Sunday, 21 December 2014

Mind the gap

From: Inside edge

The key statistical comparison that the government has been using to justify its cuts in the local housing allowance is now looking even shakier.

In last week’s parliamentary debate, ministers repeatedly cited the fact that LHA rates rose while private sector rents were falling between November 2008 and February 2010 as evidence that the market was distorted by housing benefit. 

Work and pensions secretary Iain Duncan Smith told MPs: ‘We now know that, according to the Office for National Statistics, the private marketplace in housing - Labour Members are completely wrong about this - fell by around 5% last year. At the same time, LHA rates, which the previous Government had set and left to us, had risen by 3%. There is thus a 7% gap with what is going on in the marketplace.’

As I blogged last week, the same figures were used in a briefing to journalists ahead of the debate that ‘landlords from the private sector are taking advantage of the housing benefit regime’ and ‘cashing in by pushing up rents’. 

‘What we want to do, by working with councils, is to drive those rents back down,’ Duncan Smith went on in parliament. ‘The purpose of these changes is to give a real impetus to getting the rents down to make affordable housing more available in some areas.’

His reference to the ONS puzzled many people as they were unaware that it produced any statistics on private sector rents. And the Department for Work and Pensions has now confirmed to me that the source of the 5% figure was in fact the rental index set up by find-a-property.co.uk (now findaproperty.com), a website owned by Daily Mail publisher Associated Newspapers.

However, the problem with the figures goes way beyond the issue of what I am sure was IDS inadvertently misleading parliament about their source. 

First off, rents for advertised new lettings are not a guide to rents in the market as a whole and especially to the rents of tenants who remain in the same property. 

Second, findaproperty records asking rents rather than actual rents in its quarterly survey. Although its methodology adjusts for weightings by region, property type and number of bedrooms, that needs to be borne in mind because asking rents (just like asking prices in the for sale market) tend to be more volatile go up more in booms and down more in busts. 

Third, findaproperty appears to cover a different part of the market to the local housing allowance. The average findaproperty rent in March 2010 was £820 a month - almost double the average amount of LHA paid.

Fourth, the comparison fails to consider what’s happened since February 2010. Between March and September 2010, findaproperty’s index rose 3.8% from £820 a month to £851 a month. In June the website’s property analyst Nigel Lewis said: ‘Rents have gone from strength to strength during the first half of 2010. The resurgence of the sales market has left tenants short of options and the result has been increasing rental prices.’

And in September he said: ‘Average rental prices are back up to where they were two years ago and I can only see them going up even more. 

‘Stock levels in both the home buyer and rental markets are dwindling, and would-be buyers are still having a hard time getting mortgages. This is all putting increased pressure on the available rental stock which pretty much makes it a landlord’s market at the moment as they can effectively name their price.’

However, if it’s a landlord’s market and landlords are taking advantage of housing benefit, why did the average weekly award for LHA tenants only rise by 0.05% (from £112.85 to £113.43) between February and July 2010?

Fifth, as I blogged on Friday, the DWP’s own stats do not seem to support the view that the LHA somehow distorted the market. LHA awards only rose by a little more than non-LHA private rents in the period quoted by ministers and awards paid to private regulated tenants and housing association tenants both rose by more. 

 

Readers' comments (3)

  • Chris Webb

    Why is the Minister for Muppetary demanding rent controls through benefit cuts when the government has the power of rent controls through rent control? If they now agree that it is the landlords charging through the roof then why do they not use the rent regulation powers that they have to redress the excess?

    This item shows the danger of spin - Tory Government tell the Daily Mail the line, which produces the data, which is quoted to support the Tory line, all confirmed by their own tame renting source which does not even cover the sector they are talking about. (does anyone else remember the 70's comedy Soap? - it's enough to put the inro catch up guy into space!)

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  • That would be the same website as is currently showing an annual increase in average private rents in London of 13%, then.

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  • Some good detective work there by the Ed.
    Well done.

    Rent controls will reduce supply of rental accommodation which could have interesting effects... "I would have got away with it if it wasn't for you pesky clasical economist Alfred Marshall and your demand / supply curves."
    (Apologies to Scooby Doo fans on the forum.)

    Just to change the subject we find it interesting that no one is talking about the Private Leasing Scheme work around which would seem to give something of a "way out" as it allows to set at 50th percentile for another two years.
    We expect to see a big ramping up of the use of these.
    In a recent blog post we suggested some reasons why no one seems to be talking about this:
    http://www.lettingfocus.com/blogs/index.php/2010/11/private-sector-leasing-and-housing-association-lease-schemes-for-landlords-a-story-of-guaranteed-rent-and-no-voids/

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