Does it matter if government funds are used to buy unsold homes rather than build ones?
Surely the bottom line should be the output of affordable homes and, if they can be snapped up at bargain prices from struggling developers, all the better? So long as housing associations are careful to turn down badly designed stock that could lead to long-term maintenance problems what’s the problem?
Then I saw the latest figures for orders for new construction and I started to wonder. These stats are the earliest indication of projects in the pipeline and they show that orders for public housing collapsed at the end of the year - falling even faster than private housing. November’s total was down 50% on last year and December’s down 60%.
So on the face of it social housing investment has halved since the Homes and Communities Agency started work. It may be just a coincidence since we are talking about a period that followed the new low in the credit crunch sparked by the collapse of Lehman Brothers. It may be a statistical blip.
The Homes and Communities Agency says that: ‘It is largely to do with the market downturn, for example public housing is often on section 106 mixed sites of both private and affordable housing, where the scheme overall has stalled due to market conditions. We are currently working on a number of measures to maintain existing schemes and to restart where necessary those that have stalled.’
That’s undoubtedly true but surely the problem with section 106 has been around for well over a year? What changed in the last two months of the year. What if something else is to blame?
On October 20 the first deal was signed under the Housing Corporation’s national clearing house system for unsold stock. Sanctuary Group would buy 335 homes from Bloor Homes with the initial £200m tranche of a fund to buy unsold stock. On January 6 an £18m deal was signed with Bovis to buy 379 homes.
But those publicly announced deals do not tell the whole story. The Homes and Communities Agency says that by the end of December it had bought 4,800 unsold homes at a cost of £160m. Meanwhile, it confirms that the £200m is not a cap: ‘We have always said that we would look at further deals if there is more demand or bids which come through and that’s still the position.’
Parliamentary answers reveal that the total was 4,949 by the end of December - 3,572 for social rent and 1,377 for low cost home ownership. In addition, 2,700 of the homes were flats and the average grant per unit was £12,223 for low-cost home ownership and £41,115 for social rent.
Over the same period the Housing Corporation/HCA were also helping housing associations with an unsold stock problem of their own. The Tenant Services Authority’s January 2009 survey revealed that associations have 10,060 unsold homes, including 4,560 that have been unsold for more than six months.
The total unsold stock was only a slight increase on the 9,655 recorded in the October 2008 survey but only because 3,996 shared ownership homes were converted to rent (2,236 of them for intermediate rent, the rest for social rent). Associations also managed to sell 3,868 homes.
Combine the two initiatives and you have almost 9,000 unsold homes being converted to rent in the last three months of last year.
So grant is being diverted away from new construction to buy unsold stock. But if it means more social rented homes at a discount and it’s helped out housebuilders and housing associations at the same time, what’s the problem?
According to the HCA. ‘We do not consider it to be a significant factor, as we’re talking about a fraction of the NAHP budget for this year. The far bigger factors are the market conditions overall, which is why it’s important that we look at housing and regeneration, and allocating our investment, as a whole. In terms of buying unsold stock it still equates to more new social and affordable housing, of the right type and in the right place, and it provides a cash injection to the housebuilding industry.’
That may be true but is it really so insignificant? I can see several problems:
1) 9,000 homes in three months is not insignificant. Total NAHP output in 2007/08 was 50,000 homes - so it is more than 70% of quarterly output.
2) As things stand, the cash to pay for it is not additional (like the 1992 housing market package) but comes out of the 2008/11 budget. Every home bought is one less built - this at a time when the HCA is having to raise grant rates so that the budget goes less far anyway.
2) It may be a cash injection for housebuilders like Bloor and Bovis because it enables them to shift stock they can’t sell. The alternative would be to cut their prices still further - so government money is directly benefitting their balance sheets and keeping prices higher than they otherwise would be.
3) But it is not really a cash injection for housebuilding. Each home built means 1.5 jobs, according to the 2020 Group of housing organisations, so using the money to build rather than buy would create 13,500 jobs. Very little of the work on site is done by the big housebuilders - it is done by countless small firms and self-employed workers who were the first to suffer in the recession. What’s the point in protecting the big companies for the upturn to come if the skilled workers have already left the industry?
4) Every new home not built is one less towards the government’s 3m homes by 2020 target. That may be unachievable but it was put there to help make homes affordable - diverting money from new build does the opposite.
5) Housing associations are going into this with their eyes open so they should be able to avoid the mistakes of the 1992 package, which left them saddled with poor quality stock that was expensive to maintain. But the unsold stock is still not designed as affordable housing.
6) What does it do for mixed communities? Logically, unsold stock is unsold for a reason - because it is in the least attractive locations.
All of that only takes us up to the end of December. It’s not clear how many unsold homes were bought during January and February but the start of 2009 has not seen any improvement in house sales generally.
And it does not include HomeBuy Direct, the £400m scheme to help up to 18,000 first-time buyers with an equity loan of 30% co-funded by the government and developers.
Housebuilders understandably see it as very good news indeed as it will underpin their sales for next year. Barratt has 3,000 HomeBuy Direct sales earmarked with an approximate sales value of £520m. But how many of those homes will be unsold stock? And how much would they have had to discount the price by without government support?
This is a finely balanced argument and the fact remains that buying unsold stock more cheaply than you can build it makes short-term financial sense. However, the budget being used to pay for it is not new money. As the Communities and Local Government committee chair Phyllis Starkey argued last week: ‘We are particularly concerned that the government is borrowing from future budgets now with apparently no idea how it is going to restore that money at a later date.’
It’s time for some clear thinking on buying unsold stock - and a major allocation of new money in next month’s Budget.