Hunt’s statement of intent

Originally written as a column for Inside Housing.

Eight weeks after Liz Truss and Kwasi Kwarteng shrank the economy with their growth plan, chancellor Jeremy Hunt completed his reversal of almost all of their plans in his Autumn Statement.

He was speaking against a backdrop of dire forecasts of recession, unemployment, falling living standards and rising taxes that spoke of bad news to come for housing and tenants and landlords alike.

The complete rewrite of the Autumn Statement leaves a long list of tax increases and spending cuts in its wake, even if many of them will not take effect until after the next election and so may not happen. However, there was still a little hope amidst the gloom.

Here are five points I picked up from the statement itself and the background documents.

The cap and the freeze

Perhaps the most surprising thing about the statement – with a nod to expectations management by the Treasury – is that there is also some good news. The announcement that the government will stick to previous pledges to increase benefits (and pensions and the minimum wage) in line with prices was not completely unexpected but will still come as a relief to tenants and landlords alike.

But Jeremy Hunt’s decision to increase the overall benefit caps by the same amount is much more of a surprise. Without this, thousands more households faced being capped as their benefits rose to hit thresholds that have been frozen since they were cut in 2016. The main thresholds for families will now increase to £22,020 a year outside London and £25,323 in the capital. The cost is estimated at £315 million in 2023/24 and almost £2 billion over the next five years.

And yet… these are still far below the average earnings figures that were misleadingly used to justify the cap in the first place. And they leave people who are already capped facing rent increases with no extra income to pay for them.

Finally, buried deep in the background documents is more gloom: the assumption that Local Housing Allowance rates for private renters will remain at 2022/23 levels, which have themselves been frozen since April 2020. This despite rapidly rising rents. If confirmed, the result will inevitably be rising rent arrears and homelessness.

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The state of the (housing) nation

Originally written as a column for Inside Housing.

The UK Housing Review Autumn Briefing Paper is published this week and as usual provides an invaluable guide to the state of the housing nation. Here are five graphs that illustrate key points about five different parts  of the housing system:

Shifting rules on rents

What everyone wants to know, of course, is what will come in place of that purple line on the right but the graph is a reminder that so-called long-term deals on social housing rents can quickly disappear. The four-year rent reduction at the end of the 2020s that ended the previous one is now set to be succeeded by an annual increase significantly below the 11.1 per cent implied by the CPI plus 1 formula.

The decision is finely balanced between cost of living considerations and housing investment, with the existence of housing benefit making it much more complex than it was in the famous case of Clay Cross 50 years ago.   

The Briefing Paper quotes estimates by Savills that a 5 per cent cap on rents in England (the government’s favoured option) would cost councils £500 million and housing associations up to £1 billion. One association says that even a 7 per cent cap would mean a 21 per cent reduction in new build and there are also major concerns about the impact on investment in existing stock and on supported housing.

A cap would help tenants not on housing benefit but the major beneficiary would be the Department for Work and Pensions unless its savings are reinvested in housing.

That point was really brought home to me when I interviewed the Welsh housing minister recently. She was only too aware that the more she restricts next year’s rent increase, as might be her instinct, the more savings will go straight back to Westminster, with zero chance of them coming back to Wales.

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Austerity all over again

Originally published as a column for Inside Housing.

Austerity is back. The mess left by Liz Truss and Kwasi Kwarteng will have to be cleaned up, constraining the options for Rishi Sunak and for whoever wins the next general election.

But there is nothing that says Austerity 2.0 has to be a repeat of the 2010s. Treasury orthodoxy is in charge again but there are always political choices.

David Cameron and George Osborne chose to prioritise cuts in public services and benefits over tax rises but that will be more difficult for a prime minister taking office at a time when those services are collapsing and benefits are already close to destitution levels.

And there is one more crucial difference this time around: in the 2010s austerity was accompanied by record low interest rates that slashed mortgage payments for millions of home owners and buy-to-let landlords.

The benefits flowing to anyone with a mortgage – and to existing owners as house prices rose – help to explain why the Conservatives have won four elections in a row. 

But Austerity 2.0 arrives just as mortgage rates are rising and just as the prospects of a housing market downturn are shifting from likely to inevitable.

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Kwarteng’s plan causes growing pains

Originally written as a column for Inside Housing.

So, after 10 years of redistribution and socialism under David Cameron, Theresa May and Boris Johnson, now we know what a proper Conservative government looks like.

The biggest package of tax cuts seen in 50 years will cost a cool £45bn and overwhelmingly benefit the highest earners: someone on £1m a year will be around £55,000 better off next year.

