After several days of a mixture of swearing and incredulity, I am finally ready to write about the ’emergency’ budget (the emergency apparently being the pressing need to raise inheritance tax thresholds). For housing, the budget will have a significant impact, and one which will get worse in future years. It will, without a shadow of a doubt, cause a significant rise in homelessness, while making it harder for councils to deal with that homelessness. Beyond that, it will make adequate rented housing for families, social or otherwise, a problem – a risk – in a previously unknown way. And it seriously changes the plans and direction of the social housing sector, even before any extended right to buy.
So, to the detail of this farrago.
Benefit Cap
As well as the £23,000 benefit cap for London, an out of London cap of £20,000 was announced, with lower figures for single people.
London: £23000 per year or £442.31 for families, £15,410 per year or £296.25 per week for single persons
Outside London: £20000 per year or £384.62 per week for families, £13400 per year or £257.69 per week for single persons
My detailed post on the £23K cap is here. Even that figure, if applied nationally, meant that households with 3 or 4 children would find social housing rents for 4 bed properties becoming unaffordable, or possibly 3 bed places too in some circumstances. A £20K out of London cap simply confirms this. For households subject to the cap, it would seem pretty certain that any household with more than two children will find social, affordable or private rent for a suitable property unaffordable.
The single person cap, certainly for London, looks very likely to make even a room in shared property unaffordable at private rents.
The result will be a significant increase in homelessness from unaffordable properties. First an initial spike from terminated private sector tenancies (which in London had already risen from 11% of accepted homeless applications in 2010 to 39% in 2014), followed by a slower rise in homelessness from social tenancies.
Suitable temporary accommodation will also be caught by the cap, meaning that Councils will have to either lower rents for temporary accommodation, or blow their DHP budget on supporting it (Westminster City Council, for example, recently went £1 million over budget on DHP very largely through funding benefit capped temporary accommodation). It will, of course, become increasingly impossible to find suitable affordable accommodation by which to discharge duty – in the social or private sector.
Here, borrowed from Joe Halewood, are the figures.
Under 21 Housing Benefit
Having apparently learnt nothing at all from the 1980s, the Government are to stop HB for under 21 year olds from 2017, unless in employment or education (with vague ‘vulnerability’ exceptions). This will obviously result in a huge increase in under 21 homelessness. It did before and there is no reason to think it will be any different this time.
Benefit freeze
HB and LHA rates are to be frozen for the next five years. In the private sector in particular, this will simply see the amount of properties available and affordable for LHA claimants shrink significantly year on year, as rents continue to rise. The rate of homelessness from private sector tenancies will inevitably increase as a result. Shelter calculate that after two years of freeze, the bottom third of the PRS market will be affordable in just 20 local authorities nationwide. Rents in England went up by 2.1% on average last year.
Two child cap
Both tax credits and housing benefit/LHA are to be changed from April 2017 so that only two children in a household are taken into account. This will apply to any existing claimants with a third (or more) child born after April 2017, or to any new claimants (new being not claimed in last 6 months) In addition, the ‘family premium’ element in HB/LHA calculation will be scrapped from April 2016 – meaning a reduction of £10.47 pw.
This means that HB/LHA will be effectively cut for working households or those getting CTC, with the child/family premium income disregards being removed. According to the IFS, it means losing the average of £3,670 a year that currently goes to 872,000 families (548,000 of them in work).
That said, the Government aren’t complete monsters. If you can prove that your third child was the result of being raped, there will be an exception. They actually said that. They really did.
‘Pay to stay’
For tenants of social housing (Council or RSL), mandatory upper income limits will be set, above which a ‘market rent’ must be charged. This was of course brought in previously as a discretionary power for tenant households earning over £60K. Nobody but nobody took it up because it was a silly and expensive idea. Now, it will be a mandatory silly and expensive idea. What is more, the ‘higher income earners’ [sic] are households with gross income of £40,000 in London and £30,000 elsewhere. A couple working full time on the new ‘national living wage’ (the minimum wage) rate would earn £26,000, which makes £30,000 an interesting definition of higher income.
RSLs will get to keep any additional rent. Councils will have to pay it to the Treasury. However, the mechanism for this is ‘to be consulted on’ – how landlords are to get income details, what amounts to ‘market rent’ etc. are all a fog. But whatever the mechanism, there will be substantial administrative burdens and costs on the landlords.
As far as I can see, given that households on £30K income are entitled to an element of housing benefit at certain rent levels, the net effect will be to put up the housing benefit bill. It is also, of course, a huge disincentive for people to increase their employment income, amounting to a huge marginal tax increase. A stroke of genius.
Rent cuts
It might seem odd to be castigating rent cuts. But…
Social landlords (RSL and Council) will have to cut rents by 1% every year for the next 4 years. This after a ’10 year deal’ in 2013 for rent increases of CPI plus 1%. While a limited rent reduction at least won’t hurt existing tenants’ ability to pay the rent, RSLs’ business and finance plans predicated on CPI plus 1% have been torn apart. Their ability to get loans is somewhat jeopardised and their building plans at the least will have to be shrunk. Fewer new social rent properties. For councils, looking at funding repairs out of the rent income, there is a real maintenance problem looming.
The only saving irony is that central government legislating for RSL rent levels may mean that RSLs’ debt ends up on the public balance sheet, adding £60 billion to Government debt overnight.
Private Sector
Even the PRS took a hit. Tax relief on mortgage interest for BTL landlords will only be claimable at basic rate – 20% – not at higher rates. To be phased in over 4 years
In addition, the ‘wear and tear’ tax allowance will no longer be set at 10% of the rental income, but will be based on actual costs.
Unsurprisingly, landlord bodies like the RLA insist that any losses in these changes will be passed on in higher rents.
Whether this will slow the BTL buying frenzy remains to be seen. I suspect it will be of marginal effect overall.
Conclusions
If I was managing a council homeless persons unit, I would be frankly terrified. There will be a very significant and sustained increase in applications, from households with children becoming homeless through unaffordability and from under 21 year olds, who may be vulnerable in post-Johnson terms. The council will simply have to subsidise the costs of temporary accommodation. Although the DHP pot from central Government will increase by between £100 million and £55 million up to 2020 over the originally proposed £85 million for 2015, this is unlikely to be anything like enough to either keep people in their homes or provide for the costs of temporary accommodation over the capped HB level. The experience of London Councils confirms this. And then, there will be the simple impossibility of finding suitable, affordable accommodation for discharge of duty. For households subject to the benefit cap, London councils won’t even be able to rely on out of London accommodation as being cheap enough any longer.
For non-London councils and Housing Associations who haven’t really had to deal with these issues before, things are going to get very tricky, pretty quickly.
For some family households, there will be nowhere suitable to go. At all. Anywhere. This is not something that we have had to deal with for many years.
As for the rest, the slow death of social housing continues, now somewhat accelerated, with extended RTB still to come. The Government also announced that social ‘tenancies for life’ are going to be reviewed. You might think that the introduction of ‘flexible’ tenancies had done that already, but apparently not. So we have that to look forward to.
And private rents aren’t going anywhere but up, faster…