Coalition welfare reforms & the systemic flaw the end of Affordable Rent

Last week I posted a well-read and well-received blog that Universal Credit the major and radical welfare reform action to be taken by the government next year has a systemic flaw and a fundamental flaw.  Yet I described it as a systemic and fundamental flaw which could be read as one flaw and not two separate ones.

There are two separate flaws, a fundamental one and a systemic one and here in this overlong blog I attempt to explain these 2 flaws in lay and simple terms.  My apologies for the length of this post but these flaws need to be considered in context and much more deeply than they have been to date.

The quick summary is:

  1. The systemic flaw in the overall benefit cap is explained so a 7 year-old who can use a spreadsheet can see what it is
  2. Next year 4 and 5 child families are too risky for social housing to accommodate even if working and across the country
  3. Next year 3, 4 and 5 child families in Affordable Rent properties are too risky to accommodate even if working
  4. In a few years the 2 bed Affordable Rent model is unsustainable and too risky for tenants and landlords
  5. Finance Directors in social housing will see that Affordable Rent is too risky a model and will worry if they still have a job
  6. Banks and funders for Affordable Rent will revise and possibly withdraw support for Affordable Rent model
  7. There will be no second round of Affordable Rent and Shapps argument to squeeze or leverage more is bunk
  8. Shapps will be urging Cameron for the reshuffle to get the hell out of housing

Oh and the Pope will sanction condoms for UK Catholics!

Yes it’s the best part of 6000 words (about 12 sides of A4) as this is not easy to explain.  I tried to explain this yesterday at a seminar following some highly articulate and very knowledgeable speakers who’s presentations revised parts of my view and added to it greatly.  I failed miserably to do this. My apologies to the audience and fellow speakers.  The fact your views and takes on welfare reform and Universal Credit – a huge area of which much is still not known – made me attempt to change my presentation is still my fault and I take full responsibility for that.  The only saving grace is that the baseline figures I use in the systemic flaw and fundamental flaw are very reliable and accurate. The following makes the points I put in bulletpoint form above.

Oh and I think my prediction that 50% of homeless hostels will close within 3 years did get across too and a large number of DV refuges also – but thats for a separate blog.

The Argument

Nobody should receive more in benefit payments than the average worker receives in pay is this government’s political mantra.  Very hard to argue against that as it makes sense, moral sense, political sense, and economic sense – it is just.

It is the basis of the government’s radical welfare reforms that includes capping rent benefit levels, Universal Credit, the overall benefit cap at the heart of this and most recently in the media banning the under 25s from receiving housing benefits proposal which led to a major and very significant speech by the Prime Minister on Monday in which he set out his version of the argument and called for a debate.

Why am I focusing upon ‘housing’ benefits so much?  The answer is that Housing Benefit is the only benefit that is being cut or reduced or even disappearing in the governments radical welfare reforms and response to what it perceives is the dependency on benefits and welfare benefits such as ‘dole’ or disability benefits are not being cut.  The government is making it harder for dole or disability benefits to be received or retained and including more sanctions on them (which will amount to a backdoor cut) but are not cutting welfare benefits only housing benefits.

There is a huge flaw in the Coalitions benefit reform proposals that will come into force next year from October 2013.  It will mean that larger families on ‘benefits’ will lose out by £100pw in London and £82pw in the rest of the country.  I have called this a systemic and fundamental flaw and it is both of these and the point of this paper is to explain this as simply as possible.

Currently there are two broad types of benefit namely welfare benefit and housing benefit which are paid to tenants.

Welfare benefit(s) include out-of-work benefits such as Income Support and JSA, or ‘dole’ if you prefer, and disability benefits which are both out-work and in-work benefits.  Note well that whether you live in London or Land’s End or John O’Groats the amount of ‘dole’ is £71pw and doesn’t differ.  It means we have a welfare benefit cap already in place because it doesn’t matter where you live the amount is still the same. That holds for all welfare benefits ot just dole.

Housing Benefit is also an in-work and out-of-work benefit paid to those who rent. This does differ in amount depending on where you live and whether your landlord is a private one or a social one.  To keep the argument simple I am using social landlords (council and housing associations) to illustrate the problem and its impact. For completeness the issues I raise are worse in the private rented sector as the rent cost is much higher there.

