Housing: New tenants face soaring rents to fund construction

Housing groups reacted with shock to the news that rents for new tenants in council or housing association homes are likely to soar when the cuts take effect.

George Osborne announced that they will be charged at "80 per cent market rate". The National Housing Federation calculated that as a result, tenants who move into a three-bedroom property will be charged an average of £250 a week – current rents are just £85 a week. The idea of increasing rents is to shift the cost of paying to build new social housing from the Government to the tenants.

At present, the Government subsidises this form of house creation by an estimated £87,000 per unit of housing. Mr Osborne has decided to cut that amount by 60 per cent, in the hope that councils and housing associations will be able to borrow to make up the difference and repay the loan from higher rents.

He believes that the amount raised will pay for 150,000 new affordable homes in four years. But critics say this runs counter to the Government's declared aim of trying to make council and housing association tenants more mobile.

David Cameron has declared that he wants to end the tradition of a council tenancy being for life – but people who already have tenancies will go on paying lower rents, giving them a powerful incentive to stay put.

The Treasury said yesterday: "The Government wants to make social housing more responsive, flexible and fair so that more people can access social housing in ways that better reflect their needs."

Mr Osborne said that despite the sums invested in building social housing under Labour, there were fewer properties for rent in 2009 than in 1997. One of the problems he hopes to counter is the growing number of tenants relying on housing benefit. In the 1970s, 11 per cent of families in council houses had nobody in paid work. By 2004, this proportion had risen to 69 per cent.

The Labour MP Nick Raynsford, a former local government minister, said: "They are not making social housing flexible, they're making it unaffordable. They risk turning council and housing association estates into ghettos for people who claim housing benefit."

David Orr, the chief executive of the National Housing Federation, said: "The fact that the housing budget is being cut by 60 per cent is deeply depressing – and shows that providing affordable housing is no longer a government priority.

Case study: 'We won't be able to afford to live in a council house'

Sally Graham, 45, from Northfleet, is on a waiting list for a council house. She cares for her disabled son, Jake, 12, who has muscular dystrophy, as well as her other two children, Harry, 14 and Lucy, 10.

"I have been waiting to get into a council house for a while, but I'm no longer sure I will be able to afford it when I get there," she said, in light of George Osborne's announcement yesterday that new council house tenants will be charged 80 per cent of the equivalent commercial rent rate.

"After my husband left two years ago, I fell behind on my mortgage repayments and, despite my best efforts to stop it happening, the house was repossessed. The council were great and managed to get me into temporary accommodation that suited my son Jake's needs.

"I thank God that I even have a roof over my head, but a rise in council rents to the kind of level they are talking about would really make life difficult. I would have to give up or cut back on anything that could be considered a luxury, like going to the cinema or leisure centre every now and again.

"As a full-time carer, those kinds of things represent a much-needed respite, not only for me but for my other two children."