Housing/CLTs

This is something I've been meaning to write for months, but was particularly prompted to do so by a program on BBC last week about surviving the house price downturn. One guy had built himself a property portfolio worth about £8m (about £5m of which was debt) from a standing start renting a single room in a three bedroom house share five years ago.

He stated, correctly of course, that any numptie can make a killing while everything's rising, but it takes skill to do so in the uncertainty we are now in. His current ploy is to drop leaflets on people in areas where negative equity may be about to bite offering stretched home owners the chance to sell out quickly to him, at a deep discount, but continue renting the same home and with a guaranteed option to buy back again at a pre-agreed premium when things look better.

This sort of thing has long gone on, particularly in the "right to buy" market - albeit with some differences - unscrupulous bucket shop lenders go round offering to lend those who would not get a mortgage enough to buy their council home who then have trouble with their mortgage payments, they offer them a "rent-back" deal which is only just less than the mortgage payments so what they were paying £70 a week for as a council house in which they had no equity was now costing them double that still with no equity.

Anyway - many of you will know that I "run" a group called Oxfordshire Community Land Trusts , which is a mechanism for delivering more affordable housing for the "intermediate market" - those stuck above the income levels that would justify the deep subsidy of social rented housing but below a level that they can afford to get on the ownership ladder. Basically it works by the CLT owning the land and not crystalizing out the gain in land value on every transaction. People pay what they are judged to be able to afford rather than related to the home they need - I would pay nearly full market rates for a one bed flat whilst a family on half my income would get their three bed needs met on half my payments. But I would get twice as much equity as they do. Effectively we are all subsidizing each other through the Mutual Home Ownership Society that takes on the long term debt for the development and which all the residents join.

And earlier in the year we were asked whether this was still an attractive option in a falling market. Obviously it changes the landscape somewhat. Now perhaps more of a problem is that people who could afford to buy outright are unable to get mortgages through no fault of their own. Indeed this could be a boon to the CLT market, because we could find ourselves with more better off residents who would therefore be able to subsidize even lower income houses (it all works on averaging out the total payments you see).

But also by tweaking the model, from a development model to an acquisition model, I believe we could help out those over-stretched households currently prey to the man I mentioned above and with a long term benefit to the success of future CLT projects. In this scenario, the CLT would buy up houses and convert them into mutual ownership. The occupant instead of having to rent from the profiteering speculator landlord would get to keep whatever equity their current circumstances allow them to commit to with the CLT effectively holding the balance. As circumstances change, the household could buy back extra equity (without themselves actually having to borrow anything - Mutual Home Ownership looks more like rent from the occupants' perspective).

What we need to make this happen is access to funds - not necessarily large funds - just a revolving facility that allows us to step in quickly when a household is in distress and lenders start to take action against them - we get them the money to pay off all or most of their distressed borrowing and then the Mutual Home Ownership Society borrows against its commercial facility to take on the house itself with the household's new calculated affordable commitment.

Who has such funds? Well, local authorities have a duty nowadays to try to prevent homelessness, not just deal with it after the fact. Such a scheme has got to be a more efficient use of public money than say, Vince Cable's idea of getting councils to reward previous speculative build by buying direct from builders and converting them to social rented housing (I don't think it's a bad idea - just that mine is better!). Even existing lenders might find it more attractive to convert the loan to a MHOS than to repossess.  In the longer run the CLT ends up with more freehold land that would eventually, when the housing on it has reached its planned end of life be theirs to redevelop in the interests of the local community at that time and in the meantime the distressed owners get to keep their existing home, albeit with lower equity levels and lower debt levels.

Dare I even suggest that this might be a better way to spend $700bn than rewarding the bankers who helped cause the problem in the first place?  Julia Goldsworthy , get in touch if you want to know more!

Quite by chance, as if on order to make the local elections more exciting in my ward, two local planning issues have suddenly popped up (not entirely unexpectedly it has to be said) that are likely to cause a deal of controversy when they get to decision-making time. I don't want to talk about their planning merits or otherwise on here. But I do want to use them because they are very good examples of why I am so passionate about land reform.

The first, in the ward in which I am standing is an application for new student residences adjacent to the site on which I am a warden proposed by my employers, Oxford Brookes University. To be fair it will make more of an impact on residents in the neighbouring ward, but it is the economics of it all I want to look at not the planning, to show why land value tax would be such a benefit to the community.

