Taxing speculation in land

By Dave Treanor*

The business model on which housing construction is funded is broken. It is slow to respond to rising house prices by increasing the supply of new housing, and stalls at the first sign of a downturn in the housing market. At the heart of the problem lies a failure in the market for potential building sites.

Construction companies have responded to the unpredictable nature of our planning regime by acquiring land banks so as to ensure a steady supply of sites to develop.  Land banking enables them to increase their market share in housing construction and limits the supply of new housing from competitors that might undermine the prices they can obtain.  As a result, the availability of building sites barely responds at all to rising house prices.

Developers profit far more from speculative gains in land values than the construction of housing. The reason is quite simple: if property prices rise by more than the cost of construction that increase flows through to the value of the land, which rises in price by far more than the housing.  The corollary is also true: if property prices fall land prices will fall by a far greater amount. That is what happened following the financial crash, putting many out of business and allowing the stronger firms to buy out the weaker ones, largely to benefit from their land banks.

land price index

In a rising market why sell today when the land will be worth more tomorrow? In a falling market the bigger construction companies consolidate their control over potential building opportunities.  It is never in their interests to release newly constructed homes at prices below those they expected when they secured the land several years previously, or in sufficient quantities to lower the prices being paid.

Much of Europe and some parts of the USA and Australia tackle this by levying an annual tax on the value of land, making land banking less profitable.  There are lessons to be learned from previous attempts by Labour governments to tax these speculative gains.

Betterment Charge in 1947

Labour first introduced a ‘betterment charge’ in the 1947 Town and Country Planning Act.  The right to development was made a state monopoly, and the increase in value resulting from planning permission was taxed at 100%. This was seen as politically more acceptable than the nationalisation of land.   Landowners responded by holding on to sites in the expectation that the Act would eventually be repealed, which it was when the Conservatives were elected in 1951.

Land Commission Act in 1967

Labour had another go with the Land Commission Act of 1967. This empowered local authorities to acquire and hold onto land so that it could be subsequently developed, capturing the resulting gains.  This worked well with quite a few councils actively engaging in land assembly to promote area regeneration.  It also introduced a ‘betterment levy’ charged at 40% of ‘net development value’ calculated as the increase in land value resulting from the development.  The result of the levy was much the same as with the previous betterment charge: it cost nothing to hang on to the land, which invariably increased in value by far more than any holding costs. The supply of sites dried up and the Act was repealed as promised by the next Conservative government in 1970.

Development Land Tax in 1976

A Development Land Tax was introduced by the Labour government in August 1976 through the Community Land Act. This taxed development gains on the disposal or ‘deemed disposal’ of land. It was levied at 80% of the gains realised. The Act included 94 pages of complex calculation with numerous exemptions and allowances.  The Conservatives promised to repeal it; but they were willing to go along with the Development Land Tax if it was nearer 60% instead of 80% to 100%.  When they came to power in 1979 they initially reduced it to 60% and then Nigel Lawson abolished it in his 1985 Budget[1].

S106 of 1990 Town and Country Planning Act

It was the Conservatives who introduced section 106 of the 1990 Town and Country Planning Act. The idea was to capture some of the increase in value when planning permission was granted, and use this to fund the inclusion of affordable housing in the development and improvements to local transport infrastructure and schools to deal with growth in the local population.

The Greater London Council under Ken Livingstone made very good use of this to leverage additional social housing in London.  The last Labour government incorporated it into the grant funding regime for social housing.  It achieved many of the same objectives as the earlier failed policies, and with a little tweaking to deal with some of the abuses that have crept in it could continue to work well.

Following the financial crash in 2009 housing construction ground almost to a halt.  The big construction firms, which are amongst the largest donors to the Conservative Party, persuaded the government that the only way to get house building going again was to boost demand with lower interest rates, ‘Help-to-Buy’ schemes, and by reducing the obligations on which planning permission was granted.  All that achieved was to increase house prices, while construction remained in the doldrums. In the four years before ‘Help to Buy’ new house building in London averaged 42,392 a year. In the four since ‘Help to Buy’ it fell to 35,274 per year.   London house prices rose 48% since it was introduced in 2013.

S106 negotiations are based on a financial viability appraisal to assess how much affordable housing a site could sustain whilst remaining profitable to develop. These assessments were politicised by the Coalition Government (under Eric Pickles) which introduced a six-year window whereby developers were encouraged to use the viability assessment mechanism to challenge s106 agreements made prior to the financial crash.  It established 20% as the profit a developer could reasonably expect to make.

In a competitive market a developer that is adept at minimising the affordable housing obligation can bid at a higher value and is more likely to secure sites. Developers run rings around councils in negotiating planning permission (1).

Part of the problem is that a council’s negotiating position is open to public scrutiny while the financial viability assessments used by developers to argue for a reduction in the requirement are treated as commercially sensitive.  This really is nonsense: only the owner of the land could benefit by applying for planning permission and they do so without competition from any other developer who might be able to offer more affordable housing. The truth is it strengthens their negotiating position if the council’s calculations are public and theirs are kept private.

A number of planning authorities now require developers to openly publish any viability assessment they use to argue for a reduction in s106 obligations. Under the London Mayor’s Supplementary Planning Guidance (SPG), instead of local authorities having to prove a scheme is viable with 35% affordable housing, the developer has to justify where it is not. Any development has to be profitable, but if a developer overpays for a site by discounting the requirement to include affordable housing, that is their problem.  The aim is for the requirement to provide 35% affordable housing to be fully reflected in land prices. The obligation can only be challenged where the value added though granting planning permission is insufficient to fund the affordable housing requirement. The planning gain against which this is assessed is the difference in Existing Use Value with or without the change in planning status, and not the price the developer paid for a site.

Once viability assessments are opened up to public scrutiny planning authorities will be in a position to benchmark the assumptions being used against comparable schemes elsewhere, introducing a genuine element of competitive pressure into the negotiations.

Land Value Tax

Land value tax is widely seen by economists and housing experts as the most effective solution in the longer term, and was recommended by the Mirrlees Review on reforming the UK tax system.  It would replace council tax and business rates with an annual tax on the value of land, based on its potential use in accordance with a Local Plan.  It would be levied on the residual value of the land net of the construction cost of any buildings.  It is more progressive than Council Tax, and could lay the foundations for a shift towards taxing wealth.

It tackles not only the issue of speculative gains in land values – but also the practice of land banking itself. It has been successfully implemented in France, Denmark, Belgium (Flanders), Spain, Finland, Estonia, Bulgaria and Hungary in various forms (2).

The council tax regime is dated and ripe for change.  But any change to the system of raising local taxes is fraught with difficulties, and many previous reforms have floundered. There would be a number of practical challenges to overcome as well as the political risk from ‘winners and losers’ created by the change.

A report to the London Assembly recommended enabling legislation that would allow a planning authority to trial the introduction of Land Value Tax so as to flush out and deal with the difficulties. This was reflected in the Labour Manifesto for the last election which said “A Labour government will give local government extra funding next year.  We will initiate a review into reforming council tax and business rates and consider new options such as a land value tax, to ensure local government has sustainable funding for the long term“.

Dave Treanor

*Dave researched ‘Housing Policies in Europe’ having retired from M3 Housing and the National Housing Maintenance Forum, where he produced development appraisal systems and the NHF Schedule of Rates. This is his first piece for Red Brick.

Notes

1. The economist V H Blundell put the failure of these measures down to:

  1. Being too complex and riddled with anomalies and unintended side-effects
  2. A failure to incentivise landowners, provoking resistance and inertia, discouraging development and leading to the hoarding of land
  3. The big mistake was to levy it on development rather than as a general tax on land value.

2. Dave Treanor: ‘Housing Policies in Europe’ 2015 available as a book or a free download here

 

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Homes (Fitness for Human Habitation and Liability for Housing Standards) Bill

Yesterday, 19 January 2018, Karen Buck MP sought a second reading of her private member’s Bill, the Homes (Fitness for Human Habitation and Liability for Housing Standards) Bill.

