|
Memorandum from the Chartered
1. Introduction
1.1 The Chartered Institute of Housing (CIH) is the professional body for people involved in housing and communities. We are a registered charity and not-for-profit organisation. We have a diverse and growing membership of over 21,000 people - both in the public and private sectors - living and working in over 20 countries on five continents across the world. We exist to maximise the contribution that housing professionals make to the wellbeing of communities.
1.2 We welcome this inquiry into housing and the credit crunch. We would however caveat our submission in acknowledging that current housing market conditions and the wider economic environment remain fluid and changes of significant magnitude have until recently been occurring on an almost day-to-day basis.
1.3 n light of this, we suggest that the Committee may wish to revisit this issue at a later stage when a more complete picture of the impact of the credit crunch on housing is possible and when analysis of government and sectoral initiatives may be more revealing.
1.4 As requested by the Committee our submission considers the issues around:
a. Achievement of the Government's house building targets. b. The financial viability of housing associations. c. Further measures to help existing and prospective homeowners.
1.5 It
is not the intention of our submission to dwell on the causes of the credit
crunch and the spread of financial contagion; but needless to say the UK, and
other economies, have experienced unparalleled problems in international credit
markets over the past year, a weakening of our domestic and global economy, and
a dramatic slowdown in the UK residential property market. Today, both housing providers and housing
consumers of all tenures (renting and ownership) in the
2. Achievement of the Government's house building targets are threatened
2.1 In 2007 the CIH, LGA, NFA, Shelter and the NHF worked together to provide evidence to inform the government's comprehensive spending review and in July 2007 CIH welcomed the Housing Green Paper, Homes for the future: more affordable, more sustainable. It contained stretching and ambitious targets around market and affordable housing supply, notably targets around 2 million new homes by 2016, and 3 million new homes by 2020. It also contained significant measures around higher environmental standards and commitments to take forward new approaches to housing delivery.
2.2 The Green Paper was accompanied by records levels of public investment with over £8 billion allocated for the 2008-11 national affordable housing programme.
2.3 In the current climate, it is difficult to predict how these targets are going to shape up for 2016 or 2020. Put simply, there are a number of variables that cannot be accounted for - what new policy prescriptions could be adopted over this time, or indeed what other market changes could take place. However what does appear apparent at this stage, and certainly in the short term, is that these targets are under significant threat and what were stretching targets in stable economic conditions now appear unrealistic without significant changes to "how we do housing".
2.4 Current conditions have seen market house building stall as private developers have adjusted to the twin challenge of falling demand from customers and unprecedented pressure on their asset values and business models. Affordable housing providers, although better positioned, have not been immune to the downturn, especially in light of development programmes that in recent years have become increasingly reliant on cross subsidy from shared ownership and open market sale properties.
3. Starts are down and continuing to fall
3.1 NHBC's figures for September 2008 show that there were 23,185 applications to start new homes in the combined private and public sectors in the three months to the end of September. This is 54 per cent lower than the same period a year ago (50,250). Of that total, 13,358 related to private sector activity (i.e. excluding housing associations), showing a 67 per cent decrease on the same three month period in 2007 (40,876).
3.2 This
severe impact on the output of new homes is continuing, particularly in the
private sector. New home starts in
4. Completions are also down
4.1 The total number of new home completions also fell during the third quarter of 2008. NHBC statistics show new build (in both the private and public sector) completions totalled 33,299 in the three months to the end of September - 20 per cent lower on the same period last year when 41,389 new homes were completed.
5. Skills and capacity
5.1 What remains unclear and of particular concern is what the short and longer term impact of housing redundancies and associated businesses failing will be on housing supply.
5.2 Prior to the current market downturn a number of sectoral bodies including CIH and CIOB had identified significant skills and capacity gaps in relation to both housing supply and management. We have already seen both market and affordable housing providers make significant redundancies, with flow-on effects impacting on smaller business and the wider supply chain. It remains unclear what the hollowing out of this capacity might mean in relation to businesses ability to build new homes when the market conditions improve. Those made redundant from the construction industry in the last market downturn did not return to the sector when the market recovered, leading to a significant loss of skills. We can expect this to happen again if action is not taken to retain people working in the sector. There are several approaches that can help maintain skills and capacity: a. Local authorities and other agencies to work proactively in the current market to create developer confidence where it may not otherwise exist b. Increased public investment in house building to keep volumes of development up c. Specific programmes of public investment to use the skills of the construction sector on other beneficial projects such as retrofitting existing homes.
