asked the Minister for Local Government if he will state the terms of the circular issued by his Department in March of this year to city and county managers on the matter of rent revisions, etc. for tenants of local authorities.
Ceisteanna—Questions. Oral Answers. - Local Authority House Rents.
14.
As the circular letter in question is rather lengthy, I am arranging, with your permission, a Cheann Comhairle, to have it circulated with the Official Report.
Following is the circular:
MODIFICATION OF DEFICIT PRINCIPLE.
REVIEW OF RENTS.
It has been represented to the Minister for Local Government that the arrangement, known as the "deficit principle", has deterred some local authorities from reviewing the rents of their housing estates as a whole. Under the deficit principle, if the loss on a housing scheme, after taking all rents into account, is less than the amount of State subsidy due for the scheme, the subsidy is reduced by the difference. This means that in some cases, particularly in the case of older schemes, the Exchequer, and not the local authority, gets the benefit of rent increases.
In order to remove any deterrent to the review by local authorities of housing rents generally, on the lines recommended in paragraph 8 of this Department's circular letter (N 1/65) of 24th May, 1965, the Minister has decided, with the agreement of the Minister for Finance, that as from and including the current financial year the deficit principle should no longer apply to any scheme for which a loan was sanctioned by him:
(1) in the case of urban housing authorities, before 1st May, 1953, and
(2) in the case of rural housing authorities, before 1st April, 1960.
This concession will result in an immediate financial gain to a number of housing authorities, particularly urban authorities. It will also result in a considerable saving of staff time in local offices by eliminating detailed work required to complete annual subsidy claims for schemes coming within the concession. The primary purpose of the concession, however, is to ensure that if local authorities decide that an increase in the rents payable by particular tenants of houses covered by the concession is equitable, the resultant increase in rental will accrue solely to the benefit of the housing account and will thus facilitate the reduction of rents where such is warranted.
The need for such comprehensive reviews by most housing authorities will be apparent. The economic rent of a house costing £2,200 is just under £3 10s a week plus rates. Most local authority houses, except rural cottages, now cost more than £2,200. The average cost of flats is, of course, considerably more. As shown in the White Paper—Housing: Progress and prospects, the average rent in a recent year of county council houses was 5/- a week, week; the average for larger urban authorities was just under 15/- a week, while that for smaller urban authorities and towns was about 10/- a week. These averages are, of course, related to houses built when costs were lower as well as to new houses.
The difference between what housing authorities spend on loan charges, maintenance, etc., and what they receive in rents and purchase annuities is, in the aggregate, substantial. In rural areas, for instance, county councils have been spending over four times as much as they receive. The resulting loss is estimated at about £2.7 million. Housing authorities other than county council spend just under twice what they receive and the resulting loss is estimated to be of the order of £2.9 million. These losses, together with the loan charges of about £.4 million on capital grants for local authority houses paid in earlier years, bring the total loss on local authority housing to be borne by the rates and by central taxation to an estimated £6 million in the current financial year.
With the increase in costs generally and with building programmes in prospect which will have as their objective the elimination of bad housing conditions wherever they exist, it is unlikely that the aggregate loss will fall. In many areas, particularly those of acute housing shortage, it may rise steeply.
The Minister is concerned that the substantial contributions from public funds should be distributed equitably, so that those most in need benefit most from them. In particular, he would stress that no one in need of rehousing should have to be refused a house or should suffer hardship on account of inability to pay rent. On the other hand, those who can afford to pay for their accommodation should be required to do so. For this reason, the Minister proposes that housing authorities should now, following modification of the "deficit principle", review the financing of their housing services to decide the extent to which some of the cost of housing now borne by the general body of ratepayers should be transferred to those tenants who are in a position to pay more for the accommodation provided. In these reviews, the authority should have the object of ensuring that no applicant should be denied rehousing because of inability to pay more than the minimum rent and that each tenant pays a rent related to his family and financial circumstances and to the standard and amenity of the accommodation which he occupies. A memorandum on the subject is attached for guidance.
