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‘Pay to Stay’ – Market economics has no place in social housing

Posted on 19th November 2015

Market rent levels, particularly in London, have been rising consistently at a somewhat meteoric rate for the last decade or more, even in the depths of the depression. Private sector rental values are driven purely by market economics unlike social rent levels, which are regulated, and historically have been maintained at a much lower rate to ensure affordability for those who cannot keep up with those market forces. Rents on the private rental market in London are often about 3 times higher than social rental charges even though the properties might be identical.

Given the disparity, it is probably not surprising that the government is racing to cash in to increase the social rental price on properties. There is clearly a market for properties in London in particular and the market will bear a price considerably higher than the current price charged to social tenants. Of course, if they pushed up rent for all social tenants, most of whom are vulnerable and poor, you would do no more than push up the housing benefit bill.

So they have decided instead to means test rent levels. The more someone earns, the less help they need with their rent so the ‘subsidy’ on their rent is withdrawn so they pay a higher rent than those who are poorer. One price will no longer fit all. It is like walking into John Lewis and before they give you the price of the blender you are looking for, they check who made your shoes or the colour of your credit card.

In London this will affect any household that earns more than £40,000 a year or outside London, any household earning £30,000 or more. It is important to note that the proposals do not currently distinguish between the sizes of households. Whilst a single person on £50,000 may well be able to afford the increased rents, a family of five on £41,000 will not.

This is not a policy that will only impact on wealthy tenants and it is likely in fact that those who have large incomes will only constitute a handful as it is unlikely many such people are in social housing at all. The policy will certainly include many working families in social housing, who will already feel squeezed by tax credit cuts.

The current proposals are considering how the system should be set up. The rent could be increased in stages, as the tenant’s income increases. It is not clear whether the gross income would be the relevant figure. If so, what about tax? Pension contributions? Childcare costs? Perhaps a system based on take home pay would be fairer.

However, this still would not take into account the additional expenses tenants, particular those with families, have to cover? Surely it would be fairer to take into account the actual circumstances of a family to decide whether they can in fact afford the market rent. Such assessments though would create a huge administrative burden on the local authority not to mention the costs that would be incurred.

Under the current proposals, the higher rent could be charged as soon as the tenant’s income goes over the income threshold. It would be a bitter pill to swallow with a promotion or increasing your working hours if the inevitable effect was that your living standards would fall instead of rise.

To avoid such a rent hike, many workers would presumably reduce their working hours to limit their income, increase their pension contributions (if the assessment is calculated based on take home pay) or avoid applying for a promotion altogether if it would put them just over the threshold for higher rents.

Like every policy, this will have a mixed impact on social mobility. Any tenant that seeks to avoid it in the ways mentioned above, will see their prospects of social mobility materially damaged.

Others who seek promotion regardless, or are in very high income jobs so that they could afford to pay full market rents, will not be adversely affected as long as the increase in their pay is sufficient to pay the increased rent.

The scheme certainly provides an incentive for tenants to purchase their homes under the right to buy scheme if they can afford to do so. But is that a cause for celebration? The tenant may well feel forced into entering a mortgage which in reality they can barely afford and of course yet another property is then lost to the social housing sector, which is already in crisis.

These changes also mean local authorities will have to ask their tenants personal and detailed questions about their income and about that of any other members of their household. If an adult child returned home for 4 months between tenancies, would the tenant be expected to confirm this and provide financial data for their adult child during this temporary arrangement? There are also questions about privacy and data protection raised by this. How willingly are tenants going to volunteer this information and what will action will local authorities take if they do not? This may therefore lead to a general reduction in trust between tenants and their landlord as well as the abovementioned administrative burden on local authorities. It is certainly not clear whether the increase in rents will actually pay for these additional checks and enforcement procedures.

My overriding feeling is that the envy felt by some against those benefiting from lower rents does not justify a policy that will increase the selloff of council accommodation or dent the natural ambition of some to increase their living standard by getting better paid work. That is to say nothing of the additional burden the policy places on Councils who would need to administer the system and monitor their tenants’ incomes on a regular basis.

It should also be remembered that a household income of £40,000 is a modest one at best particularly for families and it is unlikely that many tenants will be able to afford the increased rents. This will lead to arrears, more evictions and more homelessness.

The Pay to Stay consultation is out for comments and you have until the 20th November 2015 to give your views.

Our Social Housing Solicitors are backed by nearly four decades of experience. Our legal practice and team of London Solicitors have a strong track record of achieving favourable client outcomes. For expert legal advice use our contact form or call us on 0808 250 6017 today.