Now credit crunch hits home as new build house numbers crash
June 20, 2008 12:00 am frontpage, newsby Cary Gee
AFTER 15 years of continuous growth in the housing sector the House Builders Association has warned that fewer than 110,000 new homes are likely to built this year.
This figure represents less than half the number of new homes Gordon Brown says we need to build if Britain is to meet future housing needs.
Within days of becoming Prime Minister, Mr Brown made housing a priority, stating that we need to build three million homes in the next 10 years in order to satisfy demand.
Since then, economic conditions have plunged the construction industry into the worst slump it has seen since the 1930s.
Britain’s biggest house builder, Barratt, has seen 90 per-cent wiped off its share value in the past year forcing the company to pull out of new-home schemes across the country.
Housing minister Caroline Flint said: “We are watching forecasts closely to see what might happen in the next 12 months.”
Despite industry claims that current difficulties are unprecedented, some observers say that after 15 years of uninterrupted growth which saw margins on new homes rise to more than 20 per-cent both the Government and house builders should have seen a crash coming and planned better for it.
Roger Humber of the HBA blames short-termism and speculation for the crash in his members’ fortunes.
He said: “Bankers who put together these lending packages have, of course, done extremely well out of them. Short-term borrowers took out these loans without really reading the small print.
And governments encouraged them to do so. This just encourages speculation. There will be a massive impact on ordinary people – including job losses.”
He is pessimistic about the chances of recovery without what he calls “an exploration of ideas”.
Despite this, homeowners have seen their real wealth rise exponentially throughout the housing boom and for those unable to buy a home of their own, the withdrawal of cheap mortgages and the collapse of buy to let could signal a switch in Britain from an owner occupier to a rental model of housing.
Andrew Teacher of the British Property Federation thinks that investment in large scale rental developments will come to be seen as increasingly attractive for big investors.
He said: “We are in a ridiculous position where we have increased demand yet house builders are stepping out of the market because they have no one to sell to.
“If we had a corporate rental sector – as they do in Europe – it would mean continued investment and thousands of extra new homes, it would ensure house builders had someone to sell their stock to and that the public had the benefits of a branded rental sector.”
michael barratt :
Date: June 20, 2008 @ 7:04 pm
Still no response from Minister after nearly two months
23rd April 2008
Hon. C Flint MP
Minister for housing
Communities and Local Government
Eland House
Bressenden Place
London
SW1E 5DU
Dear Minister,
I have requested my Member of Parliament, Laura Moffatt to forward this letter with an attachment to you for your consideration and response.
As you see, in the attached letter to me from Mr Michael Coughlin, Chief Executive of Crawley Borough Council, he refers to the May 2006 stock condition survey conducted by Savills in conjunction with Tribal Plc that identified an investment need of £115m in the first five years in respect to CBC housing stock. During a recent meeting a director of Savills in the company of a senior CBC technical manager, informed me that £115m less items relating to tenants’ aspirations of £10.3m was the minimum sum Savills considered was necessary to maintain CBC stock in a minimum state of repair for the first five years and by extension their insurers would warrant.
As you can see in the attached letter to me, the £104.7m (£115m less £10.3m) deemed necessary by Savills as minimum expenditure was considered by Crawley Borough Council to be unaffordable and they have as a consequence reduced that sum to £82m in the first five years or £60.2m up to 2010/11, it should be noted that neither £82m or £60.2 million are sums warranted by Savills and their insurers as being sufficient to maintain CBC housing stock in a state of repair over the mentioned time frames.
Both the Audit Commission and the Advertising Standards Authority found that CBC had wrongly characterised monies required for newly arising and future works as alternatively being required to rectify DHS failures. Finally, it has been established that only £2.7m of the £104.7m mentioned above actually relates to rectifying Decent Homes failures when a strict interpretation of Decent Homes criteria is used in accordance with the guidance provided by your Department (June 2006). As the Crawley News, Wednesday September 5, 2007, succinctly observed:
“The initial cost of bringing the council’s 8,200 homes up to Decent Homes Standard was put at £60.5m in May 2006 This figure dropped to £25.3m in January but now more number crunching by council run Crawley Homes has put the figure at just £2.7m.”
Since £2.7m of the £104.7m relates to strictly defined DHS failures, only the former possibly is outside of HRA/MRA calculations, the balance of £102m should fall within the HRA/MRA system as newly arising or future work. Yet Mr Coughlin’s letter states that CBC does not have sufficient money and as a consequence over £20 million has been slashed from the sum that CBC consultant’s Savills stated was the minimum required to maintain CBC homes in a warranted minimum state of repair over the first five-year period.