The second, just over the main road in the neighbouring ward but which will make a significant impact on neighbours in both wards one way or another is the news today that Tesco have bought up a local former pub building from a local bar/restaurant entrepreneur who had seemingly been knocked back in the early stages of planning such that he no longer felt it worth fighting for his ideas for the site. Here I want to look at how the planning system seems to favour the bigger developer with the financial clout and how this affects the fairness of land law.

But first, the new proposed halls of residence. This site is approximately quarter remaining of a site the university acquired from the Department of Social Security about seven years ago now. When I was last on the council, just at the end, they had owned the site for about six months, if I remember correctly having bought the whole thing for either eight or eleven million pounds through a charitable trust set up for the purpose and were just getting outline planning consent.

The entire site had been only about a quarter used for several years since most parts of the DSS had moved out. And even when at "full capacity" it had been an egregiously inefficient use of a piece of prime inner suburban land - even for offices - since it was half car park and half single storey nissan hut type buildings.

Since it had been government owned, effectively there was no income to the public purse from this land. Once it was owned by a charity the empty land has generated no receipts to the public purse in the form of business rates. The charitable trust sold off about a quarter of the land to the adjacent Oxford International Centre for Islamic Studies, first for use as a contractors car park and now it lies more or less empty. A hectare of prime city centre building land. The university built nearly seven hundred student rooms in new halls on half of the original land and these were opened five years ago now. But it is the effect of this last quarter of of the site I want to examine and show how failing to encourage optimal use of land where it is available is a disaster for the rest of us.

The site is about a hectare. So if the original purchase price for the entire site was the higher of the two figures I remember hearing at the time - eleven million pounds, its share would be two and three-quarters million. The current application is for 335 study bedrooms and since the student halls market has changed out of all recognition in those seven years, commercial firms are willing to pay it is rumoured up to £45,000 per room for suitable land, as a site alone it would be worth more like fifteen million pounds.

Point one: whilst the local authority has received virtually nothing for this land in rates, the owners, either the university or the charitable trust, have effectively got a book profit of £12 million - a four hundred per cent return in seven years.

335 study bedrooms would, if theory, allow some 83 four bedroomed family homes to be freed up from the current student private rented market somewhere in the city assuming student numbers overall remained static. That's 83 largeish families who have been otherwise excluded from the housing market in Oxford for seven years because these halls did not exist. At its worst, that means that the tax-payer, through housing benefit, has spent upwards of ten million a decade supporting those households in private rented accommodation while they wait for "affordable housing".

Point two: the cost to the tax-payer of that piece of land laid idle and not producing any local taxation has been at least ten million in housing benefits to private landlords while the owners have made that massive book profit.

Now imagine if that land were taxed on its value at its most productive use - that's currently the £15 million or so a commercial halls of residence developer would pay for it. A ten percent land tax would now be yielding the public purse £1.5 million a year, and more importantly would have been liable for that tax all the while it has been so underused. No owner with any financial sense would have kept that land out of productive use with a tax bill like that. The land would have been brought into its best use long ago, either as housing itself or freeing up those equivalent 83 units for family use instead of student private lets, and the tax-payer would not have had to support 83 families to the tune of that £10 million pounds a decade in supported housing.

Now, don't get me wrong, I am neither criticising my employer nor demanding ten storey blocks of flats on every vacant site. But I am illustrating the cost to society of holding land out of use, and the unfairness where, in doing so, the owners have made a vast profit at the direct expense of the tax-payer. It's the system that causes this, not the participants in that system who are only following the rules everyone else plays by.

Now to the "Tesco pub". Some time ago this down at heel local pub was closed, its future uncertain. A well known local restaurant and property entrepreneur bought it up and a few months ago publicized his idea for turning it into a row of three shops and some flats above in a "landmark" new building. But with an ambivalent local reaction and, it seems, less than enthusiastic reception from the city's planners to the idea, this chap pulled his plans and decided to look around for a buyer. The land registry records show that the property had cost him £400,000 and that it was mortgaged so he had financed it empty for seven or eight months developing his ideas and the prospect of a long uphill struggle into the unforeseeable future in the planning system means he would be financing it empty for many months, if not a couple of years to come.

