable city in the country.

Within London, it was the furore over Newham’s plans to export its homeless families to Stoke-on-Trent that made all the headlines two years ago. However, even at the time it was only one of many boroughs looking outside the capital.

The benefit cap introduced last year has made things even worse.  Amelia Gentleman reported for The Guardian last week on families priced first out of inner London and now facing having to move out of the capital altogether as a result of the benefit cap. Birmingham, Manchester and Grimsby were mentioned as possible destinations.

There are two separate but connected housing issues involved here. The Newham story involved the location of temporary accommodation to people accepted as homeless. The later stories involve the location of private rented accommodation offered as a permanent discharge of the homelessness duty.

On the first issue, as Inside Housing reported recently, the latest government stats show that almost 12,000 families were placed ‘out of borough’ in another local authority area last year. Boroughs have even been gazumping each other to secure the temporary accommodation that is available.

As the graph below shows, that number of households in temporary accommodation outside their local authority district has doubled since the election. The total of 11,860 families outside their area at the end of 2013 represented one in five of all those in temporary accommodation.

The graph also shows a dip in the number following the introduction of the discharge power in November 2012. However, the number has increased by 32 per cent increase in the year since.

Whatever the reasons for this, at least we know the numbers involved. On the second issue, it’s also possible to get the stats on permanent discharges of the homelessness duty.

In theory, they have to take account of the suitability of the location of the new home and avoid disruption to schooling, employment, medical care and support.

The impact on people who have moved area was illustrated in a report on formerly homeless families in the private rented sector published last month by Shelter and Crisis: there were major impacts on schooling and on support that people received from family and friends. In some cases people were so unhappy they tried to move back to their original area, in others they struggled to find a new school place and in one a mother had still not been able to place her child in school 19 months after she moved.

In practice, while ministers publicly disapproved of out of area placements, one of its own advisors was telling councils how to sidestep the safeguards. The DCLG then denied he was an advisor.

Whatever the truth of that, while austerity and the Welfare Reform Act pile the pressure on councils and claimants, the Localism Act has introduced new flexibilities for those that want to use them. Hammersmith & Fulham has, for example, excluded homeless people from its housing list and its policy has so far survived legal challenge.

It’s also hard to assess how many people have been forced to move from their home area by housing benefit cuts – although in 2012 local housing allowance stats were suggesting significant movement from inner to outer London. 

What does seem clear though is that the problem is growing – and that now it is spreading outside London. 

Making the move

Thu, 13 Mar 2014

Forced out of area moves are on the increase and they are not just happening in London.

The Oxford Times reports this week on cases of people being offered homes as far away in Cardiff, Cheltenham and Birmingham. The council blames the cuts in housing benefit and the benefit cap that make it impossible to find affordable private rented accommodation but a local solicitor has accused it of dumping people outside the area.

Elysha Britnell, a 22 year old mother of two children, was told she would have to move out of her temporary accommodation in Oxford and accept a home in Birmingham. She says she has no family and friends outside Oxford and has never lived anywhere else and is appealing against the decision:

‘I’m Oxford born and bred. If this appeal fails I’ll be completely homeless. I have got nowhere else to go. Even if I go to Birmingham, I may as well be homeless, because I have nobody there.’

Her solicitor John McNulty blames the changes to the discharge of the homelessness duty introduced under the Localism Act:

‘There was a change in the law which now lets councils dump people. Now they can find people out-of-area placements and just discharge their duty to these people.’  

He explains more of the background in an earlier piece for the Oxford Mail.

Scott Seamons, Oxford City Council’s board member for housing, blamed the cap on housing benefit, told the Oxford Times:

‘Due to cuts in the local housing allowance, it’s become increasingly difficult to place people with private landlords in Oxford. There’s too much choice for landlords, so they’re refusing people on benefits. Our first choice is absolutely to keep people in Oxford. I don’t want to see people being pushed out of the city. We’re doing what we can to build new houses. It’s the only way we’re really going to be able to make a difference.’

Whatever the rights and wrongs of this particular case, stories like this have become depressingly familiar in the wake of the Localism Act and the Welfare Reform Act but this is the first I’ve seen outside London. However, it is perhaps not so surprising that it should be happening in Oxford when you consider that a survey last week found that is the least affordable city in the country.

Within London, it was the furore over Newham’s plans to export its homeless families to Stoke-on-Trent that made all the headlines two years ago. However, even at the time it was only one of many boroughs looking outside the capital.

