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A new vision for housing policy

A new report from think tank Policy Exchange published today calls for a radical overhaul of housing policy, saving taxpayers around £20 billion a year.

The report finds that Britain is suffering from a housing crisis affecting both social tenants and those struggling to afford to buy their own home.

It calls for a big increase in the number of new homes being built for sale or rent in areas of high demand, with social housing tenants given new ways to get onto the first rung of the housing ladder.

Local people will get a veto on how much, if any, development is allowed near them through ballots of those directly impacted. Cash incentives will be available to those affected to help persuade them to vote yes.

Policy Exchange Deputy Director and editor of the report, Natalie Evans, said: “Not only does current housing policy not work, it is also extremely expensive. At a time when public finances are under such strain this is not sustainable. 

The reforms outlined in this report to social housing and the planning system would save up to £20 billion a year.”

“At the same time, rising house prices are making it harder and harder for those who want to buy to do so. We need to get away from the idea that house prices can rise faster than inflation every year without that affecting the ability of people to actually buy.

”Having stable house prices will save everyone money. But for that to happen, we need to make it easier to build houses.  So there needs to be major reform of the planning system, such as allowing developers to offer local residents a say and financial incentives to approve development near them.”


The report’s author, Alex Morton, added: “There are many hidden costs for taxpayers behind the recent surge in house prices. It has caused big increases in Housing Benefit plus soaring waiting lists for social housing and ever more demand for heavily subsidised ‘affordable homes’. Falling home ownership has also meant a more unequal society and tension between generations.”

“It should be up to local people how much development is allowed near them, through ballots of those affected by proposed developments.

The cash incentives will be bigger in areas where housing is more expensive, meaning it is likely that more homes will be built in areas like London and the south east.”

House prices more than doubled between 1995 and 2009, taking the price of an average home in Britain in real terms from £72,659 to £160,000.

Yet fewer and fewer new homes of any sort are being built and many of those for sale are poor quality “rabbit hutch”-style properties. The proportion of Britons owning their own homes is now falling for the first time since 1918.

Rising prices mean rising rents – costing taxpayers an extra £8 billion a year in Housing Benefit since 1997. Social housing waiting lists have also doubled since 1997.

Britain is stuck with an expensive social housing sector which traps residents by providing disincentives to work, holding down aspirations while at the same time costing taxpayers around £32 billion a year.

Even adjusting for disadvantages like ill-health, the report finds social tenants have a rate of employment between 20-25 percentage points lower than owner-occupiers or private renters, costing an extra £7 billion a year in welfare dependence because of the disincentives to work that
social housing creates.

The report makes a powerful case for freeing up Britain’s housing market with a series of radical and innovative recommendations. Firstly, the Government should have an explicit policy of achieving stable house prices by substantially increasing the number of new homes being built.

To do so, the planning system should be reformed to give local residents the right to vote on new developments nearby – potentially earning direct financial rewards for themselves if plans are approved but subject to continuing restrictions in areas like National Parks.

New tenants in social housing should by default be placed on a “Path to Ownership”, which would see their rent instead become mortgage payments.

To allow more social housing to built, low-interest government bonds would be issued, with rent/mortgage payments being used to service the debt. This would be cheaper than the current system of subsidies.

Building on previous Policy Exchange research, the report also backs a “Right to Move” for social tenants – which would see their landlords obliged to offer similar properties to allow people to move for work or other reasons.

The report also backs a renewed “Right to Buy” for social tenants wishing to buy their own homes – with bigger discounts and guarantees that mortgage repayments would be pegged to social housing rents.

Along with savings of up to £20 billion the key policy goal is that by 2030, the Government should aim that all working households be able to afford to buy a decent home – giving all who deserve it the security and other advantages of owner-occupation and a stake in their communities.



The full report can be downloaded here:
http://www.policyexchange.org.uk/assets/PX_Housing__5_.pdf


Notes to Editors

For a description of the savings that the scheme would achieve, please see the table on page 27 of the report.
HOUSING: WHERE WE ARE
* In recent years housing costs in the UK have risen much more sharply than other countries. This is driving housing expenditure upward while exacerbating social problems and reversing eighty years of rising home ownership.

* House prices rose by a staggering 120% even after inflation between 1995 and 2009 and the average home still costs five times average earnings across the UK. This trend has reversed, rising home ownership for the first time since 1918. Between 1991 and 2001 the share of households owning their home rose just 3%, while between 2001 and 2008 it dropped 3% to 68%. This is even more worrying as it is a common error to believe the UK has ‘abnormally high’ rates of home ownership – studies show its home-ownership rate is close to the average for developed countries.

* Housing is key to generational inequality. 90% of first time buyers in 2009 needed family support while the numbers of under-30s with a mortgage fell from 43% in 1997 to 29% in 2009. Despite supposedly ‘lax’ lending only 35% of mortgages in 2000-09 went to first time buyers, down from 50% in the 1990s, while now the under-50s hold just £540 billion, 18% of the UK’s £2.9 trillion housing wealth.

* In 2004/5 in the bottom three income deciles owner-occupiers outnumbered social and private
renters combined but high prices are now locking low income households out of ownership –
entrenching divisions of wealth and inequality in our society.

* Housing Benefit has grown by 64% since 1997 – from £12 to £20 billion. But this is exactly the rate of increase in private rents (and only a few percentage more than social rents). Private rents rose as many had to rent not buy– the fact they rose less steeply is only due to the expansion of the Buy to Let market.

