Memorandum from The Joseph Rowntree Foundation
(JRF) (CRED 40)
ABOUT THE
JRF
The Joseph Rowntree Foundation (JRF) is one
of the largest social policy research and development charities
in the UK. For over one hundred years we have been searching out
the causes of social problems, investigating solutions and seeking
to influence those who can make changes. We do this by: gathering
evidence from research and from practice, including the work of
the Joseph Rowntree Housing Trust; communicating the messages
widely and impartially; and working in partnership with others.
Our research is made freely available to all through our website
(www.jrf.org.uk).
This memorandum draws on a range of JRF research
projects, summaries of which are attached. However, it is worth
at this stage highlighting one—a short report published
in July this year which compares the current down turn with the
one that occurred in the early 1990s and identifies significant
differences. This clearly sets out many of the issues that will
be of concern to the Committee and can be found in Appendix I.
SUMMARY
— Under the current circumstances it
seems unlikely that the government's new house building targets
will be met without a significant increase in investment from
the public purse.
— The government needs to ensure that
releasing funds for housing associations to buy empty stock does
not incentivise them to buy stock that is inappropriate for their
clients' needs or for their association's long term business plan.
— Many of the government's recently
announced interventions in the market were used during the last
down turn in the early 1990s with limited effect. Of greater importance
is the announced pre-action protocol for lenders.
— The recent growth in unemployment
is very concerning; any significant increase in unemployment rates
is likely to have a negative impact on 2009 repossession levels.
— The effect of debt and repossession
on families is profound and long-lasting, and high levels of repossessions
also have wider social impacts. For both of these reasons, repossessions
should be avoided if at all possible.
— The Committee should use this opportunity
to consider some of the longer term questions this down turn poses,
such as the delivery of new homes, sustainable levels of home
ownership and balancing fiscal incentives across the tenures.
Achievement of the Government's house building
targets, both for market and for social housing
As set out in the JRF's response to the 2007
Housing Green Paper, the targets for new build market and social
housing were welcome but very ambitious given past supply and
committed funding from the CSR.
The achievement of the targets for market and
social housing are highly intertwined. As JRF research highlights
(Whitehead 2007—see Appendix II) the number of units provided
by single tenure sites has been declining for some time. This
gap has been filled by housing associations (HAs) using cross
subsidy from market housing sales to provide additional affordable
homes and private developers being required by planning agreements
to provide affordable housing (with this latter element alone
providing around 50% of new affordable housing in recent years).
With market sales rapidly falling, and private
developers cutting the number of new sites being brought forward
on which planning gain would have been sought, the target for
two million new homes by 2016 looks unachievable without a significant
increase in investment of public funds.
The financial viability and ongoing business of
housing associations
As mentioned above, the drop in market sales
that housing associations used to cross-subsidise their schemes
will affect the financial viability of certain developments.
The government has brought forward Social Housing
Grant spending so that housing associations can purchase empty
stock from developers or on the open market. This approach was
also used during the last housing market downturn, and evidence
from our research suggests that there were problems arising from
the scale and location of some of these developments, particularly
where they were sited away from infrastructure and services.
Measures to help existing and prospective homeowners
affected by the credit crunch
Our response to the governments' proposed measures
is based on a
report comparing this down turn with the one in the
early 1990s, which is attached at Appendix I.
— One year Stamp Duty holiday on
homes worth up £175,000
This compares with a 6 month Stamp Duty holiday
from December 1991 on homes worth up to £250,000. Given the
fact that fewer than 1% of transactions exceeded £250,000
at the time, this amounted to a virtual suspension of stamp duty.
However, the impact of this measure was limited: the number of
transactions it brought forward were not sufficient to revive
the market, and when the "holiday" ended, transactions
fell away.
