The Great Affordable Rent Con

The Great ‘Affordable Rent’ Con 

I’ve started using graphs in my blogs and judging by the views, which have increased significantly you like them.  Below is the graph (Chart 1) that shows Coalition policy is one of social housing and private housing rent convergence. It has the added point that HB for social housing is on such a marked trend that it will overtake LHA paid to private landlords, which as it starts from about two-thirds of it is a very significant trend.

Chart 1

Using blog views as the benchmark you clearly like the graph below that shows how much private tenants will have to make up their rent and how LHA will pay less and less of the rent level. “If a picture paints a thousand words” indeed as Chart 2 reveals!

Chart 2 – How much more private tenants will have to pay each year for rent

Or put as in Chart 3 below what percentage of private rent will LHA pay the ‘picture’ the graph reveals is starker:

Chart 3 – Diminishing LHA as a percentage of gross market rent

The use of graphs or pictures really does hit home and I imagine the Housing Minister Grant Shapps’ face will be a real picture when he looks at the picture on his ‘Affordable Rent’ model. This you will recall is the grand plan of Grant Shapps to solve the crisis in supply of social housing (aka real ‘affordable’ housing) – a form of housing his political dogma dislikes so much he is attempting to sell ‘up to’ 100,000 of them off cheap. Although it must be said this is less than his plan to sell ‘at least’ 100,000 of them off which he tweeted at Tory conference in October 2011. Shapps believes and is on record as stating that private tenants will move from private renting to his new ‘affordable rent’ model which is set at up to 80% of gross market rent levels. I have posted many times before on how this will cost the public purse so much more in HB with the latest being here and this refers back to many previous posts that it could cost as much as £1.3bn per year more.

When he announced this in 2011 I argued immediately that it would cost more to the public purse yet Shapps denied this. The graph above shows that currently in 2011/12 LHA pays 66% of the gross market rent (GMR) which of course means that his misnamed “Affordable Rent” model at up to 80% of GMR will mean a higher HB bill. 80% is more than 66% whichever way you look at it Mr Shapps.

Ah but hold on I hear you say didn’t Shapps reveal in the Housing Strategy that some of the AR models were at 65% of GMR? He did you are right, well in part. It was only some of them of course but Shapps would retort that 65% is less than 66% and that is correct. What he said on page 24 of the Housing Strategy was :-

The new homes created under the Affordable Homes Programme will be offered at a range of different rents up to 80 per cent of market levels, according to local circumstances. Affordable rents in London are on average 65 per cent of local market rents, and 95 per cent of Affordable Rent properties in London will be made available at rents lower than 80 per cent of market level

So in London which is 16% of the housing stock nationally average AR levels will be 65% but not in the rest of the UK. So in the other 84% of the country in housing terms they will be 80%. [Bizarrely if 95% of London AR levels are below 80% then 5% are above 80%!!!]

However, since the Housing Strategy we have seen DWP cut Shapps plans off at the kneecaps by announcing a freeze in LHA in 2012/13 and then each year after LHA to increase by 2% while GMR levels will rise by 4%. Confused with all this talk of numbers? Don’t be dear reader rest assured I have a simple picture for you!! Yes its worth waiting for!!

Chart 4 – Affordable Rent with LHA freeze and below inflation increases included

Notes to Chart 4 above:

The above lines on the graph represent benefit levels.

So the blue line which is highest and represents Affordable Rent at 80% of GMR pays out the most benefit.

That blue line (ar 80%) is way above the purple LHA line and so ar80% pays out far higher housing benefit.

The ar80% (blue) line rapidly climbs well above the purple (LHA) line Eventually even the normal common or garden social rent line (green) climbs above the LHA line

Even on Shapps best case scenario (ar65%) or the red line, we see this rising way above the purple LHA line and so costing the taxpayer and public purse far more in HB.

