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Local housing companies: opportunities and concerns

By Ross Fraser

The Smith Institute has recently published the first in-depth analysis of one of the most significant new developments in the housing sector.

Delivering the renaissance in council-built homes: the rise of local housing companies estimates that around 150 councils have set up local housing companies (LHCs) over the last five years or so and that, on the current trend, over half of English authorities will have one by 2020. The majority of the current LHCs are in London or the South East.  The LHC model has been adopted by authorities regardless of political control.

What can we learn from the research about the opportunities that LHCs provide?  How can we evaluate the likely impact of LHCs in helping to solve the housing crisis?  Why do concerns remain regarding the role of LHCs?

What are local housing companies?

LHCs are intended to act commercially for a social purpose.  The primary purpose of most LHCs is to directly develop or acquire new local housing supply – whilst making a return for the local authority.  Profit that might otherwise go to developers can instead be captured by the authority and recycled to help maintain core services or reinvested in further housing provision.

For some councils, the LHC is intended to complement new provision via the Housing Revenue Account (HRA).  For others, LHC development is a substitute for HRA-funded development.   For stock-transfer authorities, without an HRA or a housing team, LHCs are an alternative to reopening an HRA.

There are essentially three forms of LHC – wholly-owned by a single authority (the majority), multi-authority owned (such as the North Essex Garden Communities LHC), or a joint venture (JV) between a council and either a housing association or a private developer (such as the Haringey/Lendlease Development Vehicle (HDV)).

The nature of council investment in LHCs varies, but the following approaches are being adopted:

  • Using HRA (if this doesn’t conflict with the HRA ‘ring fence’) or general funds to meet ‘start-up’ costs and capitalise the LHC
  • On-lending Public Works Loan Board (PWLB) borrowing – at a return to the authority
  • Equity investment in the LHC
  • Sale or leasing of land

LHCs also offer councils additional New Homes Bonus and council tax.  For example, LB Newham expects its LHC (Red Door) – focused on new build for intermediate rent – to deliver an extra £18m council tax (by 2028) plus £17.5m in Community Infrastrucuture (CIL) funding and a direct return once it becomes profitable (within the next 5 to 10 years).   Some of the larger LHCs – primarily JV LHCs – have attracted private finance and have established ‘revolving investment’ funds.

Most LHCs are, initially, focusing on developing council-owned land, which might otherwise have been sold to a developer or housing association or developed directly via the HRA.  Some are seeking to channel section 106 ‘planning gain’ opportunities, previously offered exclusively to housing associations, to their new LHC.

What new opportunities do these companies provide?

The intention is for LHCs to intervene in local housing markets to compensate for slow or insufficient new supply by developers or housing associations, to undertake specialist provision where this is urgently needed and to disrupt the local private rented sector and in doing so stimulate PRS improvement by offering private lets at higher standards, better terms and greater security.

LHCs are frequently intended to enable authorities to exert a greater stewardship role in place-making.  They can undertake new build on smaller sites or in areas currently unattractive to developers and housing associations, with the objective of raising land and property values and making the area more attractive for private investment.

As John Perry of CIH has recently pointed out, “most of the LHCs have been set up since the government reinvigorated the right to buy (RTB), emasculated the HRA and undermined its own self-financing settlement”.

LHC development is attractive because it appears to avoid issues limiting development via the HRA, such as stock loss via RTB, limits on the recyclability of capital receipts from future RTB sales, etc. and controls over borrowing.   As LHCs can offer assured shorthold lets, rather than secure tenancies, they enable authorities to offer private rented accommodation at profit.

LHCs are also seen as flexible and dynamic organisations, less constrained by shareholder profit expectations than developers and thus more able to invest counter-cyclically, be flexible over the timing of profit-extraction, ‘flip’ new homes between tenures to meet changes in demand – all whilst acting as a direct instrument of a council’s housing and planning strategy.

What impact might the companies have on solving the housing crisis?

The Smith Institute estimates that, based on current business plans, LHCs could build up to 25,000 new homes by 2022.  The scale of ambition varies – RTPI research indicates that some LHCs (notably in rural areas) are planning to provide less than 50 new homes per annum whilst others plan to build more than 1,000 per year within five years.

Provision of 25,000 new homes over five years would be a significant increase on output expected from stock-retaining councils via the HRA.   The Smith Institute estimates future council supply at c2,000 homes per year (using DCLG construction statistics) but CIH and the UK Housing Review estimate future provision at c3,000 homes per year (using the more reliable DCLG affordable housing statistics).

However, the real extent of net additional supply is more difficult to determine.   Where an LHC develops on HRA land or uses HRA resources or acquires property via section 106, then the new LHC homes will not necessarily be ‘additional supply’ to what, for example, housing association partners might otherwise have delivered.

The area where the ‘additionality’ of LHC provision is least contestable is where it focuses on the PRS.   For example, LB Newham set up Red Door Ventures to build 3,158 new PRS homes over the next six years (mainly on council-owned land).

If LHCs can increase PRS provision and change the culture of the local PRS market – by offering higher standards of management and maintenance plus improved security of tenure – this may (in my view) be their most significant legacy.

What ongoing concerns arise from the research?

The Smith Institute takes an overwhelmingly positive approach to LHCs.   This is understandable, as the research suggests that LHCs offer councils a ‘triple dividend’ in the form of much-needed extra housing, greater impact in place-making and a financial return to the council.

In any terms, this is an impressive manifesto for LHCs and the sponsoring authorities should be congratulated for their initiative, pragmatism and vision.   However, concerns remain about the practical application of the LHC model. Some of these are referred to in the report – others reflect concerns expressed more widely.

  • Only around 10% of new LHC supply will be for social rent

The fact that many of the LHCs are in London and the South East reflects the underlying business model of most LHCs – recycling receipts from market sale or revenue from intermediate or market rents – to cross-subsidise ‘affordable’ housing provision.   In this sense, LHCs operate exactly like housing associations.

