REBUILDING GRANTS (Hansard, 14 June 1989)

§ Mr. Rooker
I beg to move, That the clause be read a Second time.
The new clause is a probing mechanism to lest the water, and I shall not attempt to divide the House. No one could deny that some improvement grants have been wasted. Some properties are improved at quite drastic cost, but end up not being worth very much. Indeed, I could name properties in my constituency that have been improved again, again and again. After five years, the owner-occupier obtains the full benefit of any improvement should he wish to put his house on the market. In many ways that has a ratchet effect on house prices.
I am not knocking improvement grant schemes—far from it. They have provided improved housing for thousands of our fellow citizens. However, not all 979 improvement grants are economic. Some properties are identified as uneconomic or unsuitable for grant. The cost of improving those properties is so great that it is sometimes argued that instead the owner-occupiers should accept clearance. I shall leave on one side the problems of compulsory purchase orders, compensation and rehousing, and concentrate on the one certain consequence of clearance, which is the destruction of stable communities. Most hon. Members who represent older areas know that to be the case. Only yesterday my hon. Friend the Member for Leicester, South (Mr. Marshall) said that he wanted to speak on the new clause because of the problems in the Spinney Hill area of his constituency. We thought that we would be discussing this matter yesterday, and unfortunately my hon. Friend has to be in Leicester today.
The experts in these matters believe that there is scope for an alternative to traditional improvement grants or clearance compensation. It is important to make far better use of financial and human resources. The cost of the loss of stable communities is incalculable because people are distributed around the four corners of our cities. It affects the quality of life for all concerned.
I take 100 per cent. responsibility for the inadequate drafting of the new clause, which I tabled only because of a telephone conversation about the problems. My aim is to emphasise the importance of making better use of financial resources, helping to maintain stable communities and obtaining value for money. Mechanisms other than clearance should be available for uneconomic properties.
Since I tabled the new clause I have had the benefit of written briefings from the Birmingham environmental services department, the Nationwide Anglia building society and the Rochdale housing department. I wish to draw upon all three briefings as I feel that that would set out matters rather better than the phrasing of my new clause. The basic principle of a rebuilding grant is that it is given to owners of a block of unfit properties, calculated to leave them with the same absolute equity in new equivalent property as they enjoyed in their unfit property. I am referring to new property built on the existing site. I emphasise the phrase "same absolute equity". Any calculation would take account of the existing value, the new build value and the cost of development, together with any outstanding loans on the property. It would also take account of disturbance and temporary rehousing during the development period.
The Minister has probably seen some detailed calculations based on three examples put together by the Nationwide Anglia building society which considered the financing of such an operation. I shall cite just one example provided by the Birmingham environmental services department. The figures are based on a property in a particular part of Birmingham, using a local estate agent's valuation. The current market value of the unfit property would be £35,000; its market value when improved would be £37,000; the cost of improvement would be £20,000; the market value of new build on the same site would be £60,000; and the cost of rebuild on a new site would be £30,000. Under the current policy Birmingham would have compulsorily to purchase the property at a cost of £37,000, which would count against its capital allocation. It would end up owning land worth about £3,000—of which, if it were to sell the land under the proposed rules, 980 it could use only 25 per cent. for future capital spending. The person whose property was being purchased either would have to buy another property—probably a poorer quality house—or have housing supplied by the city.
The proposal is that the rebuilding grant would be based on the principle that the owner should retain the land throughout and own the same absolute equity in the new house as he did in the old—in this case £35,000. The council would arrange and pay for temporary rehousing and the demolition of the property. It would also arrange for private sector finance—in most cases a building society or a housing association—and build new dwellings on the site at an average cost of £30,000. The new property would then be handed over to the original owner of the site, but with the £30,000 debt attached to it—that is, the cost of rebuild. The owner would have a brand new property worth £60,000, but with a debt of £30,000. The owner's original equity was £35,000—the value of the property in an unfit condition. The council would provide a rebuilding grant of only £5,000 leaving an outstanding debt of £25,000.
It would be a brand new house that allowed the original family to live on the same site in the same street. Obviously, the £25,000 debt would have to be financed. An additional mortgage could be arranged in advance with the building society that adopted the scheme, the owner could find his own money or, most likely, the building society or housing association attached to the scheme could take an equity share in the property. It would retain a 42 per cent. share which either could be funded by charging rent or it could retain its share and reclaim it if and when the property is sold or the owner could afford to buy out the share.
The scheme would depend on the building plot being of sufficient size to allow rebuilding. That would not necessarily be the case in some clearance areas because of the size of properties and the design of dwellings. However, it would still be possible to apply the scheme to the same locality, if not exactly the same site. It would be important to obtain a new-build valuation, and I used the example of £30,000. The example that I gave earlier from Birmingham envisages a scheme for about 50 dwellings. That is not a massive scheme, but it would offer economies of scale for the builder.
