Imagine you are THE decision maker for a social landlord.
You will be a social housing professional through and through and agree – wherever practical – with the notion that if HA’s can build then they should as this is their purpose, ethos or any other similar notion.
Let’s also assume you have the money to go with this purposeful / ethical inclination of build because we should.
Let’s further assume you want to build a range of 2, 3 and 4 bed properties as the economics of these stack up whereas 1 bed properties simply don’t.
Who are you building for? Who is your customer, your target market, your tenant?
By household – the 2 and 3 bed properties will be for the 1 parent 1 child household right up to the 2 parent 4 child household – so the 1P1C, 2P1C, 1P2C, 2P2C, 1P3C, 2P3C, 1P4C and 2P4C households.
Wow that is a wide range of 8 households as prospective tenants….in theory!
In practice the wheels come off with
- The benefit cap reducing to £384.62 per week from April 2016 and
- With the Pay (More) to Stay policy from April 2017 that sees a household income of more than £30,000 pay full gross market rent.
Let’s assume you are based in the North and you wish to deliver social rent properties at say £90 per week for the 2 beds and £100 per week for the 3 beds. Or you could be in a high rent area in Surrey, Herts, Berks or Kent with a £138 2 bed social rent level and a £149 3 bed social rent. Yes they are higher than London target rents but London social tenants are allowed to have £3,000 per year more before they are capped!!
As you can see the theoretical 8 tenant households from 1P1C to 2P4C is in practice just 4 of that 8 in the North and only 2 of those 8 types in a high rent area – and these are at a SOCIAL RENT not an affordable (sic) rent level too that of course means LESS of the above household type can afford to rent the 2 or 3 bed.
In summary the benefit household is a high financial risk and only a small number of possible types such as the 1P1C and 2P1C households are feasible…
…..until the tenant gets pregnant of course or the single parent household becomes a two parent household in a new relationship which increases the benefit income by £41.75 per week and in the benefit cap zero sum game also reduces the maximum HB by £41.75 per week!
Well sod that you think we will just have to target the working tenant instead!
The working household – rather than mess about with a table as above imagine the really small household of a couple with 1 child – the 2P1C household – and they are both working , one at 24 hours per week and the other the average 39 per week but on the actual national minimum wage of £6.80 per hour from this October (not Osborne’s ethereal £7.20 ‘living wage’ which we now know does not apply to the public sector!!)
The 2P1C household income (NB not just wage income!!)
- 40 hours x £6.80 per hour = £272 pw = £14,144 pa
- Partner works 24 hours per week x £6.80 per hour = £163.20 pw = £8,468.40
- Tax credit / child benefit income of £8,190.72 per year meaning…
- Total household income of £30,821 and above the Pay MORE to Stay limit
If in the North this working household would see their £90 per week 2 bed social rent increase to £135 per week – a mere 50% increase of £2,340 per year and of course – as is the policy intention of PMS that household would realise they would be far better off paying a mortgage on that property and so they take up the RTB
In the South the £138 per week 2 bed social rent for the same family can easily double to £275 per week and in some areas outside of London even higher than this – and £138 pw increase in rent is a further £7176 per year expense for the 2P1C household so yet again RTB is a no-brainer.
So we arrive at a very narrow target customer market for new builds by a HA – the 1 Parent 1 Child household to the 2 Parent 2 child household and nothing higher if they are on benefit.. That narrow benefit household is mirrored by the sole earner in the 1 Parent or 2 Parent household if there is a child.
You can just hear Loyd Grossman saying who lives in a house like this can’t you as if it is a social rented property it is a very small target market indeed!
Of course you could still build 2, 3 or even 4 bed properties and put pensioners in them who receive a state pension and be as safe as houses with this strategy. If you like that line then you may as well rent at the AR level and rake as much HB in as possible from the state for the exempt pensioner.
The notion and invariably first premise of the social housing professional is that HA’s if they can build should build and that is the starting point for a hugely emotive and financially flawed outcome of build if you can. Aside from the benefit cap, the Pay More to Stay (a RTB nudge x 1000 policy) and 1% rent cuts each year and direct and monthly payments for benefit tenants and zero-hours contracts and other insecure employment for the working household – oh and the lone parent starting a new relationship and/or becoming pregnant – what do you have to worry about?
The most insidious policy is of course the benefit cap and I go back to the 2P2C household above who are on JSA and not ESA and so have £29.05 per week LESS in income and so £29.05 more as the maximum housing benefit.
The 2P2C household can receive up to £117.88 in housing benefit.
Yet mum gets pregnant just as dad loses his job and they soon become the 2P3C household who only receive £50.68 per week as the maximum HB. Forget morality here or any similar this shouldn’t happen notions as this can and does happen.
The minute baby 3 is borne the benefit cap reduces the HB and there is no provision for mum to not work until the baby reaches school age or nursery age, mum has to go out and get a job from the date the baby is born else the household will be evicted due to massive arrears the benefit cap reduction will mean.
Massive arrears? Yes if that mum lives in a social rent property in a high rent area outside of London (much if not all of Surrey, Herts, Berks and Kent) with a 3 bed social rent of £145 per week the arrears are £95 per week if none of the HB shortfall can be met from the subsistence level income the household has – just a mere £4940 per yea arrear!
So, dear reader, YOU are THE decision maker for a housing association and you believe in your heart of hearts, as that has been inculcated over many years because you are a committed social housing man or woman, that if HA’s could develop then they should as that is their purpose….tell me what social housing you have decided to build?
When you send your answers to me on a postcard please let me know the date and venue of your upcoming frontal lobotomy as I will send a bunch of grapes / flowers (delete as appropriate)