Mutual stalemate
If to a hammer everything looks like a nail, to a government everything should be solved by lawyers, guns, or money. So when the government factory wants to achieve particular public-policy results, it manufactures either or both of its products – laws and money – to motivate private participants, principally Mission Entrepreneurial Entities (MEEs), as essential actors in affordable housing delivery to do its work for it.
I’ve given you every chance to move, Black
As revealed in a recent Guardian (UK) article, if the private participants don’t move, the government can find itself stalemated.
Why aren’t you moving?
It was a £1.5bn cash injection that was supposed to make a dent in England’s 5m-strong housing waiting list.
Five million waiting list? In a country of 60 million total?
The NHF, which represents housing associations, estimates that households on the waiting list in some areas would have to wait 280 years for a home.
I’ve got a good chance to be next up
Chief executive David Orr says: “What was already a significant problem [of demand for affordable housing] is getting worse on a day-by-day basis.”
Doesn’t that signal there is something powerfully wrong with the UK’s housing production system?
“In the short term, we have got to do as much as we can [to build], given the circumstances.”
So when housing minister John Healey announced the government’s new affordable housing drive this summer, first reactions were positive.
Want a billion pounds?
“The cash was a bit of a surprise and very welcome,” says Richard Capie, policy director at the Chartered Institute of Housing (CIH). “When was the last time you saw money coming from education, health and transport into housing?”
Capie can’t remember seeing money flowing from education into housing
But now the excitement has subsided, questions are being asked about the government’s new plans and its attempt to spend its way out of the house-building slump. Can the money really do anything to ease waiting lists?
Depends on how many homes the money builds, and at what affordability level.
And how can we provide enough affordable homes for the future once the funding runs out? Such issues will be at the heart of the National Housing Federation (NHF) annual conference starting in Birmingham today [23 Sep 09 – Ed.].
Certainly, plenty of cash is going into addressing the development downturn: the new £1.5bn comes on top of £1bn in the Budget, including a special fund to restart stalled development projects. Housing associations are building, despite:
[1] Tougher access to finance
[2] Tightening land supply
[3] The collapse in demand for ownership that makes it impossible to cross-subsidise schemes with homes for sale.
You’re out of the building business
Tell again why they’re building?
Keith Exford, chief executive of one of the biggest developing housing associations, Affinity Sutton, says his association “is whole-heartedly open for business.”
Of course they are. Sharks gotta swim, and bats gotta fly. Developers gotta chase the next deal ’til they die.
But he warns that the recession is straining the system. “If you are going to do social housing without the benefit of cross-subsidy, then you need more grants and you build fewer houses out of available resources,” he says.
Cross-subsidy, which I liken to the unicorn – much pursued and seldom captured – is predicated on selling market-quality homes at market prices without having to spend market costs (usually for land) to develop them. Then the ‘excess’ profits resulting are plowed back in to greater affordability on the other apartments.
“We need to start thinking about the current development model as I can’t see how it can survive.”
That development model is precarious. More than precarious.
Must answer me, these questions three
Ere the other side he see
In the US, we’ve seen that the LIHTC delivery system has been disrupted, and although it is slowly repairing, it has some ways to go. The British system is under different but no less profound stress.
The NHF also argues the government is undermining social housing growth by insisting that housing association rents be cut by 2% because of falling inflation.
First case of mutual stalemate. It’s tempting to scale back resident rent increases, but every dollar so saved is a dollar less of free cash flow to the Housing Associations – which, as non-profit MEEs, deploy their excess capital into building new homes. By easing the stress on current residents, they prevent other people from becoming residents in the new homes Housing Associations would otherwise develop.
Orr estimates the cut would cost associations £260m a year, slashing development by up to 4,000 homes a year.
To save the many 2% a year, we leave 4,000 out in the cold.
If it were up to me, I’d charge them 2% more
And this is self-defeating; in the long run, lack of supply will push up rents.
“When we are expecting to see public capital investment reduce, reducing associations’ revenue capacity just makes development more and more difficult.”