After a long an interesting debate, with support from all sides of the House, the Bill was given an unopposed second reading and now has a good chance of becoming law. Below is Karen’s speech, slightly reduced to take out interventions from other MPs.

It explains the background to the Bill and its purpose and will be of interest to most people involved with housing. The speech is taken from the ‘They Work For You’ website, where the whole debate can be found.

karen guardian 2018

Picture from the Guardian

Karen Buck MP in the House of Commons at 12:00 am on 19th January 2018.

I beg to move, That the Bill be now read a Second time.

Everyone deserves to live in a safe, warm and comfortable home, yet despite the undeniable progress made over many decades, millions of people—often the most vulnerable—still do not. Currently and extraordinarily, landlords have no obligation to their tenants to put or to keep the property in a condition fit for habitation. There is an obligation on the landlord to repair the structure of the property and to keep in repair features such as heating, gas, water and electricity, but that applies only when something is broken or damaged; it does not cover issues such as fire safety, inadequate heating or poor ventilation causing condensation and mould growth. There is a whole range of fitness issues that seriously affect the wellbeing and safety of tenants and about which tenants can do nothing.

We must await the results of the inquiry into the horror of Grenfell Tower before reaching any conclusions, but we know that residents were raising fire safety concerns in respect of the cladding long before the fire. This cladding was, as far as we know, in good repair but may have been unfit and hazardous—something certainly was—yet the residents had no legal route available to them to pursue their concerns.

The Bill will modernise the housing fitness standard, and it will extend to cover almost all tenancies—private, housing association and council. It will allow tenants to take action on their own behalf in the same way and on the basis of the same standards as local authorities currently can and give them a remedy that so many of them lack.

Members of Parliament are all too familiar with bad housing. Most of us, at one time or another, have found ourselves responding to constituents living in the most appalling conditions that their landlords, public or private, cannot or will not act to resolve. As an inner London MP whose constituency includes areas that have been notorious for poor housing, dating back to the era of slum landlords such as Rachman and Hoogstraten, this issue has always been very dear to my heart.

When such cases come to me—I will mention them in moment—my first port of call is often the environmental health department. While my council is of a different political complexion from me and we fight like ferrets in a sack on most issues, I can truthfully say that environmental health rises to the occasion again and again. I must have referred more than 1,000 cases to it over the years, and it has acted with vigour and professionalism, yet we know that that action is not sufficient.

I have seen a couple with small children living in two rooms of what was in effect the attic of a property in north Paddington. They lived and slept in one room; in the other, the tiny kitchen, toilet and shower were just cubicles built into the same space. I have seen a family who have had to close off two bedrooms—their only bedrooms—because of the cold and damp, and who all slept in the living room because they were unable to use the entire property. I have met a young mum who had to bring home her baby, who was born prematurely, to a flat that was so damp that even I, when I visited her, struggled to breathe. Only two weeks ago, I met a pensioner who was taken into hospital with hyperthermia twice because of the cold in a flat from which the heat leaks through badly designed windows. Incidentally, she also fell and hurt her hip on steps that had been turned into a virtual river as water poured through a hole in the roof.

A good example of how fitness and disrepair are distinct and different elements of unfitness comes from an estate—a lovely and popular estate—in Bayswater in my constituency. Residents had long-standing complaints about extreme cold, damp and condensation, to the point that environmental health set up a dedicated project with the goal of protecting the health of residents. In 2011, its report found a range of deficiencies in the flats contributing to the health hazard of excess cold:

“Frequently associated with cold conditions within the flats was another hazard, that of ‘Damp & Mould Growth’ caused by condensation moisture forming on cold internal surfaces within the flats, including the window frames and the glazing. In some cases, the mould growth was chronic and severe”.

Despite environmental health’s survey of their flats, residents repeatedly requested that something be done; they had asked for the windows to be replaced as long ago as 2006. Why were those flats unfit, and how does that distinguish itself from disrepair?

As those flats were built in the 1950s, when building construction standards were poorer than today, their insulation standards were—and remain—very poor. The end walls of the flats are made of solid reinforced concrete, as are the floors, roofs, external stairways, lift shafts, walkways, balconies and possibly some of the internal walls. The cavity walling was unfilled and uninsulated. Consequently, there is constant heat loss throughout the structure of the building and instances of cold bridging in the flats on the estate caused by cold, uninsulated elements transforming heat energy and losing it externally. That causes condensation, dampness and mould growth. Those residents have been waiting for 12 years. A major estate programme has been under way for some years and still has to run until 2022, and the residents have no legal redress to deal with their concerns.

In case references to heat loss and cold bridging are a little technical, here is one example—one of many—from a resident who wrote to me from that estate:

“I have been suffering from the cold. We are always sick with flu and cold. I have my heating on 24 hours a day, with another electric heater and I am always ill, so is my son. My heating bill for this month alone was £400. My son and I have asthma. I have asthma, arthritis, fibromyalgia, diabetes, Kienbock’s disease in my hands, and I suffer panic attacks and anxiety. I am suicidal and had to go to St Mary’s hospital and see a psychiatrist, who said I must move to improve my health conditions. Please, please help.”

There is plenty of evidence to confirm that bad housing is a drain on the national health service and—as in so many other areas—if we were able to act more effectively to tackle the causes of bad housing, that would also benefit the NHS.

This week, I was pleased to take part in Parliament’s digital engagement process, and our project on housing standards received the best response so far in that important experiment. That is pleasing, although it further served to confirm the extent of the problem. We were told that 57,000 people viewed the Facebook page on which we presented our questions about attitudes to housing fitness, and some of the case studies that came in as a response were truly horrifying. Those studies came from all over the country and reflected the scale of the problem.

We know anecdotally, and from Members of Parliament, councillors and other caseworkers, just how serious is the problem of substandard and unfit housing. The English housing survey shows that three quarters of a million private rented properties—about one in six of that sector—are unfit and that about a quarter of a million social rented homes contain a category one hazard under the housing, health and safety rating system. That could relate to damp, infestation, excess cold and a number of other risks, and it means that 3 million people, including many children, have their health and safety compromised every day by substandard housing.

Local council-led enforcement is simply insufficient for the task. I have already mentioned my very positive relationship with my local authority, although it still has constraints, particularly in respect of its own housing stock. Taken across the board, however, local authorities are not enforcing more than a tiny proportion of measures to deal with substandard properties. My most recent freedom of information research, which was prepared into a report by Stephen Battersby, indicates that enforcement action is taken at a level equivalent to only 1% of all the properties that are unfit according to the English housing survey. Research carried out by Shelter about a year ago found that enforcement action has fallen by 40% in recent years. Importantly, this is not a criticism of local authorities, but the fact is that the capacity simply is not there. Performance varies hugely between councils. There is a reliance on informal action in some areas, and although that has its place and can help to resolve some problems, it makes it hard to assess the overall effectiveness of what local authorities are doing.

One concern that underpins my motivation for the Bill is that it is often the poorest and most vulnerable people—those with the highest likelihood of having disabilities and sickness—who are trapped in the worst housing, and in my experience, very few people have adequate insurance. That is a much larger problem that we must seek to resolve. A number of different remedies may be available to some people, but the minority of people who are concentrated in very bad housing often do not have access to the remedies that are available to those who are better off.

There are a number of issues in respect of supporting tenants that are outwith the scope of the Bill and on which I will continue to make representations, including retaliatory eviction. The reality is that local authorities are increasingly cash-strapped. That is one of the reasons that environmental health departments are not able to enforce. In an ideal world, local authorities would be able to fund advice services and tenancy liaison officers. I have seen some very good practice by tenancy liaison workers, including in Westminster, across the parties—when work is good, I am happy to acknowledge that. I am in absolute agreement with the right hon. Gentleman, however, that it is inadequate and patchy, which is exactly why we need to make sure that individual tenants can exercise a direct remedy in law when the other services we would all like to be in place are not up to the job.

Social council tenants do not have the same right as private and housing association tenants, who can go to the local authority, which may or may not enforce. Council tenants cannot that, and the Bill will extend to them the right to seek remedy.

