Opinion: Tackling Housing Benefit reform

Matilda HouseThe Liberal Democrat policy paper on housing notes that the primary driver of growing housing benefit and Local Housing Allowance bills has been the shortage of housing, leading to higher rents, and increasing number of people unable either to buy or to access social housing. The paper focused on the most pressing issues:

  • Building more homes – providing environmentally sustainable homes where people need them, creating jobs and kick starting the economy.
  • Giving tenants more power and security – making social landlords more accountable and improving standards and security in the rapidly growing private rented sector.
  • More local control – giving local councils, communities and individuals more power and autonomy to create thriving neighbourhoods in the face of the hugely diverse range of challenges that they face.

Home ownership is becoming more and more out of reach for many. Since the withdrawal of Mortgage Interest Relief for residential homeowners, we have seen a dramatic escalation in house prices and a surge in buy-to-let investors in the housing market. Home ownership is falling and the private rental market is growing – spurred on by rent subsidies and the private rental of former council properties acquired under right to buy schemes.

Welfare costs for housing support are all the while increasing dramatically, despite welfare caps and under-occupancy restrictions. Government cannot simply legislate for higher wages that may increase unemployment, lower rents that may reduce housing supply or abandon millions of people to the vagaries of the market.  So what can be done in addition to the proposals in the Liberal Democrat paper?

Firstly, we can focus on increasing wages as a share of GDP by specifically targeting non-inflationary full employment as government policy and driving investment in productivity enhancing infrastructure.

Secondly, involuntary unemployment can be reduced with the introduction of a voluntary job guarantee scheme targeted at those currently in need of housing support. Such a scheme would allow for the introduction of a condition of habitual employment as a pre-requisite to eligibility for housing support for the able-bodied.

Thirdly, state housing support can be refocused away from rental subsidies and towards capital development, primarily at shared ownership schemes for citizens and long term residents i.e. rent to buy. Combined rental/mortgage payments would be based on a fixed % of annual earnings/income. Equity built-up in the property would be transferable to family members or other eligible participants in the scheme.

Fourthly, discounts under the current right to buy scheme can be ended and both new and existing council properties retained in the shared ownership scheme portfolio.

Lastly, council tax could be replaced with a national Land Value Tax payable by landlords and owner occupiers on land values over and above a primary residence homestead credit equivalent to the average Band A of council tax. This would aid in both stabilising house and land prices generally and redistributing the burden of council tax more progressively, such that those on very low incomes were better able to afford rents/mortgage payments.

* Joe Bourke is an accountant and university lecturer, Chair of ALTER, and Chair of Hounslow Liberal Democrats.

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39 Comments

  • “Firstly, we can focus on increasing wages as a share of GDP by specifically targeting non-inflationary full employment as government policy”

    Er, and that works how, precisely?

  • Do we really need to say it again?

    Land
    Value
    Tax

    Housing Benefit is one of the worst benefits. It creates an artificial floor on the cost of all property. It affects not just those subsidised directly, but those paying for the subsidy (through general taxation) by underpinning the price of all property they may rent or buy. The only true beneficiaries are those in their last large house seeking to downsize next and those with more than one home on which they gin investment income underpinned by HB. It’s cost is therefore not merely the £25bn in direct subsidy to people who cannot afford adequate housing, but everyone else, most of whom are therefore paying a double whammy by funding a subsidy that increases their own cost of living.

  • Richard Dean 30th Jun '14 - 12:24pm

    If the primary driver is a shortage of housing, then the primary solution is to build more houses. But there’s a complication, because real people value houses not only as a place to live but as an investment. Bringing the value of people’s existing investments down is not a very friendly thing to do.

  • Maybe changing people’s idea that life is not life without a room for everyone more so if it’s not affordable

    Maybe build many more one bed homes both for rent or purchase, adapt old buildings into one bed dwellings makes first step cheaper and end of life offers down size for ease of ownership or living

    Enjoyed the article and the GDP part is good sp long as it’s aimed more of the lower paid get some not just the rich which is how it is now

  • RC,

    Since the early 1980s, living standards for most of the UK’s workforce have becoming progressively detached from growth. The gains from a growing economy became increasingly unevenly divided in favour of a small group at the top, leaving significant sections of the rest of the population (roughly the bottom 60 percent) lagging behind the average rise in prosperity, and at an accelerating rate. Following the Great Recession of 2008-09, average UK net incomes have declined in real terms – by over 13% between 2009 and 2012 according to recent ONS research.

    Pre 1980’s the share of wages in national income was around 60%, but declined sharply in the early 1980s and has been below 56 percent since 1982, falling as low as 51 percent in the late 1990s. Meanwhile, the profit share (operating surpluses as a percentage of national income) rose from 24 percent in 1980 to 28 percent in 2011. There has also been an increasing widening of wage dispersion between the highest and lowest paid – with an increasing concentration of high pay in the financial services sector.

    To direct government policy at redressing both the fall in wage share and the increasing inequality in pay, the following measures can be adopted:

    1. Reinstalling the goal of full employment (a goal effectively abandoned in the 1980s in favour of lowering inflation and never reinstated) would not just help to create more jobs but would be an important instrument in securing decent wage growth, reducing wage dispersion and closing the wage-output gap. Interest rates rises have been held back in recognition of the need for a shift in monetary policy away from obsessive focus on low inflation to a greater emphasis on growth and employment. We need to adopt the same pragmatic flexibility and emphasis on growth and employment in managing deficit reduction.

