Author: Steve Hilditch

George Osborne may have shed a tear for Mrs Thatcher this week, but a reading of the Treasury Select Committee’s report on the Budget should make him feel even more miserable, as serious questions were raised about his biggest-ever housing initiative, the so-called ‘Help to Buy’ scheme.
Help to Buy has two parts.

• First it is proposed to introduce equity loans, of up to 20% of the value of a new build home, repayable when the house is sold. This is a major extension of the First Buy scheme, and it is hoped that it will stimulate additional supply of new homes by boosting effective demand. The scheme is not restricted to first time buyers, the maximum home value will be £600,000, and there is no income cap. It is expected to last 3 years and Government estimates it will support 74,000 homebuyers at a cost of £3.5 billion.
• Second, it is proposed to offer mortgage guarantees, aiming to tackle the scarcity of high loan-to-value mortgages by providing guarantees to lenders offering mortgages to people with small deposits (5-20%), whether first time buyers or not. This new intervention, which is also meant to be temporary for 3 years from January 2014, is potentially much bigger than equity loans: it could involve £12 billion which will in turn support £130 billion of mortgages. The Government would be liable to take a hit for a share of the value in cases of default, but lenders will have to pay a fee for the guarantee in each case, which it is hoped will make the scheme self-financing.

The Treasury Select Committee raises a number of serious concerns about the schemes, which it says have not been answered by Osborne or the Treasury. Among them are:

• They are nervous that there could be a repetition of the experience in the USA where a system of mortgage guarantees (through the Fannie May and Freddie Mac arrangements) effectively stacked-up vast quantities of ‘sub-prime’ mortgages (ie to people who basically could not afford them) – a first cause of the credit crunch.
• Help to Buy incentivises the Treasury to maintain or enhance property prices because the taxpayer has a vested interest in avoiding falls in value.
• The backdrop of around 8% of existing mortgage payers already struggling to pay their mortgages, to the extent that they benefit from ‘forbearance’ measures. Lenders may not be willing to continue or to extend these arrangements to new more marginal borrowers, especially if there is a general increase in interest rates over the next 2-3 years. Repossession would therefore become a more common outcome.
• There are no figures on the likely number of beneficiaries of the guarantee scheme and in particular no numbers on the number of first time buyers who might benefit.
• Although the scheme excludes buy-to-let and interest-only mortgages, there has been no clarity on why the purchase of second homes has not been excluded.

There is a justification for further Government intervention in the mortgage market, but the case is strongest for offering specific help with deposits to first time buyers in ways which are directly linked to additional supply. No case has been made for a general scheme across the whole market, mainly because a general increase in demand (the ability of people to finance purchases) without a concomitant increase in supply is only likely to result in an increase in prices. This was the experience with the old system of mortgage interest tax relief.
The Select Committee quotes with approval Martin Wolf  of the Financial Times, who wrote:  “This is good politics and horrendous economics….. The government is encouraging people to leverage themselves up to the hilt in order to buy what is already likely to be overpriced property and, as a result of this policy, is likely to become still more so. This is irresponsible enough. But worse, the government will probably now find itself permanently using its balance sheet to support risky housing finance, as the US has done. The market cannot sensibly finance such high loan-to-value ratios. But this fundamental lesson from the crisis is now being thrown away.”
The Select Committee is also concerned as to how the schemes will be reported in the national accounts. It seems that neither of the schemes will be classified as traditional public spending. Loans can be repaid or are covered by a share in the equity, recoverable when the property is sold, but a similar argument could be put for council housing, which is, of course, treated differently. Guarantees might never be called in, but they do add to Government’s contingent liabilities. This is the second time the Treasury has been highly flexible on the matter of guarantees in housing, and it is welcome that they have moved away from the traditional view that guarantees should be counted as expenditure until proved otherwise. We hope to see yet more flexibility, especially in the treatment of council housing in Government definitions of public borrowing. One thing is clear: however the new scheme is accounted for, it tends to destroy the argument that there is no money left.
Osborne’s major housing initiative does not reflect the supposed priority of doing everything possible to boost housing supply. The Treasury Select Committee is right to conclude that that is where the Chancellor’s main concentration should have been. And it is also why it is right to see Help to Buy as a political and not an economic ploy.

