Housing finance is notoriously difficult and dull, so let's strip it back to its essentials: to cover the costs of building houses you can either pay a lot upfront to cover the initial costs or borrow that money and pay the loan off by hiring it out on a periodic basis. The smaller amount of money you sink into the scheme upfront the higher the periodic charge. This is not rocket science.
Since the late 1980s, we've not had 100% capital subsidy for social housing - indeed, housing associations have bid for funding partly on the basis of how little capital monies they need to deliver any given project. Naturally, the first result of this system was to send rents - the 'periodic charge' - through the roof in the early 1990s.& high rents do tend to produce very high Housing Benefit bills.
So a decade or so ago the government introduced a system of 'target rents' which apply to both council and housing association rented stock. Basically, this system sets the rent of any given socially rented property, new or existing, in accordance with a formula based on the size and value of the property and relative local manual wage rates. So this reined in the tendency to produce low capital subsidy/high rent schemes.
The Tories have decided to rip this system up: they want rents to be capped at 80% of the local market rate for all incoming tenants, even those going into existing social housing, which has enjoyed past capital subsidy. This is laughably called 'affordable'. Public capital subsidy is being reduced to more or less nothing. The promised 150,000 new 'affordable' social tenancies are supposedly going to be financed primarily from either these higher rental streams or via loans mobilised by big housing associations on existing stock where previous capital subsidy means the debt is now largely paid off.
Wake up at the back there - I know this is boring and detailed and rather more than you perhaps want to know. So let me put this in context: this means that rents for a two bedded socially rented property in Islington would rise from £91pw to £232pw: a three bed social rented house in Cambridge would go up from £93pw to £128pw. I can only assume that the application of the word 'affordable' to such rents is some kind of sick joke.
& what's more this means that the Housing Benefit bill is going to go up, not down. The housing associations' trade body is saying that, in Hackney, you'd have to earn £54,000 to escape HB eligibility and be in a position to keep the bulk of your additional salary and be better off in work.
For all the dull, grey complexity of housing finance it really is that simple: higher rents= deeper benefit traps for wider numbers of people. No amount of huffing and puffing about a Universal Credit is going to change that.
Nor is this simply a problem for the minority of the population who live in social housing. House prices are now such that it is increasingly difficult for people to get their foot on the ladder. A new report from the Home Builders Federation puts this pretty graphically:
"...the average first time buyer (FTB) would have to save every single penny of their earnings for more than two years to have a chance of getting a foot on the housing ladder. In London it would take three years.So rents matter: even if you're in the 70% of people who are currently home owners your children are probably not going to be any time soon if they live in London and the SE.
Even over five years, young people have to save almost half of their take home pay every month to save a deposit for a house, with some areas even higher."
Addendum: the definitive explanation of the impact of the Housing Benefit changes, found in possibly the most unlikely place on earth for sensible comment, CIF.