The problem arises because from October 2013 these two benefit types (welfare and housing benefits) will merge into one benefit called Universal Credit and will be subject to the overall benefit cap set at £500pw for families.

Reliable figures exist for the total average amount of welfare benefits a family with 3 children, with 4 children and with 5 children receive and are not disputed. We also know what welfare benefits will be with a high degree of accuracy for 2013/14 when Universal Credit comes in so we can see the effect of the £500pw absolute cap that these reforms will mean.

Average figures also exist for the costs of renting a 3 bed, 4 bed and 5 bed council / HA property in London and the rest of the country.  These figures are less exact because rents differ depending where you live unlike welfare benefits but it is possible to be accurate within one or two per cent in the average figures for London social rents and social rents elsewhere in the provinces and the table below sets out welfare benefit levels and rent levels aid for by housing benefit.

Table 1 – Welfare Benefit (WB) and rent levels (Housing Benefit) for 2013/14

FAMILY SIZE

WB (pw)

HOUSE SIZE LONDON

HB (pw)

HOUSE SIZE PROVINCES

HB (p/w)

3 CHILDREN

£325.56

3 BED

£110.25

3 BED

£85.50

4 CHILDREN

£395.81

4 BED

£121.28

4 BED

£100.62

5 CHILDREN

£466.05

5 BED

£133.41

5 BED

£116.88

From the above we can consider the situation now and the situation from October next year when the reforms this government has announced will start to kick in.

Family 1 is the Smiths with 4 children living in a 4 bed council house in Liverpool

They receive now £395.81 in welfare benefits and £100.62 in housing benefit making an overall total of £496.43. This is 57p less than the £500pw cap and so they will receive the same weekly amount. This doesnt affect them ….yet!

Family 2 is the Jones’ with 5 children living in 5 bed Housing Association property in London.

They receive £466.05 in welfare benefits and £133.41 in housing benefit making an overall benefit total of £599.46.  This will be capped to the £500pw limit and so they will lose £99.49 per week.

The process is important.  It will see the Jones’ keeping their £466.05 in welfare benefits but the £133.41 they receive in housing benefit will be reduced to £33.95.  Housing Benefit is the ONLY benefit being reduced.  This is because some benefits such as dole have statutory duties on them, meaning the government has to pay them and some benefits have no such duties such as Housing Benefit (HB).  In Universal Credit HB will disappear and be replaced by a ‘housing payment.’

Family 3 is the Hughes’ with 5 children living in 5 bed Housing Association property in Liverpool.

They receive £466.05 in welfare benefits the same as the Jones in London and receive £116.88 in housing benefit as the rent is cheaper than London.  The total is £582.93 in overall benefit now.  This will also be capped to £500pw by the same process and so the Hughes’ housing benefit will reduce to £33.95 and they will need to find £82.93pw out of welfare benefit to pay their rent.

The Joneses in London and the Hughes’ in Liverpool must be more ‘responsible’ is the government argument.  Your overall benefit has been capped and you must make choices and you should ‘downsize’ and move to a 3 bed house to reduce your costs.  Yet even if they do that and ignoring the cost of moving and the assumption any such move is local which it won’t be given the national shortage of social housing, then it still is a massive cut.

Even if the Jones in London downsized to a 3 bed house in Liverpool before this takes effect in October next year the result is they would receive £466.05 in welfare benefit and £85.50 in housing benefit making £551.55 which would be capped to £500 and be a £51.55 reduction for such a drastic move.

The government call this a choice and semantically it is, but it’s not a pragmatic or a worthwhile option (aside from Liverpool being a great place to live and much better than London! This just reveals my roots!)  The cost of living is cheaper in Liverpool than London though only in food terms and maybe travel costs and electricity and a TV license still cost the same, so even moving out of a high rent area to a lower one and uprooting your family 200 miles still will mean the Joneses will be much worse off.

The Hughes’ are already in a lower rent area can’t access this claimed choice and if they downsized to a 3 bed house they would receive the same £551.55 and are already benefitting from the lower cost of living in a lower rent area.

