← Older posts
John Bibby
John is a Policy Officer at Shelter.

View all posts by John Bibby

By John Bibby

Rising house prices: from poll-rating fillip to political hazard

There are few things more corrosive for a government than the perception that they are ‘out of touch’.

Whether it was the fuel duty protests during the first Blair government or the pasty tax row following the 2012 budget, when a government’s policy looks like it’s out of step with the daily experience of ordinary people then it can pose a serious threat to their legitimacy.

There may be disquiet amongst top government strategists, then, that a gap could be opening up between policy on house prices and what people think about house prices.

Last Tuesday’s announcement by the Office for National Statistics that house prices have risen by a startling 9.7% in England (including a 17.7% rise in London) will be unwelcome news to 66% of ordinary people, as Shelter reported last year. We believe that house prices should remain stable over the long-term.

Reflecting the profound lack of enthusiasm among the public at large for further house price inflation, the reaction from the mainstream press to recent news on house prices has been one of alarm. In response to Tuesday’s announcement, The Metro’s headline “Your home probably earns more than you” focussed on the growing disparity between incomes and house prices. While only a fortnight ago, the Daily Mail chose to report on warnings from Vince Cable with the headline “Buying a home is now ‘unaffordable’ for the middle classes”.

Gone are the days when increases in house prices were greeted with enthusiasm. With falling levels of home ownership and the ballooning number of private renters, the public perception of house price inflation is now that it is pushing the aspiration of home ownership further out of reach – or storing up trouble.

Given this, the Treasury Secretary’s remark last September that a housing bubble is “a million miles away” appears now like it might have been a hostage to fortune. But as recently as last week, the new Culture Secretary was still suggesting that people in his constituency (Bromsgrove) wouldn’t take seriously the idea that there is a housing bubble. House prices have risen 9.02% in Bromsgrove over the last 12 months, according to property website Zoopla, almost exactly the national average – including London.

For those strategists in Number 10, however, more important than debates about bubbles should be the detail of the policy response to rising prices.

So far, the response has had two parts.

1)    Help to Buy has been offered as a semi-targeted subsidy to help a specific group (i.e. largely struggling first-time buyers) overcome high and increasing house prices.

2)    The Bank of England has been brought in to put on the brakes if the market more generally spirals out of control.

In this way the response mixes the sympathetic with the sensible and the micro with the macro.

It sounds ideal.

The problem is that it isn’t working.

Here’s why:

First, Help to Buy, while helping some people get credit who would not otherwise be able to do so, does nothing to more generally stabilise prices. If anything, by stimulating demand for homes, it may have the opposite effect.

Second, for a number of reasons, The Bank of England is in a bind when it comes to making a serious intervention. With CPI inflation already below target, any change in interest rates to put the brakes on house prices is problematic. More problematic is the potential knock-on that such an increase might have on the fragile economic recovery.

Still more problematic is Mr Carney’s admission that in London, where prices are increasing higher than anywhere else, the Bank can have only limited influence. This is because so many homes are bought outright in the capital. “Much of what’s driven in London” he said in his appearance on the Andrew Marr Show in February “is not mortgage-driven but is cash-driven…We change underwriting standards – it doesn’t matter, there’s not a mortgage. We change interest rates – it doesn’t matter, there’s not a mortgage, etc.”

At the root of these problems with the Help to Buy/Bank of England response to high prices is the fact that it exclusively focuses on demand. As Shelter has said on this blog often, focussing on demand alone won’t solve the current housing shortage (important though its regulation is).

There are specific demand-side issues (such as the value of London property as a global asset), but an exclusive commitment to demand-side policies will not be sufficient to stabilise prices. So long as fewer new homes are built every year than new households created, trend prices will continue to rise (even if they do so erratically).

When it came to both the fuel protests and pasty tax, the charges that the government of the time was out of touch gained traction because they were based upon policy substance, not just poor messaging. The worry for both parties in the current government should be that without the serious plan for new building that the stabilisation of house prices requires, the gap between policy and public opinion will widen.

Kate Webb
I am a senior policy officer at Shelter. Since joining Shelter in 2010 I have worked mainly on housing benefit and welfare reform and now suffer from the misapprehension that tapers and income disregards are acceptable topics of conversation.

