Political themes influencing the housing system: The “Big Society”, Localism and Devolution

Political themes influencing the housing system: The “Big Society”, Localism and Devolution

The Changing Tide; Will Current Reforms Will Current Reforms Work?Work?

Free market and localist think tankFree market and localist think tankFormer ‘alumni’ include James Former ‘alumni’ include James O’Shaughnessy, Michael Gove, and O’Shaughnessy, Michael Gove, and various othersvarious othersInterested in housing and planning since Interested in housing and planning since 2005 but renewed in 2010 with ‘2005 but renewed in 2010 with ‘Making Making Housing AffordableHousing Affordable’ and ’ and ‘Cities for Growth’‘Cities for Growth’We aim to be neutral but influential We aim to be neutral but influential

Problems Gov inheritedProblems Gov inherited

Over 5 million on ‘out of work’ benefitsOver 5 million on ‘out of work’ benefitsHome ownership fell for first time since Home ownership fell for first time since WWI after 2001 after rising around 9% a WWI after 2001 after rising around 9% a decade in most of the 20decade in most of the 20thth Century CenturyMost people (85%+) want to own homeMost people (85%+) want to own homeRents rose around 80% in recent yearsRents rose around 80% in recent years25% under-valued vs house prices and 25% under-valued vs house prices and correction inevitable in medium termcorrection inevitable in medium term

Problems Gov InheritedProblems Gov Inherited

First Time Buyer’s income doubled since First Time Buyer’s income doubled since 1997 – only wealthy now buying homes1997 – only wealthy now buying homes2010: 90% FTBs need support of family2010: 90% FTBs need support of familyBiggest divide across generations – under Biggest divide across generations – under 50s own just 20% of UK’s housing wealth50s own just 20% of UK’s housing wealthPrices at x5 incomes even in NorthPrices at x5 incomes even in NorthOwnership divide led 2010 Labour Gov Ownership divide led 2010 Labour Gov report to note “housing wealth … is one of report to note “housing wealth … is one of the starkest inequalities in Britain”the starkest inequalities in Britain”

Rising Government housing Rising Government housing costscosts

Housing Benefit Housing Benefit rise with private rentsrise with private rents to to cost £8 billion extra a year since 1997 cost £8 billion extra a year since 1997 Social housing waiting lists fell 1981-97 by Social housing waiting lists fell 1981-97 by 0.2 million households but rose 0.8 million 0.2 million households but rose 0.8 million post 97 despite RTB sales falling heavily post 97 despite RTB sales falling heavily Rise in waiting lists entirely down to fall in Rise in waiting lists entirely down to fall in households exiting into private sectorhouseholds exiting into private sector‘‘Affordable housing’ helps 0.1% Affordable housing’ helps 0.1% households a year costing £0.5 - £1 billionhouseholds a year costing £0.5 - £1 billion

Waiting lists rise because...Waiting lists rise because...

A fall in net re-lets drove them up (the A fall in net re-lets drove them up (the table below from the HCA shows key)table below from the HCA shows key)

Housing costs societyHousing costs society

Social housing tenants economic inactivity Social housing tenants economic inactivity 66% higher compared to private tenants after 66% higher compared to private tenants after basic adjustment for disadvantage (Hills), basic adjustment for disadvantage (Hills), increasing poverty and poor social outcomes. increasing poverty and poor social outcomes. Difficulty measuring (both ways).Difficulty measuring (both ways).

The cost of social housing was around £30 The cost of social housing was around £30 billion in 2009/10: subsidised rents, billion in 2009/10: subsidised rents, maintenance, construction, housing benefit, maintenance, construction, housing benefit, and additional welfare dependence. and additional welfare dependence.

Social Housing (background)Social Housing (background)

Larger, not smaller, part of housing market Larger, not smaller, part of housing market compared with most EU countriescompared with most EU countriesLocation Location not not key issue - Inner London has key issue - Inner London has many job opportunities but low employmentmany job opportunities but low employmentCurrent mixed communities – Current mixed communities – large scalelarge scale studies show not better resultsstudies show not better resultsEvidence suggests current system has no Evidence suggests current system has no positive effect but possible negative impactspositive effect but possible negative impactsIncentives are disastrous for new/existing Incentives are disastrous for new/existing social tenants (needs-based points system)social tenants (needs-based points system)

Government’s direction of travelGovernment’s direction of travel

New “local authority-ist” direction and New “local authority-ist” direction and urgent need to save moneyurgent need to save moneyMajor reforms are underway focusing on Major reforms are underway focusing on three areas:three areas:

1.1.Housing benefit/capital spend reductionsHousing benefit/capital spend reductions2.2.Planning changesPlanning changes3.3.Social housing reforms Social housing reforms

