There is much to digest in the autumn statement but the revised forecasts for house prices caught my eye.
Between March and December this year the Office for Budget Responsibility has significantly increased its forecasts for house price rises. Back in March they forecast that prices in 2013/14 would rise by 0.9 percent – they now estimate the increase will be 3.7 percent. For next year the forecast rise has increased from 1.9 percent to 5.8 percent and for 2015/16 they have upped their forecast from 3.6 to 7 percent. You can see a graph from Knight Frank that clearly sets out these figures here.
On the face of it, these revised forecasts must be down to the impact of help to buy, yet the numbers of applications are relatively low. Yesterday, George Osborne said that over 18,000 reservations had been made for new homes under the equity loan scheme since its launch in April 2013, and that more than 2,000 people have put in applications under the mortgage guarantee scheme in the month since its launch - so perhaps 30,000 applications a year once the scheme is up and running. This report suggests that up to half of all applications could be refused, so when you set Help to Buy against the total number of transactions in the UK housing market – currently touching one million a year and set to increase to 1.3 million next year – it represents a relatively small proportion of total transactions.
There is little doubt that help to buy is having both a direct and indirect impact on rising prices. It has clearly raised the psychological temperature in the housing market, to the extent that thousands of people with a 5 percent deposit are now desperate to jump on the ladder to avoid missing out, whether they choose to go down the help to buy route or not.
In fact, Help to Buy mortgages are being outgunned by new products coming onto the market. The most competitive help to buy mortgages are around 4.8 percent for a two-year fix or 5 percent for a five-year fix, yet I have found several lenders offering non- help to buy mortgages at 4 percent with a two year fix.
So help to buy may have accelerated a ball that was already rolling, stimulating a certain level of panic buying in the process. The uplift in the housing market is undoubtedly making a major contribution to economic growth, and unemployment is set to fall perilously close to the 7 percent limit at which the Bank of England will consider raising interest rates. When this happens, many of those people who have stretched their finances in order to jump on the ladder of spiralling house prices may find themselves in financial trouble.
Help to buy is no friend of the priced out generation.
Do you recall the Abbey Habit? If you were born before 1990 you may remember a time when our High Streets were littered with building society branches. A century ago there were over 2,000 building societies. Only 45 remain and, apart from the Nationwide, most are small regional outfits. Does the disappearance of building societies hold any lessons for the affordable housing sector? I believe so.
The first building societies appeared in the late eighteenth century and tended to be “terminating” bodies – their members bought land to build homes and then liquidated the society once this had been achieved. But these were slowly replaced by “permanent societies”, taking deposits and lending to homebuyers over the long term. Their core values were based on mutuality and self help, and their rules limited what they could do as corporate bodies. Each member had a single vote and there were restrictions on mergers and takeovers. They were also prudent lenders, which helped to limit house price inflation. All slightly dull perhaps, but building societies were the main providers of mortgages for most of the twentieth century and responsible for a huge increase in home ownership – from 23 percent in 1918 to 70 percent by the end of the century. They did more to change the social fabric of the UK than any other financial institutions.
But all this changed with the 1986 Building Societies Act, which allowed them to offer retail banking services and to de-mutualise if 75 percent of their members voted for it. Banks were also allowed to offer mortgages. The distinction between banks and building societies became blurred. Does this sound familiar?
Over the next decade most of the largest societies voted to de-mutualise. Borrowers and depositors opted for a fast buck (I was one of them) without any real understanding of the wider consequences of demutualisation. Boards and executives were keen to privatise because their salaries soared and it offered opportunities for mergers and takeovers – the empire builders had arrived. Does this sound familiar?
The largest societies - Bradford & Bingley, Abbey National, Halifax, Alliance & Leicester, Northern Rock and The Woolwich – all became banks. Yet not one of them now exists as a separate legal entity – all of them have been swallowed up by Santander, Lloyds, Barclays and the other big banks. This agglomeration created banking behemoths that were “too big to fail” and paved the way for the credit crisis and the hit on the taxpayer when the whole structure collapsed.
So over a twenty-year period an entire sector virtually disappeared, and the vast majority of the British public is worse off as a result. In 2006 an all party Parliamentary report concluded that the demutualised societies offered less choice, were providing more expensive products and that the main beneficiaries of de-mutualisation had been executives and non-executives. Between 1993 and 2000 the total remuneration of chief executives in demutualised societies increased by 293 percent, compared to only 65 percent in mutual societies. And on top of this, the advisers, lawyers and bankers in the City picked up over £1 billion in fees. But the reckless lending following the 1986 Act also contributed to house price inflation.
