At least 14,000 fewer affordable homes will be built to as a result of the Budget, the Government’s own financial watchdog has warned.
Although council and housing association tenants were rewarded with a 1% cut in rents unveiled by George Osborne, the Office for Budget Responsibility worked out that the resulting loss of income would mean less housebuilding.
And the National Housing Federation estimated that the £1.45bn hit to housing association and town hall budgets could mean as many as 27,000 new homes will not now be built.
The reduced homebuilding projections came as housing charities attacked cuts in housing benefit, as well as ‘pay to stay’ plans to force some tenants to pay market rents.
Critics also claimed the 1% cut in rents was geared at saving cash in housing benefit.
In a bid to win yet more ‘working class Tory’ votes, the Chancellor trumpeted his surprise reform today as he attacked housing associations for ‘staggering’ rent rises of recent years, with some increasing by upto 20% since 2010.
As recently as 2013, Mr Osborne had set a 10-year plan to let social housing rents rise by 1% above inflation, but today he changed tack markedly by forcing a 1% cut in rents for four years.
“We are also going to end the ratchet of ever higher housing benefit chasing up ever higher rents in the social housing sector,” he said.
“This will be a welcome cut in rent for those tenants who pay it and I’m confident that housing associations and other landlords in the social sector will be able to play their part and deliver the efficiency savings needed.”
Shadow Chancellor Chris Leslie told The Huffington Post UK: “In this particular Budget, if there’s one gaping hole it’s in action on new housing. And I suspect it will mean going backwards rather than forwards on new home construction.”
The Office for Budget Responsibility issued its own verdict today, and calculated that the change “will directly reduce social landlords’ rental income, and therefore their financing for, and returns to, investing in new housebuilding”.
“To reflect this we have reduced our forecast for residential investment, proportionate to the expected reduction in rental income.... Over the forecast period, our assumptions suggest around 14,000 fewer ‘affordable homes’ will be built,” it said.
TUC General Secretary Frances O’Grady told HuffPost: “It’s a terrible budget for families who need an affordable home. The Chancellor announced new rent rules for housing associations that will reduce the funds they have to build with.
“The OBR says this will result in thousands fewer affordable homes being built each year. And house price inflation is forecast to increase faster than wages, putting home ownership out of reach of more workers.”
Gill Payne, director of external affairs and policy at the National Housing Federation, told The Huffington Post UK: “Increasing the supply of genuinely affordable homes, to rent and buy, is a key part of ending the housing crisis. Housing associations already build 40,000 affordable homes every year.
"They have the appetite to do more and want to work with the Government to meet its housing ambitions. But, as the OBR recognises, this measure will make it much harder for them to do so.”
David Orr, chief executive of the NHF, said that the rent cut was welcome for some tenants but would “massively constrain” housing associations’ ability to drive housing growth and new jobs.
“At the very least 27,000 new homes will not now be built, though that figure could be much higher. The right to buy for housing association tenants further compounds this,” he said.
A Treasury spokesman was robust in response to the criticism, stating that with just 5% efficiency savings the money lost in rents could be absorbed.
"Housing associations have been immune from efficiency savings in the public sector over the past five years. We estimate that if they cut management costs, like high pay, they can save £250m," he said.
One Government source added that many Housing Associations were sitting on surpluses that could be used to cushion the changes.
Some on Twitter suggested alternative solutions that the Chancellor could have provided.
1% reduction in rents for next 4 years announced in budget today will affect housebuilding, but capping PRS rents would be more effective?— Louise Dunne (@DrLouiseDunne) July 8, 2015
George cuts social housing rents by 1% to reduce HB Bill but doesn't cap private sector rents, he is such a TurnipJuly 8, 2015
Social landlords have to cut rents by 1% a yr to save housing ben bill - but govt doesn't support rent control +private sect bgst HB burden— Andrew Johnson (@andyjey) July 8, 2015
Terrie Alafat, chief executive of the Charted Institute of Housing, said: “We understand the government’s desire to manage the cost of the housing benefit bill – but undermining their income by cutting social housing rents by 1% a year over the next four years is going to make it much tougher to build new homes at a time when we desperately need to do so.”
She added: "Our housing crisis means that millions of people have no choice but to rely on housing benefit to secure a roof over their head – including an increasing number of people in work, which has more than doubled from around 445,000 to just over a million in the last five years. And cutting the benefit cap risks making large areas of England unaffordable for larger families on benefits."
Policy Exchange, the right of centre think tank, said: "Reducing rents in Social Housing in England by 1% over 4 years will mean that Housing Associations and Local Authorities will have to deliver efficiency savings to pay for it.
"It has already been noted in the last Parliament’s round of cuts that more efficient councils will find it harder to realise these (by definition, they had less fat to trim). The same will be true in this Parliament, and how different Local Authorities approach this exercise will be closely watched."