Category: Blog Post

Following Roger Jarman’s Red Brick post on reforming residential property taxes, Dave Treanor’s two-part post looks at capturing planning gain, taking acount of the Parliamentary inquiry into ‘Land Value Capture’ and this week’s revised National Planning Policy Framework. Today’s part looks at s.106 and CIL. Tomorrow’s will look at the level of compensation paid to landowners in a compulsory purchase.

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By Dave Treanor

How much of the profit 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?

A new National Planning Policy Framework (NPPF) has just been published (July 2018) (Note 1). During consultation on the changes Parliament set up an inquiry into ‘Land Value Capture’.  The consultation invited evidence on whether planning gain contributions under section 106 and the Community Infrastructure Levy (CIL) are adequate measures for capturing increase in land value.  Do they bring sufficient money to local authorities to provide the infrastructure that developments often require? What new methods might be employed to achieve land value capture and what examples exist of effective practice in this area, including internationally?

The uplift in land value resulting from planning consents is £9 billion a year, of which less than £2.8 billion is captured by the Community Infrastructure Levy (CIL) and Section 106 (2).

Successive Labour governments since the war have legislated to capture at least some of these windfall gains for the benefit of the community. Each time it has been reversed by the next Tory government. When he was Communities Secretary (before promotion to Home Secretary) Sajid Javid declared his intention to tackle the hoarding of land by developers and make better use of the uplift from planning gain to support local infrastructure and development.  The Tories are alarmed at the fall in home-ownership, which they have always regarded as their best constituency.

S106

Section 106 of the 1990 Town and Country Planning Act was introduced by a Conservative government. It captures some of the increase in value when planning permission is granted to fund the inclusion of affordable housing in a development and improvements to schools, local transport and other infrastructure to deal with growth in the local population.  Despite some limitations it has been the single most effective mechanism for capturing planning gain, with a direct impact on the market price of land.

An extension of ‘permitted development’ in October 2015 provided automatic consent for offices and light industrial properties to be converted into housing, so they no longer make s106 contributions. Section 106 only applies on schemes with 10 or more units (now reduced to 5) making it harder to finance affordable housing in rural areas where developments are often small.

It is up to each planning authority to set out its own polices in planning guidance. Under the London Mayor’s Supplementary Planning Guidance, for example, the requirement is for 35% affordable housing, rising to 50% on regeneration of council and social housing estates.

The development of brownfield sites is inherently risky, and the value added by planning consents is sometimes insufficient to deliver the affordable housing. Section 106 provides flexibility so as not to prevent an otherwise beneficial scheme being built. Where it would not be economically deliverable at the levels expected in planning guidance the developer can negotiate a reduction in the affordable housing requirement to enable it to proceed using a Financial Viability Assessment (FVA).  The Inquiry heard evidence that this option was being abused resulting in reductions in affordable housing.

An FVA analyses future revenues that could be achieved with the new planning consent to assess a Gross Development Value (GDV). It includes sales receipts, the present value of future rents net of management and maintenance costs, and income from any commercial premises or community facilities.   These are compared with the costs of delivering the scheme, including clearing the site and compensating existing occupants, construction, and all associated fees and taxes. This is known as the Gross Development Cost (GDC). The Residual Site Value is then calculated as the GDV less GDC including a margin for developer’s profit.

A scheme is considered deliverable if the Residual Site Value is greater than the Benchmark Value, defined as the value below which a reasonable land owner is unlikely to release a site for redevelopment. Critically under Section 106 this excludes hope value arising from potential changes in planning consent to permit more profitable uses of the land. It should reflect policy requirements and planning obligations and, where applicable, any Community Infrastructure Levy.  Benchmark Value sets a cap on the land value a developer can use in a Financial Viability Assessment to justify a reduction in the affordable housing required.

A study by the RICS in April 2015 found that the ‘market value’ was not being applied correctly by valuers in assessing Benchmark Values, and ‘if market value is based on comparable evidence without proper adjustment to reflect policy compliant planning obligations, this introduces a circularity, which encourages developers to overpay for a site and try to recover some or all of this overpayment via reductions in planning obligations’. (3)

A High Court judgement in April 2018 (4) ruled that in assessing Benchmark Value under s106 the price paid by the developer or landowner is not necessarily relevant: if they had paid more than the site was worth based on current planning consents and planning policies this did not entitle them to negotiate a reduction in planning obligations. The judge also recommended that the widely used guidance on viability assessments by the RICS should be revised ‘in order to address any misunderstandings about market valuation concepts and techniques, the “circularity” issue and any other problems encountered in practice over the last 6 years, so as to help avoid protracted disputes of the kind we have seen in the present case and achieve more efficient decision-making.’