Where rent increases are proposed following a review, housing authorities may find it desirable to apply them in stages over a period of years and so cushion their effect on individual tenants. Housing authorities should also take the opportunity presented by the review to examine the general state of repair and standard of maintenance of their housing estate and, where necessary, work out a programme of repair and improvement to bring all their dwellings up to reasonable standards of repair, amenity and comfort. To encourage housing authorities in this object, the Minister has included in the Housing Bill, 1965, provision enabling him to pay substantial grants to housing authorities carrying out certain improvement works to their houses.
The Minister will reintroduce the deficit principle in any area where it appears to him that the housing authority has not taken reasonable steps to rationalise their rental schemes. He will, therefore, require a report from each housing authority after 30th September, 1966, as to the action taken by them. Any general adjustments made or provided for since 1st January, 1962, will be taken into account.
Local authorities will be notified at a later stage of the particular schemes which come within the scope of the new arrangements and of the form of certification which will replace the present system of annual revenue accounts for these schemes. Revenue accounts will, of course, continue to be required in the normal way in respect of schemes not coming within the new arrangements.
APPENDIX.
Comprehensive Rent Reviews.
The ultimate aim of a comprehensive rent review should be to secure that, at the end of a reasonable transition period to be decided in the light of local circumstances—but in no case exceeding 5 years—the same type of rationalised renting structure will apply throughout the entire housing estate of the local authority. It is suggested that the following procedure should be put in train to secure this objective:
1. The dwellings in the housing estate should be divided into a small number of categories based on the different standard of accommodation and amenities provided in the dwellings.
2. A decision should then be taken as to whether a graded or a differential rent system should be adopted. A system which grades rents in a scheme merely by reference to the type or location of houses is not regarded as appropriate to existing circumstances. A graded rent system which provides for a series of rent levels related to fairly wide ranges of assessable incomes is appropriate to small housing estates where large scale fluctuations in the general pattern of family incomes are unlikely. A differential rent system—which provides for the payment of a fixed proportion of income as assessed by the local authority from time to time — is appropriate where the housing estate is large or where family incomes fluctuate fairly rapidly. In calculating assessable income in both cases, deductions from gross income may be made for dependants, and a limit may be placed on the contributions which may be taken into account from wage earners, other than the principal wage earner. A number of approved differential rent schemes currently in operation also provide for the exclusion, when assessing income, of certain items such as recent increases in a number of social welfare benefits. Children's allowances are also excluded when calculating assessable income.
3. A minimum and maximum rent should be fixed for each category of dwellings referred to at 1 above.
4. The maximum rent for the dwellings in each group should be equivalent to the rent based on the actual or estimated cost of providing similar accommodation at current prices, adjusted to the general standards and amenity of the dwellings, together with an amount calculated at 1% of such cost to cover maintenance, depreciation and administration. In the calculation of the maximum rent, the payment by the housing authority of full annual loan charges excluding State subsidies or grants should be assumed. The minimum rent should be a purely nominal figure intended to apply only to those of limited means.
5. In addition, the housing authority is required, by statute, to charge an amount in respect of rates on the dwellings. These charges in respect of rates are normally collected with the rent. It should be made clear at every suitable opportunity that these rate payments are in no sense a charge for the use of the accommodation which the tenant occupies.
6. When the scheme is fully effective, each tenant should pay a rent related to:—
(a) his family and financial circumstances; and
(b) the standard and amenity of the accommodation which he occupies.
In cases where a rent assessed on this basis would represent a large increase on the existing rent of particular tenants, rents might be adjusted by stages over a period until an appropriate point on their rental scale is reached. Provision should be made in every scheme for the acceptance of a lower sum than the minimum necessary to cover the rent and rates on a house where the tenant is unable to pay this amount. The full amount for rates on the authority's houses should, as at present, be transferred to the rates account.