The blurb advertising the upcoming Chartered Institute of Housing London Conference starts with a surprising statement. It says:

“Housing is key in delivering the wider economic and social ambitions for London and the Mayor of London, Boris Johnson is committed to tackling the capital’s many housing challenges.”

Really? Let’s test this notion by looking at the recently published housebuilding and homelessness statistics.
At the mayoral Election last year, Boris Johnson took considerable credit for the scale of affordable housebuilding in London during his first four year term, despite the evidence that the homes being built were those approved by Ken Livingstone prior to his defeat in 2008 and funded by Gordon Brown prior to his defeat in 2010. The Coalition ended Labour’s National Affordable Housing Programme (NAHP) in March 2011 (subsequent starts under that heading were those committed before the programme ended). Instead it brought in its own Affordable Housing Programme, which introduced the so-called ‘affordable rent’ product (at rents of up to 80% of market levels). Johnson made substantial claims about how many (unaffordable) affordable homes he would provide during his current term.
The latest statistics showing GLA-funded housing starts and completions makes depressing reading. Homes started under Labour’s NAHP have suffered massive but predictable decline as the programme concluded, down from over 15,000 new affordable homes (defined as social rent, intermediate rent and affordable home ownership) in each of 2009/10 and 2010/11 to a tiny 340 in 2011/12 and 411 in 2012/13.
In theory (well, Boris-style promises) this programme has been replaced by a bright shiny new scheme. But the new Johnson AHP started only 3,659 new homes in 2011/12 and only 8,923 in 2012/13. Even affordable home ownership, which Johnson supposedly supports enthusiastically, achieved only 4,187 starts in the two years 2011/12 and 2012/13 compared to 7,124 in 2009/10 and 2010/11 under the Livingstone plans.  The decline is most severe in social rent, with most of the new AHP homes being at the much higher ‘affordable rent’. Characterised by confusion, uncertainty and difficult negotiations with housing providers over viability, the new AHP suffered severe delays. As a result, the programme is heavily backloaded (ie most homes will be provided in the final year) and there are growing and severe doubts about delivery.
Among the boroughs, only Brent and Tower Hamlets started more than 1,000 affordable homes (on the widest definition) in 2012/13 using GLA money. One of the historically strongest boroughs in terms of providing affordable homes, Hammersmith and Fulham, plummeted down to just 70 affordable starts as the Tory Council’s gentrification plans proceed.
The affordable housebuilding graph goes down but the homelessness graph goes up.
Nationally, the continuous decline in homelessness acceptances that Labour achieved from 2003 to 2010 has gone firmly into reverse. As the latest homelessness statistics show, in London the number of households accepted as being owed ‘a main homelessness duty’ in the last quarter of 2012 was 4,210. This was an increase of 22% from the same quarter in 2011 (and was 31% of the England total). In London, the main reason for the loss of last settled home is now the ending of an assured shorthold tenancy – 1,200 (28%). This is an increase of 61% from 740 in the same quarter in 2011.
The number of households in temporary accommodation in London at 31 December 2012 was 38,860. This is an 8% increase compared to the previous year (35,920) and accounts for 73% of the total England figure. The number of households in B&B accommodation in London is 2,270, an increase of 35% from 1,680 at 31 December 2011. London accounts for 57% of the total England figure.
The growing importance of homelessness caused by the ending of a private rented tenancy is of great concern. As councils are now able to discharge their homelessness duty by finding private accommodation for an applicant, families are in increasing danger of the ‘revolving door’: becoming homeless, being rehoused in insecure private accommodation and then, in due course, becoming homeless again.
Rising homelessness and falling affordable housing starts are only 2 key indicators of the growing housing emergency in London. Boris Johnson, meanwhile, seems to be spending more and more of his time angling for the Tory Leadership and going on jollies around the world at our expense. As he won’t be standing again, he is no longer accountable to London and Londoners for his hopeless policies.
So, CIH, do you still think Johnson is ‘committed to tackling the capital’s many housing challenges’?

