Housing Matters! 23 A pril 2012

1. Housing Matters!23 April 2012 Towards a new development funding model post 2015 Andrew Heywood

2. Andrew Heywood Consulting Housing, Mortgage markets, Regulation, Governance, Europe • Housing: finance, policy, low-cost homeownership. • Mortgage markets: trends, opportunities, threats. • Regulation: policy, practice, lenders, housing providers. • Governance: effective decision making, strategy, audit. • Europe: housing and mortgage markets, regulation. Andrew Heywood is an independent consultant specialising in the above areas and an associate of leading consultants Campbell Tickell. He was formerly Deputy Head of Policy at the Council of Mortgage Lenders. Andrew has been at the centre of housing, housing finance and mortgage market developments for many years and has unrivalled contacts amongst policy makers, housing providers and lenders. A visiting fellow of the Smith Institute, Andrew has written and spoken extensively on housing and lending issues. He is Editor of the journal Housing Finance International (www.housingfinance.org. A keen saxophonist , Andrew also runs his own jazz band Afinado (www.Afinado.co.uk) Andrew Heywood Consulting: a.heywood53@btinternet.com , 01440 730218/07929512057

3. The debate has already started • The ink is scarcely dry on the affordable rent model. • No real chance to evaluate it. • These models have been long lasting in the past: • 1945-80’s- Local Authorities (LAs) funded via PWLB loans, rates and historic rent surplus. • 1980’s- 2010- HA grant/private finance model

4. Uncertainty about overall strategy? • Laying the foundations; a housing strategy for England (2011) leaves unanswered questions: • Will home ownership be allowed to go on falling? • The private rented sector has probably now overtaken the affordable sector in England (15.6% on last figures) Is this good news or bad? • What role will affordable housing play going forward? Residual or central? • Do we fund LCHO or rental accommodation?

5. Uncertainty (cont) • Can we have a funding model (or models) for the affordable and/or private markets without a clear set of long-term aims?

6. Affordable rent model • Essentially a stop gap? • In practice seems to be funding renting and less home ownership. But is this a strategy? • What about depletion of balance sheet capacity? • How realistic is cross-subsidy in a stagnant/falling housing market? House prices in the UK are 6.1% lower than Q4 2007 (DCLG) or 17% lower (Halifax). • Who are we building for? • What about the “working poor”?

7. Affordable rent model (cont) • Over the long term can you have subsidised housing without a subsidy?

8. Previous models: 1945-1980’s • Focussed on LAs • LA’s used Public Works Loan Board Loans (PWLB) 60 year amortising loans. • These loans were on the public sector balance sheet • Also used subsidy from rates and “historic" surplus rents plus additional central subsidy • LAs built 127,00 homes a year on average.

9. Previous models: 1945-1980’s • HA building increased in the 70’s – c. 6,000 per year. • Overall 60% of ALL new-build 1950-1980 was publicly funded. • Private sector built c. 127,000 a year 1950-1979, and 127,000 a year 1980- 2010. • 1949-79: 4.2 million publicly funded home built. 1980-2010: less than 1 million.

10. Questions? • Should/can loan finance be on the public sector balance sheet? • What is the proper balance between HA/LA development? What are the strengths and weaknesses of each? • Is it realistic to expect the private sector to build the lions share of new development?

11. Funding model 1980’s-2010 • Overall priority of housing reduced within Government spending: 5.6% in 1980/81, 2.7% in 2008/09- a good year. • Shift in focus to HAs and away from LAs (HAs increased their average to 31,000 homes p.a. over this period) • Shift from supply-side to demand-side subsidies- Housing Benefit • New emphasis on direct access to private finance rather than PWLB and enhanced regulation to give confidence to lenders as well as government.

12. Funding model 1980’s-2010(cont) • New/increased demand–side subsidies for the private housing market: • Mortgage interest tax relief: bigger than the entire housing budget by 1991 but then gradually phased out. • Right to Buy: 2.5 million homes transferred. The only really successful LCHO programme?

13. 1980’s-2010-questions • How do we decide the relative priority of public housing expenditure? • What are the strengths and weaknesses of supply-side subsidies and demand-side subsidies? (take 5 minutes) • What are the financial/social effects of reducing grant subsidy over time in favour of letting “housing benefit take the strain”

14. 1980’s-2010-questions • Right to Buy and shared ownership; have they succeeded in meeting their objectives? • How many shared owners achieve full ownership? • Has Right to Buy proved sustainable? • How much more potential is there in Right to Buy? • What about shared ownership in a stagnant/falling housing market with strict mortgage criteria and rising unemployment?

15. Affordable rent era- questions • Can you permanently offer subsidised housing without subsidy? • What about the new private sector subsidies? • First Buy. • New Buy • Enhanced Right to Buy • Should we subsidise the private housing market to supply, and if so how? • What proportion of new supply should we expect/aim to get from the private sector? • What is the likely balance between HA and LA new supply?

16. Towards a new funding model • What should our overall objectives be? e.g. tenure balance and overall supply? • What priority should we give to housing within Government spending? • HAs or LAs as vehicles? • Balance of public and private new supply? • Should we subsidise the private market/suppliers • Demand or supply-side subsidy? • Do we subsidise affordable housing?

17. Andrew Heywood Consulting Thank you! 01440 730218 a.heywood53@btinternet.com