Monday, 29 May 2017

Inside edge

All posts from: November 2014

Devo questions

Thu, 27 Nov 2014

The devolution of new powers over the housing costs elements of universal credit raises questions not just for Scotland but for the whole of the UK.

The report of the Smith Commission published this morning only proposes two major changes to the existing arrangements for universal credit:

  • The Scottish Government will be given the administrative power to change the frequency of UC payments, vary the existing plans for single household payments, and pay landlords direct for housing costs in Scotland
  • The Scottish Parliament will have the power to vary the housing cost elements of UC, including varying the under-occupancy charge and local housing allowance rates, eligible rent, and deductions for non-dependents.

All other elements of universal credit, including the earnings taper, conditionality and sanctions will remain reserved to Westminster. Some other benefits outside universal credit, including discretionary housing payments, will be devolved. National media coverage was dominated by the proposals on income tax but other taxes that affect housing, including capital gains tax and VAT, will be reserved.

As housing policy itself is already devolved to Scotland, housing only gets four mentions in the report and all of them are in the context of benefits. However, they could have profound consequences.

First, take the impact in Scotland. Although Holyrood already mitigates the bedroom tax in full through DHPs, it played such a big part in the independence referendum campaign that it was impossible to see how the UK parties could fail to give Scotland new powers without being accused of breaking The Vow.

However, the SNP is already saying exactly that and the recommendations seem to fall short of what both Labour and the Conservatives were proposing. Perhaps that’s because devolving the housing element of universal credit is much more complicated than devolving housing benefit.

Scotland will presumably be able to address some specific problems with welfare reform, for example on temporary accommodation. But what exactly does ‘varying’ mean? If it can ‘vary’ the bedroom tax and LHA rates, would that be within an overall budget for housing costs, meaning it would have to cut something else? And how will that budget be determined given that housing benefits are demand-led?

Taking the administrative and varying powers together, Scotland seems to be getting something similar to the devolution arrangements in Northern Ireland. The bedroom tax and some other elements of welfare reform are still not in operation there because the Stormont parties cannot agree but that means the government is losing money in block grant from London. Meanwhile Northern Ireland has already decided to stick with monthly payments and direct payment to tenants under universal credit.

Second, take the impact in the rest of the country. Different arrangements for one part of the UK that are a legacy of the Anglo-Irish agreement were one thing, but different varying and administrative powers for two UK nations could be quite another. If Scotland and Northern Ireland have the powers, why not Wales and why not the English regions? Those disproportionately hit by the bedroom tax have even more reason to want to vary it. Landlords and tenants warning about the dire impact of direct payment will get new hope they can get rid of it.

However, in line with my post yesterday, this will be another example of universal credit existing in two states at the same time: it will be universal in England and Wales and not-quite-universal in Scotland and Northern Ireland. A major reason why the DWP has been so stubborn about direct payment to tenants and monthly payment is that it wants life on benefits to be as close as possible to life in work.

And if the housing elements can already be varied so much, why not simply exclude them from universal credit? We know from the NAO report that the digital version does not exist yet and even the initial testing has been delayed yet again. Housing is one of the most contentious elements because of the risk of evictions and homelessness. The existing system of housing benefit works reasonably well. Why not simply leave well alone and try and salvage the rest of it (if that’s even possible)?

With apologies for extending my pun from yesterday, Schrödinger’s Cat could be well and truly out of the bag.

Devo questions

Thu, 27 Nov 2014

The devolution of new powers over the housing costs elements of universal credit raises questions not just for Scotland but for the whole of the UK.

The report of the Smith Commission published this morning only proposes two major changes to the existing arrangements for universal credit:

  • The Scottish Government will be given the administrative power to change the frequency of UC payments, vary the existing plans for single household payments, and pay landlords direct for housing costs in Scotland
  • The Scottish Parliament will have the power to vary the housing cost elements of UC, including varying the under-occupancy charge and local housing allowance rates, eligible rent, and deductions for non-dependents.

All other elements of universal credit, including the earnings taper, conditionality and sanctions will remain reserved to Westminster. Some other benefits outside universal credit, including discretionary housing payments, will be devolved. National media coverage was dominated by the proposals on income tax but other taxes that affect housing, including capital gains tax and VAT, will be reserved.

As housing policy itself is already devolved to Scotland, housing only gets four mentions in the report and all of them are in the context of benefits. However, they could have profound consequences.

First, take the impact in Scotland. Although Holyrood already mitigates the bedroom tax in full through DHPs, it played such a big part in the independence referendum campaign that it was impossible to see how the UK parties could fail to give Scotland new powers without being accused of breaking The Vow.

However, the SNP is already saying exactly that and the recommendations seem to fall short of what both Labour and the Conservatives were proposing. Perhaps that’s because devolving the housing element of universal credit is much more complicated than devolving housing benefit.

Scotland will presumably be able to address some specific problems with welfare reform, for example on temporary accommodation. But what exactly does ‘varying’ mean? If it can ‘vary’ the bedroom tax and LHA rates, would that be within an overall budget for housing costs, meaning it would have to cut something else? And how will that budget be determined given that housing benefits are demand-led?

Taking the administrative and varying powers together, Scotland seems to be getting something similar to the devolution arrangements in Northern Ireland. The bedroom tax and some other elements of welfare reform are still not in operation there because the Stormont parties cannot agree but that means the government is losing money in block grant from London. Meanwhile Northern Ireland has already decided to stick with monthly payments and direct payment to tenants under universal credit.

Second, take the impact in the rest of the country. Different arrangements for one part of the UK that are a legacy of the Anglo-Irish agreement were one thing, but different varying and administrative powers for two UK nations could be quite another. If Scotland and Northern Ireland have the powers, why not Wales and why not the English regions? Those disproportionately hit by the bedroom tax have even more reason to want to vary it. Landlords and tenants warning about the dire impact of direct payment will get new hope they can get rid of it.

However, in line with my post yesterday, this will be another example of universal credit existing in two states at the same time: it will be universal in England and Wales and not-quite-universal in Scotland and Northern Ireland. A major reason why the DWP has been so stubborn about direct payment to tenants and monthly payment is that it wants life on benefits to be as close as possible to life in work.