This cap directly related problem by imposition is that larger families will lose out massively.  The government has not said this is the purpose or the upshot of the absolute benefit cap and politically cannot do so as even those that proffer the argument that the ‘feckless’ simply reproduce to claim more in benefits still have to address what happens to those already in that situation.  Even if all 5 child families had reproduced purely for the increase in benefits this is a massive financial penalty with devastating consequences for such larger families.  They exist already and cuts in income of almost £100 per week would hurt all families.

The impact of such cuts is the issue.  What can the Joneses do in other words aside from get a job or gizza job for the Hughes’ from Liverpool.  As we know jobs don’t ‘grow on trees’ and especially ones that pay enough to support a family of 5.  If they take a low paid job such larger families will also receive Working Tax Credit (WTC) and even though this will exempt them from the overall cap, their housing benefit will be reduced massively with marginal tax rates higher than even an honest banker pays.  In lay terms what is given with one hand by the state in WTC – and defines this family as a hardworking one let’s not forget – is taken away from the other hand in benefits. For every £1 earned typically 65p is taken away and can be higher.

In the meantime what will happen to larger families faced with the near £100pw reduction?  How will they afford the rent?  They can only pay the £99.46 or £82.93 towards their rent from their welfare benefits and this is a huge problem.  They can’t do this as the possibility doesn’t exist.  What do they forego to pay the rent?  Eat less, use less electricity or gas?  Highly unlikely and the very high probability is they will build up rent arrears.

Above is the fundamental flaw from Day 1 of the cap that sees larger families be massively penalised financially and pragmatic problem stem from that such as the rent arrears problem.

Rent arrears?  To date social housing, councils, housing associations, ALMOs, trusts and others, which are now known as the social rented sector (SRS) have paid in my view very little attention to this problem of arrears within larger families.  Whether that is because of other changes such as the ‘bedroom tax’ or because there are a relatively small number of 5 children families they have as tenants are up for debate.

I argue the fundamental flaw is much bigger and the SRS are misguided and they and government need to pay much closer attention and focus more on this issue which I maintain they are massively underplaying.

The high likelihood of rent arrears is a symptom not the problem and the cap-imposed and induced arrears have impacts and consequences and this is the fundamental problem.  Those impacts are not being fully considered or even considered at all.

Larger families, even in the SRS will either (a) be evicted for the arrears or (b) the SRS landlord will suffer the loss.  Yet the SRS can’t suffer the loss and can’t do so continually because of the systemic flaw and so the SRS landlord has to evict.  But who will then house these larger families?

The private rented sector (PRS) clearly wont as their rent level is much higher than in the SRS and so arrears there would be so much more hence much too risky.  This then only leaves the SRS, but will the SRS then have to accommodate?

No.  They won’t and no they can’t afford to accommodate even if the larger family is working as the risk of unemployment and then massive and inevitable arrears build-up can only lead to eviction.  SRS landlords wont and don’t like to admit this publically but it is an inevitability and they have no choice in the matter.

I maintain the reason for scant focus on larger families and the arrears symptom by SRS landlords is because they don’t yet see the systemic flaw.  The systemic flaw will mean in a few years time that 4 child families will be in this situation too and shortly after 3 child families. It’s time to explain the systemic flaw.

The Systemic Flaw

The process of the overall benefit cap is the starting point.  We have a cap (A) from which the welfare benefit total (B) is deducted leaving a residual amount (C) to pay for rent or A-B=C.

The Jones the London family above have a cap (A) of £500pw from which their total welfare benefit (B) of £466.05 is deducted leaving (C) a maximum amount of £33.95pw to pay TOWARDS their rent.

Let imagine a scenario with easier numbers.  The cap is still £500pw but the welfare benefits are £300 which leaves £200 for rent.

What will these figures be next year or in 2 years or 5 or 10 years time is the question and exposes the systemic flaw.  If the cap and welfare benefits all rise by the same 10% amount next year there is no problem no systemic flaw. Yet this we know wont happen.