The benefits get progressively smaller the less you earn: someone on £20,000 a year will gain just £218 while someone on £200,000 will gain £4,333.

And there is nothing so far for the very poorest: no more help for renters and no boost to Universal Credit.

Instead around 120,000 claimants face having their benefits cut unless they find more part-time hours from January.

There may be some announcements still to come in an actual Budget to follow this Growth Plan, including vital decisions on whether to unfreeze Local Housing Allowance and the benefit cap, but the contrast could hardly be more stark.

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Putting the interest rate rise in perspective

Originally written as a column for Inside Housing.

‘Millions hit by higher mortgage bills,’ ran the headlines after the Bank of England raised interest rates for the first time in three years.  

‘Worst blow to first-time buyers since financial crisis,’ was the Telegraph’s verdict on the increase from 0.1 to 0.25 per cent. The move had been long expected but it was still enough to send shares in housebuilders lower and banks higher.

Most mortgages are now on fixed-rate terms so most borrowers will not see an increase immediately, although the decision will add around £10 a month to repayments for someone on the standard variable rate and £15 a month for a tracker mortgage customer.

With energy bills already rising, council tax bills going up next year and price inflation at 5.1 per cent and rising that can only add to the worry for those borrowers who are already stretched.

Another way of looking at the interest rate rise is that 0.25 per cent is 20 times lower than what would have been considered a ‘low’ rate before 2008. The record lows since the financial crisis have now lasted for more than half the term of what used to be a standard 25-year mortgage.

Little wonder that house prices have boomed and the wealth of home owners has rocketed and that first-time buyers have faced a ‘worst blow’ more or less every month.

Nevertheless there are bigger questions that lie behind what is largely a symbolic decision driven by the Monetary Policy Committee need to meet market expectations about a rent increase to tackle inflation that is now far above its 2 per cent target.

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The £3 trillion question

Originally written as a column for Inside Housing.

It has so many zeros in it that it’s worth writing it out in full: £3,000,000,000,000.

That’s the increase in the housing wealth of British households since 2000, according to new analysis from the Resolution Foundation. Perhaps even more remarkably, as the graph below shows, around half of that has been (un)earned since 2012, in the wake of a Global Financial Crisis that seemed set to bring the whole market crashing down.

The distribution of all that housing wealth has been startlingly unequal. Londoners gained almost four times as much (£76,000) as those in the North East (£21,000) and the over-65s eight times as much as 30-34 year olds and more than three times as much as 35-39 year olds.

Where the least wealthy third of households gained less than £1,000 per adult, the wealthiest 10 per cent chalked up an average gain of £174,000.

Needless to say, the gains for anyone who has remained a social tenant or a private renter are zero and zero – and less than zero for leaseholders unlucky enough to be stuck in unmortgageable and unsaleable flats.    

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Why are house prices rising around the world?

Originally written as a column for insidehousing.co.uk

News that house prices are rising at their fastest rate since 2004 highlights both the perverse effects of the pandemic and long-term problems with affordability.

Average prices across the UK rose by 13.2 per cent in the year to June according to the official UK House Price Index  with Wales and the North of England leading the way.

While a low level of transactions suggests a need for some caution in interpretation, the same pattern has emerged in other house price surveys of double digit inflation led by regions outside London and the South East.

That confounds expectations at the start of the pandemic of recession about a declining market. The stamp duty holiday announced last Summer looks like an expensive mistake that has just helped fuel house price inflation.

In normal circumstances a bust might well follow the boom but continued support for the market will come from the estimated £180 billion in savings  that households have built up during the pandemic and the wealth gap  between housing haves and have-nots seems set to widen still further.

There is evidence of the same pattern emerging in housing markets around the world: annual house price growth across the 38 richest nations has more than doubled during the pandemic to hit 9.4 per cent, according to the OECD.

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Guarantees, cladding and the housing market

Originally published on April 20 on www.insidehousing.co.uk.

The housing market is at a frenzied record high as house prices rise by more than 2 per cent in a single month.

Just the moment then for the government to step in with a scheme to guarantee 95 per cent mortgages for anyone who thinks they have to climb the ladder before it disappears out of reach.

The house prices in question are only asking prices as recorded by Rightmove but the £6,733 average increase between March and April reflects a rush to beat the end of the stamp duty holiday and demand for more space from people who have done well during the pandemic.

It’s now 13 months since the start of the pandemic and, to pick another measure, house prices are up by around £16,000 or more than 7 per cent since then, according to the Nationwide.

Prices initially fell amid the economic uncertainty but surged again on the back of the stamp duty holiday introduced by chancellor Rishi Sunak last July and then extended in March.