If you believe it is far-fetched to think that this could happen to the affordable housing sector, think again. According to the HCA’s global accounts our sector has assets of £71 billion and annual turnover of £14 billion. These are big figures and an attractive meal ticket for the money men in the City. Our sector is being increasingly squeezed by reduced levels of grant and an increasing reliance upon private finance and market products. Not only will the City exert a growing influence but, it seems to me increasingly likely that some Boards and Executives, ever anxious to expand their empires, will be tempted to morph into private sector companies.
The recent heated debate about “that” Bromford open letter has highlighted a division within the sector between “traditionalists” and those who increasingly seek to ape the memes and mantras of the private sector. For the latter group, “old fashioned” social housing seems to be trailing somewhere in the background but, like Building Societies discarding mutuality, prudence and stability, if we discard social housing what are we for exactly? What then sets us apart form other private sector providers, who in most cases can do the private sector stuff much more efficiently and ruthlessly than we can?
So if I had a message for those who want to go down the private sector route it would be this. Don’t be seduced by the whizz and bang of the private sector. Stick to your core principles of social housing and a social purpose. Your equivalents in the building society movement forged ahead with the same degree of optmism and bravado as you, but they were defenceless against the big beasts of finance and they ended up leading their organisations over a cliff, albeit with a fat pension in their back pockets.
The example of the Nationwide should be an example to us all. They stuck to their principles, refused to demutualise and have just posted record profits. Being “dull” has its merits.
Note: With thanks to Tom Murtha who prompted the original idea for this blog.
Half a century ago, many keen borough engineers re-shaped their towns and cities by building inner ring roads and urban motorways. Their aim was to speed the progress of the motor car. Their watchwords were ‘innovation’ and ‘progress’. In the process, many close-knit communities were razed.
Today, many of those places rank among the least pleasant urban centres in England. If you have ever tried to navigate the inner parts of Coventry, Bristol, Huntingdon, Birmingham or Leicester by foot, bike or car you will know what I mean. By contrast, those places that resisted the temptation of urban motorways – Cambridge, Winchester, Sheffield – are better for it. By doing nothing, whether by design or tardiness, these cities were saved from harm, their assets were protected. In his book ‘God is Not Great’, Christopher Hitchens writes about the attitude of the church in occupied Europe towards the Nazis, and says, ‘to decide to do nothing is itself a policy and decision’.
Perhaps our housing sector would now have a different shape and reputation had it collectively decided to ‘do nothing’ at critical points in the past, instead of repeatedly jumping through hoops at the behest of the government of the day, in the name of ‘progress’ or ‘innovation’ or ‘growth at all costs’.
Take the Oxbridge colleges – they are some of the most influential and long-lived institutions in Britain. (Peterhouse in Cambridge, where I live, was founded in 1284). For all their perceived elitism they are registered charities and they profess a social purpose. Like housing providers, they have grown step by step and brick by brick, but they take a long-term view. They grow when they can and they wait when they can’t: but they are not prepared to compromise on their founding principles or to sell or devalue their assets. They rarely sell freehold land. Trinity College is reputedly the fourth largest landowner in the UK.
Which brings me to Mick Kent’s open letter to our sector. Two minor gripes about his language to begin with. His headline is, ‘Saying the unsayable’. Well, it’s not unsayable if it’s been said. Then he claims that ‘being different’ is in Bromford’s DNA. Will non-medical people please stop telling us what is in their DNA! As a metaphor it is lazy and factually wrong. DNA is in your DNA and nothing else.
I think Mr Kent is right to open a debate on this topic and he is partly right about dependency within social housing but he is wrong in his analysis of how this has come about. He claims that our current system of welfare has ‘produced very damaging long-term consequences – for individuals, families, society and the economy which will take generations, not just the life of one parliament, to turn around’. But this confuses causation with correlation – a schoolboy error.
The welfare system does not cause or produce dependency, it is the offspring of dependency. Dependency is caused by lack of work, by unaffordable rents and house prices, by low wages and high living costs. In 1968, for example, we built 352,000 homes in England – over three times our current level, unemployment was 2.5 per cent (it’s now 7.6 per cent) and an average house cost 2.6 times an average income – it’s now double that. Social housing rents then were far more affordable than they are now. Yet in 1968 the welfare bill was around 6 per cent of GDP, it’s double that now, and wages are shrinking. Back in 1968 many more people could afford to live a decent life without recourse to benefits. So these are the causes of dependency – the welfare system merely props up the consequences of dependency.