#1 Spending Reductions#1 Spending Reductions

Popular with the publicPopular with the publicAimed to reduce spend by £1.7 billion by Aimed to reduce spend by £1.7 billion by end of Parliament, now around £1.4 billionend of Parliament, now around £1.4 billionMost reduce entitlement (cap £55 million)Most reduce entitlement (cap £55 million)Very large reduction in capital spend Very large reduction in capital spend (down by 60% by end of spending review)(down by 60% by end of spending review)Single person can’t have own flat, lower Single person can’t have own flat, lower dependent allowance, 30dependent allowance, 30thth percentile percentile

#2 Market housing affordable#2 Market housing affordablevia planning reformvia planning reform

Removal of national targetsRemoval of national targetsPresumption in Favour of Sustainable Presumption in Favour of Sustainable Development (but what does this mean)?Development (but what does this mean)?Neighbourhood planningNeighbourhood planningCommunity Infrastructure Levy (CIL)Community Infrastructure Levy (CIL)New Homes BonusNew Homes BonusLocal authority supreme (90s)Local authority supreme (90s)

#3 Social housing reforms #3 Social housing reforms

Short term tenancies (5 year not 2 year)Short term tenancies (5 year not 2 year)Capital subsidy to rental subsidy switchCapital subsidy to rental subsidy switchVery large reduction in capital spend Very large reduction in capital spend (down by 60% by end of spending review)(down by 60% by end of spending review)Change in allocation policiesChange in allocation policies170,000 new ‘affordable homes’, charging 170,000 new ‘affordable homes’, charging higher rents (largely affects South)higher rents (largely affects South)Right to Buy II and reuse of sales receipts Right to Buy II and reuse of sales receipts

Will it work?Will it work?

The key question... The key question... Housing is increasingly seen as a major Housing is increasingly seen as a major crisis - because it iscrisis - because it isThe complexity of housing is immenseThe complexity of housing is immenseThe Government’s reforms, while The Government’s reforms, while containing good parts, will fundamentally containing good parts, will fundamentally notnot work workPersonal view (not PX overall view)Personal view (not PX overall view)

#1 Spending reductions#1 Spending reductions

Rents escalating (2011 rising by 4-5%)Rents escalating (2011 rising by 4-5%)Housing benefit not driver of rentsHousing benefit not driver of rentsHousing benefit to hit £23 billion by 2015Housing benefit to hit £23 billion by 2015May in fact be higher than this (rents May in fact be higher than this (rents rising, economic difficulties)rising, economic difficulties)Current difficulty of continuing to build past Current difficulty of continuing to build past 2015 (leverage difficult, capital grant low)2015 (leverage difficult, capital grant low)

#1 Spending reductions#1 Spending reductions

Social housing waiting list growth as rents Social housing waiting list growth as rents rise and even more if economy tanksrise and even more if economy tanksPressure for more spending more acutePressure for more spending more acuteDifficult to reduce housing benefit Difficult to reduce housing benefit entitlements much further entitlements much further Wide economic effects (less building)Wide economic effects (less building)So likely to struggle, largely because... So likely to struggle, largely because...

#2 Market housing affordable#2 Market housing affordable

Local authority plans are supremeLocal authority plans are supremeLocal authorities reducing housing needLocal authorities reducing housing needNeighbourhood plans weakNeighbourhood plans weakPresumption meaningless (unless planning Presumption meaningless (unless planning by appeal returns)by appeal returns)Confusion over CILConfusion over CILNHB very smallNHB very smallDesign still poor (guidance won’t fix)Design still poor (guidance won’t fix)


The UK saw 2The UK saw 2ndnd highest price rise in highest price rise in developed countries in recent boomdeveloped countries in recent boomImmigration impacts but not main causeImmigration impacts but not main causeHousehold size decline is slowing Household size decline is slowing Build 50% of what built in 1960sBuild 50% of what built in 1960s50% of all homeowners have two spare 50% of all homeowners have two spare bedroomsbedroomsThere was a ‘bubble’ with 25% of There was a ‘bubble’ with 25% of mortgages supported by BoE in 2009mortgages supported by BoE in 2009


Mortgage lending explosion 2000 onwardMortgage lending explosion 2000 onwardSince then barely increased (but should be Since then barely increased (but should be deflating)deflating)

#2 Market housing affordable?#2 Market housing affordable?