— Offering 10,000 first time buyers
currently frozen out of the mortgage market the chance to get
onto the property ladder through a new £300 million shared
equity scheme
This compares with a £173 million "tenant
incentive" scheme launched by the government in 1992 which
enabled just over 5,000 social tenants to purchase a home, mostly
on the open market.
The current scheme aims to support more first-time
buyers but through shared equity rather than full purchase (see
later section on shared equity).
— supporting up to 6,000 of the
most vulnerable homeowners facing repossession to remain in their
home through a £200 million mortgage rescue scheme
This is proposal is similar to a mortgage rescue
scheme launched in 1991 which was intended to help around 20,000
households, but in fact only reached 2,000. Problems with the
1991 scheme included a lack of security for lenders' loans to
housing associations, rents that often exceeded mortgage payments
and a reluctance to participate amongst home-owners.
Though we won't know the full details of the
current scheme until December or January, given the growing scale
of repossessions—forecast to be 45,00 this year and likely
to be higher in 2009 if unemployment continues to rise—the
commitment to help 6,000 households will make very little impact.
— a £400 million boost in spending
power for social housing providers, including registered social
landlords and councils, to deliver 5,500 more social houses over
the next 18 months by bringing funding forward
In 1992 the government's "mini-budget provided
£612 million of new money for housing associations"
development programme. This was in large part used to buy existing
empty properties and the government target of 18,000 empty homes
being taken off the market was exceeded.
However, evidence suggests that this may have
incentivised housing associations to take action that did not
meet the needs of their client groups, and despite taking empty
homes out of the market, house price falls continued into 1993
and 1994.
— £100 million investment to
support ISMI reform which could help prevent a further 10,000
repossessions
This measure effectively rolls back many of the
cuts made to ISMI in 1995. While welcome, it is important to note
its many restrictions. Home owners can only receive ISMI if they
are in receipt of JSA, Income Support or Pensions Credit and ISMI
only becomes available after 13 weeks on the benefit in question.
Further it only covers interest payments on a capital amount up
to £175,000 using a standardised interest rate which may
be below the claimant's actual payments leaving them with significant
shortfalls. Finally, the extension is not being implemented until
April next year. The Treasury estimates this will help 10,000
homeowners when implemented, a figure which stands in sharp contrast
with suggestions that repossession levels next year will be higher
than this year's projected 45,000.
Importantly, this benefit does not cover those
homeowners facing repossession because of reduced in-work income.
One possible remedy would be to introduce a housing element to
the tax credit system. This could be based on regional housing
costs to support families in work and would also offer a stronger
back to work incentive for those needing to claim ISMI (see Appendix
IV). Whilst this proposal would support vulnerable homeowners
during the downturn, any decision to implement it over the long
term would need to take account of the risks associated with further
incentivising home ownership.
— Pre-action protocol for courts
in mortgage repossession cases
We welcome the introduction of a pre-action protocol
as it should ensure lenders take all possible steps before seeking
a repossession order. It is hoped that the pre-action protocol
together with potentially falling interest rates will slow repossession
growth.
The impact of repossession on households
The global nature of the credit crunch, the
vast sums of money at stake, and the use of terms such as "toxic
debt" all mean that the very real impact this is having on
people's lives can be forgotten.
It is worth emphasising that many of the households
facing repossession are already experiencing poverty. DWP research[31]
highlights that half of all households in poverty are homeowners,
with between 30-50% having an outstanding mortgage. If applied
to current figures[32]
this equates to two to three million people in low income households
with a mortgage in the UK.
The the recent rise in unemployment and potential
drops in earnings are of key concern as 55% of homeowners have
an outstanding mortgage with over 90% of these relying on employment
to meet their mortgage payments in the first instance.
Repossessions have a deep and long lasting impact
on the mental, physical, educational and financial lives of the
families involved. The impact of repossession doesn't begin or
end with the loss of a home. It is often preceded by months of
building debts and court appearances and followed by months or
even years of continued debts, moves to new accommodation and
compounding levels of ill-health. Further, the number of households
repossessed is the tip of the iceberg. The headline projection
of 45,000 repossessions by the end of the year hides a further
170,000 households projected to be over three months in arrears
(CML), with some significantly beyond three months behind and
facing all the distress this causes.