Simple Figures

Cap was £500 and 10% rise (£50) makes the 2014 cap £550 and 100%

WB was £400 and 10% rise (£40) makes this £440 and 80% of the cap still

Rent was £100 rises 10% (£10) makes this £110 and 20% of the cap still

The correct way of looking at this is in percentage terms.  The £400 rent is 80% of the cap of £500.  It increases to £440 and the cap to £550 so is still 80%.  Rent at £100 out of a £500 cap is 20% and remains at 20% when these figures become £110 and £550.

I have emboldened the numbers the cap at 100 which equals 80 for WB and 20 for rent and 100 = 80 + 20.  So the cap baseline is still the sum of adding welfare benefits and rent if all rise by the same percentage (inflation).

This is where Cameron’s speech on Monday in which he calls for a debate on benefit spending recognises the systemic flaw by saying that welfare benefits rose 5.2% last year but average pay rose just 2%.  Cameron used this in a political way to say if we want to ensure work pays more than benefits – which is the central but simplistic government view – it is wrong that dole increases more than pay.  Cameron said that the alleged ‘debate’ he wants us all to have would mean pegging welfare benefit increases to pay.  So instead of paying a 5.2% increase last year’s increase would be just 2% to be fair and equitable.

Last year wages rose 2%; Welfare Benefits increased by 5.2% and rent increased by 6.1%.  So if we look using my simple figures above this means:

Cap becomes £500pw plus 2% = £510 and becomes 100% of the cap

WB becomes £400pw plus 5.2% = £421.80 or 82.51% of the cap

Rent becomes £100pw plus 6.1% = £106.10 or 20.80% of the cap.

But something is wrong here as 82.51 and 20.8 don’t make 100.  They make 103.31.

This means that rent and welfare benefits have risen 3.31% more than the cap because of the different rates of inflation increases used – the systemic flaw in other words.

Let’s move on a further year and see what happens using the same 2% / 5.2% / 6.1% rates of increase.

The £510.00pw cap becomes £520.20 – the 100%

The £421.80pw WB becomes £443.73 – now 85.30%

The £106.10pw Rent becomes £112.57 – now 21.64%

85.30 + 21.64 = 106.94 and means in two years the cap pays 6.94% less than it should (106.94 – 100).  In money terms the cap would need to by 6.94% higher than the £520.20 figure at £556.30.  So to keep the same worth it needs to increase by a further £36.10pw or £1,877.20 per year.

For those who read these figures and are working and horrified at the cost of benefit the taxpayer pays and not the huge reductions (a) substitute the word ‘cap’ for ‘wages’; (b) substitute the benefits for prices (all expenditure less housing costs); and the word rent for mortgage if an owner occupier.

Your wages have increased by 2% for the past 2 years, your cost of living (gas, electricity, petrol, food, etc) has increased 5.2% for the past two years; and your rent or mortgage has increased 6.1% for the past two years and you would rightly be concerned with this.

In fact that’s not the same analogy.  To be the same you would have had to accept a £99.46 wage cut even before this happened!  The 6.9% less worth your wages are now comes on top of this erosion of your income!

Before I am accused of scaremongering here the differing inflation figures of 2%, 5.2% and 6.1% were exceptional in that they are not the norm.  The Office of National Statistics or ONS, an independent arm of government, have released figures for the last 4 years which show earnings or pay increasing by 3.001%; CPI now used for welfare benefits averaging 3.17%; and RPI used for rents of 4.19%.

On first glance the small differences between them may suggest this is not a problem but that is very wrong.  Using these rates of increase figures, the differing rates that make up the system flaw, reveal very surprising economic consequences which will have huge impacts for SRS landlords.

Let’s look at the Browns a family with 4 children living in a 4 bed house in London

Prior to the cap the Browns receive welfare benefits of £395.81 and housing benefit of £121.28 making an overall benefit of £517.09.  The reforms will see a £17.09pw reduction.  This is a 3.31% reduction in total benefits and for argument let’s just say it is manageable or at least nothing in comparison to the Joneses £99.46pw reduction which is 16.6%

By the end of this parliament in 2015/16 and just 119 months after these reforms come in the cap rises to £530.55.  Welfare benefits rise to £421.30 and rent rises to £131.66 a total of £552.96.  It only rises to £38.74 at the end of the next parliament and again appears not an issue.  Its means the Browns will have to find £22.40 towards their rent and then £38.74 in another 5 years.  Only a slight increase yes but that is based on averages.

