Back to the future: it's time to reset social rent and housing benefit

We can't address a lack of housing supply until there's more certainty about subsidy – even if the benefit bill rises
Painted terraced houses, London
What is fairness? Families living in identical homes will be affected differently by reform of the welfare system. Photograph: Carl Court/AFP/Getty Images

Let me pose a riddle: when is a subsidy not a subsidy?

The much-derided "bedroom tax" has sparked a renewed debate over housing policy. The policy is ostensibly designed to release underoccupied space to overcrowded households, but the knock-on effect could force social tenants into more expensive private accommodation with a higher housing benefit bill for the government.

A bizarre inconsistency illustrates our curious policy approach to housing welfare. Imagine two identical families living next door in identical properties. Both families collect non-housing benefits of £350 a week. Family A lives in a social rented property paying £100 a week while Family B lives in a privately-owned property paying £250. Both receive 100% housing benefit, so Family A's total benefit bill is £450 while Family B's is £600.

When the £500 a week benefit cap comes into force it will hit Family B, but not Family A. Family A's rent is already subsidised through social rent, yet Family B's is not.

Housing subsidy over the years has become a muddled affair: capital grants to housing associations, a revenue subsidy system for local authorities and a personal subsidy system to tenants through housing benefit – not to mention planning taxes, sales discounts and other schemes. The move towards "affordable rent" and reduced capital grant is transferring the housing support system from bricks and mortar towards personal subsidy.

Part of the problem with the government's jumbled approach is its reluctance to ask important questions such as what social housing is for. With local authorities facing major cutbacks, the challenge to target resources effectively is immense.

If the momentum is towards personal subsidy for housing, is it right to maintain a centralised social rent policy? It is a complex question. One option is to set a new rent policy linked to a common system of housing credits for people in housing need, aligned to a revised set of local housing allowances with the aim of making suitable provision for all claimants regardless of their tenure. This would go some way to removing today's bizarre inconsistencies which have distorted local markets and led a rise in the number of homeless households.

The underlying problem is a shortage of housing supply. Unlocking the hidden equity within social landlords' balance sheets (primarily from previous government investment) would be a sensible step to get Britain building. The government increased council housing debt by £8bn (£5,000 a home) last year following reform of the housing revenue account (HRA), yet the average debt of £17,000 in the authority sector remains lower than the £20,000 for each dwelling in the housing association sector. Both sectors have significantly less debt for each unit than mortgage debt in the owner occupied sector.

Local authority borrowing caps should be removed and the public accounting rules for council housing fundamentally reformed. Costs of conventional lending to the housing sector remain relatively high; continued efforts to provide cheaper, long-term funds to both councils and associations also need to be further developed, but more consistency and certainty over government subsidies will help.

There are risks. Once spare borrowing capacity gets used up there is no way back so landlords, lenders and regulators alike will want to see carefully constructed local business plans which stand up to scrutiny. Care must be taken not to overstretch borrowing capacity. There is also a cost to providing new subsidised housing: the benefit bill would continue to increase in the short term.

Government policies on social rent and welfare reform do not appear compatible. We need a coherent approach to housing, and something has to give. My answer may seem an anathema to some, but as housing providers are already facing greater scrutiny it's time to face reality. There is no reason why associations and councils shouldn't continue to prioritise housing those most in need – that's their raison d'etre.

David Hall is an independent housing consultant and one of the architects of the reform of council housing finance. A longer version of this article will appear in a collection of essays to be published by the Bermondsey Group
