Social Housing – Its the economy stupid!

Social Housing is a political football.  It always has been but that doesn’t mean it always needs to be and I maintain here it shouldn’t be; rather social housing should be seen for what it is a massive saving to the public purse and taxpayer of £5.26bn per year.

It is often said that ‘social housing is subsidised and that is why it is cheaper’ than market or private rented housing.  There is some validity in that but it is an overwhelmingly superficial statement and largely used to further political arguments of opponents to social housing and to justify the much higher private rents the market delivers.  The reality is the amount of subsidy is currently £1.2bn per year yet it produces savings of £5.26bn per year and this figure is correct and easily provable, yet it is never mentioned or even recognised. The detail is in the official government HB statistics and referenced here in a post called HB facts

Social housing is more correctly called the Social Rented Sector (SRS) and is the latest term used to describe council house landlords, housing associations, ALMOs, housing trusts and all other social housing.  The term is useful as it correctly covers the myriad of ‘social’ housing providers as well as making it easier to compare to market rented housing, the private rented sector or PRS.

The context of the £5.26bn saving social housing produces for the country is in the overall rented housing market and the (welfare) benefit paid for rented housing by the government.  The amount paid out is published each month and the latest figures show a huge increase in payments to PRS tenants (a huge trend in last few years) and that seven in every ten new claimants of housing benefit since the election of May 2010 live in the PRS.  This in large part is the reason why the overall housing benefit bill has increase by £2bn per year since the election as PRS tenants receives 49% more in benefit than a council tenant.

The private tenant on average receives £107.04 pw to pay for his private rent yet a council tenant receives just £71.82pw.  That is a simple economic fact.

This huge added cost of PRS housing is usually ‘justified’ by the oft-heard statement that the PRIMARY reason social housing is cheaper because it is subsidised and the discussion ends,  If on the rare occasion the discussion continues on this the proponents of social housing are then (politically) labelled as left-wing dinosaurs and ‘council housing’ is from a bygone age.

However the obvious but never viewed or debated consequence of the ‘subsidy argument’ is this.

Take away the subsidy social housing receives and social housing rents would be at PRS or market levels and cost the country £5.26bn MORE!

In pure monetary terms this would see council and all other social rents costing the government, the state, the public purse and the UK taxpayer – call it what you will – £5.26bn per year more in housing benefits.

In economic terms then the subsidy of currently £1.2bn pa sees a return, an impact, a consequence or a saving – again call it what you will – of £5.26bn per year.  SRS subsidy is a fantastically cost-efficient ‘invest to save’ programme in economic terms.

The UK has a chronic national housing shortage which is admitted by all political parties with anything up to 5m people on social housing waiting lists yet the one thing that is not being advocated by any political party – or even by the SRS lobbies such as the Chartered Institute of Housing, National Housing Federation et al – is more social housing.

The huge monetary savings are also huge welfare spending reductions too.  The current coalition welfare policy of making work always pay more by reducing the amount spent on rent would incentivise a greater take up of employment.  It would make even lower paid employment more attractive to the benefit claimant.  Far from being some reconstituted socialist political policy it accords and fits perfectly with the current governments claimed economic one!

Let’s really dumb this down and look at the maths. Subsidy paid to social housing is a £1.2bn investment that saves £5.26bn and means for every £1 spent we save £4.33.

If you invested £1 in a building society and got back £4.33 at the end of the year would you be happy? Of course you would and that is the simple question and correct analogy for government – an economic question not a political one yet social housing is seen as a political issue.  That perception is fundamentally an errant one.

Would you pay £100 per year for a product that saved you £433pa on your electricity and gas usage?  That’s so much a no-brainer it becomes a rhetorical question!  Yet it is the exact same analogy for social housing.

Looking at social housing and its ‘subsidy’ issue in this way would be seen as radical as the ‘subsidy’ element has always been seen even by its proponents and the SRS as a negative.  It is not: It is a huge positive and a huge benefit to all – the tenant gets cheaper rent, the landlord gets more stock and income and the government pays up to 49% less for this.  I fail to see the negative as who is the loser?  The only loser is the private sector landlord who sets the rent level and at a level that currently receives 49% more in income than the council landlord. And then he asks the tenant to pa more on top of this as the benefit doesnt cover the rent level he sets. Housign benefit typically covers just 70% of the market rent level in the PRS yet the lower amount paid to SRS typically covers all the rent.

Think about that for a second and ask yourself is it right we the taxpayer pay 49% more out of the public purse for the same product and service – the rental of a property?  Of course it is not it is a waste of public money.  Then ask are the two products like for like?  No they are not.  A SRS property is more secure for the customer (the tenant) the customer has better rights of service through repairs, has much stronger legal rights and the good he is purchasing – the social rent – is of a standard that is invariably better than the PRS property.

Are those that say we shouldn’t call tenants ‘customers’ inadvertently politicising social housing and detracting from its real economic bottom line benefit? I digress.

The correct question becomes why is the government paying 49% more for an inferior product? And especially so when it can ensure a better alternative ‘product’ from which it saves £4.33 in day-to-day cost for every £1 it spends.

Note well this is not just a critique of the current government.  It applies to the last Labour ones, current (and likely future?) Labour policy for its absence, the previous Tory ones to that and the previous Labour ones to that as well.  It is a simple argument based on the bottom line not on political ideology.

It is however a huge critique and condemnation of the SRS and its leaders.  Their lack of challenging government policy over the last 30 years has led to the PRS becoming the majority rented sector.  Their lack of marketing the huge economic benefits of social housing has led to the SRS moving from having 8 out of 10 rented homes to less than 5 out of 10 in 30 years.

The SRS leaders couldn’t have done worse if Gerald Ratner was their head of PR!

What other lobbies for the best product at the lowest price for its customers in any other sector sees that product being viewed as the product of last resort? Yet that is how ‘social housing’ is perceived by Joe Public we are told politically.  The same politically bad product that has 5m customers (1 in 6 households no less) queuing up in its waiting list for that ‘bad’ product shows that the customer thinks economically or how it affects his and her pocket and not politically.

Perhaps it is time the SRS threatened government by saying keep your subsidy we don’t want it but our rents will rise to market levels and we will compete with the PRS.  We have a better product and service and cost-base and economies of scale than them, we will develop out own houses and sod your meagre subsidy!  After all that is the strategy the PRS adopts to any government interference with their business and it’s been so successful that they have gone from 2 out of every 10 customers to more than 5 out of 10 in the last 30 years – a phenomenal success for any business.

Food for thought?

There are so many other benefits.  However, the simple and correct point I wish to get across is that social housing is extremely cost-efficient when it is correctly viewed in an economic context and not as is it and has been, in a political context. Or as Clinton infamously said, then Blair, then Cameron even – all correctly – It’s the economy Stupid!

Postscript

All the above is pure nonsense of course and I am a sandal-wearing, Guardian-reading, undiluted, reconstituted socialist, Pinko-Commie who is wedded to some political construct of nearly 70 years ago – you know that one created for building homes fit for and prioritised for returning heroes…oops the Housing Minister beat me to it yesterday…well if the returning war hero soldier is over 25 of course!

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