    2. Raising the wage floor for those currently in work. Around 5 million employees – are on hourly wages less than the living wage (£7.65 per hour outside of London and £8.80 in London). The number of employees receiving the living wage could be raised without adverse employment effects by:
    • Public sector organisations setting the standard by ensuring that all their employees are paid the living wage;
    • Public employers doing far more to ensure that businesses with whom they contract are paid at living wage rates through the greater use of social clauses in procurement contracts (including the Social Value Act 2012).
    • Incentivising larger employers to get on board with the living wage campaign. Nestle is the first major UK manufacturer to adopt the living wage, announcing today that all it 8,000 employees will receive the living wage as a minimum.

    3. Capping and/or restraining pay at the top. There is no real evidence that the vast increases in remuneration over the last three decades for corporate executives – particularly in the private sector – have been matched by improved company performance. Tougher rules on corporate governance along the lines of the recommendations in the High Pay Commission’s 2011 final report, as well as greater use of non-statutory pay ratios between the highest and lowest paid employees in a company – as recommended by the 2011 Hutton Review of public sector pay.

    4. Extending the role of works councils. Ultimately, increasing the wage share will depend on a fundamental shift in the balance of economic and social power and influence away from the dominance currently enjoyed by boardrooms, big business and the City. More power needs to be shifted from boardrooms to the workforce through the empowering of employees and the spreading of worker democracy

  • Caracatus,

    “Look at charging rent for council housing based on a % of income.” I think this could be workable as an alternative to housing benefit, but I agree that more council housing needs to be built. If it was that simple, why have we bot being doing it for the past 35 years or even for the past four years?

    I think we need to redirect part of the funding going into housing benefit now towards building new housing and I see shared ownership as a way of doing that (perhaps in conjunction with your suggestion of letting people borrow direct from the Government at the bank base rate plus 1% rather than have to pay the banks 4-6% for a mortgage).

    In Sweden, councils develop an area for housing, carve it up into plots, put in essential services to the edge of each plot,then sell the plots at or near cost for self build. People register as with council housing and take out a mortgage in the usual way to pay for the building of the house. It would be very much cheaper for many.

    The council could rent the Land instead of selling plots and the employed homebuyer can take out a mortgage loan on the building only or a share of the building value.

    Combined rent and loan payments would be structured along the lines of the current housing benefit taper. For example, assume that the land rent is £50 per week and the claimant has £240 net income per week from an annual gross salary of £13,100. Deduct from his net income his rent and basic living costs (say £120 pw) and base his mortgage payment on 35% of the residual i.e. £42 pw. The claimant will pay £92 pw from his income of £240 pw to cover his land rent and shared equity mortgage of between 25% and 75% of the property value. The payment would be reassessed annually based on earnings and the equity share based on actual payments made over the lifetime of the mortgage.

  • Jock,

    largely agree with your assessment. Good article here from IEA http://www.iea.org.uk/blog/the-case-for-a-land-value-tax

  • Richard,

    the national extent of the affordability problem and the crisis in London and the Southeast is highlighted in a survey published last week by Shelter http://england.shelter.org.uk/professional_resources/policy_and_research/policy_library/policy_library_folder/report_how_much_of_the_housing_market_is_affordable

    Key Findings

    - Affordability problems are not confined to London and the South East, but are found across the country.
     – In more than half (59%) of local authority areas, less than one in ten available properties are affordable to a working couple with children on average wages.
     – There are 14 local authority areas where no available properties are affordable to a working couple with children on average wages.
     – In more than four fifths (85%) of local authority areas, less than one in ten available properties are affordable to a single person on average wages.
     – There are 13 local authority areas where no available properties are affordable to a single person on average wages.
     – There are five local authority areas which are completely unaffordable to either couples with children or single people on average wages: Kensington and Chelsea, Camden, Islington, Epsom and Ewell, and Adur. In addition, Kensington and Chelsea had no properties listed which were affordable to a couple without children.
     – In all of the 32 London boroughs surveyed , less than 10% of available properties are affordable to a couple with children on average wages.
     – In the North East region, there are no local authority areas in which less than 10% of available properties are affordable to a couple with children on average wages.
     – In every local authority area in London, the South East and the South West, less than 10% of available properties are affordable to a single person on average wages.

  • Allan,

    the BBC magazine put out a what it called eight radical solutions to the Housing crisis back in 2011:
    http://www.bbc.co.uk/news/magazine-15400477

    • Encourage the elderly out of big houses
    • Freestyle planning
    • Contain population growth
    • Force Landlords to sell or let empty properties
    • Ban second homes
    • Guarantee mortgage payments
    • Live with extended family
    • Build more council homes

    Abigail Davies, assistant director of policy and practice at the Chartered Institute of Housing, said there is a high demand for social housing across the UK.

    “If you look at waiting lists, although a pretty crude measure, they are much higher and longer than could ever be matched by the turnover.”

