Keep your friends close – Part 1

Originally posted on November 30 on Inside Edge 2, my blog for Inside Housing

For some reason, George Osborne made me think back to the school playground as he set out his spending plans for the next five years.

As the sidekick and heir apparent to the head boy, the chancellor has the power to get what he wants. First he had to correct his mistake from the Summer Budget when he was caught redhanded trying to steal the dinner money of most of the poor kids. He has now handed it back to the Strivers but will be waiting for them in the bushes to claim it back after school.

With that out of the way, he was free to get the gang together to build some homes, by which he means almost exclusively homes to buy. First in line were his main allies the housebuilders.

When you’ve already benefited from billions of pounds worth of loans, guarantees and relaxations in the rules on planning and energy efficiency, what’s another £2.3bn between friends? Yet this was different: the first time that I can remember that grant (presumably it is grant) has gone to pay for something that will not be recycled into more homes.

Reading between the lines of the Spending Review blue book, you can almost hear the negotiations with the government on those 200,000 Starter Homes. Sure, we can build them at a 20% discount if you change section 106 and give us access to non-residential land but we’re still short for the final few thousand. Pause for sucking in of breath and the inevitable ‘that will cost you’. Hence there will be ‘a £2.3bn fund to support the delivery of 60,000 of these’. That represents a subsidy of £38,000 per home (more than double the grant for Affordable Rent). Throw in an extension of Help to Buy equity loans and 40 per cent Help to Buy London loans and this was a very sweet Spending Review indeed for housebuilders.

Next up were the housing associations. Kicked in the teeth in the Summer Budget, put on public display by Channel 4 News and briefed against in the press, they had some serious sucking up to do to get back in favour. In the wake of The Deal with their new friend Greg, it looks like mission accomplished after George agreed to put £4bn into shared ownership.

True, he wants to give some of the cash to his housebuilder chums, but maybe Starter Homes could be an opportunity for associations in return? And rumours of another kicking on rents did not materialise after George’s tuck shop realised it had more cash coming in than it thought.

Hovering on the edges not sure what to do are the banks. Privately, they know that some of Osborne’s policies are mad (The Economist calls the 40% equity loans in Help to Buy London his pottiest yet). Only a few months after being told to restrict lending to risky borrowers in the Mortgage Market Review, they will now be expected to help fund an expansion of shared ownership and potentially to combine Help to Buy and Starter Homes.

Brandon Lewis says this will extend home ownership to even the poorest households. This is what the Council of Mortgage Lenders was saying in March:

‘At present we do not think that any transaction under the starter homes scheme would come within Help-to-Buy or NewBuy. In any event lenders have indicated to us that they would be reluctant to combine two schemes under one loan.’

Has something happened behind the bike sheds since?

The younger kids, watching and wondering what this all means for them, may look at Starter Homes and equity loans and see this as their chance to get on the housing ladder. The better-off will use government help to buy the most expensive house they can, one reason why it all seems set to set off a self-defeating spiral of higher house prices and higher land prices.

Others, despite Brandon’s promises, know there’s nothing in this for them. For all the ownership schemes, tenants know that house prices will carry on rising out of their reach (5% a year, according to the OBR forecast). The alternative of building lots of affordable homes for rent, taking advantage of the cheapest borrowing costs ever, while doing nothing to stoke up house prices is not on offer.

The poorest kids may be feeling relieved that the Spending Review was not even worse for them. Speculation (including by me) that housing benefit would see more big cuts to pay for the tax credits u-turn proved to be wide of the mark. But that is not much consolation if you will be one of the social tenants hit by restricting housing benefit to LHA rates. Still less if you are single without children and only get the shared accommodation rate, pricing them out of social housing.  The government seems set to use increased discretionary housing payments to defuse the threat to supported housing projects (if the 1% rent cut doesn’t get them first). However, as with plans to devolve the budget for temporary accommodation, that relies for implementation on the big losers in the Spending Review.

Sat on, battered and waiting to have their heads flushed down the toilet again are the local authorities. Huge cuts, forced sales, Pay to Stay, rent cuts and all George’s other wheezes mean they are paying for much of this. Even the New Homes Bonus, the pet project of Grant Shapps, now looks set to be cut by £800m to pay for social care. The Local Government Association (controlled by George’s Tory chums) may complain that it’s crazy to persecute them when they could be delivering thousands of homes but that’s what seems set to carry on happening.

More follows in Part 2. Should what George did to his biggest pals be a warning for everyone else?