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The Housing Bill: Ignoring Those That Need It Most

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About The Author

Amy Ling (Former Private Law Manager)

Amy graduated with a first in Philosophy from The University of Manchester in 2012. Following three years working within the social housing sector, Amy is currently studying for her LPC and will begin a training contract at a city firm in September 2016. Amy is an accomplished mooter, and was on the winning team in the 2015 JustCite International Mooting competition. Outside of the law, Amy is a keen runner.

401(K) 2012 on Flickr

[T]here’s one big piece of unfinished business in our economy: housing

David Cameron, Conservative Party Conference 2015

In the week following the above speech, the Housing and Planning Bill 2015-2016 (‘the Bill’), which aims to address this ‘unfinished business’ received its first reading in the House of Commons.

Much anticipated, the bill contains a whole host of provisions covering planning, social housing and private rented accommodation. Without room to discuss all (and the new features such as banning orders and a ‘rogue landlord’ database are certainly of interest), this article will focus on three of the most controversial and leading policy changes: provision of ‘starter homes’, extension of the ‘right to buy’ to housing association tenants, and a mandatory requirement to charge market rent rates to those living in social housing who are considered to be ‘high earners’.

Starter Homes: Helping High-Earning First Time Buyers

For years, politicians have been talking about building what they call “affordable homes” – but the phrase was deceptive. It basically meant homes that were only available to rent. What people want are homes they can actually own

David Cameron, Conservative Party Conference 2015

The desire for homeownership is a pervading, and very British, trait: 86% of us aspire to own our own home. One of the key manifesto commitments of the Conservative Party was therefore to build 200,000 ’starter homes’ by the end of parliament to help ‘hard working families’ achieve this dream.

As defined within section 2 of the Bill, a starter home is a new home available for purchase by first-time buyers under the age of 40. The home must be sold at a discount of at least 20% of the market value, and in any event for not more than £250,000 (or £450,000 within Greater London).

However, the housing charity Shelter have calculated that many of those that this policy appears to be aimed at will not be able to buy these properties. Those with average incomes will be unable to afford these homes in 58% of local authorities by 2020, and those earning the new increased minimum wage (the ‘National Living Wage’) will be unable to afford these homes in 98% of areas.

Or, to put it another way, Shelter estimates (based on average prices lower than the cap) that to afford a starter home outside London, you would need an average income of £50,000 with a deposit of £40,000, and in London an income of £77,000 with a deposit of £98,000. Should purchasers take advantage of the government’s Help to Buy scheme, which allows purchases with a deposit of as little as 5%, they argue you would need an income of £59,000 with a deposit of £11,000 outside London and in London an income of £97,000 with a deposit of £20,000.

There are two key issues with this policy: first, it fails to address the real reasons why would-be first time buyers are unable to get on the housing ladder. Second, the legal mechanisms which are being used to ensure the delivery of these homes will have a significant negative impact on the number of homes built for those on average or low incomes, for whom “affordable” housing was originally intended.

One of the main blockages stopping those who would like to buy but are currently within the private rental sector is not necessarily the ability to afford mortgage repayments, but the ability to save for a deposit. For many, mortgages are actually more affordable than comparable rent: the most recent English Housing Survey not only found that mortgagors actually paid on average £23 less a week for housing costs than the private rental sector, but that whilst owner-occupier households spend on average 18% of income on housing costs, private renters spend almost double (34%). It also found that 34% of those in rented accommodation who had not applied for a mortgage had not done so because they did not have a large enough deposit.

So, it’s not the purchase price itself that is a barrier to homeownership, but the up-front cost associated with it. Even with a Help to Buy mortgage, the ability to raise over £10,000 for a deposit, before even considering legal fees and stamp duty, is little more than an unrealistic dream for many. Ironically, one of the key suggestions on the Homeowner’s Alliance website to help people save for a deposit in order to stop renting is… to stop renting.

