The next housing crash

It’s not only the Tory crackdown on tax credits for families that will hit the working poor: it’s the Conservatives’ multiple mistakes on social housing that will do the most damage to our society. The problem is, these are less well-understood. Yet added together, they are set to cause a social housing sector crash almost comparable to the banking crash.

This is probably unintended – not least because there’s not one single policy that’s driving this. It’s the combination of a series of separate decisions that are coming together to fatally undermine the finances of many social housing providers, especially housing associations. More cuts in tax credits and benefits of course cause problems to the social housing sector by themselves – because they are certain to lead to greater rent arrears. But it’s only when you add in other changes, like the way benefits will be paid in the future, imposed cuts to housing association rents and the ideologically driven extension of the Right to Buy to Housing Associations, that the full disaster facing us becomes clearer.

Key to understanding this, is remembering that Housing Associations are primarily funded by banks who lend money to them in return for a low but continuous income, plus taking charges over the properties. Generally such lending in the past has been seen as low risk, justifying slightly lower returns. Yet the reliability of those rental income streams to social landlords and their lenders are under sustained attack. From the bedroom tax to the benefits cap, from universal credit to cuts in the rents social landlords can charge, it would be surprising if lenders to the sector weren’t beginning to question their risk exposure.

Ministers may feel that since housing associations have weathered bad debts created by some of these changes so far – not least the “Bedroom Tax” and benefit cap – then this is a dog that’s not barked. Yet some housing associations have masked the problems already there, by redefining rent arrears as bad debts, and writing more such bad debt off. That can’t be sustained much longer.

Certainly not when Universal Credit is introduced. Few people seemed to understand that universal credit will be processed centrally.  There is no face to face contact or local link for those of working age on benefits.  They will have to deal with a help line to a national service centre.  There will be no named case worker or regional officer.  The tenant will not be able to go into see people at the service centre. Social landlords will also have a helpline but they will only be able to find out if an application has been made and if it has been completed.  They will not be able to find out what the tenant is likely to receive, nor what information from the tenant is outstanding, how long until the award is made or what they can do to speed things up.

And the introduction of Universal Credit holds another financial headache for housing associations: it is to be paid directly to the tenant putting the onus on the tenant to budget for their rent.  Some tenants will be cope without a problem. Others, especially those with children on benefits experiencing a 4% reduction income, may not and will  go into rent arrears: they will use the housing component of Universal Credit to pay bills rather than the rent.  The evidence for this was in the universal credit pilots! Universal Credit pilot schemes with hand picked tenants showed 10% more tenants falling into arrears in the first 6 months. And only when the tenant is two months in arrears may the social landlord ask that the housing benefit component be paid direct to them.

On top of this predictable crisis, you must now add in the recent budget cuts to housing association rental income by 1% a year and 12% by 2020-2021. And the extension of the Right to Buy to Housing Associations which will see them losing their stock upon which their loans are secured.  Has anyone in Government added up the cumulative impact of all this?

The banking crisis was partly caused by bankers redefining bad debt created by private individuals.  The Social Housing sector is being forced to redefine bad debt because of Conservative policy. There comes a time when the redefining has to stop. But then the whole house of cards collapses. Housing is this Government’s most vulnerable flank. And we need to attack it before the most vulnerable in society are made to suffer more.

* Emily Davey is the Membership Secretary of Kingston Liberal Democrats. She has previously stood for Parliament four times.

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18 Comments

  • The banking crisis hit nearly everyone worldwide, I doubt that a UK social housing sector crash will affect most of us. Not sure that Housing Associations struggling to pay their bank loans will affect much, except perhaps reduce the amount of low cost housing available. Unfortunately, the bottom 20% or so will suffer – as normally happens – and the rest of us will carry on with our lives as normal and hardly notice. Those 20% won’t be Tory voters so I doubt the government will care much. Sad I know, but I think realistic.

  • John Tilley 1st Aug '15 - 11:29am

    Emily, you are right to identify that The Conservatives are continuing what they did during the coalition. Punishing the poor is becoming the defining characteristic of Cameron and Osborne. We can expect nothing better from them and realistically we never could.
    The mistake of the last Liberal Democrat leadership was to join the Osborne chorus shouting repeatedly that it was all Gordon Brown and the Labour Party’s fault. This was always nonsense but provided a perfect platform for Conservatives all the way up to the the general election.

