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John Bibby
 
John is a Policy Officer at Shelter.

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By John Bibby

Should I support ‘rent control’? The devil is in the detail.

At the beginning of the month the Independent reported that ‘almost nobody in the UK is opposed to rent controls’; polling showed that 59% of people supported their reintroduction. 7% were in opposition and a sizeable 34% didn’t know.

And to be honest, if you were to ask me only whether I supported the introduction of ‘rent controls’ without any detail I’d be with the 34%.

Like any kind of regulation, not all rent control is good or bad. It depends on exactly what the proposal is and where it will apply. As the rather more nuanced editorial that accompanied the article said “…the choice is not between sledgehammer controls and nothing at all.” The devil is in the detail.

And the opportunity for widely different detail is significant. Rent controls are typically divided up into belonging to two or three ‘generations’ depending on whether they limit absolute rent levels, increases in rents between tenancies or just rent increases within tenancies. But even this distinction can over-simplify the extent of the difference between different regimes and how they act in practice.

In practice, an absolute freeze on all rents at existing levels is very different from an enforced cut to below existing market levels or instituting a ‘fair rent’ regime. A 10% limit on rent increases between tenancies is very different from a 100% limit. And so is the difference between always limiting in-tenancy rent increases to inflation and establishing a municipal board to annually decide the maximum increases landlords are able to charge.

Nor does the complexity end with the detail of regulation that concerns rents directly. How the policy interacts with other national regulation matters hugely. Because in a situation where, for example, rent increases are limited during tenancies, the minimum legal length of a tenancy is critically important. If your landlord can just kick you out and get a new tenant at a market rent then restrictions on rent increases are relatively meaningless.

The Cambridge Centre for Housing and Planning Research in their 2012 comparison of international rental markets produced six regulatory indicators that are a good starting point for considering the extent of the regulations effecting rents:

  • Initial rent setting
  • Rent increases during a tenancy
  • Length of a lease
  • Capacity to get a property back during lease
  • Capacity to sell/transfer to other tenure
  • Enforcement or eviction if contract broken

All of which leads to the possibility of a large number of different regimes of rent regulation, with different advantage, disadvantages and trade-offs.

It also acts as a reminder that even in the current English sector, private rents are lightly regulated, albeit extremely minimally. Because landlords can’t just hike up the rent whenever they want, even within an Assured Shorthold Tenancy. Rents are fixed within fixed-term contracts and can only be increased once every 12 months under a rolling (statutory periodic) contract. This may mean for example, that landlords can and do absorb cost pressures like an interest rise hike for up to a year before they are able to increase rents.

But despite the plurality of options and England’s existing regulation, the choice on rent control can often be characterised as a binary choice between nothing and everything. And the public debate about rent control can sometimes descend into a stale ideological row between people who are vehemently in favour or against rent controls on point of principle.

For some in favour, the dizzying unaffordability of private rents justifies almost any intervention. For some against, any increase in regulation threatens to send the English housing market into an End of Days scenario.

The problem is that both the concerns of those in favour of and against rent control in principle are founded on reasonable worries.

Concerns about the contraction of the sector and a crash in house prices are perfectly legitimate. As Steve Hilditch over on the Red Brick blog rightly points out, house price crashes are carnage, never something to be relished.

The burden of such a crash never falls principally on those most able to pay, but – as Amir Sufi and Atif Mian identified in their cracking appraisal of the 2008 US house price crash – on those with the largest debts who are least able to pay. The net effect in the US was a dramatic regressive redistribution of wealth from the indebted poor to rich savers. There’s no reason to assume the same wouldn’t happen here, with equity rich homeowners able to withstand a fall in prices and mortgage holders left dangerously over-exposed.

But it is equally legitimate to be concerned about the high cost of private renting in England and the fact that nationally it on average hoovers up 40% of renters’ take home pay – well over the 33% that is typically thought to be affordable. In high demand areas like London, it can take even more, pushing people further out or away from the city entirely. With more and more families living in private renting long-term, high and rising rents can make housing insecure and unstable.

We shouldn’t pretend that there is an ideal form of rent regulation that will make private renting affordable for everyone. But that shouldn’t stop us from trying to work for the best possible one that we can hope for in England – one that improves affordability without leading to catastrophe. And such a policy lies somewhere in the detailed middle between the poles of absolute rent caps and no regulation at all. Remember that we already have a form of very light regulation.

Is discussing such a detailed middle possible?

Yes, I think so.