What would make a real difference, associations say, is a readier supply of mortgages for those wanting shared ownership.
Certainly – but if the overall interest rates go lower, that will also push up prices. Stalemate again?
They also urge more flexibility from councils on planning to make it easier for developers to build. Councils, associations believe, should not expect as much from planning gain – where developers incorporate affordable housing in return for planning permission – as they once did.
As I’ve previously posted, the UK’s form of inclusionary zoning, Section 106, is a zero-sum game. Whatever the locality wins, the sponsor loses. Every dollar of affordability grasped by the locality is a dollar less profit, land value, or risk cushion.
Councils themselves have now been put centre stage in developing new social housing. Earlier this month, the government confirmed 47 councils will share £127m to build more than 2,000 homes, with more money up for grabs in the autumn.
That’s £63,500 per home of permanent sunk (non-recoverable) cash equity out.
One per new affordable home?
There are also planned reforms to the way council housing is funded, allowing councils to keep money from rents. The Local Government Association (LGA) is urging the reforms to be pushed through quickly. LGA chair Margaret Eaton says: “Councils could build up to 300,000 new homes and improve conditions for millions of tenants if there is root-and-branch reform of the housing finance system and the government takes away the barriers to building.”
Like the love affair with greenfield preservation.
But some authorities are unhappy about the house-building drive, since it means the funding they need to improve their existing stock is on hold.
Another stalemate? Spend more to build new and you have less to rehab existing?
That’s the consequence of the public housing dependency trap.
The authorities affected – around a dozen that have set up arm’s-length management organisations (ALMOs) –
In addition to housing associations, UK public housing is operated by local authorities. Under the Labour government, strong coercion was applied to compel those authorities to set up professional management operations (Arm’s Length Management Organizations, or ALMOs).
I’m tickled to be an ALMO
Having relied on the government for funding, the ALMOs find themselves in the position of Flounder in Animal House: “You effed up. You trusted us.”
– now stand to lose hundreds of millions in decent homes programme funding. Gwyneth Taylor, policy director of the National Federation of ALMOs, says the government should not renege on its promises to existing tenants.
Taylor doesn’t believe in reneging
“They are throwing all their eggs into one basket, when there’s no guarantee all the £1.5bn will be spent,” she says.
Catch the subsidy!
Block that metaphor!
For the Conservatives the answer lies in scrapping current house-building targets, which, according to shadow housing minister Grant Shapps, are just imaginary numbers. “In many ways it’s not through lack of money that we are not building enough homes… [the government] has got the wrong approach, with:
[1] Too much targeting
[2] Inefficient ways to spend money
[3] Lots of schemes that add little, and
[4] Cumbersome administration.”
(”Other than that,” he added, “they’re swell fellows.”)
For Exford, recently appointed to the Joseph Rowntree Foundation’s new housing taskforce, which aims to develop policy options, the solution could lie in more homes for intermediate and market rent.
Basic principle: if you add supply anywhere on the income/ cost continuum, you will ease stress throughout the system. That would be a move to loosen the stalemate.
More flexible options could bridge the gap between those who can afford ownership and those who qualify for scarce social housing. “We need a more sustainable, mixed-income, mixed tenure product range,” he says.
The CIH’s Richard Capie argues that, in the wake of a government pledge to make the allocation of social homes fairer – councils are being urged to inform communities better about who gets housing, for example – there should be a range of “price points” for affordable housing.
“Someone in a social home on £65,000 and someone next door on housing benefit both pay exactly same rent. It’s not about them being in the properties – that’s a good thing – but should we be looking at rent geared to income? That would give you more rental income and that’s how you build more homes.”
Means-testing is another form of poverty trap. Another possible mutual stalemate.
The time is ripe, many feel, for change, and this is acknowledged by Sir Bob Kerslake, chief executive of the Homes and Communities Agency: “It is critical that the sector actively joins the debate and is open to new models. Who knows what the process will bring, but we are more likely to succeed through collaborative thinking across the housing and regeneration world.”
To make a move, you’ve got to break the mutual stalemate.
At least it’s not stalemate
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