Serious business
No panacea
This week, your intrepid business correspondent braved a hazardous sea crossing and explored hitherto unchartered parts of the globe to visit the self-build pioneers of Holland.
My guide on this journey into the unknown was one Grant Shapps (if you’re reading this in the future, he was housing minister until the early summer of 2012), who claimed that the trade delegation he was leading constituted his first foray outside Albion since he took office – oh to be foreign sec… well, maybe one day.
The mission was to see how the people of Almere – a commuter town built on reclaimed land about half an hour outside of Amsterdam – were developing the largest self-build site in the known universe (Europe, anyway).
And it was suitably impressive, even if it did bring to mind a frontier town in the Midwest, as depicted in a million and one Hollywood movies. Sadly, none of our enthusiastic Dutch hosts could point me towards either the saloon swing doors nor the adjacent ‘house of ill repute’. Presumably these will be part of the second phase.
Whatever anyone thinks of the design of these homes, the Almere experiment has certainly delivered home ownership – much of it on a similar basis to the UK’s shared-ownership model - on the cheap and to people who would otherwise be priced out.
Most people on the trip agreed that Almere would be difficult to replicate on our own overcrowded shores even if we wanted to try it. Councils’ renowned intransigence over planning was cited as a major potential stumbling block for high-volume self-build; the word ‘nimbyism’ was bandied about fairly regularly in the Dutch sunshine.
However, the minister is more than a little keen on self-build as a panacea for our ailing house building industry. Mr Shapps wants to see 100,000 extra homes built by self-builders over the next decade.
All well and good, yes. But we are soon going to need an extra quarter of a million homes a year, according to a select committee report. An extra 10,000 a year barely makes a dent. And yesterday’s latest figures on housing starts won’t ease fears that we are heading into an ever-deepening crisis.
What is worrying is that this push for more self-build might overshadow some of the other things that could be done to get more spades in the ground. The same select committee report that identified the shortfall did include references to self-build as part of the solution, but it also mentioned many other issues that seem not to have bent the government’s ear in the same way.
Of course, things such as easing local authority borrowing or wiping out housing associations’ historic debt would put extra pressure on the public purse. And George Osborne’s current MO is to do exactly the opposite.
Given his Treasury-imposed handcuffs, you can see why Mr Shapps is all cock-a-hoop over the prospect of letting people get on with building their homes for themselves. An interesting idea, it may be; the answer to our prayers, it almost certainly is not.
Organised chaos
The second law of thermodynamics and the financing of new housing are not, at first glance, subjects that lend themselves to easy analogy. But bear with me for a moment…
Because it is this law from which the concept of entropy is derived; in other words, the idea that, over time, everything tends towards a state of disorder from one of order (yes, it’s a simplification, but Inside Housing is not the place for a discussion of theoretical physics of a Friday afternoon). So, without time moving in a uniform direction, there would be no decay, but if it only travels forward then chaos is ultimately the only possible outcome.
Similarly, if time’s inexorable march onward were not a factor, then the issue of how local authorities can free up cash to spend on building and repairing the properties that this country needs to address the escalating housing crisis would be less problematic.
But, as Henry Winkler and David Beckham know only too well, time is the enemy of man. And as demonstrated in the far-reaching report that emerged from the communities and local government select committee this week, the need to build more houses is getting more and more acute with every passing minute.
The committee – made up of MPs from across the political spectrum – concluded that we need to build nigh on a quarter of a million homes every year. It’s fair to say that current output is a little shy of that.
One possible solution, so the report argues, would be to get councils to take up some of the slack. Councils, as everyone knows, haven’t engaged in large-scale house building programmes for more than a generation but the recent self-financing revolution means they have new powers to spend the income they generate from rents without having to send the money back to Whitehall.
The problem is that the self-financing dream ticket comes with an important caveat, namely local authority borrowing caps. Scared that councils might not exercise caution if they are given control of their housing revenue, the government has limited how much they can borrow and, therefore, how much capacity they have to develop.
Once they pay off some of the debt they have acquired as part of the self-financing deal, that cap will be less onerous. But it’s these first few years that are crucial.
What the committee has called for – and it’s a call that has now received the backing of a number of voices in the sector – is for the government to remove the cap. Even if councils still borrow within what is known as the prudential code, this move could generate as much as £15 billion of extra capacity. That’s a lot of houses.
