In the first of two articles, the Management School’s Stewart Smyth, Co-Director of The Centre for Research into Accounting and Finance in Context (CRAFiC) outlines the recent history of policy changes towards social housing.
The article, first published on the London School of Economics’ (LSE) Politics and Policy blog, covers the transformation in policy from the apparent certainty that had emerged at the start of the year, through to the changes that have occurred in the sector since the election in May, and finally up to the recent Comprehensive Spending Review. An excerpt from the article follows;
Under the Affordable Homes Programme: 2011-15, (AHP) the government specified the types of homes (or products as they call them) they would fund: affordable rent homes, affordable home ownership, mortgage rescue, empty homes and supported housing for the elderly. They also made it clear that homes at social rent levels would only be supported in exceptional circumstances.
In 2012, the National Audit Office investigated the AHP programme and showed how the financing was working. They noted that ‘the Programme is intended to build housing with a third of the grant per home of earlier affordable housing schemes’. In further detail, they added:
“It will involve housing providers spending some £12 billion on new homes, funded by a combination of government grant (£1.8 billion), borrowing by providers supported by rents on the new properties (we estimate around £6 billion), and funding from other sources (about £4 billion). Rents totalling around £500 million a year on new homes will be paid by tenants, approximately two-thirds of whom are supported by housing benefit.”
It was clear from the start that the AHP was designed to increase debt levels, debt that the government thought would be private.
The Govt’s focus on short-termism is not as immediately obvious but is no less an important element, and can be seen in two aspects. First, in the shift from higher upfront capital funding (under the previous programmes) to a reliance on higher rent levels that increase the benefits budget (i.e. revenue expenditure) over the longer term.
This can also be seen in the government’s attitude towards value for money which was to deliver the largest number of homes given the funding available. However, according to the NAO this produced a lower benefit to cost ratio than the previous National Affordable Homes Programme (2008-2011).
The second aspect of short-termism concerns the use of housing association resources, whether that is through the rationalization of housing stock (e.g. the sale of voids or conversions of social rents to affordable rents) or utilizing any spare borrowing capacity. These are one time funding manoeuvres, which are considered to be unsustainable as a long-term funding model.
The AHP is incapable of addressing the lack of social housing supply and therefore cannot help the 1.7 million households on council waiting lists. Unless there was a change in policy direction, the AHP was leading to a debt bubble being inflated which at some point would become unsustainable; but it would be off the government’s balance sheet.