Huge housing cuts on the way

The Government wants to slash how much we spend on social housing, but has it thought the consequences through?

Landlords may be the great unloved when it comes to the housing market, but our reliance on them as a nation is about to rocket, due to Government plans on social housing.

Before the Government even published the Comprehensive Spending Review, it was sure to leak the idea that it would be slashing the social housing budget in England by an incredible 50%. And that is going to have a massive effect on the housing sector for many years to come.

The leaked plans

Of course, it’s not just about a budget cut, but also fundamental changes to how social housing works. Let’s take a look at the ideas that have been made public.

An end to a home for life

With the current social housing system, tenants enjoy their council home for life (so long as they don’t breach their tenancy agreement), irrespective of whether their circumstances change in the future. This will change, with flexible tenancies introduced for tenants moving into council property for the first time.

The Government will check the status of these tenants over a period of time to ensure they are still in a position where they require social housing. If the tenants' circumstances have improved, they will then be ‘encouraged’ (and what a marvellously euphemistic term that is) to move into the private rented sector.

Rising rents

As things stand, rents on social housing properties are heavily subsidised. This is expected to change, with tenants in future paying as much as 80-90% of the market rate.

Looking on the bright side

There are certain arguments in favour of such changes. Social housing is a real problem for the nation, and it’s not one that can be solved simply by throwing money at it. Waiting lists have grown exponentially, to the point where there are now five million people waiting to be housed, and that’s despite the billions spent on social housing by the last Government.

Advocates in favour of ending lifetime tenancies argue that termed tenancies – say five or ten years – offer a bit more flexibility, so that if a family is housed in the South East but cannot find work, they then have the option of moving elsewhere to try to find a job, rather than being effectively imprisoned in their existing situation.

What’s more, by increasing the amount tenants pay in rent, that money can then go towards the building of further social housing to address the current shortage.

The other side of the argument

Of course there is another side to the argument. For example, the Government has already announced considerable cuts to housing benefit payments. If the payments are cut, and the rents charged are increased, what on earth happens to those families unable to pay? Will they be forcibly re-housed somewhere a bit cheaper?

A further problem is that the Labour Government was well behind on its house building targets anyway, and by slashing the budgets in this way, that massive shortage is not going to be meaningfully addressed for years, decades even.

The idea is of course that the private rented sector will step into the breach. But just how realistic an idea is that?

The lot of the landlord

Things have certainly improved for landlords of late. Rental income and demand have reached record highs, so for many landlords the numbers are starting to add up again. However, if the Government wants landlords to pick up the social housing slack, it is going to have to make things much easier for them.

For starters, accessing finance to expand portfolios is still extremely tough. Yes, more lenders have entered the market, but that hasn’t made a huge difference yet – according to the latest survey of landlords by Paragon Mortgages, just 17% of landlords reported mortgage funding as being widely or reasonably available over the quarter.

That’s a horrendous figure if the Government really expects landlords to step in and fill the breach. The Government will also have to consider the red-tape that landlords face and reduce it if they expect the private sector to step up.

Who will build the homes?

And what about the homes themselves? Where are they going to come from?

Housebuilding is currently at its lowest level since 1923. Housing associations accounted for around half of the new housing stock produced last year. OK, so increased rent may help fund an expansion, but will it be enough to meet demand? I highly doubt it.

Figures from the Office of National Statistics in September revealed that the value of new construction orders - in other words, new building jobs – on private housing projects crashed by a quarter from the first to the second quarter of this year. Clearly the Government needs to do something to stimulate some demand for housebuilding.

However, Conservative plans published before the election actually make it even harder, and more expensive, for builders in most areas, as I explained in Tory housing plans will only push up prices.

The devil in the detail

The Government has been on a bit of a drive of late to appeal to segments of its traditional supporter base by being tough on things like benefits, and pronouncing an end to council houses for life will no doubt be welcomed by those voters.

However, there are a number of very serious questions that need answering. By cutting housing benefit and increasing rents, are we essentially removing social housing from certain areas? Who is going to be building the properties that the nation needs? And what is the Government going to do to help the private rental sector pick up the burden once it slashes the budgets of local authorities?

Over to you George.

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