Select Committee on Transport, Local Government and the Regions Sixth Report


VAT on refurbishment

28. The Council of Mortgage Lenders described charging full council tax as a penalty to home owners and argued that incentives would be more effective.[70] Such incentives could include further changes to VAT. The House Builders' Federation's memorandum observed that, "The reduction in VAT for the cost of converting residential properties will have an impact as it reduces the overall cost of such schemes. Further reductions would provide a greater incentive."[71] Several organisations have proposed reductions in VAT from 17½ per cent to 5 per cent on refurbishment and go on to propose that VAT should be harmonised at 5 per cent across new build and refurbishment.[72] It is argued that this would encourage refurbishment and have little long term effect on overall house prices. The income to the Treasury lost from the reduction in VAT on refurbishment could be offset by the income from VAT on new build. Pricewaterhouse Coopers' memorandum to our predecessor Committee's inquiry into the Proposed Urban White Paper concluded,

    "Equalising VAT rates on housing will:
  • increase the number of refurbishments of residential property relative to the supply of new build houses and the conversion of non-residential properties;
  • have only a relatively small effect on the price of houses, especially in the longer term, with most of the impact being felt in terms of the value of land and properties for conversion/refurbishment."[73]

29. The inquiry into the Proposed Urban White Paper also heard concerns that charging 5 per cent VAT on new housing might make some brownfield developments unviable.[74] The National Housing Federation told us that this would depend on the condition of each site.[75] In order to ensure that development is not discouraged on brownfield sites, additional support for them is needed. One way of achieving would be to avoid levying any VAT on such sites. We recommend that Government reduce VAT to 5 per cent on housing refurbishment projects and raises it to 5 per cent on new build, private greenfield housing schemes.

Using empty property to meet housing need

30. Empty homes are, as the DTLR's memorandum stated, "a wasted resource."[76] This is particularly apparent in areas where housing is in short supply. There is currently estimated to be a national requirement for 83,000 new affordable dwellings per annum, over the period to 2016, of which approximately 50,000 per annum are required in the southern regions of England.[77] London, the South East, South West and East of England report 327,100 empty homes, of which 90,700 have been empty for more than 12 months.[78] In crude terms (leaving aside issues of price, location and quality) the long term empty homes thus represent almost two years worth of the required supply of affordable housing in the southern regions.

31. The Empty Homes Agency highlighted the need to have local targets for the reduction in the number of empty homes.[79] There is currently a Best Value Performance Indicator (number 64) which measures the number of private sector houses, vacant for more than 6 months, which have been brought back into use by the local authority. This is not an adequate measure of whether or not the total number of empty homes has reduced because other houses can become vacant as quickly as the local authority brings these properties back into use. Southampton City Council explained that despite many individual properties being successfully re-occupied, the vacancy rate in the city has remained constant at 5 per cent in recent years. Empty properties are indeed a wasted resource, particularly in areas where housing need is high. The current Best Value Performance Indicator is inadequate and we recommend that in such areas, local authorities should set Best Value targets to reduce the number of empty homes in all tenures.


32. Although the number of public sector owned vacant properties is small compared to those in the private sector, many of the memoranda underlined the importance of good housing management to minimise voids (or vacancies). Whilst management practices have improved over the last ten years,[80] research undertaken for Shelter in 1999 found that bad management practices such as delays in nominations, unsuitable offers being made, badly planned initiatives to deal with security and delays in repairs were still leading to public sector vacancies.[81] However, one of the main causes of the continuing high levels of voids in the public sector stock is now regeneration activity. The Greater London Authority's memorandum observed, "Where vacancy rates are above 3 per cent in a Borough this is usually a feature of regeneration activity."[82] In the Tarling Estate in Tower Hamlets, which we visited, we saw a 'decant process' which has now run for more than two years as the Council seeks to persuade residents of the benefits of moving to alternative accommodation until the whole block of flats is empty.

33. Where high public sector vacancy rates cannot be attributed to regeneration activity, management practices should be reviewed. We learned from the Housing Corporation that an appropriate vacancy rate in the registered social landlord sector would be a maximum of 2 per cent.[83] Aggregate figures on empty homes should identify the local authority and registered social landlord empty homes which are being held for demolition / refurbishment, separate from those which are intended for re-letting. Local authorities in healthy housing markets holding more than 2 per cent of their stock vacant and not for regeneration should be required to undertake an immediate review of the housing management function.


