Vanishing act

One of the stats most often quoted by Grant Shapps is that the social rented housing stock shrank by 421,000 homes under Labour. The real question is how much it will shrink under him.

The housing minister quoted the figure again this week when he was interviewed on the Today programme on Wednesday about the affordable housing figures (for more on them see my blog for Inside Housing here). His use of statistics is much discussed but on this particular one he’s right: social housing disappeared under Labour as right to buy and demolitions outnumbered construction of new homes. What he did not mention was that roughly twice as many homes disappeared under the Conservatives between 1979 and 1997.

And, under questioning from John Humphrys, Shapps again got away with blurring the distinction between ‘affordable’ and ‘social’ renting. Most of the ‘massive increase’ claimed by the minister was in homes for ‘affordable rent’. Starts of social rented homes fell by no less than 97 per cent to just 1,048 in 2011/12.

In a piece just published at Guardian Housing I’ve been looking at the implications of a range of different policies and attempting to assess how much social housing will be left by the end of this parliament. To be clear, by social housing I mean social rented housing and I mean specifically a form of rented housing that is linked to what people can afford – as opposed to ‘affordable’ rent, which is linked to what the market says they should pay. Broadly speaking, social rents are calculated on a 70:30 formula of local earnings to market values whereas affordable rent is set at up to 80 per cent of the local market rent.

The difference between the two varies around the country: in lower-value areas, the rents are roughly similar; in a few northern cities affordable rents would actually be lower than social rents if it was viable to develop; but in higher-value areas the difference can be huge. In London the difference is vast, even with affordable rent coming in at around 65 per cent of market rent.

Although there will still be some starts of social rented homes through the HCA programme (schemes previously commissioned and larger homes for which the benefit cap makes affordable rent unviable) this is pretty much the end of government-funded new supply.

The other source of funding, the planning system, is closing down too. Changes to planning guidance mean developers can now meet their section 106 obligations through affordable rent as well as social rent and shared ownership. At a national level, the National Planning Policy Framework deletes the crucial words ‘at a price low enough for them to afford’ from previous planning guidance. In London, where many boroughs are attempting to hold the line and insist on social rent through the planning system, the Mayor’s current draft of a supplementary planning guidance affordable housing note says that ‘seeking to impose a lower rent ceiling or ceilings through the planning system would result in something other than the affordable rent product and would not comply with national guidance’.

In the meantime developers are arguing down the level of affordable housing on viability grounds and the fear is that when that is combined with the effect of the community infrastructure levy it will be negotiated away completely. Carl Brown of Inside Housing has a story today revealing that many more councils are taking cash contributions instead of actual homes.

So if new supply of social rented homes is certain to slow to a trickle, what about the existing stock? There are six key factors that will see decline here too:

Conversions of re-lets: Any social landlord that develops affordable rent homes can also charge the new higher rents on a proportion of their existing homes that come up for re-let. However, Treasury concern about the impact on the housing benefit bill means that this is limited to 2 per cent of the existing stock (about 80,000 homes). Different landlords have different policies on this (for example, Notting Hill Housing is planning to convert every other bedsit and one and two bed home) – and local authorities are setting out different requirements in their tenancy strategies (Hammersmith & Fulham envisages about half of association homes converting, whereas Oxford is not supporting conversions).

Right to buy 2: The big criticism of the original right to buy was that none of the proceeds were invested in new homes. Under Right to Buy 2, ministers are promising that landlords will build one-for-one replacements for each of the promised 100,000 sales. In theory these can be for social rent. In practice, once the Treasury has taken its cut and outstanding debt has been repaid, there will only be enough left for affordable rent (if that).

Pay to stay: In a consultation launched this week, the government proposes increasing the rents of high-earning tenants to 80 per cent of market levels. On the highest estimate, this could apply to 34,000 households with a single or joint income of over £60,000. However, there is no income limit for the right to buy and high earners will still be able to get a discount of up top £75,000.