Following this model may boost overall new supply, but Smith Institute research suggests that whilst 30-40% of LHC homes are likely to be ‘affordable’, only around 10% (i.e. between 25% and 33% of the ‘affordable provision’) will be for social rent.   Given the cross-subsidy model, it is difficult to see how a higher proportion of social rent can be provided by LHCs.

In its recent report, Building Bridges, CIH estimated that if the housing crisis is to be tackled in a balanced way, around 33% of new supply needs to be at a social rent.   Current LHC projections fall well short of that target.

NHF figures show 38,082 housing association completions in 2016/17 of which 12% (4,775) were social rent – 75% delivered using cross-subsidy.   Perhaps housing associations are not performing so badly after all?

  • Where is the next generation of social rented housing going to be built?

John Perry of CIH has expressed concern that if LHCs do no or very little social rent they may use up council land that might have produced 100% social rent if it had been developed through the HRA.  He also points out that by building outside the HRA (where one exists), LHCs are denied the ability to pool rents, thus limiting their ability to dampen rents for new homes.

The provision of council-owned land at less than market value is a vital subsidy towards the provision of social rented housing.  So, if scarce council land is being used for LHC development – where exactly is the next generation of social rent housing going to be built?

  • Does LHC governance demonstrate an accountability deficit?

As most of the LHCs are still in ‘start-up’ mode, their directors tend to be council officers, often reporting directly to the council chief executive.   Some LHCs have also appointed local politicians as directors, but this has been limited by concerns over future conflicts of interest in respect of planning permission.

Whereas ALMOs – an earlier variant of LHC – adopted a transparent approach to governance, involving resident and independent board members, most LHCs have yet to address the issue of accountability.

Reading the Smith Institute research, it appears that only a few LHCs have community representatives on their boards or a formal detailed strategy for community engagement.   And, as the Haringey HDV controversy demonstrates, LHCs which are not publicly accountable risk the loss of public and political support.

  • What is the risk of government controls over LHCs?

LHC business plans are vulnerable to the risk that the government interferes in the regulatory framework.   Senior figures in local government have told me that that there is less concern that the government will insist that LHCs apply the RTB and greater possibility that, if any LHCs fail, controls will be imposed to limit borrowing or to place limits on what wholly-owned LHCs – as distinct from joint-venture LHCs – can do.

  • Will LHCs have the capacity to build at scale?

Most of the LHCs are in ‘start-up’ phase, managed directly by council staff with the assistance of consultants.   Most have yet to recruit managers with direct development experience and these skills (particularly in the LHC heartland of London and the South East) are expensive and in short supply.

The risk is that authorities and their LHCs lack the commercial and technical skills to develop at scale and at pace and/or that LHCs fail commercially – for example sales receipts or rental surplus are insufficient to repay their borrowing.

Privately, senior figures in local government concede that this skills deficit is the biggest risk to LHC effectiveness and that only a proportion will be able to build at scale.  One of the key recommendations in the Smith Institute’s well-balanced report is that a centre of excellence is established to support the development of LHCs – perhaps managed by the LGA.

  • LHCs are only part of any local solution to the housing crisis

There is much to commend in the pragmatism and ambition of those authorities setting up LHCs.   They have the potential to transform areas of low demand, secure a better mix of housing tenures and products and improve standards and security in the private rented sector.

However, under the current cross-subsidy model, LHCs can only provide limited assistance to people in the greatest housing need.

This means that solving the housing crisis still requires a major social rent contribution by housing associations – underpinned by increased levels of grant.

Equally, the government (or more likely a future Labour government) needs to relax its controls over the HRA to enable stock-retained authorities to harness the remaining HRA asset base to provide social rented housing, and to reduce RTB discounts and allow councils to retain 100% of RTB capital receipts.

A future Labour government would, of course, be wise to follow the lead of the Scottish and Welsh administrations and abolish RTB entirely.

 

Ross Fraser

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The great housing budget. Is that it?

A tweet from fellow SHOUT campaigner Tom Murtha summed up the Budget: ‘Is that it?’ he said.

SHOUT’s response to the Budget calls it ‘a missed opportunity’. A bit on the polite side!

Of course there are a few things to welcome. Some lifting of the appalling burden of getting onto Universal Credit. More money for the housing infrastructure fund and a proposal to raise the borrowing caps on local authority housing revenue accounts (but they will have to bid for it). And more money for Grenfell victims and for the surrounding estate.

There are some mysteries still: the £2 billion extra for ‘25,000 council houses’ announced by Theresa May in her Conference speech is now described in the government’s Budget ‘Red Book’ as 25,000 additional affordable homes, which could mean anything. There are still vague promises to ‘look at’ bids for extra money to pay for additional fire safety measures, but no hard cash given to anyone who has asked so far. There is a ‘Land Assembly Fund’ but no clarity yet about who will assemble it and for what purpose. And veteran back room thinker Oliver ‘two brains’ Letwin is going to be let loose again trying to work out why planning permissions don’t get ‘built out’ and turned into real homes. There will be more unspecified planning reforms, as if we haven’t had enough, but no mention of getting rid of the ‘viability tests’ used everywhere to help developers get out of commitments to affordable homes. There are ideas for changing the Community Infrastructure Levy arrangements but they don’t at first sight seem enough to tackle the issue of land value uplift, and another consultation will ensue.

Then there is the plain daft. On top of the already announced extra £10 billion for the inflationary ‘Help to Buy’ scheme, there is to be a reduction in stamp duty aimed at first time buyers. Yet the government’s own forecasters say that the main effect of this will be to put up prices and that the primary beneficiaries will be, not first time buyers, but existing home owners. Never has so much been spent in a totally counterproductive way.

In the middle of all this demand-side nonsense, the Red Book has a little essay on the importance of housing supply and its beneficial impact on what is now seen to be the key economic problem of poor productivity. It’s worth quoting:  Box 5.1:

Housing supply and productivity

Increasing the supply of housing in the right places brings productivity gains. It supports flexible and responsive labour markets, enabling people to work where they are most productive, and allows successful towns and cities to become even more productive by realising agglomeration economies.

