What will an incoming Labour Government inherit in May 2015?

Social Housing

Lets start with Housing Association Social Housing. Despite financial cutbacks and Government plans to change the sector it is likely that things will in many ways be similar to today.

At March 2009 the stock of England’s Housing Associations stood at:

Homes owned ('000)
General needs	1,776
Supported housing	99
Housing for older people	321
Leasehold properties (including shared ownership and RTB/RTA leaseholders)	136
Non-social rental housing	45
Non-social leased housing	3
Total owned ('000)	2,380

The Government has set out its spending plans for 2011/2015. The assumptions are broadly credible, and assuming these are reasonably delivered things will change as follows:

Ø Total stock of housing association ‘Social Rented Housing’ (i.e. housing let on general needs basis at ‘target’ rents) will remain at around 2m properties.
[This is because the ‘build out’ of the current social housing programme from April 2009, including the £2.3Bn provided in the spending review for mainly ‘target rent’ properties, will have generated around 100,000-120,000 extra ‘target rented’ properties.

The Government’s proposals to fund 150,000 ‘Intermediate Rented’ properties through raising rents on relets of existing target rented properties to Intermediate rented will have resulted in around 135,000 (give or take say 35,000) existing target rent properties being relet on Intermediate rent levels.

By March 2015 there will be say 50,000 less social or ‘target’ rented homes, and around 285,000 homes let at Intermediate rent levels, of which c150,000 will be newly built (or on site).]

Ø The nature of how housing associations provide new homes will however have changed significantly:

o There will still be a small grant funded programme (lets assume 10,000 properties a year)

o The debt funded/rental cross-subsidised new Intermediate rented houses will be produced mainly in London and the South East (with some in the South West and Midlands) as it is here that the maths work best.

o In many parts of the Country a switch to Intermediate rents on reletting would result in a rent reduction (or only a very small, under £10pw rent increase) making this development option non-viable.

Ø The biggest changes to Housing Association social housing is likely to be in management, and possibly tenancy selection, driven by:

o Impact of the new rules limiting total household benefits to £26,000pa. These benefits include child benefit, and will make it very hard for larger families who are unemployed to afford social (or any!) housing.

Housing Benefit is used as the ‘controlling benefit’, so if a family receives £22,000pa in other benefits then they would receive a maximum of £80pw in housing benefit. [£26,000 - £22,000 = £4,000pa ~ £80pw HB]

o Cut back in Housing Benefit of 10% for every year household is ‘capable’ but out of work

o Abolition of Tenant Services Authority, and their tenant/customer focus

Ø There may also be an increase in the number of Housing Association properties through continuation of the transfer programme. I predict that most of these will come from existing ALMOs as Conservative controlled councils managing retained council housing are currently very keen to hold onto their housing stock - to hold onto the assets even if this means giving up capital receipts available on transfer.

Changes to Council housing will be even less in terms of stock numbers.

Some Councils will transfer their properties to housing associations, though probably only a small number.

The proposed reform of Council’s Housing Revenue Accounts is likely to go ahead. The impact of this is likely to be:

Ø Very slow take-up of Councils building Intermediate rented housing.

Ø More money for most Councils with retained stock to invest in their homes

Ø A very gradual (slow but real) improvement in the financial strength of the Councils’ Housing Revenue Accounts, with – long term – more money to invest.

Ø A real danger of some form of “smash and grab” raid being allowed on housing money by Councils (to cross subsidise General Fund/reduce Council tax).

Ø Management issues around benefits are likely to be the same as with Housing Associations.

Ø Changes to statutory homelessness rules, and a changing of letting priorities will have a significant impact on applicant lists and lettings to new tenants. However Government’s direction of travel is confused with an emphasis on both shorter term/less secure lettings, but greater emphasis on local connection etc, and possible switch to overcrowding from insecurity.

Ø Rents and total stock numbers however will be very similar to where they would have been under a continuing Labour Government.

Home Ownership

My projection is that house prices will have fallen another 20%, maybe 25%-30%, as measured against inflation. This will be mainly due to the long term ‘deleveraging’ of the residential mortgage market – i.e. there will not be the money to lend to home owners to buy new homes (such money as there is will go mainly to those buying the nicest properties with the biggest deposits). The mortgage lending market may start to ease a little by mid 2014, and there will be very heavy pressure to provide funding for first time buyers.

Home construction for home ownership will be remain low until 2014, after which is may start to increase again (from a very low base).

In London (only) house prices will vary inversely with the level of the pound vs. other currencies (especially Middle Eastern currencies). A stronger pound will soften the London housing market (and vice versa).

The lack of affordable homes for (all but the best off) first time buyers will result in increased pressure on the rental market, and more adult children living in the parental home. There are also likely to be an increasing number of whacky and token schemes to show Government is responding to this issue (especially from 2013 onwards).

Private Rented Sector

I have left this to last as it is the hardest to predict. Certainly there will be big change.

The changes to Housing Benefit (and total benefit) rules will profoundly impact on the sector, but in ways which it is hard to predict. For example, there are reports of landlords splitting their properties into smaller flats to respond to the benefit caps and ceilings, while in contrast Savill’s are projecting that the impact will be, first, large falls in demand for and rents of 1 bedroom flats (due to under 35’s now being subject to the ‘single room rate’ rule), and, secondly, increased demand for larger ‘shareable’ properties.

There will certainly be a lot of ‘market distortion’ as the new 30% centile cap on maximum HB payable bites, which will be distorted by the plan to greatly widen the ‘Broad Market Rental Areas’ which determine the HB caps for different properties. I also see a problem in areas where over 30% of private tenants are dependant on HB, but are constrained to living in the 30% of cheapest properties. 40% into 30% just does not go….

The current private rented sector also contains many of the ‘least green’ and expensive to heat properties in England/UK. While there is some lip service to encouraging landlord investment, it is likely that the gap in housing (especially ‘green’) quality between other tenures and the private rented sector will have grown significantly by 2015, and will be a major challenge for the new Government.

The Government is set very clearly against regulation and quality control.

Such existing enforcement as exists is being drastically reduced due to spending cuts, and even self funding proposals to introduce regulation which has the support of many landlords has been dropped. There is therefore a very large danger that undesirable landlord practices will increase. This is unfair and nasty to tenants (who are generally vulnerable with few substantial rights), but is also very unfair to responsible landlords (who are currently in the majority), and to responsible managing agents (who will rapidly be undermined by competitors with sharp practices).

The current economic situation offers the Government a near golden opportunity to promote high quality institutional landlordism. There is very clearly substantial long term investment funding available to invest if the regulatory structure were properly put in place. REITS – Real Estate Investment Trusts – work very well in the Commercial Property sector, and require relatively little (regulatory and tax) change to work equally well for residential Letting. Properly incentivised and introduced it should be possible to establish a large number of very competent and responsible institutional landlords as ‘Residential Real Estate Investment Trusts’ who would have the financial capacity to kick start the UK residential construction industry, and provide high quality, long term rented property at market rents.

While not solving the problems of lower income housing demand, the additional supply, and rebuilding of the construction industry, would make a very large contribution to solving the UKs housing problems, including setting some decent ‘Industry Standards’ in the private rented sector. Such an initiative would also generate more Government income (through taxation, new construction and benefit savings) than it would cost. This is an initiative which would appear to fit with the logic and instincts of a Conservative Government, but which in practice is being totally ignored.

Graham Martin

Xmas 2010