Affordable Rent – that’s simple isnt it, it’s 80% or up to of gross market rent, the official guidance in the Affordable Homes Programme framework document tells us that!
Yes, but it is entirely dependent on being able to derive ‘gross market rent’ or GMR. If you can’t find out what GMR is as a figure then you can’t set 80% of it can you?
GMR the guidance tells us should see landlords using figures supplied by private lettings agencies (PLA) on what is the typical private rent figure in the area (and presumably the broad market rent area or BMRA as its known.)
This week alone we have had today the English Housing Survey which analysed all rents though only covers 2009/10 and so is well out of date for such purposes. Still it said that average private rent is £153pw in its summary, though it is £156pw at 1.16; £162pw at 1.17 and £149pw at 1.22. So which is it?
Perhaps we should look to the Rightmove survey released yesterday (see http://blog.findaproperty.com/renting-letting/findapropertycom-rental-index-october/) which is broken down into regions, though of course regions such as the North West contain many BMRAs. Well hang on it did give a national average rent figure like the English Housing Survey (still with me?) and this was £890 per calendar month. That equates to £205.40pw. Yet £205.40 is very different from the EHS figure of £153/£156/£162/£149 – a difference of as much as 38% no less.
But then we have another PLA research today (see http://www.bbc.co.uk/news/business-15384791) saying national average rent – which broadly equates with GMR except the guidance tells us GMR needs to include service charges – of £718pcm or £165.70pw.
Yes I hear you say £165.70 is quite a bit different from £205.40 its a 24% difference.
So imagine you work for a social landlord and are charged with setting the rent level under the Affordable Rent scheme or AR. Which figure is GMR? Here are your options:
A) You follow the Rightmove figure (after all IDS is fond of quoting their research on HB reform as official figures In Parliament so a safe bet you’d think). You set the 80% AR level at 80% of £205.40 pw and its £164.32.
B) You play more cautious and use the other ‘GMR’ figure of £718pcm / £165.70 and so set the weekly AR at 80% of this so its £132.56.
(1) If you choose B) above then you reduce the income to your RSL of the 1500 AR scheme by £31.76 per property per week so that’s £2.5m per year less your FD is not going to be happy ! Your Development Director now advises the entire AR scheme doesnt stack up financially and your employer is £150m down based on the 60-year lifespan of the scheme. You are not going to be popular are you?
(2) Choose A) above and you get £2.5m a year more so keeping your FD happy. However, your legal department says that if your GMR figure of £205.40 pw is wrong and its the £165.70 figure, then you have committed your landlord employer into setting an unlawful rent as it is above 80% of GMR. and;
(i) Some tenants are taking legal action to the effect that you have been overcharging them by £31.76pw and a class action is taken by all 1500 AR tenants against your landlord for this £2.5m per year overcharge.
(ii) The legal cost of defending this would be a further seven-figure sum which your landlord hadn’t budgeted for and so can only recover through increasing rents …. not a good option as….
(iii) Your employer is castigated all over the Housing media as they have been robbing their tenants through overcharging….
(iv) The tenants legal challenge reveals the average non-AR rent in social housing is £76.16 and so the AR scheme with a rent level of £164.32 was a 116% increase on ‘normal’ rent level in any case; …. and generally…
(v) The good reputation your landlord has built up over the last 100 years has just been blown out of the water!
(vi) Your colleagues in rent accounting are asking you how they record the situation. Is it an arrear, a write-off? Theres no guidance in RSR for this situation so what do we do?
(vii) Your FD just received a phone call about the debt on the AR scheme, he calls you….
You tell him you’ll go back and have a look at the figures and what do you find…….
UPDATE 24 October 2011
in reply to ↑@JakeBerryMPJake Berry
No call as yet 24 October 2011 just another news release from Jake Berry claiming that RTB kept down private rent levels and reduced waiting lists: (http://www.24dash.com/news/housing/2011-10-24-Council-house-sell-off-cut-waiting-lists-and-price-of-private-housing-says-Shapps-aide)
“Between 1980 and 1997 the then-Conservative Government sold 2 million council homes. One would naturally think this would have increased waiting lists for social housing. In fact, it had the opposite effect, waiting lists fell from 1981 to 1997. This low-cost affordable route into home ownership kept the market price of private housing down, enabling more families to realise the dream of owning their own home while at the same time keeping waiting lists falling.”
