If only we’d seen it as a property bubble. If only we’d realised price rises can’t go on for ever. If only we’d have woken up to the fact that house prices seven times the average income was a crash waiting to happen.
Hindsight is a valuable thing. We didn’t take seriously any of these possibilities during the boom. Not Whitehall, industry, government or opposition. There were some sane and far-sighted voices in the wilderness, such as Shelter’s new Head of Policy, but they were certainly the exception.
With this new wisdom even a Tory government is saying government should have intervened in the housing market and would use in the future ‘levers’ to ensure a bubble did not inflate again.
It seems highly likely to me that rapid house price rises will resume again as soon as lended loosens up (which could take a while admittedly). But we don’t have to wait until then to try out our new wisdom.
A colleague recently drew my attention to house prices in Australia, a country considered to have managed its economy well and escaped the worst ravages of the global recession. However, if you look at their house prices, it looks like they have simply delayed their crash:
Australian house prices are booming and escalating higher still with broadly the same factors that drove the unsustainable increase in Britain and with households taking on similarly huge amounts of debt.
So with new-found wisdom and confidence that we can deflate any future bubbles, what should we advise the Australian Labour government to do, that would a) work, b) not cause the bubble to burst quickly and c) carry enough popular support so that it can be done by a government with a majority of one.
We’ve got a real life exam question here; I’m still not sure we have a credible answer for Australia now or Britain again in the future.
Those wags at Inside Housing are in the April Fools Day Spirit clearly, with their news that Grant Shapps will release a cover of the Clash’s ‘Should I Stay or Should I Go?’ to coincide with the Housing Benefit cuts.
Good joke, to highlight again a deadly serious issue for thousands of families.
Steve adds:
A friend told me a few minutes ago that there’s a text going round saying that Gaddafi is arriving in Newcastle this morning for talks. Newcastle owner Mike Ashley thinks he’s a new cheap centre forward to replace Andy Carroll.
But the best April Fool hoot this morning was Lord Freud on the Today programme. He made me lol by saying that the government has put ‘a lot of money’ into local authorities to enable them to help people facing housing benefit cuts. The government is making housing benefit payments ‘realistic’ he said. It took me a minute to realise what the date was.
What a card the man is. And what a fun way to start the new financial year.
TUC General Secretary Brendan Barber has been busy recently, what with the huge march and rally for the alternative on Saturday.
So it was good to see him taking time today to comment on the government’s decision to bring forward to January 2012 the new rule that single adults up to the age of 34 will be eligible only for the single room rate of local housing allowance. Brendan focused on the risk of homelessness. He said: ‘This reform runs the risk of increasing homelessness among young people as many will have their benefit entitlement significantly reduced. There is almost no chance that all of these people will be able to find alternative accommodation at affordable rents. With unemployment still rising and the housing crisis deepening, the government seems intent on piling on the financial pain for young adults.’
The government has been happy to keep the debate about housing benefit/local housing allowance changes focused on the largest families receiving the highest amounts of benefit in the highest value areas, especially in central London. But the changes will hit hard at all kinds of tenants all over the country, as the tables produced by the Valuation Office Agency (VOA) show clearly, and they will hit single young people between the ages of 25 and 34 severely. You can see figures for your local area here.
The tables show for each area (Broad Rental Market Area in the jargon) what the difference is between the current 1 bed rate and the single room rate and also how the rates will be affected by the switch from being assessed on the 50th percentile – ie the median rent in an area – and the new rule that they will be based on the 30th percentile.
So a single person aged between 25 and 34 would currently be eligible for the 1 bed rate at up to the 50th percentile rent; in future (ie over the next year) they would be entitled to the single room rent at the 30th percentile. The figures will change as market rents change, but on current calculations a single person age 25-34 living on Tyneside would be entitled to a 1 bed rate of £97 a week and after the changes would only be entitled to a single room rate of £58 a week. In southern Greater Manchester the drop will be from £103 to £56. In Leicester from £91 to £56. In north west London from £178 to £80.
