24% real term increase in social housing rents – Yes the OBC again!

Note: I released this yesterday ahead of the Autumn Statement today and I have updated my comments at the bottomNote well that its a 27.4% real term increase with today’s figures and not a 24% one – which only goes to show that Osborne doesnt know what he is doing AND the impact of the systemic flaw will be worse than I predicted! 

Over the last week it has been heavily trailed that the Chancellor will either (a) freeze welfare benefit levels or (b) link them with wage inflation in this weeks Autumn Statement.  Whether he does either of these the systemic flaw in the OBC remains and means rent payments will take an increasing proportion of the overall benefit cap thus making arrears and financial risk to landlords very significant.

The issue is a simple one and using today’s figure we see in (a) above welfare benefits would freeze and wage inflation which is currently 1.4% would increase the cap by this figure.  Yet, social rents will still rise at 3.1% using the RPI formula and so increase at a higher rate.  In (b) both the cap figure and welfare benefits rise at 1.4% yet still rents at 3.1% would rise more quickly and so in both cases take a bigger proportion of the cap figure.

Even if the Chancellor freezes welfare benefits until the end of the next parliament in 2020/2021 we will see London social rents move from 24.33% of the cap figure to 30.14% of it.  That is a 24% increase in the proportion of rent to the overall benefit cap.  In the provinces this rises from 20.12% of the cap to 24.93% of the cap and again a similar level of increase.

In real terms social housing rents will rise 24% by the end of the next parliament!

The financial risks to arrears for all landlords are there for all to see, risks that will be exacerbated if the direct payment to tenant planned regime continues.

Of course this will mean:-

  • arrears evictions will rise
  • homelessness will rise
  • all landlords will accrue higher arrears
  • all landlords will be less able to develop
  • all landlords will have to reduce services
  • all landlords will have to maximise rent increases to offset arrears risk
  • homelessness cost to the public purse will rocket
  • taxpayer cost increases

They are all inevitable consequences. So why the hell is this policy not being challenged as nobody benefits from it?  The tenant loses, the landlord loses, the public purse loses.

I will update this after tomorrow’s Autumn Statement and also update the many blogs I have written to say that banning HB to the under 25s is a non-starter see here, here and here.

UPDATE after the Autumn Statement

HB to under 25s? – Wow is Gordon Osborne really Paul Daniels as he made this disappear into the ether just as I said back in April and in June and since.

24% increase in rents in real terms? – No its a 27.4% increase in real terms by the end of the next parliament.

The figures are that in London average of all SRS rents now comprise 24.33% of the £500pw cap.  This will rise to 26.55% in 2015 and a 9.15% increase in real terms by the end of this parliament.  By the end of the next parliament in 2020 this will rise to 30.99% of the cap figure making an overall increase in real terms of 27.4%

The figures are in the provinces average SRS rent is now 20.12% of the cap risign to 21.96% in 2015 (samer 9.15% real term increase) and to 25.63% by 2020 and the same relat term increase of 27.4%.

This is bad for both tenant and landlord and for public purse.  The tenant has more to find whether on benefits or not. The working tenant will see rents outstripping wage inflation by 3.1% to 1% and the tenant on benefit will see the same (as will the working tenant on benefits too) so a universal constant becomes LESS INCOME OVERALL TO MEET INCREASING RENT COSTS.

The social landlord will see this consequence become an increase in arrears and a huge potential for further arrears (systemic flaw making this even worse and capturign more tenants each year) and so they will have to maximise rent increase each year to offset this massive upturn in arrears. (It will also likely obviate a reduction in landlord services too).

The government / taxpayer / public purse will see HB bill increase because of the rent increase and because of the massive increase in homelessness and its much higher HB costs.

In short everyone loses.

Today Osborne and the coalition government have shown their financial and economic incompetence and Osborne announced he will also introduce a “Welfare Uprating Bill” which will only ensure that the systemic flaw remains in the overall benefit cap.  Rank incompetence !

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