5.3 Some local authorities and agencies such as Housing Market Renewal Pathfinders are working on ways to give developers confidence to continue building. Work to attract and facilitate development has become unfamiliar in many areas, but the skills developed and held in areas with weak markets can be utilised in other areas to help encourage more development than may otherwise take place. The Chancellor has recently indicated his desire to use public spending to sustain the economy. Housing development led by the public and third sectors can maintain some momentum and employment opportunities, but it certainly cannot pick up the slack left by the decline of commercial housebuilding. There is also a risk that investment in rented housing to the exclusion of other tenures could recreate problems of mono-tenure areas. A new approach to allocations or flexibility of tenure could help prevent this. A number of organisations, including CIH, are considering how public investment in environmental improvements to existing housing stock could provide opportunities to sustain businesses and individuals involved in the construction industry as well as providing a much needed boost to the energy efficiency of existing stock. We hope these ideas can be taken further by government.
5.4 Skills and capacity in planning for housing provision also need to be maintained so that there can be a return to starts on site as soon as they become financially viable. This requires site identification, pre-application discussions, and maintenance of relationships between developers and planning professionals in this quiet period. We are concerned about anecdotal evidence that planning departments are being scaled back at a time when in fact proactive planning may require more not less resources. Scaling back planning teams now could leave us in a position where under-resourced, under-skilled and under-prepared teams slow recovery as the economy picks up.
6. First time buyers and mortgage lending
6.1 Figures for July 2008 from the Council for Mortgage Lenders show that first time buyers continue to be squeezed out of the market. In July 2008 there were 17,300 home loans made to first-time buyers, a 5% reduction from June and 48% down on July 2007.
6.2 The amount of deposits required by borrowers has also risen significantly. On average, July 2008 borrowers had to put down a deposit of 15% of the value of the property, compared to 13% in June, and 10% a year ago. The last time deposits of this size were required by lenders was the early 1980s. While prices may have fallen, much more risk adverse lending criteria have made it more difficult for first-time buyers to buy.
6.3 It is unlikely that the availability of funds and the terms on which funds are advanced will improve in the short term for first time buyers or indeed for home owners looking to remortgage with little or no equity. Furthermore, there appears to be reluctance by many first time buyers to enter the market at a time when prices are predicted to fall further and when government and sector initiatives may provide further incentives for those with finance in place.
6.4 The
housing market is also not immune from wider consumer concerns about the impact
of an economic downturn and the possibility of increased unemployment in the
6.5 The housing association development model has for some time relied on offering ownership products to (mostly) first time buyers and using income from this to cross-subsidise social rented housing. The risks and disbenefits of ownership for lower income groups are currently being highlighted, and so debates are now taking place within the sector about whether it is appropriate for the sector to be creating potentially vulnerable homeowners. These debates are important, and associations do need to be clear that their financial business objectives are compatible with their wider social objectives. It is worth highlighting that the level of advice and assessment that new owners are given when accessing ownership through the housing association sector are perhaps greater than for those entering the sector through other routes.
6.6 We have some concerns about the shared equity products currently being offered to first time buyers by private developers. There is certainly no need for shared equity to be the preserve of the housing association sector, and we are keen that it should move away from being a niche product that is poorly understood by potential homeowners. These products have developed as a way to keep new buyers moving into the market and we are concerned that insufficient thought has been given to what happens once the owners are expected to staircase to full ownership (usually after five years). People keen to get onto the housing ladder do not always project their future circumstances well, and may find they are unable to afford to purchase the remaining share when they are required to. The consequences for these households are currently unclear.
6.7 The rent to mortgage (try before you buy) products that housing associations are starting to offer may be a good way to work with first time buyers in future. However we, like many housing providers, are aware that more work is needed to refine these products.
6.8 The need for good quality financial and housing advice cannot be stressed strongly enough for potential first time buyers at this time.
7. When will they return?
7.1 On
the demand side, buyers will have to be confident that prices are not going to
fall further. Buyers would also need to feel confident about their employment
prospects, which will depend on the UK economy moving out of recession, which
forecasts suggest may be unlikely to happen pre 2010. 7.2 On the supply side, lenders look set to continue to require higher deposits for the foreseeable future. They remain risk averse and are subsequently charging higher fees and focusing on smaller loan to income multiples. Much of banks willingness to open up mortgage products and pass on interest rate cuts will depend upon the wider recovery of the banking system from the current credit crunch.