When it comes to something like income tax, we’re able to have a public debate to democratically determine this detailed middle. We’ve moved on from discussing the principle of whether there ought to be an income tax at all; that the answer is yes is almost unquestioned. The public debate is about bands and rates, how much and who should pay.

If we are going to get any closer to doing something about rent affordability we need to move in that detailed direction.

 
Liz Vourdas is a senior researcher at Shelter

View all posts by Liz Vourdas

By Liz Vourdas

Down the line: the role of digital in housing advice

Each year, more and more people come to Shelter for help.

An affordable homes shortage, sky high housing costs, cuts to welfare and an unstable private rented sector mean that last year Shelter saw record numbers of people calling our helpline and visiting our website with housing problems. 

We want to help everyone, but we simply don’t have the resources to answer every call.

That’s one of the reasons we work hard to provide high quality digital advice. We need to look at how we can best get information, advice and support to people facing housing problems in the right way, at the right time.

To do this, we asked the leading research agency TNS BMRB to talk to people who’ve been homeless or in bad housing, to help us understand the different roles face-to-face, telephone and online advice services play in getting people the help they need.

We found that:-

Individual needs are complex

The context of people’s lives is critical for understanding the role that digital can play in housing advice and support and, just as importantly, where it can’t.

Three factors are key in determining what help people need:

  • What their housing problem is and how severe or urgent it is;
  • Their personal, emotional and practical circumstances, such as mental or physical health problems, or relationship difficulties; and
  • Whether they have the skills, knowledge and confidence to tackle the problem they are facing

Face-to-face, telephone and online services all have their own advantages.  Someone that is facing losing their home imminently is likely to need emotional and practical support and advice, and therefore will be more likely to need to speak to someone.

To address everyone’s needs, we need a multi-channel strategy

The research clearly showed us that person-to-person services are vital for people with more severe and urgent housing problems.

It showed us that developing digital services can play a role in helping people with housing issues:

Digital can be a preventative service

Some people with housing issues don’t get help until crisis point – online services could help us to get to people before they get into a crisis.   

People liked the anonymity and convenience of digital services. Allowing people to get advice and information online in their own space and time, without the pressure of speaking to someone, can help resolve problems at an earlier stage.

We found that the complexity of the problem faced, particularly around legal rights, meant people felt out of their depth. If digital can help to build people’s confidence around housing rights and responsibilities, we can also help people to become capable of resolving issues themselves.  

Digital can help us be more efficient in how we deliver our face-to-face and telephone services.

They could enable clients to “self-triage” online before their contact with a Shelter adviser, saving valuable adviser time and meaning that we can answer more calls. 

Digital can give us new ways of providing that person-to-person contact

Those who sought face-to-face or telephone help really valued Shelter’s support, and the reassurances person-to-person contact was able to give them.

Digital gives us a different way to offer this.  For example, video calls could provide face-to-face advice to those with housing problems who don’t live near our support services. 

We’ll be using these insights to trial online and offline services, aiming to improve the efficiency, impact and reach of our services, and ultimately: to help even more people.

Toby Lloyd
 
I'm Head of Policy at Shelter, and have worked on housing issues in the public, private and third sectors for nine years. I'm a Londoner, a cyclist, father of two young daughters and member of the Hackney Co-housing Project.

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By Toby Lloyd

Green belts, green nooses, green fields

Scarcely a day goes by at the moment without someone having a go at the sacred cow of British planning, the Green Belt. This morning it was Tom Papworth at the Adam Smith Institute, calling for the complete abolition of the Green Belt in order to let market ‘price discovery’ determine where best to build homes – although he does also suggest less extreme measures, like releasing all Green Belt land within ten minutes’ walk of a station.

From http://www.bbc.co.uk/news/magazine-14916238

For the record, we have also drawn attention to the problem of Green Belts preventing much needed housing growth, and called for sensible reviews: releasing 1% of Green Belt land over 15 years would provide enough land for 33,000 homes a year – and that’s at low, village densities.

But the Green Belt is also a broadly sound principle that has served England’s towns and cities rather well over the decades. It’s always easiest for builders to site new development in green fields at the edge of towns – that way you can free-ride on existing infrastructure and build cheaply without having to deal with complex brownfield sites. This means that, in a world with cheap access to cars, cities that are left entirely to the market tend to sprawl outwards in vast, low density suburbs that cannot be efficiently served by public transport or social infrastructure.

Fans of total planning deregulation tend to eulogise the 1930s – when we did build a lot of homes around cities. But would anyone really argue that our cities should double their footprint every ten years, as they did then? That only around 10% of England is urbanised is indeed a sign that a bit of greenfield loss would not be the end of the world. But it’s also a sign of the success of Green Belt policy in preventing infinite sprawl.

