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Help to Build

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Help to Build

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So, George Osborne, what about some Help to Build to go with all that Help to Buy?

The chancellor’s multi-billion flagship housing policy is under fire from virtually everyone because they can see what the result will be of stoking up demand while doing nothing about supply.

Now the CIH, NHF and g15 are all calling on Osborne to fund an expansion of affordable housing in the spending review for 2015/16 that will be published later this month. That is what they always do ahead of spending reviews of course, but they are deploying some powerful arguments.

The CIH argues that there is little prospect of private developers building the homes we need. We have only ever built enough homes when the state has played an active role and doing so would deliver wider benefits for the economy: every £1 of spending on construction generates £2.84 of economic activity; and 56p of every £1 invested in housing returns to the Treasury.

The NHF quotes figures from the IPPR showing that for every £1 spent on housing, 95p goes on housing benefit and only 5p on new homes. ‘The simplest and most effective way of redressing the balance and reducing the housing benefit bill is build more affordable homes.’

The g15 cites modelling by L&Q and accountancy firm PwC that looked at three different scenarios for financing affordable housing beyond 2015: a continuation of affordable rent; a return to higher capital grant plus lower social rents; and a move to full market rents with housing benefit taking the strain. The best value option for the taxpayer is higher grant with lower social rents.

The next three weeks will tell whether the government is listening or turning its usual deaf ear to those arguments. Recent history suggests the latter but the arguments are being made with renewed confidence given the growing political importance of housing. When Osborne reveals some of the detail on June 26, it’s worth looking out for six things in particular:

Housing’s place within infrastructure spending. The coalition admits that it cut capital spending too much in its first spending review and seems receptive to arguments made by the CBI and others about the economic impact of big infrastructure projects. Part of the justification for those is the supply-side impact of road and rail schemes on business costs and efficiency. A strong case can be made that new homes do the same, not just in terms of the direct impact on jobs and growth, but the benefits to employers too (see the NHF’s survey showed last week). The spending review will set out plans until 2020/21 ‘for the most economically valuable areas of capital expenditure’. As the NHF argues, that should include housing.

The future of subsidy. For a long time after the 2010 spending review it looked like there might not be one. Many people feared that capital subsidy would disappear altogether in the one to follow. A statement by Grant Shapps at the CIH conference last year (‘In all honesty I find it difficult to imagine a world with no government grant for housing’) was interpreted optimistically by many people but what will his successor Mark Prisk be saying as Osborne reveals the spending review in the middle of this year’s conference? It’s worth noting that virtually all of the new schemes announced by Osborne in the last 12 months, including Help to Buy, have relied on financial wheezes such as government guarantees rather than direct spending.

Meanwhile, if grant does continue, what will it fund: more affordable rent, a return of social rent or low-cost home ownership? The CIH calls for a £2 billion per year programme to deliver 55-65,000 homes a year in a mixture of the three, with a separate funding stream within it reserved for specialist and supported housing at social rent levels. However, it adds that affordable rent is unlikely to be sustainable for long given the rate at which it consumes providers’ financial capacity,  and calls for a fundamental review of  longer-term funding for sub-market housing.

What happens in London. Mayor Boris Johnson wants to take control of the multi-billion revenue generated in the capital through stamp duty and other taxes and decide how they are spent. The G15 is calling for a capital subsidy funded affordable and social rent programme funded with the money coming from discounted land or from grant that could be financed by ring-fencing stamp duty. It may make sense to use the receipts from taxes on London’s soaring house price  to solve the affordability crisis that they have created but will the Treasury really be prepared to give up control? And should it, given that the effects are felt well beyond the capital too?

The future of council housing. It seems like a no-brainer to allow local authorities to borrow more to build affordable homes. The CIH argues that raising housing revenue account (HRA) borrowing caps by an additional £7 billion would allow councils to build 75,000 homes over five years, creating 23,500 jobs and generating £5.6 billion of economic activity. Boris Johnson’s London Finance Commission also called for the caps to be lifted. Given the low levels of existing debt on council housing, that would be easily sustainable within their financial capacity. However, will Osborne and the Treasury really be prepared to go against 35 years of financial orthodoxy that says council housing is bad news and borrowing for it even worse?

What happens to rents. The current rent formula for social housing (rent rises of RPI plus 0.5 per cent +/- £2 a week) expires in 2015. A chancellor looking to cut spending, who has already restricted the increases in other benefits to the lower CPI rate of inflation, might well see that as a target. As the NHF and CIH submissions point out, that would be disastrous for future lending and business and investment plans. The chancellor promised in the Budget to set out a ten-year rental settlement and they say it is vital that this is based on the existing formula, which should be extended until 2025. The G15 calls for:  ‘A new settlement on rents which strikes a balance between what people can afford to pay and the need for investment in new homes. For now the current formula should be extended allowing time for discussion about what our residents can afford to pay.  Only then should we reset the target rent and move towards it in a way which is fair for residents and viable for housing providers.’

The implications for housing benefit of a cap on AME spending. The cap on annually managed expenditure (AME) announced by Osborne in the Budget may have sounded for a few micro-seconds like a purely technical measure but it is one that could have massive implications for housing. AME accounts for around half of all government expenditure and two thirds of that is social security and tax credits. So, although reports suggest Osborne has ruled out further cuts in working age benefits thanks to opposition from the Lib Dems, the AME cap suggests the opposite. As the CIH points out, that would have implications both for tenants’ wellbeing and landlords’ business plans (Moody’s has already downgraded the credit rating of 29 housing associations because of other welfare reform).

Inside Housing is calling for a long-term commitment to grant funding for affordable homes in the spending review. Support the Grant Britain Homes campaign.

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