How to end the London Housing Crises, a working paper

A DISCUSSION PAPER - on - How to end London’s chronic housing crisis and drive up standards in the private rental sector - by - London Housing Expert: Ray Woolford Introduction Although it is an issue that affects every voter, it seems that housing is regarded as an insignificant issue as far as the election is concerned since no main-stream party is giving housing the profile it deserves. The neglect has seen voters turn to other groups, from the BNP on the right to Respect and People Before Profit on the left,who put housing at the very forefront of their campaigns. This is clearly at odds with the fact that the most popular Conservative policy of modern times was the Right-to-Buy policy, which led to 1.6 million people buying their homes, generated huge returns to councils in service charges and repair contributions, and transformed estates that were in danger of becoming sink estates into real communities where people were proud to live. The failures of the policy were that it was not thought through carefully enough, that the revenue it generated was not used to build new public housing, and that there was no claw-back mechanism by which the extremely large returns that some owners made by buying for a tiny sum and then selling for a huge profit would have boosted local authorities’ house-building budgets. Government figures released in March state that across the UK: • an estimated 100,000 council homes are being illegally sublet • 1.5 million homes stand empty at any one time • huge areas of land are held as land-banks to keep prices high. The average number of empty publicly owned homes for individual boroughs is approximately 3000, while councils spend on average £44,000 per year per family in bed and breakfast accommodation. When the huge number of government and local authority buildings that could be converted into affordable homes is factored in, it is astounding that this scandal, which has continued under successive governments, has been allowed to continue. This report sets out a clear vision: • to drive up standards • to reduce the cost of housing costs for the state • to put an end to empty buildings blighting neighbourhoods • to propose radical solutions that could work in the long term as well as the short term. These proposals will genuinely put an end to the chronic housing shortage in London while generating a large amount of revenue with minimal investment through policies that all voters can support. All that is needed are leaders in local councils, city hall and Westminster who have the vision and commitment to make a real difference and to start addressing the problem today. Although I focus on London in this report, the solutions I propose could be duplicated in all major cities and towns in the UK. INDEX Numbered Page(s) Content/Topic 2 Introduction 4 Accreditation, Licensing and Rogue Landlords 5 Affordable and Shared Ownership 6 Buy to Let 6 Rent Freeze 7 - 8 Repossessions: The argument to bring them to an end 8 Tenant Choice 9 Waiting List and Transfer Allocation 10 Young People: The impact on housing for the young 11 Conclusion Accreditation and Licensing and Rogue Landlords London is awash with licensing and accreditation schemes, e.g. • Newham Council proposals • London Accreditation Scheme • Boris Johnson's Blue Badge Scheme There are also many other schemes run by local authorities and trade bodies such as The Residential Landlords Association (RLA). Without a clear common vision and purpose, together with the means and budget to enforce them, it is hard to see how these schemes could drive up standards and deal with the anti-social behaviour issues in any way that improves on the current situation so that more – not fewer – private individuals will be prepared to invest in developing large property portfolios. The largest private landlord in London, Grainger, points out that the Newham scheme would cost between £300 and £500 per property to be licensed. This could result in landlords moving their portfolios and investment to other areas. The RLA have pointed out that with the time and effort required by the Newham scheme it would take 180 years just to license all the homes in Newham. The solution is clear. The large number of schemes should be reduced to just one Licence and one Accreditation scheme. This would enable landlords easily to choose which approved scheme they would like to use, much as they do at the moment with the Deposit Protection schemes. I would propose that all landlords and the directors of companies who provide properties to let should provide their National Insurance number as a way to drive up standards. This would make it easier to monitor landlords and property companies and would prevent them from securing any sort of state benefit from their tenants. Government could then seek to link this information to tax offices to put an end to council tax avoidance and to recover arrears. Bad landlords in the main are a very small minority, and most of them prey on benefit claimants and the poorer members of society. This simple idea of linking landlords' National Insurance numbers to their properties would lead to a huge improvement in standards in the private rental sector that would promote investment and produce substantial revenue. This revenue could then be reinvested in building more social housing or giving low-rate loans to non-profit housing groups for the purpose of building the homes and carrying out the refits that London needs. Sadly, London will always have far too many poor who will be exploited by bad landlords. The number of people living in sheds, in cupboards, in bin areas, and under flyovers shames the whole city. Councils have failed to address this issue for far too long, presumably out of a fear that any real crack down will lead to massive costs for hostel and bed-and-breakfast accommodation