‘Living rents’ would boost affordable homes delivery and cut the housing benefit bill

18 June 2015


• A new ‘living rent’ linked to local incomes could help tackle poverty and reduce the housing benefit bill
• A £3 billion annual investment by government in a new ‘living rent’ model could unlock £7 billion of investment by social landlords and deliver 80,000 homes each year for low-cost rent and ownership .
• Without intervention the housing benefit bill could reach £37 billion a year by 2040. The ‘living rent’ approach could see an annual saving of £5.6 billion on this figure

A £3 billion annual investment by the government would trigger a further £7 billion spend by social landlords that would deliver 80,000 new homes a year and help tackle rising poverty and cut the housing benefit bill.

This radical proposal would be underpinned by a commitment by social landlords to let 40,000 of these homes at ‘living rents’, replacing the current Affordable Rent regime.

Research commissioned by the National Housing Federation and Joseph Rowntree Foundation and undertaken by Savills housing consultants Helen Collins and Mark Lupton proposes letting more homes at what they are calling a ‘living rent’ would help the 3.1 million households living in poverty due to high housing costs .

A living rent is set on the basis of local earnings and is not linked to market rents, unlike the current Affordable Rent policy. Living rents aim to avoid a household being in poverty once it has paid its housing costs and would ensure more people have a stable foundation from which to build a life and career.

The research finds that continuing with the present Affordable Rent approach – where rents for new and many re-let social homes are set at up to 80 per cent of market rents – could see the housing benefit bill grow from £24 billion at present to £37 billion a year by 2040.

Adopting the proposed living rent framework could produce a saving to the housing benefit bill of £5.6 billion a year by 2040 .

Significant inroads could be made in the current parliament in addressing this situation if the government and landlords act now to support the introduction of living rents.

Helen Collins, director at Savills Housing Consultancy and co-author of the living rents research, said: ‘Living rent is an innovative way of increasing the supply of affordable rented homes, helping reduce poverty and improving access to work. A stable and affordable rented home is crucial in ensuring people can build a life for them and their families.

‘With private rented housing in limited supply and high rents in some areas acting as barriers to low-income households, more genuinely affordable rented homes are needed for those unable to access home ownership.’

Julia Unwin, chief executive of JRF, said: ‘A lack of genuinely affordable homes is threatening people’s financial security. If action to tackle rocketing costs isn’t taken soon, it could start to impact on the economic recovery.

‘Living rents would bring high-quality homes back inside the reach of people on low incomes, which would boost people’s quality of life, lower the housing benefit bill and leave people with more money in their pockets. We will never achieve our full economic potential until we tackle the high levels of poverty and disadvantage in the UK. Providing more low-cost rented homes is a vital part of this.’

David Orr, chief executive of the National Housing Federation, said: ‘Housing associations have the experience and ambition to be a vital part of the solution to end the housing crisis by building thousands more homes. By investing in living rent now, the government could see associations double their building work to develop 80,000 affordable homes each year by the end of this parliament.
 
‘Housing associations are so much more than bricks and mortar. Together with employment and skills initiatives that many provide for people in their communities, these proposals for a living rent would help the government achieve its ambition to make work pay, ensuring homes are truly affordable for more people.’

Mark Clare, Living Rents steering group member and chief executive of Barratt, said: ‘To deliver the number of homes we need in the UK we have to step up supply from all parts of the housebuilding sector, including affordable housing from social landlords.

‘We also need to start to tackle the size of the housing benefit bill and one of the ways of delivering this is to increase investment in building more homes with lower rents that people are able to afford, rather than subsidising rents, once they are built. We must have a system that provides for all and the work on living rents recognises this.’

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I) The £3 billion of government spending breaks down as follows:
- £2.2 billion a year to support the investment of £7 billion by social landlords building 40,000 homes let at living rents. This funding would come from landlords being able to raise additional debt due to increased capital support from the government for additional housebuilding and from cross-subsidy from landlords from other activities
- £800 million a year to support the construction by social landlords and other developers of 40,000 homes for low-cost home ownership

II) Figure from JRF 2012 Tunstall housing and poverty evidence review: http://www.jrf.org.uk/publications/housing-and-poverty-links

III) The £5.6 billion annual saving in the housing benefit bill by 2040 is based on research by Professor Glen Bramley at Heriot Watt University. This was at the request of the report authors and was based on Prof Bramley using the forward forecasting model employed in his report ‘What will the housing market look like in 2040’. Prof Bramley examined what the impact on the housing benefit bill would be of moving from charging rents under the current Affordable Rent regime to charging Living Rents instead. If landlords continue to let new and re-let homes at Affordable Rents, the housing benefit bill would rise 45 per cent to £37 billion by 2040. Using Living Rents instead for all new and re-let homes would limit this rise by £5.6 billion a year by 2040.

 
 

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Helen Collins

Helen Collins

Head of Housing Consultancy
Housing Consultancy

Savills Margaret Street

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Savills Margaret Street

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