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Swindon Council is looking to develop what it calls “an overarching housing strategy, which will encompass social housing, intermediate and private market housing and include a refined approach to the challenge of vulnerable people facing homelessness.” It intends to organise a conference as part of the consultation process and ‘evidence gathering’. These are some initial observations on the document passed at the last Council meeting, “Housing Market Support”. Swindon Tenants Campaign Group will submit a more detailed paper to the consultation.
The Council’s document, “Housing Market Support”, does recognise some elements of the housing crisis which we face locally and nationally. It points out that:
- 35% of first time buyers are priced out of the cheapest (lower quartile) flat, 55% are priced out of a terraced home and 64% priced out of a semidetached home;
a household needs, on average, £31,214 income to ‘acces home ownership’ as compared with the avaerage salary of £26,260;a third of private renting households are families with children and near half are over 35, and there is an absence of security of tenure;
the Council housing list has more than 15,000 households on it whilst there are only 700 lettings a year. 375 households a month join the list, so “it is clear that demand will not be met in the current circumstances”.
However, the scale of the crisis is deeper than the document admits. The decline in home ownership, which it refers to, is reflected in Swindon by an absolute decline in mortgage numbers in the 10 years between the 2001 and 2011 Censuses, despite an increase of over 13,000 households in the town. As a percentage of households mortgages have declined steeply from over 47% to 39% (2011 Census).The doubling of private rented homes in these 10 years is the result of the shortage of ‘social housing’, high house prices and the unaffordability of mortgages for many families. In fact the number of people living in rented accommodation has more than tripled t0 over 32,000.
Shortage of “affordable” homes
However, the most striking statistic in the Council’s ‘Strategic Housing Market Assessment’ is that the town produces 800 affordable homes per years, less than it requires. In other words the situation is deteriorating every year. The numbers on the local Housing list, driven by this shortage, show the scale of the crisis. Even if you ignore the people on Band C (‘in low need’) the numbers on Band A (‘in urgent need’) and Band B (‘in need’) have broken through the 7,000 mark for the first time. Of these more than 4,400 qualify for a one bed property. Given the current rate at which the Council is giving out one bed tenancies it would take more than 40 years to accomodate all these people. Clearly most of them will never gain a tenancy, or as the Council admits “demand will not be be met under the current circumstances”. Added to the mix are those households affected by the ‘bedroom tax’, of whom more than 600 would require a one bedroom property in order to avoid a cut in their housing benefit.
“Housing Market Support” does say that the new Housing Revenue system, ‘selffinancing’, “presents some opportunity for new build and regeneration projects”, that is of Council housing. However, there are obstacles to this – there is no subsidy available and the government has imposed a debt limit in the region of £21 million over and above the ‘debt’ which the Council was given as part of the ‘one off debt settlement’ (i.e. the sharing out of the national ‘debt’).
What the Council can do in relation to housing is restricted by national government policyIt’s quite clear that there is no way that the housing shortage can be tackled without a significant programme of ‘social housing’ new build. Swindon Council’s (or rather its ruling group’s) reluctance to challege government policy leads it towards a series of proposals which are in line with the government’s failed housing policy. So the main tentative proposals relate to the private rented sector (PRS) and home ownership. It is considering a joint business venture with a developer and possibly a Housing Association to build private rented accommodation, with a view to longer term tenancies than are currently common in the sector; ten years or more. This mirrors the government policy of seeking ‘institutional investors’ in the PRS . However, the concentration on private rented accommodation is counterproductive in two respects. Firstly, as “Housing Market Support” admits, “private renters are twice as likely to struggle to pay their housing costs compared to any other tenure”. Government cuts in Housing benefit have helped to create this situation. Secondly, if the PRS continues to grow, the result will be the driving up of the Housing Benefit bill because of the high rent levels in the sector. Nationally this trend has been reflected by an increase of 600,000 private renters who receive HB, in the last five years. In Swindon HB recipients in the PRS have risen from 2,660 to 4,660 in the same timescale.
According to the Joseph Rowntree Foundation the number of people in private rented accommodation deemed to be in poverty (i.e. less than 60% of the median wage) doubled from 2 million in 2000/01 to 4 million in 2010/11. This reflects the much higher rent levels as compared to ‘social housing’.
Part of the proposal that the Council build homes for private rent is the idea of providing these renters with the ‘incentive’ of building up ‘equity’ in these homes. What “Housing Market Support” suggests is that private renters would be able to build up “an equity stake” whereby for each year as a tenant, they would receive 0.5% equity stake in the home if its value had risen by more than 1% over the same period. It’s difficult t0 see what would be the point of such a proposal if you consider that a 20 year tenancy would give them ‘ownership’ of 10% of the value of the home after 20 years.
