There were some good things in George Osborne’s budget. Scrapping non-dom tax status (a Labour manifesto pledge rubbished by the Tories at the time), reducing mortgage interest tax relief for private landlords and increasing tax relief for homeowners who rent out a room. The former two will dampen demand for property and the latter will encourage more efficient use of housing stock.
But let’s turn to the bad and the ugly. This budget is the continuation of an all-out assault on social housing by the Conservatives. It began under the Coalition when the affordable housing grant was cut by 60 per cent. Housing Associations were told to introduce the so-called “Affordable Rent” at up to 80 per cent of market rent, and make up the shortfall in funding to build new homes with borrowing.
Then came the last minute Tory election pledge to extend Right to Buy to Housing Association tenants. Even with the £100,000 discount paid for by the government, this will erode Housing Associations’ asset bases and thus their ability to borrow the very money they need to make up for the cut in grant from the government. This week’s surprise announcement of a government imposed one per cent annual cut in social rents further erodes their finances and thus their ability to build.
I support cutting rents for social tenants. In fact I, along with nearly every borough in London – red, yellow and blue – vehemently opposed the decision the Chancellor’s previous Government took in 2011 to essentially redefine social housing as anything charging up to 80 per cent of market rent. But the harsh reality is that without any subsequent increase in grant it will mean fewer much needed affordable homes being built – 27,000 fewer according to the National Housing Federation.
George Osborne lamented the 20 per cent rise in social rents since 2010. Yet it was he who agreed a ten year inflation plus one per cent rent increase with Housing Associations in 2013. To renege on that agreement now will plunge the social housing sector into chaos, and may result in a judicial review. Unsurprisingly he had not a word to say about sky high private sector rents.
Turning to councils, they will be forced to sell high value properties to pay for the discounts for Housing Association tenants exercising their new Right to Buy. In practise this means that any new council homes built by inner London boroughs like Islington will have to be immediately sold off as they will all be worth more than the government’s regional cap.
Taken in isolation the imposition of one of these policies may be regarded as merely misguided. But taken together is difficult to see this package of measures as anything other than a deliberate attempt to sabotage the delivery of social housing. First they cut government grant and told Housing Associations to make up the difference with more borrowing and higher rents. Now they’re undermining the Associations’ borrowing ability and forcing them to cut rents.
Meanwhile, all social tenants who earn above £40,000 in London or £30,000 outside will be forced to pay market rent for their homes. This Aspiration Tax will discourage social tenants from earning more for fear of losing their homes. It will encourage others to exercise the Right to Buy, meaning yet more social housing will be lost forever. Work and benefits are not two different lifestyle choices. People move between the two. Social housing is supposed to provide stability for those who can’t or don’t wish to own a home. Getting a new job or a pay rise shouldn’t put the stability of that home at risk.
The Tory justification for charging better-off tenants market rents is to say it’s wrong for them to get subsidised rents. This is wilfully misleading. Unlike the Tories’ huge Right to Buy discounts, social rent is not subsidised. It covers the maintenance, management and debt repayments of the home. We must be careful not to look at this problem down the wrong end of the telescope. The problem isn’t that social rents are too low, but that market rents are too high. The real solution to high market rents is to build more genuinely affordable housing, a goal which this budget makes even harder to achieve.
George Osborne’s plan may yet fall apart. The Office for Budgetary Responsibility warned in its budget overview that his meddling with Housing Associations may see the ONS reclassify them from private to public organisations, bringing £60 billion of their debt onto the government’s books. But if it goes ahead the legacy will be even fewer new genuinely affordable homes than we’re building now.
At the root of this lies a fundamental debate about what social housing is for. The Conservative view is that it is housing for the poor and that anyone with “aspiration” should leave it, whether they wish to or not. Yet before it became so scarce many middle class people lived in social housing. Nye Bevan’s dream for council housing was of the “living tapestry of the mixed community.” It was a noble dream indeed.