Wednesday, 04 March 2015

Taking the strain

From: Inside edge

Today is the 21st anniversary of perhaps the most significant statement in the recent history of housing.

On 30 January 1991 the then housing minister Sir George Young was asked in parliament what the government was going to do about unaffordable rents. ‘Housing benefit will underpin market rents - we have made that absolutely clear,’ he said. ‘If people cannot afford to pay that market rent, housing benefit will take the strain.’

Housing benefit has indeed taken the strain ever since - of deregulation and soaring rents in the private rented sector and private finance and stock transfer in the social sector. In the process the annual bill has risen from £6bn to £22bn and it has come to underpin not just rents but the entire delivery of affordable housing too. 

But for how much longer? Today, 21 years to the day since Sir George made that statement, a group of housing associations is warning that welfare reform by the DWP could make the housing plans of the DCLG unworkable.

The Consortium of Associations in the South East (CASE) represents nine different landlords providing affordable homes. Their report examines the unintended consequences of three different elements of the Welfare Reform Bill: the under-occupation penalty, direct payment of housing benefit to tenants and the household benefit cap. All three sound superficially sensible until you examine the detail and the implications.

Most of the arguments will be familiar to anyone reading this but in a week that sees the government pledge to reverse House of Lords defeats on under-occupation and the cap when the Bill returns to the Commons it’s worth a re-cap.

On the under-occupation penalty, there may be good reasons why a bedroom is not ‘spare’ and why a landlord has deliberately chosen to reduce child density on a particular estate. 

But it’s the sheer numbers of people affected - 670,000 households  - that are maybe of the greatest concern. 

CASE members say it will simply be unworkable unless introduction is phased from April 2013. There are not enough one-bedroom properties for under-occupying tenants to move to and they would have to spend the next two years on the crazy strategy of building nothing but one-bed flats to make it work. The turnover rate of tenancies is half what would be required to meet the deadline and arrears are bound to increase. 

On direct payments, the associations warn of significantly higher arrears and administrative costs.

They say that once the household benefit cap is in place all four-bedroom properties in the South East built for Affordable Rent will become unaffordable. And they are already reviewing whether to continue building three-bed homes that already threaten the cap and will exceed it if the cap does not rise with inflation. Financial considerations driven by the cap will override any local strategic tenancy policies.

However, the implications of the three measures go well beyond that and will directly impact on associations’ ability to finance and build new homes. They conclude that direct payments and the under-occupation penalty will result will cut new build capacity by 12 per cent and that this could get even worse if lenders react to perceived extra risk by increasing the cost of borrowing. Capacity would fall by 11 per cent for a 0.2 per cent increase in borrowing costs and 28 per cent for a 0.2 per cent drop. 

‘As CLG embarks on a programme to increase housing supply, its sister department - DWP - is preparing to implement a policy that is certain to do the opposite,’ they say.

On under-occupation, the associations want the government to stick with the Lords amendment tenants with only one ‘spare’ bedroom and to phase in the cut for everyone else. On the cap, they want a relaxation for larger properties and a commitment to index it for inflation. On direct payments, they say that none of the concessions announced so far will work and that the plan should just be scrapped.

Hopefully the government is listening to at least some of that and CLG ministers have been making the same arguments to their DWP colleagues that Eric Pickles made in his leaked letter last year.

Or has the idea first proposed by Sir George Young 21 years ago today now itself collapsed under the strain?

Readers' comments (12)

  • Ernie Gray

    Jules - great article. I wonder if instead of housing benefit " taking the strain", the resources would of been allocated year on year to an affordable house building programme. It would be useful to contrast how much benefit when into over inflated private rents that were nice easy reveneu cows for some private landlords against how much was allocated each year by the Corpy and then the HCA. I wonder how many homes extra that would have proivded over the past 20 years.

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  • F451

    Good observation Ernie.

    If an avearge £10Bn per year is taken as what could have been saved if investment in social housing had been the priority instead of investment in Private Rent payments, that adds up to £210Bn that could have been used to build socially rented homes.

    Add in the similar figure that has been frittered away by the Treasury in the form of Right to Buy reciepts on over 2 Million homes in the same period, and the combined resources for housing could have been close to £450Bn.

    Imagine the effect that could have had on providing affordable housing for everyone, avoiding the housing bubble and boom and bust, and empowering the average and low paid to demand their fare share from their labours, instead of seeing their real incomes cut in half.

    Is it that last point, the cutting of real incomes, that gives the reason why instead we have paid over and over for private rents, and housing supply has been deliberately run down.