An ‘indemnity guarantee’ for mortgages
Such is the national housing situation that even “Housing Market Support” admits that “it is currently unclear whether, when and how people will achieve their home ownership goal”. Yet the other proposal of the Council is to get into the mortgage market itself by participating in the Local Authority Mortgage Scheme (LAMS). Like the government’s Help to Buy scheme (see below) this is designed to bridge the gap between the deposit that a would-be house buyer could afford, for example a 95% mortgage with a 5% deposit, and the deposit that the banks and financial institutions are demanding currently, around 25%. The Council would provide an ‘indemnity guarantee’ which would risk £30,000 if the lender made a loss.
We are told that 84 local authorities signed up to this national scheme, though only half of them are “currently operational”. This has produced the paltry sum of 1,200 mortgages nationally. In the case of Swindon the Council estimates that it would support around 30 first time buyers. This would be much effort for little return. The impact on the local housing situation would be marginal to say the least.
In Swindon, as nationally, partownership, supposedly designed to help people who really couldn’t afford to buy a house to ‘get their first foot on the housing ladder’ has been a damp squib. Only 80 of these per year have emerged over the 10 years between the 2001 and 2011 Censuses.
The decline in home ownership and the numbers of mortgages granted is the result not just of the crash in 2008, but of the ‘irresponsible lending’ which took place at the height of the housing bubble. Despite the fall in house prices which followed, the fundamental problem in regard to home ownership is that prices have been sustained at such a level that in Swindon the ratio between price and earnings is still 6.4:1 (5:1 for 2 people). So long as prices remain so high then many people will be unable to afford a mortgage and the deposit currently required for first time buyers. Helping people who do not earn enough to afford the current level of prices is irresponsible.
“Help to Buy”
The government’s Help to Buy proposal has been widely condemned for the probability that it will keep house prices high. Even the House of Commons Treasury Select Committee has raised serious questions about it. Like Swindon’s proposed entry into the mortgage market, it aims to bridge the gap been the mortgage payments that people can afford and the deposit which, for the most part, they cannot raise.
However, like the infamous ‘subprime mortgages’ they have a sting in the tail. Although they have no interest payments for the first five years, there is an annual fee of 1.75% plus RPI. The mortgagee has to pay later and if interest rates rise, as they eventually must, many of them could find themselves in trouble. In addition what sense does it make to offer support for somebody to buy a house at a price of up to £600,000?
This sits uneasily with ‘social housing tenants’ on JSA having to pay for ‘spare’ bedrooms from their pittance of £71 a week.
The Financial Times commentator Martin Wolf hit the nail on the head when he said
“This is good politics and horrendous economics. Since the peak of the boom, UK house prices have fallen by only 16 per cent in real terms, against some 40 per cent in the US. The ratio of median earnings to median house prices has fallen only 7 per cent from its peak. The government is encouraging people to leverage themselves up to the hilt in order to buy what is already likely to be overpriced property and, as a result of this policy, is likely to become still more so (my emphasis). This is irresponsible enough. But worse, the government will probably now find itself permanently using its balance sheet to support risky housing finance, as the US has done. The market cannot sensibly finance such high loan-t-ovalue ratios. But this fundamental lesson from the crisis is now being thrown away.”
The historic rise in home ownership to 71% was based on artificial factors which enabled people who could not afford to buy to do so. ‘Right to Buy’ was the biggest stimulus based on a giveaway (nearly 8,000 homes have been sold in Swindon). At the height of the boom 100% mortgages were common and courtesy of Northern Rock we even saw the 125% mortgage. Attempts to stimulate growth in home ownership today ignore the fact that a decline was inevitable so long as prices remain way above what people can realistically afford. The ‘flexible labour market’, insecure employment, and a decline in the value of wages has ensured that the decline in home ownership continues. In Swindon these economic conditions have been reflected in a rise of HB recipients in work from 1,250 on November 2008 to 2,700 in November 2012, with a 740 increase since the coalition came into office (Department of Work and Pensions figures).
Despite the worship of home ownership the fact remains that a large proportion of the population does not earn enough to gain a mortgage. Just over half of the taxpaying population has an income of less that £20,000 a year, with 12.8% earning less than £10,000 (Office of National Statistics). ‘Social housing’ remains the easiest and most economic method of providing accommodation for these people, with Council housing more economical that Housing Association homes.
