Red BrickLabour Housing Group will be holding a national policy day in Newcastle on Saturday 17 November 2018.
Speakers include John Healey MP, Sarah Longlands from IPPR North, and social historian John Boughton, author of the brilliant history of council housing, ‘Municipal Dreams’ (see Red Brick review here).
Open to Labour members and supporters.
To register, visit LHG’s new website here.
or go direct to booking page at Eventbrite.
Occasionally you read something that challenges your firmly fixed views. Like most in housing, I fall easily into the simple analysis that there is a direct link between our inability to build new homes and the housing affordability crisis. If only we built more then everything in housing would gradually come right.
Josh Ryan-Collins’ new book ‘Why can’t you afford a home?’ definitely makes you think in a different way. The traditional analysis fails to explain why the crisis has emerged in so many different countries at the same time despite widely varying policies and approaches. He says this outcome is based on two pillars: the priority given to private home ownership as the dominant housing tenure and what he calls the ‘self-reinforcing feedback cycle’. On the first of these, most countries have promoted housing as an (unearned) source of wealth rather than just somewhere to live by reducing property and capital gains taxes on housing compared to other investments. On the second, Ryan-Collins asserts that it is no coincidence that the crisis has mushroomed since the deregulation of financial services. No amount of fiddling with the planning system or blaming migrants can moderate the huge global forces that have been at work.
The ‘self-reinforcing feedback cycle’ works like this:
‘In order to afford a home, most people need a mortgage. But when mortgage credit is extended to buy an existing property, it inflates house prices as bank lending involves the creation of new money. If house prices rise faster than incomes, the demand for mortgages increase, banks lend more, prices go up and so on’.
Strengthened by the perceived global public debt crisis, which constrained direct building of homes by the state, governments increasingly looked to the banking sector to find new ways of satisfying both housing demand and the clamour for individual home ownership. Thrifty banking was replaced by almost unlimited lending relative to incomes. Bank lending, previously focused on business investment, became concentrated on lending for residential purchase. Banks liked it because loans had collateral, and, unlike business, there was no limited liability. Worst of all, after an initial consumption effect (people buying houses tend also to buy furniture and white goods etc) residential lending did not lead to much growth – mainly adding to price inflation. People were effectively borrowing against rising values, so everyone gets a stake in keeping values rising. But the system becomes more unstable and volatile, inequity between those who manage to buy and those who don’t rises, and more people become priced out. Productive investment is frozen out in favour of speculative lending, and economies become more vulnerable to economic shocks.
Solutions therefore need to be much broader than those that governments and central banks have attempted to date. Crucially, Ryan-Collins argues, ‘land and credit markets need to be shaped to create public value: in this case affordable, decent quality housing.’ He notes that some successful modern economies have been rather less dependant on rising property prices, notably Germany, Japan, Korea and Singapore. Priority must be given to lending for productive investment by business, guiding credit away from property. Property taxes are needed to make it less attractive as a financial asset, including a land value tax, and we should learn from those countries where more land is publicly owned.
Curiously, after this long analytical journey, during which Ryan-Collins challenges my simple notion that the answer to unaffordability is that we must build more, he confirms my other long-held and deep-seated simple assertion when he says that one structural solution is “supporting alternative forms of tenure such as renting, social housing and cooperative home ownership where housing is viewed as a place to live, not a financial asset.”
This is a stimulating read and the book (which also benefits from not being as long as most economic tracts) delves into areas of economic and financial policy that deserve far more scrutiny. I would have liked a little more analysis of market changes in the UK since 2003 which have led to a decline in home ownership and the resurgence of private renting. However the book’s strength is that it goes beyond description and analysis to promote possible solutions. These are inevitably long-term and international but they could begin to influence government policies in the here and now.
Josh Ryan-Collins is a Senior Research Associate at the Institute for Innovation and Public Purpose, University College London. ‘Why can’t you afford a home?’ is published by Polity Books. If all else fails, it is available on Amazon.
In November Josh Ryan-Collins will be giving a talk about the book for UCL Institute for Innovation and Public Purpose (IIPP). Details here.
It was a first for the National Housing Federation to get a serving Prime Minister to speak at one of their Conferences. It’s obviously a feather in their cap, proving that government takes them seriously. But there was a degree of fawning in the audience – ‘rapturous applause and a partial standing ovation’ said Inside Housing, ‘it’s fair to say she is smashing it with this audience’ tweeted Polly Neate of Shelter – that is not shared by those who need homes now.
So, are we to believe that one speech with some warm words means that housing associations are now ‘a trusted partner’ of government? And that an announcement of a tiny pot of money starting in four years’ time means they will get long-term guaranteed funding sufficient to do the job? David Orr’s inadvertently accurate comment that ‘the penny has dropped’ sadly told the real story. Yep, a penny, thanks Ma’am.
The truth is closer to this: ‘the movement’ has been played by the PM’s political adviser Gavin Barwell, easily the best of the many housing ministers we have had over the last 8 years (for the simple reason that he actually knows something about the subject). He also knows how to get favourable headlines with a well-placed non-announcement, an unchecked promise of money, and a bit of flattery. May said what they wanted to hear and in glowing terms: she praised the movement’s Victorian pioneers and the campaigning innovators of 50 years ago and commended the modern non-profit businesses. And no slagging off like there was from her predecessor.
That perceptive commentator Isabel Hardman saw this as one of a kind of speech that May makes. She is very keen to talk about her mission to tackle ‘burning injustices’ like mental health and housing. “What is missing from speeches on either topic is the sort of government action that might match up to a ‘personal mission’” says Hardman in the Spectator. “This is the nub of the problem: there isn’t enough money coming forward to solve these ‘burning injustices’, nor enough room for those who want to think radically about housing policy or indeed the provision of mental health care to do so.”