There are mixed feelings from the sector as to whether this is a genuine prospect or not, but if it happens it needs to happen soon. If not, lifting the cap would be rendered pointless seeing as debt repayments would create this capacity for councils in any case.
As with the second law of thermodynamics, time is very much the issue. And as anyone who has studied physics or the machinations of a government department knows, some things can take a long time to change…
Less is less
Today’s Inside Housing brought with it the perhaps less-than-surprising news that social landlords think they will be able to build fewer subsidised homes if there is less subsidy.
In terms of news stories, it seems to be on a par with ‘dog bites man’ or ‘Joey Barton angers (insert appropriate team name) fans’, but this is more than a case of stating the bleeding obvious.
Some in the sector have developed a slightly fatalistic attitude over the continuation of grant funding for affordable – sorry, ‘affordable’ – housing. There are two broad churches among the doom-mongers: the first thinks there will be a further cut to the level of subsidy for the 2015-19 programme ahead of a total cut next time round; the other, smaller group, predicts the doomsday scenario of a zero-grant future coming round as early as 2015.
Whatever happens, it is entirely sensible for housing associations to start scribbling on the backs of envelopes to try and work out how they can do more with less.
Fans of ‘The Wire’, will be familiar with the phrase as the battlecry of senior management as they cut staff numbers in the semi-fictionalised world of The Baltimore Sun newsroom. As the show’s creator David Simon once explained, this was a bit of a joke. ‘You don’t do more with less,’ he said. ‘You do less with less.’
And that’s exactly what those housing associations that have done the modelling so far have found. What is shocking is how much less they can do.
Given current funding levels mean that the HCA is only able to provide around £20,000 for every new home, landlords are no strangers to having to find money elsewhere to deliver. So the revelation that Helena Partnerships would see the proportion of homes it can offer at sub-market rent drop from one in two to one in 12 if grant disappeared is truly alarming.
Ok, some might say, that’s a northern LSVT. Pressure on gearing is always going to be tighter and it’s a lot harder to attract alternative finance. But even in London, heavyweights such as L&Q think that only one in five homes might be affordable if the funding plug is pulled.
Grant Shapps has used his favourite tool (that’s Twitter, by the way) to laud the affordable homes programme, highlighting the fact that associations have upped their annual surplus since the regime was introduced. But all this really shows is that they are stockpiling against the nuclear winter that is another funding cut.
A third school of thought within the sector says that these kind of guessing games will just encourage Whitehall to wield the axe once again. If we show we are figuring out another way to do it, runs the argument, they will just let us get on with it.
If anything, the eyebrow-raising figures some of these landlords have produced show just the opposite: if the case for continued subsidy is to be made, we need to show what might happen without it.
Ken's conundrum
The ranks of those people trying to bring institutional investors into the social housing fold were swelled this week by an unlikely source.
Well-known friend o’ the City Ken Livingstone has urged pension funds to come to the rescue of the sector and is talking to councils about a scheme that would see them pool their resources to make a direct investment in building new homes.
It’s an idea that’s hard to criticise. But it might also sound just the tiniest bit familiar. Earlier this week, London Councils – the umbrella organisation for the capital’s local authorities – started talks to create a ‘London mutual’, aimed at getting an impressive sounding £30 billion invested in infrastructure, including (presumably) housing.
In fact, every man and his dog in social housing has been trying to conjure ways to get these investors to take some of the financial burden off the government and the banks, many of whom are owned by the government now anyway. So far, no one has succeeded in any significant way.
And therein lies Ken’s problem: if people more fluent in the language of big business haven’t managed to convince the fund managers that social housing is the place to put their clients’ billions, what chance is he going to have?
That’s not being disrespectful. Ken’s staunch allegiance to the kind of ideological politics that went out of fashion a generation ago is admired and reviled in equal measure. Yet no one on either side is likely to claim that he is the best envoy to send to the City, red cap in hand, and plead the case for social housing.
What we need is a Trojan horse, not a battering ram. Even with housing becoming increasingly central to the London mayoral race, it doesn’t look like any of the candidates are capable of filling that role.
Time to take the plunge
With institutional investors still very much the Holy Grail for housing associations desperately working out how to operate in a grant-restricted world, they could do worse than look to the valleys.
In Wales, a quiet revolution in social housing finance could be taking place. A development company – Devco Wales No 1 – is seeking out an ambitious £1 billion from pension funds, insurers and the like to build up to 10,000 homes in the principality.
The model is pretty simple: the money raised will be used to fund construction, with investors being repaid through rental income.
