The next housing crash
It’s not only the Tory crackdown on tax credits for families that will hit the working poor: it’s the Conservatives’ multiple mistakes on social housing that will do the most damage to our society. The problem is, these are less well-understood. Yet added together, they are set to cause a social housing sector crash almost comparable to the banking crash.
This is probably unintended – not least because there’s not one single policy that’s driving this. It’s the combination of a series of separate decisions that are coming together to fatally undermine the finances of many social housing providers, especially housing associations. More cuts in tax credits and benefits of course cause problems to the social housing sector by themselves – because they are certain to lead to greater rent arrears. But it’s only when you add in other changes, like the way benefits will be paid in the future, imposed cuts to housing association rents and the ideologically driven extension of the Right to Buy to Housing Associations, that the full disaster facing us becomes clearer.
Key to understanding this, is remembering that Housing Associations are primarily funded by banks who lend money to them in return for a low but continuous income, plus taking charges over the properties. Generally such lending in the past has been seen as low risk, justifying slightly lower returns. Yet the reliability of those rental income streams to social landlords and their lenders are under sustained attack. From the bedroom tax to the benefits cap, from universal credit to cuts in the rents social landlords can charge, it would be surprising if lenders to the sector weren’t beginning to question their risk exposure.
Ministers may feel that since housing associations have weathered bad debts created by some of these changes so far – not least the “Bedroom Tax” and benefit cap – then this is a dog that’s not barked. Yet some housing associations have masked the problems already there, by redefining rent arrears as bad debts, and writing more such bad debt off. That can’t be sustained much longer.
Certainly not when Universal Credit is introduced. Few people seemed to understand that universal credit will be processed centrally. There is no face to face contact or local link for those of working age on benefits. They will have to deal with a help line to a national service centre. There will be no named case worker or regional officer. The tenant will not be able to go into see people at the service centre. Social landlords will also have a helpline but they will only be able to find out if an application has been made and if it has been completed. They will not be able to find out what the tenant is likely to receive, nor what information from the tenant is outstanding, how long until the award is made or what they can do to speed things up.
And the introduction of Universal Credit holds another financial headache for housing associations: it is to be paid directly to the tenant putting the onus on the tenant to budget for their rent. Some tenants will be cope without a problem. Others, especially those with children on benefits experiencing a 4% reduction income, may not and will go into rent arrears: they will use the housing component of Universal Credit to pay bills rather than the rent. The evidence for this was in the universal credit pilots! Universal Credit pilot schemes with hand picked tenants showed 10% more tenants falling into arrears in the first 6 months. And only when the tenant is two months in arrears may the social landlord ask that the housing benefit component be paid direct to them.
On top of this predictable crisis, you must now add in the recent budget cuts to housing association rental income by 1% a year and 12% by 2020-2021. And the extension of the Right to Buy to Housing Associations which will see them losing their stock upon which their loans are secured. Has anyone in Government added up the cumulative impact of all this?
The banking crisis was partly caused by bankers redefining bad debt created by private individuals. The Social Housing sector is being forced to redefine bad debt because of Conservative policy. There comes a time when the redefining has to stop. But then the whole house of cards collapses. Housing is this Government’s most vulnerable flank. And we need to attack it before the most vulnerable in society are made to suffer more.
This article was originally posted on Liberal Democrat Voice.