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I am told that the current housing market is especially favourable for such schemes, with a relatively high premium on new build property compared with the cost of building.
The example that I have given of a property costing £30,000 to build—I appreciate on land already owned by the owner—subsequently becoming worth £60,000 is incredible. Those figures were provided by local estate agents, not dreamt up by the local council.
The cost of rebuilding compared with rehabilitation is important. In most cases, rehabilitation will clearly be the most economic option. I am putting forward the scheme not as an alternative but as an option where rehabilitation is uneconomic, and as an alternative to clearance and the destruction of a stable community. It is crucial that the social side of the equation is entered on the financial balance sheet. If a cost is not placed on destroying stable communities, a case for rebuilding grants probably cannot be made.
981 The scheme would enable local rebuilding and would result in a considerable saving for the city of Birmingham on the work that it has done so far. Owners would get a new property at no cost to them and would have a mortgage. Although they would own only a proportion of the property, it would still be their home, they would have the same neighbours and live in the same community from choice, as opposed to being sent elsewhere such as a tower block miles away, having to move their children from school, make new friends and all the other difficulties of breaking up a community. A worse possibility is having their property improved and living through what can be a nightmare for many people, yet in three or four years having to have the property improved yet again, which is a gross waste of money. I am sure that in his tours around the country the Minister will have seen many such examples of waste. I could certainly give him addresses in my constituency where that has happened.
I understand that Rochdale housing department has pursued schemes such as the one that I am proposing but has fallen foul of the Department's financial rigidity. With the best will in the world, it was trying not to waste money on improvement but to maintain stable communities, give owner-occupiers a choice, and ultimately save money. However, it fell foul of the Department's present legal arrangements.
I was quite taken by a couple of paragraphs of the briefing provided to me by Rochdale housing department. It listed some safeguards and said: With all aspects of urban renewal, it is important to remember that however attractive a scheme, it is ultimately carried out on the basis that 'The Community is the Client'. Any scheme must be for the benefit of the community and not for the personal satisfaction of officers or councillors. I pay tribute to whoever drafted that briefing in the Rochdale housing department. I would not lend my name, voice or vote to anything that was dreamt up for the aggrandisement of officers or councillors. The client counts, and in this instance the client is the community. We are debating, by and large, owner-occupiers in run-down inner-city dwellings. The briefing continues: Consequently various safeguards must be built into the scheme … 1. Properties must be built and sold at the market value for that area. If this requires an additional subsidy it must be applied for from whatever grants are available. In other words, no new magical money would be dreamt up to make the scheme work. The briefing continues: 2. The scheme should be applied as an option to residents affected by clearance … It would be wrong for it to be considered as an alternative to traditional house renovations. The scheme must be an option for people faced with clearance, otherwise one would not be able to justify the social cost of keeping communities together because, by definition, they would not be sent to various parts of the city.
I tabled the new clause following discussions with my local authority, and I believe that it has some merit. I may not have explained it satisfactorily, but I hope that the Department and the Minister will consider it and do some more work on it. If the scheme saves money, that is important; if it keeps communities together, that is important; and if it prevents us spending improvement grant uneconomically, that is important. I am in favour of money being recycled from where it is spent to the benefit 982 of the community, hence the mention of value for money to the taxpayer and the Exchequer in the new clause. I am not looking for a new pot of gold to spread around.
The new clause is another way of considering a problem that all hon. Members have experienced and provides another way of tackling it, given the financial and human cost involved. In that spirit I commend it to the House.

§ Mr. Trippier
I congratulate the hon. Member for Birmingham, Perry Barr (Mr. Rooker) on the amount of research that he has done. I confess that I found much of his speech compelling.
I suspect that the hon. Gentleman was unaware that I was once leader of Rochdale authority. Although I appreciate that it comes up with some innovative schemes, it was a darned sight better when it was Tory controlled. The hon. Gentleman would expect me to say that, but it does not detract from the main thrust of his argument.
I should like to take away and study the hon. Gentleman's proposal. If he is prepared to do so, I am anxious to have a meeting with him. If he will seek leave to withdraw the new clause, we shall ascertain whether it is necessary to introduce further legislation, perhaps in another place.

§ Mr. Rooker
Had I known that the Minister had served on Rochdale authority, and had I foreseen his response, I might not have made my kind comments about Rochdale.
When I was a Front-Bench spokesman, I said that both Tory and Labour authorities were involved. The client is the community, not the officers or councillors. It is not a question of what we give people. Those days have gone. If people who hold such beliefs are hidden away in little corners of the country, the sooner their beliefs are swept away the better.
I am more than happy to meet the Minister to discuss the scheme in more detail. In that spirit, I beg to ask leave to withdraw the clause.