The Budget and how the housing sector got it wrong

The budget will no doubt grab headlines for the Chancellor’s neat little fiddle to petrol prices, but I’m more interested in what’s behind some similar footwork on new homes.

The budget introduces First Buy a £250million programme that it is claimed will help first time buyers buy homes. It does this by an equity share scheme that builds up enough capital to create a 25% deposit for a first time buyer. The cost is met partly by the government (10%) , partly by the housebuilder (10%) and partly by the buyer (5%). In this way a first time buyer who can only afford a deposit of 5% of the purchase price of a house can satisfy the lender’s requirement for a 25% deposit.

Commenting on this today, the housing sector is full of medical analogies. Richard Capie of the CIH on the Today programme this morning described it as “an adrenalin shot in the arm for the housebuilding industry which is still in intensive care.“ 

Campbell Robb at Shelter described it this afternoon as “sticking plaster on a broken leg” he went on “We now have a construction industry on its knees and the lowest levels of house building since the 1920s.”

This to me illustrates what is wrong. The housing sector has confused itself with the housebuilding industry. Every housing problem that is raised whether it be homelessness, overcrowding, poor living conditions or affordability the sector’s answer is “ we need to build more houses” Except the housing sector doesn’t actually build any homes. The housebuilding industry does. From the housebuilders point of view this is no doubt great news. They have had their business elevated to a moral necessity by organisations with the public goodwill of Shelter and the credibility of the CIH.

But few people stop to ask two important questions. Why is housebuilding so low?  and if it were to magically accelerate would it really solve all the country’s housing problems?

The answer to the first is easy. Housebuilders aren’t building, because few people are buying. Housebuilding is just a business operating in a market. Right now what it produces is judged by the market to be too expensive, and by lenders to be too risky (because lenders judge houses to be overpriced) .What would any other business do? Obviously drop its prices. But the housebuilding industry sees itself as a special case, and the housing sector reinforces this belief. Instead they think it is the duty of the state to construct new ways for people to afford homes at high prices, and also its duty to take the risk of the inevitable house price drop away from lenders.

The answer to the second question is harder to answer. Let’s just say that a million new homes are built this year (ten times what is predicted). Would it solve lots of housing problems? Given that as I discussed a couple of weeks ago there is no overall housing shortage in this country, who would buy them and who would live in them? As the vast majority of the homes would be for private sale, it is fair to say they wouldn’t be bought by people in housing need. Perhaps there would be a trickle down effect. Perhaps the oversupply of houses would cause overall house prices to drop. All these things are possible. But we would inevitably end up with far more vacant homes (probably about a million more). I think it’s highly likely that homelessness, overcrowding, and poor living conditions would be largely unaffected, but arguably housing affordability might be improved.

So what’s really behind Firstbuy? The package is available to first time buyers who buy new homes. I don’t have figures, but the vast majority of first time buyers buy second hand houses. First Buy is therefore simply a form of subsidy to help the housebuilding industry. Campbell Robb said today “Today’s announcement will help less than one per cent of people struggling to get on the housing ladder, leaving them more likely to win the lottery than be helped through this small-scale scheme.” He may well moan about it now, but by lobbying on behalf of housebuilders for so long the housing sector can hardly complain when the government takes them at their word.

It's empty homes, not spare rooms, that can solve our housing crisis

George Monbiot wrote an intruiging article in the Guardian last week claiming that underoccupation was the big housing problem that really needed to be resolved. The Guardian have been good enough to publish my response today. Here it is in full: 

George Monbiot describes under-occupation of housing as our second housing crisis, after the shortfall in supply, and calls for a fight  “It needs to be researched, debated, fought over. It needs to turn political” he says.  (let’s take the housing fight to owners with empty spare rooms – Guardian 4^th January) his idea might fit with an ideology that it’s all the middle class’s fault, but the real opportunities for better use of housing lie in using empty buildings not spare rooms. 

Monbiot’s contention is that “ a better distribution of housing we have already built” could help ease the housing crisis. He goes on to explain that the reason you’ve never heard about this before is a political conspiracy to keep it from us.  “You’ll seldom hear a squeak about it in the press, in parliament, in government departments or even in the voluntary sector. Given its political sensitivity, perhaps that’s not surprising” he says.

But in all this talk of wasted space Monbit fails to mention that across the UK there are close to a million empty homes, and enough abandoned commercial buildings that could be readily converted into half a million new dwellings. In our view these have far greater potential to create homes than filling up spare rooms in under-occupied homes. There is detailed evidence to show that numbers of empty homes have increased over recent years. Under-occupation has too, but not to the extent Monbiot claims. Relying on one figure in a report on energy use, Monbiot says that “between 2003 and 2008 there was a 45% increase in the number of under-occupied homes in England” But the English House Condition Survey (p16) shows an increase from 31% in 1995/6 to 37% in 2008/9.

Of the UK’s million empty homes, about half are long-term vacant with no plans for reoccupation. Amazingly thousands of them are boarded up in preparation for demolition with no replacements planned. We think that small incentives for renovation and reoccupation, and a reversal of some of the demolition programmes are the most cost effective way of providing new housing. Surveys have shown that on average, empty homes need only £10,000 of investment to get them occupied again, compared to £90,000 of subsidy to get a new social home built. It’s greener too. Research we carried out recently showed that the refurbishment of derelict buildings creates far lower carbon emissions than building new homes.

