Sign of four
Posted: March 10, 2015 Filed under: Help to Buy, Housing market, Social housing, Tax, Universal credit Leave a commentIt’s time once again for a comprehensive overview of the state of the housing nation. Here are four key points I drew from this year’s UK Housing Review.
The headlines so far have been made by falls in home ownership for young people, but the 2015 Review also highlights these other key points for housing across all tenures:
1) Universal dependency
This isn’t the first time the Review has made this point but it is the first time I’ve seen it summed up so clearly in one graph.
All the rhetoric about universal credit says that it will reward those ‘hardworking families’ and help to end the ‘dependency culture’ of the benefits system. The new scheme does improve the poverty trap caused by the rate at which housing benefit is withdrawn as your earnings rise. A failure to include council tax benefit plus cuts in recent Budgets and Autumn Statement detract from this objective but it does still seem better designed to ‘make work pay’.
However, there is a price to be paid for this improvement.
Slowing down the rate at which housing benefit is withdrawn means that more lowly and not-so-lowly paid work is brought within scope of the benefits system. As the graph shows, households on £40,000 to £45,000 a year will still be claiming housing benefit on rents of more than £140 a week. And so even more ‘hardworking families’ become benefit dependent:
2) Grant, loans and guarantees
If you think government financial support for housing has been cut, you’re right if you just think in terms of grant for affordable homes but wrong if you look at other mechanisms for housing as a whole.
The Review estimates that the government has so far committed £12.1 billion of grant for affordable homes between 2011/12 and 2019/20. Most of that is accounted for by two rounds of the Affordable Homes Programme and Decent Homes funding. In addition, there are £850 million of loans and £3.5 billion of Affordable Homes Guarantees.
Contrast that with support for the private sector. True grant of £581 million is much smaller, but loans total £13.7 billion for schemes like Help to Buy 1, Build to Rent and the Large Sites Infrastructure Fund and guarantees including Help to Buy 2 and the PRS Guarantee total £16.5 billion. The scale of these financial instruments entails state intervention in the housing market that would have been unimaginable before 2007.
And this figure does not include government cuts in ‘red tape’ for housebuilders that I’ve highlighted many times before. The watering down of Zero Carbon and Section 106 requirements amount to billions more in government support for private housing. The latest example, the second round of the Starter Home Initiative, comes at the direct expense of affordable housing but so do many of the previous cuts.
3) Winners and losers in the housing market
Generational shifts in owning and renting revealed in the recent English Housing Survey are also highlighted in the review. This graph shows the change between 2002/03 and 2012/13 for different age groups:
There are many factors behind the switch from buying to renting among younger people shown there. The next two graphs show two of them very clearly. First, there’s the huge advantage that buy-to-let landlords get from the fact that they can still buy with an interest-only mortgages. The cost of buying with a conventional repayment mortgage is far higher and so is the cost of renting (hence landlords’ profit margin):
Second, despite the abolition of mortgage tax relief and increases in stamp duty, home owners continue to get far more out of the tax system than they pay in. The tax reliefs shown are from tax on imputed rent and capital gains tax:
4) Social and unaffordable rents
Ahead of the election, the 2015 Review includes a section on 10 unresolved housing issues for the next government. It’s worth reading in full for an overview of the agenda up to 2020 but I’ll highlight question 5 here: ‘How do we provide additional social housing without making rents unaffordable?’
The Review argues that a substantial contribution is needed from social landlords to reach 200,000 homes a year in England. However, if most of it is no longer at social rents, we risk falling into the trap of ‘increasing the number and size of benefits claims just when benefits expenditure is being capped and entitlements reduced’. The upshot would be that: ‘Instead of social housing rescuing people from poverty, it could drag more households into it.’
That seems to be borne out by figures on the Affordable Homes programme so far. The Review concludes that 70,000 out of 80,000 homes planned over four years could be at 80 per cent of market rents.
One way out could be to boost investment in council housing by heeding the Review’s repeated calls for a change in the rules on local authority borrowing. However, that still looks as far away as ever. Despite regular claims from the coalition, the Review concludes that it is set to build fewer affordable homes than the last government (even using its stretched definition of ‘affordable’).
The UK Housing Review 2015, by Steve Wilcox, John Perry and Steve Wilcox, is available from the Chartered Institute of Housing. Previous editions are online here.
Jules Birch 