* Meanwhile spiralling social housing waiting lists are primarily linked to rising demand due to private housing costs not as is often thought, falling supply due to Right to Buy. Between 1981-1997 net supply of homes fell by 74,000 a year, yet waiting lists fell by 200,000. Between 1997-2009, the net supply of homes fell by just 28,000 a year but waiting lists rose by almost 800,000. The reason for rising waiting lists is house prices, flat in real terms over 1981-1997 but shooting up in 1997-2009.

* Government ‘affordable housing’ schemes are not the solution. They help just 0.1% of all households each year while pushing new developments toward being small flats (which now make up nearly 50% of all new homes).

* The main cause of the UK’s escalating housing issues is a crisis in new housing supply. House building in the 2000-09 period ran at just 40% of the rate in the 1960s and as stated, new housing is as likely to be small flats as family homes. Government figures and economists show how fewer homes lead to higher prices.

* Meanwhile, social housing tenants are just over half as likely to be in work as privately housed tenants. Even adjusting for disadvantages, social tenants have a rate of employment between 20-25% lower than similar individuals outside of the sector, leading to an extra 550,000 welfare dependent households.

* The report shows it is the incentives facing social tenants that hold them back. On top of the general ‘poverty trap’ of welfare, to get social housing or if in a social property, to get a better one, individuals face a ‘needs’ based system that rewards welfare dependence and penalises independence, (explaining why 55% of new social households are of working age but economically inactive).

* In addition, while for most individuals increasing income can improve the housing that they can afford, this is not the case for social tenants. Conversely, social tenants who lose their job do not face the prospect of losing their home. It is the ignored factor of incentives that are the cause of social tenants’ poor employment rates.


RECOMMENDATIONS

* Government should set as its stated goal stable house prices. With rising wages and prices over time this will make housing more affordable – and government should aim that by 2030 all working households should be able to afford a decent home. The Housing Minister should write an annual open annual letter to the PM stating how house prices have performed in the last year and what measures, if needed, they will be taking to try to stabilise prices.

* Recent government measures around councils gaining extra revenue for new homes are welcome. But they are not enough. A radical new ‘community-controlled’ system of planning is needed to increase both the quality and quantity of new homes.

* To provide a check on poor quality development this new system would give powers to residents ‘directly’ impacted by a new development to decide, via referendum, on whether or not to allow developments.

* Developers should be free to offer financial incentives direct to those being balloted. Given a hectare of land rises in value from £20,000 to £1.8 million when it moves from agricultural to residential use such incentives could be very substantial. As a break on rural areas being transformed, local councils would be able to designate up to 75% of their undeveloped land as ‘off limits’.

* New developments do not have to be a bad thing for local residents – if done well. The CPRE and DCLG have both found that new homes can actually improve an area and so raise house prices – as large scale developments in the Docklands and Poundbury in Dorset show. As they currently stand, the Coalition's plans are not radical enough. The scrapping of targets has led to even fewer councils saying that they plan to allow development in their area. Rural areas would also under these reforms be able to push for (as well as oppose) development on whatever scale that they wanted. The suggested reforms outlined in this report would also, like most other democratic measures, be on the basis of majority ballots rather than allowing a tiny minority to block proposals the rest of the community strongly supports.

* This new system would turn planning into a more consensual model whereby developers and existing residents work together for mutual benefit and should hugely increase the numbers and quality of new homes built. This will over time hold down private housing costs, and so cut the cost of Housing Benefit and demand for social housing. It will also lower the government’s inflation measure, the CPI (should it in the future incorporate housing costs).

* The incentives social tenants face should be radically reshaped. The current ‘needs-based’ allocations for social housing that was introduced by the 1977 Housing Act should be ended. Such a reform actually restores the original idea behind council homes.

* A renewed Right to Buy whereby social tenants receive more substantial discounts (generally around 33%) should be created. In addition tenants should be able to see their repayments rise in line with their social rent rather than leaping in the first year of ownership. This would allow almost all social tenants to buy at no extra cost.

* Support between home owners and renters should be more equal. Low-income social tenants should receive financial help with the cost of repairs.

* For new tenants a ‘Path to Ownership’ model is recommended. This model removes the £60,000 upfront cost of each social home by issuing government bonds against the cost of construction and msetting rent as the interest payments on these bonds. Costs would further be held down as councils would be able to purchase land cheaply and change planning designation (subject to the new system). New homes under this model would not require higher social rents than existing ones.

* Using this model the Government should aim to build 100,000 new social homes a year – almost four times the rate of recent years. The only cost would be maintenance for these tenants.

* Expensive social housing in more expensive areas should be sold off as it becomes available.

* The savings outlined in this report come initially from asset sales, scrapping most existing housing spending, a new way of funding social housing, and over time, from lower rents (and so Housing Benefit)and reducing the employment gap between social tenants and similar individualsin private housing.
 
* The reforms tie into the overhaul of welfare being pursued by Iain Duncan Smith, as well as providing the funds for any changes his proposals would initially cost. By offering all social tenants the opportunity to buy their home at no extra cost while permanently cutting housing expenditure this reform is both about aspiration and efficiency.

About the author

Alex Morton was Secretary to the Conservative Party’s Globalisation and Global Poverty Policy Group under the Rt Hon Peter Lilley MP. Following this he worked in the Civil Service Graduate Fast Stream at the Department of Health until the end of 2009. For further information, please contact Gabriel Milland on 07860 552 621 orm gabriel.milland@policyexchange.org.uk




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