And if the housing elements can already be varied so much, why not simply exclude them from universal credit? We know from the NAO report that the digital version does not exist yet and even the initial testing has been delayed yet again. Housing is one of the most contentious elements because of the risk of evictions and homelessness. The existing system of housing benefit works reasonably well. Why not simply leave well alone and try and salvage the rest of it (if that’s even possible)?

With apologies for extending my pun from yesterday, Schrödinger’s Cat could be well and truly out of the bag.

Iain Duncan Smith's cat

Wed, 26 Nov 2014

In the wake of yet more delays and questions about value for money, I wonder what Erwin Schrödinger would have made of universal credit.

In the Austrian physicist’s famous thought experiment, a cat is placed in a sealed box with a flask of poison and a radioactive substance. The decay of a single atom of the substance during the test will trigger a hammer that breaks the flask and kills the cat. The point is that an external observer cannot know whether or not the atom has decayed, the poison has been released and the cat is dead unless they open the box. Since we cannot know, the cat is both alive and dead.

Schrödinger’s Cat was meant to illustrate a paradox in quantum theory but it could just as easily be applied to Iain Duncan Smith’s flagship welfare reform. It’s not just that universal credit is meant to be simple and transparent but is actually fiendishly complicated and impossible for outsiders to understand. These have become givens over the last couple of years. IDS’s cat also exists in two states at the same time and we cannot know whether it is alive or dead until we open the box or see it in action.

So universal credit is a triumph. IDS told us so in interviews and articles yesterday about ‘the end of the dole as we know it’. The delays and problems so far show that the DWP is willing to learn from experience. The ‘roll-out’ was being accelerated to families that very day and Duncan Smith told the Today programme that he will ‘land’ it (though it wasn’t clear how you can land something that hasn’t taken off yet). The problems are in the past and the critics are all being too negative and universal credit is value for money.

The announcement was a blatant piece of pre-emptive PR ahead of a progress report due today from the National Audit Office. This concludes that: ‘In principle, the Department’s approach should allow it to learn from experience, improve the design and readiness of services and reduce risks. However, in our view the Programme is at too early a stage to determine if the Department will achieve value for money in its implementation of Universal Credit. ‘

It seems the universal credit is a not-triumph at the same time as it is a triumph. The report also reveals further delays to the roll-out. This now extends to the end of 2019 including a two-year delay in the timetable for incorporating tax credits that should reduce risks. However, the DWP does not yet have any plans for when 550,000 of the existing claimants of tax credits and employment and support allowance will move over. This graph from the report shows the declining universal credit caseload expected in 2012, 2013 and now:

UC

In line with Schrödinger’s experiment, universal credit also exists simultaneously in two different forms. The ‘live service’ one was introduced in the North West for single people, then couples, including some with housing benefit claims, and from yesterday families with children. It is being ‘rolled out’ nationwide to simple cases in 2015 and 2016. However, all this relies on old IT systems from before the 2013 ‘reset’. This will result in administrative costs of £149 million but the DWP believes it will generate societal and distributional benefits of £267 million.

The DWP says the nationwide roll-out will give it a chance to form working relationships with local authorities and housing associations. Before then, it is working on changes to the social security regulations about sharing information with landlords, admitting that ‘some landlords and claimants have struggled with rent arrears where support for housing costs is including in a single payment direct to claimants’.

The ‘digital’ version of universal credit – the way it is meant to work - is still barely off the drawing board and the NAO report reveals:

‘The Department’s digital service has been delayed and is still in the very early stages of development but is soon to be tested with all claimant types, even the most complex. Recruitment and capacity problems have delayed the new digital service by six months compared with plans at the start of 2014, and it has not yet reached its planned staffing level.’

Testing of aspects of the digital service starts this month but it can still only handle a small number of claims and it depends heavily on manual intervention. Testing at scale has slipped to May 2016 but the NAO describes the 18-month timetable to move from a few hundred claimants to 10 million as ‘challenging’.

Given the record of universal credit so far, none of this can be taken for granted. A delay of a further six months would lose £2.3 billion in societal benefits and cost £2.8 billion more in staff time for using live service rather than digital systems. However, the NAO comments: ‘The Department does not yet have a plan should the digital service fail and has not evaluated whether it could use live service systems instead.’

This twin-track approach costs more and most of the IT developed for the live service version will not be useable in the digital one. However, the NAO says the DWP ‘estimates that the twin-track approach yields a higher net present value overall by bringing forward the benefits of the programme’. The DWP says they are ‘complementary parts of an integrated approach’ but the NAO says the twin-track programme ‘creates uncertainty about the relative emphasis on the digital service as the end state for universal credit, or a more traditional view of benefit reform with planned updates to IT systems’.

These £20.7 billion benefits to the economy are at the heart of the outline business case for the project that the Treasury finally signed off in September.  They include higher earnings for people as they move into work and reduced spending on benefits. However, the NAO warns that the estimate is ‘heavily dependent on a number of assumptions’ and that the uncertainty is ‘magnified’ by the use of distributional impacts (people on lower incomes are assumed to value a change more than those on higher incomes).

In another duality, universal credit was designed from the beginning to deal with people in work and out of work. A key part of its appeal was that it would simplify the transition between the two and reduce the benefits trap when people take a job. That’s even more vital at a time when more and more people who are working are also in poverty. The DWP expects the majority of people on universal credit to be in work. However, there is also a stick to that carrot: the expansion of conditionality to people who are in work but not deemed to be working hard enough.

That makes it remarkable that the NAO report reveals that the business case does not currently include funding to support working claimants:

‘The Department has not confirmed plans for how it will support claimants who are in work, even though it expects that around one million in-work claimants will have conditions attached to their claim.’

The overall verdict of the NAO is that the DWP has reduced delivery risks since last year’s ‘reset’ by extending the roll-out and choosing the more expensive twin-track approach to developing the service. However, it concludes:

‘We consider it important that the Department, having reset the programme on a sounder basis at significant costs in terms of resource and elapsed time, confirms its plans for delivering Universal Credit in terms of cost, time and functionality, against which it can be held to account for the good use of public resources.’

In other words, IDS’s cat is still in its box, alive and dead, failing and succeeding at the same time. The universal credit paradox is that we cannot know for certain which state it is in and whether it’s gone too far to be allowed to fail or cut our losses and abandon it. The time to open the box could just possibly come some time in late May 2015. 

