Home stretch

Originally posted on September 11 on Inside Edge 2, my blog for Inside Housing

With 11 weeks to go until the spending review, final efforts are being made to convince George Osborne of the case for housing.

The trouble is he’s already made it pretty clear he’s only interested in home ownership, may cannibalise what’s left of the housing budget to pay for it and he doesn’t seem to like housing associations much.

What we know so far is that the chancellor wants to cut departmental spending by £20bn and that departments have been told to model for two different scenarios: real terms cuts of 25% and 40%. If that is not bad enough, housing is an unprotected area and so bound to suffer when Osborne announces the details in November, potentially in multiple ways.

On top of that, there have already been some signals of specific changes to come. In July the government announced that it will ‘take further steps’ to refocus DCLG budgets so that they support low cost home ownership for first-time buyers. That could mean any unallocated money from the 2015-18 affordable homes programme will be shifted to home ownership schemes – and in theory that could include money that has been allocated but not spent too. A review of the use of lifetime tenancies is also underway.

Signals like that suggest that key decisions have already been taken but that’s not stopped attempts to influence the details or simply to restate alternative positions. Friday was the deadline for external submissions to the review, though so much is happening that they are also responses to the Budget and suggestions for the Housing Bill. Here are some of the suggestions that have emerged so far.

The most eye catching idea in the Chartered Institute of Housing (CIH) is to convert one of Osborne’s pet policies – the Help to Buy mortgage guarantee or HTB2 – into a programme supporting shared ownership. It also wants an expansion of guarantees to support refinancing by LSVT housing associations that can show they can build more new homes for rent and low cost home ownership.

Strictly speaking this need not be part of the spending review at all, since HTB2 is one element of £30bn worth of guarantees and equity loans that do not count as government borrowing or spending.

It sounds a good idea in theory. HTB2 has also been something of a damp squib compared to HTB1, the equity loan scheme, and though there are still problems to be tackled, shared ownership could offer a viable way to achieve Osborne’s ownership aspirations.

However, would guarantees be enough to support it? Would lenders be convinced? Would Osborne really be prepared to direct part of his pet scheme (soon to be joined by the HTB3 savings scheme) at ‘not particularly impressive’ housing associations. And what if housebuilders plead that they need more subsidy for starter homes on top of the exemption from section 106 contributions?

Alongside this, other CIH proposals include:

• maintaining the affordable homes programme as a mix of tenures (maintaining capacity in the building industry as well as meeting housing need
• increasing the budget for discretionary housing payments and allowing local authorities to top them up by more
• boosting local authority capacity on regeneration and new homes with a rolling fund to support infrastructure repayable from future development gains and powers to direct other government bodies to release land that is lying idle.

That last proposal picks up on the recommendations of the Elphicke-House Report for the coalition in January. These understandably also get great play in the spending review submission from the Local Government Association (LGA), which argues that councils could deliver 180,000 new homes with a ‘power to direct’ the sale of government-owned public land and the ability to retain 10% of receipts.

It would be easy to assume that the House bit of Elphicke-House no longer applies but the politics of this may not be so simple as that and there are some big questions about the differences between Conservative-led and Conservative majority governments. After all, the LGA itself is now Conservative controlled and local government stands to gain from Westminster’s devolution plans. However, the LGA it is still highly critical of many government policies. Its submission identifies £10bn of extra cost pressures on local government, more than half of which are housing-related: £2.6bn from the 1% cut in social rents; and £3bn from the loss of section 106 payments on 200,000 starter homes.

That’s before the impact of councils being forced to sell the most valuable third of their homes to fund the right to buy for housing association tenants. The LGA says these should be pursued as separate policies, with councils keeping 100% of receipts to reinvest in new homes, exemptions for property built after 2008 or for vulnerable groups and ‘expensive’ homes defined relative to the local housing market not the housing stock.

It also opposes the Treasury’s attempts to seize the extra money from pay to stay rents on council homes and argues for a taper to reduce work disincentives.

As things stand, argues the LGA, the right to buy extension, council home sell-offs and the starter homes commitment, could the affordable housing stock by 150,000 over the spending review period. That could in turn add £460m to the housing benefit bill as tenants are forced into the private rented sector.

That’s the underlying point in a joint spending review submission from the National Federation of ALMOs, SHOUT and TPAS but also supported by Placeshapers. This draws on the Capital Economics report published in June arguing for large-scale public intervention in financing new supply in place of the ‘fiscal myopia’ that just increases the housing benefit bill. The arguments about the impact on the public finances over the next 50 years seem unanswerable to me. The problem is that Osborne only seems interested in the next five.