It is opposite a long established and not so long ago refurbished and extended local Co-op store (where I joined as a member of the Co-operative and where I shop several times a week in preference to all the other supermarkets around I could potentially choose from) and a less long established Costcutter store that houses the local Post Office and a similarly aged Chemist shop that replaced a locally owned and well patronized cycle and fishing tackle shop and an electrical retailer. It is, to put it mildly, on an awkward site, at a very odd junction just at the point the Marston Road becomes a dual carriage-way "boulevard" and buses turn right against the traffic whilst the off-road cycle lane comes to an end, the road splits into two lanes prior to a busy and slightly awkward double roundabout junction. There is just enough parking in the lay-by outside the existing shops for their customers and nowhere else for cars to park.

The site might have been viewed as ideal for shopping or catering uses complimentary to the existing neighbouring shops. Extending the range of goods and services people could get in a single visit to the local shops. All very sustainable. And contributing to the local economy and the success of local entrepreneurs - all of which tends to keep more money in circulation more locally in Oxford, making us all better off.

But now Tesco have the site. Obviously, they are in competition with two of the existing local stores. For many, they will do a better job of supplying their grocery needs and at lower prices. That too is good for peoples' pockets and therefore local wealth retention. But since, if they've borrowed to buy it at all, as opposed to taking the purchase price out of the weekend's take from the nearby Tesco out of town superstore, it's probably a tiny dent in their current income rather than a major liability as it would have been to the local entrepreneur who had borrowed to buy it as a significant chunk of his portfolio. And they can afford to sit on it until the planners give in, until attrition of any opposition to the idea gives them an easier ride in the planning process.

At the moment I wouldn't dare to have made up my mind about the idea of Tesco Express there. On the one hand, competition is good for the consumer. On the other, Tesco has such financial clout that it could send its competition to the wall and leave it eventually and open field to increase prices because of its local monopoly. And there again, whilst as a member I would be very sad to see either of the two existing competing stores fail, they would almost certainly then be occupied by some other, and probably local, entrepreneur with another great idea that would compliment rather than compete in its turn with the Tesco store. Again, this increases the range of goods and services a person can get in one trip to the local shops.

But all I am highlighting is that because the planning system causes a proportionately greater opportunity cost to fall on the smaller businessman it actually favours the big financial muscle of large corporates who can afford to take the risk for longer. It is not a level playing field. But, as in the previous story, it's the playing field on which all would be developers have to play. On the other hand again, it would be quite wrong for the planning system to become a tool of protectionism, benefitting one business or businessperson over another by preventing competition. Perhaps in an LVT based system the tax payable on a site should be suspended for the time during which the planning bureaucracy was deciding on a proposal to concentrate the minds of planners on getting the best deal for all parties in the minimum time possible and enabling people to get on with running their businesses, extending their homes, or whatever the application was for.

Anyway - all that was a bit of a marathon use of two local and serendipitously current issues illustrate quite well some of my hot button issues on land reform, free trade and anti-protectionism and localism.

Anyone who's read any of my blog will know of the work I do on affordable housing through Oxfordshire Community Land Trust in my spare time. After five years of work, persuasion, lobbying, all for nothing, we have the opportunity, thanks to a very generous elderly lady who has settled all she wants to on her children is willing to swap us her house and its plot in return for about half its value and a smaller home carved out of half her existing cottage so we can at last get a site on which to develop a few affordable houses and prove the concept to the communities of Oxfordshire who would like to be able to do similar.

The trouble is that to be viable we have had to buy about half each of the two neighbouring gardens and are likely to try and get another adjacent one. And so, with the efforts of a very energetic fellow board member's contacts in the Society of Friends we have raised a decent chunk of this. Nevertheless we still have to fund the borrowing on about £170,000 worth of loans starting from the end of May when we are due to complete on the first two slices of adjoining land.

Anyway, it works out that in the worst case we probably need to fund interest payments of around £1000 per month until we either get planning consent and can realistically borrow against the land to develop or till we can raise the remainder as gifts and pay off the loan that way, whichever is the sooner.

So we have a variety of ideas about how to scrape together this sum, one of which is a commitment by me that, if in May I were to find myself in receipt of a small additional income, say from a councillor's allowance, the 90% of that I am not already committed to giving to the party to help me pay for Focus leaflets and campaigning in the ward will go to the charitable associate of OCLT, the Stonesfield Community Trust that is fronting our land purchase, to help pay that interest bill.