The doyen of housing bloggers, Jules Birch, was feeling generous. “When was the last time a Conservative prime minister made a speech more favourable to social housing?”, he asked in Inside Housing, whilst also noting that this week’s promise of £2 billion was even flakier than last year’s. Jules makes his judgement largely on the bit of the speech that was not about money. Here May spoke in carefully crafted Barwellisms, with housing associations taking more of a lead in developments, being more ambitious, being able to ride the business cycle, and praising the non-profit nature of their role.
It is also true, and a relief, that some of Cameron and Osborne’s most extreme policies have been reversed or forgotten about. And I welcome the major contrast in her language with that of Cameron and Osborne, both of whom disliked housing associations and hated social housing. Speaking positively about social housing, especially if it is taken up in the media, is a start.
But what does it add up to? It feels like the boxer who has the opponent on the ropes, about go down, and stops hitting quite so hard. The money means nothing and was not explained in the context of the next spending review, it is probably no more than existing puny budgets rolled through into future years. Jam tomorrow, but spread very thin. It contrasts with a major report for London First this week showing the vast increase in both public and private capital spending that is needed to achieve the government’s stated aim of 300,000 homes a year – a 40% increase is required with 65% in London, they estimate. Put another way, housing’s share of UK GDP must grow from 2.3% to 3.3%. Unlike May’s promise, these really are big numbers.
The love now showered on housing associations creates nothing more than a scumble, a thin veneer. Underneath, social housing is still seen as a holding pen for people who really should want to be home owners. And home ownership is where the real money is going. The view that people who rent are inferior to home owners is at the root of stigma, and it has not changed. Policy reversal is also very partial: the Osborne cuts in housing investment have not been restored, the welfare reforms are still destroying lives, homelessness is still rising, rents are far too high in all sectors, and the bedroom tax is still in place. And it was noticeable that she managed to irritate the Tory chair of the Local Government Association, Lord Porter, for implying that housing associations were the keepers of the legacy of council housing.
A few good headlines for the Prime Minister followed her speech, it must make a relief from Brexit. Most of the national press and broadcast media swallowed it whole, repeating the ‘extra money’ line with no analysis, as if the cheques would be arriving next week rather than 2022. But even with May’s welcome new language the old tropes refuse to die. The BBC’s commentary included the statement that in the 1980s ‘those who couldn’t afford to buy were left in sink estates’, eliciting a complaint from John Popham who called it a slur on social housing tenants. His excellent YouTube video can be found here. (By the way, you can subscribe to his channel through the link). As is their way, the BBC just denied that it was inappropriate, but also referred to another programme about sink estates to make their point. Of course, ‘we value your feedback’.
Not being quite so battered is an improvement of sorts. The total hostility of the previous era towards social housing seems to be ending, and that creates an opportunity. But it requires an altogether more assertive stance which includes councils as well as associations. For the millions in desperate housing need, happy clappy is not the right response.
Some people suffer because of the housing crisis, others do quite nicely out of it thank you. Land owners are perhaps the best example of those who have traditionally coined it in. Nothing much has changed since Winston Churchill, way back in 1909, called land ‘the mother of all monopolies’, criticising ‘the enrichment which comes to the landlord who happens to own a plot of land on the outskirts of a great city, who watches the busy population around him making the city larger, richer, more convenient, more famous every day, and all the while sits still and does nothing.’ And still they do.
But attention has been drawn more recently to another group of people who have been achieving great riches from the miseries of others – the housebuilders. You might say that at least housebuilders produce something of use, unlike the landowner, and the point is valid. But recently the vast profits being made by the volume housebuilders have been substantially donated by the government, free gratis and for nothing.
The housebuilders’ own special magic money tree is called Help to Buy. In an excellent article in the Times on 8 September, Property Correspondent Tom Knowles showed how the average profit made by housebuilders on each home has doubled since the scheme was launched. Knowles’ analysis showed that ‘the top five builders in Britain are making an average profit of £57,000 on each house they sell, compared with a mean average of about £29,000 in 2007’.
On Red Brick we have criticised Help to Buy from the time it was launched in 2013 because it is a subsidy on the demand side of housing – it enables people to spend more on housing without necessarily increasing supply. A little bit of economics tells us that in the longer term it is likely to be self-defeating because more demand with no more supply will lead to price increases. Far better, we have consistently said, to apply whatever public finance is available to boosting housing supply not demand.
At the launch of Help to Buy the argument was made that the scheme would boost supply by giving developers confidence that they would have buyers for their output – after all, no-one builds what they cannot sell. Yet Knowles confirms that the total number of new houses being delivered is much the same as it was ten years ago. He uses Barratt as evidence: profit per house has doubled since 2007 (he uses that date because it was the last full year before the global crash), but it is building only 411 additional homes. He provides a fascinating chart to illustrate the detail, repeated below.
Source: The Times, 8 September 2018.
Knowles quotes analysts who confirm that the largest driver of today’s profits is Help to Buy. One assesses that housebuilders would be making £22,000 less profit on each house built for first time buyers if Help to Buy was not in place, and concludes that ‘someone is gaming the system’.
One of my favourite analysts, Neal Hudson, who puts good stuff on Twitter @resi_analyst, is quoted saying that shareholders had become ‘the main priority’ for housebuilders since the financial crash. ‘The over-arching factor has been big pressure from the City,’ he is quoted as saying. ‘The priority for them is profit margin not the number of homes built.’