7.3 In any event, when the dust eventually settles it does appear likely that there will be a re-adjustment of the first-time buyer market. Banks will at some point resume lending to first-time buyers to buy houses. These homes are likely to be lower in price, but larger deposits will be required by the buyers and the loan will represent a smaller multiple of the first-time buyer's income.
8. Financial viability of housing associations - affordable housing holding up but pressured
8.1 The vast majority of housing associations continue to be well placed to weather any downturn.
8.2 Demand for social rented housing remains strong with the LGA suggesting that an average of 90,000 families are joining waiting lists each year and that numbers on council housing registers could top 5 million by 2010.
8.3 Developing housing associations are however facing challenging conditions, in particular those associations who are exposed to cross subsidy from low cost home ownership receipts and market sales[1].
8.4 The significant levels of private finance and the increased importance of shared ownership sales means that some organisations are facing increasing levels of exposure in the current climate. It is important to note that different organisations within the sector are not all in the same position. Levels of borrowing, property and land assets without debt, loan terms and agreements differ between organisations.
8.5 The Housing Corporation is undertaking regular surveys of housing associations and is maintaining a close regulatory watch on developing associations who have high levels of exposure to cross subsidy. While their latest survey has not been published at the time of this submission, it has been their view that current volatility should not as a matter of routine lead to failure or insolvency but that it could result in some restructuring in the market leading to new mergers, consolidations and a slow down in development activity until the housing market achieves stability.
8.6 Our discussions with key people in the sector have shown that the sector is responding appropriately to manage the risks of changing circumstances. Findings from a survey of CIH members, conducted by the earlier this year (May 08) showed that whilst the impact of the credit crunch on individual households could be seen, with increase demand for debt and homelessness advice and difficulties accessing mortgages, most members reported little impact on development or loan/finance plans. However, over the last six months the sector has experienced rapid change, and housing professionals are continuing to respond in a timely and responsible manner - boards are meeting regularly, schemes and business plans are being reviewed, and negotiations with contractors and lenders are active.
8.7 It is important to remember that development is not housing associations' sole business, and that the current financial market will also impact on their ability to deliver 'non-core' activities around community investment such as investment in non-physical regeneration, training schemes etc.
9. Attracting finance
9.1 It would appear that the immediate concern for housing associations remains the performance of the housing market, rather than their ability to obtain finance at a reasonable price.
9.2 The Corporation's July survey confirmed that most associations have facilities of more than two years worth of projected draw downs. The survey shows that of the £5.6 billion associations intending to drawdown in the next 12 months, only £0.4 billion is new debt which has still to be arranged.
9.3 It is however clear from conversations the CIH has had with its members that bank's credit committees are now taking a much tougher line in their dealings with the sector and that associations are having to be mindful that the conditions in loan agreements can be met not only when the finance is agreed, but also at the point when finance is needed.
9.4 There is also some evidence from members that where new debt is required the existing agreed facilities are also being re-examined by cautious lenders. In some instances this has led to a renegotiation of the price on existing debt. Yet, despite this, there remains evidence that banks are still willing to do business with associations and that associations are still able to access new borrowing. It does appear that track records and existing relationships are carrying important weight, with funding from existing funders continuing to be easier than accessing funds from new lenders.
9.5 While there are short term pressures, in terms of price and the number of providers in the market, the longer-term outlook for raising private finance for affordable housing remains strong. Affordable housing continues to be underpinned by RPI-linked income growth, over 60% of which comes in the form of Treasury backed housing benefit.
9.6 The housing benefit rental stream is of particular interest and importance to lenders at this time. It is worth noting that they are likely to have strong views on any changes considered by DWP and HMT in their internal deliberations on housing benefit reform which is due to report in December 2008.
10. Cross subsidy risk
10.1 A much more significant and real risk to developing housing associations at this time is the impact of a fall in house prices on the surpluses associations are able to generate from low cost home ownership and outright market sales. The associations most at risk here are those that are not generating sufficient cash from ongoing activities to meet interest cover payments without the inclusion of sales proceeds.
10.2 The Housing Corporation's April survey reported that as well as seeing a slowdown in stair casing sales there was some evidence that sales of first tranches are also slowing. This was confirmed by their July survey which reported a national slowdown.
10.3 As with the wider market, there is evidence that demand is still strong in pockets of the market especially for larger family homes. Flats, however, are much less attractive as market conditions continue to decline.
