If you’re earning over £60,000 should the state subsidise your rent?

The government is bringing back to life earlier talk about removing the rent subsidy for those in social housing whose household income is over £60,000.

At the moment, rents in social housing are capped at 80% of the market value, but with around 34,000 homes in England occupied by families with a household income of over £60,000 the government is commencing a consultation on removing the 80% limit for them:

Government research shows that as many as 6,000 social rented homes in England are lived in by people who earn a combined income of more than £100,000, including Bob Crow, leader of the RMT union. At the proposed £60,000 threshold, ministers estimate as many as 34,000 social rented homes in England alone would be affected.

It is being stressed that no one would be evicted from their home, simply that they would have to pay higher rents.

The government claims the economic subsidy provided by sub-market rents for social housing is worth £3,600 a year on average, or £69 a week.

The total cost of this annual subsidy for those above the £60,000 threshold is £122.4m, and the annual subsidy for a £100,000 threshold is £21.6m.

That £122.4 million a year is a significant chunk of money that could go on providing services for those who are really most in need. The risk is that removing the cap generates greater social division as communities become more polarised between rich and poor areas.

So, what do you think of this policy…?

 

UPDATE: One thing I should add given some of the responses on Twitter. Overall social housing pays for itself, so some people object to the use of “subsidy”. However if you are paying less than the market rent, then you are getting something at a subsidy. Whether that is a profit, break even or loss making subsidy is not the point, you are still getting it at a subsidy. If you are, say, earning £70,000 and in social housing you pay less rent than an identical household in an identical property in the private sector. In other words, you’re being subsidised.

Because you are paying less than the market rent the state is receiving less income than if you had to pay the market rent, and that means the state is getting less money to spend on services for others (or to cut deficits these days).

 

* Mark Pack is a member of the Federal Board and editor of Liberal Democrat Newswire. He is a candidate for Party President.

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36 Comments

  • We need to be clear on some basic facts here, as the story is a classic example of government spin.

    “The total cost of this annual subsidy for those above the £60,000 threshold is £122.4m, and the annual subsidy for a £100,000 threshold is £21.6m.”

    There is no such ‘cost’ in the normal sense of those words. The subsidy in question is an ‘economic subsidy’, i.e. the social rent is lower than a notional market rent for the same property. The government doesn’t actually pay out this £122.4m each year – in fact, the rents paid by social housing tenants more than cover the costs of management and maintenance, so the *actual* financial subsidy is negative.

    What the government doesn’t say is that they don’t really expect any of these higher-income tenants to pay the higher rent. They expect them to decide instead to buy their homes through the Right to Buy, at knock-down prices due to the massive discounts the government has just brought in. The Right to Buy discounts are just as much a subsidy as the ones the government are complaining about – so why is one bad and the other good? Because the rent ‘subsidy’ maintains a stock of social housing in desirable areas, housing which can be allocated to a family in need when the high-income household vacates the property. But a subsidised Right to Buy sale removes the unit from the social housing stock forever, getting us one step closer to the Conservative party’s cherised dream of a country strictly segregated by income, where rich people get to live in nice neighbourhoods unspoiled by the presence of the ‘undeserving’ poor.

    I would urge Lib Dems to think about the long term consequences of these kinds of policies before buying into the politics-of-resentment rhetoric being used.

  • Wouldn’t it be clearer to say, rather than the talk about ‘subsidy’ (which is fair enough, they use it themselves),

    ‘should someone on £60,000/year be asked to leave their social housing if they’re not prepared to pay as much as the highest bidder’?

  • Sara Bedford 19th May '12 - 6:13pm

    The subsidy is in the form of the capital cost, which for new homes is quite considerable. This means that property can be rented out far more cheaply than if the cost of funds had to be supported through the rental stream.

    Our council has just worked with a large RSL to provide 34 new homes all for affordable rent. The total cost to the public purse was approximately £100,000 per property. How much would it cost to service a mortgage of that amount?

    I am a great believer in supporting social housing, but it should go to people who need it, not people who struck lucky earlier in their lives. I also find it difficult to support extending RTB in areas of high housing demand. We will never be able to replace the solid family houses with the small amounts of receipts from discounted RTB sales.

