House of Lords Report “We must tackle the housing crisis”

by Neil Patterson

8:54 AM, 15th July 2016
About 2 years ago

House of Lords Report “We must tackle the housing crisis”

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House of Lords Report “We must tackle the housing crisis”

The House of Lords Economic Affairs Committee has today released a report titled “Building more homes.”House of Lords

The report strongly recommends that the housing crisis must be tackled and that the Government should increase its home building target by 50% to 300,000 new homes each year.

Local authorities and housing associations must also be freed to build many more homes for rent and for sale.

Lord Hollick, Chairman of the Committee, said:

“We are facing an acute housing crisis with home ownership–and increasingly renting–being simply unaffordable for a great many people.

“The only way to address this is to increase supply. The country needs to build 300,000 homes a year for the foreseeable future. The private sector alone cannot deliver that. It has neither the ability nor motivation to do so. We need local government and housing associations to get back into the business of building.

“Local authorities are keen to meet this challenge but they do not have the funds or the ability to borrow to embark on a major programme to build new social homes. It makes no sense that a local authority is free to borrow to build a swimming pool but cannot do the same to build homes.

“The Government are too focussed on home ownership which will never be achievable for a great many people and in some areas it will be out of reach even for those on average incomes. Government policy to tackle the crisis must be broadened out to help people who would benefit from good quality, secure rented homes. It is very concerning that changes to stamp duty for landlords and cuts to social rent could reduce the availability of homes for rent. The long term trend away from subsidising tenancies to subsidising home buyers hits the poorest hardest and should be reversed.

“If the housing crisis is to be tackled the Government must allow local authorities to borrow to build and accelerate building on surplus public land.”

Key findings of the report:

  • Setting a new homes target which will fail to meet the demand for new homes or moderate the rate of house price increases.
  • Restricting local authorities’ access to funding to build more social housing.
  • Creating uncertainty in the already dysfunctional housing market by frequent changes to tax rules and subsidies for house purchases, reductions in social rents, and the extension of the Right to Buy. All of these changes reduce the supply of homes for those who need low cost rental accommodation.
  • A narrow focus on home ownership which neglects those who rent their home.

The Report Conclusions:

  • Restraints on local authority borrowing should be lifted. Local authorities should be free to borrow to fund social housebuilding as they are other building programmes. This would enable local authorities to resume their historic role as one of the major builders of new homes, particularly social housing.
  • The current historically low cost of borrowing means local authorities could make a large contribution to building the houses we need for the future. Further, the new Prime Minister has announced that the Government will abandon their fiscal target. This paves the way to increase local authority borrowing powers.
  • Council tax should be charged on development that is not completed quickly. The Government’s reliance on private developers to meet its target of new homes is misguided.  The private sector housebuilding market is oligopolistic with the eight largest builders building 50% of new homes.  Their business model is to restrict the volume of housebuilding to maximise their profit margin.  To address this the Committee recommend that local authorities are granted the power to levy council tax on developments that are not completed within a set time period.
  • Maximise the use of public land. The Government must take decisive steps to build on the very substantial holdings of surplus publicly owned land.  The Committee recommends that a senior Cabinet minister must be given overall responsibility for identifying and coordinating the release of public land for housing, with a particular focus on providing low cost homes.  The National Infrastructure Commission should oversee this process.
  • Local authorities should be given the power to increase planning fees. Local authorities should be able to set and vary planning fees to help fund a more efficient planning system and the upper cap on these charges should be much higher than the current limit.

To see the full report please Click Here



Comments

Mark Alexander

9:19 AM, 15th July 2016
About 2 years ago

Hi Neil

I had a very interesting conversation with a German investor last month. He explained how Germany manage to balance housing need with demand in order to regulate prices. Apparently, they have a target to ensure that property doesn't cost more to buy than it costs to build. Clearly there still are fluctuations based on demand but it does appear to work generally, at least from what he explained to me.

In simple terms, if Government recognises that demand is driving property prices in a certain area then they will grant 100% tax relief on new house building. Conurbations grow and people who want cheaper and more modern houses move a bit further away from the centre.

It is sociaally acceptable for all classes to rent in Germany and quality of housing is generally considered to be much better due to availability, affordability and choice for tenants, i.e. competition amongst landlords. Around 60% of people in Germany rent their home and rents generally equate to 18% of net salary thus, disposable income is higher than in the UK.

Businesses of all types invest their profits into property development, thus meeting demand and effectively deferring their tax.

Let's say a company makes 400,000 euro's in profit. They could develop property to the value of one million, borrow 60% of value over say 15 years and rent out that property. Over the term the rent amortises the debt and the company get tax relief up front on the full one million of investment.

Yields are low, as is capital appreciation but the model works. Property in Germany does appreciate in value but only in line with the costs of building it. They rarely get boom and bust scenarios like we do in the UK.

Their tenancy laws are very different, in that tenants get much better security of tenure, but this also makes sense given the tax incentives.

After 10 years of ownership the properties can be sold without attracting CGT. Furthermore, interest on funding can be offset against income as an expense in much the same way that every business in the world can do, except for UK private landlords as of next year of course!

The above is my understanding of how it works. If I have got any of the above wrong I would be happy for somebody to correct my understanding.
.

Neil Patterson

9:30 AM, 15th July 2016
About 2 years ago

Wow I think that is now proving our laissez-faire economic policy of leaving it up to demand and supply is not working !

Dr Rosalind Beck

11:34 AM, 15th July 2016
About 2 years ago

It must be added that rents are low in countries like Germany and France partly because tenants are expected to do far more - my sister rented in Germany for years and a friend has rented in Paris for decades and they are expected to fit their own kitchens and do the majority of the maintenance. This is the opposite of the model of Build to Rent receiving 'state aid' in the UK (hopefully this will be proven to be illegal) - whereby astronomical rents are being promoted, justified by things like 'a concierge service' and maybe a gym in the basement... I think most tenants would prefer the continental model to the American one.

Colin Dartnell

23:34 PM, 16th July 2016
About 2 years ago

'Local authorities should be given the power to increase planning fees. Local authorities should be able to set and vary planning fees to help fund a more efficient planning system and the upper cap on these charges should be much higher than the current limit.'

Now that's stupid, they conclude we need to build more houses and in the same report want to increase fees for builders. They really do not have an ounce of sense!

Dr Monty Drawbridge

11:02 AM, 18th July 2016
About 2 years ago

I believe that the Germans also allow landlords to claim depreciation on the property against rental - roughly 2% of the purchase/build value per year for existing houses; 3% for the first eight years of a new build.

Also, as in Australia, any losses can be offset against your whole income, rather than just against rental.

The 10yr CGT rule is a good one for discouraging less experienced "get rich quick" landlords.

The danger is that a lot of the rhetoric at the moment focuses on German style tenant security - without acknowledging the incentives also provided to landlords and house builders.


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