The benefit cap introduced last year has made things even worse.  Amelia Gentleman reported for The Guardian last week on families priced first out of inner London and now facing having to move out of the capital altogether as a result of the benefit cap. Birmingham, Manchester and Grimsby were mentioned as possible destinations.

There are two separate but connected housing issues involved here. The Newham story involved the location of temporary accommodation to people accepted as homeless. The later stories involve the location of private rented accommodation offered as a permanent discharge of the homelessness duty.

On the first issue, as Inside Housing reported recently, the latest government stats show that almost 12,000 families were placed ‘out of borough’ in another local authority area last year. Boroughs have even been gazumping each other to secure the temporary accommodation that is available.

As the graph below shows, that number of households in temporary accommodation outside their local authority district has doubled since the election. The total of 11,860 families outside their area at the end of 2013 represented one in five of all those in temporary accommodation.

The graph also shows a dip in the number following the introduction of the discharge power in November 2012. However, the number has increased by 32 per cent increase in the year since.

Whatever the reasons for this, at least we know the numbers involved. On the second issue, it’s also possible to get the stats on permanent discharges of the homelessness duty.

In theory, they have to take account of the suitability of the location of the new home and avoid disruption to schooling, employment, medical care and support.

The impact on people who have moved area was illustrated in a report on formerly homeless families in the private rented sector published last month by Shelter and Crisis: there were major impacts on schooling and on support that people received from family and friends. In some cases people were so unhappy they tried to move back to their original area, in others they struggled to find a new school place and in one a mother had still not been able to place her child in school 19 months after she moved.

In practice, while ministers publicly disapproved of out of area placements, one of its own advisors was telling councils how to sidestep the safeguards. The DCLG then denied he was an advisor.

Whatever the truth of that, while austerity and the Welfare Reform Act pile the pressure on councils and claimants, the Localism Act has introduced new flexibilities for those that want to use them. Hammersmith & Fulham has, for example, excluded homeless people from its housing list and its policy has so far survived legal challenge.

It’s also hard to assess how many people have been forced to move from their home area by housing benefit cuts – although in 2012 local housing allowance stats were suggesting significant movement from inner to outer London. 

What does seem clear though is that the problem is growing – and that now it is spreading outside London. 

Buy, buy, bye?

Tue, 11 Mar 2014

As George Osborne prepares for next week’s budget, even the people who’ve benefited are calling for changes to help to buy. But is he listening?

A survey out today finds that most mortgage lenders and brokers now believe that help to buy 2 – the more controversial mortgage guarantee element of the scheme - will be scaled back or scrapped before the official end date of 2016.

Last week, the National Audit Office raised concerns about the affordability and value for money of equity loans offered by new homes under help to buy 1. And the RICS called for help to buy to be regionalised on areas with most economic and housing need and focussed on first-time buyers.

Today’s survey by the Intermediary Mortgage Lenders Association found widespread scepticism that the mortgage guarantee scheme announced by Osborne in his budget a year ago and launched at the Conservative conference in October will survive in its current form.

Some 75 per cent of lenders and 54 per cent of brokers think it will be withdrawn early for remortgages, with a further 8 per cent of lenders and 18 per cent of brokers believing it will be scaled back.

Clear majorities of both lenders and brokers also believe it will be withdrawn early or scaled back for 95 per cent mortgages. And, even though more think it will be retained for new build homes, six out of ten think it will be curtailed there too.

Unsurprisingly, since so many of them require the government to guarantee riskier mortgages, 69 per cent of lenders see artificially inflated house prices as the biggest risk to help to buy. That’s up from 60 per cent when they were asked last July.

That’s the biggest worry too for brokers (57 per cent), closely followed by unattractive pricing (51 per cent).

The stats on house prices bear this out. The graph below shows what has happened over the last two years and in particular since George Osborne announced Help to Buy in his March 2013 budget and brought forward the launch of help to buy 2 at the Conservative conference in October 2013. The impact is shown most dramatically in the Nationwide index: in the space of a year house price inflation has gone from zero to almost 10 per cent. However, a similar pattern is evident if you click along the tabs at the top to see the numbers from the Halifax index and from those of the Land Registry and ONS (which have not yet published figures for February).

More usefully perhaps, help to buy has boosted mortgage lending. The Bank of England said last week that mortgage approvals rose to their highest level for six years in January. One of the stated aims of help to buy 2 was to unblock the market in the high loan to value mortgages that had stalled in the wake of the credit crunch.

