The coalition government has just published a consultation document on a proposal to introduce increased rent for ‘high earners’ who are ‘social housing’ tenants (Council or Housing Association tenants). The rationale of the government is that it is unfair for tenants who have high incomes to be ‘subsidised’ by paying a ‘social rent’. In fact the ‘subsidy’ which the government talks of is a fiction. What they call a ‘subsidy’ is in fact only an estimate of the difference between a ‘social rent’ and a market rent. In other words a tenant would have to pay x amount more if they were paying a market rent in the private sector than they are for their ‘social rent’ home.
Subsidy normally means an amount of money paid by the government to subsidise some service, in this case housing. In fact the government is paying no subsidy. In launching its ‘self-financing’ system in April, it artificially gave most Councils a debt which was supposed to be a one-off settlement of the so-called historic national housing debt. This debt burden imposed upon them is exacerbated by the fact that Councils have to pay an annual interest to the government on this debt. Prior to the introduction of ‘self-financing’ there was a progressive growth of ‘negative subsidy’ which Councils paid to the government. In 2010/11 it was £907 million. Government subsidy (according to the figures of the Department of Communities and Local Government) which a minority of Councils received was £413 million. So the government was actually being funded by Council tenants to the tune of nearly £500 million in the last year of the old system. This is hardly ‘unfair to taxpayers’ who were not funding ‘social rents’ through their taxes.
The government consultation suggests that the threshold at which tenants would be charged a higher rent could be £60,000, £80,000 or £100,000 per year. It appears to favour £60,000 as the threshold. This would be the earnings of the nominal ‘household reference person’ or “the two highest earning individuals whose joint income is at or above the threshold”.
In fact for all the furore about the ‘scandalous’ situation where well-off people are supposedly being subsidised, the government is not really sure how many households have a combined earning of over £60,000 a year. It’s really just a guess because tenants who do not receive housing benefit do not have to reveal their income to local authorities or Housing Associations. It’s very rough estimates varies considerably from 12,000 to 34,000 households. The higher figure would represent around 1 in every 100 social housing households in England, the lower figure roughly one in every three hundred. The infamous tenants who are said to earn £100,000 or more per year, who have been used to try to whip up a scandal about ‘subsidising’ those who earn enough to ‘stand on their own feet’, constitute according to the government’s own guess as little as 1,000 households (6,000 at the upper level), an infinitesimal fraction of the tenant body.
Let’s assume for one moment that the government’s upper estimates are accurate. That would mean Councils having the opportunity of charging a market rent on one in every 100 properties. To say it would have a marginal impact on their income would be an under-statement. According to the housing website 24dash.com government officials have said that ‘pay to stay’ would raise £21.6 million nationally. What would be the cost of this tiny increase in income? The consultation paper does admit that there would be a cost for Councils in operating a system whereby they would have to keep track of the income of their tenants year by year, but it makes no estimate of it, nor does it offer money to assist Councils with additional costs. Furthermore it implies that these extra costs would have to be paid for out of the additional rent raised.
Whether there would be much additional rent raised is highly dubious because any tenant faced with the prospect of their rent being doubled would more than likely take up the ‘right to buy’. Given the high levels of discount it would probably be cheaper for them to buy than to pay the big increase in rent. So the chances are that ‘pay to stay’ would simply lead to the loss of more homes than would otherwise have been the case.
The consultation indicates that although there are legal hurdles to overcome their intention is to apply ‘pay to stay’ to all tenants. The document says “Existing social tenants … would need to be given adequate notice
of any proposed changes in rent levels.” Social landlords have no legal right to demand information on income in order to determine rent so the government would have to introduce new primary legislation in Parliament.
Keeping track on the earnings of all their tenants would be a daunting prospect for local authority housing departments. It would be akin to painting the proverbial Forth Bridge. It would have to keep tabs on all changes of income, year by year.
It would be very unlikely that any increased income through higher rents on such a tiny proportion of their tenants would provide anywhere near sufficient funds to pay for the additional administration costs of keeping tabs on the earnings of all their tenants. It would frankly be a nightmare to implement. Ultimately tenants would pay the cost through their rents. Even if it were only applied to new tenants, given the annual turnover of around 1,000 in Swindon, it would only take five years or so until the Council would have to police the incomes of half their tenants.