The people who rely on benefits are showing precisely the ‘enterprise, self-reliance, perseverance and skill’ that Mr Kent claims the welfare system has deprived them of. They are responding rationally to an irrational world. To suggest that more than a minority of social housing tenants do not want to work and instead want to live a life on benefits is patronising and wrong.
What’s more, Mr Kent and his colleagues, and those who preceded him, share a significant responsibility for this state of dependency. They are like the borough engineers I mentioned at the outset.
First, rents and house prices are high, and unaffordable, because we have failed to build enough homes. Our sector has failed to make an effective case for a boost in housing supply. But this is partly because we have colluded with other ‘reforms’ that have tarnished the brand and reputation of social housing (going back 40 years or more and not just the 20 years Mr Kent refers to), which has led to our message not being taken seriously.
Second, we colluded with allocations based on personal need rather than the wider needs of the community. We colluded with the notion of putting homeless people at the top of the housing queue, regardless of whether their homelessness was genuine. We colluded with the right to buy, allowing the best homes to be sold off at massive discounts and not replaced. We colluded with the introduction of private finance, piling debt on tenants and raising their rents. We colluded with stock transfer and mergers, creating a highly inefficient and illogical pattern of stock ownership. We colluded with a rent policy that increased rents above inflation year after year. And now we are colluding with the ‘affordable’ homes programme, which will condemn thousands of people to perpetual poverty. Admittedly, some of these ‘reforms’ would have been difficult to resist without legal sanctions, but others could have been resisted. (And to be fair, some providers have ‘done nothing’, for example by declining to take part in the ‘affordable homes’ programme, and all credit to them).
Bromford, and most other large providers, went along with all these changes and now they complain that tenants are dependent. It’s like the teenager who kills his parents and then seeks sympathy as an orphan. The definition of chutzpah.
What it comes down to is this. Do people like Mick Kent believe in the core principles of social housing, or not? Do they believe it is right and just that the state (and past generations of tenants, lest we forget) should continue to fund good quality housing at rents that are significantly below market rents in order to provide for those who cannot cope with, or choose to withdraw from, the vicissitudes of the market? Or do they believe that the sector should head towards a private sector model of provision, where we simply grow at all costs regardless of the affordability of the product we provide? If so, we may as well shut up shop, float ourselves off and become private companies - John Lewis-lite, open to all, just like The Ritz - and have done with it.
The problem is that too many people in our sector have been hyperactive in the wrong direction, jumping to the tune of their political and funding masters yet failing to protect the assets they have been entrusted with. Even now they are busy heading up a blind alley lined with irrelevant buzzwords like social media, ‘being different’, mission statements, customer excellence, social return on investment, you name it - when their core product and their core values are collapsing around them, brick by crumbling brick. It is fiddling while Rome burns. Portraying this as a ‘battle to repair deep rooted cultural damage caused by years of dependence on the state’ is disingenuous, at best.
So my message to people like Mr Kent is: policiticans and governments come and go. You could choose to follow the 800-year old example of Peterhouse College and take the long view. Calm down, relax, take your time, size isn’t everything. If you really believe in the value of social housing then please do nothing to compromise the assets that you hold in trust for past and future generations.
Because doing nothing is as viable an option as doing something. ‘They also serve who only stand and wait’.
A report out this week from Deloitte shows that London dominates more economic sectors than any other world capital. It leads the world in insurance, retail and investment banking, fund management, digital media, non-internet publishing, legal services, accounting, tax and payroll, architecture, engineering services, and management, scientific and technical consulting. London really is the world’s capital.
Yet the number of families being exported out of London has more than doubled over the past year, numberless thousands of poor people are living in beds in sheds, London house prices have soared by 9 percent over the past 12 months, the average private sector rent is £269 a week and the average London house costs £476,000. Millions of Londoners are spending up to half of their incomes on housing costs. The largely unregulated private rented sector has grown massively in recent years and a million people are on London’s waiting lists. London may be booming but the disparity between its economic wealth and its dysfunctional housing sector is stark, and it is going to get worse.
Meanwhile 75 percent of all newbuild properties and 49 percent of all properties in the £1 million plus bracket are being bought by foreigners. There is some debate about the impact this is having on London house prices, but developers, in attempting to capture this market, are providing too many upmarket properties at the expense of affordable homes. This latest report from Savils shows that the shortfall is greatest at the bottom end of the market with a glut of properties at the luxury end.
