Author: Steve Hilditch

Mr Bean’s rent policy

If people rent from a council or a housing association, how much rent will they pay? The answer is anything between 40% of local ‘market rents’ (and sometimes less) and 80%. But is there any logic to the system of rent-setting or is it just inept bungling? All the below rent types are available to homeless households and waiting list applicants who get offered a council or housing association rented home, depending on where they live and the luck of the draw.

• Social rent – council (lowest)
• Social rent – housing association (higher)
• London Affordable Rent (higher)
• Council rent at above LAR benchmark (higher again but unclear how high)
• Affordable rent, discounted to c.65% market rate (probably even higher)
• Affordable rent at full 80% of market rate (highest)  

One of the criticisms of Labour’s 2002 policy for social rents was that it was based on a strict formula which meant that ‘Whitehall’ would set each and every rent in the country, leaving no room for local factors or landlord (or tenant) choice. Some liked to call it Stalinist, a curious word to describe a policy of the Blair government. ‘Rent restructuring and convergence’ as the policy was known, sought to harmonise council and housing association rents (HA rents were often significantly higher) over time, moving both at different speeds to a ‘target rent’ which was calculated on a mix of house values and regional pay rates. The government held a review of  general rent levels which concluded that they were broadly correct at the equivalent of c.40% of market rents. The policy meant that tenants would pay more over time but within a highly structured and predictable policy environment backed by a comprehensive and generous housing benefit system. Most social rents are still based on this formula.

The policy could have been more flexible, but it stood the test of time. Although slow acting, its flaw was the underlying increase in real rents (normally 0.5% or 1% above inflation): over time rents would become less affordable, passing the strain onto the housing benefit system.

Since 2010 a successful but centralised rent-setting system has been replaced by increasing fragmentation descending into chaos for new homes and new lettings. The huge (by anyone’s standards) cut in housing investment in Slasher Osborne’s first Budget – more than 60% – led to the abandonment of the new homes for social rent programme. It was replaced by the abomination of Grant Shapps’ ‘affordable rent’ product at up to 80% of full market rents – impossibly unaffordable for most people and leading to a high dependency on housing benefit (which they then proceeded to cut, putting a vicious squeeze on tenants). Called ‘Orwellian’ by many commentators due to the ‘doublespeak’ of calling something that was unaffordable ‘affordable’, the policy shifted much of the burden of financing new affordable homes from the state to existing tenants.

Of course, the phrase ‘up to 80% of market’ left the door ajar for those who wanted to mitigate the worst impacts of the policy. Some housing associations tried to achieve rents at significantly less than 80% or applied different rates to different size homes to try to keep family homes within reach. Unforgivably, some chose to max their income. In London, even Mayor Johnson realised the policy was ridiculous and approved some schemes at 65%.

Associations were also encouraged or required to enhance their development funds by selling more homes on the open market and by ‘converting’ homes from social rent to ‘affordable rent’ when they became empty and were re-let. Some did as much of this as they could get away with, a few heroic associations refused to convert any social rents.

In a further series of muddled U-turns the government decided to end the ‘convergence policy’ and impose a national rate of rent increase instead. A supposed 10 year rent settlement – increases of CPI plus 1% every year – launched in 2015 was very short-lived and quickly replaced by an annual rent reduction policy of minus 1%, to the anguish of developing providers. Now under May, a new policy has been announced for after 2020 – it’s back to CPI plus 1%.

From the point of view of a new tenant, the system now resembles a roulette wheel played under rules invented by Mr Bean. A new tenant could by random selection get a home at the equivalent of 40% of local market rates or at 80%. The potential impact is obvious: rents for a similar home could range from genuinely affordable to absolutely unaffordable. And I haven’t even touched on the range of ‘intermediate’ tenure rent policies that can be added to the mix.

The new Mayor of London, Sadiq Khan, was left between a rock and a hard place. He was committed to social rents but also wanted to get the maximum funding out of government. Government would never agree to a wholesale return to social rents, so a principled stand would have led to much less overall funding for affordable homes. In the end, Khan and his housing deputy mayor James Murray negotiated a deal which would allow a new ‘London Affordable Rent’ to be charged, based on social rents but significantly less than the national ‘affordable rent’. At its core, Khan’s LAR is set at the target rent that all social rents would eventually move to, but without the long transition. Rents might (on some calculations) be up to 50% higher than normal council rents (but still much less than ‘affordable rent’).

Depending on your political view this is either a clever solution that preserves the principles of social rent or a sell out. I lean towards the former, partly because the Mayor has also ended the practice of ‘conversion’ in his funded schemes, which will keep many more homes in the real social rent bracket and control the activities of some of the more rapacious registered landlords. Whichever way, his is now the regime that underpins rent-setting for new social homes in London.

If you are still with me, the tale has one further twist, brought to light through a freedom of information request submitted by a north London housing activist. This concerns the Mayor’s laudable £1 billion programme of funding councils to build nearly 15,000 new council homes.