Iain Duncan Smith's cat

Wed, 26 Nov 2014

In the wake of yet more delays and questions about value for money, I wonder what Erwin Schrödinger would have made of universal credit.

In the Austrian physicist’s famous thought experiment, a cat is placed in a sealed box with a flask of poison and a radioactive substance. The decay of a single atom of the substance during the test will trigger a hammer that breaks the flask and kills the cat. The point is that an external observer cannot know whether or not the atom has decayed, the poison has been released and the cat is dead unless they open the box. Since we cannot know, the cat is both alive and dead.

Schrödinger’s Cat was meant to illustrate a paradox in quantum theory but it could just as easily be applied to Iain Duncan Smith’s flagship welfare reform. It’s not just that universal credit is meant to be simple and transparent but is actually fiendishly complicated and impossible for outsiders to understand. These have become givens over the last couple of years. IDS’s cat also exists in two states at the same time and we cannot know whether it is alive or dead until we open the box or see it in action.

So universal credit is a triumph. IDS told us so in interviews and articles yesterday about ‘the end of the dole as we know it’. The delays and problems so far show that the DWP is willing to learn from experience. The ‘roll-out’ was being accelerated to families that very day and Duncan Smith told the Today programme that he will ‘land’ it (though it wasn’t clear how you can land something that hasn’t taken off yet). The problems are in the past and the critics are all being too negative and universal credit is value for money.

The announcement was a blatant piece of pre-emptive PR ahead of a progress report due today from the National Audit Office. This concludes that: ‘In principle, the Department’s approach should allow it to learn from experience, improve the design and readiness of services and reduce risks. However, in our view the Programme is at too early a stage to determine if the Department will achieve value for money in its implementation of Universal Credit. ‘

It seems the universal credit is a not-triumph at the same time as it is a triumph. The report also reveals further delays to the roll-out. This now extends to the end of 2019 including a two-year delay in the timetable for incorporating tax credits that should reduce risks. However, the DWP does not yet have any plans for when 550,000 of the existing claimants of tax credits and employment and support allowance will move over. This graph from the report shows the declining universal credit caseload expected in 2012, 2013 and now:

UC

In line with Schrödinger’s experiment, universal credit also exists simultaneously in two different forms. The ‘live service’ one was introduced in the North West for single people, then couples, including some with housing benefit claims, and from yesterday families with children. It is being ‘rolled out’ nationwide to simple cases in 2015 and 2016. However, all this relies on old IT systems from before the 2013 ‘reset’. This will result in administrative costs of £149 million but the DWP believes it will generate societal and distributional benefits of £267 million.

The DWP says the nationwide roll-out will give it a chance to form working relationships with local authorities and housing associations. Before then, it is working on changes to the social security regulations about sharing information with landlords, admitting that ‘some landlords and claimants have struggled with rent arrears where support for housing costs is including in a single payment direct to claimants’.

The ‘digital’ version of universal credit – the way it is meant to work - is still barely off the drawing board and the NAO report reveals:

‘The Department’s digital service has been delayed and is still in the very early stages of development but is soon to be tested with all claimant types, even the most complex. Recruitment and capacity problems have delayed the new digital service by six months compared with plans at the start of 2014, and it has not yet reached its planned staffing level.’

Testing of aspects of the digital service starts this month but it can still only handle a small number of claims and it depends heavily on manual intervention. Testing at scale has slipped to May 2016 but the NAO describes the 18-month timetable to move from a few hundred claimants to 10 million as ‘challenging’.

Given the record of universal credit so far, none of this can be taken for granted. A delay of a further six months would lose £2.3 billion in societal benefits and cost £2.8 billion more in staff time for using live service rather than digital systems. However, the NAO comments: ‘The Department does not yet have a plan should the digital service fail and has not evaluated whether it could use live service systems instead.’

This twin-track approach costs more and most of the IT developed for the live service version will not be useable in the digital one. However, the NAO says the DWP ‘estimates that the twin-track approach yields a higher net present value overall by bringing forward the benefits of the programme’. The DWP says they are ‘complementary parts of an integrated approach’ but the NAO says the twin-track programme ‘creates uncertainty about the relative emphasis on the digital service as the end state for universal credit, or a more traditional view of benefit reform with planned updates to IT systems’.

These £20.7 billion benefits to the economy are at the heart of the outline business case for the project that the Treasury finally signed off in September.  They include higher earnings for people as they move into work and reduced spending on benefits. However, the NAO warns that the estimate is ‘heavily dependent on a number of assumptions’ and that the uncertainty is ‘magnified’ by the use of distributional impacts (people on lower incomes are assumed to value a change more than those on higher incomes).

In another duality, universal credit was designed from the beginning to deal with people in work and out of work. A key part of its appeal was that it would simplify the transition between the two and reduce the benefits trap when people take a job. That’s even more vital at a time when more and more people who are working are also in poverty. The DWP expects the majority of people on universal credit to be in work. However, there is also a stick to that carrot: the expansion of conditionality to people who are in work but not deemed to be working hard enough.

That makes it remarkable that the NAO report reveals that the business case does not currently include funding to support working claimants:

‘The Department has not confirmed plans for how it will support claimants who are in work, even though it expects that around one million in-work claimants will have conditions attached to their claim.’

The overall verdict of the NAO is that the DWP has reduced delivery risks since last year’s ‘reset’ by extending the roll-out and choosing the more expensive twin-track approach to developing the service. However, it concludes:

‘We consider it important that the Department, having reset the programme on a sounder basis at significant costs in terms of resource and elapsed time, confirms its plans for delivering Universal Credit in terms of cost, time and functionality, against which it can be held to account for the good use of public resources.’

In other words, IDS’s cat is still in its box, alive and dead, failing and succeeding at the same time. The universal credit paradox is that we cannot know for certain which state it is in and whether it’s gone too far to be allowed to fail or cut our losses and abandon it. The time to open the box could just possibly come some time in late May 2015. 

Stuttering starts

Thu, 20 Nov 2014

Today’s penultimate housebuilding figures before the election will increase fears that the recovery is fading.

On the housing minister’s preferred measure (see the spin from Brandon Lewis on the previous figures), housing starts in the July to September quarter were down 10 per cent on the previous three months and up just 1 per cent on a year ago. This is the first quarter-on-quarter fall in starts over two years.

