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«high aspirations, sound foundations: a discussion report on the centre-ground case for building 100,000 new public homes By John Healey MP THE SMITH ...»

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high aspirations,

sound foundations:

a discussion report on the

centre-ground case for

building 100,000 new public

homes

By John Healey MP

THE SMITH INSTITUTE

high aspirations,

sound foundations:

a discussion report on the

centre-ground case for

building 100,000 new public

homes

By John Healey MP

Published by The Smith Institute

This report represents the views of the author and not those of the Smith Institute.

© The Smith Institute September 2015

THE SMITH INSTITUTE

Contents Preface 4 Introduction 6 Section 1 – the need for affordable public homes 12 Section 2 – housing benefit and affordable homes 20 Section 3 – invest to save: how could we build 100,000 affordable public 30 homes?

Conclusion 40 Appendix 44 I have tried to present the argument here in simple terms but well-grounded in the best available data and analysis. In so doing, I gratefully acknowledge the support of Jonny Glyn (a secondee from PwC who helped with the financial modelling which is presented in section 3), John Perry, Professor Steve Wilcox, Matt Keep and Rod McInnes at the House of Commons Library, and the Smith Institute for their contributions and comments. Above all, I must thank and pay tribute to the work that James Hall has done with me on this report. All errors of course remain mine alone.

THE SMITH INSTITUTE

Preface

THE SMITH INSTITUTE

Preface After five years of failure under the Tories, this discussion report aims to kick off part of the new debate I believe is needed in the country about the housing costs crisis. It is not new Labour policy. It is analytical and illustrative, not prescriptive so it makes no recommendations.

But it does show that there are alternatives to Britain’s intensifying housing crisis and ever-escalating housing benefit bill. It also shows how government decisions are making the problems worse, not better.

This is the first half of the first year of a new five-year Parliament. It is time for a serious debate about the problems millions of people face with little hope of a decent affordable home to buy or rent. And about the proper responsibilities of government.

Everyone knows the housing market is failing and can see that current policies aren’t working. Things must – and can – change.

John Healey MP

T H H E S S M TI H H I N N S IT TI U U E E

–  –  –

Introduction My central proposition for debate is this: we can’t build the homes that our country needs to comfortably and affordably house our children and grandchildren without a substantial and sustained programme of public house-building.

Building more new council and housing association homes isn’t just good social policy.

It’s sound fiscal policy too. Because, like any other good investment, spending on these homes yields a return. In this case not just rent from tenants but also lower housing benefit spending, because cheaper rents narrow the gap between housing costs and family income which housing benefit has to fill. It is better for tenants, and better for taxpayers.

For decades we have not been building the new homes we need in Britain. The housing market has failed, is failing and will continue to fail. And when markets are failing, smart state intervention is imperative so there’s a good economic policy case for action too.

Government has a duty to act. It’s simply indefensible for government ministers to deny responsibility for ensuring people are decently housed and for helping the next generation get on. An affordable home isn’t a ‘nice to have’, it’s the bedrock for the lives and futures of individuals and families throughout the country.

Right now the country is going backwards – home ownership has fallen every year since 2010, homelessness is rising, rents are up, 63,000 social rented homes have been lost in the last five years alone and last year only 124,500 new homes were built in England, half the number we need. Instead of stepping up to the challenge, the government have stepped back and made the biggest cuts to housing support and investment in a generation.

Ministers are deepening and re-enforcing an orthodoxy that maintains housing is a private problem for private individuals, even as the difficulties people face become increasingly insurmountable however many extra hours they work, or how many more years they save.

The government is, of course, mindful of the ballooning housing benefit bill – up by over £4 billion in cash terms since 2010 and set to rise in every year of this Parliament. But they won’t admit that pressures from more costly private rented homes and higher social rents are driving up the benefit bill. Instead, ministers look to deal with the symptoms, not the causes by bringing in the ‘bedroom tax’, denying housing benefit to 18-21 year olds and freezing housing benefit levels for four years.

Nor is this problem entirely party political. My own party has done too little to reshape the housing debate and and in opposition we were too timid about making these bigger arguments.





–  –  –

Now the election has passed, it is time to think bigger and speak bolder about how we fix the chronic housing problems in this country.

That inescapably means talking about building more council and housing association homes. While the housing crisis and housing aspiration must be met with action in all areas and contributions from all sectors, I concentrate here on affordable public housing to rent and buy that has been most overlooked and run down over the last three decades.

Just as affordability is imperative for renters and for buyers in the private sector, so it must be for public homes too. If as I set out here we make good on the potential of housing association and councils to build many more homes, there is no reason why an increasing proportion of those shouldn’t be affordable homes to buy. As with rented homes, what’s important in any such scheme, and in contrast to current schemes, is that it be affordable to future as well as current buyers, preserving the public stake and investment for the next generation of home-owners too.

Of course some claim it’s no longer possible to think big when it comes to building public homes. But as I saw in my time as housing minister during the wake of the global financial crisis the objections melt away if the political will is there.