Sorry did I say Shapps face will be a picture? Personally I prefer ‘the face that blanched a thousand Shapps” (it seems Kylie has become Helen of Troy!) Now the housing reader will also recall that each new Right to Buy sale (aka RTB2) that is another of Shapps and Cameron’s plans sees every RTB2 sale replaced with an affordable rent replacement….at 80%. So look again at the gap between the blue line (AR80%) and the green line (existing social housing soon to be RTB2). How much more will we pay out in HB? A significant amount and the figures are (2011/12) £70.95 for social rent: £135.09 for AR80% and this is a 90% increase for a RTB” property sold today. Yet still Shapps maintains this will cost less!!!

There is an easy way to confirm the above and guess what its in a graph!  Chart 5 below plots AR at 80% and AR at 65% against the LHA cost and shows the extent over time over the excess HB that will be paid to AR properties over private properties receivng LHA.

Chart 5 – added cost of AR over LHA

As you can see both the afforable rent models, AR at 80% (AR80) and AR at 65% (AR65) exceed the LHA figure which is zero in the above with the graph just representing the excess potential HB to be paid. Chart 6 below puts a monetary value on this excess cost to the public purse.

Chart 6 – Added cost of HB bill of Affordable Rent

Over the period that we have the DWP /CLG projections for the AVERAGE excess cost of AR at 80% of gross market rent is £1.2bn per year and it reaches £2.3bn extra by 2030.  The AVERAGE excess cost of AR at 65% of gross market rent  is £480m per year and rises to £1.25bn by 2030.

But of course Grant Shapps denies it will cost more, he is after all a consummate politician!   And note well that this is the best case scenario for Shapps with the new AR tenants being in their ‘affordable’ properties rather than the costly private ones!

Chart 7 below looks at the excess between AR80 and AR65 against social rent levels

As is apparent the excess of HB paid out is more initially and close to £1.3bn per year I stated in previous blogs for AR80 on the issue yet rises to £2.2bn per year by 2030.  This is due to the huge increases in social rent levels that Shapps and this Coalition plan.  Yet it still has an average excess HB cost per annum of £1.53bn over that time. So the AVERAGE excess cost each year till 2030 is between £1.2bn and £1.5bn at AR80.

The AR65 figure is always higher than social rent figure from a current figure of £750m extra per year rising to £1.15bn extra per year by 2030.  The AVERAGE increase to the HB bill here is £800m per year and so the AVERAGE increase to the HB bill at AR65 is between £480m and £800m per year.

Note that all of the above assume the AR model does NOT continue after 2015.  If it does then more numbers of AR properties will mean even greater cost to the public purse in higher HB payments!

I leave you with the words of that consummate politician Grant Shapps from an article in the Guardian on 31st March 2011.  He said in this question and answer session:

@indigoshrimp

QUESTION

Please can you explain what the understanding is between yourself/CLG and Iain Duncan Smith/DWP on how the total housing benefit bill will stack up in the future?

Affordable rent will inevitably mean housing benefit payments will rise, and yet IDS seems set on reducing the HB bill. How do you square that circle?

ANSWER FROM SHAPPS

I appreciate that at first sight your logic seems sensible. Build affordable rent, allow all of the up to 80% rent to be covered by Housing Benefit (HB) and surely the bill must rise.

However, this misses out an important factor from the equation. Many of the people likely to move into Affordable Rent homes are living in the Private Rented Sector and may be receiving HB for all of their current higher rent. Therefore in HB terms there isn’t much impact through our Affordable Homes programme.

There isnt much impact Minister?  I somehow think that the figures and graphs above show we differ on the definition of ‘much impact’ as we do on the definition of ‘affordable!’

Joe Halewood (speye@hsmonline.co.uk)

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2 thoughts on “The Great Affordable Rent Con

  1. [...] The Great Affordable Rent Con [...]

  2. What you read in March « SPeye April 2, 2012 at 7:00 pm

    [...] The Great Affordable Rent Con [...]

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