Rent is the new grant

At the CIH Conference last week, Housing Minister Mark Prisk said that the new funding settlement for housing would involve ‘something for something’. To get a small slice of the increasingly tiny Government subsidy for new rented homes, providers will have to make a bigger contribution from ‘their’ own resources.

Government has been in confusion as to whether there would be a second round of ‘affordable rent’ (that’s the one with rents at up to 80% of market levels) ever since the first round was announced. Back in 2011, then LibDem Minister Andrew Stunell said that ‘affordable rent’ would be a ‘one-off that will not be repeated’ and that a new model would be needed after 2015. At the same time, the then Tory Minister Grant Shapps/Michael Green said there would indeed be another round, and that the Government would be looking for increased cross-subsidy from other activities to fund new homes. Not for the first time, Stunell was wrong. Although some providers, mainly those that lost sight of their social purpose years ago, were delighted to be moving away from social rent, most warned that the ‘affordable rent’ model should not be repeated because of the pressure it puts on their borrowings and viability, pushing their capacity to the limit.

Oblivious to these warnings, the Government has gone even further down the road of removing grant, requiring providers to borrow even more on average to build each home in the new programme. Prisk said the cost of this additional borrowing should be met from ‘efficiencies’, ‘conversions’ and ‘disposals’.

Mr Prisk seems not to be aware that there is a difference between ‘efficiencies’ and rent increases and property sales. ‘With all this money and this commitment, there will be expectations about efficiencies,’ he said, ‘In considering bids for grants, we will expect providers to bring forward ambitious plans for maximising their own financial contribution…. We expect providers to take a rigorous approach when looking at every relet and asking how they can use them to build more homes for more families. I expect the result to be a significant change in the number of homes that are either converted to be let at affordable rent or are sold when they become vacant.’

So there we have it. More homes are to be provided by ‘converting’ more property from social rent at 40-50% of market to ‘affordable rent’ at 70-80% and by flogging off more existing stock. And to get grant, providers will have to demonstrate that they are doing as they are told.

Prisk said that under the current programme ‘a modest level of relets have been converted to Affordable Rent’. The only official estimate I have seen is that it might be up to 82,000 homes stolen from the social rented stock: how many more does he envisage to pay for the new programme? A civil servant had to move quickly to explain what Prisk meant, but it’s not much of an assurance: ‘Landlords will not be expected to convert all re-lets to affordable rents in the new funding programme’ he stressed.

Very helpful. ‘Not all’. But it is odds-on that we are heading for a position where a majority of social rent re-lets are ‘converted’. In essence, the replacement for grant is huge rent increases.

The Government has always claimed that the ‘affordable rent’ product would be let to the same people as social rent. The only likely outcome of that policy, when combined with a high rent regime, is that more new tenants would be on benefit and for higher amounts. A recent study confirmed that new tenants occupying ‘affordable rent’ homes were even poorer than those already occupying ‘social rented’ homes, the opposite of the social housing allocations policy that the Government is trying to pursue.  Once again housing benefit is taking the strain.

The ‘affordable homes’ programme, which includes ‘affordable rent’, has a budget of around £957m a year for 3 years from 2015/16, about £1 for every £20 the Government spends on housing benefit. Given their obsession with cutting HB, there is a clear contradiction within Government policy. We need to intensify the argument for a major switch to capital rather than personal subsidies in the coming months.

Courtesy of Steve Hilditch at Red Brick, and on Twitter @stevehilditch and @labourhousing