The Housing Question No 9: You can’t simply say they are irrational
Gove’s compromise on planning and housebuilding, a choice to be made on zero carbon homes, the latest on leasehold reform and prospects for housing investment under a Labour government.
Welcome to the ninth issue of my newsletter on everything to do with housing. There is a lot to catch up on after two weeks that have been heavy on announcements, consultations and parliamentary debate. The Housing Question is still a work in progress but let me know what you think and please consider subscribing (it’s free for now) and sharing on social media if you like what you read.
Gove cooks up a contradictory mix
Michael Gove’s big speech on planning and housebuilding probably represents the best he could do within the political constraints facing him but it falls far short of meeting the housing challenges facing the country.
Like his Conservative predecessors in the late 1980s and early 2010s, the housing secretary finds himself caught between the new homes he knows are desperately needed and the appeasement of his own backbenchers and voters who don’t want them.
The net result is a curious and sometimes contradictory mix of policies that intervene in some places and call out those blocking development in others yet also create new ways for local communities to insist that ‘the right homes in the right places’ do not apply to them.
So Cambridge will undergo a major expansion of 150,000 new homes or more and get a development corporation equipped with compulsory purchase powers. That certainly seems like action on the scale required but why just Cambridge?
And why do local objections there seem to count for less than those of backbench Tory MPs in London suburbs and the South East, where councils will not have to build out into undeveloped land or up with denser development in existing settlements. Instead they will be able to block development that would significantly alter the ‘character’ of an area or impinge on the green belt.
Poundbury is (as ever) praised as outstanding example of good design but that would seem to give councils the ability to block similar urban extensions elsewhere.
Seven local authorities that have not even bothered to produce a local plan have been given 12 weeks to act and there are threats of intervention against those who lack an up to date plan but the housing targets they will be judged against are now purely advisory rather than mandatory.
Gove insists he remains committed to the target of 300,000 new homes by the mid-2020s despite having no chance of achieving it but at the same time he says nimby objections to them are ‘not unreasonable’. ‘You can’t simply say they are irrational,’ he tells The Times in an interview. Absolutely rational, considering the incentives that Gove himself has created. Just maybe, though, you can say their individual choices should not trump the needs of society as a whole.
London mayor Sadiq Khan is threatened with intervention over the London Plan, with the clear implication that the government would look to water down targets for affordable housing, yet Gove has nothing to say about the performance of outer London Tory boroughs.
The new National Planning Policy Framework is (like the original) a compromise between supporters and opponents of new homes but it will take time for its real impact to be seen.
This week’s announcements do include some useful tweaks to policy that could make a difference in the short to medium term but they are no more a ‘long-term plan for housing’ than those made in the summer.
Past, present and future homes
And so, seven years after all new homes were meant to be zero carbon, the government is finally consulting on plans to make them ‘zero carbon ready’.
The original 2016 deadline was watered down and then scrapped as part of the Conservative backlash against ‘green crap’. The Future Homes Standard will now apply from 2025, although a transition period means homes will probably not have to comply with it until 2027 or even 2028. Though energy efficiency standards were tightened in 2022, around two million homes built since 2016 that would originally have had to be zero carbon will have to be expensively retrofitted by their owners.
However, there is still a big choice to be made about those future homes. The consultation presents two options. The first mandates heat pumps plus a range of other technologies including efficient solar panels, wastewater heat recovery, and improved air tightness paired with decentralised mechanical extract ventilation. The second just has the heat pumps. Both are ‘zero carbon ready’ once the electricity grid is decarbonised and both deliver similar benefits in terms of carbon emissions and air quality improvements.
But they have very different costs and benefits. Option one means developers will pay more but consumers save more on their energy bills. Option two means developers save on capital costs but consumers pay more. The accompanying impact assessment is more blunt than the consultation document when it helpfully summarises them as:
Option 1: Deliver ‘zero carbon ready’ homes with low bills
Option 2: Deliver ‘zero carbon ready’ homes.