So despite our call for sensible release of greenfield land for more homes, I do part company with those that blame Green Belt policies for all the world’s ills. Papworth sets out very clearly the problems of undersupply, and does a good job knocking down some of the simplistic arguments for treating Green Belts as sacrosanct. But he commits the classic mistake of theoretical economists – setting up the problem in detail, and assuming that the solution is just to do the opposite. This sounds simple in theory, but the sadly reality is rather more complicated than that.

Just consider what would happen if national government abolished all Green Belts tomorrow: there would be an immediate land speculation boom, as developers, investors, dealers and brokers piled in to buy up potentially developable sites, hoping to cash in on easy profits. Land values, long supressed by Green Belt restrictions, would sky-rocket – and almost certainly crash again as the bubble burst. As I’ve argued repeatedly, high and volatile land prices are the real root cause of our failure to build more homes. Economists like to say that ‘in the long run’ the land market would stabilise at a new equilibrium, and argue that this would be at lower prices than in today’s constrained market. Yet the lesson of history is that land markets are rarely, if ever, stable: the speculative pressures caused by long lead times and very high potential gains naturally drive boom and bust cycles. Property bubbles were common in the nineteenth century – when there were no Green Belts and millions of us lived in overcrowded slums. I’d go as far as to say that we don’t have scarce land and a volatile land market because of planning, we have planning because land is inherently scarce and land markets are inherently volatile.

To continue the thought experiment, once the initial speculative frenzy was over, there would then be a protracted period of bickering over where infrastructure should go and who should pay for it. All the new speculative landowners would jockey for their sites to benefit from public investment, using whatever means available to them – a recipe for divisive, even corrupt, decision making. In the end, some of this land would get built on, but the chances of it being the best bits to deliver public benefit as opposed to the bits owned by the most influential people are slim. And the costs incurred in getting to this point would mean that, just as now, low quality, high cost development was the most likely outcome. The successful developers would still have the same incentive as now to eke out supply and keep prices up.

We can’t rely on the abolition of Green Belts to solve our housing shortage – we need a smarter approach that recognises the role of agency, understands the land market, and has the courage to tackle vested interests and ideological shibboleths.

Simply put, planning is not the only constraint on house building: where the train line and waste dump go are just as important, as is the financial model driving development. In this context, planning is actually a way of crystalising all of the constraints into a clear framework so they can be rationally addressed together. Belief in the perfection of markets is not an argument – it is just an article of faith. And we need more than that to crack this complex problem.

Scott Dawes
 

By Scott Dawes

Local Welfare Cuts: A Risky Business

This Thursday, the consultation on the Local Government Finance Settlement closes. This is the last chance for councils to have a say before their budgets for 2015-2016 are handed down from DCLG.

Within the settlement, funding for local welfare has been cut from around £180 million to £0.

Instead, £129 million has been ‘identified’ from within council’s budgets, which ministers say councils can use to maintain the schemes. This isn’t new money, it’s from the budgets council have to take other essential costs from.

A bit like a doctor refusing to give you a crutch when you’ve sprained your ankle, but pointing out that you could buy one from the money you need for painkillers.  

And local welfare is just that for many people; a crutch to lean on in hard times. People who flee domestic violence or cannot afford nappies, or food for their children, are helped by local welfare schemes to get basic relief from acute hardship.

Why is this happening?

Well to be honest, it’s a bit of a mystery. Councils are screaming out for the money to keep these services going. The Local Government Association has called for additional grant funding to remain in place and suggests that the vast majority of councils will pare back their schemes, with some getting rid of them completely.

According to media reports, the Department for Communities and Local Government are in favour of some continued form of grant funding. Both Lib Dems and Conservatives from the department have been making the case for funding, including Secretary of State Eric Pickles.

As far as anyone can tell, this request for continued grant funding has been blocked at the Treasury by the Chancellor.

That’s quite a feat for such a relatively small pot of money.

The Chancellor presides over the UK’s £700+ billion annual spending. The fuel duty freeze, by way of comparison, may have cost the Treasury up to £6 billion a year, according to the Institute for Fiscal studies.

It’s perhaps surprising that motorists are worth giving a few pence a litre of their fuel but those facing destitution, through no fault of their own, might be given nothing.

So it’s also surprising we are seeing such a cut this close to the election. We know that senior Conservatives are haunted by the maxim of “the nasty party,” and that they’ve taken a bashing in recent months over things like the bedroom tax, and most recently benefit sanctions. Policies that were met with initial acceptance, if not support, have slowly sapped the credibility of welfare reforms as their impacts are felt.  

