The coalition government’s welfare reforms will prevent landlords from building family-sized homes, a report claims.
The impact of welfare reform on housing, published by the Consortium of Associations in the South East, says the combined impact of the government’s changes will be a ‘mismatch’ between housing demand and stock.
The government’s plans included capping the maximum benefits that can be claimed at £26,000 a year, and cutting housing benefit for tenants that are deemed to be under occupying their homes.
The report says unless the £26,000 cap is indexed for inflation the affordable rent model – where social landlords can set rents at up to 80 per cent of market rate – will not work for larger homes.
It also notes plans to pay housing benefit to tenants rather than landlords will lead to an increase in arrears and larger borrowing costs.
It says: ‘The combined impact of under-occupation rules, direct payments and the benefits cap is… likely to cause a substantial stock mismatch, while at the same time limiting the sector’s ability to address it.’
It says housing associations in the south east of England would have to re-build the equivalent of 7.5 per cent of their stock as one-bedroom properties to meet demand for smaller properties caused by the under-occupation rules.
CASE calls for two-bedroom properties to be exempt from the under-occupation rules, for a relaxing of the proposed £26,000 benefits cap for larger properties and for the scrapping of proposals for payment of benefit direct to tenants.
Guardian Brain Johnson
Moat and our fellow members of the Consortium of Associations in the South East (CASE) have launched a paper on the impact of welfare reform. Some might argue that the paper needn’t contain more than one word: unmanageable. And I’d agree.
We’re certainly not against welfare reform. The system should exist to help people back to work and stability. Right now, it is in need of serious enhancement to do this as effectively as it should. We also support some tightening of the public purse strings – times are tough and every organisation, whether public or private, should be striving to achieve value for money in all endeavours. The challenge for the housing sector is ensuring that these savings provide resolutions for the long term, and not simply short-term fixes.
According to proposed reforms, we would need to rebuild 7.5% of our existing stock as one-bedroom properties to correctly house everyone deemed to be under-occupying. If we take this deficit and apply it across England, we are facing a shortage of around 112,500 one-bedroom homes by April 2013.
This means that housing associations would have to build nothing but one-bedroom homes for the next two years just to make up the shortfall.
The fact that projected savings are worked out on the assumption that people won’t move is a bad sign. We would have no problem with an initiative that genuinely sought to get the greatest efficiency out of our housing stock – think there are ways of doing that. What we don’t want is a situation where short-term savings are used as the primary determinant for measuring the merit of a policy.
As an example, I doubt very much that anyone behind these reforms intended to encourage the development of more one-bedroom properties. Aside from the impact on build programmes, one-bedroom homes aren’t practical; younger couples soon outgrow them once they start their own families and older people often require live-in support.
Nationwide, these proposals on under-occupation will lead to a severe shortage of the “right size” homes for people, which will mean that many will begin going into debt on 1 April 2013. Surely, punishing people when they want to do the right thing but are unable to cannot be regarded as good public policy.
Equally, I don’t think the real impact of direct payments is yet fully understood. We know from previous experience that the removal of direct payments will lead to higher levels of arrears. The associated bad debt will increase the cost of borrowing for housing associations, as lenders move to manage the increased risk. These additional costs will need to be balanced by increased subsidy for each new home if current development levels are to be maintained. However, logically assuming that only a fixed amount of subsidy is available for housing, the consequence is that fewer homes will be built.
We’ve modelled this across the CASE group and found that the impact will leave 200 homes unbuilt for each £100m borrowed. This is on a relatively conservative assumption of a 2% increase in the cost of borrowing.
Nationally, the total reported borrowing facility for the sector is £63.7bn. A total of £53.3bn is currently drawn, leaving £12.4bn undrawn. If we apply the numbers above, this leaves approximately 106,000 homes unbuilt (according to current figures on drawn funds), all as a result of the implementation of direct payments.
The question for the government must therefore be: is a point of philosophy worth such a loss of capacity? Given where we are at in economic terms, it is difficult to see how the answer could be yes.
This is only a summary of the effects of just two of the proposed reforms on housing, but I hope it’s sufficient evidence to make others take notice. I think it’s pretty telling that nine of the biggest housing associations in the southeast felt strongly enough to come together to share our thoughts. The paper we’ve written isn’t based purely on business concerns; these reforms could have negative social repercussions that will make it more difficult – not less – to encourage people back to work. The bottom line is that if the final welfare reform act reflects none of our sector’s concerns, we will soon be facing a much greater housing crisis than the one we’re dealing with today.