Housing: Affordability and the Underoccupancy Charge

Lord Shipley Excerpts

Thursday 31st October 2013 Lords Chamber

[Lord Shipley (LD)]

My Lords, I thank the noble Baroness, Lady Quin, for initiating this debate. I declare an interest as vice-president of the Local Government Association. I look forward particularly to the maiden speech of my noble friend Lady Bakewell of Hardington Mandeville, whose expertise will prove of enormous value to the House.

This debate is important and timely. We now have a great deal of evidence as to what is happening in house building, the affordability of housing and the impact of welfare changes. More evidence will emerge over the coming weeks and I hope that the Government will prove sufficiently fleet of foot to adapt their policies to reflect what is happening on the ground.

In summary, we have not been building enough homes for years and prices are consequently higher than they might have been. If we do not increase supply, the private rented sector will see higher rents, which are clearly rising anyway in many parts of the country. Not enough social homes for rent have been built and the impact of welfare changes, particularly the underoccupancy charge, has led to rising demand for smaller units when smaller units do not exist.

Last year saw the lowest house completion rate since 1923. In fact, since 1990 annual housing completions have never exceeded 170,000 and they have averaged 140,000, in which four out of five homes have been for owner occupation. The failure of successive Governments to replace stock sold under the right to buy has led to a lack of affordable housing for rent and we are now seeing the consequences.

There has rightly been specific criticism of the previous Government for reducing the stock of social housing by 420,000 units. This is because it is for Governments to intervene to reduce social inequalities, not the markets, which is why much of my contribution today is to urge the Government to build more homes more quickly for social rent and to think again about how the underoccupancy charge is being applied.

As to affordability, house prices are rising again and we may be at the start of yet another housing bubble in some parts of the country. Funding for lending and help to buy provides cheaper credit to boost sales, but the underlying problem is lack of supply. House building is half of what it needs to be to match the rate of household formation and this imbalance now seems likely to continue for three years at least because of the time it takes to get schemes into the ground.

In addition, important as Help to Buy is, unless the supply is increased, prices will rise further, putting home ownership out of reach of even more young people. We should be very concerned that the ratio between house prices and local earnings has returned to very high historic levels. With 1.8 million families on social housing waiting lists, it is undeniable that we need more homes for rent. Large numbers of people are not in a position to take out a mortgage nor ever will be. If interest rates rise, even fewer will.

I will now say something about the underoccupancy charge. I have always felt that it was a bad policy and nothing I have seen since April has changed my mind. The evidence of impact is now available from a variety of sources, all of it expert.

It seems that around half of all tenants are paying the increase, a quarter are paying something, and a quarter may not be paying at all. Of those paying, some may be doing so by reducing their spending on food or heating, so we should not assume that because they pay, it means that their household finances are in good shape. Of those not paying, many are simply unable to do so. We should not make poor people poorer. Yes, we should encourage people into work where there is work to do and they can do it, but if there is not, poor people should not be penalised.

We should all thank the housing associations, arm’s-length management organisations and councils, where they have retained their housing stock, for their work in helping people affected by the charge. A lot of unseen effort is going on at the individual level in supporting tenants to manage their finances more effectively and so as to keep rent arrears to a minimum. Since two-thirds of tenants want to stay in their homes and are trying to pay, every method of support should be made available to them.

That takes me on to discretionary housing payments. They are being made available, but will they suffice? Two-thirds of housing associations and ALMOs say that they will not. I hope the Government will ensure that, as we progress into 2014, they will watch very carefully what is happening to demand on the funds and take action as necessary. Many tenants who are subject to the new underoccupancy rules want to move to a smaller home, but they cannot do so because the smaller home does not exist. In my view, the charge should not apply where there is nowhere to move to.

One way forward is to give local councils greater flexibility to meet demand for smaller accommodation in their areas. To do this, the Government should see councils as part of the solution and progressively remove the housing borrowing cap imposed on local councils, relying instead on the existing prudential borrowing code under the Local Government Act 2003, which guarantees that only sustainable housing investment would get the go-ahead. Councils could raise a further £4.2 billion above their current £2.8 billion borrowing headroom and they could build up to 60,000 more homes over the next five years. It will not be enough if the only action the Government take is to give permission to pool the existing £2.8 billion headroom to make sure that it all gets spent.

Since last year, April 2012, council housing has been self-financing. The average debt on a council home is only £17,000, so there is plenty of scope for safe additional borrowing against the asset of the existing stock. In addition, we should note that across Europe, trading accounts such as these are not seen as part of a Government’s borrowing. They are not related to the deficit or to debt. The UK, for reasons that are never satisfactorily explained, uses a much wider definition of public debt than any other country in Europe. The consequence is that we are not building as much social housing as we could. The aim of making better use of the existing social housing stock, which is the aim of the Government, can be done only if sufficient numbers of smaller properties are made available for those affected to move into. ALMOs in particular are in a good position to develop small plots for one- and two-bedroomed accommodation.

Research is to be undertaken into the impact of the underoccupancy charge. I understand that it is to be done by Ipsos MORI, along with the Cambridge Centre for Housing and Planning Research and the Institute for Fiscal Studies. They will all be assessing independently what is happening with the underoccupany charge. Initial findings will be made available in 2014, although I do not know which end of 2014 that might be; earlier rather than later, I hope. There is then to be a final report late in 2015, which means that we are two years away from the final report actually being produced. I hope sincerely that we are not expected to wait for two years before anything is changed because there is enough evidence now, and into the early months of 2014 there will be even more. The picture will have become very obvious.

We want to build a stronger economy and a fairer society, enabling everyone to have a good education and get a secure job. However, that is only part of what is needed to strengthen equalities, social inclusion and that fairer society. A decent, affordable home is just as important as education and a job because they are all linked. In conclusion, I hope that the Government will start to see local councils as part of the solution in building more social homes for rent.