POLICY BRIEFING.

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1 High Income Social Tenants - Pay to Stay Author: Sheila Camp, LGiU Associate Date: 2 August 2012 Summary This briefing covers two housing consultations; the most recent, the Pay to Stay consultation concerns the government s desire to enable social landlords to charge high earning tenants a market or near market rent. The Pay to Stay consultation can be found at The second consultation concerns the circumstances under which an offer of private rented accommodation is not suitable for discharge of duty under homelessness legislation. The consultation period has ended but we have included comment on it in this briefing as it will be a significant change when it is finally introduced. The proposed draft Order can be found at The briefing will be of interest to all local authorities with housing duties and to councillors with housing responsibilities in their local authority or as board members of registered social landlords. Overview The Pay to Stay consultation sets out the arguments for charging a market or near market rent to higher income social housing tenants. A higher rent would be triggered by the income of the two highest earning members of the household exceeding a certain threshold. The government argues that this is an issue of principle and fairness. It is seeking views on the principle of charging higher rents; the income threshold; the level of the higher rent; disclosure of income by tenants; and whether the policy should be voluntary or compulsory for social landlords.

2 The Homelessness (Suitability of Accommodation) Order is included for information as the consultation period has closed. It covers a proposed Order setting out the circumstances in which an offer of private rented accommodation will not be considered suitable for discharge of homelessness duty; it also sought views on the suitability of the location of the property. Although the proposed Order focuses on the physical and management standards of the private sector offer, it seems the government is unwilling to consider requiring the private sector landlord to be accredited by the local authority. Briefing in full The report covers two recent consultation papers from Communities and Local Government: High Income Social Tenants: Pay to Stay and Homelessness (Suitability of Accommodation) (England) Order High Income Social Tenants: Pay to Stay Introduction This consultation paper was published on 13 June 2012 with a closing date for responses of 12 September. It starts from the premise that, although the government has introduced changes in social housing - fixed term tenancies, freedom to prioritise certain groups (local people, those in employment for example) when allocating property which give landlords far greater freedom to target their resources at those who need it, the changes do nothing to tackle the problem of high earners occupying the scarce resource of social housing. This, the government argues, is an issue of principle and fairness which it is determined to address. It proposes that social landlords should be able to require such tenants in social rented housing to pay higher rents and is seeking views on how this might be implemented. The main specific issues it wants respondents views on are: The principle of charging higher rents The income threshold above which high income tenants might be asked to pay a higher rent What the higher level of rent should be Disclosure of income by tenants Whether the policy should be voluntary or compulsory for social landlords

3 What s the size of the problem? POLICY BRIEFING There are almost 4 million social housing tenants in England, providing homes for 1 in 5 households (SOURCE: Communities & Local Government statistics ). The consultation paper indicates that it is estimated that there are between 1,000 and 6,000 households in social housing where the Household Reference Person and partner have a combined income of over 100,000 per annum; between 2,000 and 11,000 earning over 80,000 and 12,000 to 34,000 earning 60,000 or more. It is unclear whether the 12,000 to 34,000 includes the households in the two higher income brackets but, assuming it does not, a maximum of 51,000 tenants out of almost 4 million is a small proportion, equating to well under 2% of all social housing tenants. The consultation questions The principle of charging higher rents The government s case for reform is that, as sub-market social housing rents across England represent an estimated annual subsidy of 3,600, it is unfair to taxpayers and people waiting for social housing that high earners should benefit from this subsidy. Thus, the first question is whether respondents agree with the principle. How to implement change Although the government wants a common approach across the social housing sector, they recognise that differences between local authorities and housing associations will necessitate a different approach. For local authorities, they intend to issue supplementary guidance which sets out a framework to enable higher rents to be charged to certain tenants. Because of the different regime for housing associations, the Secretary of State would have to direct the Social Housing Regulator to amend its standard on rent to cover the changes. Both the direction and the revised standard would be subject to statutory consultation. Respondents are asked whether they agree with this approach and whether landlords should be required, rather than empowered, to charge higher income households a higher rent. The income threshold