Expanding the stock of housing in urban areas can lead to agglomeration benefits where it increases the density of economic activity. Studies find larger cities boost productivity: doubling a city size or density increases productivity by 3 to 8%.

Increasing housing supply guards against macroeconomic instability. House prices tend to rise faster in environments with lower responsiveness of new housing supply. Cross‑country studies show that lower house price variability is associated with lower variability in inflation, interest rates and real incomes.

On supply, the Chancellor has played the numbers game again. Now they’re committing to build 300,000 new homes a year by the mid-2020s. This figure, plucked out of thin air it seems, is so far in the future that it is of almost no value as an operational target.

You would expect that such a figure would be backed up by meaningful housing supply initiatives which might get us up towards that kind of figure. Instead there is more tinkering with planning: intervention where councils have not agreed plans, the use of land ‘outside the local plan’ if it is to be used for discounted homes for first time buyers, greater housing density in urban areas, and easier conversion from commercial and retail use to residential. Plus some fiddling about with investment rules, the land assembly fund (beware – it’s about ‘private developers and strategic sites’), garden towns (AGAIN!!).

And on affordable housing: ‘The government has already shown its commitment to increasing the supply of affordable homes’ (pause for laughs) citing the extra and currently undefined £2b, a promise to raise HRA caps (through a bidding process), more loans for estate regeneration (not sure about that one either).

And don’t forget the homeless. Well, they nearly did. After Boris Johnson failed to meet his promise to end rough sleeping in London by 2012, the government is now promising to halve it by 2022. If they achieve that, which has to be doubted, they will be back to the level they started with in 2010. And there will be three ‘Housing First’ pilots (three!).

So, there we have it. This was to be the great housing budget.

As an antidote, I recommend re-reading the SHOUT report showing how we could get to building 100,000 social rent homes a year, even with Brexit.

What a Budget that would make!

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It’s the 21st century: homes should not be unfit for human habitation

I get to speak at meetings a fair bit, normally Labour Party or tenant campaign meetings around the place. Recently I’ve taken to asking audiences if it is possible for a landlord to let a home that is ‘unfit for human habitation’. Of course not, they usually say (although some think it was probably a new measure brought in by David Cameron….).

If they were right there would be no need for the Homes (Fitness for Human Habitation and Liability for Housing Standards) Bill which Karen Buck MP has introduced as a private member’s Bill. It is scheduled to have its second reading on 19 January 2018.

Having been involved in one successful private member’s Bill in the past (on standards in houses in multiple occupation, which passed the Commons but was lost when the 1983 general election was called) I know how hard it is to make progress with one unless it is something around which there is a strong consensus and government support (or at least acquiescence).

There have been two recent attempts to ban the letting of homes that are unfit – Tories ‘talked out’ a previous Bill and voted against it when it was brought up as an amendment subsequently. However, the electoral arithmetic has changed since June, the government is beginning to be embarrassed by its reputation for being callous in its treatment of poor people, and the time might be right for them to want to be seen to be doing the right thing.

Crucially, for the Bill to proceed there must be 100 MPs present on 19 January to guarantee a vote. It’s not as easy as it sounds because private member’s Bills are debated on a Friday when most MPs have returned to their constituencies. So: that’s where everyone interested in progressive housing policies comes in. Please make sure your MP is there to vote for the Bill!

Karen is advised by a team of legal experts and the Nearly Legal website has had excellent coverage of the detail of the Bill and its progress. Giles Peaker of Anthony Gold solicitors has written a short briefing on the Bill, setting out why it is important and what it does. I’ve extracted key points below, but the Nearly Legal website will be the best destination for detailed information about the Bill.

Giles is asking that you should contact your MP and to ask them to attend on 19 January. You can find your MP here. He also refers to Shelter’s petition in support of the Bill.

As Giles says:

“I make no apology for going on about this. It is a relatively simple change to the law, but one that could have significant and lasting effects. It is too important to be allowed to be filibustered out. Some one million rented homes in England, social and private, have category 1 HHSRS hazards, amounting to a serious risk to health.”

Please support this important Bill.

Thanks

Steve

Homes (Fitness for Human Habitation and Liability for Housing Standards) Bill promoted by Karen Buck MP

Why is the Bill needed?

Currently, landlords have no obligation to their tenants to put or keep the property in a condition fit for habitation. There is an obligation on the landlord to repair the structure of the property, and keep in repair, heating, gas, water and electricity installations, but that only applies where something is broken or damaged. It does not cover things like fire safety, or inadequate heating, or poor ventilation causing condensation and mould growth.

There are a whole range of ‘fitness’ issues, which seriously affect the well-being and safety of tenants, about which tenants can do nothing at all. For private sector tenants, or housing association tenants, it is possible for the local authority to enforce fitness standards under the Housing Health and Safety Rating System and Housing Act 2004.

However, there is a huge degree of variability in inspection, notices and enforcement rates by councils. About 50% of councils have served none or only one HA 2004 notice in the last year. One London council, which has an active enforcement policy, amounted to 50% of notices served nationally and 70% in London. What this means is that there is a complete postcode lottery on the prospects of councils taking steps – with the real prospect being that the council won’t do so.

For council tenants, the Housing Act 2004/HHSRS standards are all but pointless. Local Housing Authorities cannot enforce against themselves. So council tenants have no way to enforce or seek to have enforced basic fitness standards, including fire safety, if their landlord doesn’t do anything.

Poor standards are a widespread problem. According to the latest English Housing Survey, 16.8% of private tenanted properties have Category 1 HHSRS hazards (which are classed as a serious risk to the occupiers’ health). That is 756,000 households, at least 36% of which contain children, and there are a further 244,000 social tenanted properties which have Category 1 HHSRS hazards. That is a million properties altogether. It is likely that more than 3 million people, including children, live in rented properties that present a serious risk to their health and safety.

What does the Bill do?

