The Unnatural Death of Affordable Housing?

By Jim Grundy

Many years ago one Tory councillor said to me that it was about time that there was a political debate about whether the market should be left to meet all housing needs in future. At the time, this was so absurd a suggestion that it was laughed off. Now it is government policy and few people are laughing. (Probably not even the individual who said it, who was forced from office for fiddling his expenses.)

This Government has stopped developing new affordable housing. Yes, it calls its new programme ‘Affordable Rent’ [1] but if ever there was a better example of Orwellian newspeak I’ve yet to hear it. You see, the Tories define ‘Affordable Rent’ as 80% of local market rents. But with private rents wholly unregulated, these are soaring way beyond the ability of millions to pay half of those levels let alone four-fifths of the price.

The Tories have abandoned those in housing need to the whims of the market and then blamed them for the rising cost of housing benefit. The reality is that 10,000 new claims for housing benefit are being made by working households every month. 

I’ll repeat that: 10,000! [2] They’re obviously not striving enough.

But, not content to rest on their laurels, the Tories – with Liberal Democrat backing – are about to introduce Welfare Reform and a number of other goodies that have major implications for our housing market and those unable to get the taxpayer to pay for their stables.

Take Universal Credit, for example, which is due to be phased in from next year.

Housing Benefit, currently paid directly to the housing association or council, will be paid together with any other benefits received by the household, in one lump sum and paid directly to the tenants. Obviously this involves ‘savings’ too and the Chartered Institute of Housing found that 400,000 low paid working families will indeed be worse off as a result [3]. Even leaving aside the cuts involved, paying housing benefit directly to people already struggling to make ends meet, many with poor money management skills, some in the hands of pay day lenders, is a recipe for chaos.

Scare-mongering by a ‘nannying leftie’ not prepared to allow people to stand on their own two feet and take control of their lives? That line has been used to defend the Government’s plans and there might be some justification for it had not the impact of direct payment already been demonstrated for all to see.

Trials of the new arrangements have been held in six pilot areas. In each case between 20-30% of tenants struggled to pay their rent on time [4] and rent arrears have at least doubled [5]. Contrast that with existing levels of rent collection – where I live it is 98.9%. There’s no reason to think that tenants in my part of the world are so radically different from those in the pilot areas. I’m guessing that this time next year we won’t be collecting just shy of 99% of the rent due. And, remember, this is before the introduction of other changes like the Bedroom Tax, cuts to Council Tax Benefit, below inflation ‘increases’ to other benefits and pay, not matched by similar reductions in the cost of fuel, food, etc.

The task facing managers of social housing will be huge. It has already been estimated that 23% of tenants will require assistance to help them adjust to the new system [6]. But the costs of not doing more will be infinitely higher.

This has led to calls for the introduction of Universal Credit to be delayed. The chief executive of the National Housing Federation, David Orr, said recently: “Our research shows that one million social housing residents risk falling into debt if all their benefits are paid to them directly in a single monthly payment and will need extra support to manage their budgets when Universal Credit is phased-in next year. A delay would give time for a full evaluation of the Government’s trials before the system is rolled-out nationally, and enable safety nets to be arranged for the most vulnerable.” [7]

What does this mean? For tenants, a significantly increased risk of losing their home through the accumulation of rent arrears. For landlords – largely unsupported by capital grants – it will mean that many will struggle to get the finance they need to develop new homes that are so desperately needed as their income stream – rents – is undermined.

Recent research estimated that social landlords stand to lose £750m due to Universal Credit and a further £50m arising from the Bedroom Tax [8]. The £800m lost represents nearly double the total Government investment in new housing. That stands at £450m, compared to £3bn in 2009/10 [9]. I wonder what could have happened in between times.

For a government so obsessed with debt it is cruelly ironic that this unwanted, unnecessary change –one that Iain Duncan Smith refused even to publish the business case for [10] – will lead directly to more bad debts, more tenants evicted but fewer new homes being built as lenders will look upon some parts of the sector as a bad risk.

The rise in bad debts doesn’t just affect the development of new housing but the very viability of ‘dozens’ of social landlords, with the research cited previously suggesting that even the smallest organisation stands to lose £750,000 p.a., whilst the very largest could end up with an annual loss of £22m. [11]

Historically, very few social landlords have gone out of business, so this will be very much new territory. Presumably, following other business models, it will lead to more ‘consolidation’ within the sector, as the smaller associations become less and less viable, leaving more and more houses in the hands of fewer and fewer landlords. And that brings with it its own dangers for the very concept of social housing.

As Michael Meacher commented recently, “Social housing landlords generated their largest profit ever last year, a total of £1.4bn on a turnover of £14.2bn, i.e. a return on capital as high as 10%. All the big corporate landlords – L&Q, Guinness, Circle HG, Sanctuary HG, Places for People – made a profit per unit of stock of between £250 and £1,380.” [12]

In times of rising rents and a growing shortage (if that makes sense) of housing, there’s big money to be made by landlords right now; the growth in the private rented sector is evidence of that. And if providing housing for low income households becomes uneconomic then in order to survive a housing association could consider changing its client group and move into the private for profit sector. To whom will those who can’t afford their rents go?

It is being said many times but we are in the middle of a huge housing crisis. Normal advice is when in a hole to stop digging. The Coalition has, instead, hired a digger – not by accident but by deliberate design. The social cost does not bear thinking about. But there’s gold in them there slums.

1. Inside Housing: Not so affordable rent 
   
2. This is Money: National Housing Federation : Benefit doubles- Landlords demand more 
   
3.  Inside Housing: Low Income Families lose out under welfare reform 
   
4.  24 Dash: Welfare reform puts dozens of housing associations at risk – research 
   
5. Housing.org.uk Social Tenants’ Finances 
   
6.  Inside Housing : A quarter of tenants need help with universal credit 
   
7.  24 Dash: Landlords back MPs call to delay direct payments under Universal Credit 
   
8.  24 Dash: Welfare Reform puts dozens of housing associations at rise – research 
   
9. Michael Meacher: Social Housing turned into a money spinner 
   
10. 24 Dash: IDS refuses to publish Universal Credit Business Case 
11. PHHSL: The Financial Implications of Welfare Reform for Social Landlords 
    
12. Michael Meacher: Social Housing turned into a money spinner