Rents policy is a mess

Monimbo

Three years of ad hoc changes to social sector rents have left them in chaos. What do we do now to restore a sensible rents policy?

A new report from CIH and London & Quadrant, We need to talk about rents, is an attempt to begin a much-needed debate. Much needed because rents are not only crucial to the sector’s affordability, but also because they drive investment and are a key element in defining the purpose of social housing.

Why is policy a mess? Although the rents policy which Grant Shapps inherited from Labour had in its time been controversial, at least it embodied affordability and consistency, and was known and accepted by lenders. Shapps didn’t so much dismantle the policy as ignore it, sticking on new bits without any regard to the overall outcome.

Furthermore, while the remnants of the policy still embrace the crucial link to average regional incomes, most of Shapps’ initiatives have pulled in the opposite direction, eroding affordability and – surprise, surprise – helping push up the housing benefit bill.  So as pointed out in the latest UK Housing Review, not only will we eventually have 67,000 new houses let at rents that are far much less affordable, but we have so far sacrificed lower rents on over 70,000 properties that have been switched to ‘Affordable Rent’ to support the borrowing needed to build the others.  The ratio of homes removed from the social rent portfolio to pay for AR homes is likely to be 3:2, i.e. three are lost from social rent for every two gained for AR.  This confirms the result of a Freedom of Information request done by Red Brick last year.

As everyone suspected would happen, and as the Review also points out, the limited experience of the new AR lettings at higher rents shows that they are nevertheless going to the same target group as social lettings, i.e. 79% of lettings are to tenants partly or wholly dependant on HB in both cases: there is no sign of more AR lettings going to better-off tenants.  In other words, housing benefit will again ‘take the strain’ and tenants trapped in benefit dependency will face higher barriers to escape it.  Duncan-Smith must have been looking the other way when this policy change was slipped through.

As the CIH and L&Q discussion paper points out, even more important than the immediate practical effects are the longer-term consequences.  One of course concerns the sustainability of an investment model which reduces the average grant input to only 14% of the cost of a new dwelling (from a previous average of 39%), relying for the rest to be loaded onto rents or to come from asset sales or free land.

But arguably even more important is the role that rents policy plays in any vision for what the aims of social housing are.  Here, Shapps and now Prisk have vacillated between aiming the sector at higher earners through AR rents, penalising higher earners through the still-threatened pay-to-stay policy, pushing more benefit dependent families into the sector through LHA changes, pushing them back again through the bedroom tax, and encouraging local authorities to give the impression they can reward long-term, working residents through their allocations policies – even though in practice landlords are struggling with the chaos caused by the combination of rising homelessness and the tenant transfers now needed because of the bedroom tax.

The only comfort to be drawn is that it is not only in England that policy is in confusion. The report makes clear that policy changes in Australia, Canada, France and Sweden have also had unintended consequences. In Canada for example, a programme very like our Affordable Homes Programme and with almost the same name now caters for new, better-off tenants previously excluded from Canada’s small social sector, but adds nothing to the much needed supply of lettings at ‘rents geared to incomes’, leaving providers unable to cope with demand.

The report doesn’t reach conclusions, as it’s a call for debate, but it does ask if rents could support a redistributive element so that richer tenants help keep rents down for poorer ones.  Something similar has just been proposed in a report by Demos for Family Mosaic and Home Group.  While this may be a desirable objective, it seems unlikely that it can squared with rents being relied on as a source of investment, unless grant rates can be restored to something much more generous than 14%.

The lesson for Labour’s housing policy is that it can’t put rents policy into the ‘too difficult’ box, it is too important for that.  The risks of ignoring the issue are evident from the way the Tories’ half-baked policies have pulled in conflicting directions. A debate is needed about social rents and the wider issue that lies behind them of what the sector is for.  The Tories have ducked it; Labour shouldn’t.

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5 Responses to Rents policy is a mess

  1. Hi Steve,
    Thanks for a very good analysis of rent policy and the work we at CIH did for our ‘We need to talk about rents’ report. While writing the report I believed that a thorough review of rent policy might have happened, but that was my wishful thinking. It doesn’t seem part of the government’s or DCLG’s agenda to do that fundamental review and perhaps the time for these type of reviews is gone. What seems to happen at the moment is quick decisions driven by one key motivation – reduction of direct public investment in house building – so other alternatives such as using social rents to attract private investment to build affordable homes is becoming the norm, although it is not an equivalent alternative. Unintended consequences such as the rise in HB bill are normal side effects of the choice to replace one policy with another.
    The main question I did ask myself during this piece of work was, who is going to be building the houses that are needed at low rents for people on low-incomes? Still to be answered.

  2. Dan Filson says:

    I agree with grahammangus that the risk of linking rents to income is that, if you take income tax, national insurance, rents, housing benfit and any other means-tested benefits together, you can end up wth an effective marginal rate on income higher than the Duke of Westmisyer pays. This is not clever and also a formula for ending the social mix and diversity of housing estates. In general I thnk the priority for Labour is to ensure that families and individuals have a roof over their heads giving them dry and warm housing of sufficient space for their needs. The price is secondary to that primary need. If rents go up annually by 1% more than inflation until the reach a policy rent that should not be unbearable. We should not however expect social rents to fund new investment.

  3. Dan Filson says:

    The problem is that rents drive investment but only really in the private sector. We need more public housing, what used to be called council housing (in the days when we called things what they were), and the investment in social housing is clearly neither driven by rents nor by unmet demand (which – in theory, in a free market – should have driven up rents to assuage demand and prompt, if not fund,, supply). Public housing investment should in many ways be counter-cyclical: you turn the tap more on when private sector building is falling away. Even allowing for the imperfections of doing so, because of the time lag between realising the need to turn the rudder and the ship actually turning, that would at least have economic validity. The problem is also one of land supply, that in the south – where unmet demand is worst – being the most expensive and hardest o identify. We badly need a statutory duty on councils to act strategically and be castigated when they fail

  4. grahamangus says:

    Labour’s Policy of Target Rents was in principle right, perhaps it could be modified by moving Target Rents higher, possibly by varying the balance between income and capital value but overall it produced affordable renys which is more than the so called ‘Affordable Rents’ developed by the Government. I am not attracted to variable rents where you pay more as you earn more, penalising achievment, an alternative would be to give all social housing tenants the right to purchase their house possibly with some incentive to do so like RTB but not so generous and with a requirement that you could not purchase below cost. All the net capital receipt would remain with the landlord to enable more houses to be built. THe idea that you can develop more houses without Government subsidy is nonsense, All that would happen is that Housing Associations would join the PRS even quicker than they are doing already leading to unaffordable rents and large increases in HB and an extremely unfair system.We live in a society which has become more unequal, we either make it more equal difficult if desirable or we subsidise housing via taxes not popular with everybody but fair.

  5. Jack Johnson says:

    Social housing is for those people who cannot afford to buy. Social housing rents should be
    capped by Labour at one quarter of a living wage but increased for those earning much more.
    New social housing for rent is the states duty to provide. By the way it is not ‘affordable housing’
    That is Tory speak to confuse the people.Labour must stop using it and stop the ‘right to buy’
    so as to preserve the social housing stock.Grow some balls of steel Ed.

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