In 2015 the current system for setting rents in social housing comes to an end. We should replace it with a system which addresses need and tackles the abuse, epitomised by Bob Crow and Frank Dobson, of tenants enjoying below-market rents while earning enough to pay their way.
Currently, if you are a tenant of a Council or Housing Association living in “Social Housing”, you benefit from rent control. Your rent is set by reference to local values and incomes by a calculation of mind-boggling complexity to produce a “Formula Rent”, which can then only rise by inflation, plus a percentage, which varies depending on whether you are a Council or Housing Association tenant.
This springs from the Labour Government’s attempts to bring all social rents up to a similar level, whether your landlord was a Council or a Housing Association. (There is an excellent note on this from the House of Commons here.)
That process is supposed to complete in 2015/16, having been delayed slightly by Margaret Beckett, Housing Minister in 2009, fiddling with the increases that the then inflation figures would have given; Obviously nothing to do with the forthcoming election.
The complexity of the system is evident from the note. The Government set “guideline” increases then left it to Councils and Housing Associations to implement actual rises – and take the blame. If they
didn’t play ball, then they hit them with extra fees and charges through the Housing Revenue Account Subsidy system. The Coalition Government scrapped that. Now they need to scrap, “Formula Rents”.
Let’s start from first principles. What is “housing welfare” for? It is, I think we can agree, to provide a home for those who cannot afford to rent or buy one of their own. Next question; how long should people get that welfare support? Again, I hope we can agree that they should get it for as long as they need it. So why do Mr Crow and Mr Dobson benefit from housing welfare support?
The simplest thing the Government could do would be to end any form of rent control on social landlords, but with one caveat. Rents may not be more than one third of household income after tax and benefits, unless that would be lower than the current rent, in which case the rent should stay the same and rise only by CPI.
The largest single group of tenants in social housing are elderly single people and couples living off the state pension, perhaps a little private pension income and where necessary, getting a small amount of help from Housing Benefit to meet the rent. In most cases their rent would not change and the level of support they get from Housing Benefit would not change either.
So far so similar. The same story would apply to households where nobody is working, but as our friends on the Left regularly point out more than 60% of social tenants are in work. If they are and their
income rises, why shouldn’t their rent also rise until there is no further welfare support from a below market rent?
Where this has the greatest effect though is for those tenants whose incomes have risen to a level where one third of their take home pay exceeds the current rent. They would not be receiving Housing Benefit at that point anyway and whilst they might then see steeper rent rises than their neighbours as their income rises further, that is entirely consistent with the principle of withdrawing welfare as income rises. Potentially in the case of Messrs Crow and Dobson, rents would rise all the way up to market rent. (Though as good socialists, they might want to pay more, from each according to his means and all that).
The effect of this would be two fold. The “subsidy” implicit in below market rents – estimated at over £6bn per annum in the Hills Report of 2007 – would slowly be withdrawn. That money would not go back to the Treasury, but it would go to social landlords. That would allow the current £1.5bn of capital grant support to be withdrawn entirely, but still leave social landlords better off and could be used to support better repairs, redevelopment of poor quality estates and new building to address the continuing need for more homes.
I’m sure both Bob Crow and Frank Dobson would approve!