The overwhelming beneficiaries are people who already own homes who have been able to sell them for higher prices that now wipe out the stamp duty savings for most buyers. For all the rhetoric about helping people on to the housing ladder, few first-time buyers saved much in stamp duty and all now face having to spend considerably more in total.

The mortgage guarantee scheme, essentially a rehash of one part of Help to Buy, should help them by addressing a genuine problem with the supply of high loan-to-value mortgages.

However, lenders are cautious. The Financial Times reported on Saturday that the largest banks are refusing to lend on new builds under the scheme and that they may also charge higher rates and apply stricter affordability criteria.

From their point of view that makes sense to guard against falling prices, especially when they factor in the new-build premium that adds around 10 per cent to the cost of a new home. .

And the benefits look dubious for first-time buyers too. Based on the Nationwide index, a 95 per cent loan on home at the current average price would be £220,000 – more than the total price was when the stamp duty holiday was first announced.

None of this makes any sense and yet, in an under-supplied and under-taxed housing market fuelled by credit and low interest rates, somehow it does.

As memories fade of the housing market crash of the early 1990s and the downturn after the financial crisis, the logical next step would be a relaxation in affordability checks on mortgages to allow loans at larger income multiples, ignoring the lessons of the 2000s and the economic headwinds that could lie ahead as furlough ends.

But all of this is happening at the same time as the entire market for recently built flats remains mired in the continuing fall-out from the fire safety crisis.

Inside Housing reported on Friday on cases of leaseholders buying flats on the basis of External Wall System (EWS) form declaring that their cladding was safe only for new inspections to decide that it must be removed.

One buyer purchased a £350,000 flat rated A1 and safe in February only for the EWS to be downgraded to B2 just 34 days later. That made her flat worthless and left her facing costs for waking watch and cladding remediation.

If the EWS rating can be changed at the drop of a hat like this, why would anyone risk buying a recently built flat?

The government has grudgingly and in stages committed a total of £5.1 billion to fixing the cladding crisis so far and it has announced some welcome reforms to leasehold.

But leaseholders in buildings below 18m are only eligible for loans and help does not apply to other fire safety problems, leaving a significant chunk of the housing market in limbo.

The fact that at the same time the government has spent £5.4 billion on the stamp duty holiday says it all about where its priorities really lie.   


We need to talk about tax reform

Originally published as a column for Inside Housing on November 12.

When the pandemic is eventually over, one of the big political questions will be how the  government will go about recouping the huge sums pumped into keeping the economy going.

Chancellor Rishi Sunak told the Conservative conference that he believes it is his ‘sacred duty’ to balance the books. Even before the costs of the second wave, a document leaked from the Treasury in May suggested that tax rises or spending cuts equivalent to £25-£30 billion would be needed.

However, Mr Sunak is boxed in by manifesto promises not to increase income tax, VAT and national insurance and not to scrap the triple lock on pensions.

Cutting public spending will not be easy either. If anything the pressure will be the other way as the government looks to implement its levelling up agenda.

That applies even to the depressingly familiar remedy of cutting benefits, with calls for temporary increases in universal credit and local housing allowance to be made permanent set to grow as unemployment rises.

However, housing could still be a key battleground when it comes to tax and areas not covered by those manifesto promises. So far, it’s been another cost to the Treasury, with the £3.8 billon earmarked for the stamp duty holiday, but sooner or later attention will turn to the other side of the ledger.

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Sunak fails to look beyond the short term

Originally published as a column for Inside Housing on July 8.

This was a Summer Statement that was all about protecting jobs and getting money into the economy as quickly as possible.

Judged in those terms, while it does not go as far as some had advocated, the two big housing measures in chancellor Rishi Sunak’s Plan for Jobs look carefully calibrated to achieve both.

The £3.8 billion cut in stamp duty (increasing the nil rate from £125,000 to £500,000) is calculated to boost transactions, generate jobs and drive additional spending estimated at around 5 per cent of the house value.

And the Treasury reckons that the £2 billion Green Homes Grant (funding two thirds of the cost of energy efficiency work up to £5,000 for owners and landlords and all of the cost up to £10,000 to low income owners) could support over 100,000 green jobs as well as cutting carbon emissions and fuel bills.

But it’s not hard to find holes in the Summer Statement where other housing responses could and should have been: the statement does nothing more for affordable housing, it fails to fill holes in the safety net and, as  Generation Rent points out, vouchers to eat out are not much use if you cannot afford to stay in.

And though the two measures that are there should boost the economy in the short term the longer-term benefits of both look uncertain at best even when you judge them in isolation and in their own terms.

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