    I am not sure if housing is the Government’s most vulnerable flank as you suggest. Although I entirely agree that it is an issue that should be campaigned on continuously particularly in London and the South East where so-called Labour Councils like Newham seem only too happy to join in the Conservatives ‘social cleansing’ of housing estates.

    malc makes a good point that the bottom 20% of UK society may be crushed whilst the other 80% look the other way.

    At least Liberal Democrats are now free to draw attention to what is going on and do not have to echo the false chorus of free-market ideologues who pretend that the answer to homelessness is to further enrich property developers by scrapping sensible planning constraints.

  • Very thought-provoking article.
    Yet I don’t quite agree with the point about universal credit. Clearly there is some risk trusting people with what is after all their own money, but that is what liberalism is about, trust not control (see Steve Web bus pension reforms). Even if the money paid through UC was to increase significantly this risk would not automatically disappear.

  • Tax credits and universal credits will cause a housing crash,I would have thought aliens from Mars would be a greater danger’

  • There will be a crash and some of this will factor in, but it will be caused by unsustainable private debt and over pricing. The housing market is pretty much static and what sales there are , are propped up by near sub prime levels of mortgages. Eventually, one organisation or another will look at their books and panic. We’re a low productivity high debt economy and housing is a sort of pyramid scheme that’s running out of new suckers. Collapse is absolutely inevitable.

  • Richard Stallard 1st Aug '15 - 1:08pm

    “Tax credits and universal credits will cause a housing crash,I would have thought aliens from Mars would be a greater danger”.
    Not Mars; Calais.

  • I think Emily is right to flag up these concerns and although she may have exaggerated the effects of all these changes any decrease in social housing stock will have enormous significance for anyone on waiting lists. Of course the Tories don’t care about people living in temporary accommodation or poor housing but it’s about time somebody stood up for them. That’s a major reason why I am so pleased that Tim Farron is our new leader because housing is up there at the top of his agenda. There is a strong correlation between housing and health and also ,for children, education. If anything creates inequality of opportunity it is the scandalous lack of investment in housing by Tories and Labour when the economy was in an upturn. The Coalition did invest a bit more but it was a pebble on the beach in terms of how many houses were built.
    A secure rental stream is important when trying to secure loans to build new housing stock but it may be that the two months requirement will not seriously affect this and there is an associated problem that it is very difficult to evict very disruptive tenants who are making others lives a misery if their rent is being paid automatically. I understand the point Josef makes about trusting people but there are large numbers of tenants who live such chaotic lifestyles that they are unable to keep track of their income even if they do not want to fall into arrears.
    The dehumanising of the process which Emily describes will undoubtedly affect people of working age who find talking to a machine very difficult and who as a result may fail to claim the credit they are entitled to and I am saddened by the facetious comments above. I thought we were serious about tackling inequality of opportunity and if Liberal Democrats don’t take the appalling state of housing provision seriously then who on earth will?

  • A Social Liberal 1st Aug '15 - 3:32pm

    Josef. whilst you are right that liberalism is all about empowering people, it is also about making sure that the empowerment given is not abused.

    So, whilst we offer housing benefits to those who would otherwise have to be making the choice of a roof over their head or food on the table and give them the choice of looking after their finances themselves or having their benefits paid to their landlords direct, the latter can be enforced if the former is abused.

    With all the will in the world there are people who are totally unable to manage their finances, either through temperament or through illness, addiction or whatever. Forcing them to take their benefits knowing that they are likely to spend it on something other than their rent is nothing less than reinforcing their enslavement in poverty !

  • Richard Underhill 1st Aug '15 - 5:16pm

    Emily Davey This is meaty stuff. If housebuilding is increased what is the effect on the economy?
    More Jobs for builders? or higher wages for bricklayers and plumbers?
    or a skill shortage leading to expensive agency workers?
    Is there still a glut of new houses in the Irish Republic? if Yes, what effect does it have on Northern Ireland or the UK?

  • Matthew Huntbach 1st Aug '15 - 6:45pm

    Glenn

    There will be a crash and some of this will factor in, but it will be caused by unsustainable private debt and over pricing

    Yup. People in this country have hugely over-borrowed. In the days of high inflation, people were encouraged to borrow more than they could really afford to buy housing because it would just be a short-term problem, after a few years inflation would reduce the real size of the debt and it would be fine, and it was. However, in this era of low inflation, mortgage debt doesn’t go away like that, yet we still have this culture which pushes over-borrowing. This is crazily combined with a society with less employment certainty, so you can’t so easily predict you can carry on paying the mortgage for years and years.

