Generation Rent to Generation Own: Housing policy built on sand?

It should be cause for celebration that, after so many years when it has often not been central to political debate, housing was right at the centre of the PM’s Party Conference speech today.  His sound bite “Generation Rent to Generation Own" also acknowledges the reversal, since the millennium, of the progressive increase in the proportion of households in owner-occupation over previous decades.   There are indeed millions of households looking for a home of their own, not mum and dad’s back bedroom, or a private let with little chance of stability, and all too often poorly maintained. 

So far, so good. 

However, if it continues on its current course, the Government risks not delivering on its commendable intentions, and landing itself, and millions of hard-working households, with problems which will be difficult and costly to address.  David Cameron’s high level intentions are in the right direction, but we fear he is being very badly advised, both on the strategy and an effective approach to implementation.  The approach seems to be:  throw the kitchen sink at enabling people who are currently renting to buy, through Right to Buy, by redirecting government capital investment into lower cost home ownership, and now shifting the emphasis of s106 agreements towards “Starter Homes. We think this is deeply muddled and mistaken. 

First, it doesn’t address the core problem, which is not that we have enough homes in total but they don’t match people’s preferences on tenure, but that not enough homes are being built. The Government makes much of the poll finding that 86% of the population have a preference for owning, rather than renting.   Since only 60% of households currently own, that leaves up to 26% of households, nearly 6 million, who would like to own but currently do not.  SHOUT supports home ownership for those who want it, and are realistically in a financial position to afford it, in the short or medium term.  The problem is, however, that for most of those 6 million households, ownership is not affordable, because house prices have risen faster than incomes, which is, in turn, because for 30 years or more, building has not kept pace with the increasing number of households.  If we want prices to stabilise, let alone fall, we need to start building at much higher rates.  Yet the Government’s strategy is almost entirely about changing the tenure of homes which exist already, or are in the pipeline, whether that is through Right to Buy (ownership replacing social rent), or “Starter Homes” (replacing conventional homes for sale or affordable housing of various kinds). 

The Government would respond that these initiatives are intended to increase total supply.  They say that housing association Right to Buy properties will be replaced, and that the council homes sold to fund the discounts will be replaced too.  But we have seen no detail on how they think this will happen, when they have not been able to deliver on the commitment to replace council Right to Buys one for one.  It is even less clear how any additionality will result from “Starter Homes”.  The Government’s arguments here appear to be confused: they say that current s106 requirements mean fewer homes in total get built.  We don’t think the evidence supports that contention (a whole other blog), but, even if it were true, how does making developers build “Starter Homes” instead of the current mix of affordable options help?  If anything, arguably, taking away from developers their guaranteed sales of s106 units to social landlords in favour of starter homes for sale to individuals may increase risk on development schemes.   (As an indication of how poorly advised the PM appears to be, his spin doctors appear to be labouring under the illusion that private developers retain ownership of s106 affordable units and only receive their return from rents over the years.) 

Second, the opportunities for current renters to buy created by the current proposals will not reach, or be affordable to, the overwhelming majority of “Generation Rent.”  Starting with housing association Right to Buy, no one seems to imagine that take-up will go much beyond 2-300,000, over a number of years.  This makes complete sense, in the light of what we know about the demographics of housing association residents (low income, age and other factors). The Government is talking about 200,000 “Starter Homes” over the lifetime of the Parliament.  Some more “Starter Homes” may emerge from Right to Buy replacements or refocusing of the HCA’s programmes.  750,000 of our 6 million, if we are lucky.   “Starter Homes” are intended to be lower cost than conventional new build properties, but Shelter have crunched the numbers and shown that they will be out of reach of low income households nearly everywhere in England. 

So what options does the Government have in mind for the 5 million or more households (plus another 3.8 million who have a preference for renting), who won’t benefit from these initiatives, as Julia Unwin of the Joseph Rowntree Foundation explains, many of them young, working (but on low incomes) and renting?   It is already hard for households to get access to genuinely affordable council or housing association homes, because longstanding scarcity means they can only be allocated to the very most vulnerable and needy.   The number of such homes has been falling as a result of Right to Buy and conversion to “Affordable Rent”.  The Government’s current plans for housing association right to buy and the sale of higher value council properties will see social units, if replaced at all, replaced in other tenures.  Forcing councils and housing associations to reduce rents will put at risk new development in the pipeline.  It seems all too likely that, far from Generation Rent becoming Generation Own, the result will be more households in expensive, unstable and often poor quality private rented housing.  Not only is that bad news for them, but it will cost the Government a lot of money, as Capital Economic’s research shows. 

In contrast, increasing the development of genuinely affordable homes for rent to 100,000 units a year, as we propose, would be a much more effective way of tackling the housing crisis and helping Generation Rent.  It would: 

  • actually increase the total stock of homes; 

  • offer hundreds of thousands of current private renters good quality homes at fair rents and thereby tackle the poverty on which there was such a commendable focus in the PM’s speech; 

  • enable some of those households to save and move into home ownership via Right to Buy or the private market; 

  • the Government would reduce the welfare bill, another of its known priorities. 

When Parliament resumes in earnest after the Party Conferences, MPs and peers will have a chance to discuss the way ahead in detail, including the debates there will be on the upcoming Housing Bill, and the CLG Committee’s inquiry into housing associations.  Let’s all do what we can to draw the attention of Parliamentarians of all parties to the need for a different approach, and one which would demonstrably work, wherever one stands on the political spectrum.

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    UPDATED October 2016 Capital Economics report: Building Social Rent homes
    SHOUT Supports ending the Housing Crisis in a Generation