Demolition: About 160,000 social rented homes were demolished between 1997 and 2010 as landlords worked to meet the decent homes target by getting rid of their worst stock. Local authorities are set to demolish thousands more homes by 2017 to reduce the debt they took on with housing revenue account reform (see this piece about Nottingham by Martin Hilditch).

Asset management: It’s good business for social landlords to sell off the homes that cost them most in maintenance, especially when they have a high open market value, but how do they use the proceeds? One housing association chief executive told me: ‘The real threat to social renting is not conversions or the right to buy – it’s asset management.’

Regeneration: There are good reasons to diversify tenure to turn around run-down estates. However, the net result on schemes like the transformation of the Ferrier estate in Greenwich into Kidbrooke Village and the Heygate estate into the Elephant & Castle regeneration is almost always a net reduction in the social rented stock. On the other side of London, residents of the West Kensington and Gibbs Green estates are fighting Hammersmith & Fulham’s controversial plans for the redevelopment of Earl’s Court that also involve demolishing their homes. If they fail, in theory there will be 750 replacement social rented homes for them in the new scheme but that assumes they want to live on a building site and do not take up offers elsewhere in the meantime. And back to my point about planning, that is just 10 per cent of the 7,500 homes in the total scheme – although another 10 per cent will be ‘affordable’.

All of this is happening at a time of rapid change in ideas of what social housing is and who it is for. Under the Localism Act, landlords are able to offer fixed-term rather than secure tenancies and local authorities can set their own allocations priorities and discharge their homelessness duty into the private rented sector. It’s a developing and uncertain picture, with some landlords and councils looking to push the new flexibilities to the limit and others determined to defend traditional social renting. For some, it’s just a return to the more locally-determined system that existed before the 1977 Homeless Persons Act (Hammersmith & Fulham cabinet member for housing Andrew Johnson says it won’t make a great deal of difference). For others, it’s an ideologically-driven assault on the whole principle of social housing (this is an argument made consistently by Hammersmith MP Andy Slaughter ever since the groundbreaking Localis report of 2008).

The key point for me is the slow death of an alternative to the market provision of housing. There is a reasonable argument that affordable rent is simply a pragmatic alternative at a time of austerity that allows the development of at least some affordable homes. However, by linking rents to unaffordable market levels it is a contradiction in terms and with Shapps hinting this week that there will be a second round of the programme it is one that is set to continue. This will be happening at a time when, as a report for the Joseph Rowntree Foundation revealed this week, that market alternative is more desperately needed than ever and at a time when welfare cuts mean higher rents mean higher shortfalls for anyone on housing benefit.

I appreciate that this is seeing the issues from a rather southern perspective. The effects will play out differently in different parts of the country and will obviously be felt most acutely in the parts of the country where house prices and market rents are most out of kilter with earnings. The latest HCA stats show that the three regions with the biggest number of affordable rent starts were London, the South East and the South West and that together they accounted for more than half of total starts. In lower-priced areas of the North and Midlands, the issues will be different and the development of affordable rent has been slower to get off the ground. In some areas, affordable and social rents are little different and it’s questionable whether the new programme is viable at all. However, where it can go ahead it still relies on conversions of existing re-lets and so will also mean a steady erosion of the social rented stock. The real issue, when it’s combined with the effect of policies like the new homes bonus, may be the way that resources are effectively being transferred from North to South.

So how much social housing will be left at the end of this parliament? As I quickly realised researching this piece, there are so many imponderables that it’s an impossible question to answer with any certainty. My guess – and it’s only a guess – is that if existing policies pan out as advertised, the social rented stock could shrink by another 250,000 homes, which would mean a faster rate of decline than under the last Conservative government and much faster than under Labour. If right to buy sales exceed government estimates, if the government decides to relax the restrictions on the conversion of re-lets to affordable rent or if landlords’ business priorities dictate more active asset management by landlords, it could be many more.

However, that pans out, there will still be a huge gap between the need for and provision of affordable housing (even using the most generous definition of affordable). That will leave more and more people reliant on short-term tenancies with poor conditions and high rents at the bottom end of the private rented sector. Maybe that is really the new ‘social’ housing.