10.4 There remains a very real risk that some developing housing associations could be over-exposed if they cannot sell properties in sufficient volumes and at appropriate prices. Again, Housing Corporation analysis suggested that a 20% fall in sales values could be tolerated by most providers.
10.5 There are also questions being raised about the impact on business models of using balance sheet capacity for tenure conversion, in other words, where homes were built with the intention of outright sale or shared ownership they are now being converted into market or intermediate rent. While this may provide a revenue stream and income, they are consuming balance sheet capacity which would otherwise have been used for new development.
11. Section 106
11.1 One of the most notable impacts of the
slowdown in the housing market has been the impact on affordable housing
secured through s106, something which in recent years has provided for over 50%
of stock in
11.2 It is also interesting to note that commercial developers that already had diversified businesses are now shifting more of their work into affordable housing which could lead to notable shifts in the market of affordable housing provision, towards the mixed market of providers sought by the HCA and TSA.
12. Operating costs
12.1 CIH has long argued that a key element of housing associations' businesses that warrants greater focus is core operational activities. More money is spent annually on management and maintenance than new development, and the impact of these activities reach and improve services for a significant number of existing tenants.
12.2 Significant savings have been made here in recent years by leading associations and the government's Gershon efficiency targets have been exceeded. But although the spend in this area across the sector is of fundamental importance the costs per home can vary by 100% between associations. With no immediate or apparent link between expenditure and tenant satisfaction there remain very real opportunities for action here - especially in a tight fiscal environment where efficiencies are even more pressing and important.
13. Opportunities around land prices?
13.1 Residential land values are forecast to decline in the short term to a greater extent than residential property values and in doing so look set to repeat the pattern observed in previous residential property downturns.
13.2 It is forecast that residential land values will continue to fall through to the end of 2009, primarily due to a lack of willingness on the part of banks to provide finance, before bottoming out ahead of the housing market.
13.3 The ability of landowners to hold onto their land banks through the downturn will however ultimately determine the extent of property price falls. Where distressed selling occurs land values could fall significantly below their peak 2007 levels.
13.4 If land prices fall, there may be opportunities for housing associations and public sector more widely to capitalise on falling land prices which could, depending on cost and scale of acquisitions, provide an important opportunity to boost supply once financial and consumer conditions stabilise.
Measures to help existing and prospective homeowners.
14. Economic stability first and foremost
14.1 In
the early stages of the downturn and with the primary concerns addressing
constrained liquidity, government and Bank of England activity was largely
focused on injecting funding into the
14.2 In April 2008, the Bank of England introduced a £50 billion Special Liquidity Scheme (SLS).
14.3 In
July, CIH was part of consortium including the Council of Mortgage Lenders, the
Home Builders Federation, the National Housing Federation and the Royal
Institution of Chartered Surveyors that published a proposal for reopening the
14.4 Essentially, the proposal would have involved financial institutions selling newly originated mortgage back securities or covered bonds to investors, who could then offer them to the Bank of England in return for Government loans. In September, in response to worsening money market conditions, the Bank of England announced a three-month extension of the period in which banks could arrange swaps under the SLS. More significantly, in October it announced it would accept securities linked to loans to companies as security for three-month funding - a major relaxation of its lending terms.
14.5 In October the government announced a far-reaching package that dwarfed previous initiatives:
• Up to £50 billion available to 8 major • Up to £200 billion would be available in short-term loans from the Bank of England; • Up to £250 billion in loan guarantees would be made available at commercial rates to encourage banks to lend to each other.
14.6 In return for assistance under this £500 billion package of measures, participating institutions were required to agree to restrictions on pay and dividends, as well as the acceptance of non-executive Government appointed board members, and to extend normal credit lines to homeowners and small businesses, as well as work closely to support distressed borrowers.
14.7 At the time of writing however it remains unclear what precisely the Government has secured in the way of commitments around resumptions of competitive lending and products from banks and what additional support will be provided to borrowers at risk. CIH would welcome clarification from government as to what its expectations are in this area.
15. Housing market initiatives
15.1 While much of its attention has been focused on wider economy stability and measures to improve bank liquidity, the government has also introduced a number of measures targeted specifically at housing markets. Debt advice services were strengthened early in the year and £9 million was made available for face-to-face debt advice for homeowners in trouble. Other measures announced included permission for the Housing Corporation to spend £200 million buying new properties off the open market, and modification of the eligibility criteria for shared equity schemes so that now all households with an income below £60,000 could apply.