Research by the JRF on the social consequences
of repossession highlights these concerns starkly. Adults experienced
stress, depression, declining physical health and very strong
feelings of insecurity, low self-esteem and inadequacy. The study
highlighted that this was particularly the case for women who,
tended to stay in the family home with the children after a relationship
breakdown and face the brunt of the financial difficulty. The
distress of parents had a direct and long lasting impact on the
children of the family.
QUOTES FROM
THE RESEARCH
"I haven't got the same energy that I
used to have, it drains you does this. It drains you physically
and mentally ... All the worry, all the debts, everything. And
especially since this [the £60,000 owed on the house]
has come up. I mean since [the debt clearing agency] contacted
me I've been getting chest pains. And it was when they contacted
me; it was just after that I came down with the first bug. Because
stress depletes the immune system". (Lone mother with
one dependent child, repossessed in 1993 through relationship
breakdown)
"I just wished that there was something,
some difference or some way, that I could have helped my Mum to
prevent it from happening" (Child of lone mother repossessed
in 1997 due to relationship breakdown).
The chief conclusion of this work was that repossession
should be avoided at all costs given the long lasting impact on
adults and children involved and costs for wider society as a
consequence of escalating health and education support needs.
The private rented sector
The JRF would ask that the Committee also keep
in mind the effect the current economic down turn is having on
tenants in the private rented sector. Alongside the growing risk
of unemployment and rising household costs, in many areas tenants
are facing rising rental costs and, for an important minority,
the need to quickly find alternative accommodation when a landlord
is required to sell. Further, there is some suggestion that the
quality and frequency of maintenance and repairs in the sector
may fall during this period of economic downturn.
Considering the medium-to-long term
While it is vitally important to consider the
short term impact on families and the interventions that may help,
it will also be important for the Committee to consider medium-to-longer
term questions about how a more sustainable housing system might
be created. We have set out some of these questions below.
New housing delivery—is the current
model overly reliant on cross-subsidy from the private sector
and, if so, should policy makers be looking at increased public
expenditure in this area and/or changes to the planning system
that make house building cheaper?
Home ownership levels—the expansion
in the percentage of home owners inevitably draws people with
more economically vulnerable positions into the tenure. Are our
current levels of home ownership sustainable?
The offer in the rental sectors—How
do these sectors need to change if they are to offer people a
desirable alternative to home ownership?
Flexible tenure—it has been suggested
that one solution is more flexible tenure schemes where people
can enjoy elements of home ownership and renting (eg shared equity
and shared ownership schemes). If this route is to be employed
how can it be developed so it makes sense to consumers and allows
people mobility within the sector so that they do not get trapped?[33]
Balancing fiscal incentives across tenures—current
government policy heavily incentivises home ownership, which distorts
the market in a number of ways. Restructuring fiscal incentives
might contribute to a more sustainable housing market over the
long term.
Appendix I—Housing market recessions and
sustainable home ownership, JRF (July 2008)
Appendix II—Research complied by Whitehead
et al for the JRF's submission to the 2007 housing green paper
Appendix III—Losing the Family Home,
JRF (1999), summary.
Appendix IV—Housing tax credit proposal, Wilcox,
S (JRF 2008)
31 Low-income homeowners in Britain: descriptive
analysis, DWP (2005). Back
32
2006-07 data from www.poverty.org.uk using DWP data. Back
33
Forthcoming research funded by the JRF (Wallace 2008) highlights
that for some people who used shared ownership schemes this tenure
is becoming a permanent one as they cannot afford to staircase
up their original stake to full home ownership and because of
the lack of scale of the sector some can struggle to find suitable
move-on accommodation as their needs change. Back
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