Welcome to Show Don’t Tell.
In today’s episode we’re going to talk Social Housing, and inspect the leaky roof of the
welfare state. With over a million names on waiting lists,
ever increasing housing benefit costs due to incredible political games around building new social houses it’s about time we explored the facts and figures to see what
is really going on in social housing and why it’s in the state that it is. This is Show Don’t Tell, so let’s get into it. Social Houses are homes owned by Local Authorities
or Housing Associations, where the rent is set by Central Government far below market
price. So to set the scene, in England the total
number of all types of homes is 24 million. Of the 24 million total homes in existence,
4.1m of them are social homes. So, 17% of all homes in England are social homes.
Let’s put this number into context by comparing it to the number of people most in need of
social housing, which I’ll broadly define as people receiving housing benefit, and in England
that is 3.5 million people. Housing benefit is available if you are unemployed
or on a low income with dependants. Not every person receiving housing benefit needs a social
house, but as a benchmark, there are 100s of thousands more social homes than housing
benefit claimants. But what proportion of housing benefit claimants
actually live in social housing, and perhaps more importantly, how many social homes are
occupied by people who don’t receive benefits, but get to pay a considerable discount to
market rent when they could free up a social home and rent on the private market?
The answer to the first question is that just 2.5 million housing benefit claimants live in social
housing. That’s 2.5m in the 4.1m social homes. Which, means 1.7m social homes, are
occupied by people who don’t need benefits at all. And this is while we have a waiting
list of 1.2m people looking to move into a social home. All of which leaves us with remaining 1.1m
housing benefit claimants. Because they don’t have, or more likely are on the waiting list
for social homes, they are forced to use their benefits to pay rent to private landlords, who
last year received £7bn of housing benefit in England alone.
Demand for social housing is closely linked to the state of the economy, which has been
relatively strong. As a result, fewer people claim housing benefit, waiting lists are reducing,
and the housing benefit spent on private accommodation is also declining. As a result, let’s focus our efforts on
understanding the numbers which continue to get worse.
1. That percentage of social homes occupied by benefit claimants, which has been in a
state of constant decline. In 1997, 35% of social homes were occupied
by people not receiving benefits. By 2007 that that was 37% and the most recent data
shows that number now 41%. So let’s see what we can understand about
these tenants who occupy social homes but don’t claim benefits. Statistics show, 28% of people in social housing
are working age and not claiming benefits presumably because they are in employment and their earnings are too high for them to receive benefits. As the table shows there are some extremely high
earners in this group, around 3,000 households benefit from social homes while earning more than
£100,000 a year, and it’s perfectly legal to own a second home while renting a social
house. We can also look at data on housing savings,
in this table, we can around 20% of people who live in social housing have over £16,000
in savings, which is the magic number for losing your entitlement to housing benefit entitlement, and 5% of tenants have over £50,000 in
their bank accounts. The simple answer is that 41% of social housing
tenants are basically middle class, who rather than rent on the private market like the majority
of their peers, prefer to retain the price benefits of social housing. The reason for this situation lies in the
fact that social housing is rented on a lifetime tenancy basis, despite this being ended in the private sector 30 years ago. Once you’re in the social housing
system, you’re in life, or even beyond as older tenancies can be inherited. The fact
that so many social tenants no longer claim benefits is an interesting statement
of social mobility, but I digress. And do not by any means underestimate the
political power of this group. At 1.7m households, this is about 4.2 million people, a vocal
and well-financed political force whose very homes are at stake. They have fought off announcements to charge them market rents, called “Pay to Stay” and even efforts to limit lifetime tenancies. And when debating social housing, their sheer
numbers mean you’ll inevitably encounter them too. But we should all recognise it takes
something special to see whole families living in one room at a hostel or temporary accommodation
for months on end and feel nothing, well other than the dirt on your hands from climbing
up the ladder, pulling it up behind you and closing the door on all the people below.
The impact of people not vacating social homes falls on the 1.2m people on waiting lists.
Because to come off a waiting list, either an existing house becomes vacant, or a new
social house is constructed. In 2017, 313,000 social houses were let, that’s
7% of the social housing stock and implies people spend an average of 14 years in each
social house. The recent history of reletting rates is similarly depressing, 80,000 fewer
social homes were relet last year compared to 2014, a reduction which completely negates
the effect of adding 40,000 new social homes a year. Reletting numbers also have huge regional
variations. If you live in Northern England, the turnover rate of a social house is typically
less than 10 years. But in the South and particularly in London, turnover is atrociously low at
less than 4% a year. This implies some truely extraordinary tenure lengths in London. In several London boroughs, a council house will change hands less than twice in a century. Which brings us to just fraud. If you are renting your social house, especially
in London, you’re paying a rent over a £1,000 per month cheaper than the equivalent market
rent. Which means, let’s say you want move out,
do you simply give up that council house, or do you let it out at market rent?
I mention this because it’s a huge problem in London, the Audit Commision
has estimated that’s 5%, that is 1 in 20 social houses in London are being illegally
sublet at market rents, with those tenants pocketing the difference, which may also have
something to do with the incredibly length tenures that we see in London social housing. So what is the force that is driving all of these effects?
Social housing is not an island, completely separate from the private housing market.
Many of the issues in social housing are driven by the housing crisis and the general lack of affordability.