    While building more affordable homes is always desirable, it will not solve the housing crisis on its own, she says. Davies believes the most radical solution involves making market prices come down and stay down.

    “People often hark back to the 1960s when the state was paying for council houses to be built. I cannot see that happening again with all the other demands on its finances.”

  • Richard Dean 30th Jun '14 - 3:17pm

    @Joe Bourke
    So what? Like I said, if the problem is a shortage, the solution is to build more, recognizing that ordinary people value homes as investments as well as places to live. Of course demand will come down if you destroy the value of ordinary people’s investments, but, apart from losing the LibDems more votes, is that a good thing to do?

  • Richard.

    the UK housing review spells out why housing supply is only part of the problem and like the shelter report focuses on affordability http://www.york.ac.uk/res/ukhr/ukhr13/introduction.htm

    The report concludes that the lack of housing supply is not actually at the core of our housing crisis, noting – It’s true that just 146,000 dwellings were added to housing stock in 2011, 43% down on the figure for 2008. But, overall, housebuilding in the last year was “considerably higher than reported in official returns”.

    When the figures factor in conversions of shops or churches, changes to the use of existing properties and other causes, the number of new homes is slowly on the rise, with 13,700 more homes created in 2011-12 than the previous year.

    Instead, the report points to two core issues with finance for housing. First, the unnecessary caps on local authority borrowing, which prevent councils from investing in the local housing market and responding to need where it is identified. “The only reason for capping borrowing is because we have these spending rules that nobody else in the world is concerned about, least of all the financial markets. . Bringing borrowing rules in line with other countries across the world would release £20bn over five years, solving in part the problem of underinvestment in housing.”

    The second is the problem of intergenerational inequality. We have a tax regime which favours owners, who are likely to be older, and a regulatory bias that rewards buy-to-let landlords with interest-only mortgages – obtained by people who have already generated wealth to invest through the housing market – while it is predominantly young people who still cannot access mortgage finance without prohibitively large deposits:

    The real issue is about choice. Everybody welcomes the active growth of the private rented sector bringing a long overdue flexibility into the housing market, but we seem to have just accepted that low-deposit mortgages were part of the problem. They have been the norm for the last 30 years, when more than half of first-time buyers had deposits of less than 10%. That in itself was not a source of risk.

    The inability of those without capital to access the housing market is causing the cost of housing – rents, and property prices – to rise, and we’re managing this by letting housing benefit take the strain.

    A couple with two children paying rent of £120 a week may still receive state support for their housing through Universal Credit even if one of them is paying income tax at 40%, with more and more apparently “middle-class” tenants being able to claim to make up for the failed housing market.

    These two steps to tackling this crisis – removing the cap on local authority borrowing and encouraging lenders to offer achievable mortgage finance – should be under debate as we consider our Manifesto for 2015.

  • Richard Dean 30th Jun '14 - 4:02pm

    On the question of finance and local borrowing, the report seems self contradictory. If there is no need to build more houses, then there is no real need for finance to build more houses! Is there underinvestment or isn’t there?

    In what way does the tax regime “favour” owners? In what way do buy-to-let landlords reduce the housing supply? They are actually providing a market for the building industry!

    Inability to access a market does not normally increase the value of the things that are sold in that market. The reverse normally occurs, because that is a buyer’s market and the people wanting to sell will normally need to reduce their prices in order to find customers to sell to.

    If the real issue is choice, then I suggest that people stop presenting it as an issue of desperate homelessness and need. Presenting it that way doesn’t end up furthering the case.

    In short, it looks like the whole argument about housing is confused, including the report you allude to! How can sensible policies be developed if the facts are so obscured?

  • Richard,

    the issues around housing are far more nuanced then you represent them.I have not seen any report that does not acknowledge that limited supply is not a key part of the problem. Land with planning permission for residential building is limited in supply and in high demand. That supply is not easily increased to meet demand.

    Rents are not subject to earnings tax (national insurance) and capital gains from property investments are subject to significantly lower tax rates then income.

    Local authorities can generally only access funds from the sale of existing council properties to fund the development of replacement properties and this is a recent development. In previous years, even this limited source of funds was not available to local authorities.

    If home ownership is unaffordable for the majority of the population- then property ownership becomes ever more concentrated with those that have the means to own property and rent to the majority that do not, If substantial numbers of the tenants that rent are not earning sufficient wages to meet the increasing costs of renting an ever denser supply of housing, then housing benefit and support costs will continue to escalate. That is a self-feeding spiral of ever higher rents driving up the cost of land and housing and pushing us back to an era when the great majority of the population were reliant on rented accommodation.

  • Richard Dean 30th Jun '14 - 4:38pm

    Nuanced = be confused?

  • Richard,

    “Inability to access a market does not normally increase the value of the things that are sold in that market. The reverse normally occurs, because that is a buyer’s market and the people wanting to sell will normally need to reduce their prices in order to find customers to sell to.”

    Maybe Mark Twain’s advice can help you understand why house prices keep increasing despite becoming unaffordable for more and more people “Buy land, they’re not making it anymore.”

  • Richard Dean 30th Jun '14 - 5:11pm

    @Joe Bourke
    Are you being confused again? Is the real issue one of luxurious choice, or one of desperate need? The availability of land or otherwise really shouldn’t be a problem. Go to any large city, even moderate sized town, and you’ll find plenty of derelict space where houses could be built.