This judgment is expected to lower landowner’s expectations of how much a site is worth, based on speculative pricing achieved elsewhere. It means the Existing Use Valuation plus a premium sufficient to make it worthwhile for the landowner to sell (EUV+) takes precedence over the price paid for the site or any market comparisons in assessing the Benchmark Value.

The appropriate level of premium is perhaps the hardest element to judge, and this lack of clarity can be exploited by expensive lawyers and consultants.

The lack of clarity on the likely outcome of planning gain negotiations leads to uncertainty and undermines its impact on the market price of land.

To make matters worse, planning authorities are required to publish their calculations while the assumptions and calculations used by developers in their financial viability appraisals were treated as commercially confidential.  The case for this was incredibly weak since the owner of the land is not in competition with anyone, and only they can benefit from the negotiations. Planning authorities, including the London Mayor, are now making transparency a condition of applying for planning permission.

In a significant change, the new NPPF (para 57) reinforces the expectation that developments must comply with affordable housing requirements and downgrades the role of viability assessments, removing confidentiality from them.  ‘Where up-to-date policies have set out the contributions expected from development, planning applications that comply with them should be assumed to be viable. The weight to be given to a viability assessment is a matter for the decision maker, having regard to all the circumstances in the case, including whether the plan and the viability evidence underpinning it is up to date, and any change in site circumstances since the plan was brought into force. All viability assessments, including any undertaken at the plan-making stage, should reflect the recommended approach in national planning guidance, including standardised inputs, and should be made publicly available’.  This puts the onus on the developer to demonstrate that local circumstances affecting their scheme have changed since the affordability requirements were assessed, justifying a reduction.

For the transparency to be effective the information has to be provided in a way that enables the assumptions to be benchmarked.  Larger sites are invariably developed in phases over as much as fifteen years. Separate appraisals are carried out for each phase and each type of housing on offer, and then consolidated to produce an overall appraisal.  The costs and charges on which these are based are first assessed at current prices and extrapolated into the future based on expected levels of inflation in each of them. That is how financial appraisals are constructed (5).

Unless transparency requires development costs and future revenues to be quoted at current prices it becomes impossible to compare them with other schemes to test how realistic they are.  Expectations of growth in each type of revenue and cost and the years over which they extend should also be benchmarked and are relevant to the overall viability assessment.  But the precise phasing of individual costs and revenues has a relatively small impact in judging viability, and in any case will be optimised and adjusted in response to market conditions as the scheme progresses.

There is a strong case for setting up a benchmarking club for local authorities on s106 which can analyse trends in land pricing, construction costs and associated fees, providing evidence planning authorities can use to challenge the assumptions behind Financial Viability Appraisals presented to them by developers. The added transparency should have a direct impact on land valuations.

It is always easier to negotiate with a competent partner, and delays and confusion from local authorities in dealing with s106 can cost developers money. Developers sometimes accuse planning authorities of using this as leverage in negotiations.

Barratts claim to deliver target levels of affordable housing in most of their developments with only 15% requiring negotiations on viability. But a study by the Campaign to Protect Rural England (CPRE) in 2017 presented a less optimistic view, reporting that around 48% of affordable homes in rural areas had been obviated by means of viability assessments (6).

Clarifying the rules would be in everyone’s interests, except those most adept at gaming the system.

CIL

The Community Infrastructure Levy (CIL) is intended to ensure that infrastructure costs incurred in supporting the development of an area are funded wholly or partly by owners or developers of land in a way that does not make development economically unviable.  It was introduced by the Planning Act 2008 as part of the Labour government’s response to the Barker Review of Housing Supply. Where implemented it applies to any development creating more than 100 square metres of additional floor space or a new dwelling.

CIL is charged per square metre of gross internal floorspace at rates set out in charging schedules published by the planning authority. The rates can differ according to the type and size of development. Social housing is often charged at zero or reduced rates. Unlike s106 there is no discretion to vary it to suit the circumstances of a particular development.  But there is scope to agree what infrastructure will be funded by the charge to support a particular development.

