Download Growth through housing: A four point plan Budget submission from the Chartered

Budget submission from CIH
Growth through housing: A
four point plan
Budget submission from the Chartered
Institute of Housing
25 February 2013
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Chartered Institute of Housing, Octavia House, Westwood Way, Coventry, CV4 8JP
024 7685 1700
Budget submission from CIH
About the Chartered Institute of Housing
The Chartered Institute of Housing (CIH) is the professional body for everyone involved in housing
and communities. Our goal is simple – to provide housing professionals with the advice, support and
knowledge they need to be brilliant. Our work is driven by a passionate belief that our contribution
as housing professionals is vital to making communities great places to live and work – and that
everyone is entitled to a decent, affordable home in a thriving, safe community.
CIH is a registered charity and not-for-profit organisation. This means that the money we make is put
back into the organisation and funds the activities we carry out to support the housing sector. We
are a membership organisation with a diverse and growing membership of over 22,000 people who
work in both the public and private sectors, in 20 countries on five continents across the world.
CIH Contact:
Gavin Smart
Director of Policy and Practice
CIH
Coventry
[email protected]
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Chartered Institute of Housing, Octavia House, Westwood Way, Coventry, CV4 8JP
024 7685 1700
Budget submission from CIH
Introduction
Our Budget 2013 submission presents a four point plan government could adopt to maximise the
potential of the housing industry to contribute to our national economic recovery.
Taken together over five years these measures could provide 100,000 new and refurbished homes
for rent, adding £5.7bn worth of economic activity and supporting 24,000 jobs each year. They
would also help to support continued private investment in the housing association sector of around
£3bn per year.
The 2013 Budget comes at an important time for our economy and for the housing industry. Despite
some encouraging signs economic growth remains weak and GDP data shows the economy shrinking
in the last quarter of 2012.
In the housing industry mortgage rationing and high house prices relative to incomes (even in areas
where prices have dropped) are restricting access to home ownership. As a result more households
are looking to find homes in an already pressurised market rented sector. In many areas this is
pushing up rent levels and increasing hardship for the many households trapped in the squeezed
middle. Affordable housing is under similar pressure, with high waiting lists and low levels of re-lets
constraining access.
These problems are the direct result of a significant shortfall in the supply of new homes over a
number of years. We need to urgently address this problem. And research shows that increasing the
supply of new homes can produce major economic benefits, helping to drive our economic recovery:
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every £1 spent on construction generates a total of £2.84 in extra economic activity
for every £1 spent in building, 92p stays in the UK
for every £1 spent by the public sector, 56p returns to the Exchequer, of which
36p is direct savings in tax and benefits1
CIH has welcomed government’s recognition of the role housing can play in creating growth through
its announcements in the September 2012 package of housing measures and the 2012 Autumn
Statement.
The Autumn Statement helped maintain momentum in the drive to boost economic growth through
increased housing supply and Budget 2013 offers the opportunity to keep this momentum going and
ensure delivery on the ground.
CIH’s four point plan for growth through housing consists of the following measures:
1. Introducing a Stamp Duty holiday for landlords bringing empty homes back into use as
rented housing - to help increase our supply of affordable and market rented homes;
2. Giving landlords the confidence to invest for the future by providing longer term certainty
on rents in the affordable housing sector post April 2015;
1
Construction in the UK Economy: The Benefits of Investment, LEK Consulting for UK
Contractors Group, November 2011
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Chartered Institute of Housing, Octavia House, Westwood Way, Coventry, CV4 8JP
024 7685 1700
Budget submission from CIH
3. Increasing Local Authorities’ ability to respond to our housing supply crisis by amending
borrowing rules so they can invest more in developing new homes;
4. Increasing the Discretionary Housing Payments budget to help manage the transition to the
introduction of the government’s welfare reform programme.
Stamp duty holiday for landlords bringing empty properties back into use
Proposal:
Government should offer a stamp duty holiday to landlords purchasing empty homes to bring them
back into use as rented homes.
Summary:
A Stamp Duty Land Tax holiday for landlords purchasing empty homes to bring back into use as
rental housing would cost government only £2,500 per home.
There is currently great demand for rented housing. The number of households on waiting lists for
affordable housing stands at around 1.7m2. Private rents in many areas are increasing rapidly as
households unable to access either home ownership or affordable housing compete for a limited
supply of homes.
