Elementary maths for LB Barnet

You will all recall that the Localism Act allowed Councils to grant flexible tenancies, at up to 80% of market rent. Now some councils have dipped their toes in the waters of flexible tenancies (here were my notes on one such policy), and this may well yet come back to haunt them (for possible reasons see here). But nobody so far has gone for the 80% of market rent approach. Until now.

Barnet Council, (for yes, with a grinding sense of inevitability, it is they), have a draft proposal before the housing committee. Apart from its general air of mad sunny Panglossism (just see the view of 2020 at p.5&6), the bit that interests us here is at page 10:

• There is a link between the level of rent that is charged for council housing and the amount of resource available to invest in the construction of more homes that are affordable.
• The Council needs to strike the right balance between setting council rents at a level which is fair and generating income to increase the total number of homes that are affordable.
• In view of this, the Council will charge an affordable rent at Local Housing Allowance (LHA) levels or 80% of average market rent whichever is lower for all new council homes it builds. This will generate an additional income to be reinvested in building more homes that are affordable.
• To ensure consistency in relation to existing properties, the Council will set rents at LHA levels or 80% of the average market rent whichever is lower when empty properties are re-let. For existing tenants, the Council will consult on proposals for increasing rents to LHA levels or 80% of average market rents whichever is lower. Each additional 1% increase will generate around £550,000 of additional income to be reinvested in building more homes that are affordable.

So, step by step, that is

i) 80% of market rent (or top of LHA rates) for all new homes.

ii) 80% of market rent (or top of LHA rates) for all new tenancies of existing properties. And

iii) to consult on raising existing tenancies rents to 80% of market rent (or top of LHA rates).

Let us start with the new homes/new tenancies proposal. As regular readers will recall, Barnet’s allocation policy sets upper income limits on qualification for the housing list, specifically income of £36,200 for a family with children or £30,800 for a household without children. Back in 2012, the average monthly rent for a two bed flat in Barnet was £1,170 per month. According to Shelter’s affordable rent calculator, this required a net (not gross, so post tax, NI etc) income of £40,116 pa.

Let us stick with the 2012 figures for now. On the ‘affordable’ basis of rent being up to 35% of income, that means a net annual income of £32,088. That means that a two bed flat at 80% of market rent is unaffordable at the maximum eligible income level for a household without children, and only affordable for a couple with children (2 bed flat remember) if Barnet’s income assessment on qualification is net rather than gross income (the policy doesn’t say, helpfully).

Go to a 3 or 4 bed and 80% of average market rent is definitely unaffordable for the very top household income limits eligible for the housing list under Barnet’s allocation policy.

It would seem then, on some pretty basic maths, that setting flexible tenancy rent at 80% of market rent would make those tenancies unaffordable for many, possibly all, of the only people allowed to bid for them under the allocation scheme. This is, to put it mildly, an interesting approach to social housing and housing need. To put it another way, it is bloody stupid. The Bến Tre approach to social housing – in order to provide social housing we have to make it impossible for anyone who qualifies for social housing to occupy it.

And then ‘consulting’ on raising existing tenancies to the 80% level? Oh dear. Social (secure/assured) rent increase levels are set by central government. The rent increase formula is prescribed. The short lived idea of ‘convergence’ in social and PRS rents seems to have been abandoned (see this House of Commons briefing note). The current formula is CPI plus 1% and looks likely to remain so to 2016, despite consultation. If actual rents are higher than the formula, the housing benefit subsidy to the council is reduced accordingly, so there is no additional income. So, the short answer is that dear, dear Barnet can’t do this. And whether or not they ever get to do it is completely out of their control, whether they consult or otherwise. One might imagine that someone, anyone, in the council might know this before it got into a policy proposal. But no.

What of the 80% or top of LHA rate, whichever is lower, formula? Well, this all depends. For instance, what is the area by which ‘market rent’ is assessed in each case? But, while it is mathematically possible for 80% of average market rent to be lower than the bottom 30% of the range of market rent on which LHA rates are based, it is in reality extremely unlikely to be so.