In less than a year we switched an extra £1.5 billion of capital funding – from all areas, including transport and the Home Office – to build new homes. Alongside buttressing the private house-building industry to stop developers going under, we set up the biggest capital investment programme in a generation, got councils – Conservative as well as Labour - building again through the local authority new build scheme and set in train the devolution of housing finance to put local authority housing on a sustainable footing for the future.1 Just as we learned in the second world war, the tools we use in response to crisis can be put to use in peacetime too.

The fact is that there’s a centre-ground case for new publicly funded homes. As politicians of all political persuasion recognised in the decades after the war, housing is pressing enough a concern for millions of people in this country for every part of the housing sector to play a role.

1 See Smith Institute/PwC report on HRA: one year on (2013)

–  –  –

Private developers yes, but also councils as the public authorities most aware of housing need in their areas, and housing associations too – still probably the most successful partnership between private and public endeavour since that relationship was formalised at the start of the last century. This case has been neglected in recent years. And, as under this government, neglect has turned into outright opposition.

The aggressive hiking of traditional affordable rents to near private market rates, the phasing out of grant investment for new build, the scaling back of the contribution of private developers to build affordable homes out of the profits that public planning permission allows them to make and the extension of the Right to Buy. These add up to a sustained attack on the existence and future of affordable public rented homes.

It needn’t have been this way. David Cameron was faced with a choice when he entered Downing Street in 2010, between two Conservative traditions on housing. The extreme of Margaret Thatcher, under whom the number of new homes built fell to the lowest level then on record and the housing benefit bill trebled to £10bn a year. Or the mainstream of Harold Macmillan, who built a quarter of a million homes a year in England, almost half of which were council or housing association homes for people on low and middle incomes.

Cameron chose the former, shunning Macmillan and rebooting Thatcher, with the same dire results. Fewer homes being built, house prices and rents soaring, home ownership the lowest for a generation and housing benefit costs at £25bn a year and set to rise further.

This increased housing benefit bill is not, as the Prime Minister alleges, the fault of tenants or housing providers, but a predictable result of government policy - higher ‘affordable’ and an increased reliance on the private rented secror at a time when incomes have failed to keep pace with housing costs means that more people rely on state help.

There is now a duty on those of us committed to a future for public housing to make the case that there is another way, and that this deserves cross-party discussion. In this report I make this centre-ground case. I set out first the main arguments for new public housing, before explaining why the public financing of new homes should be seen and treated as investment, not subsidy.

Section one makes five big arguments for new public homes. First, because commercial house-builders simply can’t build the homes we need by themselves. There’s only been one year since the end of mass public house-building in the early ‘80s when we’ve built more than 200,000 homes in England.

–  –  –

Second, because Britain has a housing costs crisis that affects millions of households, made significantly worse by low building rates.

Third, because affordable housing helps increase the incentive to work, making work pay more for many households on low incomes.

Fourth, because public investment in house-building provides an important economic boost in all parts of the country, still important at a time when the economy is operating below capacity and for smoothing wider economic swings.

Fifth, because new public housing investment can pay for itself, which is perhaps the most critical element of the case for re-launching large scale public house-building. This was the purpose of the economic modelling project I undertook last year and is the central argument that I develop in more detail in the rest of the report.

Section two examines housing’s ‘canary in the mine’ – housing benefit. Central government spends a lot of public money on housing, but it doesn’t spend it efficiently. In this Parliament, central government spending to meet housing costs through housing benefit is forecast to be £120bn – almost 40% of which goes to landlords in the private rented sector. Investment funding in grants for building new affordable homes over the next five years will be little more than £5bn.

The core of the investment case for the Exchequer is that we can help people on low and middle incomes get affordable accommodation much more efficiently by rebalancing this split in spending. I show how the recent history of rising housing benefit spending has gone hand-in-hand with the decline of public house-building and chart some of the causes of ever-escalating cost.

Section three presents the results of a financial model we designed and constructed to test the sensitivity of housing benefit spending to a range of policies, and in particular the financial effect of a new programme of public homes. I set out a combination of tried and tested policy changes which could build 100,000 new public homes a year by 2020, and make the taxpayer a profit at the same time. I outline two big changes made in the last Parliament. First the de-linking of housing benefit for private tenants from local rents;

and second the shift to near-market ‘affordable’ rents in the social sector. I also offer some options for how the machinery of government itself must change in order to deliver a new approach to housing investment.

I conclude with three challenges for advocates of affordable public homes that must be met.

–  –  –

1. Cost Even though, as I show in this report, the long-run benefits of more public homes outweigh the upfront costs of building them, advocates need to find the language and arguments to justify that investment.

2. Public support Public housing once offered homes for all and a sound start in life for people on low and middle incomes, but in more recent decades it has been increasingly reduced to welfare provision for the poor so advocates have hard work to do in persuading voters – most of whom own their home – that investment in new affordable homes is a good use of public money and worthy of support in their local areas.

3. Delivery Scaling up our public house building from the current low base (and the skilled work force to deliver it) will be a significant administrative and organisational challenge, one which will require the efforts and innovation of all parts of the housing industry.

A short appendix outlines some technical details on the modelling exercise reported in section three.

Finally a question - why write a report on affordable public housing now, when the prospects of such a programme seem more remote than at any time in our recent history?

The answer is that now more than ever the case for public housing must be made, both because of the pressing need for new affordable homes and the existential crisis now confronting public housing.



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