As we know, the law in this area is generally outdated and restrictive. I started by saying that there is currently no obligation to ensure that the property is fit, as opposed to the obligation to deal with disrepair, and that there are therefore a range of fitness issues about which tenants can do nothing at all. That used not to be the case. The fitness obligation was set in law, but that has ceased to have effect as the law has developed over many decades.

The concept of housing fitness—of homes being fit for human habitation—stems all the way back to the Victorian era and the work leading up to the Housing of the Working Classes Act 1885. Lord Salisbury, the then Conservative Leader of the Opposition, made the case that the shocking condition of housing was injurious to both health and morals and was promptly attacked, even by The Guardian, for propagating state socialism.

The royal commission established prior to the passage of the 1885 Act proposed that there should be a simple power by civil procedure for the recovery of damages against owners or holders of property by those who have suffered injury or loss by their neglect or default in sanitary matters. That is exactly what happened. The remedy was granted to tenants, subject to what was then a relatively generous rent limit, but as time passed and laws changed, overlapped and melded together, the rent limits ceased to be updated and the ability of tenants to seek a remedy when their homes were unfit lapsed.

Eventually, the impact of that led to a 1996 report by the Law Commission, “Landlord and Tenant: Responsibility for State and Condition of Property”. The commission criticised the fact that the right of civil remedy for tenants against their landlords in cases of unfitness had been allowed to “wither on the vine”, as the rent limits had remained unchanged for 40 years. It concluded that removing the rent limits would be the preferred way to give tenants a civil remedy. Two Court of Appeal judgments supported the same conclusion.

More broadly, “Closing the Gaps”, a joint report commissioned by Shelter from the Universities of Bristol and Kent last year, concluded:

“The law relating to health and safety in people’s homes is piecemeal, out-dated, complex, dependent upon tenure, and patchily enforced. It makes obscure distinctions, which have little relationship with everyday experiences of poor conditions.”

Apart from that, I am sure it is fine.

What will the Bill actually do? The old obligations on landlords to ensure that a property is fit and not just in a state of repair have become obsolete. The Bill will therefore have the effect of reviving the fitness requirements and updating them by reference to a definition of hazards, the presence of which will determine whether a property is unfit. That list of 29 categories of hazard is set out in the housing health and safety rating system introduced in the Housing Act 2004. It will have the effect of ensuring that unfitness is covered as well as disrepair, so structural and design faults are included where they risk causing serious harm. That includes cases where poor ventilation causes severe damp or infestation, fire safety, dangerously steep stairs without protection from falls and so on. The tenant could take action against the landlord to make them put right any problems or hazards that make the property unfit and seek compensation when the landlord has not done so. The Bill makes it clear that the landlord would not be liable for any issues arising from the behaviour of the tenant or, where acting, would bring them into conflict with other legal duties.

May I acknowledge those people who have got us to this stage and who support the Bill? There has been broad support for the proposals, for which I am very grateful. Shelter has campaigned strongly, as has Generation Rent. The Chartered Institute of Environmental Health has leant considerable expertise. The National Housing Federation has given its backing, and excellent briefings have come from Citizens Advice, Mind, the Law Society and, of course, the Library, among others.

Very importantly, the Bill is backed by the Residential Landlords Association, the National Landlords Association and the Association of Residential Letting Agents. Alan Ward, the chair of the Residential Landlords Association, possibly summed up the situation for all three organisations when he recently wrote that

“the Bill seeks to achieve what all good landlords want; better enforcement against the crooks that bring the sector into disrepute.”

Sam Lister from the Chartered Institute of Housing researched the history of attempts to improve housing fitness, dating back to Lord Salisbury, and he should get the research published because it is fascinating. Stephen Battersby, the former president of the Institution of Environmental Health Officers, has diligently prepared reports on enforcement and housing fitness over several years, and has provided invaluable advice. I also thank colleagues who have given up a precious Friday to be here.

I am genuinely thrilled to have Government support for the Bill this time around, and I hope that we can, continuing in the positive spirit of recent weeks, make good progress in passing it into law. I give thanks to the officials who have been exceptionally helpful during the preparation stage.

I want to place on the record my appreciation for Giles Peaker and Justin Bates, the housing lawyers who took the Law Commission recommendations and not only drafted the Bill but supported me through every twist and turn of it over the past two years. They are great lawyers, obviously, but they are also driven by a passion to champion people in housing need, and I owe them a debt of gratitude.

There is a great deal more to be done to turn the tide on insecurity, affordability, homelessness and housing need, and none of us will stop pressing the Minister to make progress on other fronts. But today we have the chance today to progress a Bill that will give tenants new powers to hold the worst landlords to account. I hope that we will take that opportunity, and I commend the Bill to the House.

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A critique of the Government’s draft Lettings Fees Bill

By Dermot Mckibbin

 

Introduction

The Government has at long last introduced the draft Lettings Fees Bill into Parliament. The bill is about to be scrutinised by the House of Commons Select Committee that cover the Department of Communities and Local Government.

The proposals

The bill seeks to abolish letting fees completely and therefore some degree of complexity is to be expected. By virtue of section 1, a landlord must not require a tenant or prospective tenant to make a prohibited payment to the landlord as a condition of grant, renewal or continuance of a tenancy of housing in England. Similar payments or loans to third parties are also prohibited.

Section 2 imposes similar prohibitions on the letting agent. Where any payment breaches sections 1-2, it is not legally enforceable.

Schedule 1 defines payments which are permitted. Rent is a permitted payment. However, there is a long and complicated definition of when a rent payment is not permitted so as to prevent an agent loading fees on to the rent.

The Bill caps tenancy deposits at no more than six weeks’ rent, and caps holding deposits at no more than one week’s rent and requires holding deposits to be returned to tenants. Where the tenancy agreement allows the tenant to be charged for breaking a term of the tenancy agreement, this is allowed.

The enforcement for breaches of sections 1-2 will be by trading standards officers. The burden of proof will be beyond reasonable doubt. The maximum penalty will be up to £5,000 subject to the council’s discretion. Repeat offenders can be fined more.

 Criticism

There is nothing in the bill to require lettings agencies to register either with the local authority or any other trade association. This is a major omission as the quality of letting agencies is very variable. In Wales the Labour Government requires all private landlords and lettings agency to register with a government agency and to obtain a licence with compulsory training.

The Government assumes that any obligation in the tenancy agreement that requires the tenant to carry out any obligations will be lawful. This is obviously not the case. There is nothing in the bill to deal with scenarios where the landlord fails to carry out their part of the tenancy agreement.

The Government has ignored the work done by the Office of Fair Trading in outlawing certain contract terms that are contrary to the unfair terms in consumer contracts regulations. This a major error as some agents will seek to recoup prohibited fees by imposing punitive clauses in the tenancy agreement.

It is doubtful that a tenant will co-operate with a local authority’s investigation if they have no security of tenure. Tenants will need expert legal advice to understand the bill. Such advice is in short supply due to cuts in legal aid.

A separate lead enforcement body is to be set up to oversee the enforcement role. This is an error. The government body that has the most contact with the private rented sector is the local authority.

The government is relying on trading standards officer to be the enforcement body. However, a freedom of information based survey found that over 93 % of councils in England had yet to issue a legal notice on lettings agencies for failing to display their fees. This has been the law since 2014. Local authority budgets have also been stretched to breaking point in recent years.

Campaign proposals

Local labour parties should campaign on this issue. The excellent House of Commons Library research briefing on Banning Lettings Fees in England by Wendy Wilson should be compulsory reading.

In Conservative areas, public questions should be tabled at council meetings to expose the failings of the council to enforce the legislation whereby all letting agents are required to display prominently their fees. Constituency parties should conduct surveys of lettings agencies to find out whether they display their fees. The results of the survey could be press-released to the leader of the council.

Labour councils need to copy the excellent work by trading standards officers in Camden and Islington. In Hackney the council has written to all letting agents to ask them to stop charging fees in advance of the bill becoming law.