A lengthy consultation process is required to amend the charge rates, so once set they are rarely changed. That certainty is helpful in having a predictable impact on land prices but means there is little opportunity to fine-tune the rates. If they are set too high that could have an adverse impact on more marginal developments in run down areas. If too low there may be insufficient money to fund the infrastructure needed. CIL has only been implemented in 43% of local authorities, largely because outside the high demand areas there may be insufficient added value to tap into, and a fear that it might further discourage investment.

Local Plans

The NPPF put Local Plans at the centre of the planning process so that it is plan-led.  The latest edition (July 2018) requires them to be reviewed and updated every five years.   ‘Plans should set out the contributions expected from development. This should include setting out the levels and types of affordable housing provision required, along with other infrastructure (such as that needed for education, health, transport, flood and water management, green and digital infrastructure). Such policies should not undermine the deliverability of the plan’.

Policy levels of affordable housing should be viability tested in drawing up the plan.  The GLA’s ‘London Plan Viability Study’ published in December 2017 in support of the London Mayor’s Supplementary Planning Guidance is a good example (7). The Inquiry suggested that on larger sites covered by a local plan the planning authority should seize the initiative and not wait for proposals from developers before commissioning its own viability assessment, so that it starts from a well-informed position (8).

Town and Country Planning Association (TCPA) pointed out that ‘some of the most successful land value capture models are accompanied by powerful public-sector bodies that act as the master developer.  They work in concert with the private sector, which delivers most of the development, but you have that oversight from a master developer.  The Dutch, Austrian, German and Danish models all, to some degree, work on that basis’. 

Stephen Ashworth, a solicitor from the planning team at Dentons summarised this position: ‘A local planning authority can afford to be firm if it has development plan policies in place that provide a stronger justification for a decision to refuse a scheme that is not of an adequate quality of development, that does not provide an appropriate public realm or that does not provide the affordable housing.  However, if it has development plan policies in place that very clearly signal that those are its requirements, then it should be able to expect the Secretary of State’s support on appeal and it should be able to have a robust debate with a developer or landowner about what is going to be provided, and it ought to win that argument.

To date, we have suffered considerably from local plan policies that have been hedged and caveated, and the Department needs to take some responsibility for that because they used to go around saying, “You ought to add qualifying wording into planning policies.  You will normally have 35% affordable housing or you will have public realm subject to viability”.  That should be excised.  There is no place for that.  Particularly if you are moving forward with a plan policy that is properly viability-tested, there is no need for that sort of qualifying wording because the moment you put that in, you offer the opportunity for debate and, if you have that sort of debate, some local authorities will, on a number of occasions, be persuaded to lower their standards in order to be able to grant a consent and see some development.  In practice, I suspect they could say no, if the local plan policy supports them, and still get the development’.

In other measures the new NPPF tightens the Delivery Test, putting additional pressure on planning authorities to identify sufficient sites where they have previously failed to meet new housing targets. Social housing is included in the definition of affordable housing. There is a requirement for 10% of all new housing to be low-cost home-ownership, with exceptions for professionally managed build for rent with tenures of at least 3 years.

Part 2 of this review will look at the level of compensation paid to landowners in a compulsory purchase. The inclusion of the ‘hope value’ arising from potential future uses for the land put an end to self-funded new town development.  How is that justified and could it be reversed?

NOTES

[1] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/728643/Revised_NPPF_2018.pdf

[2] https://progressive-policy.net/2017/03/estimating-land-value-capture-england-updated-analysis/

[3] Para 3.48 of ‘Homes for Londoners: Affordable Housing and Viability Supplementary Planning Guidance’, Mayor of London 2017

[4] Islington v Parkhurst Land Limited: In this case the developer had bid £13.25 million for a site that was only worth £6.75 million once the planning obligation for affordable housing was taken into account.

[5] I can vouch for that having designed the software social housing organisations use for their financial viability appraisals https://www.m3h.co.uk/products/development/m3pamwin-lite  For many years I also ran a Benchmarking club on development appraisal assumptions.

