Originally prepared by Steve Hilditch on behalf of SHOUT - the campaign for social housing - this is the campaign's submission to the Shelter commission on the future of social housing.
It is right and proper that there has been an increased focus on social housing in the months since the appalling tragedy at Grenfell Tower. The government has promised a green paper, Labour has recently published its own green paper, and agencies such as Shelter, the Chartered Institute of Housing, and others are also trying to rethink the role and purpose of the sector. Even the media are taking a more nuanced view of social housing. We are happy to contribute to each of these reviews and are pleased to have this opportunity to make a submission to Shelter’s ‘Big Conversation'.
We welcome the fact that the Shelter review has a focus on the fire at Grenfell Tower, its causes, its aftermath, and what it tells us about social housing in this country. Each time a Grenfell survivor speaks they challenge the stigmatising stereotypes of people living in social housing, typecasting which has been so outrageous and so damaging over several decades. The residents of Grenfell Tower were a broad, diverse and eclectic mix of people. Most were in work, often with more than one job, but were relatively low paid, or were economically inactive because of disability, long-term limiting illness or because they were retired. Contrary to popular belief about council estates, their estate was, and is, a mutually-supportive and vibrant community. It comprised a mix of tenures, with a range of rented and sold flats, something that is now common to all longstanding social housing schemes.
When we started the SHOUT campaign, in 2014, many people had consigned low rent social housing to history. The dominant narrative associated the sector – inaccurately and unfairly - with failure, ‘benefit dependency’, ‘subsidised living’ and lack of aspiration. Alternative voices, and especially the voices of tenants themselves, were drowned out. Tenants living in the sector and the many hundreds of thousands of people in housing need and on low incomes who desperately need a home they can afford, are the inspiration behind our effort to save the very idea of social rented housing.
SHOUT is a volunteer-run campaign, set up in 2014, to make the case for public investment in genuinely affordable housing, and to combat the negativity and stigma which often surrounds debates about housing association and council homes and the people who live in them.
SHOUT and its supporters and sympathisers includes people with political opinions across the spectrum, as well as those who are non-aligned. Our launch event at the Houses of Parliament in June 2014 was addressed by Labour’s John Healey MP, Lord Porter, now the Conservative Chair of the LGA, together with Liberal Democrat, Green and cross-bench figures. Leading members of SHOUT have been in dialogue with all mainstream political parties and, for example, Treasury and CLG officials, and housing trade bodies. We have a wide support base, with over 5,000 followers on Twitter.
More information about the campaign, and the documents referenced in this submission, can be found on our website www.4socialhousing.co.uk.
We have attempted to answer all the main questions in the Shelter terms of reference but have focused our response on the areas where we have done most research: the economic barriers to building much more social rented housing to meet future needs, and the question of rents.
Definition, history, brand and vision
It is hard to respond to the first set of questions in Shelter’s call for evidence in less than a book length answer, but we have set out in a brief historical narrative what we think has happened to social housing over the past 40 years and where we think national policy has gone wrong, leading to the current crisis. This is followed by some discussion on our vision for social housing. But we start with a discussion on the issue of definition.
The definitions of ‘affordable’ and ‘social’ housing have become increasingly bizarre over the past decade. The language of affordability has been debased and causes endless confusion, possibly quite deliberately because it helps obscure policy failure. Almost anything that is ‘sub-market’ now seems to be regarded as ‘affordable’ when it is not so.
Government definitions are now almost meaningless, often fairly described as ‘Orwellian’, but they are important because they carry through into investment decisions, local plans, and the many decisions being made about new developments each month. The most bizarre element of this has been the government’s ‘Affordable Rent’ product, which can be at up to 80% of market rents, which in some places produces rents that are comparable to social rents but in many others produces rents that are simply not affordable at all.
SHOUT supports a return to the simple division between ‘social rent housing’ (let at guideline target rents under the national rent framework) and other sub-market forms of renting and ownership – some affordable and some not - which should be grouped together as ‘intermediate housing’. Both are important, but the former – social rent – is the only housing product which reliably provides genuinely affordable homes to people on the lowest (in and out of work) incomes across the whole country.
The focus of our campaign is therefore on ‘social rented housing’, by which we mean (using the government’s own definition):
“Social rented housing is owned by local authorities and private registered providers (as defined in section 80 of the Housing and Regeneration Act 2008), for which guideline target rents are determined through the national rent regime. It may also be owned by other persons and provided under equivalent rental arrangements to the above, as agreed with the local authority or with the Homes and Communities Agency (now Homes England).”
Guideline target rents are based upon a complex formula that reflects local wages and local property values, leading to higher rents in higher value and expensive areas, which most people think is fair. It is a system that has been in place for approaching two decades, needs review in detail, but has broadly stood the test of time. The system meets three key objectives: first, tenants pay a rent that is genuinely affordable (on all definitions). Second, rents broadly cover the costs of providing homes over the long term. And third, rents at these levels minimise the requirement for housing benefit, making it easier for people to work and funding, through long term benefit savings, the initial subsidy required to get the homes built in the first place.
It is an exceptionally robust model of housing provision, and remarkable in the degree of self-financing it involves. It is not a market-related system but on average it produces rents that are around half the level of market rents, less in high cost areas like inner London and closer to market rents in lower value parts of the country.
Although we think there needs to be much greater clarity in the use of definitions, along the lines we suggest, we do not think that ‘social rented housing’ needs rebranding. As the long history of rebranding of social security shows, stigma simply transfers from the old to the new description: the point is to challenge and overcome the stigma.
Successes and failures in the history of social rented housing policy
Social rented housing has provided safe, secure, decent, healthy, affordable homes for millions of people over the past 150 years. Starting with nineteenth century philanthropists like George Peabody and Joseph Rowntree, over five million council and housing association homes have been built and let to families who had often been living in overcrowded, insecure and insanitary conditions. The social housing sector has a great deal to be proud of, taking people out of housing need and providing them with a secure base on which to build their lives, to engage with their communities, to gain and retain employment, to improve their health outcomes and to improve the educational attainment of their children.
