How the affordability racket works.

This last week the BBC’s Spotlight news programme aired one of those shallow pieces on the housing crisis that stand in for sensible analysis and debate on the issue. This time it was something called Rentplus, a scheme introduced by a housing association in Plymouth. Unfortunately, the spokeswoman from the National Housing Federation, representing housing associations, failed to explain how this actually worked. Instead, she offered some half-baked cliches. Undeterred, Spotlight’s journalists implied that Rentplus was the answer to all our woes, allowing those in need painlessly to climb the housing ladder without the need for a deposit.

What’s the context? Rentplus is an example of what’s called intermediate housing. This is new housing for sale or rent between open market prices and social rent. Intermediate housing comes in a bewildering variety of types. It includes shared ownership, shared equity, Help to Buy equity loans, First Buy schemes where developers make an interest-free loan of 20% of the price of the house, or low cost, discounted houses normally tied to an obligation to recycle any discount when the house is sold on. In addition to intermediate housing there is social rented housing (the traditional council housing if you like) and affordable rented housing provided by housing associations.

The confusing complexity is probably deliberate. Purportedly designed to meet ‘the very different housing needs‘ of different groups, according to Cornwall Council, in practice it looks more like the unplanned result of a plethora of Government gimmicks, anything to avoid funding more social rented housing. It also conveniently bamboozles the public by lumping all sorts of housing tenure together under the ‘affordable’ umbrella. Moreover, it masks current Government policy, which is to shift housing provision for the less well off from the public to the private sector.

To understand what’s going on, we need to understand how ‘affordable’ housing is defined and delivered. Around half of affordable housing is provided by housing associations, relying on the Government’s Housing Grant. But the last Tory/Lib Dem Government slashed this by £4.5 billion or 60%. In order to maintain supply, they introduced a new category of ‘affordable rent’. This basically meant a higher rent than social rent. Most of the older social rented housing tenancies were around 50% of market rent, but ‘affordable rents’ can be up to 80% of open market rents.

There’s only one small problem with this. Most ‘affordable rents’ are unaffordable, especially in low wage areas like Cornwall. The Department of Communities and Local Government (DCLG) helpfully defines an affordable rent as a rent less than 25% of gross household income (Cornwall Council, SHMNA, pp.118-19). The median gross household income in Cornwall is around £22,000. So to be affordable rent must be less than £5,500 a year, or £458 a month. Market rents in Cornwall are averaging £625 a month, which means that an ‘affordable rent’ could be as much as £500 a month. Therefore, according to the Government’s own definition, more than half of Cornish households are unable to afford ‘affordable rent’!

Social rented houses disappear; second homes appear

Social rented houses disappear; second homes appear

Basically, what the Government is doing is disguising a shift from social rented housing to ‘affordable’ rented housing. Their Housing and Planning Bill takes this even further. This aims to end ‘generation rent’ by forcing everyone to buy houses while stripping away the remaining rights of social housing tenants. All this in the guise of ‘fairness’ to private renters, thus as usual playing off one group against another in a race to the bottom.

Now developers will be encouraged to build ‘starter homes’ of up to £250,000, to be sold at a 20% discount. If the average household in Cornwall can’t afford ‘affordable rents’ then they haven’t a chance in hell of affording a £200,000 (after discount) property. Again according to the DCLG, a house is ‘affordable’ to buy if it costs no more than 3.5 times gross household income. That means the median household in Cornwall can afford a house of up to ££77,000. You won’t find too much choice at that price in the local property pages.

The result of all this has been a very sharp decline in social rented housing delivery. At present we’re seeing a succession of developers reducing the proportion of social rented housing in their schemes as they react to Government policy. This switch from social rent to ‘affordable rent’ means that in practice affordable housing no longer meets the needs of those most in need. The housing associations’ journal Inside Housing concludes that families across a large swathe of southern England are being priced out of affordable rent, while Shelter claims the introduction of ‘affordable rent’ means the end of social housing.

Even the Establishment mouthpiece The Economist concludes the Tories’ affordable housing plans are a ‘middle class giveaway‘. Those who are most likely to benefit are people almost but not quite able to afford the market price, but nonetheless not that badly off. This handout is given an extra twist by the ending of the obligation to recycle the 20% discount that comes with starter homes, a straight handout to those who can afford a deposit and mortgage.

