10 things about 2018 – part one

Originally published as a column for Inside Housing on December 21.

It was the year of three housing ministers and two secretaries of states (so far), the year that the department went back to being a ministry and a new government agency promised to ‘disrupt’ the housing market.

It was also the year of the social housing green paper and the end of the borrowing cap, of Sir Oliver Letwin and Lord Porter and of some significant anniversaries.

Above all, it was the year after Grenfell and the year before Brexit. Here is the first of my two-part review of what I was writing about in 2018.

1. New names, new ministers

January had barely begun when the Department for Communities and Local Government became the Ministry for Housing, Communities and Local Government. The name harked back to the glory days when housing was ‘our first social service’ and housing secretary Sajid Javid became the first full member of the cabinet with housing in his title since 1970.

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Book review: The Financialization of Housing

The Global Financial Crisis was a wake-up call to the world about the dangers posed by a toxic mix of finance and housing, one that has still not been properly heeded.

The mortgage-backed securities, collaterialised debt obligations and other financial instruments that financed the expansion of sub-prime and predatory lending were the result of a wave of innovation by a finance industry that had been deregulated over the previous 20 years. Britain marked the 30th anniversary of the Big Bang in the City last month but similar things happened around the developed world.

All that innovation and securitisation led to exponential increases in the amount of credit circulating within the financial system but it still needed something to be secured against. Which is where housing came in: a mortgage finance system that had been based on long-term mortgage lending funded from savings was transformed into a vehicle for the expansion of credit. And the relationship between the price of homes and the earnings of people buying them was also transformed.

9781138950580

The Financializaton of Housing: A Political Economy Approach, a new book by Manuel Aalbers, is the most comprehensive attempt I’ve seen to outline this process and its consequences. It’s part of a multinational research project based at the University of Leuven in Belgium on what he calls the Real Estate/Financial Complex in 12 different countries around the world. The metaphor is a deliberate echo of the military/industrial complex and serves to emphasise the connections not just between the real estate and financial sectors but also between each of them and the state.

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Book review: The Rent Trap

How did we end up with a housing system dependent on at least 1.5 million small-scale private landlords offering millions of tenants little or no security and costing billions in housing benefit?

You couldn’t do much better if you set out to design the worst possible way of housing the nation in general and young people in particular. But the changes that now seem set in stone – a private rented sector that’s grown so fast it is now bigger than the social sector and home ownership shrinking back to the levels last seen in the 1980s – have happened in the space of one generation.

The Rent Trap, a new book by Samir Jeraj and Rosie Walker, is the best attempt I’ve yet read to explain how and why this has happened to a general audience. The subtitle – How We Fell Into It And How We Get Out Of It – reflects an even more ambitious aim.

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Voluntary service

Originally posted on December 15 on Inside Edge 2, my blog for Inside Housing

Tuesday morning’s announcement by Brandon Lewis on deregulation of housing associations delivers on the government’s side of The Deal and its pledge to get them reclassified as soon as possible,

However, it also completes the division of what we used to call the housing ‘sector’ into two very different camps: councils forced to do what the government says; and associations giving a new meaning to the ‘voluntary’ sector.

The housing minister told the Communities and Local Government Committee that amendments will be laid to the Housing and Planning Bill aimed at enabling the ONS to re-reclassify housing associations as private sector while maintaining proportionate protection for lenders and tenants.

The biggest move was to make Pay to Stay voluntary for housing associations, which is quite a climbdown. However, the amendments will also include removal of the consents and disposals regimes so that associations no longer have to seek permission of the regulator and the abolition of the disposals proceeds fund so that they no longer have to spend receipts from the right to buy according to criteria set by the regulator. More detail is here.

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The limits of localism

Have any of the 516 housing announcements made by the DCLG under the coalition plumbed lower depths than this week’s ‘ending the tenant tax to help tackle rogue landlords’?

It’s not that there is no tenant tax out there to be tackled. The government could end the extortionate letting agent fees. It could stop the rent shortfalls faced by tenants whose local housing allowance has been cut. And it could limit the tax and financing advantages enjoyed by buy-to-let landlords that trap people as renters. Even if we limit the term to the private rented sector, and don’t include the bedroom tax, there are any number of options.

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Cry freedom

What are the implications of the Dutch housing association debacle for the UK?

