PAC slams plan to pay for new homes through higher rents
By Richard Johnstone | 12 October 2012
The government’s welfare reforms could be undermined by plans to finance the construction of 80,000 new affordable homes through higher rents on the properties, the Public Accounts Committee warned today.
In a report examining the Affordable Homes Programme, which aims to build homes for rent and sale between April 2011 and March 2015, the MPs said they had ‘serious concerns’ that the scheme would increase the Housing Benefit bill.
The Department for Communities and Local Government’s programme will provide £1.8bn of capital funding to social housing providers to build the homes. It is being managed by the Homes and Communities Agency through agreements with housing associations, local authorities and councils’ arm’s-length management organisations.
The average grant per new home is set to be around £20,000, around a third of that provided under the previous government’s National Affordable Housing Programme.
However, MPs warned ‘it is not yet clear’ whether this will deliver value for money in the long term, as the reduction would in part be made up by higher rents.
This is expected to lead to a £1.4bn increase in the Housing Benefit bill over 30 years, despite the Department for Work and Pensions’ cap on payments. Claimants are now limited to how much Local Housing Allowance they can claim for properties of different sizes, from £250 a week for a one-bed home to £400 for four-bed and larger properties. However, some affordable rent schemes are exempt.
PAC chair Margaret Hodge said the programme could simply ‘shift costs’ from the DCLG to the DWP. Higher rent levels might also mean that social housing would go to people on higher incomes rather than to those in the greatest need, she added.
‘We welcome the 80,000 homes due to be built under the Affordable Homes Programme, but have serious concerns about the impact of financing the scheme partly through higher rents on the Housing Benefit bill and on affordability for tenants.
‘Where higher rents are paid through increased Housing Benefit, tenants may find it even harder to find work that pays enough to be worthwhile, undermining the government’s objective of ensuring that the benefit system makes work pay. The department must do more to understand the full impact of higher rent levels on tenants and ensure that resources are targeted where need is most acute.’
The report also warned that the construction of new homes was ‘heavily skewed’ towards the end of the scheme. At the time of the committee’s hearings in July, construction had started on only 13,800 homes.
Responding to the report, housing minister Mark Prisk said the committee failed to recognise the flexibility the scheme offered to landlords, letting them set rents to ensure a fit with local circumstances.
‘In many areas landlords are opting to charge affordable rents at less than 80% of local market rates, with the average set at nearer 65% per cent in London. And anyone eligible for full Housing Benefit will have their Affordable Rent paid in full.
‘This new Affordable Homes Programme will lever in £10bn of new private investment, ensuring we deliver 53,000 more affordable homes than we could have done under the previous funding models.’