Earning money the right way - a suggestion for councils

” We want to make money out of it” ,  “We should have the money not them” , “We can’t afford to make loans”  this was Councillor Mark Howell of South Cambridgeshire District council on the radio this morning. He and I were both guests on the very glamorous  BBC radio Cambridgeshire breakfast show. Howell was there to talk about his council’s plan to get rid of the council tax discount it currently offers to owners of empty homes. An idea I fully support; the discount is a nonsense and does nothing to encourage landlords to make good use of their property. But Howell’s tone was dispiriting; apparently fixated on the money but seemingly uninterested in what the money could help the council achieve. I know councils are in really difficult times now. As a director of a small charity, believe me I know what it’s like to not know where the money is going to come from. But really!  Howell and many others in local government, who I have heard make similar points over the last couple of weeks could do better than this. The purpose of councils lies in what they can do for their communities not how much money they can make.

Empty homes is in fact an area where the government is actually investing more money. £100 million new targeted funding, and rewards for homes returned to use through the New Homes Bonus. Councils need to be thinking about how they can use these funds creatively to really make a difference.

Here are three ideas. Bear in mind that properties returned to use will earn the council between £7,000 and £11,000 in New Homes Bonus rewards over a six year period. In addition the council would also start receiving council tax from the reoccupied property. 

Kent County council operate a loan scheme for owners of empty property. It costs Kent about £2,700 in lost interest and administration for each home returned to use through the scheme.  Other councils from around the country could set up a similar scheme or even ask to join Kent's.

There are homes that are currently not economically viable to bring back to use, even though there are lots of low income people who want to live in them. The council could make a small grant of say £5,000 available to the owner on condition that the property were let to somebody in housing need.

There are 40,000 odd empty council owned houses in England. The council could sell these at discount on condition that the purchaser lived in it as their sole home and renovated it to an agreed condition. 

Of course all three of these ideas cost money, but crucially they all earn more than they cost. The more things like this the council does,  the more it will earn and the more homes will be created for its community. If councils want to make money surely this is a better way to do it.

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.

Three Remarkbale Announcements

A few years ago I remember writing that you try in vain for years to get government to change policy on empty homes. And then just like waiting for the bus three announcements come along at once. Well it’s happened again. But this is where the bus analogy falls apart. Only one of the three buses are any use to you, but the three announcements made by the government this week are so important because when considered together they add up to something highly significant. So here they are:

Firstly last month in the Comprehensive spending review the government made £100 million available to bring empty homes into use. It will be part of the HCA’s affordability program. So it’s largely capital for renovating and bringing empty homes into affordable housing. Yes, we won’t actually see it until 2012, and yes I know it’s considerably less than the £2.5billion proposed by the Liberal Democrats in their election manifesto. But it’s a great deal more than the £3mllion spent nationally last year on empty homes. From schools to aircraft carriers I can see no other area of public spending which has received such an increase.

Secondly this week the government has proposed rewards (through the New Homes Bonus scheme) for local authorities to get empty homes into use. The mechanisms are still being worked out, and indeed this week’s announcement is a consultation paper. But take note; that the empty homes element is specifically referred to in the ministerial foreword. It even says that this could provide a way to fund the vital work councils do to get empty property into use. But the true significance comes when you see the third proposal.

The government proposed this week that empty homes returned to use should count towards housing supply targets (or aspirations as we should now call them!) in the same way as new homes. The notion might seem blindingly obvious, but previous governments have resisted it. The effect has been that work to bring homes into use has been regarded as of secondary importance to building new homes by many councils.

These proposals would mean that councils would have to consider empty homes and getting new homes built together. A good idea in itself; what’s the point of building new homes if there are already homes lying empty? You might ask. Certainly we’ve been asking that question for years. Now we have an answer. Not everybody will like this, but if councils get this wrong it will hit them in the wallet. For example under this proposal a council that gets a hundred new homes built, but also sees a hundred homes becoming empty will get no New Homes Bonus reward. A council that gets a hundred empty homes into use will earn lots of New Homes Bonus even if no new homes are built. This is a clever idea, it will mean councils will have to look at their existing housing stock instead of just trying to get more homes built. And when they need work out to get more homes they will find that housing associations are funded not just to build new homes, but they have £100million fund to apply to get empty homes into use too.

So this isn't really three seprate announcements, it adds up to something much more a real policy. Now they really don't come around very often.