What is expected to attract these big beasts of the investment world is the security offered by rent. Yes, that security is under threat to some extent from the introduction of direct payments. But all in all, as the global economy struggles from one crisis to the next, social housing has become an increasingly safe bet.
And yet these mysterious investors are still just parading around the edge of the pool in their cash-filled Speedos, unwilling to take the plunge.
To be fair to the government, it is trying to tempt them into the water. The signs are that the new consultation on REITs could be used to access some of this wall of cash, but it’s an avenue that’s open mainly to the bigger fish.
Meanwhile, the communities and local government select committee’s report into social housing finance – expected to emerge within weeks – is understood to be focused very firmly on how to snare these investors.
But it looks, strangely, like the Welsh might have beaten everyone to the punch. It just needs someone to take the bait.
Positive thinking
Well, that was a quiet week on the housing front wasn’t it?
Except of course for the introduction of a new regulatory framework, the unveiling of the government’s long-awaited planning reform proposals and the start of council self financing of course.
That triple whammy of big bang moments would be enough to fill our news pages twice over. But for your humble finance reporter, the bangs don’t come much bigger than Wednesday’s HRA reform D-Day.
There has been plenty written about what it means for councils to take on almost £30 billion of debt as part of the biggest change to local authority financing for a generation. And there’s been plenty more misunderstood.
The massive numbers involved in the deal are intimidating and some councils have expressed despair at suddenly being burdened with debt they did not ask for and did not want.
But that view is increasingly looking like short-termism, if not downright simplistic.
The overwhelming feeling among councils I spoke to on Wednesday was that this was a great opportunity. Yes it’s true that’s exactly what people say when they’ve been made redundant or dumped by text message, but this didn’t sound like an attempt at positive thinking.
Evidence for the warmer feeling towards self financing came from Wandsworth. The Conservative-run council has made big noises in the past about wanting to stay debt free, but the chance to borrow cheap money convinced it to make a last minute u-turn.
Instead of trying to pay off its newly acquired debt as quickly as possible, the council will now use some of its financial freedom to take on much-needed estate regeneration work.
Other authorities saw the rates offered by the government-backed Public Works Loan Board and decided to borrow on a longer-term basis, no longer scared to keep debt on its books for 30 years.
Yes, there are pitfalls potentially lying in wait. The threat that the government could reduce borrowing headroom over and above the HRA settlement will linger until at least the autumn, while the spectre of welfare reform – and what that may do to rental income – looms large.
But overall, it feels like councils are losing their fear of the future. And who knows? We might even see them start to build houses again.
A poor start
George Osborne’s latest plans to stimulate economic growth without actually spending any money may have seemed more like a newspaper review than a Budget, but there were one or two surprises slipped into the battered old red box.
Actually, the nastier of these surprises – for the housing, as opposed to granny sector at least – was not in the Budget itself, but the Office for Budget Responsibility’s report.
The biannual peek into the nation’s financial health – running to a hefty 190 pages this time round - is really the place to find the substance on budget day. And it was the OBR, not the chancellor, which forecast that the reforms that will see councils up and down the country assume responsibility for their finances might end up costing a bob or two.
According to the OBR, the reform of the housing revenue account is likely to cost £3.5 billion in increased public sector borrowing by 2017. Anyone with a basic grasp of mental arithmetic will have already gathered that that’s a whole £3.5 billion more than the reforms were supposed to cost.
And the only way to mitigate any increase – and to ensure that Osborne delivers the cost neutral budget he had promised – would be to further cap local authority borrowing.
The figures are not yet final, but coming a matter of days before they are due to take on billions of pounds worth of extra debt, some councils – and the Chartered Institute of Housing to boot - are understandably up in arms.
Those which are most concerned are the ones which were planning on using the headroom between the debt they would take on under HRA and their borrowing cap to build new housing. These are the councils which would have most welcomed the self-financing revolution.
With a deepening housing shortage, these are the same councils which one would think the government would be bending over backwards to help out. Limiting their borrowing capacity isn’t the best way to start.
Counting the cost
Something confusing happened this week. We have been hearing for eternity and a day that banks lending to the social housing sector are as rare as rocking horse, err, waste; so it was a bit of a surprise when the TSA revealed that new lending arranged by housing associations had gone up over the last quarter.
Landlords haven’t just been borrowing more since last September, they’ve been borrowing a lot more. In fact, housing associations have arranged a whopping 22 per cent more loans than in the previous three months.
