Straining

When housing subsidy for new housing association homes was reduced and private borrowing was used to fill the gap rents started to rise to cover the interest costs. With the deregulation of private sector rents with the phasing out of the Fair Rent system private rents were rising too. Concerned with this Clive Soley MP asked Sir George Young the then Housing Minister in 1991 about the impact of rising rents. Sir George’s response has become famous in the housing world “Housing benefit will take the strain”.

Each year the proportion of subsidy for new homes fell, debt rose, and rents followed. Also, as more and more private landlords took advantage of the end of rent controls, their rents rose too. As the stock of social housing plummeted the number of people dependent upon housing benefit renting from private landlords rose. The result? Housing benefit is straining. The graph above shows how subsidy has shifted dramatically from ‘bricks and mortar’ to rental payments. The cost of housing related benefits is over £30bn and forecast to rise to £35bn by 2030.

The total amount of debt held by the 200 largest housing associations exceeds £130bn. The interest paid on this sum comes from tenants’ rents. As they seek to cover these costs along with the growing repair bill the number of new homes constructed is expected to fall, just as the government is keen for numbers to accelerate. The hoped for fall in interest rates appears to be decelerating.

Economic growth is dependent upon housebuilding. The government is committed to this and to new housing association supply to be predominately the lower rent social housing. Only a long term switch to a substantial new programme of social housing can start to reverse the crippling level of housing benefit costs. That will require a massive increase in the funding for new social housing, with more properties each requiring more subsidy the spending review next year could prove to be more important than the budget.