Emergency Budget submission from the
Chartered Institute of Housing
June 2015
CIH Emergency Budget submission
About CIH
The Chartered Institute of Housing (CIH) is the independent voice for housing and
the home of professional standards. Our goal is simple – to provide housing
professionals and their organisations with the advice, support and knowledge they
need to be brilliant. 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 have a diverse membership
of people who work in both the public and private sectors, in 20 countries on five
continents across the world.
Further information is available at: www.cih.org
CIH contact:
Gavin Smart, CIH Deputy Chief Executive/ Director of Policy and Practice
gavin.smart@cih.og
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CIH Emergency Budget submission
Summary of our main points
The July 2015 Emergency Budget is an opportunity for government to take further
steps to address the country’s housing supply crisis and to support a wider range of
people to solve their housing needs. The five proposed measures we recommend in
this submission give government the opportunity to: ensure that private renters have
decent living conditions; support older home owners on low incomes to move to more
manageable properties; support tenants in the private rented sector to reduce
homelessness, increase housing options and incentivise landlords; maintain and
improve the new Affordable Homes Programme; and improve the capacity of local
authorities to increase the supply of homes.
Our proposed measures are:
Raising standards for people living in the private rented sector: Government
should seek to raise standards for people living in the private rented sector by
making landlord fines for housing-related offences payable to the local authority
bringing the case and by facilitating the setting of a common, national set of
standards for landlord accreditation, supported by a package of tax incentives for
accredited landlords.
Supporting older home owners on low incomes to move to smaller homes:
Government should consider removing the requirement to pay Stamp Duty Land Tax
in circumstances where older home-owners on Pension Credit downsize to a smaller
home, including adapted housing or purpose built housing for older people.
Investing to save by supporting tenants in the private rented sector to reduce
homelessness, increase their housing options and incentivise landlords: As an
invest to save measure, government should establish a challenge fund to which local
authorities can bid to support vulnerable tenants in the private rented sector. This will
help to promote and aid implementation of government’s policy aims, set out in the
Localism Act 2011, and will build the confidence of private landlords to let to
households which they see as posing a higher risk.
Maintaining and improving the new Affordable Homes Programme: Government
is currently committed to providing 275,000 homes over the period to 2019/20
through the Affordable Homes Programme (AHP). It is vital that this commitment is
maintained and that resources currently allocated to the programme are not reduced.
CIH would advocate the strengthening of the programme given the latest evidence
on housing need.
Increasing local authority capacity to contribute to new supply: Government
should allow local authorities to bid for raised housing revenue account (HRA)
borrowing caps where this would lead to a significant increase in local housing
supply. It should also offer more protection to authorities from the enforced sale of
newly built properties.
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CIH Emergency Budget submission
Raising standards for people living in the private rented sector
Proposal: Government should seek to raise standards for people living in the private
rented sector by making landlord fines for housing-related offences payable to the
local authority bringing the case and by facilitating the setting of a common, national
set of standards for landlord accreditation, supported by a package of tax incentives
for accredited landlords.
Summary: Figures from the English Housing Survey show that the private rented
sector is now the second largest tenure in England, with private landlords now
housing 4.4m households - more than those housed by social landlords. The sector
has been growing consistently since the early 1990s and is expected to continue to
expand in the future. As private renting becomes increasingly common, the profile of
tenants is also changing so that couples with children are now the most common
household type in the sector.
Many landlords provide good quality, well managed accommodation. However
English Housing Survey data also shows that nearly one in three privately rented
homes do not meet the Decent Homes Standard. At the very bottom end of the
market a minority of rogue landlords exploit, often vulnerable, tenants who have few
other housing options. Citizens Advice estimate that around one in six privately
rented homes are physically unsafe, as they do not even meet basic legal
requirements for health and safety.
To improve standards government should strike a balance between supporting local
councils to take enforcement action, targeted at the minority of rogue landlords, and
incentivising good landlords to maintain and manage their properties well.
We note that government is keen to tackle rogue landlords but has already ruled out
stronger powers for councils on the grounds that the current ones are adequate. It is
true that about 30 different types of enforcement action are already available.
However a major obstacle faced by councils is the cost of the legal action involved in
using these. Court cases are expensive and costs awarded rarely cover the real
resources put into the case. Unfortunately the Proceeds of Crime Act (which would
facilitate reuse of fines locally) does not apply to most ‘rogue landlord' offences. This
means that even the worst landlords face only intermittent prosecution, and can
readily offset the fines against their excessively high rental incomes from
overcrowding and other infringements.
This could change if landlord fines for specific housing-related offences were payable
not to government's Consolidated Fund but to the local authority bringing the case.
The funds could then be used to strengthen each council’s enforcement work, often
currently under-resourced given the cuts to local authority expenditure. The cost to
the Exchequer of giving up the fines would be negligible but such a reform could
make a worthwhile difference by incentivising authorities to tackle rogue landlords and help meet an important government objective at no significant cost.