They do not say which is the favoured option but take a wild guess which one the current government will probably choose. If you need a clue, look to the way it put lower costs for private landlords ahead of lower bills for their tenants when it scrapped targets to improve the energy efficiency of rentals.
The impact assessment quantifies the initial capital costs of Option 1 as £2.4 billion, though it argues that over the medium to long term these will become factored into land prices and so will be passed on to landowners. By contrast, the occupiers of the new homes would save £3.7 billion in lower energy bills. Both of these are Net Present Values calculated over 10 years of policy and a subsequent 60-year life of the buildings. They also assume that the performance gap (between the homes as designed and as built) can be bridged (a big assumption given the problems with building standards revealed in the aftermath of Grenfell).
And the choice is even more stark when you look at the detail. Option 2 actually increases energy bills for consumers relative to current standards (which specify either a heat pump or a gas boiler in combination with other technology like solar panels) let alone future ones whereas Option 1 reduces them. Similarly, Option 2 saves developers money compared to current standards whereas Option 1 costs them more.
This is a step into a zero carbon future that could yet go backwards in terms of energy bills.
Leasehold reform and crocodile tears
Plans to tackle the abuse of leasehold in England and Wales took a step forward last week when the Leasehold and Freehold Reform Bill goes its second reading in the Commons.
The Bill will not abolish leasehold, not for existing homes, not for new flats and not even (as currently drafted) for new houses but it will introduce significant reforms tol make it simpler and cheaper to extend a lease and harder for freeholders to use inflated service charges, insurance premiums and a range of other scams to exploit leaseholders. The government has also promised to add clauses later to ban new build houses (first promised in 2017) and reduce ground rents to a nominal amount (once a consultation is completed).
This may not go as far as campaigners want and housing secretary Michael Gove originally promised and it may not represent full implementation of Law Commission recommendations but these are still significant steps forward. For evidence of that, look first to the appointment of longstanding campaigner Martin Boyd as the new chair of the government’s Leasehold Advisory Service. Look second to the way that property interests are turning up the volume of their threats to take legal action to block the changes to ground rents in particular. Look finally to the number of MPs from all parties who joined the debate to tell of abuses of leaseholders (and of freeholders too via estate management charges) in their constituencies.
However, the fact that those abuses are still happening despite attempts at leasehold reform that date back to the 19th century suggests a more fundamental problem with the tenure. This latest attempt would probably not be happening at all were it not for the scandalous exploitation of leasehold by leading housebuilders to make extra profits on new homes and maybe not even then without the intersection of the leasehold scandal with the building safety crisis that followed the Grenfell Tower fire.
It was striking (though in the wake of the Rwanda Bill maybe not surprising) to see Conservative ministers quite so ready to defy the law. As Michael Gove put it in response to arguments that restricting ground rents will interfere with the property rights of freeholders:
‘I know that some people will say, “What about A1P1 rights under the European Convention on Human Rights? You are taking property away from people.” I respect the ECHR, but if it stands in the way of me defending the interests of people in this country who have been exploited by ground-rent massaging, I am determined to legislate on behalf of those people, because their interests matter more than that particular piece of legislation.’
Rachael Maclean, the former housing minister who did most of the work on the Bill before she was sacked in slightly mysterious circumstances, revealed the frustration obviously felt inside the department in her speech: ‘Freeholders still had the audacity to sit in front of me while I was a minister and claim that “some people like the security of paying service charges” and that there is no evidence that they oppose ground rents. Yes, truly, that is what they said.’
She added: ‘When I was privileged to hold the position of housing minister, I strongly supported the relevant legislation, because those people sat in front of me and cried crocodile tears, telling me that if we went ahead with it we would destabilise the pensions industry and leave lots of little old ladies with no pensions—which is obviously complete and utter nonsense.’