London’s new Community Infrastructure Levy, which will sit on top of the CIL set by the London boroughs (six boroughs have fixed their own CIL so far) is likely to squeeze the future provision of affordable housing even further. And even when affordable homes are provided can they truly be described as “affordable” when the average rent is £182 per week?
So the future for Londoners on low and middle incomes looks bleak. The big issue is, of course, supply. Only 18,000 homes were built in London last year (see Table 253) and a third were built by registered housing providers and councils. The Mayor has set a target of 400,000 homes over the next ten years, although Savils say that this needs to be upped to 50,000 homes a year - the equivalent of 18 Olympic villages every year. By 2030 there will be another 1.7 million people in London - and at an average current household size of 2.5 that means a need for an additional 680,000 homes. Spread this over 16 years and add in past deficits and the Savils’ estimate of 50,000 a year looks about right.
But London has fewer than 4,000 hectares of brownfield land and even if all of it was developed at relatively high densities (which would be a mistake) it would still leave a shortfall of up to 400,000 homes.
So what’s the answer? Assuming public funding stays where it is there are three structural solutions. One is to build upwards and achieve higher values. One hundred new tower blocks are already in the pipeline for London, mostly private schemes, but this only adds to the pressure on roads, tranpsort, schools and hospitals. Stories like this show that London’s infrastructure is creaking already. Another is to expand London’s footprint and build outwards, something I have advoctaed here and here. A third solution is a new generation of new towns to cream off some of London’s surplus population. The post-War Abercrombie plan of 1944 achieved this but it also caused considerable damage to London’s economy by exporting skilled workers. A subtle combination of all three options seems to me to be the best way forward.
As London’s housing withers its leaders dither. The Mayor produced a draft housing strategy nearly three years ago but it’s still not been published in its final form. Boris Johnson has to invest a great deal more energy into housing than he has of late because there is no bigger crisis facing London. When Harold Macmillan was appointed housing minister in 1951 he said the pledge to build 300,000 homes a year had to be treated as a “war job” and tackled “in the spirit of 1940″. If Boris wants to be become a future Prime Minister he could do well to follow the example of a former Premier and treat London’s housing crisis as if it was a “war job”.
In two previous blogs I have explored some of the uses to which land in England is put. I’ve written about horses and sheep, and highlighted, for example, the fact that horse-grazing takes up as much land as half of the built up area of England – enough for millions of new homes.
Why am I turning my attention to golf? I admit that I approach the subject with some trepidation because I know that many senior figures in our sector like their golf! But the fact is that this minority sport is an extremely greedy consumer of land. Per head of participants it takes up more land than any other sport.
This was brought home to me by reading reports of a recent High Court case about a proposed development in Surrey. In brief, last year Mole Valley District Council gave planning permission for the development of an 18-hole golf course and country club on the 150 hectare Cherkley estate in the Surrey Hills, the former home of Lord Beaverbrook. They made this decision against officer advice and the written planning consent made reference to the “need” for additional recreational facilities in the distirict. A group of local residents launched a legal challenge and High Court judge Mr Justice Haddon Cave has now found in their favour - and against the Council and the developer. Much of his judgement turned on the definition of the “need” for additional facilities in the area, as opposed to “demand”, an argument that will be familiar to many in our sector. Christopher Katkowski QC, for the developer, tried to argue that demand and need were one and the same but the judge rejected this. You can read his full judgement here but the followng extract is worth repeating:
“The developers argued that proof of private “demand” for exclusive golf facilities equated to “need”. This proposition is fallacious. The golden thread of public interest is woven through the lexicon of planning law, including into the word “need”. Pure private “demand” is antithetical to public “need”, particularly very exclusive private demand. Once this is understood, the case answers itself.” Well said!
(By the way, I have seen Mr Katkowski QC in action at a planning appeal in Cambridge. He is a fearsome advocate but on this occasion his arguments were comprehensively demolished by the judge. That is very pleasing).
The judge stated that Mole Valley District already has 11 golf courses and Surrey has 141 full-sized courses. It was also revealed that there are 192 golf courses within 20 miles of Cherkley and 627 courses within a 50 mile radius!
