The Housing Advisory Forum recently discussed the government’s “Affordable Homes” programme. The government is inviting bids from housing providers for grants from the Homes and Communities Agency. Swindon Council is considering putting in a bid. The money, however, what little there is of it, comes attached with strings. The first round of the coalition government’s programme was part and parcel of its austerity package. Whereas the previous government’s National Affordable Homes Programme (NAHP) offered a subsidy of £60,000 per home the coalition government’s programme cut this to £20,000. In fact the average grant per property eventually given in their 2011-2015 programme was £18,838 nationally and £17,545 for our area.

Under the NAHP Swindon was able to build its first Council homes for 25 years, albeit on a small scale (42 homes), building Council homes with Council rents. In contrast the coalition government’s programme imposes “affordable rent” on bidders, i.e. up to 80% of private rents.

In light of the conditions attached to the coalition government’s programme Swindon’s Housing Advisory Forum has called on the Council not to bid for grant under this scheme. Just one Councillor voted in favour of a bid being made. Of course, the body is an advisory one, so its decisions are in the nature of recommendation than can be ignored by the Council’s Cabinet. Nevertheless tenant opinion was unanimous in opposing a bid.

That doesn’t mean we don’t want to build homes. We want the Council to start a Council house building programme. It has the facility to borrow money from the government’s Public Works Loan Board at cheaper rates that in the commercial markets, without having conditions imposed by the ‘localist’ government. We could build Council homes without conditions attached. How many is a matter for discussion.

Hundreds of ‘conversions’

The draft of the bid was presented to the Housing Advisory Forum. The proposed programme would produce 159 units, although this includes 30 replacements for the 34 flats at Sussex Square that will be demolished. In order to help pay for this work 345 existing Council homes would be converted from Council rents to “affordable rent”. So when Council homes were void (when a tenant dies or leaves the property) they would raise the rent to AR level.

In order to try to make this less unpalatable the Council is proposing to set these rents at 70% of the market level, though this will still, according to their figures, mean a rent around £23 a week higher for a 3 bed house than Council rent for the same property. Likewise they have said that there will be no stock sold on the open market. They will also point out that for one bedroom properties the AR rent appears to be less than a Council rent (40 out of 159 proposed). However, whatever the difference between Council rents and “affordable rent” the conversion of Council rent to AR means tieing them to the private rental market. This means not only placing more financial pressure on tenants but will inevitably mean pushing up the housing benefit bill. What sense does this make?

A blind bid

The government has said that there will be no specific grant per home, so that bidders (Councils and Housing Associations) will have to bid blind, and guess how low to set the grant request. Government guidance says that bids will be judged against the average grant per bid, which nobody will know until they are all sent in.

The outline bid produced last Wednesday is somewhat mysterious. There were 4 Options produced, 2 of which are for 70% of market rent and two at 80%. Yet the estimated grant per unit is, with variations of less than £200, over £20,000 per unit. The government guidance says that any bidder who proposes lower rents than 80% of market rate would have their grant cut by the difference between the 70% and 80% rents. In other words the Council would have to fund the difference itself. So in the case of the options shown to the HAF the difference in rental income is nearly £2 million, yet the grant shown in each instance is £20,000. In addition the guidance also says that if the Council uses its own land, with nil or minimal cost, then it will also mean less grant. So how the Council can suggest that the grant would be the same whatever the option they chose is a mystery.

The only thing in its favour (so far as the chances of winning a bid are concerned) is that many housing associations are questioning whether it is worth putting in a bid at all given the conditions applied and the low level of grant available. Those that participated in the first round had to take on considerably more debt than under the NAHP in order to participate. They are reluctant to do so again.

A risk in bidding

Given the fact that the government failed to produce the guidance before Christmas, as it had previously promised, the process of drawing up bids is rushed. They have to be in by April 30th. There is a risk involved in this because the guidance says that the government expects the “best bids” to be the first one. The guidance states:

“It will not be possible at any stage during the programme period to respond to changes in contract parameters by increasing the amount of funding for a scheme or for an indicative proposal. If additional funding is needed – for whatever reason – such additional funding would have to be generated from a provider’s own resources or capacity (where that is achievable without adversely impacting their financial viability).”

So if there are any mistakes or any subsequent changes in the building programmes there will be no extra grant. Any spending gap will have to be covered by the Council’s own resources from its Housing Revenue Account.

Policy – the slow death of Council housing?

The “Affordable Homes” programme, not only provides less grant than was previously available, it bars Councils from charging Council rent. It is part and parcel of the government’s policy of driving ‘social rents’ up towards market levels. In conjunction with the government’s new ‘enhanced right to buy’ leads to a decline in the number of Council homes available and a decline in the number of ‘social rent’ homes. The government promised ‘one for one’ replacement of homes sold under ‘right to buy’ but in fact they are not being replaced, so Council housing stock continues to fall.

If “affordable rent” is introduced a question is posed as to future rent increases for these homes. Once rents in part of the stock are tied to market rents then will increases be related to what happens to private market rents? Or will they will be treated like the rest of the Council stock, with an annual increase determined in line with national policy which is changing to a formula of no more than CPI+ 1%?  We haven’t been able to get an answer to this question as yet.

Council homes with Council rents

The housing crisis in Swindon, as with the rest of the country, will only be addressed if there is an increase in the number of ‘social rent’ homes available. To the contrary the “Affordable Homes” programme will lead to a decline in the numbers of ‘social rent’ homes available both to Councils and Housing Associations. Nationally, this will tend to mean that housing benefit payments will increase. Whilst this might have a marginal impact in Swindon, based on such a small scale programme, nontheless, once the line has been crossed and a part of the stock has its rents linked to market rates, then (unless there is a change of national government policy) any regeneration schemes are likely to be based on the adoption of AR.

The principle of Council rents for Council homes, not linked to market conditions, is a principle which should be fiercely defended. If the Council puts in a bid and it is successful then the impact of the government’s housing policy would be to provide 125 additional homes over 4 years, though at the cost of converting nearly 400 homes to “affordable rent”. In order to address the housing crisis, what is needed instead, is the building of Council homes with Council rents.

Martin Wicks

21st March 2014