Councils as private landlords will become the largest UK landlord type as a result of the Conservative housing policy released last week. The creeping privatisation of publiced sector rent housing has received a jet-propelled rocket in last week’s Social Housing Green Paper (SHGP) which is the Tories housing policy.
Councils as private landlords will eclipse the PRS landlord, eclipse the HA landlord and eclipse the council public sector landlords by number of properties they manage and do so by the private landlord construct called LHC – Local Housing Companies – and within 15 years time. No, I haven’t lost the plot. I am merely stating with a very high degree of confidence that this is the inevitable consequence of the Social Housing Green Paper (SHGP) released last week by the government. My conclusion is rational not speculative, sensationalist or scaremongering; it is merely a case of stating the bloody obvious.
LHCs – What they are.
The SHGP on page 71 defines a Local Housing Company as “independent commercial organisations wholly or partly owned by local authorities to buy, develop or manage properties.
In words a council owned private landlord company.
The SHGP has a section on LHCs starting at paragraph 154 which states they are the governments preferred vehicle for English local councils that have transferred their former council housing stock to housing associations.
Two quick points are very important in (a) the LHC vehicle is the ONLY option for such councils as government does not allow them to borrow against assets to develop housing; and (b) around 60% of all English councils have transferred their former council housing this way thus some 200 English local authorities are ripe for LHC
Liverpool City Council is one that has transferred its council housing and it has set up a LHC called Foundations and it aims to have over 10,000 properties within a decade that would make it the second largest landlord in Liverpool. The London Borough of Barking & Dagenham (LBBD) aims to have 42,500 properties under management within the next 13 years clearly making it the largest landlord there and this LHC model is in place in over half of English local authorities already having been permissible since the 2011 Localism Act.
To date the LHC vehicle – the council owned private landlord company – has seen English LAs dip their toes in the water and nothing more with the LBBD example being the exception rather than the rule. However, the blatant promotion of LHCs in the Green Paper (it has its own named section starting from paragraph 154) and the very much changed LA housing context since 2011 means that the LHC model will become greatly expanded and become the norm across England and especially in the almost two-thirds of English local authority areas that do not have any council housing.
ALL these councils still hold and cannot escape their mandatory legal housing and homeless duties despite having no housing stock and ALL of them are desperate for more housing stock to fulfil these legal duties and at a much reduced cost as ALL of them are at the financial mercy of the private sector who charge them the proverbial “arm and a leg” for temporary homeless accommodation such as HMO and B&Bs.
Additionally the LHC vehicle not only saves each council money in terms of homeless duties, it also provides a significant income-generation opportunity for all councils as they can via this private landlord vehicle and construct charge full market rent as other private landlords can (and also effect no-fault evictions at whim given the lack of security of tenure.)
LHC – Why this is inevitable and stating the obvious ££££!!
As always money talks and to illustrate that with the Foundations LHC in Liverpool we see typical average monthly rents in Liverpool are:
- Social Rent by housing associations £375
- Affordable (sic) Rent by HAs £500
- PRS average rent £625
Foundations LHC can therefore charge a monthly rent of £375 or £625 which is a difference of £250 per month and £3000 per year. That £3,000 per year across 10,000 properties is £30 million per year and a huge difference and one obvious reason why the market rent of £625 per month will be charged.
Secondly, the rationale of Foundations or its business plan is to generate as much profit as possible in order to reinvest in more and more properties and so it will, without doubt, be operating full market rent levels to achieve that aim.
Liverpool City Council, the owner of Foundations, has a housing strategy aim of a further 30,000 properties in the city by 2030 too and so Foundations LHC creating as much profit as possible by operating market rent levels means that the corporate aim of the council to have 30,000 more properties is more easily achieved – not forgetting the cost savings to the council in terms of mandatory housing and homeless duties.
Other (inevitable) implications of LHC
Keeping with Liverpool City Council and Foundations to illustrate we will see many knock-on effects from housing association landlords and private landlord to it becoming the second largest landlord there. (The same responses will happen in all such areas.)
Housing associations will have a huge scale competitor and one that is well funded and one which gets far more in rental income than they do and HAs will want a slice of the same pie and, by response inevitably, internally transfer ever greater percentages of their existing stock from social rent or even affordable (sic) rent bases to their private landlord arms in order to increase income.
That also has the obvious consequences of there being less accommodation for those in genuine housing need and overall average increases in rent that will not be reflected in increases in housing benefit and specifically its private sector local housing allowance version. Between 2010 and 2017 average private rent levels increased 19.8% while average LHA increased by 0.4% over the same period
It also means more tenant poverty, more arrears, more evictions, more HA refusals to accommodate those in housing need and much more homelessness … which then leads to more properties needed and gained by the LHC … that in turn forces a greater percentage of existing social housing to convert to private rented … which in turn creates more homelessness … which begets the LHC getting even bigger – a truly vicious circle if ever there was!
Yet the more this vicious circle increases the more money that local councils will save on homeless accommodation costs and the more income that will be generated for each local council as their LHC property numbers increase further. The profits now made by private landlords letting temporary homeless accommodation to local councils will see those existing private landlords become the private landlords owned by councils.
In short the LHC model and its ramped-up steer in the Tory SHGP is a financial no-brainer for every local council to develop new and/or ramp up their existing Local Housing Company.
I have no need to complicate the above with many other contextual factors such as many existing private landlords are wary of continuing to operate because of tax changes (s24) and other matters that is seeing them deciding to sell up and who will buy these properties … that would be the council owned and managed LHCs!
ALL local councils without council housing are also angry at the way housing associations treat them (a very key factor) and the fact that HAs increasingly refuse to accept homeless nominations and many other tensions such as how the HA sector went to government with the plan to force councils to sell off assets in order to pay for housing association VRTB discounts … a policy that the housing sector got really bored of me saying it would undoubtedly come back to bite them on their arses1
The LHC vehicle blows housing associations out of the water in terms of housing position and influence as local councils private landlord companies – the LHCs – will inevitably do that. Take the views and facts above and do the simplest PEST analysis and you find:
Political – the LHC model is the Tory attempt to deny the Corbyn Labour housing model of the return of council landlords as social landlords and it does that and so the Labour Party needs to see this urgently.
Economic – the council LHC construct saves local authorities money in homeless costs and provides an income-generation stream to boot! Happy LA days
Social – When homelessness increases as it will then councils save more and increase their income (see Economic above)
Technological – For years the Tory want for the housing market has been private institutional investment with Pension Funds urged to get involved and a myriad of large private companies have also been urged (and refused) to do so such as Legal & General, Direct Line, Tesco and seemingly bucking this trend Lidl the German low cost supermarket who this month announced they are entering this housing market.
Now there is no need for that long-held Tory desire and strategy as local councils are set to become this institutional private investment vehicle through LHCs! The end of the 1948 Welfare State concept of public sector housing to accommodate those in housing need is what the LHC vehicle will do.
A few other factors require a mention. Firstly, the “welfare” bill will increase as more is paid out in housing benefit. Second, there will be a far greater number of tenants who will have the curse of no-fault eviction over their heads as LHCs are private landlords and thus will use Assured Shorthold Tenancies (AST) as their tenancy document. Thirdly, these LHCs will (probably) also charge the same letting fees that existing private landlords operate.
For further and detailed background to the LHC issue I wrote a piece about this in March 2017 here and this reveals how many local authorities have already set up a LHC, a trend that will be jet-propelled with the strong steer in the Tories SHGP.