Monday, 17 March 2014

Affordable Rent?

Such a good idea, those affordable home things, mentioned so frequently by politicians and campaigners. They're brilliant. They're brilliant because, well it's obvious isn't it? People can afford to pay them. Can't they?

But here’s the problem. Define affordable. What I can afford to pay is very different to what a Russian oligarch can find behind the sofa or on the table by the door. Rich people can afford to pay a lot. Poor people; not so much.

Affordable rent certainly isn't 80% of market rents. This is the new bar introduced by the Tory's very own village idiot in residence Grant Shapps (he makes stupid people feel ever so clever.) It's just that when market rents in London are rising so fast and so high I need oxygen to look them up, the whole phrase is meaningless and pointless (just like Shapps, actually.)

Social housing used to be well-built, secure (until the bedroom tax, tenants could stay forever) and within reach of everyone. Now there are moves to force social housing providers to charge 80% of market rents for housing association homes. Claimants who rent soon find out that under local housing allowance (paid, let's not forget to those on low, not just no pay) 'affordable' is dictated by whimsical notions of local average rents, which can be one price on one side of the road; different on the other.

LHA sets a limit on how much rent is covered by benefits, and the level is very low - so much so that properties priced within the limits are sometimes in great demand. This exemplifies the law of unintended consequences.

Which means that if you rent, and lose your job, your hours are cut or you fall ill after having lived in a 'nice' area - close to where children go to school, near jobs and transport links, you could be penalised. Councils cling to their Discretionary Housing Payment budgets like your granny did her pension purse, so claim it but don’t expect too much. If you don't earn more money or find a job, you will have to move. Which, as I repeatedly argue here is never easy: vans, fees, storage, fares... it all adds up.

Which means that affordable means whatever owners can get away with, or the sum that agents cajole them into demanding. For many people, boom times, recovery or resurgence are far away. Life is precarious and insecure with zero hours contracts, extended probationary periods and the tenant threatened with redundancy.

Affordable for those with several low-paid jobs, corralled into dubious self-employment, with the threat of universal credit (if it ever comes in) makes life unbearably tenuous for everyone. Affordable must be reset. It must mean a proportion of average pay, and pay is falling in real terms. Because maybe then, those huddled in fear at the bottom could afford to live in nicer places.

Affordability will change drastically if you lose your job. But if rents start to become more realistic, then life will settle down, tenants will enjoy security; they will be less likely to move, meaning no voids for owners. True affordability leads to stability, and in housing stability equals happiness.


Samantha said...

"Affordable must be reset. It must mean a proportion of average pay"

Excellent idea!

I have a shared ownership house and the maximum my rent can go up by in a year is RPI plus 0.5%.

The original rent was set at the same rate as the social rent for an equivalent house (at the same percentage of the house I don't own yet pro rata - if that makes sense)

Those of my neighbours who are social housing tenants (who are far more likely to be vulnerable and disadvantaged than shared owners like me) may well have to face the possibility of their rent being raised to 80% of market rents in the area - that would be about £100 per month at the moment for a house like mine!

How is that fair? Rents are high in my area compared with local wages already (not London or South East where I guess it is even worse). Rents are rising fast and wages aren't.

Cosmo Anayiotos said...

you may be aware that there is a new piece of regulation out this week.
HSE have decided that every rented property has to be tested for Legionnaires bacteria. this is a good thing I hear you say. Until you learn who is going to pay for the assessments and tests. Estimated at £700 per year.
Go on !!! please have a guess who is going to pay for all this extra safety.
Yep. It's the tenant that will ultimately pay for it all. Your rent will be going up by about £15 per week so that your water supply can be tested for something that has, as yet, never been a problem.

affordable housing is easy.
paying for all the regulation and Health and Safely checks .....that's another issue.

RenterGirl said...

The tories boasted frequently about transforming the Uk into a low-wage economy. They've succeeded in their aim (if nothing else) which has the effect that tenants can't cover the huge rents increases some of these tories wish to charge. Wages must be included when rents are discussed, not just property prices or interest rates.

And Cosmos - that's for commercial buildings, not the private rental sector.

