Speak to our friendly staff directly  +44 (0)20 7242 2523

A leading set specialising in commercial, construction, insurance and property law

This document is from our archive and no action should be taken in reliance on it without specific legal advice.

Pay to stay: A potential can of worms in social housing reform

“For far too long, millions of people on waiting lists have watched helplessly as high-earning social tenants continue to occupy homes designed to help the most vulnerable… if they want to continue using this precious national resource, they will pay for the privilege."

When the then Housing and Local Government Minister, Grant Shapps MP, launched a consultation on giving social landlords the power to charge market rents to high income tenants on 13 June 2012, he did so using deliberately strong language.

The Government calculates that the economic subsidy which high income tenants in social housing enjoy is worth around £3,600 per household per year. It is estimated that between 1,000 and 6,000 households in social rented accommodation in England have a combined income of more than £100,000 per year. 12,000 to 34,000 households have a combined income of more than £60,000 per year.

The Government has been vocal about its position that this is unfair both to taxpayers and to those who are on waiting lists for social housing. In blunt terms, Mr Shapps argued that it is time to end what he described as this “handout to the very rich”.

Whilst the principle behind the Government’s plans may be uncontroversial – social housing is, after all, designed to provide housing to those who are most in need – the practicalities of the proposal are far more problematic.

Local authorities vs housing associations

Local authorities currently receive guidance from Central Government on rent policies for social housing.  However such guidance is non-statutory and local authorities are entitled to fix rents according to a different basis or at a different level from that suggested by Central Government if they consider it appropriate to do so.

In the Government’s “Pay To Stay” consultation launched on 13 June 2012, it observes that when it comes to social housing provided by local authorities, Central Government can do no more than issue further non-statutory guidance advising authorities to charge market rents to high income households.  Whether local authorities follow that guidance is up to them.

In respect of private providers of social housing, implementing a “Pay To Stay” scheme will inevitably be more complex.  Social housing rents are subject to regulatory controls by the Social Housing Regulator.  To implement “Pay To Stay”, the Secretary of State for Communities and Local Government will have to direct the Social Housing Regulator to amend its standard on rent.  The Secretary of State’s direction and the amended standard will both then be subject to statutory consultation, all of which has the potential to be a very lengthy and complex process.

The definition of “high income”

Perhaps the most pressing question those working in social housing will have is what the threshold will be for someone to be classed as “high income” and therefore eligible to pay a market rent.

The Department for Communities and Local Government suggests in its consultation that it is concerned that setting the threshold too low might encourage some households to work less in order to remain below the “high income” threshold.  For this reason the Department appears to lean more towards setting the threshold at either £100,000 or £80,000, fearing that a threshold of £60,000 or lower might, to use the Department’s words, “create disincentives to work” and thereby end up increasing the overall welfare bill.

Inevitably the use of a monetary threshold will include an element of arbitrariness.  With the proposal as it stands at present, two households may be on only slightly different incomes, but if one passes the high income threshold then their rent may be considerably higher.

The objectives of a social housing provider

Inviting social housing providers to charge market rents may be considered to be incompatible with the charitable status and the stated objectives of registered housing providers.

Unfortunately the Department does not appear to have an answer to this problem.  It says only that it is equally in the interest of social housing providers not to be providing housing to those who do not need it.  As a temporary position the Department proposes that social housing providers should consider charging high income households 80% of market rent whilst waiting for the Department to come up with a firm proposal to marry the stated objectives of registered housing providers with a proposal that they should be charging market rent to some tenants.

A bureaucratic can of worms

Whilst the principle behind “Pay To Stay” may not be wholly controversial, the bureaucracy which the policy may end up generating has the potential to be overwhelming.

At present social landlords have no power to compel tenants to disclose their income.  The Department acknowledges that it will likely have to introduce an Act of Parliament in order to empower them to do so.  The potential for abuse and the need for housing providers to detect and prevent such abuse will generate ever more work for hard-pressed local authorities and housing associations.

The principle of fixing tenants’ rents according to their income has the potential to be a hugely bureaucratic exercise with each household’s rent being set individually.  That is to say nothing of the fact that the presence of two households in identical properties but paying very different rents for them may generate resentment and ill-feeling.

“Pay To Stay” will be particularly problematic because of the potential for tenants’ incomes to change.  A household’s rent could potentially have to change many times as its members gain, lose and change employment.  This is arguably all the more the case in a turbulent economy with a volatile job market.

In the Consultation the Department is undecided as to whether to fix rent on the basis of the a person’s income in the previous year or a person’s anticipated income in the year ahead.  Whilst this decision may make little difference to those on fixed incomes, the effect on people who are self-employed for example and therefore have more variable incomes, could be particularly concerning.  A household may find that its rent is set based on a particularly lucrative year’s earnings only for lower earnings in the year ahead, making it a struggle for the household to keep up.

The Consultation acknowledges that it may be necessary for local authorities and registered housing providers to introduce an appeal or review procedure so that tenants can challenge a decision to class them as “high income” and to increase their rent.  If this proves to be the case, it will add another level of bureaucracy to an otherwise already complex process.

Legal obstacles for existing tenancies

Local authorities seeking to introduce market rents for high income households may find themselves facing arguments that they are breaching tenants’ legitimate expectations as to the level of rent charged and the basis for fixing rents.  Defending such arguments in judicial review proceedings could be expensive and time-consuming.

Most tenants of private registered housing providers have assured tenancies under the Housing Act 1988.  In most cases the tenancy agreement makes provision for the determination and varying of rent.  In many cases the housing provider can change the rent on giving adequate notice, but in cases where the tenancy agreement makes specific commitments as to the level of future increases, housing providers may find their hands tied by their own tenancy agreements.

The road ahead

The Department’s consultation on the “Pay To Stay” proposal closed on 12 September 2012, having invited responses from local authorities, registered housing providers, tenants and representative organisations.

The “Pay To Stay” proposal appeared at the same time as the Government’s proposal to criminalise unlawful subletting of social housing.  Accordingly it is being seen as part of a tougher approach from Central Government to try to ensure that social housing is restricted to those who most need it.

However the lack of detail involved in some of the proposals to date is arguably a matter of concern.  The Government’s good intentions risk opening a bureaucratic can of worms which could see already hard-pressed local authorities and registered housing providers struggling to administer the policy which is ultimately produced.