For a comparison that goes beyond just a single quarter’s figures, here’s a graph showing the 12-month rolling totals for starts back to before the recession:


There was better news for the government on completions (which everyone else considers a better measure because you can’t live in a start). The July to September total was up 5 per cent on the previous quarter and 8 per cent on a year ago. However, to put that in perspective, the 117,200 total for the last 12 months is still lower than in the year before the coalition took power. Here are the 12-month rolling totals:


There are short-term and long-term points to note about these figures.

The short-term one is that they seem to bear out warnings from a succession of big housebuilders recently that the Help to Buy mini-boom is over. This also tallies with a leaked warning from DCLG civil servants over the summer of a fall in housing starts over 2014/15 as a whole. Figures for the final quarter will be published in February, just three months before the election.

The long-term one, as I noted three months ago, is to underline just how bad the performance of this government on housebuilding has been. We have fallen further and further behind the benchmark of 250,000 a year.

On this basis, taking current levels of completions our annual ‘deficit’ on new homes is running at around 130,000 a year. Our accumulated ‘debt’ over the last four and a half years is around 600,000 new homes.

The Grant Shapps ‘gold standard’ of building more homes than before the recession is a distant dream too. And even the more modest hope of building more new homes than the last Labour government – a performance that Shapps rightly criticised – will not be fulfilled.

Labour managed 696,000 starts and 750,000 completions between 2005 and 2010. There are obvious time lags that mean it’s difficult to decide where the impact of one government ended and the new one began. However, with six months to go in its five-year term, the coalition has struggled to 526,000 starts and 507,000 completions. It’s not much to show for all that support for housebuilders. 

Stuttering starts

Thu, 20 Nov 2014

Today’s penultimate housebuilding figures before the election will increase fears that the recovery is fading.

On the housing minister’s preferred measure (see the spin from Brandon Lewis on the previous figures), housing starts in the July to September quarter were down 10 per cent on the previous three months and up just 1 per cent on a year ago. This is the first quarter-on-quarter fall in starts over two years.

For a comparison that goes beyond just a single quarter’s figures, here’s a graph showing the 12-month rolling totals for starts back to before the recession:


There was better news for the government on completions (which everyone else considers a better measure because you can’t live in a start). The July to September total was up 5 per cent on the previous quarter and 8 per cent on a year ago. However, to put that in perspective, the 117,200 total for the last 12 months is still lower than in the year before the coalition took power. Here are the 12-month rolling totals:


There are short-term and long-term points to note about these figures.

The short-term one is that they seem to bear out warnings from a succession of big housebuilders recently that the Help to Buy mini-boom is over. This also tallies with a leaked warning from DCLG civil servants over the summer of a fall in housing starts over 2014/15 as a whole. Figures for the final quarter will be published in February, just three months before the election.

The long-term one, as I noted three months ago, is to underline just how bad the performance of this government on housebuilding has been. We have fallen further and further behind the benchmark of 250,000 a year.

On this basis, taking current levels of completions our annual ‘deficit’ on new homes is running at around 130,000 a year. Our accumulated ‘debt’ over the last four and a half years is around 600,000 new homes.

The Grant Shapps ‘gold standard’ of building more homes than before the recession is a distant dream too. And even the more modest hope of building more new homes than the last Labour government – a performance that Shapps rightly criticised – will not be fulfilled.

Labour managed 696,000 starts and 750,000 completions between 2005 and 2010. There are obvious time lags that mean it’s difficult to decide where the impact of one government ended and the new one began. However, with six months to go in its five-year term, the coalition has struggled to 526,000 starts and 507,000 completions. It’s not much to show for all that support for housebuilders. 

Housing 2040

Mon, 17 Nov 2014

Where are we heading on housing over the next 25 years? That’s the question posed by a new study – and the answer may make you may want to look away now.

The study for the Joseph Rowntree Foundation (JRF) takes existing trends in the relationship between housing and poverty between 1991 and 2008 and projects how it will change up to 2040.

Housing policy featuring one of the most extensive housing benefit systems in the world and a relatively high proportion of social rented housing has traditionally acted as a safety net for people in poverty. It also means that there hasn’t been an automatic connection between income poverty and housing deprivation.

What Will the Housing Market Look Like in 2040? concludes that the housing system will only prevent an increase in poverty in England by 2040 on these assumptions:

  • Housebuilding rises to 200,000 homes a year by the 2020s and 220,000 by the 2030s
  • Social rents remain indexed to prices (as in the CPI plus 1 per cent formula)
  • Housing benefit continues to meet the current share of housing costs
  • The decline of social renting is halted.

Even the first of those sounds unlikely, despite the commitment of all the main parties to increased supply. And we are already going backwards on the other three given the rise of affordable rent, welfare reform and the reinvigorated right to buy and estate regeneration.

According to the report, private rents will rise faster than incomes up to 2040 leaving up to half of private renters in poverty. The housing benefit bill will increase by 40 per cent if social rents remain indexed to inflation. If they rise to 65 per cent of market rents, the housing benefit bill will rise by 125 per cent and an extra 1.5 million people would be in poverty. However, that assumes that housing benefit meets a similar proportion of housing costs in 2040 as in 2008 and that tenure remains unchanged.

Although some of these impacts could be mitigated by increased supply, the report says that this poverty projection is likely to be an underestimate. It expects social renting to house just 11 per cent of the population by 2040 and the private rented sector more than 20 per cent. This implies that the poverty rate would be higher than its 2008-based projections suggest. On top of that, doubling the housing benefit bill (an extra £20 billion a year compared to 2008) ‘is likely to be politically unfeasible’.

In effect, a housing system that has helped mitigate against the impacts of poverty in the past will be ‘responsible for notable increases in the poverty rate in future’:

  • People who rent will be twice as likely to be living in poverty as home owners 
  • Private rents are forecast to rise by 90 per cent, twice as fast as incomes (this is between 2008 and 2040 and so includes the period since the financial crisis when incomes were falling in real terms; rents are expected to rise in line with incomes from 2014)
  • The number of people in private rented homes will rise 3.4 million to 10.6 million by 2040. Half of them will be in poverty (an increase of 2.6 million)
  • The number of people living in social housing will fall from 8.2 million to 5.7 million
  • Real median house prices will rise by 57 per cent to £263,000 and the number of people living in owner-occupied homes will fall by 820,000.

