Category: Blog Post

by Monimbo

Senior housing policy expert writing under a pseudonym.

Another statement from the Chancellor, another failure to recognise the looming crisis in local government spending. It’s less than a week since the National Audit Office issued its report on the financial state of local councils, which even the LGA acknowledged was a ‘stark’ warning. But although the LGA says the government must ‘urgently address’ the funding gap, complaining that councils face a cliff-edge, the Chancellor obviously believes that most councils will simply put the brakes on and avert a catastrophe, and if a few overshoot the cliff-edge he can blame it on their incompetence.

The NAO report shows that councils are in a hard game of robbing Peter to pay Paul. Councillors know that, come what may, they have to try to keep social care functioning, the bins being emptied and the streets lit at night. Some of these services have even seen a small increase in funding (children’s care has been increased by 3.2% in real terms). The consequences for other areas of council work are indeed stark, and housing is one of them.

The report shows that spending in two areas – planning and development and housing services – fell respectively by almost 53% and 46% in real terms over the period 2010/11-2016/17. These two broad service areas have been those hit hardest by reductions in funding under the coalition and Tory governments.

But these figures hide even bigger falls in some aspects of those services. For example, spending on housing-related support has fallen by 69%. Many of these services met a range of needs, including those of homeless clients. Of course they include several services that help people in groups that the government claims to prioritise, such as those with mental health problems or who are victims of domestic violence. They provide the help that numbers of people need to sustain their tenancies and avoid homelessness. Spending on private sector renewal is another victim – it has been cut by 63%. Development control – which among other things helps secure a flow of housing land for new building – has suffered a 53% cut. Expenditure on temporary accommodation, however, has rocketed by 57%, because most councils that don’t have enough homes for the homeless are inevitably often forced to place them in high-cost private lettings.

Councils will soon face higher costs, because they will take on a new set of obligations when the Homelessness Reduction Act takes effect in April. The legislation is welcome, but massively underfunded: some £61 million is being allocated outside London and £11 million in the capital. No one thinks this is enough.

Council housing, in the meantime, as not been subject to the same cuts because it is paid for entirely from tenants’ rents. But of course it has been pushed to absorb more and more costs of services that should be paid from general funds, with tenants seeing service reductions as a result. Councils can hardly be blamed for looking for ever more ingenuous ways to cross-subsidise services but neither should tenants be expected to be complacent about what their rents are used for.

One leader of a local government body, Jonathan Carr-West of the Local Government Information Unit, has spoken up: ‘Councils are running out of money fast’ he says, ‘We have already seen one county council go under and others may soon follow unless the government takes action now’. The LGA wrings its hands and urges the government ‘to provide the financial sustainability and certainty needed to protect the local services our communities rely on’. John McDonnell got it right when he said in response to the Chancellor, ‘We face – in every public service – a crisis on a scale we’ve never seen before… Our public services are at breaking point and many of our local councils are near bankruptcy’. He criticised the ‘indefensible spectacle’ of a chancellor ‘failing to lift a finger’ to help struggling local authorities. From Philip Hammond the looming catastrophe brought not a single word.

by Monimbo

Senior housing policy expert writing under a pseudonym.

Why did the number of homes let at social rents fall by 150,000 in the last five years? Surprisingly, although right to buy was a big factor, it wasn’t the biggest. From April 2012 until the same month in 2017, right to buy led to 55,000 council houses sales and 20,000 by housing associations (the latter is because of the ‘preserved’ right to buy kept by tenants if their homes are transferred to a new landlord). So half the net loss can be explained by such sales.

But there were two much bigger factors behind this recent assessment by the Chartered Institute of Housing of the losses in social rented stock. First, new build would easily have offset right to buy sales if output of social rented homes had continued at the same rate as in the previous four years: from 2008/09-2011/12, thanks to the investment made under Labour’s National Affordable Housing Programme (NAHP), 142,000 social rented homes were built, over 35,000 per year. Had this continued, social landlords would have built two new homes at social rent for every one sold, even after right to buy was ‘reinvigorated’ with bigger discounts from April 2012. As it is, the Tories are clearly poised to fail in their much more limited promise to replace the extra houses sold as a result of the right to buy being ‘reinvigorated’, and of course the replacements are all likely to be let at higher, ‘affordable’ rents.