With 95 per cent mortgages available outside the scheme from lenders like the Nationwide, it’s hard to gauge the exact impact. However, the next graph shows the recovery in lending to first-time buyers in the last year. The numbers may still be well down on pre-credit crunch levels, let alone pre-boom levels, but they have at least recovered from the slump of the last five years that helped to accelerate the decline of home ownership.

The longer-term worry is of course that people are buying into the market at inflated prices at a time when mortgage rates must eventually rise from their current record lows.

More immediately, as Peter Williams of IMLA points out, the challenge is to restore a sustainable mortgage market without government support at the same time as many other regulatory changes are about to be introduced.

However, it’s hard to disagree with Jeremy Warner when he argues in the Telegraph this morning that we have a housing boom but we shouldn’t expect the government to do much about it:

‘In preparing for next week’s budget, Chancellor George Osborne is unlikely to be much concerned with the long-term consequences of another runaway housing market. Instead, he will be focused like a laser on what might revive his dwindling election prospects.’

But then perhaps it is a mistake to see help to buy 2 as a housing policy at all – or to expect it to continue much beyond May 2015. 

Buy, buy, bye?

Tue, 11 Mar 2014

As George Osborne prepares for next week’s budget, even the people who’ve benefited are calling for changes to help to buy. But is he listening?

A survey out today finds that most mortgage lenders and brokers now believe that help to buy 2 – the more controversial mortgage guarantee element of the scheme - will be scaled back or scrapped before the official end date of 2016.

Last week, the National Audit Office raised concerns about the affordability and value for money of equity loans offered by new homes under help to buy 1. And the RICS called for help to buy to be regionalised on areas with most economic and housing need and focussed on first-time buyers.

Today’s survey by the Intermediary Mortgage Lenders Association found widespread scepticism that the mortgage guarantee scheme announced by Osborne in his budget a year ago and launched at the Conservative conference in October will survive in its current form.

Some 75 per cent of lenders and 54 per cent of brokers think it will be withdrawn early for remortgages, with a further 8 per cent of lenders and 18 per cent of brokers believing it will be scaled back.

Clear majorities of both lenders and brokers also believe it will be withdrawn early or scaled back for 95 per cent mortgages. And, even though more think it will be retained for new build homes, six out of ten think it will be curtailed there too.

Unsurprisingly, since so many of them require the government to guarantee riskier mortgages, 69 per cent of lenders see artificially inflated house prices as the biggest risk to help to buy. That’s up from 60 per cent when they were asked last July.

That’s the biggest worry too for brokers (57 per cent), closely followed by unattractive pricing (51 per cent).

The stats on house prices bear this out. The graph below shows what has happened over the last two years and in particular since George Osborne announced Help to Buy in his March 2013 budget and brought forward the launch of help to buy 2 at the Conservative conference in October 2013. The impact is shown most dramatically in the Nationwide index: in the space of a year house price inflation has gone from zero to almost 10 per cent. However, a similar pattern is evident if you click along the tabs at the top to see the numbers from the Halifax index and from those of the Land Registry and ONS (which have not yet published figures for February).

More usefully perhaps, help to buy has boosted mortgage lending. The Bank of England said last week that mortgage approvals rose to their highest level for six years in January. One of the stated aims of help to buy 2 was to unblock the market in the high loan to value mortgages that had stalled in the wake of the credit crunch.

With 95 per cent mortgages available outside the scheme from lenders like the Nationwide, it’s hard to gauge the exact impact. However, the next graph shows the recovery in lending to first-time buyers in the last year. The numbers may still be well down on pre-credit crunch levels, let alone pre-boom levels, but they have at least recovered from the slump of the last five years that helped to accelerate the decline of home ownership.

The longer-term worry is of course that people are buying into the market at inflated prices at a time when mortgage rates must eventually rise from their current record lows.

More immediately, as Peter Williams of IMLA points out, the challenge is to restore a sustainable mortgage market without government support at the same time as many other regulatory changes are about to be introduced.

However, it’s hard to disagree with Jeremy Warner when he argues in the Telegraph this morning that we have a housing boom but we shouldn’t expect the government to do much about it:

‘In preparing for next week’s budget, Chancellor George Osborne is unlikely to be much concerned with the long-term consequences of another runaway housing market. Instead, he will be focused like a laser on what might revive his dwindling election prospects.’

