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COVID-19: State intervention when housing markets are in recession

COVID 19: the State’s initial interventions in the housing market

The COVID 19 pandemic has seen extraordinary interventions by a Conservative Government in the running of the UK economy. In the private housing market, the Government has moved to ensure that homeowners suffering falls in income are not threatened by repossession.  At the same time, some finance institutions providing mortgage finance (along with other businesses) have been offered loans and guarantees from Government worth £330bn to protect their own income as mortgage payers have taken advantage of the payment holiday.[i] 

Private tenants (as well as tenants in social housing) are also protected from repossession proceedings in the current pandemic – in the short term at least.

The Government’s objectives here are two fold. First, in the face of the health crisis and subsequent economic meltdown, Ministers had to ensure that homelessness did not increase exponentially.

But crucially the Government also needs to protect the housing market from collapse because of the sector’s importance to the UK economy. Housing assets make up 35% of all personal wealth in the UK – some £5.1 trillion. Also there is a total of £1.4 trillion outstanding on mortgage loans in the UK economy while investment in housing accounted for 4.1% of UK GDP in 2018. [ii]

So what will happen in the housing sector as the UK emerges from the economic shock precipitated by the COVID 19 health crisis?  In what ways will Ministers seek to prop up this critical part of the economy longer term? We have some examples from the past that might serve as pointers to what might happen.

1974: Circular 70/74[iii]   

In February 1974 the Labour Party took power at a time following a doubling of house prices and when mortgage interest rates had hit 11%. The house price boom was followed by a significant decline in the market’s fortunes with particular concern that house builders might go bankrupt as they failed to sell newly built housing. As a consequence, the Labour Government introduced provisions under Circular 70/74 (called Local Authority Housing Programmes) which helped bolster the private housing market and also increased the stock of social housing. Specifically the Circular enabled local authorities to buy new unsold housing from private developers.[iv] In 1974/75 £118 million was spent on buying 11,700 new private houses in England and Wales.[v] The Circular also enabled the Housing Corporation[vi] to fund similar purchases by housing associations.

1993: Housing Market Package (HMP)

The housing market in the early 1990s was characterised by high interest rates which resulted in falling house prices and the emergence of negative equity for some mortgage borrowers. Overall there was a lack of demand for new construction and builders were left with housing stock that they could not sell on the open market. In late 1992 the Conservative Government responded to this market failure by allocating £577 million to the Housing Corporation to fund housing associations to purchase new, empty and repossessed properties by 31st March 1993.

In total, in just 93 working days, 81 housing associations acquired 18,430 vacant properties, 2,400 over target. Fifty per cent of the stock was bought from builders/developers. The public funding was supplemented by private finance to the tune of £328 million. [vii]        

2008/09: Mortgage Rescue Scheme (MRS)

Over 10 years before the current health emergency and related economic crisis, the global economy was shaken by a meltdown in the finance markets in 2008. The UK’s Labour Government responded to the ensuing recession by introducing a wide range of fiscal and monetary measures in an attempt to revive economic activity and stimulate growth. On 2 September 2008 the Government announced a £2 billion package for housing which included the following:[viii]

  1. bringing forward spending on housing commitments from future years to encourage the building of more social housing
  2. raising the £125,000 threshold for Stamp Duty on house purchases to £175,000 for 12 months
  3. providing “free” five year loans of up to 30% of a property’s value for first time buyers of new homes in England
  4. shortening from 39 weeks to 13 weeks the period before Income Support for Mortgage Interest was paid

As part of the package the Government also made available £200 million for mortgage rescue schemes, with the objective of assisting up to 6,000 households under the threat of repossession.

Under the MRS, eligible homeowners threatened with repossession could apply to housing associations to provide them with an equity loan to help them reduce their monthly mortgage payments and retain ownership; or, alternatively, to purchase the home outright with the former owner remaining in the house as a tenant.

What next for the housing sector? 

The health emergency has become an economic crisis and housing is likely to suffer as much as any other sector in the UK economy. The mortgage holiday and the ban on repossessions in the owner occupied and rental sectors both finish in the autumn. And this will coincide with the ending of the furlough scheme for employees who are without work in the current pandemic. The scenario is set for a significant readjustment in the housing market as incomes are squeezed, unemployment rises and consumer confidence falls away.  Given this context how will the Government support and indeed boost the housing sector in the face of deepest recession in 300 years?

There are a number of options available to Ministers.

Before the current crisis, Rishi Sunak’s March 2020 budget set out a £12.2bn Affordable Homes Programme over the five years from 2021/22; an additional £1bn for a Building Safety Fund to remove dangerous cladding; and £650m to help rough sleepers into permanent accommodation. The Budget also reversed the interest rate hike imposed on borrowing from the Public Works Loan Board for new council homes.[ix] Of course much of the Government’s housing budget is focussed on its pet home ownership ‘products’ such as First Homes and Help to Buy.