Stories of people being penalised by the bedroom tax for being unable to move home or for being charged for a spare room containing dialysis equipment haunt this Government, as does rising concern about benefits sanctions.

It isn’t hard to imagine local welfare adding fuel to the flames is it?

Imagine your friend being abandoned by their husband and left in a property they cannot afford. They’re unable to keep up with the rent or mortgage, the support now available from the benefits system isn’t enough, and they start falling behind on payments. Then they face eviction and, because they have rent arrears, the council finds them intentionally homeless and refuses to rehouse them.

They are at rock-bottom.

Nothing but a list of private landlords in their hand (none of whom turn out to accept people on low incomes). No money for a deposit. No one to help. No money for food. How are they supposed to get back on their feet? What do they do then?

It’s hard to imagine what that must be like. But it’s not so hard to imagine the public outcry when we start to see the impact that removing this funding could have. People are increasingly nervous about spending cuts when the impact becomes apparent.

Pressing ahead with a cut most people probably won’t support and then waiting for the unpalatable case studies to turn up on the newspaper’s front pages as a result, looks increasingly counter-productive, if not bizarre.

Last time I asked whether people are worth the small amount of money local welfare costs to help them get back on their feet. The answer is simple; of course they are.

Instead, maybe the Government is weighing up whether cutting local welfare is worth the backlash?

I’m pretty sure it’s not.

John Bibby
 
John is a Policy Officer at Shelter.

View all posts by John Bibby

By John Bibby

Genie let out of the bottle in London

At the beginning of the week the Mayor of London announced new funding and finance for low-cost home ownership homes in the capital. As well £180 million of ‘recoverable funding’ for 4000 new shared ownership homes, the announcement included up to £40 million of cheap loans to bring housing association Gentoo’s Genie product to London.

Genie is a home purchase plan that has been operating in the North East of England since 2011 and it has a lot going for it. It allows people to buy shares[1] in a home without a deposit or a mortgage by making a single monthly payment, which feels a bit like rent. The payments rise predictably over five year periods so there are no surprise increases. At the end of every five years the next five year payment plan is reviewed to allow for changes in the provider’s costs (inflation and interest rates). And after thirty years the occupier acquires all of the shares and the home is theirs – owned fully outright.

It’s a simple offer and appears to combine the best of renting (low up-front costs and no mortgage liability) with the best of buying (greater security in your home and investment in a property). It also closely resembles the rent-to-buy model that topped the new housing ideas we polled last year for popularity, “where every rent payment goes towards owning the house”. And it’s one that we have called to be developed to improve the intermediate options that are currently available to people who can’t afford to buy but don’t qualify for social housing.

So it’s a simple and popular housing product that will help people who’ve been priced out or home ownership get on the ladder. Positives all round, no?

Well, that depends in-part on exactly how the scheme will be implemented in London in practice. Because although the monthly payments for existing Genie homes will appear low to Londoners this is mainly due to their location, in the relatively cheap North East. At the time of writing a new three bedroom home was advertised by Genie for just over £997 a month, compared to an average rent of £1647 per month across London for three beds. But the average rent for a three bedroom rented property in the same local authority as the advertised Genie home (Northumberland UA) is £500 each month, making the Genie almost twice as expensive as the average rented home there. (An upper quartile rented 3-bed home in the same authority is £595 per month, suggesting the Genie payment is equivalent to the very top end of the rental market).

Building Genie homes in London, where the cost of building new homes is much higher than in the North East, largely because of the much higher cost of land, will be much more expensive. As such, without intervention, we could expect the payments on Genie homes in London to be much higher. Were the correlation between rents and the cost of a Genie home fully replicated in London it would push their cost well beyond the reach of most of the capital’s priced out renters and could even bump into the income limit for intermediate homes. This would make them a genuine option only realistically for those who are already able to buy, although they could still be an attractive option to people who find it difficult to get a mortgage, like older people and the self-employed.

Which is where the role of the Mayor of London’s cheap finance comes in. The question is whether cheap borrowing alone will be able to markedly reduce costs for Gentoo and bring down the monthly costs of a Genie to a level that renters would be able to afford.

If it is then the arrival of Genie in London could represent a great new way to buy a home with no mortgage and no deposit. If not, then London’s growing legion of priced-out renters may have to wait to see if the model, which looks great on paper, can be made fundamentally more affordable.



[1] The share accumulation profile means that over time the proportional amount of equity that you build up in your home increases each year, a bit like the way capital is paid off in a traditional mortgage

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