  • Richard,

    the only thing that is confusing me is the convoluted reasoning in your comments.

    To build housing you need land with residential planning consent, finance and buyers. There is a supply of all three at the higher deposit/cash buyer end of the market and a shortage of both affordable development land and access to finance for first time buyers. That shortage has seen housing benefit costs increase to over 25 billion in recent years and owner-occupancy levels fall below 50% in London.

    If the housing market was operating normally we should expect to see house price to earnings ratios converging on their previously relatively consistent historical levels. That is not the case. What we are seeing instead is large swathes of first-time buyers being locked out of the market and replaced by investors in the residential property market. This trend has coincided with falling real wages, escalating housing prices and rents; and increased housing benefit and rent support costs.

    There is a need for local authority finance to increase the development of council housing on state owned land and first-time buyer mortgage finance for starter-homes. Without the finance, no new supply will be created at the lower end of the market and pressure will continue to build on the welfare budget.

    I don’t see where luxurious choice or desperate need comes into it. In the 1970’s, over 90% of state funding of housing was directed towards capital costs and less than 10% to rent support. Those proportions have been reversed today, with virtually all of the housing budget going on rental support costs.

  • Richard Dean 30th Jun '14 - 8:40pm

    @Joe Bourke
    One of the confusions is this: In a previous post (3.48pm), you seemed to claim that the supply of housing was “not the real issue”. Now (6.11pm) you seem to be claiming that it is.

  • Joe Bourke has written an interesting article, which includes two policies that I agree with – increasing wages by trying to achieve full employment and there being a voluntary job guarantee scheme for those receiving housing benefit if they are able-bodied and unemployed. Of course to ensure there was no coercing of unemployed people they can’t be forced to join it. As liberals we believe that people have the right to make their own decisions and that the state will not make these decisions for them.

    I am not sure about reducing housing benefit so that landlords are forced to sell an interest in their property to their tenants and I am not sure that public finance should be used to increase private ownership. Also Joe seems to favour the transfer of the increased private ownership to other family members. While I don’t have an issue with this I recognise that there a minority in the party who feel we should be reducing inheritance.

    The right to buy of ex-Council tenants should not be scraped, but no new rights should be given and the ex-Council tenants’ rights should not be able to be transferred to the tenants’ children.

    @ Caracatus
    If social housing rent are classified as affordable when they are 80% of the market rent, then we do need to reduce this. Perhaps we could reduce it by 3% a year so after five years it would be 65% which I think is about the right level.

    There would be a cost to taking ex-Council housing currently owned by housing associations back into Council ownership and I am not sure of the benefits.

    It seems illiberal to restrict the ownership of houses to only two houses. I would be interested in the liberal argument for it.

    I would support the government to arrange for there to be cheaper loans. I don’t know how realistic 1% above bank rate is.

    @ Joe Bourke
    It is interesting that the UK housing review believes that if the borrowing rules for councils were brought into line with the rest of the world £20bn would be released for investment in housing over five years.

    If housing benefit is £25bn and we should return to the 90/10% split between rent support and new build then isn’t there an argument for increasing the funding of new build to £225bn about 40% of current central government expenditure?

  • Richard,

    the article quotes the Libdem policy paper in noting “the primary driver of growing housing benefit and Local Housing Allowance bills has been the shortage of housing, leading to higher rents, and increasing number of people unable either to buy or to access social housing”

    The UK housing review recognises that supply shortages are part of the problem with affordability of housing but places more focus on the related issue of affordable housing finance – the ability of local authorities to finance new council housing development and the inability for first time buyers to secure the high % of mortgage deposits that are now required.

    I assume you would agree that the ease or difficulty of access to mortgage finance is itself a key driver of housing supply in the private housing market.

  • Michael BG,

    the shared ownership scheme is generally delivered in partnership with housing associations (not private Landlords)as discussed in the attached article http://www.theguardian.com/money/2013/aug/29/shelter-calls-for-help-for-forgotten-families-of-first-time-buyers.

    Housing charity Shelter says three-quarters of households earning £20,000-£40,000 are priced out of buying a family home and says ” a government investment of £12bn could build 600,000 shared ownership homes, enough to give almost half of England’s private renting families the opportunity to buy.”

  • Richard Dean 1st Jul '14 - 1:33am

    @Joe Bourke.
    “I assume you would agree that the ease or difficulty of access to mortgage finance is itself a key driver of housing supply in the private housing market”

    I would prefer to say that an increase in the availability of mortgage finance or indeed any finance) will normally increase the number of empowered buyers in a market, and in many markets an increase in the number of empowered buyers can have many effects including all of the following:

    > increase supply, because makers (in this case developers) will have more confidence of sellability, and
    > decrease costs, if makers are able to take advantage of economies of scale,
    > increase costs, if makers need labour or raw materials whose supply is seriously limited,
    > decrease prices, if makers are able to pass on cost savings to buyers
    > increase prices, if makers need to pass on increased costs of labour or raw materials,
    > increase prices, because more buyers are competing for a limited, though increasing, supply
    > change the nature of what is demanded, since more money may mean people will want things that they might not have done before, such as 4 bedrooms instead of 3, or such as family houses instead of bachelor flats; these changes may be particularly important since they will loop back to affect all the other effects too
    > change the location of demand, for instance from a town estate to a country village, or from London to Derby

    This list is obviously far from complete, but it does have the advantage that it provides a more comprehensive understanding of what can drive a market, and so can provide more entry points for ideas of how to achieve something in the market, such as how to increase supply while reducing prices.
    ===================================
    * In this case raw materials will include land, of course, but also planning permission, temporary works, bricks, mortar, concrete, steel, wood, furnishings, pipes, utilities, etc. Labour will include the associated labour costs. For instance, putting in drains has a cost.