Despite serious problems in the sector associated with the design and build quality of new homes in the 1960s and 1970s, the failure of housing policy in general to realise the ideal of mixed communities, and periodic failures in the quality of management, by the mid-1970s high levels of supply had achieved a good numerical balance between housing supply and housing demand. The back of the post-war housing shortage had been broken, and the combined efforts of central government, the private housebuilding sector, councils and housing associations were beginning to meet the housing requirements of everyone at each point on the income distribution. The mass provision of social housing played a crucial role in balancing the wider housing market, easing pressure on house prices and mortgage commitments.
Sadly, the mid-1970s proved to be the watershed. Private housebuilding output was vulnerable to the economic cycle and public housing investment was one of the major victims as successive governments reduced public spending. It proved easier to defer future capital spending than to reduce services provided through current spending. Despite significant variations in the size of capital budgets from year to year, public housing investment has had insufficiently high priority with all governments since that watershed.
That adds up to more than 40 years of inadequate investment, and the results are there to be seen.
Council house building suffered the greatest decline over this period. There are of course explanations for this in addition to reductions in public spending. The poor quality of some large ‘mono-tenure’ estates, the emergence of high unemployment and social issues on them, and inadequate housing management combined to make some estates unpopular, exaggerated by some politicians and some media to create a dystopian image of the sector. The policy of relying less on councils and more on the ‘third arm’ of housing associations was successful to some extent, with smaller-scale and more diverse production, although associations never came close to replicating the scale of the former council housebuilding programme.
The introduction of the Right to Buy in 1980 led to the loss of over 2 million social rented homes, which has fuelled the ‘residualisation’ of the sector – normally taken to mean a much smaller sector catering for a narrower range of increasingly deprived people. Despite promises, the properties sold were never replaced. Much of the money went to the Treasury and was not returned to the sector. In a gross failure of policy, around 40% of the sold properties are now in the private rented sector, rising to 70% in some places, with much higher rents and a greater cost to the state in terms of housing benefit. The last Labour government, by cutting the generous discounts, managed to reduce significantly the numbers sold, but, since 2010, discounts, and sales, have been rising.
After 1980 there was a deliberate shift in balance away from subsidising ‘bricks and mortar’, which kept rents down, to providing means-tested personal subsidies to households to help them meet higher rents. Policy became ever more fixated on a single tenure – home ownership. Encouraging and enabling home ownership is a vitally important policy objective, but home ownership alone will never be able to meet the housing needs of a large section of the population. A less trumpeted policy, the deregulation of private renting, and the emergence of ‘buy to let’, has had a dramatic effect on housing provision as the sector has expanded rapidly - but often at the expense of home ownership.
Social housing and social tenants came under sustained attack, widely stigmatised and demonised by some politicians and the media. The heavy loss of stock led to council housing being seen as residual, a tenure of last resort as it moved towards the American model of ‘welfare housing’.
By the turn of the century it was hard to find a politician of any party to support council housing. Councils as managers came to be regarded as failing, fairly or not. Housing associations were better regarded because of their approach to tenure diversity and mixed estates. But crucially, their borrowing was ‘off balance sheet’ and did not count towards the headline public sector borrowing figure. For a mix of reasons, both parties of government focused new investment on housing association provision and supported the transfer of stock from councils to associations.
At this time, many parts of the country were reported to be experiencing ‘low housing demand’, with council and housing association houses in some areas becoming harder to let. New supply was de-emphasised, and the backlog of repairs and modernisation, which had been accumulating for two decades, led the Labour government to prioritise improving the existing council stock through the ‘decent homes’ initiative. This was successful in bringing about a major improvement in the quality of tenants’ homes, with modern bathrooms and kitchens (although there is still a rump of homes that do not meet the decent homes standard). However, the government made investment available conditionally: stock had to be transferred (mainly to housing associations) or housing management had to be put at arms-length from the council with a good standard of management having to be achieved prior to funding.
Except in a small number of places where it has persisted, low demand was a short-lived phenomenon, but there was a delayed reaction to the new surge of rising demand and need that emerged in the 2000s. In London, the housing shortage became a constraint on the capital’s phenomenal rate of economic growth, and the city took the lion’s share of the public investment that was available. Towards the end of Labour’s period in government there was a big boost to the output of ‘affordable’ homes. This was mainly delivered by housing associations through their social rent and shared ownership programmes, supported both by government grant and by a significant increase in the number of ‘affordable’ homes produced through ‘planning gain’. Despite these welcome programmes, by 2010 the trends established in the post war decades had been put into reverse: both social renting and home ownership were in decline, and private renting was resurgent – at growing cost in terms of housing benefit payments.
In its first budget the Coalition government cut public housing investment by well over half and doubled down on the policy of supporting home ownership and burgeoning private renting. To maintain ‘social housing’ output numbers at a respectable level, Labour’s programme to provide ‘social rent homes’ (at around 40% of market rents) was replaced by ‘Affordable Rent’ (at up to 80% of market rents). Grant per home was severely reduced and policies like ‘converting’ social rent homes to ‘Affordable Rents’ when they become empty introduced. Later, the ‘Affordable Rent’ programme itself was also cut and replaced by additional incentives to home ownership.
The consequence of policy since 2010 is that most of what is now defined as ‘affordable’ housing is anything but. Grant for new rented housing is reducing to zero while there are huge flows of money into private housing in the form of subsidy, loans and guarantees, as the Chartered Institute of Housing has shown. New social rent or ‘affordable rent’ homes are being provided mainly through cross-subsidy from surpluses on other activities or through ‘s.106’ planning agreements.