[6] http://www.cpre.org.uk/media-centre/latest-news-releases/item/4602-developers-renege-on-affordable-homes-as-countryside-faces-housing-crisis

[7] https://www.london.gov.uk/sites/default/files/london_plan_viability_study_dec_2017.pdf

[8] See for example the Old Oak and Park Royal Development Corporation’s viability study at https://www.london.gov.uk/sites/default/files/50._whole_plan_viability_study.pdf

By Roger Jarman*

 

Taxes and human behaviour

Remember the Window Tax? It was introduced in 1696 under William III in part as an alternative to levying a tax on income. Inevitably the new tax prompted the bricking up of tens of thousands of windows as property owners acted to avoid it.  Taxes produce revenue to fund public services but they also influence human behaviour – look at the consequences of introducing the Window Tax.

In fact for many years governments have used tax not just to fund public services but to change our behaviour too. The tax on tobacco products is a classic example. There are recent examples too. Witness the charge levied on the use of plastic shopping bags.  Only this year the sugar tax was brought in to deter consumers from buying food with excessive amounts of the sweet stuff. And the Scottish government is looking to introduce taxes on drinks based on their alcoholic content in a bid to tackle the consequences of the consumption of strong beers, wines and spirits.

So how do taxes on residential property affect behaviour?

Our residential property taxes affect human behaviour in a range of (largely) negative ways and this has detrimental effects on the mechanics of the housing market.

In essence the ‘consumption’ of residential land and related products in this country is under taxed – and this influences how people engage with housing as an economic good.

For instance, there are no capital gains levied on the sale of a householder’s principal residence. And council tax (a property-based tax) has become increasingly regressive and does not attempt to allocate housing resources more equitably. Bizarrely householders in £30m properties in Westminster can now pay less in council tax than owners of modest bungalows in the North of England. In any case council tax is levied to pay for local services. The tax does not generate revenue for a broader range of public services.

Changes to inheritance tax have also incentivised excessive consumption of owner occupied property. When Chancellor in 2015, George Osborne introduced provisions that mean a couple’s primary residence worth up to £1m will be free of any inheritance tax liability from 2020. This increases inheritance tax allowances for couples by £350,000 compared with the position in April 2016. Inevitably some older owner occupiers will ‘upsize’ to more expensive housing to exploit this new tax break.

Stamp duty land tax (SDLT) provides significant revenue for the Exchequer. However once again this is a tax which encourages perverse behaviour.

SDLT is a transactional tax that penalises mobility. The levy does nothing to encourage baby boomers to downsize to more suitable accommodation. Indeed when coupled with the changes in inheritance tax there are precious few financial incentives to encourage older owner occupiers – probably under occupying large three and four bedroomed accommodation – to move to smaller, more appropriate housing.

Intriguingly the government has used changes in the tax regime to discourage investment in one part of the residential housing market – the private rented sector (PRS).  Partly in pursuit of its goal to increase owner occupation, the Conservative government elected in 2015 introduced measures that take away a number of tax reliefs from private landlords (especially those funding their business through mortgages and other debt finance). SDLT has also been increased for private landlords (over and above what other purchasers pay).

And of course these new taxes have influenced the behaviour of some private landlords. The latest official figures show that the size of the PRS in England declined by 46,000 units in the year up to March 2017. This reverses the relentless growth in the PRS from the mid 1990s when Buy to Let mortgages were first introduced.  By 2020, when mortgage tax relief for private landlords is completely withdrawn a significant number of private landlords will have sold off at least a proportion of their property portfolio.

The favourable tax treatment of private landlords has ended. But the tax framework for owner occupied housing encourages over consumption of private property in the UK and reinforces the role of housing as an investment good in the economy.

Private housing and the UK tax regime: what is the problem? ·       Taxes influence human behaviour and distort the operation of free markets ·       In the UK, residential property is under taxed relative to taxes on income and the consumption of most goods and services ·       As a result, residential property has become as much an investment good as a consumption good in the UK economy ·       This has pushed house prices and PRS rents to unaffordable levels ·       The ramifications are enormous – from increased levels of homelessness as households are evicted from the PRS to severe overcrowding in all housing tenures

Bad news

This is bad news. Money has poured into the housing sector as other investment opportunities have shrunk (think private pensions). But this has not necessarily boosted the production of new homes – rather funds have been invested in existing stock by both owner occupiers and, in the past 20 years, Buy to Let landlords. And with supply restricted we have inevitably witnessed significant increases in house prices and rents.

With wages suppressed after the financial crisis, affordability ratios have rocketed. Even in London in 1997 the average house price was only four times average salaries. Now that ratio is 1:15. In some parts of the country private tenants can pay over 50% of their income on rent.