Local Labour parties need to campaign on private rented housing. Jeremy Corbyn is correct to raise the state of private rented housing as a political issue. The Tories are clearly on the defensive on housing.

Dermot Mckibbin

Beckenham Labour party

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Will Haringey’s HDV tackle homelessness?

It may be a fool’s errand to join the argument about one of London’s major ‘estate regeneration’ schemes. In most of the big schemes it has been almost impossible to distinguish fact from fiction amongst the contradictory claims made by proponents and opponents with equal belligerence. But this time it is Haringey, where I worked for many years in Tottenham, so this one feels personal.

The passions unleashed by Haringey’s decision to set up (with LendLease) a 50/50 joint venture development vehicle (known as the HDV) is exemplified by two respected journalists – I normally like their stuff – who have taken opposite sides. Guardian economics columnist Aditya Chakrabortty is against (here and here) and ex-Guardian writer and London blogger Dave Hill is for (here and here).  Not only are they poles apart, but they have become vituperative, and seem to have different facts let alone opinions.

Not just in Haringey, ‘estate regeneration’ is becoming the trickiest political issue for Labour in London. On the one side there is a genuine argument (articulated here by Shelter amongst others)  that national policy means there is a dearth of options, and that redeveloping lower density and ‘worn-out’ estates on council land to create additional and better housing at much higher densities, mostly at market prices, is the only way of providing sufficient cross-subsidy to enable some social rented and other ‘affordable’ homes to be built. The argument goes that this is better than nothing and that we can’t hope and wait for a Jeremy Corbyn government to come along to get more resources.

On the other side are those who see the policy as an echo of David Cameron’s clarion call in 2016 for the redevelopment of 100 council estates, places he called ‘sink estates’, ‘bleak high-rise buildings’ that ‘are entrenching poverty… isolating and entrapping many of our families and communities’, ending with his ominous sentence ‘I believe that together we can tear down anything that stands in our way’. It is axiomatic that any policy initiated by David Cameron won’t be good for the poor. But Labour councils are accused of adopting similar attitudes, wanting to build glossy new ‘quarters’ and failing to protect their vitally important social rented stock and working-class communities. There are now believed to be well over 100 potential schemes around London. In London housing terms, this is huge.

In Haringey, two polarised sides line up behind the conflicting perspectives. Proponents see the HDV as a transformative investment vehicle that will create jobs, fund a range of community facilities and services, transform the council’s commercial portfolio, and directly tackle the housing crisis, homelessness and bad housing – whilst making big money (profit from development, increased council tax and New Homes Bonus income) for a cash-strapped council. All councils setting up joint venture or Local Housing Companies face similar dilemmas, as discussed by Ross Fraser on Red Brick last week.

Opponents see a fundamentally gentrifying process that will knock down thousands of genuinely affordable council homes and build thousands of homes that will be mainly unaffordable to existing Haringey residents, adding up to the destruction of communities and ‘social cleansing’. The argument goes that adopting regeneration/redevelopment as a means of coping with huge cuts in revenue support grant means that councils are effectively mortgaging the future by making a profit from the land they own, rather than maximising its use for genuinely affordable housing. The opportunity cost is that the land, once developed for this purpose, will no longer be available for a better purpose in the future. The alternative would be to develop more modest and less grandiose plans to build homes on spare land and invest in the existing estates.

Leaving aside the political controversy over councillor selections and whether a 50/50 joint company is privatisation (about which I have opinions but not for this piece), what are the likely outcomes of the HDV in housing output terms? The council has made big claims that the HDV will tackle homelessness and waiting lists. Its HDV webpage starts ‘Our residents need new homes to tackle the rising cost of housing and increased homelessness’. The council seeks the higher moral ground – Alan Strickland, the Cabinet Member for Housing and Regeneration, responded to opposition from local MP Catherine West by arguing ‘We need action now to help the three thousand families in Haringey in temporary accommodation, and the thousands more on our waiting list’ and there have been attacks on opponents for not caring about delivering homes to the homeless for ideological reasons.

It is incumbent on the council to demonstrate that the HDV will achieve these aims, not merely to assert that it will. There certainly seems to be a weakness in the evidence. I have read most of the confusion of documents that make up the HDV proposal, and I am none the wiser on this central question: how exactly will the HDV aid homeless people in Haringey, and how many? Thousands of mainly social rented homes will be knocked down and thousands of mainly private homes will be built. There will be many more homes overall, but, how will the proposed mix of market and sub-market homes tackle homelessness and the needs of people on the waiting list?

The missing number is how many social rented homes there will be at the end of the process. It has been a constant refrain on Red Brick that the type and tenure of new homes is as important as how many homes are built in total. Social rent remains the only truly affordable option for many people on lower incomes, a line of argument that, after a barren few years, is once again becoming common currency in the housing world. Of course, other forms of housing are needed, because housing unaffordability now stretches a long way up the income scale, but in my contention housing policies are unacceptable if they do not improve the chance of a decent home for people in the bottom 10-20% of the income distribution.

Haringey’s own housing market assessment illustrates the point. 30% of the borough’s households have incomes below £20,000 per annum, 50% below £30,000 and 65% below £40,000. Market housing does not meet their needs, and sub-market options only help at the edges. Only 4% of households have incomes above £100,000 per annum. Haringey is not a borough of affluent people just waiting for someone to provide a £700,000 flat for them to buy. Mean household income levels are highest in the West of the Borough and lowest in the East – where most of the estates to be regenerated are situated.

Whatever the wider benefits of HDV, in housing terms the council has not committed to the full replacement of all its social rented homes, let alone a much-needed increase. They have committed to providing existing tenants with a right to return on the same terms as now (rent and security of tenure) but no estimate is made of the number of homes needed to achieve this. I would have thought it was crucial to model this before decisions were taken – some people are keen to return but others prefer one-off permanent rehousing or choose to stay where they have gone temporarily and do not return.

The council’s housing strategy sets an overall aim that 40% of new homes should be ‘affordable’ and it has adopted income-related affordability measures. That is across all development on private and public land and across the whole borough. On council-owned land the proportion of ‘affordable’ homes should be highest, but there appears to be no explicit aim or target or even expectation as to how many of the new HDV homes will be for ‘social rent’ or even ‘similar to social rent’ on an income-related calculation. The council also has a policy (misguided in my view) of not maximising the number of homes for social rent in the east of the borough, in Tottenham, on grounds of achieving a better social and tenure mix. This also has the effect of depressing the number of homes for social rent.

The evidence available suggests there will be fewer homes for social rent at the end compared to the beginning. Surely it is a basic principle that there should be full replacement of all social rented homes knocked down? Sadiq Khan’s decision to refuse permission for Genesis’s Grahame Park   regeneration in Barnet due to the loss of social rented homes demonstrates two points: first how unambitious social housing agencies have been in trying to build for the poorest, and secondly, that the mood is shifting against them. Khan described it as “how not to do estate regeneration” and his own London Plan policies indicate that he would also turn down Haringey’s plans as they stand.

There is a further impact on those in housing need waiting for council homes that is not assessed in any of the HDV documents I have seen. The regeneration process is long and complex, and involves rehousing (‘decanting’ in the jargon) all existing tenants (temporarily with a right of return or permanently for those who do not wish to return). Demand from decants restricts the flow of social rented homes from the general pool to those in housing need, even if the redevelopment programme is carefully phased (eg by building on spare land first). Because they are on the critical path of a major development where delay is costly, decants tend to receive high priority and get first pick. Not only do fewer other people get rehoused, they also tend to get homes which are poorer quality.

Haringey’s housing vulnerability is demonstrated by its own Annual Lettings Plan. This shows that the borough had 3,158 households in temporary accommodation at March 2017 with a further 9,220 households on the housing register. The number of new lettings available to the council has been falling for many years: in 2016/17 it achieved only 522 lettings to meet all forms of need and in 2017/18 only 490 lets are anticipated, with 60 ‘regeneration decants’ amongst those afforded highest priority. The Plan already foresees the share going to homeless households declining from 62% to 34% in a single year.