  • Andrew Suffield 19th May '12 - 6:22pm

    The Right to Buy discounts are just as much a subsidy as the ones the government are complaining about – so why is one bad and the other good?

    It isn’t. Dead easy solution: scrap subsidy for rich people on both rent and RTB.

  • Simon McGrath 19th May '12 - 6:33pm

    Of ccourse we shouldnt be subsidising people on 60k a year ( as sara says it is a subsidy)

    But is £60k the right figure? Given the many people on housing lists should council homes not be reserved for those who genuinely are in need?

  • Andrew Suffield 19th May '12 - 6:43pm

    But is £60k the right figure?

    Good question. To assist thinking: for a single adult that’s the top 5% of the population, and for two adults with a young child it’s the top 25%.

    The top 25% sounds like a reasonable point to me. So perhaps the limit should be scaled to household size, and rather lower for single adults – somewhere around £40k.

  • Andrew Suffield 19th May '12 - 6:46pm

    Our council has just worked with a large RSL to provide 34 new homes all for affordable rent. The total cost to the public purse was approximately £100,000 per property. How much would it cost to service a mortgage of that amount?

    About £500 to £600 per week at current rates.

  • Andrew Suffield 19th May '12 - 6:47pm

    (lack of edit button: previous post should read “per month”)

  • So you’re saying to people who are lucky enough to be in council housing, if you’re successful then we’ll kick you out of your house? What kind of message is that.

  • I think DM Andy made a very good point, which is that this proposal would entail a much greater disincentive for social tenants to increase their income, not to mention requiring social landlords to try and monitor any changes in the circumstances of their tenants. I was under the impression that neither of these things are consistent with Lib Dem policy. But then much of the discussion here looks like an attempt to post-rationalise a purely Tory initiative in Lib Dem language.

  • Sara Bedford 19th May '12 - 9:09pm

    To those saying that it acts as a disincentive to increase income, I would say that once you are earning more, you receive fewer benefits and eventually you do not receive any benefits We do not say if you were receiving benefits at one point in your life, you should continue to receive them forever, lest it act as a disincentive.

    In this high housing cost area I know oof families earning susbsattially less than £60K who are having to find their own non-subsidised housing and pay for it themselves. They would love the opportunity of a council propertty, with a low rent and a secure tenancy.

  • Andrew Suffield 19th May '12 - 10:08pm

    I think DM Andy made a very good point, which is that this proposal would entail a much greater disincentive for social tenants to increase their income, not to mention requiring social landlords to try and monitor any changes in the circumstances of their tenants. I was under the impression that neither of these things are consistent with Lib Dem policy.

    On the first point, you are wrong that it is inconsistent with LD policy. This “greater disincentive to increase income” is more formally known as “higher marginal rate of tax at higher income”, or “progressive income taxation”. It is the policy of the LD party to employ progressive income taxation. It is also the policy of the party to smooth out quirks which permit certain people – such as social housing tenants – to enjoy a lower marginal rate of taxation than others in equivalent circumstances but whose landlord happens to be a private individual.

    On the second point, you are wrong that it is required to do this. It is merely necessary for HMRC to notify the government department that handles social housing subsidy when your total taxable income for the year is higher than the appropriate threshold. This kind of interdepartmental notification within the government is routine.

  • Richard Dean 20th May '12 - 1:25am

    I wonder if it is worth recalling that the people who rent social housing are not the only beneficiaries.

    Other beneficiaries include the council, who may gain a relatively cheap solution to their duty to house people compared to, say, permanent B&B accommodation. For those social housing tenants whose alternative is the streets or a squat, the council and the community gain by having fewer people living that way, and the police and health service gain by having fewer issues to manage. The area gets the extra people to both work and create demand. Does social housing also play a part in limiting local non-social rents or house prices (and is this good or bad?)? The community gets the benefit of a feeling of helping – in other words, a feeling of community,

    The 20% or more “subsidy” seems to be the price these beneficiaries pay for what they get. And if by providing this “subsidy” someone starts to shine, why should we complain? Wasn’t that the whole point in the first place?

  • So are the government throwing out the idea that rents should be regulated?

    Given that one of the major reasons rents are so high in some parts is that unscrupulous landlords are taking advantage of shortages to charge high rents for personal gain in the absence of regulation it is worrying that a government seeks to reduce what little influence it has on prices.