JRF chief executive Julia Unwin sums up the implications like this:

‘We need a clear strategy that builds the homes we need in the right places and avoids locking low income households out of affordable homes. This is about more than frustrated aspirations of home ownership from Generation Rent: the reality facing many people is a life below the poverty line because of the extortionate cost of keeping a roof over your head. Addressing the rising cost of housing is crucial to tackling the high levels of poverty in the UK.’

The report by researchers from Heriot-Watt and Sheffield universities is based on what happened to a sample of 5,000 people between 1991 and 2008, the most recent year for which survey data is available.

While the projections are looking much further forward than November 2014, it’s not hard to look at what has happened to housing and welfare since 2008 and what may well happen after the next election and conclude that things could easily be far worse.

On tenure for example, Savills estimated earlier this month that the private rented sector will house not 20 per cent but 24 per cent of households in England and Wales and by 2019 not 2040. On rents, last week’s Policy Exchange report would create ‘free’ housing associations but leave the poorest households even more reliant on private renting (more on this later). 

On welfare, the link between housing benefit and rent has already been broken for many people through changes such as the bedroom caps, the shared room rate and the bedroom tax. The local housing allowance is currently rising by only 1 per cent a year and the Conservatives plan a freeze if they win the next election.

This report shows the choices facing us on housing policy. If we allow housing costs to continue rising and social housing to keep on shrinking, we will only be able to prevent rising poverty through a huge increase in the housing benefit bill. If we continue to cut housing benefit while pursuing housing policies that increase it, the result will be an increase in poverty and long-term costs to the economy. Saying that now is one thing. Seeing the implications of that 25 years in the future is quite another.

Housing 2040

Mon, 17 Nov 2014

Where are we heading on housing over the next 25 years? That’s the question posed by a new study – and the answer may make you may want to look away now.

The study for the Joseph Rowntree Foundation (JRF) takes existing trends in the relationship between housing and poverty between 1991 and 2008 and projects how it will change up to 2040.

Housing policy featuring one of the most extensive housing benefit systems in the world and a relatively high proportion of social rented housing has traditionally acted as a safety net for people in poverty. It also means that there hasn’t been an automatic connection between income poverty and housing deprivation.

What Will the Housing Market Look Like in 2040? concludes that the housing system will only prevent an increase in poverty in England by 2040 on these assumptions:

  • Housebuilding rises to 200,000 homes a year by the 2020s and 220,000 by the 2030s
  • Social rents remain indexed to prices (as in the CPI plus 1 per cent formula)
  • Housing benefit continues to meet the current share of housing costs
  • The decline of social renting is halted.

Even the first of those sounds unlikely, despite the commitment of all the main parties to increased supply. And we are already going backwards on the other three given the rise of affordable rent, welfare reform and the reinvigorated right to buy and estate regeneration.

According to the report, private rents will rise faster than incomes up to 2040 leaving up to half of private renters in poverty. The housing benefit bill will increase by 40 per cent if social rents remain indexed to inflation. If they rise to 65 per cent of market rents, the housing benefit bill will rise by 125 per cent and an extra 1.5 million people would be in poverty. However, that assumes that housing benefit meets a similar proportion of housing costs in 2040 as in 2008 and that tenure remains unchanged.

Although some of these impacts could be mitigated by increased supply, the report says that this poverty projection is likely to be an underestimate. It expects social renting to house just 11 per cent of the population by 2040 and the private rented sector more than 20 per cent. This implies that the poverty rate would be higher than its 2008-based projections suggest. On top of that, doubling the housing benefit bill (an extra £20 billion a year compared to 2008) ‘is likely to be politically unfeasible’.

In effect, a housing system that has helped mitigate against the impacts of poverty in the past will be ‘responsible for notable increases in the poverty rate in future’:

  • People who rent will be twice as likely to be living in poverty as home owners 
  • Private rents are forecast to rise by 90 per cent, twice as fast as incomes (this is between 2008 and 2040 and so includes the period since the financial crisis when incomes were falling in real terms; rents are expected to rise in line with incomes from 2014)
  • The number of people in private rented homes will rise 3.4 million to 10.6 million by 2040. Half of them will be in poverty (an increase of 2.6 million)
  • The number of people living in social housing will fall from 8.2 million to 5.7 million
  • Real median house prices will rise by 57 per cent to £263,000 and the number of people living in owner-occupied homes will fall by 820,000.

JRF chief executive Julia Unwin sums up the implications like this:

‘We need a clear strategy that builds the homes we need in the right places and avoids locking low income households out of affordable homes. This is about more than frustrated aspirations of home ownership from Generation Rent: the reality facing many people is a life below the poverty line because of the extortionate cost of keeping a roof over your head. Addressing the rising cost of housing is crucial to tackling the high levels of poverty in the UK.’

The report by researchers from Heriot-Watt and Sheffield universities is based on what happened to a sample of 5,000 people between 1991 and 2008, the most recent year for which survey data is available.

While the projections are looking much further forward than November 2014, it’s not hard to look at what has happened to housing and welfare since 2008 and what may well happen after the next election and conclude that things could easily be far worse.

On tenure for example, Savills estimated earlier this month that the private rented sector will house not 20 per cent but 24 per cent of households in England and Wales and by 2019 not 2040. On rents, last week’s Policy Exchange report would create ‘free’ housing associations but leave the poorest households even more reliant on private renting (more on this later). 

On welfare, the link between housing benefit and rent has already been broken for many people through changes such as the bedroom caps, the shared room rate and the bedroom tax. The local housing allowance is currently rising by only 1 per cent a year and the Conservatives plan a freeze if they win the next election.

This report shows the choices facing us on housing policy. If we allow housing costs to continue rising and social housing to keep on shrinking, we will only be able to prevent rising poverty through a huge increase in the housing benefit bill. If we continue to cut housing benefit while pursuing housing policies that increase it, the result will be an increase in poverty and long-term costs to the economy. Saying that now is one thing. Seeing the implications of that 25 years in the future is quite another.

Social messages

Wed, 12 Nov 2014

Some good news for Housing Day: it seems more people say yes to new social housing than say yes to new homes in general.

A fascinating Ipsos MORI poll published this morning reveals that 58% of people support ‘more social housing being built in my local area’. That compares with 22% who oppose it.