The direction of government policy was reinforced by other initiatives: the reinvigoration of the right to buy for council tenants, as mentioned above, the ‘bedroom tax’ and other welfare reforms, the introduction of ‘fixed term’ social lettings, and, at its most extreme, in the Housing and Planning Act, the dual policy of right to buy for housing association tenants with discounts funded by the forced sale by councils of higher value properties in their ownership (not yet implemented).
One of the few positive policies to emerge with bi-partisan support during the last decade was the introduction of ‘self-financing’ for council housing with long term business plans. Agreed by Labour prior to the 2010 Election and implemented with revisions by the Coalition afterwards, this important decentralising reform put council housing potentially on a sustainable footing and opened the possibility of a new council house building programme. The policy has been undermined by decisions since then, but in principle is a sound basis for the future of the sector.
Over the past year or so the government’s hostility towards social rented housing seems to have softened, partly in response to the shocking Grenfell Tower disaster and partly due to rapidly rising homelessness. Some of the more extreme policies, like forced high value council house sales, have not yet been implemented. There has been greater recognition of the need for some social rented housing to be provided and the government promised a new programme of council housebuilding towards the end of 2017, although it is not yet clear what this will comprise. In opposition, Labour has put an increase in social rented housing, and especially council housing, at the core of its housing policy. The wider housing debate, and media coverage, has become more sympathetic to the position of social tenants, more aware of growing homelessness and other housing needs, more certain that the housing market is broken and dysfunctional, and more positive about the requirement for more social rented housing to be produced.
These changes are encouraging and provide a better basis for future policy. However, there can be no doubt that policy towards social renting is in a bad place. No recent government has built enough houses and the number of social rented homes has been falling rapidly when it should have been growing. Need indicators, such as the number of homeless households and the number of people unable to afford other tenures, are rising rapidly. Since 2010 the rights of new social tenants have been reduced and benefit support for tenants in all sectors has been reduced through the government’s ‘welfare reform’ programme.
The challenges of building enough homes in total - and enough social rented homes in particular – are immense. This is the inevitable result of rising population, the high price of land, rising prices for sale and rent, and very low levels of social housing development. Private sector building has never reached anywhere near the levels required to meet demand. Consequently, house price inflation has accelerated, and (especially recently) is far outstripping earnings growth; rents are increasing faster than earnings too; despite restrictions in entitlement, increasing numbers of working households have to claim welfare benefits to afford private rented housing, at much greater cost than if they were living in social housing.
SHOUT’s response to where we are
The pace at which the crisis is deepening is extreme. In response to the failure of policy over four decades, SHOUT campaigns for a genuinely affordable, flourishing and fair social housing sector.
SHOUT’s Key Aims, as set out in our launch Manifesto, are:
● We want to see 100,000 new social rented homes built each year as part of delivering the
200,000-300,000 total new homes the country requires.
● This programme should be funded though removing or easing the current restrictions on
council borrowing for housing, a significantly larger social housing grant programme, and
a robust regime for private developer contributions.
● All social rented homes lost through the Right to Buy, voluntary sales and conversions to
‘Affordable Rent’ should be replaced on a like for like basis where there is need.
● The government should set a target of surplus public land to be made available for social rented housing at low cost and develop robust mechanisms for releasing land and assembling sites in local areas.
● Any new town or garden city programme should contain a significant proportion of social
● Social housing rents should continue to be based upon an affordability formula.
● Social rented housing should be properly regulated to encourage high quality management with tenants involved to the degree they choose.
● The ‘Affordable Rent’ programme, in its present format, should be wound down in favour of a social rented housing programme.
● Social rented housing should be viewed as a tenure of equal status to others. It meets needs that other tenures cannot and is a tenure of choice for millions of people. This choice should be acknowledged and supported.
● National and local politicians should be encouraged to take the lead in affirming the positive value and purpose of social rented housing and challenging the demonization and stigmatisation of social housing and social housing residents.
● Future governments should set out long - term strategies for housing, including supply, to bring stability and certainty to UK housing markets with the aim of reducing the ratio of wages to house prices and rents over a defined period.
Our vision of social rented housing is of a growing, genuinely affordable, flourishing and
fair sector playing an important part in a mixed and balanced housing market. If we want to achieve a country that is at ease with its housing self, each of the main tenures must stand on an equal footing with equal esteem, with no tenure being seen as inferior or superior to others. In principle the tenures should be seen to have discrete but overlapping roles and be a tenure of choice for those living in them:
Social housing – where tenants have decent homes at genuinely affordable rents that allow them to work with limited recourse to benefits, with low rents that enable people to contribute to their local economy and save for the future, free from the pressures and responsibilities of ownership.
Private rented housing – where tenants value the independence and flexibility of the tenure, freeing them from the pressures and risks of ownership.
Intermediate housing – where occupiers who cannot afford full market costs buy a share of their home or pay rents below market levels, often as a stepping stone to owner-occupation.
Owner-occupied housing – where owners value independence, accept the risks and responsibilities of ownership as well as the possibility of long-term asset growth.
Within such a housing market there should be as much freedom of movement as possible between tenures, with people able to live in different tenures at different stages in their life. A vibrant and growing social housing sector should add to the stock of new homes and relieve pressure upon the other tenures, helping to restore balance and stability to the housing market as a whole.
The construction of new social housing creates jobs, stimulates the economy and helps to reduce the housing benefit bill. By charging genuinely affordable rents, which meet the running costs of the tenure, social housing allows people to live more securely and comfortably, with minimal reliance on benefits, and to contribute to their local community and local economy.
Allocations and affordability
Who should social housing be for?
Shelter’s terms of reference ask about the future role of social housing. Who is it for? This is a good question, but the point should be made first that we are now trying to get several quarts into a pint pot. The failure of social rented housing supply combined with the deliberate removal of a large share of the stock (right to buy, conversions, open market sales) means that the number of new lettings at social rents generated each year falls hugely below both need and demand. This is likely to be the case for many years ahead, even if supply is put onto an upward trajectory and the current rate of losses is stemmed.