Gigantic land bubble at system’s heart Gigantic land bubble at system’s heart What does a house cost = land + buildingWhat does a house cost = land + buildingRents = real priceRents = real priceHouse prices = speculative priceHouse prices = speculative priceRents rising due to planning systemRents rising due to planning systemBubbles build on top of this Bubbles build on top of this Land >£1 million a hectareLand >£1 million a hectare


Lending simply inflates land/house pricesLending simply inflates land/house pricesMakes downturns very difficult to handleMakes downturns very difficult to handle


Credit market turmoil will continueCredit market turmoil will continueMost Western banks would be/are Most Western banks would be/are insolvent without huge interventions insolvent without huge interventions Interest rates will have to return to normal Interest rates will have to return to normal (6% or so) within a few years and/or (6% or so) within a few years and/or rampant inflation is likelyrampant inflation is likelyRisk mispricing, time distortions are Risk mispricing, time distortions are intensifying intensifying not getting lessnot getting less


Rents will continue to riseRents will continue to riseDevelopers want rents to rise while house Developers want rents to rise while house prices stagnate until they meet again prices stagnate until they meet again Small risk is another bubble may take off Small risk is another bubble may take off and house prices begin to riseand house prices begin to riseHousing is a core part of our dysfunctional Housing is a core part of our dysfunctional economy and is seen by politicians as ‘too economy and is seen by politicians as ‘too big to fail/reform’big to fail/reform’

#3 Social housing reforms #3 Social housing reforms

Danger of very high rates of benefit Danger of very high rates of benefit withdrawal at a time when Gov aim is to withdrawal at a time when Gov aim is to ‘make work pay’ via Universal Credit‘make work pay’ via Universal CreditFinally ‘market rents’ will just push up HB Finally ‘market rents’ will just push up HB oror provide negligible amounts to HAs provide negligible amounts to HAsThe Gov believes it has reformed The Gov believes it has reformed allocations, wait to see how this works allocations, wait to see how this works Lending may become too risky (one failure Lending may become too risky (one failure will impact on whole sector...)will impact on whole sector...)

Current reforms...Current reforms...

Policy Exchange has wide range of views Policy Exchange has wide range of views This is only mineThis is only mineCurrent system is unravellingCurrent system is unravellingLocal authority control won’t work as no Local authority control won’t work as no financial autonomy financial autonomy But financial autonomy would fail (Spain, But financial autonomy would fail (Spain, USA etc have worse financial implosion USA etc have worse financial implosion due to multi-layered overspend)due to multi-layered overspend)

Current reforms...Current reforms...

Incentives for housing at local authority Incentives for housing at local authority level necessary but along will fail (13,000+ level necessary but along will fail (13,000+ German LPA bodies, 326 English ones)German LPA bodies, 326 English ones)The Big Society, devolution and localism The Big Society, devolution and localism useful if put local people not local useful if put local people not local government in charge and fix incentives government in charge and fix incentives for individual people for individual people If not will make things worseIf not will make things worse

Social HousingSocial Housing

Funding crisis post 2015Funding crisis post 2015We believe in selling off stock above the We believe in selling off stock above the median to pay for new social propertiesmedian to pay for new social propertiesWe believe this could triple the amount of We believe this could triple the amount of social homes being built this Parliamentsocial homes being built this ParliamentThis would mean social tenants could This would mean social tenants could choose from 50% of propertieschoose from 50% of propertiesPopular and fairPopular and fairQuality set for new social homesQuality set for new social homes

Planning Planning

Needs a fundamental overhaulNeeds a fundamental overhaulExternality-led rather than plan ledExternality-led rather than plan ledThose near new developments have Those near new developments have ultimate sayultimate sayLess micro-management (e.g. car spaces)Less micro-management (e.g. car spaces)This is real ‘localism’ with local people in This is real ‘localism’ with local people in control and dealing direct with developers control and dealing direct with developers Large new suburbs are needed by citiesLarge new suburbs are needed by cities

PlanningPlanning

Anti-competitive and concentrating power Anti-competitive and concentrating power as well as reducing qualityas well as reducing qualityHigh land prices drive out qualityHigh land prices drive out qualityReform would halt rise in rents and waiting Reform would halt rise in rents and waiting list and allow deflation of house price list and allow deflation of house price bubble (with positive long term effects)bubble (with positive long term effects)Not going to happen; housing stress will Not going to happen; housing stress will continue to build in systemcontinue to build in system

Possible options in 2012/13Possible options in 2012/13

Things the Government could do...Things the Government could do...

Garden CitiesGarden CitiesBrownfield liberalisationBrownfield liberalisationSuccessful new urban extensionsSuccessful new urban extensionsMinisters are competent but need a better Ministers are competent but need a better grip (even if uncomfortable to admit grip (even if uncomfortable to admit difficulties so far)difficulties so far)

Documents

Political themes influencing the housing system: The “Big Society”, Localism and Devolution