So, have the doom mongers been wrong all along? Is traditional financing alive and kicking after all?
Well, the answer is no, unfortunately.
What these figures tell us is not that banks are happy to let housing associations borrow their money as if it was still 2004, but that there are plenty of associations out there that simply need to refinance at any cost.
The story behind the figures is what isn’t included. We don’t know how long these loans are in place for nor what kind of eye-watering margins borrowers are going to have to pay.
All the TSA survey proves is that banks will always lend money at the right price, credit crunch or no credit crunch.
However, for long-term borrowing - ie the kind that you need to do if you want to come up with a viable business plan - the bond market is still the place to be.
While our interview with an analyst from Standard & Poor’s in Inside Housing’s finance supplement - out today - will have re-assured borrowers that money can still be accessed at a relatively good price from the capital markets, there are storm clouds building.
This week, Fitch Ratings became the second ratings agency to put the UK on a negative outlook. If S&P does eventually follow suit, the consequences for housing association borrowers could be severe.
Privates on parade
The Homes and Communities Agency’s affordable homes programme is approaching its first birthday.
The £1.8 billion programme, widely seen to be the last hurrah for government funding of the social housing sector, is supposed to deliver 80,000 new homes by 2015. Yet, a quarter of the way through the programme, several providers are still to sign their contracts.
The HCA has said that it always expected a few contracts to be left unsigned at this stage, but with only three years left, there must be a question mark over whether the ambitious target will be reached in time.
Whether or not that happens, the last £160 million to be allocated could be the last in direct government subsidy.
Given the likelihood of a zero-grant future, the extra pressure placed on housing association finance by the passing of the landmark Welfare Reform Act this week is only likely to intensify. As Midland Heart’s chief executive in-waiting Ruth Cooke points out in today’s Inside Housing, the possibility of the increase in arrears as a result of direct payments won’t ease the minds of financiers, just as they are about to be lent on to provide the lion’s share of development funding.
It all looks rather bleak on the financial front. Riverside has said it is diverting an extra £2.5 million to mitigate against the possibility of an increase in bad debts from 2013. Money, as it points out, that could have been spent on new housing.
All of which makes the sudden rash of private sector companies looking to register as social landlords all the more interesting.
The disappearance of grant funding that has caused so much wailing and gnashing of teeth for traditional providers is exactly the reason the likes of Pinnacle, Bellway and Grainger are now attracted to the sector.
As one of the potential new providers pointed out to me this week, the move to a revenue-funded model levels the playing field for these newcomers.
Despite the sector’s natural tendency to be wary of the private sector, these companies could be the white knights we need to tackle the short supply of housing.
There's no misunderstanding
Werner Heisenberg’s uncertainty principle is one of the most famously misunderstood scientific theories. One of those misunderstandings is that the basis of Werner’s theory is the more you look at something, the less you understand it.
Well, anyone studying the coalition government’s dogged pursuit of a way to kickstart the right to buy might have some sympathy with that inaccurate reading.
Because the more people seem to look into the detail of right to buy 2, the less easy it is to understand why the idea wasn’t quietly kicked to the curb and dismissed as another 4-in-the-morning policy brain freeze moment, of which every government – understandably - has several.
The news this week that some areas of the country have seen high levels of right to buy properties brought under the management of housing associations as a result of the mortgage rescue scheme is alarming given the fact that the new policy is intended to make home ownership easier for tens of thousands of people.
One of the hopes many in the social housing sector had for this recession was that it would finally kill the myth - so beloved by sections of this country - that home ownership is, a priori, a good thing. If the mortgage rescue statistics show anything it’s that, that just isn’t true.
Home ownership works for some and doesn’t for others. And if we, as a country, are going to try to wean ourselves off our debt addiction, it would be good to recognise that.
Furthermore, if the policy doesn’t deliver one-for-one replacements, as it promises, then the much-needed stock of social homes will diminish before it increases.
The Chartered Institute of Housing has called on Grant Shapps to change the discount levels mooted in the government consultation paper, warning that the current levels would leave councils struggling to build replacements.
John Prescott, speaking in this week’s magazine, has labelled the policy ‘crazy’, and he’s not the only one.
A senior housing professional in the north used even more colourful language about the scheme when I asked about it last week and the feeling across much of the sector is the same.
Contrary to the uncertainty principle, the more you look at it, the more, in fact, you do understand: that right to buy might just be, in a word, wrong.
