Category: Simple Plan

A simple, terrible plan

Now if you read this blog, you probably know I was briefly known for proposing that councils borrow against the stream of Local Housing Allowance payments and use this to buy up a lot of rental property. I called it the Simple Plan; it would simultaneously do something for the housing crisis, let the buy-to-let mob walk away with at least some of their money, and ease the squeeze on councils’ budgets by getting rid of expensive emergency short lettings.

It turns out the councils have invented their own, terrifying perversion of the Simple Plan. They’re borrowing from the central government Public Works Loan Board, all right, and they’re even issuing their own bonds. But what are they doing with the money? Rather than buying (or building) houses, and therefore also reducing their rental bills, they’re buying commercial property in order to make a turn on the spread between the rent and the PWLB repayments. This will work just so long as the commercial property market behaves and interest rates don’t go up.

Of course it won’t do anything for the councils’ public purposes, and it will only help their finances in so far as they get to pick up some coins in front of the steamroller. This is an example of one of the problems with any localist solution to our problems; local authorities are notoriously full of idiots, and because no bugger votes in local elections, it’s impossible to get rid of them until the damage is done. Here’s Brent being proud they’ve signed up a lot of private lets on long term contracts. You could buy them out and keep them for good and all! At least it’s less crazy than playing Forced Buyer of Risk with shopping centres.

If anyone’s looking for a good idea, by the way, I quite like this scheme which basically offers the BTLers a golden bridge to bugger off. Meanwhile, I associate myself entirely with Dawn Butler’s point that the Government housing white paper could be summed up as “whatever you do, do nothing.”

Policy Exchange plagiarised me…and I loved it

It looks like everyone’s favourite Tory thinktank has a plan to solve the housing crisis, and it’s pretty simple!

It said acquisition of the land would be financed by a private-public joint venture, with the government contributing 49 per cent – about £3.1bn a year – alongside institutional investors. It would represent the largest government investment in housing since the 1970s, but the report argues such commitment is required to involve private developers.

So it’s got a financial vehicle funded from the LHA bennies stream, it’s centred on either the GLA or London Councils, and it’s about buying up surplus properties for housing. So far, so indistinguishable from the Simple Plan.

There’s more emphasis on new building and conversion vice municipalising existing stock. That’s actually a cogent criticism of the original Simple Plan; I implicitly assumed the market would slide further and a lot of BTL investors would bite the dust. There’s also a pickled egg or two chucked in to make up the numbers, like prefabrication.

And naturally, no suggestion that anything might end up being anything as monstrous as yer actual council housing. But what do you expect? Anyway, it’s not actually evil, and it might even deliver some more houses, so I’m just going to chalk it up as the price of intellectual hegemony.

Nobody’s mentioned it, but if the PolEx guy is reading this, one place to look for the money would be the local authority pension funds. I nicked the idea from Danny Alexander MP.

All politics is eventually about the whips

Everyone’s waiting for something to happen about Greece. If you think the suspense is bad, imagine what it’s like if you have a pan-European politics column to fill and you have undertaken a public commitment not to fill it with speculation, gossip, or bullshit that you can’t substantiate with data. At the moment, there is literally nothing but unsubstantiated speculation, gossip, and bullshit going.

So did anything happen in the UK this week? A few weeks ago Adam Bienkov blogged that

Hoping for Tory self-destruction is a losing game

I disagree; as I pointed out here, the record shows the coalition was a lot like a Tory government with a 76 majority. It has been replaced by one with an 11 majority. This changes a lot of things.

For a start, there was this. When David Cameron: A Soap Opera hits our screens, as it surely should do, the title will be The One Where They Abstained On Their Own Division. In case you missed it, the Tories tried to implement their daft idea of “English votes for English laws” through the back door, by changing the House of Commons rules rather than by passing proper legislation that would need a debate, committee scrutiny, a trip to the Lords, etc.

Unfortunately, Lib Dem MP from the Orkneys Alistair Carmichael was fly to this, and used the fact they wanted to do it through the parliamentary rulebook to beat it. It would only take one MP objecting to trigger a full debate, and Carmichael objected. At the end of the debate, the Tories unexpectedly abstained, therefore losing the division by 289 votes. This is obviously a crazy-arse thing to happen, and the simplest explanation was that they realised late in the day that at least six of their votes couldn’t be counted on and therefore decided to fold rather than lose a proper division.