One housebuilder chief executive was paid £75 million in a bonus last year, putting even bankers to shame. I suppose you could argue that no-one would turn down a nice earner, even if it is on the back of a government scheme designed to tackle the housing crisis. And, of course, it is government policy that is to blame. Since 2010 housing finance policy has been turned on its head. Instead of providing grant to enable genuinely affordable homes for those on low and medium incomes, Government help is now aimed at supporting the private housing market – and not very successfully it seems. The Chartered Institute of Housing’s Housing Review estimated that support for the private market is taking nearly 80% of current investment compared to just over 20% going as support for affordable housing.
At local level, the riches flowing into the pockets of the housebuilders should stiffen the resolve of councils who are fed up with developers pleading that schemes are ‘unviable’ due to modest requirements that a proportion of new homes should be affordable.
In this debate, profits per home of around 20-25% of the cost are taken almost as a given, a fixed cost. I can remember a developer telling me that the rule of thumb in building costs was ‘one-third for land, one-third for construction, and one-third profit’. In our Brexit-dominated world, construction costs are likely to inflate rapidly in the near future. So, if anything is to be done it must be to bear down on the other two elements: land and profit. We have posted a lot recently about land and taxation: another good step would be to tackle the Help to Buy gravy train.
The government’s Social Housing Green Paper fails to meet its promise to be a ‘fundamental rethink’. But it contains a number of U-turns in policy towards the sector and its tenants. One welcome change is in the approach to consumer regulation. In this post, two of the key players in the delivery of consumer regulation under the last Labour government, Ross Fraser* and Roger Jarman*, consider the direction the government is now taking.
Prior to the 2010 election, social housing tenants were beginning to see the fruits of Labour’s commitment to consumer regulation of social housing. Audit Commission housing inspections, focused on service quality, had been part of social housing since 2000. A new consumer-focused regulator The Tenant Services Authority (TSA) had been set up in 2009 and was beginning to have an impact. A National Tenants’ Voice (NTV) had been set up to enable that ‘voice’ to be heard in national policy development.
Then, as one of the first Tory-led coalition government housing policies, Secretary of State Eric Pickles and Housing Minister Grant Shapps conducted a ‘bonfire of regulation’, winding up the Audit Commission and the National Tenants’ Voice, abolishing the TSA and transferring its regulatory powers to the Homes and Communities Agency whilst reducing its scope for consumer regulation to a minimal level. Then came the Grenfell Fire and now, in direct response, the Government’s new Green Paper exhibits a complete policy U turn and proposes a new regime of consumer regulation and the creation of a national voice for tenants. In other words, the government is proposing to replicate the Labour government initiatives which Pickles and Shapps scrapped with such haste and enthusiasm.
Although the Green Paper has generated much discussion in the housing media, not a single commentator has noted the quiescence of the sector in 2010 and 2011 at the ‘bonfire’ of consumer regulation. No local government or housing trade body contested its abolition – indeed much of the sector was only too glad to see the back of (we paraphrase) ‘over-prescriptive consumer regulation that paralyses innovation and imposes excessive burdens on landlords’.
Post-Grenfell, there is a renewed recognition that social landlords need to raise their game on resident engagement and standards of service quality. The Local Government Association (LGA) is working hard on a guide for councillors on the benefits of tenant involvement and how councils can learn from the best local authority and Arms Length Management Organisation (ALMO) practice. The National Housing Federation is going even further and plans to issue a formal ‘offer to tenants’ at a national level, underpinned by ‘local offers’ by individual housing associations. Both initiatives are welcome – and by implication raise the question of the balance of responsibility between government and the sector in terms of embedding a lasting and workable model for consumer regulation. This is important as without the wholehearted support of the sector, this iteration of consumer regulation may not succeed either.
So what does the Green Paper’ propose? Key suggestions include:
Undoubtedly these are vital issues to be addressed and we discuss them in more detail below. However, the proposals focus entirely on the delivery of management and maintenance services and the quality of resident involvement. What the Government has yet to recognise that tenants want a more effective say over the policy decisions made by social landlords. Two examples will suffice.
One of the biggest decisions that social landlords have to make today is over the balance of expenditure between building much-needed new homes and the maintenance and improvement of their existing housing stock. When, after the 2015 election, the Tory government introduced the ‘4-year 1% rent cut’ much of the sector sought to protect development programmes by cutting back on, or delaying, planned maintenance and other capital works programmed for coming years. Most landlords didn’t tell their tenants they were doing this, let alone consult and seek to persuade them that this was the right policy decision. Equally, tenants are increasingly concerned about social landlord rent levels, lack of landlord research into local rent affordability and the abhorrent practice of converting social rent relets into new ‘affordable’ (sic) rents. There is nothing in the government’s Green Paper that will empower residents to challenge landlord decision-making in these areas. A key litmus test of the forthcoming LGA and NHF initiatives will be whether they tackle these issues.
Returning to the government’s proposals, some are eminently sensible. The Government proposes a single housing ombudsman (subject to a specific separate consultation) and to speed up and simplify the current complaints process. This is a good plan. Also welcome is the proposal to empower the Social Housing Regulator to intervene where there is systemic failure of the landlord service, with the bar set higher than the current lamentable ‘serious detriment test’ which focuses solely (and not very well) on health and safety. Reviewing current consumer regulation standards – especially the Decent Homes standard – is right and essential. Enabling residents to have their voice heard better at a national level – presumably (although the Green Paper isn’t specific) through a reconstituted National Tenants’ Voice – is imperative and no time should be lost in making this happen.