But then perhaps it is a mistake to see help to buy 2 as a housing policy at all – or to expect it to continue much beyond May 2015. 

Scrutiny of help to buy equity scheme

Thu, 6 Mar 2014

In the furore over the help to buy mortgage guarantee scheme, its equity loan counterpart has escaped much scrutiny. A report out today changes that.

Help to buy 1 started in April last year. Equity loans worth more than £500 million households were made in the first nine months of the scheme to almost 13,000 households. Another 9,600 loans were in the pipeline. If everything goes to plan over the next two years, 74,000 households will eventually benefit from equity loans worth £3.7 billion.

Today’s report from the National Audit Office (NAO) makes you remember that although it is small by comparison with the £12 billion of mortgage guarantees offered by its more controversial sibling, Help to Buy 1 is significantly bigger than the firstbuy scheme that it replaced.

Amyas Morse, head of the NAO, says that although the scheme is for the most part running smoothly, more worh is needed by the DCLG and the HCA on managing the risks because ‘the scheme’s costs, which come in large part from tying up £3.7 million long term in the housing market, will be substantial’.

Margaret Hodge, chair of the public accounts committee, puts it more robustly:

‘I am shocked that the Department for Communities and Local Government is investing up to £3.7 billion without a clear understanding of how Help to Buy will impact the property market.’ The DCLG will be questioned about the report on April 2.

One worry at the time of the launch, that first-time buyers would lose out because anyone can apply for the new equity loans appears not to have been borne out: 89 per cent of buyers so far were first-time buyers.

But other concerns remain. First is affordability. The speed of the launch meant that more than 200 loans were made to buyers with a deposit of less than 5 per cent.

If you assume that is a teething problem, the thing that leapt out at me from the report was how financially stretched many of the buyers are. The average buyer has a mortgage 3.4 times their household income, which sounds reasonable, but that rises to 4.4 times their income when you include the equity loan.

Report

The mortgage plus the equity loan was more than five times the household income for 30 per cent of buyers and more than four times their income for 49 per cent. And the report points out that ‘lower-income households using the scheme have higher average debt, relative to their income, than higher-income households, which might be expected’.

Second is value for money. Firstbuy started in 2011 and the terms were remarkably similar to those offered under the Labour HomeBuy Direct scheme that the then shadow housing minister Grant Shapps had described as ‘a very expensive flop’ in 2009. (The link is to the bit of the Conservative Party website that has since been sanitised for posterity).

However, in both of those schemes, the equity loan was split equally between the developer and the government. In contrast, all of the Help to Buy 1 loan comes from the government. As far as I’m aware no real justification has ever been offered for this and the NAO report doesn’t discuss it either.

The problems do not stop there. One of the most telling parts of the report for me is the description of the way that the government set out its objectives for the scheme.

According to a business case approved on 27 March, 2013, the objectives were to:

  • Support credit worthy but deposit constrained households to buy a newly built property
  • Increase the supply of new housing
  • Contribute to economic growth.

All of these are laudable aims that could well justify help to buy 1. However, less than a month later, on 22 April, a revised business case ‘changed the first of the scheme’s objectives to maximising take-up, rather than focussing on deposit-constrained households’.

Hmm. ‘The department said that this was because the scheme is designed to support all aspiring buyers rather than address any particular group’s housing need.’

If you’re wondering whether that represents a good use of public money you are not the only one. The NAO report goes on: ‘The objectives do not include any value-for-money criteria, such as maximising the impact per person or per pound spent.’

The financial watchdog does conclude that ‘by enabling people to make purchases more easily, the scheme appears to have boosted developers’ confidence’. I think my confidence might just be boosted if I got the same benefits without having to tie up any of my cash and put it at risk – and if this enabled me to scale back my spending on sales incentives. I might also consider increasing the price of homes sold under help to buy – and there is already a new build premium built into the price of new homes.  

But these are not the kind of quips you get in NAO reports. It merely notes that there is no way of telling how many of the purchasers would have bought a home anyway or how many homes have been built that would not have been built otherwise.

No wonder quantifying the scheme’s contribution will be ‘challenging’. Answers to those kind of questions are crucial if you want to assess the value for money offered by help to buy 1. The DCLG’s evaluation of the scheme’s economic costs range from £16 million to £1.2 billion with a central estimate of £494 million. Costs depend on different assumptions about what will happen to house prices and repossession rates.

