Housing issues in Jersey

STATES OF JERSEY

HOUSING ISSUES IN JERSEY

Lodged au Greffe on 21st December 2010 by Deputy P.V.F. Le Claire of St. Helier

STATES GREFFE

2010   Price code: F  P.189

PROPOSITION

THE STATES are asked to decide whether they are of opinion

1. to request the Minister for Housing to present to the States at least once every 2 years a report setting out information on the current housing situation in Jersey to enable the States to have a clear and ongoing understanding of the issues concerning all areas of housing in Jersey and so that members can be fully appraised of any plans or legislation that will, or may, impact upon the housing situation in the short, medium and long term with the report to include, but not be limited to, the following areas –

1. a  progress  report  on  how  the  Minister's  current  Housing Strategy is delivering its aims and objectives;
2. details of the States housing stock, its condition, by sites, its management in general and its occupancy levels;
3. all  the  housing  waiting  lists  that  are  maintained  and  the criteria for those lists;
4. in co-operation  with  the  Minister  for  Planning  and Environment,  details  of  progress  in relation  to  housing development identified within the approved Island Plan and any approved planning Masterplans;
5. details of any proposed future legislation relating to housing matters;
6. the work of the States of Jersey Development Company in relation to housing issues if applicable;
7. the  status  of  any  housing  loan  schemes  or  assisted  house purchase schemes involving the States of Jersey;

and to request the Minister, when the above report has been presented, to  lodge  for  debate  and approval  at the same  time  a  revised  and updated Housing Strategy;

2. to agree as an ongoing strategic objective for the States of Jersey that the provision of housing in Jersey should be made more affordable for residents and to request the Council of Ministers to bring forward appropriate policies and legislation to assist in achieving this aim wherever possible;
3. to request the Minister for Housing to publish on the States website appropriate information to notify the public about housing in Jersey and how to access it together with details of the required criteria to access housing in all categories together with waiting lists, updated on

a monthly basis, for all housing that the States has responsibility for and, if possible, similar details for the housing trusts;

4. to request the Ministers for Housing and Treasury and Resources to investigate and report back to the States within 6 months on –

1. whether  it would  be  advantageous  for  the  States  to  enact appropriate  legislation  to  enable  the  States  to condition property  purchases  in Jersey,  for  the  future,  so  that,  if a property becomes liable to repossession due to the failure of owners to meet loan repayments, the States would have the right to negotiate for those properties with the creditors and owners so that the States would become the creditors and thereby gain the rights over that property for both allocation and disposal, with any scheme to provide for the following matters –

1. retention of the property for the owners affected;
2. debt restructuring to facilitate end purchase as in the Homebuy scheme;
3. the purchase of debt from creditors by the States at the same or at a lesser value of the debt owed (for example  80% – 90%  of  debt owed),  to  ensure that property at risk of repossession is not sold on for a greater price than the total outstanding debt and, at the same time, to dissuade irresponsible lending by financial institutions  who  might  otherwise in these circumstances benefit financially;
4. the  management  of  the  property,  including  re- allocation or onward disposal as deemed appropriate, protecting  wherever  possible  the  owners  affected from homelessness;

2. whether  or  not  it would  be  prudent  to investigate  the introduction  of  legislation  to enable  the  freezing  of  all repossessions in the event that there was a large number of repossessions in the market until such time as the economy recovered;

5. to request the Ministers for Housing and Treasury and Resources to investigate and report to the States within 6 months on the feasibility of introducing measures to curtail inappropriate property speculation for profit in Jersey;
6. to request the Minister for Housing to bring forward for approval by the States legislation restricting the future sale of housing in Jersey to residents of Jersey wherever possible;

7. to request the Ministers for Housing and Planning and Environment to bring forward proposals to ensure that all property built and provided for first-time homebuyers in the future shall be conditioned at the time of sale so that it shall remain within that market, until and unless, the States approve the release  of the  properties  in question  from  that condition.

DEPUTY P.V.F. LE CLAIRE OF ST. HELIER

REPORT

I am tabling this proposal in order that we might regularly debate the housing issues that face our community with as much information as possible, in the future.