But at what rent? The FoI shows that London councils have gone in many different directions. The appalling Westminster did not even bother to apply for any of the money. Some have got funding for new homes which are mainly at social rent, including Newham, Greenwich, Hackney, Haringey and Southwark. Others have gone for rents predominantly at the mayor’s London Affordable Rent, like Brent, Ealing, Hounslow, Islington and Redbridge. And a few, Brent, Harrow, Tower Hamlets, Barking and Dagenham and Hammersmith and Fulham, have gone for some or all of their rents to be above the benchmark rents expected under the LAR scheme. Yet another rent bracket has been created – LAR plus it could be called.

So the outcome is an increasing mish-mash of rent policies which must be bewildering for any potential tenant waiting for a home. One neighbour could be paying twice as much as the other for the same home. In eight years we have gone from a centralised system that had its defects but which at least everyone understood to a system which is totally chaotic and almost random.

From order to chaos or, to adapt a phrase, from Stalin to Mr Bean via George Orwell.

 

(amended 12/12/18 to correct comment about current rent policy, which is an annual -1% not CPI -1%).

There’s a ritual in the House of Commons when it comes to debating poverty. It goes along the lines of Jeremy Corbyn challenging Theresa May about the huge weight of evidence showing rising poverty in this country. May always answers by quoting figures for ‘absolute poverty’, which she claims is declining, whereas Corbyn’s questions are always about relative poverty, which is rising. For the public, a pointless exchange has taken place.

The difference between the two is very important.

Absolute poverty describes when household income is below a necessary level to maintain basic living standards (food, shelter, housing). It can be used to compare different countries and different eras but the criteria are not amended by economic growth. In the normal course of events it would be extraordinary for absolute poverty not to fall over time. The United Nations says absolute poverty is characterised by “severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information.” In recent years the fall in the UK has been driven by rises in basic incomes of pensioners, many of whom were previously defined as being in absolute poverty.

Relative poverty however describes how household income relates to the median income being achieved in the society as a whole. This is normally measured as a percentage below that median, normally 50% or 60%. It therefore moves along as the society gets richer. It is more meaningful because it describes the extent to which the poorest share (or don’t) in the growing wealth of the country as a whole.

Answering questions about relative poverty by referring to absolute poverty is disingenuous to say the least. It serves to dismiss concerns by obscuring the real debate.

Now, why would the government wish to obscure the debate and confuse people in the process? The explanation comes in the Joseph Rowntree Foundation’s comprehensive analysis of poverty trends and figures, UK Poverty 2018.  The report uses the definition of poverty that a household has an income of less than 60% of median income for their family type, after housing costs. Like most respected commentators, but not the government, it sees poverty as being directly related to the normal standards of living being experienced in the country and not absolute basics.

On relative poverty, the report’s conclusions are stunning; here are just a few:

• Fourteen million people are in poverty in the UK – that is over one in five of the population (22%).
• Eight million of these people live in families where at least one person is in work.
• Eight million working-age adults, four million children and two million pensioners are living in poverty.
• In 2017 one-and-a-half million people lived in destitution in the UK, which means they could not afford to have what we all need to eat, stay warm and dry, and keep clean.
• And 365,000 of those destitute were children.

The JRF report makes the following conclusion about the trends:

“During the last 20 years, the UK dramatically reduced poverty among people who had traditionally been most at risk – pensioners and children. This progress has begun to unravel and now poverty overall is rising, and it is the rise in child poverty that is pushing this trend.”

The report also draws particular attention to the rise in poverty amongst disabled people in the last five years – the poverty rate for disabled adults in non-working households is exceptionally high at 67% of all households – and to the fact that poverty rates are higher among all ethnic minority groups but particularly high amongst families of Bangladeshi and Pakistani origin.

The huge impact that housing has on poverty is seen in the figures for housing costs. Traditionally, housing costs have risen for all income groups at a similar rate, and housing costs for all groups fell immediately after the 2008 financial crisis and recession. But after 2009/10, housing costs stabilised or fell for the richest three-fifths of the population but started rising again for the poorest two-fifths. This has been driven by the government’s policies in relation to tenure:

“Rising housing costs have been driven largely by changes in the proportions of families living in different housing tenures. In particular, the fall in home-ownership and expansion of the private rented sector have affected low-income families far more than those who are better off. The proportion of children in the bottom quintile living in the private rented sector rose from 17% in 2005/6 to 37% in 2016/17.”

In addition to rising rents, the report identifies the cause as being the fact that “eligible rents – the amount that Housing Benefit will cover – have been falling behind actual rents paid by low-income families. The reason is that there have been several changes to the rules governing eligible rents since 2010/11 which have had the effect of undermining the safety net provided by Housing Benefit. The result has been that low-income families have faced higher net housing costs, leading to increases in poverty.”

Low pay, reduced benefits, rising housing costs, rising utility costs. The reasons for rising poverty are clear and obvious. And the figures are so bad that it is no surprise that the Prime Minister hides behind irrelevancies whenever she is questioned on the scandal.