The Bill aims to complement local authority enforcement powers, by enabling all tenants to take action on the same issues and standards as local authorities can, and to give council tenants recourse. It follows the recommendations of the Law Commission and the Court of Appeal.

For any tenancy granted for less than 7 years term (including all periodic tenancies), the Bill will add an implied term that

(a) that the dwelling is fit for human habitation at the time of the grant; and,

(b) that the lessor will thereafter keep it fit for human habitation.

If the property is a flat, the obligation extends to all parts of the building in which the landlord has an interest, so it would include the common parts and the outside of a block of flats if all owned by the same landlord.

There are some exceptions, where the problem is caused by the tenant, or where the landlord can’t do anything to fix the problem without breaking the law, or where they can’t do anything without the permission of a superior landlord and that has been refused.

What this would mean is that the tenant could take action against the landlord to make them put right any problems or hazards that make the property unfit and could seek compensation when the landlord hasn’t done so.

It is not a replacement for the council’s own powers, but works alongside them, enabling tenants to take action where the council hasn’t, or can’t. For all new tenancies after the Bill comes into force, it will make it a right to have a home fit for living in.

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Is this really the turning point for social housing?

In the week when the final death toll of the Grenfell Tower disaster was announced to be 71, it is right that social housing should move further into the spotlight. The Chartered Institute of Housing has announced a major new project aimed at shaping the future of the sector, called ‘Rethinking Social Housing’. It joins the government, which is holding its own review, and the Labour Party, which is close to confirming the details of the review announced by Jeremy Corbyn during his conference speech.

The Grenfell Tower Inquiry, chaired by Sir Martin Moore-Bick, also moved two steps forward this week with the appointment of three expert assessors – to join a huge team of lawyers and a team of fire experts – and by publishing an update on the Inquiry so far.

The progress report illustrates what a complex Inquiry this will be. It has had an unprecedented number of applications to be Core Participants in the Inquiry – 545 applications, of which 393 have already been granted – and has embarked on a review of the first 200,000 documents received. Detailed attention is being given to tracking the generation and movement of fire and smoke and taking witness statements from, amongst others, the 225 residents who escaped the fire and the 260 firefighters who attended. Phase 1 of the Inquiry will focus on the ‘factual narrative’ of what happened on 14 June. Meanwhile, the silent marches every 14th get bigger every month.

grenfell the sun Grenfell Silent March 14 Nov 2017. Pic: Barcroft media for the Sun.

Link to Justice for Grenfell campaign.

It is natural, given the track record since 2010, to be cynical about what the government is up to. Less than two years ago it seemed on course to eliminate social rented housing entirely from the new building programme and to pursue the rapid managed decline of the sector. The 2016 Housing and Planning Act was the nadir with the introduction of right to buy for housing associations paid for by the sale of ‘high value’ council houses.

Things are more confused now. Gavin Barwell, a Minister who plainly did not believe in his own government’s policies, has moved to the centre as Theresa May’s chief of staff, and new Minister Alok Sharma has won some plaudits for travelling the country post-Grenfell ‘listening to tenants’. Importantly, there is no sign of high value sales being implemented, warmer words are being spoken about social housing, Theresa May announced £2 billion for 25,000 ‘council houses’ in her conference speech (alongside £10 billion for ‘Help to Buy’), and the government has been rowing back (slowly) on some of its worst welfare reforms. The post-2020 rent increase settlement was warmly welcomed by the sector because it supported investment (although the tenants who will pay for it were rather less pleased).

Next week’s budget is the next significant milestone, with more details expected on funding for social housing (is it real extra money or another three- card trick?), issues like council borrowing capacity and retention of right to buy receipts, and welfare reform including Universal Credit. The mood music has definitely changed – as the ever-prescient Jules Birch notes in his pre-budget blog, “The clamouring is not just coming from the usual suspects but also from investment bankers, right-wing thinktanks and Conservative MPs.” As Jules concludes: ‘It’s hard to remember the run-up to a Budget with such raised expectations – or so much potential for them to be dashed.’

The Budget might not see much hard cash but it may see some funny financial fiddling to enable more to be spent on homes without the cost impacting on the government’s deficit. There has been a frisson of excitement because the Office for National Statistics seems willing to redefine housing association borrowing as ‘private’ not ‘public’. In practice the ONS decision to go the other way a couple of years ago seems to have had little effect, but it raises the possibility of more significant changes for the local authority sector, either by reclassifying public corporations outside the definition of public borrowing (because they are trading activities) or by new financial instruments that could take borrowing for new housing outside the definition of public borrowing. Nerdy, certainly; important, definitely – as we’ve pointed out on Red Brick before.

So we are entering an important phase for social housing: imminent are the budget, Sadiq Khan’s proposals for The London Plan, the myriad of reviews, and the Grenfell Inquiry. There will be a lot of technical detail flying about, but there will also be plenty of us determined to keep the debate focused on people, their safety and well-being, and meeting their housing needs. Time alone will tell if this really is the turning point.

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Land and house prices – the Tories are getting it so wrong

Some weeks there are just too many interesting things to read, and my highlights this week were a report from Shelter on the use of viability assessments in housebuilding and a blog from the Resolution Foundation on impact of Help to Buy. Both show how poorly-designed policies are pushing up prices and making homes even less affordable.

The Shelter report, by Rose Grayston, ‘Slipping through the Loophole’, based on original research, looks at the ways in which the provision of affordable homes in new development has been undermined since new planning rules were introduced in 2012.

The rules allowed developers to reduce the amount of community benefit they are required to produce as part of a development scheme if their profits are estimated to fall below 20%. (Yes, 20%, sound like a good rake-in for anyone, but this is the minimum figure seen to be competitive in the 2012 rules). As Shelter says, the system ‘rewards developers who overpay for land to guarantee they win sites, safe in the knowledge they will be able to argue down community benefits to make their money back later’.