SHOUT shares with many others the long term aim that social rented housing should be available to a wide spectrum of the population as a tenure of choice, a respected alternative to home ownership, shared ownership and private renting. However, it is inevitable that rising demand and inadequate supply will mean that social rented housing will have highly restricted access criteria for the foreseeable future. It is therefore inevitable that there will be a strict system of rationing access based on a system of priorities.
The system of priorities should be determined by the local authority for each area but within clear national guidelines. Both national guidance and local decision-making should be based on detailed consultation with all providers, existing tenants and residents, and people in housing need. Schemes should take particular care to be non-discriminatory. Consultation and careful design should allow initiatives like local lettings, designed to impact a particular estate, or lettings linked to employment opportunities (eg to enable mobility), where these are needed, to be incorporated into the wider scheme. We do not think that there is scope for individual social landlords in most areas to maintain their own registers (except for transfers) or determine their own priorities for lettings, there should be clarity and transparency and all landlords should pull in the same direction. More effort may be needed in some places to ensure that housing registers and nomination agreements work to the satisfaction of all partners and that the overall scheme helps individual providers to meet their own stated aims and objectives. Households should not be set up to fail by being nominated to higher ‘Affordable Rent’ homes that they cannot afford either from their income or benefits. In some cases. rents should be reduced but whenever ‘affordability assessments’ of prospective tenants are undertaken these should be made against relevant criteria that are agreed and published in the overall scheme.
Restricted supply should be targeted to meeting the needs of those deemed to be in greatest housing need or most vulnerable. We do not believe there should be income tests - but a reliance on the identification of housing need will act, as it has done in the past, as a proxy for low incomes. In the past it has been argued that too strong a focus on need has tended to create unbalanced communities and unhelpful concentrations of the poorest and most vulnerable people. We do not think this is as significant an issue as it was once thought to be. There is now no such thing as a mono-tenure estate. One result of right to buy is that council estates are now a strong mix of tenures, including home ownership and private renting, sometimes creating management problems that are different but no less difficult than those of the past. New development, by both housing associations and councils, is now always multi-tenure, and social housing is invariably a minority tenure in private development. In the best examples, private housing and social housing are indistinguishable although more could be done at planning stage to avoid segregation and the use of what have unpleasantly become known as ‘poor doors’.
More research is needed on the use that has been made by councils of their increased discretion in housing allocations following the Localism Act and their preparation for the full implementation of the Homelessness Reduction Act. Homelessness prevention is vital but must be distinguished from the use of ‘gatekeeping’ to control the number of homeless applicants. We support the idea that ‘reasonable preference’ should be given to each of the defined priority categories, but are concerned about the use of particular exclusions and rules. In particular, we are concerned that some authorities no longer allocate social rented homes to homeless households but discharge the homelessness duty into the private rented sector in virtually all cases. We do not think it is right that the proportion of lettings going to homeless households should be falling at a time when homelessness is rising so rapidly. In other areas the degree of priority given to length of residence in the area seems excessive, and the outcome of such policies are not widely known.
There has been a strong tendency for councils to cut back on eligibility to join their housing register. Falling numbers on waiting lists gives a false impression that the problem is somehow being reduced when it is not. Of course, there is an argument that there is little point in registering people who will never be housed, but the housing register can be a tool for assessing demand for social rented homes in addition to need, and it can help define future needs as different types of home are suitable for different types of applicant. People joining the housing register can also be given advice on the housing options open to them.
In addition, there should be policies to help make best use of the housing stock: to help households to downsize due to the bedroom tax or to make best use of the housing stock or to minimise the risk of tenancy failure or to match rents to benefit availability.
Affordability and rent policy
There is plenty of scope for social landlords to develop homes for a wide range of tenures, including market sale, which produce surpluses to help cross-subsidise the production of other homes. Our plea is that there should be a clear focus and priority on the delivery of homes for social rent, the only tenure that meets the needs of those on lowest incomes.
Housing associations have traditionally provided homes at what we prefer to call ‘intermediate’ levels, for example shared ownership (where this works at genuinely affordable levels) and intermediate rents, for example targeted at key workers who cannot afford market rents. So-called ‘Affordable Rent’, which became the main new development output of social landlords in new programmes after 2010, can mean rents of up to 80% of market rents, which is unaffordable in many places. We accept that many social landlords have sought to mitigate these rents and produce some of these homes at significantly less than 80% of market rents in an attempt to preserve some affordability. However, it is hopeless to believe that AR homes can meet the needs of homeless people or people on the waiting list without requiring high levels of housing benefit over the long term. We see merit in various attempts to link intermediate rents more directly to incomes through the idea of ‘Living Rent’ as initially proposed by Savills in association with the Joseph Rowntree Foundation and National Housing Federation, including the London mayor’s ‘London Living Rent’ scheme.
In some parts of the country, where market rents are lower, social and ‘Affordable Rents’ can be similar, but across most of the country the AR product not only fails to address poverty, it can make it harder for people to find and retain work and in the long term it wastes taxpayers’ money. Evidence based on looking at illustrative household types and locations for our Building New Social Rent Homes report shows that ‘Affordable Rent’ is between 73 per cent and 109 per cent higher than social rent in the Camden cases we looked at, and between 16 per cent and 151 per cent higher in the Brent examples. The rents in these examples range up to 45 per cent of average household income. In much of the country, ‘Affordable Rent’ is clearly a misnomer for middle to lower income households. In those areas of the country where market rents are so far adrift of social rents and modest earnings, most publicly supported development must be at much lower ‘social rents’.