Write off the housing ‘debt’
Given the scale of the housing crisis and the complete failure of government policy to bridge the gap between social needs and what the private providers are delivering, there is need for urgent action. One idea that Swindon Tenants Campaign Group has put forward is to press the government to either write off the ‘debt’ which local authorities were given in the ‘one-off settlement’, or to freeze debt payments for a number of years. This would provide Swindon Council with somewhere in the region of £10 million extra a year for new build and improvement of existing stock. It would have a similar impact nationally.
The Local Government Association has called for the government to end its debt ceiling so that Councils can borrow more than they are currently able. Whilst they should be free to do so under ‘selffinancing’ there are limits to how much debt they could take on because increased debt payments would eat into their rental income which is currently the only source of income they have for maintaining their stock.
Writing off the bogus ‘debt’ would cost the government £13 billion (compared to £15.5 billion for Help to Buy), but that is a pittance compared to what they and the previous government have handed over to the banks by way of ‘quantitative easing’ – £375 billion. The increased spending by local authorities that would result from such action would provide a boost for local economies in socially useful production and would boost jobs.
Instead of using its own resources to promote the PRS the Council should concentrate its efforts on negotiating improved terms for private tenants by way of a certification system which is being introduced elsewhere. As “Housing Market Support” points out Buy To Let mortgages don’t for the most part allow tenancies beyond 12 months. It’s the resulting insecurity of tenure in the PRS which makes life difficult for tenants and leads to a 33% annual turnover.
Short-term tenancies create difficulties for families with children. The Council is right to look towards longer tenancies, but the numbers of such tenancies that it would be able to promote, even if it can find the backers for such a proposal would be a small proportion of the PRS in Swindon. Finally, using Council land for private rent accommodation will mean the loss of land which could be used more fruitfully for Council housing.
“Right to Buy”
The government’s enhanced “Right To Buy” scheme has seen 35 homes sold in Swindon. That it is such a small number, despite the increased terms, is an indication of the level of poverty amongst Council tenants.
However, even these small numbers have an impact. It makes no sense when you have a scarce resource to sell more off. It will only add to the wait of those on the Housing list and the ever increasing rise in their numbers. Moreover, despite the government’s talk of ‘one for one replacement’ we know that for every 30 homes sold in Swindon the Council will only have sufficient money to build 7 to 9 replacements. So we will lose 20 or more for every 30 sold, increasing the shortage.
RTB has been one of the key drivers of the housing crisis, and Swindon Tenants Campaign Group has long held the view that RTB should be ended. That requires a change of national policy, of course, but the Council has even refrained from pointing out that one for one replacement cannot take place in Swindon. It should not be supporting a policy which cuts the available stock.
Council house building
Sooner or later the country will have to face up to the need for a new Council house building programme to address the ‘acute social housing shortage’ (as Swindon South MP Rob Buckland has described it). The ‘bedroom tax’ is callous and inhuman, cutting the already meagre income of tenants. It is also a diversion from the task of tackling the shortage. It will have only a marginal impact on the housing situation. Currently only 43 households have moved and only roughly 1 in 10 of those households subject to the ‘bedroom tax’ have said they are seeking a move. Moreover, certainly over half and probably two thirds of homes with so-called ‘spare’ bedrooms are excluded from the HB cut (pensioners and those who pay full rent).
The longer that recognition of the social need for a new Council house building programme is delayed, the worse the Housing crisis will become. Despite popular prejudice and the propaganda of the government, Council housing currently receives no subsidy. (Housing Benefit is subsidised but it also applies to private tenants as well.) Councils’ only income is tenants’ rent and service charges. Moreover, the ‘debt’ burden has to be paid for by the tenants. With 1.8 million households on the housing lists nationally, and 15,093 in Swindon (including those on the transfer list), it’s clear that the only way that these numbers can be put into reverse is by a return to Council house building on a large scale. Whilst this requires a change in national government policy the door can be pushed open by local authorities and tenants stating the obvious and pressing for recognition of this reality.
What is clear is that ‘the market’ offers no solution to the housing crisis. According to the government’s own estimate 232,000 homes a year (for England alone) are required to keep up with new household formation.
Nationally, even at the height of the housing boom, privately built homes for sale only broke 150,000 in one year. Prior to that, the last year it did so was 1989. In 2008 121,000 were built and since then they have managed less than 100,000 a year. Of course, it’s not just a question of numbers but of what is built and for whom. Only ‘social housing’ can fill this massive gap between human need and what the private market will build for profit. We face a future of increased overcrowding and homelessness unless there is a return to large scale Council house building.
30th April 2012