Supply and demand in future years is not projected, but the number and share going to decants is likely to rise rapidly with the HDV. Far from improving, the prospects for homeless households and people with other urgent housing needs being rehoused will diminish sharply. It will be many years before the regenerated estates make a net contribution to the lettings pool, and it may never happen. I would hazard a guess that Haringey, like some other boroughs, will decide to discharge its homelessness obligations through the private rented rather than the social rented sector. Far from helping the homeless, the homeless will be the primary victims of the decant programme required for the HDV.

As we have seen, so far Sadiq Khan is sticking to the line that projects on this scale must not lead to the loss of social rented homes (although there are still concerns about the definitions that Sadiq is using in the new London Plan). There will be pressure on him to back off but I hope he sticks to his guns, based on past evidence. (see box).

A 2015 GLA study of what actually happened in 50 past regeneration schemes found that they achieved more homes, more market homes, more intermediate homes, but a reduction in social renting.

The Housing Committee’s report – Knock it Down or Do it Up? The challenge of estate regeneration – found:

  • The schemes doubled the total number of homes in the regenerated estates – from 34,213 to 67,601 (nb the final numbers were not all built out at the time of the research).

but there was a huge shift in tenure, with

  • ‘social rent’ declining from 30,431 to 22,135 – a loss of 8,296 or 27%.
  • ‘affordable rent’ increasing from 46 to 1,832
  • ‘intermediate homes’ (for rent or part-sale) increasing from 550 to 7,471
  • ‘market homes’ increasing from 3,186 to 36,163.

It is clear who has benefitted from a doubling of density. Not people on the lowest incomes, but people wishing to rent at higher but sub-market rents and, overwhelmingly, people able to pay the full market rate. From the evidence of the GLA report, it is hard to avoid the conclusion such outcomes constitute ‘gentrification’ – ie on average the people residing there after regeneration are significantly richer than those who lived there before – and poorer people are both fewer as a proportion and in number. Some people think this is a good thing, often on a ‘social mix’ argument that I find wholly spurious. In the schemes looked at by the GLA, over 8,000 social rent homes were not replaced, meaning that 8,000 other households (homeless and waiting list) did not get a home at all. The real housing cost of the schemes was borne by these families – regeneration has been paid for by the homeless and badly housed.

Whatever view you take about reselection and about development vehicles like Haringey’s, in simple housing terms the claim that it will help meet the needs of homeless and waiting list households does not bear much scrutiny. The housing case for the HDV has not been made. 

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Local housing companies: opportunities and concerns

By Ross Fraser

The Smith Institute has recently published the first in-depth analysis of one of the most significant new developments in the housing sector.

Delivering the renaissance in council-built homes: the rise of local housing companies estimates that around 150 councils have set up local housing companies (LHCs) over the last five years or so and that, on the current trend, over half of English authorities will have one by 2020. The majority of the current LHCs are in London or the South East.  The LHC model has been adopted by authorities regardless of political control.

What can we learn from the research about the opportunities that LHCs provide?  How can we evaluate the likely impact of LHCs in helping to solve the housing crisis?  Why do concerns remain regarding the role of LHCs?

What are local housing companies?

LHCs are intended to act commercially for a social purpose.  The primary purpose of most LHCs is to directly develop or acquire new local housing supply – whilst making a return for the local authority.  Profit that might otherwise go to developers can instead be captured by the authority and recycled to help maintain core services or reinvested in further housing provision.

For some councils, the LHC is intended to complement new provision via the Housing Revenue Account (HRA).  For others, LHC development is a substitute for HRA-funded development.   For stock-transfer authorities, without an HRA or a housing team, LHCs are an alternative to reopening an HRA.

There are essentially three forms of LHC – wholly-owned by a single authority (the majority), multi-authority owned (such as the North Essex Garden Communities LHC), or a joint venture (JV) between a council and either a housing association or a private developer (such as the Haringey/Lendlease Development Vehicle (HDV)).

The nature of council investment in LHCs varies, but the following approaches are being adopted:

  • Using HRA (if this doesn’t conflict with the HRA ‘ring fence’) or general funds to meet ‘start-up’ costs and capitalise the LHC
  • On-lending Public Works Loan Board (PWLB) borrowing – at a return to the authority
  • Equity investment in the LHC
  • Sale or leasing of land

LHCs also offer councils additional New Homes Bonus and council tax.  For example, LB Newham expects its LHC (Red Door) – focused on new build for intermediate rent – to deliver an extra £18m council tax (by 2028) plus £17.5m in Community Infrastrucuture (CIL) funding and a direct return once it becomes profitable (within the next 5 to 10 years).   Some of the larger LHCs – primarily JV LHCs – have attracted private finance and have established ‘revolving investment’ funds.

Most LHCs are, initially, focusing on developing council-owned land, which might otherwise have been sold to a developer or housing association or developed directly via the HRA.  Some are seeking to channel section 106 ‘planning gain’ opportunities, previously offered exclusively to housing associations, to their new LHC.

What new opportunities do these companies provide?

The intention is for LHCs to intervene in local housing markets to compensate for slow or insufficient new supply by developers or housing associations, to undertake specialist provision where this is urgently needed and to disrupt the local private rented sector and in doing so stimulate PRS improvement by offering private lets at higher standards, better terms and greater security.

LHCs are frequently intended to enable authorities to exert a greater stewardship role in place-making.  They can undertake new build on smaller sites or in areas currently unattractive to developers and housing associations, with the objective of raising land and property values and making the area more attractive for private investment.

As John Perry of CIH has recently pointed out, “most of the LHCs have been set up since the government reinvigorated the right to buy (RTB), emasculated the HRA and undermined its own self-financing settlement”.

LHC development is attractive because it appears to avoid issues limiting development via the HRA, such as stock loss via RTB, limits on the recyclability of capital receipts from future RTB sales, etc. and controls over borrowing.   As LHCs can offer assured shorthold lets, rather than secure tenancies, they enable authorities to offer private rented accommodation at profit.

LHCs are also seen as flexible and dynamic organisations, less constrained by shareholder profit expectations than developers and thus more able to invest counter-cyclically, be flexible over the timing of profit-extraction, ‘flip’ new homes between tenures to meet changes in demand – all whilst acting as a direct instrument of a council’s housing and planning strategy.

What impact might the companies have on solving the housing crisis?

The Smith Institute estimates that, based on current business plans, LHCs could build up to 25,000 new homes by 2022.  The scale of ambition varies – RTPI research indicates that some LHCs (notably in rural areas) are planning to provide less than 50 new homes per annum whilst others plan to build more than 1,000 per year within five years.

Provision of 25,000 new homes over five years would be a significant increase on output expected from stock-retaining councils via the HRA.   The Smith Institute estimates future council supply at c2,000 homes per year (using DCLG construction statistics) but CIH and the UK Housing Review estimate future provision at c3,000 homes per year (using the more reliable DCLG affordable housing statistics).

However, the real extent of net additional supply is more difficult to determine.   Where an LHC develops on HRA land or uses HRA resources or acquires property via section 106, then the new LHC homes will not necessarily be ‘additional supply’ to what, for example, housing association partners might otherwise have delivered.

The area where the ‘additionality’ of LHC provision is least contestable is where it focuses on the PRS.   For example, LB Newham set up Red Door Ventures to build 3,158 new PRS homes over the next six years (mainly on council-owned land).

If LHCs can increase PRS provision and change the culture of the local PRS market – by offering higher standards of management and maintenance plus improved security of tenure – this may (in my view) be their most significant legacy.

What ongoing concerns arise from the research?

The Smith Institute takes an overwhelmingly positive approach to LHCs.   This is understandable, as the research suggests that LHCs offer councils a ‘triple dividend’ in the form of much-needed extra housing, greater impact in place-making and a financial return to the council.

In any terms, this is an impressive manifesto for LHCs and the sponsoring authorities should be congratulated for their initiative, pragmatism and vision.   However, concerns remain about the practical application of the LHC model. Some of these are referred to in the report – others reflect concerns expressed more widely.

