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Social Housing Budgets slashed – what would that mean for landlords

Posted by Mark Harrison on October 19, 2010

According to an article on the BBC, the Government are likely to announce major cuts, possibly as high as 50%, in the Comprehensive Spending Review tomorrow. The article also floats the idea that “council housing for life” may be cut, with council tenants re-assessed every five years, to see whether they still need help from the public sector.

Wordle: UK Government Spending review - social housing

OK, before we dive into the analysis, a few points to remember.

Firstly, this is just a story on the BBC. The CSR tomorrow may confirm it, but a common politicians trick over the last 10 years has been to leak an “extreme” version of a proposal, and then announce a reduced-scope version, which looks good in comparison. (I can’t complain, because the technique, when applied to negotiations, is called “framing the negotiation”.)

Secondly, even if it does go into the CSR in this form, there will still be political deals to be done. While it may appeal to the Tory faithful, there are a lot of Lib Dems who, while supportive of the need to reduce public sector spending,  would be very unhappy at the size of the cuts.

Thirdly, you can safely assume that Labour is in “new opposition, new leader mode” – at this stage in the electoral cycle they don’t actually need workable policies – they just need to criticise government policies to make people unhappy with the coalition. They can reveal actual policies of their own nearer an election. So, expect to hear criticism-heavy, workable-alternative-light speeches.

Fourthly, doing nothing is not an option. We are not in a situation where we can carry on as we were. Something needs to give – and if not social housing, then health care, education, or higher taxes, all of which have their own problems. Whatever is done, many people are going to be worse off than they were – because lots of debts that were hidden have been revealed, and need paying.

OK, so what would a 50% cut in Social Housing Budgets actually mean.

There are two separate questions we need to bear in mind.

Firstly, to what extent should a government subsidise services like housing. Secondly, to what extent should a government be in the business of direct provision of such services. (I’m going to side-step the question of whether I’m talking about local or national government, by the way, since to me the question of “which part of the public sector” is secondary to the question “public or private.”)

The first question – for the last 100 years, Western Europe has moved towards statism. Statism is when a government gets more and more involved in more and more things. The Conservatives argue that Britain has gone too far in this direction, and the government need to intervene less. Margaret Thatcher took things a very long way in the direction of non-intervention, to the extent that most people realised that there are things in which the government needs to get involved in order to have a working society. Labour, on the other hand, favoured central control and government regulation / intervention in more areas. (Except, bizarrely, high finance, which was left relatively unfettered!) Most votes in the UK, and in a democracy, it is voters’ views that matter most, agree that the government need to provide some sort of safety net, however the last election could be read as that many, many people think that the safety net is much too wide. As such, of all the things that might be cut, it’s maybe an OK target in the view of the majority.

So, it’s clear that social housing spend is an obvious place to be cut.

What about the second question – should the government provide things like housing directly. The generally accepted answer is that governments need to do two things. One, provide a framework of “rule of law” and “secure rights” in which the private sector can operate. Two, get involved in things that the private sector cannot or will not deliver.

These “things that the private sector cannot or will not deliver” broadly mean either things that have to be done in a consolidated way at a government level (for example, the army – we don’t want private companies having their own regiments!), or things for which it is so hard to divvy up the cost workably, that it’s sensible that they are just provided through general taxation. (With a few exceptions like the M6 toll section, and the London Congestion zone, think roads!)

Notice that I said divvy up the cost “workably”, not “fairly”. Social Housing is an area where, in practice, the tenants can’t afford to pay market rent. That, at least, is the theory.

There are, doubtless, many people for whom this is true. And it’s entirely right that the government need to be supporting these people.

However, there are, doubtless, many people for whom this is not true, but who have worked out how to “game the system”, and get a subsidy they don’t actually need. Maybe not as many such people as some papers make out,  but doubtless some. When I have a friend who works in a benefits office telling me that some of her clients make more money in benefits than she earns for working full-time, AND they have low-cost housing, something is clearly out of kilter.

Whether this means a 50% cut is sensible is another question, of course, but the general thrust that council tenancies should be reviewed every five years does strike me as fair. Likewise, it doesn’t feel right that a council tenant can bequeath their tenancy to their adult children! Surely, the government should be assessing the next generation to see whether they need the subsidy that our taxes provide?

So, what does this mean for property investors?

In the short term, not much. Whatever the announcement tomorrow, it will take a while for the ripples to come through. It’s unlikely that anyone will actually be kicked out of their homes this year – most likely is that harder rules will come in for new council tenants, and that (whatever is claimed tomorrow), things will gradually percolate back up to existing ones over the next few years.

There’s an opportunity there, though – namely people still need housing, and if the government isn’t providing, the private sector will need to. So, there may be a new wave of private tenants coming onto the books. HMOs may prove to get a new lease of life.

Keep in touch with local letting agents – make sure that you understand the tenancy-demand mix in the areas in which you invest. Don’t assume that the mix will stay the same. Of course, you should be doing this anyway, but this is a particularly turbulent time, and one where fortunes will be made by understanding which bits of the market are in for a boom.