Although we wish to see something like the guideline target rent regime for social housing continuing, the policy has now been in place for nearly two decades and needs to be reviewed and updated. To contribute to this, research by Capital Economics commissioned by SHOUT, LGA and ARCH has recently been published.
The aim of the research was to get an independent expert assessment of the options available for setting social rents in the future – so there can be a proper debate given the chaotic position of the current government, which first decided to cut rents for five years (designed to reduce the housing benefit bill, but only in the short run as more people are pushed into private renting) then decided to increase them by more than (consumer price) inflation.
There have been very few attempts to take an overview of all the implications of rents – to tenants, to the social security bill, and to the ability of providers to invest in the existing stock and new homes. There are even fewer attempts to examine the implication of rent policy at regional level – one size does not fit all and it is time rent policy reflected the very different conditions that apply in the different parts of the country.
The report sets the context for social housing in this country, contrasting the social sector ‘target rent’ regime that has been in place for 15 years with the current government’s ‘affordable rent’ regime which sets rents at up to 80% of local market rents. It emphasises why rents matter:
to the disposable income of tenants (linked to benefits policy) whether in work or not.
to future investment where rent income has a surprisingly large impact on the ability of landlords to invest.
to the government’s fiscal position because significantly less housing benefit is needed to support a tenant living in social rented accommodation compared to private rented housing – where a large slice goes to the profit of the landlord rather than being recycled into investment.
to the business plans of social landlords because rents not only pay for management and maintenance but also service existing debt and underpin future borrowing for investment.
Capital Economics considered the long-term impacts of various policy options taking account of the above factors and concluded that a policy of raising rents by CPI plus 1% is broadly appropriate across most of the country, but that no single policy is optimal across the whole country. It is important to note their caveat – the modelling depends on various assumptions coming to pass, notably that the benefit cap and local housing allowance rates increase in line with rents. Under such conditions, tenants on benefits will suffer no loss in disposable income due to the proposed ‘optimal’ rent increases, although tenants who are not in receipt of benefit would see a negative impact.
London and the south east, where private rents are highest, would see the largest fiscal saving from being able to move tenants from private rented housing to new social housing. They calculate that a real annual increase of 1.9 per cent after 2020 would enable sufficient social homes to be built to house all housing benefit claimants in private rented accommodation.
The report includes a detailed assessment of the position in each region. For example, for the north east, higher social rents would facilitate greater house-building, enabling 4,000 private tenants to move to social housing at ‘CPI +1%’, rising to 48,000 at ‘CPI +3%’. However, the increase in the cost of benefits to cover these higher social rents would largely offset this, and the overall impact of different policies on government finances would be minimal.
So, the overall conclusions reached by Capital Economics are:
It was right to conclude that an annual cut in rents was unsustainable;
A single national policy should be replaced by regionally-based assessments, with different rates of increase in different areas;
A rent increase policy is only sustainable if there are corresponding increases in benefits and cap levels;
And finally, that rental income is only part of the story in terms of generating more investment – it is vital that government resumes grant for social housing and allows councils to borrow for HRA development, subject to the prudential code.
The report raises some crucial issues for the sector and it is an attempt to link the issues of tenants’ disposable incomes, benefit costs and investment together in a coherent way. Whatever the logic of the analysis and the assessment of what is most optimal, the question posed by SHOUT’s Martin Wheatley at the launch of the report is still the most pertinent:
“How do you explain to a hardworking low-income tenant that their rent needs to rise above inflation every year, shouldn’t government be investing in new social housing?”
And as the Conservative chair of the LGA, Lord Gary Porter, made clear at the report launch: we have to let the state build and dispel the myth that state intervention is subsidy – it’s not, it’s investment in an asset, a security, and not just a debt.
Building genuinely affordable homes
How can we build 100,000 social rent homes a year?
There is a continuing debate about the number of new homes that are needed in total and what share of these should be at social rent, to which we have not contributed so far. The need for social rented homes will vary across the country according to regional and sub-regional circumstances: in some places the need is exceptionally high, in others it might be quite low.
There are many challenges to be faced to achieve the required increase in the level of total housebuilding - in the planning system, in relation to land and the cost of land, in the business practice of the housebuilding industry, in terms of availability of grant to enable genuinely affordable social rented homes to be built, and in the benefits system to reduce the gap between the cost of homes and households’ ability to pay for them. Many criticisms have been made about the planning system, but it is important to acknowledge that LA Planning Departments have been decimated over the past few years, with many finding it harder to fulfil their functions whilst the process is becoming harder, especially with constant challenges over viability assessments. Many district councils now have no stock and their expertise in social housing is severely reduced.
SHOUT is firmly of the view that it will not be possible to build the total number of homes needed without building 100,000 genuinely affordable social rented homes a year. Major new settlements will be unsustainable and unbalanced unless they have a reasonable share of social rented housing within them.
In addition to making the general case for social rented housing, SHOUT has focused on demonstrating the economic impact of building up to an output of 100,000 new social rent homes over the five-year gearing up period which we think would be necessary.
Economic appraisal of new social rent homes
The key points we make in this submission are based on our report Building New Social Rent Homes: An Economic Appraisal, which SHOUT commissioned, in partnership with the National Federation of ALMOs (NFA), from the leading economics consultancy Capital Economics. The report was published in June 2015 and is available in full at http://4socialhousing.co.uk/research. The analysis and conclusions in the report are very convincing, but they are not ours: they are based on Capital’s professional expertise and judgement.
The purpose of the research was to evaluate the fiscal and economic benefits and costs of scaling up public investment in England in housing for rent at genuinely affordable levels to 100,000 a year compared to a continuation of current policies, involving declining investment in housing for rent, with most of it at ‘Affordable Rents’.