It's worth noting that opposition is not just coming from obvious freeholder interests and it’s not just their tame lawyers who are concerned about some of the more strident comments about ground rents.
But when it comes to turning the consultation proposals into law there are options. Tory MP Peter Bottomley, a veteran campaigner on leasehold issues suggested taxing any possible compensation to freeholders at 45 per cent as a way to make challenges null and void. Clive Betts, the Labour chair of the Levelling Up Committee, said it had received counsel’s opinion on the issue:
‘There were two clear arguments why removing onerous ground rents from leases retrospectively was completely compatible with the European convention on human rights. The first, which most of us may not have thought about, is that controlling or changing rent is not confiscation of property but control of its use, so it does not conflict with the article on removing people’s property rights. Secondly, the convention includes a justification where the proposal has a wider beneficial impact on society, which can be offset against any impact on the property owner. Counsel’s opinion was that it was therefore perfectly justifiable under the European convention to remove onerous ground rents on existing properties.’
The Bill still has a long way to go but the details really matter and there could yet be significant changes to come in its next stages in parliament.
Why investment should still fit for Labour
What will happen to housing investment if Labour wins the next election?
My latest column for Inside Housing considers the prospects in the context of the unhappy precedent set by the party the last time it regained power in 1997.
Back then, Tony Blair and Gordon Brown had promised to stick to Tory spending plans in the first two years of the new government that included deep cuts in housing. In real terms investment in new affordable homes did not get back to the levels seen in the final year of the Conservatives until part way through its second term and did not exceed the peak Tory level (1992/93) until after the financial crisis.
A factor in the thinking then was that significant sections of the leadership seemed unconvinced by the case for more investment. Several cabinet ministers had seen low demand for new social homes in their own northern constituencies and seemed to assume mistakenly that the same applied across the country. The priority was investment in the existing stock via the release of capital receipts.
Thanks to unaffordable rents and house prices, huge waiting lists and record homelessness, Labour has no such excuse now but significant investment is also required to decarbonise existing homes (which could come from its plans for green investment).
But if the party does win power it will inherit spending plans that include real terms cuts in most government departments and a freeze in capital investment after 2025. The Tories will use any hint of extra spending from Labour to claim that taxes will rise. Hence the extreme caution from shadow chancellor Rachel Reeves and the warning last month from Labour leader Keir Starmer that about the ‘spending taps’ being turned on. Against that, deputy leader Angela Rayner pledged ‘the biggest boost to affordable and housing for a generation’ at the Labour conference in October.
So how to square the circle of all this? One possibility is that Labour succeeds in its promise to build 1.5 million new homes in the new parliament thanks to planning reforms and delivers more affordable homes on the back of that via tougher Section 106 rules. However, with most housebuilders currently reporting big cuts in their building programmes, that seems uncertain at best. Looking from the other end of the telescope, more social house building will be required to meet the overall target.
Another is to assume that Labour will actually deliver a new generation of new towns rather than just talk about delivering one (which is what has happened countless times before). The party has done some work on the idea (based on the same evidence cited by Michael Gove) but it seems vanishingly unlikely that it will produce many (any?) new homes in a first Labour term.
But perhaps there is a third, unspoken possibility. Labour’s fiscal rules allow room to borrow for investment but Reeves has set a high bar for this for the wealth fund that will be part of its green investment fund. Starmer spelt this out again when he spoke of a 1:3 ratio, with each £1 of public investment generating £3 of private investment.
The Affordable Homes Programme already delivers exactly that and has done for the last 10 years. Admittedly, this is partially due to the switch to affordable rent that most people would want to see reversed but it is quite possible to devise a programme to meet the 1:3 formula that also includes a substantial element of social rent.
Even more to the point, housing investment will be essential to delivering the growth that will be needed to beat the stagnation that was the backdrop for Keir Starmer’s speech. Housebuilding is an important source of growth in its own right but , as the Resolution Foundation argues in its major new report, growth without housebuilding will only make our affordability problems worse.