Sticks for the North, carrots for the South in the New Home Bonus handicap race

Sticks for the North, carrots for the South in the New Home Bonus handicap race

Long before he was in office the Housing Minister Grant Shapps evangelised about the New Homes Bonus in a way that suggested it would lead to a new world where local residents badgered their councils to grant permissions for more homes.

I’ll confess my initial reactions to the early presentations more than a year ago might fairly be regarded as sceptical, even though I am in favour of incentives to prompt development.

Still, in April next year, if all goes to plan, the New Homes Bonus will be in force and this month saw the release of a consultation document detailing how the new regime might work.

The big questions are whether it will work and, if it does, whether it will meet the aspirations of both the nation and those who provide housing.

But before we turn to its merits or otherwise, I feel it necessary to point out that the New Homes Bonus is not actually a bonus. Not in any conventional understanding of the word.

It might have started out that way, but in its current form it’s a carrot-and-stick approach to chivvy and entice local authorities and their residents into accepting more homes on their patch.

Indeed, recent comments from Mr Shapps suggest – to me anyway – that he might think that in the current economic climate the stick will prove more effective than the carrot in prompting councils to build more homes. We shall see.

Naturally Mr Shapps thinks it will work and much better than the regime it will in part replace – the regional housing targets and the Housing and Planning Delivery Grant.

“Rewarding rather than penalising councils and communities for new homes is not only fairer, but will be far more effective than the failed top-down regional targets which served only to antagonise,” he says in the consultation document introduction.

The consultation document suggests the bonus should prompt an increase in housing supply by 8% to 13% above base. And it reckons that it will equate to about 14,000 more homes over a 10-year period.

On those grounds it is pretty small beer given the expected growth in both housing demand and need.

I hope in later blogs to look more at the mechanism of the New Homes Bonus and at whether it really will work in practice. But for now I thought, with the release of the new household projections, it might be interesting to examine the NHB in the light of these.

The NHB is “cost neutral” (as far as the coin counters of the Treasury coffers are concerned). Winners take from losers, who see their Formula Grant reduced.

In attempting to get to the bottom of what this will mean I have had to make various assumptions in my calculations, so the figures may be open to some criticism.

But the table below provides my best estimate of how much New Homes Bonus would have gone to each region based on the 2009/10 output and how much Formula Grant would have been lost. I have also provided this on a per capita basis.

  Bonus (£m) Bonus
per cap (£)
Est. loss of grant (£m) Winners losers
(£m)
Winners losers per cap (£) Breakeven at 250,000 homes Increase
in stock (%)
Needed to meet projections Excess
or
shortfall
EE 150.02 26.01 96.44 53.58 9.29 21,656 0.87 34,329 -12,673
EM 99.22 22.29 87.47 11.75 2.64 18,327 0.94 23,618 -5,292
LN 245.97 31.72 263.64 -17.68 -2.28 51,235 1.54 37,156 14,079
NE 30.18 11.68 73.59 -43.41 -16.80 16,920 1.44 9,500 7,421
NW 85.38 12.38 180.99 -95.61 -13.86 40,637 1.29 24,593 16,044
SE 225.26 26.70 126.75 98.52 11.68 25,132 0.69 41,419 -16,287
SW 158.07 30.22 88.49 69.58 13.30 18,869 0.80 29,210 -10,341
WM 92.78 17.08 130.57 -37.79 -6.96 28,977 1.23 19,407 9,570
YH 86.08 16.37 125.06 -38.98 -7.41 28,247 1.23 29,504 -1,257
The table shows:
The New Homes Bonus that would have been awarded to each region on the basis of the homes produced in 2009/10;
What that NHB means for each person living in the region;
An estimate of the loss of funds from the Formula Grant as a result of the increase in housing stock in England in 2009/10;
How much each region would have gains or lost;
What that gain or loss means per head of population in the region;
How many homes each region would build of a national total of 250,000 if there were no winners and losers;
What that number of homes means as a proportion of its current stock;
How many homes the household projections suggest are needed on the basis of a proportionate increase in the housing stock;
And finally the difference between what the projections suggest is needed and the number of homes built if the national total was 250,000 and there were no winners and losers.

As you see with house building concentrated in the southern regions and with higher average council tax bands in those regions the NHB is much more concentrated there.

And as we also see when the full calculation is done the southern regions come up on the deal – with the exception of London. This is because it has a high per capita level of Formula Grant.

Now, this apparent taking from the North to pay bonuses to the South may simply be a quirk of the pattern of house building last year.

And, with Mr Shapps well quoted as being keen on fairness, I have sought to examine what would happen if we managed to build enough homes nationally to match the projected household growth where each region played its fair part and ultimately none was either penalised or profited from the scheme.

For this exercise I have ignored the complicating and uncertain effects that would arise from including affordable housing within the calculations. It is however likely that the effect would be proportionately more favourable to the lower cost regions such as in the North.

The latest projections suggest we need about 250,000 new homes in England a year over the next ten years. This is from taking the household growth rate in each region and multiplying it by the existing stock. This provides a small excess over the number of new households.

Then taking that national figure I have worked out what the New Homes Bonus would be and how much would be taken (on a pro rata basis) from the Formula Grant for each region.

I have then worked out how much the housing stock would have to increase in each region so that there were no winners or losers.

The results are in the “Breakeven at 250,000 homes nationally column”. And what that represents of the current stock is presented as a percentage in the “Increase in stock” column.

I have then compared these with the homes needed in each region each year to meet the suggested household growth in the projections released today.

The results are in the “excess/shortfall” column.

Overall the figures are interesting, if not unsurprising. To break even under the New Homes Bonus regime the North and indeed London would have to work much harder at increasing their stock and would greatly over supply on the assumed need/demand suggested by the household projection figures.

The contrary is true of the Southern regions.

The picture will be patchy borough by borough – which suggests that there would be some very healthy winners and some rather sad losers.

But overall it seems fair to say on the basis of this analysis that the carrots go to the South and the sticks are applied to the North under the New Homes Bonus regime.

Even if local authorities in the North do all that might reasonably be expected of them with regards to building new homes, they face losing out and losing out more heavily as and if those in the South respond to this new regime and deliver more homes.

This is but one criticism of what appears to be a very unfair scheme.

Still, while it may seem and be unfair, the next question is will it work…

3 thoughts on “Sticks for the North, carrots for the South in the New Home Bonus handicap race

  1. For clarification, what assumptions have been used in determining the mix of dwellings (by Council tax band) built in each region?

    If this is pro-rata with existing distribution then Northern Regions would be disadvantaged as you suggest.

    However, if Northern Regions were to prioritise the construction of higher banded properties would this reduce the disadvantage to some degree?

  2. Clarification on point from Una Planner: The data used was the existing mix of housing. And, yes, any borough that prioritises higher council tax bands would gain advantage in the conversion from pure numbers to Band D equivalents.
    This does, however, raise issues of negative unintended consequences with regard to the most useful mix of new homes for a community, if the demand/need is for homes in lower band areas or smaller homes in higher band areas.

  3. Thanks Brian

    Not sure that the consequences you indicate are ‘unintended’ (from the Government’s perspective) as an examination of paragraph 3.7 of the consultation suggests this is an explict objective of the scheme.

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