Financial viability of the social housing sector: introducing the Affordable Homes Programme - Public Accounts Committee Contents

2 Impact of the Programme on tenants

11. The Programme will be delivered with less capital funding than previous housing programmes. This reduction will be partly funded by tenants paying more rent. Some two-thirds of social housing tenants are supported by housing benefit so this effectively shifts costs from the Department for Communities and Local Government to the Department for Work and Pensions. The housing benefit bill is expected to rise by £1.4 billion over 30 years as a result of the Programme.[24]

12. We debated the value for money case of shifting from a capital subsidy to a revenue-based subsidy. Witnesses from the sector told us that based on research and modelling, a capital subsidy appears more cost-effective if over a longer period (say eight or ten years). However, they acknowledged that this work needed to be updated and was dependent on a number of factors including: how long people are in receipt of benefit, what happens to the home when people move on and whether the homes being built should permanently be for people who will need support. [25]

13. Under the Programme, housing providers can increase their rent levels - up to 80% of market rent, though in London providers have committed to 65% on average. This equates to an average rent of approximately £182 per week in London, compared to a market rent of £280 a week in comparable properties.[26] The Department has done some work to analyse the costs of the Programme to all tenants, but this was not presented in the impact assessment for the Programme.[27] We were also surprised to hear that the Agency has not collected information on the rents that tenants will be expected to pay for individual properties, nor has it consulted with tenants to understand how they will be affected by increased rent levels.[28]

14. We asked witnesses whether the higher rent levels charged under the Programme could have a negative impact on those on lower incomes. In particular, we queried whether the homes being built under the Programme would be 'affordable' to the people in most acute need. Witnesses talked about a drift towards families with higher incomes who could afford the higher rents.[29] We heard that those on low income or out of work will have to earn more to be able to escape from being dependent on benefits.[30] Poorer tenants could find themselves unable to get employment that pays enough to cover the higher rent levels charged. [31] We are therefore concerned that the 'affordable' housing may end up benefiting those whose income is greater but whose need may be less.[32] The Department explained that housing delivered through the Programme would still be cheaper than renting through the open market.[33]

15. This Programme addresses a small fraction (2%) of the unmet housing need in England and we were concerned about the way the planned homes were spread across the country. Rather than targeting specific areas in greatest need, the Programme funds were allocated based on a broad geographic spread.[34] When asked about how the housing need was defined, the Agency told us it considered a range of factors when assessing applications. It assessed the value for money of the bids, the grant rates and consulted with local authorities within Local Enterprise Partnership (LEP) areas.[35] The Department told us that the Programme was heavily weighted to the places of highest housing need with 23,000 homes (27%) planned within London.[36] Even within areas of need, we questioned whether the properties are going to the right-sized families. We are aware of cases where four bedrooms homes have gone to a couple with no children or a couple with one child. Witnesses told us that there was a drift towards people on higher incomes as they can most afford to buy, which seems to us to be against the spirit of an affordable homes programme.[37]

16. In some areas where rent is already low, the Programme may not be workable, because housing providers would have to charge above market rents in order to cover costs. The Department told us that all areas, even those that appear to have less need, received funding because they had specific housing needs which were not being met by the current housing stock.[38] The Department explained that the Programme included a range of property sizes and types with a third of the Programme made up of larger properties and around 9,500 homes offering supported accommodation to meet the needs of the elderly and those with special needs.[39]

17. There are wider welfare reforms that run alongside and will affect the Programme. One such change proposes that housing benefit will be paid directly to the tenant rather than to the housing provider. Our experience suggests that this may lead to difficulties, with providers not receiving the money they are owned in rental income on time.[40] The Department told us they have started running four demonstration projects to test how these changes will impact on rent arrears and speed of payment.[41]

24   Q 22; C&AG report, para 1.8, Figure 6 Back

25   Qq 38, 43-46 Back

26   Q 70 Back

27   Q 137 Back

28   Qq 111, 113, 116-117 Back

29   Qq 31, 48 Back

30   Q 48 Back

31   Qq 107, 110 Back

32   Q 115 Back

33   Qq 107-108 Back

34   Qq 95, 97, 121 Back

35   Qq 98-100 Back

36   Qq 104-105 Back

37   Qq 31-33 Back

38   Qq 121-124 Back

39   Q 102 Back

40   Q 131  Back

41   Qq 131, 133-134 Back

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Prepared 12 October 2012