We also note that government is keen to improve standards without significantly
increasing the regulatory requirements for landlords. One way in which this could be
achieved is by expanding voluntary accreditation. At the moment there are a variety
of different accreditation schemes for private landlords, however the expectations
they make of their members are variable and there are often few strong incentives for
landlords to sign up to them. As such these schemes currently reach only a small
proportion of all landlords.
Government could greatly increase the reach of landlord accreditation by facilitating
the setting of a common, national set of standards. Accreditation could still be
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CIH Emergency Budget submission
awarded and administered by a range of different bodies, however a nationally
agreed set of standards would ensure improved consistency between them. In
addition, government could make a package of tax incentives conditional on
landlords signing up to a recognised accreditation scheme. This could include:
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giving them a more generous tax allowance for ‘allowable expenses’, compared
to unaccredited landlords
allowing them to treat any improvement that is necessary to bring a property up
to accreditation standard as an allowable expense, instead of deducting it from
their capital gains tax liability at the point that they sell the property
allowing them to benefit from capital gains tax rollover relief.
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CIH Emergency Budget submission
Supporting older home owners on low incomes to move to smaller homes
Proposal: Government should consider removing the requirement to pay Stamp
Duty Land Tax in circumstances where older homeowners on Pension Credit
downsize to a smaller home, including adapted housing or purpose built housing for
older people.
Summary: With new housing supply falling well short of the level we know is
required, there is a pressing need to make effective use of the country’s existing
housing stock across all tenures.
We know that many older home owners may now have more space than they need
in their homes and may be interested in moving to a smaller home that better meets
their needs, but a number of factors can prevent this amongst which is the need to
pay Stamp Duty Land Tax (‘stamp duty’) on property purchases. When an older
person with no or limited savings has to reinvest all or most of their equity in their
new home the need to pay stamp duty can be a significant disincentive to moving,
and in some cases they may simply not have the money to pay even the lowest rate
of stamp duty due and all the other costs associated with moving as well.
Removing stamp duty for older people claiming Pension Credit will make downsizing
a more viable, affordable option, subject to a satisfactory definition of ‘smaller’ being
developed, and free up larger homes for purchase. Targeting the removal of stamp
duty on people in receipt of Pension Credit focuses the measure on lower income
households most likely to view the need to pay stamp duty as a disincentive. These
households are also likely to see the greatest benefit from the reduced housing costs
associated with moving to a smaller home.
It is appreciated that rules would need to be set so that this tax exemption is not
abused. These might include age limits (e.g. a single person or couple aged 55 or
over and sole owner-occupiers of their current home); price (the purchased house to
be cheaper than the house sold), and size (assessed by floor area or bed spaces/
bedrooms or a combination of these, compared with the current house).
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CIH Emergency Budget submission
Invest to save by supporting tenants in the private rented sector to reduce
homelessness, increase housing options and incentivise landlords
Proposal: Government should establish a £100 million challenge fund which local
authorities can bid for to support more vulnerable tenants in the private rented sector.
This will help to promote and aid implementation of government’s policy aims set out
in the Localism Act 2011; reduce the costs to local authorities and other public
services which result from households becoming homeless; and build the confidence
of private landlords to let to households which they see as posing a higher risk.
Summary: Since the Localism Act 2011 local authorities have had greater freedom
to discharge their statutory duties to homeless households by placing them in private
rented accommodation. Government’s thinking was that this would support stronger
links between local authorities and private landlords; drive up quality and
management standards; and provide a wider pool of housing options for homeless
households.
But alongside this a worrying picture is starting to emerge with the ending of an
assured shorthold tenancy (AST) now forming the most common reason for
homelessness. DCLG statistics show that, in 2014, 29 per cent of all homelessness
acceptances were due to the ending of an AST, an increase from 26 per cent in
2013; and this proportion has more than doubled from 14 per cent in 2010.
Feedback from our members has highlighted that welfare reform measures and, in
particular, the introduction of the overall benefit cap in April 2013, are having a major
impact on landlord behaviour. Some private landlords are clearly concerned about
the potential negative impact of benefit changes on their rental income and are either
seeking to end ASTs to households claiming benefit; or are taking advantage of the
end of an AST not to let to another household claiming benefits.1 There is therefore
clearly conflict between housing and welfare policy – while housing policy is seeking
to reduce the number of homeless households placed in the social sector, welfare
policy is reducing their ability to access the private rented sector.
Dealing with homelessness is a drain on the public purse. Setting aside a fund of
around £100 million which local authorities can bid for would allow them to develop
and deliver services to enable people living in the private rented sector to sustain
their tenancies. Government can therefore ‘invest to save’ by preventing
homelessness occurring in the first place and increasing housing options for those
who have been accepted as homeless by a local authority. It will also incentivise
landlords to let homes to people they otherwise consider to be too high a risk.