In part through the operation of the tax system, we have created a ‘dysfunctional housing market’ (as acknowledged by the government). The current orthodoxy is that the housing crisis would be overcome by a massive increase in house building. This is a fallacy. To have any effect on the affordability of housing, experts have estimated that this country would need to build 750,000 homes a year (against a current build rate of around 200,000 homes a year). Neither the market nor the public sector could produce that number of properties in the current context – and the cost would be enormous both financially and environmentally.

The most equitable, efficient and effective way to address our housing crisis is to radically reform the tax on residential land and property. This would immediately reduce the attractiveness of housing as an investment good and influence behaviours accordingly.

So how do we reform our property taxes?

Historically the state raised revenue by taxing land holdings or the produce derived from land. Our ancestors knew a thing or two. This form of tax has always been difficult to avoid/evade and relatively simple to collect.

Over the years this type of tax has reduced, particularly as a proportion of the total tax taken by the state. Taxes levied on income and consumption (VAT, excise duties, etc) has soared and now accounts for some 85% of all taxes levied in the UK. Taxes on inheritance, land, property, wealth and corporations make up a small proportion of all taxes collected in the UK.

As a country we need a more balanced approach to the taxes we levy. We need better methods of taxing residential property and land thus generating a wide range of benefits – in general but more specifically to help create a housing market that works for ‘the many not the few’ .

The two principal taxes on property need to be reformed: council tax and SDLT.

If a new land value tax is discounted because it is deemed too radical we have to work on reforming council tax. First there should be an immediate revaluation of properties so that more valuable properties are subject to significantly increased tax rates. And the revaluation should occur regularly – perhaps annually. After all, keeping abreast of changes in property values should be relatively straightforward given the development of web platforms such as Zoopla and Rightmove.

There is also a strong case for getting rid of the single person discount that applies to one person households under the current council tax regime.

Under this reform a proportion of the council tax so raised would go to the Central Exchequer rather than to the local authority where the property is sited. This would enable the distribution of resources from areas of high housing wealth to poorer parts of the country.

Overall imposing an increased annual charge on property would result in more efficient use of the nation’s housing stock. With some households subject to financial penalties for the overconsumption of property, a proportion would move to properties which attract less tax. The tax would put a brake on house price inflation and could actually result in price falls. Over time affordability would improve and prospectively there might be a return to the long-term 1:4 salary/house price affordability ratio.

A reformed council tax regime should be introduced over time so that households could adjust their consumption of housing to the tax levied. Also provision should be made so that a charge could be placed on the estate of the householder who chooses to remain in his/her property and where the new tax cannot be covered by current income. In such cases the tax would only be levied on the death of the householder.

Coupled with the introduction of a reformed council tax regime, SDLT should be completely overhauled. There is a strong case to retain differential stamp duty rates for the purchase of second homes and investment properties but generally SDLT should be dramatically reduced. (Intriguingly a reform of this kind might actually be welcomed by estate agents as they would see business activity increase significantly as households move to reduce their tax bills).

Properties left empty could be subject to more tax penalties – through the council tax regime – for remaining void. This would build on changes already introduced by the government.

Private housing and the UK tax regime: what is the solution? ·       Council tax should be reformed so that much more revenue is secured from higher value properties (than currently) ·       Property values should be regularly reviewed so that taxes levied reflect up to date price levels ·       A proportion of council tax raised should fund local services but a significant amount should go to the Exchequer for distribution more widely ·       Council tax reforms should be phased in and provisions introduced to enable households unable to pay the higher tax to defer payment ·       Stamp duty should be reformed to encourage mobility in the owner occupied sector

 Time for reform

Social geographer Professor Danny Dorling and others are right. There is broadly the right number of homes in this country relative to our population. It is the distribution of that property that needs to be addressed and ensure that the 20 million or so spare bedrooms are used more productively.  Reforming property taxes would help achieve a better distribution of housing resources in our country – and reduce the propensity for people to treat housing as an investment good and over consume this vital asset.

Maybe the time for reform is here.

Certainly the topic is creating more interest. The Resolution Foundation is pressing for reform and the IPPR has set up a Commission looking at the best ways to reform property taxation in the UK for the benefit of the housing market and the economy more generally. Furthermore the Select Committee for Housing, Communities and Local Government is looking at a related subject – the effectiveness of current land value capture methods associated with house building activity.

