Thursday, 30 October 2014

Fair rent?

From: Inside edge

The proposed reduction of the ‘pay to stay’ cap to £60,000 raises introduces yet more contradictions into a policy that was already riddled with them.

Reports on Saturday (most comprehensively by Patrick Wintour in The Guardian) said a consultation paper will be published next month on the idea of charging social housing tenants a market rent once their income rises above a certain level. When the policy was first floated last year, the proposed household income was £100,000 but now Grant Shapps, with the backing of David Cameron, is apparently suggesting £60,000.

There are all kinds of problems and contradictions inherent in the idea (of which more later) but the immediate thing to notice is that this is the government mounting another deployment of what it sees as its most popular policy to date: the household benefit cap. Just as capping benefits to the level of someone on an average income (£26,000 a year) will make the welfare system fairer, so capping household income will make social housing fairer.

Why £60,000? The reports say the consultation paper will propose a range of figures with that being the lowest. According to the FT, No 10 likes this figure because it is the maximum income limit for other support schemes like shared ownership. The papers were briefed a £60,000 threshold would affect 34,000 households and mean their rent could rise by £70 a week or more. A cap set at the previously reported £100,000 is claimed to affect only 6,000 households. Presumably then this would not affect enough people or save enough (the ‘subsidy’ is put at £21.6 million at £100,000 but £122.4 million at £60,000).

So what are the problems with the idea?

First, it’s not at all clear where these figures come from. How many social landlords out there really know how much their tenants earn? Or how their circumstances have changed over time? Or how many people live in a particular property and are working at a particular time. At best this sounds like a guesstimate based on surveys but household income can change rapidly over time as children go out to work or people lose their jobs or people retire.

Second, someone should tell Downing Street about Boris Johnson’s First Steps scheme in London, for which the maximum income limit has just increased to £74,000.

Third, policing this will be a bureaucratic nightmare that threatens to change fundamentally the relationship between tenants and social landlords. Where landlords are not busy checking how many bedrooms their tenants are occupying they will become the income police, obliged to check the earnings of all their tenants at regular intervals.  

Fourth, it’s not so long ago that a certain housing minister rejected the ‘pay to stay’ idea when it was put forward as an alternative to removing security of tenure from new tenants with fixed-term tenancies.

Fifth, it almost goes without saying that this would represent yet another breach of the Conservative manifesto promise to ‘respect’ the tenures and rents of social housing tenants and subsequent promises by Shapps that ‘we still have no plans to change the existing or future tenancies for people in social housing today’.

Sixth, the Guardian story includes the frankly incredible claim that ‘social housing has been increasingly taken up as an option by young professionals unable to afford to own their own home’.

Seventh, since this would apply to all social landlords, what does it say about the supposedly independent, non-public status of housing associations? If taxpayer ‘subsidy’ is going to their tenants then surely they are public bodies whose spending and borrowing should count against public totals? The FT report talks more narrowly about ‘council housing’ but if is restricted just to local authority tenants how it is ‘fair’?

I could go on but the list continues down to the most fundamental issue of all for me: who really has their housing subsidised?

Social housing tenants? It’s true that there is an initial subsidy in the form of grant or land or both but council housing nationally is now running at a profit, with tenants’ rents more than repaying the initial costs. None of the cost is paid by council taxpayers. Their rents are only ‘subsidised’ by comparison with market house prices and rents to which social housing is an alternative. On the same argument anyone who bought their home years ago for a fraction of today’s prices is also ‘subsidised’.

Tenants who use the right to buy? The logical response for a family with a household income of £60,000 a year facing a rent increase of £74 a week will be to take a look at Right to Buy 2. The mortgage may well be cheaper than the increased rent and the government has just doubled the maximum discount to £75,000. This is, of course, not a subsidy in any sense and there is no upper income limit.

Home owners? They are surely the ‘strivers’ who are paying for all that ‘subsidy’ – until you stop to think about it. First homes are exempt from capital gains tax and since the 1960s have been free of tax on the imputed rental value. What’s another word for a tax that the government chooses not to impose?