View all posts by Kate Webb

By Kate Webb

Personal safety nets no substitute for government support

How would you keep a roof over your head if you lost your job? It’s not a question many of us like to ponder (just as we tend to ignore those issues like what exactly will happen if we fail to eat five (seven?) fruit and veg a day). But it’s a situation thousands of ordinary families unexpectedly find themselves facing every year.

Worryingly, the facts suggest many of us would struggle to keep up with rent or mortgage payments if we suddenly lost our income. New research for Shelter found that four in ten families are just one pay cheque away from being unable to afford their home.

It’s not news that Britons are struggling to save, and with incomes stagnant and living costs rising for several years many of us have been dipping into our savings just to keep ticking over. But it does mean that we’re ill-equipped to deal with a sudden change in circumstances, for example job loss or relationship breakdown.

A quarter of UK workers polled by Shelter had no savings at all and would immediately find themselves struggling to keep up with housing costs if they lost their job. Four in ten could cover less than  one month’s rent or mortgage payment, rising to six in ten after three months. Just over half of people claiming jobseeker’s allowance end up taking more than six months to get back to work, raising real concerns about how long people can support themselves for.

Perhaps we don’t think so much about how to pay for our homes if we lost our income because we assume that a safety net will be there to support us if we need it. This may seem a little complacent but it isn’t entirely unreasonable. Especially as most people are well aware that they’ve paid in to a system to support them. In fact, it’s because of this safety net that job loss rarely leads directly to homelessness in the UK (a success that we’re far too modest about).

Moreover, the majority of people don’t just assume the safety net is there, they think it ought to be there. Six in ten agree that the government is responsible for providing a decent standard of living for the unemployed, which would surely require a system for preventing homelessness.

Unfortunately continued cuts to the safety net have weakened this protection and made it harder for people to keep a roof over their head. Homeowners have to wait 13 weeks before receiving any help for mortgage interest payments, and even then the support they receive may be below their actual mortgage costs. Payments to private tenants has been cut back, meaning that many people paying average rents are not entitled to sufficient support. This problem is set to get worse when the short-term buffer for new claimants is abolished under Universal Credit.

This is why Shelter is campaigning against any further cuts to the housing safety net. The support it offers is already inadequate in many cases, and any further reductions risk pushing the system to breaking point. We all want to know that a safety net is there if life takes an unexpected turn, and that safety net has be strong enough to genuinely support people through difficult times and help them back on their feet.

Pete Jefferys
I’m a Policy Officer at Shelter and interested in how we can get housing up the political agenda, secure a better deal for private renters and get affordable homes built. Outside of policy, I love exploring new parts of London, sport and going back home to Devon.

View all posts by Pete Jefferys

By Pete Jefferys

Let cities lead

When it comes to getting homes built, it really matters where powers and budgets are held.

Ed Miliband is today announcing that he would give power to England’s cities only “slightly less cautiously than the Coalition”, as Brian Groom from the Financial Times put it. Previews of Miliband’s speech in Birmingham today are suggesting that a Labour government would double the Local Growth Fund to £4 billion annually and would allow cities to bid for this pot. Housing and infrastructure is being mentioned as a major part of the deals that could be struck with cities under these plans. Reports also suggest that HCA assets and also powers to set up development corporations could also be included. The devil will of course be in the detail. As well as devolving investment budgets for housing they desperately need a boost if we are to build enough homes.

However, snarkiness aside, this is good news and the right direction for policy. For decades in England, we’ve struggled to decide the balance between local and central power. On housing in particular, there’s a natural tension between representing the views of local people such as through Neighbourhood Plans and ensuring that enough homes are built to give local families the chance of a home of their own, when others in the community oppose development. This has been an issue very much alive to the current government, with the Coalition’s planning reforms balancing community input with a presumption in favour of sustainable development under some circumstances.

We believe that local leadership is the best way to represent and address this unavoidable tension – so long as local leaders (whether council leaders, city leaders or combined authority leaders) have real budgets, real powers and also are seen locally to hold the responsibility for providing homes that local people can afford.

