Investing in homelessness: Why buying is better than leasing

Published: 27 May 2020

A model house with a set of keys beside it.
Purchasing homes for those on the streets makes economic sense and is a means for the pandemic to leave a positive legacy. 

By Robert Pollock, Director, Social Finance and Member of the LGiU Local Government Homelessness Commission (2019)

The lockdown has brought around 3,700 rough sleepers off London’s streets, and 5,500–6,000 across England as a whole. Many are living in hotels, B&Bs and hostels, and many are receiving support. This is a significant achievement under demanding circumstances and we should applaud the work of councils, charities, Clinical Commissioning Groups (CCGs) and the Ministry for Housing, Communities and Local Government (MHCLG).

One of the biggest challenges — to engage rough sleepers and bring them indoors — has been resolved, but only temporarily. This presents an extraordinary opportunity to provide a stable home for every rough sleeper that wants one. We need to act quickly though. As the lockdown lifts many will return to the streets. We will miss the opportunity for a step change in the numbers of rough sleepers — and the alternatives will take much longer and be more costly.

Buying homes now is not only the most effective and best value-for-money solution to the rough sleeper crisis, it’s also a means for the pandemic to leave a positive legacy of new social housing.

Ambitious government action

The government recognises the urgency. In late May it announced an ambitious £433m funding package to secure 6,000 new homes and provide support services to end rough sleeping this Parliament.

Clearly the appointment of Dame Louise Casey to lead the Covid Rough Sleeper Taskforce has provided the impetus needed. She is uniquely placed to bring together local authorities, homelessness charities, housing associations, social investors, landlords and central government to work through the complexities the pandemic has created for this historically underserved cohort.

The challenges are significant. Local authority budgets are stretched. Many of those currently housed in emergency accommodation have no recourse to public funds (NRPF) — which means under normal circumstances they cannot claim benefits and homeless assistance. Across London alon e around 900 individuals in emergency accommodation have NRPF.

Many also expect a surge in homelessness due to the economic impacts of Covid as rents and mortgage payments become unaffordable for furloughed staff and the recently unemployed. There is also the social impact the lockdown has had on family breakdown and domestic violence.

While our focus is on homes for rough sleepers, for them and the much larger numbers of homeless there is clear consensus that the supply of affordable accommodation is the biggest issue. Again, the government has acted decisively; in January announcing the end of the four-year Local Housing Allowance (LHA) freeze — now increasing annual by CPI — and in March restoring LHA to the 30th percentile of local rents, in effect catching up the ground lost during the freeze.

Nonetheless, there are still a significant number of places where there is insufficient housing available that is affordable at LHA rents, whether from the private rented sector (PRS), councils or Housing Associations. Some innovative charities such as Jimmy’s in Cambridge are using modular homes (below) as part of the solution.

To meet the scale of demand needed to secure the government’s target of 3,300 homes for rough sleepers in 12 months we need to find new sources of affordable rental property. Speed is of the essence and the properties need to be dispersed to avoid dense concentration of ex-rough sleepers in large facilities or specific localities.

In London, Capital Letters — a local authority-owned company — can help to secure rented accommodation from the PRS. Most private landlords require a substantial top-up in addition to LHA, which can range from £5-£9,000 per person per annum in London. Many don’t want to rent to rough sleepers. If they do, standard short-term leases can present a higher eviction risk and do not provide the stability many rough sleepers need to support their rehabilitation.

We already know buying works

There are other options. Real Lettings, backed by local authorities and social investors, and managed by Resonance and St Mungo’s, offers long term security for homeless tenants. While the new Social and Sustainable Housing fund provides patient finance so that charities, like Jimmy’s, can purchase property to offer accommodation to their clients.

Using loan finance to purchase property has a track record — many of you reading this may have a mortgage. It’s also very familiar to local authorities. Over the last five years, as an alternative to paying higher rents to private sector landlords, the London Borough of Enfield has borrowed to invest £120m in over 500 units of affordable accommodation for vulnerable families and individuals. Enfield has saved over £5m from its homelessness budgets as a result. There are many other successful examples across the country.

Long-term borrowing rates for local authorities are at historic lows of 1–2%. That’s cheap enough for them to buy, refurbish and manage properties and for housing benefit (Local Housing Allowance) to cover the interest, loan repayments, management and maintenance costs.

For example, a local authority, could borrow to invest £20m in 40–50 properties which could provide homes for over 130 rough sleepers in London. This is about the number that Hackney may need to house. Outside London this would go even further as the ratio of house prices to housing benefit is more favourable.

Clearly, the risks and benefits need to be assessed by individual councils. But their access to public borrowing gives them a critical advantage over Housing Associations and the PRS. Nonetheless, given the amount of homes required and the differing needs of rough sleepers a mix of rentals and local authority buy-to-lease is sensible.

Historic opportunity to leave a legacy

The Housing Communities and Local Government Select Committee estimates it would cost around £100m a year to fund a housing-led solution with appropriate wrap-around support for rough sleepers, or about the same as the government’s announcement this weekend.

Purchasing homes to lease to rough sleepers can take care of a large part of the affordable supply issue. It is cheaper and more effective that the alternatives. This would leave far more of the government’s £433m and councils homelessness budgets to fund high quality support services for rough sleepers and those with NRPF.

A sympathetic landlord and well-tailored support will help many rough sleepers to get back on their feet. The accommodation would then be available for others that may need it — a unique Covid dividend.

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