Shelter calls for the government to amend the national planning rules to limit such assessments to defined genuinely exceptional cases. Certainty about the required number of affordable homes will, they say, become part of the normal cost of doing business. Developers will still make good returns but there will be a downward pressure in the system on land prices. The change would not require any additional public money.

Between 2012-13 and 2015-16 so-called ‘section 106′ planning obligation agreements delivered 38% of the new affordable homes built in England, an average of 17,000 homes a year, around 10,000 homes a year fewer than the previous four years – a period which also included the global financial crash and recession.

Shelter’s research covered 11 council areas around the country. Where viability assessments were deployed, new sites produced just 7% affordable housing, on average 79% below the levels required by the policies of the councils concerned. Viability assessments were used in half of all the developments in the study – but they were skewed towards bigger developers on bigger sites, with small and medium sized developers much less likely to deploy the technique. Councils varied in their policies to resist viability assessments, and it is hard for councils to compete with the large resources some developers can muster to prepare the assessments in the first place. There are often lengthy and costly negotiations. Assessments have generally been confidential and therefore not open to scrutiny by bodies outside the council, especially campaigning groups.

The Resolution Foundation blog, by Lindsay Judge, called ‘Helping or Hindering? The latest on Help to Buy’ assesses the impact of the ‘Help to Buy’ scheme following the government’s announcement that it would put another £10 billion into the scheme. Supposedly designed to help people fulfil their dream of home ownership. Lindsay asks ‘is this expensive policy really doing people any favours?

HTB was introduced in 2013 when the housing market was weak. By offering buyers additional help it was intended to bolster supply by more effectively guaranteeing that developers would be able to sell new homes to someone. ‘Four years on’, says Lindsay, ‘the real world effects…. are plain to see’. In particular, the risk that the policy would actually stoke prices ‘has come to pass’. Worse, ‘the HTB discount is being ‘baked in’ to the price of new properties by developers’. One indicator is that the price of new homes is inflating significantly faster than the price of existing homes when they are resold (see chart). The policy is also not well targeted and has a lot of ‘deadweight’ – that is, it is used by people who could have bought a home without the subsidy – estimated even by the DCLG to be 35%. Some people with incomes over £100k have used the scheme.

 

House price index by type of build (April 2013=100): England Source: RF analysis of ONS house price index (graph taken from Resolution Foundation Lindsay Judge blog)tenure change ONS graphHTB now takes 45% of the national housing spend in 2016-17. So, why does government do this? HTB of course is not the same type of money as spending on housing grant for affordable homes. It is a loan not a grant. As Lindsay explains, just like student loans, it shows up in the government accounts as a debt but not as part of the deficit. It is a smoke and mirrors policy to be seen to be doing something about declining home ownership, offering people who are struggling to buy now some help – but at the expense of those following later who will have to pay more as a result.

If HTB is not in the long term a subsidy for home owners, who have to repay, it is a subsidy for developers who get the sum in cash when a HTB home is bought. It directly enables them to put their prices up, so the policy itself become self-defeating in the medium term.

£10 billion would build something like 125,000 social homes. That option might be an evil in the eyes of the Treasury, says Lindsay, ‘but it would be a far greater good than HTB from a living standards point of view’.

Looking after developers and landowners is the underlying theme of both policies. But with the government now in retreat on many fronts, and even starting to concede the case on the importance of social housing, new campaigning opportunities are beginning to emerge.

(amended 4/11/2017 to correct bad link to Shelter report).

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Not much controversy here

Jeremy Corbyn’s speech to Labour Party Conference on Wednesday has caused a bit of a stir, notably his comments on regeneration and rent control. So what did he actually say and are they new departures?
He said a lot about Grenfell, focusing on the fact that it was an avoidable disaster and looking at events from the tenants’ perspective. He said it indicted ‘failed housing policies… and yawning inequality’. I don’t disagree, but I would repeat my warning that we have to be careful how we talk about the disaster. Grenfell does not tell us that social housing is a bad idea. When the Tories say ‘we must now talk about social housing’ I don’t think they want to have more of it and to make it better.
The most important announcement in Corbyn’s speech was that there would be a Labour enquiry into social housing policy – parallel to the government’s – with Shadow Housing minister John Healey looking at its building, planning, regulation and management. He promised that Labour would listen to tenants across the country and bring forward a radical programme of action.
In support of his core contention that ‘a decent home is a right for everyone whatever their income or background’ Corbyn listed a number of policies which I don’t think are controversial within Labour:

  • insist that every home is fit for human habitation (which the Tories have consistently voted down).
  • ‘control rents’ – despite much of the comment since the speech I suspect this is not a major new departure but a reiteration of the Manifesto commitments, possibly with some strengthened ‘Berlin-style’ delegated powers for large cities, and perhaps more interventionist policies like the London controls on Airbnb – which is of course a form of rent control.
  • tax undeveloped land held by developers – using the Ed Miliband formulation of “Use it or lose it”.

Corbyn’s most significant area of new policy, and possibly controversy, concerned regeneration, where his comments mirrored a resolution passed by Conference. He said ‘Regeneration is a much abused word. Too often what it really means is forced gentrification and social cleansing, as private developers move in and tenants and leaseholders are moved out.’
He established a basic principle: Regeneration should be for the benefit of the local people, not private developers. So, people must get a home on the same site and the same terms as before with ‘No social cleansing, no jacking up rents, no exorbitant ground rents’. And there should be a ballot of existing tenants and leaseholders before any redevelopment scheme can take place.
I thought Aditya Chakrabortty, in an otherwise interesting column for the Guardian, over-egged the new policy by claiming that Corbyn had declared war on some Labour Councils. Personally, I think Corbyn’s requirements are the minimum and I would go further. It is not enough simply to offer a new home to those who wish to return after regeneration – and some councils have had to be dragged into doing that – with the majority of new homes being for private sale. Regeneration – where it involves providing more homes in total – must make a net contribution towards meeting the housing needs of the district in question. Homes taken from the pool of rented homes to ‘decant’ residents from the area to be regenerated must as an absolute minimum be replaced in number and in kind within the completed scheme. Otherwise it is the homeless and badly housed who pay the real price of the regeneration scheme. There should be no dodges like replacing social rent with so-called ‘affordable rent’ or even ‘affordable home ownership’ – there should be a requirement that new social rent homes will replace those that have been lost. If that cannot be achieved through comprehensive redevelopment, then other options should be pursued, including partial redevelopment and infill. Many perfectly good estates are being proposed for redevelopment when what they need is better management and some investment to make them better places to live.
It was good to see Jeremy focus on housing in his speech, but all I see are sensible pragmatic policies that are a million miles better than what we have to suffer now. Not much controversy here. It is the review of social housing policy that carries most hope of future radical steps.  