for the people who will need to be re-housed, councils can no longer afford to refit or refurbish the empty public housing they already own. Affordable and Shared Ownership What is meant by the word affordable? Where is the social benefit in allowing new developments to be built based on a priori percentages rather than on actual local housing need? The requirement that developers provide a certain percentage of homes as social housing is seriously flawed. It results in the provision of large numbers of studio flats and bedsits which usually have no real relationship with local needs, such as, for example, those of local residents who have a disability, or those of an elderly couple in a three or four bedroom property who are looking to move to a smaller home as their present property is too large and too expensive to run now that their family has left home. The criterion for affordability should be established, borough by borough, on the average wage for each particular borough. This would lead to a more stable house-pricing structure and enable London residents to buy locally. Far too many developers cynically put a single unit up for sale at a headline-grabbing price while the rest of the properties are far too expensive for most local people. It should also be noted that some developers use much cheaper building techniques and materials to build the social part of their developments, even though they charge the full market rate. In real terms, therefore, those who do manage to buy in this sector of the market are being exploited. Basing requirements for new-build affordable housing on square footage instead of the number of units would definitely address this issue of local need. It would also save a great deal of money by facilitating moving families or individuals who are currently living in very expensive private housing at the tax payers’ expense into units built especially for them. Shared ownership also needs to be reviewed. Many people who only own a percentage of their home find it almost impossible to sell on and move up the ladder if they have to move due to an expanding family or employment opportunities. Buy to Let It is difficult to truly assess the real size of the buy-to-let market: the most recent report by Savills and Right Move on the buy-to-let sector shows that the total value of property in the buy-to-let sector was £840 billion – a staggering increase of 42% over the past 5 years – producing a rental income of £48 billion which is expected to rise to £70 billion by the year 2016. To meet demand under the housing policies presently in place the private rental sector will require around £200 billion of investment. However, only one quarter of this money is likely to come from the private sector over the next five years. The Treasury's current concerns over buy-to-let mortgages and what it sees as the unfair tax advantages that they entail are likely to lead to policies which will restrict the private rental sector at the very time when what is required is further sustained investment that can only be stimulated via carefully targeted tax breaks and relaxations in planning law. Rent Freeze Political opportunism or a real solution for struggling tenants? While the idea of a rent freeze seems like a popular initiative, the reality is very different. The private rental sector is regulated in the main by the terms of its mortgage conditions and the state and fluctuation of interest rates globally. Setting a rent at a given figure while not taking interest rates into account would result in a large decline in the number of properties available in the private sector, and this at a time when precisely this number of rental properties available across London needs to be significantly increased. Although it might be possible for local authorities to freeze rents, as few council homes have mortgages, loan companies would have real concerns about how landlords could pay mortgages or pay for improvements if a tenant stayed for, say, five years with no rent increases. Landlords would also have concerns about evicting bad or anti-social tenants or their ability to move tenants out if they need to sell their property due to a change in their financial situation. In London, the fastest growing area in the buy-to-let sector is that of ‘accidental’ landlords, that is, those who have to move out of their homes due to family, work, or financial reasons and need to secure an income to cover mortgage payments and avoid repossession. Exactly how many of these and other private landlords fail to fulfil their legal obligations and/or declare tax liabilities is currently unknown. Repossessions: The argument to bring them to an end 75,000 homes were repossessed last year. The number of owners in debt who simply returned keys and walked away over the past 12 months is not currently available but it will be sizeable. The cost of this to the state and to the tax payer makes no economic sense at all. Once families are evicted, their first port of call is their local authority's Homeless Persons Unit, which initiates a long and expensive process that ends up costing the local authority an average of £44,000 per year for emergency hostel and bed and breakfast accommodation. Nevertheless, families go on being evicted despite the fact that their mortgage payments are substantially less than the cost of rehousing them. Mortgage companies and banks are covered by insurance, which means that repossessions result in no real inconvenience to the company concerned. In the private buy-to-let sector the current legal position is such that tenants have no protection under the law if the property they are renting is repossessed. Even though they have been paying rent direct to their landlord on time and with no arrears, the mortgage company has no duty of care and are not required to inform tenants that they could seek an arrangement for rent