UK: Spending Review October 2010 - What does it mean for Social Housing?

Last Updated: 5 December 2010
Article by Debra Kent

The Coalition has announced widespread cuts across nearly all sectors to combat the country's deficit. The housing budget for the next spending review period has been reduced to £4.4bn, a cut of nearly 50%. This will have huge implications on how money in the sector is to be spent and how Registered Social Landlords (RSLs) operate. It will also have an impact for buyers and tenants of affordable housing. The main proposals are discussed below.

The main changes

Tenants of affordable housing could now be required to pay up to 80% of the market rental value for their property. This could mean that the average weekly rent could increase from £85 a week to as much as £250 a week. Whilst this seems excessive, there are knock on benefits to the sector in terms of increased house building and subsidising rents for the poorest social housing tenants.

Increased rent is hoped to generate sufficient funds to develop another 150,000 new affordable homes over the next four years. Whilst this is lower than the Homes and Communities Agency's (HCA) target of 50,000 new homes a year until 2012, this is still a significant commitment in light of the cuts. The aim is to provide a wider range of housing to meet different needs with a mix of lower rents for the vulnerable, rents for those who cannot quite afford market rent (intermediate rent) and shared ownership properties.

The Government has stated that social housing must aim to provide flexibility at a lower cost. More flexible tenancy arrangements could mean that the sector becomes more responsive to changing needs and circumstances. In future tenants could be handed fixed term contracts instead of a permanent residence equating to a 'home for life'.

There are still safeguards in place to help to try and protect the most vulnerable in society. Projects and grants for Supporting People, Homelessness and Disabled Facilities remain. The Homelessness grant has a protected investment of £400m whilst the grant for Supporting People has been minimised but still benefits from funding of £6.5bn over the next four years.

How does this affect providers of social housing?

To cope with the budget cuts, RSLs will need to become more like the private sector. They will have to operate as efficiently as possible and try and achieve the Coalition mantra of getting "more for less". In an attempt to control costs, three London Councils have already decided to merge and to take steps to be more efficient. In time, this may include their housing services.

With government funding slashed, RSLs will now have to actively search for new and creative ways of attracting investment. With global investors increasingly interested in the steady income that social housing provides, opportunities exist for RSLs to align themselves with the private sector and begin competing in the intermediate rental market.

To encourage this investment and the building of new homes, Local Authorities will be able to benefit from the New Homes Bonus which matches the additional council tax (for the benefit of the Local Authority) that each new home will generate for the next six years. The Government has allocated more than £900m to this scheme over four years with £200m pledged in the first year. Further details of the scheme are expected in November 2011.

RSLs will also now have to think very carefully about the housing products that they now offer. A mixed tenure approach is necessary to create flexible social housing which is responsive to the changing needs of tenants. The government has pledged to improve the existing housing stock through the Decent Homes Programme with £2bn promised towards procuring its completion. However, many Landlords across the country are still to complete their improvements under the initiative to date. RSLs must ensure that they can justify an increase of up to 80% of the market rent to effectively subsidise the lower rents of those who are most vulnerable and in need.

To help cut costs and administration, the Government announced the abolition of the Tenant Services Authority and the integration of its functions into the HCA. The idea is to enable the sector to generate additional cost savings by reducing reporting requirements on Landlords and benefit from the economies of scale that larger organisations are able to achieve. Whether this will help the sector get more for less remains to be seen.

Conclusion

The spending review presents a challenge to both Local Authorities and RSLs. The initial reaction to such drastic spending cuts was grim but there could be opportunities for those who are able to adapt. An overhaul in the way the system operates and responds to changing tenant requirements could help to target those who are in most need of housing and improve overall efficiency in the service provision (with fixed term contracts and flexible tenure arrangements which subsidise others). Combined with the increased interest from global investment firms, there will be opportunities for new financing arrangements to help reduce the effects of the reduction of Government expenditure.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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