Turning to the second issue: the bill provides, at section 3, that ‘an English planning authority must carry out its relevant planning functions with a view to promoting the supply of starter homes in England’, to the extent that (at section 4(1)):

The Secretary of State may by regulations provide that an English planning authority may only grant planning permission for a residential development of a specified description if the starter homes requirement is met. [Emphasis added]

Failure to do so may lead to a compliance direction being issued by the Secretary of State. This creates a legal duty to ensure that starter homes are provided within relevant planning applications. However, defining the provision of starter homes as ‘planning obligations’, combined with said duty to ensure these are built has the consequence that:

[…] sites for new housing meeting the criteria listed above can be exempted from contributions for affordable housing and some wider infrastructure improvements not directly related to the development in return for offering buyers a discount of at least 20% on the market value. [Emphasis added]

Planning obligations, commonly known as ‘Section 106’ obligations (see my previous article, ‘The Beginning of the End for Section 106’) are one of the key methods by which councils provide new housing for those on low-incomes within their areas.

The provisions within the Bill therefore have the unpalatable consequence that new homes will be built for those of above average incomes instead of homes for low income earners. Whilst this will be welcomed by developers, who will always prefer the immediate return from an out-right sale, it is difficult to see how such a move can be justified not only to the 64,710 homeless households in temporary accommodation or 1.4 million people on housing waiting lists, but to average income earners, for whom such starter homes are equally unattainable.

Right to Buy: Dodgy Deals

[A]s we said in our manifesto, 1.3 million to be given the chance to become homeowners. A promise made. A promise kept

David Cameron

Extending the ‘right to buy’ from council tenants to those of housing associations was another of the key Conservative Party manifesto pledges.

Since this was announced during the election campaign, there has been an interesting development which has led to the extension of the right to buy itself being omitted from the Bill, in favour of a voluntary agreement brokered by the National Housing Federation. This deal was voted for by housing association members in a last-minute ballot which closed earlier this month, and then endorsed by the government within the Bill.

Essentially, under this agreement the requirement to sell will be kept out of legislation, as long as housing associations provide the right to buy to tenants as if it were in legislation. There are some concessions, such as the discretion to refuse the right to buy to preserve certain properties, such as those in rural areas.

One clear advantage appeared to be the avoidance of a potential re-classification of housing associations as part of the public sector by the ONS (despite David Cameron describing associations as such in a recent PMQs, they are entirely private organisations), which it was feared would lead to £60 billion of debt added to the public balance sheet and a potential loss of independence within the sector. However, the ONS have confirmed this week that the right to buy deal would not be taken into account when determining classification.

Whilst many in the industry have welcomed the deal as the best of a bad lot on the belief that re-classification was relevant (or as one housing association chief put it, ‘it… feels like being told to either shoot yourself in the foot, or get shot in the head’), the “back room deal” approach taken by the NHF has not been without criticism.

One of the key problems is that it enables the right to buy to be brought into force without any proper parliamentary scrutiny or amendment. Just days before the deal was announced, the Liberal Democrats had stated that they would take steps to block the deal in its passage through the House of Lords, a challenge that is now no longer possible. John Healey, shadow Housing Minister, said ‘this is a backroom deal to sidestep legislation and the proper scrutiny in parliament’ and demanded that MPs should be given an opportunity to debate the terms.

Whether or not the terms of a voluntary deal are better than a legislative one, it surely cannot be right to bypass the proper process of law-making which gives legitimacy to such major changes. It also presents a double-edged sword as housing associations will then have no protection against changes to those terms, which legislation would have provided.

What the bill does cover is the issue of paying housing associations back for the discount that tenants will enjoy in purchasing the association’s asset, and the mechanism which the whole project is intended to be paid for. Sections 56 and 57 of the Bill provide for grants on any terms and conditions the Secretary of State (or Greater London Authority) considers appropriate’ which cover the cost of the discount.

The NHF deal states that ‘housing associations would be fully compensated by the Government for the discount’. A grant on terms is significantly different to full compensation for the loss of asset that associations are entitled to under Article 1 Protocol 1 of the European Convention on Human Rights (ECHR) (for more detail on this aspect, see my previous article, ‘Right to Buy: The Re-Invention of Thatcher’s Social Revolution’). This is because if the terms of a grant are not met (for example a replacement home is not provided within a certain time period) then the money may not be provided whereas compensation would require the provision of the value of the discount with no strings attached.