  • Good luck telling everyone that people on £60, 000 a year deserve to be given cheap housing.

    Doesn’t this suggest to anyone that there might be something slightly wrong with the social housing system?

  • Richard Shaw 20th May '12 - 11:47am

    @g

    Regulating rents is a red herring. Regulating or capping rents disguises the real problem which is lack of supply, to which the answer is to increase the supply of housing and land for development. Large amounts of undeveloped land or empty housing stock is held in speculation on land or housing prices. If asset or Land Value Taxes were introduced then more land would be made available for development as owners divested themselves of uneconomic holdings. House prices would fall allowing new homeowners and new landlords to enter the market, pushing rents down and keeping them down at a fair non-artificially-determined price. There is little competition at the moment as only existing landlords can buy more property because they can borrow against the value of their current properties.

    Of course, capping rents may also increase the amount of stock on the market… as landlords sell their stock to wealthy individuals or redevelopers as that’s more profitable than letting out at a level below what the land is worth, thus worsening the lack of affordable housing for those who can’t afford to buy outright.

    Increasing competition within and removing barriers of entry into markets should be a Liberal’s first resort when tackling unfair monopolies and ‘unscrupulous’ behaviour. If that fails then regulation should be considered until such time when the former option is achievable.

  • andrew purches 20th May '12 - 12:41pm

    In my humble opinion,we should perhaps be looking way back over our shoulders. The housing imbalance,and lack of affordable homes could be engineered much more effectively with a reintroduction of mortgage tax relief and a wholesale reintroduction of rent controls over the whole of the homes to let market. There is no justification for subsidising the private sector here – it already receives goodness knows what in income and capital gains tax relief as it is, without the tax payer adding more to the ever deepening pockets of these exploiters of a fundamental right to a home at a fair cost.

  • Lots of people on over60k a year are already given all kinds of subsidies.They’re called MPs. There sometimes seems tobe a pot kettle, black thing going on with attitudes to subsidies and benefits.

  • Hang on a minute, Bob – the new system means the right-to-buy money gets ploughed into building new homes, a policy the Lib Dems have long campaigned for.

  • “If you’re earning over £60,000 should the state subsidise your rent?”

    No they shouldn’t, but then again nobody is being subsidised presently, so the question is irrelevant. The rents received on council owned property are in excess of the cost of maintaining the properties.

    What is an absolute disgrace is how private sector landlords are given taxpayers money to house social tenants when the job could be done at a fraction of the cost to the taxpayer through the compulsory purchase of land at agricultural prices and building of new council stock. Council houses more than pay for themselves. The right-to-buy scheme has created a huge cost to the taxpayer.

  • Andrew Suffield 20th May '12 - 11:04pm

    Lots of people on over60k a year are already given all kinds of subsidies.They’re called MPs. There sometimes seems tobe a pot kettle, black thing going on with attitudes to subsidies and benefits.

    What subsidies would those be?

    What is an absolute disgrace is how private sector landlords are given taxpayers money to house social tenants when the job could be done at a fraction of the cost to the taxpayer through the compulsory purchase of land at agricultural prices and building of new council stock. Council houses more than pay for themselves.

    Councils are usually opposed to building new council houses, because residents complain loudly and at length whenever any land, anywhere, is converted to housing, especially housing for less wealthy people who might “bring down the tone of the neighborhood”.

    More than any economic factors, this is probably the biggest reason why we’re short on low-cost housing.

  • “Councils are usually opposed to building new council houses, because residents complain loudly and at length whenever any land, anywhere, is converted to housing, especially housing for less wealthy people who might “bring down the tone of the neighborhood”.

    More than any economic factors, this is probably the biggest reason why we’re short on low-cost housing.”

    Yep, that’s the number one reason our economy is doomed. When home ownership passed 50% of the population, the majority started voting themselves richer by preventing house building.

  • @Lee Baker
    “Hang on a minute, Bob – the new system means the right-to-buy money gets ploughed into building new homes, a policy the Lib Dems have long campaigned for.”

    So, the taxpayer sells a house for much less than it’s worth and then builds a house with the proceeds. Do you honestly think that the taxpayer makes a net gain from this transaction?

