Memorandum from Defend Council Housing (DCH) (CRED 58)

 

Summary

1. Relying on the private market to deliver the homes people need at a price they can afford, has failed.

Housing policy based on promoting home-ownership has led to the current housing crisis.

Promoting home-ownership at any cost has led to not just a housing crisis but has fuelled the current economic crisis too.

The credit crunch makes nonsense of recent proposals to force or even encourage more council tenants into marginal home-ownership.

The so-called Third Sector (using Registered Social Landlords to deliver new 'social rented' housing and 'low-cost' home-ownership) is not a credible alternative.

Other schemes which rely on private finance - from demolition and regeneration schemes to new Local Housing Companies - will be equally at risk. Proposals to break up the council housing national 'Housing Revenue Account' must be scrapped.

Positively, the crisis has put government in the driving seat: it has the opportunity, resources and every reason to start a massive council house building programme providing a range of real public benefits.

 

2. Housing policy based on home-ownership has led to the current housing crisis

2.1 Successive governments over the last 30 years have pursued policies promoting home ownership at all costs - including the systematic dismantling of the council house sector.

"housing and land have become investments, from which speculators, moneylenders and the banks grow ever wealthier. Governments have allowed the market to exploit the shortage of land by allowing unregulated lending to lift the price of housing above the needs of the poor in the UK...The deregulation of financial markets in the 1980s sparked off a flood of house purchase lending that has underpinned massive house price rises and consumed 600 billion of investment... it would be remarkable had there been any other outcome than rapid house price inflation and sharply declining affordability." (Memorandum to the Prime Minister on Unaffordable Housing, Zacchaeus 2000 Trust, May 2005)

 

2.2 Now the fruit of those policies has ripened, bringing misery to millions facing economic recession, the repossession of their homes, and no council housing there as a safety net.

"A dramatic rise in house prices over the past ten years, together with increased availability of new mortgage deals in the sub-prime sector, has meant that many people have overstretched themselves to get a foot on the housing ladder. Such people are far more susceptible to being tipped into the red by a rise in interest rates or a sudden change in circumstances, such as job loss, illness or relationship breakdown" (Breaking Point : how unaffordable housing is pushing us to the limit, Shelter, August 2008)

 

"What the market does deliver is instability, and whether it is in a boom or a slump it generates stress for large numbers of marginal purchasers and would-be first-time buyers...Market fundamentalism in housing has had its day. The theory that the private sector has all the answers has been tested to destruction and now we need to come up with something different and better if we are to break out of the cycle of booms and slumps that have bedevilled the British housing system for too long." (Peter Malpass, writing in Roof, Nov/Dec 2008)

 

3. Not just a housing crisis but an economic crisis

3.1 The economic crisis was partly triggered by government's obsession with privatisation and deregulation, including disinvesting from and stigmatising council housing to push people into reliance on private housing solutions.

"But now the crisis is bigger even than all this and transcends the housing sector. In lending for so long in so profligate a fashion in so poorly regulated an environment, and in the competitive search for ever more profit, the banks and building societies have seriously de-stabilised themselves. Suddenly, in the summer of 2007, there was a collective realisation that the whole sector had over-lent and had committed vast sums to loans to marginal borrowers and investment in derivatives and other financial products that were both risky in the medium term and little understood even by senior management. Confidence suddenly evaporated, bad debts escalated, inter-bank lending dried up, falling house values generated negative equity at an accelerating rate and the tide of repossessions began to flow..." (Professor Peter Ambrose, Brighton University)

 

4. The credit crunch makes a nonsense of proposals to force or even encourage more marginal home-ownership

4.1 The last thing we need now in the credit crunch is a crazy proposal to push more council tenants who can only just afford it into home ownership. But this is precisely what's being promoted by the Chartered Institute of Housing and others (The Times, 10/11/08).