  • Only around 10% of new LHC supply will be for social rent

The fact that many of the LHCs are in London and the South East reflects the underlying business model of most LHCs – recycling receipts from market sale or revenue from intermediate or market rents – to cross-subsidise ‘affordable’ housing provision.   In this sense, LHCs operate exactly like housing associations.

Following this model may boost overall new supply, but Smith Institute research suggests that whilst 30-40% of LHC homes are likely to be ‘affordable’, only around 10% (i.e. between 25% and 33% of the ‘affordable provision’) will be for social rent.   Given the cross-subsidy model, it is difficult to see how a higher proportion of social rent can be provided by LHCs.

In its recent report, Building Bridges, CIH estimated that if the housing crisis is to be tackled in a balanced way, around 33% of new supply needs to be at a social rent.   Current LHC projections fall well short of that target.

NHF figures show 38,082 housing association completions in 2016/17 of which 12% (4,775) were social rent – 75% delivered using cross-subsidy.   Perhaps housing associations are not performing so badly after all?

  • Where is the next generation of social rented housing going to be built?

John Perry of CIH has expressed concern that if LHCs do no or very little social rent they may use up council land that might have produced 100% social rent if it had been developed through the HRA.  He also points out that by building outside the HRA (where one exists), LHCs are denied the ability to pool rents, thus limiting their ability to dampen rents for new homes.

The provision of council-owned land at less than market value is a vital subsidy towards the provision of social rented housing.  So, if scarce council land is being used for LHC development – where exactly is the next generation of social rent housing going to be built?

  • Does LHC governance demonstrate an accountability deficit?

As most of the LHCs are still in ‘start-up’ mode, their directors tend to be council officers, often reporting directly to the council chief executive.   Some LHCs have also appointed local politicians as directors, but this has been limited by concerns over future conflicts of interest in respect of planning permission.

Whereas ALMOs – an earlier variant of LHC – adopted a transparent approach to governance, involving resident and independent board members, most LHCs have yet to address the issue of accountability.

Reading the Smith Institute research, it appears that only a few LHCs have community representatives on their boards or a formal detailed strategy for community engagement.   And, as the Haringey HDV controversy demonstrates, LHCs which are not publicly accountable risk the loss of public and political support.

  • What is the risk of government controls over LHCs?

LHC business plans are vulnerable to the risk that the government interferes in the regulatory framework.   Senior figures in local government have told me that that there is less concern that the government will insist that LHCs apply the RTB and greater possibility that, if any LHCs fail, controls will be imposed to limit borrowing or to place limits on what wholly-owned LHCs – as distinct from joint-venture LHCs – can do.

  • Will LHCs have the capacity to build at scale?

Most of the LHCs are in ‘start-up’ phase, managed directly by council staff with the assistance of consultants.   Most have yet to recruit managers with direct development experience and these skills (particularly in the LHC heartland of London and the South East) are expensive and in short supply.

The risk is that authorities and their LHCs lack the commercial and technical skills to develop at scale and at pace and/or that LHCs fail commercially – for example sales receipts or rental surplus are insufficient to repay their borrowing.

Privately, senior figures in local government concede that this skills deficit is the biggest risk to LHC effectiveness and that only a proportion will be able to build at scale.  One of the key recommendations in the Smith Institute’s well-balanced report is that a centre of excellence is established to support the development of LHCs – perhaps managed by the LGA.

  • LHCs are only part of any local solution to the housing crisis

There is much to commend in the pragmatism and ambition of those authorities setting up LHCs.   They have the potential to transform areas of low demand, secure a better mix of housing tenures and products and improve standards and security in the private rented sector.

However, under the current cross-subsidy model, LHCs can only provide limited assistance to people in the greatest housing need.

This means that solving the housing crisis still requires a major social rent contribution by housing associations – underpinned by increased levels of grant.

Equally, the government (or more likely a future Labour government) needs to relax its controls over the HRA to enable stock-retained authorities to harness the remaining HRA asset base to provide social rented housing, and to reduce RTB discounts and allow councils to retain 100% of RTB capital receipts.

A future Labour government would, of course, be wise to follow the lead of the Scottish and Welsh administrations and abolish RTB entirely.

 

Ross Fraser

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The great housing budget. Is that it?

A tweet from fellow SHOUT campaigner Tom Murtha summed up the Budget: ‘Is that it?’ he said.

SHOUT’s response to the Budget calls it ‘a missed opportunity’. A bit on the polite side!

Of course there are a few things to welcome. Some lifting of the appalling burden of getting onto Universal Credit. More money for the housing infrastructure fund and a proposal to raise the borrowing caps on local authority housing revenue accounts (but they will have to bid for it). And more money for Grenfell victims and for the surrounding estate.

There are some mysteries still: the £2 billion extra for ‘25,000 council houses’ announced by Theresa May in her Conference speech is now described in the government’s Budget ‘Red Book’ as 25,000 additional affordable homes, which could mean anything. There are still vague promises to ‘look at’ bids for extra money to pay for additional fire safety measures, but no hard cash given to anyone who has asked so far. There is a ‘Land Assembly Fund’ but no clarity yet about who will assemble it and for what purpose. And veteran back room thinker Oliver ‘two brains’ Letwin is going to be let loose again trying to work out why planning permissions don’t get ‘built out’ and turned into real homes. There will be more unspecified planning reforms, as if we haven’t had enough, but no mention of getting rid of the ‘viability tests’ used everywhere to help developers get out of commitments to affordable homes. There are ideas for changing the Community Infrastructure Levy arrangements but they don’t at first sight seem enough to tackle the issue of land value uplift, and another consultation will ensue.

Then there is the plain daft. On top of the already announced extra £10 billion for the inflationary ‘Help to Buy’ scheme, there is to be a reduction in stamp duty aimed at first time buyers. Yet the government’s own forecasters say that the main effect of this will be to put up prices and that the primary beneficiaries will be, not first time buyers, but existing home owners. Never has so much been spent in a totally counterproductive way.

In the middle of all this demand-side nonsense, the Red Book has a little essay on the importance of housing supply and its beneficial impact on what is now seen to be the key economic problem of poor productivity. It’s worth quoting:  Box 5.1:

Housing supply and productivity

Increasing the supply of housing in the right places brings productivity gains. It supports flexible and responsive labour markets, enabling people to work where they are most productive, and allows successful towns and cities to become even more productive by realising agglomeration economies.

Expanding the stock of housing in urban areas can lead to agglomeration benefits where it increases the density of economic activity. Studies find larger cities boost productivity: doubling a city size or density increases productivity by 3 to 8%.

Increasing housing supply guards against macroeconomic instability. House prices tend to rise faster in environments with lower responsiveness of new housing supply. Cross‑country studies show that lower house price variability is associated with lower variability in inflation, interest rates and real incomes.

On supply, the Chancellor has played the numbers game again. Now they’re committing to build 300,000 new homes a year by the mid-2020s. This figure, plucked out of thin air it seems, is so far in the future that it is of almost no value as an operational target.

You would expect that such a figure would be backed up by meaningful housing supply initiatives which might get us up towards that kind of figure. Instead there is more tinkering with planning: intervention where councils have not agreed plans, the use of land ‘outside the local plan’ if it is to be used for discounted homes for first time buyers, greater housing density in urban areas, and easier conversion from commercial and retail use to residential. Plus some fiddling about with investment rules, the land assembly fund (beware – it’s about ‘private developers and strategic sites’), garden towns (AGAIN!!).

And on affordable housing: ‘The government has already shown its commitment to increasing the supply of affordable homes’ (pause for laughs) citing the extra and currently undefined £2b, a promise to raise HRA caps (through a bidding process), more loans for estate regeneration (not sure about that one either).

And don’t forget the homeless. Well, they nearly did. After Boris Johnson failed to meet his promise to end rough sleeping in London by 2012, the government is now promising to halve it by 2022. If they achieve that, which has to be doubted, they will be back to the level they started with in 2010. And there will be three ‘Housing First’ pilots (three!).

So, there we have it. This was to be the great housing budget.