So, not only do I now have to win for Headington Hill and Northway, its residents, this and next year's new students, freedom and the Liberal Democrats, but also for OCLT and affordable housing in Oxfordshire!

Mad eh? We'll, we've got to pay for it somehow to prove the whole idea to skeptical councillors, the media and bureaucrats? What better a way if it works out right? I am standing in this election at least partly to promote my ideas for innovative financing of things like affordable housing. I'm sure there's not a household in the ward doesn't feel or understand the effects of the gross deficiency we have in Oxford and Oxfordshire of that.

Tomorrow is the Lib Dems' South Central Regional Conference at Newbury. Since there is now a leadership election, and both candidates (I still hope for more but it's looking increasingly a remote possibility) will be there and will effectively make a first "hustings" in the campaign the other bbusiness of the conference may well get curtailed. I was hoping to have the floor in the Affordable Housing debate, so in case I do not get to speak after all I thought it worth while putting my three minutes' worth online. So here it is:

"Make no mistake, colleagues, I do not believe it is ultimately possible to have sustainable, equitable and affordable housing without radical land reform, by which I usually mean Land Value Tax. There is no shortage of land - if all of us in this region lived at the same density as the population of Singapore or New York City we'd all fit easily onto the Isle of Wight. And, by and large, there is also no real shortage of housing; the vast majority of households in housing need are in fact housed somewhere, just it is often either beyond their means, hopelessly cramped, or both. And yet up to 45% of our housing stock is UNDER-occupied while 2-3% is over crowded. Only LVT can solve this kind of mismatch. And trying to build ourselves out of the problem in popular areas is going to do nothing longer term for regional equilibrium as it increases the capacity in, for example, the south east, to absorb yet more of the rest of the country's economic activity.

But there's another, more localized, land reform that could help. It's party policy, though hasn't received much promotion or support, and our local councils do not seem to be encouraging it terribly enthusiastically. Community Land Trusts are a practical and immediate measure that party members can take home from here today and get their members and councils working on. A Community Land Trust is a vehicle established to hold land on behalf of a defined community - it could be a city, an individual neighbourhood, a rural parish or a countty-wide umbrella organization. The idea is that we acquire land, either through the planning process, by outright purchase or donation by philanthropic land owners (there actually are such creatures!) and lock it up in a trust. This way we do not need to pass the cost or developed value of the land onto the buyers of the housing we build on it, built, always, with community buy in and if possible self-management of the specification and design process.

We then bundle the whole development up and turn it over to a "Mutual Home Ownership Society" which the occupiers join by paying a share of the borrowing used to develop the properties. The share they pay is based on what they earn, not the housing they need and they don't pay any extra rent as with shared ownership schemes. If the development is itself large enough, we hope the incomes across all the households involved will between them cover the repayments, and each gets a share they can sell when they want to move on based on the proportion of the borrowing they have committed to, plus (or minus I suppose these days) an adjustment based on an agreed local property index. When they want to sell up, they need to find a buyer for their share. If the incoming household has not as high an income, they can place the balance of their share with other member households whose incomes have risen since they joined - and who by the terms of their lease are bound to buy additional shares when required up to a commitment of around 30% of their household incomes.

The model can be tweaked for use in many different scenarios - a small scale rural exception site where there is as yet no subsidy for developing social rented housing, an urban development where we want 100% affordable - as in sub-market - housing instead of 50:50 posh:poor for the same land cost, or even an existing mature suburban neighborhood willing to club together, pool the new found wealth of their existing housing equity and take charge themselves of the regeneration of their neighbourrhood, instead of leaving it to the buy-to-let absentee landlord or the local developer of flats crammed into the corner plot.

Schemes can be financed by conventional borrowing backed by the freehold land value, or, we hope, by a new vehicle christened an "Open Capital Partnership" which would allow ordinary investors to yield an index linked return for investing in their local communities. As a side-bar at that point to finish with, we might want to look at Building Society legislation: being a mutual ownership system many of us CLT promoters would like to work with mutual financing organizations, but your local Newbury Building Society tells me they are prohibited by law from investing in something that is not an individual taking out a mortgage for a single house, despite the movement's origins as mutual savings clubs building local neighbourhood housing."