In theory the 30th percentile rule means that 30% of properties in an area will be ‘affordable’ for claimants. In practice the cheapest 30% are already occupied and people having to leave their existing accommodation will have to compete for vacancies as they arise. Not only is this likely to force rents at the lower end up (not down as the government ridiculously claims) but there will be a flood of 25-34 year olds seeking to move and it is extremely unlikely, as Brendan comments, that there will be enough accommodation to go round. The risk of homelessness is great, and even if there is a scramble amongst landlords to convert larger houses into shared accommodation there will then be knock-on effect on families.
As Brendan said at the rally at the weekend, ‘We’ve come together not just to oppose the cuts, but to call for a new approach to rebuilding our economy rooted in social justice, in place of this tide of economic destruction.’ Quite.
The Chief Executive of the National Housing Federation, David Orr, spoke last week about the ‘institutional chaos’ facing housing associations and the need to think carefully about balancing the needs of their business with their mission.
He said “You might take a strategic business view that the smart thing to do is wait until all the moving parts have settled down and not take any risks. But that is pretty disastrous in mission terms with the scale of the housing crisis.”
Housing associations (HAs) certainly face huge dilemmas in the current policy framework. It is no longer possible to build what is needed most – social rented housing at genuinely affordable rents – except in tiny numbers as a special case. So, if HAs with development programmes want to keep them going, and most are assembling their bids at the moment, there is little choice but to plan a mix of private housing, shared ownership and the new, grotesquely-named ‘Affordable Rent (AR)’ product (which is little different from the intermediate rent products we have seen before). Of course it can be argued that building almost any housing is useful given the current shortage, and AR at 80% of market rent is not that much different from social rents in those parts of the country with the lowest values. But everywhere else, the virtual removal of social renting from the mix totally disregards the needs of communities and the people on lowest incomes.
One thing HAs with a development programme can and must do is protect the existing stock of social rented homes when they become available for re-letting. The government wants them to re-let a share of their existing homes at AR rent levels to generate funding for new development. I think they should demonstrate their commitment to their mission, to borrow David Orr’s word, by refusing to do so and by re-letting these homes at social rent levels. Councils, in revising their housing strategies and setting their new ‘tenancy strategies’ under the Localism Bill, should set out their opposition to existing social rented homes being re-let at such high rents.
Lettings policies, already the art of getting a quart in to a pint pot, will come under even greater strain. Demand for homes that are re-let at social rents will increase as supply contracts even further. Who will the new AR tenancies at up to 80% market rents be allocated to? The government argues that the profile will be the same as those who currently get allocated social rented homes, but they also say that the new policy will not impact on the requirement for housing benefit – and they can’t have both of these. Higher rents require more housing benefit, as we have argued before and as Family Mosaic’s research showed. Once again their housing policy and their welfare reform agendas are in direct conflict.
HAs caught in the middle say quietly that this is an argument that the lenders may ultimately decide – they don’t like it when the tenants can’t pay their rents and this will be reflected in their risk assessments of new schemes. One middle course would be for HAs to refuse to set AR rent levels above the limit for Housing Benefit, irrespective of local market rent levels. That would reduce the yield but would keep the homes available for people on housing benefit. But, in higher value areas, it is the total benefits cap (rather than the housing benefit limit) that will prevent many tenants from being able to pay their rent. This will be reflected in the risk assessment for new schemes and the pressure will be on to let to people with sufficient income to be able to afford the rent.
So, there are dangers both ways. If AR homes are let to people on low incomes who would previously have qualified for a social rented home, then housing benefit spending will go up. If AR homes are let to people who can afford the higher rents, then people on lower incomes will be squeezed out and more will end up in private rented accommodation at higher rents with a higher requirement for HB support. Either way, there is likely to be upward pressure on HB spending: the government will have to find more money or look for more cuts. The prospects are grim.
One of the rabbits that the Chancellor pulled out of the hat in this afternoon’s budget was extra help for up to 10,000 first time buyers. What a great idea!
