Give away now, pay later

A couple of months ago I blogged about the suggestion that shared ownership could help lower the housing benefit bill. I was sceptical. Shared ownership is generally inaccessible to households reliant on benefits and those with low and variable earnings would struggle to access the mortgage required.

I originally concluded that the only way it could “work” would be if the shares were gifted for free. But that sounded so farcical – and liable to give people bad ideas – that I deleted it from the blog before publishing.

Well, various media reports suggest that the comprehensive spending review is going to take us through the looking glass.

DWP is apparently scoping out a project to gift social tenants a share in their home, potentially up to the value of the full right to buy discount. This would overnight transform social rented homes into shared ownership – and cut the rent paid for by housing benefit.

Iain Duncan Smith has floated a similar proposal before, where tenants would be gifted an entire house for coming off benefits. But now with the housing benefit bill apparently his short-term concern, the work incentive has gone out of the window.

Now, Shelter has argued for some time that the reason the housing benefit bill has risen is because more low income households are living in the private rented sector. This is due in part to a shortage of social housing; and also that rising rents mean private renting has become more expensive and made more working households reliant on housing benefit.  The long-term solution to a rising housing benefit bill is to invest in genuinely affordable rented homes that would enable those in work to pay the rent independently, reduce the costs for those unable to work, and provide a low cost base from which people could save up for homeownership.

It’s fair to say this idea hasn’t gained much traction with the government. It’s seen as too radical, too expensive, too long-term.

And yet, giving a household a sizeable share of their house for free is suddenly on the table as a credible response to rising housing benefit?

In the long-term such an approach would seriously deplete the stock of social rented homes, driving the next generation into the high cost, insecure private rented sector. One-off give aways are by definition one-off; this generation benefit from a free equity stake, the next are unable to afford it. Councils may have the right to buy back shares but this would be hugely expensive. Instead, much needed homes would be sold on the shared ownership market; a boost for oversubscribed shared ownership schemes but of no use what so ever to those on low incomes who cannot afford to purchase a share.

I also question whether the offer is as attractive as it sounds for the tenants. There is after all a reason that the existing right to shared ownership scheme (where tenants buy a share with the help of a discount) hasn’t really taken off. Shared ownership can be attractive to private renters as it enables them to access the security sorely lacking in the private market and get a toe hold on the housing ladder. But its appeal is more muted for social tenants – who of course already have the opportunity to access the generous right to buy scheme.

Social tenants already have security, at least for now, so a free equity share doesn’t change that right. It does impose a painful new responsibility – repairs. The government estimates that social landlords spend £1,000 per property annually on repairs, but this can spike hugely with major repairs. The government are not indifferent to this. The former communities secretary Eric Pickles warned that the stress of an unexpected repair bill contributed to the death of one elderly right to buy owner, and introduced a law in her memory. This will still leave new shared owners vulnerable for multi-thousand pound bills. How on earth are households on benefits expected to stump up for that?

Perhaps the government hope that the equity share will encourage tenants to increase their earnings and staircase to a larger share? But, if they cannot afford to exercise right to buy how how will they be able to afford the remainder of their property? Theoretically the new shared owner could attempt to sell and move to full ownership in a cheaper area, but that still requires them to qualify for a mortgage. The government are desperately trying to ignore the fact that home ownership is unaffordable.

The sums simply don’t add up. Instead, the equity share simply reduces the rent, which sounds great, but as the IFS pointed out, is actually pointless if you’re covered by housing benefit anyway. Meanwhile mobility grinds to a halt, as shared owners cannot transfer in the same way as social tenants and many schemes are not open to existing shared owners.

Bluntly, the money only becomes useful when they die, and the tenant/shared owner’s estate gains from a small inheritance. For some children, that might be welcomed and enable them to access shared ownership or a full mortgage. But for those on lower incomes it will do nothing to counter the fact that their generation has been denied the chance of a secure, low cost home.

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One Comment
  1. In housing law and policy the government appears to be on an overdose of steroids but with such disconnected outcomes it is producing a bizarre patchwork of inane ideas.

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