Time to focus on social rents
Government policy has stretched social housing rents so far that associations are struggling to maintain existing stock let alone build desperately needed new homes
STRATEGY
Image: Istock
Victor da Cunha
Group Chief Executive, Curo Group
Issue 64 | February 2023
It’s a marker of a fair and just society that everyone has access to a safe, warm, affordable home. Social housing exists to provide this for those priced out of the market. The problem is that there isn’t enough of it, and what exists is in need of increasing investment that its rent isn’t capable of achieving on its own.
With the current, rightful scrutiny of social landlords who have got things wrong, it’s tempting to believe that treating the presenting symptoms is the sole priority. I think most would agree that improving complaints-handling and repairs, managing overcrowding and dealing with damp and mould is essential. However, it won’t address the underlying challenge this country now faces; an evolving agenda far bigger than social housing rents can sustain.
History of social rent
When in 1974, the Housing Act established housing associations to resolve a quality and affordability crisis, it was right to do so but it had very different expectations of their role and how it would be funded. Set by the Fair Rent Service, a ‘fair rent’ was “the market rent assuming a balance between supply and demand”. While lower than market, those rents were intended solely to maintain and manage tenants’ homes, with new supply and major repairs funded by government.
The model saw success, and by the 1980s, 32% of homes in England were social rented, owned by councils alongside a growing housing association sector. However, the introduction of Right to Buy reversed this, as tenants stepped into homeownership in high numbers. By 2021, just 16% of homes were social rented despite soaring need.
While numbers and revenue declined, the government launched the Decent Homes Standard, aimed at improving the quality of the remainder. This accelerated transfers from local authorities to housing associations which, unlike councils, could borrow to fund required works. As the 1990s faded, the expectations had mushroomed – rent had not only to maintain and manage homes, but meet Decent Homes standards, build new ones and cover interest costs for both.
The problem continued in the new millennium. A 10-year rent control regime sought to harmonise rents but wasn’t truly effective. Today, in Bath, social rents are typically 40% of the average market rent cost, but in parts of the north they are on par, or higher.
The recession that followed accelerated the problem sharply, as the government compelled rent reductions for four consecutive years, reversing an agreement with the sector that rents would rise by CPI+1% for a decade. Billions were wiped off housing association financial projections and, with them, capacity to improve existing homes.
“By the 1980s, 32% of homes in England were social rented... By 2021, just 16% of homes were social rented despite soaring need.”
“With the clock ticking to net zero, the promised £4 billion for decarbonisation of stock has still not been fully released and what exists is bid-based.”
Making cuts
With social housing grant cut to the very minimum, housing associations were encouraged to ‘sweat’ balance sheets to build new social housing. Pursuing their social purpose, many used profit from market sales to plug the gap once filled by government grant. It also took internal subsidy and was risky, but without such boldness virtually no social rented homes would have been built in the following years.
Post-Brexit, the last bit of regeneration funding disappeared along with other major spending cuts, despite us having the oldest and coldest stock in the world.
While government data shows that social housing is in better condition than the private sector, the national stock undoubtedly requires substantial investment to enhance living standards, fire safety and energy efficiency. Yet no funding exists to tackle homes at the end of their useful life, nor meet growing fire protection expectations.
With the clock ticking to net zero, the promised £4 billion for decarbonisation of stock has still not been fully released and what exists is bid-based. So, it all remains to be paid for predominantly from the social rent pound.
Where are we now?
A pandemic and war have depleted materials and skills, affecting services and increasing costs faster in all parts of society. In April our rent increases will be capped below inflation to help offset the most challenging cost-of-living crisis most people have ever experienced. Be in no doubt: both the provision of new affordable housing and ability to invest in existing homes is under incredible stress.
How are we to make required investment with rent that has fallen significantly behind inflation over time, but that is continually expected to stretch further?
The prime requisite here is senior political stability and consensus on the importance of housing with a long-term plan for the supply of new homes and the quality of existing ones. These foundations, coupled with a long-term rent policy that is both clear in purpose and certain in execution, is essential.
Beyond this, policy makers of the future must recognise:
- Rents must exist first and foremost to pay for the maintenance and management of tenants’ homes;
- New social housing, with highly subsidised rents, can only be funded through adequate capital grants or subsidies such as public land – not through existing tenants’ rents;
- The replacement of homes at the end of their useful life is as important as new supply if we are to have homes fit for the future. But a regeneration renaissance can only be funded by a mixture of capital funding and a new rental stream that can pay for the investment.
It’s certainly a marker of a fair and just society that everyone has access to a safe, warm and affordable home. But our nation must build many more new homes, particularly affordable ones and regenerate the many thousands that have come to the end of their useful life.
More than ever, we need to invest in our ageing national social housing stock and that must mean making sure rents are stable and allowed to focus on precisely that. If we do all this with appropriate sustained strategic political leadership, then we might still have a chance of achieving that fair and just society.
“If we do all this... then we might still have a chance of achieving that fair and just society.”