Other countries are often much better at this than we are. In Germany, France and the Netherlands in particular, local leaders have real responsibilities and powers to get new homes built. Peter Hall and Nicholas Falk have brilliantly captured some of the lessons on housing, infrastructure and growth from Europe’s best cities in their excellent recent book ‘Good Cities, Better Lives’. They argue that we should “free the cities” with stronger ability to fund their own development, collect revenue and in particular provide “strong planning” with cities taking a positive lead on master-planning.

I particularly like the sort of model used in the HafenCity urban redevelopment in Hamburg where city leaders took a strong lead, setting up a development corporation and launching competitions for private partners to lead on design and delivery. For building new homes, one of the best aspects of this sort of approach is that is ensures competition happens on the quality of the homes built. In England’s dysfunctional development system, far too much of the competition happens on land price alone, driving down quality (and the size of new homes) and driving up local opposition.

City devolution is an important part of any credible plan to build the homes we need and it’s something Shelter will be looking at closely in the coming months.

There is a real head of steam building behind these sorts of ideas, with Centre for Cities, Lord Heseltine and Andrew Adonis all offering new ideas. There’s much further to go, but at least we’re now debating the right issues.

John Bibby
John is a Policy Officer at Shelter.

View all posts by John Bibby

By John Bibby

Help to Buy: good for supply?

As the equity loan part of Help to Buy reaches its first birthday, and celebrates with a £6 billion extension, it’s worth reflecting on whether this flagship policy has been a success.

The equity loan has received substantially less criticism than its mortgage guarantee successor – not least from Shelter – because it is linked to housing supply by being only available on new-build homes. What ‘success’ means for Help to Buy 1, then, is both how many people it’s helped onto the ladder and how much of an impact it has had on supply.

The National Audit Office’s report on the scheme’s first few quarters in operation concludes that it’s too early to tell what impact the scheme has actually had on stimulating supply – and that even quantifying its added value will be “challenging”. “[I]n a recovering economy,” the report authors note, “developers might have increased supply anyway, or might have speeded up building stalled sites.”

But with almost a year’s data on where loans have been made, we can at least consider whether they have been directed to the places where England’s housing shortage is most acute. We might not be able to tell how much of an impact the loans have had on overall supply, but we can say whether they have gone to places where new building is most needed.

The first thing to note about the distribution of loans made under the scheme is that it is profoundly uneven, with half of them being made in just sixty of England’s 326 local authority districts.

This uneven distribution isn’t necessarily a bad thing in and of itself. The housing shortage is a national problem, but it is not experienced equally everywhere.

But comparing the distribution of Help to Buy loans to measures of housing shortage shows a troubling picture.

There is no authoritative measure of need for new homes in England, but local affordability levels – average wages compared to average house prices – provide an indicator of demand compared to ability to pay. It is reasonable to expect a supply incentive like Help to Buy 1 to be targeted at the least affordable parts of the country, where demand is higher and people’s ability to pay lower. But the trend so far has been towards equity loans being made in the most affordable areas.

Home ownership rates should also give a measure of where people have been shut out of home ownership. The lower the local level of home ownership, the greater the need for new and affordable owner-occupied homes. Mirroring affordability rates, however, in Help to Buy 1’s first year the trend has been towards loans being made where home ownership rates are highest.

The legitimate response to this analysis is that it’s too early for the scheme to have made an impact on new-build completions. In the first year at least, we should expect most loans to be taken where most homes were already being built. Sure enough, the relationship between completions in the year before the start of Help to Buy and the distribution of equity loans is strong.

But this response is far from unproblematic and raises two questions.

Why launch the scheme straight after announcing it?

If the aim of the scheme is to kick-start new building, it should have been given a lead in time so that builders could actually respond. If the equity loan scheme couldn’t be expected to have an impact on supply in the first year after it was announced, why was it launched only twelve days after its announcement? The rush to get it started has written off the first year’s impact on supply and may have wasted over £500 million of DCLG investment.

The argument that builders needed the injection of capital so that they could start new building does not stand up to scrutiny. The added confidence granted by the announcement of the scheme will have opened up access to credit necessary for increasing output for those builders taking part in the scheme.

Is Help to Buy 1 ever likely to be directed at the places it is most needed?