But, hold on, I’m sure I’ve seen this rabbit somewhere before…
FirstBuy announced today provides a 20% equity loan (jointly funded by the government and house builders) to help first-time buyers get a home. First-time buyers put down a deposit of 5% and get a mortgage on the rest.
HomeBuy Direct provided a 30% equity loan (jointly funded by the government and house builders) to help first time buyers get a home. Sometimes they had to pay a deposit and sometimes not, (depending on their lender) and they got a mortgage on the rest.
However, this awful HomeBuy Direct scheme was axed in the autumn and was described by Grant Shapps as “a very expensive flop”.
Thank goodness that they’ve introduced FirstBuy to replace it.
Alternatively, they could have maintained funding in HomeBuy Direct for the past seven months, especially as house builders are willing to match the government’s money (extra bang for your buck).
The real value of these programmes is that they keep house builders building because they provide a guaranteed stream of first-time buyers to buy the homes they produce. Without that confidence, they don’t build because they fear there’s no one to buy the homes. All quite simple really: create demand and underpin supply.
If they’d have stayed the course, they might have given extra ballast to a construction industry that was providing a big portion of the economy’s job and growth (a third of all growth in Q2 of 2010 and a quarter of all growth in Q3 of 2010). In Q4 of 2010, residential construction collapsed and the economy shrank by 0.6%.
Behind these figures are people who lost jobs they could have kept if the government hadn’t scrapped then re-introduced exactly the same policy. Complete stupidity.
In a recent post we covered the story of Westminster Council’s plans to introduce a new bye-law for the Victoria area of the city to ban street sleeping and soup runs.
Here, Nicky Gavron AM, Labour’s Spokesperson for Housing and Planning on the London Assembly, says that this ban is just one of many policies that will impact on homelessness.
Nicky Gavron AM
Former Deputy Mayor of London. London Assembly Member. Deputy Chair of the Planning Committee & GLA Labour Spokesperson for Planning.
The council made infamous by Shirley Porter is at it again, forcing people it considers undesirable out of the borough. In the eighties it was low income Labour-voting families; this time it’s some of society’s most vulnerable.
Westminster City Council’s pursuit of a byelaw to make it an offence to sleep rough and give away food in the most salubrious parts of the borough has been well documented.
Cllr Daniel Astaire, the council’s Cabinet Member for Society, Families and Adult Services audaciously told the Daily Mirror:
“Soup runs have no place in the 21st century. It is undignified that people are being fed on the streets. They actually encourage people to sleep rough with all the dangers that entails. Our priority is to get people off the streets altogether. We have a range of services that can help do that.”
But what Westminster councillors have not mentioned is that they are actively seeking to close the very hostels and services that help people off the streets and into a life of normality. One of these is the 100-plus bed Victoria Hostel in Castle Lane.
Westminster – like all borough councils – is given a budget to provide services for people in acute housing need, including rough sleepers. Most boroughs have had this budget cut, but Westminster has actually been given an increase – presumably in recognition of the need. And instead of using this extra money to carry out its legal and moral duty to help rough sleepers, it is slashing services and is prepared to waste police time and court resources by criminalising those who need help.
It’s difficult not to think that this is anything other than a cynical manoeuvre to turn Westminster into one big gated-community, and to seal it and its more well heeled residents off from a problem that’s getting worse across the city.
The combination of a stalling economy, rising unemployment, housing and benefit reforms will all conspire to push many more people into homelessness and increase levels of rough sleeping.
No assessment has been made by the government of the costs and impact of their housing and welfare reforms. The government’s total cap on benefits, which will hammer the budgets of families on low incomes, combined with their plan to raise social housing rents to 80 per cent of market rates will put intolerable stress on housing services in London.
Add to this the housing benefit reforms and the plan to make it easier for councils to discharge their homelessness duty, and the increase in rough sleeping seems inevitable.