As an antidote, I recommend re-reading the SHOUT report showing how we could get to building 100,000 social rent homes a year, even with Brexit.

What a Budget that would make!

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It’s the 21st century: homes should not be unfit for human habitation

I get to speak at meetings a fair bit, normally Labour Party or tenant campaign meetings around the place. Recently I’ve taken to asking audiences if it is possible for a landlord to let a home that is ‘unfit for human habitation’. Of course not, they usually say (although some think it was probably a new measure brought in by David Cameron….).

If they were right there would be no need for the Homes (Fitness for Human Habitation and Liability for Housing Standards) Bill which Karen Buck MP has introduced as a private member’s Bill. It is scheduled to have its second reading on 19 January 2018.

Having been involved in one successful private member’s Bill in the past (on standards in houses in multiple occupation, which passed the Commons but was lost when the 1983 general election was called) I know how hard it is to make progress with one unless it is something around which there is a strong consensus and government support (or at least acquiescence).

There have been two recent attempts to ban the letting of homes that are unfit – Tories ‘talked out’ a previous Bill and voted against it when it was brought up as an amendment subsequently. However, the electoral arithmetic has changed since June, the government is beginning to be embarrassed by its reputation for being callous in its treatment of poor people, and the time might be right for them to want to be seen to be doing the right thing.

Crucially, for the Bill to proceed there must be 100 MPs present on 19 January to guarantee a vote. It’s not as easy as it sounds because private member’s Bills are debated on a Friday when most MPs have returned to their constituencies. So: that’s where everyone interested in progressive housing policies comes in. Please make sure your MP is there to vote for the Bill!

Karen is advised by a team of legal experts and the Nearly Legal website has had excellent coverage of the detail of the Bill and its progress. Giles Peaker of Anthony Gold solicitors has written a short briefing on the Bill, setting out why it is important and what it does. I’ve extracted key points below, but the Nearly Legal website will be the best destination for detailed information about the Bill.

Giles is asking that you should contact your MP and to ask them to attend on 19 January. You can find your MP here. He also refers to Shelter’s petition in support of the Bill.

As Giles says:

“I make no apology for going on about this. It is a relatively simple change to the law, but one that could have significant and lasting effects. It is too important to be allowed to be filibustered out. Some one million rented homes in England, social and private, have category 1 HHSRS hazards, amounting to a serious risk to health.”

Please support this important Bill.

Thanks

Steve

Homes (Fitness for Human Habitation and Liability for Housing Standards) Bill promoted by Karen Buck MP

Why is the Bill needed?

Currently, landlords have no obligation to their tenants to put or keep the property in a condition fit for habitation. There is an obligation on the landlord to repair the structure of the property, and keep in repair, heating, gas, water and electricity installations, but that only applies where something is broken or damaged. It does not cover things like fire safety, or inadequate heating, or poor ventilation causing condensation and mould growth.

There are a whole range of ‘fitness’ issues, which seriously affect the well-being and safety of tenants, about which tenants can do nothing at all. For private sector tenants, or housing association tenants, it is possible for the local authority to enforce fitness standards under the Housing Health and Safety Rating System and Housing Act 2004.

However, there is a huge degree of variability in inspection, notices and enforcement rates by councils. About 50% of councils have served none or only one HA 2004 notice in the last year. One London council, which has an active enforcement policy, amounted to 50% of notices served nationally and 70% in London. What this means is that there is a complete postcode lottery on the prospects of councils taking steps – with the real prospect being that the council won’t do so.

For council tenants, the Housing Act 2004/HHSRS standards are all but pointless. Local Housing Authorities cannot enforce against themselves. So council tenants have no way to enforce or seek to have enforced basic fitness standards, including fire safety, if their landlord doesn’t do anything.

Poor standards are a widespread problem. According to the latest English Housing Survey, 16.8% of private tenanted properties have Category 1 HHSRS hazards (which are classed as a serious risk to the occupiers’ health). That is 756,000 households, at least 36% of which contain children, and there are a further 244,000 social tenanted properties which have Category 1 HHSRS hazards. That is a million properties altogether. It is likely that more than 3 million people, including children, live in rented properties that present a serious risk to their health and safety.

What does the Bill do?

The Bill aims to complement local authority enforcement powers, by enabling all tenants to take action on the same issues and standards as local authorities can, and to give council tenants recourse. It follows the recommendations of the Law Commission and the Court of Appeal.

For any tenancy granted for less than 7 years term (including all periodic tenancies), the Bill will add an implied term that

(a) that the dwelling is fit for human habitation at the time of the grant; and,

(b) that the lessor will thereafter keep it fit for human habitation.

If the property is a flat, the obligation extends to all parts of the building in which the landlord has an interest, so it would include the common parts and the outside of a block of flats if all owned by the same landlord.

There are some exceptions, where the problem is caused by the tenant, or where the landlord can’t do anything to fix the problem without breaking the law, or where they can’t do anything without the permission of a superior landlord and that has been refused.

What this would mean is that the tenant could take action against the landlord to make them put right any problems or hazards that make the property unfit and could seek compensation when the landlord hasn’t done so.

It is not a replacement for the council’s own powers, but works alongside them, enabling tenants to take action where the council hasn’t, or can’t. For all new tenancies after the Bill comes into force, it will make it a right to have a home fit for living in.

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Is this really the turning point for social housing?

In the week when the final death toll of the Grenfell Tower disaster was announced to be 71, it is right that social housing should move further into the spotlight. The Chartered Institute of Housing has announced a major new project aimed at shaping the future of the sector, called ‘Rethinking Social Housing’. It joins the government, which is holding its own review, and the Labour Party, which is close to confirming the details of the review announced by Jeremy Corbyn during his conference speech.

The Grenfell Tower Inquiry, chaired by Sir Martin Moore-Bick, also moved two steps forward this week with the appointment of three expert assessors – to join a huge team of lawyers and a team of fire experts – and by publishing an update on the Inquiry so far.

The progress report illustrates what a complex Inquiry this will be. It has had an unprecedented number of applications to be Core Participants in the Inquiry – 545 applications, of which 393 have already been granted – and has embarked on a review of the first 200,000 documents received. Detailed attention is being given to tracking the generation and movement of fire and smoke and taking witness statements from, amongst others, the 225 residents who escaped the fire and the 260 firefighters who attended. Phase 1 of the Inquiry will focus on the ‘factual narrative’ of what happened on 14 June. Meanwhile, the silent marches every 14th get bigger every month.

grenfell the sun Grenfell Silent March 14 Nov 2017. Pic: Barcroft media for the Sun.

Link to Justice for Grenfell campaign.

It is natural, given the track record since 2010, to be cynical about what the government is up to. Less than two years ago it seemed on course to eliminate social rented housing entirely from the new building programme and to pursue the rapid managed decline of the sector. The 2016 Housing and Planning Act was the nadir with the introduction of right to buy for housing associations paid for by the sale of ‘high value’ council houses.

Things are more confused now. Gavin Barwell, a Minister who plainly did not believe in his own government’s policies, has moved to the centre as Theresa May’s chief of staff, and new Minister Alok Sharma has won some plaudits for travelling the country post-Grenfell ‘listening to tenants’. Importantly, there is no sign of high value sales being implemented, warmer words are being spoken about social housing, Theresa May announced £2 billion for 25,000 ‘council houses’ in her conference speech (alongside £10 billion for ‘Help to Buy’), and the government has been rowing back (slowly) on some of its worst welfare reforms. The post-2020 rent increase settlement was warmly welcomed by the sector because it supported investment (although the tenants who will pay for it were rather less pleased).

Next week’s budget is the next significant milestone, with more details expected on funding for social housing (is it real extra money or another three- card trick?), issues like council borrowing capacity and retention of right to buy receipts, and welfare reform including Universal Credit. The mood music has definitely changed – as the ever-prescient Jules Birch notes in his pre-budget blog, “The clamouring is not just coming from the usual suspects but also from investment bankers, right-wing thinktanks and Conservative MPs.” As Jules concludes: ‘It’s hard to remember the run-up to a Budget with such raised expectations – or so much potential for them to be dashed.’