People with a mortgage? In addition to the taxes not imposed on first homes, anyone with a mortgage has benefitted from much lower mortgage rates ever since the Bank of England cut interest rates to a record low 0.5 per cent. If a cut of two percentage points does not sound like much, it amounts to a combined reduction of around £20 billion a year. Effectively it’s a mortgage subsidy that is coming out of the pockets of savers and pensioners who are receiving much lower interest on their money.

First-time buyers? Without a sizeable deposit they will not get the same low rates as existing borrowers and they may not get a mortgage at all, but many get help from the Bank of Mum and Dad. The subsidy advantage of home ownership is transmitting down through the generations.

Buyers of new build homes? No £60,000 income limit here. The government’s NewBuy scheme guarantees 95 per cent mortgages on homes worth up to £500,000, implying that a household with an income of more than £160,000 could benefit. 

Buy to let landlords? Unlike home owners, they do pay capital gains tax. However, they can also offset costs like the interest on their mortgage, rental insurance, maintenance, letting agency fees and depreciation against the tax they pay on their rental income.

‘Pay to stay’ was contradictory and problematic enough when the proposed income threshold was £100,000. Reducing it to £60,000 just makes it even more contradictory. On one level, it’s a nakedly political move to capitalise on the popularity of the benefit cap and its supposed ‘fairness’. But on a deeper level it’s hard to avoid the conclusion that this is really about accelerating the Conservative end-game for social housing: reducing it to a residualised rump reserved for the very poorest while leaving everything else to the market.

And, judging by an article over at LibDemVoice that confuses social and affordable rent and the discussion that follows, their coalition partners seem too divided on the policy to stop it.

Readers' comments (19)

  • Joe Halewood

    1. Cost of means testing 4m plus social tenants? Astronomical and would outweigh and so called savings from this. Appeals to this - further cost. Changes to it - lost job equals council flat reinstated?

    2. Is private rented not in receipt of revenue subsidy through LHA? - Yes and far more than any initial capital subsidy social housing receives

    3. Choice? Yes that age old Tory examplar. So you cant choose to live in social housing then? Even when its the obvious cjoice for the same aspirant homeowner this coalition wants to help?

    4 Legal challenges? Does the right to a home only apply if you earn less than £60k? Inviolable rights or limited to income? Huge number of challenges and huge cost.

    Pay to stay - or worklessness to stay?

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  • So by your logic, homeowners are not the strivers paying for all that subsidy. Tenants in social housing obviously aren't paying for the subsidy because as you say they are benefiting from the initial subsidy to build the home, plus a rent at below market level. I guess that means that the entire economy is made up of people leeching off the 15 percent or so who rent in the private sector?

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  • Another fine mess for Laurel and Hardy to sort out! Had some dealings sometime ago where a household income breached the HA's charitable objectives and the wife had to give up her part time job to qualify for the property.
    As Jules points out will "force" people to exercise their RTB and in some places the market rent on an estate may not be too different to the affordable/social rent.
    If I was Laurel I would be looking for a new slapstick job with call me Dave....

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  • This issue had me pondering all weekend about parity and equity across assistance 'products' offered to tenants and struggling first time buyers - I spend most of my time delivering these options in one of the most expensive DC areas in the entire country.

    Across to all Homebuy products , shared ownership, all the old open market schemes (for which funding was cut in 2009 despite their popularity and sense) FirstBuy – everything, except NewBuy - is INCOME Capped at £60k (£74 in London I believe) - so while the debate rages about the reasonableness of expecting higher earners to pay more rent (and £60k income is a pretty reasonable income by most accounts) and suggestions made that these higher earning tenants would probably do best to slap in the Right to Buy rather than pay the significant increase, it occurred to me that there is no cap on earnings for the Right to Buy applicants- and, well why the hell not?