That turned out to be true. In fact, no fewer than 20 Tories were unconvinced, and the 8 DUP members were planning to vote with Labour, the Liberals, and the SNP. For their part, the opposition seems to have managed to revive the long-standing cooperation between Labour and SNP whips very quickly despite all the bitterness at the elections, so much so that they could throw the opposition vote around like a Eurofighter while the government side fell over in a heap.

A major reason for some of the Tories’ discontent was simply that they objected to altering the constitution in such a secretive and amateurish fashion. But the very fact the Tory leadership wanted to do it this way is a tell; if you were confident you had the votes to do it properly, you wouldn’t faff around with the Commons rules, you’d put forward a bill. The only reason to dick around like this is if you don’t believe you have the votes.

Something else which happened this week: Tories against fox hunting. Yes, really. Another reason why they tried the EVEL caper was that they wanted to call a vote on a statutory instrument, an administrative change rather than legislation, that would basically gut the Hunting Act in England and Wales. This would be much easier to achieve without the Scots. So, That Time We Abstained On Our Own Division was meant to be the prequel to That Time We Cared About Fox Hunting, Again.

But again, the caper is the tell. If they believed they had the votes, they could just..you know..do it. The fact they are trying all sorts of get-out-of-games notes is evidence they don’t believe in the stability of their internal coalition. And it turns out that there are at least 20 waverers, including a government minister, Tracey Crouch MP. So, if you think a one-third chance of voting no is the cut-off to be considered a waverer, that’s easily enough to wipe out the majority in expected-value terms. What exactly happens on Wednesday night is down to the SNP, who are blowing hot and cold, trying to decide between not getting involved in non-Scottish issues and punching the Tories on an issue their supporters are furious about.

And then there’s the daft GP appointments thing.

So, we’ve learned that a majority of 11 – i.e. a target of flipping six votes – is just as hairy as it was in the 90s. We’ve also learned that Harriet Harman is a pretty effective opposition driver, and that Labour-SNP and Labour-Liberal whipping cooperation is apparently unaffected by either the election or the coalition. These are important facts.

However, there’s the Budget. Every last Tory will surely, surely be on deck to make sure every bit of it gets through, which may explain why Labour don’t seem to be planning to oppose much of it. You’ve got to pick your battles, of course. But the constellation of measures Osborne announced seems likely to have really strange consequences for housing in particular, and it frankly worries me.

There’s the drastically tighter bennies cap. There’s the tax credits cut. There’s the whole complicated gasworks of trying to force housing associations to sell, and then extract money from councils to compensate them. There’s the decision to order – how? – the HAs to cut rents, which might accidentally add £60bn to the national debt. And there’s the decision to take the BTLers’ goodies away. Usually I’d be delighted at the suggestion Fergus Wilson might lose a lucrative tax break, but it does look like a lot of them might end up forced sellers. Surely the Tories can’t be hoping for a price crash? Yes, the public likes “caps”, but they will like the catastrophic reorganisation of the housing economy less.

Joe Halewood has a rundown – I seem to recall Harman in particular has repeatedly talked about discretionary housing payments (DHPs) as if they would be enough to solve the problem. Those are going up, a bit. Does she believe this will work?

The tactical question here is how much of this stuff is achievable through the Finance Bill or executively, and how much will need primary legislation. As we’ve seen, anything ambitious that needs pukka legislation is exposed to picking off the 6 Tories nearest the median on that issue, and of course to rejectionism. Much of it is embodied in a primary bill, but perhaps the thinking is that the Scottish MPs won’t be available? Anyway, here’s some useful advice.

so who is meant to be getting the extra £3.9bn in LHA?

OK so, we’ve had the Tories’ big idea, Right to Buy in clown shoes, denounced at the same time by the Southwark Renters’ Maoist reading group and the Confederation of British Industry. Truly, the coalition was the golden era of the harebrained scheme and the half-baked thinktank.

But let’s try to keep a straight face. What if the idea isn’t to “move” social housing, but rather to replace it in-situ? Travelling without moving; wasn’t that a Jamiroquai song? The Tories apparently want to sell councils’ most “expensive” homes.

Expensive here is a term of art; as everyone already pointed out, they are already built and don’t cost that much to run. What is expensive here is the land they sit on, which should point us clearly towards London. The idea is that as long as this land is not sold, the local authority is foregoing the money it could get from selling it, and this is a kind of cost. However, the local authority cannot just sell because it has a legal obligation to house people. What to do?