Ben Reeve-Lewis said...

@Samantha In London where I live in work 80% of the market rent for a two bed property will be somewhere in the region of £1,000 a month. I myself rent a 1 bed @ £1,220. I work for the local authority, deliver training courses for the CIH, meaning regularly a 7 day week and even I cant cope.

@Cosmo, I hear regular comments from the landlord community that every little piece of legislation that causes a rise in costs for the landlord will inevitably be passed on to the tenant. Is it so unreasonable to expect that a landlord once in a while might absorb some of the costs?

The Bank of England have been widely commenting that there will be a mortgage rate rise next year. Will you be passing that on to the tenant as well?

If a housing professional like me doing two jobs struggles with their rent each month how are you going to pass on the increase?

Arent you in danger of killing the goose and the golden egg?

For years now the landlord press have been talking about rents being 'Bouyant'.

When your mortgage company comes for you because you can no longer pay your mortgage because you have maxed out your tenants will you support articles in the mortgage lender press which say "Mortgage rates have never been more bouyant?"

I have to say I wont be the first one with a placard in your defence

Anonymous said...

Every sector produces higher returns than private sector housing , I return 6 or 7% it really is not a lot , as I have said many times if it were so good then the pension fund managers would have piled into residential property years ago! the government are trying to persuade them now with build to rent etc but the returns are too low.

Low cost housing is a myth if you want low cost housing it has to be subsidised by someone so costs the taxpayer in one way or another believe me with land labour and materials it is impossible to build a 'low cost house' .

A chap I know is one of the largest carrot growers in the country , he sells to ASDA at around £330-350 a tonne all packed ready for shelf ,we go into asda and they are priced yesterday at 69p a kilo £690 a tonne .
That's what you call a return and a 50% mark up is standard in the retail sector , even the farmer is still turning around 20% return .
Ben ok your right it is a lot of money but if I have a 500 grand flat or house in London a half decent return combining rent and potential asset value increase you should be paying atleast £2500 a month ,
Not practical right!

I am always surprised how people go buy a telly or a pair of fancy jeans at a hundred quid or even supermarket shopping and never moan and grumble about them having a 50% margin yet they begrudge me 7% .

David Cameron has his low wage economy oh joy maybe it's not prices that are too high but wages need to go up a LOT

Ben Reeve-Lewis said...

Thanks Anonymous. A genuinely informative post, landlord finance is not my strongest point but you are only talking about rental yields there, what about property appreciation? Surely that needs to be added into the calculation.

And I have to say, if the returns are so (comparatively) low why do landlords do it? It always seems like a lot of arse-ache to me being a landlord.

On your point about low cost housing (presuming you mean social housing) being subsidised by the tax payer, high cost housing is also subsidised by the tax payer in the form of housing benefit.

Despite governments attempts to cut the HB bill it has risen year on year and not for dole scroungers either, but for those working whose wages cant keep up with the rents that private landlords are charging.

I accept your point that there is no such thing as low cost housing in reality but if the returns were similar to jeans or carrots as you suggest and rent were raised to a level that gave landlords that kind of return, half the country would be homeless (slightly more than there is now :) )

I work in an inner London Homelessness office and since the benefit cap was introduced in September I have seen the queues increase each week to a point where we now get a measured footfall of 500 people a week. Our reception is roughly the size of a tennis court and just before Xmas we had so many people waiting that we breached health and safety regs and security had to let one out, one in, as if we were some form of popular nightclub.

This is solely because people on benefits can not afford to meet that 7% return you speak of.

Finally I have to agree wholeheartedly with you last statement about wages and I reckon a 7% rise would just about do me haha

RenterGirl said...

Hi Ben! It's a point I'm always making here: profits from letting property used to come from increases in equity values, not from the weekly rents. It's along-term investment, and to do otherwise squeezes tenants until they snap. This is happening now.

I also agree that owner investors are always complaining about their 'low returns' but oddly, very keen to boast about much money they make.

And Anon - to compare the necessity that is a home with expensive jeans is facile and crass. Rentiers are making out they're doing tenants a favour when clearly, the reverse is true.