Friday, 11 October 2013

COVER STORY: Are we slumming it tomorrow?


Shacked up in a slumdog future?

House prices are falling but the barriers to home ownership are as strong as ever. Private rents are rising to record levels, while incomes are stagnant, and there’s just no room at the social housing inn. It all begs the urgent question – just where are we going to live? Mark Cantrell attempted an answer in the cover story for the July/August edition of Housing magazine

Consider the future: at some critical juncture in the past it all went horribly wrong – and now the slums have arisen. The ramshackle aggregations of corrugated iron and scrap timber structures encrust the outer reaches of our towns and cities. The less fortunate huddle in their cardboard cities festooned in abandoned subways and foetid alleys.

Occasionally, the powers-that-be take steps to clear the sprawling eyesores that blight the more important cities; it’s electorally beneficial to be seen to be tough on squatters, but the operations are fraught with difficulties. These British Slumdogs often resist the clearance of their homes. The bulldozer crews need costly police escorts, riots often ensue, and even successful clearances are fruitless in the final analysis. All they do is shift the problem around. It’s an ugly and divided future – it’s the endgame in the failure to resolve today’s housing crisis.

This scenario must seem rather sensational but then these are sensational times. Even so, it remains outrageous, doesn’t it, to suggest that Britain will descend from being a predominantly home-owning nation to one that is blighted by the kind of slums seen in Latin America or India. In fact, it’s not only outrageous – it’s downright crazy. It can’t happen here. It won’t happen here. After all, it’s not as if the British Isles has the climate to make a self-made shack in any way habitable, but people have endured the hardships of cardboard cities before now, so is a homegrown favela really all that fanciful? A shack has got to be better than a cardboard box.

Behind all this speculative satire, however, there lurks a serious point. People need a home, but as the sector is painfully aware there is an under-supply of homes across all tenures. The latest Homes & Communities Agency (HCA) investment framework aims to deliver 170,000 new homes over the next four years, but with the Chartered Institute of Housing (CIH) projecting an annual household growth in the region of 245,000, and with five million people already languishing on waiting lists for a social home, it’s patently obvious that the country is barely even playing catch up.


Consider the markets

Despite the catastrophic bursting of the house price bubble – an economic boil that had to be lanced sooner or later – issues of affordability and accessibility have not got any easier. It’s a painful paradox.

Prices have fallen since the 2007 pre-crash peak, falling some 10 per cent by 2009, but the barriers to home ownership remain strong. Average prices continue to fall, outside of London, but it is doing little to encourage flow in a stagnant market.

The latest figures from the Land Registry House Price Index show an annual price decrease of 2.5 per cent, though the monthly change from May to June is zero. The average price of a home in England and Wales is now £161,479. For house sale completions, the most up-to-date figures show that there was a seven per cent drop in April 2011. The lack of activity has prompted RICS to describe the market as in stalemate, but for first-time buyers this stalemate might as well be ‘checkmate, game over’.

Earlier this year, the Halifax bank lamented the decline of the first-time buyer in a report it called ‘Generation Rent’ that indicated 64 per cent of non-homeowners it surveyed believed they had no prospect of ever owning a home.

The theme was quickly taken up by other organisations. Shelter, for instance, has warned of a generation of people “priced out” of owning their own home. Mortgage lending has increased, however. Gross lending has risen by 16 per cent from May’s figure of £10.8 billion to reach £12.6 billion in June, according to the Council of Mortgage Lenders (CML). This is the highest monthly total since July 2010, but the figures are still three per cent lower than June 2010. So, the banks do seem to be slowly losing their reluctance to lend.

“The UK economy continues to experience disappointing economic growth, strong consumer price pressures, falling disposable incomes and an uncertain jobs market. This backdrop weighs negatively on purchase decisions,” said Bob Pannell, the CML’s chief economist. “By contrast, landlord activity appears to have picked up recently and, with evidence of strong rental demand, this should help to underpin activity over the coming months.”

Meanwhile Sarah Webb, [then] chief executive of CIH, has said: “We already know that the deposit barrier means more people are becoming part of ‘generation rent’ whether they want to or not. As demand for housing continues to massively outstrip supply the cost of renting a home is also increasing... more and more people are struggling to meet their housing costs, let alone save for a deposit.”

The CIH predicted in its UK Housing Briefing Review that up to 100,000 first-time buyers will abandon the market this year alone. Where are they going? The private rented sector. Unsurprisingly, landlords are cashing in on rising demand.

“Tenant demand continues to reach ever higher peaks – and there simply isn’t enough rental property coming onto the market to match it,” said David Newnes, LSL Property Services’ estate agency managing director. “Despite several new deals on the market, securing a big enough mortgage remains a tall order for the average buyer. The climbing cost of living and renting is impacting how much renters can save for their deposit, and demand will remain high in the short-term.