to be paid direct to the mortgage company when landlords are in substantial arrears. Repossessions also add to the blight of empty and run down homes that can bring down the value of properties in the neighbourhood and thus reduce the equity that home owners have in surrounding properties. It is therefore the local authority and the local community who are left to pick up the real cost of repossessions, not just through the huge cost of rehousing the newly homeless is very expensive temporary accommodation, but also through the loss of revenue from council tax and the money the home owners would spent in the local economy, which would have helped to secure the jobs of local small traders and, in turn, to increase revenue to the state via business rates. The Solution: Repossessions offer no real solution, make no economic sense, and bring terrible misery to the thousands of people who get caught up in the process. Therefore, as currently practised, they should essentially become illegal, as follows: Private Home Owners: Once two months’ payments have been missed, the mortgage provider should be required to notify the local authority housing department and to begin negotiations to prevent repossession. Any housing benefit payments should then be made direct to the bank or mortgage company. Remortgaging and Secure Debt: Homebuyers and home owners should not be allowed to use their property as collateral to borrow more than the property is worth. Loan companies should have a legal obligation to check with the Land Registry as to what loans, if any, are registered against the property. If a loan company fails to do this, it will not then be able to attempt to recover the loan through the courts. Repayments and Security Mortgage companies would be responsible for collecting payments from the council until such time as the homeowner is able to continue to make payments themselves, at which time reasonable charges for the administrative cost of this subvention would be added to their original loan. If the homeowner sells the property, the mortgage company and other debtors would be paid from the proceeds of the sale. This would ensure no excessively burdensome additional debt was incurred while people remained in their homes at no extra cost to the state, such as the huge cost involved in housing an evicted family in emergency temporary accommodation. Buy-to-Let Landlords: Once two months’ payments have been missed, the mortgage provider would have the right to collect their repayments direct from tenants. The landlords would still own the property while the rent money covered the cost of mortgage repayments plus a fair administration charge. Once any arrears are repaid, the property would continue in the ownership of the landlord. This would give security to tenants and, once again, ensure that there were no extra costs to the state. The solution outlined above would be politically acceptable to everyone, would save the state a great deal of money, and help sustain a stable housing market over the long term. Tenant Choice Tenants should be clearly informed of their legal rights and obligations as well as those of the landlord. The RLA have long campaigned for tenants to be better aware of the risks and responsibilites advice when signing a legal contract to rent a property. The reality is that government and local authorities no longer have the staff or the budget to promote such assistance. Landlords and tenants in the main are also not in a position to fund provision in this regard and requiring it of them could prove a policy disaster. Nevertheless, this is a very real issue and needs to be addressed. The solution is a simple one. The government could arrange for a range of online legal contracts that could be downloaded for a small fee. This would ensure the general use of contracts that are fair and protect tenants and landlords while producing revenue. Any contract should state in the clearest of terms the legal obligations for both sides and where the security deposit, if charged, is held and how to recover the same. With this data the state could monitor the sector to ensure deposits are being correctly handled in a cost-effective way. The rental sector would be more transparent and this would result in greater tax revenues as it would be much harder to run a cash rental business when the arrangement had to be registered online. This data could also be used to monitor both rogue landlords and bad tenants. This solution would drive up standards, improve the quality and flow of information, and produce a new revenue stream. Waiting List and Transfer Allocation The present waiting-list system changes from borough to borough and has failed to address real housing need and overcrowding, despite the fact that the waiting list continues to get longer year on year. Each London authority has a different points system, a situation which restricts tenants’ choice and movement and which will mean that the new universal credit will result in some areas’ waiting-list criteria being wiped out overnight. For example, under current governmental policy, council rents in Lewisham will rise to 80% of local market value. This will mean a huge increase due to the number of new developments being built and the improved transport links in the area. Thus local residents currently on the council’s list will be removed as they will not be in a position to afford to pay the resulting increased rents. Nationally, the ‘swap system’ is also outdated and complicated. It should be reviewed and reformed in accordance with the rules that apply to universal credit so as to give tenants greater freedom of movement. It is also necessary to create a single system for paying private landlords; at present, each borough has a different payment system with up to three different departments dealing with a single claimant. There is also a need for a simple mechanism