The Government has recently announced measures intended to boost the housing sector in the wake of the pandemic. As part of this initiative Permitted Development Rights (PDR) are being extended to allow for the demolition of residential/commercial properties where they are replaced by new housing.  From September such schemes will not require full planning consent. Significant concerns about these changes in planning regulations have already been voiced as they will erode standards and could see occupiers living in unsafe conditions. [x]

In the Chancellor’s Summer Statement £2bn was set aside for Green Home grants to home owners and landlords to make around 650,000 homes more energy efficient. A £50m fund was also established to pilot a scheme to decarbonise social housing. The most expensive initiative sees the Stamp Duty zero-rated threshold raised from £125,000 to £500,000 until 31st March 2021. Estimates suggest this will cost the Treasury £3.8bn. [xi]

But the schemes announced to date are likely to be just the start of significant Government interventions in the housing sector as the recession deepens later this year. We should expect the Autumn Budget to include significant measures to boost the housing sector as part of a Keynesian-style counter cyclical strategy to kick start the ailing economy. 

Using borrowed funds (in the main) by Government, local authorities and housing associations, look out for at least some of the following:

  1. schemes to buy new but unsold housing from distressed private developers
  2. mortgage rescue schemes for households unable to maintain loan repayments because of unemployment or reduced income
  3. more direct investment in new social housing to not only boost the provision of low cost accommodation to rent but also to create jobs in the construction sector (which is likely to be badly hit as private investment in housing slumps)
  4. schemes to convert offices, shops, pubs and restaurants into social housing as the recession takes it toll on different parts of the commercial property market amid changes in working patterns and leisure activities

A progressive, left leaning Government would use the crisis to boost the stock of social housing (through the purchase of homes from households – including Buy to Let landlords – in distressed financial circumstances). The purchase of unsold new housing from developers would also be subject to conditions such as restrictions on executive pay and bonuses and shareholder dividends. Equity stakes in house builders seeking public funding would be required and workers’ pay and conditions would be enhanced too. Any tax avoidance by State-funded developers would be prohibited. New housing funded through the public purse following the pandemic should, of course, be to the highest standard particularly in terms of energy efficiency and sustainability.

Unfortunately we are unlikely to see the current Government impose such conditions on private sector beneficiaries from increased State spending in the housing sector. But we live in hope. 

Note: an earlier version of this blog was published as a Briefing for Housing Quality Network (HQN)         

<strong><span class="has-inline-color has-accent-color">Roger Jarman</span></strong>
Roger Jarman

Roger has over 40 years experience in the housing sector.  He has worked as an academic and in local government as well as for a number of central agencies. He had spells as a senior manager at both the Housing Corporation (1991 – 1999) and the Audit Commission (1999 – 2011).

He currently works as a housing consultant and trainer with a wide range of clients including local authorities and housing associations. He also helps run several small housing organisations as a non executive director. He is a member of the Labour Housing Group.


[i] https://www.gov.uk/government/news/chancellor-announces-additional-support-to-protect-businesses

[ii] https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/totalwealthingreatbritain/april2016tomarch2018

[iii] Department of the Environment: Circular 70/74, HMSO, 1974

[iv] https://api.parliament.uk/historic-hansard/commons/1975/feb/06/housing

[v] Financial Times, 22 April 1975

[vi] Homes England now takes on the role of funding housing associations/registered providers

[vii] Alan Murie, Moving Homes: The Housing Corporation 1964 – 2008, Politico’s, 2008

[viii] http://news.bbc.co.uk/1/hi/uk_politics/7592852.stm

[ix] https://www.insidehousing.co.uk/insight/insight/budget-2020-the-key-housing-measures-at-a-glance-65389

[x] https://www.insidehousing.co.uk/insight/permitted-development-wrongs-the-problems-with-the-pms-planning-deregulation-drive-67066

[xi] https://www.insidehousing.co.uk/news/news/sunak-confirms-2bn-green-homes-grant-67102

3 replies on “COVID-19: State intervention when housing markets are in recession”

Thank you Roger a very though provoking piece, my question would be, would this a better way to get developer contributions, rather than being reliant on s106? if LAs could negotiate to buy stock at a mutually acceptable rate?

Good reminder that there is nothing new under the sun. New Park Village in Wolverhampton was municipalised using the 70/74 regulation and later in the late 80s developed as an excellent Tenant Management Co-op. My brother worked on mortgage rescue for North British, unfortunately the model paired the biggest landlord with the biggest Building Society (Halifax) and trying to find the right person to make the right decisions in that organisation created a lot of delay. Pretty sure the 2008 crash included unsold Shared Ownership and Market rent properties being converted to Social rent though probably only temporarily. This collapse should lead to massive social housing building at social rent – some of which will be BTL landlords getting out of the market – which is how the Leicester co-ops acquired a lot of their stock in the 80s though BTL wasn’t the name. I’d also like to see an end to the Bedroom Tax given the need for space and physical distancing and working from home.

