Magazine article Public Finance

Home Truths about the Bonus

Magazine article Public Finance

Home Truths about the Bonus

Article excerpt

House building in England is severely depressed, with only 98,000 new homes started in 2012. Not only is this less than half the number needed to keep pace with household formation, it is also 11% below the already inadequate level recorded in the previous years.

So despite all the government's rhetoric about stimulating growth and supporting homebuilding they are presiding over a crisis that is showing no signs of ending.

Why is this happening? There are a number of fundamental causes. Public confidence has been severely shaken by the uncertain economic outlook, obtaining a mortgage has become much harder and there has been a drastic fall in public investment.

But there is also planning confusion following the government's decision to tear up the previous framework, which set regional targets for matching housebuilding to estimated need. The new framework has abolished targets and inevitably has triggered moves to cut the supply of land for housebuilding in many parts of the country.

Councils are planning 272,720 fewer homes than would previously have been expected, leaving the coalition presiding over the lowest level of house building since the 1920s.

This was widely forecast before the last general election. In response to fears that the impact of localism would be to depress planning consents for housing, the Conservatives proposed a 'New Homes Bonus'. This was a cash sum, paid annually over a six-year period, to reward increases in the size of the local housing stock. It was introduced early in the life of the coalition government and three annual payments have been agreed to date, totalling £1.3bn, with commitments reaching £3.3bn because the payments continue over six years.

This is, by any measure, a significant level of public expenditure, exceeding the total spent on new affordable homes over the lifetime of this Parliament. So it is worth examining how the New Homes Bonus is working and if any benefits can be attributed to it.

The shocking answer is that it is not possible to detect any benefits on the measures the bonus was supposed to influence, namely the growth of planning permission for new housing and the output of new homes.

The total of residential units granted consent in the first three quarters of 2012 amounted to 95,514. When the final quarter figures come in, total approvals could reach around 125,000. But in both years under the coalition the number is lower than in 2010, when they were beginning to recover from the 2008/09 downturn. They have flatlined at around half the level necessary - estimated at just over 230,000 approvals a year.

Housing starts show a similar picture of flatlining since 2010, with an 11% drop in the past year. …

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