    Once interest rates go up, people are going to be badly hit. Many have borrowed to their limit on the basis of current interest rates, but they are historically very low interest rates. These people would not be able to cope if interest rates went back to what was their normal levels until recently.

    So much of the British economy is now based on this Ponzi-system of borrowing. It is quite a lot like Greece, albeit private borrowing rather than public borrowing. However, I fear that it will all crash, and that could be quite sudden, perhaps triggered by interest rates rising. Actually, this DID happen in the early 1970s, except that the house price crash was hidden by high inflation, so house prices stayed still while everything else went up. The best way out may have to be the same sort of thing. Again, much like Greece, or at least Greece would have done if it hadn’t been in the Euro.

  • Richard Underhill 1st Aug '15 - 7:06pm

    In a soundbite or headline: How to prick a baloon, slowly?

  • A social liberal
    A fair point, I agree entirely.
    The worry I have is that the exception becomes the rule elsewhere. There are a couple of people around talking about welfare abuse who’d love to see any benefit to be turned into some kind of voucher. Clearly that’s something completly different and we need to be very clear that this principle of universal credit is a good one.

  • suzanne fletcher 2nd Aug '15 - 9:37am

    Emily has highlit a series of real problems, and one that has not been on my mind (so far) about tenants not being able to go and talk directly to housing benefit staff, but do it presumably by phone or on line. My experience as a CAB woker was that even with human beings rund the corner, many tenants could not cope, and came to us to phone or write for them. Not laziness, just one more thing on already stressed lives – and am not just talking about recent years.
    I’d be interested in constructive ideas around how this can be overcome or at least beging to be helped, locally (yes replace the government, but being realistic).
    another problem not highlit here though is the problems when people buy their social housing,. Like the sale of council houses, it is good that people can be in charge of their own housing for all sorts of reasons, but there is the problem of diminishing housing stock. Add to that the number of people who think they can afford to buy, but either their income falls through illness / job loss or cut in hours / relationship breakup, AND/OR unrealistic expectations of extra costs such as building insurance, maintenance, essential repairs as well as loss of support from the social landlord in a myriad of ways and there is another debt problem building up.
    Pleased to see that Housing appears to be in the top group of Tim Farrons issues, and await some depth in these – buy maybe he needs us to come up with some cosntructive and realistic proposals too for the emerging scenario.

  • suzanne fletcher 2nd Aug '15 - 9:39am

    Just to add – yes, the rent will be the first not to be paid when times are very tough. It is not fecklessness, particularly for those with children or any special needs in the family. Food and fuel come first – with keeping out of court for non payment of council tax and TV licence that come close second, and hit before rent arrears do.
    (I could well do without a TV licnece, but not for me to impose my lifestyle on others much less fortunate).

  • peter tyzack 2nd Aug '15 - 9:49am

    Emily is right, which is why Tim is making Housing a key campaigning priority.

  • Sadie Smith 2nd Aug '15 - 1:47pm

    I think Emily is right.
    It may be that the 20% feel the effect most. I worry that there is a weakening of such safety nets as existed.
    As a Cllr I used to find I dealt with complicated financial and housing stuff as well as complex health cases. Both look a lot more difficult now. It would be a lot trickier to come up with solutions .
    I do wish we had a sensible renting sector.

  • Neil Sandison 2nd Aug '15 - 2:19pm

    Emily is right to flag up this issue .The conservatives are ideologically driven by home ownership but for an increasing number of households this is not a realistic option .Housing Associations which started as providential organisations that offered the homeless ,poorly housed and those threatened by ill health a range of tenure types outside of the normal council or private housing sector options. local delivery was based on shortfall of provision identified by local government .without that provision much of our pre 1919 housing stock would have fallen steeply into decline and major slum clearance would have been the only alternative. later they moved into new build but still based on local needs and the sustainability of local communities including those in rural areas where local families had been priced out of the local market by more affluent commuters. I do not have a problem with tenants who can now afford a mortgage getting help to buy a new build home on the open market through a tenant incentive scheme but to force local councils to sell off what remains of their best housing stock to fund it is going too far .This means we will lose 2 housing units of affordable social housing for every one HA tenant helped to buy the house that they are in .

  • Phillip Purves 23rd Sep '15 - 9:29am

    What is the Lib Dem position on Pay to Stay – the other side of the iniquitous Right to Buy coin – which will rob and impoverish many on very modest salaries?

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