that would allow tenants to portal their payments from one borough to another. This would speed up the process and allow more tenants to move to other areas for employment purposes or to receive support from family members. Tenants who receive public housing assistance also need to be given a wider choice and a fair playing field when renting in the private rented sector. Such a rationalised a system would also encourage more London landlords to accept tenants who are receiving benefit, would enable local authorities more easily to guarantee rents for fixed periods, and would ensure that landlords are given property back in the condition in which it was let via the council. It would also avoid landlords being expected to evict tenants via the courts. In Rotherhithe, South East London, all local estate agents have stopped renting to social tenants after Southwark Council insisted that tenants would only be helped once a bailiff had forcefully evicted the family, not just after a court decision. This process whereby families and children are being forced onto the street, which inflicts a tremendous emotional wound on these vulnerable members of our society, merely to give councils more time, must be stopped. Young People The impact on housing for the young: Owning a home is only a pipe-dream for young people under the age of 35 years. Government proposals to force people under 35 to house-share or live in hostel accommodation will further alienate young people from mainstream society. Currently, young people have been severely hit by a lack of real jobs and of proper housing, which they cannot afford on minimum wages or benefit. This problem is exacerbated by Article 4, which restricts the number of HMO premises and abolishes the squatters' law. Overcrowding is a major issue in London and many young people are exploited by private landlords who can pack up to eight people in one room. It is also not uncommon to see families of 5, 6 and 7 living in a one-bedroomed council flat. Government proposals to make under-25-year-olds stay at home further inhibit the future opportunities of the young and poor, and could lead to civil unrest unless more is done in respect of jobs and housing which would involve young people in their communities instead of alienating them from them. Lewisham Council in South London runs a remarkable housing co-operative known as the “Sandford Road Housing Co-op”. This co-operative provides a great place to live to young single people at low cost, thus engendering a sense of purpose and community engagement, a providing a real boost to each person’s self worth. It also makes a profit and uses the cash to support other local start-up housing cooperatives. Building on and developing this model across London could result in young people being trained in green energy and building skills and turning empty buildings into secure low-cost housing and, at the same time, give young people a real sense of purpose. Where this has happened, it has started to address the terrible blight caused to many London neighbourhoods by the state of abandoned and closed buildings, homes and commercial units. Relaxing planning law and providing financial support to boost social enterprise and the co-operative movement makes both political and economic sense. Giving people and communities the power to take over, under licence, empty buildings to be refurbished and brought back into use as social housing would be a low-cost and highly popular policy that the mayor and all political parties should seek to implement. Dealing with housing, over-crowding and jobs could do a great deal to address youth alienation and crime, and engender in young people a sense of pride and involvement in the communities in which they live. Conclusion I consider that the ideas and proposals in this discussion paper would, if implemented, transform the London housing market and encourage more private investors to enter both the social and private rental sectors as a real, long-term business opportunity. Tenants would see wider choice, improved standards, fairer rents and greater home security as a result of the improved ease with which they can change locality and/or own a stake in their local neighbourhoods and communities by taking on empty buildings and homes which councils and government abandoned many years ago. Simplifying and centralising payments and having a National Insurance number to log against properties would result in large sums being raised while providing a set of standard contracts that can be downloaded for a small fee would boost revenues, drive up standards, and close down rogue landlords and tax-avoiders. While London's mayoral candidates talk about transport and policing, they seem to have forgotten that the Conservatives won two elections with their right-to-buy policy. Homes and jobs are what matter to people. Recently, local residents in Lewisham and Greenwich who are part of the “People Before Profit” movement have come together to take over empty public housing that the council had ceased to maintain years ago. They are training local people in skills to refurbish them and making the newly refurbished homes available to local people who are in need and on the waiting list. This is an example that should be supported and followed wholeheartedly. This would relieve the housing shortage and put an end to the disfiguring blight to local communities caused by empty, unused and run-down properties. We already have the social-enterprise businesses and strong private rental sector that can play their part. What we need now is councils to work together beyond borough boundaries, to simplify payment mechanisms to encourage more investment, and to orient their policies and planning on people, not targets and budgets. We all need to think beyond the box and to have the resolve to make a difference in these difficult times. Ray Woolford