Wednesday, 16 April 2014

Affordable homes 'will lead to further cuts'

A director at one of England’s largest housing associations has warned the affordable homes programme could lead to further government spending cuts due to its impact on the housing benefit bill.

Mike Donaldson, group director of strategy and operations at London & Quadrant, told MPs the programme will lead to increased benefit spending and could lead to the government cutting further in the future.

Mr Donaldson, speaking before the public accounts committee yesterday, said: ‘Our concern is that…there will be more cuts over and above those announced so far.’

He added that he was not opposed to the affordable homes programme in principle. He said: ‘We are not saying it is a bad thing, all we are saying is there is a consequence.’

The £1.8 billion affordable homes programme enables landlords to charge up to 80 per cent of market rent, instead of lower social rent, in return for development cash. The government hopes landlords will use the extra rental income to borrow more money for development. Rents will in many cases be covered by housing benefit.

Andrew Parfitt, head of housing policy division at the Department for Work and Pensions, said the affordable homes programme will increase housing benefit through higher rents, but also decrease it in the long term because of increased supply of affordable homes. He said there will be a ‘small increase’ in expenditure overall.

A Communities and Local Government department impact assessment into the affordable homes programme shows the policy will increase the housing benefit bill by £1.3 billion over 30 years

Readers' comments (11)

  • Joe Halewood

    I have written at length about this issue and Mike Donaldson is correct and Andrew Parfitt is wrong.

    In very simple terms:
    (a) average HB for social housing is £81pw against an avg rent of £81
    (b) average LHA is £107pw against average PRS rent of £182
    (c) affordable (sic) rent at 80% of market rent is £145.60 (80% of £182)

    Therefore unequivocally and unambiguously affordable (sic) rent costs more in HB as all 100% of the rent is paid and that rent is higher than the LHA in payment. Higher by £38pw or do

    Hence the HB bill increases whether the tenant was a former social tenant or a former private tenant.

    Even at 65% AR is 65% of £182 or £118.30 and again higher than the £107pw LHA figure.

    The CLG impact assessment is pitiful. Taking AR at 80% and applying that to 80,000 homes over 30 years with two-thirds in receipt of HB comes to ((80,000 x £38) x (365.25/7) x (30 x 0.66)) = £3.14bn

    If it is 170,000 AR units (the figure Shapps said will happen) then it becomes £6.67bn more or 5 times the CLG pathetic estimate.

    IF social landlords bring new voids back as AR units which they can then the HB total increases even further.

    Also note AR rents by virtue of being at 80% of GMR 80% higher than normal social rents also takes more families into the overall benefit cap which does see HB being cut and makes them unaffordable for social tenants on benefit. So precisely who can afford to live in these social rent plus 80%1(SRx1.8) homes? Working people ? Yes but if they lose their job....

    Why social landlords were ever sucked into AR....

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  • "Why social landlords were ever sucked into AR...."

    Mr Halewood is making the mistake that they are "landlords". The self-image and purpose of most large housing associations is as a developer. Like any developer they will proceed on whatever terms are available, so long as they are not losing money.

    Many employees of housing associations, particularly those providing front-line services are deeply uneasy about this, but nothing ever changes, despite speeches by chief executives.

    I don't think Mr Halewood's figures are quite right either. They overestimate the cost just as much as CLG figures underestimate it. The main issue as Jules Birch said yesterday is the sharp and continuing increase in the percentage of people renting (whatever they rent), which the government simply hasn't come to terms with (and don't start me on the boundless ignorance of Mr Dromey)

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  • Joe Halewood

    Hulagu2 which figures do you not like? All the above are official figures andthe only assumption in them is two0thirds of those renting AR units will receive HB.

    As for your social landlord as developer argument a few points:
    (a) Far more non-developing social landlords than developing ones.
    (b) I agree they process on whatever terms available but AR contains many signifiicant financial flaws and especially on affordability and particularly so with the OBC
    (c) A developing RP is by definition a larger landlord than a non-developing one

    It is not just the higher proportion renting it is where they rent and that is increasingly in the PRS (out of lack of choice) and which the official figures reveal a 57% increase in PRS tenants claiming HB against a 9% rise in social tenants since LHA in November 2008 began

    In that time the number of claimants has risen by 21% from 4.17m to 5.05m yet the PRS has risen by 57%. As PRS tenants claim and receive 32% more in HB per week then the points I made about the steep rise in the overall HB bill are very valid ones

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  • Currently in my area Social Rent is around £70x1BF, £80x2BF, £72x1BH, £82x2BH: LHA rate £80x1B, £103x2B, 80% of PSR £73x1BF, £90x2BF, £96x1BH, £112x2BH

    LHA rate will not cover 2BH and if PSR rents increase.

    However, like all government I’m not sure there is a real correlation between what one department gives out in cash terms for development of the affordable rent and one gives out in LHA benefit. Government just does not do this sort of joined up thinking.

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  • Joe Halewood

    AJM - LHA rates differ widely across the country, Yet the overall average national position is that avg LHA in payment is £107pw and average private rent is £182pw.

    So LHA on a national average only covers 59% of the rent charged.

    That is a hugely important point in relation to AR which charges rent at up to 80% of the gross market rent. Because 80% is much higher than 59% then the HB bill will rocket the more AR units come online.

    There are some ares of the country where private rents are the same as social rents and in very isolated cases lower than them - and note well REGULATED private rents in which PRS landlords will still be making a profit are £83.73 per week and are LOWER than RP average HB of £85.32pw. Yet the national picture shows that LHA only covers 59% of rent on average and so AR rent, and yes all of the rent will be paid by HB, is higher than LHA and so the HB bill must rise

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  • Rick Campbell

    Perhaps the affordable rent regime will become the norm for when this rent regime runs outin 2015?

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  • Joe you maybe overestimating (but not by much) the HB impact because all affordable rents are not at 80% of the market

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  • Joe Halewood

    Rick i doubt it as AR is a financial risk too far for social landlords - a point they now realise. Some will undoutably recycle old voids into AR units to get more income but as the govt cant afford the extra HB cost (and they only pay lip service to the need for more genuionely affordable housing anyway) and as RPs now correctly view it as a risk too far the AR will only ever be a minority aspect of all social housing.

    Even if the 170,000 AR units ever does come off then this is only about 4% of entire social housing stock and it would need to increase 12-fold to become the norm and that aint gonna happen....Thank God!

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  • Rick Campbell

    Joe. I wonder if the new rent regime for housing associations would then be CPI plus 0.5% as the £2 malarkey wouldn't be needed?

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  • C'mon Sense

    The other issue is that with lower grant rates, and higher rental income levels the RPs gearing levels will soon reach a level that is unacceptable to lenders. Then the social housing world really will grind to a halt!!

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