Other proposals, whilst well-intentioned, need to be carefully designed if they are to have any impact.
Tenant access to comparative landlord data is essential – as charges to tenants and leaseholders comprise 95% of social landlord income, they have a moral right to know how well their landlord is performing. Tenants and their representative or support bodies like TAROE Trust, TPAS and a National Tenants’ Voice could use this information to challenge landlords to improve and regulators to act where they don’t.
But, as TPAS CEO Jenny Osbourne has pointed out, until tenants are able to exercise choice over their landlord, there is a limit to the empowerment that performance league tables can achieve. This is undoubtedly true but the only time that any government has sought to enable this, via the Tenants’ Choice scheme in 1988, the initiative was quickly dropped due to sector opposition and tenant frustration with the complexity of the process. Instead, in the Green Paper, the government floats the options of tenant-initiated, stock transfer to community-based housing associations or (subject to a review of the model’s effectiveness) TMOs or increased deployment of other tenant-self-management options. But what if tenants don’t want that responsibility and just want a better landlord? Most would likely prefer regulatory intervention as the means of securing that goal.
Linking landlord performance to access to grant or strategic partnership opportunities will certainly focus the minds of housing providers. Most will redouble their efforts to improve. However, as was evident to the Audit Commission housing inspectorate, others will focus effort on ‘gaming’ the data – and poor performers will complain that everyone else cheats and they are the only honest brokers – and it will need great rigour in data collection, validation and challenge if accurate clean data is to become the norm. Landlords will have to increase their staff resource – and vastly improve their IT systems – if good quality data is to be provided, inevitably increasing costs. Which, in our view is a good thing and not something to complain about.
Then there is the technical issue of what performance indicators to collect and how to measure them. A particular issue arises where data is drawn from complex and extensive surveys – either of property and tenants. How can this data be validated by an external body? Will all surveys need to follow a set model, or will the data validator have to check the methodology of every survey? How will performance on health and safety be monitored, especially given the confusion between the government, the sector and suppliers as to what – post Grenfell – constitutes adequate protection against fire?
Who will collect, validate and publish the data? The assumption in the Green Paper is that the Social Housing Regulator will undertake this role. The Green Paper references the excellent work of the Scottish Housing Regulator in this respect. In our view – and we admire what Michael Cameron and his Scottish colleagues have achieved – this would be a mistake.
The first thing that any poor performer does – and we know this from experience – is to challenge the technical basis of the KPIs and the validation methodology. It will be far easier to rebut this criticism (whilst responding positively to constructive challenge) if the data used by the regulator is collected and validated by the sector itself. And in sector institutions like HouseMark and HACT already lies the skills in developing data collection systems and and validating landlord performance data. HACT is developing common data standards for the sector, now with HouseMark support, and these will be vital in raising the quality of data collected. There is no merit in spending public money in replicating existing sector initiatives. Even more important, social landlords need to ‘own’ this data and use it for sector-generated improvement.
The Social Housing Regulator should have the power – on an exceptional basis – to audit the systems used by providers to derive data on their performance. This will ensure that the sector knows that ‘gamed’ data will be subject to official checks – with false performance data resulting in the regulatory sanctions that currently apply to inaccurate financial returns. If the sector cannot demonstrate a commitment to accurate performance data monitoring, then – and only then – should the Social Housing Regulator step in and impose its own system.
It’s time for the sector to stand up and demonstrate its commitment to transparency. And by the sector we mean both councils and housing associations. Any suggestion that the ‘transparency deficit’ is solely a housing association issue is both wrong and ideologically-driven.
Another issue is what triggers regulatory intervention. The former chair of the Social Housing Regulator Julian Ashby has sensibly suggested that the regulator should focus on ‘systemic or serious failures’ of landlord services with the Housing Ombudsman tackling individual complaints. But how do we define ‘systemic or serious failures’? Will tenants have a powerful say in developing this definition and monitoring the regulator’s execution of this responsibility?
Clearly, the culture of the Social Housing Regulator will need to change. The Green Paper suggests some new and appropriate appointments to its Board. Presumably, new executive staff with expertise in resident engagement will be recruited to an already high-quality regulator. However, if tenants are to have confidence in consumer regulation, the whole process will need to be completely transparent. For any regulator – not just the SHR – this will be a major cultural change.
Finally, the Green Paper asks whether the regulator’s remit should be extended to ALMOs and TMOs, whilst recognising that this might cut across local democratic accountability as expressed in the council’s role as client. In our view this is a real problem but a fixable one. Protocols can be established between the SHR and trade bodies such as the LGA, ARCH and the NFA. The example of how the Audit Commission Housing Inspectorate certified ALMO performance – using data collected by a sector body (HouseMark) and with regular and transparent engagement with the LGA – seemed to work quite well in securing the release of over £20 billion in decent homes funding approvals between 2003 and 2010.
In short, consumer regulation will only work and command broad support if it is a partnership between MCHLG, the Social Housing Regulator, the sector and tenants. In designing a new system, the views of tenants and their representative and support bodies should be the prime consideration. Policy making in social housing has rarely taken this form in the past. Let’s make sure it happens now.
*Ross Fraser was Chief Executive of HouseMark between 2001 and 2016
*Roger Jarman was Head of Housing at the Audit Commission Housing inspectorate between 2000 and 2010
Labour Housing Group, an affiliate to the Labour Party which promotes socialist housing policies within and outside the Party, has today released a statement in response to the Conservative Government’s Social Housing Green Paper.