The Budget might not see much hard cash but it may see some funny financial fiddling to enable more to be spent on homes without the cost impacting on the government’s deficit. There has been a frisson of excitement because the Office for National Statistics seems willing to redefine housing association borrowing as ‘private’ not ‘public’. In practice the ONS decision to go the other way a couple of years ago seems to have had little effect, but it raises the possibility of more significant changes for the local authority sector, either by reclassifying public corporations outside the definition of public borrowing (because they are trading activities) or by new financial instruments that could take borrowing for new housing outside the definition of public borrowing. Nerdy, certainly; important, definitely – as we’ve pointed out on Red Brick before.

So we are entering an important phase for social housing: imminent are the budget, Sadiq Khan’s proposals for The London Plan, the myriad of reviews, and the Grenfell Inquiry. There will be a lot of technical detail flying about, but there will also be plenty of us determined to keep the debate focused on people, their safety and well-being, and meeting their housing needs. Time alone will tell if this really is the turning point.

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Land and house prices – the Tories are getting it so wrong

Some weeks there are just too many interesting things to read, and my highlights this week were a report from Shelter on the use of viability assessments in housebuilding and a blog from the Resolution Foundation on impact of Help to Buy. Both show how poorly-designed policies are pushing up prices and making homes even less affordable.

The Shelter report, by Rose Grayston, ‘Slipping through the Loophole’, based on original research, looks at the ways in which the provision of affordable homes in new development has been undermined since new planning rules were introduced in 2012.

The rules allowed developers to reduce the amount of community benefit they are required to produce as part of a development scheme if their profits are estimated to fall below 20%. (Yes, 20%, sound like a good rake-in for anyone, but this is the minimum figure seen to be competitive in the 2012 rules). As Shelter says, the system ‘rewards developers who overpay for land to guarantee they win sites, safe in the knowledge they will be able to argue down community benefits to make their money back later’.

Shelter calls for the government to amend the national planning rules to limit such assessments to defined genuinely exceptional cases. Certainty about the required number of affordable homes will, they say, become part of the normal cost of doing business. Developers will still make good returns but there will be a downward pressure in the system on land prices. The change would not require any additional public money.

Between 2012-13 and 2015-16 so-called ‘section 106′ planning obligation agreements delivered 38% of the new affordable homes built in England, an average of 17,000 homes a year, around 10,000 homes a year fewer than the previous four years – a period which also included the global financial crash and recession.

Shelter’s research covered 11 council areas around the country. Where viability assessments were deployed, new sites produced just 7% affordable housing, on average 79% below the levels required by the policies of the councils concerned. Viability assessments were used in half of all the developments in the study – but they were skewed towards bigger developers on bigger sites, with small and medium sized developers much less likely to deploy the technique. Councils varied in their policies to resist viability assessments, and it is hard for councils to compete with the large resources some developers can muster to prepare the assessments in the first place. There are often lengthy and costly negotiations. Assessments have generally been confidential and therefore not open to scrutiny by bodies outside the council, especially campaigning groups.

The Resolution Foundation blog, by Lindsay Judge, called ‘Helping or Hindering? The latest on Help to Buy’ assesses the impact of the ‘Help to Buy’ scheme following the government’s announcement that it would put another £10 billion into the scheme. Supposedly designed to help people fulfil their dream of home ownership. Lindsay asks ‘is this expensive policy really doing people any favours?

HTB was introduced in 2013 when the housing market was weak. By offering buyers additional help it was intended to bolster supply by more effectively guaranteeing that developers would be able to sell new homes to someone. ‘Four years on’, says Lindsay, ‘the real world effects…. are plain to see’. In particular, the risk that the policy would actually stoke prices ‘has come to pass’. Worse, ‘the HTB discount is being ‘baked in’ to the price of new properties by developers’. One indicator is that the price of new homes is inflating significantly faster than the price of existing homes when they are resold (see chart). The policy is also not well targeted and has a lot of ‘deadweight’ – that is, it is used by people who could have bought a home without the subsidy – estimated even by the DCLG to be 35%. Some people with incomes over £100k have used the scheme.

 

House price index by type of build (April 2013=100): England Source: RF analysis of ONS house price index (graph taken from Resolution Foundation Lindsay Judge blog)tenure change ONS graphHTB now takes 45% of the national housing spend in 2016-17. So, why does government do this? HTB of course is not the same type of money as spending on housing grant for affordable homes. It is a loan not a grant. As Lindsay explains, just like student loans, it shows up in the government accounts as a debt but not as part of the deficit. It is a smoke and mirrors policy to be seen to be doing something about declining home ownership, offering people who are struggling to buy now some help – but at the expense of those following later who will have to pay more as a result.

If HTB is not in the long term a subsidy for home owners, who have to repay, it is a subsidy for developers who get the sum in cash when a HTB home is bought. It directly enables them to put their prices up, so the policy itself become self-defeating in the medium term.

£10 billion would build something like 125,000 social homes. That option might be an evil in the eyes of the Treasury, says Lindsay, ‘but it would be a far greater good than HTB from a living standards point of view’.

Looking after developers and landowners is the underlying theme of both policies. But with the government now in retreat on many fronts, and even starting to concede the case on the importance of social housing, new campaigning opportunities are beginning to emerge.

(amended 4/11/2017 to correct bad link to Shelter report).

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No new money will be made available for post-Grenfell works

“Fund it yourselves” was the clear message from communities secretary Sajid Javid to the Communities Select Committee and then again in response to an emergency question from John Healey last Thursday. Red Brick had already outlined the options available to the government to help authorities make their tower blocks safe, and before that we called on the government to foot the bill. Javid has now made it clear he has no intention of doing so.

Of course he found some warm words with which to give the impression he was bending over backwards to help. “What we will absolutely do with every local authority,” he said to the committee, “is work with them closely and make sure that, through that work with them and the financial assistance that we can provide and the financial flexibilities, they are able to pay for any essential works that they deem necessary.” But he went on to say “we are not planning grants” and that his assistance is limited to “financial flexibilities that can provide the funding.”

The options appear to be twofold. Either councils will be allowed to borrow more, if they would otherwise hit the borrowing caps that apply to their council housing finances. Or they will be allowed to make transfers from their General Funds, for example from reserves, to bolster their Housing Revenue Accounts. The latter could mean that council tenants are not burdened with extra costs, unless of course (as seems likely) such a transfer only covers part of the costs of fire prevention work, and some still has to be paid from rental income. The first option, relaxed borrowing caps, offers nothing to councils at all, except the ability to spend more of their tenants’ money. Either way, local people – whether just tenants or a combination of tenants and council taxpayers (which include tenants too, of course) – will be meeting the cost of the work, not central government. The “financial assistance that we can provide” turns out to be zilch.

These options are those foreseen by Red Brick in July. We said that, in all probability, the government would force councils to pay for remedial works from tenants’ rents, perhaps offering “help” in the form of looser borrowing caps or (we speculated) permission to raise rents. Even if extra subsidy were offered in the form of grant, we suggested that the government would simply take this from its existing capital programmes. In the event, it’s not even going that far.

Why is this important? Council housing accounts are already under severe pressure. A four-year period of compulsory rent cuts still has two years to run, arrears are shooting up as universal credit and other ‘welfare reforms’ are rolled out, right to buy continues apace and councils are still faced with the threat of having to sell off their highest value properties, even though this may well now not happen. Furthermore, councils have already been told there will be no more government money to keep houses at the Decent Homes Standard, even though a stubborn 15% of the stock has failed the standard over the last four years. If they divert money to post-Grenfell safety works, this will almost certainly be at the expense of their obligation to meet the DHS.

Furthermore, it is only a short time since the prime minister was promising a new generation of council houses. For the councils that have a significant volume of post-Grenfell work, the pressures on rental income that were already intense look set to get worse. Now that Sajid Javid has explained that his “flexibilities” will offer them no extra cash, the prime ministerial promise looks vacuous.

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