Birmingham’s largest private social landlord may have to cut its building programme by as much as 80 per cent following the cuts announced in the Comprehensive Spending Review.
Housing and care organisation Midland Heart, which manages more than 12,000 homes in Birmingham alone, said the reduction of the social housing budget from £8.4 billion to £4.5 billion for 2011 to 2014 would have a devastating effect on its customers.
“I watched the CSR at home with the flu and by the end I was feeling quite ill,” said chief executive Tom Murtha. “We had been expecting cuts of around 25-30 per cent but it looks more like around 60 per cent – in fact it was the communities department that has suffered the biggest cuts.”
Under the new proposals the coalition said it will still provide 150,000 social homes in this parliament by utilising what it describes as “under-occupied” properties as well as changing rent rules to provide more revenue for social landlords and local authorities. However, Mr Murtha believes the policy is fundamentally flawed.
He said: “Funding for new business has traditionally come from a capital grant. The social housing grant is a subsidy that helps towards the cost of everything from acquiring land to building out the scheme and would account for between 40 and 50 per cent of the cost with the rest borrowed from the banks. A subsidy has been the only way to create social housing.
“The Government has tried to offset this by allowing housing associations to increase rents to a maximum of 80 per cent of the market rate, the argument being that if you can bring in more rental income then you can borrow more and will need less capital grant.
‘‘However, if you look at the figures then it is a calculation that only really works in London. It would seem the Minister has done work with London-based organisations because further north where there is not a huge gap between rent levels, the opportunity to raise revenue is just not there. There is no doubt that under these proposals, London will gain and Birmingham will lose.”
Midland Heart manages 32,000 properties across the region as well as providing other services including direct access, hostels and extra care for the elderly.
It has 1,500 staff and a turnover of £150 million and has invested around £100 million over the last three years. The company has 500 homes on site at the moment with assets of around £1.4 billion and is involved in some of largest building projects taking place in the city including the Crocodile Works in Newtown, a scheme for the elderly in New Oscott and a project at Snow Hill.
Mr Murtha said that while details would have to be thrashed out, it was inevitable the company would have to scale back its capital programme.
He said: “We had been liaising with the National Housing Federation for some time prior to the announcement and while there was a recognition of a need for cuts, it seems clear from what we do know that it is the poorer members of society that will suffer. It is these people that tend to be our customers. We are certainly planning a major reduction in our capital programme that will see our current output of 500 homes a year reduced to 100.
“In Birmingham that means a lot less new building, leading rents to increase and, if we are not providing new stock, then we can’t provide homes to those people in need.
“If rents do increase beyond people’s means then this means there will be even more people becoming homeless. And all this is happening at a time when the waiting lists in Birmingham for people looking for a decent home is growing and growing.
“Families become the hidden homeless, living with other families or wherever they can, with no roof of their own to bring up children. Down the line it is these families that tend to become in greater need of the state in terms of issues like health and education.”
Mr Murtha said Midland Heart had worked hard to protect itself from the worst of the cuts.
“We are financially viable and maintaining the service to our customers is hugely important to us,” he said. “We have already made significant efficiencies over the past two to three years and taken around £10 million out of our own cost base so we have been better prepared for the cuts than some.”
Chief executive of the Accord Group Chris Handy said the coalition’s approach would do little in addressing the issues at hand.
He said: “The halving of the social housing capital programme is a huge shock at a time when we need to be building more homes, not less. Waiting lists are growing and the sector has new customers who cannot buy a home because they can’t get a mortgage or do not have a high enough deposit.
“The suggestion that ‘social housing has failed to address the needs of the country’ is bewildering when, just by way of example, in Birmingham alone it provides important and crucial housing through the council to over a quarter of the population of the city. How is this a failure, surely it’s a massive success?
“I welcome the greater flexibility of rents but I’m equally worried that the groups whose needs we meet will not be able to afford rents which are 80 per cent of market value.”