Blog Post

A nice little earner – or not?

<strong><span class="has-inline-color has-accent-color">Steve Hilditch</span></strong>
Steve Hilditch

Editor and Founder of Red Brick. Former Head of Policy for Shelter. Select Committee Advisor for Housing and Homelessness. Drafted the first London Mayor’s Housing Strategy under Ken Livingstone.

The New Homes Bonus 

As a country we have failed to build enough new homes for more than 30 years.  The coalition’s scrapping of Labour’s system of regional housebuilding targets, which was only starting to have effect, has caused great concern.  Now a little flesh has been put on the bones of their proposed alternative – the New Homes Bonus – in a consultation paper published on 12 November. 

The core proposal is that each council will make its own decisions on the scale and nature of housing development, but they will be incentivised to encourage building through a grant that will match the council tax raised on new homes for the first six years after development.  The benefit to councils (on current figures) over 6 years would be over £8,000 for a Band D property (using the national average) and over £10,000 for a band E property.  An additional flat rate of £350 a year would be paid if a property falls within the definition of ‘affordable’ in PPG3. 

Communities and Local Government department estimates that the cost will rise to over £1 billion a year in year 6 even on current housebuilding numbers, but it is likely to be significantly more if the scheme has the desired effect and housebuilding increases.  A contribution to the cost will come through scrapping the current Housing and Planning Delivery Grant – about £250m a year for the first 4 years – but all other costs – ie £1 billion or more by year 6 – will come out of local authority Formula Grant, so there will obvious gainers and less obvious losers.  Very little is said in the paper about the losers (ie those that will lose more in Formula Grant than they will gain in NHB) and how much impact the overall reduction in Formula Grant will have. 

Despite the wealth of methodology in the paper, the government has no real idea how many extra homes NHB will generate and how much impact an incentive of say £8k a home over 6 years will have.  Is that enough to overcome nimbyism and genuine local concerns?  An estimate is made that by 2016-17 there might be an uplift of 8-13% from the base, but this is not convincing. 

There is no guarantee that the grant will be used to help communities affected adversely by development or to support infrastructure.  It can be spent in any way the beneficiary council chooses – and the document identifies only non-housing uses like council tax discounts, rubbish collection, and providing local facilities like swimming pools.  Most likely in the current climate, it will be used to offset the general cut in Formula Grant that is taking place anyway as part of the CSR.

Will the scheme encourage affordable homes?  The £350 enhancement for affordable homes appears plucked out of thin air.  Who knows if this is a real incentive or not?  Using the PPG3 definition of ‘affordable’ means that everything that is sub-market will be included, and there is no specific incentive to encourage homes for those most in need. 

The scheme does not distinguish between different areas in terms of the need to build.  The benefit will come to those with the greatest capacity to build on easy sites.  Councils with little developable land or no need to build will be concerned about the overall impact this might have on the finances. 

An interesting oddity is the intention that acquisitions that increase the availability of affordable homes would receive the £350 enhancement but not the core NHB.  It is also suggested that the scheme might cover the bringing back into use of empty homes. 

I would strongly urge everyone to read the consultation paper and to get comments in.  We’d be delighted to report your views here on Red Brick. 

Click to access 1767788.pdf