Posts Tagged '#Budget2015'

Summer budget 2015: Lower income families hit by housing policy changes

In today’s guest post Bristol University academic and author Alex Marsh reviews the implications of the proposal to cut housing association rents by 1% each year for the next four years, announced as part of the recent government summer budget.

Alex Marsh

Alex Marsh

George Osborne’s recent “emergency” budget proposed many changes to state support to lower income households in a bid to fulfil the Conservatives’ manifesto pledge to cut £12bn from welfare spending.

One unexpected aspect of this package was the proposal to cut housing association rents by 1% each year for the next four years.

This proposal was justified with reference to social housing rent rises over the last few years. These have pushed up the already substantial housing benefit bill. Households have needed greater state assistance in order to afford the rents being set. Bearing down on rents over the next few years will, it is claimed, both reduce the housing benefit bill and force social landlords to deliver efficiency gains.

Plausible

To the unwary or unfamiliar this argument could appear entirely plausible. It is surely time to try to rein in this sort of behaviour: landlords extracting income at the taxpayers’ expense.

Yet, it is important to understand how we have arrived at the current situation and what the consequences of this policy change are likely to be.

The 2010-2015 Coalition government did not want to see new housing association properties built for rent being let at conventional sub-market social rents. Instead it introduced the Affordable Homes Programme.

Under the AHP the level of capital subsidy per property was limited and the expectation was that the properties built would be let at so-called “Affordable Rents”. Affordable rents could be set at up to 80% of the local market rent. The greater income stream that would flow as a consequence would allow the housing associations to access the private finance necessary to build the properties in the first place.

There was no presumption that tenants of these properties would have a different profile to conventional social housing tenants. So it was likely a significant proportion would need to claim housing benefit. Indeed the higher Affordable Rents meant that it was likely that a greater proportion of tenants would need assistance to meet their housing costs.

“Many housing associations will be tearing up their existing business plans and having a major rethink”

In addition, the Coalition government encouraged housing associations to convert existing social rented tenancies to Affordable Rent when there was a change of tenant, in order to increase their revenue stream still further.

Finally, in 2013 the Government indicated that housing associations would be able to increase their average rents by CPI for the next ten years. This would give housing association boards some clarity and allow them to plan their strategies accordingly. So decisions were taken, in the light of projected income streams, about how many new properties could be planned, largely financed from private sources.

The Chancellor’s announcement last week pulls the rug out from under all of this. Many housing associations will be tearing up their existing business plans and having a major rethink.

Forecasts

There have been several forecasts of how much housing associations will scale back their planned new development activity as a result. The OBR estimated 14,000 properties, while the National Housing Federation suggested 27,000. In the context where it is generally acknowledged there is a crisis of housing supply this is more than a little unfortunate.

More dramatically, it is likely that there are housing associations who planned on the basis of previous assurances and borrowed on the basis of what they thought were firm commitments by Government who will now find themselves in serious difficulty. A few will almost certainly go out of business. There are likely to be urgent mergers and acquisitions talks relating to organisations in distress.

Quite how severe a problem this policy change has created is still to emerge. One technical, but potentially significant, issue is that valuers are currently debating how this change to income forecasts will affect the valuation of housing association assets and therefore loan security. This is on top of the Government pushing to extend the Right to Buy to housing associations, which will also erode the asset base.

“They are being punished for embracing the previous Government’s agenda”

The Credit Rating Agencies have an eye on the sector for the possibility of a sector-wide downgrade as a result of the impacts of welfare policy change. This would reduce the viability of current businesses as well as further constrain new housing development.

This whole situation adds up to a paradigmatic example of policy-induced uncertainty.

The organisations that most fully embraced the previous Government’s Affordable Rent regime will find themselves more exposed to the cuts now being proposed. The organisations that responded most ambitiously to the apparent certainties offered by the ten year rent pledge will now find themselves having to undertake the biggest rethink. It is hard not to conclude that they are paying a significant price for taking the Government at its word.

Caution

The question is what to do next? And how much weight should housing organisations place on any commitment given by Government, when it has been demonstrated that the rules of the game can so quickly be turned on their head without warning? Proceeding with extreme caution would seem advisable.

Some housing associations will no doubt increasingly look to develop activities that do not rely on government and to house people who do not depend on social security. As independent organisations they have the discretion to strike out in different directions. But the question of how we, as a society, deliver good quality affordable housing to those on low incomes remains just as pressing as ever.

#budget2015

The battle of the bedroom tax [FC]Alex Marsh is Professor of Public Policy, University of Bristol. Alongside Dave Cowan, he is co-authoring a Policy Press ShortThe Battle of the Bedroom Tax –  which will be published later this year. To keep in touch with this and other forthcoming publications why not sign up to the Policy Press enewsletter here?

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The views and opinions expressed on this blog site are solely those of the original blogpost authors and other contributors. These views and opinions do not necessarily represent those of the Policy Press and/or any/all contributors to this site.

 

6 free articles on the economic impact of austerity

Photo credit:

Photo credit: Number 10

In the immediate aftermath of the first wholly Conservative government budget in nearly 20 years reaction has been mixed.

Some believe Chancellor George Osborne’s move towards a higher-wage, lower-tax economy is fair and will give the majority of families a higher standard of living. For others, the budget was seen as ‘deceitful’, with the proposed cuts in benefits outweighing the gains, leaving the poorest even worse off.

The coming weeks and months will of course reveal the true impact but now is a good time to review some of the economic impacts of the austerity programme to date, assessing them on the basis of scholarly evidence and research.

For the next week we’re giving you FREE access to six articles from across our journals. These examine austerity economics across local government, the legal system, disability movements, social work and the voluntary sector:

Weathering the perfect storm? Austerity and institutional resilience in local government (Policy & Politics, volume 41, number 4): Evidence from case study research shows the dominance of cost-cutting and efficiency measures, as in previous periods of austerity. But creative approaches to service redesign are also emerging as the crisis deepens, based upon pragmatic politics and institutional bricolage.

Austerity justice (Journal of Poverty and Social Justice, volume 21, number 1): Discusses why civil legal aid has reached this low point and the impact of the loss this source of support for advice on welfare benefits and other common civil legal problems.

Cutting social security and tax credit spending (Journal of Poverty and Social Justice, volume 19, number 3): Examines the scale and nature of earlier government cuts by focusing on the indexation and capping of benefits, making benefits more selective and the fate of contributory benefits in the cuts.

Out of the shadows: disability movements (Critical and Radical Social Work, volume 2, number 2): In resisting cuts to disability benefits and services, today’s disability activists have consciously established themselves as an important part of a wider resistance to austerity.

Crisis, austerity and the future(s) of social work in the UK (Critical and Radical Social Work, volume 1, number 1): Examining the impact of the Government’s policy of ‘austerity’, which seeks to shift the costs of that crisis onto the poorest sections of the population while seeking also to undermine the post-war welfare settlement.

Decoupling the state and the third sector? The ‘big Society’ as a spontaneous order (Voluntary Sector Review, volume 4, number 2): Draws on Friedrich Hayek’s theory of ‘spontaneous order’, suggesting that the Big Society involves some implicit Hayekian assumptions. It concludes by considering the implications of regarding the third sector in such terms.

We publish seven highly prestigious journal in the social sciences. If you’d like to find out more about Policy Press journals and for information on how to subscribe to any of the journals then click on the links below.


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