So the Government has deliberately starved funds for social housing while expanding ‘affordable’ housing not by building more really affordable houses but by expanding the definition of ‘affordable’ housing. Meanwhile, the other half of ‘affordable homes’ are provided by private developers.

Developers do not do this out of the kindness of their hearts. They cross-subsidise, whereby profits made from open market housing is channelled into various discounted housing – this could be social rent, ‘affordable’ rent or the myriad of intermediate schemes. This all stems from the Labour Government’s Faustian pact with the big developers back in the late 1990s. The idea was that developers would be encouraged to make profits as long as some of those profits were siphoned off into affordable housing. This would in turn cut public spending on housing and make the Labour Government look fiscally ‘responsible’.

This was all part of Labour’s embrace of the market and a mini-version of its big brother Faustian pact with the City and the financial sector. Banks and financial institutions were given a free hand as long as they generated taxes. However, just as corporate tax avoidance on an industrial scale undermined that cunning plan, so has developers’ use of secretive and non-transparent economic viability assessments and constant pressure to reduce the proportion of ‘affordable homes’ undermined the housing intentions.

Furthermore, there was another unwitting consequence. To build ‘affordable’ homes unaffordable and more profitable houses are required. For every ‘affordable home’ in Cornwall provided by developers, one to three open market houses have to be built. This leads to the logic of the lunatic asylum. In Cornwall we are told that there is a ‘need’ to build 30,910 affordable homes over the next 20 years. If all of these were delivered by developers it would require building somewhere between another 30,910 and 92,730 open market houses. This means a housing target between 62,000 and 124,000, Or the equivalent of between seven to 14 Truros. In a mere 20 years.

As usual the planners’ estimate of 30,910 is exaggerated, as it’s based on faulty demographic data. It also includes many thousands of affordable homes required by hypothetical new migrants to Cornwall; it’s not just to meet the housing need of existing communities. The planners also admit that ‘ the nature of Cornwall as a housing market means such growth would be dependent upon significant increases in past rates of net migration’. So migrants would have to encouraged. Their offspring would then need more ‘affordable homes’ which would require an uplift in the inmigration rate, which would … and so the merry-go-round goes on. And on.

Let’s adopt a rather wider perspective. We can return to the Rentplus scheme reported by Spotlight, Although the hapless report said no deposit was needed the details show that after 5, 10, 15 or 20 years renting a house, a deposit will be demanded. The rent meanwhile will be an ‘affordable rent’ of 80% of market rent, increasing by 1% over the rate of inflation every year for each 5 year period. Potential tenants have to prove they have a good credit record, are in employment or training and open up their bank statements and family details to the housing association. They will then have fewer rights than social renting tenants (although this may soon change if the Government gets its way). Rentplus, like other intermediate housing schemes, fails to meet the needs of the least well-off or the poorest.

Meanwhile, housing associations fulfil a disciplinary role akin to 19th century Victorian philanthropists, helping the deserving poor but imposing moral expectations on them. Their ‘clients’ have to work hard, save, and live in fear of losing their jobs and perhaps their homes. This is part of a wider move to discipline labour. The bedroom tax, the reduction of social benefits, the attack on trade union rights are all part and parcel of a coherent desire to control and coerce labour and ensure that the quiet transfer of wealth and resources to the top 5% can continue undisturbed.

There used to be a phrase that summed up all this but it’s become old-fashioned now. Now what was it? Ah yes, it’s class warfare. A small elite of very well-off public school educated men, most of whom mingled at Oxbridge, wage a vicious and cruel war on social housing tenants and the most vulnerable and/or dispossessed in our society. And, backed by the power of the state and the media, they seem to be winning.

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4 Responses to How the affordability racket works.

  1. Pingback: How the affordability racket works. Or why ‘affordable’ housing is a lie. | trerice

  2. Pingback: Fake facts and fantasy: the perils of Pollardspeak | Cornwall – a developers' paradise?

  3. Pingback: How did we get into this mess?: 3 Why the housing target matters | Cornwall – a developers' paradise?

  4. Pingback: How did we get into this mess?: 6 A battle drawn but the war still to win, early 2013 | Cornwall – a developers' paradise?

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