Social Housing – The Building Society that pays a 287% savings rate

Sometimes you see things and cant believe your eyes and Twitter is a classic case of this often full of dubious tweets by some dubious twitterati, but you quickly make sure you only follow the more reliable sources.  One such very reliable source tweeted today from the NALS conference  (National Approved Lettings Schemes) and said:-

“John Heron PRS now sixteen and a half per cent.. Saviles predict that by 2020 will be 27%”

My immediate reaction was Oh sh*t! This can’t be right and a quick calculation would mean the PRS will be four times the size of social housing in 8 years time!

To explain, currently the English Housing Survey (EHS) is the largest and most reliable research on housing tenure and its report released last month had owner or mortgaged at 67%; privately rented at 16.5%; and social rented at 16.5%. This is where the 16.5% figure comes from and appears reliable and accurate.

However if we assume that the owned/mortgaged percentage remains fairly stable and despite the lack of availability of mortgages and other well-known issues it will if for no other reason that the banks and the government can’t and wont let it slip too far, then a rise in the PRS to 27% can only be at the expense of the SRS.

So Savills appear to be saying that in 2020 owned or mortgaged will be 67% and the PRS will be 27% means that the SRS or social housing if you like will be just 6% or a quarter of the size of the PRS!

I have had a cursory look at Savills news releases and one says PRS will be 20% by 2016 a 3.5 points increase from 16.5% and is a 21% increase in PRS size.  So a 3.5 point rise in 4 years to 2016 makes a further 7 point rise to 27% by 2020 seems a huge step. It would also be a further 35% increase on top of the 21% in the first 4 years

Yet if PRS is 20% and the owned/mortgaged remains stable at 67% then this means the SRS will be just 13% in 4 years time and the PRS will be 1.5 times the size of social housing!  The 2016 claim of Savills needs to be looked at as it is (a) a 21% increase alone, and (b) would mean 3 out of every 5 rented properties would be in the PRS …and at what cost and consequence?.

Housing Benefit costs to the public purse have been a recurring theme of my posts and the current figure is that the 1.6m or so PRS HB claims receive £2.25 billion more in benefit than if they were social housing properties.  Pro rata as a crude analysis this would see this PRS premium paid by the public purse increase to £2.7bn per year at todays rates – and increase of £450m per year to the public purse and about £20 more per year for every taxpayer.

Recently homeless acceptances have increased by 14% (on top of rises the previous year) and the biggest reason given for homelessness is the ending of assured shorthold tenancies in the PRS.  It is likely that as the proportion of PRS properties of all rented homes increases then there is a direct increase in homelessness and of course homelessness cost.

However, the more I look at HB costs and data the more it becomes obvious that high and unregulated private rent levels become the biggest barrier to employment and far higher than any welfare (benefit) dependency theory.  Employers will struggle to find those willing to work because work doesn’t pay – the exact opposite of what this coalition says it is trying to achieve with its pithy ‘work will always pay more’ slogan. An unemployed person in social housing pays the national average £350pcm in rent compares to the unemployed private tenant having to pay £706 pcm in rent.  Work will pay much more for the social tenant as his rent equates to 20% of the average wage, yet the private tenant has to find 42%!

In short the correlation between rent levels and it being affordable or worthwhile to work are stark. The higher percentage of social housing we have means that we have more unemployed persons able to afford to work – or as the coalition wants work will always pay more.  The reverse is true the higher the percentage of private rented properties we have.

The level of PRS rent is not just a rant from the political left as it is often portrayed; it is and should correctly be perceived as an economic argument.

It is a matter of huge economic importance to the country.  How long will it be before business leaders openly state that they can’t grow or expand because they can’t find enough employees who can AFFORD to work because of the high rent levels they pay? The coalition has done much to spin the issue that there are enough jobs, work will pay more than benefits and they are cutting benefit level anyway.  Those (errant) arguments can only last so long as the economy will stagnate further as growth becomes a nostalgic term of whimsy.  As I said yesterday an MP on £65k per year which is 2.5 times the average wage cannot even afford to rent a PRS bedsit in Westminster! How much worse is this going to be on the average wage?

If the PRS increases by 21% in the next 4 years as Savills predict and every tenant has less and less choice in terms of genuinely affordable rented options then it may follow that 21% less of the population cannot AFFORD to work – cue welfare benefit bill sees a dramatic rise and huge reduction in the public purse tax take…..all due to the ridiculously high level of private rents, the increase of people having to rent privately and the governments political unwillingness to regulate PRS rent levels.

In economic terms that Joe Public or even a 7 year-old can understand we put in £1.2bn of ‘subsidy’ per year to social housing.  For this we get reduced rents in social housing and a reduced cost to the taxpayer.  The saving for the public using official figures is 3.4m social housing rents receiving £26.21 pw less in benefit or £4.65bn per year.  So social housing ‘subsidy’ costs £1.2bn per year yet saves £4.65bn.

If I said give me £120 and I will give you back £465 you would rightly bite my hand off.  If you are self-employed and your accountant says pay me £1200 and I will cut your tax bill by £4650 you would bite that hand too.  If your building society said we will give you a saving rate of 287.5% you would invest heavily as it turns your £120 into £465 – yet that is what social housing ‘subsidy’ does yet we still call it a subsidy and not a surefire bloody good economic investment!

Let me emphasise that – social housing delivers a 287.5% return!!

So why isn’t this government investing in more social housing?  It is so much cheaper produces huge savings, makes ‘making work always pay’ much more likely and benefits the economy in so many ways.  Simple answer is social housing is seen by the Tories as a political construct and kept in the political dimension as it is easy to dismiss as the politics of the post war ‘dinosaur’ left.  In short f*ck the country and its economy we don’t like it politically.

Perhaps I should argue that the higher the percentage of social housing with genuinely affordable rents would mean more and more minimum wage jobs would be filled and more and more of the feckless workshy workless privileged scroungers would get off their fat backsides and get a job.  In fact make all rented housing social housing and we can reduce the national minimum wage!

However this Tory-led coalitions blind political dogma is making the UK less and less economically competitive by the hour.  It wont do bugger all in terms of regulating the PRS and if we allow the PRS to dominate the rented housing sector as Savills predicts….then the above is just the tip of the iceberg!

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