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A Boy Called Mick

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Rent Matters – but not to Social Enterprises.


Two things happened last week that that caught my attention.

Firstly The Guardian reported on 18th November 2014 :

The average house price in England and Wales is now just £3,500 off the peak of November 2007 thanks largely to a property price surge in London last month, according to the Land Registry.
The August data from Land Registry’s House Price Index shows an annual price increase of 8.4% across England and Wales, which takes the average property value to £177,824.

In the house price peak of November 2007, the average property was priced at £181,383, it said. So in December 2007 properties were at their highest valuation ever. It was in this month that 2057 properties in Middle England were transferred to a newly formed Stock Transfer Housing Association. My home was one of them.

These precious National Assets were sold by the local Council for the princely sum of £18,300.00 each. My home, as a one bedroom flat, would have cost less than the average price paid. You could call it a bargain or a 90% discount. Add in the hyper inflationary rent increase formula they asked the new owners to adhere to and it makes a really sad tale of our times.

Under a 30 year repayment mortgage this would mean that if I (and subsequent tenants) pay a rent of £17.30 per week the capital cost of acquiring my home would be recovered by my landlord. In fact I pay many multiples of this sum each week. I just wonder why and what is the extra being spent on?

This lead me to reflect on what is a reasonable rent for a Charity to charge.

Forget notions of ‘affordable’ rent – what on earth is that supposed to mean ?

Forget ‘target’ rents – who decides this nonsense ?

Forget ‘social’ rents – does that mean others pay unsocial rents ?

Why should my rent increase at a rate that beats inflation, which is the formula that the Government is still persisting with despite a major change due next year?

Why does rent not reduce to make my life more affordable ?

What are our myriad of Housing Professionals doing to reduce their costs and reduce rents and levels of Housing Benefit for taxpayers ?

These questions are important to me and you.

Me, because I pay to have the real delight of living in my home. You, because as a taxpayer like me, we contribute to Housing Benefit. This benefit has been maligned in recent times, but I think it is a great testament to our values. We believe that everyone, whatever their position or luck in life, should have a secure place to live. That is a very good use for tax revenues.

So lets start with some definition. There is a textbook definition of rent that explains it as the surplus received over the cost of bringing a factor into production. Another more common use of the term rent is the return over and above that which would occur in a perfectly competitive market.

These definitions, of course, use rent in the sense of an economic term. My ‘rent’  can be thought of just as compensatory payment to my landlord for the use of his property, but the notion is still a surplus over the cost of provision.

Regulation of rent normally conjures the vision of reducing to an acceptable level (affordable level ?) the surplus over the cost of provision of housing. However you must know that this vision in Britain is completely the opposite to what has happened to social housing. Rent regulation in Britain in recent years has been about increasing the surplus obtained by landlords. You only have to look at rent formulae to see that. Originally the intent was to ensure some elimination of regional variances in rent levels, but I could never convince myself of the logic in that. Housing costs vary across the country just as wages and other costs vary. Rent regulation should have only one purpose and that is to REDUCE the surplus obtained over the cost of provision. Without regulation we are all at the mercy of rogues and bankers.

I am amazed that the discussions that I see about rent and housing never differentiate between cost and surplus. I seem to be the only advocate of At Cost Rents. It is a lonely place to be.

For Housing Associations the costs of production of the assets they rent out can be reduced to a number of components :

1. The capital to acquire the assets.

2. The interest charged by the lenders of capital.

3. The legal and regulation costs to set up and remain in operation.

4. The insurance costs to cover prudent risks

5. The maintenance costs to keep the assets in production

6. The necessary costs of management.

 

I was thinking about these things when the second happening of last week caught my eye.

Following close on the heels of Housing Day was an event called Social Enterprise Day. I paid it little attention until I saw a tweet from the Housing Associations’ trade union, the National Housing Federation. They claimed that Housing Associations were Social Enterprises and they were all having yet another day of celebration.

I struggled with this information and pondered again about the elements of my rent. Then it struck me what the problem was. Our Landlords are all playing at being Social Enterprises instead of being efficient rent reducing Landlords. Swamped by billions of pounds rolling in from Housing Benefit they are spending it as fast as they can. When they have finished buying their executive cars, new office premises and awarding themselves pay increases beyond anything the public sector can hope for, they then start scratching around to experiment with their poor tenants.

They act like they really want to be social workers with their attempts to find how to make us into proverbial ‘communities’ – whatever that would look like. At the same time claiming to be Housing Professionals. As they have never been asked to do these things and tenants would rather live in peace I can only assume they do it because they have nothing better to do with their staff and their time. And it all helps justify high rent levels to the unquestioning.

As far as I can make out not one, let me repeat that : NOT ONE , of the one thousand one hundred members of the National Housing Federation has reduced the rents of any of its tenants.

At a time when they have been acquiring properties cheaply, as per my example, and interest rates have been at a record low this has had no impact on rent levels. In any event the first couple of my rent components listed above can be accounted over a variety of time scales to achieve any number of results and this applies to New Build as well.

Compared to the other components Regulation and insurance costs are relatively cheap. Sure regulation exists, but it seems to me less onerous and less expensive than it used to be. Of course upgrading to meet Fire requirements can be pricey , but hardly justifies rent inflation of the order we have seen. If you are going to pay Board members the equivalent of executive pay, as some seem to propose, then the impact of this component may change. However those sort of proposals just emphasise to me how much money the big Housing Associations have to burn.

Maintaining a decent housing stock may be expensive and we all appreciate efforts and costs in this area. Certainly a number of Stock Transfers were made so that the homes could be upgraded to meet the Decent Homes standards that seemed beyond the budgets of Local Authorities. However these are the costs that good management will enjoy getting under control.

The last component of our costs of production is the area where Housing Professionals have gone AWOL. Focussing on necessary costs of management would save a great deal of expenditure. The legions of PR and marketing people sucking a living out of Housing Benefit is distasteful to witness and really has to be controlled. Any more Awards ceremonies and you might as well give every employee a gong. I just wish Housing management would concentrate on making tenants lives affordable.

The surpluses that some Housing Associations are making seem to be argued to be a ‘good thing’. That they enable expenditure on new homes and social projects. This implies that social tenants should be paying to build new housing out of their rent as well as fund no end of social experiments that have not been asked for. That argument needs to be totally refuted. It means that Housing Benefit, and our rent, is being used for purposes unrelated to the necessary costs of housing and have not been sanctioned by Parliament. The surpluses need to be given back to the tenants and the taxpayers.

I tweeted to 24 Housing magazine and the Chartered Institute of Housing offering to sponsor an award for the Housing Association that reduces rents for tenants in real terms in 2015. Jon Land at 24 Housing had the decency to re-tweet my offer. CIH ignored me. I think they both thought I was joking, but I am not. It is time rent reductions and At Cost Rents are put on the agenda and I shall keep trying to do that.

This way we can help our charitable Housing Associations stop making surplus’s. Maybe if they do make a surplus they could ask tenants how to dispose of surpluses instead of assuming they know best. Maybe also the big Associations who are getting ‘too good’ to house social tenants can start to live off their own talents instead of Housing Benefit income.

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