After a week free of blogging due to manic activity getting ready for the hugely successful London Labour Housing Group Policy Conference on Saturday, that all-too-common feeling of outrage descended on me again this morning whilst watching a BBC News 24 report on the start of the total benefits cap in 4 London boroughs.
I love the BBC but sometimes it is just crap. So, they tell us with no hint of contradiction that the £500 cap is the same as the average worker receives; it affects 40,000 households, and over 8,000 people have already taken up work ‘because of the cap’. Minister John Hoban then trots out the same guff in interview without a hint of contradiction.
So let’s be clear. All of the ‘facts’ that the BBC dutifully reported are, at best, controversial and, at worst, downright misleading.
£500 may be average take-home pay of people in work but it is not their average income taking account of in-work benefits (tax credits for example or in-work housing benefit). The comparison that the Government makes with people on out-of-work benefits simply does not compare like with like. This seems like a generic Government failing as Grant Shapps did exactly the same thing recently with housebuilding figures.
It seems that ‘40,000 affected households’ is a back-of-the-fagpacket figure dreamed up by DWP to replace their previous and equally fanciful estimate of 56,000 (I believe they call it ‘ad hoc analysis’). In truth, they have very little idea. The ‘8,000’ who have taken up work reflects normal movement in and out of work and has little if anything to do with the cap.
As the excellent TUC Touchstone blog points out, in February 287,500 people moved onto Jobseekers’ Allowance and 292,000 moved off – it is no surpise that 8,000 of those who moved off were also subject to the cap, and will now escape it by being in work. But DWP also beg the question – if you count those coming off, what about those going on? How many of those who went on to JSA are also now included in the cap?
According to the Guardian Politics Blog this morning, TUC General Secretary Frances O’Grady has complained to the UK Statistics Authority, calling for an investigation into the alleged misuse of statistics by the Department for Work and Pensions in claiming that the government’s welfare changes are working.
Frances says: “It was wrong for Iain Duncan Smith to claim that the impending benefits cap has spurred people into finding jobs. The government’s own analysts say that 16,000 fewer people will be affected because ministers have changed the rules about who is eligible, not because of any change in behaviour. The Department for Work and Pensions is a serial offender for misusing statistics. Perhaps ministers should be subject to a three-strikes-and-you’re-out rule. If you need to make the supporting evidence up, then you must have a pretty weak argument.”
And on Touchstone the TUC says: “This is the latest in a long line of recent DWP misprepresentations, which all stem from the problem that the evidence doesn’t appear to fit with what the Secretary of State believes. But not content with ignoring the facts when formulating his policies, it now appears that he is also happy to disregard them when reporting on their impacts. Meanwhile, in the real world, thousands of families prepare to lose their homes, children will be taken out of school, bed and breakfast crisis housing booms and more than five jobseekers continue to chase every post. It’s a shame that the Secretary of State can’t spend as much time tackling our jobs crisis as he does fiddling the statistics.”
Benefits is not my strongest suit so I normally rely on the writings of real experts like Steve Wilcox who edits the UK Housing Review and Declan Gaffney who writes an excellent blog for people with a slightly techie interest in the detail, and is also superb on analysing the myths on welfare and welfare recipients.
This, and information from lots of other sources, is all publicly available and directly contradicts what Government is saying. So is it too much to expect that the BBC (and other media outlets, they are not alone) might at least check out some of the figures before quoting them as fact?