4 Views are next sought on the income threshold which would trigger a potential higher rent. The government is mindful of the need to avoid penalising aspiration or creating work disincentives and considers the 80,000 or 100,000 level would be most likely to avoid these disincentives. However, it points out that a maximum household income of 60,000 ( 74,000 in London) is the cut-off point for access to publicly funded low-cost home ownership schemes and consistency would suggest this lower threshold be employed. Views are also sought on the desirability of setting a threshold below 60,000 although this may create stronger work disincentives. In addition to soliciting views on the income threshold, respondents are asked whether the policy should only apply to people whose names are on the tenancy agreement, whether a windfall income such as a lottery win should be taken into account, and whether certain groups such as disabled people or pensioners should be excluded from the policy. The level of higher rents Despite believing there is a strong case for charging full market rents to higher income households, the government recognises this could create difficulties for housing associations; it could conflict with charitable status and/or the objectives of a housing association landlord. Pending further examination of this issue, the government proposes to encourage higher rents at 80% of market level, with the aim of moving to full market rents as soon as possible. 80% of market rent is, of course, the maximum rent allowed for the new affordable rent regime. Respondents are asked for their views on charging rents at 80% of market level; whether there are any practical barriers to charging full market rents; whether market rents would be appropriate in their area; and, if there was a power to charge higher rents, whether their organisation would be likely to make use of it. Disclosure of income As social landlords currently have no powers to require tenants to disclose their income for rent setting purposes rents being property-related - the government is of the view that primary legislation would be required to make the new policy fully effective. In the interim, they will look at the best ways of supporting landlords who wish to charge high income tenants higher rents. They were also look at timing issues, including the income year which would trigger higher rents. Respondents are asked for their views on how best to enable landlords to set higher rents in advance of primary legislation. They are also asked about the practicalities of implementing income disclosure; whether they already have access to tenant income data; and whether their organisation would be likely to make use of new statutory powers of income disclosure. They also asked whether the income year should be the tax year, the calendar year or a rolling year.

5 Tenancy matters for new and existing tenants The issues are different for existing tenants with tenancy agreements which reflect the current rent regime and future tenants who could start with tenancy agreements which indicate the possibility of a higher rent if household income exceeds the income threshold at any point in the future. Even though it is a relatively straightforward process for local authorities to renegotiate secure tenancy agreements, the consultation paper points out that existing tenants rightly have an expectation of existing rent arrangements continuing and would need to be given adequate notice of any changes. The position is more complex for assured tenants of housing associations, where rent increase arrangements are set out in the tenancy agreement and may include limits on future rent increases. Each tenancy agreement is a contract between landlord and tenant and changes would have to be agreed by both parties. Any new system would need to respond quickly to any sudden reduction in household income or example caused by redundancy or any dramatic increase in the household s finances. There would also need to be an appeals mechanism for tenants aggrieved by their landlord s assessment of their income Respondents are asked for their opinion on the practicalities of charging existing high income tenants higher rents; how quickly social landlords could respond to changes in a tenant s circumstances; and whether internal complaints procedures would suffice as an appeals mechanism or whether there should be a uniform appeal system across the social housing sector. Administrative issues and costs The government recognises that collecting additional data on tenants income and assessing rents accordingly will create additional administrative work for social landlords which are not cost free. However, it sees the new policy as an opportunity to generate additional income as well as promoting a more effective use of the social housing stock. Respondents are asked to indicate the level of additional costs caused by the new policy and indicate opportunities for minimising such costs.