At the same time there are currently around 260,000 long term empty homes in England3 which
have been empty for six months or longer. Not all of these homes will be in a suitable condition to
bring back into use and not all will be the right areas, but a significant number are in both the right
condition and the right place and could make a contribution to increasing our national supply of
rented homes.
Government could provide a valuable incentive to bringing empty homes back into use by exempting
landlords purchasing homes in order to bring them back into use as rented homes from Stamp Duty
Land Tax.
This policy would not be prohibitively expensive. Assuming a programme of 5,000 homes a year
brought back into use with typical values of £250,000 or less the maximum cost per year in forgone
Stamp Duty income is £12.5m, or only £2,500 per home.
Research suggests that the average cost of bringing an empty home back into use is around £10,000
per home.4. A programme of 5,000 homes a year would see £50m a year invested in bringing homes
back into use, creating £142m of economic activity and supporting around 600 jobs.
Charitable housing associations already enjoy such an exemption, but only in cases where the
purchased homes will be used for social renting and where the transaction is funded with the
assistance of public subsidy e.g. social housing grant, recycled grant or HCA funding.
2
Housing Strategy Statistical Appendix Data 2010,Communities and Local Government, 2010.
November 2012 Empty Homes Statistics, Empty Homes Agency
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Empty Homes Agency, http://www.emptyhomes.com/what-we-do-2/
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Chartered Institute of Housing, Octavia House, Westwood Way, Coventry, CV4 8JP
024 7685 1700
Budget submission from CIH
CIH believes that given government’s determination to see the supply of both market and affordable
rented homes increase this exemption is too narrow and should be expanded as set out above.
Before qualifying for the exemption landlords could be required to enter into a legally binding
commitment that the homes would be made available as rented housing for a minimum period
(perhaps 3-5 years) and required to provide evidence that homes were still available for rent in their
annual tax returns. Stamp Duty would be repaid for homes no longer available for rent while still
within the original agreed period.
Certainty for social rents post 2015
Proposal:
Government should give landlords the confidence to invest in new homes by providing longer term
certainty on rents levels in the affordable housing sector post April 2015.
Summary:
The current rent and investment settlement for the social housing sector is due to come to an end in
April 2015. The settlement’s built-in annual, inflation related rent increases have been a critical part
of the successful funding model for the sector in recent years, seeing more than £65bn of private
investment secured for affordable housing. It has given confidence to landlords and investors
allowing both parties to plan for the future with a degree of certainty. It has also allowed housing
associations and local authorities to strategically plan their revenue expenditure.
CIH recommends that government should quickly review approaches to rent setting in the
affordable housing sector and announce its approach to the rent settlement beyond April 2015 as
soon as possible.
Landlords need confidence to plan for the longer term if they are to manage their businesses
effectively - the approaching end of the current rent settlement makes this increasingly difficult.
Similarly lenders need certainty about landlords’ rental streams if they are to commit to financial
support for the sector. Government could do much to provide confidence to landlords and lenders
by committing to addressing this uncertainty as a priority. Longer term certainty can play a central
role in creating the conditions for landlords to secure around £3bn a year of new private finance.
Any review must also include consideration of the options for future funding of new social and
affordable housing, the relationship between rents and welfare policy, and the overall purpose of
social housing. In taking this decision government will need to consider the balance and trade-off
between affordability, landlords’ financial capacity and the demand on government finances,
including the balance between capital and revenue subsidies.
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Chartered Institute of Housing, Octavia House, Westwood Way, Coventry, CV4 8JP
024 7685 1700
Budget submission from CIH
Lifting of Local Authority Housing Revenue Account borrowing caps
Proposal:
Government should raise Housing Revenue Account debt caps by £7bn to increase the potential for
local authorities to invest in growth through financing housing development.
Summary:
Research shows that lifting Housing Revenue Account (HRA) borrowing caps by an additional £7bn
would allow local authorities to build 75,000 new homes over five years, creating 23,500 jobs and
creating £5.6bn of economic activity. 5
CIH strongly supports the reforms to council house financing that the government introduced in
April. Under the self-financing regime for council housing, councils and ALMOs have new capacity to
borrow independently to invest in their stock and to build new homes. But their ability to make best
use of their newly liberated financial capacity is restricted by government controlled “borrowing
caps” which strictly limit the ability to take on HRA debt.