And then goes on to say:
“David Cameron’s New Right to Buy policy will deliver similar dividends, but this time it will also replace social stock for new affordable rent homes compounding these benefits“
Interesting how this news release which seeks to provide more justification for RTB is (a) being delegated down to Jake Berry; (b) is conflated and fundamentally flawed with no substantiation, and (c) is even more vague on replacements.
(a) is this evidence of Conservatives needing to have the rank and file bolster their political ideas? Or is this a delegating down to Jake Berry to take the flak for a flawed policy and flawed savings?
(b) Note well that ‘similar dividends’ is not the same as reducing waiting lists and not the same as depressing private rent levels, both of which were the claims for the original RTB. If Cameron, Shapps and Jake Berry believed that the ‘new RTB’ will depress private rent levels and reduce waiting lists then they would have said so. Yet they havent said this at all.
(c) I further note that “...but will also replace social stock for new affordable rent homes..” is not the same as the 1 for 1 replacement that Cameron and Shapps both pledged would happen. Again if 1 for 1 replacements are being pledged why not say this? The absence of such a pledge or guarantee smacks of this not being the rank and file Jake Berry being used to bolster the policy, but the rank and file Jake Berry being delegated to dilute the pledge of a 1 for 1 replacement (Which in any case could be replacing a 4 bed RTB with a bedsit couldn’t it?)
Of course these affordable homes replacements still have to have a rent level set which they havent and can’t have because of the woolly and vague nature of ‘gross market rents’ and how GMR is assessed or derived. Rather than address this fundamental issue we have deflection and no response on it.
Can you imagine how social landlords go about financing this programme? Well this is how my FD just put it to me rather haughtily though succinctly…
Landlord: Mr Financier we request £150m to build 1500 new homes
Mr Financier: And what is your return on these homes?
Landlord: Er…well… we cant be sure!
UPDATE 25 October 2011
You note that the IPPR has just released a research report entitled “Buy Now Pay Later” and in this you find a reference to Alison Seabecks thoughts on this:
“Across England as a whole, 80% of the average weekly market rent for a three-bedroom property is £249, which rises to £350 in London. The comparable social rents are £84.56 across England and £110 in London. Social housing providers are likely to be given greater freedom to choose their tenants and we could see low-income families, the unemployed and vulnerable excluded from new social lettings because they can’t meet the average extra £8,550 a year for a home across England or the average extra £12,480 in the capital.”
So where did Alison Seabeck get these figures from as they are not sourced in the article? You are still therefore none the wiser in determining just what the hell this ethereal ’gross market rent’ figure is?
So you delegate someone else in your department to contact Alison Seabeck to see where these GMR figures for a 3-bed came from hoping these will include the 2-bed and 1-bed rates so you can provide an accurate figure which your FD (and the Financiers) want and have a right to know.
But if Alison Seabecks figures are correct – and she was the Shadow Housing Minister after all – then another problem arises. The CIH and NHF you recall in discussing the overall benefit cap stated that a family with three children, who would need a 3-bed property, receive on average £317pw in all other benefits and reliefs such as Council Tax relief. This means that Universal Credit will only have £187pw left out of the £500 overall benefit cap limit to pay for housing. Yet if the AR is going to be £249pw as Seabeck says then where is the £62pw gap going to come from.
You breathe a sigh of relief that your landlord is not developing this AR scheme in London as that would be a £163pw gap between the ‘affordable rent’ level and the ability of benefit to pay. You think this is strange and perverse that the make up social tenants in London will have to pay is 148% of the current rent they pay…and this reminds you that you need to get back to the recruitment consultant to say No but thank you I wont be going to that interview you arranged for me this morning after you called.
You realise your position, just like the Affordable Homes programme, is totally f****d!
You turn to your assistant the one you delegated the responsibility to check the Seabeck figures, ask him has he ever fancied being a plumbers mate as you call the FD back and ask who has the maintenance contracts…..
Note to Reader
Further updates as and when new GMR figures are revealed…so probably a further three this week…. to be continued ….