Flexible tenures, affordable rent and the New Homes Bonus are among the government’s flagship measures in relation to housing. Anita Rivera assesses their possible impact.
The Department for Communities and Local Government’s consultation document Local decisions: a fairer future for social housing and the White Paper Local Growth: realising every place's potential tell only half a story. To understand the full story one must also consider the inevitable related social costs of the housing reform measures. This article addresses two of the proposed measures and their potential cost to society in delivering a ‘fairer future’.
The flexible tenures are explained in DCLG’s consultation document and White Paper; the tools to deliver flexible tenancies are contained in the Localism Bill. While greater flexibility in the social housing sector will be beneficial and is welcomed by many registered providers, regard must also be given to the risk of displacing mixed and sustainable communities and avoiding increasingly polarised societies.
Flexible Tenures and Affordable Rent
At present social landlords offer lifetime tenancies referred to as a ‘tenant for life’. This fails to recognise that many people have only a short-term housing crisis or need and frustrates the ability to provide housing for others who are in need. In response, government is promoting a package of changes including fairer allocations, greater mobility, fairer provision for homeless people, flexible tenures and affordable rents.
Regarding flexible tenures and affordable rent, the government is – in the words of Housing Minister Grant Shapps – “introducing a more flexible affordable rent tenancy. It will be offered by registered providers (typically housing associations) to new tenants at a rent higher than social rent and at a maximum of 80% of local market rents that will be reviewed after an agreed period of time”. Although those who currently have security of tenure are protected from the new regime, the ability of registered providers to secure higher rents and to set shorter tenancy terms (a minimum of two years) will mean that they will have greater flexibility to manage their stock more efficiently, benefit from cross-subsidisation and increase revenue to provide more social housing.
It will be up to registered providers to decide the length and type of tenancy to grant, in compliance with their strategic policy. Strategic policies must “set out the broad objectives to be taken into consideration by individual social landlords in the area regarding their own policies on the grant and reissue of tenancies” (Para 2.19, DCLG consultation document Local decisions: a fairer future for social housing and the White Paper Local Growth: realising every place's potential). The policy should be the result of collaboration between tenants, registered providers and local authorities. But the devil is always in the detail. It is unclear what criteria will be used to determine the priority of eligible people for affordable housing and how, and if, housing benefit allocations will influence decisions. Care needs to be taken to ensure that the allocation of social housing and length of tenancies are not solely driven by the financial capacity of tenants to pay for what they need. Regard must be given to affordability to ensure that the allocation of social housing and length of tenancies do not sterilise mixed income communities and create poverty traps.
What will be done to avoid people getting stuck in a poverty trap when there is no incentive to improve their situation? Studies show that rents rise at an average of 5% per annum. The proposed caps on local housing allowance (a form of housing benefit) to be introduced in April 2011 will be £250 for a one-bed dwelling; £290 for a two-bed; £340 for a three-bed; and £400 for a four-bed and larger properties. Both the Chartered Institute of Housing (CIH) and The National Housing Federation have modelled the impact of the new rental levels in extending the poverty trap for tenants in receipt of housing benefit. To ‘make work pay’ and receive more than they would in benefits, a family of two adults and two children paying £83 per week for a three bed flat would need to earn a minimum income of £30,000. However, if the rent was increased to £250 per week, they would need to earn £50,000 per year to escape dependency on housing benefit. CIH's analysis shows that if rental inflation is at 5% per year, within 20 years all rental market areas in London, almost all in the South East and half of those in the South West will be affected by the caps. Within 30 years one and two bed properties in all areas in Great Britain will be affected by the caps. A report by Cambridge University shows that by 2018 only 5% of two-bedroom homes will remain affordable to those in Manchester claiming housing benefit.
The reality is that those with little money will end up living in areas where rents are cheap, as evidenced by a Westminster City Council's recent announcement that it will be providing 80% of its homeless housing benefit claimants temporary accommodation outside of the borough. Jobs may be at risk depending on the ability and affordability of people to commute. Equally, job prospects may be limited in areas where cheaper accommodation is available.
The absence of a consistent, justified and financially equitable approach to the allocation of housing and setting of rent levels to accommodate all types of need will inevitability result in unfairness and may jeopardise the existence of existing mixed communities.
Cambridge University's study – How will changes to local housing allowance affect low-income tenants in private rented housing – highlights the potential outcome: "the official study of the effects of the proposed changes to LHA [local housing allowance] is inadequate to assessing the outcomes, costs and benefits of the measures. Its deficiency is in scope, rather than accuracy or validity. It shows the cuts in payments to those who are by definition on minimal incomes; our simulation demonstrates that this means increased poverty rates among working-age adults, children and retired people. This confirms the position taken by other analysts that this is a distributionally regressive measure in directly reducing the value of transfers to those near the bottom of the income distribution."
The New Homes Bonus
The New Homes Bonus was announced by government to stimulate development and housing delivery and £900m has been set aside to match fund council tax for a six year period on every new home built. Grant Shapps stated in August 2010 that councils that "take action now to give planning consent and support the construction of new homes where they are needed and wanted will receive a direct and substantial benefit for their actions".
The government has also proposed additional enhancement for affordable homes but does not make any distinction between different types of affordable housing. A local authority will benefit from the "double" bonus even when the new housing is subject to flexible rents and tenures which secure rent of 80% market value. This is arguably more akin to intermediate housing (which itself is more attractive to developers and their lenders) than to the more traditional concept of social rented housing which is based on level of income rather than rental market value. While receipt of the additional enhancement for affordable homes may help the balance sheets of many local authorities, this ‘additionality’ does not incentivise local authorities to deliver new affordable social rented accommodation to the majority of households in need.
The new homes bonus will help to stimulate some but not all types of development. It is understood that the bonus will only be paid on “net” additional new housing. This means that council estate regeneration schemes will not benefit unless there is a net increase in the number of housing units delivered. If councils are unable to utilise the new homes bonus as an incentive to kick start regeneration schemes they are less likely to happen unless and until a dedicated project funding stream is secured. No alternative funding is proposed.
Without financial backing or incentives, the prospect is bleak for major housing renewal and regeneration projects. These types of schemes take years to bring forward and require long-term negotiation, consultation and collaboration between existing social housing tenants, local housing authorities and registered providers where the development is be carried out by them or sold to them. Often, the ability to reinstate tenants in the re-developed housing estate enables councils to avoid lengthy delay, long and unnecessary wrangling through the courts and/or exercise of their compulsory purchase powers. These negotiations are then delivered through back to back obligations with registered providers. In the absence of a guarantee that registered providers will not seek to charge a higher rent or limit a tenancy’s term of years, reaching a collaborative and negotiated agreement with existing secure tenants is less likely. If councils decide to nevertheless proceed with their regeneration plans, there may be an exodus of tenants who cannot afford an increased rent to move to more affordable areas.
The social costs that are a potential consequence of these reforms should not be underestimated. But that does not mean that one should not strive to achieve fairer society so long as the pain suffered and compromises made are truly counter-balanced by the rewards. Understanding the full picture can only be achieved by reviewing the full scope and impact of the measures and interrogating the results. Once fully understood, all stakeholders should be engaged in creating and implementing a just and equitable approach to securing a fairer society without jeopardising mixed income communities.