Britain on the blink
Can housing save the economy from the Brexit blues?
The collapse of David Cameron’s Government opened a Pandora’s Box for Britain, but a window of opportunity for the social housing sector. Can the new Prime Minister be persuaded there’s more to securing a decent home than ownership alone? Well, some voices are willing to try
By Mark Cantrell
First published in the August/September edition of Housing magazine
THE last couple of months have seen a remarkable uprising against an orthodoxy fervently embraced by Government, but while the ‘old order’ has been swept away (kind of), the legacy of that discarded regime remains a force to be reckoned with.
No, we’re not talking about the Brexit vote, per se, though it certainly threw things into some disarray. For politics junkies, the meltdown in the country’s political leadership may have proved an entertaining circus, but to sober policymakers urgently looking for a little, well, leadership, it has been something of a sorry farce.
The Conservatives sheathed the knives and regrouped first. Now – after Theresa May’s root-and-branch Cabinet reshuffle – Government is back in the business of governing. About time too, it might be said. There’s likely a lot of trouble ahead.
Brexit or no Brexit, the UK languishes under the grip of a worsening housing crisis. The vote to cut loose from the EU has left the country under a brooding cloud of uncertainty, but it seems likely that it will rain further misery on the bereft victims of Britain’s broken housing market.
On that note, we come up against that peculiar orthodoxy; namely, that creating home owners is the only game in town when it comes to Government housing policy. There was nothing unique to David Cameron’s love affair with home ownership and first-time buyers – you can track it all the way back to the last Labour government and beyond – but during his time at the national helm, it was allowed to become a rather all-consuming affair.
Dissent has been bubbling away for some time, and would have broken to the surface regardless, but Brexit has given it an added urgency. The collapse of Cameron’s Government, meanwhile, has offered an opportunity to make the case anew for a radical change in housing policy.
Town hall chiefs rattled the cage, if not their sabres, during the Local Government Association’s annual conference, making a strident call for a renaissance in the construction of council housing.
“The housing crisis is affecting more and more families every year,” said Councillor Peter Box, the LGA’s housing spokesperson. “For many, studying hard and succeeding in work will no longer guarantee an affordable and decent place to live. Even if the country is able to achieve full employment in 2024, around four million working people will need some type of affordable housing as wages struggle to keep pace with house prices.
“Bold new action is needed in the wake of the UK’s decision to leave the European Union. National and local government must come together around our joint ambition to build homes and strong, inclusive communities.”
Box was speaking at the launch of the LGA’s Housing Commission report. The document pointed out that the last time the country was building more than 250,000 homes a year was in 1977/78, when councils built 44% of new homes. Since then, of course, changes in Government approach saw councils’ contribution collapse.
This has left a gap in supply that private house builders and housing associations have never been able to fill. Private developers in England have only been able to build an average of 90,000 homes a year since 2009/2010. In 2013/14 this was around 77% of all new homes, the report said. In comparison, the same year councils were only able to build 1% of all new homes; a situation that must end, according to the LGA.
“A renaissance in house building by councils must be at the heart of this bold new action,” Box added. “The private sector clearly plays a crucial role but it cannot build the homes we need on its own, and will likely be further restricted by uncertainties in the months and years ahead.”
Somebody certainly has to build. The Government has made it clear that the one million homes ‘ambition’ remains in force. But Brexit saw private housebuilders’ share prices take a double-digit hit; confidence in the sector’s prospects in terms of skills, labour, market conditions, has also felt the pinch. A downturn in the industry – with its knock-on economic impact – is a real and present danger.
Ten days after the LGA report, the cross-party House of Lords Economic Affairs Committee (EAC) published Building More Homes, which provided a highly critical assessment of the Government’s housing policy. The document makes clear that, in the EAC’s view, the housing crisis will never be resolved unless councils are once again allowed to become major players in the provision of new homes.
Among its criticisms, the EAC said the Government had created uncertainty in an already dysfunctional market by frequent changes to tax rules and subsidies for house purchases, reductions in social rent, and the extension of right-to-buy. All of these changes served to reduce the supply of homes for those who need low-cost rental accommodation. Furthermore, its narrow focus on home ownership neglects those who rent their home.
“The Government is too focused on home ownership which will never be achievable for a great many people and in some areas it will be out of reach even for those on average incomes. Government policy to tackle the crisis must be broadened out to help people who would benefit from good quality, secure rented homes,” said the EAC’s chairman, Lord Hollick.
“It is very concerning that changes to stamp duty for landlords and cuts to social rent could reduce the availability of homes for rent. The long-term trend away from subsidising tenancies to subsidising home buyers hits the poorest hardest and should be reversed. If the housing crisis is to be tackled the Government must allow local authorities to borrow to build and accelerate building on surplus public land.”
As for the goal to deliver one million homes by 2020, the EAC’s report argues it is insufficient, either to meet demand for new homes, or to moderate the rate of house price increases. Indeed, it calls for 300,000 homes to be built each year “for the foreseeable future”.
“The private sector alone cannot deliver that [figure]. It has neither the ability nor motivation to do so. We need local government and housing associations to get back into the business of building,” Lord Hollick added.
“Local authorities are keen to meet this challenge but they do not have the funds or the ability to borrow to embark on a major programme to build new social homes. It makes no sense that a local authority is free to borrow to build a swimming pool but cannot do the same to build homes.”
The day before Building More Homes was published, the Chartered Institute of Public Finance and Accountancy (CIPFA), together with the CIH, revealed something of the damage Government policies had inflicted on councils’ ability to deliver new homes.
In their joint report, ‘Investing in Council Housing’, the two organisations said plans to build 500,000 new homes over the next 30 years had been scuppered by Government’s fickle approach. In the scheme of things, and over that time-scale, such figures (around 16,600 a year) are small-fry, given the extent of the undersupply of housing, but it represents a significant escalation from a historically low base.