 

It often seems that the term ‘council tenant’ automatically comes with the word ‘subsidised’ in front of it. It is part and parcel of the stigmatisation of the tenure by many politicians and much of the media – and even some within the social housing sector. Following Grenfell, the government in its green paper nodded in recognition of the unfair portrayal of council housing and noted that stigma has a deleterious effect both on the tenure and on the people who live in it. But even as they recognised it, they also repeated their underlying belief in the superiority of home ownership.

Despite overwhelming political and popular support, since 2003 or so home ownership has been in decline as the affordability of housing has deteriorated. For all its efforts, this government has not yet managed to reverse the trend. In his book launched last week, Josh Ryan-Collins showed that this was not just a UK effect, it has happened across what he calls the ‘Anglo-Saxon economies’ where banking systems have been deregulated in  the same way and at the same time. Encouraged by the collateral of bricks and mortar, overly keen banks with liberal lending policies pushed prices up much faster than incomes, hugely stretching price to income ratios. Other countries with different types of bank – notably Germany where banks are regional and based more on co-operative principles – have experienced much less house price inflation and have much less emphasis on houses being investments rather than places to live.

In the UK since 2010 we have seen the amount of public money put into social housing slashed yet there have been many, often costly, initiatives to help slow the decline in home ownership. The net effect is that home ownership is now easily the most subsidised tenure, much more so than social housing, with private renting receiving the least help.

The conclusion that the state gives far more help to home ownership cuts against the grain of conventional thinking. But it has now been very well documented in a report entitled Dreams and Reality? Government finance, taxation and the private housing market published today by the Chartered Institute of Housing and written by housing finance experts Steve Wilcox and Peter Williams. The authors reached their conclusion after an exhaustive analysis, taking account of all types of government intervention in the market, not only spending on grants, loans and guarantees, but also tax reliefs, welfare benefits and regulatory mechanisms which aim to stimulate or control the three main routes by which people get access to housing.

They show that government is directing about £8 billion annually into private housing over the five years to 2020/21, with over half going specifically to support home ownership and the remainder being more broadly aimed at the private market. In contrast, direct funding for new social housing is less than £2 billion annually.

Wilcox and Williams accept that the analysis is bound to be crude because financial support for the sectors comes in different forms – for social housing it is mainly grant spending whereas much of the private market support is via loans or guarantees. Some specifics:

• In terms of tax reliefs, home owners benefit much more than private landlords: net tax relief for owners was some £29 billion in 2016/17 (£10 billion paid in tax; £39 billion received in tax reliefs) whereas private landlords paid net tax of at least £8 billion.
• Within the benefits system, tenants receive much more assistance than home-owners, with about £15 billion annually going to social housing tenants and £8.5 billion to private renters.
• Private renting has a big advantage in mortgage regulation because it can access interest-only mortgages whereas new home buyers have to navigate various restrictions on mortgage availability.
• Despite the huge increase in general support for the market, the government safety net for those homeowners facing financial difficulty has been much reduced. Support for mortgage interest will soon migrate from paying mortgage interest charges for unemployed home buyers to providing loans – a further erosion.

CIH chief executive Terrie Alafat CBE said:

“This report demonstrates just how much government support is going to the private market, and to home-owners in particular – probably contrary to many people’s expectations. It takes a comprehensive look at the way the government supports our housing system – and we would urge ministers to do the same. Currently just 21 per cent of government investment is going to affordable housing. Rebalancing this budget to support people on lower incomes who can’t afford to buy could make a big difference. It is vital that the government supports councils and housing associations to build more homes for social rent.”

Wilcox and Williams also sneak a look into the future. If home ownership is stabilised at around 60% and if the social housing sector does not grow proportionately, it follows that future net growth will come mainly in the private rented sector. This will lead to a substantial long term increase in the cost of housing benefit (especially as working private tenants retire and become eligible for rent support). Unlike social housing, where housing benefit is retained by landlords and surpluses recycled, HB to private landlords funds profits which are removed from the sector.

‘It serves to make the point’, the authors say, ‘that the continuation of current trends is not a cost-neutral option for government’.

And in a massive understatement they comment that ‘there are questions as to whether we are spending as efficiently as we can in the housing sector, a pertinent point given the general pressure on public finances.’ In particular, they question the emphasis on intervention on the demand-side through Help to Buy and other schemes rather than supporting supply-side initiatives (ie directly building more houses rather than increasing buyers’ purchasing power).

We may have to wait a long time to see ‘subsidised home owners’ replace ‘subsidised council tenants’ in the headlines. But this report demonstrates that government intervention has become critically important to the operation of the private housing market. It seems highly unlikely that the schemes chosen by the government will lead to less volatility and house price inflation. Whatever happens, in future a much sharper focus will be needed on private renting, both in terms of the cost to households in rent but also the cost to government in benefits.

 

The week’s main news was that the Budget put additional support into home ownership – yet again – by continuing Help to Buy beyond 2021 and extending it to shared ownership –  while doing very little for genuinely affordable social rented homes.