No doubt readers aren’t interested in my general views about Margaret Thatcher. You can assume that they aren’t as rose-coloured and sycophantic as everything that’s been on TV this evening (thank goodness for Kevin Maguire providing a smidgen of balance). So what did her 11 years as Prime Minister mean to housing?
The only housing reference made so far in the media’s extraordinary obituary-fest has been to the right to buy, as if it was the only housing policy at the time. The policy was wrong on so many levels and has been a long-term disaster, but it is hard to think of a political phenomenon like it (possibly until Boris Johnson came along). It steamrollered over Labour and touched an aspirational nerve in working class Britain that no-one at the time was prepared for or could explain. It became the iconic Thatcherite domestic policy (alongside destroying the trades unions) despite the fact that it was barely mentioned in the 1979 Tory Manifesto, where it was hedged around with caveats about sheltered housing and re-sale restrictions.
It always feels as if the Tories stumbled across this rich seam of political gold quite by accident, without realising what they’d done until they’d done it.
Thatcher’s impact on housing came in other ways as well. Her support for rapid deregulation and unfettered financial markets – notably the ‘Big Bang’ in 1986 – led inexorable to the banking boom, the easy money culture, and the crisis 20 years later. It is hard to remember the days when banks did not provide mortgages and building societies provided mortgages but not other financial products, and everyone operated under strict rules. Deregulation has bedevilled the housing market since.
For those of us at the sharp end of housing in the 1980s, we watched as housing investment by councils plummeted as councils were effectively prohibited from building and buying property on anything like the scale of the 1970s. We were told that council housebuilding would be replaced by the new ‘third arm’ of housing associations, but it was a lie: despite their success, they never filled the vacuum left by the councils. And attempts to revive the free market in housing led to the introduction of shorthold tenancies and a new generation of insecure tenants.
Rising housing demand, boom conditions in home ownership, and the ending of council housebuilding had an inevitable outcome: the galloping homelessness crisis of the 1980s. Areas like Bayswater in London changed in a few years from a residential district with quite a few budget hotels into the homelessness capital of Britain. Sticking homeless families into B&B for years became the new scandal.
It wasn’t all bad. Nearly, but not quite all. The 1980 Act gave us the right to buy, but it was added into a Bill inherited from Labour that also gave council tenants security of tenure, and a whole ‘tenants charter’ of rights, for the first time after years of campaigning. These are the same rights that Cameron is now busy removing. And I suppose the first steps on the shared ownership road were taken during her decade.
There is a straight line from Thatcher’s legacy – right to buy, end of council housebuilding, letting housing benefit take the strain of rising rents, rising homelessness, encouraging sub-prime lending for property purchase – to the housing crisis we are experiencing today.
And, before our very eyes, we see Cameron making the same mistakes all over again.

After Frederick West was convicted of despicable murders, no-one wrote a headline saying he was the ‘Vile Product of Home Ownership’.
After Harold Shipman was convicted of mass murders, no-one wrote a headline saying he was the ‘Vile Product of Full Time Employment’.
It is disgusting therefore that the Daily Mail produced the headline ‘Vile Product of Welfare UK’ after the conviction of the child killer Mick Philpott.
This was not the hyperbole of a headline writer who has drunk too much coffee and got carried away. Exploiting extreme cases is a key tactic in the Mail’s mission to demonise the poor. And they are not alone: as Owen Jones in particular has argued many times, it is a theme of many papers and is picked up slavishly by the radio and TV. That’s why people like Philpott are so attractive to the media, and why he was invited on shows like the despicable Jeremy Kyle Show and starred in a documentary by Ann Widdecombe: to illustrate to the world how monstrous and degenerate welfare recipients are.
This is deliberate politics. The best way to defend benefit cuts is to attack benefit recipients, and Philpott offered a perfect opportunity. Holding a sick bucket just in case, I read the Mail columnist AN Wilson’s piece. He says Philpott ‘is a perfect parable for our age. His story shows the pervasiveness of evil born of welfare dependency.’  ‘The trial….. lifted the lid on the bleak and often grotesque world of the welfare benefit scroungers’. ‘Those six children, burnt to a cinder for nothing, were, in a way, the children of those benevolent human beings who, all those years ago, created our state benefits system.’ ‘Whole blocks of flats, whole tenement buildings are filled with drug-taking benefit fraudsters, scroungers and people on the make.’
In this way the case is made. The Duncan Smith narrative that our problems as a society arise from ‘welfare dependency’ is justified by example. Focus shifts from the swingeing and punitive cuts that he is implementing: after all, he is only trying to save benefit recipients  from becoming Mick Philpotts. Unemployment is not a systemic failure; look, these people chose to be unemployed to get the benefits. And typical council tenant: having more children just to get a bigger house.
When former Children’s Minister Sarah Teather was sacked she blew the whistle on what was happening inside Government. As Toby Helm wrote in the Guardian: ‘She accuses parts of government and the press of a deliberate campaign to ‘demonise’ those on benefits….. With vivid outrage she describes the language and caricatures that have been peddled. ‘I think deliberately to stoke up envy and division between people in order to gain popularity at the expense of children’s lives is immoral. It has no good intent.’ ’
The Mail and the Government are in this together, and it is shameful.