There is another sting in the tail in the consultation. It is suggested that some of the extra money which Councils might get from charging higher rents might have to be handed over to the Homes and Communities Agency. The document admits that this would be complicated because if a tenant subsequently loses a job or there is a significant change in their economic circumstances then they would revert to a social rent. What would the HCA then do. Hand the money back? It seems unlikely, but the discussion document has nothing to say on what might happen in such circumstances.
Who are these high earners and how do they get Council or Housing Association tenancies? There is little information available about them. Given the shortage of ‘social housing’ and the size of the waiting lists the chances of anybody on £60,000 a year becoming a tenant today are negligible. There might be some cases where a child of the family grows up, ends up with high paid employment, and subsequently takes over a tenancy when their parents die. There may be other cases where a relationship leads to another person moving in, and they might be a high earner or the combined earnings of two people would greatly enhance the household income. But there can be few if any cases where a household earning such an income would be given a social tenancy from the waiting last.
Means tested Council housing
All the above are practical reasons as to why ‘pay to stay’ should not be implemented. There is however, a more fundamental issue with ‘pay to stay’. It would mean turning Council housing into means tested housing. A means test based on income would treat ‘social housing’ as a tenure only for the poor. Indeed the consultation suggests that ‘social housing’ is only for “the most vulnerable in society”.
Council housing, even after the detrimental impact of ‘right to buy’ on stock numbers was never a means tested tenure. Any means test is expensive to police – housing would be no different. It is true that a household earning over £60,000 a year could probably afford to buy a home outside of the social housing sector (unless they had a lot of debt or a bas credit history). But to force Councils to introduce a means test for all their tenants to try to resolve this ‘problem’ is the proverbial sledgehammer to crack a nut.
One of the main components of the national housing crisis is the shortage of Council and ‘social housing’. This shortage will be exacerbated by the new enhanced ‘right to buy’ and ‘pay to stay’ would encourage tenants above the threshold to buy their homes, reducing even further the available housing for a waiting list of at least 1.8 million households.
Ultimately the growing numbers on the housing waiting list can only be tackled by building new ‘social housing’, particularly Council housing. If the government wants to be fair to people on the waiting lists then they need to address the shortage of ‘social housing’. Unless there is an increase in available stock then the waiting list numbers will not decline.
‘Pay to stay’ is a petty and stupid proposal which marks the failure of the government to face up to the need for more ‘social rent’ homes. Council housing was developed as social provision based on the needs of wide swathes of the population who would never be able to buy a home. As a result of ‘right to buy’ and the failure to build replacement housing Council housing (and Housing Association homes) have progressively become a tenure for the poor (be they in or out of work) with 62% of households on housing benefit.
Introducing ‘pay to stay’ would mark a dangerous step which would institutionalise ‘means testing’ in the ‘social housing’ sector. That it is why it should be opposed, as well as for the other practical reasons above.
Martin Wicks
Note:
Fixed term tenure
The government is giving Councils the right to introduce fixed term tenure for new Council tenants. Councils that introduce a fixed term tenancy will have to decide at the end of that term whether or not a tenant should maintain their tenancy or be asked to move out and take on a mortgage or move to private rented accommodation. It is obvious that one of the reasons for telling a tenant that they would have to leave (i.e. evicting them) would be whether or not they earned ‘too much’ money. This is up individual local authorities to determine. The legislation is ‘permissive’; they can chose to introduce fixed term tenancies or not as they see fit. Whilst fixed term tenancies would introduce means testing it would only apply to new tenants. If ‘right to pay’ is introduced it would extend the means test to every tenant.
Ironically ‘pay to stay’ contradicts the very idea of fixed term tenancies. If an individual/household earning £60,000 a year can keep their tenancy (albeit paying a higher rent) what sense would it make to have fixed term tenancies? On what basis would families be asked to leave if people on £60,000 a year could stay?
Martin Wicks 