"It's illogical to say that because the Government hasn't built anything like enough public housing for rent and can't provide for the huge numbers in housing need, that it should now turn tenants out of council houses to make room for even poorer people." (Austin Mitchell MP, letter to The Times, 11/11/08)

4.2 Evidence of people using credit cards to pay their mortgage, growing levels of repossessions and negative equity mean it's irresponsible to promote more marginal home-ownership in the current economic climate. Even 'encouraging' more council tenants and applicants for council housing to take up home-ownership, whether through regular tenancy reviews, or yet more low-cost shared-ownership schemes, is madness and can only fuel more problems later.

4.3 Talk of 'shares' and 'staircasing' into home ownership is an impractical ideological obsession. 'Low-Cost Home Ownership' schemes are now using 30% of public subsidy for housing (Achieving Mobility in the Intermediate Housing Market: Moving up and Moving on?, Joseph Rowntree Foundation, November 2008). Despite endless re-launched and new schemes these are an expensive failure. The report from the Joseph Rowntree Foundation cited above found that shared-ownership restricted mobility; brought significant affordability problems; did not provide the staircase into full ownership expected of it by the government; and meant that a significant number of units created with subsidy end up on the open market.

 

5. The so-called 'Third Sector' is not a credible alternative.

5.1 The second part of relying on the private market has meant using private sector companies - Registered Social Landlords (RSLs), the so-called 'third sector' - to try and replace the role of councils. RSLs have taken billions in public subsidies over the last twenty years but failed to deliver. RSL rents are considerably higher than council rents, they offer less security and they are totally unaccountable.

5.2 RSLs are increasingly multi-billion pound regional or national companies. Their dependence on the private market has meant that their business model is coming apart at the seams, more are expected to merge/get taken over, and some are now expected to fail. Government's argument used to be that for every pound of public subsidy RSLs could 'lever in' a pound of private investment. Today they are just demanding two pounds of public subsidy for a private sector asset!

"What associations will not admit is that they have now become dependent on private lenders - independence is a miasma... It is the private funders - faced with a credit crunch - that have closed down on associations. Loans are more difficult to obtain. Those with loans are being asked to adhere to the minute detail of loan agreements. What the events of September have exposed is that, in an under-regulated world, the reckless competition of a few puts the homes and livelihoods of millions at risk." (Morag McDermot, Lecturer in Law University of Bristol, writing in Roof November/December 2008)

5.3 Housing associations have increasingly behaved like private businesses, building homes for outright sale. Many of them have become dependent on the private housing market: both from using building for sale to provide income ('cross-subsidise') new build for rent; and through section 106 contributions. Because of this they are no more able to solve the housing crisis than private developers:

"the credit crunch is already limiting social landlords' ability to produce new housing, not only because of the difficulties in accessing private finance but also because of their increased dependence on the health of the owner-occupied and shared ownership markets through section 106 agreements and the sale of homes to generate income to cross-subsidise rental development." (Suzanne Fitzpatrick & Mark Stephens, editors, The Future of Social Housing, writing in Roof November/December 2008)

5.4 Housing associations are not just failing to develop new homes - their whole financial viability is threatened:

"The worst case scenario - the collapse into insolvency of a housing association - is still only a possibility, although warnings are being sounded (see news). But its repercussions for the sector could, warns [Peter Hammond, of Tribal Group's housing finance team] be disastrous... 'If there are casualties that require assistance, and they are medium-to-large, that could have serious confidence issues for the sector - it would push up perceived risk and the cost of borrowing and would make it even tougher for those left in the sector. And the sector's ability to absorb a medium-to-large social landlord, given current conditions, is extremely reduced.'" (Inside Housing, 2 Oct 2008)

6. Any schemes which rely on private finance - from regeneration to Local Housing Companies - will be equally at risk.

6.1 All the same problems faced by RSLs will apply to any other models which use private finance or depend on the sale of homes on the open market. This includes any demolition and regeneration schemes, schemes involving the private finance initative, Local Housing Companies, and any public/private partnerships.

