Bonus that doesn’t fit the bill

1 May 12
Nick Raynsford

There’s something wrong with the New Homes Bonus, not least that it isn’t stimulating much actual new house building. An urgent review is needed

The ostensible aim of the New Homes Bonus is to give English councils an incentive to approve housing developments.

Ministers argue that the previous government’s ‘top-down’ planning system failed to provide enough homes. They accept that many more need to be built and the bonus in part is designed to answer criticism that their changes to the planning system and abandonment of targets could prevent this.

The bonus is a grant to local authorities in England, based on the increase in the number of occupied homes on the council tax register. This measure of supply covers conversions of existing properties and bringing empty homes back into use, as well as new builds.

As the grant is paid once the homes are occupied, there is a time lag between planning permission and payment, usually two years or more. Authorities receiving the NHB today are benefiting from past decisions that have only now translated into occupied dwellings.

The government has allocated £200m for the NHB in 2011/12, followed by £250m in each of the subsequent three years in the Spending Review. However, the cost of the scheme is expected to grow substantially because the grant is given for six years. Any additional costs above the £250m provision will be taken from revenue grant to local authorities.

The amount of grant payable depends on the council tax band for each property. The Department for Communities and Local Government estimates it to be worth £1,439 a year for a Band D property, or £8,634 over the full six-year period.

An additional premium is also payable for ‘affordable’ homes, including council and housing association rental properties as well as low-cost home ownership. The Affordable Homes Premium is a flat-rate sum, set at £350 per year irrespective of the council tax band and so providing £2,100 per dwelling over the six years.

Contrary to the government claims,  Labour’s top-down planning policy did not fail to provide new homes. From 2000/01 to 2007/08 there was a steady year-on-year increase.

The 207,000 extra homes achieved in 2007/08 are not far short of the 232,000 currently seen as needed to meet England’s annual housing requirements. A steep fall in output followed but this was a consequence not of planning policy, which remained unchanged until 2010, but of the severe economic downturn.

So the key question to ask is whether the coalition government’s policies are helping to increase the supply of housing and facilitating recovery from the recession. Given the length of time it takes to get new homes built, it is too soon to assess the impact of the NHB on completions. So we need to look at housing starts and planning consents.

Following the low point in 2008/09, there was a recovery in new starts through until mid-2010. In the second quarter of that year, there were 30,880 starts, the highest for two years.  Subsequently, however, the level has been flat, with no growth over the past year, and output hovering around the 100,000 a year level, less than half the number required.

Turning to planning consents, figures compiled for the Home Builders Federation show that in the 2011 calendar year, only 115,000 new homes received planning permission, the lowest since the survey was initiated in 2007. The level has also fallen in the latest two quarters, from July to December 2011.

So there is no evidence to suggest that the NHB is having the desired effect of encouraging councils to give planning consent for more new homes.

There are also some surprising outcomes. First is the very significant difference between the number of homes qualifying for NHB (159,000 in the year ending October 2011) and the number of net additions to the housing stock (121,200 in the year ending April 2011).  The difference appears to be explained by four things.

The first is that different methodologies are used in compiling the different data sets, with the NHB based on council tax registrations, not the DCLG’s housing statistics.

The second is the different time frames. ‘Net additions’ are based on April-April, NHB on October-October statistics. Also there is no provision for long-term empty homes being brought back into use in the ‘net additions’, although this is included in the bonus. Finally, purpose-built student housing is included for the NHB but not for ‘net additions’.

An unusually high percentage of homes qualifying for the NHB in certain authorities are in Band ‘A’ – the lowest council tax band. In five, the grant attributable to Band A properties is completely out of line with the proportion of housing stock in that band.

There appear to be two potential explanations. The first is a significant volume of new student accommodation, which qualifies for the NHB and usually comprises small (bedsit) units.  The second is the conversion of formerly multi-occupied housing into several separate small units.

Where this involves transforming poor-quality lodging houses into new self-contained flats, this is a welcome trend.  However, it might reflect little more than the redesignation of a house with, say, seven separately occupied bedrooms – treated for council tax purposes as a single unit – into a property notionally comprising seven self-contained units.  In such instances, the conversion might not have involved any significant improvement in the amenities and conditions for the residents.

However, with separate registration, the occupiers of each of the units would become liable for the council tax on their home, whereas previously house-sharers would have paid a share of the single tax due on the whole property.

While the amount of council tax chargeable for a Band ‘A’ property is less than for higher bands, the differentials are relatively modest: Band ‘H’ is set at double Band ‘D’ and treble Band ‘A’. So, for example, if a single Band H property paying council tax of £2,700 a year were converted into seven Band A properties each paying £900, the council would receive an extra £3,600 a year as well as being entitled to the NHB for six years for the net increase of six units.

Whatever the merits of the creation of more student accommodation or the conversion of formerly multi-occupied houses into separate small units, there is a serious question as to whether the NHB should provide incentives for this. Indeed, there is a curious irony in the award of a six-year bonus supposedly matching council tax receipts when the properties (student housing) are to be occupied by people exempt from paying the tax. Nor is it clear why the DCLG, which is not the department responsible for higher education, should be providing incentives for the provision of student accommodation.

The AHP awards also throw up some curious figures. Affordable homes obviously constitute a minority of housing nationally. But in nine councils the number of homes qualifying for the premium is greater than the number of homes awarded the NHB.

Again this apparent nonsense might be explained by differences in methodology and time frames. Even so, it does little to help the credibility or intelligibility of the NHB. Indeed, it is hard to see how such a complex and obscure system for calculating entitlement can act as a powerful incentive for house building.  The fact that the AHP was awarded for 60,690 units in 2011, when only 22,270 new council and housing association homes were started, suggests the premium is not very well targeted.

All this evidence suggests that an urgent review is needed into the bonus scheme and the benefits derived from the substantial amount of public expenditure committed to it.

Nick Raynsford is the MP for Greenwich & Woolwich and a former Labour housing minister

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