Nevertheless, some new homes are being built for social rent. Adding together new homes built by housing associations and by local authorities, these total just over 50,000 over the five years. Not only is this far lower than achieved under Labour’s NAHP but numbers are now down to only 5,000 per year, with little prospect of their being revived. So in mathematical terms the biggest reason for the loss of social rented homes is failure to build: if Labour had still been in power, continuing a similar programme to its NAHP, around 125,000 more social rented homes would have been built than has been achieved by the coalition/Tory governments.

Increase in stock of ‘affordable’ rented homes, 2012-2017

Source: HCA, Private registered provider social housing stock in England 2016-2017.

So selling off the stock wasn’t the biggest reason for the loss of social rented homes, it was the failure to build. Oddly enough, right to buy wasn’t even the second biggest reason. The candidate for this status can be seen in the graph. From 2011 onwards, the coalition government set out to make a heavy dent in the provision of social rented housing in two ways. First, as we have seen, it built homes for ‘affordable’ rent instead of social rent, constructing about 90,000 up to April 2017. But second, it converted homes from social rent to ‘affordable’ rent at an even faster pace, with 102,000 conversions in total by the same date (shown purple in the graph, the green columns show the total AR stock from conversions plus new build). It forced associations to do this to give them extra rental income, to offset the loss of government grant (it fell from around £60,000 per new home built under Labour to less than £20,000 under the Tories). This is therefore easily the second most important factor in the decline of social rent.

Right to buy, whether for councils or housing association properties, is therefore the third biggest factor. But even this isn’t the whole story: both councils and housing associations have been demolishing social rented stock (for example, in regeneration schemes), and these losses run at around 4,000 per year.

In addition to these recent attacks on the social rented stock, it faces two more potential dangers: the new right to buy for housing association tenants, and the enforced sales of ‘high value’ council properties. At the moment, the first of these is only going ahead as a pilot scheme in the West Midlands, and will be funded by government. But the prospect of enforced sales of council houses, now less likely after the Grenfell Tower disaster, is still ‘on the books’ and is inhibiting many councils from taking on more ambitious investment plans. If right to buy for association tenants were to go ahead across the country, someone would have to fund the discounts and at the moment the only money potentially available is from forcing councils to sell off their better stock.

In this situation, Labour’s priorities should be clear: not only does it need an even more ambitious new build programme than it had when it was last in power, but this needs to focus strongly on building for social rent, as John Healey has promised. And the haemorrhaging of the existing stock must be halted too. This will mean, first, either suspending council tenants’ right to buy or at the very least making the discounts they receive much less attractive; second, rescinding the promise to housing association tenants that they can buy their homes and calling off ‘high value’ council sales; third, ending the conversion of properties to higher rents and, finally, ensuring that any regeneration schemes provide for at least one-for-one replacement of any social rented homes that are to be demolished.

by Monimbo

Senior housing policy expert writing under a pseudonym.

“Fund it yourselves” was the clear message from communities secretary Sajid Javid to the Communities Select Committee and then again in response to an emergency question from John Healey last Thursday. Red Brick had already outlined the options available to the government to help authorities make their tower blocks safe, and before that we called on the government to foot the bill. Javid has now made it clear he has no intention of doing so.

Of course he found some warm words with which to give the impression he was bending over backwards to help. “What we will absolutely do with every local authority,” he said to the committee, “is work with them closely and make sure that, through that work with them and the financial assistance that we can provide and the financial flexibilities, they are able to pay for any essential works that they deem necessary.” But he went on to say “we are not planning grants” and that his assistance is limited to “financial flexibilities that can provide the funding.”

