Putting the ‘social’ back into UK social housing rents

Calls for reductions in housing costs to boost the economy and reduce poverty have been on the increase. So how will the UK’s social housing sector approach rent increases due in April 2014?

Reducing Housing Costs

Faisal Islam led the way on calls for this last year, outlining how reducing housing costs would boost the economy via increased disposable incomes. Shelter joined in with a blog on boosting wages or cutting rents and even Helen Barnard from the JRF recently highlighted in a New Statesman article that increasing the minimum wage won’t be enough to tackle ‘poverty –  reductions in housing costs will also be required.

Or Increasing Housing Costs

It’s time of the year when the good and great in social housing up & down the country will be facing the elephant in the room – proposed rent increases from April 2014. If they choose, as most have done over the past 10 years, to accept the current government formula for rent increases, they will simply adopt RPI as at 30th September last year + 0.5%. If they choose to max out their rent increase ( as they’re entitled to if their rents haven’t yet reached ‘target’ rents – the aim being for all HA & council rents to converge to being the same in each area for each type of property) they will add an extra £2 per week to that.

RPI + 0.5% will add a basic 3.2% to the average UK social housing weekly rent. Adding an extra £2 per week will deliver an average £4.41 per week extra for each council tenant and £4.83 extra for each housing association tenant. More for some.[i]

The Taxpayer will take the Strain

Those increases don’t seem a lot do they? For the Bob Crowe’s of this world it’s a drop in the ocean.

But put them into context for the average working age social housing tenant (60% of whom the sector used to assume were reliant on benefits so it didn’t matter; housing benefit would take the strain) and the context changes. We now know that the majority of working age tenants are either in low paid work or partially reliant on benefits. So Housing benefit won’t simply take the strain: tenants, their families and their children will take the pain.

If rents rise as per the government formula, that £4.41 is a 5.9% and that £4.83 is a 5.5% increase in outgoings per week at a time when;

Rents rising in line with the government formula will also add to the significant, inflation busting hikes in social housing rents which have taken place in the past 10 years – detailed in the info graphic below.

Ten years of Increasing UK Social housing costs

Creating Poverty

Set in that context, cynics might question whether social housing could be creating poverty rather than alleviating it.

  • What’s the point of providing ’affordable’ homes which tenants can’t afford to heat or eat in?
  • How can £2bn of surpluses in the English HA sector in 2012-13 (built on the back of those inflation busting rent increases) be ethical when they’ve been at the expense of some of the poorest people in the country?
  • Is it fair that housing organisations have benefited from historically low interest rates and wage freezes since 2010, but none of that has been passed on to tenants?
  • Why have council taxes been frozen but not rents?

Can the Sector Deliver for less?

Defenders of those rises in the sector will quite rightly point to their financing of new ‘affordable’ homes and modernising existing homes  relying on RPI+ inflationary assumptions. Their business plans are predicated on that.

For example, in  2010, when RPI was actually negative the English NHF’s David Orr and other leaders in the sector made a strong case to the then regulator for an exception to the rent formula on the basis that 4,000 new homes per year would be at risk. The government acceded to that request and average increases bucked the trend at a rise of just 0.47%. 21,000 new housing association homes were actually completed in England that year. Roughly the same amount as were delivered in preceding and subsequent years – even with reduced ‘capacity’ to develop.

Since then HA’s in England have seen their ‘surplus’ rise by 259%.

Leading from the Front

With wages stagnating, benefits being cut through welfare reform and the use of food banks on the rise, those across the sector who shout loudest about the impacts of these on their customers should give careful consideration to any planned rent increases in 2014.

At best, they could freeze rents and make a positive social impact for the vast majority of existing customers, and on poverty and local economies by finding efficiencies from elsewhere within their operating costs. Ask customers which non front line services or current/planned projects they would be prepared to sacrifice. Efficiencies of 3.2% should easily be achievable.

At worst, they could carry on regardless, but should then refrain from pleading poverty or bleating about increasing arrears, the use of food banks or work not paying for their customers in the media.

The Future?

The impact of state rent controls in the UK social housing sector is clear from the infographic. Inflation busting rent increases which year on year have been well above average earnings – but also haven’t delivered the new homes promised.

In fact, in the 10 year period between 2003 and 2013 while rent controls have been in place, 223,290 new homes were completed across the UK by councils and housing associations, while 236,372 were sold under the Right to Buy. [ii]

Increases have also been well above the average increases in rent in the private sector detailed within RPI data – with a recent survey highlighting that a majority of private sector landlords plan no rent increases in 2014. Compare that to the social housing situation in 2013, when just four of the largest 50 landlords in the UK decided not to impose the maximum rent increase possible.

The UK government recently outlined how English social housing rent increases from 2015 will be pegged to CPI rather than RPI: a move which may see 0.7% less per year maximum increases. The Welsh Government have announced a similar move. There’s been the usual outcry from the sector.

I’ve previously outlined why rents should be set based on demand rather than some abstract valuation linked to inflation.

As Julian Ashby ( Chair of the English HCA’s Regulation Committee) recently stated, it’s a simple fact that some of the things that drive efficiencies in most markets are not present in social housing, while transparency about achieving value for money remains important to the government, tenants, lenders and other stakeholders.

Setting rents based on demand could be as transparent as you can get. Some winners, some losers – depending on the emphasis given to ‘social’ returns on investment by landlords.

[i] See DCLG Live Tables 701 & 704

[ii] See DCLG Live Tables 211 & 678

5 thoughts on “Putting the ‘social’ back into UK social housing rents

  1. Using publicly owned land to provide homes where the land value isn’t factored in to the required return on investment is the easy and quick way to do this. Whether that is through major estate regeneration or building two or three houses on spare land or garage sites on existing estates. That the land is almost, free, is crucial.

    However, to do this, the “Viability” assessments done by planning authorities and the “best value” requirements placed on public owners need to be radically reformed.

    Viability forces land prices up in the market as developers chase down the social contributions (by way of affordable housing) required because they are based on price paid for land, rather than its true, residual value for development. A pays X which means they can only provide Y in social contribution. B pays X +10% so their level of social contribution is Y -10%.

    Public owners then have to achieve “best value” which is based on market evidence, which is set by the last deal done, so even on land owned by Councils, they cannot achieve their own policy levels of social contribution by way of affordable housing. Madness.

    Viability ought to be based on a proper residual valuation. It is worth X, it costs Y to build, therefore the land is worth X-Y. If developers overpay, more fool them.

    • Thanks for the comment John. That’s a potential solution definitely worthy of taking forward to increase the number of homes. I also think David Montague’s recent suggestion is worth exploring: putting all public land in one place and making it available for housing. Instead of asking for money now, Government and LA’s taking an equity stake in the future of UK housing and a share in the long term benefit of the investment.

      In both scenarios, rents charged could be more affordable and existing rents wouldn’t need to then continue their escalating rises above average earnings?

  2. Tenants getting HB with a bedroom tax deduction will see their HB increase by less than the rent increase of course because the 14% or 25% deduction is applied agianst a higher rent figure. That means a further shortfall in income. On your figures for rent increases then that will mean:

    For 1 bedroom under-occupied, £0.62 per week less income for each council tenant and £0.68 less for each housing association tenant.

    For 2 bedrooms or more under occupied, £1.10 per week less income for each council tenant and £1.21 less for each housing association tenant.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s