Most damaging of all will be raising the age threshold for the Single Room Rate from 25 to 35. As one charity leader told me, rough sleepers will struggle to find normal shared housing. Forcing people to live together is a policy that has failed in the past and will fail again.
The Government must act now to stop rough sleeping getting worse. If it wants to convince us that these reforms are not ideologically driven, it must get tough with councils like Westminster by refusing this byelaw and reintroducing ring-fencing for those budgets that protect vulnerable people.
Without this, there is little the Mayor’s London Delivery Board on rough sleeping will be able to do to hold back the tide.
Most crucial of all, the government must rethink its housing and benefit reforms. As they stand they will lead to social segregation on an unprecedented scale – and rough sleeping is just the tip of the iceberg.
You can follow Nicky Gavron on Twitter at twitter.com/nickygavron. This article also appeared in Inside Housing magazine.
Steve mentioned in the IPPR work in his last post. I made it along to the launch seminar, where Caroline Flint and Grant Shapps’ Parliamentary Private Secretary Jake Berry were speaking.
Jake Berry is a rare thing in the Conservative Party – someone interested in housing and someone with a background in it. He was also clearly well up to speed on government policy. Something that not all PPS’s focus on. Unfortunately, it also meant that he shared the same fallacies as his boss.
Pressed on the boom and house price rises, he echoed John Healey (oh and Grant Shapps) in saying that a house is a home, not an investment and referred to the need to keep prices in control.
When pushed on what ‘levers’ the government had to do that he mentioned three things:
Liberalising planning laws,
Abolishing housing targets and Regional Spatial Strategies, and
The New Homes Bonus
He clearly assumed that a flood of new supply would keep prices down (and indeed that these measures would deliver it). He can only hope that the restrictions on mortgage lending stay in place long enough for this new supply to flood the market. Otherwise, as soon as lending loosens again, prices are back on their way up.
The idea that we can get enough new supply built quick enough to affect house prices is clearly non-sense.
So in the short-term prices will remain high and mortgage lending tight, meaning bad news for first-time buyers.
Caroline Flint made a big point of the importance of improving the private rented sector and went beyond Labour in government, arguing we should consider longer-term tenancies in the private rented sector and greater security for tenants.
Caroline of course would support the principle that people who want to own their own home should be able to and should be supported to. However, I wonder if she isn’t more realistic than the government and is looking at what will really improve the lives of younger people in the housing market.
Private renting is commonly seen as for the young and the poor, but it will increasingly be the option for those on middle incomes for longer periods and their rented property may be where they look to start a family. With aspirational voters finding themselves priced more and more out of homeownership, it’s a good time to win support for measures to improve the private rented sector for them and everyone else.
Founder of Red Brick. Former Head of Policy for Shelter. Select Committee Advisor for Housing and Homelessness. Drafted the first London Mayor’s Housing Strategy under Ken Livingstone. Steve sits on the Editorial Panel of Red Brick.
Tony obviously spent much of the weekend counting up the number of housing reviews and commissions taking place at the moment for his post yesterday. One of those he listed has already produced some interesting research for its launch event last week – the Institute for Public Policy Research (ippr) fundamental review of housing policy.
The project, led by Andy Hull, Senior Research Fellow ([email protected]) will have four streams of work. It will look at housing’s role in the economy and how housing could play a less destabilising part in the macro-economy; housing supply and how to meet the projected increase in housing demand between now and 2025; housing allocation and use, and how to achieve a fairer and more efficient use of the housing stock we have; and housing management, looking mainly at the need to professionalise the private rented sector and encourage mixed communities.
The project’s first report on housing demand to 2025 presents a detailed model for estimating the number of households in each region requiring homes, which as they rightly say, should underpin the development of housing and planning policy. The model looks at how housing demand might vary according to changes in the growth path of the economy – the good, the bad and the ugly as they call their various economic growth scenarios.