The statement contrasts the Tory green paper and the one produced by Jeremy Corbyn and John Healey for Labour earlier in the year: the difference could hardly be starker: “Theirs fiddles at the edges and is going nowhere, while Labour’s is a genuine agenda for reform and the re-establishment of social rented housing at the heart of the housing system” says LHG.
LHG Spokesperson Sheila Spencer said: “In the aftermath of the Grenfell tragedy the government said its green paper would be a “fundamental rethink of social housing in this country”. Instead, it has been sneaked out in the middle of everyone’s summer holidays. It has little of importance to say and holds out no hope that this government will tackle the housing crisis or the stigmatisation of social tenants”.
LHG’s statement attacks the two main deficiencies in the Tory green paper:
Sheila Spencer says: “Tenants must be astonished to read that the key policy proposal for addressing the stigma they often experience is to set up street parties and best neighbourhood competitions.”
The few positive points in the government’s green paper – a return to proper regulation of consumer standards, and to a ‘tenants’ voice’ of some sorts, a review of the Decent Homes Standard and the development of a more level playing field between council and housing association landlords – are an admission that much of the policy since 2010 has been wrong.
Sheila Spencer said: “When Labour left office in 2010 there was a strong regulatory system, proper inspection of landlord services, a national tenant voice. Above all there were high levels of investment in new social housing. That was all swept away by the Tory Coalition Government. And the disastrous Tory Government which followed has so far had to retract its own housing policies not once, but 7 times. They should apologise for getting everything so wrong.”
The full LHG response to the Social Housing Green Paper is set out below.
LHG Statement on the Social Housing Green Paper
So much for a “fundamental rethink of social housing in this country”. The Tory Social Housing Green Paper – finally published on August 14th after having been announced in September 2017 – is seen by most commentators as a damp squib, unlikely to do anything to revive the social housing sector, or to remove the damaging stigma felt by many tenants around the country.
Despite the statement “Social housing remains central to our supply ambitions, providing a stable base that supports people when they need it”, it is not clear that the Government thought the issue of social housing was serious enough for any proper consideration. The Green Paper was sneaked out, trailed first in a press statement and then a short summary document, early in the morning, with the full document released later in the day – outside the main Parliamentary session, in the middle of everyone’s summer holidays. No proper scrutiny, no formal discussion for some months, and a media strategy that is cynical in the extreme. Could there have been any less sense of importance given to this topic?
There is a total contrast between this Green Paper, prepared and delivered with all the resources of government, and the one produced by Jeremy Corbyn and John Healey for Labour earlier in the year. One fiddles at the edges and is going nowhere, whilst the other is a genuine agenda for reform and the re-establishment of social rented housing at the heart of the housing system.
The Social Housing Green Paper – “A new deal for social housing” the first-ever housing green paper from a Conservative government – does at least get rid of some more of the Tories’ worst plans for social housing. No less than seven policies announced under the Housing & Planning Act 2016 have now been disposed of, including making councils sell off their highest value council properties, and ending security of tenure for council tenants. However, it fails to show any grasp of the ways in which social housing could help overcome the housing crisis, and especially the desperate need to provide many more genuinely affordable homes.
Though the Government says it has been listening to council and Housing Association tenants, they might have been astonished to hear that the key policy proposal for addressing the stigma they often experience is to set up street parties and best neighbourhood competitions, to “bring people together across housing tenures and generate a sense of pride”. The Green Paper tries to blame landlords for the growth of stigma, ignoring their own Party’s actions and policies. In truth, they cannot really understand why anyone would want to be a tenant, and so instead of realistic suggestions for increasing the value with which social housing is regarded, there are yet more proposals to help tenants to move into home ownership.
The Green Paper shows little understanding of how social housing estates have changed since the Right to Buy. In some places RTB has brought about sustainable home ownership, but in too many others it has simply led to the enrichment of individuals who have either let at much higher rents, or sold on for others to do so. It has been a huge policy error to allow social housing to become private rented housing in such large numbers. Mixed tenure estates involving high levels of private renting are harder and more costly to manage, but the paper does not discuss these issues, let alone propose how to deal with some of them. A separate document published at the same time announces a consultation on proposals to change the way Right to Buy receipts can be spent, and suggests “reforming the commitment” that every additional home sold is replaced on a one-for-one basis nationally, a commitment that has never been honoured in the 8 years of the Coalition & Tory governments.
A proposal to introduce performance league tables on which funding for housing will be based has been met with lukewarm reaction. More significantly, borrowing caps will remain in place, and there is no commitment on the numbers of social housing dwellings to be built, nor any funding to achieve an increase. This is without doubt accepted by most commentators as the most crucial housing issue today, but not, apparently, by this government. By contrast, Labour’s commitment to build 100,000 genuinely affordable homes a year, achieving 1 million over a decade, is not only explicit, but underpinned by a series of policies to make this target achievable, the severity of the challenge being matched by the Labour Party’s seriousness about how to meet it.
There are a few positive points in the Green Paper. It heralds a return to proper regulation of consumer standards (though experience tells us that a centralised, overly financially focused approach does not work and local authorities should be given more of a role in holding Housing Associations to account), a clearer framework for dealing with complaints about landlords, proper tenant involvement, and a return to a tenants’ voice organisation of some sort – though there is some irony in the Tories trying to become the champions of tenant involvement, when one of the Coalition Government’s first acts was to scrap the carefully-constructed National Tenant Voice set-up. Our view is tenants will see straight through this.
Also suggested is a return to a proper partnership with Housing Associations, and more of a level playing field between council and housing association landlords, taking a step back from a world in which this part of the non-LA part of the sector loses its purpose of meeting housing need for the public good. However, the start of the voluntary Right to Buy for Housing Association tenants, announced in the same week as the Green Paper, establishes a £200m fund to enable one-for-one replacements which could have been far better spent on building new stock.