The options appear to be twofold. Either councils will be allowed to borrow more, if they would otherwise hit the borrowing caps that apply to their council housing finances. Or they will be allowed to make transfers from their General Funds, for example from reserves, to bolster their Housing Revenue Accounts. The latter could mean that council tenants are not burdened with extra costs, unless of course (as seems likely) such a transfer only covers part of the costs of fire prevention work, and some still has to be paid from rental income. The first option, relaxed borrowing caps, offers nothing to councils at all, except the ability to spend more of their tenants’ money. Either way, local people – whether just tenants or a combination of tenants and council taxpayers (which include tenants too, of course) – will be meeting the cost of the work, not central government. The “financial assistance that we can provide” turns out to be zilch.

These options are those foreseen by Red Brick in July. We said that, in all probability, the government would force councils to pay for remedial works from tenants’ rents, perhaps offering “help” in the form of looser borrowing caps or (we speculated) permission to raise rents. Even if extra subsidy were offered in the form of grant, we suggested that the government would simply take this from its existing capital programmes. In the event, it’s not even going that far.

Why is this important? Council housing accounts are already under severe pressure. A four-year period of compulsory rent cuts still has two years to run, arrears are shooting up as universal credit and other ‘welfare reforms’ are rolled out, right to buy continues apace and councils are still faced with the threat of having to sell off their highest value properties, even though this may well now not happen. Furthermore, councils have already been told there will be no more government money to keep houses at the Decent Homes Standard, even though a stubborn 15% of the stock has failed the standard over the last four years. If they divert money to post-Grenfell safety works, this will almost certainly be at the expense of their obligation to meet the DHS.

Furthermore, it is only a short time since the prime minister was promising a new generation of council houses. For the councils that have a significant volume of post-Grenfell work, the pressures on rental income that were already intense look set to get worse. Now that Sajid Javid has explained that his “flexibilities” will offer them no extra cash, the prime ministerial promise looks vacuous.

By Ross Fraser

In the aftermath of the Grenfell Tower fire, many local residents expressed the view that the outsourcing of housing management and (in part) major works programmes to the KCTMO had contributed to the disaster.  They also called for the TMO to be wound up.

Residents were clear, and continue to insist, that they want the council’s housing stock to be managed directly by the council.   They believe that direct political control of the housing stock by elected councillors is preferable to any outsourcing arrangement.

Recently, LB Kensington & Chelsea has decided to terminate its management agreement with the KCTMO – which will mean that the TMO is going to be wound up.

However, LB Kensington & Chelsea is now urgently meeting housing associations to determine whether they would be willing to manage part or all of the management of the its housing stock.

This puts housing associations in a difficult position.  They want to do as much as they can to help the victims of Grenfell and others who have also lost their homes as a result of the disaster. But they know – particularly as the public enquiry evolves – that organisations acting against the express wishes of local residents will not be welcome.

Which begs the question: why can’t Kensington & Chelsea recreate a housing department?

There is no shortage of support available.  The highly experienced Barry Quirk is running the council and knows all about housing from his time as Chief Executive at LB Lewisham.  The government has sent in a Task Force to advise the council – which includes the highly-respected Chris Wood who has been Director of Housing in three London boroughs.   They could visit LB Wandsworth to see how an excellent housing department operates.

With council elections set for next year it might be wise for the council to work jointly with local residents – and in complete transparency – to explore a range of options in a measured manner.  Decisions can be made post-election.

But common-sense still seems to be in short supply amongst the council leadership.

by Monimbo

Senior housing policy expert writing under a pseudonym.

Investing in council housing was just one of the new policies that Theresa May pinched from Labour in her disastrous speech. Tackling student debt, mental health, energy prices and even organ donations all figured in the list of stolen policies she launched at the Tory conference. But there was another one that was uniquely Tory: putting an extra £10 billion into Help to Buy loans, which means the scheme will make over £22 billion worth of loans in total, all to help those already well up the income ladder.

How much difference will the £2 billion for social housing over five years actually make? First the positives. It raises the total allocated to ‘affordable’ housing investment to £9 billion over the next few years, or to £10 billion if other bits and pieces are taken into account. But as Red Brick pointed out recently, this compares with over £30 billion in support for the private market, and this was before the Tories added the extra £10 billion for Help to Buy. So the split between affordable and private market investment has just got worse – but at least there is more cash in the ‘affordable’ pot.