    Tenants of existing social landlords are in fact the highest of all priorities for access to these assisted affordable home-ownership HomeBuy schemes - it makes sense that they are as every void created by a tenant moving out is one more to offer to those remaining on the housing register waiting their turn, a turn that as often as not will probably never come up trumps; there are also those in TA or B&B waiting longer for a permanent home and getting by in the meantime in often pretty shocking conditions - so how fair is it exactly, that higher earning council tenants without an income cap can buy - at considerable discount - the property they are living in and thus removing any possibility that that dwelling will ever come up again for re letting to someone who arguably needs it more, who has no other options to buy or rent privately???
    Here's the anomaly - if I receive an application from an existing social tenant for a HomeBuy property or for the YourChoice open market equity loan that South Bucks funds and offers to all with a local connection - if the household income exceeds£60k they do not qualify.
    The reason that they don't qualify is because at and above that figure that household can exercise other options - to rent in the market and afford to do so without Housing Benefit or indeed to buy - even in SouthBucks - without any assistance at all!???

    There are loads of interlinking issues - and as far as higher rent charges are concerned I have no idea how such a policy could be delivered as Jules has said how on earth are these landlords going to collect and verify income information and most LAs do not means test at the point of allocation, so that is a practical bag of worms for starters - but with the Right to Buy it would be easy to administer a cap - and assess the income information at the time of application before the Right to Buy is 'admitted'
    Well anyway in my efforts to try to get an answer to this question – ‘’is there an Income Cap for the RTB and if not why the disparity?’’ I have rattled a few cages - the facebook page promoting the RTB has blocked me making any direct comments although they have not yet blocked me commenting, helpfully as I have since its launch, on other people's comments - but only I suspect because they haven't yet worked out how to - such are the complexities of facebook settings!
    The question has clearly hit a nerve but we need an answer and explanation – people understand when things are equitable but rightfully challenge against disparity
    See link to my related comment on the guardian discussion on the higher rents issue.
    http://www.guardian.co.uk/discussion/comment-permalink/16221775

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  • CORRECTION to the anomaly point as I missed out the last part of the sentence. Should read:- Here's the anomaly - if I receive an application from an existing social tenant for a HomeBuy property or for the YourChoice open market equity loan that South Bucks funds and offers to all with a local connection - if the household income exceeds£60k they do not qualify – yet if they qualify for the RTB their higher earnings are irrelevant?

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  • Melvin Bone

    I'm only really interested if it will it get Bob Crow...

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  • So the Govt. believes that a 50% tax rate is a disincentive to entrepeneurs to earn more money but apparently they are happy to disincentivise council tenants?

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  • Melvin Bone

    William,

    Don't use words like 'disincentivise' they are made up by government and mean nothing.

    Thank you.

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  • James Rennie

    I am getting sick of the drivel spouted about this so called subsidy me and my partner get, what is it? Is it because council housing reflects the actual ongoing cost of housing and not the extorting rip off leapfrogging money grubbing of the private sector? If the motivation of the vast majority of people who attack those in social housing (because if it not earning too much, it is earning too little, if it not having too many kids it is having too few for the rooms) is because they feel they are missing out on something then sorry but don't attack me change the government.

    I pay all my bills, rent, gas electric council tax the lot - I get no assistance...furthermore I am really dissatisfied that my taxes go to the private sector to subside the rip of rents of that sector and subsidise the scandalous low pay that necessitates housing benefit and the myriad of benefit top ups. I pay my tax, 30% and when I earn more I will pay more. So again where is my subsidy...oh and will you all be happy when i lose my charity sector job and then living in the extorting private sector have to claim extortionate housing benefit...it is a fools argument you naysayers make, the argument is not why them but why not me!.stop being envious get organised and demand more council housing, more affordable in real terms rents, more rent strikes, more action stop pointing at me...after all who next £50k, £40K - £26k...

    Oh and one more thought, two adults and a young person in a household both parents work in the the charity sector as project workers, earning £22k each there son gets a job paying the living wage, he is 17. the household income is...just over £60k...out on the streets? Chuck the kid out or the family...you decide...

