Analysis of last week’s housing annoucements (July 2013)

Below is a blog from Jules Birch as featured on the Inside Housing website. It gives a really good analysis of last weeks housing announcements in the Spending Review and by the Treasury. It’s quite long, but stick with it, there’s lots of food for thought!

Facing the future

So now we know: 10 years of certainty on rents, five years on grant and who knows how many more years of welfare ‘reform’.

The future has come into much clearer focus this week following the spending round on Wednesday and the investment announcement on Thursday. And, as luck would have it, all of this coincided with the biggest housing conference of the year.

The CPI plus 1 per cent rent formula from 2015/16 is pretty good news for social landlords that had been planning for something less generous. On current levels of inflation it’s actually more than RPI plus 0.5 per cent. However that misses out the +£2 a week bit of the old formula and perhaps that, plus different forecasts of the gap between the two measures, explains why the Treasury also expects to save around £1 billion over the spending round period.

I had to leave Manchester before Mark Prisk delivered the sting in the tail of the good news about the £3.3 billion affordable housing programme from 2015/16: faster disposal and conversion of vacant stock.

The last thing I heard was Lord Freud attempting to reassure providers about the universal credit and struggling to reassure anyone about the bedroom tax. As others have pointed out already, his justification for something that will drive many tenants into the hands of doorstep lenders charging 5,000 per cent was that it is needed to keep interest rates low. He is not the first work and pensions minister to use this dubious argument incidentally – it’s part of a much bigger process and more benefit cuts are to come.

Put all of that together and this was a momentous week for housing. It could also hasten the commercialisation of many housing associations and accelerate the slow death of what we used to call social housing in England.

‘Affordable’ rent now seems to have moved from being a temporary policy to keep the show on the road to a more long-term plan for near-market rents that defines affordability in relation to the market rather than what people can actually afford to pay. As research published by the Joseph Rowntree Foundation today shows, rising rents are part of a much bigger inflationary squeeze on people on low incomes and that is set to get worse.

The new affordable housing programme will apparently deliver 165,000 affordable homes for £2.8 billion of grant. As Pete Jefferys points out on Shelter’s policy blog, that implies an average grant of £17,400, compared to £22,000 under the 2011-2015 programme and £60,000 under the 2008-2011 one.

Treasury chief secretary Danny Alexander hailed it as ‘the biggest public housing programme for over 20 years’. Judged strictly in terms of the number of units, he’s right – is it completely ridiculous to imagine that the starting point was being able to make that claim?

Allowing him some leeway, I’ll ignore the fact that most of the money will come from private finance and delivery will mostly be through housing associations that count as private for public borrowing purposes. However, he over-egged the hype when he also claimed it was ‘the most ambitious and significant investment in affordable housing for a generation’. In fact, in real terms it is not just a cut on the previous spending round but probably the smallest investment since the mid-2000s.

It would seem that the Treasury and DCLG decided to ignore warnings from housing associations that they do not have the capacity for another round of affordable rent. That sounds logical when they have cried wolf many times before over the last 25 years only to fall into line and compete for the cash when it becomes available. However, the fact that the DCLG considered tweaking the rent formula to disadvantage non-developing associations might be seen as evidence that this remains a background concern.

The new programme already appears to include about three times as many affordable rent homes as in the existing one (much of which was social rent inherited from Labour). However, yesterday’s speech from Mark Prisk indicated that the spending round will extend affordable rent even further and faster than before:

‘With all this money and this commitment, there will be expectations about efficiencies. We will need to maximise the value we get out of every taxpayers’ pound… In considering bids for grant, we will expect providers to bring forward ambitious plans for maximising their own financial contribution – and we will expect this to include a rigorous approach to efficiency, along with plans to maximise cross subsidy from your existing stock. We expect providers to take a rigorous approach when looking at every relet and asking how they can use them to build more homes for more families. I expect the result to be a significant change in the number of homes that are either converted to be let at affordable rent or are sold when they become vacant.’

Under the existing programme, relets are limited to around 2 per cent of the existing stock (around 80,000 homes). An increase would mark a significant acceleration of the vanishing act for traditional social housing that I mapped out a year ago.

However, it would also have a much greater impact on the housing benefit bill – and those savings the Treasury is expecting from the rent formula. A recent report by the Future of London found that the proportion of tenants on benefits in affordable rent properties was the same as in traditional social housing. It found that even though rents were nowhere near the 80 per cent of market rent maximum, they were still on average 40 per cent higher than social rents. That means tenants in ‘affordable’ housing are in effect being condemned to the welfare dependency the government claims it is dedicated to defeating.

And the future of welfare will have a profound impact on the policy too. Housing associations will be taking part in affordable rent knowing that they can no longer rely on housing benefit to ‘take the strain’. More and more rents will start to hit the household benefit cap and and housing benefit will also be part of the overall welfare cap that threatens to leave tenants with rising shortfalls year on year. As Matthew Gardiner says in his assessment of the week: ‘you can charge it, but can you collect it?’ could now be the question asked by boards and funders.

Given all that, why take part at all? Why not simply concentrate on development for sale and proper market renting and for working households and use the profits to cross-subsidise their other work? That assumes that this can be squared with the regulator (who they will now have to pay) of course. Just as well then that Julian Ashby made a similar point this week, arguing that social housing could just become a ‘legacy’ for some organisations as they become more commercial.

One potential solution, according to Future of London, would be to make affordable rent a more explicit intermediate tenure for people in low-paid employment, alongside traditional social rents for those on benefits. That sounds logical and it may well be where we are heading. However, given it would be happening alongside a continuing reduction in social rent, it also implies that people on benefits will in reality be corralled into the lowest cost and lowest quality end of the private rented sector.

The government has also rejected the case for more borrowing freedom for council housing. That is a no-brainer that could have delivered tens of thousands more homes and generated growth and jobs much more quickly than the grand infrastructure projects featured in the rest of the Treasury’s Investing in Britain’s Future document.

The Treasury’s hostility to anything that smacks of a return to the past seems to have killed that idea. However, it also seems to have rejected the carefully reasoned arguments put forward by larger housing associations for the freedom to raise their rents and borrow against the income streams to fund more homes. That would still have been unpalatable to some but it would at least have been based on a definition of ‘affordable’ that relates to incomes rather than market rents.

Given that Labour is implying it will stick to the government plans, the spending round has set the ground rules for housing for the next five years at least (though it could at least address the borrowing cap on councils). Despite the good news on the rent formula and future availability of grant, that can only intensify the dilemmas facing housing associations that are already struggling to balance being socially hearted and commercially minded.



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