"Private sector involvement has meant that the housing market renewal and major regeneration projects are now facing some uncomfortable realities... Nigel Wilcox, of Ernst & Young, is not surprised that regeneration projects are feeling the pinch, as many schemes were predicated on rising land and property values. 'Pretty much all the variables are going downwards at the moment. Building cost inflation has gone up over the past three years, and changes in cost can have a huge impact.'" (Inside Housing, 24/10/08)

6.2 Government is heavily promoting new Local Housing Companies. To set up a Local Housing Company (LHC) or any other private / public partnership councils must make assumptions about interest rates, rates of inflation, and house prices over the next 20 or 30 years. These are high risks for tenants. With prices for new homes falling, the high cost of credit, and inflation on the increase, the picture is likely to end up even worse as developers and lenders insist on protecting their profits. Public/private partnerships have a disastrous track record. Impressive sounding objectives to meet public need at the beginning of projects invariably get scaled back.

 

7. Proposals to break up the council housing 'Housing Revenue Account' must be scrapped

7.1 The government is currently carrying out a review of council housing finance. Some councils (backed by the LGA and others) are arguing to break up the national Housing Revenue Account. But the proposal that each authority 'opts out' and takes responsibility for managing a 30 year business plan, based on retaining its own rents and receipts, carries real risks for tenants. The present economic downturn and rapidly changing interest rates and inflation is a stark warning of how easy it would be for 'opted out' councils to get into financial crisis. This could be through inexperience, bad financial judgement or deliberately constructed as a crude excuse to justify privatisation.

7.2 Maintaining a national council housing sector by fully funding allowances within a national HRA avoids these risks. Introducing a strict ring-fence, along with a level playing field on gap funding and debt write-off, would support a new system of fully funded allowances to authorities based on an independent and objective assessment of 'level of need' and provide real transparency. This option would stop the 'robbery', ensure that each authority received a level of allowances sufficient to manage, maintain and repair its homes and leaves responsibility for macro economics with government avoiding any risks of individual HRA's going bankrupt.

 

8. Conclusion - a change of policy is needed, from subsidising the private sector to re-building the public.

8.1 The government's target of 3 million new homes by 2020 is in tatters: builders, landowners, developers and lenders are all closing up - or, in some cases, closing down. The reality is that the private market is not going to deliver the secure, well built and designed and environmentally friendly homes needed at a price that working people can afford. Nor can the private sector ever be made accountable.

8.2 Public money and public land should be prioritised for building first class public housing. Opponents of public housing like to allege that council housing, unlike other forms of tenure, is subsidised. The reality is that government has been disinvesting from council housing ('Robbery' from tenants rents and siphoning off capital receipts), whilst subsidising RSLs through grants, and homeowners and buy-to-let landlords through tax breaks. Government's multi-billion pound bailout of the banks is the biggest ever public subsidy for private housing.

8.3 Now that local authorities can apply for Social Housing Grant and retain rents and receipts from new build it makes economic as well as political sense to build new council housing to meet housing need. There is no need to pay profits or fat cat salaries and access to lower borrowing costs means that council housing is cheaper to build, manage and maintain than the private alternatives.

"We consider that social housing has a vital role to play in the creation of mixed and sustainable communities, but current Government policies and spending plans are insufficient to allow it to do so. Only sustained and substantial commitments in policy and financial terms will enable the sector to fulfil the aims originally envisaged for it... There should be no impediment to local authorities, exercising their place-shaping role, which wish to build on land that they own. The Government should take further steps to support and enable local authorities to add to the supply of social rented homes."(The Supply of Rented Housing, Communities and Local Government Select Committee, May 2008)

8.4 Increasing supply would allow local authorities to open up allocation policies once again to people from all backgrounds and circumstances. Re-establishing council housing as a mainstream tenure of choice and offering tenancies to the wide social mix amongst the 1.7 million households on council waiting lists would return council estates to the mixed communities they used to be.

8.5 Our alliance of tenants, trade unions, councillors and MPs, joined by numbers of housing professionals and academics, is a powerful force for change. Together we are determined to win a 'Fourth Option' settlement for existing council tenants and a new generation of first class council housing that continues to provide secure tenancies, low rents and a landlord tenants can hold to account as an alternative to the insecurity and lack of affordability offered by the private market.

 

November 2008