OPINION:Mortgage-to-rent schemes are the way forward – but not in the way the Government is proposing, writes STEWART SMYTH
LYING BEHIND the Government’s Inter-Departmental Mortgage Arrears Working Group report, published last week, is an admission that the housing market has failed. This may seem blindingly obvious, but if we don’t understand that we risk repeating the mistakes that led to that failure.
And we are not just talking about the current manifestations of negative equity, mortgage arrears or a stagnant market. There were problems before the crash came. Those in the direst housing need, the homeless, those unable to afford a house or living in overcrowded accommodation, increased by more than 100 per cent between 1996 and 2008, at a time of unparalleled funds sloshing around the housing sector.
One of the higher profile examples of these pre-crash problems was the two failed attempts to regenerate St Michael’s estate in Inchicore, Dublin, even before the McNamara private finance initiative (PFI) scheme collapsed in 2008.
What is needed for a housing policy is not a holding position, waiting for the market to pick up and a return to “normal” (which seems to be the Government’s position). If the private market was failing to provide decent, affordable homes for all in the pre-crash years then we need to look beyond the current predilection for private home ownership.
I stress current as it has not always been this way. Over a 70-year period successive governments have promoted home ownership as the only viable tenure. It is worth recalling that in the mid-1940s, local authorities were responsible for 70 per cent of homes built in the State. In 1985 this had fallen to 27 per cent; by 2000 to 6 per cent. At the same time local authority tenants have been encouraged (through publicly subsidised discounts) to buy their homes, but the receipts generated were not spent on replacing the lost housing stock.
This is where a mortgage-to-rent scheme comes in, to both address the current problems and start to rebuild the social housing sector. Firstly, the scheme has the huge benefit that the family can remain in their home, avoiding all the upheaval involved with an eviction. Secondly, the taxpayers get something from the schemes (ie public housing) as opposed to blanket debt write-offs where the mortgage provider gets more public money.
Thirdly, in the longer term, mortgage-to- rent schemes allow for an increased number of homes to be taken out of private market relations, thus reducing repossessions, stabilising the property market and reducing segregation across housing tenures.
Interestingly the Government has been slow off the mark – England, Scotland, Wales and Northern Ireland all have well-established mortgage-to-rent pilot and/or full schemes that have been well received. An evaluation of one English scheme found it “provided former borrowers with a profound sense of relief from the anxieties associated with potential homelessness, offering them a “lifesaver” and a “light at the end of the tunnel”. The same consultation also found very little support for a shared-ownership version, along the lines proposed in the inter-departmental report.
The Welsh experience also highlights how such schemes can be introduced through local authority housing departments. In Wales once a family falls into arrears it is advised to contact its local authority, which will carry out a full assessment and propose appropriate action.
This seems to me a more sensible approach, using already existing local expertise, than that proposed in the report for training 100 new specialists.
Further, the Government could actually channel earmarked funds through the local authority housing departments, rather than imploring the banks and other mortgage providers to use funds already given to them. This way the local authority deals directly with the banks, and by collecting a number of cases is in a stronger position to negotiate on valuations and losses than an individual family.
In pre-credit crunch 2007, but while council housing was still being privatised, Colin Wiles, chief executive of King Street Housing Society in Britain, mused: “I think 20 years from now we will realise that council housing was actually quite a good thing, with locally owned housing, with local accountability and sustainable forms of management”. If the Government is serious about creating sustainable, affordable and decent housing for all then a mortgage-to-rent scheme should be a first step in that direction.
Stewart Smyth is a lecturer at Queen’s University Management School and researches social housing finance.