A surface reading of the proposal tells us that the homes sold would be replaced by “cheaper” ones. Most comment on this assumes that this means building new somewhere else, on cheaper land. But as we are now talking about building new, it might also mean building more cheaply, or perhaps more cheaply from the point of view of DCLG, in other words, getting someone else to pay.

Now, the proposal is that 12,000 “expensive” flats would be sold. This, of course, doesn’t clear the land they are built on – right-to-buy property is always leasehold on the council’s land. At the same time, 12,000 more “cheaper” units are meant to be built. These are described as “affordable”, a word that has a specific legal definition – it means that the rent is set at the 80th percentile of market rents in the area, usually about three times the social rent charged by local authorities. In effect, this means that more tenants end up claiming more Local Housing Allowance, a straight transfer from taxpayers to landlords. The NAO has scored the cost of the Tory proposal in LHA at £3.9bn.

The policy statement says that councils will “oversee” the process. Obviously this does not state that they will own the replacements, nor that they will be the client for the job. One way in which it might indeed be “cheaper” from a council or DCLG point of view would be if the job was done by private developers. The money from sales would be used to get the ball rolling, but they would borrow the rest, in the knowledge they could count on a substantial revenue stream from LHA. This might explain the Natalie Bennett-esque weirdness of the numbers involved.

I don’t know about you, but this makes me think about the emerging lobby for “estate regeneration” and the curious entity, “Create Streets”, run by intimate of Peter Lilley and ex-Tory MP, Nicholas Boys Smith, his mate Heneage the Dublin boom-era developer who dumped his losses on the Irish taxpayer, and George Osborne’s old speechwriter.

The idea is that either major London estates get clear-felled, and then rebuilt at much higher density and 80% rents, or else that a lot of new, 80% rent, property gets built as in-fill in the existing ones. Either way, a lot of people lose their existing homes in exchange for promises, and the 80% rents get billed to the central government budget for Local Housing Allowance. A hint that we’re going this way might be the mention of a £1bn fund being set aside for “brownfield”, i.e. urban, projects.

This outfit is seriously under-scrutinised and the reason is that it is hugely well-connected and is paying for a lot of lobby, with God knows who’s money. Here’s Faisal Islam uncritically nodding along. Here’s mysteriously influential unelected pol Andrew Adonis rebranding it “city villages” alongside Gary Yardley of Earl’s Court Project infamy and his ex-Blairite PR man who happens to be all over Tessa Jowell’s campaign for mayor like a nasty rash, in a piece by the Guardian‘s Dave Hill that takes the opportunity to complain about the dirty hippies in fine Iraq War-era style:

On the plus side, City Villages takes on some of the head-bending housing supply issues that much of London’s current, high-profile, oppositional housing activism hasn’t much to say about…Activists are against that too…

He’s sort of aware of the problems, but he just wants to mourn this terrible lack of civility from the internet juicebox mafia. I remember that. Well, Dave, if it’s ideas you’re after you could try the London Labour Housing Group blog. But the last time we did this the government minister responsible’s son ended up owning them all. You can see how some people might be a little tetchy.

The other take-away from this is that clearly the day after the election will be time to pull, roll, and get on the Jowell campaign’s tail. The thing about being oppositional is that you have to learn to like it.

I invent a tiresome electoral marketing concept

So, I was out on the #labourdoorstep. And I had an interesting insight. We live in Doorbell Britain, which is divided into two tribes, the Friedlands and the Knockers.

The Friedlands have evidently spent a lot of money on the technology of being alerted to visitors at their front door. Sometimes the bell is slickly modern. Sometimes it is cod-Victorian, but quality cod-Victorian. Sometimes it is disconcertingly silent, leaving you to wonder if it works, but sometimes it makes a noise like a police raid. Sometimes it is gold-plated. Occasionally, it includes a little CCTV camera and a bank of white LEDs to illuminate your face as you wait for a response, wondering whether you should stand politely facing the door or try to display your best profile to the camera. Either way, it’s manufactured by that same German company and it is redolent of an almost intimidating middle-class security that reminded me of, say, the suburbs of Hamburg.

The Knockers are very different. It is not that the bell is absent. Rather, there are usually four or five of the things. The original Edwardian setup is sometimes present, long rusted up and painted over. Several different generations of the technology can be observed. However, none of them work. There may be a name scribbled next to one or more in crabbed handwriting, but it will not be any of the names on the register of electors. If the door opens, it is just as likely that there is an additional voter you didn’t know about than that one is missing. There is sometimes a sticker over one of them with a message like PLEASE DO NOT RING THE BELL – why? – or KNOCK FOR 54C. You end up rapping warily on a window pane, worrying that you might put your fist through the rotting timber of the door itself.