The replacement of ‘compensation’ with ‘grant’ has not been missed. David Montague, chair of the ‘G15’ group representing the largest associations in London has said:

The NHF offer which was accepted was on the basis of compensation – if what is offered is anything less than that it will be a cause of some concern.

As it is not possible to alienate rights under the convention, it is not even clear whether associations would be able to give away their rights voluntarily (however keen they seem to be) under Article 1 Protocol 1, and therefore whether they would actually be able to raise a legal challenge if there were any difficulty in obtaining the value of the discount from the government.

Further, by signing a voluntary deal, housing associations have opened a significant rift between themselves and the local authorities that they usually partner with. This is because local authorities are expected to fund the grants to be provided to housing associations through payments to the government based on the value of ‘high value’ stock which the government predicts will become vacant in the next financial year.

In a rather nifty legislative move, section 62 provides that the Secretary of State can require local authorities to make a payment each financial year based on an estimate of the market value of the authority’s interest in any ‘high value’ housing that is likely to become vacant during the year. Using this method, the government does not risk delays in income that may come in waiting for completions of sales, instead getting full payment for this up front. The payment demanded will not only include stock the local authority owns but also (at section 63(3)) that housing which has been transferred to another organisation (such as a housing association), which it has no power to sell and no remaining legal interest.

Section 69 provides a separate duty on local authorities to ‘consider selling its interest in any high value housing that has become vacant’, to ensure that such housing when it does become vacant is then sold.

There is dispute as to whether payments in this way will be sufficient to fund the extension of right to buy. The government stated these sales will generate £4.5 billion as a result of 15,000 vacant properties a year. However, the Chartered Institute of Housing, in conjunction with Savills, estimates that the real figure is likely to be at most 6,800 a year, generating a maximum £2.2 billion.

Yet again, the Bill creates a mechanism to increase homeownership, but at the expense of housing for those that cannot afford a mortgage.

Pay to Stay: Mandatory Rents for “High Income Social Tenants”

There needs to be a better deal in the social housing sector, with housing at subsidised rents going to those people who genuinely need it.

‘Pay to Stay: Fairer Rents in Social Housing’, DCLG Consultation Paper

In June 2012, the Coalition government set out proposals to charge higher rents to tenants in social housing that it considered to have high incomes on a voluntary basis. The threshold that it set to be considered ‘high’ was £60,000. The rebooted version of this policy is contained within Chapter 4 of the Bill, though all the actually useful aspects such as how income is to be determined ; what income is included; and to what period this income will refer to, will all be revealed with the publishing of new Rent Regulations.

The two key differences in the provisions as part of the Bill are that the charging of market rents to those considered to have high incomes will become mandatory, and the income levels themselves have been lowered to £30,000 outside London and £40,000 within London.

There may certainly be an argument that, in a housing crisis where truly affordable homes are so scarce (particularly in London and the south east), such homes should not be available at sub-market rents to those on high incomes. However, it is difficult to see why a couple each with a pre-tax income of £15,000 outside London should be classed as ‘high income’, when it equates to around only £1 an hour higher than the minimum wage.

Further, perversely, the policy is likely to have the effect of disincentivising work and increasing benefit dependency, particularly in areas such as London. This is because it is not possible to rent privately or access homeownership on a wage of £40,000 in many areas of London, with the result being that households on the cusp of this level are likely to actively reduce hours or even give up work in order to continue to stay within their communities.

Those that are affected by the policy may also need to claim housing benefit for the first time in order to cover their increased housing costs, which seems particularly counter-productive for a policy which claims to reduce dependency on ‘tax payer subsidy’.

Conclusion

Housing now consistently ranks among the top ten of important issues facing the UK, a concern that has been increasing steadily since 2010.

However, the focus throughout the Bill on homeownership at the expense of any other type of “affordable” housing fails to recognise that the group of people who are in a position to buy a home are different to the group that “affordable” housing policy has been traditionally directed towards. Those who are on housing waiting lists, in temporary accommodation, are homeless or simply cannot afford to buy, have been ignored. This failure risks fundamentally undermining any chances of success that the Bill might have in genuinely tacking the housing crisis for all those who need a home.

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Tagged: Housing Law

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