Pay to Stay could lead to 'subsidy giveaway'

Published by 24publishing for 24dash.com in Housing and also in Central Government, Communities, Local Government

Today marks the end of the Government’s consultation on plans to charge higher earning social tenants more rent.

The plan is so blunt and affects such a relatively small number of people – 51,000 if the Government chooses to set the threshold at £60,000 – that it has been described by some as ‘taking a sledgehammer to a nut’.

Leaving aside the obvious fragmentation and uncertainty of three separate rent regimes operating in the social mix – the hangover from Labour’s rent restructuring policy, Affordable Rents and now ‘Higher Rents’ – the policy is bound to speed up Right to Buy (RTB) and, in turn, channel subsidy to the better off.

The principle of rent flexibility is welcome but it’s the interplay with other policies where Pay to Stay starts to look bad.

If made mandatory, the policy would push higher earners into a choice of stay and pay more or exercise the RTB. There are a number of issues with this. 1. Why, if they are deemed to be able to pay near market rents, should tenants then be handed up to a £75,000 discount on the property? 2. It will inevitably speed up RTB sales and further deplete the social stock, as the replacements will be Affordable Rents.

However, there is a further whiff of hypocrisy here. The Government is constantly referring to social housing as a scarce resource and how subsidy needs to be channelled to those most in need.

However, it works out cheaper for the Government to continue subsidising higher earners in social rented homes than taking the ‘subsidy hit’ by selling off the homes at whopping great big discounts.

The Chartered Institute of Housing (CIH) says the consultation is a great opportunity to engage with Government and the sector about future rent setting, but warns current plans could further fragment rent policy and lead to disincentives for tenants to improve their circumstances.

It has also crunched the potential subsidy loss if 23,000 tenants – the midpoint between the consultation papers’ low and high estimates of high-income tenants – bought their homes through RTB at the maximum discount.

In its response to the consultation, it says: “…the government would be giving away a total ‘subsidy’ of around £1.7 billion to those that choose to buy. Compared to this, the amount of economic subsidy these 23,000 tenants would receive while paying social rents during 15 years at £662 million is about a third lower.”

This illustration shows that if high-income tenants stayed as social tenants they would receive less public subsidy than they would do if they bought their social houses under the RTB.

Might it not be fairer to subject RTB to an income cap like the Government’s HomeBuy shared ownership and shared equity assistance schemes, which are only applicable to those earning below 60,000?

However, it’s not just value for money at stake here. Implementing a system that tracks the income of social tenants who, by definition, are often living chaotic lives, could be inline for a Nobel Prize. That’s, if it’s ever done. It would also need primary legislation.

The CIH warns that the administrative costs of collecting, recording and updating income data; monitoring changes in personal circumstances and enforcing the rules have been issues encountered when such an approach has been applied abroad.

Not to mention the fact that landlords would be adding another string to their bow – in addition to the 50 other roles they have in the community – that of 'agents of the state'. The CIH warns that taking on the role of collecting and monitoring income data “would redefine landlords’ relationship with tenants, something that many have spent a lot of time and effort to build up”.

In a research paper looking into future rent setting options, the CIH explores regional rents – which would counteract the London-centricness of Pay to Stay – further flexibility within the target rents i.e. allowing for higher thresholds – and a redistributive system based on rebates.

A final concern is the knock-on effect of driving out and deterring higher earners from living in social housing. With plans already in place to drop affordable housing requirements through section 106s, do we really want to be deterring higher earners too? “If only those in greatest need are in social housing, social housing would further residualise and turn into marginalised communities of people predominantly on benefits,” the CIH warns.

Ross Macmillan is the deputy editor of 24housing magazine