Despite the supposed ‘end of austerity’ the budget for social housing remains pitifully low – as it has been since George Osborne slashed it by more than 60% in his first Budget eight years ago. Of course some changes are welcome if plainly not enough: for example, an extra £500m for the infrastructure fund might unlock some schemes, the go-ahead to the lifting of the HRA cap will enable more councils to build more new homes (but only at traditional council rents if they can also attract subsidy or use cheap land), and some extra cash might mitigate some aspects of the ferocious benefits squeeze.

Jules Birch as always has done an excellent summary and assessment of the Budget fine print which I recommend for anyone interested in a little more detail.

It seems that the less social housing we have the more people want to talk about it. This is probably a good thing – and keeping the idea of social housing in the public eye was one of the purposes of the SHOUT campaign for social housing during the most miserable days of Cameron Osborne and Clegg.

This year we have had the debate around the government’s rather pathetic and thin Green Paper – (Red Brick comment here) – followed by Labour’s more impressive and thought out version ‘Housing for the many’ (Red Brick comment here).

But a much wider debate about the future of social housing has been going on through a number of policy reviews and Commissions, which have broadly said that social housing is a good thing and there should be more of it. These include the Local Government Association’s Housing Commission – final report ‘Building our homes, communities and future’; IPPR’s London Housing Commission – final report ‘Building a new deal for London’; and the Chartered Institute of Housing’s ‘Rethinking Social Housing‘ project and final report. And we currently have Shelter’s Social Housing Commission,  which is due to report shortly.

In the last month, two more Commissions have been launched which will continue the debate – by the Smith Institute and by the Labour Party, where affordable housing will be a big feature of its Planning Commission.

The Smith Institute (founded in memory of John Smith, former Leader of the Labour Party, not some ancient economist) has launched its independent Affordable Housing Commission, chaired by Lord Richard Best, who has a very long track record of supporting social housing, funded by the Nationwide Foundation. The aim of the Commission is to examine the affordability crisis and to propose workable solutions whilst building a consensus for change. Background and how to make submissions can be found on the dedicated website.

Labour’s Planning Commission is led by Andrew Gwynne, Shadow Secretary of State for Communities and Local Government and Roberta Blackman-Woods, Shadow Minister for Planning, and involves a large number of stakeholders. They have issued a call for evidence (responses to [email protected] by 25th April 2019). Its brief includes looking at the range of planning issues that will impact on housing supply, including the process of plan making, planning gain and capturing uplift in land values, improving land supply, and the related building control system.

Both of the new Commissions will have a significant influence over the future debate and should help to keep the pressure building. But next up, it’s Shelter.

 

Labour Housing Group will be holding a national policy day in Newcastle on Saturday 17 November 2018.

Speakers include John Healey MP, Sarah Longlands from IPPR North, and social historian John Boughton, author of the brilliant history of council housing, ‘Municipal Dreams’ (see Red Brick review here).

Open to Labour members and supporters.

To register, visit LHG’s new website here.

or go direct to booking page at Eventbrite.

Occasionally you read something that challenges your firmly fixed views. Like most in housing, I fall easily into the simple analysis that there is a direct link between our inability to build new homes and the housing affordability crisis. If only we built more then everything in housing would gradually come right.

Josh Ryan-Collins’ new book ‘Why can’t you afford a home?’ definitely makes you think in a different way. The traditional analysis fails to explain why the crisis has emerged in so many different countries at the same time despite widely varying policies and approaches. He says this outcome is based on two pillars: the priority given to private home ownership as the dominant housing tenure and what he calls the ‘self-reinforcing feedback cycle’. On the first of these, most countries have promoted housing as an (unearned) source of wealth rather than just somewhere to live by reducing property and capital gains taxes on housing compared to other investments. On the second, Ryan-Collins asserts that it is no coincidence that the crisis has mushroomed since the deregulation of financial services. No amount of fiddling with the planning system or blaming migrants can moderate the huge global forces that have been at work.

The ‘self-reinforcing feedback cycle’ works like this:

‘In order to afford a home, most people need a mortgage. But when mortgage credit is extended to buy an existing property, it inflates house prices as bank lending involves the creation of new money. If house prices rise faster than incomes, the demand for mortgages increase, banks lend more, prices go up and so on’.

Strengthened by the perceived global public debt crisis, which constrained direct building of homes by the state, governments increasingly looked to the banking sector to find new ways of satisfying both housing demand and the clamour for individual home ownership. Thrifty banking was replaced by almost unlimited lending relative to incomes. Bank lending, previously focused on business investment, became concentrated on lending for residential purchase. Banks liked it because loans had collateral, and, unlike business, there was no limited liability. Worst of all, after an initial consumption effect (people buying houses tend also to buy furniture and white goods etc) residential lending did not lead to much growth – mainly adding to price inflation. People were effectively borrowing against rising values, so everyone gets a stake in keeping values rising. But the system becomes more unstable and volatile, inequity between those who manage to buy and those who don’t rises, and more people become priced out. Productive investment is frozen out in favour of speculative lending, and economies become more vulnerable to economic shocks.