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  • James - you are right and your sentiments heart felt! If it were possible to realistically increase supply of council and housing association homes sufficiently, so that state housing, like the state provision of NHS or ED could be chosen to be accessed by all, then there would not be an issue. But it is not possible to increase supply in this way and on top of that the stock available for letting today is dwindling because of discounted sales to secure tenants, households who are for whatever reason unable to access the market without assistance are living in unsuitable insecure housing or have no homes at all.
    It would be extremely unfair and unlikely to be the case anyway, if any household income cap for the higher earners proposals included your son’s income even tho he lives with you so you’d not be expected to pay more or have to chuck him out…..
    My particular interest in this is the issue of parity with other schemes – the fact that there is as yet no cap on tenants incomes for eligibility for the RTB is not in line with other homeownership assistance schemes (for which existing public sector tenants have the highest of all priority). The CAP is £60 k for HomeBuy and shared ownership etc because above that there are other options which earners can choose to exercise – rent in the market or buy outright. Where I work £60 k and a clean credit record, some savings (which if earning £60k there is some capacity for) and outright purchase of a £250k property is perfectly possible. There is no cap on RTB tenants income if they apply for the RTB – and there is also access to up to £75k discount depending on among other things – length of secure tenancy…… discount is ‘subsidising the purchase’ bringing the purchase price within affordable range’ of the tenant. Working that one out if the council house is worth £250k (the lower quartile level in the area I work tho in some parts of the district even council houses if there are any left, are worth more that this) the discounted purchase is £175k with no deposit this gives an amount to be mortgaged well within a £60k earners mortgage potential….. while all others on £60k (excluded from assistance schemes) are in the market struggling to just afford an entry level property?

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  • Chris

    Mel - you say it is not possible to increase the stock in this way - that is not true.

    There may need to be a different set of economic priorities.
    There may need to be a will to achieve it.
    There may need to be decades of social engineering to overcome.

    But it is possible to make social housing the accepted norm once more, and extend that to become the tenure of choice for the majority - it just takes a government with the balls to act.

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  • Joe Halewood

    Chris, its not balls its political will and forsaking political ideology and looking at bottom line.

    Take away the alleged reason why social housing is cheap in comparison to the uber-efficient private rented sector -ie capital subsidies - and social housing being a beter product and service would charge market rates.

    The fact social housing doesnt do this saves the HB bill by £5.8bn per year directly or £29bn per parliament. That is how much more the HB bill would be if social rents received the same amount of HB that PSLs receive in LHA.

    Portrating social housing as only cheap as its subsidised and portraying tenants as scroungers is a purely political argument this government wants to portray. It hides the greed of the PRS and rent levels, it hides the inefficiencies of the so-called efficient private market in housing and it deflects blame onto the most vulnerable.

    Keeping social housing as a left/right political battle, of which the left is just as guilty, hides the reality that the social housing model is the most-efficient and saves the public purse a fortune.

    Its not the economic priorities that need to change as the figures show social housing works, its the political will that does

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  • Chris

    It is economic priorities that need to change - not to detract from the thrust of your points Joe.

    The current economic priority is to maximise private profit from housing funds, even at the expense of massive increases in public susbsidy to do so. This is prioritising the return on private investment over the national interest in terms of the interests of the taxpayer. But worse it is also prioritising return on private investment over and above the meeting of housing need for the many.

    The economic priority set needs to be to deliver the most effective solution at the most efficient cost; to deliver the lowest environmental solution at the lowest impact on resources; to deliver affordable homes for the many.

    If and when that priority is recognised, then the political will to act is what is required.

    Such can only be realised though if the lies, some of which you highlight, are exposed and completely understood by the wider electorate. Otherwise the same arguments will continue to ensure that £Billions poor out of people's pockets via taxes into privateers pockets in terms of housing benefits.