This is a detailed and slightly techie read, but the headlines are clearly presented. Housing demand will outstrip supply by 750,000 by 2025 ‘equivalent to the combined current housing demand of Birmingham, Liverpool and Newcastle’. Between 3.3 million and 4.5 million additional households will be formed by 2025. Household growth will vary by region, with the fastest growth expected to continue to be in the South East and London, but even in the region with least pressure, the North West, the increase in overall housing demand relative to current demand will be in the range 9–15 per cent: ippr say there will be ‘a substantial imbalance in the supply and demand of housing in all regions’.
The demand for homes in the different tenures is seen to be closely linked to economic performance – the poorer the performance, the greater the demand for social rented homes. The demand for social rented homes (supply of which the government has just reduced to zero in the future) will still be high under all scenarios.
It will be worth keeping an eye out for further publications and events by ippr as the research progresses.
There are at least nine housing reviews and commissions running at the moment: Institute for Public Policy Research
The Fabian Society
ResPublica Oliver Letwin/Cabinet Office RICS The Labour Party The Mayor of London
The London Borough of Ealing
The London Borough of Lambeth
I’m sure there are more, especially from local authorities trying to work out how to respond to the government’s changes.
It’s definitely an important time to consider where we go with housing next and what new ideas can be practically brought to bear on the intractable issues we all know about.
Many of these reviews and commission have excellent memberships from within and beyond the housing world and there will be a lot of ‘cross-fertilisation’ of ideas and approaches. The interactions between what comes out of these bodies will be interesting: I doubt the Fabians and ResPublica will agree and what difference will we see between bodies that actually have to deliver (councils, the Mayor, the Cabinet Office) and those that are just tasked with the thinking?
I doubt there are this many reviews and commissions going on in other sectors and policy areas. It does beg the question whether the housing sector as a whole really has the faintest ideas what to do and how to win over support for some actions many agree on.
Founder of Red Brick. Former Head of Policy for Shelter. Select Committee Advisor for Housing and Homelessness. Drafted the first London Mayor’s Housing Strategy under Ken Livingstone. Steve sits on the Editorial Panel of Red Brick.
A rare opportunity to welcome an initiative by a bundle of ten councils of all political persuasions – Tory, LibDem, Lab and NOC – arose this week. The issue is an old one on which a dedicated band of experts have campaigned for 20 years or more. And the question is whether George Osborne is any more likely to listen than any of his predecessors as Chancellor. My feeling is not because the tradition of orthodoxy runs deep at HM treasury.
Changing the borrowing rules has been a celebrated cause, where everyone except the people who matter most, in Whitehall, favours change. In essence, in the UK borrowing to invest in council houses has been included in the main measure of public sector borrowing, and therefore subject to strict control. Other countries especially in the Eurozone, do things differently, and we could count council housing and other public corporate activities as separate trading activities where borrowing is determined by the business plan of the organisation involved and its revenue streams – and governed by the prudential code – rather than being controlled by an artificial national count of all debt that only the Brits use.
Detailed work led by the CIH in the 1990s (their report was entitled ‘Challenging the Conventions’) led to high hopes that the new Labour Government would change the rules. Some adjustments were made, mainly with the prudential borrowing regime, which helped, but the breakthrough never arrived. The research for the CIH report was undertaken by the (then) leading Coopers and Lybrand accountancy company, now part of PWC. They then did follow-up research with financial institutions, revealing in a second report called ‘Consensus for Change’ that the City was wholly relaxed about the proposed revision to borrowing measures and that it might lead to over £1 billion of extra investment being available for council housing.
This new initiative, supported by councils from all over the country as well as all political persuasions, takes the campaign into yet another decade. They assert that the change would not affect UK credit ratings, would ease unemployment in construction, and would help deliver the Government’s aspiration to build more homes during this spending review period. Their current estimate is also that an additional £1bn could be raised for investment in new housing.
HM Treasury being what it is, silence will probably be the response. I don’t think they have ever issued a serious rebuttal of the arguments. Time will tell, but some of us have already grown old and grey waiting for this sensible reform.