Solutions therefore need to be much broader than those that governments and central banks have attempted to date. Crucially, Ryan-Collins argues, ‘land and credit markets need to be shaped to create public value: in this case affordable, decent quality housing.’ He notes that some successful modern economies have been rather less dependant on rising property prices, notably Germany, Japan, Korea and Singapore. Priority must be given to lending for productive investment by business, guiding credit away from property. Property taxes are needed to make it less attractive as a financial asset, including a land value tax, and we should learn from those countries where more land is publicly owned.

Curiously, after this long analytical journey, during which Ryan-Collins challenges my simple notion that the answer to unaffordability is that we must build more, he confirms my other long-held and deep-seated simple assertion when he says that one structural solution is “supporting alternative forms of tenure such as renting, social housing and cooperative home ownership where housing is viewed as a place to live, not a financial asset.”

This is a stimulating read and the book (which also benefits from not being as long as most economic tracts) delves into areas of economic and financial policy that deserve far more scrutiny. I would have liked a little more analysis of market changes in the UK since 2003 which have led to a decline in home ownership and the resurgence of private renting. However the book’s strength is that it goes beyond description and analysis to promote possible solutions. These are inevitably long-term and international but they could begin to influence government policies in the here and now.

 

 

Josh Ryan-Collins is a Senior Research Associate at the Institute for Innovation and Public Purpose, University College London. ‘Why can’t you afford a home?’ is published by Polity Books. If all else fails, it is available on Amazon.

In November Josh Ryan-Collins will be giving a talk about the book for UCL Institute for Innovation and Public Purpose (IIPP). Details here.

It was a first for the National Housing Federation to get a serving Prime Minister to speak at one of their Conferences. It’s obviously a feather in their cap, proving that government takes them seriously. But there was a degree of fawning in the audience – ‘rapturous applause and a partial standing ovation’ said Inside Housing, ‘it’s fair to say she is smashing it with this audience’ tweeted Polly Neate of Shelter – that is not shared by those who need homes now.

So, are we to believe that one speech with some warm words means that housing associations are now ‘a trusted partner’ of government? And that an announcement of a tiny pot of money starting in four years’ time means they will get long-term guaranteed funding sufficient to do the job? David Orr’s inadvertently accurate comment that ‘the penny has dropped’ sadly told the real story. Yep, a penny, thanks Ma’am.

The truth is closer to this: ‘the movement’ has been played by the PM’s political adviser Gavin Barwell, easily the best of the many housing ministers we have had over the last 8 years (for the simple reason that he actually knows something about the subject). He also knows how to get favourable headlines with a well-placed non-announcement, an unchecked promise of money, and a bit of flattery. May said what they wanted to hear and in glowing terms: she praised the movement’s Victorian pioneers and the campaigning innovators of 50 years ago and commended the modern non-profit businesses. And no slagging off like there was from her predecessor.

That perceptive commentator Isabel Hardman saw this as one of a kind of speech that May makes. She is very keen to talk about her mission to tackle ‘burning injustices’ like mental health and housing. “What is missing from speeches on either topic is the sort of government action that might match up to a ‘personal mission’” says Hardman in the Spectator. “This is the nub of the problem: there isn’t enough money coming forward to solve these ‘burning injustices’, nor enough room for those who want to think radically about housing policy or indeed the provision of mental health care to do so.”

The doyen of housing bloggers, Jules Birch, was feeling generous. “When was the last time a Conservative prime minister made a speech more favourable to social housing?”, he asked in Inside Housing, whilst also noting that this week’s promise of £2 billion was even flakier than last year’s. Jules makes his judgement largely on the bit of the speech that was not about money. Here May spoke in carefully crafted Barwellisms, with housing associations taking more of a lead in developments, being more ambitious, being able to ride the business cycle, and praising the non-profit nature of their role.

It is also true, and a relief, that some of Cameron and Osborne’s most extreme policies have been reversed or forgotten about. And I welcome the major contrast in her language with that of Cameron and Osborne, both of whom disliked housing associations and hated social housing. Speaking positively about social housing, especially if it is taken up in the media, is a start.

But what does it add up to? It feels like the boxer who has the opponent on the ropes, about go down, and stops hitting quite so hard. The money means nothing and was not explained in the context of the next spending review, it is probably no more than existing puny budgets rolled through into future years. Jam tomorrow, but spread very thin. It contrasts with a major report for London First this week showing the vast increase in both public and private capital spending that is needed to achieve the government’s stated aim of 300,000 homes a year – a 40% increase is required with 65% in London, they estimate. Put another way, housing’s share of UK GDP must grow from 2.3% to 3.3%. Unlike May’s promise, these really are big numbers.

The love now showered on housing associations creates nothing more than a scumble, a thin veneer. Underneath, social housing is still seen as a holding pen for people who really should want to be home owners. And home ownership is where the real money is going. The view that people who rent are inferior to home owners is at the root of stigma, and it has not changed. Policy reversal is also very partial: the Osborne cuts in housing investment have not been restored, the welfare reforms are still destroying lives, homelessness is still rising, rents are far too high in all sectors, and the bedroom tax is still in place. And it was noticeable that she managed to irritate the Tory chair of the Local Government Association, Lord Porter, for implying that housing associations were the keepers of the legacy of council housing.

