Today’s Camden housing strategy conference heard from LSE Professor of Economics Christine Whitehead, in a high-level and challenging, but very informative talk, which aimed, in her words, “to give an overview of the major tensions in the housing system and in housing policy” and “clarify why current policies are being put in place”. (She suggested it would be unpopular, but it was clear that what she was saying were observations of events, not views.)
She started by pointing out that everything in the end depended on macroeconomic conditions “but macroeconomists do not know what is going to happen and they do not even know how to analyse it”. But “the chances are that on the whole the future is like the past”.
It’s estimated there are now 1.5 million households across England who pre-crisis would by now have become owner-occupiers, but who are now renting, or living at home with parents. The government was “trying things”, in response to this she said. “If it doesn’t work, they’ll come out of it – it’s a variation of the traditional way of doing things, which was knowing what you want to do”.
The government’s main aims were to reduce welfare costs, target more, use existing assets more effectively, and using housing policy to support growth. It was seeking to move from “supply subsidies”, capital grants and lower rents, which help a narrow range of people and leave out many of those who are worse off, to providing income-related subsidies, more targeted and adjustable as household circumstances change – and which in some scenarios can be cheaper. The affordable rents model is a direct transfer from The Netherlands, but there there is better and more comprehensive social security, a better distribution of income and a stronger capital base.(There, rents of over 652 euros a month are market rents.)
Changes to the rules for Housing Revenue Accounts (HRAs) allow local authorities to borrow (in Camden about £450m) – but the costs of the borrowing will be largely carried by existing tenants. Restrictions on benefits aim to cut rents in the private sector. “Because the housing benefit bill doubled in a period of economic growth and increasing employment, they think that £12bn was doing a good job 10 years ago but £22bn is not doing now. They don’t expect the bill to reduce but expect to contain it to £24bn.” Monitoring out last week suggested there had been some downward shift, but it was early days.
New household formation has fallen, but only to about 230,000 a year, with net migration up chiefly because fewer Britons are leaving. Demand for social housing is rising from lower income employed people priced out of commercial rents.
Interestingly, London now has proportionally more households with children than the rest of the country – that’s never been the case before. In London the level of “owned outright” homes is rising – in large part as a consequence of Seventies “right to buy” (which started earlier in London than the rest of the country). But the number of buying with mortgage is falling because of affordability, which is causing private renting to rise, but in London (unlike the rest of the country) still around 45% of housing is social, and a third of families with dependent children live in social housing.
Increasing pressure on rental housing is also coming from overseas investment demand. “One block in King’s Cross was only marketed in the Far East – it is not clear if the owners are going to let it out or simply hold it.” By to let had disappeared in the economic crisis, but appears to be coming back. Rents in London were rising rapidly, then appeared to stablise, but may be rising again “but the data is crap”.
Quality of management of private rentals was a major problem, Whitehead said, suggesting that councils could provide services to the private sector, ending with a better product and the possibility of cross-subsidy.
Changing the “offer to tenants” raised massive strategic issues about who to house – “so many people in the lower income employed group need social housing, yet there are assumptions that social housing will be for the same sort of people as it was in the past.
“We have been here before, in the Eighties and parts of the Nineties, but a different reality takes over.”
Whitehead said that while the government was theoretically aiming for 80% of market rents for new social housing, the average across the whole London region would probably be 60%. Turnover of social housing is falling, however, in part because people are increasingly prepared to allow more household members, such as adult children.
But the welfare cap means that anyone in London with more than a couple of children “are in trouble” – as are a large proportion of those in more than three-bed accommodation. Forty per cent of those affected by the cap are estimated to be social tenants.
A major issue of concern was “is the software system going to work?” The government didn’t have a great record, and this could leave social landlords with a considerable problem that could extend for weeks or months.
But “is this a coherent longterm viable policy?” The Seventies was the last time we were in quite this situation, but this time there is “content in the rhetoric”. “Their intention is to maintain investment in social and affordable housing while restructuring in a way that meets their objectives. But in 20 years time someone may well be standing before you telling you nothing much has changed.”