If people cannot afford anything even close to the standard what they can access through
social housing, combined with lifetime tenancies there is very, very little incentive for people
for to leave attractive social accommodation. So all of these various facets if the social housing crisis
are inevitable consequence of the UK’s overall lack of housing affordability.
Now let’s talk about the second trend that continues to worsen, the percentage of housing
in the UK that is social housing. If we look at a graph of social housing over
time, it’s a depressing story, any growth is lacklustre, and the percentage is constantly
decreasing. We need to understand a bit more about what’s
changed since 2010 in social housing as a result of the 2011 Localism Act. This I
will disclaim, is specific to England, devolved regions have their own programmes. The first thing was to “reinvigorated”
Right to Buy, which gives people who have lived in a social home for a number of years
have the right to purchase that home at a discount to the market value, and currently
around 10,000 people exercise this right every year.
It was a huge policy in the 1980s, and in total nearly 2 million houses have been sold
through Right to Buy. But after making the first section of this video, I’m embarrassed
to admit a grudging sympathy, because it seems to me the people who perform right to buy
are in employment to acquire a mortgage and like their house so much that they want to
buy it. I would guess those people were never going
to give up their sizable discount to market rent, and saying “Why don’t we let you
buy it for 70% of market value”, may actually benefit both sides.
That said, it seems the Government doesn’t use the money to build enough replacement
social houses, and they can be criticised on that basis. The second thing and more significant changes,
particularly in relation to housing benefit was in how the construction of new social
houses was financed. Here’s how a financing new build social
housing works if you are a housing association, who construct 90% of new social houses. As a housing association you borrow money from the bank on the private market, which means explaining to the bank how much income
you expect to earn from your new social house, and they will lend you some multiple of that
amount. The challenge is that social housing had “social
rent”, usually just 50-60% of market value, reducing the income that can be borrowed against, and leaving too little to build a new social home. To bridge this gap, the Government has to
provides a capital grant to make up the difference and allow new social homes to be constructed.
So what changed? Well in 2010 the Government wanted to reduce
spending, so it quite simply slashed the available capital grant from £11.4bn to just £5.3bn.
But, this would obviously have a very negative effect on social housing construction, so
perhaps there was an old trick to get around the problem? How about rather than charging that lowly
“social rent” of 50-60% of market value, we create a new tenancy called “Affordable
Rent”, which was rent or a price that is up to 80% of market value. This higher rent
increases the amount of private debt you can raise, and reduce the amount of capital grant
required. And to really send the message, of that £5.3bn
grant now available, not a single penny would be permitted for social rent properties. It
would only be allowed to be used to build Affordable Rent houses. So what were the consequence of this policy?
Naturally, construction changed to affordable rent properties. But the real cost of this
new policy, the real means by which construction was being financed, is apparent when looking
at the rental price, and by association housing benefit cost for social houses. You see, Affordable
Rents, which is the majority of new social housing has by definition much higher
rents the pre-existing social rent. So if you are concerned about the increasing
housing benefit cost it’s not just because of private renting, it’s also that the cost
of new social housing is fundamentally higher than existing social housing.
The old trick you see, is a little thing called PFI. Rather than make capital outlays. agree
to pay higher rental costs. It allows you to build the infrastructure without the upfront
costs, and by the time the higher ongoing costs become prohibitive you’ll be long
gone. By 2015, the Government seemed a tad put out
by, you know, the inevitable consequence of its own creation. So without missing a beat
in 2015 the Chancellor announced: [Osborne clip]
Aside from completely glossing over the fact of why the increase had occurred, with all
rents decrease in value, so life gets tougher for social landlords, unless, they increase
conversions to Affordable Housing to get access to a step change of higher rent levels, which
now represent 20,000 new lets each year. Combine this with the incoming supply of high
rent Affordable homes it’s not a surprise that as a result of their increasing proportion,
despite the Chancellor announcing in 2015 that social housing rents would fall by 1%
each year, the actual cost simply continues to increase often in line with inflation. And it also meant,
[Section 106 clip] Ah, Section 106. As I spoke about this nefarious
legislation at some length in my previous video the Madness of Housing in the UK, I won’t explain
the whole background. Suffice to say, one of the consequences of the reduced capital
grant was local authorities massively increased their demands on private developers to build
social homes as part of Section 106 agreements. If you look at this graph you can see just
how substantial the changes were. Prior to 2013 housing developers supplied
between 2 and 4 percent of new homes under Section 106, that equated to about a quarter
of all new social housing. Today that number is closer to 8%, nearly half of all new social
home construction, entirely contributed by the people buying newbuild private housing.
Councils now demanding such an obligation on housebuilders is one of main reasons why
I believe small housebuilders have exited the market, large housebuilders are cleaning
up and why we have such a low level of new housing construction. Given the substantial level of social housing
in the UK, it make more sense to try and fix what we already have either directly through
social housing reform or building more houses in general rather than the more aristocratic
approach of paying ever more money that never really resolves the problem. And what money
we do spend, could at least be spent directly, rather than through housing benefit, as these
effects of the Affordable Homes Programmes are going weigh on the budget for a very,
very long time. And that brings us to the end of today’s
long and rather technical episode, congratulations for making it all the way this far. Hopefully you’ve enjoyed this episode,
feel free to like, subscribe or just watch some of my other videos, and I’ll see you