34. In areas where demand is generally strong, there remain "poorly designed estates which can yield a large amount of unpopular housing, management and social problems, crime, lack of security and high turnover,"[84] despite a shortage of affordable housing. In Tower Hamlets, we visited the Ocean Estate a typical example of dire urban planning (built between 1949 and 1975) which the council intends to rebuild. A number of residents have exercised their Right To Buy since the regeneration scheme was proposed and prior to the point at which a possession order can be granted by the court. This has made the project more expensive and difficult because the council then needs to buy back those houses from their new owners at market value-an additional cost to the council of up to £70,000 per flat, as a result of the high house prices in the area. The cost of purchasing these privately owned properties (approximately £25 million) is equivalent to the entire budget for housing available through the Ocean Estate New Deal for Communities programme.[85] Whilst this is a significant problem in Tower Hamlets, it potentially has wider implications throughout London and other areas where house prices are high, as Councils seek to regenerate their housing stock. We recommend that councils should be allowed to suspend the Right To Buy where they have passed a formal resolution to consult on clearance to save the additional cost to the public sector of purchasing homes from private owners in places where house prices are high.

Licensing private landlords

35. "In November 2001, the Government produced a consultation paper, Selective Licensing of Private Landlords, [86] following a campaign by local authorities from all parts of the country, led by Gateshead Council.[87] The Government has proposed a new power under which local authorities could apply to the Secretary of State for permission to introduce a landlord licensing scheme in areas of low demand for housing. This would take the form of landlord accreditation and would have a strong emphasis on giving the landlord the responsibility to deal with tenants' anti-social behaviour (which we discuss in greater detail below).

36. The Government's proposals differ from those of Gateshead Council in three important respects:

  • links to housing benefit;

  • the condition of the property; and

  • whether the coverage of the scheme should be national.

Under Gateshead Council's proposals, "A licence would be a prerequisite for the payment by a local authority of housing benefit."[88] The Government's consultation document does not make any clear commitments about the link between licensing and housing benefit on this issue. It states, "The Government will be studying this proposal further in the context of its work on longer-term options for the housing benefit system."[89] The Government's proposed licensing scheme would also require landlords to prove their compliance with basic safety requirements in relation to gas, electricity and furniture which the Government argues will have a worthwhile impact on tenants' health and safety. However, licensing is not proposed to cover general issues relating to the condition of individual properties.[90] Councillor Peter Mole of Gateshead Council told us that the proposals do not go far enough in this area,

    "It gives somebody a licence to make sure the gas regulations are right, electricity regulations are right but the house inside can be in a terrible condition for people to live."[91]

The Government's own consultation document notes that the conditions of private rented housing tend to be worse in high demand areas where there is little alternative for tenants,

    "Typically the problems associated with the private rented sector in high demand areas are of a very different character. These include problems of poor repair, poor management, high rents-and above all, a desperate shortage of decent accommodation, particularly at the bottom of the market (and especially for tenants claiming housing benefit)."[92]

The Government argues that to license the entire private rented sector across the country could jeopardise the supply of rented housing in high demand areas. However, Gateshead Council argued that their experience was that licensing schemes do not discourage "good" landlords from continuing to operate.[93] The Government's proposals for the licensing of private landlords do not go far enough. Across the country some of the poorest tenants are living in some of the worst quality private rented accommodation. The Government should give all local authorities the discretion to license those private landlords whose tenants are in receipt of housing benefit. Only properties which are fit for habitation should receive a licence."

70   Q 408 Back

71   EMP59 Back

72   Chartered Institute of Housing (EMP42), Royal Institution of Chartered Surveyors (EMP55), Empty Homes Agency (EMP49) Back

73   UWP119 printed in HC185-II Back

74   Eleventh Report of the Select Committee on Environment, Transport and Regional Affairs, Session 1999-2000, Paragraph 140, HC185-I Back

75   Q 425 Back

76   EMP26 Back

77   The Shelter Investment Report Holmans, Whitehead and Currie, 2001, quoted in the National Housing Federation, Chartered Institute of Housing and Local Government Association Submission to the Comprehensive Spending Review, 2002 Back

78   EMP26, Annex 1, Table 3 Back

79   Q 58 Back

80   EMP47 Back

81   EMP44 Back

82   EMP40 Back

83   The Housing Corporation's Performance Standards and Regulatory Guidance states that the proportion of homes vacant and available to let should not be more than 2 per cent, EMP86(b) Back

84   Chartered Institute of Housing, EMP42 Back

85   Note of visit to Tower Hamlets Back

86   Selective Licensing of Private Landlords: A Consultation Paper, DTLR, 2001 Back

87   EMP13i Back

88   EMP13i Back

89   Op cit, Paragraph 57 Back

90   Op cit, Paragraphs 34-36 Back

91   Q 320 Back

92   Op cit, Paragraph 16 Back

93   Qq 321-322 Back

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