The UK government’s so-called “pay to stay” proposals for rent hikes for social housing tenants on higher incomes in England have led to a barrage of criticism, most recently from the Local Government Association, which argued that the bureaucratic costs and complexities involved would erase most income the scheme might generate.
The policy certainly raises concerns. It seems odd and unfair to on the one hand force tenants on higher incomes to pay market rents, while on the other hand offering tenants wishing to take advantage of their right to buy a significant discount to their property’s market value, whether they need it or not. As the LGA argued, it’s questionable how feasible it is to implement the means testing required, especially in the short time frame demanded (by April 2017). How should councils calculate accurate market rents, given the lack of appropriate data? And it seems incoherent for the government to demand a reduction of 1% a year in social rents, while promoting “affordable rent” properties at significantly higher rents than social housing.
But behind these details are bigger questions. If we take social housing to mean housing offered at below-market rents, can and should this ever be justified without means testing? And ultimately, what is the purpose of social housing? Are we to believe that it is only for the very poor until they are able to house themselves on the open market? Or is this approach and the ghettoisation that it entails, as Nye Bevan put it, “a wholly evil thing … a monstrous affliction upon the essential psychological and biological oneness of the whole community”. It bears noting that Bevan also acknowledged that there was still a place to ask higher rents of higher earners.
Britain has wrestled with what it wants social housing to be and how it should be run for decades, alternating between governments of different hues but also with the changing political and economic landscape. But of course other nations operate social housing and have different approaches. What can Britain learn from her European neighbours?
Vienna: using the state to keep rents down
For example, if Bevan were alive today and was disenchanted by the problems of under-supply and erosion of social housing in Britain, he would find a happy berth in Vienna, Austria. The city retains some 220,000 housing units of its own, supplemented by 136,000 units through housing associations, and requires new developments to be of mixed tenures (social rent, market rent, leasehold), with state financial support for developers and projects coming with social obligations.
The result of wide availability of affordable and secure social housing and regular new construction is that the social rent sector in Vienna actually depresses rents in the market sector, reducing the disparity that would otherwise exist and keeping rents generally more affordable. Although there are income thresholds beyond which new tenants may not access social housing, they are quite high (€44,000 for a single-person household, €66,000 for a two-person household), and once a flat is occupied the tenants enjoy security of tenure. All this leads to genuinely mixed communities, none more famous than the Karl Marx-Hof.
Historically the Netherlands, Sweden and to some extent Germany (in east Germany and the cities) have been associated with this model, although it has come under significant political pressure in recent times.
Market answers to market problems
Such arrangements do not please everyone. In 2009, a Dutch investor succeeded in arguing to the European Commission that state aid (for social housebuilding) should only be used to support accommodation for “disadvantaged citizens”. As a result, the Dutch housing minister agreed to reduce the income threshold for access to social housing from €38,000, above the average, to well below it at €33,000 (although recent negotiations have subsequently reversed the decision).
The European Commission and the OECD in their respective country reports have frequently favoured an approach where rents are always at the market level regardless of whether the tenancy is social or private, with those on low incomes assisted through housing benefit rather than through the offer of accommodation that is cheaper per se. This comes with a clear focus on shaping social housing as something for disadvantaged groups.
If private real estate investors and right-of-centre politicians using competition policy is one pressure on the Bevanite view of social housing, the other comes simply from the fact that demand so often outstrips supply. If the state takes the (on the face of it, sensible) decision to prioritise those in greatest housing need then, de facto, social housing will progressively become the preserve of those at the lowest end of the income spectrum – a process sometimes referred to as residualisation.
This acute shortage of social housing has affected even thriving German cities such as Berlin, where social housing was privatised at a time when lack of cash was the issue not housing supply, leading to acute shortages now when both are being squeezed.
What conclusions can we draw? The debate in England about “pay to stay” is by no means unique, and reflects pressure from private investors, right-of-centre politicians and the European Commission to move away from cross-income social housing. Nevertheless politicians have a genuine choice: housing benefit might be considered a more efficient use of public money in the short term than offering lower rents for everyone living in social housing. But to restrict who may live in social housing so that it becomes the preserve only of the poorest risks concentrating deprivation in estates. It also stops social rents applying downward pressure, through competition with the private sector, on the wider market – which might increase housing benefit expenditure in the long run.
In the end, when the situation is as it is in Britain and a growing number of other countries, the whole debate becomes insignificant when the overwhelming problem is the shortage of housing supply.