Or is this Pangloss striking again? Perhaps Barnet market rents will drop off and standardise on a tight average? Surprising, because Barnet’s Mayor Rayner knows what the LHA limits are, and how to squeeze more from his private tenants.

It appears that having lost all its lawyers, Barnet has now lost the ability to use a calculator. Or indeed the ability to remember either its own policies or what central government gets to control.

[Update. Here is an example. Couple with one child in a two bed property. 80% of market rent (at 2012 figures) is £936 per month. On a household gross income of £36,000 – just inside Barnet’s top level of household income for social housing eligibility – Housing Benefit entitlement would be £28.85 per week, or £125 per month.

So, from a net income per month of £2329 per month  this household would have to find £811 in rent, which is 35% of income, the very limit of affordability.

A household with more children, requiring a three or four bed, but still caught by Barnet’s income limit of £36,200 so at the very best in the same net income position as this example, will quite simply not be able to afford the higher rent.]

About Giles Peaker

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts, and still is Nearly Legal on Google +.
Posted in Housing law - All, secure-tenancy and tagged , , .

9 Comments

  1. Giles

    An easier way to look at this is in light of the latest Tory proposal to reduce the overall benefit cap to £23k or £440 per week.

    How that works is CAP minus other welfare benefits = max HB to be paid. So £440 minus £300 welfare benefits gives maximum £140 to pay towards rent.

    We know as it is a national figure how much welfare benefits each household composition receives as the 2 parent 2 child household (2p2c) gets £261.66 leaving £178.34 as max HB of £440 cap.

    Yet we also know that HAs in Barnet who operate AR such as Network HA charge £232 pw for a 2 bed AR property but under the reduced overall benefit cap will only receive £178.34 and so have to find over £50 per week out of welfare benefits just to pay the rent – ergo evicted at some point.

    This also means that Barnet cannot afford to take the risk of accommodating a 2p2c household and can only accommodate smaller households such as 2p1c who get £195.95 in welfare benefit. However should the wife accidentally get pregnant – oh dear! (And does anyone know if Barnet has a high Catholic population?

    The Barnet plan obviously also excludes the 1p3c household (£286.40pw in w/b) and the 2p3c household (£327.26 pw) and of course any larger sized household.

    So if any such households want to live in social housing in Barnet they probably need to have a signed declaration from their employer that their job is safe for the next 5 years else no tenancy is granted!! If you are on a zero hours contract no chance of being housed obviously and will we see Barnet Homes operating a Mengelian allocation policy which for the life of me I cannot see anywhere in housing law!

    Even if the benefit cap remains at £500 pw then Barnet cannot house the 2p3c household, oh and the 2p2c household as the wife may get pregnant by accident and thus threaten the roof over the families head (is that intentional homeless!!)

    This proposal is no more than benefit cleansing and Panglossian is giving it far too much credit!

    PS – Barnet Homes 15,000 properties – average SRS length of tenancy 14 years ie 7% turnover approx = 1070 new tenancies per year = approx £6m pa added rental income

    • For those subject to benefit cap, yes.

      But Barnet’s allocation policy prioritises working tenants (subject to the max income caps). So benefit cap will not apply to all. But working households will probably not receive full HB. So clear affordability issue for tenant contribution to rent.

      Barnet appear to think HB will take the strain and that this is a cunning wheeze to transfer central funds into their coffers. But it will have huge impact on the very working tenants that their allocation policy favours.

  2. This would only stand up as a “joined up” policy if by “affordable” you mean “leaving the tenant with an amount of income which in absolute terms is at least equal to the means-tested benefit subsistence level”. The beauty of that approach is that any rent is affordable as long as the tenant is not caught by the benefit cap! As Joe says , the benefit cap is the thing that will prevent a policy like this from being workable, especially if it gets reduced even in London.

  3. The minute a sole working income family lose employment they become the ‘benefit claimant’ and thus fall into the above chasm. How more likely this is with zero hours contract rise is plain for all to see.

    Peter, the same benefit cap if reduced will apply right across the country if AR units come online, that is others follow this Barnet ill-conceived nonsense. Already 46% of benefit cap households are in social housing and so any reduction just means in London slightly smaller households become a risk too far to house than they do in low rent areas ‘oop North.’