These figures astonished me, so I did some more digging and discovered that there are around 2,000 18-hole golf courses in England as well as hundreds of smaller 9-hole and pitch and putt courses, and at least 600 golf driving ranges. Each 18 hole course requires up to 90 hectares of land (including practice courses, clubhouses, car-parking etc) so my best estimate is that golfing establishments take up around 270,000 hectares in England – that’s 2 percent of England’s total land area of 13.4 million hectares. Accurate figures are hard to come by, so if anyone can contradict my figures I would be pleased to amend them. But by my reckoning English golf courses use an amount of land that is equivalent to one fifth of England’s total built up area (10 percent of England is built upon) and could provide at least 8 million homes.
Yet many golf courses are losing members. Mr Justice Haddon Cave quoted reports showing that 90 percent of golf clubs in the UK had membership vacancies and 80 percent no longer had a waiting list. What’s more, golf has an image problem. Of the 850,000 people who play golf regularly at least 75% are men and only 2% are non-white.
I’m not for a moment suggesting that golf does not give pleasure to many thousands of people, or that millions of new homes should be built across the golf courses of England! If groups of men wish to spoil a good walk by chasing a little white ball they are perfectly at liberty to do so. But it’s also worth bearing in mind that golf courses drink huge amounts of water, are not particularly brimming with wildlife and are generally closed to public access. Yet many countryside campaigners argue that we should not touch any greenfield land whatsoever, either because of its wildlife and amenity value or because we need every scrap of land to provide for our present and future food needs, or both. Well in the case of horses and golf the food argument is spurious, and in the case of golf the wildlife and amenity argument is tenuous, at best. Some golf courses spoil the landscapes they occupy.
At the risk of boring the readers of this blog I repeat: There is no shortage of land in this country. We have more than enough land to build the homes that we need and to stop the awful cramming, overcrowding and shortages of affordable, decent homes now blighting our towns and cities. We just need some facts to enter into the debate in order to counter some of the scaremongering and lies that pervades the subject of land use and development, and to have a grown-up discussion about the way we prioritise our use of land.
For the past two years The Daily Telegraph has been running a spurious ‘Hands off our land’ campaign aimed at developers and government ministers and egged on by the Banana wing of the countryside lobby. This started with the national planning policy framework and has continued intermittently. One of their main targets has been Nick Boles MP, a good planning minister who understands the nature and scale of the housing crisis and knows that we need to build many more homes if we are to become a modern, decent society. He also knows that our future housing needs cannot be met solely from brownfield land and that we will need to build many homes on greenfield land.
This has enraged some Conservative MPs who called for a backbench planning debate at Westminster Hall last week. You can read the transcript here and the Inside Housing story here. Some of these MPs even deny that there is a housing crisis, which does make you wonder.
The Telegraph used the following headline for its report on the debate: ‘Elderly to blame for housing crisis, indicates minister.’ I felt this was inaccurate and misleading. I tweeted to this effect and after an exchange with the Telegraph’s reporter he told me, ‘I just write down what is said in debates in Westminster’.
However, I don’t believe the Telegraph did just ‘write down what was said’.
Here’s the evidence. Mr Boles starts his speech by saying: ‘I need not start by underlining the scale of the housing crisis faced by this country, the extent of the need for housing or the grief and hardship that the crisis is visiting on millions of our fellow citizens.’
He goes on: ‘Our population has grown and we have not built enough houses to keep pace with it.
‘That growth in population has had two main sources. One, which is contentious in the house and elsewhere, is immigration, which was uncontrolled for a long time. We as a party rightly criticised that, and are now doing something to control it. However, it is important to remember that the majority – about two thirds – of the growth in population and in the number of households in the country has resulted not from immigration but from ageing.’
I don’t believe any reasonable person would conclude that Mr Boles had ‘blamed’ the elderly for the housing crisis. He makes it very clear that the ‘blame’ rests with our inability to build enough homes. The fact that the Telegraph chooses to use the flaky words ‘indicates minister’ in its headline rather than ‘says minister’ gives the game away, in my view. I felt this was a violation of the commission’s code, in particular article 1 (1), which you can read here.
However, headlines have consequences. If you have time to read some of the comments below this article you will see, as of today, almost a thousand postings from Telegraph readers, many of them making personal and offensive comments against Mr Boles or against immigrants. This is what we are up against, colleagues. But in my view many of these readers have been misled by the headline to the story.
Because of this, I decided to make a formal complaint to the Press Complaints Commission. It is unlikely to have any effect, but if it helps to tone down some of the intemperate language used by the Telegraph and its use of provocative and misleading headlines in the future all well and good.