SRS landlords and the housing sector should look at the rent inflation assumptions the CLG released as part of the impact assessment for RTB2 in December 2011.  The inflation amounts the government expect CPI (welfare benefits) to increase by AND very specifically the rent inflation projections this contained.

I commented back in January on this draft impact assessment (DIA) in a blog called RTB – you kept these DIA consequences quiet Minister.  I didn’t realise just how dire these were until I developed and advanced the systemic flaw proposition last week.  These government housing department figures say that CPI will rise by 2.7% in 2012/13, 2.1% in 2013/14 and then 2% each year thereafter.  Yet rent inflation they projected to be 5.8% in 2012/3 and then 5.4% then 5.6% then 6.1% in 2015/6 and 3.7% each subsequent year.

If we use these figures the systemic flaw really becomes apparent and the issue for housing becomes very clear.  I have one more assumption in this and that stems from Cameron’s comments on Monday that I mentioned earlier when he said pay only increased 2% but benefits by 5.2%.

What Cameron said was this: –

“There are national questions we have to ask. This year we increased benefits by 5.2 per cent. That was in line with the inflation rate last September. ….It might be better to link benefits to prices unless wages have slowed – in which case they could be linked to wages.”

Political speak for we will make benefit increases the same as wage increases whatever way.  This means that welfare benefit increases are linked to wages or the same figure is used for increases to both.  In terms of projecting the figures I have therefore assumed the cap and welfare benefits increase by the governments CPI projections given in the RTB draft impact assessment and rents by the rent projections contained there.

Even linking wage inflation (the cap) to price inflation (welfare benefits) doesn’t solve the systemic flaw if rent inflation is higher which the official government position is.  Welfare benefits stay the same percentage of the cap as the two figures increase at the same rate.  Yet because rent inflation is higher the percentage of the cap that needs to be paid by rent increases from 26.68% in 2013 at the start of the cap to 28.52% by the next election in 2015 to 31.69% in 2020 to 34.42% in 2025.   Note well the rise in rents here is 29% over the period to 2025.

In figures the Joneses have to find £181.79pw out of their welfare benefits to pay the rent on the 5 bed London council house and the Hughes in Liverpool £154.73pw by 2025.

What about the Smiths family?  They were the first scenario above the 4 child family in a 4 bed council house in Liverpool or anywhere else in the country for that matter and they could be in Hull or Carlisle or Stoke.  When the cap comes in next year they were 57p under the cap per week.  They will be over the cap at the start of the next parliament in 2015 by £8.97 per week; £20.30 pw over it by the end of the parliament and £37.96pw over it by 2025.  If they lived in London they would be £71.79pw over the cap by 2025.

If the systemic flaw reveals that next year the 5 child family are a risk too far even for the SRS to accommodate and even if they are working, then in a decade or so the 4 child family becomes the same and all down to the systemic flaw in using different rates of inflation.  That is the case when we link 2 of the 3 rates together in this case pay increases and welfare benefit increases but don’t link the third variable, rent inflation, to them.

As a political device this is ingenious and reminds me of the ‘money trick’ from the Ragged Trousered Philanthropist in some ways.  What the cap does for 4 child families is by stealth and hopefully many will not notice for the governments sake is increase the proportion social rent becomes of your outgoings from the cap from just over 20% to just under 26% and is the same 29% increase over the period as the 5 child family.  It is the same for the 3 child family and the 2 and 1 child families.

Yet who will notice?  Housing Benefit will no longer be a named benefit at all and we won’t get the monthly statistics we do now the ones that embarrass this government.  They same HB total this government promised to reduce by £2bn per year that are now almost £2bn more than the inherited figure making £4bn a year over target.  The same ones that are rising and have risen every day of this coalition government by £2.5m no less.  Because HB will simply become the housing payment and an element of the bigger Universal Credit bill nobody will notice.  An ingenious sleight of hand by this government that also includes hiding the huge extra cost of £2.58bn per year we now pay to private landlords as a premium – the extra money we pay to private landlords over and above the rate we pay to social landlords in other words.

But will the SRS take notice?  After all this is only 5 child families from next year and 4 child families a few years down the line.  No it isn’t!

