NHB: the poor get poorer

The government has announced the results of its consultation into the New Homes Bonus - and it means that a number of authorities will no longer receive NHB at all, particularly those in areas of low demand. In addition, the Bonus will be scaled back from the current 6 years to 4 years.

Key points

The full details can be found via our Information Library, but in summary, the key points in the government's response of relevance to empty homes practitioners are as follows:

  • The reward will be paid for 5 years starting in 2017-18, and four years from 2018-19.
  • The change will apply to NHB already being paid (so if you have already had five years of bonus for a particular property, you will not now get the 6th year in 2018-19.
  • A 'deadweight' threshold of 0.4% will be introduced: Bonus will only be paid on the number of new units that exceeds 0.4% of the existing number of dwellings.
  • The government will retain the option to adjust the deadweight upwards if there is a spurt n the number of new homes.

Deadweight

The introduction of a threshold for  'deadweight' will particularly affect authorities in low growth areas, which typically also have larger numbers of empty homes: some of those authorities will no longer receive any New Homes Bonus at all. Other authorities most affected will be those where the opportunities for growth are limited.  The consultation response notes that the average growth rate in the 10 years before the introduction of NHB was 0.7% and that the average growth rate in 2015-16 was 0.94%. It carefully skirts around the question of what the average growth rate has been during the entire period since NHB was introduced. If we take the pre-NHB average figure of 0.7%, it means that whereas previously 'average' authorities would have got NHB based on that 0.7% growth, they will now get NHB based on 0.3% growth, i.e.. a reduction in NHB of nearly 60%. The reduction in NHB attributable to the threshold is likely to be much larger in most authorities than that attributable to a reduction from 6 years to 4 years.

The threshold will apply to NHB awarded from 2017-18 onwards,  meaning that NHB receipts earned during 2016-17 going to be slashed at very short notice. As the threshold applies to Band D equivalents, not numbers of dwellings, areas with lower value dwellings are again hit harder than their wealthier counterparts.  

The government has published its provisional allocations for 2017-18 and these highlight the effect of the deadweight. 26 authorities will receive no reward at all from the dwelling stock figures (they still receive their £350 for each new affordable dwelling).  Blackburn achieved fantastic results in tackling empty homes - a reduction of 384. Presumably many of these were demolitions, however, as the net dwelling stock only rose by 37. The result - zero NHB earned for changes to dwelling stock. 67 authorities earn less than £100,000 for changes to the dwelling stock.

The introduction of the deadweight is most counter-intuitive: it rewards authorities where growth is easy and penalises those where it is most difficult.  Some incentive!

In principle, the reductions in NHB ought to be compensated for by an increase in Revenue Support Grant.  Most of the NHB that is paid out is top-sliced from the national RSG pot: as the overall level of NHB will be much lower under these new measures, the amount top-sliced will be correspondingly lower too. However, in its consultation paper on the local authority finance settlement 2017-18, the government indicates that it intends to transfer all the £240million savings from 2017-18 NHB to social care authorities (though not ring-fenced for social care).  Thus districts will simply lose out when it comes to the NHB Year 7 payment i.e. that arising from the October 2016 CTB return.

What is clear is that the incentive of NHB in many authorities will be significantly reduced and this can be expected to have an impact on the commitment to addressing empty homes.  The NHB gain for of any new dwellings or long-term-empties returned to use will necessarily be seen in the context of their 'marginal utility'. |f an authority is confident of exceeding the threshold, then in principle they can carry on as before, though bearing in mind that each new home above the threshold will earn less bonus. If an authority is not confident of exceeding the threshold, or thinks they will only just exceed it, then the costs associated with producing higher numbers might then be set against the benefits.

Other aspects

The consultation also included other proposals, for which the outcomes of the main ones were as follows:

  • no change in the way the bonus is calculated
  • no change to the split between districts and counties
  • bonus will not be dependent on the status of the Local Plan
  • the government will not implement measures immediately to penalise authorities for homes that are allowed on appeal, or where planning performance is seen to be poor, but will 'revisit the case' in future

The consultation response is published alongside a further 'consultation' about the 2017-18 finance settlement for local government.

David Gibbens, Policy Lead

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Comments

The original version of this story was incorrect in assuming that there would be a simple reduction in the amount of money top-sliced from the Revenue Support Grant. In fact, the government has decided to take all the savings and hand them to the social care authorities, which means districts in two-tier areas will see a reduction in their NHB with no compensatory increase in their RSG. This in accordance with the rationale behind the original consultation which focused on providing more money for social care.

The story has been corrected accordingly. For the record, here is the original paragraph [please note this is NOT the correct position]:

It is important to note, however, that reductions in NHB do not mean a reduction in revenue of the same amount. Most NHB that is paid is top-sliced from the national Revenue Support Grant pot. As the overall level of NHB will be much lower under these new measures, the amount top-sliced will be correspondingly lower too. So losses of NHB in poorer authorities with less growth will be offset to some extent by having their RSG less affected by the top-slice It would require detailed analysis of the relevant data to work out how individual local authorities will be affected and where the balance lies.  Similarly, because of the 80%-20% split in NHB between districts and counties in two-tier areas, county councils will benefit from the overall reduction in NHB being top-sliced from the RSG.

Did anyone else notice that the Government consulted upon a figure of 0.25% for deadweight, 80% of consultees disagreed with this, so they plumped for a figure of 0.4%

Sue Li

Compulsory Purchase and Enforcement Officer

Derby City Council