Within the context that Crawley Borough Council returns to Central government between £10m-£13m per year of assumed surplus rental income, there is an apparent shortfall of over £4m per annum required to meet a warranted minimum standard of repair. Clearly, the current formula for calculating assumed surplus rents is not fit for purpose in respect to the calculation of investment needed to adequately maintain Crawley Homes housing stock and avoid disrepair. I have been unsuccessful in bringing the present inadequacies relating to the calculation of assumed surpluses to the attention of your predecessor Ruth Kelly and senior advisors within your Department. I am therefore of the opinion that your Department in steadfastly refusing to permit CBC to retain sufficient rent income to maintain their housing stock to a minimum warranted standard of repair will be the author of subsequent disrepair and DHS failures that may arise as a consequence, irrespective of the outcome in 2009 of your Department’s deliberations on the very subject of assumed rental income surplus, especially since nearly five years have transpired since those CBC housing stock repair needs were first identified.
Within the context that Crawley is a debt free council and council tenants pay their rents, tenants expect their homes to be adequately maintained to a good standard that surpasses the minimum warranted standard of repair that CBC currently considers to be unaffordable. The 20,000 or more people, who inhabit Crawley council homes live in the real world and would dismiss as nonsense and gobbledegook, talk of assumed rather than real surpluses when basic repairs to their homes are apparently unaffordable:
“Where an authority generates an assumed surplus on its housing revenue account, this surplus is captured and used to cover similar expenditure elsewhere where there are deficits.” Ruth Kelly in a letter to Michael Meacher MP dated 11th September 2006.
Or:
“Many councils, and Crawley is one, generate a surplus of assumed income over assumed expenditure, and this surplus is captured by the Government and redistributed to other councils who generate a deficit.” Brian Lea of DCLG to myself dated 26th July 2006.”
Two years after a Scottish firm surveyed CBC housing stock, Savills conducted a £60,000 survey of 15% of the CBC housing stock and the results were published in a September 2004 report. The Report identified £14m was required to be spent in the first five years on kitchen and bathroom replacements.
Eighteen months later, Savills were commissioned by CBC to conduct a further £60,000 survey on another 15% of the CBC housing stock and a report was published in May 2006 that identified £18.6m not £14m was needed to be spent in the first five years on kitchen and bathroom replacements. CBC council tenants questioned why there had been such a catastrophic premature failure of kitchens and bathrooms before their time since in the Report there were only five recorded instances of decent homes failures relating specifically to kitchens and bathrooms. In response to tenants’ questions, Cllr Bob Lanzer the leader of the Council wrote to the Crawley Observer Wednesday 25th October 2006:
“On a specific point – the £18 million in our Decent Homes Standard for kitchen and bathrooms is not inflated – in fact it is barely enough to bring the homes to the basic level set by Government, not the higher level tenants have already said they want.”
In spite of the apparent urgency and scale of work confronted, only £2.93 million has or will be intended to be spent on kitchens and bathroom replacement since Savills May 2006 report was published up to and including 2007/08 (see Mr Coughlin’s attached letter). A sum representing only 16% of the expenditure deemed necessary by Savills in their 2006 report and agreed by CBC. Yet in the past few years there has been a persistent under spend by CBC of HRA/MRA income received.
Presumably the Savills September 2004 report was in part intended to identify work needing to be carried out in the first five years up to 2010. In contrast, Mr Coughlin in the attached review of my FOI request states that CBC will not know until the end of 2008 how much money will be actually allocated to kitchen and bathroom replacement or on any other items. One can only speculate how CBC managed to calculate the precise sum of £60.2million required until 2010/11 without having any idea according to their FOI response as to how this resource was to be allocated.
As previously mentioned, in the May 2006 Savills report there were only five reported instances of kitchens and or bathrooms actually failing to meet the requirements of the relevant Decent Homes Standard. The remainder, mostly identified as needing replacement nearly five years ago consists of approximately 4650 kitchens and 1,325 bathrooms, that have in effect failed before their time and, in accordance with your Department’s DHS Guidance, should usually be replaced as responsive repairs. It would seem from CBC prevarications and lack of investment to date, the Council have not been permitted by your Department to retain sufficient income from their tenants’ rents to carry out the work deemed necessary by their consultants Savills.
I reaffirm, should CBC continue to be deprived of retaining sufficient of its own income to maintain its housing stock to the minimum standard warranted by Savills and their insurers, your Department would inescapably be the author of disrepair and DHS failures. A scenario that would be at odds with Government ministers’ and your Department’s stated policy of promoting sustainable housing and communities.
Yours faithfully,
Michael Barratt
Council tenant and pensioner