Sunday, February 20, 2011

New Homes Bonus - it might just work

There had been speculation that when the figures came out they would show that less than 100,000 new homes were built in England last year, but when it happened last Friday the government was spared that particular humiliation. 102,570 houses were built in 2010. It’s still the lowest number since 1923. Of course housebuilding reacts slowly to changes of policy, and the government is still safely in the territory of being able to blame it all on their predecessors. Last week they announced details of their New Homes Bonus scheme. This looks like it’s going to be the centrepiece of their housing supply policy, and if there are not more homes as a result of this; the government will have nobody else to blame.

The idea is simple, for each new home the council gets paid a reward equivalent to the council tax paid on the homes for six years, they get another bonus of £350 a year as well if the house is affordable. Not everybody is happy with this, Sean Spiers, director of CPRE said it’s bribery and it's possibly illegal. But legal or not, bribing councils is a well-proven way for governments to get what they want.

When the idea for New Homes Bonus first emerged early last year I must admit I had my reservations too.  Governments have been struggling for years with how to deal with the poor supply of housing in the UK. They’ve have generally concluded that way to resolve it is to try and persuade housebuilders to build more houses. Unfortunately it hasn’t worked out largely because the diagnosis was wrong. It’s not more new houses the country needs, it’s more low cost houses and they aren’t very profitable for the housebuilders to build. Instead incentives and pressure to build resulted in more houses but houses that people didn’t need or want.

But may be, just may be, New Homes Bonus might work. The reason for my optimism is it seems to be genuinely focussed on the problem, not just trying to push a chosen solution. Here’s how it works:
The council gets a bonus each year calculated on the net increase in homes. Homes can mean newly built houses, or empty properties returned to use. But if there isn’t really a demand or need for homes or the homes that get built are rubbish and nobody wants to live in them, the benefit is pretty short lived. If there is an increase in vacancy levels the number of newly emptied homes are discounted off the total of new homes. So for example a borough sees 1,000 new homes built during the year, but vacancy levels go up by 800, will only get rewarded for 200 new homes.

The long-term impact of this should be to change local authorities' view of housing supply. Hopefully the'll concluded that it'll be no use getting homes built if nobody lives in them. And hopefully they'll see it’ll be doubly beneficial to get empty homes into use (they’ll get a reward for each one and won’t loose potential reward on new build homes). And also it won’t matter who brings empty homes into use. This system doesn’t reward council activity; it rewards the outcome. Hopefully this will mean that councils will start to encourage people to do up empty properties rather than thinking that it only counts if they do it all themselves.
In other words the outcome of the New Homes Bonus should be to encourage inhabited homes, not simply housebuilding. So when this system is judged in a few years time, how will we know whether it has worked? One sign of success would be that it doesn’t matter anymore what the housebuilding rate is. It’s how many homes get occupied.

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