Is the Government set to merge the two rented sectors?

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

Within the current housing and political landscape how long will it be before the Government merges the two rented sectors into one?

Already we’ve got housing associations offering market rented homes and private landlords moving into social housing – partly, because of the confidence the regulator gives investors.

While the Government continues to fly the flag of affordability – “we’re on track for 170,000 affordable homes by 2015” – few will be social rent, with up to 80% of market rents the new game in town.

In fact, social housing is rarely even mentioned in Government circles these days, with the tenure under yet more threat from Right-to-Buy – with each supposed replacement up to 80% of the market rent.

In addition to this, we’re now hearing the Montague review is set to recommend relaxing council requirements for social housing through section 106s in a bid to entice institutional investment in rented homes.

The Government doesn’t seem too bothered about the impacts of higher priced homes on the housing benefit bill despite its stated aim of reducing expenditure through caps and cuts.

It was only highlighted earlier this month that taxpayers will have to fork out £17,500 in increased housing benefit costs for every new home built under the £1.8bn Affordable Rent programme.

What it does indicate, however, is that the Government is happier to plough money into personal subsidy than into subsidised housing – which academics and senior housing professionals believe is a more efficient use of money.  

“I think it has to be,” says Stephen Flowitt-Hill, director of housing and finance at Saffron Housing. “It would allow subsidy to be applied at the point of need which is exactly what housing benefit is supposed to do.”

The issue here would be how this mechanism would be applied and monitored efficiently - and cost effectively - by local authorities and housing associations in different areas.

The Government is also taking steps to ensure those social tenants who can pay a market rent do, through its ‘pay to stay’ proposals. Interesting to note how this plan has gone from tackling households earning £100,000 to those earning £60,000. The income thresholds are currently being consulted on.

Most housing associations believe they have tenants that can pay a higher rent with it also becoming common for people to sell their homes and move into sheltered housing to avoid death duties. The key question then is how many people in social housing could afford market rent properties?

The end of social housing

The obvious minus of having one rented sector would be the end of social housing which the Government is already killing off anyway.

We’ve skipped from the days of council housing being a 'lifestyle choice' to social housing becoming a safety net and more recently - because of the stigma now attached to it - the tenure of last resort.

The critical point of no return, it would seem, was the introduction of the 1977 Housing Homeless Persons Act under Labour which moved state housing away from a ‘first come first served’ approach to a needs-based system. In other words, says one council worker, “it was the arch rug pull on equitable housing allocations”.

This, as the argument goes, led to widespread abuse of the system and was partly responsible for the stigma it has today.

Now, it would seem the existence of subsidised housing is under threat altogether and that it could soon be lost in favour of one rented sector. Certainly the only sure way of producing social units is through cross-subsidy which many housing associations have been doing and to some success. But the numbers are on the fringes and there are huge regional differences.

Speaking earlier this year, Rob Young, chief executive of Helena Partnerships, said the organisation would need to develop 275 sale-type products to cross subsidise the building of 25 affordable homes.

The key issue around any reform of this nature also comes back to the tangled legacy of historic grant paid out on previously built homes and the future regulation and privileges of one rented sector.

Funding

Then there is the funding and it's clear that where the Government can rely on private enterprise to fill the gap of state provision it will.

We've all heard how institutions have an appetite for residential investment and there are signs that this is progressing.

If reports around the Montague review are to be believed we could soon see deals where the Government and councils would loan developers and housing associations land they own with the state repaid once developments were sold to institutional investors such as pension funds.

We've also heard how a group of housing associations are modelling returns based on an approach where they build the units and sell them on to investors and use the cash to build more homes.

There may also be one or two REITs set up by the end of the year. One is bringing together 10 housing associations from across South East England with an investment target of £500m by listing on the alternative investment market.

The introduction of institutional investment will, many believe, shine a true light on housing management.

Keith Jenkins, senior partner at Winckworth Sherwood - who is advising on the REIT deal - had a poignant remark to make about the shift this brings.

He said: "The potential huge change that this makes is that money no longer follows the development head honcho, money will start to follow the housing management head honcho. If I was an investor, I would be more likely to invest in an organisation that is run by a good housing manager, where high customer satisfaction is expressed in low vandalism, low turnover, high occupancy, low arrears – all of which are measures of good housing management."

Ross Macmillan is the deputy editor of 24housing magazine.