There was an interesting article at Conservative Home last week about the 1950 Conservative conference, where (and I find this almost unbelievable) delegates pressured the leadership to adopt a target of building 300,000 homes a year in the UK. The post-war Labour government under Clement Atlee, from a standing start in 1945, was building 205,000 homes a year in the UK by 1950 but both political parties were competing with each other to do more.
The Conservative manifesto for the 1951 election duly carried these stirring words:
“Housing is the first of the social services. It is also one of the keys to increased productivity. Work, family life, health and education are all undermined by overcrowded homes. Therefore a Conservative and Unionist Government will give housing a priority second only to national defence. Our target remains 300,000 houses a year. There should be no reduction in the number of houses and flats built to let but more freedom must be given to the private builder. In a property-owning democracy, the more people who own their homes the better.
Harold Macmillan was made housing minister, even though he claimed to know nothing about the subject. He treated it as a “war job” and ensured that sufficient land and materials were directed towards the manifesto pledge. He also changed the name of the Ministry of Local Government and Planning to the Ministry of Housing and Local Government, to reflect the priority that Housing now took. (Eric Pickles take note!)
By 1954 housing production in the UK peaked at 354,130 of which 239,580 were council houses and only 92,420 were private. But the following Labour government did even better. The Labour manifesto for the 1964 election said this about housing – a pledge of sorts.
“Labour will also increase the building of new houses, both for rent and for sale. While we regard 400,000 houses as a reasonable target, we do not intend to have an election auction on housing figures.”
In fact, Harold Wilson’s government built 425,830 homes in 1968 of which 184,450 were council and a staggering 226,070 private. (Private housebuilders have never since exceeded this 1968 figure. For the whole of the post-war period, despite upturns and downturns in the housing market, they have averaged 154,000 a year in the UK, and this will never be enough on its own to meet our housing needs.)
In 1996 Environment secretary John Selwyn Gummer said we needed to build four million homes by 2016. In 2004, Kate Barker called for 250,000 homes to be built each year in England. In 2007 Gordon Brown promised 3 million new homes by 2020 and announced a programme of eco-towns. None of it has happened, or will happen.
Since 2004 we have averaged only 136,700 homes in England each year, so we have already built up a total backlog of 1.133 million homes against the Kate Barker target, and given recent increases in population even this target looks inadequate.
I have been going to housing conferences for over thirty years. I have seen a succession of ministers spout platitudes about the need for more housing supply but not one of them has ever delivered in the way that Macmillan and Wilson did. On Monday I listened to the latest “housing minister” Kris Hopkins going through the motions about the need for more homes. I’m afraid I don’t believe a word of it now.
Is it any wonder that house prices are shooting up across swathes of the country, that thousands of people are living in beds in sheds, that a whole generation has been priced out of a decent home at a price they can afford, and that almost 2 million households are on waiting lists?
Isn’t it time for some righteous anger about the state of housing in this nation?
On the day of the budget in March I wrote this about George Osborne’s help to buy announcement: ‘The danger is that Osborne’s initiatives, by boosting demand without any corresponding increase in supply, will just create yet another housing bubble.’
It’s now almost impossible to find a commentator who doesn’t believe that help to buy will push up house prices. The second phase starts tomorrow, and allows buyers to put down a 5 per cent deposit on new and existing properties worth up to £600,000, with the Treasury insuring 15 per cent of the price. It has set aside £12 billion of guarantees for up to £130 billion of mortgage lending and the scheme will remain open for three years to January 2017.
According to the Financial Times the average deposit in England will fall from £44,000 to £11,000 as a result of help to buy. So far, only Lloyds and Royal Bank of Scotland (both part-owned by the government) are offering help to buy mortgages.
Not surprisingly, this improvement in affordability has unleashed a huge level of pent up demand from ‘generation rent’. According to Santander 5 million Britons want to buy in the next 12 months and a third of them intend to use help to buy. A quick look at the figures for new supply and transactions shows that this will be a mathematical impossibilty.
For new build, the number of private starts on site in April to June increased by 6,000 on the same quarter last year. But it will take at least 12 months to see if the house builders are ramping up supply. They are notoriously slow to respond to increased demand but quick to stop building as soon as the market shows signs of a downturn.
House builders built 84,000 homes for sale in England in 2012/13 but this makes up a relatively small proportion of the overall level of transactions in the housing market as a whole. Just before the credit crunch in 2006 there were 1.4 million residential transactions a year in England. This has fallen to just over under 800,000 in the last year – sellers have deserted the market as well as buyers.