Capital Economics’ main findings were:
in almost all parts of the country, the cost to the welfare system of supporting low income households in private rented housing (and, to a very considerable extent, in homes at Affordable Rent) is greater than supporting equivalent households in homes at social rent;
the decline in the stock of social rent homes, and rising private rents, means that the cost to the welfare system arising from the housing costs of low income households has increased very fast in recent years: it has nearly doubled in real terms in the last 10 years, and now accounts for over 37 per cent of housing benefit spend;
if this trend were to continue, expenditure on housing benefit would increase, by the end of the OBR’s long-term forecast period in 2065-66, to £197.3bn in nominal terms, or nearly £62bn a year at today’s prices, with the private sector component more than quadrupling, to £38bn at today’s prices;
set against the significant risk to fiscal sustainability of carrying on with current policy, a policy of resuming the development of homes for genuinely affordable rent at scale “is fiscally sustainable and economically efficient.” It would bring about “a sustained structural improvement to public sector finances – by reducing spending on welfare payments and stimulating higher tax receipts.” Other things being equal, public borrowing would be 0.5 per cent of GDP lower by 2065-66, and the stock of public debt 5.2 per cent of GDP lower;
if the increased investment in new homes were scored as public expenditure, the proposed policy would initially, of course, lead to an increase in public spending and borrowing, as the up-front investment in new housing would be greater than the welfare savings achieved early in the policy. However, the report (written in 2015) notes that the impact would be very modest (peaking at 0.13% of GDP in 2020-21).
opinion in the markets would be very sympathetic to investment in tradeable and income-generating assets which would help address the longstanding economic risks caused by inadequate volumes of housing development, and there are ways the Government could support investment without it scoring in the public spending totals (to which we return below);
the estimates of benefits and costs in the core analysis is very cautious, limited to the direct cost of building new homes, welfare savings and increased tax receipts from higher construction activity. However, there would be significant additional socio-economic benefits in terms of health, wellbeing and education.
Developing new social rented housing on this scale will create a hugely valuable national asset, which will generate economic and social returns indefinitely.
Dealing with the initial impact on public borrowing
Such investment would, of course, require initial public investment to secure the reduced welfare spending and other benefits over the medium to long term. The Treasury is likely to have concerns about any upward pressure on spending in the short term. Our response is twofold.
First, the impact is very modest and would be viewed by the markets much more positively than incurring a similar impact for other purpose. The PSBR impact, for England as a whole, peaks at the end of the Spending Review period at 0.13%. While the term ‘investment’ is often misused in relation to the public finances, investing in new housing is among the most genuine and sustainable investments the public sector can make. Unlike other kinds of public infrastructure, homes are a tradeable asset, with an easily realisable market value. Once built, the management, maintenance and debt service associated with social homes are met via the rent which tenants pay.
Capital’s advice, based on their experience of the bond markets, is that additional borrowing for this purpose would be positively viewed in the City, both because of its clear benefits in terms of medium term fiscal sustainability, and because the under-supply of housing is recognised as a key economic risk.
Second, there are ways the policy could be implemented without any short term upward pressure on the PSBR. There is a strong case, based on international practice, for excluding public corporations’ borrowing from the target definition of PSBR. The policy case for this is the very different character of borrowing to invest in an income-generating asset with a realisable market value, as opposed to borrowing for general services or public sector pay, or even spending on less marketable forms of infrastructure.
Such a reclassification would unlock the very considerable investment capacity in the balance sheets of council and ALMO landlords. Across England as a whole, this has been estimated as enabling, on very cautious assumptions, the delivery of 60,000 new homes over 5 years without central government grant or any impact on target PSBR. Using the full potential balance sheet capacity could enable the delivery of up to 230,000 new homes.
Capital Economics propose that finance for additional council or ALMO homes, and for housing association homes, could be provided through a housing investment bank partially backed by the Treasury. Finance provided through such a mechanism would not impact on the PSBR.
Impact of Brexit options
Following the 2016 referendum we were concerned that the 2015 Capital Economics assessment - and the case for building new social rent homes - might be vulnerable to the various scenarios for leaving the European Union. The future state of the economy will affect how much the government would be able to save by housing more families in social rent homes. With so much uncertainty surrounding the United Kingdom’s future relationship with the European Union, it is difficult to say credibly that we know what the British economy will be like after we leave. Working with ARCH, the Local Government Association, and the National Federation of ALMOs, we therefore commissioned a second report from Capital Economics to investigate the various possible outcomes.
The report looks at four economic scenarios: that exiting the EU would lead to 1) weak economic growth, with either high or low borrowing costs or 2) strong economic growth, again with high or low borrowing costs. It assesses how each would affect the net fiscal impact of building 100,000 new social rent homes each year.
Without repeating the detailed analysis, the results are clear: the government would still achieve better value for taxpayers’ money under each of these stretched economic scenarios, if it were to part fund the delivery of 100,000 new social rent homes each year. This is consistent across all four economic scenarios.
In the initial years, the incremental welfare savings and new tax receipts will be less than that needed to fund the government’s contribution to the new homes – so additional borrowing will be required. This varies between scenarios and, when fully implemented, ranges from £6.6 billion to £7.0 billion (in nominal terms). This is a small increment to likely government spending of over £800 billion by that time. It is equivalent to just two weeks’ worth of existing spending on the National Health Service.
The policy creates a net annual surplus for the government under all the tested scenarios by year 26 at the latest. Over 50 years it would generate material savings to the exchequer, ranging from £102 billion to £319 billion (in today’s prices). Although the net impacts vary, they show that even under a range of plausible outcomes after Brexit, the case for investing in new social housing remains strong.
An increase in investment helps to boost employment and domestic demand at a time of economic weakness in the low growth scenarios. Unlike other kinds of infrastructure investment, social housing has the additional merit that, once built, the costs of management and maintenance are paid for by the rents tenants pay, in contrast to, for example, roads and schools.