My figures use social housing rent levels and don’t include the Affordable Rent Model.  That misnomer of a title which describes 170,000 or so new rents which are charged out at up to 80% of the market rent.  Shapps the Housing Minister loves this plan and will love the fact that the increased rent levels here will be hidden within Universal Credit and not expose that this hare-brained scheme would have added £1.3bn per year or so to the HB bill.  But let’s concentrate on the figures and see how the systemic flaw affects the Affordable (sic) Rent Model.  Shapps took great delight by announcing that in London these rents came out at 65% of the market rent and not 80%. Although he did say it was 80% in the provinces

The already in place LHA cap (yes that’s another cap) is £340pw for a 3 bed property and £400pw for a 4 or 5 bed property.  This typically only applies to the capital so let’s see what 65% of £340 is, and it becomes £221pw for a 3 bed London rent and £260pw for a London 4 or 5 bed property. What will the cap and systemic flaw mean?

As an average provincial rent I have conservatively estimated £140pw for a 3 bed market rent; £170pcm for a 4 bed market rent and £190pw for a 5 bed market rent.

Table 2 – Welfare Benefit (WB) and ‘affordable’ rent levels (Housing Benefit) for 2013/14

FAMILY SIZE

WB (pw)

HOUSE SIZE LONDON

HB (pw) 65%

HOUSE SIZE PROVINCES

HB (p/w)

80%

3 CHILDREN

£325.56

3 BED

£221.00

3 BED

£112.00

4 CHILDREN

£395.81

4 BED

£260.00

4 BED

£136.00

5 CHILDREN

£466.05

5 BED

£260.00

5 BED

£152.00

The provincial rents can be cheaper than this in Liverpool but a quick check on Rightmove found 186 4 bed properties ranging from £575pcm (£133pw) to £2500 per month. In Bristol the site revealed 125 or so from £795pcm (£184pw) to £2000 pcm.  So the figures I use above are very much on the low side.

London family with 3 children in a 3 bed ‘affordable rent’ social property

They receive £325.56 in welfare benefits and £221.00pw in HB totalling £546.66.  They will lose £46.66 next year.  This figure rises in May 2015 at the end of this parliament to £64.64.  By the end of the next parliament in May 2020 the weekly shortfall rises to £103.44.

The cap and its system flaw sees a 3 child family living in a 3 bed ‘affordable rent’ house in London a risk too far.  It of course is far worse for a 4 child family in a 4 bed ‘affordable rent’ property when the figures are a reduction of £155.81 at start of the UC cap next year to £181.28 by May 2015 and £237.95 by May 2020.

Yet just on a 3 child family in a 3 bed ‘affordable rent’ property in London is a risk too far.  Again even for working tenants and for the SRS landlord.  If the AR tenant comes out of work then is it realistic to expect that tenant to find £64.64pw out of his welfare benefit to pay the rent – £3,372.82 per year!!

If they have a new child and the expression “new house new baby” springs to mind they become a four child family.

Imagine the scenario a 3 child family move into their 3 bed affordable rent property in London in December this year – the mum is 6 months pregnant.  The father is working earning and taking home £700pw as a plumber for the sake of argument.  The so-called ‘affordable rent’ of £221 appeals greatly as he is in private rented accommodation costing £350pw.  That is £129pw more in his pocket or £6708 per year more and they believe they can afford it.

In June 2012 he loses his job the same week as the baby is born – they are now a 4 child family.  He has to sign on and receive benefit for the first time ever. He’s 35 and worked all his life never signed on before. The family receives £466.05 in welfare benefits and being an affordable rent property the rent is covered by HB.  October comes and he still receives £466.05 in welfare benefits but only £33.95 towards his £212 per week.  He would like to pay his rent but where can he find the £178.05 from?

Is affordable rent a risk too far for a 3 child family in a 3 bed ‘affordable rent’ property?  Yes it is.  It’s a great contraceptive however!!

