Coherent pricing – rents in social housing

Regular readers will know I have talked about this before but like housing taxation the issue does not and should not go away. Some observers would doubtless describe the pricing of social housing, the distribution as well as the level of gross rents, as a second order issue compared with subsidy, investment and regulation. On the other hand, I see it as a necessary condition of a durable system to have a coherent basis by linking prices to quality of housing on a basis that everyone understands and is consistently applied.

A number of contemporary housing issues are materially affected by pricing:

1. The dismantling of English formula rent-setting after more than 10 years of greater or lesser convergence and the Affordable Homes Programme driving a coach and horses through it by (a) setting new build rents at much higher (but spatially varying levels) and (b) allowing participating landlords to set the rents of relets on the same higher basis.

2. The complete absence of any approach to national or consistent rent policy in other parts of the UK – e.g. Scotland and Northern Ireland. In Glasgow alone, there are dozens of local rent policies and social/affordable rent levels. Glasgow Housing Association has its rents differentiated according to principles established in the 1970s based on the then local amenity differentials suggested by local housing managers.

3. With shallower subsidy and hence higher new build rents, affordability and public expenditure (HB) pressures may require inevitably a more coherent approach.

4. Is it rational and fair for otherwise identical tenants in similar properties to be paying wholly different rents? While one may hold that landlords should have a degree of autonomy in how they set rents (i.e.in the wider offer they can present their tenants and residents), should there not be more coherence in the interests of a better working housing system more generally?

5. Moreover, there is also the strange case of the level and inconsistent application of service charges on top of rents.

While there appears to be little appetite for this kind of policy stance in Scotland, this is not the case in Northern Ireland. The examination of the restructuring and disaggregation of the Northern Ireland Housing Executive (NIHE) and the legacy of the province’s housing association movement basing its rents loosely (and idiosyncratically) on the NIHE’s points system, has created the policy space to  consider a harmonised rent structure across all social housing. It is also the case that the NIHE has a large annual revenue subsidy keeping its rents down, and the smaller association sector, which has been continuing to seek to develop new build social housing, has generally higher rents. Into this mix there is also the question of welfare reform – the Northern Ireland Government has used the variations in social security policy law applying there to amend how the Universal Credit will work and has delayed the introduction of the bedroom tax.

Earlier in 2013 I was part of a team that examined these issues for the Northern Ireland Department of Social Development and the NIHE. We proposed a fairly simple rents system and damped formula for converging rents over a decade that still allowed local discretion for landlords within a +/-10%  dispersion around the target rent. Nice on paper though the English experience suggests that convergence is practically very difficult to achieve and requires enduring political consensus and robustness to external shocks. Some of these issues may be less of a problem in Northern Ireland but there needs to be both an appreciation of interdependent issues (e.g. affordability, investment, financing costs and subsidy levels, the service charge regime and the wider HB implications). There is also the need for full consultation with providers, stakeholder buy-in and fundamental support for what is being proposed given the non-trivial transactions costs implied.

Policy commentary fixates, understandably, on the issues of the moment, of dealing with ‘flow’ questions such as levels of new investment, homelessness and proposed rent increases or house price inflation. But we also need to prepare the ground for longer term system-wide reforms that will address ‘stock’ issues like the way rents cohere and influence decisions and help consumers make more reasonable choices while balancing out the other requirements of a rent system (fairness, affordability, viability, etc). No-one is saying it is easy to do, far from it, but letting it slide and watching the entropy of incoherence accumulate over time should be simply unacceptable.

Reference

Young, G, Orr, A, Gibb, K, Wilcox, S and Redmond, D (2013) Review of Social Rent-setting in Northern Ireland. Northern Ireland Housing Executive/Department of Social Development: Belfast.

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