Relying on Help to Buy 1 to deliver the homes England needs presents more problems than just implementation. Its entire premise as a means to stimulate house building is questionable. As the NAO explain, the equity loan scheme is designed to stimulate supply by ‘generating effective demand’. But as we’ve previously written here, the private housing supply system in England is incredibly unresponsive to demand, as demonstrated by the non-existent relationship between average house prices and levels of new building.

Prices represent a measure of demand relative to supply. Economic theory suggests that where prices are higher, supply should increase to meet demand. But the English housing supply system does not respond to higher prices by building more homes. Given that private developers were already failing to respond to price signals before the start of Help to Buy, there is little reason to expect that anything will change in its second year or after.

Help to Buy 1 has managed to avoid much of the criticism of its younger sibling due to its apparent link to new supply. If that link equates to little more than a cursory nod, however, and it isn’t capable of delivering new homes where they’re needed most, it is similarly flawed.

Hannah Gousy
Hannah is a policy officer at Shelter

View all posts by Hannah Gousy

By Hannah Gousy

Private renters, a potential political force to be reckoned with

Polling from our friends at Generation Rent has shown that 35% of private renters are floating voters, who could cast their votes on the basis of housing manifestos. The research also identified 86 ‘private renter marginals’ where private renters have the power to sway the vote. In these constituencies the sitting MP has a majority of less than 35% of the expanding renter population.

Generation Rent conclude that, if either of the two main parties were to take all these ‘private renter marginals’ in 2015, they would return a majority, making renters a political force to be reckoned with.

There is a lot that politicians could be doing to improve the lives of private renters and win these votes

Private renters want more stable, decent and affordable housing.

Our YouGov polling shows that only 1 in 10 renters’ main reason for renting is because it gives them the freedom and flexibility they want. This compares to nearly 6 in 10 renters who say that their main reason for renting is because they have no other choice – because they can’t afford a home of their own or can’t access affordable social housing.

When we asked over 4000 renters what their reasons for moving in the last five years had been, more than 1 in 6 blamed poor conditions, 1 in 8 wanted to live in a cheaper property and 1 in 20 just couldn’t afford their rent payments. This tallies with Generations Rent’s findings that two-thirds of private renters (67%) felt stuck renting because of the cost of buying, and more than half (52%) said the level of their rent was their biggest problem. 

Shelter has called on the government to take action to improve stability and conditions in the sector. For political parties, this could be a crucial vote winner at next year’s general election.

Unlocked potential

However, far too many renters are currently disenfranchised. Only 58% of private renters are registered to vote compared to almost 90% of owner occupiers.

Estimates suggest, that roughly 3.8 million potential private renter voters in England are not registered and many of the remaining 5.2 million may find they are no longer eligible to vote at the 2015 general election, because of a change in the way voter registration is done. From June 2014, everyone who has not been added to the new electoral roll using the Department for Works and Pensions (DWP) data mapping will have to register to vote individually. The Government’s trial of the mapping showed that private renters were the group least likely to be matched, and many of them therefore risk falling off the electoral roll.

The political party who makes sure these renter voters are registered, and that they turn out to vote, could have a major electoral advantage in a number of key seats.

Stable renting – a vote winner

Many would argue that it is the demographic profile of private renters – traditionally thought of as much younger than their home owning neighbours – which makes them less likely to turn up at the ballot box or register to vote. But the expanding number of families and people at other, more settled stages of their lives living in the private rented sector suggests that low voting rates are more likely to be caused by the high levels of churn among renters.

People who move more often vote less. Significantly 92% of those who have lived in their home for more than five years are registered to vote, compared with just over 20% of those who’ve been there for less than a year. Moving house means re-registration, which can all too easily slip down your to-do list. Equally, if you suspect you will only be living somewhere for a short while then you may be less inclined to invest in the area and its local politics.

The key to getting more private renters registered is longer, more stable tenancies. When we surveyed renters asking them if they’d like a longer tenancy only 4% disagreed.

Two cautions though: the model proposed cannot rely on landlords proactively offering longer tenancies, as there is little market incentive for them to do so. And whatever model is adopted, renters need to be able to give notice if they need to move on.

It’s clear, though, that making renting better has the potential to win crucial votes for whoever proposes it.  We’re looking forward to seeing every political party compete to make the best offer to private renters at the next election.


← Older posts