But the main reason we should concentrate our energy on getting empty buildings and not empty rooms into use is that empty homes are tangible and there is track record in creating homes from them. Dealing with under-occupation is a naked promise.

Neither the problem, nor the outcome of tackling it, are as great as they first appear. Underocuupation is calculated using the government’s “bedroom standard” this notionally “allocates” bedrooms to people in each household.  Couples and single people over 21 get a bedroom; younger people notionally share two to a room. If after this hypothetical family rearranging, there are two or more bedrooms left the home is deemed to be under-occupied.  So a family of four living in a four-bedroom house would be under-occupying, even if it consisted of a couple sharing a bedroom and two children each with their own bedroom plus a spare bedroom.

To most people living in this situation I doubt it feels like a problem that needs fixing. And it is hard to think of a policy, short of coercion, that would persuade them to take in lodgers. Living next to an empty home on the other hand is a different matter. Unmanaged and often out of control they can quickly become magnets for fly tipping, vandalism and occasionally arson. In some areas of the country vacancy has become a vicious circle causing neighbourhoods to empty out as they decline.

So investment in bringing empty homes into use is not only a very cost effective way of creating more homes, it helps regenerate neighbourhoods too. We are pleased to see that the government has made some funding available, and is considering giving incentives to communities for bringing homes back into use. However the funding is only enough to refurbish three thousand empty homes nationally. To really create a flow of new homes it needs to be aligned to incentives for owners such as targeted reductions in VAT on refurbishment costs and an end to the barmy idea of giving council tax discounts for houses left empty. With these changes not only would many owners bring their empty homes into use, the rationale for demolishing empty houses would be replaced with a cogency to reuse them. 

When so few houses are being built it is tempting to think that if everybody could just budge up a bit we could fit millions of households into peoples homes and solve the housing crisis. It’s probably true that ideas Monbiot suggests would have some marginal benefit, but we believe far greater rewards will arise from investing the same energy and resources into getting more empty homes back into use and helping solve the real housing crisis.

more vacancy, but 3 ways to resolve it

Yesterday the Guardian reported that the housing vacancy rate is an enormous 25% higher than previously thought. That means that across the UK there may be 450,000 long-term empty homes. As they correctly point out this is enough to house a quarter of the families on housing waiting lists in this country. Now I know there are people that will say this is an oversimplification and Shelter will go on about needing to build new houses. Well are both are true but that doesn’t take away the significance of these findings.

Just imagine for a moment what would happen if a government introduced measures that really dealt with the problem. What would that do? Well, allowing for the difference between UK and England data , 450,000 homes would house 1.1 million people. As this graph shows, that’s enough to re-house every overcrowded household in England, everybody in temporary accommodation and every single homeless person. No mean feat!

Now, some will say, it’s just a one-off – homeless households just keep forming. Well true enough, but bringing empty homes back into use can carry on too. Once the 450,000 are back into use, there would no doubt be a whole load more homes that had become long –term empty. Getting those back into use would continue to address new housing need. Eventually of course the numbers of empty homes would run right down and as a source of new housing. But that’s a good thing. It would mean that the country was using it’s housing stock at optimum efficiency, which would in itself reduce the numbers of people falling into housing need, and massively reduce expenditure in dealing with the effects of the problem.

So what would a government have to do to really make an impact? We think just three actions would do it:

1. Offer a financial stimulus to the building industry by redirecting part of the national affordable housing programme towards refurbishment of empty homes. The Liberal Democrats estimate that £3.3bn (out of a £17bn programme) would bring 250,000 homes into use.
2. Encourage councils and public sector landlords to hand over surplus properties to local communities for them to bring back into use. And encourage them to help owners get their homes into use.
3. Give home owners incentive to refurbish their own empty homes by reducing VAT rates on refurbishment to 5% - The FMB estimates that this would have a net cost of £102m-£550m

It’s not difficult or unaffordable. Indeed all of the costs would offset other costs elsewhere. And it’s not politically unrealistic either. Between them the three main political parties endorse all of these proposals. We just have to hold them to it and encourage whoever forms the next government to introduce all three.

New £1million empty homes fund

If you can buy a house for a pound, what could you do with a million? It’s question worth asking if you live in Torbay, St Helens, Ipswich, Mansfield ,Bolsover, Luton, Bolton, Liverpool, Doncaster, Corby, East Northamptonshire, South Northamptonshire, Milton Keynes, Durham, Cornwall, or Warwick. Because housing minister John Healey announced that those councils are today being granted a £1 million between them to tackle the particular empty homes problems that affect those places. In Doncaster and Stoke it is tackling a problem of declining demand, In St Helen’s and Ipswich it is newly built flats that remain empty, in Nottinghamshire it is tackling the legacy of empty homes left by the closure of the coal board’s housing. It’s taken a lot of persueding for the government to agree to this package but that makes it no less welcome.

New Empty Homes Figures - Not Good News

Government quietly slipped some new empty homes statistics this morning. They’re still not published on their website, but can be seen here in Barbara Follet’s answer to a parliamentary question from Caroline Spellman. They show (as we anticipated) the numbers of empty homes continues to rise. The total for England now tops 764,000 the third successive annual increase. These figures show an increase of about 3% which if repeated across the whole of the UK would see the total pass 970,000. Given that these figures are a year behind anyway, I take no pleasure in saying that we really must be approaching a million empty homes across the UK.