    It is not welfare benefit that is taking the strain - it is the poor and the vulnerable who, as ever, are holding the greatest burden of the 'economic miracle' generation!

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  • Jon Southall

    Why do we allow so many inept politicians to make decisions at our expense? 21 years with rapid increases in HB costs, and effort only now being expended on capping it. The capping debate should have occurred long before now.

    HB expands the potential revenues of the rented housing market. Letting it increase without control will have played a significant role in rents rising.

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  • If rent controls were reintrroduced and we returned to fair rents the debate on benefit caps would become unnecessary. Also people would be able to afford to rent in the private sector and property prices would become more affordable as the rug was pulled out of the buy to rent boom.

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  • F451

    But Jono - without the freedom to increase the total benefit bill the private landlord sector could never have become viable again, as evidenced by it only being under the last years of Labour that private renting regained the levels dreamed of by Thatcher.

    Had rent regulation never been dergeulated and the social housing stock not privatised, rent levels would not have escalated as they did, house prices would not have become obscenely detached from the realities of the economy, and the bubble not only would not have burst, but would never have been inflated.

    It is the creation of the private housing market that has required housing benefit to take the strain. It is a little rich that the proponents of private renting now object to the means they used to achieve it, and worse now expect tenants and the poor to carry the responsibility for their own monumental economic misjudgement.

    The deregulators and those corrupting the purposes of common funds are squarely to blame for this situation - but those who have directly benefited are not the ones being asked to pay.

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  • Ernie Gray

    Interesting debate- you can see why the affordable rent took hold with government. Simple logic in thier minds that all those over paid HB tenants living in the private sector could be picked up housing assocations to then allow " normal working people " to rent thier properties instead as they cannot afford to but or scrape together a depoist. Thatcher and Blairs dream of owner occupation is gone instead to be replaced by a new gentry of private landlords with high quality tenants - sounds like a scene from Prioroit!!!!!!!!!!!!!!!!!!111

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  • Jon Southall

    @ Paul

    "If rent controls were reintroduced and we returned to fair rents the debate on benefit caps would become unnecessary. Also people would be able to afford to rent in the private sector and property prices would become more affordable as the rug was pulled out of the buy to rent boom."

    If rent controls are reintroduced, the supply of decent private rented accommodation would fall. More people may be able to afford the rents, but they wouldn't be able to find any properties, or if they could, the quality would be worse.

    Rents have to be at a level which is both affordable to the landlord and, as judged by a prospective tenant, affordable to them.

    Ultimately HB should be capped at zero - but that's another debate.

    @ F451 - re viability - so what? I'd let the market determine what is viable.

    The reasons for rent increases are more complex than you make out. What caused the housing bubble in the US, and its contagion? Was the boom in buy-to-let the cause or an effect?

    I would certainly seek to defend the private housing market from all kinds of Government interference - if this results in the demise of private landlords dependent on benefit income, then I will not object.

    Why should those who benefit from a situation which they did not cause, be forced to pay for it? A plane crash will result in teams of experts being brought into an area - this may give the local economy a temporary boost. Does this mean the local economy is liable for, or should take responsibility for, the cost of the plane crash? Of course not! The latter will depend on the cause of the crash, not who might benefit from its after effects in some way.

    So you need to hold the politicians to account for this issue. At least the current politicians are thinking about doing something, belatedly, to bring some control to the situation (even if the actions they are taking are not what you attribute to competent decision makers).

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  • The scapegoating of the poor and the attacks upon the disadvantaged are simple side-effects of Plan A. Without the distraction of 'blame the undeserving' the government policies would be clearly exposed for the sham that they are. Time for Plan B.

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  • Anybody compus mentus in here, and speaking English?

    The economy is trillions of pounds in debt, in no small measure because of reckless spending on social housing, an unaffordable state commitment to the sector in the form of HB, with demand inflated and supply constricted by mass immigration.

    Post-modern ironic Marxism, as set out here by Mr Birch, is not meant to be taken seriously.

    That's the joke, stupid.

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  • F451

    Nonny - how can the spending on social housing be responsible for the nation's debt when:

    a) social house building has been stagnant for decades
    b) right to buy reciepts delivered in the region of £320,000,000,000 to the Treasury

    Yes, the cost of not investing in social housing has been to wast tens of billions each year paying housing benefit to private landlords for ever more expensive rents, but that is neither an outcome of Marxism, nor attributable to the cost of social housing.

    Your points are therefore in errror.

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  • "The economy is trillions of pounds in debt, in no small measure because of reckless spending on social housing"-- er you mean the hyper inflationary property boom
    -best to keep anonymous when your talking out your rear

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  • Nice of Shapps to contribute though!

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