Rating a problem
The internal workings of those financial oracles known as credit ratings agency have always been shrouded in a degree of mystery.
An old banking contact of mine once described these clandestine soothsayers as ‘a bunch of teenagers, deciding our fate’. That may be a somewhat flippant analysis, but the influence of these ‘teenagers’ on the movements of the money market should not be underestimated.
So, when those social landlords who have taken their first baby steps into the murky world of the capital markets say they’re not worried about the very real threat of a credit rating downgrade, the comments should be taken with a healthy pinch of salt.
Last week’s headline-grabbing announcement from Moody’s that it had changed the UK’s rating outlook to negative might not have people exactly quaking in their boots – especially given the relative weakness of credit among our European neighbours – but it would be unwise to ignore the implications.
The agency, perhaps unsurprisingly, followed up by announcing that the outlook had also changed for the 14 housing associations and five councils it rates.
The blanket downgrade might mean that everyone is in the same boat when it comes to their credit worthiness. But the mistake is to think of economics as a zero-sum game.
A poorer credit rating means more expensive funding means less money available for development means fewer houses being built. Potentially.
It matters not a jot that your fellow landlords face the same problems. Global capital markets investors tend not to care whether they invest in a South African diamond mine, a Canadian hospital or a UK social housing provider; all that matters is the essential dynamic between security and yield.
Those same investors won’t agree with Moat chief executive Brian Johnson’s assessment that he’s ‘not sure anyone really understands’ the impact of the change in outlook. They certainly understand, so it’s probably a good idea if the sector gets to grips with it too.
The rate debate
There is always a chance it passed you by, but this Wednesday was D-day for local authority housing finance bods.
The D in this case stands for determination, because Wednesday was the day that 171 English councils finally received the letters telling them how much they owe the Treasury – or in a few lucky cases, how much the Treasury owes them – in exchange for taking control of their housing revenue.
The postman didn’t bring any surprises for council treasurers, given that the settlement figures were more or less identical to those outlined by DCLG back in November.
While councils are pretty happy with the deal they’ve struck – ‘short-term pain for long-term gain’ is how one described it to me – there could still be a sting in the tail.
Because the thing about debt is, of course, that you have to pay the bugger off at some point. To do that, they will have to borrow from the Public Works Loans Board – the government-backed public sector lender.
And, like those sofa pushers to the jilted generation DFS, the PWLB seems to be in the throes of a never-ending sale, whereby debt is priced significantly cheaper than on the open market.
But, that pricing only equates to the amount that the PWLB chucks on top of the underlying interest rate – something that is not guaranteed always to be so low. And the Treasury, in its infinite wisdom, has deemed that all local authority borrowing authority must be done on one day - 26 March.
Councils are, as is their wont, a wee bit concerned about suddenly seeing interest rates shoot through the roof immediately before they have to take on the debt and have called on the Treasury to safeguard them against any turbulence. The risk, they say, is small but the consequences could be serious.
All indications from the Treasury are that no such safeguards will be put in place, however much wailing and gnashing of teeth goes on between now and March. Whatever the ultimate rate, councils will still get a pretty good deal, they say. And they will, but long-term business plans need a degree of certainty when it comes to interest payments that go beyond ‘a pretty good deal’. No certainty means no forward planning.
Whether the Treasury’s decision is purely designed to inject a degree of excitement into what many might see as a rather dry (if hugely important) topic, no one knows.
Whatever the reasoning, the days leading up to the 26th are going to be, in Sir Alex Ferguson’s immortal words, ‘squeaky bum time’ for councils. My advice – wear a clean pair.
No more begging bowl
Writing about housing finance whilst in the grips of the deepest recession since our ancestors first learnt to straighten their backs can sometimes feel like a thankless task.
People tend to think that us word monkeys are relentless miserablists who hunt for the dark cloud every time there’s a hint of silver lining. And those people might be right, but it’s hard to be anything else when you’re a financial journalist faced with such a bleak economic outlook.
So, it was a rare pleasure this week to reveal some genuinely good news.
Homelessness charity Broadway’s launch of a property fund that will help house upwards of 250 homeless people in London is an example of the kind of imaginative thinking that politicians keep telling us we need if we’re going to come out of the other side of the storm.
Instead of passing a begging bowl round the City or demanding the end of capitalism, Broadway has found a way to make investment in social good pay off both for the people they are trying to help and, crucially, the investors.