I believe that the current situation for housing in Jersey is in crisis, especially for first- time homebuyers, and nothing short of a sustained and concerted effort will address the problems facing ordinary people now and in the future from a life of perpetual rent with  no  benefit  derived  from  thousands  of  pounds  of  expense  and  life-limiting experiences. Choices that will be and are being forced on the majority of Islanders will culminate in a quality of life that is well below the standards currently enjoyed by much of the modern world.

Homelessness will continue to increase for more and more people and the prospects of some people will be ruined for their entire lives.

I believed that my opinion was one that was not in a minority.

Reading the most recent report covering the supply and future demand analysis set out in the Inspector to the Draft Island Plan's report, I am now convinced my comments are appropriate, this is what it says and I have attached in Appendix 1 the full section on housing and the planning and housing statement for background reading.

"It is quite clear to us that there is a major problem of affordable housing in Jersey. There can be no question about this..

The MacDonald report provides evidence to suggest that no properties are affordable in Jersey at standard income: debt ratios (i.e. 1:5) for those on average incomes without substantial available capital. It also suggests that if  50%  is  taken  as  the maximum  proportion  of  net income  that should go on housing, then average income households cannot afford the price of a one-bed flat or any other housing type

Does any party dispute that affordability is a serious problem (even, as the Draft Island Plan at 6.90 describes it, a "crisis")?

But it is also clear that the information base could be more robust and will  need  continuous  review.  This  is  accepted  by  the  States,  and mentioned by MacDonald and others; and it is heavily criticised in some of the representations.

Inspectors Report on Draft Island Plan"

The  States  presented  a  housing  seminar  in  order  to  provide  the  Inspectors  and participants with factual information regarding housing issues. The seminar was held on Thursday 27th May at the Members' Room, Société Jersiaise, Pier Road, St. Helier , JE2 4XW.

At the request of the Inspectors, Planning and Housing were asked to produce a joint statement which I include in the attached Appendix 2 for reference.

Background

My proposals taken one at a time: Paragraph (a)

I am seeking to implement a mechanism whereby issues surrounding the complexities of our housing infrastructure in Jersey are capable of being debated and understood by States members in a debate which brings forth new ideas and which aims to solve old problems.

Paragraph (b)

I am seeking States approval for legislation to be considered in areas where there are problems that we have not identified, but are clearly understood by other jurisdictions as necessary for all sorts of reasons to maintain an affordable housing market. No-one can argue that Jersey's housing market is simply unaffordable for the majority now as individuals or couples. The fact that it is unaffordable is something we simply cannot leave alone.

Paragraph (c)

I am seeking information to be made available on an updated basis via our States website so that people can see how to apply themselves and what to expect in terms of housing managed by the States or Housing Trusts if possible. A clear reference to how and who qualify should also be placed clearly for all to see.

Paragraph (d)

In this part of the proposition I am seeking to introduce protection for homeowners who might have found themselves in a position where they may lose their homes and the States may become duty-bound to house or support them. At the moment it has been stated that there are very few repossessions in Jersey. The same could be said up until most recently in Ireland. In the Financial Times on Thursday 11th November 2010 in an article headed – "Fears rise over new round of home loan defaults" – the newspaper speaks about Ireland's court reporters witnessing increasing numbers of families becoming homeless. In the article, an ordinary couple who purchased a house in 2000, have lost their home, the man, who is a lorry-driver, has lost his job and his house after agreeing to a repossession order from the bank. It is stated that he is worried that they might become homeless in 8 weeks as the local council has denied him access to their housing stock as the couple voluntarily agreed to give back the keys to their family home. They are now ineligible for social housing. In Ireland, there is  currently  a  12 month  moratorium  in  place  to  prevent  banks  from  enforcing repossessions, provided the borrower is co-operating. It is anticipated that a new form of mortgage interest relief will help borrowers' cash-flows in the near future, but this will not reduce the debt and these problems are currently facing more and more people. If legislation was introduced, there should not be a mechanism to assist the buy-to-let owner to continue to benefit from their speculation, in my opinion, and that sector in general can be offered a buyout or nothing at all, if there are no reasons why the States would want to intervene, i.e. no sitting tenants about to be made homeless. Indeed it might be possible to purchase the property from the investor and engage the sitting tenants as a housing loan scheme purchaser with the States if the terms were

agreeable. In every situation the States would need to be able to make independent assessments on whether to intervene and to what degree to do so. It should not be done in such a way as to prop-up a failed investment for someone or some company that has no real humanitarian need.