The Easter weekend not only saw the commencement of many of the Government’s hated welfare reforms, and an attack on them by a coalition of churches, it also saw the return of Grant Shapps to his old housing stamping ground and the wheeling out of Iain Duncan Smith, both desperately trying to justify their increasingly disastrous and oppressive housing policies.
The four churches had excellent impact with their Easter message accusing politicians and the media of promoting six myths about the poor: that they are lazy; are addicted to drink or drugs; are not really poor; cheat the system; have an easy life; and that they caused the deficit.
“The systematic misrepresentation of the poorest in society is a matter of injustice which all Christians have a responsibility to challenge,” they say.  Shapps and Duncan Smith set out to prove just how right the churches are.
Shapps/Michael Green has clearly been working on a few new lines to peddle on the media. One concerns housebuilding, carefully worked out to be this side of a lie and the other side of misleading. I suspect we will hear it again. First he tweeted it then he repeated it twice on the World This Weekend during an interview with Shaun Ley. His two tweets (31 March) were:

Some house building facts. We’re building 170k affordable & social homes. Under Lab there was a net reduction of 430k social homes!
In under 3 years we’ve built more affordable & social homes than Labour added to the total in 13 years. No wonder a housing crisis built up!

This is little more than a straightforward deception, because houses built and the net change in the stock are entirely different things, the main difference being that the former does not take account of right to buy and other sales and the latter does. Any like for like comparison would show that his claim that somehow they have done more in 3 years than Labour did in 13 is complete baloney.  I have asked Full Fact to check it out.
Shapps’ second piece of statistical trickery concerned disabled people and incapacity benefit. Again on 31 March he tweeted:

878,300 people on incapacity benefit removed themselves BEFORE taking test, knowing they’ll now be better off in work

In a series of tweets, Declan Gaffney @djmgaffneyw4 set out the source of this statistic and then showed that Shapps is factually inaccurate. He observed that the Government’s response to being accused by the churches of spreading dishonest myths about benefit claimants is ‘to blatantly misrepresent official statistics’ – ie to do more of the same.  Declan then challenged Shapps to correct the record. We will see what happens next.
Meanwhile, the man that personifies skin-deep sincerity and faux concern for the poor, Iain Duncan Smith, told a disbelieving world that he could live on benefits of £53 a week, an estimated 97% reduction in his current income of £1,581.02 a week. A petition has been launched asking him to do just that for a year: you can add to the 20,000 signatures it has already gained. Will he/won’t he take up the challenge?
The fact that the Government is coming under increasing challenge, ranging from the Archbishop of Canterbury to dozens of demonstrations against the bedroom tax over the weekend, is very welcome. But the knockabout cannot disguise the serious damage being done to the poorest in the name of austerity.