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Investment to beat the housing crisis

Current policy of increasing reliance on the private rented sector and allowing the stock of sub-market rental housing to dwindle is not “fiscally sustainable and economically efficient” says the SHOUT** campaign in its submission to the 2017 Budget.
SHOUT’s core proposition is that there should be a long term government commitment to a sponsored programme rising to 100,000 new units a year of housing at genuinely affordable rents, alongside other tenures, which would:

  • bring down the cost to government of supporting low-income households
  • address the longstanding and serious economic weakness of under-supply of housing which has been so resistant to other policy approaches
  • via Right to Buy or formal rent to buy schemes, offer a pathway towards home ownership;
  • help address pressures on public services, notably health and social care.

The long term case for building social rented homes was set out in 2015 in the report for SHOUT by Capital Economics ‘Building New Social Rent Homes: an Economic Appraisal’, updated in 2016 to add additional analysis of the implications of alternative possible outcomes from the UK’s exit from the European Union.
shout report
SHOUT’s programme would increase the requirement for public borrowing in the short term, with a peak impact on the PSBR of 0.13% in 2020 as the costs kick in but the benefits are yet to be realised. SHOUT points out that the positive impact on the public finances in the longer term are extremely strong and that there would be significant benefits in other programmes, especially in health, education, and social care.
They also point out that the government is already committed to spending over £40 billion by 2020-21 on programmes and incentives designed (not always very effectively) to boost housing supply – there is scope for reallocation within this total to fund the proposed increase in social rented supply. Homes are also an asset on the public balance sheet and generate a permanent income stream.
SHOUT’s submission also addresses two other important issues, both of which require policy to be set consistently across both CLG and DWP programmes.

  • the need for a stable, fair and sustainable settlement for social housing rents – the rent regime has become muddled with unclear objectives and unpredictable outcomes as important changes in rents and social security payments have been introduced. Policies for housing investment, rents and welfare must be properly co-ordinated. SHOUT is doing more work on rent policy for publication at a later date.
  • ensuring that existing and new supported housing is viable: the current uncertainty caused by restricting benefit to the local LHA rate needs to be lifted in the Budget, and SHOUT supports recommendations made by the DWP and CLG Select Committees for a new funding mechanism for supported housing.

The Budget submission is an excellent summary of the case for additional investment including many charts.
**SHOUT  is a volunteer – run campaign making the case for investment in genuinely affordable homes and demonstrating the positive effects that such housing has on people and communities. SHOUT can be followed on Twitter at @4socialhousing and its website is  www.4socialhousing.co.uk
 
 
 
 
 
 
 

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Why Labour needs to get serious about community housing

Red Brick is delighted to publish a guest blog by the St. Ann’s Redevelopment Trust (StART), the community land trust in Haringey, about the work they are doing and the broader case for CLTs.
Across the capital, Labour councils have long been aware of the growing housing crisis that has seen homeownership falling, a massive growth in the numbers of private renters living in poverty, and a lack of social housing for ordinary Londoners.
Everyone knows that major action is needed, yet this is leading to a ‘regeneration predicament’, where because something must be done, doing anything to build new homes is seen as progress.
This attitude, combined with a lack of central government funding for housing associations, and the continued bar on councils borrowing the amounts required for a new generation of council housing, has led many labour councils to rely too heavily on private developers as the only means of driving up housing starts.
But increasing the number of homes built in London is only one part of the solution, as Sadiq Khan recognised when he said we need to build ‘the right kinds of homes’. As the market is so out of control, simply building any number of homes for market sale or rent will not be a housing solution for most people.
And with regeneration projects leading to a net loss of social housing across the city, and a lack of transparency about how levels of affordable housing are decided on new developments, it’s no wonder that residents are angry and suspicious, while councils say they are just trying to build new homes.
The current model isn’t working, and if councils want to deliver the largest amount of affordable homes, which will be accessible to future generations, while being supported by their residents, they need to start focusing on large-scale community housing.
Community land trusts (CLTs) can provide higher levels of genuinely affordable homes because they do not seek a profit and are based on long-term investment; furthermore, the model of creating homes that don’t inflate in value with the open market means they remain affordable for future purchasers and renters.
The vital nature of genuine affordability aside, though, what’s so exciting about community-led housing is the way it ensures locals have a proper stake in any future development, whether they are living on the site or not.
Community-led housing takes in the concerns of people in an area and translates them into projects that meet local needs, on a design basis that suits the area and with the ability to provide a range of other community facilities so that these developments create long-term benefit for the whole neighbourhood.
st anns
Our project, St. Ann’s Redevelopment Trust (StART), seeks to build 800 homes on NHS land in the London Borough of Haringey. Homes will be for sale and rent, with 75% genuinely affordable, controlled by the community and remaining affordable in perpetuity.
Our plans include maintaining and supporting the unique biodiversity that currently exists on the site, as well as ensuring that a health legacy is retained, by ensuring the development complements the adjoining NHS facilities that will be renewed following the sale of the land. We will also be retaining a number of the historic buildings on the site that previously formed part of the old hospital.
Our vison has been developed though public events, on and offline surveys, and interactions with 100s of local residents, meaning we are able to bring forward a locally-supported proposal with much higher density than was proposed when the site got outline planning permission.
We also believe that creating a community asset that will put a dent in Haringey’s housing crisis and make links with its surroundings is a much better use of public land than just selling off the site to the highest private bidder.
Across the country, land belonging to the NHS, Ministry of Defence, Ministry of Justice, and of course councils, is being sold off to private developers when it could remain in the community.
A number of CLTs have been developed in recent years, but it’s time for councils and the Labour Party to support them at scale, and recognise the important ways they can contribute to a sustainable housing supply.
London’s communities need a new approach that makes housing about their needs and aspirations, and remains affordable in the long-term.
As we move towards the 2018 local elections, all Labour councils should be thinking about how they can support community housing, and we hope that StART can be part of the change in direction that London so desperately needs.
You can find out more about StART at www.startharingey.co.uk or on Twitter @startharingey

