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.]