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UK Government to enter securitisation market?

Posted by Mark Harrison on April 16, 2008

One of the most popular articles I’ve ever written on this blog has been What is Mortgage Securitisation, and Why Does it Matter?

If you don’t have time to read it, here’s the 30-second summary:

  • Some lenders lend their own money to people who want mortgages
  • Other lenders do, but rather than being owed those loans themselves, or passing individual loans over to other banks, set up special-purpose “companies” whose only role in life is to “own the debt” and then sell shares in those companies…
  • … they then use the money raised from those shares to fund the next round of loans / mortgages they make.

These shares are called “mortgage-backed securities” (MBSs)… because “security” is a technical term (used more in the US than here) for “share”, and mortgage-backed is, well, obvious.
Anyway, what the BBC have just announced is that the Bank of England are going to, effectively, buy up a bunch of these mortgage backed securities, by issuing bonds (promises by the Government to pay interest, which are generally held a lot less likely to default than similar promises by individual home-owners or property investors.)

The details haven’t been announced – it’s possible the government will sell off these bonds, and then use the cash to buy up mortgage-backed securities… but more likely is that the Bank of England will simply offer to either swap the bonds for the securities (at some discounted rate), or offer a limited-period swap, where the banks have to take the securities back in X months/years time.

The problem is, of course, that while Base Rates are low, a lot of lenders simply haven’t got the cash to lend… because they have mortgage backed securities to sell, and no-one’s buying

Expect two things:

  1. A lot of people calling to “protect the taxpayer”
  2. A lot of press speculation about this, and no agreement as to whether it’s too little, too late, or too much and a big risk to all of us.

The over-riding issue, as ever, is that the government will figure out that most people don’t care about the national debt… but do care about whether they can get the mortgage they need to move house. The national debt (what the government will, one day, have to pay out) is something that our children can inherit 🙂

Of course, it’s possible that this may turn out to be a really good move – and the government, by doing this, may end up buying a lot of MBSs that go up fast in value if a slump can be avoided. And make no mistake, the key driver for the current slump is lack of lenders… not a lack of people who’d like to be buyers.

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Nothern Rock Nationalisation – and the winner is, well, no-one

Posted by Mark Harrison on February 18, 2008

The Government is finally going to nationalise Northern Rock.

It’s “the right move at the right time for the right reasons”, according to Prime Minister Brown.

This might be a true statement, if you constrain yourself to looking at this morning’s decision in isolation.

Of course, the courts might yet decide that it was a really bad decision, and the Government have to pay a lot more than they’re assuming.

However, if you look at the overall way the crisis has been handled, it’s an object lesson in how to bungle government big-time, and back the country into a corner where  nationalisation is the only option.

Quick summary:

  • Northern Rock’s board embarked on a fast-growth strategy that used securitisation to help fuel a massive expansion.
  • The strategy misfired, and the bank had to run to first the Bank of England, and then the treasury for help.
  • The treasury came up with a clever plan where they promised to help the bank in a way that meant that you and I (the taxpayers) would carry the losses if the rescue failed, but that the shareholders would take the bulk of the gain if it worked.

In today’s announcement, the Government are basically saying that they’ve worked out the flaw in the plan 🙂

However, it may be too late. A general principle of UK law (and for that matter, European law) is that you can’t enter into a contract and then change your mind without penalty.

The current shareholders of NR (trading has been suspended) now have to wait for a public sector panel to “value” the shares… and the panel is going to value them as if the guarantees never existed.

The legal challenge that will, inevitably, be made is that the guarantees DID exist.

Very few people seem, to me, to have covered themselves in glory on this.

  • The Chancellor appears out of his depth [see below.]
  • The Prime Minister, who seems to refuse to accept that his government has done anything wrong, and consistently tries to spin the discussion into how a few jobs (in marginal constituencies) have been saved at the expense of enough money to employ 100 times as many people elsewhere.
  • The Conservatives appear to be trying to get the Chancellor out, rather than concentrating on anything that might benefit the country as a whole.
  •  The original board of NR who have, at least, in the main resigned.

So who has earned my respect:

  •  Ron Sandler, the man brought in as the new exec chairman to try to sort out the problem. He seems to be telling the truth, and refusing to make glowing spin, but instead concentrating on making things work again as quickly as possible.
  • The Liberal Democrats. Vince Cable, their treasury spokesman has been recommending nationalisation for a while, and signs are he might have done so immediately it was sensible, rather than creating the murky legal waters that Darling has done so.

I do admit, however, to feeling sorry for Mr. Darling – he is caught in a government that believes in managerialism – the idea that all problems can be solved if you work hard enough at them. Sadly, the right answer for a few labour MPs with low majorities isn’t the right answer for the good governance of the country.

Sadly, there’s enough evidence around to suggest that creating a level playing field, where sadly some companies DO fail, overall provides a better result for everyone – because new companies feel that the big incumbents aren’t given an unfair advantage, they are more likely to enter a market, creating more customer choice and more jobs!

Economies can cope with companies going under. They can’t cope so well with governments that tinker and U-turn, and put politics first.