It’s perfectly possible of course that rising house prices will mean the value of the original equity loans will increase substantially by the time they are paid back (although the money will be tied up in the meantime).  The government will also make money from a fee charged on the loans after the first five years.

However, even this might not be completely good news. The report says that ‘cash flow will vary from year to year and in some years the impact of this could be unaffordable for the Department’. This ‘long-term commitment with uncertain returns’ creates could affect the ability of the DCLG and HCA to manage their budgets since the result could be a risk of over- or under-spending in any one year if income is higher or lower than expected.

More fundamentally, the NAO says that the balance of costs and benefits means that ‘the scheme will only be value for money in broader economic terms if there are substantial benefits beyond the financial returns from fees and sales of equity shares’.

Yet the DCLG ‘has not quantified robustly the scheme’s economic benefits’ and has not evaluated the impact of previous schemes on the behaviour of buyers and builders. It has only done estimates of how many additional homes might be built: if more than 25 per cent of sales result in an additional home being built then benefits will exceed costs.

Help to buy 1 may of course still turn out to be a success – especially when judged on the amended business case. It does at least target new homes and most of the loans do seem to be going to first-time buyers.

But that is by no means certain – and the report does not discuss the untargeted and much more controversial help to buy 2. 

Scrutiny of help to buy equity scheme

Thu, 6 Mar 2014

In the furore over the help to buy mortgage guarantee scheme, its equity loan counterpart has escaped much scrutiny. A report out today changes that.

Help to buy 1 started in April last year. Equity loans worth more than £500 million households were made in the first nine months of the scheme to almost 13,000 households. Another 9,600 loans were in the pipeline. If everything goes to plan over the next two years, 74,000 households will eventually benefit from equity loans worth £3.7 billion.

Today’s report from the National Audit Office (NAO) makes you remember that although it is small by comparison with the £12 billion of mortgage guarantees offered by its more controversial sibling, Help to Buy 1 is significantly bigger than the firstbuy scheme that it replaced.

Amyas Morse, head of the NAO, says that although the scheme is for the most part running smoothly, more worh is needed by the DCLG and the HCA on managing the risks because ‘the scheme’s costs, which come in large part from tying up £3.7 million long term in the housing market, will be substantial’.

Margaret Hodge, chair of the public accounts committee, puts it more robustly:

‘I am shocked that the Department for Communities and Local Government is investing up to £3.7 billion without a clear understanding of how Help to Buy will impact the property market.’ The DCLG will be questioned about the report on April 2.

One worry at the time of the launch, that first-time buyers would lose out because anyone can apply for the new equity loans appears not to have been borne out: 89 per cent of buyers so far were first-time buyers.

But other concerns remain. First is affordability. The speed of the launch meant that more than 200 loans were made to buyers with a deposit of less than 5 per cent.

If you assume that is a teething problem, the thing that leapt out at me from the report was how financially stretched many of the buyers are. The average buyer has a mortgage 3.4 times their household income, which sounds reasonable, but that rises to 4.4 times their income when you include the equity loan.

Report

The mortgage plus the equity loan was more than five times the household income for 30 per cent of buyers and more than four times their income for 49 per cent. And the report points out that ‘lower-income households using the scheme have higher average debt, relative to their income, than higher-income households, which might be expected’.

Second is value for money. Firstbuy started in 2011 and the terms were remarkably similar to those offered under the Labour HomeBuy Direct scheme that the then shadow housing minister Grant Shapps had described as ‘a very expensive flop’ in 2009. (The link is to the bit of the Conservative Party website that has since been sanitised for posterity).

However, in both of those schemes, the equity loan was split equally between the developer and the government. In contrast, all of the Help to Buy 1 loan comes from the government. As far as I’m aware no real justification has ever been offered for this and the NAO report doesn’t discuss it either.

The problems do not stop there. One of the most telling parts of the report for me is the description of the way that the government set out its objectives for the scheme.

According to a business case approved on 27 March, 2013, the objectives were to:

  • Support credit worthy but deposit constrained households to buy a newly built property
  • Increase the supply of new housing
  • Contribute to economic growth.

All of these are laudable aims that could well justify help to buy 1. However, less than a month later, on 22 April, a revised business case ‘changed the first of the scheme’s objectives to maximising take-up, rather than focussing on deposit-constrained households’.

Hmm. ‘The department said that this was because the scheme is designed to support all aspiring buyers rather than address any particular group’s housing need.’