That’s a surprisingly positive result in itself given the steady flow of negative media stereotypes. And the balance only falls slightly to 55:24 when social renters are excluded.

However, support is also significantly higher than the 47% saying yes to ‘more homes being built in your local area’ in a survey of public attitudes to housebuilding published by the DCLG in July. That was hailed by housing minister Brandon Lewis as evidence that ‘nimbyism is on the wane’ and he was right: between 2010 and 2013 opinion shifted from 46:28 opposition to new homes to 47:31 support.

So what’s going on? The DCLG figures come from the British Social Attitudes Survey 2013 so it’s possible that the Housing Day poll reflects a general growth in support for new homes this year. However, the 58% support comes despite widespread concern about the impact of poverty porn on public perceptions of social housing.

Challenging the stereotypes created by programmes like Benefits Street with alternative positive stories was one of Housing Day founder Ade Capon’s five aims for this year’s event. Perhaps more people are resistant to the dubious charms of Love Productions than we thought: 60% agree that the negative view of people who live in social housing is unfair.  

Beneath the headline message, the Housing Day poll reveals a mix of strong support for some of the main aims of social housing but also some real confusion about how it works. Around half of those polled admit they know not very much or nothing at all about how social housing is allocated and who lives in it.

The public think councils and housing associations house roughly three times more people than they actually do. In England, the proportion of social renters is believed to be 42% when it is actually 15%. They also significantly over-estimate the proportion of social tenants who are 24 or under. It’s put at 31% in the poll but is actually 12%.

The message is more mixed when it comes to comparisons between social and private renting. Social renting is seen as the most affordable form of housing by 69% of people with just 10% saying private renting. Social renting is also seen as the most suitable housing for vulnerable people by 61:15. 

However, private renting wins by 53:20 on having the best choice and 42:25 on the best quality and (surprisingly to me given all the campaigning on short-term tenancies) by 33:19 as the best place to bring up a child.

Overall, social renting only just edges it as the best form of renting by 36:35. When social renters are excluded, private renting wins by 39:31.

There are also some interesting results when it comes to the traditional arguments for social housing:

  • Affordability: 81% agree that social housing is important because it helps people on lower incomes get housing that wouldn’t be affordable in the private rented sector
  • Tackling poverty: 67% think social housing plays an important role
  • Mixed communities: 80% think social housing should be available to people who cannot afford private rents as well as to the most vulnerable.

Against that, relentless government propaganda seems to have had an impact: 41% of those polled disagreed that ‘social housing discourages those who rent in this way from improving their personal situation’ but 31% agreed. With social renters excluded, 42:31 disagreed.

So what should we take from all this? The good news is that there seems to be more support for social housing and the aims behind it than I might have expected given the media and political backdrop. The less good news is that things may be changing beneath the surface: people under 45 rate private renting higher than social renting whereas it’s the other way round for older people.

All of which reinforces my thinking about Housing Day. Today’s flood of tweets and pictures and videos is brilliant and they show a real appetite within the sector to communicate a positive message about social housing. However, the really important thing is to go beyond talking to each other and reach out and convey the message to people outside the sector. They’re already more positive than you may believe.

If you need any reminder of the urgency, have a quick read of the latest report from Policy Exchange published (I assume by coincidence) today. The central proposal is for ‘free’ housing associations in a grant-free future. That’s free from regulation of rents, sales, allocations and with a buy-out of historic grant. It’s a more sophisticated and voluntary version of previous Policy Exchange proposals but it still seems part of the end game for social housing to me. 

Ipsos MORI polled 1,1997 adults in England, Scotland and Wales between 24 October and 2 November. The poll was conducted on behalf of a consortium of housing associations led by Yorkshire Housing and including the Joseph Rowntree Foundation. Detailed results including a breakdown between England, Scotland and Wales are available from the Ipsos MORI website. 

Social messages

Wed, 12 Nov 2014

Some good news for Housing Day: it seems more people say yes to new social housing than say yes to new homes in general.

A fascinating Ipsos MORI poll published this morning reveals that 58% of people support ‘more social housing being built in my local area’. That compares with 22% who oppose it.

That’s a surprisingly positive result in itself given the steady flow of negative media stereotypes. And the balance only falls slightly to 55:24 when social renters are excluded.

However, support is also significantly higher than the 47% saying yes to ‘more homes being built in your local area’ in a survey of public attitudes to housebuilding published by the DCLG in July. That was hailed by housing minister Brandon Lewis as evidence that ‘nimbyism is on the wane’ and he was right: between 2010 and 2013 opinion shifted from 46:28 opposition to new homes to 47:31 support.

So what’s going on? The DCLG figures come from the British Social Attitudes Survey 2013 so it’s possible that the Housing Day poll reflects a general growth in support for new homes this year. However, the 58% support comes despite widespread concern about the impact of poverty porn on public perceptions of social housing.

Challenging the stereotypes created by programmes like Benefits Street with alternative positive stories was one of Housing Day founder Ade Capon’s five aims for this year’s event. Perhaps more people are resistant to the dubious charms of Love Productions than we thought: 60% agree that the negative view of people who live in social housing is unfair.  

Beneath the headline message, the Housing Day poll reveals a mix of strong support for some of the main aims of social housing but also some real confusion about how it works. Around half of those polled admit they know not very much or nothing at all about how social housing is allocated and who lives in it.

The public think councils and housing associations house roughly three times more people than they actually do. In England, the proportion of social renters is believed to be 42% when it is actually 15%. They also significantly over-estimate the proportion of social tenants who are 24 or under. It’s put at 31% in the poll but is actually 12%.

The message is more mixed when it comes to comparisons between social and private renting. Social renting is seen as the most affordable form of housing by 69% of people with just 10% saying private renting. Social renting is also seen as the most suitable housing for vulnerable people by 61:15. 

However, private renting wins by 53:20 on having the best choice and 42:25 on the best quality and (surprisingly to me given all the campaigning on short-term tenancies) by 33:19 as the best place to bring up a child.

Overall, social renting only just edges it as the best form of renting by 36:35. When social renters are excluded, private renting wins by 39:31.