Probably most significant of all, Number 10 has a new Housing Adviser – Toby Lloyd.

Lloyd was Head of Policy at Shelter and co-authored the seminal ‘Rethinking the Economics of Land and Housing’ (Zed Books). He knows how taxes distort the operation of the UK’s housing market.

Now if only Toby could have as much influence on government housing policy as his predecessor Alex Morton, the architect of the highly regressive and pernicious Housing and Planning Act 2016.

We live in hope…..

 

* About Roger Jarman

Roger has almost 40 years experience in the housing sector.  He has worked as an academic and in local government as well as for a number of central agencies. He had spells as a senior manager at both the Housing Corporation (1991 – 1999) and the Audit Commission (1999 – 2011).

He currently works as a housing consultant and trainer with a wide range of clients including local authorities and housing associations. He also helps run several small housing organisations in London either as a paid official or as a non executive director.

Note: This is an updated version of a blog first published by Housing Quality Network in June 2018

With reporter Antony Barnett driving between sites in a flash open top and very sporty white car, trying to link a number of disconnected stories under the disingenuous title of ‘Getting rich from the housing crisis’, the Dispatches programme on housing associations on Monday had the kind of sensationalist style that gives TV documentaries a bad name. I broadly agree with Carl Brown’s comprehensive analysis of the programmes’ deficiencies on Inside Housing – principally that the government was totally let off the hook.

Dispatches’ Antony Barnett and his irritating sporty white car. (Pic Channel 4)

Executive pay in housing associations is of course an issue – especially large redundancy pay-outs – but the media obsession with it is a pain and rather hypocritical when you look at how much people in the media get paid (the last CE of Channel 4 – a public corporation – received a package of £1m in his last year, and don’t get me started on BBC executive pay). To reduce the motivation for housing association activities – good and bad – to a single driver – pay – is absurd. It would also make a change for the press or TV to take a wider look at people who get rich from housing – the developers, the financiers, the private providers of temporary accommodation and the rest. There is a lot of leakage from residents’ rents and mortgage payments to very rich people, and housing association chief executive pay is only a small part of it.

The programme has been widely condemned in the sector, but a little defensively. The answer to a simplistic attack that you’re doing a bad job is not to simply assert that you are ‘doing a great job, a really great job’ (to quote Donald Trump). Because there is another side to the coin and there are issues that need to more honestly addressed.

Stripping aside the overly-dramatic style of presentation and the crude and untrue linking theme of people ‘getting rich’, the actual issues selected by the programme should not be lightly dismissed. For example, the Clarion redevelopment of the Sutton Estate in Chelsea has been widely criticised, not just in this programme, estate ‘regeneration’ schemes in general have often led to a major reduction in social rented homes (although more homes overall) and the non-delivery of promises, and the practice of selling hundreds of formerly social rented homes in high value areas at auction is little short of a disgrace even if it has been encouraged by this government. The contributions from Tom Murtha asking if associations have lost sight of their original ‘mission’ to provide homes for the poorest, and from Karen Buck MP about disinvestment in the high value but also high need communities she represents, asked reasonable questions of the sector.

The programme failed to get to the heart of the debate about housing associations. The removal of subsidy by government – the main culprits – has led many associations, and especially the largest ones, to maximise their surpluses to enable them to grow their development programmes and to provide an element of cross-subsidy to keep rents in new homes below market levels. Some councils have done the same thing. Practice varies of course – some associations refused to do ‘conversions’ (whereby empty social rent homes are converted to much higher ‘affordable rents’ before re-letting), others have maximised the practice – but the bottom line is that surpluses from existing activities have grown. Some of the new homes are being provided by making bigger surpluses from existing tenants, but with virtually no debate about the pros and cons.

Within the new business model, associations have clearly done very well. They have kept housing production going and have expanded their output. They have reapplied large development profits to produce more homes rather than see the money leak out as dividends as it would with private developers. The issue is whether they could have done more a) to oppose the worst aspects of government policy and b) to maintain a bigger flow of homes for social rent even if that meant fewer homes overall. Not all associations have made the same choices and there has clearly been more than one possible outcome. Although we are used to needs analysis for social lettings, I never see a serious assessment of who benefits from the rising proportion of new homes at market or near-market prices. There should be far more debate about the implications of losing so many of the cheapest homes to feed a development programme that comprises more expensive homes.