If you’re wondering whether that represents a good use of public money you are not the only one. The NAO report goes on: ‘The objectives do not include any value-for-money criteria, such as maximising the impact per person or per pound spent.’

The financial watchdog does conclude that ‘by enabling people to make purchases more easily, the scheme appears to have boosted developers’ confidence’. I think my confidence might just be boosted if I got the same benefits without having to tie up any of my cash and put it at risk – and if this enabled me to scale back my spending on sales incentives. I might also consider increasing the price of homes sold under help to buy – and there is already a new build premium built into the price of new homes.  

But these are not the kind of quips you get in NAO reports. It merely notes that there is no way of telling how many of the purchasers would have bought a home anyway or how many homes have been built that would not have been built otherwise.

No wonder quantifying the scheme’s contribution will be ‘challenging’. Answers to those kind of questions are crucial if you want to assess the value for money offered by help to buy 1. The DCLG’s evaluation of the scheme’s economic costs range from £16 million to £1.2 billion with a central estimate of £494 million. Costs depend on different assumptions about what will happen to house prices and repossession rates.

It’s perfectly possible of course that rising house prices will mean the value of the original equity loans will increase substantially by the time they are paid back (although the money will be tied up in the meantime).  The government will also make money from a fee charged on the loans after the first five years.

However, even this might not be completely good news. The report says that ‘cash flow will vary from year to year and in some years the impact of this could be unaffordable for the Department’. This ‘long-term commitment with uncertain returns’ creates could affect the ability of the DCLG and HCA to manage their budgets since the result could be a risk of over- or under-spending in any one year if income is higher or lower than expected.

More fundamentally, the NAO says that the balance of costs and benefits means that ‘the scheme will only be value for money in broader economic terms if there are substantial benefits beyond the financial returns from fees and sales of equity shares’.

Yet the DCLG ‘has not quantified robustly the scheme’s economic benefits’ and has not evaluated the impact of previous schemes on the behaviour of buyers and builders. It has only done estimates of how many additional homes might be built: if more than 25 per cent of sales result in an additional home being built then benefits will exceed costs.

Help to buy 1 may of course still turn out to be a success – especially when judged on the amended business case. It does at least target new homes and most of the loans do seem to be going to first-time buyers.

But that is by no means certain – and the report does not discuss the untargeted and much more controversial help to buy 2. 

Five years on

Wed, 5 Mar 2014

On today’s fifth anniversary of record low interest rates all the talk is about how savers have lost out to borrowers. It should also be about renters and owners.

On 5 March, 2009 the Bank of England cut its main interest rate to 0.5 per cent, the lowest in history, and began its associated policy of quantitative easing in a successful attempt to prevent economic collapse.

But the effects continue to be controversial. The campaign group Save Our Savers estimates that savers have lost £117 billion in lost interest over the last five years plus another £209 billion from the way inflation has reduced the spending power of their money.

In contrast, borrowers have gained billions from lower interest rates. SOS’s message resonates because of the perceived unfairness that prudent savers and are paying to extricate us from a crisis caused by excess borrowing.

But what about the housing impact? In a CIH policy essay a few months ago, I did a rough calculation that mortgage borrowers have saved around £30 billion a year as a result of lower mortgage rates, QE and politcies such as Funding for Lending. Those with larger mortgages and with enough equity to remortgage to lower rates will have gained proportionately the most. The impact has also varied considerably between different regions.

Buy to let landlords, who in 2008 seemed set to become prominent victims of the credit crunch, have gained too. Fergus and Judith Wilson, for example, have gone from fearing they would go bust to expanding their property empire over the last five years. This is the reality of the housing market in 2014.

Falling interest rates have also meant fewer repossessions. At one stage the Council of Mortgage Lenders (CML) was forecasting 75,000 families would lose their home in 2009, as many as in the early 1990s crash. As lower rates reduced repayments, repossessions instead peaked at 50,000 and fell to 29,000 last year.

That is still very bad news for the people who did lose their homes and some borrowers remain trapped on high rates and unable to remortgage. However, it’s good news for owners as a whole and fewer repossessions and forced sales also reduced the downwards pressure on house prices.

In nominal terms, according to the Nationwide, the average UK house price fell 18.6 per cent from a peak of £184,131 in 2007 Q3 to a low if £149,709 in the 2009 Q1. They have since recovered to £174,444, just £9,687 or 5.3 per cent.