There are also some interesting results when it comes to the traditional arguments for social housing:

  • Affordability: 81% agree that social housing is important because it helps people on lower incomes get housing that wouldn’t be affordable in the private rented sector
  • Tackling poverty: 67% think social housing plays an important role
  • Mixed communities: 80% think social housing should be available to people who cannot afford private rents as well as to the most vulnerable.

Against that, relentless government propaganda seems to have had an impact: 41% of those polled disagreed that ‘social housing discourages those who rent in this way from improving their personal situation’ but 31% agreed. With social renters excluded, 42:31 disagreed.

So what should we take from all this? The good news is that there seems to be more support for social housing and the aims behind it than I might have expected given the media and political backdrop. The less good news is that things may be changing beneath the surface: people under 45 rate private renting higher than social renting whereas it’s the other way round for older people.

All of which reinforces my thinking about Housing Day. Today’s flood of tweets and pictures and videos is brilliant and they show a real appetite within the sector to communicate a positive message about social housing. However, the really important thing is to go beyond talking to each other and reach out and convey the message to people outside the sector. They’re already more positive than you may believe.

If you need any reminder of the urgency, have a quick read of the latest report from Policy Exchange published (I assume by coincidence) today. The central proposal is for ‘free’ housing associations in a grant-free future. That’s free from regulation of rents, sales, allocations and with a buy-out of historic grant. It’s a more sophisticated and voluntary version of previous Policy Exchange proposals but it still seems part of the end game for social housing to me. 

Ipsos MORI polled 1,1997 adults in England, Scotland and Wales between 24 October and 2 November. The poll was conducted on behalf of a consortium of housing associations led by Yorkshire Housing and including the Joseph Rowntree Foundation. Detailed results including a breakdown between England, Scotland and Wales are available from the Ipsos MORI website. 

Where's the plan?

Wed, 5 Nov 2014

A new book by the economist whose work first established the 250,000 homes a year benchmark has to be worth reading – especially when she’s not convinced it’s possible anymore.

Kate Barker’s seminal report on housing for the Blair government nailed the idea that the UK and especially England need to build houses at a much faster rate. A decade, and a separate study of planning, later and it still the ultimate source for targets of 200,000, 250,000 and even 300,000 homes a year to cope with demand and make up for the shortfall.

Now she’s back with Housing: Where’s the Plan, a short book setting out the housing challenge and potential solutions to it. With the new homes deficit rising by the year, she starts with a sober assessment of the possibilities:

‘To create a fairer and less harmful housing market, a combination of strong central direction about housing supply and unpopular taxation changes would be required. But politicians find it hard to grasp these nettles: there is far too much short-term pain and the gain will go to their successors. It is easier for them to carry on with somewhat ineffective knee-jerk and populist help for first-time buyers.’

While a perfect market may not be possible the book suggests ‘criteria for what a better housing market might look like’. However, she injects a note of caution from the outset:

‘I have become less convinced that it will be possible to meet demand in much of southern England, given the strength of local opposition in many places. So building more housing will not be the only answer, we also need to ameliorate the consequences of demand continuing to exceed the available supply.’

In less than 100 pages, the book covers an immense amount of ground including the sort of outcomes we want, post-war housing and planning policy, the housing market and the wider economy, market risks and taxation.

She also sets out, and knocks down, a series of ‘myths’. For example, the UK does not have an abnormally high rate of owner-occupation; rising prices do not mean housing is unaffordable for all; and we are not running out of land. Some of these are more clearly myths than others but all are put in a wider context.

The great strength of the book is that it avoids easy answers to what is a highly complex problem. While she argues that planning can be self-referential and planners don’t consider the costs of their decisions, she does not fall into the same easy trap as other economists of pinning the blame for under-supply on planning and assuming that new supply is enough on its own to solve the housing crisis.

The record of the 1950s and 1960s shows that ‘there is nothing about nationalised development rights and a plan-led system that intrinsically inhibits residential development’. Instead a retreat from active public policy, plus subsequent changes in planning regulation and funding of subsidised housing and in attitudes to development have combined to reduce the building rate.

In such a short book, some things are inevitably missing. For my money, she’s rather too complacent about what’s happened since the financial crisis, even arguing at one point that ‘lack of new supply was helpful’ because it helped stop prices falling. There is not much discussion of the role of buy to let or (surprisingly) the structure of the housebuilding industry.

I’d also question the assumption behind her decision to focus mainly on the private market. ‘Social housing deserves its own book,’ she says. Including it would certainly have made this one much longer but in an era of marketisation I’m not sure the distinction is so clear anymore. What we think of as ‘the market’ is in reality an inter-connected system of complex markets under-pinned by the state not just through development subsidy but through housing benefit, taxation and now billions of pounds worth of financial instruments.

However, these are quibbles about a book that asks some vital questions. The final chapter asks the crucial one: what would good look like? Barker confesses she was dispirited by what she found in her review a decade ago. Since then the financial crisis and downturn have reduced the capacity of the homebuilding industry and the housing market remains a source of inequality in living space and in location. Against that, she argues that the NPPF has brought improvements in planning and the mortgage market is better regulated.

She draws out four key reasons why our housing problems are so intractable and why it’s ‘vital’ to get new building back ‘towards or above 200,000 a year’:

  • Demand for housing space rises strongly with income – meaning that the rich will buy more space and the poor will need subsidy
  • Land remains the fundamental problem – we need more planning permissions and we need to reduce landowners’ expectations about their share of the gains
  • There is no easy solution to the UK’s regional imbalances – London’s status will increase development pressure in the South East and she is sceptical about attempts to halt economic decline in the North and elsewhere
  • Opposition to new development in the South East makes it questionable whether supply can keep up with demand.

Her recommendations are designed to boost housing supply while ensuring greater fairness and reducing the investment motive for owning housing. But she admits they do not try to address the issue of how to distribute economic activity more evenly around the country.

Most of the recommendations are familiar: local housing plans with greater borrowing and land assembly powers for local authorities; plans that judge their success in terms of achievements such as reducing the waiting list or improving affordability; incentives for local communities to accept development; new settlements and urban extensions; and encouragement for self-build. This is a similar agenda to the one laid out in the Lyons Review. She also calls for more risk sharing in mortgage finance and stronger regulation of quality and financial fairness in the private rented sector.

She calls for a holistic approach in contrast to the ‘knee-jerk’ responses of the past. That will require cooperation between a vast range of different government departments and agencies including a new ministerial committee chaired by the chancellor and aided by a new public advisory group of experts.