  • @Glenn isn’t one of the people who benefits from living in a relatively cheap council flat in a desirable London location (Bloomsbury) one Frank Dobson MP?

  • David Boothroyd 21st May '12 - 11:07am

    Frank Dobson was living in the same flat for many years as a private tenant. In the late 1970s Camden Council were planning a major redevelopment of the area and bought up all the buildings; in the process all the private tenants living in the flats became council tenants.(The redevelopment never happened)

  • David Boothroyd 21st May '12 - 11:14am

    Steve is right. This article is based on a factual error.Rents for council tenancies are not subsidised (save if the tenant receives housing benefit). The rent pays for the cost of the flat or house being constructed and for the costs of servicing and repairing it.

  • Seeing as we keep being told that the country is broke & it is too costly to means test OAP’s for the winter fuel allowance, how exactly can they then trot out the means-test for all families in social housing?

    Where is the evidence that shows how many homes have over £60k in income?

    I suspect that what would happen is that those with a good income will use the £75k subsidy to buy their house thereby removing it from the councils stock permanently.

    Sorry, but I think this is yet another hare-brained scheme thought up by this govt on the back of a fag packet.

  • LondonLiberal 21st May '12 - 5:26pm

    Mark – you refer to tenants’ rents as both discounted and subsidised. This is new language to decribe council rents, and deliberately distorts what is being offered.

    Council rents cover the cost of building and maintaining council properties over the long term. As the aim is to provide low income working people with a safe, secure and stable home, they are being offered a sevrice which more than covers its costs. As long as it does so, why charge people more rent simply for bettering themselves? You’re effectively adding a high marginal tax rate to their income. Plus you’re, as you suggest, making estates more polarised, and undermining the government objective of mixed, stable communities. Rather than finding another way to screw council tenants – who the Tories said before the election wouldn’t be affected by any of their changes – why don’t we build genuinely affordable housing for people in need? (ie not at 80% of market rents) That would be a more liberal thing to do.

  • LondonLiberal 21st May '12 - 5:34pm

    @ Simon Shaw
    “Is that what this means, and if so does anyone know how social housing rents compare, on average, with market rents?”

    In London social rents are around 30-40% of the market average. I suspect that’s the range in most of england.

    It’s worth bearing in mind that, given that a privately leased property on a council estate will usually be worth around 20% less than market value to rent because of it’s location (ie it’s less than the same property in a nicer block or street round the corner), 80% of market rent is actually 100% of market rent for that flat/house if it is in a council estate.

  • LondonLiberal 21st May '12 - 5:38pm

    sara bedford: “In this high housing cost area I know oof families earning susbsattially less than £60K who are having to find their own non-subsidised housing and pay for it themselves. They would love the opportunity of a council propertty, with a low rent and a secure tenancy.”

    Then we shoudl get around to building mroe such homes, and stop kicking people who already live int hem. It’s an inverted class war, an obverse politics of envy.

  • Council houses are council houses. They are not welfare houses. They perform an important role in providing housing at full economic cost (the vast majority are built on marginal land). In reality, it is private tenants (including social tenants receiving housing benefit) that are subsidising landlords on the basis that they ‘own’ land. To those who have shall be given.

    The solution to all of this is to

    1. Build more council houses to remove the waiting lists, then there will be no arguments about people getting ‘cheap’ rents. Everyone would have the choice to live in a council house if they wanted. Those that don’t want to can rent/buy in the private sector.

    2. Introduce LVT to prevent private landlords being subsidised by the productivity gains created by the working population and the infrastructure improvements paid for by the working population.

    There you go – a simple system that allows people a real choice and rewards workers. On the other hand, you could force people with higher salaries into the private sector, increasing the profits of private landlords and the subsidies paid by the working population to the ‘owning’ population.

    This problem was created by right-to-buy and the deliberate prevention of house building. Right-to-buy is a subsidy to the private sector created by selling off public assets at a fraction of their price.

  • And I’m still waiting for an answer to the question – why doesn’t Bob Crow buy his house at a significant discount and save himself a huge pile of cash?

    That’s right, it’s because he has a different opinion about the role of council housing to the person that wrote this article. It wouldn’t be right, therefore, to allow his opinion to be published,

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