Provincial family with 3 children in a 3 bed ‘affordable rent’ social property

The same plumber as in the above aged 35 working never having signed on before as in the above example with the only difference being he is taking home £600pw.  The £112 pw ‘affordable rent’ also appealed as before he was paying £150pw to a private landlord.  His wife becomes pregnant and in June 2012 gives birth and he loses his job.  Thank God I’m not still in the private rented property as the landlord was putting it up by 5% to £157pw as well he thinks as the ‘council’ he discovers would only pay me £121.15pw and the £36pw would be a struggle now I’m out of work with another mouth to feed.

He signs on and receives same £466.05 in welfare benefits and his £112 rent is paid – a total of £578.05.  Blimey he thinks I was only £21.95pw better off working!  Good job I voted for Cameron he’s sorting out those workshy buggers!  Come October he still receives £466.05 in benefits but only £33.95 towards his rent and has to find £78.05 pw out of his benefits to pay the rent and remain in the ‘affordable rent’ property.  Cameron you bastard he thinks as he gets evicted in January for £1000 arrears. His kids had a miserable Christmas too by the way.

Anyone still think the ‘affordable rent’ model stacks up?  The same Liverpool (or any other provincial) tenant in a low rent area would have to find £89.78pw towards his rent by the end of this parliament and £117.07 by the end of the next one in 2020.  If only his missus hadn’t got pregnant!

You may think these are mer human stories that don’t affect the SRS landlord? No and those that have dipped their toes in the water are and should be starting to panic as they will see the implications loud and clear and know the bankers will have done too.

The Affordable (sic) Rent Model deals with the complex and confusing world of finance something I admit I am far from having expertise in.  Put simply the banks loan the money to social landlords as they do to an individual they assess the risks.  In the Affordable Rent model which is going to be 170,000 homes we are told in Phase 1, the added rent element between social rent levels and the new AR levels shows much greater income coming in and means the banks view SRS landlords proposals favourably or more favourably.

Look again at the London levels and how they differ from Table 1 the social rent to Table 2 the ‘affordable’ (sic) rent.  For a 3 bed £110.25 compared with £221.00 – that’s 100.5% higher!  A 4 bed from £121.28 to £260 that’s 114% higher!! Even the 5 bed from £133.41 to £260pw is 95% higher income for the social landlord.  No wonder the banks were willing to lend money against such huge increases.  Yet did the banks see the risk of the cap and the systemic flaw which are huge?  They will now and Finance Directors of developing SRS landlords who have gone into the affordable rent model will be sleeping very uneasy when they see this.

Grant Shapps who continues to call AR rents ‘affordable’ this reveals your sleight of hand and deceit.  But then again with the emergence last week by a social landlord that claimed a £705,000 property in London was ‘affordable’ it seems Mr Shapps has a touch of Mesmer about him!

In the provinces?  The AR model increases a 3 bed rent from a social one from £85.50 to £112 a rise of 31% – still considerable when assessing lending against for the banks though clearly way below the London equivalent.  The 4 bed from £100.62 to £136 which is 35% and the 5 bed increase is £116.88 to £152 or 30%.

Where the banks told that affordable rent model will be paid 100% in Housing Benefit and not told of the cap?  It’s true the AR model is considered social housing and currently it’s much higher rent levels are met in full by Housing Benefit.  Yet come October next year when Universal Credit and the overall benefit cap kick in the rents won’t be!

I have no idea what proportion of the 170,000 affordable rent properties will be 3 beds or higher.  What the above shows is that due to the cap is that they are too risky and the systemic flaw heightens this and will in the next few years make 2 bed AR units too risky!  It doesn’t stop Grant Shapps the housing Minister saying it’s a success and is looking for a continuation of the AR model after 2015 of course.  His line at the CIH housing conference last week was that more could be squeezedby the SRS from the banks!  Oh dear, but hey not the first time Grant Shapps or any other coalition minister couldn’t use a calculator or a simple spreadsheet!!

To all the housing finance people that read this all the figures are there.  Set up a simple excel spreadsheet and in ten minutes you will have the figures and tables which back up all of the above.  In fact to any 7 year old that can use a spreadsheet create the simplest one to see what these figures reveal.  I’m finishing this and Italy and Germany are playing in the semi-final of the European Championships and what does that bring to my mind.  Oh yes to his eminence the Pope when you read this I await your announcement that UK Catholics are allowed to use condoms but shouldn’t have the cap!

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