We should start from the principle that tenants should not be paying – in rent and reduced services – for the government’s failure to provide funding for additional affordable homes. I talk to a lot of people in the business and for several years it was hard to get anyone senior in a big association to talk about tenant services rather than development. At strategic level, housing management seemed to be reduced to little more than a growing source of cash. It was hard to get anyone to talk about social rent – still the only genuinely affordable tenure for people on low incomes – rather than total output and ‘affordable housing’ – often a cover for producing homes that were not affordable at all.

Grenfell changed the terms of the debate, forcing a greater focus on existing social housing and the deal that social tenants get. Groups like CIH and Shelter are reviewing social housing and concluding that providing homes at lower rents for poorer people is a very important policy. Labour has shown the way forward with its Green Paper, and the government’s own Green Paper is due to be sneaked out before the Parliamentary recess. Whether they will put more grant into new social rented homes is the critical thing to look out for. If they do, the way the sector then responds will tell us much more about the mettle of housing associations than how much their chief executives are paid.

It almost seems a waste of energy to write about the new housing minister. Eight in eight years have passed through the post, often on their way to greater things – if becoming chairman of the Tory party, principle advisor to the PM or Brexit Secretary count as advancement. Labour’s Sarah Jones has summed up yesterday’s man Dominic Raab’s six months of failure very effectively here.

It sometimes looks like the choice is done by sticking a pin in a list of Tory MPs who don’t know anything much about housing. Since 2010 characters called Prisk, Hopkins, Barwell, Sharma and Raab have all held the job for less than a year. Scarcely enough time to wring your hands about homelessness on the streets, meet David Orr of the NHF to discuss solving the housing crisis, and make the same recycled ‘keynote’ speech at the CIH Conference. Move along, nothing to see here. Mind you, as Grant Shapps and Brandon Lewis both managed around 2 years, it might be that high turnover is to be encouraged.

It must be admitted that tenure of the post was not much longer under Labour. Charlie Falconer, Jeff Rooker, Caroline Flint, Margaret Beckett and John Healey all served less than a year in the Ministerial job. It wasn’t Healey’s fault of course, he did a lot in a short time before Labour lost in 2010 and has shown considerable stickability in the shadow role since. Yvette Cooper turns out to be the longest-serving housing minister since 1997, followed by destroyer Shapps and Labour’s first, Hilary Armstrong.

So will Kit Malthouse soon be on his bike or will he last longer? Personally, I hope he suffers the same fate as John Healey – losing the job because of an electoral defeat.

Various news outlets have reported on his little bit of housing history. Huffpost  reports that he oversaw a hostile zero tolerance approach to rough sleeping when he was deputy leader of Westminster Council 15 years ago – the famous period when the council hosed down the streets to make them more uncomfortable for the homeless. His last job saw him in charge of the roll-out of Universal Credit, so competence is unlikely to be on his list of talents.

Kit Malthouse with some other chap at City Hall (from KM website).

I have no personal experience of the gentleman, but it is recorded that he was the councillor who negotiated the settlement with Dame Shirley Porter in 2004 after she was ‘fined’ £42million (including surcharges, interest and costs) by the district auditor for the gerrymandering ‘Homes for Votes’ scandal. Magically, it was decided that she would only pay £12million. Most Universal Credit recipients would be happy to get £30 of relief from Mr Malthouse let alone £30million.

Mr Malthouse has a blog, which is a must-read if you have trouble sleeping in this humid weather. Most notably, instead of skyscrapers he argues for building underground. He has little to say on housing but takes a strong ‘localist’ stance on planning, campaigning to make sure that no permissions would be granted outside the envelope of approved local and neighbourhood plans (he doen’t think much of planning inspectors and their decisions). To give him some credit, given his previous ‘zero tolerance’ approach to homelessness, in 2007 he became an early supporter of what is now known as ‘Housing First’.

I hold out little hope for a significant change in direction or even that Mr Malthouse will still be in post to attend next June’s CIH conference. The odds are still against, but I harbour a dream that the 2019 keynote speech will be made by the new Secretary of State for Housing John Healey.

It’s a sign of a remarkable comeback for social housing that the new CIH report ‘Rethinking Social Housing’ contains few surprises. Only 3 years ago this report would have seemed a radical contradiction of the dominant narrative. It probably would have been attacked for lacking realism and harking back to the long lost 1970s.