In real terms (adjusting for RPI inflation), house prices had fallen 25.8 per cent from their peak by the beginning of 2013 but last year’s recovery means they are now 22.3 per cent below their peak level.

However, compare that with what happened in the early 1990s. Prices fell further in both nominal terms (20.2 per cent) and real terms (37.4 per cent) and they also took 13 years to recover their value in real terms.

Of course they were different times and the crashes had different causes but it’s hard not to conclude that record low interest rates put a floor under property prices, benefitting anyone already on the housing ladder at the expense of people who are not.

That view is backed by a study of the distributional effects of low rates and QE by the consultancy McKinsey Global Institute. It concludes:

‘At the end of 2012, house prices may have been as much as 15 percent higher in the United States and the United Kingdom than they otherwise would have been without ultra-low interest rates, as these rates reduce the cost of borrowing. We based this estimate on academic research using historical data that suggest how housing prices rise as interest rates decline. In the United Kingdom, it is plausible that this relationship holds today.’

What’s good news for most people who already own a home is of course bad news for anyone who wants to buy because they will be paying more than they would have been. True, their mortgage rate will be lower too but first-time buyers with lower deposits typically pay a much higher rate than an existing owner with substantial equity.

And that’s only for people who could get a mortgage; many others have been locked out of the market by the more cautious lending criteria adopted by the banks. These are the priced out households who partly account for the astonishing growth of the private rented sector that I highlighted in my blog last week. Since the credit crunch, the number buying with a mortgage has fallen by just over 1 million while the number renting from a private landlord has risen by almost 1.3 million

These trends began long before low interest rates but that they have accelerated over the last five years, leaving priced out renters paying the mortgage of their buy to let landlord while house prices begin to rise again (9.4 per cent in the last year, according to the Nationwide, compared to 0.0 per cent a year ago).

The combination of low interest rates and QE plus the recession have changed the landscape in other ways too. The ‘real terms’ comparison I quoted earlier is a convenient way of discounting for inflation but it is fairly meaningless in a period when earnings have been falling in real terms. That means housing is become more expensive in relation to earnings now where the opposite was happening in the 1990s.

It’s much harder to work out what’s happened to rents since 2009 because there is so much variation between the different indices. LSL’s buy to let index suggests that the average rent in England and Wales is 13 per cent higher than in 2010. However, the experimental index produced by the ONS suggests that rents in England are about 3 per cent higher now than five years ago.

Whatever the size of the increase, it came during a period when house prices and mortgage rates were both falling. This suggests a direct redistribution  from tenants to landlords.

The impact has fallen most heavily on tenants who rely on housing benefit to pay all or part of their rent. Cuts and welfare reforms imposed since 2010 mean that they have either had to stay put and make up a shortfall between their rent and their housing benefit or move to cheaper accommodation. Amelia Gentleman has a story in The Guardian this morning graphically illustrating this point.

And the justification offered by ministers for the cuts and austerity that are set to continue for the rest of this decade brings this whole debate full circle.   

George Osborne told the 2013 Conservative conference:

‘This battle to turn Britain around - it is not even close to being over. We are going to finish what we have started. What I offer is a serious plan for a grown-up country. An economic plan for hardworking people that will create jobs, keep mortgage rates low.’

Low interest rates and QE have redistributed money from renters and people on benefit to owners and landlords. And now, as I’ve blogged before, renters are paying to keep mortgages low

Five years on

Wed, 5 Mar 2014

On today’s fifth anniversary of record low interest rates all the talk is about how savers have lost out to borrowers. It should also be about renters and owners.

On 5 March, 2009 the Bank of England cut its main interest rate to 0.5 per cent, the lowest in history, and began its associated policy of quantitative easing in a successful attempt to prevent economic collapse.

But the effects continue to be controversial. The campaign group Save Our Savers estimates that savers have lost £117 billion in lost interest over the last five years plus another £209 billion from the way inflation has reduced the spending power of their money.

In contrast, borrowers have gained billions from lower interest rates. SOS’s message resonates because of the perceived unfairness that prudent savers and are paying to extricate us from a crisis caused by excess borrowing.

But what about the housing impact? In a CIH policy essay a few months ago, I did a rough calculation that mortgage borrowers have saved around £30 billion a year as a result of lower mortgage rates, QE and politcies such as Funding for Lending. Those with larger mortgages and with enough equity to remortgage to lower rates will have gained proportionately the most. The impact has also varied considerably between different regions.