Two weeks before Policy Exchange made its controversial call for ‘free’ associations in England on Housing Day in November, a parliamentary inquiry in the Netherlands was publishing a report on a scandal that rocked the country’s social housing sector to its foundations. It concluded that Dutch housing associations strayed ‘too far from home’ after they won their commercial freedom in 1995.

As I report for Inside Housing this week, it’s the details that catch your immediate attention: the prison sentence for fraud, the steamship, the Maserati, the suitcase full of cash and Vestia’s €2.7 billion losses on derivatives deals that went wrong. Those and much more besides are what leap off the page at you in the report of a parliamentary inquiry published at the end of October but barely reported here until now.

Vestia, the largest Dutch association, placed what amounted to multi-billion Euro bets that interest rates would rise. When they fell instead, it led to a scandal that the report compares to those at Barings Bank and Enron. However, the inquiry also investigated problems at least five other associations. It blames the ‘Sun King’ ambitions of directors that were left unchecked by boards and supervisors and sometimes exploited by banks. These went spectacularly wrong when the credit crunch hit and the Dutch property market slumped.

UK housing associations can comfort themselves that we have strong independent regulator, do not have a Dutch-style guarantee fund that makes them jointly liable for each others’ losses and were less affected by the slump in the property market. So far the scandal in the Netherlands has had little effect on credit ratings and willingness to lend here. Yet in the wake of cases like Cosmopolitan, can they afford to be complacent?

Looking at what happened in the Netherlands is like looking in a mirror: the challenge of how to maintain a social heart with a commercial head; a mission to provide homes for priced-out workers as well as the very poorest; and a recognition of the need to regenerate places as well as people. The report credits housing associations as a whole with making ‘an essential contribution to social housing in the Netherlands’ in the last 20 years and they have been so successful that they now owns around 75 per cent of all rented homes.

But if you think values alone are enough to prevent problems, think again. As organisations become more commercial, and expand into private development and private renting, they need to recruit directors and board members with commercial expertise but who may not share the original values. The Dutch example shows that before long the social purpose can get lost in some organisations and unless the right checks and balances are in place things can go spectacularly wrong.

If you need any more convincing look at what’s happened to Dutch associations in the wake of the scandal. This is not just about the prosecution and even imprisonment of individuals. The first of thousands of homes have been sold off to international investors to pay for the losses and many more could go if the Dutch government follows through on pledges to reduce the size of the sector to open up the market to private landlords. Other associations have already paid €700 million as their share of the losses at Vestia. The government has imposed a tax rising to €1.7 billion a year on the sector to help pay for austerity. And English chief executives reading this may care to reflect on the €185,000 (£145,000) maximum salary (including pension contributions) that will apply to their Dutch counterparts. Associations’ ‘private’ status no longer counts for much in what the Dutch call the ‘semi-public’ sector.

The irony is that ‘unfree’ English housing associations seem to have much more scope to act than their ‘free’ Dutch cousins, who gave up purely commerical activities that have no relation with social housing before the inquiry began.

Under changes agreed by the Dutch parliament in the wake of the report, there will be annual tripartite agreements between housing associations, local authorities and tenants. Tenants will have a right to vote on some major policy changes such as mergers. And associations will have to seek the views of tenants on proposals such as regeneration schemes. As well as improvements in governance, regulation and political oversight, the report also recommends that associations should be limited in size and scale, with the eventual demerger of large national organisations.

Ultimately though it is tenants that are paying the price for the debacle. In each of the last two years, they’ve seen the biggest rent increase in the last 20 years. Spending on repairs and maintenance is down. More homes could be sold off. Would the Dutch scandal have happened if tenants had been allowed more say over how what is ultimately their money was used? Perhaps that’s the biggest lesson of all.

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


Crisis? Quelle crise?

The French housing market is ‘in meltdown’ after housing starts plunged to the crisis level of double what we are managing on this side of the Channel.

President Francois Hollande reconvenes his Cabinet today after returning from holiday with ministers working on a recovery package topped by measures to stimulate the construction industry.

Syria rather than housebuilding may be the reason why David Cameron cut short his holiday in Cornwall but the economic mood here could hardly be more different. House prices are up 10.2 per cent in the last year and ministers claim that their ‘long-term economic plan is getting Britain building again’.

There are no prizes for guessing which of the two countries saw 306,654 housing starts in the year to June and which will be lucky to manage 160,000 over the same period.

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