A few good headlines for the Prime Minister followed her speech, it must make a relief from Brexit. Most of the national press and broadcast media swallowed it whole, repeating the ‘extra money’ line with no analysis, as if the cheques would be arriving next week rather than 2022. But even with May’s welcome new language the old tropes refuse to die. The BBC’s commentary included the statement that in the 1980s ‘those who couldn’t afford to buy were left in sink estates’, eliciting a complaint from John Popham who called it a slur on social housing tenants. His excellent YouTube video can be found here. (By the way, you can subscribe to his channel through the link). As is their way, the BBC just denied that it was inappropriate, but also referred to another programme about sink estates to make their point. Of course, ‘we value your feedback’.

Not being quite so battered is an improvement of sorts. The total hostility of the previous era towards social housing seems to be ending, and that creates an opportunity. But it requires an altogether more assertive stance which includes councils as well as associations. For the millions in desperate housing need, happy clappy is not the right response.

Some people suffer because of the housing crisis, others do quite nicely out of it thank you. Land owners are perhaps the best example of those who have traditionally coined it in. Nothing much has changed since Winston Churchill, way back in 1909, called land ‘the mother of all monopolies’, criticising  ‘the enrichment which comes to the landlord who happens to own a plot of land on the outskirts of a great city, who watches the busy population around him making the city larger, richer, more convenient, more famous every day, and all the while sits still and does nothing.’ And still they do.

But attention has been drawn more recently to another group of people who have been  achieving great riches from the miseries of others – the housebuilders. You might say that at least housebuilders produce something of use, unlike the landowner, and the point is valid. But recently the vast profits being made by the volume housebuilders have been substantially donated by the government, free gratis and for nothing.

The housebuilders’ own special magic money tree is called Help to Buy. In an excellent article in the Times on 8 September, Property Correspondent Tom Knowles showed how the average profit made by housebuilders on each home has doubled since the scheme was launched. Knowles’ analysis showed that ‘the top five builders in Britain are making an average profit of £57,000 on each house they sell, compared with a mean average of about £29,000 in 2007’.

On Red Brick we have criticised Help to Buy from the time it was launched in 2013 because it is a subsidy on the demand side of housing – it enables people to spend more on housing without necessarily increasing supply. A little bit of economics tells us that in the longer term it is likely to be self-defeating because more demand with no more supply will lead to price increases. Far better, we have consistently said, to apply whatever public finance is available to boosting housing supply not demand.

At the launch of Help to Buy the argument was made that the scheme would boost supply by giving developers confidence that they would have buyers for their output – after all, no-one builds what they cannot sell. Yet Knowles confirms that the total number of new houses being delivered is much the same as it was ten years ago. He uses Barratt as evidence: profit per house has doubled since 2007 (he uses that date because it was the last full year before the global crash), but it is building only 411 additional homes. He provides a fascinating chart to illustrate the detail, repeated below.

Source: The Times, 8 September 2018.

Knowles quotes analysts who confirm that the largest driver of today’s profits is Help to Buy. One assesses that housebuilders would be making £22,000 less profit on each house built for first time buyers if Help to Buy was not in place, and concludes that ‘someone is gaming the system’.

One of my favourite analysts, Neal Hudson, who puts good stuff on Twitter @resi_analyst, is quoted saying that shareholders had become ‘the main priority’ for housebuilders since the financial crash. ‘The over-arching factor has been big pressure from the City,’ he is quoted as saying. ‘The priority for them is profit margin not the number of homes built.’

One housebuilder chief executive was paid £75 million in a bonus last year, putting even bankers to shame. I suppose you could argue that no-one would turn down a nice earner, even if it is on the back of a government scheme designed to tackle the housing crisis. And, of course, it is government policy that is to blame. Since 2010 housing finance policy has been turned on its head. Instead of providing grant to enable genuinely affordable homes for those on low and medium incomes, Government help is now aimed at supporting the private housing market – and not very successfully it seems. The Chartered Institute of Housing’s Housing Review estimated that support for the private market is taking nearly 80% of current investment compared to just over 20% going as support for affordable housing.

At local level, the riches flowing into the pockets of the housebuilders should stiffen the resolve of councils who are fed up with developers pleading that schemes are ‘unviable’ due to modest requirements that a proportion of new homes should be affordable.

In this debate, profits per home of around 20-25% of the cost are taken almost as a given, a fixed cost. I can remember a developer telling me that the rule of thumb in building costs was ‘one-third for land, one-third for construction, and one-third profit’. In our Brexit-dominated world, construction costs are likely to inflate rapidly in the near future. So, if anything is to be done it must be to bear down on the other two elements: land and profit. We have posted a lot recently about land and taxation: another good step would be to tackle the Help to Buy gravy train.

 

The government’s Social Housing Green Paper fails to meet its promise to be a ‘fundamental rethink’. But it contains a number of U-turns in policy towards the sector and its tenants. One welcome change is in the approach to consumer regulation. In this post, two of the key players in the delivery of consumer regulation under the last Labour government, Ross Fraser* and Roger Jarman*, consider the direction the government is now taking.