When people find themselves in drastically changed circumstances they will turn to their Governments to help them. It is only by thinking ahead and preparing for all eventualities, that will we be in a position to do so. I am quite clear that the States might  wish  to  safeguard  the  property  of  its  residents  in  Jersey  by  introducing legislation so that the property could be purchased, or at least the debt settled. This will add a new degree of flexibility to our responsibilities. In particular situations where families might become homeless or otherwise eligible for income support, this is  desirable  as  one  wonders  how  much  can  the  States  afford  in  income  support payments. A large increase of our population occurred when the EU member States were granted permission to settle without the need for work permits under the EU enlargement of 2004. Access to welfare payments for the majority of residents is certainly now becoming a reality and few here will not qualify. The numbers of people seeking low income support may very well dramatically increase in the future, with children  in  school,  people  are  more  reluctant  to  return  to  their  homelands  when unemployed and will prefer in some instances to sit out the storm. As the money set aside for income support has been pegged at this year's sum in order to save money under the CSR process, the remaining funds will be under pressure in my view in the near term. (On 1st May 2004, the European Union welcomed 10 more Member States: Cyprus,  the  Czech  Republic,  Estonia,  Hungary,  Latvia,  Lithuania,  Malta,  Poland, Slovakia, and Slovenia. This was the fifth time that the EU accepted new members, bringing the total from 15 to 25 Member States. On 1st January 2007, this latest round of enlargement came to its conclusion with the accession of 2 more countries, Bulgaria and Romania.)

Paragraph (e)

It is the case that people often buy properties in Jersey to make them over and sell them immediately for profit. There is also the case that people buy properties off plan and sell them on again before they are even completed. This sort of speculation drives up the price of housing and strips supply for those least able to afford homes in the community, and were it not for the sea surrounding us, it would empty our region of those least able to afford to stay. As it is, many are leaving or have left to try their luck abroad. It also has the effect of driving up the price of property in the market. It is commonly known as property flipping' and in my view needs to be confined to time- set limits such as one year or more for onward sale, to discourage it, for example. Other jurisdictions have the knowledge to draw from in this sphere. There is also a clearly understood method for flipping which is basically loan fraud which can occur when this activity is prevalent.

Extract from Property flipping "Rejuvenation and gentrification

"Rational"  flipping  can  encourage  a  rejuvenation  and  restoration  of  a previously decrepit neighborhood, but rising property values can also be seen in a negative light, termed gentrification.

Under the broken windows theory, an unkept house/area attracts a criminal element, which drives out those making a responsible living, which allows for more  criminal  element,  and  so  on  in  a  vicious  downward  cycle.  The restoration creates jobs, particularly in construction, for locals and generates more  sales  (and  sales  taxes)  to  local  vendors  (initially  those  involved  in selling construction materials). The newly remodelled homes will then attract new populations and businesses to a region, encouraging more economic development, plus the remodelled homes' higher assessed values brings more property tax revenues to local governments, allowing for more improvements to the area and driving out the criminal element.

As flipping occurs more frequently in a community, the total cost of living there can rise substantially, eventually forcing current residents to relocate, specifically less affluent younger and older people. On a small scale, flippers can  cause  distress  and  disturbance  to  their  immediate  neighbors  by performing  lengthy  renovations.  Flippers  commonly  have  no  interest  in neighborhood integration, which may cause tensions with long-term residents. During the real estate bubble, flipping and gentrification both have been linked to the mass migration of people to California, where high real estate prices and ample jobs attracted wealth seekers. In response, many native Californians were forced to migrate to the less expensive areas of surrounding states  such  as  Arizona,  Nevada,  Texas,  Oregon  and  Washington.  This migration of Californians caused further gentrification in the areas that they had moved to en masse. Areas such as Phoenix, Arizona and Las Vegas which were once very inexpensive to live in prior to the real estate bubble are now quite expensive, although prices have dropped significantly since 2006.

