Tuesday, Aug 18, 2009
This hasn't happened before (even during the Great Depression and two world wars)
Times: Social housing plans to be abandoned as Government cuts tenants’ rents
Plans to build thousands of new social homes will have to be abandoned because of the Government’s decision to cut the amount tenants will have to pay in rent next year, The Times has learnt. Housing associations will warn today that their income will fall by at least £260 million next year if the Government continues to link social housing rent to inflation. The retail prices index is expected to fall below minus 2 per cent in September, the month when rent is set for the next year, presenting the prospect of real cuts in social rental payments for the first time.
Posted by jack c @ 09:43 AM (1184 views) Add Comment
17 Comments
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1. mystie010 said...
Could this be a good thing? If the government cuts rents then perhaps this will feed through into the private sector and make BTL so unattractive that it will free up housing stock for the rest of us? I don't know what do you think?
2. mark wadsworth said...
As somebody pointed out on my blog, they are nuts. If there is general deflation, then construction costs will fall as well so they can still build the same number of houses.
If I were in charge, I'd scrap housing benefit/Council Tax benefit for private tenants, which is a straight subsidy to private landowners costing about £5 billion per annum, leverage up that £5 billion ten to one and use it to build a million units of social housing (assuming construction costs £50,000 each and I can get the land cheaply - it costs the state nothing to get planning permission. (which would only take two years or so if you did it properly)
The rental profits after maintenance etc will easily cover the interest costs plus we'd be saving £5 billion a year in subsidies to private land owners.
That will get two thirds of the households on waiting lists into social housing. The corresponding fall in rents in privately owned sector will mean that the other third will now easily be able to afford to rent privately.
What can possibly go wrong?
3. uncle tom said...
There seems to be a fog of confusion over the stats for social housing and housing benefit - I've never seen a good analysis that details just how many households are paying full whack for their living space, and how many enjoy subsidy of one sort or another.
I think the figure is about 20% of the total, and of those, a percentage are doubtless better off than some of those living without subsidy, as it is very dificult to remove someone from social housing, simply because their circumstances have improved.
It follows that unsubsidised housing costs need to be affordable to around 85% of households, which is clearly not the case at present.
The market is being supported by those who bought when property was very much cheaper, and are now living in homes that are worth far more than they could possibly afford at current prices.
Unsustainable? - You bet!
4. mark wadsworth said...
@ Uncle T. In very round figures, the UK is 25 million households and 5 million are in social housing (council or housing association, or tied housing for key workers, armed forces quarters, shared ownership etc etc).
Around 5 million households receive Housing or Council Tax Benefit (the two are very similar in how they are calculated etc).
There is then a huge overlap between social tenants and HB or CT benefit recipients - i.e. 80% of social tenants claim some or all rent/C Tax paid (the average net rent/C Tax paid after deducting benefits is about £30 per week in the social sector); and 80% of HB/C tax benefit claimants are in social housing.
I hope that clears that up.
5. uncle tom said...
Mark,
Thanks for that.
Your numbers imply that there are about a million in non social housing who also get benefits to subsidise their living costs. Do you have any stats that indicate what they receive on average?
6. symo said...
Oh oh. Poor BTLers with housing benfit tenants may find their income will soon follow suit.
7. cyril said...
Uncle Tom & Mark
The type of housing (i.e. social rented or private rented) is a bit irrelevant to housing benefits. People can claim housing benefit for both types. The only difference is that social housing has cheaper rent so the cost to the taxpayer is lower.
However, social housing receives capital subsidies when it is built - that is in effect what makes it social housing as opposed to any other type of rented house. Because it was subsidised by the govt, the govt can decide how much the rent is etc.
8. mken said...
This is similar to standard practice in central europe for both the public and private sector - rents are set yearly according to the standard rate of interest (not inflation) and as a result have been decreasing for a number of years.
Why this should be such a great problem in the UK is a mystery
9. techieman said...
My understanding is that HB is based on the median rent for a property of the type for which you qualify in a particular area (of your choice???) . Now the question is does that population of properties used as a base include local authority (built) properties? If not then for HB at least this will make no difference, so the people in privately rented properties but which cannot afford the rent will have an HB subsidy.
Of course the individual landlord might not want to accept a DSS person as a tenant, because, rightly or wrongly, they are assessed as not being able to look after the property plus they now generally get the money in their pocket first, and may not pay it on to the LL giving the LL problems.
If the LL does not want to accept DSS then the point is that the rents will reduce anyway because of supply and demand. The HB might be a pointer to rent value but may be undercut by the private tenant which may convince the LL to take it because the private tenant is "more likely to be a good tenant" than the DSS tenant.