Buy to let landlords, who in 2008 seemed set to become prominent victims of the credit crunch, have gained too. Fergus and Judith Wilson, for example, have gone from fearing they would go bust to expanding their property empire over the last five years. This is the reality of the housing market in 2014.

Falling interest rates have also meant fewer repossessions. At one stage the Council of Mortgage Lenders (CML) was forecasting 75,000 families would lose their home in 2009, as many as in the early 1990s crash. As lower rates reduced repayments, repossessions instead peaked at 50,000 and fell to 29,000 last year.

That is still very bad news for the people who did lose their homes and some borrowers remain trapped on high rates and unable to remortgage. However, it’s good news for owners as a whole and fewer repossessions and forced sales also reduced the downwards pressure on house prices.

In nominal terms, according to the Nationwide, the average UK house price fell 18.6 per cent from a peak of £184,131 in 2007 Q3 to a low if £149,709 in the 2009 Q1. They have since recovered to £174,444, just £9,687 or 5.3 per cent.

In real terms (adjusting for RPI inflation), house prices had fallen 25.8 per cent from their peak by the beginning of 2013 but last year’s recovery means they are now 22.3 per cent below their peak level.

However, compare that with what happened in the early 1990s. Prices fell further in both nominal terms (20.2 per cent) and real terms (37.4 per cent) and they also took 13 years to recover their value in real terms.

Of course they were different times and the crashes had different causes but it’s hard not to conclude that record low interest rates put a floor under property prices, benefitting anyone already on the housing ladder at the expense of people who are not.

That view is backed by a study of the distributional effects of low rates and QE by the consultancy McKinsey Global Institute. It concludes:

‘At the end of 2012, house prices may have been as much as 15 percent higher in the United States and the United Kingdom than they otherwise would have been without ultra-low interest rates, as these rates reduce the cost of borrowing. We based this estimate on academic research using historical data that suggest how housing prices rise as interest rates decline. In the United Kingdom, it is plausible that this relationship holds today.’

What’s good news for most people who already own a home is of course bad news for anyone who wants to buy because they will be paying more than they would have been. True, their mortgage rate will be lower too but first-time buyers with lower deposits typically pay a much higher rate than an existing owner with substantial equity.

And that’s only for people who could get a mortgage; many others have been locked out of the market by the more cautious lending criteria adopted by the banks. These are the priced out households who partly account for the astonishing growth of the private rented sector that I highlighted in my blog last week. Since the credit crunch, the number buying with a mortgage has fallen by just over 1 million while the number renting from a private landlord has risen by almost 1.3 million

These trends began long before low interest rates but that they have accelerated over the last five years, leaving priced out renters paying the mortgage of their buy to let landlord while house prices begin to rise again (9.4 per cent in the last year, according to the Nationwide, compared to 0.0 per cent a year ago).

The combination of low interest rates and QE plus the recession have changed the landscape in other ways too. The ‘real terms’ comparison I quoted earlier is a convenient way of discounting for inflation but it is fairly meaningless in a period when earnings have been falling in real terms. That means housing is become more expensive in relation to earnings now where the opposite was happening in the 1990s.

It’s much harder to work out what’s happened to rents since 2009 because there is so much variation between the different indices. LSL’s buy to let index suggests that the average rent in England and Wales is 13 per cent higher than in 2010. However, the experimental index produced by the ONS suggests that rents in England are about 3 per cent higher now than five years ago.

Whatever the size of the increase, it came during a period when house prices and mortgage rates were both falling. This suggests a direct redistribution  from tenants to landlords.

The impact has fallen most heavily on tenants who rely on housing benefit to pay all or part of their rent. Cuts and welfare reforms imposed since 2010 mean that they have either had to stay put and make up a shortfall between their rent and their housing benefit or move to cheaper accommodation. Amelia Gentleman has a story in The Guardian this morning graphically illustrating this point.

And the justification offered by ministers for the cuts and austerity that are set to continue for the rest of this decade brings this whole debate full circle.   

George Osborne told the 2013 Conservative conference:

‘This battle to turn Britain around - it is not even close to being over. We are going to finish what we have started. What I offer is a serious plan for a grown-up country. An economic plan for hardworking people that will create jobs, keep mortgage rates low.’

Low interest rates and QE have redistributed money from renters and people on benefit to owners and landlords. And now, as I’ve blogged before, renters are paying to keep mortgages low

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