How to fix the housing crisis – before we’re bankrupt

David Taylor, Councillor, London Borough of Havering

Over the last 3 years' it has become clear that the slow dismantling of the private-rented sector (PRS), and the freeze of the Local Housing Allowance (LHA) is crippling local government. Havering council is months away from bankruptcy and both policies are playing a part. 

The financial crisis that has engulfed this council didn't happen overnight. It's the result of a series of unfortunate events and missteps that have left the council scrambling to stay afloat.

In April 2020 an apparently Conservative government decided that there needed to be an increase in taxes on landlords. The idea was simple, mortgages were no longer tax-deductible. The impact on the PRS was huge and it’s lead to thousands of homes no longer being available for affordable rent.

With a deposit of 35% for a buy-to-let in the borough, a landlord is looking at a mortgage of around £170,000 and rental income of around £1251 a month. At current rates, after paying a mortgage, the landlord is going to walk home with a little over £100 ‘profit’.

Even with a mortgage at half the cost, a profit of £600 is going to then have 40% of it taken away by the tax man.

Would you want to be a landlord, to a social housing tenant, for an extra £200-£300 a month?

Representatives from the National Association of Property Buyers estimates that as many as 100,000 PRS are quitting the market every year. [1]

Between 2019-2020, Havering council 240 Havering residents were able to find a PRS property through the council’s ‘find your own’ scheme. That figure is now down to 150, 90 families that Havering now needs to find homes for.

This new tax on landlords has stripped the market of available homes to rent and pushed the burden directly onto local authorities. In 2019 Havering had just 3 hotel bookings for residents, a figure that is now at close to 400.

Just for a moment, consider the cost of that to the Borough, to local taxpayers, in a borough 6 months away from bankruptcy. Havering is spending close to £4m a year on hotels, whilst have to make difficult decisions to cut spending on special needs support.

The Local Housing Allowance (LHA) freeze has made things even worse. Had there been properties available they would not be affordable.

LHA, or ‘housing benefit’ for a 2 bed home was at £1147 a month after the 2020 uplift. With Havering’s average rent for a 2 bed being £1189, families had to find just £42 a month in order to rent a home.

That figure is now as high as £350 a month, something unachievable for our most vulnerable and a problem that is again adding to the pressure of local authorities. Unable to afford to rent on LHA, Havering council is having to house these residents I hotels and B&Bs.

Compounding on that problem is the fact that Havering has a rapidly growing young population, with a 15% growth in under 18’s between the last two censuses. It means we’re growing fast, a lot of our population are not I the workforce, and the most vulnerable are being placed in unsuitable hotels and B&Bs.

This isn’t just a Havering problem. It is one that is reflected across the whole of the UK and it’s one that should have been predicted had the government been paying attention.

It was always going to be the case that over-taxing landlords and increasing red-tape around evictions would cause many to leave the market. Perhaps someone in Whitehall calculated for this and came to the conclusion that the increased tax revenue, if there was any, was worth it?

Perhaps the same Whitehall team also calculated a massive saving by freezing LHA at 2020 rates, despite there being clear evidence of dwindling supply meaning rising costs.

I’d like to meet that Whitehall team, or Number 10 team, and I’d like to ask them what they thought the impact would be on local government. Did they think that local authorities had the capacity to pick up the slack? Did they think that there was a glut of social housing available in places like Havering?

Unfortunately, it looks like the Conservative government has pursued an un-conservative policy. By ignoring the reality that raising taxes stifles investment, they pushed on. They pursued socialist policies that pushed people away from the private sector and into the arms of the government.

“I’m from the government, I’m here to help”, we all know the joke. The problem is that it isn’t a joke. Local government can no longer help, it cannot foot the bill. We are now at the point of stripping back on special needs provision.

Labour, and others, will tell you that the solution is simple. “build more homes”. But this ignores a very important fact. People can’t live in a housing target.

Building more is a long-term solution and one that no government ever seems to achieve.

We need an urgent fix.

We must get private landlords back into the market, by reintroducing mortgage tax relief and reducing red-tape.

We must also unfreeze the LHA, so that the burden no longer falls on local authorities.

In a few months time, Havering council may find itself calling in Government bods. Should they arrive, they will find a mess of government making.

£4m a year a is being spent housing Havering’s most vulnerable in hotels and B&Bs. That’s crippling.

*for the number geeks amongst you. Havering has 388 hotel bookings. If all of these needed a 3 bed home, the required rise in LHA would be around £2million a year. Half the cost of keeping the families in hotels.