This is where psychology takes over. Many sellers have kept out of the market due to suppressed prices and low demand. Will they return? Many potential sellers will be looking to buy elsewhere and will be competing against others in the same situation, so they may decide to delay putting up the ‘For sale’ sign if the market is rising. Selling is an art in itself – the dream is to sell at the top of a rising market and buy as the market starts to fall. Yet the housing market may be too volatile for sellers to make sensible decisions. But even if they return to the market in the same volumes as 2006 there will still be an excess of demand stoked by help to buy, so the consequence will be an inevitable surge in house prices.
Mark Carney, governor of the Bank of England, has promised to keep a close eye on the bubble and says he has the tools to deal with it. Presumably one of these tools is the £600,000 cap. Yet in his speech last week George Osborne rather oddly suggested that help to buy was aimed at people in places like Nelson and Colne and Morecambe, rather than the south east. But average prices in these places are a fifth of the £600,000 cap, so why set the figure so high?
One final point. Robert Peston revealed this morning that the Treasury will be charging help to buy lenders up to 0.9 percent fee on the total mortgage, not just the insured element, to comply with EU rules on state aid. This could mean that mortgage rates for help to buyers could be double the rate for other applicants – up to 5.25 per cent.
For financially-stretched first-time buyers this could store up problems for the future. Mr Carney has said that interest rates will rise only when unemployment falls to 7 per cent. This housing boom will inevitably fuel an economic boom that will reduce unemployment. So a year from now we could see young people who bought under help to buy struggling to keep their homes as interest rates rise.
Yet again the housing market is being used to run the economy, the tail wagging the dog, and the consequences could mean misery for thousands of people.
Ed Miliband devoted 212 words to housing in his conference speech in Brighton. That’s about 2.3 percent of a 9,000 word speech. Disappointing perhaps, but he did make three significant pledges. I will use his exact words as posted on the Labour Party website to avoid any ambiguity in what follows.
“So we’ll say to private developers, you can’t just sit on land and refuse to build. We will give them a very clear message - either use the land or lose the land, that is what the next Labour government will do. We’ll say to local authorities that they have a right to grow, and neighbouring authorities can’t just stop them. We’ll identify new towns and garden cities and we’ll have a clear aim that by the end of the parliament Britain will be building 200,000 homes a year, more than at any time in a generation.
I will pass over “use it or lose it” because it is just empty rhetoric, but the pledge on the right to grow is to be welcomed. It’s a firming-up of the duty to co-operate, as set out in the NPPF, and is designed to tackle recalcitrant local authorities who refuse to allow expansion by neighbouring land-locked authorities. The North Hertfordshire and Stevenage case is often given as an example. Whether this will translate into an effective policy remains to be seen.
Despite its rather strange wording, the pledge to “identify new towns and garden cities” is something that I and others have been arguing for for a very long time and is to be welcomed. Whether this can be translated into a realistic policy (eco-towns anyone?) is another matter. It will only work well if land is purchased at sub-residential values and development funded through uplifts in land values.
But the pledge to build 200,000 homes a year is rather misleading. Had he been referring just to England the “more than at any time in a generation” would have been correct. But according to the CLG we built 205,050 homes in Britain in 2007/08 (218,530 if you include Northern Ireland to cover the whole of the UK). That is certainly less than a generation ago by my reckoning. The last time we built more than 200,000 in England was in 1988/89 when we built 202,930, which I guess is more than a generation ago. This is one of the problems with devolution – you can mix and match your countries and cause havoc with accuracy and understanding – a politician’s dream perhaps? Building 200,000 homes a year in Britain is nowhere near enough. We need to build 250,000 in England alone to meet demand and claw back past under-supply.
Miliband also said, “There are 9 million people in this country renting a home, many of whom who would like to buy. 9 million people - we don’t just have a cost of living crisis, we have a housing crisis too”. That seems a curious thing to say. If he is again referring to Britain and not England then I am assuming he just means those living in the private rented sector. Yet many in the social rented sector would also like to buy and many people living in the PRS do not want to buy. Odd.
But the fundamental point that the Labour Party have missed is that the “cost of living crisis” is fundamentally a housing crisis. They are not separate things but inextricably intertwined. Several recent reports have highlighted these issues, and I won’t rehearse them here, but when Londoners are having to find £64,000 to fund a deposit, when so-called “affordable rent” homes are being let at £180 a week and when Generation Rent is paying up to half of their wages in rent it is quite clear that tackling housing supply and afffordability would do more to improve the standard of living of millions of disadvantaged Britons than any other single measure.
