Budget 2015: housing reforms do not add up to more homes

A budget without bite for tackling a shortfall of homes. FreddieBrown, CC BY-NC

Let’s start with a reminder: it is universally recognised that we do not build anywhere near enough homes. Successive governments and oppositions have been completely unwilling to take on the vested interests and chronic problems that go with volatile and rising real house prices. There is undoubtedly insufficient social and affordable housing to meet need.

Paradoxically, at one and the same time, we have too little investment in new housing and too much in unproductive second-hand private housing. The budget has done nothing to address any of these problems. But that is certainly not to say that housing has not been significantly affected by George Osborne’s latest announcement. On the contrary, the extent of the possible repercussions takes one’s breath away.

Tax proposals included two important changes for private housing. One, of course, was inheritance tax and giving families up to £1m of exemption (including help for those trading down in the housing market). These reforms were expected but continue to stoke demand for what are unproductive assets and also privilege housing insiders over outsiders.

As part of the benefit cuts, the chancellor decided to convert social-security help with paying mortgage interest into a loan – a retrograde step back to the 1990s, which like many of these reforms awaits clarification in the detail. On the other hand, there will be widespread support for the tax-relief cuts to buy-to-let landlords – though they may be more concerned by the four-year freeze on local housing allowances for working-age benefit recipients. Despite all this, there is nothing new on housing supply, other than promises about planning reforms to come.

Welfare and social housing

Reducing the benefit cap to £20,000 per family (£23,000 in London) will of course hit larger families disproportionately hard. It is also proposed that most 18-21 year olds will be ineligible for the housing-cost element of universal credit that will replace housing benefit.

The decision to finally go for the market rent for those in work in social housing will meanwhile continue the process of breaking up previously mixed-tenure communities, already signalled by the right-to-buy proposals for housing-association properties (that don’t add up) announced earlier in the year. The devil will again be in the details of how this is all supposed to work, but it is estimated that the market-rent proposal may affect up to 300,000 tenants. Councils will have to repay the higher rents to Whitehall but associations will be allowed to recycle them for investment.

Housing association right to buy looks very wobbly. Sean Nel

The housing rabbit in the budget hat was not the living wage proposal but rather the decision to impose four years of 1% cuts on social-housing rents as a way of cutting the housing-benefit bill. This is uncharted territory. I presume the regulator has been consulted, but it raises all sorts of questions for landlords with the loan covenants, business plans and the like that one would expect of any long-term business based on security and equally long-term funding.

Landlords in England increased rents precisely because of the previous round of policy – the affordable homes programme. This cut subsidies to tenants, so it is small wonder that rents were rising above inflation. We will see how the new move pans out, but it is certainly not a proposal to encourage new investment in social or affordable housing. The Office for Budget Responsibility reckons the rent reductions will cumulatively reduce housing association output by 14,000. The National Housing Federation thinks it will be more like 27,000.

The Office of National Statistics has meanwhile raised another issue in this regard. It wonders whether the government taking more control over housing associations through the right-to-buy policy and now control over their rental income should lead the sector to be reclassified as a public-sector activity on the national balance sheet.

It suits the government for associations to be treated separately to the public-sector because they hold £60bn of housing debt, which in the event of a reclassification would be added to the public national debt (ironically, the rent reduction would add to the deficit because it would be treated as a fall in publi -sector income). To be fair, this classification issue is a longstanding controversy, but the government’s latest moves may yet force the issue.

So the process of concentrating the poorest people in social housing continues apace. The housing policy changes are redistributional in a number of different ways but they do nothing to increase housing supply or make a major contribution to tackling unmet need. Meanwhile the policies for the buy-to-let sector and social renting will likely reduce investment in rented housing. The chancellor said in his budget statement that he is “against unfair subsidies wherever he finds them”. It is hard to see how such logic applies to housing when these reforms broadly push the sector away from either fair or arguably more rational approaches to subsidy.

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