The pension funds and insurance companies that Broadway chief executive Howard Sinclair hopes will eventually put cash into the scheme will not do it purely out of the goodness of their hearts but because there is a risk-free financial upside too.
Investors have been told that they could see returns of 4 per cent – less than some other funds they might want to look at, yes, but with the kind of good ethical investment publicity that’s hard to put a price on.
And on the other side of the equation, you have a part-solution to tackling the ever-increasing shortage of beds for rough sleepers in the capital.
It has to be shown to work before anyone can go popping their corks about this, but the model looks pretty sturdy. And if it does, this is the kind of zero-subsidy, no handout scheme that ticks pretty much every Big Society box that the coalition has.
And nary a cynical word in sight.
A fast buck
The secret that the financial gurus who hide behind intractable jargon and labyrinthine calculations don’t tell you is that there is a whole lot of luck involved in what they do.
As with so much in this life, timing is everything.
Just ask Everton fans. Toffees of a certain vintage rightly bemoan the fact that their mid-1980s glory days, through no fault of their own, came as English football reached its lowest ebb – culminating in a European ban – and therefore denied them the period of continental domination that their Merseyside neighbours Liverpool enjoyed.
Conversely, those housing associations forced to refinance last summer might be thanking their lucky stars that they did not put off the decision to go cap in hand to the banks a few months later.
Pricing of bank debt has shot through the roof in recent months, meaning that any landlord either snoozing on its debt pile or trying to wait out the financial storm (good luck with that, by the way) could face a rather painful hike in their repayments.
Indeed, Orbit’s recent £150 million loan from Scottish lender RBS and Clydesdale –arranged in the summer though only closed recently – could be the last of its kind.
Several bank sources have told me that, not only has pricing headed north at an alarming rate, but that the size of loans has gone in the opposite direction. Even £50 million loans are thin on the ground – and not available at all from several lenders.
And yet there are plenty of providers who need money. And quick. The HCA’s affordable homes programme is clicking into gear and, with payment on delivery, the schemes need development finance if that money is every going to come into their coffers.
So, once again, the bond market looks to be the place that housing associations will raise the readies. Pricing there is also going up, although this is offset by the plummeting underlying rate. But it might not always be thus.
If institutional investors – not the most dim-witted creatures at the best of times – wise up to the sector’s desperation then even the capital markets might not be a safe haven for much longer.
Winners and losers
During the early months of what feels like the never-ending recession, one of the oft-repeated idiosyncrasies was that, for many ordinary people, it didn’t feel like a recession.
Despite the economic downturn, the argument ran, historically low interest rates meant that thousands of the Daily Mail’s beloved home owners were effectively enjoying a bit of a mortgage payment holiday.
Sure, public sector spending cuts and a precipitous rise in unemployment were on the horizon, with the result that, while Jane and Johnny Middle England were busy lighting cigars with twenty pound notes, their kids were facing the prospect of years of joblessness. But at least there were some winners to come out of the global financial meltdown, right?
Well, if there are winners, there are most likely losers too. And they can be found in the social housing sector. Already faced with a dwindling job market and reforms of the welfare system that could cut swathes through their income, next year, many of those least able to afford it will see their rents go up by an eye-watering 8 per cent.
As Inside Housing revealed this week, only four of the biggest stock-owning councils and housing associations in England are unlikely to put rents up by the maximum allowed under government guidelines from this April.
That maximum increase is based on the mercurial retail price index. The problem for cash-strapped tenants is that the figure used was September’s, when it stood at 5.6 per cent.
Within two months, it had already dropped to 5.2 per cent and is expected to fall further still during 2012, which will be little comfort to tenants in Newcastle or Camden, both of which councils have increased average rents by more than 8 per cent.
Apologists might point out that the huge hikes are only as a result of rent convergence, meaning that councils are merely making rents fairer after decades of a ‘system’ where some tenants were paying way below market rates.
While it’s true that rent convergence may well, in the long run, make the whole system more equitable across the board, the problem is that most tenants – unlike local authorities – do not base their accounting on 30-year business plans.
A housing benefit claimant who sees her rent go up by a tenner a week this April is unlikely to shrug her shoulders and say: ‘Fair enough, I’ve had it coming.’
The same tenant who then sees her benefit capped by a government hell bent on saving money might conclude that, actually, this does feel like a recession after all.
Back in fashion
Every dilettante hipster worth his or her fair trade organic rock salt knows that harking back to the ‘80s is, like, so 2011. But as we enter the New Year, the government is still banging the drum for one relic of the Sheena Easton era.