  • @ Joe Bourke
    You wrote, “state housing support can be refocused away from rental subsidies and towards capital development, primarily at shared ownership schemes …” It seemed fair to assume that you wanted all renters to be able to buy an interest in their home and this would be paid for with housing benefit. I am glad this is not what you meant.

    The information about shared ownership doesn’t really give the context of the whole. There is also no information about any benefit to those who are homeless. Would £12bn build 600,000 new homes? I wouldn’t have thought so. I assume it is part funding. Do we know what proportion of people in rented accommodation or wanting it, would like to own part of their home? If we knew this then we would know how many such properties we needed and if we knew how many were needed solely for those who wish to rent we could decide how many shared ownership homes the government should be funding.

    I support more homes being built – 300,000 a year. I think that having 150,000 as social housing would be about the right mix. I would support some of these also being shared ownership ones (as I believe they do count as social housing).

    I think it will be difficult to switch housing benefit spending to building homes. In time in might be possible but only after more money is allocated to building houses that brings rents down in real value at least and linked to measures that increase wages. The need for housing benefit has to be addressed before its funds can be transferred.

  • Michael,

    the shelter report can be found here http://england.shelter.org.uk/professional_resources/policy_and_research/policy_library/policy_library_folder/homes_for_forgotten_families_towards_a_mainstream_shared_ownership_market.

    Low to middle income families, those typically earning between £20,000 and £40,000, were once able to afford a decent, family home of their own. Analysis by Shelter finds that 1.8 million (73%) of these families are unable to afford the mortgage on a local three bedroom home.

    The £12bn investment (over four years) is around 20% of the cost and looks like it may be derived in part from Vince Cable’s utterance that public investment of circa 1% of GDP (£15bn) in housing is a ‘No brainer’.

    The research finsd that the shared ownership model can be most affordable for low to middle income families, particularly where smaller shares (12%) are available. Some 95% of low to middle income families would be able to afford a three bedroom home with shared ownership.

    Page 35 of the report describes how a programme should work.

    “Tenure Shelter believes everyone should be able to have a decent, stable home that they can afford. Different tenures have the potential to offer this to families, but in the current environment, low to middle income families will not get what they need from the current options.
    Many low and middle income families are stuck in a private rented sector that is less likely to be ‘decent’, almost certainly not stable (with short tenancies as standard), and with market rents that are not affordable for the average family, let alone lower income families, in half the country.
    Meanwhile, the Government’s ‘Affordable Rent’ programme is unlikely to deliver for this group. It is not aligned with their needs and aspirations, and – perhaps correctly – they don’t expect to be eligible for a social rented home.
    We know from polling, that if they did have a choice, they would choose to own a home of their own. But full ownership, with big mortgages on high house prices, is unaffordable. Help to Buy will not help many low to middle income families afford a family home.
    Our analysis shows that the shared ownership model, developed around consumers’ needs and expectations, should offer the most sensible compromise between what makes a good home (stability, affordability, good conditions), and what most people aspire to – some form of ownership.”

  • Richard Dean 1st Jul '14 - 12:45pm

    “Low to middle income families, those typically earning between £20,000 and £40,000, were once able to afford a decent, family home of their own”

    Any evidence for this statement? A present value of £20k equates to a value of £1k in 1960. I cannot remember any decent houses for sale at £1k then.
    http://www.thisismoney.co.uk/money/bills/article-1633409/Historic-inflation-calculator-value-money-changed-1900.html

  • Richard,

    a family on average earnings were historically able to buy a home for around 3.5 times average annual wages with a 5% or 10% deposit – that would equate to a house price of circa £90/£100k today.

    As the recent Shelter survey referenced above notes – today In more than half (59%) of local authority areas, less than one in ten available properties are affordable to a working couple with children on average wages.

    This article http://www.theguardian.com/money/2010/jan/20/house-prices-britain-propertyreports that in 1960 the average house price was £2, 507 (against an ave. wage of about £14 per week) and notes “that prices rose by 273% in real terms between 1959 and 2009. Over the same period, the growth in real earnings was 169%.”

  • This LDV article from 2012 https://www.libdemvoice.org/opinion-how-will-the-liberal-democrats-once-again-become-the-party-of-my-generation-27824.html ask the question “What do people in their 20s aspire to?” and answers:

    “… in many cases is a decent place to live. In the housing market people in their 20s (and a lot in their 30s) are all-too-often trapped in expensive, shared, rental accommodation, meaning they have little hope of putting money aside for the future. Schemes like Firstbuy and the various derivatives are all very well, but they are heavily reliant on brand new homes being built in the area in which people wish to purchase.