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Tenants and the homeless must not be made to pay for the tower block fire safety crisis

I have found it hard to comment on the Grenfell Tower disaster. Words cannot convey the horror of it, and everything I tried to write felt hopelessly inadequate. Others succeeded where I failed, and I would recommend thoughtful pieces penned by Chris Creegan, Municipal Dreams, and Giles Peaker amongst others.
I was so angry at the ineptitude of the council’s and the government’s response and so in awe of the magnificent response of the emergency services and the local community. They are in total contrast to each other.
grenfell

pic: Metropolitan Police

I was also stunned that within hours some people started to use the fire to attack social housing. One tweeter said: ‘The nature + quality of social housing is probably the single biggest post-war British policy failure’ and there were plenty of a similar ilk. Others reverted to well-worn dystopian myths and Clockwork Orange imagery about council estates. Yesterday, first Theresa May and then Sajid Javid said we should pay more attention to social housing, but I found that menacing rather than reassuring. The dreaded Iain Duncan Smith called for tower blocks to be flattened and replaced by nice houses with gardens, presumably without the council tenant tag.
Grenfell does not tell me that we should have less social housing, or that private housing is somehow superior, or that tower blocks are bad – on the contrary we need more social housing of all types and, whatever its height, it should be of a highest possible standard. And it should be better resourced and better managed.

The best memorial to all those who have lost their lives in Grenfell is that we as a nation choose collectively to invest in safe and secure public housing for all who need it.
Municipal Dreams blog

I do not know if cuts in spending on fire services and deregulation of some aspects of fire safety contributed to the Grenfell fire. But after a long period of decline, fire deaths have been rising again, and fire chiefs have put this down to cuts of up to 50% in some places. The fire statistics do not help us understand if there is a specific problem in social housing, but it seems highly unlikely. In the vast majority of cases, fires in towers are contained and the building does what it is supposed to do. The social factor that seems to have the biggest correlation with death by fire is age, with people over 80 particularly vulnerable. They live in all tenures. In the 1980s at Shelter I spent a lot of time working with the Campaign for Bedsit Rights trying to get standards in multi-occupied property raised after many fire deaths in such properties, including the appalling fire in a rabbit warren terrace of bedsits in Clanricarde Gardens in 1981, where 8 people died a mere mile from Grenfell Tower.

Will the Prime Minister today guarantee that local authorities will be fully funded for an urgent review of tower block safety and all remedial action that is necessary, including the installation of sprinklers when appropriate, so that they can proceed in a matter of days with that comfort? Does she agree that regulation is a necessary element of a safe society, not a burden, and will she legislate swiftly when necessary to ensure that all high-rise residents are safe?
Karen Buck MP, House of Commons, 22 June.