Regular readers of this blog (both of them) might know that I’ve written a fair bit about Right to Buy recently. But since the Thatcher biopic is being unveiled at a multiplex near you as I type, perhaps this is the perfect time to once again be talking about one of the Iron Lady’s greatest hits.
The Communities and Local Government department’s consultation on Right to Buy 2 (now with added social democracy) came out just before Christmas, leading to many a council finance officer doing frantic long division on the back of a cracker at their staff party. The only problem is – and whisper this bit – no one seems to understand how it’s all going to come together.
Judging from my own travails this week, CLG themselves aren’t too clued up on a policy that has gone, in three short months, from the toast of the Tory conference to a press release smuggled out two days before everyone packs away their abacuses for the holidays.
With councils and analysts hollering from the soon-to-be sold rooftops that it won’t work, the only response from the department seems to be: ‘yes it will’.
Well, maybe. But there are myriad problems that have yet to be addressed, and quickly because, in the background, there’s the ticking time bomb of self-financing reform, on which a marked increase of Right to Buy sales could have a serious impact.
Then there’s the elephant in the room issue of mortgages. The £50,000 cap for discounts might treble the amount London tenants will see knocked off the price of their home, but they are still going to have to raise a deposit for the rest – around £100,000 in many parts of the capital.
Meanwhile, in areas in the north, the same cap is so high that it will have virtually no effect on the discount. It doesn’t take a genius to work out that no increase in discount equals no increase in take up.
One consultant described the policy as ‘the government just dipping its toes in the water’. Given the reaction so far, they might decide that it’s a bit too choppy to dive in.
Twitter ye not
It didn’t escape the attention of the housing world’s twitterati that Grant Shapps was unusually reticent over one particular policy initiative yesterday.
Unlike his boss, the housing minister is a great fan of micro blogging, racking up more than 3,000 tweets from his Westminster bunker. Indeed, nary an announcement goes by without being trailed, revealed and dissected in rapier-like 140-character missives.
So why, when the long-awaited right to buy consultation finally emerged yesterday morning, did Mr Shapps wait until well beyond the watershed to tell his followers about it?
A few hours may not seem like much, but it’s an age in the instant gratification world of social media.
Could the delayed reaction be caused by embarrassment? The proposed £50,000 cap on discounts sounds impressive, but is well short of the 50 per cent figure that was being bandied about when the housing strategy was published last month.
In fact, word from the councils is that, ever since the right to buy renaissance was brought to the attention of an unsuspecting public back in September at the Tory conference, officials at the Communities and Local Government department have been scratching their heads about how it will work.
The problem, in a nutshell, is that making the discounts attractive enough to encourage the kind of mass take up the government wants will leave councils unable to afford to build the one for one replacement homes that it has also promised.
Of course, this is still in the consultation phase. But the feedback being received over at Inside Housing towers is that, even with a limited increase in the available discount, the figures won’t allow for a replacement to be built without significant capital input from councils.
Indeed, Hometrack was quick to release a report that claimed as many as 1.4 sales would be required for every new build. That wasn’t something that Mr Shapps flagged up on Twitter.
At this time of year, it might be apposite to misquote the Good Book: If you live by the tweet, you die by the tweet too….
Timing is everything
Poor old Danny Alexander.
In his private moments, when he’s not acting as George Osborne’s flak jacket or coalition peacemaker, he’d probably admit that he never thought his political career would see him forced to shoulder the burden of government.
But this ‘new politics’ lark is a strange beast, and so there he was this week, giving the ministerial address at the Local Government Association’s housing finance conference.
‘It’s nice not to be talking about Europe today,’ quipped the chief secretary to the Treasury through gritted teeth. But even without grassroots Lib Dems spitting venom at him, Mr Alexander was not in for an easy ride.
Of the nine questions from council representatives that followed a speech which contained little other than a summary of the vague promises of the housing strategy, five of them were on the same subject.
It seems that the right-to-buy is still exercising the minds of local authority purse string guardians more than any other issue.
Next week sees the launch of a consultation on the reinvigoration of the iron lady’s pet social policy. Apparently, more detail of how it all works is likely to come out. But we’ve heard that before haven’t we?
When the PM first mentioned the right-to-buy at the Tory party conference back in September, us media types were told to cool our guns until the detail was revealed in the housing strategy, a document that turned out to be full somewhat lacking in anything that could be described as ‘detail’.