15.2 A
further raft of measures for
a. An extra £270 million allocated through the Housing Corporation for use over the period 2008-11 b. Establishment of a national clearing house through which house builders can approach the Housing Corporation with proposals to sell unsold stock as affordable housing c. Increasing flexibility with respect to when providers can bid to the Housing Corporation for funding from the affordable housing programme, with providers now able to come forward with proposals at d. any time, rather than waiting for the quarterly bidding round as previously required e. Increased funding flexibility so that the Housing Corporation can now offer more payment at the start of schemes delivering affordable and social housing f. Announcement of the sixth round of the housing private finance initiative, with councils able to bid for a share of up to £1.87 billion to build new homes or refurbish existing houses and estates.
15.3 September
brought yet more reforms, the first two of which apply throughout the
a. A 12 month rise in the house purchase stamp duty threshold from £125,000 to £175,000 b. Reform of Income Support for Mortgage Interest (ISMI) for owners of working age. From April 2009 the waiting period before ISMI is payable will reduce from 39 to 13 weeks and the capital limit for new c. Claims will increase to £175,000. This is an important recognition of the low take up of mortgage payment protection insurance and a partial reinstatement of the position prior to the mid-1990s d. A new £300 million shared equity scheme targeted mainly at first time buyers. Homebuy Direct will provide an equity loan of up to 30 per cent of the value of a new property, co-funded by the government and the developer, free of charge for five years. As with other shared equity schemes, buyers with a household income under £60,000 will be eligible e. £200 million for mortgage rescue (involving RSLs offering shared ownership, shared equity or sale and rent back options to eligible households) f. £400 million affordable housing programme funding brought forward from 2010/11 for use in 2008/9 and 2009/10. Local authorities with existing stock are allowed to apply for this grant to build social housing.
15.4 CIH welcomes these measures and believes they offer important support for the construction industry, first-time buyers and some of the most vulnerable households facing repossession.
15.5 In addition to these important proposals CIH believes it is important that work starts in earnest to look at what change is needed to secure more stable and effective housing markets in the UK going forwards.
16. Homebuy direct
16.1 Homebuy direct has the potential to provide a way forward for first time buyers currently frozen out of the mortgage market by providing interest free loans for deposits. It could also provide an important lifeline for developers, helping to support their short term viability and improve prospects for a return to much needed market house building. We look forward to details of this scheme, in particular around developer contributions and any fees for consumers that might be leveraged on the loans.
16.2 An important element of the scheme will be the need to make sure that the people accessing the loans will be able to sustain their home ownership over the long term and that this doesn't just create a new tier of deferred sub-prime borrowers.
16.3 We would also hope that if the government is effectively underwriting deposits, that there would be some kind of quid pro quo from lenders. We would hope that this would include an appropriate re-pricing of risk on interest rates and application fees.
16.4 If this product is targeted at empty or newly developed homes we also need to recognise its limitations in helping home owners up the chain who need to move. There is a degree of risk that this if this product is targeted at empty or new homes then it could inadvertently undermine sales of occupied first time properties on the open market and therefore stall movement for existing home owners looking to move.
16.5 There are other products that will however compliment this initiative by supporting buyers wishing to pursue already owned housing (for example the new Mychoice Homebuy and Ownhome products). It will be important to ensure that eligibility criteria is complimentary and that this full range of options is provided to potential consumers.
16.6 A number of questions will need to be considered in looking at the detail:
a. How best to coordinate and market the options to potential purchasers? b. Are allocations first come first served - what happens if there is considerable demand c. for the product? d. Why would a purchaser do this rather than take the shared equity deal developers are e. already marketing? f. What will developers do with the extra help they're getting?
17. Mortgage rescue
17.1 The government has announced that it wishes to support up to 6,000 of the most vulnerable homeowners facing repossession to remain in their home through a £200m mortgage rescue scheme
17.2 In early 2008 CIH worked closely with government, its agencies, lenders, local authorities and housing providers to develop a detailed working model for a mortgage rescue package.
17.3 Commissioned by the Housing Corporation, the government agency charged with delivering the housing rescue package, the CIH mortgage rescue model helped inform the government's decision to introduce a new scheme. We are very pleased to see the primacy of roles proposed for housing advice services and financial assessments in the government scheme, and we similarly welcome the decision to offer a number of rescue options that can be used to meet individual circumstances.
17.4 However, while full details of the government scheme are yet to be announced, we are concerned that its emerging design will limit its capacity to deliver benefits to individuals and communities.