The Labour Party has listed a number of steps that it will take to address this “cost of living crisis” including abolition of the bedroom tax, freezing energy prices, extending childcare and rasing the minimum wage. All well and good, but many of these are mere pinpricks in the bigger picture of housing supply and affordability across vast swathes of the country. The bedroom tax may be controversial but it affects relatively few people and, as Joe Halewood has pointed out, Labour has completely missed the point in its pledge to scrap the tax. Too often, our politicians chase public opinion rather than forming it by their vision and leadership.
Our present housing system damages the dreams and aspirations of millions of people, it creates a mighty chasm of inequality between our two housing nations, the haves and the have-nots. Is there any issue that should be a greater priority for One Nation Labour than housing? We need to shout it from the rooftops that the cost of living crisis is fundamentally a housing crisis.
A few weeks ago I wrote a blog about the amount of land in England occupied by horses (“Horse and House”). This week I’m writing about sheep. What has this to do with housing? I hear you cry. Bear with me.
In case you missed it, George Monbiot has been in the news recently over his attack on sheep farming in the UK. He claims sheep are one of the greatest threats to our countryside and describes them as “wooly maggots” and a “white plague”. He says their sharp hooves compact landscapes and cause landslides, and that their relentless nibbling destroys the native fauna that wildlife depends upon, creating sterile “bowling green” deserts in much of upland UK.
George may be flying a kite, because his long-term aim is to see more of upland Britain being “re-wilded”, but his polemic does raise a serious question about the way that we use land in the UK, something that I have been banging on about for years past.
If you look at the latest figures, there are 5.4 million cattle, 3.7 million pigs and 14.6 millon sheep in England. Of course these figures go up and down quite rapidly during the year – about 10 million lambs are slaughtered each year, for example.
Around 8.9 million hectares of England is devoted to agriculture of which 4 million hectares is used for livestock grazing – that’s 66 percent and 30 percent of England’s land mass, respectivley. (By contrast, 53 million of us live on just 10 percent of the land). Given that some of our livestock spends at least part of its life indoors, this amounts to a density population of around 4 to 5 animals to each hectare. Compare this to Islington, where there are 138 people to every hectare.
But just imagine, for a moment, that the land use map of England was reversed, like a negative image, so that towns and cities became countryside and countryside became cities and towns. 90 percent of England, that’s 12 million hectares, would be occupied by 53 million people at just 4.4 people to the hectare. This land would contribute virtually nothing towards GDP or employment and many of us would live alone in grounds of half an acre or more. Meanwhile, 16 million farm animals would be crammed into just 10 percent of the land, which would also produce over 99 percent of our GDP and provide much of our open space and leisure amenity.
It sounds absurd, but this is exactly what we have managed to achieve in reverse with our present land use policy. We, the people, are crammed into our towns and cities at ever-increasng densities, whilst agriculture occupies 66 percent of England’s land mass but contributes less than one percent to our GDP. In terms of sheep farming, in particular, the economics make no sense whatsoever. Around 60 percent of the sheep population comprises breeding ewes whose primary purpose is to produce lambs for slaughter and the odd fleece, which have a value of around £50 apiece. There is little consumer demand for hogget or mutton and my guess is that many of these ewes end up in pet food or are sent abroad. Monbiot points out that every Welsh hill farmer receives £53,000 in subsidy a year, but New Zealand lamb, which is unsubsidised, is still cheaper than UK lamb, because their farms are much larger and benefit from economies of scale. Why do we persist in trying to feed ourselves when we can buy food cheaper from elsewhere?
We do need to have a rational debate about how we use our most precious resource - land. What exactly is the countryside for and to what extent does it add to or detract from the sum of human happiness?
Yet the unfortunate truth is that the countryside lobby has completely hijacked this debate so that the press reacts like Pavlov’s dog at any any mention of building much-needed homes on the countryside. Take this recent story in The Telegraph, which arose as the result of a scaremongering press release put out by the CPRE. When you examine the facts you realise that the land involved represents a minuscule percentage of the green belt.
As I mentioned at the end of my last blog, our sector, and the wider housing industry, is repeatedy outflanked by the countryside lobby on this issue, which means that the space for a rational and meaningful debate about land use is almost impossible. But it’s not a case of choosing between sheep or shelter: just 2 percent of the land we devote to livestock could produce at least 3 million homes. That could mean a big programme of new settlements that would help to meet our housing needs for the next thirty years.