Posted by: Jules Birch15/10/2012
Bit by bit the facts about the affordable rent programme are leaking out but far too much remains hidden or unclear.
On Friday, in the typically under-stated style of all-party committees, MPs published their verdict so far. The public accounts committee concludes that ‘it is not yet clear whether the programme will deliver value for money in the long term’ and that ‘the department needs to do more work to understand the impact of the programme on tenants and its interaction with wider welfare reforms’.
It is still worried about slippage because the delivery of new homes is heavily skewed towards the end of the programme and warns that it may be a one-off way to take advantage of housing providers’ balance sheets.
All of this is worrying even though it is perhaps the understandable result of a programme developed in a hurry to keep the affordable housing show on the road. From the government’s point of view it delivers more homes for less money and, while the pressure will undoubtedly be on in the final year of the programme, it also again illustrates the ability of the Homes and Communities Agency and social landlords to deliver what they are told.
But deliver for what? Hard information about affordable rent is only just trickling out. The PAC report tells us very little that we did not already know: it repeats the DCLG’s impact assessment claim that the housing benefit bill will rise by £1.4 billion over 30 years as a result of the programme without questioning any of the assumptions behind that; an appendix quotes the headline figures that the average affordable rent will be £182 a week in London (65 per cent of market rent) and £133 a week in England (73 per cent); and it says that 63 per cent of homes in England and 5 per cent in London will be at the maximum 80 per cent of market rent.
That’s what we do know. However, the information is based on the original bids and not the final contracts that were signed and so may have changed again (as Inside Housing reports, a quarter of the London providers originally planned to charge higher rents when their bids were submitted). In addition, the DCLG did not collect information on the rent charged by bedroom size and we still do not know how the distribution of the homes, their size and their rent between the different London boroughs. Given the back-loading of the programme is it possible we will not know the full facts for another three years?
In some parts of the country, where social rents are already reasonably close to market rents, it may be hard to see the difference with affordable rent (though the new programme may also not be that viable). In other, more expensive, regions and especially in London we still do not know the answer to another question either: will the new homes be let to tenants who can afford the higher rents or will they do to tenants who are in the most housing need? If it’s the former, then more homeless households and people in the most need will be forced into the private rented sector and the housing benefit bill will be that much higher and the benefit trap that much bigger. If it’s the latter, the housing benefit hit will be smaller but still substantial and there will still be huge barriers to employment.
The PAC concludes that the DCLG ‘has not done enough to understand the full impact of higher rent levels on tenants’. It goes on:
‘The Department does not hold information on the rent levels being charged for individual properties and it has not considered the impact on tenants or prospective tenants of these rent levels or the interaction with wider Housing Benefit reforms. The Department should consult tenants and providers to understand the impact of the higher rent levels on tenants, and commission research into the financial and other characteristics of those tenants living in ‘affordable rent’ homes and build the results into future programmes.’
Apart from the danger of the new homes going to ‘the richest of the poor’ rather than those in the most need, there is also an issue about the allocation of the larger (and therefore more expensive) homes. ‘We are aware of cases where four bedrooms homes have gone to a couple with no children or a couple with one child,’ say the MPs.
Put this all together and we have a programme being developed in conditions of considerable secrecy and with seemingly very little attention being paid to what happens after the buildings are completed. However, the fundamental problem of what counts as ‘affordable’ is not new.
The most expensive shared ownership flats left behind the definition of affordable long ago. A quick look at First Steps London, the website for Boris Johnson’s ‘affordable housing programme’, reveals this £570,000 three-bed flat in Hackney. It can be yours for a deposit of £14,250 and a mortgage of £128,250 to buy a 25 per cent share. If you can get a mortgage, the monthly repayments will be at least £750 a month on top of the rent for the remaining 75 per cent of £1,048.27 and the service charge of £155.89. According to the website that requires household earnings of £60,935 a year, but that would mean that the estimated monthly cost of £1,954 would account for 56 per cent of take-home pay of £3,510.
Again, the housing organisations involved are doing their best to deliver new homes within the bounds of what is financially feasible and the tenants and shared owners will be paying less than they would be on the open market. However, that brings me back to the definition of ‘affordable’.
The only real way to guarantee that homes are affordable is to base the price or the rent on what people can afford to pay. That, broadly speaking, is how social rent works, with rents calculated on a 70:30 formula local earnings to market values. The minute you define ‘affordable’ solely in relation to market values that link is broken, especially when it happens at a time when many incomes are frozen or falling. And, as I blogged in June, the social – genuinely affordable – sector is set to shrink by around 250,000 homes over this parliament as a result of the combination of affordable rent re-lets, the right to buy, regeneration schemes and asset management by landlords.
In the meantime, UK house prices are propped up by ultra-low interest rates and quantitative easing. Whether you believe the warnings that prices are over-valued by 20 per cent or not, you have to wonder what will happen when interest rates eventually rise. There are big regional variations and rents are historically more stable than house prices but you have to wonder whether rents at (up to) 80 per cent of the market level will really seem so ‘affordable’ then, let alone affordable.
From Inside edge
Housing commentator Jules Birch puts the latest news in context