There is also support expressed for community-led housing, but this is linked to a proposal to transfer more council stock to community-led associations, rather than support for community-led initiatives for developing housing stock in a variety of tenures.
Finally, there is a welcome proposal to review the Decent Homes Standard, introduced by Labour in 2000, but not reviewed since 2006.
So no new money and no change to the borrowing cap which would allow councils to get on with building much-needed social rented housing, no recognition of the housing crisis caused by their own welfare benefit policies, and no real attempt to tackle the stigma associated with public sector housing. Is anyone ready to believe the Tories’ claim that they have been listening?
When it was announced by housing secretary Sajid Javid back in September, the social housing green paper was described as the start of a “fundamental rethink of social housing in this country”. Now that it is finally published after several postponements, the strong impression on a first read is that there has been little thinking and certainly nothing fundamental going on in government over the past 11 months.
Three things in particular strike me from this first reading.
First, the top news is that it signals the abandonment of much of the ‘Cameron Housing Policy’ imposed since 2010 and enshrined in the 2016 Housing and Planning Act. If it was an honest document it would say ‘we got it wrong’ when the Coalition dismantled the social housing regulatory system when taking office in 2010. Now indicated are a return to proper regulation of consumer standards, proper tenant involvement, a clearer framework for dealing with complaints, more of a level playing field between council and housing association landlords, and a return to a ‘tenant voice’ type organisation.
In his introduction the new housing secretary James Brokenshire almost confirms the point: “There is a powerful case for strengthening the Regulator so it not only focuses on the governance and financial viability of housing providers, but also on how residents are treated and the level of services they should expect.” Well, that is pretty much what the Tenant Services Authority and the Audit Commission were doing in 2010 before they were abolished. The idea that is floated of linking funding to performance also takes us back into new Labour territory.
Second, the government has said a lot about the stigmatisation of tenants since the Grenfell fire. And it says it again here. But there is a contradiction at the heart of their thinking. They cannot really understand why anyone would want to be a tenant and so there are proposals for yet more routes into home ownership. One section is headed “Ensuring social housing is a springboard to homeownership”, enshrining the notion that the most important thing is to aspire to home ownership.
The attitude that people who rent are inferior to people who buy is at the heart of stigma. So the Prime Minister, in her introduction, is wrong to try to pin the blame on landlords: “Many people living in England’s four million social homes feel ignored and stigmatised, too often treated with a lack of respect by landlords who appear remote, unaccountable and uninterested in meeting their needs.” I think she should look more closely at the long-term attitudes of politicians in her own party and the mainstream media.
Third, and most importantly, the GP totally fails to show any grasp of the ways in which social housing could help overcome the housing crisis, and especially the desperate need to provide many more genuinely affordable homes. Here there is a total contrast between this GP, prepared and delivered with all the resources of government, and the one produced by Jeremy Corbyn and John Healey for Labour earlier in the year. One fiddles at the edges and is going nowhere, the other is a genuine agenda for reform and the re-establishment of social rented housing at the heart of the housing system.
Some other points that strike me on this first reading of the green paper include:
It shows little understanding of how social housing estates have evolved since the Right to Buy. In some places RTB has brought about sustainable home ownership, but in too many others it has simply led to the enrichment of individuals who have either let at much higher rents or sold on for others to do so. It has been a huge policy error to allow social housing to become private rented housing in such large numbers. Mixed tenure estates involving high levels of private renting are harder and more costly to manage. The GP has no discussion of these issues let alone proposals to deal with some of them.
The GP says it is dealing with all of social housing including leaseholders, but the section on leaseholding is so scant it is almost insulting. It shows little appreciation of one of the key weaknesses of right to buy: service charges. Many leaseholders have faced financial ruin due to major works bills and, because many struggle to pay their service charges, they are often the group most likely to oppose local improvements.
There are several proposals that should be welcomed, even if they are really just ending a previous bad policy. For example, deciding not to implement the 2016 Act’s provision that ‘flexible tenancies’ should become mandatory. The GP says these will remain open to local discretion. In addition the forced sale of ‘high value’ council homes to fund housing associations right to buy will not proceed. That is a relief. And finally, I would welcome the commitment to revise the Decent Homes Standard, which has not changed since 2006. It should incorporate wider standards for the estate environment and be much stronger on health and safety and especially fire safety.
I had hoped that there would be a clear announcement that the government will fund a replacement for the National Tenant Voice which it wound up in 2010. Instead it makes noises suggesting that support will be forthcoming for a new ‘independent platform for tenants, based on widespread engagement, to enable them to have their voices heard more effectively at a national level.’, which is what the NTV was.
There were two areas where a little chill ran down my spine. First the GP says that the government are considering “a new stock transfer programme to promote the transfer of local authority housing particularly to community-based housing associations.” New proposals would be needed only if such a programme was not voluntary.
Second, there is a section on Universal Credit that is a work of fiction totally unrelated to the actual experience people are having with the benefit. It reads like a Duncan Smith speech from five years ago: “Universal Credit is designed to mirror the world of work, to give people control over their lives and encourage them to take responsibility for their financial affairs.” Surely no-one believes that any more?
Finally, I note that the GP strikes a negative tone about tenant management organisations, which I think is not justified despite the debate about who was responsible for what prior to the Grenfell fire.