Of course if the local authority rents ARE included in the population of houses on which rents are averaged (median) this could have an impact .
10. mark wadsworth said...
@ Uncle Tom, I once tracked something down, from memory, the fifth of HB/CTB claimants in private rented get £100-plus per week on average, hence my estimate for total cost of £5 billion per annum (it may well be more, or possibly a bit less).
@ Cyril - HB/CTB paid to social tenants has negligible cost to the taxpayer - it's all just made up figures - i.e. council demands £75 a week rent/C Tax and the DWP hands over £75, what's the cost to the taxpayer? On the face of it nil. (as a thought experiment, let's say they put up social rents/C Tax to £200 per week and the DWP paid over £200 per week to the council)
The real cost is the cost of maintaining the properties etc. Given that average net rents are £30 per household (£1,500 per year) I think that is probably enough to cover the cost of maintenance, residual interest payments and so the overall cost to the taxpayer of social housing/HB/CTB is really quite small - it may be a net cost of £10 billion per annume or it may be a net profit of £5 billion per annum (ignoring 'opportunity costs').
If this is what it costs to house nearly a fifth or a sixth of the population, then it is astounding value for money.
11. eyeoftheweasel said...
Last week my wife and I were shocked to discover that one of our neighbours was paying more than 50% more rent than we were. We have a 2 bed flat with a garage, while our neighbour only has a 1 bed flat with no garage in the same block, and in a worse state of repair than ours. No sane person would pay that much for that flat, but of course no sane person was; it was paid for by the council.
It strikes that our local council must be completely incompetent (or corrupt) to have been paying what is almost double the market rate for that flat. There is no way anyone would pay anything like that privately - the landlady must be laughing all the way to the bank.
12. drewster said...
mark w,
A while ago I read (think it was in the Guardian) that the government's housing service(s) are the only branch of government to produce a surplus. The rent they collect exceeds maintenance and capital costs, which is what you'd expect considering how long ago most of the properties were built. I can't find the article now, but the Guardian's viewpoint was that this money was being illegally stolen from tenants and that tenants should have their rent reduced until it only covered maintenance costs. 'Nuff said.
13. techieman said...
drewster its social housing which means (in my book) that the excesses should be used to fund more social housing. Otherwise let them be mortgage payments and pay off the whole cost of the property when they were originally built......
14. drewster said...
techie,
I agree - I was just highlighting the absurdity of the Guardian's theory!
15. mark wadsworth said...
@ Drewster, thanks, most helpful.
Social housing should of course be let at a 'market rent', which in this case means 'as much as lower income people can afford to pay'* (however much or little that is). But assuming we could build another million units (don't forget that in the heyday in the 1950s or 1960s they did build nearly half a million houses a year), the average 'ability to pay' of social tenants would go up, so the average rent collected might be £40 a week or something, and from there onwards we are really motoring...
* The most cunning plan was to stop demanding rents/council tax and then handing out HB/CTB and then restricting HB/CTB via means testing (in other words, teh money gets shuffled back and forth three times between state and individual), and just give social tenants a PAYE code with a twenty per cent higher tax rate which gets filtered back to the council via PAYE/tax system.
And of course you'd have to stop this insane system whereby social rents are ring-fenced - i.e. if councils get more rent, their grants from Whitehall are reduced accordingly. The idea should be that councils are falling over themselves to attract employers to the area (or improve transport links outbound) and so get people into work.
16. drewster said...
Mark,
I'm not entirely convinced of the need to build another million units of social housing. Once you start charging market rent, people with (social) housing larger than they need (or can afford) will hopefully downsize.
Also there hasn't been much study into the relationship between the rate of household formation and property price / affordability. Is it possible that a decade of full employment has led to higher rates of household formation than would otherwise be the case? Households are mainly formed whenever (1) kids move out of parents' house, or (2) a couple divorces. When jobs were plentiful, kids could afford to move out of home and couples could afford to divorce. Furthermore, young singles are under less [financial and social] pressure to marry, which would have otherwise reduced the number of households.
I'm all in favour of building more houses, just not sure that large public building projects are the best solution.
17. mark wadsworth said...
Drewster, I'm not "sure" it's the best policy either, but a) it would help deflate house price bubble, b) be a genuine relief for people on the waiting lists, c) make a small profit for the taxpayer.
Plus it doesn't all have to be let to lower income people paying less than market rents; they could also let some out at full market rents using a proper letting agent with a profit share incentive. And if they built enough, market rents would come down anyway.
LVT would do this just as well, of course, but I usually get shouted down on that idea.