Housing: Spending Review

Lord Howarth of Newport Excerpts

Thursday 4th November 2010 Lords Chamber

[Lord Howarth of Newport]

My Lords, we have heard some powerful speeches about the predictably harsh effects of the Government’s planned cuts to housing benefit, so I hope that when she comes to reply, the Minister will at least be able to tell us that the Government will think deeply about the advice and the warnings they have received. I will not dwell on housing benefit in my speech because I would prefer to talk about two other strategic issues: the need for a better balance of housing tenure in this country and the need for good design in housing of all sorts.

Owner occupation is a natural and decent aspiration. Through it, huge numbers of people have seen their personal opportunities, well-being and wealth increase. However, there are also disadvantages for the economy and society in a housing system as biased as ours is towards owner occupation. We should certainly not regard those who rent rather than buy as, in effect, failures, which I suspect they feel we do. We have lurched repeatedly from binge to hangover in the housing market. It is wrong to encourage people to climb on to the housing ladder who are liable to fall off it. Aside from the hurt to them, unsustainable mortgages wrecked the banking system and have well nigh wrecked our economy. By reducing mortgage interest support for vulnerable borrowers, the Government now risk not only causing them to lose their homes but further weakening of bank balance sheets. Better regulation of the housing finance market is needed. The moneylenders must not resume normal service if it means lending against unrealistic multiples of income, “liar loans” and seductive discounts before borrowers go on to variable rates. In every decade, we have seen another rake’s progress. Would it not be better not to repeat this history again?

The tax privileges of owner occupation have vastly distorted investment within our economy. If people can foresee a tax-free gain on the sale of their home, they are less likely to invest in productive industry. If they see their home as their piggy bank, they are less likely to save for a pension. If the banks can have the security of a charge on bricks and mortar, they are less likely to lend to entrepreneurs. Let us compare Switzerland with the United Kingdom. In Switzerland, there is no preferential tax treatment of housing. Two-thirds of the Swiss live in rented housing, and Switzerland has the highest wealth per capita in the western world.

Higher home ownership correlates with higher unemployment, as figures in both the United States and the United Kingdom show. In the UK, stamp duty is an additional obstacle to labour mobility. Productivity is impaired in an inflexible economy. Our VAT regime makes things worse, with new building zero-rated while the repair and rehabilitation of existing housing is taxed at 17.5 per cent—soon to be 20 per cent. That increases the tendency to urban sprawl and destruction of the countryside, which makes it impossible to provide an adequate public transport infrastructure and leads to more congestion and pollution. Suitable land for new building is running out.

Policy should promote diversity of tenure, but the Government’s decisions in the spending review will not do that. They plan to cut housing benefit while massively reducing investment in social housing. In the end, the only way to reverse the rise in the housing benefit bill will be to increase the supply of homes for rent; reducing supply will intensify the existing pressures for rent increases. Additionally to cut housing benefit in these circumstances will both increase hardship and make it unviable in many places for private landlords to provide homes for rent. We need new strategic policies to promote varied and mixed housing tenure instead of short-term improvisations in the face of an exaggerated fiscal crisis.

We also need to promote better housing design. Good design is not about taste, fashion or style but about fitness for purpose: functionality, sustainability and attractiveness. These are simple principles that were well understood, for example, by the designers of Georgian and Victorian terraces. They were lost sight of by too many designers of the high-rise blocks to which so many people were consigned from the 1950s onwards, and they are ignored by too many volume house-builders who flog poorly and badly built homes. There is no excuse for bad design, and the costs of bad design are enormous. There is a correlation between badly designed estates and low educational attainment, ill health, crime and poverty. We cannot afford not to invest in good design. The role of the Government here is to provide leadership in proclaiming the necessity of good design and in supporting decision-makers to achieve it.

Planning and regulation—not popular with this Government—represent the legitimate claims of the whole community for a high-quality built environment. Just as our children should not be burdened with debts improvidently run up in our generation, so we should not bequeath to them a heritage of shoddy and unfit building. The Government need to act to correct important market failures in housing. The market is not providing enough homes or the right kind of homes. Land in Britain being scarce, in normal times demand will exceed supply. That means that it is too easy for developers, trading on the price of land in a market fuelled by easy credit, to build and sell rubbish—and too many of them do so.

A survey by the Commission for Architecture and the Built Environment found that 29 per cent of new estates were so bad that they should never had had planning permission, while another 53 per cent had serious shortcomings. We need to strengthen the hand of planners. By all means streamline current planning guidance and improve it, as the noble Lord, Lord Taverne, suggested, but do not weaken it. Help the profession to improve its skills in design matters. Encourage local authority leaders to set out strong, clear visions for the built environment in their communities, and support them in insisting on quality and standards. Establish space standards for new housing. England and Wales are the only countries in Europe with no minimum space standards, and so we have the smallest average room sizes and new homes. Ensure that existing as well as new homes are as near carbon free as possible. Why are the Government withdrawing their funding from CABE? That £12 million provides superb value for money in averting the costs of bad design and gaining the benefits of good design through, for example, the Building for Life standard which CABE has developed as a tool to evaluate the quality of proposed new housing projects.

Will the Government, through the new homes bonus and community-led building, ensure that design quality is safeguarded, or will their philosophy of deregulation and decentralisation mean that they wash their hands of this responsibility?