Just a link really - in case you missed it Adam Sampson, Chief Executive of Shelter, writes in the Guardian today on the undesirability of perpetuating the myth that home ownership is wealth generating and calls for more tax on property rather than less, including land value taxes:

Adam Sampson: The price of house mania

...What we have is a classic disjunction between two policies, housing and taxation. Promoting affordable housing means making it more difficult to gain wealth by investment in home ownership. It means increasing taxation on the increase in the capital value of homes, not reducing it. It means reviewing the council tax system or examining the possibility of a land tax. It means using inheritance tax to reduce the growing wealth divide.

And this goes far beyond mere policy. Home ownership is driving a return to wealth disparities that we have not seen since the Victorian era. Whereas the space that rich people occupy is increasing, the poor are living more cramped lives. And the rise in house prices is reducing social and geographical mobility, with people far less able to move from the north to the south or from poorer areas to richer ones...

Property "guru" (well I say guru as I understand she participates in one of those DIY developer programs on a TV channel I don't receive, probably thankfully) Lucy Alexander reflects in the Times today on some of the potential effects of the Tory plans to try to take most family homes out of Inheritance Tax by lifting the threshold to £1m:

The property boom under Labour has created a generation of accidental property millionaires, many of whom are forced in later life to sell their homes to avoid imposing a punitive inheritance tax burden on their children.

Under the Tory proposals, the inheritance tax threshold would be raised from £300,000 to £1 million, knocking £280,000 (40 per cent of £700,000) off the tax bill for £1 million-plus homeowners. Will these now choose not to sell and instead, in time-honoured fashion, leave their homes to their children when they die?

Bless 'em. These poor APMs ("accidental property millionaires") are clearly now left in a dilemma few of the rest of us can actually comprehend. But the solution is all in the name...ACCIDENTAL property millionaires. Of course no doubt Ms Alexander, echoing Mlles Beeny and Allsopp, would say it is all down to the skill of the purchaser some years, perhaps decades, earlier that they had spotted an "up and coming neighbourhood" and bought into it when it was good value and have just sat back and enjoyed their "investment".

"Ricardo's Law:
House Prices and the
Great Tax Clawback Scam"
(Fred Harrison)

Well of course as property professionals they have to sell the dream, and Mandy Rice-Davies Applies; they would say that wouldn't they? But in reality it's absolute rubbish. When one spots an "up and coming neighbourhood", if one has been so assiduous in looking for a home, it's up and coming because other people want it, because there is public and private investment going into the local infrastructure and environment. It's yours and my tax money often enough that has been ploughed into an area and filters out like gold in a panning tray in the form of increased property values - as we shall perhaps one day see again when all the property around new Crossrail access points shoots up in value as a result of our billions of public investment.

Now I have said many times before I have no problem with the handing down of wealth from one generation to another. I do not share the notion of J S Mill that wealth ought to revert to the state upon death. If one has offspring, one works for them as much as for oneself. But what one passes on to them on one's death ought to be honestly and fairly gained. Not the result of hoarding what others need as a particular location gains in popularity and value because of the commercial and public economic activity that builds up around it.

If we taxed the land properly, the house buyer would perhaps be paying less than half what they have to today for their home, leaving them the opportunity to save their spare money in truly productive financial assets to leave to their heirs instead of the accumulation of other people's tax and economic activity and need for a place convenient for their work or their children's schooling or their college campus in the case of Oxford.

And how on earth are the non-Tory media and the other political parties letting the Tories get away with this scam of a tax cut for the tiny minority as if it's some beneficent gesture of redistribution? It's quite the opposite - the enclosure of the returns to public, commercial and community investment. Protectionism for the already privileged.

Depending on what side of a fractious political divide in Oxfordshire you sit, news that the South East Regional Plan as amended by Whitehall will next week recommend a review of Oxford's Green Belt and the development of 20% more new housing over the next twenty years than proposed at Oxfordshire Structure Plan level will be seen as victory or worst case scenario.

Whilst some, such as City Council leader John Goddard quoted in the linked Oxford Mail article, point out that we are looking at developing just 1% of Oxford's Green Belt, the true story is that the total number of new housing units demanded of the county in the next twenty years is more than an entire new city the size of Oxford. The fact that it appears that most of the additional units recommended by Whitehall planners seem to be destined for edge of city development, the grandiosely termed "Central Oxfordshire Sub-region", suggests that the city itself will be required to grow by at least 20% in twenty years. A handful of