A bonus worthy of Scrooge

Last month I wrote about the damage being caused to the housing market by the coalition government’s policies (5 November, pages 24-25). Just about the only defence the housing minister has offered is the promise that his much-vaunted new homes bonus will prove a magic solution.

He claims it will transform the hostility of local communities to new housing developments and open the door to a wave of new planning consents.

Now we have the consultation paper outlining the scheme, it is possible to reach some conclusions on whether or not the new homes bonus is likely to have the promised effect.

The first and most fundamental problem with the scheme is the lack of a direct link between the financial incentive and the grant of planning consent. Contrary to what had originally been promised, local authorities will not receive a financial reward for giving permission for new housing. The reward will only come some years down the line after the homes have been built and occupied, and even then the benefit may not be what had been anticipated because of a series of other variables.

There may be no overall benefit at all to the local authority as the loss of formula grant could more than offset any gains from the bonus

Because the scheme is based on “net additions” to the housing stock, not the construction of new homes, any demolitions – for example, in regeneration areas, where older substandard homes may need to be removed to make way for new ones - would reduce or even eliminate entirely the “bonus” paid. Similarly, any increase in the number of long-term empty properties in the area would reduce the bonus.

Furthermore, because the major part of the cost of the bonus is being met by a top slice from the government grant to local authorities, there may be no overall benefit at all to the local authority as the loss of formula grant could more than offset any gains from the bonus.

If this is not enough to undermine the likely effectiveness of the scheme, its impact will be further affected by its complexity and unfairness. Rather than a flat-rate bonus applying equally across the country to reflect every additional home built, the formula involves a calculation to convert any net increases in the council tax base in any individual authority to a Band D equivalent, on which the bonus will be calculated.

Anyone who is in any doubt about the complexity of the calculation should refer to Section 4 on page 21 of the consultation paper. This is not only difficult to understand, it will skew the benefits in favour of richer areas with a higher proportion of high-value properties. So Kingston-upon-Hull will be likely to qualify for only about one-third of the level of grant paid to Kingston-upon-Thames, assuming both had an identical increase in the number of homes.

The irony is that opposition to new housing among prosperous communities, highlighted again recently by the New Homes Marketing Board, is much less likely to be overcome by the financial carrot on offer. A few pounds a year off council tax is not expected to be an attitude-changer in wealthy southern counties where the hostility to new housing development is most visceral. Indeed many commentators fear the bonus could pose an added problem in gaining consent for new homes, as the council may be suspected by locals to be acting out of financial self-interest in proposing to grant permission.

Although the consultation paper encourages councils to consult with communities about how the bonus proceeds might be spent, it will be hard for local authorities to give sufficiently convincing pledges to overcome local suspicion. They will be hampered by the lack of certainty about how much will be received and when it will become available, given that most new housing schemes will only be occupied two or three years after planning applications have been the subject of local consultation.

All in all the new scheme looks complex, bureaucratic and riddled with anomalies.

I wouldn’t bet the house on it providing the desperately needed stimulus to restore confidence in the market and spark the surge in new housebuilding which the minister has been promising.

Nick Raynsford MP is honorary vice-chairman of the Construction Industry Council and a former construction minister