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Why is there so little debate about the fact that social housing rents are set to rise so much faster than prices and earnings?
Figures out this week from the ONS show that CPI inflation rose 1.9 per cent in the year to January and average earnings rose just 1.1 per cent in 2013. Earnings have now been falling in real terms since 2010, the longest period for at least 50 years.
And yet all around the country social landlords are preparing to increase their rents by at least twice the rate of inflation, and many times more than earnings, according to recent surveys by Inside Housing.
Housing associations are planning an average increase of 3.7 per cent, with some using extra flexibility to charge up to 4.8 per cent more. Only one said it was raising rents by less than the maximum.
Among local authorities the average increase will be 5.16 per cent, rising to a peak of 7.22 per cent in Welwyn & Hatfield, constituency of former Conservative Party chairman and former housing minister Grant Shapps.
These increases are partly down to longstanding government policy and partly down to an abrupt change in the rent-setting formula. Until 2015, social rents in England can rise by RPI inflation plus 0.5 per cent plus an extra £2 a week for those landlords who are not yet charging target rents. In a change announced last year, rents can rise at CPI inflation plus 1 per cent from 2015.
Rent increases for this April are set according to the RPI figure for last September of 2.7 per cent. However, 2014/15 is also the last year that landlords can use their extra £2 per week flexibility, which has prompted those much bigger increases to fill holes in their business plans. Some even seem to be ignoring the rent increase limits.
Landlords argue that these increases are vital to maintaining development programmes and community activities and to the viability of their business plans. The sudden change in formula has had a particular impact on those who had not yet achieved target rents.
Since most tenants are on housing benefit that means most (but not all) of the increased bill will be picked up by the Department for Work and Pensions (DWP). That’s one reason for the lack of debate, even if it runs directly against what the DWP claims to be doing about controlling the housing benefit bill and reducing benefit dependency.
However, what about tenants who are working? If the increase in average earnings is only 1.1 per cent, the minimum wage did at least rise by 1.9 per cent last year and even George Osborne says he want to see it rise by more than inflation in future. However, thanks to government pay policy, average earnings of public sector workers rose by just 0.5 per cent last year.
The extra that working tenants will have to find will obviously vary from property to property, region to region and landlord to landlord. As an indication, the average housing association rent in England in 2013 was £88.98, so a 3.7 per cent increase would be £3.29 a week.
Depending on how much they are paid and their circumstances, families with someone in work will also be entitled to tax credits, child benefit and partial housing benefit. However, in-work benefits like tax credits and council tax support have been cut and that rent increase could still eat into a limited budget. Remember too that their rent has been going up by more than inflation for years and more than their earnings since at least 2010 and that the squeeze on low income families is set to continue.
And the rent increase has implications for the bedroom tax too: those deductions of 14 per cent for one ‘spare’ room and 25 per cent come off the eligible rent. The bigger the increase, the more people on partial housing benefit will ‘float off’ any entitlement, and the more people on full housing benefit will lose. The difference between 14 per cent of £88.98 and £92.27 (£46p a week) may not sound like much but only if your budget has not already been squeezed to nothing and your other benefits are not restricted to an increase of just 1 per cent from April. The National Housing Federation revealed last week that two-thirds of tenants affected by the bedroom tax are already in arrears.
At a local level, these sort of issues are being debated. In Cambridge, for example, the Liberal Democrat mayor had to use his casting vote to force through a 5.76 per cent rent increase after tenants and Labour councillors voted for a smaller amount.
Meanwhile Nottingham City Homes says it has no choice but to apply an above-inflation increase but is consulting with tenants on two different options: a 5.47 per cent increase for all tenants; or increases of 4.68 per cent for ‘responsible’ tenants with a £100 credit at Christmas but 7.5 per cent for ‘irresponsible’ tenants. Being ‘irresponsible’ in this context might mean failing to look after your garden, failing to stick to an agreement to pay your rent arrears or committing crime or anti-social behaviour in your neighbourhood. That will clearly generate a debate all of its own.
However, to go back to my original question, the bigger questions about increases in social rents do not often get asked at a national level. Contrast that to the time devoted to talking about a few high-earning tenants. Housing finance requires tenants to pay more and we seem to have become so used to this that we rarely stop to ask why or whether it’s such a good idea.
If austerity and the continuing squeeze on wages and living standards do not give some pause for thought, then what about the prospect of more cuts in housing benefit in future? Increases in the local housing allowance for private tenants are already restricted to just 1 per cent a year (with some relief for high-demand areas). Applying the same to the social sector would play so much havoc with landlords’ finances and run so completely against established government policy that it seems hard to imagine. But would you rule it out?