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Lyons does 90% of the job

Lyons does 90% of the job

For housing development nerds the Lyons Housing Commission report, published today, is a cracking read. Commissioned by the Labour Party, and launched by Ed Miliband, it is a serious review of all the problems and challenges facing the Party if it is to achieve its ambition in Government of building 200,000 homes a year by 2020.

The report’s analysis is familiar. It sets out the failure to build new homes, which has now gone on for decades and which may take decades to fix. It lists the consequences for individuals: prices and rents rising faster than inflation and faster than incomes; and many people forced to rent privately and suffer insecurity when they would rather buy or rent from a social landlord. And the consequences for the country as a whole: volatility in the national economy and a serious drag on growth.

Lyons identifies two key causes of the crisis. First, not enough land is brought forward for new homes: he calls this ‘artificial scarcity’ which incentivises trading in land rather than building on it, and says that communities and local councils do not have enough powers to overcome it. Secondly, the capacity to build has shrunk: there are a small number of volume housebuilders and very few small and medium enterprises (SMEs) in the market, and the role of the public sector has been massively curtailed, with housing associations not managing to fill the gap.

To get a long term sustained increase, the report calls for ‘long term political leadership’ making housing a national priority. It argues for decisions to be taken locally but, crucially, ‘on the basis of clear commitments that housing need will be met’. That will not go down well in some places.

Delivery nationally will be through a new cross-Government Task Force and a beefed up Homes and Communities Agency (I’m not sure they’re up to the job) and the consolidation and devolution of existing funding streams to local authorities ‘in city and county regions’ – a vital step.

The land market gets a lot of attention. Lyons says it drives the business model for developers as well as restricting the flow of land for sites. Councils’ role should be strengthened and cross-boundary co-operation arrangements improved. It endorses Labour’s existing policies of the ‘Right to Grow’ and ‘Use it or Lose It’ calling for the ability to levy council tax on plots that are not built out and stronger back-up compulsory purchase powers.

Councils are seen as the key agents, with the report calling for them to take on a greater leadership role with stronger powers to act as lead developers. Housing Growth Areas should be established and a new generation of New Homes Corporations to act as delivery agencies, assembling sites and promoting infrastructure.

What gets built is also a crucial consideration. Homes are needed for people on all incomes and people of all ages. ‘Affordable housing’ it says ‘must be a priority for taxpayer funding as the fiscal position improves over time’, reflecting Ed Balls’ new fiscal stance – a key weakness of the plan in my view. The local authority housing revenue account borrowing cap will not be lifted but there should be ‘active management of the overall borrowing headroom by the Treasury’. That will require a revolution in the Treasury.

Lyons endorses the ‘brownfield first’ policy established by the last Labour Government but loosened by the Coalition. It also supports a new generation of Garden Cities, Garden Suburbs, and Expanded Towns, to be delivered by Development Corporations. Financial incentives and guarantees are proposed to help these new settlements get started.

The report contains a step by step ‘Road Map’ for the next Government to follow, including an early Housing and Planning Bill to bring in the various new powers relating to Housing Growth Areas, Corporations, compulsory purchase, unbuilt land tax, stronger strategic plans. Including a new ‘national spatial assessment’ within the national planning framework will also be an important step, but one that is more complex than it is made to sound. A lot will rest on the new Chancellor’s first Budget Statement which will have to deliver a raft of changes.

Despite the huge detail in the report and the careful consideration that lies behind it, it seems likely that the ensuing debate will focus on what will be done for first time buyers. This is a vital but not the only consideration: the obsession of the Government and the media with this one aspect of the housing market tends to distort policies in an unhelpful way (leading for example to demand subsidies which are self-defeating in the long term). Inevitably, Labour’s response to Lyons is also likely to have this focus, and the report makes some helpful proposals that a proportion of new homes should be ‘reserved’ for first time buyers for a period, and that sales to buy-to-let investors or speculators should be restrained.