Nothing feeds my belief that the super-rich should pay more tax than to read the opinions of the super-rich themselves and their advisers.
Through my letter box in north-west London drops a very glossy and expensively produced magazine called London Property. As you can imagine, any property magazine circulated in north-west London is going to be full of pricey property. But this magazine is something else. Many are so expensive they are POA (price on application, or ‘if you need to ask the price, you can’t afford it’. But as random examples there is an ‘elegant penthouse apartment’ at Fulham Reach for £8.95m; a 5 bed house in Golders Green for £2.65m; a Belsize Park apartment for £2.9m; a detached house in NW6 for £3.8m. And on and on.
None of this is a surprise. But the magazine contains ‘opinion’ columns by people who are apparently agents in the luxury market. One complains about ‘politically motivated’ politicians (what else would they be?). I quite liked his starting point: ‘we have a bunch of incompetent sixth formers from Eton running the country’. But then it sinks. ‘It is extraordinarily disingenuous that Karl Marx/Ed Miliband is advocating a Mansion Tax’. Evidently this is because Ed would have to pay it himself because he lives in Primrose Hill (personally I tend to trust people on higher incomes who advocate higher taxes for themselves). Our hero is full of insightful views, such as: ‘Few realise that if the rich get poorer the poor get poorer as a consequence’ and the Mansion Tax will ‘suffocate the ethos of working hard and getting the rewards we deserve’. But Karl Marx forgodssake? I think he knows not what he is talking about.
Another correspondent also reverts to Marx. Perhaps it’s a trend? He says: ‘Karl Marx made valiant attempts in his socialistic models and teachings to try to make everyone equal’ and berates ‘this insatiable obsession with the politics of envy’. And the Mansion Tax again, which would ‘drive a coach and horse through this vital income sector that we require as part of the wealth of the nation…. the housing market above £2m will collapse’. I think he’s confused Karl and Groucho.
As the evidence grows that the London housing market for ordinary people has been severly damaged by the capital becoming the property safe haven for the world’s super-rich, and as people on low incomes are punished for daring to live in former working class communities like Pimlico and Covent Garden or for having a spare bedroom, the views of these gentlemen should inspire us to redouble our efforts to get social justice.
One of them has to stretch back to Denis Healey’s remark about squeezing the rich until the pips squeak ‘and other left-wing nutters’ to make his point. But, to quote the bard, he should realise that the times they are a-changing. It is no longer left wing to say: the global super-rich caused this crisis, and they should pay for it.

The notion that the main aim of the Budget is to create a mini-house price boom before the Election seems to be gaining credence.
Yesterday Red Brick argued that that the Government’s additional support for mortgages and deposits, especially the ‘help to buy’ scheme, was engineered to promote such a boom. Amid their endless and cynical rhetoric about helping people onto the housing ladder, their real aim is to get a ‘feel-good’ boost that comes with a rise in house prices.
However Planning Minister Nick Boles seems to have given the game away in an apparently private meeting with big property developers at a reception in Mayfair, which has been reported in the Telegraph. At almost the same time as the Government was busy refuting Ed Balls’ claim that the scheme will be used by the rich and people wanting to buy second homes and buy-to-lets, Boles couldn’t be clearer when he said he ‘couldn’t care who owns the bloody things’.
According to the Telegraph, Boles ‘indicates that the main purpose of a £15.5 billion government package to support homebuyers is to create a building boom.’  The next steps, he said, would be further deregulation of the planning system.
In a linked article, the Telegraph reports on one immediate response to the Budget: ‘Affluent house hunters have been contacting estate agents in some of Britain’s most expensive postcodes to ask how they can benefit from the new state mortgage assistance scheme unveiled in this week’s Budget…… there is nothing to stop high earners from using the multi-billion pound scheme and early anecdotal evidence suggests that it is likely to benefit large numbers of relatively wealthy people.’  
They quote one up-market estate agent as saying: ‘Given the limit at £600,000 and lack of salary cap surely this is going to appeal to those wanting really quite nice property – for example three-bedroom flats and houses in Battersea and Wandsworth [in South-West London]. If I was being cynical I’d call those Tory voters.’
There is of course a difference between a hike in house prices and a building boom. Liberalising and subsidising mortgages and deposits without a corresponding increase in supply is likely to feed through into price rises. The Government clearly hopes that a further liberalisation of the planning system and the prospect of bigger profits will bring about the supply response they are desperate to see.
But from the flavour of the right wing press over the past couple of days, the new policy will intensify the struggle between the property developer wing of the Tory Party, backed by Boles, and the nimby/defend the countryside wing. Both wings are capable of being equally unpleasant, and they deserve each other.
The best commentary on the new policies that I have seen came from Faisal Islam, Channel 4 News’ economics editor. It is worth reading his whole blog post – it is very balanced, being critical of Labour’s approach as well as Osborne’s.
Islam makes a number of inportant points:

• Britain is devaluing and inflating housing at the same time. Overpriced housing is not growth.
• Buyers dependent on low interest rates will be taking on a ‘mortgage of the living dead’ if interest rates go up. This is the Freddie Mac/Fannie May ‘sub-prime’ error being repeated here.
• Putting money into mortgages when there is a long list of business demands and unfunded infrastructure projects ‘beggars belief’. ‘If our sovereign balance sheet is to be lent to the private sector, it should be to industry, entrepreneurs, and infrastructure.’
• ‘To critique the notion of a “magic money tree”, and then immediately
  create a magic money forest of mortgage guarantees that don’t count as public
  spending, is baffling.’

No rational person wanting to splash the cash in the field of housing would do what the Government has done in the Budget. But there is a silver lining: no longer will we have to accept the line that ‘there is no money left’. There is plenty of money left, it’s just that Osborne chooses to use it in a wholly ideological way.
If Labour didn’t do enough to avert a housing crisis, we now have a Government that is actively making it worse and sowing the seeds of more problems in future. Jules Birch characterises it as ‘blowing bubbles’: looking to make people feel better by increasing house values. As Jules wrote: ‘It seems that any attempt at targeting new supply or first-time buyers has been abandoned in a desperate attempt to get the housing market moving before the next election.’ No lessons have been learned: the thing about bubbles, which we should know very well from experience over the last five years, is ‘just like our dreams they fade and die’.
If there is no money left, how can billions be found to support additional home purchases? The policy is indiscriminate: it is not targeted at first time buyers of new homes, but is also open to people who already have a home and want to upgrade (up to £600,000), open to people wanting to buy a second home, and open to buy to let landlords. You can guess which groups will move in on the scheme first, and it won’t be the trapped ‘generation rent’.
Tory MP Kwarsi Kwateng summed it up well, telling the BBC: ‘My worry with this is that having a system where you are giving mortgages without increasing the supply will lead to asset price inflation, because obviously if the amount of supply remains the same and you are making credit easier, the tendency would be for the prices to go up. I think we could have announced something bolder that actually increased the supply of homes.’
And the normally reliable BBC business editor Robert Peston said the new scheme came with risks as ‘growth sparked by a housing-linked consumer boom might not be altogether healthy’ for the economy, adding that the Chancellor’s strategy ‘may reflect a set of cultural and financial prejudices – houses deemed to be a better investment than proper wealth-creating entrepreneurs – that has been the UK’s curse.’
You have to worry about the Treasury and whether they have any economists there any more. It would be a good thing to provide targeted help with deposits to first time buyers looking to buy new homes, but only in the context of a broad policy that avoids general house price inflation. There is no new mechanism for ensuring that the additional mortgage finance will lead through into additional demand for new homes rather than additional money to buy homes that already exist. Every standard economics textbook will tell you that increasing general effective demand in the housing market when supply is inelastic leads to an increase in price.
It may be that the economists are overruled by the most ideological Chancellor in modern memory. Or it may be that an increase in prices is exactly what he wants, providing the appearance of growth, false confidence that things are getting better, and gaining the benefit of some ancillary increase in consumer spending in time for the Election. Osborne and Cameron are hard-wired to shout their mantra about increasing home ownership, driving blindly down a cul-de-sac ranting about aspiration. Because they know they will get positive headlines from the media – ‘good news, house prices have risen’ – when the opposite is the case.
By contrast Osborne offered nothing of significance for schemes that would actually get growth by building more homes, meeting housing need, and bringing down the benefit bill along the way. We will have to wait until June to see any announcement on the future of affordable housing. The Budget papers say that then ‘the Government will set out a social rental policy that gives social landlords certainty until 2025.’  Pull the other one.
There was no response to the calls from across the political spectrum to lift the cap on councils borrowing to build new homes. There will be yet more reliance on private renting but an ominous warning that the cash for whole programmes may be capped in future – the money will stay the same even if there are more cases. That means more cuts in basic entitlements, which in turn means more people unable to afford their homes.