17.5 The CIH model proposed a new national 'vehicle' for managing the funding and administration of any new rescue scheme. This approach was considered preferable to administration through housing association Zone Agents because it offers:
a. Avoidance of a postcode lottery for mortgage rescue eligibility (which will arise if local flexibility to fund or extend the scheme beyond priority homeless groups is given in the government scheme);
b. More effective negotiation with mortgage lenders through one central point staffed by skilled and dedicated negotiators - this is particularly important given the predominance of repossessions initiated by non-mainstream lenders who offer less flexibility in their arrears recovery procedures;
c. The ability to lever in funding from beyond the £200 of public money and to use it consistently across the country to extend mortgage rescue beyond priority homeless households. CIH proposed raising funds through a levy on mortgage lenders benefiting from mortgage rescue that may otherwise have had to write off debts - a proportion of the value of the rescue would have to be paid to the scheme in the form of a short term loan. It would also be possible for other bodies wishing to support mortgage rescue (housing associations, local authorities, regional assemblies etc) to put funds into the national vehicle and get a return in the long term;
d. Avoidance of reliance solely on housing associations whose funds are already squeezed by the current market downturn;
e. Housing associations and local authorities who do not have sufficient skills and financial resources to deliver mortgage rescue on the scale required would have access to a national expertise and funding.
17.6 CIH has a particular concern about limiting the mortgage rescue scheme to priority homeless households. This approach does not recognize the differing scale of the impact of repossession in areas with already weak housing markets. It may be prudent to rescue households that would not be considered priority homeless in order to protect the wider housing market and therefore the wider community. This could help to protect money already invested through market renewal pathfinders, for example. We are aware that some organizations are already considering offering supplementary rescue products in particular areas - this clearly meets a need but will be confusing for households and mortgage lenders alike.
17.7 In
addition, there seems to be no ambition to use the mortgage rescue beyond the
length of the current housing market problems. We feel there is merit in
exploring whether a mortgage rescue type vehicle could be adapted in future to
create greater flexibility in the housing market e.g. by creating a real tenure
ladder on which households can move between full ownership, part ownership, and
renting in the same property as their needs change. This could be useful to
many, in particular to households whose incomes fall but who are not at risk of
repossession (e.g. on the birth of a child, or loss of household income) and to
older people who need to release equity or reduce their property maintenance
commitments. This would be a radical new approach to tenure in the
17.8 If we are to avoid the need for mortgage rescue in the future, work needs to be started now to enable households to better protect their status as owners e.g. by making mortgage payment protection insurance a viable and attractive product for more households. A more effective safety net for homeowners (which involves a culture of advice seeking and provision, Support for Mortgage Interest, payment protection insurance) will reduce the need for emergency measures like mortgage rescue schemes.
18. SMI reform
18.1 CIH has for some time called for reform of income support for mortgage interest and the announcements from DWP are welcome. SMI will be particularly important if unemployment levels continue to rise and the numbers of home owners out of work hits new levels. We recognise that changes to the system will take time and although the April 2009 deadline seems a long way off, these measures will be pressing if levels of unemployment rise sharply.
18.2 It will be important to fully integrate SMI with the other measures announced today and to also take a long term view on a new approach to income protection for home owners. SMI shouldn't be distinct from wider mortgage rescue offers - it needs to be a step on a spectrum of support - from SMI and support to retrain or find a new job and therefore getting back in to employment, through to today's measures on moves from full ownership into shared ownership, shared equity or sale and rent back for people whose ability to clear the capital on a full mortgage is not going to improve over time.
19. Fast tracked social housing investment
19.1 A key advantage of work that has been done in recent years to modernise the government's affordable housing programme is its new ability to engage with the market as and when needed. In this instance this has the potential to pay dividends and help maintain social housing supply at a time when market conditions have eroded development across the entire housing sector. Notably falling house prices and land sales by developers may provide some opportunities for investment that previously weren't possible.
19.2 Importantly it will both provide much needed new social housing, but also help maintain capacity in the sector by providing employment for people in the construction sector. Consideration must be given to the capacity of social housing providers to bring forward the additional funding and staff provision needed to support increasing their proposed development programmes.
19.3 We must also be careful not to sacrifice the goals of mixed and sustainable communities by increasing social house building without matching market housing.
19.4 It is clear that in looking ahead new thinking is required to address the risks associated with the over reliance on market housing and planning gains to deliver social housing provision. Again, one of the unintended risks of this approach could be undermining attempts to mix estates. If we have to choose between halting all development and keeping some of it going by bringing forward the social housing element in a non-pepper-potted way then we will clearly go for the latter. Importantly we need to understand the impact down the line of our actions now in continuing to concentrate social housing in distinct areas.