It is time for a tenure shift from private renting to owner-occupation. According to the Council of Mortgage Lenders (2016), 80% of adults want to be home-owners within ten years and, concluding on the results of polling and focus group work for the Affordability Commission, (Caluori, 2019 comments:

The struggling blue-collar renters we spoke to who don’t qualify for social housing are far from happy. Instead of saving for a deposit they are stuck living in expensive and often poor quality privately rented accommodation…. When asked if they’d support building more council housing they are lukewarm. Perhaps for other people, they say, but not for me…..Likewise, the frustrated first-time buyers we spoke to are desperate for properties they can afford so they can move on with their lives. They are also stuck in the PRS, perceiving housing costs and the wider cost of living as eclipsing their incomes year on year….These couples want to buy…

The decline in homeownership and the rise in private renting are class related (Green, 2017). In the North East, where Labour lost so many seats in 2019, owner-occupation is 61.9%, the second lowest in the UK. At 210%, the growth in private landlordism in the North East from 1996 to 2016 was the fastest in UK (Barton, 2017). Yields from private renting are 5.1% in the North East compared to 4.2% in London (This Is Money, 2019).

A number of mechanisms are available to achieve a tenure shift from private renting to homeownership. In his 2015 leadership campaign Corbyn suggested a Right to Buy for private tenants; rent control of the ‘fair rent’ variety would produce a tenure swing; George Osborne’s 3% levy Stamp Duty Land Tax has helped to curb private tenting (the levy could be increased) and, as happens in the United States, housing vouchers — equivalent to Housing Benefit — could be given for interest payments for low-income household. In addition, an enhanced supply of improvement grants would help upgrade older property and generate a tenure change (see Lund, 2019).

The new government initiative, operative from September 2020, provides energy efficiency upgrade support in the form of grants which will cover at least two thirds of the cost of the work, up to £5,000 per household. For low-income households, the grants will cover the full cost of the work — up to £10,000. Homeowners and landlords will be able to apply for vouchers. The government expects these measures to make over 650,000 homes more energy efficient and support around 140,000 green jobs. However, it is insufficient only to retrofit older homes to higher energy efficiency standards. Older homes require additional improvements.

In London, where owner-occupation is well beyond the reach of most households, Roger Jarman’s suggestion that social housing providers buy up private landlord property is sound. Housing associations did this in the 1970s. However, elsewhere, especially in the sixty ‘red wall’ constituencies lost by Labour in 2019, homeownership, with a little help from the state, is more realistic. In Redcar, one of the ‘red wall’ seats lost by Labour in 2019, a three bedroom terraced house with a small garden can be bought for £90,000 but private renting has been rapidly increasing (Redcar, 2019).

Homes under the Hammer viewers will know that house speculators purchase properties to improve to minimum standards for rent or sale. The English Private Landlord Survey 2018: Main Report (MHCLG, 2019) revealed that 38.7% of landlords had no debt and, of those with loans, only 3.7% held loans above their asset value. Many do not require loans or deposits to acquire a property. Landlords compete in the same market as first-time buyers and potential ‘second steppers’ (households who want to move up the housing ladder for more space when children are born). 47% have terraced houses and 40% have flats in their portfolios — but landlords have been increasingly moving into the ‘second stepper’ domain with 35.5% owning semi-detached homes and 16.8% detached houses. 43.9% of landlords let to couples with children and 25.1% to single parent families.

The decent homes standard was set in 2001. In 2007/8 44% of the dwellings rented privately in England were non-decent, in 2018/9 24.6% (17.3% owner-occupation, 13.2% local authority, 11.3% housing association). However, because of the expansion of the private landlord sector, the number of non-decent homes in the rented from private landlords is high at 1,216,000. Moreover, there are 2.6 million, non-decent owner-occupied homes (MHCLG, 2020)

The longer-term initiatives announcements made in response to the Covid-19 pandemic included a large cut in Stamp Duty Land Tax (SDLT). The impact of the change is that the savings are higher for higher value homes with the Resolution Foundation (2020) pointing out that a buyer paying the average price in the North East would make almost no saving: the average house price in the North East is £127,000 which is only a little over the former threshold. The new rates apply from 8th July 2020 to 31st March 2021 at an estimated cost of £3.8 billion.

Better uses of this £3.8 billion are available. The decent homes standard requires revision with an environmental standard added (litter incidence, children not living above a specified storey in a flat block — one of the most lasting images from the Covid-19 pandemic was of the parents and their children stuck in a small overcrowded flat on the fifteenth floor of a tower block with the lift out of action— play areas; access to green space; kitchens and bathrooms less than 25 years old,; solid doors; fire safety; showers as well as baths; low consumption water pumps etc.
If individual house upgrades are implemented through an improvement grant system for low-income households and a reduction of VAT on home improvement to 5%, as suggested by the Architects’ Journal, it will help lower-income households to afford to buy a house with a grant to improve it to a new decent standard thereby reducing dependence on the private landlord sector. In the process two houses could be converted into a single dwelling. Association is not causation but, if you strip out age and sex, people of Bangladeshi ethnicity have twice the risk of death than people of White British ethnicity. People of Bangladeshi ethnicity also have the highest rate of overcrowding. According to the Cabinet Office statistics, the incidence of overcrowded amongst Bangladeshis is 30%, for ‘White British it is 2%.

In the long term, a Land Tax (see Chloe Timperley) is the most effective way to reduce the housing costs of low-income households but this depends on a Labour Government and the recapture of the ‘red wall’ seats. Meanwhile, it is what it is.

Brian Lund

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