The wider benefits to society
The policy will bring significant other benefits to society and the economy by adding more than four million homes to Britain’s housing stock over 50 years. This would help reverse the country’s failure to build enough homes to meet demand. Delivering these new homes for social rent would help families in need and have knock-on social benefits to the wider economy beyond the potential savings to the public purse. These knock-on social benefits touch areas of public interest such as health, wellbeing and education and productivity, and affect all age groups in society. This investment would also have a wider beneficial impact upon the housing market.
If one million social rented homes were built over a ten-year period it would provide decent, affordable homes for upwards of three million people. Most of them would come from the private rented sector (the least popular sector), which would have a deflationary impact upon PRS rents, and, in the longer term on house prices. A slow and steady decline in house prices relative to incomes would be beneficial to the entire economy. Not only would this allow more of the priced-out generation to enter the market, but it would put more money into people’s pockets, allowing them to spend and invest in the wider economy, rather than wasting significant sums of money on unnecessarily high rents and mortgage costs.
It is important to recognise that not all borrowing is the same. It would be quite right to be concerned about an increase in public debt to fund the day-to-day costs of public services. However, borrowing to invest or save, as for this policy, is prudent and should be welcomed rather than met with alarm.
HRA borrowing and new ventures
One of the suggestions for enabling councils to build more homes has been to raise or to lift the borrowing cap applied by government to local authorities’ Housing Revenue Accounts up to their prudential limit. Post-Grenfell, this case has been muddied by the clear need for councils to spend much more on the existing housing stock, especially on fire safety. These costs must not be avoided and currently the most likely source of funding is increased borrowing from the HRA rather than central government grant. This is becoming necessary just as government-imposed rent reductions are hitting HRA income and it is becoming apparent that further works on estates are needed to maintain and enhance the decent homes standard, especially in relation to common parts, the estate environment, and energy use.
The implications of all these factors are as yet unclear, especially in the context of 30-year business plans and the new government rent policy of CPI inflation plus 1% from 2020. The work has not been done to assess the uncapping of HRAs as a source of potential investment following Grenfell. Remediation will affect some landlord councils and not others and the necessary investment might be ‘lumpy’. Some councils might find that, even with borrowing uncapped, their business plans could not support new building without additional central government funding. Others, with mainly houses and low-rise flats, are less likely to be affected. Overall, it is now questionable whether councils will be able to deliver the hoped-for benefits of self-financing without significant additional central government funding.
Many councils have responded to the restrictions placed on them by setting up local housing companies to deliver additional homes. We believe there are now around 240 in existence although they vary enormously in purpose and scope. Their borrowing is outside the HRA and, in the absence of grant, their ability to produce a share of homes at social rents is little different to that of housing associations – i.e. it depends on scheme viability not housing need. Their tenancies are also assured shortholds, not secure tenancies, which is a concern.
Similar considerations apply to the housing association stock. Rent reductions have hit associations’ ability to both maintain and improve their stock and build new homes. Post 2020 rent increases above inflation will help restore the financial position but, again, their ability to produce homes for social rent will depend on the scale of government grant support.
Protecting the existing stock
It is important for a new policy towards social renting that there is a much stronger approach towards protecting the limited number of social rented homes we already have. These are a crucially important social asset and their retention is central to the future relief of housing need.
CIH has tracked the loss of homes to the sector. New homes for letting at social rents is a trickle – just 5,380 in the last financial year and just 50,290 over the past five years, increasingly financed by social landlords themselves without grant aid. Yet over the same five years, CIH estimate that the social rented stock has fallen by 151,000, or four per cent. Housing associations have 47,000 fewer properties let at social rent, and the biggest factor is ‘conversions’ from social rent to ‘Affordable Rent’ when properties become vacant - 102,000 lettings have been converted so far. Local authorities have lost about 104,000 over the five years, with right to buy causing 57,000 sales, and demolitions count for a further 15,000. Looking ahead a further three years to 2020, CIH believes the net loss could amount to another 80,000 units if current policies continue.
The right to buy for council tenants, in place since 1980, has had a severe impact on the availability of homes for social rent to people in housing need, and at a very high cost in terms of subsidy (assets not realised). The policy is only justifiable if discounts are severely curtailed, all income from sales retained locally, and genuine one-for-one and like-for-like replacement, by tenure and by area, guaranteed by government. We would support giving councils the power to suspend the right when they believe it is essential to do so as part of their assessment of local housing need. We oppose extending the right to buy to housing associations, which would require a huge new income stream to fund it.
We also believe that other losses of social rented homes should be stemmed because the supply of re-lettings from these homes is so important. The practice of ‘converting’ homes from social rent to ‘affordable rent’ when they become empty should be ended. ‘Asset management’ practices, often involving sales in high value areas to fund building in other areas, should be fully transparent and subject to external regulation and, if undertaken by a housing association, consultation with the local authority in the areas where sales are proposed. We consider regeneration schemes below.
There is a clear need to improve housing conditions and the environment of estates for many tenants, and the land on social housing estates often has the capacity to deliver many more new homes. In some places the stock has come to the end of its sustainable life. There is a clear need for a ‘regeneration’ programme which might involve some redevelopment, but there are now hundreds of proposed schemes around the country and it is important to get this policy right.
The track record of such schemes is mixed. There have been inspiring examples of regeneration where tenants’ lives have been significantly improved and new homes built. However, it is fair to say that there have been other examples of poor regeneration with a loss of social homes and where the benefits have not gone to existing tenants. In London, GLA research discovered losses of over 8,000 social rent homes in regeneration schemes over the previous decade – although there were also major increases in the number of market homes and homes for intermediate rent and shared ownership. There have also been serious complaints levelled at some councils for the inadequacy of consultation.
The heart of the problem is the double whammy councils have experienced in bearing the brunt of austerity cuts on their general funds together with an array of unhelpful housing policies including the capping of HRA borrowing, the non-replacement of right to buy, and the absence of central government funding for housing regeneration. Councils are therefore attracted into schemes which do not necessarily produce the homes that are most needed but produce positive benefits in financial terms and in the total number of homes provided.