For me the central debate needs to be around public investment. Labour’s commitment is to build 200,000 homes a year by 2020, and more thereafter. Even looking at the rather optimistic Road Map it is clear that some of the structural, legislative and cultural changes that are needed will take several years to deliver and more years to become effective. I doubt if a single home will be seen by 2020 from the Garden Cities programme, apart from the already-announced Ebbsfleet. The Treasury will need a bomb under it to take on the proactive role that is envisaged. There will continue to be resistance to new homes in many areas and the ‘UKIP factor’ – blaming housing shortage on immigration rather than housing market failure – has yet to peak. Even in areas where there is some commitment to new homes there will not be enough affordable homes.

The role of central Government grant is crucial in making sure that genuinely affordable housing – and by that I mean homes at target rents and not the Coalition phony ‘affordable rents’ – is provided in sufficient numbers. The report fails to meet the widespread demand for the ‘cap’ on HRA borrowing to be removed or at least raised, and instead goes for a more complex sharing arrangement and supports other models such as Local Housing Companies to increase borrowing for investment. But raising the cap and the other ideas for borrowing do not in themselves guarantee target rents, for that either grant or cross-subsidy is required. Here I think the report is weak and reflects the caution displayed by Ed Balls in his Conference speech and subsequently. It also in my view takes too benign a view of housing associations building for sale to cross-subsidise affordable homes; a good idea in principle but in my view many of the biggest associations are obsessed with growth for its own sake and not primarily as a mechanism to achieve more affordable housing. There is an important discussion of the downside of the ‘affordable rent’ model – higher rents leading to unaffordability and a growing demand for housing benefit – and the need for a ‘benefits to bricks’ policy. But ultimately the report fails to go where the logic of its argument takes it – there must be a significant increase in the level of Government capital grant if the Labour Party’s ambitions to build more genuinely affordable homes and to bring the cost of housing benefit down – are to be fully realised. Ed Balls promises that housing will have higher priority within Government capital spending, but we do not yet know how that will translate in pounds shilling and pence.

Leaving aside that central point, it must be said that Lyons has made a raft of recommendations that will assist Ed Balls – here is just a selection.

First, to review the wasteful and redistributive (but in the wrong way) New Homes Bonus. In my view it should be phased out and the money either restored to local government through general support or re-focused through additional housing grant.

Secondly, to ensure that the public sector benefits to a much greater extent from the increase in value of land following development. The report suggests mechanisms which will help ensure that the costs of affordable housing and infrastructure are covered by the uplift in land value.

Thirdly, it stresses that affordable housing is not just provided with the support from Government grant. It is also funded through planning gain, which has diminished greatly during the recession, and there are proposals to make the process of negotiating planning gain more robust. It considers how viability assessments should be conducted, a process used by developers to get out of their obligations despite growing (some might say excessive) profits. I am less convinced by the suggestion that there should be a new arbitration service between councils and developers (which looks like a recipe for delay rather than decisive action).

Fourthly, it supports ‘overage’ agreements, whereby the authority gains a share of the benefit of future value gains on the site.

So, in summary, my first reading of the report tells me that Lyons has done 90% of the job he was asked to do: he negotiates a practical route forward on most of the key issues. And the 10%? Unfortunately he falls into the common trap of using the term ‘affordable’ too loosely, often without definition. The term has become so debased under the Coalition that it is almost meaningless. He should have been more specific in his consideration of the need for ‘social rented’ housing and how much is required from grant and cross-subsidy to provide what is needed.

If the last Labour Government deserved around 4 out of 10 for its housing policies, and the Coalition deserves around 1/10, implementation of Lyons will push Ed Miliband’s Government up to around 6 or 7. It is a significant and welcome advance. But to go higher will require rather less caution from Ed Balls, and a very different view of the importance of capital investment with Government spending programmes.

This post originally appeared on Red Brick and is cross-posted here with permission.