Second, it recognises that grant has to be higher if rents are to be kept down. An average grant of £80,000 (based on £2 billion generating 25,000 new homes) is higher than that being paid by Sadiq Khan for ‘London Affordable Rent’ units in the capital and probably quite a bit higher than is needed to build social rented homes elsewhere. Even if the grant level comes down, possibly leading to higher output, it should be enough to deliver a significant number of homes at genuinely affordable rents.

Third, the announcement is coupled with a new policy on rents to kick in in 2020. There are a number of caveats about this too, but at least there is recognition that higher grant alone won’t lead to more investment: stability of rental income is also important.

Now the downsides. First, if it produces 25,000 social rented units, that’s a drop in the bucket compared with the 122,000 already lost (through right to buy, and conversion to higher ‘affordable’ rent) since 2011. If output reaches 5,000 per year, it will only restore social rent building to the level of a couple of years ago and will be well below the peak years of Labour’s National Affordable Housing Programme when social rent output alone reached nearly 40,000 units.

Second, we don’t yet know the mix – will all these be new homes for social rent? Why not also improve the mix of the existing programme, to deliver more social rent (not permitted until this week’s announcement) alongside the other ‘products’? If the government is serious, it needs to re-evaluate its whole programme, not merely tag on a bit of new money.

Third, while this is billed as extra council housing, in practice housing associations are going to be much better placed to use the new money. Relations been them and local councils, already under strain, might be made worse. Why are they better placed? Because with the extra certainty of rising rents after 2020, and their already much greater development capacity, they can bid very competitively for the new cash. Just when collaboration between the two parts of the sector is most needed, it might only happen if the GLA and HCA specifically prioritise bids that give councils a role.

Finally, councils continue to be hamstrung by constraints over which they have little control unless the government steps in and makes additional changes. Right to buy sales continue, with heavy restrictions on the use of receipts (including a prohibition on combining them with grant aid). Borrowing caps are still in place, and councils have suffered more than associations have from the recent curbs on rent increases. Despite the government remaining silent on the promised right to buy for housing association tenants, the threat to force councils to sell their higher value stock hasn’t been removed: this has already made councils cautious about building more houses that might simply have to be sold off. And as well, councils have been hit more than associations by the need to invest in tower blocks following the Grenfell Tower fire, with no promise of government help.

Despite these reservations, the new money is better than a poke in the eye with a bent stick. Even if May’s stated ambition of a ‘new generation of council houses’ is hardly likely to result, it’s much better than the Cameron-Osborne attitude that council housing was obsolete and only served to create more Labour voters. The fact that Labour already has a plan to build much more council housing (and housing at social rents built by associations) is given added credibility by the Tory proposals, inadequate though they are. If the Tories are convinced that a Corbyn government will turn Britain into a ‘failed socialist state’ as Phillip Hammond suggested, why are they so keen to borrow the policy ideas that (according to them) will achieve exactly this outcome?

by Monimbo

Senior housing policy expert writing under a pseudonym.

Labour was under scrutiny at its conference last week for the announcement of supposedly costly policies that can only be funded by tax increases or extra borrowing. One such promise of course was to end PFI contracts, and it was immediately challenged by Margaret Hodge. However, PFI has continuing high costs and big profits are being made by the contractors: whether the annual cost of rescinding contracts will exceed that of leaving them in place will hinge on the terms of compensation. Ditching PFI could well be a good deal.
Labour’s plan to build up to 100,000 social rented homes is another commitment that needs costing but fortunately there is an argument that it could actually save money. In the long term, as shadow minister John Healey has shown (and, as Steve just reminded us, was confirmed by work by Capital Economics for SHOUT), building to let at low rents will pay for itself via savings in housing benefit. The problem is that the savings accrue over 30 years while the capital cost must be borne now.
Fortunately George Osborne pumped such large sums into housing, with commitments running years ahead, that there is plenty of scope for finding this money from the existing housing budget. None of this appeared in the government’s housing white paper earlier this year, of course, nor can we expect to see figures in Sajid Javid’s promised green paper on social housing. But the details – insofar as they can be pieced together from different government sources – are there in the September update of the annual UK Housing Review.
In a new estimate it says that, from now until 2020/21, some £8 billion will be spent on ‘affordable’ housing (mainly Affordable Rent and shared ownership), and most of this money is made up of the two concurrent Affordable Homes Programmes run by the HCA and GLA. However, far more money – the Review estimates it at over £31 billion – will be spent on propping up the private market (see pie chart).