    Even in low rent areas oop North an AR rent for a 3 bed is likely to be more than the £112.64 left in benefit cap for a Couple with 3 children and of course less of a residual for any larger household unit. In effect benefit cap equates to social housing cant accommodate any household bigger than a couple with 3 children anywhere in UK – a problem social landlords are ignoring at their peril. Lest we forget the cap figure now not even going to rise with wage inflation as first mooted so the systemic flaw happens as welfare benefit and rent levels increase

    Interesting the AR rent levels in Barnet too as looking at official Statistical Data Return which reveal social rent levels and AR rent levels by HA in Barnet. Network HA up by 93.92%; Sanctuary by 73.22%; Origin 64%; Home Group 55%; Notting Hill by 49% right down to Riverside with a ‘measly’ 29% increase. How many of those now working in low paid jobs would have to give up employment should Barnet follow this through we can only speculate – that figure would rapidly increase if benefit cap reduces to £23k / £440 pw which it will should the Tories remain in office and will because Joe Public thinks naively it reduces the benefit bill

    This is much more than one imbecilic and overtly political council, it is at the heart of whether the social housing model can survive

  4. I’m no expert in business or math but common sense tells me that if you want to sell something, you need buyers.
    So, never mind social housing rationale, from purely business minded point of view, if there will be no one who can afford renting Barnet council houses – they will generate NO income. (And let’s put aside the fact that LB don’t build almost any houses, they hand our land to private developers to do this. ..).

    And here it becomes perfectly logical: if no one can rent council housing, there is no need in them in Barnet! I.e. Barnet Homes is obsolete, which explains why the council did not extend its contract with Barnet Homes beyond 2 more years, to the dismay of the company’s own board of directors.

    It matches nicely with the agenda of Barnet Tory-run council (called previously Easycouncil, or One Barnet Programme of Privatisaion) of doing away with all public services, having as few residents as possible who need council services and calling in private providers to provide what little services left, for a charge, to the borough.

    Indeed this is a well used tactics of our Tories: run it down, let it fall apart so nobody uses it, then you can easily demonstrate there’s no need in it and – hey ho, let’s call Capita to do us a favour and take this dead weight off our hands. Look, they would tell the appalled residents – we have no choice but outsourcing. ..

    Did I get it wrong?

  5. Pingback: Broken Barnet: This is our land: tales from Cricklewood, and the launch of Barnet Labour's Housing Commission

  6. A few points re this NL article:
    Social (secure/assured) rent increase levels are set by central government. The rent increase formula is prescribed. – Local authority rents are entirely at the local authority’s discretion. The rent increase formula is government policy, but has no statutory backing – it’s guidance only.

    The current formula is CPI plus 1% and looks likely to remain so to 2016, despite consultation. – The government says this policy covers ten years from 2015/16, so until March 2026. Though it could be overturned by any future government, so in effect is only fixed until May 2015. But again, it’s only guidance.

    If actual rents are higher than the formula, the housing benefit subsidy to the council is reduced accordingly, so there is no additional income. – If actual rents are higher than a construct called Limit Rent (the local authority equivalent of LHA) then benefit is capped at this level; tenants not claiming housing benefit will have to pay the full whack, or risk eviction. Limit Rent has been rebased to equal Target Rent (another construct) which effectively allows LA’s to continue convergence if they choose. Limit Rent will increase at CPI + 1% annually. So there is certainly additional income to Barnet if they go down this route.

    So, the short answer is that dear, dear Barnet can’t do this. – But the correct answer is that they can. Clearly, they’d be mad to do so (for reasons set out in the article and following posts) but legally they could.

    • Hmm. That is interesting. My understanding was that the HB claw back was a generalised figure, not tied to the actual number of HB claimants in social housing. Thus a general sum over the formula level clawed back. That was taken from the DCLG’s own statements on the 2015 formula.. You are saying that effective cap level (and hence clawback level) is actually Limit Rent? And Limit Rent is higher than the formula rent?

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