What’s this about and what’s the point of all these initials?

The main measure of Government debt used in the UK is the PSND (Public Sector Net Debt) which is similar to the more well known PSBR (Public Sector Borrowing Requirement) used in the past. Other countries use GGGD (General Government Gross Debt) and all international comparisons are done on this basis.

The main difference between the two measures is that GGGD excludes the public corporate sector, whereas the PSND includes it. So in the UK public corporations (which include council housing) are controlled together with the rest of general government debt, whereas in other countries they are controlled separately and their borrowing is regulated by their own business plans and their own prudential borrowing rules.

More information can be found in the recently-published UK Housing Review  and in a report by a number of housing organisations called Let’s Get Building published late last year.

There was a period in the 1990s when no tenant conference would be complete without demands for a change in the ‘PSBR rules’ that made it hard for councils to borrow to invest in council housing.
Before the 1997 Election there was a head of steam behind making changes to the definition, changes that many people believed could lead to a major increase in housing investment and a renaissance in council house building, with particularly influential reports from the Chartered Institute of Housing gaining widespread support.
The fact that, in the event, the rules didn’t change tells us something about the Labour Government (council housing wasn’t very New Labour) but also about the power of Treasury Conventions. The PSBR had been invented as a measure of public indebtedness during the 1976 IMF crisis when the scale of the public corporate sector was huge (due to the size of the nationalised industry sector) compared to 1997 and now. But it had become a firm part of the Treasury mindset.
This little foray into history is of relevance because ‘the rules’ are again becoming a major topic of conversation, especially in housing but also in other affected sectors like transport.
There are two parallel arguments running. First, that an increase in borrowing for housing investment is justified even under the current rules because the economy needs a boost and because it would virtually pay for itself as the effects multiply through the economy. And secondly that a permanent switch in the debt measure would enable the council housing sector to borrow to build and use the freedoms of the new self-financing housing revenue account regime to the full.
Changing the rules has a measure of support across the political spectrum. Broad support amongst Lib Dems and Labour is well known, but there have also been Conservative voices, especially in local government, calling for the greater freedoms that the change would bring – which also chimes with the localist philosophy.
The Lib Dems have recently picked up the argument, presumably encouraged by Vince Cable. In a debate in the House of Lords last week (Column 158) Lib Dem Peer Lord Shipley (former leader of Newcastle) set out the case:

Councils have the capacity to build more homes, given that council housing is now self-financing. They could raise £7 billion. This could be done if the Government removed the borrowing cap on housing revenue accounts, relying instead on a prudential borrowing code to guarantee that only sustainable investment gets the go ahead. Many councils have successfully used prudential borrowing and have shown that they can manage such borrowing without risk. The Local Government Act 2003 already empowers the Secretary of State to cap any local authority which undertakes risky borrowing.
I understand the need for the Government to be careful about public borrowing levels. However, relaxing the housing borrowing cap need not be counted as public sector borrowing any longer. The UK uses a much wider measure of public debt than other countries. Council housing is a trading activity and international regulations already permit this to be discounted from government borrowing levels, although unfortunately the UK does not currently adopt such an approach and I remain puzzled as to why it does not.

The arguments against the change look increasingly weak. The Treasury maintains the line that PSND is the right measure because it enables the government to be aware of all its contingent liabilities. But, as John Perry has pointed out on his Two Worlds blog, in the last 2 decades there have been few failures by public corporations and many by private corporations where the government has had to step in (notably the Banks) and pick up the liabilities. In practice, the government’s contingent liabilities are not restricted to the public sector.
The debate has been joined again within the Labour Party, with the Labour Housing Group taking a lead role in promoting the need for rule changes to enable a new generation of council houses to be built, adding to the success of the self-financing HRA regime.
It’s an argument that won’t go away.