A housing system for renters after COVID19

May 01, 2020 10:08 AM

The past six weeks fighting this pandemic have reminded everyone how important a good home is – and how many renters don’t have one.

The past six weeks fighting this pandemic have reminded everyone how important a good home is – and how many renters don’t have one.

Private renters are more likely to have to share with other adults, which puts them at a higher risk of getting and spreading coronavirus. Beyond the virus itself, renters are more likely to be living in flats without gardens and in damp conditions, putting a strain on their mental and physical health.

And whether or not their home is comfortable, lockdown has made it harder for renters to afford what they currently live in. Three in five have lost income and while the government has increased Local Housing Allowance, it still only pays the full rent on the cheapest 30% of homes – leaving most with a shortfall (if they’re eligible for Universal Credit in the first place

While decent landlords are already offering their struggling tenants reduced rents, for many more profits come first and they will try to evict tenants who get into arrears as soon as the moratorium on evictions is lifted. Without further action from the government to protect renters, we are facing a looming homelessness crisis.

However the government lifts restrictions, the pandemic has highlighted problems in the private rented sector that were causing misery long before Wuhan hit the headlines. And once it has passed, our society has to consider how much responsibility we give profit-driven businesses to provide the places we live in.

This was the conclusion that the Affordable Housing Commission reached after its 18-month investigation of England’s housing system: private renting is ill-suited to families, people on low incomes, older people and the vulnerable. The Commission brought together 15 leading figures from the housing world (including me) to define the problem of unaffordable housing and offer an ambitious plan to fix it.

The Commission’s 259-page report was published in late March so didn’t enjoy quite the fanfare we were hoping for. It adds to the drumbeat of calls to build more houses at social rents, and sets out how this can be achieved. It also calls on the government to go further on reforming the private rented sector with limits on rent increases alongside abolition of unfair Section 21 evictions.

But its central message is that the reason so many of us struggle to afford a home is because of an enormous shift since 1980 from social housing to private renting, with rents previously held at levels affordable for low earners now set by the market. And this shift must be reversed.

It has 53 recommendations to bring down the cost of a decent home to less than 33% of net incomes for low and middle earners. It’s probably fair to say that which ones to prioritise have shifted as a result of the pandemic.

For example, the 1.5m Universal Credit applications since March suggest incomes will fall dramatically. Whether or not landlords are already offering lower rents, it is hard to see how existing levels can be sustained. That’s bad news for landlords with large mortgage debt, who may be forced to sell up. In these cases the government must make it easy for them to sell occupied properties so the tenants don’t lose their homes as a result of their landlord’s decisions. This is one AHC recommendation (#25) that has suddenly become more pertinent.

The sales market is going to be hit too. For a start, private renters who have been saving a deposit and have more than £16,000 are not eligible for Universal Credit so will have to raid their savings if they lose income. First time buyer numbers will dip as a result – along with demand from existing home owners who have seen incomes slashed. This will leave developers who have been banking on sales to home owners with a lot of new homes that they can’t shift at current prices.

To whom distressed landlords and developers sell is another question to which the AHC report has an answer. To encourage a tenure shift of homes from the private sector into the social sector, the Commission recommended that the government support social landlords to purchase existing homes (#10). Buying homes at knockdown prices would make it easier for not-for-profit landlords to charge affordable rents. But the risk is that there’s competition from private investors, buoyed by quantitative easing, who will see a housing market crash as an opportunity to buy up properties and then ramp up rents as the economy recovers. We need government to provide a social housing acquisition fund to make sure tenants are the ones who benefit from any crash.

Speculation could be subdued further with restrictions on buy-to-let lending. Right now landlords with mortgages usually pay only the interest, on the assumption that they will eventually sell when their property has risen in value and pay off the loan itself with the proceeds. This arrangement reduces landlords’ costs in relation to rents, encouraging them to borrow more, and driving up house prices. It also makes rising house prices a critical ingredient of success for both landlords and banks, with all the political implications of that. The Commission’s recommendation #39 recommends giving the Bank of England powers to limit the use of interest-only mortgages.

Finally, the government has borrowed unimaginable sums of money to fund the furlough scheme, business bailouts, and the healthcare effort to suppress the virus. The government will start facing questions about how it pays this back. Given the sacrifices workers are currently making – from key workers risking their lives, renters quarantined in cramped conditions, and millions seeing their careers snuffed out – the government cannot ask them to bear the brunt of tax rises too.

Owners of large houses pay council tax at a much lower fraction of their home’s value than a renter does for something that is no bigger than what they need. Property wealth is an enormous, untapped, source of tax revenue. The Commission called for a review of council tax to make sure those with property wealth pay a fairer share (#51). But the increased demands on the state and the sheer scale of government debt mean we must ask questions that go beyond that. How do we make sure that workers aren’t getting taxed more than people who get their income from assets? How do we tax land to stop it benefiting only the speculators and make more of it available for new social homes?

Right now, renters in locked-down industries or looking after kids full-time are getting into debt and need assurance from the government that they won’t be ruined by the pandemic. But we also need to plan how we come out the other end with a housing system that works for everyone. We aren’t going back to normal any time soon, and, when it comes to our homes, we don’t want to.


Edited to include the Commission's recommendation on interest-only mortgages.