20. Working with Regional Development Agencies to support the most critical regeneration schemes with the most potential to transform their communities.
20.1 CIH welcomes government's commitment in this area. A real risk in current market conditions is that they will undermine the achievements and plans in market renewal and regeneration areas.
20.2 While new housing is often critical to successful regeneration schemes and taking steps to address the collapse in new supply must be to the fore, it is equally important not to sideline investment in existing communities.
20.3 and better meeting the needs of people in current housing.
20.4 Similarly, evidence from the housing market pathfinders and market renewal areas has shown the economic and social transformation that can be brought about by reinvigorating existing homes and neighbourhoods.
20.5 Accordingly, we would ask the government not to lose sight of its commitments or limit its ambitions around existing communities. Funding for today's housing market package must not come at the expense of investment in regeneration and market renewal.
20.6 We also urge government not to delay or hold back on its housing reform agenda. Transforming communities is about not only the quality and supply of housing, but also the way in which those homes contribute to people's lives.
21. Stamp Duty holiday
21.1 CIH welcomes clarity from government on this and believes that the proposed holiday will provide a financial benefit to people looking to buy properties under £175,000. The impact of this announcement has been twofold. First a degree of financial relief for purchasers in securing a mortgage, secondly clarity and confidence about how the tax system will operate. CIH believes however that a longer term, more considered view on stamp duty is required. The current system remains cumbersome and can skew house prices around the various thresholds.
21.2 While the housing market announcements were positive steps and together constitute a welcome cross government response to challenging conditions, it does appear that their impact will remain limited until liquidity returns to lending markets and wider economic confidence.
22. Where next?
22.1 Most commentators, not unsurprisingly, are forecasting declines in residential property prices in 2008 and 2009 with some commentators suggesting that the price decline will continue into 2010.
22.2 Capital
Economics, who for a long time suggested a correction in
22.3 The Centre for Economic and Business Research (CEBR) also forecasts a short-term outlook of declining property prices, but suggest that between 2009 and 2012 property prices will recover and rise by 30%. This is primarily due to the ongoing shortfall in housing supply.
22.4 Both
HBOS and Nationwide, the two largest mortgage providers in the
23. Recovery?
23.1 A recovery in house prices in the medium term is supported by a number of factors:
23.2 Firstly,
supply constraints in the
23.3 Second, interest-rates are at historically low levels and are likely to fall in the short to medium term. Furthermore, mortgage interest payments are a smaller proportion of household disposable income than they were in the housing crash of the early 1990s - it should be recalled that interest rates peaked at 15% at that time with drastic implication for the affordability of mortgages.
23.4 Third,
the
23.5 Finally, as the 'baby boomer' generation approaches retirement, intergenerational transfers of wealth (at or before death!) should help to alleviate affordability issues for siblings who are first-time buyers.
24. Conclusions
24.1 Has the policy response been sufficient? Now that the £500 billion UK bank stabilisation programme and a range of housing specific measures have been announced, should we adopt a wait and see approach?
24.2 Clearly more should be done, both short term and long term, to help the housing system through its current difficulties and to prevent new problems emerging through the development of future housing market bubbles. The current situation offers opportunities for government and its agencies, housing organisations, and individual households to reconsider what policy and practice approaches should be taken to all parts of the housing market.
24.3 This is not necessarily an ideal time or environment to be best determining long term policy positions - we need a better understanding of how the economy will be in future to make sound judgements about what policies will be feasible or effective. However, two important things need to happen:
a. Government, its agencies and organisations involved in housing must keep working towards long-term goals. b. Government, its agencies and organisations involved in housing must start to explore and articulate what policy positions could be achievable and desirable in the future.
24.4 On the former point, of course a lot of energy must be deployed on keeping businesses and households afloat in the current conditions, but this must not be at the expense of long term strategic planning and preparation. Work to secure control of land for new housing, masterplan new developments, and set out aspirations for development must continue so providers can start delivering as soon as the market allows. Failure to undertake these activities will lead to a longer than necessary hiatus in new housing provision. Efforts to build mixed tenure communities must continue, and it may be better not to build social housing in some areas than to risk re-creating mono-tenure areas which history shows do not work.