The London Assembly Housing Committee’s 2013 report ‘Assessing the consequences of
welfare reform’
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CIH Emergency Budget submission
Maintain and improve the new Affordable Homes Programme
Proposal: Government is currently committed to providing 275,000 homes over the
period to 2019/20 through the Affordable Homes Programme (AHP). It is vital that
this commitment is maintained and that resources currently allocated to the
programme are not reduced. CIH would advocate the strengthening of the
programme given the latest evidence on housing need.
Summary: The current commitment to a five-year AHP providing 55,000 homes per
year was made in the Autumn Statement 2014, with allocated funding of £4.7 billion
in total. Although the new AHP is bigger than the AHP that ended in March this year,
the average grant per new dwelling is lower: delivering the new programme therefore
already represents a significant challenge to providers. It is vital that the resources
committed to it are not reduced in response to government’s current wish to identify
further spending cuts.
In view of the revised household projections that government issued this year, there
is now a strong argument for adding to the programme. It is clear that England needs
to build 220,000 new homes per year over the period to 2022 simply to keep pace
with house hold growth, and probably 250,000 per year if the backlog of existing
needs is also to be addressed. Feasible expansion of the private sector’s output
(currently below 100,000) might raise it to some 135,000 per year. This still leaves a
huge gap after the contribution of the current AHP.
CIH believes that social landlords need to provide at least 85,000 units per year to
ensure that new build keeps pace with demand, even without tackling the backlog of
households whose needs are not currently met. However, this inevitably requires
more resources as current grant levels cannot be stretched even further. CIH
therefore urges government to recognise the scale of need and to review the
provisions for the AHP during the current year, with a view to redeploying resources
within DCLG housing capital allocations to strengthen the AHP’s delivery programme
from 2016/17 onwards.
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CIH Emergency Budget submission
Increasing local authority capacity to contribute to new supply
Proposal: Government should allow local authorities to bid for raised housing
revenue account (HRA) borrowing caps where this would lead to a significant
increase in local housing supply. It should also offer more protection to authorities
from the enforced sale of newly built properties.
Summary: Our rate of new home building remains well below the 250,000 homes a
year that most experts accept is necessary to meet the housing needs of our growing
population. The most recent government statistics show that only 125,110 homes
were built in 2014/15. While this is a welcome increase on the previous year’s total of
109,570 homes, it remains 29 per cent below the 2007 peak and is 124,890 short of
the overall number of homes needed.
There is an urgent need to identify additional capacity to significantly increase the
number of new homes we build. Self-financing for council housing created significant
financial capacity in councils and arms length management organisations (ALMOs).
But their ability to make best use of it is restricted by government controlled
‘borrowing caps’ which strictly limit their ability to take on HRA debt, despite their
very low levels of existing debt.
Research indicated that lifting HRA borrowing caps substantially (by an additional
£7bn) would allow local authorities to build 75,000 new homes over five years,
creating 23,500 jobs and generating £5.6bn of economic activity. And because, for
every £1 invested, 56p returns to the Exchequer, allowing councils and ALMOs to
invest in housing in this way is excellent value for money. CIH suggests a more
modest measure, to allow councils to make individual bids for higher borrowing caps
where they can demonstrate that current caps constrain their new build output and
that they can finance expanded output if they have access to higher borrowing levels,
and demonstrate the sustainability of such borrowing.
Current borrowing caps limit the total new local authority housing debt to £2.8bn, well
below the levels at which they could borrow sustainably. For many councils,
additional borrowing would be well within the levels sustainable from rental income
and well below total local authority financial capacity, estimated at £20bn to £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.
Government has accepted in principle that the borrowing caps are a constraint as it
has already released a small amount - £300m – of extra borrowing. The approach
suggested here is based on principles of localism, allowing councils to make a case
for extra borrowing that relates to their local circumstances and new build
requirements.
Part of the context is that government has already allowed over £14bn of extra
borrowing for housing, of which the largest single item is Help to Buy Equity Loans.
The Elphicke-House report also called for councils to borrow more, but outside their
housing revenue accounts. However, on current accounting rules, this would also
add to public borrowing. HRA debt has the advantage of being backed by a more
secure revenue stream and can produce housing at lower, social, rents. There is
therefore a strong case for greater HRA borrowing alongside the borrowing which
government has undertaken to support the private market.
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CIH Emergency Budget submission
A further obstacle for many authorities in developing a bigger new build programme
is the danger that houses will later have to be sold through right to buy (RTB). As
discounts are increased, the danger worsens. Newly built properties could also be
caught by the government proposal that the most valuable council housing should in
future be sold off. To protect councils’ new investment, the existing ‘cost floor’ rules
within the RTB could be strengthened: either properties built since the raising of the
discounts in April 2012 could be exempt completely (from RTB or high-value sales),
or - for RTB - the ‘cost floor’ protection for these properties could be extended
indefinitely (currently it is limited to 15 years).
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