    To really help young people escape the clutches of a competitive private rental market, the Liberal Democrats must push for such schemes to be extended to all homes, not just new ones. And the solution needs to be more flexible, without effectively trapping young people in new-build homes until they can muster the missing 20% before they are able to move house. Even better would be to invest more in shared ownership and provide full deposits for employed first-time buyers, possibly aimed at those with a parental guarantor. That equity would then remain in state ownership until bought out at a later date.”

    The Shelter report on shared ownership notes the following:

    Alongside programmes to build more social and affordable homes for rent, the Government should follow the Business Secretary’s ‘no brainer’ proposal to spend 1% of GDP on building additional homes: the Government should commit £12 billion for shared ownership. This could build 600,000 shared ownership homes for low to middle income families over four years, helping a third of England’s 1.8 million forgotten families, and taking us closer to the one million homes we need to build in that time.
    Only a large-scale, long-term programme will give England’s families the reassurance they need to put down roots and be settled for the future. Building homes for shared ownership will help make headway on the decades-long shortfall of new homes, offer promise to those families who are working and saving but still find the dream of owning a home fading away, and reduce pressures elsewhere in the housing system.
    It will also reduce the future housing benefit bill, which faces a crisis if Generation Rent continues renting into
    retirement. If just half of today’s Generation Rent never buy a home, the housing benefit bill for them alone will
    amount to an additional £16 billion per year.

  • @ Joe Bourke

    I don’t think you have answered the question I raised about the split between building more social housing for rent and building more social housing for shared ownership. And getting this split to reflect what people want. Is it really more than 1.8 million households who are waiting for a social home (http://england.shelter.org.uk/campaigns/why_we_campaign/Improving_social_housing/Why_we_need_more_social_housing) and a further 1.8 million families who wish to have a shared ownership home or is Shelter England using the same figure twice?

    If the issue is that 1.8 million social housing homes are needed in total then we should really be talking about the total number of social housing homes built every year.

    So maybe you are saying £3bn should be spent a year towards building 150,000 shared ownership homes a year, which is currently impossible. Then a further £15bn (not all from Central government) would be needed for 150,000 social housing homes for rent.

    I would support £15bn in total being invested by both central and local government in building new social housing. Could we start with £9bn in 2015-16 to build 75,000 social housing homes for rent and 75,000 homes for shared ownership and increase it by say £3bn a year for the next 4 years and then re-examine the policy?

  • Michael,

    there may be some crossover between the 1.8m on the waiting list and the 1.8 milion for who could afford a shared ownership home, but not much. As the Shelter report indicates, family’s on low to middle incomes are generally not sufficiently in need to qualify for council housing.

    “England’s poorest families have suffered from the lack of good affordable housing for some time, but over the
    last few years Shelter has seen increasing numbers of low to middle income families frustrated at their housing options, as the homes shortage affects more people further up the income scale.
    Shelter believes that strong government action is needed to provide decent affordable homes for those without the means to do so themselves, but also to ensure that low to middle income families who are priced out of the market and unable to access social housing, are able to buy a decent home.”

    Government expenditure on shared ownership schemes operated by housing associations would take the form of a development grant to make the programs viable for this sector of the population, at least outside London and the SE.

    The shout response to the Lyons review indicates that http://www.yourbritain.org.uk/agenda-2015/policy-review/policy-review/shout-social-housing-under-threat calls for at least 100,000 social homes to be built and suggest that an additional investment of 4.5billion over and above curent committments would enable this :

    “A very significant increase in house building, of all tenures, is required. The Review’s starting point of 200,000 a year by 2020 may well be too low. The total 200,000 new homes a year (or more) must include at least 100,000 new social homes:
    •an increase in the social housing stock on this scale is needed to provide good quality housing for hard-working people on low to middle incomes at a cost which enables them to have a good quality of life
    •welfare reform will not succeed without it. It would significantly increase the extent to which work pays, remove the need for many households to claim welfare benefit, and reduce the costs of welfare for others
    •Developing new housing on this scale will create a hugely valuable national asset, which will generate economic and social returns indefinitely
    •We won’t get 200,000 homes a year without building 100,000 social properties a year. Garden Cities, and other big new settlements or urban extensions will only be deliverable and socio-economically sustainable with proportionate levels of social housing development

    “Social housing” must mean housing at rents comparable to traditional social housing rents. The ‘affordable rent’ tenure introduced under the current government is not in fact affordable for hard-working families, it cannot be financed sustainably by social landlords, and it is poor value for money for the taxpayer.

    We can afford 100,000 new social units a year. Its cost is equivalent to just a few days of welfare spending. Even if the entire £4.5bn a year cost beyond current housing capital had to be found within spending totals, it could be accommodated. In fact, the net impact on public spending totals would be significantly reduced by savings on welfare, health and other programmes, and the provision of units by private developers through s106. It would be an investment which would carry on producing benefits to the taxpayer and society indefinitely.

    There is a strong case for reclassifying the housing borrowing and spending of local authorities outside the core public sector definitions, in line with international practice and the self-financing business model of social housing.”