We want to see positive regeneration, with the support of existing residents. To achieve this, we need
additional finance for housing investment, the restoration of a sustainable financial settlement for local government’s wider activities, and new rights for tenants and meaningful community involvement, with much stronger independent tenant advice when regeneration schemes are proposed (e.g. support from Independent Tenant Advisors).
In most parts of the country regeneration schemes should have the maximisation of homes for social rent as an explicit objective. They must only proceed if they guarantee, as a minimum, full replacement of all existing social rent homes on the same terms and conditions, and the right of return for existing tenants. Although ballots are not the only way to measure tenant support, they do focus regeneration agencies’ minds on the offer that needs to be made.
The decent homes standard was a successful policy under Labour. Most of the social housing stock was brought up to a modern standard. There is now a strong case for a ‘Decent Homes 2’ initiative. We are all more conscious now of the need to invest in fire safety works and there are challenges in making the stock more energy efficient. The decent homes standard also did not deal with the standard of common parts or the estate environment. Raising the level of investment in the current stock is essential but it will have implications for budgets, both for housing associations and for HRA housing, which might reduce the funds available for new building.
We have not done work on new build standards but are aware of recent concerns expressed about defects on new estates. We are also concerned that the introduction of modular construction should be well-managed, there seem to be many sites where it is not suitable. We are concerned that it will not prove to be cheaper and there are questions as to whether it is mortgageable. We are concerned that mistakes will be made in the drive to get units out of the development pipeline more quickly.
Governance, tenants’ rights, and tenants’ voice
We support a return to a social rented sector where tenants have strong and enforceable rights and high-quality services, properly regulated from outside to protect the interests of tenants and the reputation of the sector.
Security of tenure
We are opposed to fixed term tenancies and support a regime where tenants have security of tenure within a clear framework of rights and responsibilities, including the landlord’s right to obtain possession in defined circumstances through action in a court of law.
Security of tenure is essential if new entrants to the sector, who have normally faced a long period living in very poor conditions or have faced the severe disruption to their lives that comes with homelessness, are to have a safe base on which they can rebuild their lives without the fear and stress of a periodic review which might lead to them losing their homes. There is a case for some discretion to be given to landlords in limited circumstances, for example in the use of probationary tenancies or other defined small-scale exceptions.
Although we have criticisms of it, we regret the removal of the regulatory framework that was inherited by the Coalition government in 2010, and we regret especially the reduced emphasis on service standards, tenant voice, and external inspection. We also supported the approach which brought the regulation of both councils and housing associations on to a similar footing, giving assurance to tenants in both sectors.
It is important to restate the important purposes that regulation serves:
it protects social housing residents, and their funders, by ensuring that providers deliver good services, listen to and involve their tenants, are well governed and managed, financially sound and offering value for money. For housing associations, governance and financial viability regulation gives creditors and investors confidence that their assets are secure, and enables associations to borrow at much lower rates than other property organisations;
it embodies the deal by which councils and housing associations benefit from substantial government investment and support in return for providing housing for low-income and vulnerable households.
For the future, SHOUT supports smart regulation that aims to be less burdensome than the 2010 model was perceived to be, but which offers tenants and residents clear protection against inadequate service delivery, poor governance or financial mismanagement, and ensures that homes built with public investment continue to provide genuinely affordable housing to those who need it. In particular, clear and monitorable standards are needed on resident involvement and Health and Safety.
Although our key proposal involves a national programme of investment in social rented homes, it is important to consider the geography of housing delivery, and especially the emergence of devolved responsibility to regions and sub-regional groupings of authorities.
There is no reason why a renewed national commitment should imply highly centralised policies or delivery mechanisms. While the consequences of housing under-supply affect almost all parts of the country, the scale and nature of the challenge varies from place to place. It is vital for decisions on the location and type of new housing to reflect local understanding of housing and labour markets.
In previous decades, publicly-funded investment in housing on this scale was undertaken largely by local government, within a national policy framework. Housing investment and delivery has already been devolved to the London Mayor, and other devolution settlements, for example in Greater Manchester and Cambridgeshire, also include more control over housing investment.
One of the most shocking conclusions to be drawn from the Grenfell tragedy is that clear and loud tenant calls for improved fire safety were not heard. This is almost beyond belief.
It is symptomatic of the way in which the customer voice has slipped down the agenda for the Government, the Regulator and for some social landlords. The Regulator of Social Housing, and before them the HCA, have allowed the importance of tenants’ service standards to be relegated as the persistent calls for both efficiency and new supply have drowned out the customer perspective.
Although there have been significant improvements in tenant involvement practice in many associations, others have downgraded the significance of the tenants’ voice in informing their policies and services. We believe that the number of tenants sitting on housing association boards has dropped significantly over the last 10 years as a result.
Having tenants on Boards does not, of itself, guarantee that the organisation genuinely brings tenants in to co-design strategy and services. Nevertheless, if an association does not have tenants on its Board, it should be required to demonstrate the ways in which the tenants’ voice is still heard loud and clear in the Board Room.
The abolition of the Tenant Services Authority and the National Tenants’ Voice were retrograde steps. Were both organisations still in existence it is arguable that the previous Housing Minister, Alok Sharma MP, would not have had to spend most of his seven months in office going around the country talking to tenants to find out what they think.
National tenant representative organisations and tenant support agencies like the NTV are not the answer to everything but, nevertheless, history shows us that many, many social housing tenants have been willing to give of their time generously to ensure that views of tenants are clearly presented to politicians, Civil Servants and regulators. This vacuum needs to be addressed.
Status of this submission
Our submission is a public document and will be posted on our website in addition to being submitted to the Shelter review.