PLAYING THE SYSTEM: GETTING THE MOST OUT THE NEW HOMES BONUS

FIRST PUBLISHED BY: THE GUARDIAN 

RESEARCH BY FORMER HOUSING MINISTER NICK RAYNSFORD SUGGESTS THE INCENTIVE IS PAID TO COUNCILS EVEN IF NO NEW HOMES ARE BUILT

Are councils playing the system over the new homes bonus, being paid the incentive even where no new properties are actually being built? More than 150,000 properties added to the Council Tax register last year by local authorities led to councils receiving money through the new homes bonus (NHB) scheme. But how many of them were actually new? Research by Nick Raynsford, Labour MP and former housing minister, shows 20% of the 158,535 homes that qualified for the bonus in 2011-12 were in Council Tax band A – the lowest of the eight bands, which covers many bedsits and flats.

Some remain part of larger properties that were previously classed as houses in multiple occupation (HMOs) but, under government rules, count as "net additions" to the housing stock following re-classification by the Valuation Office Agency. Cash-strapped councils can make thousands of pounds when a HMO is re-valued and split into separate units. Tenants in band A homes typically pay about £1,000 per year each in Council Tax, while the landlord of a band E or F property is charged about £2,000, a sum normally recouped from tenants through rent.

Not only can an authority increase its Council Tax receipts after a HMO is split into discrete "homes" but, thanks to the bonus, it gains twice. Under the NHB scheme, designed to encourage local authorities to approve new housing, the authority receives a sum equivalent to the Council Tax chargeable on each extra property for six years, plus a further £350 per year if the home is deemed "affordable".

Just under £200m was allocated to councils through the bonus in 2011-12. A spokesman for the Department for Communities and Local Government confirmed that the government does not distinguish between new build and conversions when counting additions to the Council Tax register. In Brighton, 68% of the 370 homes that qualified for bonus last year are in band A. Of these, more than one quarter (71 homes) were created by splitting HMOs. Other authorities that received a large proportion of HNB for band A homes include Luton (80%), Kensington and Chelsea (73%) and Bournemouth (52%).

Splitting HMOs into separate units for Council Tax purposes is unpopular with private landlords because it can make properties harder to let. Barry Hodges saw a property he owns in Bournemouth, previously in band E, reclassified as five band A homes. Not all his tenants were willing to pay the extra Council Tax, and so some moved out. Hodges finds it unacceptable that councils receive the bonus as well as extra Council Tax for these properties. "These aren't new homes; they've been there for years," he says. "If you start billing bedsits, it's like a poll tax."

Raynsford does not blame council treasurers for using Council Tax or the bonus to raise extra revenue. "It would be odd if treasurers were not thinking of ways to maximise these figures," he says. But in a letter to the National Audit Office, he claimed that public money was being wasted because there was no evidence that the payment has led to more homes being built. Amyas Morse, head of the NAO, told Raynsford that the bonus could feature in an investigation into housing next year.

Newly built homes that qualified for the bonus last year result from proposals drawn up before the launch of the NHB in late 2010. This includes 124 student homes in Kensington and Chelsea, approved in 2009, that account for the large increase in band A properties in the west London borough. Neither Luton nor Bournemouth can say how many band A homes added to their Council Tax registers in 2011-12 resulted from splitting HMOs.

Figures published last month show that, while the number of new homes completed in England rose by 6% to 31,010 in the first quarter of 2012, the number of starts made by house builders is falling. Seasonally adjusted figures show that starts were made on just 24,140 homes in the first quarter of 2012. This compares with 27,240 the previous quarter and 28,520 during the same quarter 12 months earlier, shortly after the bonus was introduced.

But there are signs that councils are approving more planning applications. Figures complied by the Home Builders Federation show 36,731 applications were approved in England the first quarter of 2012, up from 27,732 the previous quarter and the highest figure for two years. But does any of this show that the bonus is having an effect on planning decisions? Zach Wilcox, an economic researcher at the Centre for Cities, says it is impossible to know whether councils are approving more applications because of the bonus. "Some think it's a reason to approve applications while others don't think it should be factored in, but will take the money anyway," he says.

Replying to a parliamentary question in January, housing minister Grant Shapps welcomed the fact that two-thirds of the homes that attracted the bonus last year are in the lowest three Council Tax bands, reflecting how the scheme rewards the building of lower-cost homes.

READ WHAT: ERIC PICKLES ‘SECRETARY OF STATE’ SAYS ABOUT OVER-CHARGED COUNCIL TAX.

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