There will be no Parliamentary scrutiny of the Green Paper until the Autumn, and it may have passed into deserved obscurity by then. But there are a few areas where the government needs to be pushed to deliver, and a few others where it should be pushed to stop before it has started. Taken in the round, this Green Paper does not affect the debate about the housing crisis and the status of tenants in society one jot.
The housing/local government department has always been well known for its late announcements – last day before Xmas and last day before Parliament breaks up were always favourites. But they have excelled themselves over the homelessness strategy and the green paper.
We are left to wonder – is the purpose of a media operation in a government department to provide fair information for public consumption or is it just a cynical exercise to promote the government’s interests?
First, after many months of high sounding promises, the Social Policy Green Paper did not see the light of day in February or June or July. It missed the Parliamentary term, and therefore avoided Parliamentary scrutiny. Second, yesterday the ‘Homelessness Strategy’ was ‘published’ in the form of a ministerial statement and quite a lkot of partial press briefings over the weekend. The actual strategy was not published until much later when media attention had moved elsewhere. Third, today’s Green Paper has similarly been trailed in a press statement and a short summary document early this morning. The actual GP has only just been published as this is being written (the benefits of two screens!).
The media have thus got their stories about the contents without reading the document. And analysis will there be none as everyone has moved on. The industry is left ‘welcoming’ ‘small steps’ which hardly makes it sound controversial, although some did well yesterday to get media interest in the fact the the homelessness strategy promised £100m but had no or very little ‘new’ money.
In a democracy where the written media is broadly right wing and the broadcast media follows the written press, this is a disgrace. It means real comment is left to small but important operators like Inside Housing and 24 Housing who will take the trouble to read the thing – published online as I write – and bloggers who have held back from comment until the full contents are known and can be appraised.
Government is meant to be for all of us, not just to manipulate information to protect Ministers from scrutiny and almost certainly well-deserved criticism.
Part 1 of this two part post can be seen here.
How much of the profits arising from public investment and planning decisions should go into the pockets of landowners and how much should be captured for the benefit of the community? Parliament held an inquiry into Land Value Capture as part of its consultation on changes to the National Planning Policy Framework (NPPF), the new version of which has just been published. (Note 1)
This paper is the second in a series on the issues being examined by the Inquiry, looking at the impact of ‘hope value’ arising from potential future uses of a site on compensation for compulsory purchase. Part 1 examined the effectiveness of s106 and CIL.
In the thirty years following the war the majority of new homes were built by the public sector. By the mid-fifties the UK was building more than 350,000 homes a year, and this rose during the sixties, peaking in 1968 at more than 450,000. Public sector involvement in housing construction fell dramatically under the Thatcher government of the eighties and has never recovered since. The volume of new homes being built fell by a corresponding amount and has rarely reached 200,000 a year since.
Local authorities bought brownfield sites at slum clearance prices and developed modern housing mostly for rent as council housing. New Town Corporations purchased land at a small margin over agricultural prices, developed schools and community facilities, built homes and industrial estates and contributed to the cost of developing the transport networks.
This was explained in evidence to the Land Capture Inquiry by the Town and Country Planning Association (TCPA) who said ‘The new towns programme, using development corporations, paid back its entire borrowing for the delivery not just of infrastructure but the whole of the towns, 32 communities and 2.8 million people. It paid back the debt to Treasury at £4.75 billion in 1999 and has gone on yielding, since that time, about £1 billion to what is now Homes England and Treasury through a land value capture model. The original development corporations were so profitable that they were lending money to other people’.
The Land Compensation Act 1961 set the terms of compensation to be paid to a landowner where their property was compulsorily purchased, consolidating principles established by legislation and refined through the courts over the previous 100 years. A Compulsory Purchase Order (CPO) should not leave the property owner in any better or worse position financially. ‘The value of land shall […] be taken to be the amount which the land if sold in the open market by a willing seller might be expected to realise’. Under a ‘no scheme world’ rule the valuation should ‘exclude any increase or decrease in value which is entirely due to the scheme underlying the acquisition’.
At the time this was interpreted as meaning that land would be acquired at a price based on its Existing Use Value (EUV), subject to current planning consents, with an amount in compensation for disturbance, plus a premium to be paid to the landowner to incentivise release of the land for development. This is now known as Existing Use Value Plus (EUV+).
EUV can be assessed in two ways. The first is an analysis of market evidence of the prices achieved in sales of comparable sites subject to similar planning constraints. The second is to calculate a ‘residual value’ as the net present value (NPV) of future revenues the site would generate based on its current use. In practice both methods are usually applied as a cross-check on each other.
The development of Milton Keynes would raise the value of all land in the vicinity, but that should be ignored in any compulsory purchase. That view held until a court case in 1974 determined otherwise.
In 1970 Milton Keynes Development Corporation acquired just over 300 acres of land from Bernard Myers, offering £230,700 – just over twice agricultural values. However, Myers challenged the compensation award on the basis that his land might, in the absence of the Milton Keynes scheme, have been used for housing development and so was in fact worth £636,070. In 1974 the Court of Appeal upheld the principle that he was entitled in law to this additional ‘hope value’.
Ever since then CPO valuations have included the hope value arising from market expectations of potential future uses of the site, which in practice brought it into all valuations. It closed the door to self-funded new town developments. It also added to the cost of infrastructure developments such as roads, railways, and airports.
The case against amending the 1961 Act to exclude hope value was put to the Inquiry by a leading CPO barrister (Barry Denyer-Green) (2) who argued that acquiring land at less than its open market value might contravene Article 1 of the European Convention on Human Rights (ECHR) (3). This required the public interest to be measured against the rights of the individual. Public interest can justify expropriation of a person’s assets at below full market value, as happened under the Leasehold Reform Act 1967. But the greater the loss to the landowner the more this has to be justified by a strong public interest reason. An individual may have bought the property at a price that reflects hope value. If the property was then compulsorily purchased at less than they paid for it, they would have a case that this was not compatible with the Convention.