This is largely Osborne’s legacy – a raft of Treasury-led initiatives aimed either at helping builders directly or helping people to buy. Much of the money is in the form of loans or guarantees rather than grants, but the costs are huge and in some cases will run on into the future, growing year-on-year. (This applies to the Help to Buy and Lifetime ISAs, which give cash payments to people when they buy a house, and will cost over £2 billion annually if allowed to continue beyond 2020.)
The NHF has already suggested that the money for Starter Homes (whose original allocation was £2.3 billion) could be better spent on building for social rent, and CIH has proposed that diverting £1.5 billion annually would allow a programme to build 28,000 social rented homes per year. The list of programmes that could be trimmed or ended is impressive, for example (in addition to Starter Homes):

• Help to Buy equity loans (potentially over £12 billion, the white paper said £8 billion is already committed)
• Help to Buy and Lifetime ISAs (£4.2 billion to 2020/21)
• Home Building Fund (loan finance for developers – £3 billion)

Yet rather than cut such programmes, Sajid Javid has promised today (Sunday) that an extra £10 billion will be pumped into Help to Buy. We’ve yet to see how this will work (and if it is really new money), but if added to the total of private sector support it would reduce the proportion of government spending going to affordable housing from 21% to just 16%.
Of course if changes are made by Labour there will be squeals of rage that the party no longer wants to help first-time buyers, but there is surely scope to target the available money on those who really can’t afford a deposit (rather than those who could save the cash by waiting for another year or two) and release some of it for those who have no hope of buying and are stuck paying ever higher private sector rents.
The point is that Osborne’s schemes may have had individual targets but were not part of an overall plan for housing. The February white paper barely mentioned government spending and made no attempt at an overall appraisal of the different programmes. Untouched, Osborne ‘s legacy will represent a huge commitment for an incoming government. The builders will, of course, argue that the incentives are vital to keep them building, but the truth is that while they have become dependent on subsidy their output has hardly grown in proportion to the extra sums being spent each year. Labour’s Treasury team should commit to a review, alongside the housing ministry, of how the total spend of £40 billion plus can be reconfigured. The aim should be to ensure that much more of it is directed to helping those struggling to rent, not only those struggling to buy.