6 Use of additional income and treatment of historic grant As indicated above, higher rents for some tenants will create additional rental income and the government is seeking views on how this should be used. Where housing associations have received development grant for the stock in question, developing associations should reinvest the additional income into social housing. However, non-developing associations could be required to repay grant to the Homes and Communities Agency; the situation would become somewhat complex if the property in question reverted to social rent in the future. Respondents are asked to comment on the practicalities involved. Homelessness (Suitability of Accommodation) (England) Order 2012 Suitability of property This section is included for information as the consultation period finished on 26 July and it seems likely that the government will go ahead with the proposals. The draft Order was published for consultation on 31 May 2012 and comes in response to changes in the Localism Act 2011 which enable local authorities to discharge their duty to homeless households by arranging an offer of suitable accommodation in the private rented sector. The proposed Order sets out where an offer is not to be considered suitable but does not apply to temporary accommodation. It covers five main areas: Physical condition of the property - the local authority should be of the view that the property is in a reasonable physical condition for it to be suitable Health and safety matters (e.g. gas, electrical and fire safety) - the landlord must have complied with existing legislation and taken reasonable precautions to prevent carbon monoxide poisoning, for example by installing a carbon monoxide alarm Licensing for Houses in Multiple Occupation - the accommodation is not considered suitable if it is in an unlicensed HMO. Landlord behaviour - the government proposes bringing in a similar test to the current fit and proper person requirements for landlords of Houses of Multiple Occupation.

7 Elements of good management - the landlord should supply an Energy Performance Certificate and a written tenancy agreement Summary of unsuitable accommodation Although the government has rejected an option that local authorities use only accredited private landlords for discharge of the homelessness duty because this would place additional burdens on landlords and councils, it has taken a middle way between doing nothing and extending accreditation. Thus, the Order proposes that private sector accommodation is not suitable under the circumstances set out below. the local housing authority are of the view the accommodation is not in a reasonable physical condition the local housing authority are of the view that any electrical equipment provided does not meet with the identified Electrical Equipment (Safety) Regulations the local housing authority are of the view that the landlord has not taken reasonable fire safety precautions with the accommodation and any furnishings supplied the local housing authority are of the view the landlord has not taken reasonable precautions to prevent the possibility of carbon monoxide poisoning the local housing authority are of the view the landlord is not a fit and proper person to act in the capacity of landlord a House of Multiple Occupation is subject to mandatory or discretionary licensing and it is not licensed the property does not have a valid Energy Performance Certificate the property does not have a current gas safety record the landlord has not provided the local housing authority with a written tenancy agreement which the local housing authority considers to be adequate. Suitability of property s location In the light of some local authorities seeking to house homeless applicants well outside the local authority area, the government is proposing to specify in secondary legislation a number of factors to be taken into account when considering whether a property s location is suitable for discharge of the homelessness duty. The proposed factors are set out below.

8 distance of the accommodation from the applicant s previous home; disruption to the employment, caring responsibilities, or education of members of the household; access to amenities such as transport, shops and other necessary facilities; and established links with schools, doctors, social workers and other key services and support essential to the well-being of the household. Comment Pay to stay It is somewhat of an understatement to say that the full implications of this change of policy have not been considered. It is apparent from the numbers quoted in the consultation document that there are a very small minority of social housing tenants who fall into the category of high income. Thus, a major change in the principle of rent setting - that rent should be set on a personal, rather than a property basis - is being proposed to deal with very small numbers. Quite apart from the difficulty of defining income, particularly for self-employed people or those paid by a company set up for that purpose, keeping track of income changes and devising a rent setting system which can respond rapidly to changes in circumstances is likely to be complex and costly. Unless social landlords are compelled to implement the policy, rather than be empowered to, it seems likely that most will do a cost benefit analysis and conclude that the costs outweigh any potential benefits to the organisation. A further disincentive for non-developing housing associations is the potential repayment of social housing grant. Therefore, it seems unlikely that many landlords will have to consider how to spend additional income arising from the policy. The government itself admits in the consultation paper that it will need primary legislation to effectively implement disclosure of income by social housing tenants and one must question whether parliamentary time is likely to be available for a measure affecting such a small proportion of tenants. Homelessness (suitability of accommodation)

9 Given that the government does not intend to restrict local authorities to using only accredited private sector landlords for the discharge of the homelessness duty in the private rented sector, the factors which they propose would make an offer unsuitable are probably the right ones, although they could be strengthened in several instances, for example on property condition. The highlighting of the suitability of location of the property seems to be in direct response to some local authorities, particularly in London where private rented property is expensive and in short supply, proposing to house homeless households well outside their area. The location criteria proposed are desirable but will not increase the supply of affordable private sector homes in areas of shortage. For more information about this, or any other LGiU member briefing, please contact Janet Sillett, Briefings Manager, on