CML news & views

Among the 24 separate legislative proposals in the recent Queen’s Speech was a new Decentralisation and Localism Bill. The inter-related themes at the heart of this proposed legislation also featured prominently in the first major speech by the new housing minister, Grant Shapps, delivered last week to an audience of industry professionals. So, what might this mean for mortgage and housing markets?

According to the prime minister’s office, the proposed Decentralisation and Localism Bill will “devolve greater powers to councils and neighbourhoods and give local communities control over housing and planning decisions.” Freeing local authorities from central and regional control will, the government argues, help deliver a more efficient and a more local planning system.

The proposed Bill will also seek to:

• create trusts to make it easier for communities to provide homes for local people;
• introduce powers for residents to call a referendum on a local issue; and
• abolish home information packs outright.

Incentivising local communities

In his speech delivered to an audience at the Royal Institution of Chartered Surveyors, the housing minister argued that building more homes was central to fulfilling aspirations to home-ownership. And replacing centrally-driven targets with devolved power was crucial in delivering this. “For the first time, incentives will create direct benefits for local communities,” the minister said. 

Included in the list of incentives for local communities that the housing minister wants to deliver are:

• increased payments from government to match “pound for pound” over six years the extra council tax produced by building new homes;
• powers for local housing trusts to expand villages by 10% over 10 years;
• a ‘foot on the ladder’ scheme to provide an equity stake for good social tenants who want to become home-owners;
• a ‘green deal’ to ensure every household can spend up to £6,500 on improving the environmental performance of their own home; and
• the scrapping of regional assemblies, regional spatial strategies and housing targets that have delivered “a glut of one- and two-bedroom flats, but…a shortage of family homes.”

The minister concluded: “Rather than being told what to build and where, residents of villages, towns and cities will be able to develop their own vision for their place.” He promised “a more open, transparent and democratic planning system.”

The age of aspiration

Clearly, the main impact of many of these measures will be on the supply side of the housing market, particularly if he succeeds in empowering and inventivising local communities to provide new homes. But he also made it clear the government wants to address demand-side constraints and help consumers fulfil their aspirations to become home-owners.

The housing minister said his goal was to promote an “age of aspiration,” with home-ownership at its heart. He re-iterated government support for shared ownership but also acknowledged the need for a balanced tenure, arguing that renting was a “positive and flexible choice” and that social housing provided security for millions of families.

Reactions from the housing sector

How, then, have builders and others reacted to the new localism and decentralisation agenda? Construction firms are worried about the uncertainty created by a gap between the abolition of regional housing strategies and the emergence of a new planning system. The Home Builders Federation (HBF) believes it is “absolutely essential” to have a transition plan to bridge the gap between the “radically different policies” of the last government and the current one. 

HBF chairman Stewart Baseley said: “We urgently need clarity on housing and planning policy if the government is to deliver its pre-election pledge to build more of the homes it recognises we need. We just cannot afford a period of confusion to reduce house-building still further at a time when we are already building at the lowest level for many decades”

More significantly, the HBF is arguing that the government needs to develop a policy framework that “must include, as a matter or urgency, steps to tackle the lack of mortgage availability, particularly for first-time buyers.” It needs to increase the supply of land for development, which is constraining housing supply. “It must also find a way of reducing to realistic levels the regulatory costs that have rocketed over the past decade.”

The National Housing Federation (NHF) is also concerned that changes to the planning system could threaten funding for affordable homes. 

It believes that a combination of radical changes to the planning system and threatened funding cuts could see the provision of social homes fall by 65% this year, to just over 20,000 properties. That would be the lowest number of new affordable homes since the early 1990s.

Localism and lenders

Potentially, a policy of decentralisation offers opportunities for lenders to develop and support local housing initiatives. In particular, local lenders such as the many building societies that have a robust ethos of supporting local communities and their own members appear to be well-placed to support the localism agenda. However, it is not clear at this stage how that agenda may evolve in relation to the provision of housing finance – either for home-ownership or the rental sector. 

More generally, while lenders are not opposed to decentralisation in principle, they remain concerned about the potential for local diversity to hamper the delivery of schemes that need to operate nationally to deliver economies of scale. 

For example, abandoning national targets in favour of local, decentralised decision-making raises questions about the capacity to meet local housing needs systematically. Will the supply of properties increase as the government hopes – or shrink because of the impact of nimbyism? We will only know for sure once the government’s new policy is rolled out and we can see what it delivers in practice.

Can localism deliver consistency?

Lenders have always wanted policy initiatives overseen by local authorities to be applied consistently. A recent example of this is the mortgage rescue scheme, which has so far helped more than 5,000 households. 

The scheme, which is administered by local authorities, is one of a range of government support measures that have helped keep mortgage possessions in check during the current economic downturn. But its success is based on being administered in the same way by all local authorities based on standards set centrally. That has helped guarantee that all home-owners who meet the scheme’s criteria have equal access to it. Mortgage rescue may therefore be a good example of rational decision-making about what is best delivered at both a national and a local level.

There are instances in which the delivery of housing policy has been undermined because different local authorities have administered schemes in different ways. We are currently working, for example, on an agreed approach by local authorities to restrictive covenants on residential property, so that in taking individual decisions they act consistently. In the past, covenants applied with the best of intentions by some authorities have undermined the ability to obtain a mortgage on some properties or made them less attractive to buyers.

On the provision of low-cost home-ownership more generally, we have also tried to make sure that schemes are administered consistently, with clear standards. Potentially, there is a risk that the localism agenda produces a diversity of schemes administered in different ways, which adds unhelpful cost and complexity. That could mean that many lenders will simply not engage with them at a time when mortgage funding is limited and there are more cost-effective areas on which to focus their commercial activities.

Conclusion

We welcome the new housing minister’s clear and unambiguous support for home-ownership. The CML and individual lenders have had a long-standing role in supporting borrowers with aspirations to become home-owners where they are able to sustain a long-term financial commitment. This should not be forgotten in the current difficult market conditions, where prospects for first-time buyers without a deposit in particular are limited. But, like the minister, we also support a balanced approach to delivering the housing and the finance needed in other tenures.

Devolution has already created four separate national markets in the UK, with challenges for lenders operating in more than one of them. It will be important to ensure that localism is not a deterrent for firms. 

The provision of housing and mortgages continues to be adversely affected by a toxic combination of the global closure of funding markets, the continuing impact of the credit crunch following the failure of the banking system, the recent recession and prospects for only very slow economic recovery, as the Office for Budget Responsibility has reinforced. These constraints will have to work through before we see an improvement in mortgage market activity and the limited scope of the private sector to deliver borrowers’ aspirations in the near term.

Localism may help the government achieve its goals. But we need to ensure that it incentivises local authorities and others who fund housing, so that policy objectives can be delivered and the trends of recent years reversed. 

It will be important therefore to see evidence in next week’s emergency Budget that new incentives to authorities will be funded on a scale to deliver a sufficient supply of housing, across the UK. Localism may create opportunities – but we need to make sure that the incentives are strong enough to deliver the age of aspiration.