“In the long-term, there is an even smaller chance of a significant slowdown. Just 102,570 new homes were completed last year – at a time when the UK ’s population increased by half a million. This trend shows no sign of slowing. Excess demand will be driven into the private rental sector driving rents up further. Landlords thinking long-term will do well.

“Home values have been dropping in recent months, and this has taken its toll on annual returns, but record high yields paint a prettier picture for prospective landlords, and matter much in the short-term as it is rent that pays the mortgage. As property prices bottom out and rental income soars, property investment is proving to be an increasingly lucrative long-term investment.” For landlords, things are definitely hotting up. Rents are bubbling upwards. In June, they hit a record high, according to LSL ’s latest Buy To Let index, coming to an average £701 per month in England – an annual inflation rate of 4.1 per cent – while in London average rents smashed through the grand barrier for the
first time, coming in at £1,006 per month.

James Scott-Lee, RICS UK’s spokesperson, said: “Although we are beginning to see more mortgages aimed at first-time buyers, many potential homeowners are still restricted from getting a foot on the property ladder, leading to increased demand in an already over-subscribed rental market. There has been a small uplift in supply but the imbalance between demand and availability can only mean rents will continue to rise.”

Can of worms

Winning streaks don’t last forever. Bubbles burst, as the housing market crash demonstrates in no uncertain terms, so what happens if – when – rents soar beyond people’s ability to pay? Sooner or later, it is all but inevitable that those priced out of home ownership will find themselves priced out of private rent. Where then will people go?

The Government’s welfare reform package also compounds the problems of affordability. In some parts of the country, London being – as ever – the prime example, households are already unable to rent in the private sector without State support. However, the proposed changes to Local Housing Allowance has raised fears that low and moderate waged workers will be effectively forced out of their homes to seek cheaper accommodation elsewhere.

Landlords have also suggested they may be “forced out of the housing benefit market”, according to a survey carried out by the National Landlords Association (NLA). The results indicated that faced with Housing Benefit reforms, over half of landlords would pull out of renting their homes to benefit recipients. Social housing, for all its efforts to deliver more homes, is in no position to provide safe haven to these potential hoards of exiles from the private market realm. There simply isn’t enough housing association or council homes for those that need them now, let alone those to come. To cap the problems of under-supply, the sector is caught up in its own maelstrom of change.

Great hopes are pinned on the new Affordable Rent model for the delivery of new homes, but while the sector has embraced the opportunity it provides to build, it is not to say that there are no misgivings about just how affordable this package may be in real terms. Average figures mask massive variances, but even so, consider the record rents quoted above and then reflect on just how affordable ‘Affordable Rent’ might actually be in practice.

This was a point raised by London Assembly Member Jenny Jones, following an assessment of the delivery model by the Planning & Housing Committee last month. Writing in the Guardian newspaper (26 July 2011), she asked who these “Affordable Homes” were for?

“Even if the average rent was set at 65 per cent of market rent, as the Mayor claims, this is substantially higher than social rent levels in most London boroughs,” she said. “There is obviously a demand for housing let at these intermediate rents. But London and Quadrant told us that 77 per cent of their residents earn less than £15,000 a year. The Mayor’s own research shows that some 14 per cent of Londoners in work earn less than this threshold, and that this group is in the most acute housing need. This new ‘affordable’ housing isn’t affordable for them.”

The HCA’s framework for delivering these new ‘Affordable Homes’ is part of a package the Government hopes will stimulate recovery and a solution to the housing crisis. Other elements include incentives for development, such as the New Homes Bonus, and assistance for first-time buyers. Even so, many of its elements do seem to involve a certain ‘whim and prayer’ aspect. One can almost see their fingers crossed behind their backs.

As for the rest of us, well...

Back to the future

By now, one can no doubt see where all this is going. For those who can’t afford to buy, or to rent privately, or – if it so transpires – to rent socially in the future, then just where are they going to live? It’s not just a rhetorical question but one of increasing urgency for millions of people. Sooner or later, matters must come to a head and what then?

Shanty towns might be pushing it. Empty properties, whether residential or otherwise abound, and the illegality of squatting is hardly likely to deter the desperate any more than it does the recalcitrant. Beyond that, as both Shelter and Jon Snow’s Channel 4 Dispatches programme indicated, old-fashioned slum landlordism remains waiting in the wings. All told, it bodes ill for the future.

Over in Israel, people are protesting against the country’s high housing costs by taking to the streets and establishing tent cities in public squares to emphasise their point. Here in the UK , unless we see some of that ‘Big Society’ backbone, we might just be living in tent cities for real.

This article first appeared in the combined Northern, Midlands and Southern Housing magazine, July/August 2011. It was subsequently re-published on the Housing Excellence website, 11 August 2011.

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