Chancellor George Osborne has set out the biggest reduction in Government spending in a generation.
Osborne announced his cuts by saying: “Today’s the day when Britain steps back from the brink. When we confront the bills from a decade of debt. A day of rebuilding when we set out a four-year plan to put our public services and welfare state on a sustain-able footing for the long term.”
Sadly for the housing industry, the rebuilding he was talking about has nothing to do with residential property, as spending on housing will see some of the biggest reductions.
Osborne addressed the need for reform of social housing. He said: “It is failing to address the needs of the country. Over 10 years, more than half a million social rented properties were lost. Waiting lists have shot up. Families have been unable to move and, while a decade ago, only one in 10 families in social housing had no one working, this had risen to one in three by 2008/09.”
These reforms include the contro-versial plans to introduce fixed-term tenancies for social housing, announ-ced by Prime Minister David Cameron in August.
Osborne said: “We will ensure that, in future, social housing is more flexible. The terms for existing social tenants and their rent levels will remain unchanged, new tenants will be offered intermediate rents at around 80 per cent of the market rent.”
Osborne’s reforms also address the levels of capital spending for new housebuilding programmes and measures to reform the planning system to give more flexibility to local authorities.
Osborne said: “Alongside £4.4bn of capital resources, this will enable us to build up to 150,000 new affordable homes over the next four years.
“We will continue to improve the existing housing stock through the Decent Homes programme and we will reform the planning system so we put local people in charge, reduce burdens on builders and encourage more homes to be built with a New Homes Bonus scheme.”
He acknowledged that funding for housing is being reduced but said the Government has prioritised funding for those most at risk.
“Within an overall resource budget for the Department of Communities and Local Government that is being reduced to £1.1bn over the period, priority will be given to protecting disabled facilities grants. This will go alongside a £6bn commitment over four years to the Supporting People programme, which provides help with housing costs for thousands of the most vulnerable people in our communities.”
In simple terms, these measures mean a huge cut in funding for housing. Carter Jonas head of research Catherine Penman says: “Capital funding for social housing is to be cut by £4bn and social rents set at 80 per cent of market levels.
“Significantly, new council tenancies will no longer be for life but limited instead to such time as the occupants are able to afford to move into private accommodation. This is intended to reduce waiting lists but it could also bring new demands upon the private housing sector and upon the prop-ortion of new residential developments that will need to be ’affordable’.”
The sharp cuts that Osborne outlined have been greeted with strong criticism from almost all sections of the housing and property markets. Top of the list of the critics’ complaints are the reduc-tion in spending on housebuilding and the cuts to housing benefit.
Although 150,000 is a big headline figure, it is to be spread across four years. Campbell Robb, chief executive of housing charity Shelter, says: “It is a huge blow to see that housing, one of the most basic needs for every single person in the country, is facing some of the biggest cuts.
“A succession of Governments has failed to address our housing crisis and last week’s announcements suggest the coalition has joined them in denying responsibility for an entire generation’s ability to access decent, secure, affordable housing.
The proposed figure of 150,000 affordable homes over four years represents less than a third of what this country urgently requires to bring the housing system from its knees.”
The cuts to housing benefits have been criticised for the Draconian effect this will have on people’s ability to stay in their homes.
British Property Federation chief executive Liz Peace says: “What is absolutely clear is the hugely damaging impact that linking future housing benefit to the consumer price index will have, which will constantly erode the amounts that claimants receive to the point where they will not cover their housing costs. The Government should pull back from that aspect of its reforms.”
Although both these measures should lead to a sharp increase in demand for private rented accomm-odation, even representatives of private sector landlords and buy-to-let lenders are wary of the proposals.
The Paragon Group chief executive Nigel Terrington says: “Private rented sector stock is under strain as more people look to rent than buy and this surge in tenant demand is causing rental inflation. We recognise the positive regulatory changes already made by the Government but it has to be careful not to shift the role of housing people on low incomes on to the private rented sector without ensuring it has appropriate levels of support at both an economic and regulatory level. Failure to do so could be dangerous because it could lead to a shortage of rental property at a time of unprecedented levels of tenant demand.”
National Landlords Association chairman David Salusbury warns that increasing demand for private sector rentals could lead to exploitation of tenants. He says the private rented sector is under strain from the level of demand already in the market.
He says: “As cuts in public spending and changes in tenure make social housing less accessible, pressure on the private rented sector will further increase. At the same time, reductions in housing benefit are likely to have the effect of reducing the supply of affordable accommodation. This raises the spectre of vulnerable groups being forced to rent from rogue operators offering cheap but sub-standard accommodation.
“Without measures to encourage private landlords to invest in their rental portfolios, it is hard to see how the private rented sector will be able to expand to meet increasing demand.”
The proposed reforms to planning rules combined with changes to the way that local government financing is allocated have also raised fears that housebuilding programmes will fall further behind the level that is needed if it becomes harder to obtain planning permission and local authorities divert previously ringfenced funding away from planning departments and towards more short-term priorities.
Peace says: “With areas of ringfenced spending also being removed, local authorities will be tempted to focus their spending in areas likely to reap the biggest dividends at the ballot box. This could put local authority planning services at greater risk despite the fact that the Government sees planning as crucial to its localism agenda.”
Among the highest profile of Osborne’s predictions is the estimate of almost 500,000 job losses from the public sector. Combined with increased unemployment in the private sector over the last two years, several mortgage commentators have predicted that increasing numbers of borrowers will have difficulty in making their mortgage payments.
Spicerhaart business relationship director Alison Beech says: “The comprehensive spending review has yielded no surprises. The stated emphasis is on fairness but there is no escape from the harsh reality of the full extent of the cuts that lie ahead. With close to half a million job losses expected from the public sector over the next four years, we will no doubt see a rise in the number of households defaulting on their mortgages as they struggle to stay afloat.”
There is some good news on this front, as the Government has announ-ced the more generous temporary rules for the income support for mortgage interest scheme are to be extended for an extra year.
However, the biggest concern is that the combination of measures announced by the Government will combine to act as a long-term drag on the economy. With first-time buyers still unable to get into the property market and private sector rentals becoming more expensive, the fear is that could become a burden on future growth.
Royal Institution of Chartered Surveyors director of external affairs Mark Goodwin says: “The property and construction sector will feel its share of the general pain and when this sector hurts, the whole economy hurts more.
“The Government is gambling with the economy by reducing communities and local government capital spending by 74 per cent over the next four years. This will have a significant effect on housing supply, especially social housing, which is already at historically low levels.
“As well as reducing the number of affordable homes, this could have a wider impact on the housing market where continued low supply will create affordability issues, particularly for first-time buyers.”