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Free loft and wall insulation for UK residents over the age of 70

Posted by Mark Harrison on January 31, 2008

Just a quick note.

If you, or someone living with you, are over the age of 70, then under a Government Scheme, you should be able to receive free loft and wall insulation, reducing heating bills, and keeping the homes warmer.

I’m afraid I haven’t been able to find out whether this applies to tenants, but assuming your tenants pay the heating bills, it would well be worth them phoning up to see!

To arrange this, which is funded by the UK Government, you should phone British Gas on 0845 605 2535. (Calls cost typically 4p per minute plus a 3p set up fee from BT residential lines… but less at weekends or evenings.)

The lines are open from 0800-2000 Monday to Friday, and 0800-1300 on Saturdays. I’m told that the “quiet period” for them is about 7pm.

You do not need to be a British Gas customer to arrange this.

If you’re doing this on behalf of a relative or friend,  you may well need to go down to them – British Gas will need to talk to the person in question first, and get their permission to have YOU discuss their personal details. The young lady at British Gas I spoke to was most helpful on this.

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Spoof “estate agents” video

Posted by Mark Harrison on January 9, 2008

Want to know what those estate agency terms really mean. Courtesy of YouTube, a lovely (American) example.

(If you are viewing this post in a reader rather than on my website, you may need to go here).

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It’s Frozen Pea Friday (Breast Cancer Awareness)

Posted by Mark Harrison on December 21, 2007


You may have heard of a Social Network called Twitter. I use it to keep in touch with a whole bunch of conversations about Internet Marketing, Social Networking and (to a lesser extent admittedly) Property Investment.

However, over the last few weeks, several of the conversations have been on the subject of Frozen Peas, and this is because of a lady called Susan Reynolds.

For reasons she best explains herself, (but to do with a sudden diagnosis of Breast Cancer) she ended up with a bag of frozen peas tucked into her bra for a while (it’s lighter and moulds better than an traditional ice-pac). As she writes:

“That bag of peas added a touch of lightness to what could have been a sad and serious tale.

  • A bag of peas was something everybody could relate to.
  • Some people love them, some hate them, some use them for their own injuries.
  • A bag of frozen peas was a vehicle for conversation and let people tease me instead of having to cry.
  • It let people share instead of bemoaning.”

As a result of this, a whole bunch of people on Twitter got photos of ourselves taken prominently featuring frozen peas, and have agreed to blog about the subject on the day Susan is due to go in for surgery – today is therefore Frozen Pea Friday.

You can see photos of (at time of writing) 165 of us on the Frozen Pea group on Flickr.

You can make a donation to the American Cancer Society (all proceeds to research) through the Frozen Pea Fund.

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US Reader: 16 year old girl missing, can you help?

Posted by Mark Harrison on December 1, 2007

This post is particularly aimed at my US readers. I’ve been contacted by a couple of friends in the States and asked to help “spread the word”, using my Internet contacts.

Approximately 24 hours ago, 16-year old Manessa Therese Donovan disappeared from her mother’s home in Florida.

It is believed that she may have been going to see her 38 year old “boyfriend” Kevin.

Her family and friends are frantic, and are trying to locate her.

If you are in the US, particularly in Florida or Conneticut, please could you have a look at the blog they have urgently created, and be on the lookout. (Please don’t leave comments here – if you know anything that may be able to help, please contact the family directly via their blog.)

Click here to see the blog they created last night

[UPDATE: My mistake – Manessa actually  went missing on the 17th November – the “last 24 hours” was the creation of the blog, not the disappearance. Apologies for the confusion.]

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We will remember them

Posted by Mark Harrison on November 11, 2007

They shall grow not old,
as we who are left grow old.

Age shall not weary them,
nor the years condemn.

At the going down of the sun, and in the morning
we shall remember them.

We shall remember them.

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Bye Bye Standby wins an award…

Posted by Mark Harrison on October 10, 2007

Ooh, we’ve won an award.Bye Bye standy logo

ByeBye Standby (in whose parent company I’m a shareholder, and of which I used to be a Director) won the Energy Efficiency Initiative of the Year award and the Electrical Industry Awards ceremony last week.

Having been part of the team that developed and launched the product, it gave me a warm glow, if you’ll pardon the pun.

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Numberjacks – educational TV and web awareness for the under 5s!

Posted by Mark Harrison on June 17, 2007

In a comment on my (five-year-old) daughter’s Blog late last night, Chris Ellis, writer of Numberjacks, wrote:

For Pippy, her Dad and others who have said kind words – you might like to know that Numberjacks won the Royal Television Society’s Award for best pre-school educational programme, which of course we are delighted about.

The Royal Television Society have the following to say about it:

This winning programme is an innovative combination of live action and animation of great appeal for its audience, made with a thorough understanding of how young children learn and rehearse basic mathematical concepts.

Congratulations to all at OpenMind from a raving fan (and his daughter!)

Also, well done to OpenMind and Chris in particular for taking the time to post on fan’s blogs. If a television company aimed at the under 5s can do this, how come so many companies aimed at adult audiences find engaging with their customers so hard?



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