You don’t know, until you talk to them, whether you’re looking at a nest of students or someone on local housing allowance who has a real problem.

Clearly, what’s doing the work here is the housing crisis. It is fairly well known to specialists that the UK housing economy roughly managed to keep up with the rate of household-formation but it did so mostly by reducing the space available to each household. It should perhaps be better known to the wider public, though, as it helps to explain why it was an invisible crisis for so long and how it survives although so many cranes are visible on the London skyline. This chart shows that the total number of dwellings managed to rise despite the plummeting rate of construction, precisely because we all packed in tighter.

1545

It’s from this post by industry analyst Neal Hudson, who points out that the number of houses in London actually fell as so many of them were subdivided and also that:

While the conversion of terraced properties into flats may be taken by many as an indicator for a lack of supply, it is better as an indicator for stretched affordability as first-time buyers are forced into buying flats and artificially driving up demand for smaller units while actually requiring larger family housing but prevented from buying them by high house prices due to excessive mortgage lending…

That is to say, more and more houses were cut up into flats, more and more euroboxes went up near canals in Northern cities, and more and more existing conversions were revisited and chopped up again in pursuit of more rent. Similarly, the vast expansion of buy-to-let as an investment product generated vast numbers of nonprofessional or perhaps just unprofessional landlords, even before minigarch investors became a thing. As a result, we get Landlordistan, this territory of shinbarking conversions, forever-deferred maintenance, and insecurity, a world on hold, next door to the Bank of Mum & Dad’s head office. But, of course, nobody thinks they’re their kids’ exploitative landlord. As long as it’s somebody else’s, it’s OK.

I said as much to the guy who wanted to complain about the “mansion tax”, and it seemed to cut through as they say – at least, he went from threatening to vote Conservative (a stupid gesture in our Labour/LibDem marginal) to asking to speak to the candidate. So I offer you Doorbell Britain. To place myself in this I would just say that we’ve got four buttons on ours but it does work, although the intercom crackles annoyingly.

It’s not enough, though, tempting as it is, to rail at the BTLers. Hoping for another crash ignores just how…crashy the last one was. As Steve Hilditch says:

My view is that policy has to aim to hold house prices steady for a generation, declining in real terms, avoiding a burst bubble, which creates as many if not more problems as it solves.

That said, 7.5% of GDP is now accounted for by rent we pretend to pay ourselves to live in our own homes and I think everyone can agree that’s too much. The Independent frames a somewhat depressing story of emigration as property rah-rah. This shared ownership project is only available to those who earn less than £66,000 a year, but only affordable to those who earn more than £62,000. The Greens haven’t updated their policy statement in 10 years.

Want an idea? I would borrow the housing wage from the Americans. In a real sense, Doorbell Britain is a story about wages as much as it is about houses, which was part of what I was trying to get at with this post on Bob Crow and Shelter’s estimate that the average Brit took a £29k pay cut in terms of house between 1997 and 2012.

#simpleplan: two news items

A bit of Simple Plan news. I was out on the March for Homes at the weekend, and I’m afraid nobody had a SIMPLE PLAN NOW banner, mainly because I didn’t make one, although some Germans did ask me if I was an “expert on the housing crisis”. That said, it was a pretty decent demo for an absolutely horrible day, and I am rather proud to find out I’ve now been on a march with Max Levitas. And why not chant BORIS OUT BORIS OUT BORIS BORIS BORIS BORIS OUT!

Anyway, here we go, from the FT. 48 local authorities have created a company to issue municipal bonds jointly, reckoning that they can raise money substantially more cheaply than they can get it from the Public Works Loan Board. This is of course a key element of the plan.

Screenshot from 2015-02-02 11:54:42

Through algorithmic serendipity, the FT‘s sidebar on the story was this.

London faces surfeit of expensive new homes…Most of the new homes being built are two-bedroom apartments in high-rise towers and many are being sold to “unsophisticated” foreign investors, said Charlie Ellingworth, the founder of Property Vision.

“It is unlikely that investors are going to see the sort of yields that they have been led to expect,” Mr Ellingworth warned. “The pool of buyers may extend to the whole of China, but the pool of tenants is pretty static.”