Property values

After a renovation, the house itself will be in better condition and last longer, and can be sold at a higher price, thus increasing its property tax assessed value,  plus  increased  sales  for  goods  and  services  related  to  property improvement and  the  related increase in  sales  taxes.  Neighbors can  also benefit by having nicer homes in the neighborhood, thereby increasing their own home values.

Regulations

In  2006,  the  Department  of  Housing  and  Urban  Development  created regulations  regarding  predatory  flipping  within  Federal  Housing Administration  (FHA)  single-family  mortgage  insurance.  The  time requirement  for  owning  a  property  was  greater  than  90  days  between purchase and sale dates to qualify for FHA-insured mortgage financing. This requirement was greatly relaxed in January 2010, and the 90-day holding period was all but eliminated.

Illegal activity

Flipping can sometimes also be a criminal scheme. Illegal property flipping is a fraud-for-profit scheme whereby recently acquired real property is resold for a considerable profit with an artificially inflated value. The real property is  resold  within  a  short  time  frame,  often  after  making  only  cosmetic

improvements to the real property. Illegal property flipping often involves collusion  between  a  real  estate  appraiser,  a  mortgage  originator  and  a closing agent. The cooperation of a real estate appraiser is necessary since a false and artificially inflated appraisal report is required. The buyer (ultimate borrower) may or may not be aware of the situation. This type of fraud is one of the most costly for lenders because the loss is always large.

The following is an example of an illegal property flip: A buyer contracts to purchase a property in his name for $30,000. Before closing the deal, he draws  up  a  second  contract  to  sell  the  property  to  a  co-conspirator  at $70,000 a price substantially higher than market value. He seeks a loan for a  second  contract  through  a  mortgage  lender  or a  mortgage  broker  and submits  an  application.  A  real  estate  appraiser  inflates  the  value  of  the property, enough to justify the loan, and is paid triple the usual fee (although many times inexperienced or incompetent appraisers are unwittingly caught in the  scheme  through  pressure  and  intimidation  from  the  scammers).  A mortgage lender approves the application and releases the $70,000. Next, the contracts for the property are closed either simultaneously or within a short time from each other. The originator of the scheme takes the $70,000, pays off the $30,000 and divides the remaining $40,000 between himself and any other plotters usually the mortgage broker or loan officer and sometimes the second buyer. The lender ends up with a 100% or greater loan to value mortgage. That buyer makes a few payments on the property, then defaults and  allows  it  to  go  into  foreclosure.  Finally,  the  lender  learns  that  the property doesn't even cover the loan value.

In  the  United  States,  the  Uniform  Standards  of  Professional  Appraisal Practice  (USPAP), which governs  real estate appraisal, and  Fannie Mae, which  oversees  the  secondary  residential  mortgage  market,  have  enacted practices to detect illegal flipping schemes.".

Paragraph (f)

In this part of the proposal I am seeking support from elected representatives of our community to set aside what limited property there is in this Island for the benefit of residents and to ensure that only those that live here benefit from property ownership in the future. There will be some exceptions, but I would like to send a clear signal out to the people of Jersey that we are now going to act in their best interests and those of their children and grandchildren.

Paragraph (g)

This part of the proposition is self-explanatory. Too many first-time homebuyers have been allowed to purchase and sell off, within a very short period, properties for great profit. This, in turn, increases property prices and keeps the first rung of the ladder at a height that most need a ladder to get on it. The Minister for Housing and his Assistant Minister, the Connétable of St. John , have similar views so this is, I believe, a policy which most of us can sign up to.

Financial and manpower implications

There are none in my view. The work in the first instance can be done within existing resources and is in the main occurring in any event. The only change will be in pulling it all together, which can be done without cost in the first instance. Any legislation, etc., will have to be approved under the Annual Business Plans of the future and then there may be financial implications.

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APPENDIX 3