Monday, 22 September 2014

Data shows four London boroughs where scheme won’t work

Major flaws revealed in pay-to-stay policy

The government’s pay-to-stay policy will not work in parts of 16 local authority areas across London because tenants will have to earn more than the £60,000 cap to be able to pay affordable rents.

Under pay-to-stay proposals outlined last month, social landlords will be able to force tenants who have a household income of more than £60,000 a year to pay full market rent or move into the private rented sector.

However, exclusive data from consultancy Hometrack reveals that in four boroughs this will not be possible for tenants paying affordable rents.

This is because tenants would need an income of up to £82,226 to pay the rent even if it is set at 63 per cent of the market rate - the average proportion charged under the scheme - rather than the 80 per cent maximum allowed.

The research, labelled ‘horrifying’ by one landlord, also lays bare the extent to which the affordable rent product is unaffordable for many social tenants.

Hometrack also found there were 88 wards across 16 boroughs with a total of 131,000 social homes that could only be afforded by households earning more than £60,000 a year - if rents were set at 63 per cent of the market rate.

Although these homes will mostly be for social rent, landlords are increasingly converting re-lets to affordable rent.

Housing minister Mark Prisk has said that landlords taking part in the next £2.8 billion round of affordable rent will be expected to consider all re-lets for conversions.

In Kensington and Chelsea, which is the most expensive borough, the research suggests that a household would need to earn £82,226 a year to be able to pay affordable rent.

Similarly, in Westminster, households would need to earn £82,197. In City of London households would need to earn £68,609, and in Camden, households would need an income of £66,405.

Julian Fulbrook, cabinet member for housing at Camden Council, described the research as ‘horrifying’ and said the authority would not be implementing pay-to-stay.

‘These are staggering figures, and back up our own research. This [pay-to-stay] is not something we want to spend time and effort on,’ he added.

Westminster Council said it supports the principle of the [pay-to-stay] policy but may increase the £60,000 cap.

Brendan Sarsfield, chief executive of Family Mosaic and leader of the G15 group of the largest developing London associations said: ‘These figures show that the affordable rent regime is not working. Affordable rent is an intermediate product, not a social housing product.’

Richard Donnell, director at Hometrack, explained: ‘We took [median] rental values for two-bed homes across all wards in London. We took 63 per cent of open market rental value as the affordable rent and assumed 35 per cent of net income was spent on housing costs. Using these assumptions… we then weighted the analysis to where social rented stock is most prevalent [in each ward].’

Top 10 income requirements

London boroughIncome needed to pay affordable rent
Kensington and Chelsea£82,226
City of Westminster£82,197
City of London£68,609
Camden£66,405
Islington£56,919
Hammersmith & Fulham£53,766
Tower Hamlets£51,869
Wandsworth£48,075
Southwark£46,790
Brent£45,535

Readers' comments (34)

  • A quick look on Rightmove before launching the initiative would have provided that data in 5 minutes for each borough.

    What it does flag is how relatively expensive any new build SRS homes will be in London - given that private rents are a reflection of capital values - which in turn reflect land values.

    Unless HAs get a 100% capital subsidy - social rents would not cover the massive commercial loans needed for new build.

    That message should have rung out loud and clear from Colin Wiles' article on the increase in land values since the 1930s - such that they moved from only 2% of a property price to nearer 70% today.

    Whilst most people were probably aware of current percentage - most were doubtless unaware of how cheap land/materials/wages were in the 1930s/40s/50s - when much of the SRS homes were built.

    If general inflation were applied to house prices since the mid 1930s one could buy a 3 bed semi in Bexley,Kent for close to £25,000 - instead of £350,000 - though one has to allow that prices were significantly suppressed back in the 1930s.

    Stock markets did not recover their 1929 peak levels until around 1956 for example.

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  • Stop Press, displaced tenants create Hooverville style shanty townon Hampstead Heath and Clapham Common.

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  • At what point will Inside Housing and the policy makers remember that there is a housing market outside of London. It's all very well throwing headline figures around, but some of these numbers (particulalry salaries) mean nothing outside of the city. In the North East an affordable rent for a three bed house may be £520pcm. It doesn't need a £60k salary to live there. Indeed, anyone on a £60k salary would be buying.
    Give us some comparative figures for the real world please.

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  • In Bath the cost of renting a three bed property would most certainly be double that, more like £800 a month. This is in the private sector.

    The housing situation is a total mess, complicated, severely lacking in its numbers, and in this area more rejected planning.

    This area is becoming an area for the wealthy.

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  • all lends weight to the arguement that what needs to happen is jobs moved north. the government should set an example by moving its departments to the regions. there is no reason for staff to based down in the overcrowded and overpriced SE. indeed many major companies dont see the need to be in the same country so why not. the canope set can commute from merseyside or the NE in a couple of hours so why make the workers pay london rates for everything. granted there would be some localised inflation - this is rip off britain after all but overall it is a no brainer

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  • dogsbody

    @Darth Wookie - Well said. Every article relating to affordable rent refers to the capital and surrounding area. The HA I work for is based in the NW so I'd like to see details relating to this region also. England IS more than London and the SE, after all.

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  • @dogsbody - problem is we are told that based on social housing waiting lists - majority want to live in crowded/expensive SE - no doubt in pursuit of better job prospects.

    Again a quick perusal of PRS rents on NE via Rightmove would instantly produce a report on NE.

    Mouseprice area data also shows average salary broken down by first part of local post code - as well as average price by property type.

    Private rental yields in the north can be up to 8/9% of capital values - versus 5/6% in the south - hence in north it can be as cheap to buy with small deposit - as to rent privately - especially with current record low mortgage rates.

    But buying of course first needs a permanent job - mortgages are not normally available to those on short term contracts - though some smaller lenders may be swayed by a massive - eg 40% deposit - as risk then is all on buyer's shoulders.

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  • In London tenants are terrified by "affordable rent". People I know waiting for transfers or waiting to be housed from the Choice-based system ae being told that flats are £200 per week or more. This is not manageable for social tenants or prospective social tenants, whether working or not working. "Affordable rent" needs to be reviewed - it is racking up the Housing Benefit Bill, impossible for tenants and depleting social housing stock. Affordable rent is not working.

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  • I note from LHA website that say SW6 1 bed rate is £225 pw - and 2 bed is £295 pw - so that will cover majority on Affordable Rent one assumes.

    Downside is that rents will likely rise faster than HB rates in medium term - ie the decade from 2015.

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  • Affordable rents in London are very much unaffordable, this is just another scheme for the Government not to Fund Social Housing and to make areas of the UK no go zones for those who cannot afford to buy, even with Shared ownership who can afford to buy, wages are on the decrease and wage increases are not keeping up with inflation, so affordable Renting is certainly not affordable.

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