The counter argument is that planning policy can be used to drive down land value to such an extent that there is precious little hope value left. In written evidence to the enquiry Daniel Bentley (Editorial Director, Civitas) and Thomas Aubrey (Adviser, Centre for Progressive Policy) explain how this should work (4).
‘The trade in land takes place at values that reflect public policy constraints, including above all the use to which it may be put. This is why the market price of a hectare of land limited to agricultural use in a remote location may be, for instance, £20,000 per hectare, while land in the South East with residential planning permission and no planning obligations may be worth £5 million per hectare. If that land with residential planning permission is subject to a Section 106 agreement requiring a certain amount of infrastructure and affordable housing, the market value will fall, perhaps to £3.5 million. All of these values are market values, reflecting the planning conditions in each instance that are underpinned by legislation … This approach would bring England and Wales in line with the compensation arrangements in Germany, France and the Netherlands, which largely operate under a principle of non-compensation: market values are paid, as is often pointed out, but those values reflect the fact that compensation is not awarded for potential development value’.
Under proposals drawn up by John Healey, the shadow housing secretary, the 1961 Land Compensation Act would be amended to specifically exclude hope value arising from the potential for future planning consent. He suggests that would cut the cost of building 100,000 council houses a year by almost £10 billion to around £16 billion. “Rather than letting private landowners benefit from this windfall gain – and making everyone else pay for it – enabling public acquisition of land at nearer pre-planning-permission value would mean cheaper land which could help fund cheaper housing.”
The Inquiry recognised that a considerable proportion of the uplift from infrastructure development is on existing property, so mechanisms are needed that potentially capture value from existing property as well. Some of that will come through things like capital gain or stamp duty. Wider mechanisms should form part of a comprehensive system. Land Value Taxation was mentioned as one way of tackling wider issues.
The price of housing is largely determined by the market in existing properties. The absence of taxation on the rising value of owner-occupied housing fuels the growth in house prices higher up the housing ladder. It also makes owning a home the most profitable investment a household can make. CIL and s106 do nothing to capture any of that. These issues were not addressed, being outside the scope of the Land Value Capture Inquiry.
All Parties recognise the need to build more housing. The Conservatives have sought to achieve it by lowering mortgage costs and helping more first-time buyers into the housing market. The effect was to increase demand: house prices have risen dramatically in London since Help to Buy was introduced, while construction has fallen. They also reduced the burdens on private sector developers by allowing them to renegotiate s106 agreements making marginal sites more profitable, and permitting the conversion of offices, shops and light industrial properties to housing without the need for planning permission.
Labour’s approach is different. They recognise the vital role of the public sector in housing construction. Under John Healey’s proposals a Labour government would establish an English Sovereign Land Trust working with local authorities to buy land at prices close to existing use value. With the ‘hope value’ removed, the cost of building a two-bed flat in Wandsworth, south-west London, would be cut from £380,000 to £250,000. In Chelmsford it would fall from £210,000 to £130,000 (5).
The former Conservative planning minister Nick Boles acknowledged that the huge windfalls gained by some landowners were inequitable and that the current system of capturing the uplift in land value through section 106 agreements was “incredibly inefficient”, because private developers could afford to outwit planners with expensive lawyers and consultants.
One witness pointed out that there are three parties to any planning decision: the landowner seeking the best value for the site, the planning authority looking to finance affordable housing and infrastructure from the planning gain, and the developer acting as midwife between them, unable to build unless they can get a profitable deal acceptable to both.
Landowners often take a very long-term view. In a rising market, why sell today if it will fetch more tomorrow? In a falling market they will only sell when the time is right. If they believe planning gain is being too tightly applied they will bide their time. Where a developer secures a site based on optimistic forecasts the holding costs are relatively low, so it is usually in their interests to delay building until market conditions are more favourable.
Consequently, the business model on which housing construction operates is highly dependent on rising house prices, and grinds to a halt at the first sign of a downturn. No builder will release more properties into the market than the current price level will sustain, which is why large sites take ten to fifteen years to build out.
The Inquiry recognised that Public sector development of housing for rent is relatively unaffected by such constraints. It can have an important counter-cyclical impact on the construction industry. Since the decline in public sector involvement construction has failed to meet demand arising from demographic changes. The Inquiry did not discuss the wider impact of land banking and speculation in potential building sites, which it may have considered to be outside its remit.
We can only hope these concerns lead to a consensus on sustainable long-term solutions to the housing crisis, addressing both the supply of housing, and escalating costs. The issues were thoroughly debated at the Inquiry into Land Value Capture.
In response the revised NPPF has reduced the scope for developers to wriggle out of affordable housing obligations under s106. But it does nothing to help local authorities assemble sites at existing use value to make new housing more affordable. That would require revision of the 1961 Land Compensation Act to remove the ambiguities that make CPOs so slow and cumbersome to use, and the introduction of fairer property taxes. What hope is there for that?
NOTES
[1] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/728643/Revised_NPPF_2018.pdf
[2] Q225 of http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/housing-communities-and-local-government-committee/land-value-capture/oral/85154.html
[3] Article 1 of ECHR: Protection of property
Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.
[4] http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/housing-communities-and-local-government-committee/land-value-capture/written/85910.html
[5] https://www.theguardian.com/politics/2018/feb/01/labour-plans-landowners-sell-state-fraction-value