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  • all very well and good boys - but it just isn't going to happen!
    there is never going to be a change of heart. There is no chance whatsoever or the 'wider electorate' understanding the issues or even being prepared to apply sufficient grey matter in order to try to! Almost everyone has a personal angle on this all which informs but clouds their judgements and if we within the sector struggle to get it then Joe public (sorry Joe) will not!
    We can bang on about political will till the proverbials come home - there are too many too complex interlinking issues involved - tinker with one thread and you banjax the others!
    repercussions and unexpected conflicts and anomalies emerge (like the absent RTB income cap)which provoke and require further tinkering.....
    I think that we need to focus our minds and efforts on how we are going to get the PRS back under some sort of control -accreditation perhaps rather than more stifling legislation.....certainly before we are expected to start discharging any statutory duties into it for sure!

    What are we doing allowing £0000000's of HB to be paid out to an almost completely unregulated sector - landlords with various motives,abilities and scruples and that is probably putting it mildly!

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  • I remember the TINA approach being lied about on the economy. It is equally false to try to offer TINA within the solutions available for the housing sector.

    However much the Tories woulod like to wrap it up, they are politically opposed to social housing, havve never wanted social housing, and are determined to ban social housing. Were this is sound economic grounds as they would wish presented then it would at least be an argument, but as commentators on these forums, and elsewhere have pointed out, the alternatives being favoured cost more, much more.

    Indeed, was it not Labour's conversion to the Tory lova affair with the private sector which led to the warping of the market towards private rent and ownership against all reason, and beyond rational economics, that led to the worst recession since the outcome of trade protectionism - another great Tory policy failure.

    There is no profit without loss, and there is no mass profit except at the cost of the masses. We can not continue with invented wealth at the heart of our economic model. Over heated house prices must be removed, supply restored, and the quick buck private landlords abolished for the good of the nation.

    Punishing hard working people for gaining an reasonable income would not be supported if it were a super tax so why support it as a tax on tenants. The extent of duplicity and hypocrisy abounding at this time is extrodinary.

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  • Mel, your comment, "the facebook page promoting the RTB has blocked me making any direct comments " is untrue. We have responded to your query - here is the link. http://www.facebook.com/righttobuy/posts/440291845983123?comment_id=5615073&offset=0&total_comments=1

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  • Thanks DCLG press office - I think we have now worked out what happened to the posts and the vagaries of the Facebook auto wall functions. Glad to hear not censured but the answer to my question - is there an income CAP on RTB purchases like HomeBuy etc - if not why disparity - being confirmed as NO, and the effect therefore that RTB buyers are not required to max out on their mortgage potentials unlike Homebuy purchaser who ARE required to do so - gives them lifestyle choices denied to all other affordable homeownership scheme applicants - which I don't think anyone is going to see as terribly fair nor equitable :-( On top they also get potentially huge discounts - RTB didn't need income caps back in the day because the policy was directed to enable the 'poor' to access homeownership that they would not otherwise be able to do - and times have changed - we help other FTBs adn existing RP tenants to buy in the open market which has helped hundreds+ but there has to be some parity between offerings - so if we accept that above £60k households can afford to access the market to buy or rent for that matter we must make that a consistent assessment across all schemes - statutory or otherwise!?

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  • John Moss

    Why have an arbitrary cut off at all?

    We have been too wedded to the idea of particular homes being restricted to particular forms of tenure. It is the households who we should focus on, not the pile of bricks and mortar they happen to live in.

    Social landlords ought to operate an income related rent policy, charging, say, 30% of household net income up to the point this equals market rent. They would have a minimum rent, which if the household had no income, would be supported from welfare payments and subject to the current caps, but there would be no need for complicated S106 agreements defining "Social Rents" "Affordable Rents" "Intermediate Housing" etc.

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  • What you say John Moss sounds very reasonable and makes sense, but today we live in world where the focus is on money, property and prestige 'people first' have not been a priority for many years. It will get worse. This sounds pessimistic but what i visualise in the future is the 'poor' financing the 'rich' to live in ideal homes while the less well off are being given more responsibilty to live in affordable home designed to become our future slums.....

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