Media coverage of the Grenfell Tower fire has been dogged by confusion as to where the money came from for the original work and who will pay for the remedial work now needed to the country’s tower blocks. This is understandable: council housing finance is complicated, but the danger is that the confusion could let the government off the hook.
The fact that Grenfell Tower is owned by a wealthy borough with buoyant council tax income is an important factor in the moral argument about how the fire could have been allowed to happen. But in accounting terms Kensington and Chelsea’s council tax is irrelevant, since its council housing finance (its Housing Revenue Account) is ring-fenced and can’t legally be subsidised through taxes on residents. Like any other council, K&C borrows the money for capital works such as recladding a tower block, and the costs are met either from rents, from the sale of homes under the right to buy (after the Treasury has taken its cut) or – if available – from government grant.
The last Labour government made substantial subsidy available to bring council housing up to its Decent Homes Standard, but this ended under the coalition. With the decline in funding for energy-efficiency work, councils now pay for refurbishment of most tower blocks and other council housing from the rents they receive from tenants. The financing of a project like cladding a tower block is also complicated by flats having been sold under the right to buy, now owned on leasehold, very likely by private landlords. Leaseholders have to pay their share of the cost of major works, often supported by loans from the council.
What are the implications for the massive remedial works now likely to be needed to the country’s tower blocks? Even local politicians, like Julie Dore, leader of Sheffield City Council, seem to misunderstand housing finance, saying that if councils fund the work themselves it will be at the cost school building and other infrastructure investment. However, without a significant change in legislation, councils won’t be able to tap into other capital budgets to get the work done: if their Housing Revenue Accounts won’t support it, their only other source is government grant.
This is where things get even trickier, because having initially appeared to promise financial support the government is now backtracking. It says there is ‘no guarantee’ of any money, that councils will have to look to their own funds first, and extra support will be on a ‘case by case’ basis. So let’s spell out what the options are.
First, councils and housing associations could in theory dip into their Housing Revenue Accounts, principally financed from rents. Council housing is self-financing, and like housing associations receives no day-to-day government subsidy. When councils made their self-financing settlement with the government in April 2012, it was on the basis that they’d be left with sufficient resources to meet foreseeable needs. There are two problems with this, however: the potentially huge volume of extra investment now required after the Grenfell fire was hardly foreseeable, and – as Red Brick has been pointing out – the Treasury has systematically undermined the self-financing settlement over the last five years. They’ve forced councils and housing associations to cut rents, not to help tenants but (as IFS has shown) largely to reduce Treasury spending on benefits. As a result, by 2020 councils will have lost the equivalent of 60% of their maintenance funding. Those that had built up reserves to deal with eventualities like Grenfell are eating into them to keep services going. And their capacity to borrow for new investment has been drastically reduced.
Second, councils might get ‘case by case’ help, as DCLG has suggested. But will this be extra money? DCLG might simply lift the caps that restrict councils’ borrowing (if not being able to borrow is the issue) or let them raise rents (if they need extra income to pay for the new investment). If not accompanied by government grant, this is simply another way of forcing the cost back onto tenants. Some suggest that extra money might come from the so-called Bellwin scheme. This could be useful, but it is only for emergency work (e.g. stripping off old cladding) not for new investment. Also, it is paid in arrears, so councils will be unsure whether they can recover their costs or not.
Third, the government might indeed offer some form of subsidy, which might or might not cover 100% of the extra costs. But beware of which pot this money comes from. If there is no increase in the government’s capital budget for housing, then it will be at the expense of building new affordable homes. It will be a while before anyone has a proper estimate of what the cost of remedial works might be. One expert says that to reclad an individual tower block costs about £1.2 million, and others have suggested that this means a total cost exceeding £600 million. If costs were were to be of this order, and had to be met from existing capital budgets, they would absorb over 40% of the new money earmarked for rented housing in the last Autumn Statement.
Why should tower blocks be reclad, anyway? Isn’t it better just to leave them unclad? Much has been made of Grenfell Tower being refurbished for cosmetic reasons, but of course the main reason for cladding is to improve the thermal insulation of the dwellings. This has led to stupid headlines such as Grenfell: Clad in Climate-Change Politics. However, only this week we have been reminded that fuel poverty will kill 80 elderly people every day this winter. Insulation is vital to help reduce fuel bills, providing of course that it is done properly. As Colin Wiles has pointed out, this means that unsafe cladding must be replaced by non-combustible materials installed according to thorough safety practices. A debate has already started in the insulation industry about the massive implications of the Grenfell fire for their work. And one lesson for government must surely be that it is much better to build homes to high energy-efficiency standards in the first place, rather than have to stick insulation on their outside walls at a later date.
Apart from the tragic consequences of the Grenfell fire for the residents affected, it’s clear not only that the effects are very reaching but also that we are only in the early stages of assessing what they might be, what will be the costs, and what changes will be required to policies and practice in housing design, housing management, fire safety, building regulations, energy efficiency work and other aspects of public administration. Many have said that the disaster is a ‘wake-up call’. One aspect that we must be wide awake to is how Grenfell’s aftermath is to be paid for across the social housing sector:  it mustn’t be paid for by tenants, and it mustn’t be paid for at the expense of new investment in affordable homes. Or as Steve said a week ago, ‘Central government should foot the bill, sharing the load. That’s why we all pay taxes.’