Local authority housing has very low levels of existing debt (around £17,000 per home) and
consequently has the potential to support much higher levels of new investment. Current borrowing
caps limit the total new housing debt local authorities can take on to £2.8bn, well below the levels at
which they could borrow sustainably.
Research suggests that were the caps lifted or removed councils would currently make plans to
invest a further £4.2bn and, if encouraged to invest, their maximum potential borrowing appetite
might be £7bn over five years, sufficient to build an additional 12,000 homes per year over that
period. This new total build rate of 15,000 homes a year, a 10% increase on current new supply
rates, would add 75,000 new homes to England’s housing stock over five years, a significant
contribution at any time, but especially during a period when house building is at an all-time low.
This level of borrowing would be well within the levels sustainable from projected rental income and
well below total local authority financial capacity estimated at between £20bn and £27bn. Local
authorities have a long track record of borrowing prudently and sustainably and they comply with
the CIPFA Prudential Code for Capital Finance. Indeed, CIPFA have argued that borrowing caps are
unnecessary since borrowing can be controlled properly under prudential rules.
Additional local authority borrowing would add to total public sector debt levels under current fiscal
rules; but the marginal increase in borrowing would create significant economic benefits and provide
thousands of much needed new homes, complementing those produced by housing associations
and private developers.
Government’s own analysis suggests that every £1m of new housing output supports 12 new jobs
for a year6. A programme of 15,000 homes a year would support around 23,500 jobs a year
5
The financial analysis in this section is sourced from “Let’s Get Building - The case for local
authority investment in rented homes to help drive economic growth”, National Federation of
ALMOs with ARCH, CIH, LGA and in association with CWAG, November 2012
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Chartered Institute of Housing, Octavia House, Westwood Way, Coventry, CV4 8JP
024 7685 1700
Budget submission from CIH
providing a total value to the economy of around £5.6bn per year. And because of every £1 invested
56p returns to the Exchequer, allowing Councils and ALMOs to invest in housing in this way is
excellent value for money.
Increased resourcing for the Discretionary Housing Payments
Proposal:
Government should increase the resource available in the Discretionary Housing Payments to £250m
per year to support the transition to the new welfare regime.
Summary:
Discretionary Housing Payments (DHPs) are used by local authorities to provide financial assistance
to claimants in receipt of housing benefit and/or council tax benefit, when the local authority
considers that additional help with housing costs is required.
Whilst Local Authorities are free to allocate these funds as they see fit, in announcing recent
increases government has suggested that local authorities have regard to a notional break down of
the payments designed to fund baseline cases, households affected by Local Housing Allowance
reforms, those affected by the introduction of the social sector size criteria and those affected by the
total benefit cap.
These notional allocations reflect government recognition that as the various welfare reform
measures not all households will be able to respond immediately by moving to more suitable or
affordable property. Nationally there is a shortage of one bedroom properties meaning there are
insufficient smaller homes for households over occupying to move into.
The four London local authorities trialling the benefit cap report that their DHP resources stand at
£8.2m but expect households affected by the cap to see rent shortfalls of £22.4m.7
DWP figures suggest that national savings from the social sector size criteria alone will be £480m in
the first year – three times the size of national DHP resources (£165m for 2013/14).
CIH is clear that government does not expect DHPs to be used to mean that welfare reform delivers
no savings, but DHPs can be used as an effective measure to assist in the transition to the new
welfare framework, especially for households affected by the reforms who are not immediately able
to find more suitable accommodation.
Government has recently increased the level of resource for DHPs to £165m for 2013/14, but this
funding is due to drop to £135m in 2014/15. This level of resourcing is insufficient to allow DHP to
play a proper role in enabling transition to the new welfare regime. Government should increase
DHP funding to £250m per year for both 2013/14 and 2014/15.
6
Jobs estimate based on DCLG calculation, see DCLG (2011) Laying the Foundations: A housing strategy for
England. London: DCLG., quote in “Let’s Get Building” p10.
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st
London Councils research for Inside Housing. Quoted in “Benefits pilots in funding crisis”, Inside Housing, 1
February 2013
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Chartered Institute of Housing, Octavia House, Westwood Way, Coventry, CV4 8JP
024 7685 1700