The owner of a £1m, two-bed flat would need to charge £30,000 to £40,000 a year in rent in order to make a gross return on their money of 3 to 4 per cent, Mr Ellingworth said. “There are not many people in London who can afford that.”

There’s no reason why it has to stay a £1m flat if nobody wants to pay the rent…obviously, municipalising the minigarchs would be a dear do, but at least we’re getting the machinery in place.

The simple plan goes into action

Aditya Chakrabortty reports on the London Borough of Enfield’s housing department, under siege by the forces of Iain Duncan Smith. It looks like everything the bedroom tax critics thought might happen is happening, with the exception of the buy-to-let bandits going over the edge.

Actually, that might be happening as well, but it’s hard to say. Fergus Wilson seems…troubled these days. Perhaps one of Louise Casey’s family intervention teams could help. More seriously, the original BTLers might be smashing up in London and selling to overseas investors, but this would take a lot more data to answer and is not really the point.

Anyway, people receiving LHA are flocking into the borough, many of them in extremis, having been evicted. The council housing officers are running their blood to water trying to place them. Emergency, overnight rents are incredibly high and that’s how local landlords like it, to the extent that they don’t let on any other terms.

If you read The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron, a key TYR Book!, you’ll recognise this as how Enron made so much money in California in 2000 – the publicly-owned grid had to keep the lights on, so they deliberately kept as much power off the market as possible so as to sell at the last-minute emergency rate, going so far as to book fake capacity and tie up the interconnectors so their competitors couldn’t jump in.

But Enfield won’t quit. They have a simple plan.

He’s bulk-buying homes for Enfield. Rather than keep paying profiteering landlords, Ahmet and fellow councillors established a company to purchase new houses, arranged a credit facility of £100m, and imposed targets for the number of units to be snapped up every month.

The programme began in March with one officer, an endearingly serious South African called Detlev Munster. Never having done anything similar, Munster did what boffins do: he drew up an intricate flow chart for how to hoover up homes.

Like so.

The problem is that when I created the simple plan, I never imagined that the property bubble would re-inflate. It’s taking a while to close on the transactions, and they have to bid hard against all sorts of other buyers.

So they’ve also started building. And they’ve discovered that a 100% council-owned special-purpose vehicle doesn’t actually have to offer right-to-buy discounts, which is ironic and also useful.

It might help if more councils came in, but then everyone who ever had an idea thinks more resources would fix the problems, although in this case it does actually sound like more staff would help a lot. The council, though, is in a sense bidding against central government via help-to-buy and funding-for-lending.

Every little helps, so we’re helping ourselves to every little we can

Look at this pitiful mess. People signed up for the shared ownership option on a block of flats in Streatham and paid deposits. Then the developer couldn’t get it built, so they were left waiting. Now, it’s finished, but the developer now wants twice as much money because, supposedly, the block doubled in value during the construction delay. The killer detail; the developer, Wandle, is a “social housing provider”.

Presumably, had they delayed another six months, they could have demanded four times as much money. Rising prices are actually functioning as an incentive to reduce supply. And you’ve got to love the quote from the Wandle spokesmonster:

“During the period following reservation and holding deposits being received, there were significant changes in the London property market which are beyond our control. Unfortunately this external market movement has resulted in substantial increases to the values of these homes in a relatively short period of time.”

There was nothing they could do about it. They might as well have been hit by an asteroid. The money just fell on them.

And the building. Is it, by any chance, ugly? You bet it’s fucking ugly. It’s been savagely beaten with the ugly stick, like an ugly black dog on an ugly chain. It’s a godawful blairhat mess sticking out of a groundscraper Tesco Extra with the motto EVERY LITTLE HELPS scrawled across the front, which in context sounds like Vladimir Putin’s sense of humour.

DEMOLISH ALL THE THINGS.

I fucking told you. Eric Pickles has signed up for the deeply dodgy Create Streets agenda, on the basis of a report drawn up by a bunch of estate agents. On which planet isn’t this an outrageous conflict of interest?

Also, he wants to get rid of terribad concrete towers through….system building.

But Mr Pickles said he was keen to stop any more 1960s-style tower blocks, which he dismissed as “concrete carbuncles”.

Mr Pickles was today visiting Rainham, Kent, to promote affordable homes from new “offsite” construction techniques, billed as a modern successor to post-war pre-fabricated housing.

Meanwhile, I didn’t see any response from this event, bunch of plastic gangsters that you are.