Birdy! For it is he, back out of the woodwork to tell us that there might be a surge in homelessness, up or rather down to the depths of the 80s. Well, that’s grim, and only surprising in that the Tories took just two-and-a-half years to get back to mass homelessness.
Unlike Birdy I promise not to take off to LA with this project, as it is entirely free software and indeed in the public domain. Under conservative assumptions, the annual flow of Local Housing Allowance into rents for the 133,000 London households targeted by the Tories is around £2.3bn, even at the Tory-imposed 30th percentile rate. The rate at which local authorities can borrow from the Government over 10 years is currently 2.8%. This is probably above market, as investors are desperate for anything that pays a nonzero interest rate with any security at all, but it’s a safe assumption.
The present value of this stream of money, at that rate over 10 years, is £21.5bn. Put it another way – the LHA stream for the next 10 years, just for the people affected, at the rate the Tories have imposed, would be enough to pay down a £21.5bn loan.
Now, the Greater London Authority – i.e. Boris Johnson – has a further £2bn housing fund it is doing nothing with.
Depending on how desperate you think landlords will be to sell in the light of the coming slashing of LHA, we can use this to buy between 75,000 and 133,000 properties and incorporate them into the council housing stock, while keeping a billion as a maintenance sinking fund. The council housing departments can manage them. So could a housing association, or whatever, but I prefer the simpler solution.
It would even be possible for the London Labour councils to go ahead without waiting for the Tories, but it would be better to bring them along via the London Councils structure, which is currently Labour controlled.
The structure I envisage would be a company controlled by the participating councils. It would bid for the GLA money. It would raise the rest in a succession of covered bond issues. The participating councils would sign a management contract with it over their share of the property. At the end of the 10 years, the property might simply revert to the shareholders, that is, the councils, and the rents charged might revert to the social rates.
I see this plan preventing the coming housing disaster. I see it seeing off the bankruptcy of an unknown number of landlords, and the banks who love them. I see it using no more money than the government has already committed. I see it vastly increasing the council stock over time. I see it kicking the Tory initiative of moving 400,000 or so non-Tories out of the capital right back at them. I see it creating £20bn worth of rock solid securities for a market that is desperate for them.
The plan is very simple. It may seem radical. That’s because it is both. I contend that it is no sillier, though, than the very respectable Tory Sir George Young’s 1990s doctrine of letting housing benefit take the strain.
‘Housing benefit will underpin market rents – we have made that absolutely clear,’ he said. ‘If people cannot afford to pay that market rent, housing benefit will take the strain.’
This plan simply hoovered up cash from the productive forces of the economy (that’s us) and sprayed it on landlords. My plan hoovers up rather less cash, and sprays it on bankers (I think I see the problem!), or possibly on savers. There is no particular reason why the bonds could not be sold to the public, although that would be more complicated and slower at a moment when speed is important. The worst case scenario is April 2013, the best case is October 2013. I trust Rentergirl more than Polly Toynbee, but anyway, the bomb is going to go off between 6 and 9 months from now.
But the nice thing about doing it this way is that it eventually stops, while the Young plan just kept pouring your money on landlords, and actually paid over the odds to do so. So, let’s buy the houses, quick.
If you’re a conservative concerned about deficit reduction, this is cheaper and depending on the structure it might take borrowing off the headline metrics. If you’re Labour, it is socialism in action and a direct riposte to neo-Shirley Porterism. If you’re a Liberal, it’s local democracy and citizen activism doing stuff off their own hook. If you hate the banks, surely you hate landlords, and anyway we might be able to raise some of the money in the retail market. If you hate special investment vehicles of residential mortgage backed securities, well, so do I, but it looks like I reinvented one.
I have no financial or other direct interest in this plan. I would even offer it to Francis Maude.