    In the 1951 election, Churchill promised 300,000 new homes. When he came to power he told Macmillan to get on with it and this was at a time of food rationing and successive balance of payments crises. This article recounts how Macmillan did it http://www.conservativehome.com/thetorydiary/2013/10/how-macmillan-built-300000-houses-a-year.html

  • I just do not understand why Shelter, and policy advocates more generally, as well as the planners I heard last week want all these different interventions. We *do not know* whether there should be more of our tax money p[umped into subsidising housing etc. We DO KNOW that things like planning consent gift huge amounts of money to landowners for rent seeking. This is, as Fred Harrison says, a “culture of cheating” that has pervaded the state since Feudal times, and with land, and housing in particular, basic human needs, now out of the reach of many, is one of the main ways in which this “culture of cheating” perpetuates even in a democracy.

    There is one, simple, fix, LVT. And these sorts of organisations like Shelter (taking their cue from the likes of Rowntree who do understand it sometimes) should be advocating for that before demanding any more money from ordinary folk who do not benefit from the process but suffer.

    It is time we stopped shilly-shallying and rejected the Norman yoke once and for all rather than allowing the land use system to perpetuate what amounts to human rights abuses on the poorest and least well connected by rent-seekers.

  • Jock,

    the Joseph Rowntree Foundation has published a report on replacing council tax with a progressive property tax that could be based on Land values http://www.jrf.org.uk/publications/council-tax-impacts and finds that :

    – a progressive property value tax would reduce the size of median gross bills by £279 a year compared to the Council Tax;
    – the bills of almost two-thirds of households would fall by more than 10 per cent, while fewer than one-quarter would experience increases of more than 10 per cent;
    – a progressive property tax would reduce gross median bills for the poorest tenth of households by £202, and increase them for the top tenth by £184;
    – London would need to be handled differently because of its high property prices;
    – a property tax could have a supporting role in reducing house price volatility.

  • Council tax is a problem for its own reasons, and if/when it is replaced it should be done on land values rather than on building values – there is plenty of evidence that this will still promote economic development and investment even if you only start with a two tiered system and slowly increase the tax on the land and decrease the tax on the capital.

    Those JRF figures sound quite similar to the Oxfordshire desktop pilot of LVT that was done a decade ago and focussed on replacing local taxes only (including business rates for businesses).

    LVT should be a national tax, replacing taxes on income and productive investment. That changes the game completely.

    But in a country where 70% of all land is still owned by 0.3% of the population, and has been since it was stolen wholesale from its rightful occupiers a thousand years ago, LVT is the *least* we should be doing to rebalance that inequity. It’s not merely about housing, but would certainly change the housing landscape for the better and until someone has the balls to do it, taking more from my friend Peter to pay someone else’s friend Paul, neither of whom deserve to bear the brunt of the feudal system, is a terrible solution, unfair for all!

  • @ Joe Bourke

    Unlike you I am not convinced that the overlap is small. I suppose the only way we would know for sure is if Shelter produced something addressing both issues together.

    I don’t believe that the SHOUT figures really add up (i.e. are correct). Earlier you stated that £12bn would build 20% of 600,000 houses, so 100% of those houses is £60bn or £10bn for 100,000. SHOUT state that £6bn would build 100,000. A huge difference!

    Therefore building 75,000 social housing homes for rent should cost £7.5bn and 75,000 homes for shared ownership should cost £1.5bn. Therefore instead of an extra £4.5bn as SHOUT call for I would like £7.5bn extra for 150,000 social homes. If increased by 50,000 every year for the next four years then 350,000 new social homes would be built in the last year of the next Parliament and 1.25 million new social homes would be built (and maybe more than half a million homes to buy). This doesn’t solve the need for at least 1.8 million new social homes but would make a large impact on it. Of course the government cost would have increased from £1.5bn now to £21bn in 2019-20.

  • Jock,

    I think starting with a two tiered system and slowly increasing the tax on the land and decreasing the tax on the capital is probably the more realistic approach.

    Replacing taxes on income and productive investment in a ‘big bang’ doesn’t have the political or public support at present to make it a feasible policy initiative. I doubt it would even get through a Libdem conference vote at the moment.

    It looks like we will have to start with a Mansion tax – if there is an arrangement with Labour after the next election – and reorganise the tax base slowly from there.

    William the Bastard has a lot to answer for.

  • Michael,

    the Shelter report on shared accommodation comments as follows on costs of the programme (I assume these include land acquisition costs – the level of grant effects the relative proportion of rent and mortgage element that shared ownership participants pay ):

    “At present, providers of shared ownership are able to develop homes with an average share of 35 per cent with a grant of approximately £15,000 per home. Shelter estimates that an average grant of £20,000 would be needed per home to allow providers the flexibility to offer a lower average share and help a wider range of households.
    A £12 billion budget to develop shared ownership homes could provide new homes that are affordable for and meet the aspirations of 600,000 low to middle income families over four years. The justification for direct spend is clear. First, it can deliver at scale a significant improvement in the living standards of low to middle income families – a key
    electoral group. Secondly, spending on infrastructure can create jobs and boost the economy, reducing the benefit bill in the short term.
    Finally, helping Generation Rent to become shared owners can save on their housing benefit bill in retirement. If just half of today’s 3.8 million private renting households carry on renting into retirement, assuming a fixed rent liability of £700 a month, the total housing benefit bill for them alone would equate to £16bn a year. If all of these renters bought a shared ownership home and their rents in retirement were halved, the retired renters’ housing benefit bill would
    also be halved. This would be a key way of shifting subsidy towards bricks and away from benefits. “