The reaction among delegates at the GLA did not suggest that they thought all their questions would be answered next week. And yet they need answers pretty sharpish, given the potential impact on councils’ revenue streams at a time when they are grappling with how to service the debt they’ll be taking on as a result of the housing revenue account reforms.
Politics and comedy have plenty in common. Not least that, in both, timing is crucial. Right-to-buy may well work. But to try to relaunch it at a time when councils’ financial management is as delicately balanced as ever seems to be high folly.
In a nutshell, local authorities just want reassurance that receipts from right-to-buy can be kept locally for reinvestment in stock. The more times that question is asked – and the more times that ministers demur – the less confident they are that they will get their way.
On Wednesday, it’s fair to say that Danny Alexander was left floundering on a subject that is only really on the fringes of his portfolio. The crumb of comfort for delegates was that he promised that the government was at least listening to what they had to say.
But, to paraphrase Wesley Snipes, they may be listening, but are they hearing?
Money for nothing
Anyone who frequented top flight football matches in the 1980s – and indulged in the essential reading that was the matchday programme – will be aware of the popularity of Dire Straits among players of a certain vintage.
But any love for the Mark Knopfler back catalogue is not shared down at the Communities and Local Government department. Because the CLG, it would appear, is not in the habit of giving away money for nothing.
What seemed like a generous gift of £400 million to British builders to help them get projects that had fallen foul of the current financial malaise (to describe it in gentler terms than usual), is in fact likely to be a series of loans.
Social landlords might not mind too much that for-profit developers aren’t getting a gratis slice of limited government funds. But that doesn’t change the fact that, when the windfall was presented to the world as part of the housing strategy, it was widely understood to be a form of grant, or at least a mixture of grants and loans similar to the erstwhile Kick-Start fund.
While no one is likely to turn their noses up at the prospect of a new form of development finance, the new money, trumpeted repeatedly during the media circuses around both the housing strategy and last week’s autumn statement, is likely to be just a drop in the ocean.
To put this into some sort of context, the amount of private capital required to meet the social housing needs in London alone over the next four years has been estimated at £14 billion.
And it’s a drop that will have to be repaid, it now seems. And at commercial rates to boot. So, as Mr Knoplfer says, the kicks could be for free.
But maybe the government’s chosen pop act from that particular decade is the original boy band, Bros. After all, the mood music coming from CLG to the housing sector sounds very much like ‘I owe you nothing…’
Delayed reactions
On Thursday, the former chairman of the Financial Services Authority Sir Howard Davies was on the Today programme expressing bemusement about the apparently irrational behaviour of the stock market.
Sir Howard was reacting to the surge in the markets that followed US Federal Reserve’s decision to start the January sales a little early by offering dollars at knockdown prices. But he might have had the same thoughts if he had been monitoring the stock of house builders this week.
Some of the country’s biggest contractors – including Persimmon, Barratt, Taylor Wimpey and Bellway – saw share prices rise by up to 4 per cent on Tuesday following George Osborne’s autumn statement to parliament. They were cheered by the government’s announcement that it would help 100,000 families access mortgages while providing a £400 million boost to stalled building projects.
Good news indeed, especially if we forget the caveats about another six years of austerity, an extra £15 billion of spending and the prospect of half a million further job losses. But, good news or not, it does sound slightly familiar.
Now, cast your mind back, if you can, all of a week to the majestic unveiling of the long-awaited – and equally underwhelming – housing strategy.
In that modern-day Magna Carta of a document, you will find reference to… a scheme to help 100,000 families access mortgages and a £400 million fund for stalled building projects.
A week, as they say, is a long time in politics. And apparently, for those masters of the universe on the trading floor, it’s enough time to develop short-term amnesia. Or maybe, if you’re in government these days, you have to tell people something twice before they believe you.
However, the Groundhog Day feel of this week’s news does give a nice picture of how politics works.
The Communities and Local Government department has spent months telling us to wait for the housing strategy for clarification on everything from the right to buy to what Grant Shapps had for breakfast. The strategy itself then turned out to be a hotchpotch of former policy announcements, coupled with the launch of another slew of consultations.
Fast forward a week, and the housing section of Osborne’s statement appears to be a regurgitation of the aforementioned strategy. But maybe that’s the art of politics: say nothing, promise less.
Either way, the City didn’t seem to notice. Roll on next week’s Finance Bill, I say.
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