By Ross Fraser and Roger Jarman

Prior to the 2010 election, social housing tenants were beginning to see the fruits of Labour’s commitment to consumer regulation of social housing.   Audit Commission housing inspections, focused on service quality, had been part of social housing since 2000.  A new consumer-focused regulator The Tenant Services Authority (TSA) had been set up in 2009 and was beginning to have an impact.  A National Tenants’ Voice (NTV) had been set up to enable that ‘voice’ to be heard in national policy development.

Then, as one of the first Tory-led coalition government housing policies, Secretary of State Eric Pickles and Housing Minister Grant Shapps conducted a ‘bonfire of regulation’, winding up the Audit Commission and the National Tenants’ Voice, abolishing the TSA and transferring its regulatory powers to the Homes and Communities Agency whilst reducing its scope for consumer regulation to a minimal level.  Then came the Grenfell Fire and now, in direct response, the Government’s new Green Paper exhibits a complete policy U turn and proposes a new regime of consumer regulation and the creation of a national voice for tenants.  In other words, the government is proposing to replicate the Labour government initiatives which Pickles and Shapps scrapped with such haste and enthusiasm.

Although the Green Paper has generated much discussion in the housing media, not a single commentator has noted the quiescence of the sector in 2010 and 2011 at the ‘bonfire’ of consumer regulation.  No local government or housing trade body contested its abolition – indeed much of the sector was only too glad to see the back of (we paraphrase) ‘over-prescriptive consumer regulation that paralyses innovation and imposes excessive burdens on landlords’.

Post-Grenfell, there is a renewed recognition that social landlords need to raise their game on resident engagement and standards of service quality.  The Local Government Association (LGA) is working hard on a guide for councillors on the benefits of tenant involvement and how councils can learn from the best local authority and Arms Length Management Organisation (ALMO) practice.  The National Housing Federation is going even further and plans to issue a formal ‘offer to tenants’ at a national level, underpinned by ‘local offers’ by individual housing associations.  Both initiatives are welcome – and by implication raise the question of the balance of responsibility between government and the sector in terms of embedding a lasting and workable model for consumer regulation.  This is important as without the wholehearted support of the sector, this iteration of consumer regulation may not succeed either.

So what does the Green Paper’ propose?   Key suggestions include:

• Improving and speeding up how complaints are resolved
• Empowering residents by giving them access to comparative data on landlord performance
• Enabling the Social Housing Regulator to intervene where registered providers (a term that primarily covers housing associations but also includes council landlords) are providing a poor landlord service
• Potentially extending consumer regulatory scrutiny to Tenant Management Organisations (TMOs) and ALMOs
• Reviewing and improving current consumer regulation standards – including a new approach to defining Decent Homes
• Linking access to Social Housing Grant and future government/sector strategic partnership funding to landlord performance on key comparative performance indicators related to ‘issues of key importance to residents’
• Enabling residents to have their voice heard more effectively at a national level
• Giving tenants more choice about who delivers landlord services and how they are delivered

Undoubtedly these are vital issues to be addressed and we discuss them in more detail below.  However, the proposals focus entirely on the delivery of management and maintenance services and the quality of resident involvement.   What the Government has yet to recognise that tenants want a more effective say over the policy decisions made by social landlords.  Two examples will suffice.

One of the biggest decisions that social landlords have to make today is over the balance of expenditure between building much-needed new homes and the maintenance and improvement of their existing housing stock.  When, after the 2015 election, the Tory government introduced the ‘4-year 1% rent cut’ much of the sector sought to protect development programmes by cutting back on, or delaying, planned maintenance and other capital works programmed for coming years.  Most landlords didn’t tell their tenants they were doing this, let alone consult and seek to persuade them that this was the right policy decision.  Equally, tenants are increasingly concerned about social landlord rent levels, lack of landlord research into local rent affordability and the abhorrent practice of converting social rent relets into new ‘affordable’ (sic) rents.   There is nothing in the government’s Green Paper that will empower residents to challenge landlord decision-making in these areas.   A key litmus test of the forthcoming LGA and NHF initiatives will be whether they tackle these issues.

Returning to the government’s proposals, some are eminently sensible.  The Government proposes a single housing ombudsman (subject to a specific separate consultation) and to speed up and simplify the current complaints process.  This is a good plan.  Also welcome is the proposal to empower the Social Housing Regulator to intervene where there is systemic failure of the landlord service, with the bar set higher than the current lamentable ‘serious detriment test’ which focuses solely (and not very well) on health and safety.  Reviewing current consumer regulation standards – especially the Decent Homes standard – is right and essential.  Enabling residents to have their voice heard better at a national level – presumably (although the Green Paper isn’t specific) through a reconstituted National Tenants’ Voice – is imperative and no time should be lost in making this happen.

Other proposals, whilst well-intentioned, need to be carefully designed if they are to have any impact.

Tenant access to comparative landlord data is essential – as charges to tenants and leaseholders comprise 95% of social landlord income, they have a moral right to know how well their landlord is performing.  Tenants and their representative or support bodies like TAROE Trust, TPAS and a National Tenants’ Voice could use this information to challenge landlords to improve and regulators to act where they don’t.

