Well, should higher earners pay more rent?

Two recent reports readdress the proposal that higher earners in social housing should pay more rent. What should happen next?

Pete Redman’s report, House-Keeping, for the Centre for London, builds on earlier work that the centre published, called Home-Work. Both pieces argue that higher-earning tenants should pay higher rents. The crucial difference from the government’s proposals, set out in the Pay to Stay consultation in June last year, is that the increases would be phased in above a quite low income level, rather than applying in a single leap once income passes £60,000.  Apart from arguing that this provides less of a disincentive to earn more (since the rent increase kicks in gradually), Redman also calculates that the extra income will be more significant and lead to greater reinvestment in new housing.

The Centre for London proposals are controversial but at least they argue from first principles and are evidence-based. The latest paper on the issue from the government is, however, much more disappointing, in two respects.  It’s a Summary of Responses to the DCLG’s Pay to Stay consultation, which also outlines what the government plans to do next.  The first disappointment is that many in the sector are reported to have gone along with the proposal to charge higher rents to tenants earning over £60,000, which is surprising given the much-discussed practical obstacles and the potential costs of collecting relatively small amounts of extra income. The second disappointment is that the government doesn’t seem to have heard the practical objections that did arise, and is simply marching forward with its plans in their earlier form.

In particular, although it mentions the idea of phasing in higher rents as income increases, it rejects it, sticking to a single £60,000 income threshold. Above this market rents will apply if the landlord chooses to implement the scheme (which remains voluntary). This is despite the fact that the government’s estimates of numbers of tenants with these high incomes have fallen.  Originally it was thought there were between 12,000 and 34,000 tenants earning more than £60,000; now it’s down to between 11,000 and 21,000. (It now seems quite likely that many landlords will realise they have so few higher earners that the scheme is not worthwhile anyway.)

One of the main objections to all this is that it adds to the growing incoherence of rent policy in the social sector that Red Brick has discussed before.  We could soon have a situation, particularly in London, where market rents are being charged to ‘high’ earners, while most social tenants pay rents that are about half market levels, but at the same time a growing minority who are poorer than the average pay up to 80% of market rents because their homes have been let at ‘affordable’ rents. How sensible is that?

And this is only one aspect of the incoherence of rent policy: we haven’t mentioned the arbitrary nature of the bedroom tax or overall benefit caps, or the sad attempt at an overall policy outlined in the Spending Review, where rents for similar properties will continue to vary widely between landlords because Labour’s policy of rent convergence in the sector is being halted before its aims have been achieved.

There is an urgent need for a proper review of rents policy, proceeding from a policy discussion about affordability and what rent-setting is intending to achieve.  The issues were summarised earlier this year in a CIH publication We need to talk about rents.  We do need to talk about rents, and it needs to be a more coherent discussion than the one in which the coalition government is stutteringly engaged.

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5 Responses to Well, should higher earners pay more rent?

  1. Pingback: Tories ‘hack at the same people’ | Red Brick

  2. grahamangus says:

    Bureaucratic nonsense, for once the market has got it right, the landlord fixes the rent regardless of income of prospective tenants, who accept if become a tenant. It could be argued social sector different because of subsidised rents but this is completely out of proportion to small no. of wealthy tenants. Forget it.

  3. Dan McCurry says:

    I think rent shouldn’t be about the tenant but about the business model for the property. It’s fair to provide social housing but unfair to subsidise it by those who don’t get social housing. For example, if 2 people earn £25k and one gets a social flat while the other is in private rented accommodation and has to pay more in tax in order to subsidise the other person’s low rent. This would be crazy, but it’s a very real scenario. Rent must be based on what it costs to provide the property, rather than on what it costs to live in London etc.
    The real answer is to massively increase the housing stock. Then both these people get a social flat.

  4. Paul Smith says:

    Perhaps people on high incomes shoudl pay higher train fares on the same basis. Alternatively how about a progressive tax policy

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