Social housing reached its nadir around and after the 2015 General Election. It was unaffordable, past its sell-by date, consigned to the history books as the government and most of the housing industry focused their concerns on ‘the only game in town’, building homes that did not require grant, at significantly higher ‘Affordable rents’ or market prices, pushing forward with policies (right to buy, ‘conversions’, market sales) that would feed the development programme.

Housing’s ‘Overton window’ – the range of ideas tolerated in public discourse – had become very narrow indeed and those of us who argued for social housing were made to feel oddballs well outside mainstream opinion. So it was that the very expensive National Housing Federation ‘Homes for Britain’ campaign prior to the 2015 Election choked on the words social housing. Joining the newly formed SHOUT campaign for social housing felt like heading upstream without a paddle.

So, what explains the turn-round between then and now, when the government is allocating funds specifically for new social housing, everyone is reviewing and rethinking the purpose of social housing – coming to the conclusion that it is an essential component of a fair and functioning housing market – and CIH feels confident enough to describe it as ‘a pillar of the welfare state’ without provoking guffaws of laughter?

Here are several possible factors. First, the refusal of tenants, campaigners, many people working at the grassroots in housing, and a few brave housing leaders, to stop banging the drum for genuinely affordable (as opposed to joke affordable) housing. Second, over-reaching by the Tories so their housing policies and the consequent rise in homelessness just confirmed their lack of empathy for poor and disadvantaged people. Third, the advent of unashamedly pro-social housing Jeremy Corbyn to the leadership, which changed the nature of the debate in the Labour Party. Fourth, the general public, who did not obey the rules of the Overton window because they never lost sight of the simple idea that council housing was a good thing – even if they also thought it was subsidised and not for them. And fifth, Grenfell, which changed everything.

The new CIH report reflects a lot of background work with tenants and the sector and demonstrates that social housing is firmly back within the spectrum of acceptable thought. It identifies 3 key themes:

• Social housing, its affordability and the security it offers to people living there, are highly valued
• It has much wider value by allowing residents to prosper and thrive, through its contribution to tackling poverty, the success of local and national economies, and individual health and well-being
• However, there is stigma attached to social housing as a ‘product’ and to the organisations providing it and the people living in it

And so,

“Social housing has a unique and positive part to play in housing people, helping to create thriving, mixed communities, and meeting needs that the market will not. Done right it does great things. But it isn’t always the case that homes and neighbourhoods are well managed and well maintained and it’s important that we own and address this.

“It’s time to reclaim the role of social housing as a pillar of the society we want to be, along with free health care and education – and it must be at the centre of government plans to solve the housing crisis. And, having ‘reclaimed’ the role of social housing, we need to push on – creating an ambitious vision of what a plentiful supply of social housing can do help people thrive in communities that prosper.”

Some of the information in the report might surprise a general reader. For example, registered unemployment amongst social housing tenants is only 8%. The vast majority are either in work, retired or unable to work due to physical or mental disability or carers. Homeless people also take up around a quarter of lettings, far fewer than might be imagined.

The report contains a helpful discussion of the question ‘who is social housing for?’ based on a wide range of views from the public and the sector. The answer seems to be that ideally people want the sector to be ‘for anyone’ but that pragmatically it will remain highly rationed for many years to come. Given the vital role that security of tenure plays in enabling people to become established in their neighbourhood and having a platform on which to build their future, it is remarkable to note that there are still widely differing views on whether social housing should be a long term solution or, given scarcity, a short-term, reviewable, stepping stone.

CIH look forward by identifying six areas for further action, with some detailed proposals attached to each – including, for example, a call to suspend the right to buy which might become the headline proposal for the report.

1. there should be a new definition of social housing to get away from the current confusion.
2. tenants must have a greater voice.
3. there should be an increase in the supply of ‘genuinely affordable’ homes.
4. everyone should be able to afford a place to call home, with a move towards income-related rent-setting.
5. homes and neighbourhoods should be better managed.
6. there should be greater efforts to challenge the stigma and stereotyping attached to social housing.

It’s a reasonable agenda. And given the general  drift back to accepting the importance of social housing it will be fascinating to see how far the government is willing to go when it releases its Green Paper before the summer recess.

 

 

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.

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.

“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.