Rachel Reeves plans to build ‘affordable housing’ by making existing housing more unaffordable

Chancellor Rachel Reeves plans to increase social rent for council and housing association tenants in order to pay for new affordable housing.

Rachel Reeves’s idea is backwards

So Rachel Reeves is essentially making existing social housing more unaffordable for the least well off in order to build whatever they brand as affordable housing. As well as being a reverse Robin Hood policy, this can only increase the benefits bill for the government. 73% of social renters already claim legacy housing benefit or that element of universal credit (2.9 million out of 4 million). This means the move makes little sense on its own terms.

Homes not assets

Unlike Rachel Reeves’s plan, the real solution is to stop treating houses like assets and start treating them primarily as necessary shelter.

Of course, private rent is even worse (social rents are 64% more affordable). But given the housing market is a bubble of artificial scarcity, it’s a false comparison. In the UK, we have only used 5% of land for homes and gardens. If social rents, which are still large regular payments, must provide thousands in passive income for landlords every year, that should pay towards ownership for the tenant.

From 2000-2019, housebuilders profit per house sale rose by £75,000, according to research from Brunel University.

Landlords, meanwhile, make monthly profit while, in the current market, the value of the house itself only increases over time. As long as the cost of building and designing is covered by the prospective owner through affordable payments, we can remove profit and rent leeching from this human essential.

Low, short term rents through a programme like Air B&B can provide flexibility for those that want temporary accommodation.

Instead, Reeves plans to introduce a ten year formula for increasing the passive income of social landlords. Social rent will increase every year by CPI inflation plus 1%. The Conservative government introduced a similar policy in 2012. But even George Osborne reversed it in 2015.

As well as increasing the benefits bill for government, Reeves’ policy means social tenants will have less disposable income to spend in their local economy.

Featured image via The Mirror – YouTube