Around 250,000 households could have to pay an extra £3,000 a year in rent as a result of a new government social housing policy, claims an economic think-tank.
The government announced in the July Budget that from April 2017 tenants in social housing on incomes above £40,000 in London and £30,000 in the rest of England will have to pay more money if their rents are below market value.
The Institute of Fiscal Studies said that if rents jump straight up to market levels when income reaches the threshold, people earning £1 more could end up paying £3000 a year extra in rent.
This could create inequitable and “perverse incentives” as any pay rise crossing the threshold could trigger a rent increase costing thousands.
The IFS said increasing rents gradually as incomes rise above the threshold would be more sensible.
The introduction of Pay to Stay could also result in higher-income social tenants leaving the sector if they choose to exercise their Right to Buy, reducing the economic diversity among social tenants.
Meanwhile, the government’s plan to reduce social rents by 1% a year over the next four years will be of little or no benefit to social renters and could also harm the housing supply, according to the think-tank.
The IFS said that the majority of households living in social housing have low incomes and already receive housing benefit that covers most of their rent.
The policy will see a transfer of money from social landlords to the exchequer, rather than to social tenants. As rent price falls, housing benefit will typically be reduced pound-for-pound.
It is estimated it will boost Treasury coffers to the tune of £1.7 billion, compared to £0.7 billion for tenants.
Most worryingly, it could also damage the housing supply. By reducing the income of social landlords by £2.3 billion, the cut could see the amount of new housing fall. This could result in 14,000 fewer social sector properties being built over the next six years as a result.
Robert Joyce, one of the report’s authors, said recent policy on social rents displayed “a worrying lack of consistency”.
“The government had committed to increasing social rents for ten years, but after just one of those ten years, it announced that rents will instead fall for the next four years. This instability could damage the ability of social landlords to plan and finance new house-building.”