But her most controversial recommendation is designed to address demand rather than supply. Alongside reform of VAT and the council tax, she calls for the end of the exemption from capital gains tax (CGT) for main residences:

‘If objections to development lead to some effective rationing, then it seems perverse not to tax the benefit of owner-occupation that comes from price increases for the existing housing stock. If politicians are not prepared to face up to the need for much more housebuilding, they must instead face up to taxing capital gains on housing.’

It’s hard to fault the logic but whether you build more homes or tax existing ones it means taking on the same powerful lobby of voters who are already on the housing ladder. Where are the politicians prepared to do that?

Housing: Where’s the Plan is available from London Publishing Partnership. For other reviews, see these blogs by Alex Marsh and Brian Green

Where's the plan?

Wed, 5 Nov 2014

A new book by the economist whose work first established the 250,000 homes a year benchmark has to be worth reading – especially when she’s not convinced it’s possible anymore.

Kate Barker’s seminal report on housing for the Blair government nailed the idea that the UK and especially England need to build houses at a much faster rate. A decade, and a separate study of planning, later and it still the ultimate source for targets of 200,000, 250,000 and even 300,000 homes a year to cope with demand and make up for the shortfall.

Now she’s back with Housing: Where’s the Plan, a short book setting out the housing challenge and potential solutions to it. With the new homes deficit rising by the year, she starts with a sober assessment of the possibilities:

‘To create a fairer and less harmful housing market, a combination of strong central direction about housing supply and unpopular taxation changes would be required. But politicians find it hard to grasp these nettles: there is far too much short-term pain and the gain will go to their successors. It is easier for them to carry on with somewhat ineffective knee-jerk and populist help for first-time buyers.’

While a perfect market may not be possible the book suggests ‘criteria for what a better housing market might look like’. However, she injects a note of caution from the outset:

‘I have become less convinced that it will be possible to meet demand in much of southern England, given the strength of local opposition in many places. So building more housing will not be the only answer, we also need to ameliorate the consequences of demand continuing to exceed the available supply.’

In less than 100 pages, the book covers an immense amount of ground including the sort of outcomes we want, post-war housing and planning policy, the housing market and the wider economy, market risks and taxation.

She also sets out, and knocks down, a series of ‘myths’. For example, the UK does not have an abnormally high rate of owner-occupation; rising prices do not mean housing is unaffordable for all; and we are not running out of land. Some of these are more clearly myths than others but all are put in a wider context.

The great strength of the book is that it avoids easy answers to what is a highly complex problem. While she argues that planning can be self-referential and planners don’t consider the costs of their decisions, she does not fall into the same easy trap as other economists of pinning the blame for under-supply on planning and assuming that new supply is enough on its own to solve the housing crisis.

The record of the 1950s and 1960s shows that ‘there is nothing about nationalised development rights and a plan-led system that intrinsically inhibits residential development’. Instead a retreat from active public policy, plus subsequent changes in planning regulation and funding of subsidised housing and in attitudes to development have combined to reduce the building rate.

In such a short book, some things are inevitably missing. For my money, she’s rather too complacent about what’s happened since the financial crisis, even arguing at one point that ‘lack of new supply was helpful’ because it helped stop prices falling. There is not much discussion of the role of buy to let or (surprisingly) the structure of the housebuilding industry.

I’d also question the assumption behind her decision to focus mainly on the private market. ‘Social housing deserves its own book,’ she says. Including it would certainly have made this one much longer but in an era of marketisation I’m not sure the distinction is so clear anymore. What we think of as ‘the market’ is in reality an inter-connected system of complex markets under-pinned by the state not just through development subsidy but through housing benefit, taxation and now billions of pounds worth of financial instruments.

However, these are quibbles about a book that asks some vital questions. The final chapter asks the crucial one: what would good look like? Barker confesses she was dispirited by what she found in her review a decade ago. Since then the financial crisis and downturn have reduced the capacity of the homebuilding industry and the housing market remains a source of inequality in living space and in location. Against that, she argues that the NPPF has brought improvements in planning and the mortgage market is better regulated.

She draws out four key reasons why our housing problems are so intractable and why it’s ‘vital’ to get new building back ‘towards or above 200,000 a year’:

  • Demand for housing space rises strongly with income – meaning that the rich will buy more space and the poor will need subsidy
  • Land remains the fundamental problem – we need more planning permissions and we need to reduce landowners’ expectations about their share of the gains
  • There is no easy solution to the UK’s regional imbalances – London’s status will increase development pressure in the South East and she is sceptical about attempts to halt economic decline in the North and elsewhere
  • Opposition to new development in the South East makes it questionable whether supply can keep up with demand.

Her recommendations are designed to boost housing supply while ensuring greater fairness and reducing the investment motive for owning housing. But she admits they do not try to address the issue of how to distribute economic activity more evenly around the country.

Most of the recommendations are familiar: local housing plans with greater borrowing and land assembly powers for local authorities; plans that judge their success in terms of achievements such as reducing the waiting list or improving affordability; incentives for local communities to accept development; new settlements and urban extensions; and encouragement for self-build. This is a similar agenda to the one laid out in the Lyons Review. She also calls for more risk sharing in mortgage finance and stronger regulation of quality and financial fairness in the private rented sector.

She calls for a holistic approach in contrast to the ‘knee-jerk’ responses of the past. That will require cooperation between a vast range of different government departments and agencies including a new ministerial committee chaired by the chancellor and aided by a new public advisory group of experts.

But her most controversial recommendation is designed to address demand rather than supply. Alongside reform of VAT and the council tax, she calls for the end of the exemption from capital gains tax (CGT) for main residences:

‘If objections to development lead to some effective rationing, then it seems perverse not to tax the benefit of owner-occupation that comes from price increases for the existing housing stock. If politicians are not prepared to face up to the need for much more housebuilding, they must instead face up to taxing capital gains on housing.’

It’s hard to fault the logic but whether you build more homes or tax existing ones it means taking on the same powerful lobby of voters who are already on the housing ladder. Where are the politicians prepared to do that?

Housing: Where’s the Plan is available from London Publishing Partnership. For other reviews, see these blogs by Alex Marsh and Brian Green

Newsletter Sign-up

IH Subscription