Heightened concern about fire safety in towers can be traced back to the previously worst tower block fire at Lakanal House in Southwark in 2009, when 6 people died. Exterior cladding panels were identified as having helped the fire to spread fast both laterally and vertically, as with Grenfell. Yesterday Mrs May said “All recommendations from the coroner on the Lakanal House inquiry have been acted on” but this was strongly disputed by the local MP, Harriet Harman, and others. It is clear that the requested review of building regulations has not been concluded and published.
Even more damning of government is the lack of action in response to a series of letters from the All Party Parliamentary Group (APPG) on fire safety, chaired by the Conservative Sir David Amess, which included calls for sprinklers to be fitted in all towers. And the Tory obsession with deregulation was highlighted by the Guardian yesterday, reporting that the government-connected Red Tape initiative has been discussing how to reduce ‘the burden’ of fire regulations post-Brexit, including for external cladding.
I have spent much of my working life defending both social housing as a housing model and social tenants as an unfairly derided class of people. Rather than the stereotype of chain-smoking can-carrying foul-mouthed council tenants, after the Grenfell Tower fire  a succession of residents described the events in the tower, the failings of the council and the TMO, and the strength of their community with extraordinary eloquence. As their back-stories emerged, we learned of the remarkable range of people living in the tower, people of all faiths and none, often with amazing and sometimes horrific histories. Their common point was that by some chance they had ended up in the cosmopolitan community of north Kensington (David Cameron’s Notting Hill is a few streets but a world away). In the aftermath of the fire we learned of the extraordinary compassion and dedication of ordinary people willing to help each other.
The surviving residents and those evacuated from surrounding homes were initially treated with callous disregard until the community stepped up and stepped in as the death toll rose. Some of the stories of neglect and indifference by the council tell me that rather more than the chief executive of Kensington and Chelsea should resign. It was the council’s job to organise the non-uniform response and they failed miserably and absolutely. They evidently turned down offers of assistance from neighbouring boroughs and the GLA, arrogantly assuming they could do the minimum required. They appeared not to understand the extent of their duty to all residents in an emergency under the homelessness legislation. Above all, they did not seem to care much. They were overwhelmed and it took days before more competent people were brought in. I am not alone in thinking that a civil emergency on this scale required military expertise: I am sure the army could have sorted communications and logistics in hours especially with so much community help. Traumatised victims could and should have been helped much faster with a range of services to meet both their physical and emotional needs.
Responsibility for the fire will continue to be debated, not least in the House of Commons as it was yesterday. As the Guardian’s John Crace pointed out, Theresa May has had legal advice, but has been found to be ‘morally wanting’, and during questions ‘the sound of backs being covered was all too audible’. Fingers are being pointed, and I suspect responsibility will be located at several stages in the very long chain from building regulations to contractor. The specifics may have to await the criminal investigation and the public inquiry.
We also have to wait to see how many other towers are dressed in flammable cladding, it is possibly quite a few, and not all in social housing. Some Councils, like Camden, have already started removing suspect cladding, and it is hoped that blocks can be made safe quickly without rehousing becoming necessary.
Grenfell Tower alone has required between 100 and 200 replacement homes to be found from a diminishing stock of social housing. Attention has focused on one block of ‘luxury flats’ being bought by the City of London, but it turns out these were always destined to be some form of social housing. No information has been made available on the rents and service charges that will be levied, what form of tenancy will be offered and for how long. The first principles are that residents should be suitably rehoused and not be out of pocket.
As the supply of new genuinely affordable social rented homes has collapsed to a little over 1,000 homes nationally last year, from 36,000 in 2010, most of the homes that are likely to be available will be at so-called ‘affordable rents’ at up to 80% of market rents. Rehoused tenants must not be expected to pay those rents, the difference should be made up by the council. Some DWP rules have been suspended for these residents, but it has also been said that they would have to pay bedroom tax if they ended up with a spare room. That is grotesque.
The numbers matter. Unless extra social housing is provided in total then the people who will actually pay for this crisis will be those homeless families or people on the housing waiting list who will not be rehoused as a consequence. One way round this would be government to fund the purchase of an equivalent number of homes on the open market – as happened in the early 1990s to mitigate the housing market slump.
Theresa May was as slippery as can be when challenged about how the works to blocks like Grenfell will be paid for. It could be hundreds of millions. This should be a central government commitment, a new fund provided by the whole country to avoid another tragedy. May wouldn’t commit, just saying it will be done. What is most likely is that government will allow councils to borrow more to pay for the works, with the cost falling to the housing revenue account. And there’s the rub: unless there is specific subsidy or grant, extra borrowing on the HRA will be funded in the long term by tenants through their rents. Tenants will pay for a fire safety crisis that is not of their making.
It is absolutely right that the victims of the fire should have top priority and should be rehoused as quickly as possible. No-one will disagree that similar panels should be stripped from other blocks. No-one will object to an extensive programme of fire safety improvements, including for example sprinklers, in all towers currently without them. But, whoever is found to be responsible, it is not right that the actual burden of putting things right should fall on existing tenants and homeless people waiting for a home. Central government should foot the bill, sharing the load. That’s why we all pay taxes.

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Housing waits on a new minister – and the deal with the DUP

Below is my piece for the Guardian Housing Network yesterday. A new Housing Minister is yet to be appointed and we have to wait and see if the negotiations between the Tories and the DUP have any implications for housing and social security. Whatever the outcome of the deal, the DUP will have influence over what happens in future. So how might it all pan out?

I’ve always believed that one day housing would be a decisive factor in a UK general election. On 8 June 2017, however, once again, this issue was the dog that didn’t bark.
The Tories had nothing in their manifesto to suggest they are brimming with new ideas in housing. They put all their policy eggs in the housebuilding basket, with one exception – a commitment to halve rough sleeping and to “combat homelessness”. This is a worthy aspiration but there is very little actual policy to make it happen, and their track record to date has been awful.
The defeat of Gavin Barwell, former minister for housing and planning, as well as being London minister, is significant. In terms of housing policy, Barwell was a moderate relative to his predecessors. Some are hoping his re-emergence as Theresa May’s chief of staff will help housing, but his priorities in that job will be Brexit and her political survival.
With Barwell no longer an MP, the sixth housing minister since 2010, when appointed, will have to pick up the baton. There is little reason to suppose they will be any more effective – or long-lasting – than their predecessors. If the Tories are ever to appeal to younger people, the new minister will have to revisit the existing hands-off approach to private renting, make a reality of the promise to halve rough sleeping, and make the case to restore housing benefit for 18-21 year olds.
The future for housing depends on how long this parliament and this prime minister last. Some of us can remember the last time there were two elections in one year. Rather like May and Brexit, in 1974 Edward Heath called a single question election on who runs the country. The firm answer was “not you mate”. The short-lived February 1974 minority Labour government was surprisingly radical on housing. Sadly, May’s stopgap government won’t be.
Increased uncertainty has already hit confidence in the markets, with housebuilders affected more than anyone. If a hard landing out of the EU hits housebuilding and construction, the commitment to increase building to 250,000 a year by 2022 will be toast. Under scrutiny during the election campaign their promised relaunch of council housing turned out to be homes at unaffordable “affordable rents” rather than social rents.
Despite austerity, the Conservatives’ real policy under David Cameron and George Osborne was to pump vast amounts of money into shoring up the housing market – enough to fund Labour’s entire programme many times over – while neglecting the interests of renters and marching on relentlessly with devastating welfare cuts and freezes.
Most commentators have focused on the fact that the Tories’ new partners, the DUP, are socially very illiberal. Indeed, they are. Yet they are economically more progressive than the Tories, reflecting the interests of their Protestant working class base. Although the DUP’s 2017 Westminster manifesto has almost nothing to say on housing, it promises to resist changes to universal benefits and supports the triple lock on pensions. In the past the DUP’s approach to welfare has been far less punitive than the Westminster government. It has, for example, sought to mitigate the bedroom tax and has opposed the government’s funding cuts to supported housing. The party’s policy document says the case for investment in social housing is ”unarguable” and the DUP is committed to building 8,000 social and affordable homes by 2020.
So although the DUP focus will be on Northern Ireland rather than the rest of the UK, any influence the party has in housing might, contrary to expectations, be positive.
Meanwhile, a reinvigorated opposition will be able to build and work from a coherent housing plan (pdf). Perhaps next time we will finally be able to “release the hounds”.