My Lords, I rise to support the amendments in the name of my noble friend Lord Kerslake and to speak to Amendment 108 in this group. These amendments all address the implications of the Government’s plan to require housing associations and councils to reduce their rents by around 12% over the next four years. It has often been said that rent controls were the reason for the private rented sector declining from more than 60% of the nation’s housing after World War II to a meagre 8% or so by 1990. For sure, the new rent cuts will also have unintended consequences.
The Government, in the DWP’s impact assessment for this measure, justify the rent cuts on the grounds that housing association rents have been increasing at a much greater rate than those of private landlords,
but it has been government policy that associations should raise their rents toward market rent so that social housing grants can be cut. The higher rents have been necessary to enable associations to borrow more to compensate for grants being reduced from some 90% of the costs of a new home down to around 15%. Lower grants and higher rents have meant more people needing housing benefit. Although previous Conservative Housing Ministers have said, “Let housing benefit take the strain”, now Ministers responsible for welfare want to dramatically reduce housing benefit expenditure and the rent cuts are intended to save nearly £2 billion per annum by 2021 and every year thereafter. These savings will have significant negative consequences for the Government’s housing policy.
The housing associations, whose incomes will have fallen by £1.6 billion per annum by 2020-21, and annually thereafter, can try to make up the difference in three ways. First, they can cut their development programmes, which would damage the Government’s hopes for the building of substantially more homes, as explained by my noble friend Lord Kerslake. Secondly, they can cut their revenue costs; a number have already announced that their added-value programmes will be axed, such as tackling anti-social behaviour, supporting loss-making specialist housing, helping people into work, reducing tenants’ energy costs and so on. Removing these local services means extra costs for society elsewhere. Thirdly, associations can reduce the surpluses that some have generated in recent years, but these surpluses have been ploughed back into housing and services, as well as being important in satisfying lenders, from whom the housing associations have been borrowing some £3.5 billion a year on excellent terms. With increased risk, raising loans will be more difficult and more expensive.
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As far as local authorities are concerned, those that have retained their council housing are currently charging rents rather lower than those for housing association properties, so cuts in their rents are likely to be particularly difficult. For council landlords, any hope of developing new homes is likely to be the first casualty of their rent cuts, so once again the rent cuts impact on supply.
Taken across the piece, no doubt the social housing sector will survive and the opportunity for a waiver for housing associations that might otherwise get into serious financial difficulty is helpful. But the overall result will be reduced housebuilding programmes and a reduction in the preventive local services that have been doing so much for local communities, to which I can testify from the extremely impressive entries for this year’s Chartered Institute of Housing annual awards, for which I am a judge. So I strongly support all the amendments in the group in the name of my noble friend Lord Kerslake.
I now turn to Amendment 108 and I will speak later to Amendment 109, both of which pick up on the situations where the enforced rent cuts would be particularly disastrous. Amendment 108 covers housing co-operatives and community land trusts. The fully mutual housing co-operatives are a different kind of legal entity from the other kinds of housing association:
the tenants who live there own their homes together through the co-op and all the board members are tenants. The tenants are their own landlords. They set their own budget and decide how their rent is spent. They operate very cost-effectively by putting in their own time and effort. It cuts across the ethos of a co-operative venture for government to decide that the rent that the co-op members have chosen to charge themselves should be cut. Since they have set those rents high enough only to meet their loan obligations and management and maintenance costs, there is no fat to be trimmed. The co-ops do not charge themselves rents that generate surpluses to build more homes since the purpose of the co-op is to house themselves. Indeed, they are likely to have been saving the Government money for years by setting lower rents that mean lower housing benefit costs than for comparable social housing.
I do not think that it is the Government’s intention to impose four years of rent cuts on these volunteer-run self-help bodies, nor to expect these volunteers in each of the co-ops to go through a tortuous process to persuade the Homes and Communities Agency to grant a waiver to exclude each co-op from the rent cuts. This would be a dreadful waste of the time of these bodies and of the Homes and Communities Agency. They represent a very small section of the total social housing sector. It would be good if the Minister would clarify that the fully mutual housing co-operatives will indeed be exempt from this rent cut.
Similarly, my expectation is that the Government will wish to exclude community land trusts that are classified as “registered providers” from this 12% rent reduction. These organisations, mostly in rural areas, provide housing and community facilities on land made available on favourable terms for local benefit. Only eight of them would be covered by the rent reduction proposal. They have fewer than 100 rented homes between them. However, these bodies, being new enterprises highly dependent on local support from the communities where they are trying to meet a local need, are particularly vulnerable to any loss of expected income. The national network for community land trusts demonstrates that two would become insolvent very quickly and all of them would run into financial difficulty soon thereafter. The Lyvennet Community Trust in Cumbria, for example, a big society vanguard scheme recently commended by the Prime Minister, would lose £200,000 per annum of planned income and would be unable to survive.
I am told that, in exploring the opportunity to obtain a waiver from the rent cuts because the loss of rent would put them out of business, it has been suggested that the CLTs could ask much larger housing associations to absorb their modest stock of new homes. However, often after years of volunteer work in their village, these fledgling community land trusts are extremely reluctant to transfer their assets to a bigger organisation not necessarily based anywhere in their locality. Government has been supportive of these very local community-based initiatives and I am sure there is no desire to force them into insolvency or make them hand over their assets to a larger housing association. They have acted in good faith in securing local contributions of time, money and, above all, land and have been very prudent in their budgeting. Suddenly to face the prospect of a significant reduction
in their income would be more than unfortunate and I know they would be very grateful for some reassurance from the Minister that these little enterprises will be outside the new measure.