But, as TPAS CEO Jenny Osbourne has pointed out, until tenants are able to exercise choice over their landlord, there is a limit to the empowerment that performance league tables can achieve.   This is undoubtedly true but the only time that any government has sought to enable this, via the Tenants’ Choice scheme in 1988, the initiative was quickly dropped due to sector opposition and tenant frustration with the complexity of the process.  Instead, in the Green Paper, the government floats the options of tenant-initiated, stock transfer to community-based housing associations or (subject to a review of the model’s effectiveness) TMOs or increased deployment of other tenant-self-management options.   But what if tenants don’t want that responsibility and just want a better landlord?  Most would likely prefer regulatory intervention as the means of securing that goal.

Linking landlord performance to access to grant or strategic partnership opportunities will certainly focus the minds of housing providers.  Most will redouble their efforts to improve.  However, as was evident to the Audit Commission housing inspectorate, others will focus effort on ‘gaming’ the data – and poor performers will complain that everyone else cheats and they are the only honest brokers – and it will need great rigour in data collection, validation and challenge if accurate clean data is to become the norm.  Landlords will have to increase their staff resource – and vastly improve their IT systems – if good quality data is to be provided, inevitably increasing costs. Which, in our view is a good thing and not something to complain about.

Then there is the technical issue of what performance indicators to collect and how to measure them.  A particular issue arises where data is drawn from complex and extensive surveys – either of property and tenants.  How can this data be validated by an external body?  Will all surveys need to follow a set model, or will the data validator have to check the methodology of every survey?  How will performance on health and safety be monitored, especially given the confusion between the government, the sector and suppliers as to what – post Grenfell – constitutes adequate protection against fire?

Who will collect, validate and publish the data?  The assumption in the Green Paper is that the Social Housing Regulator will undertake this role.  The Green Paper references the excellent work of the Scottish Housing Regulator in this respect.  In our view – and we admire what Michael Cameron and his Scottish colleagues have achieved – this would be a mistake.

The first thing that any poor performer does – and we know this from experience – is to challenge the technical basis of the KPIs and the validation methodology.  It will be far easier to rebut this criticism (whilst responding positively to constructive challenge) if the data used by the regulator is collected and validated by the sector itself.  And in sector institutions like HouseMark and HACT already lies the skills in developing data collection systems and and validating landlord performance data.   HACT is developing common data standards for the sector, now with HouseMark support, and these will be vital in raising the quality of data collected. There is no merit in spending public money in replicating existing sector initiatives.  Even more important, social landlords need to ‘own’ this data and use it for sector-generated improvement.

The Social Housing Regulator should have the power – on an exceptional basis – to audit the systems used by providers to derive data on their performance.  This will ensure that the sector knows that ‘gamed’ data will be subject to official checks – with false performance data resulting in the regulatory sanctions that currently apply to inaccurate financial returns.   If the sector cannot demonstrate a commitment to accurate performance data monitoring, then – and only then – should the Social Housing Regulator step in and impose its own system.

It’s time for the sector to stand up and demonstrate its commitment to transparency.  And by the sector we mean both councils and housing associations.  Any suggestion that the ‘transparency deficit’ is solely a housing association issue is both wrong and ideologically-driven.

Another issue is what triggers regulatory intervention.  The former chair of the Social Housing Regulator Julian Ashby has sensibly suggested that the regulator should focus on ‘systemic or serious failures’ of landlord services with the Housing Ombudsman tackling individual complaints.  But how do we define ‘systemic or serious failures’? Will tenants have a powerful say in developing this definition and monitoring the regulator’s execution of this responsibility?

Clearly, the culture of the Social Housing Regulator will need to change. The Green Paper suggests some new and appropriate appointments to its Board.  Presumably, new executive staff with expertise in resident engagement will be recruited to an already high-quality regulator.  However, if tenants are to have confidence in consumer regulation, the whole process will need to be completely transparent.  For any regulator – not just the SHR – this will be a major cultural change.

Finally, the Green Paper asks whether the regulator’s remit should be extended to ALMOs and TMOs, whilst recognising that this might cut across local democratic accountability as expressed in the council’s role as client.  In our view this is a real problem but a fixable one.   Protocols can be established between the SHR and trade bodies such as the LGA, ARCH and the NFA.  The example of how the Audit Commission Housing Inspectorate certified ALMO performance – using data collected by a sector body (HouseMark) and with regular and transparent engagement with the LGA – seemed to work quite well in securing the release of over £20 billion in decent homes funding approvals between 2003 and 2010.

In short, consumer regulation will only work and command broad support if it is a partnership between MCHLG, the Social Housing Regulator, the sector and tenants.   In designing a new system, the views of tenants and their representative and support bodies should be the prime consideration.  Policy making in social housing has rarely taken this form in the past.  Let’s make sure it happens now.

*Ross Fraser was Chief Executive of HouseMark between 2001 and 2016

*Roger Jarman was Head of Housing at the Audit Commission Housing inspectorate between 2000 and 2010