  • Michael,

    the Shout report notes the following with respect to the costs of building social housing:

    3.1 We estimate the annual cost of our proposals would £6bn gross or a £4.5bn increase in current planned capital spending on new housing (if it were all to be classified as public spending, see 3.2 below). We acknowledge, of course, that the fiscal position during 2015-20 will remain highly constrained, but would reject any notion that our proposal is not affordable:
     As we understand it, the Review is looking at a feasible path to get to the proposed 200,000 a year total build by 2020. So the social housing component we propose would likewise be building up to 100,000 units/£6bn rather than starting there, over a period in which we could hope to assume further economic recovery
     a phased increase in capital investment on housing to the level we propose, over the course
    of a Parliament, is well within what is achievable, if it has the required level of political
    priority. It is well under 1 per cent of planned 2013-14 public spending; the equivalent of less than 1p on income tax, or just 13 days of welfare spending; and less than 15 per cent of the planned cost of HS2
     our proposal is for investment in assets whose management, maintenance, renewal and associated debt service will be paid for by rental income. It is therefore completely different in character from welfare or other current government spending, or even investment in other assets and infrastructure like roads, schools or hospitals, all of which require significant ongoing public spending
     if private house building also increases from current levels, and with appropriate policies for ensuring that it contributes to social supply through s106 (see 4.15-16 below), a proportion of the total cost will be met by the private sector  it will deliver ongoing savings which will significantly offset its cost – direct, measurable, savings in housing benefit or the housing component of universal credit, because social rents are so much lower than private or ‘affordable’ rents, and indirect benefits including improved work incentives, and improved health because households with less constrained budgets eat more healthily and heat their homes to a health temperature
     at least as much as other kinds of government capital expenditure, significant benefits will accrue to the public purse from higher employment and business activity in construction and the supply chain

    3.2 There is significant scope to reduce the cost of our proposals as measured in the public spending totals if the UK followed practice in the rest of Europe and reclassified local authority (including ALMO) housing spending and borrowing outside the core public sector. The key argument for this is that, unlike any other major local authority activity, the provision of social housing is a self-financing trading activity providing goods and services are also provided by the private sector (including, for these purposes, housing associations).
    If that were to happen, up to £20bn of the cost of the proposed extra housing over 5 years could be financed, within prudential rules, from the very strong HRA balance sheets of local authorities. Even on more cautious estimates of what councils and ALMOs could and would in practice do, 12,000 homes a year could be financed without recourse to measured public spending in this way.
    .

  • @ Joe Bourke

    You wrote, “The £12bn investment (over four years) is around 20% of the cost” of 600,000 houses. Are you saying you were mistaken? This works out as I said to £10bn for 100,000, this is £100,000 per house.

    The Shout figures are £6bn for 100,000, this is £60,000 per house.

    According to Mortgage Guide the average cost of houses vary from £116,610 in the north and £295,024 in inner London and £298,854 in “outer” South East. Giving a UK average of £166,597. I suppose social houses would cost less maybe on average £80,000 not £60,000. The £100,000 cost might be closer if more houses are needed in south east England. Therefore I prefer your Shelter figures.

    Shout say that £4.5bn is the amount raised by putting 1p on income tax.

    Therefore we as a party could re-examine our current policy of wanting 300,000 houses built a year. We could link your idea for more shared ownership. Therefore we could use the current £1.5bn spending for shared ownership to build 75,000 homes. Put a penny on income tax to build 45,000 social housing homes for rent a year.

    We both agree with Shout that UK public spending rules should be changed to agree with the rest of the EU that local authority borrowing to build new houses shouldn’t be included in the total public spending figures. This is expected to make available £20bn over 5 years, which would build 40,000 houses a year.

    Shout talk of increasing spending on new social houses from £1.5bn to £6bn over a Parliament, which is about £1bn a year. We could also call for the spending to be increased by £1bn a year as well. £1bn will build 10,000 social housing homes.

    Therefore we could build 170,000 new social housing homes in the first year raising to 210,000 in the fifth year. It might fall after this if local authorities are unable to build their share (40,000 a year). This is less ambitious than my previous suggestion but it would be easier to finance.

  • Michael,

    the Shelter report does not specify the build costs of shared ownership schemes. I am guessing that an average of £100,000 per unit for flats and houses (including low cost land in derelict sites) outside of London and the SE might be possible.

    The Shout figures would indicate an average build costs of £60,000 per unit for mixed size council housing (this probably excludes land costs and assumes building on publically owned sites) . A build cost of £60k would be a the lowest end of the range for houses but probably realistic for apartment blocks and flat complexes http://news.bbc.co.uk/1/hi/magazine/4749631.stm

    Building the level of social housing for rent and shared ownership you indicate, would almost certainly make a very significant dent in reducing pressure on the existing housing stock and containing the cost of ongoing housing benefit.

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