24.5 On the latter, we set out key questions which need to be asked, and options which should be explored:
a. How can government create an environment in which future housing market volatility is curtailed? While the credit crunch has served as the catalyst to trigger the current housing market down turn, the levels of house price inflation and pronounced issues around housing affordability before the downturn suggest that for the large part our housing markets were failing to provide for an increasing number of people in society - whether in employment or not - whether seeking home ownership or affordable rental in any tenure. How best then can government create an environment in which the return to pre 2007 status quo is not the only or accepted option? b. Does government and society want to maintain its preference for homeownership to be the majority tenure? Current reports of negative equity, rising mortgage costs and repossessions have generated questions as to whether individual ownership is as desirable or appropriate as first thought - the benefits can be great, but risks and penalties can be high too. CIH has always been an advocate of renting as a legitimate tenure of choice, and has also explored ways to deliver the benefits of ownership while minimising the risks (see our work on HomeSave and Save with Rent). We are currently sitting on the Inquiry into Mutual and Co-Ownership Housing, and can see that there is a positive case for growing mutual rather than individual ownership options in the future. However we are aware that these options are not necessarily considered desirable by society in general, and this awareness raises questions about whether housing policy should in future seek to deliver what people want or should be more open to options that might be considered better and safer options for society. The proposed rented housing green paper provides an ideal opportunity to plan for a stronger social and private rented sector and CIH thinking on reform is included in our recent publication Rethinking Housing. c. Is it desirable for capital gains in housing to continue to play such an important role in wealth accumulation? Home ownership, especially where multiple properties are owned, is known to create an asset gap between those who own and those who do not. However, it has also become a key way for individuals to provide for their future income needs. House price inflation could be curbed, although some of the means to do so (e.g. capital gains tax) may never be politically desirable. If people cannot gain assets through investment in property, difficult questions must be asked about how else they can meet their needs for income in later life. This takes us beyond the realm of housing and into policy for pensions and personal care. d. How
can we make it easier to move smoothly between tenures without moving house?
Certain tenures can meet a household's needs best at different stages in their
lives, e.g. by growing or releasing assets, gaining or reducing responsibility
for maintenance, increasing or reducing housing costs. But flexibility between
tenures is underdeveloped in the e. What model of development funding can best deliver social and affordable housing? The use of government money to lever private funds through investment and cross-subsidy by housing associations and other providers has been effective over the last 20 years. Similarly, the use of planning gain (s106) to secure affordable housing provision through market housing development has enabled provision of significant amounts of housing without dependence on public funding. It is clear that neither model is suitable to deliver sufficient volume of properties in the current market. There have been calls for a return to a state-led model, but this swing between two models is undesirable. State-funded provision is inefficient in a buoyant economy, and market-led provision can quickly make delivery stop in a downturn like the current one. The ideal seems to be a model that has the flexibility to maintain stability in delivery in changing markets. The Housing Corporation and English Partnerships have certainly shown responsiveness and flexibility within their own policy approaches, but this needs to be taken wider and a suitable model for national policy developed. The challenge for the new Homes and Communities Agency is to expand the mixed economy of provision, in particular identifying and nurturing the role of local authorities as local leaders and facilitators of housing provision - it is important that this emphasis is not lost irrespective of whether an authority chooses or is able to develop directly. f. How can we maintain a focus on providing housing that households want and need, rather than what organisations are able to / most benefit from providing? Some delivery models, and the products they offer, have been developed to meet the needs and aspirations of providers but are not ideal for households or society. Flatted developments with off plan sales to investors have made development possible in a time of high land prices, but communities do not want or aspire to life in small flats with low levels of management. There has been criticism of shared ownership on the grounds that it is expensive for purchasers compared to the benefits they receive, but its provision has been central to funding of social housing in many areas in recent years. Consideration must be given to ways to provide the housing we want rather than the housing we are able deliver in the market context - more intervention may lead to better long term outcomes. g. Can shared ownership be considered a tenure in itself rather than a stepping stone to full ownership? There is a growing base of evidence which shows that shared owners are not staircasing into full ownership, and that some purchasing in this way may never be able to do so (see Achieving mobility in the intermediate housing market, CIH/JRF). If this is the case, the offer to these people, long term property management, and housing organisations' business models need reconsidering.
25. Further information
The CIH welcomes the opportunity to respond to this inquiry, and is happy to discuss any aspect of our response as required.
November 2008
[1] It is important to distinguish between developing housing associations and those who do not or can not access the Housing Corporation's development programme. An unresolved question for debate remains how it may be possible to unlock the (significant) capacity of non-developing associations to support future development. |