Growth begets growth as it were. There were high hopes of the self financing settlement in 2012, and councils took on £13bn of extra debt finance to fund building, based on future rental income. However, policy changes have dashed hopes and shrunk that potential, such that only 45,000 homes (1,500 a year) are now expected. That’s little more than councils managed pre-settlement, according to CIPFA and the CIH.
“The situation is desperate,” said CIPFA chief executive, Rob Whiteman. “Families across the country will not get the homes they need because the Government keeps on tinkering with housing policy without properly thinking it through.
“At best, successive governments have turned a blind eye to the consequences of inconsistent housing policy, at worst they have deliberately set out to undermine local authorities’ best laid plans.
“By reducing rents to soften the blow of welfare cuts, the Government has choked the revenue streams that were meant to fund new house building. At the same time, the right-to-buy policy has led to assets being sold off, further reducing the ability to councils to finance new homes.
“We need urgent action to reset the self-financing settlement, with assurances that its foundations won’t be pulled away the moment government attention turns to something else.”
There’s already a lot there for May to consider, if she is so inclined, but the National Housing Federation (NHF) has added its own proposal to the mix. The organisation, again with the backing of the CIH, has also called on the Government to take a long hard look at its housing policies, and allow councils and housing associations the much greater leeway they need to build homes. It’s not just about tackling the housing crisis anymore, vitally important though that is, but shoring up the economy against the potential impact of Brexit.
The NHF is calling on the Government to relax restriction on the tenure of homes, allowing housing associations to build more on their terms, and offer councils a ‘new deal’ including greater flexibility on the borrowing caps they face. Furthermore, it wants the government to switch some of the £7bn planned funding from supporting home ownership to supporting “affordable” rental properties.
“The warning signs are flashing amber – housebuilding may be set for a slowdown – but housing associations have a track record of building through tough times. Demand for good quality rented homes remains high,” said David Orr, the NHF’s chief executive.
At the time of writing, it is impossible to say beyond the flimsiest of speculation quite what direction May will take on housing. There is a clear economic – as well as social – case to be made for government to invest in housing across tenures, but then there was before Brexit too; there’s no guarantee that this new Conservative administration will be any more amenable to the arguments than was the last.
May showed a ruthless hand in purging the personnel of a Government of which she herself was a veteran member, but will she prove as ruthless in purging the policies of the recent past? The course she steers, inevitably, will depend on the economic and political waters – and on some hard and canny lobbying too.
The new Prime Minister is not entirely unaware of the issues. When she launched her leadership campaign, she said: “[U]nless we deal with the housing deficit, we will see house prices keep on rising. Young people will find it even harder to own their own home ... And more and more of the country’s money will go into expensive housing instead of more productive investments that generate more economic growth.”
But as the campaigning organisation Generation Rent said when Theresa May ascended to leadership: “[G]iven the Government’s shameful record on affordable housing, and their manifesto commitments to home ownership gimmickry, we cannot take anything for granted.”
Okay, so calling it an uprising is putting things a little strong, but for now, that orthodoxy of ownership is vulnerable and open to question. It won’t remain so.
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Among its proposals for a council house renaissance, the Local Government Association is calling for:
- National backing for new local government housing delivery models to build new and different types of homes. This must coincide with a revitalisation of council house building by allowing councils to keep a greater proportion of right-to-buy receipts and to combine receipts with Homes & Community Agency funding
- Allow councils to set planning fees locally so they can cover costs and continue to develop a proactive planning approach for unlocking housing growth, and developing powers for councils to ensure homes are built on sites where planning permission has been granted but building may have stalled
- Build a new market of homes attractive and suitable for older people that are better able to meet their health needs and support them to move, which, in turn, would release more family homes into the local market
The Economic Affairs Committee proposed a number of recommendations for tackling the housing crisis, including:
- Lifting restraints on local authority borrowing: councils should be free to borrow to fund social housebuilding as they are other building programmes. This would enable local authorities to resume their historic role as one of the major builders of new homes, particularly social housing
- The current historically low cost of borrowing means local authorities could make a large contribution to building the houses needed for the future. Further, the new Prime Minister has announced that the Government will abandon its fiscal target. This paves the way to increase local authority borrowing powers, the committee said
- The Government’s reliance on private developers to meet its target of new homes is “misguided” according to the committee, which described the private sector housebuilding market as “oligopolistic”. Its business model is based on maximising profit margins (not unreasonable given they are private businesses), meaning it is not best placed to tackle the housing crisis, the committee argued. To address this, it recommended that local authorities be granted the power to levy council tax on developments that are not completed within a set time period
The National Housing Federation, outlined its case in a post-Brexit proposal, which included these points:
- By making £7bn of allocated funding available on a more flexible basis, focusing less on tenure and more on overall supply of affordable housing, the NHF estimated its members could deliver over 300,000 new homes over the course of this parliament – close to a third of the Government’s one million home ambition
- Housing associations would be able to use Government investment more flexibly to deliver a range of affordable housing, including “affordable” rent, rent-to-buy and shared ownership. This flexible approach would enable housing associations to deliver homes that meet the needs and challenges of different areas and markets
- Housing associations could sign up to deliver an agreed number of affordable homes, but with flexibility to decide what tenure these homes should be as the market changes. This could include a target for the number of homes that are available for home ownership, either immediately or over time
- Alternatively, it argued, the Government could offer a commitment that if the market cannot support homes built for sale, then housing associations would be able to switch the tenure of these homes to rented homes with Government support
This article was first published as the cover story for the August/September 2016 print edition of Housing magazine. It was subsequently republished on the Housing Excellence website, 27 September 2016