Tim Leunig
Landlords that do not embrace choice-based lettings should hang their heads in shame, argues Tim Leunig
The obvious choice
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As regular readers of this column will know, I believe that choice is extremely important in both social and market housing.
Individuals have extremely heterogeneous preferences over the sort of housing that they like, so choice-based lettings are extremely popular.
Previously, the popularity of CBL was demonstrated by looking at satisfaction ratings from tenants. This survey evidence is unambiguously in favour, but such evidence is good only in so far as it goes. Economists such as myself always prefer to find evidence in people’s actual behaviour. As the old saying goes, actions speak louder than words.
And that evidence was brought out unambiguously in Inside Housing’s article ‘Why everyone wants to be sent to Coventry’ (13 March). The number of people on the social housing waiting list has trebled since Coventry Council introduced an easy to access choice-based lettings system. In 2007 there were 6,493 people on the waiting list. A year later that number had reached 19,912 and it continues to grow.
No doubt some of this is as a result of the downturn in the economy, but the article also reports that between 2000 and 2004 the number of people on waiting lists in areas adopting CBL rose twice as quickly as in other areas.
This shows very starkly the cost of not allowing people a choice. In Coventry it appears that there were around 13,000 people who were eligible to apply for social housing but did not, presumably because they expected the house they would be offered would be so unsuited to their needs and preferences that they would rather stay in the private rented sector. This is really quite remarkable.
Rents in the social sector are significantly lower, and objective measures of housing standards are higher than in the private rented sector.
And yet before the advent of CBL, 13,000 people in Coventry preferred to live in housing that was apparently worse and more expensive.
It is, of course, open to those who oppose CBL to claim that the people of Coventry’s failure to apply for social housing before shows that they are foolish or ignorant.
I think the reverse. I think people in Coventry knew that the housing that they would be offered, while suitable on paper, was not actually suitable in practice. So they didn’t apply.
In the light of this sort of evidence, coupled with the evidence on greater satisfaction, councils and housing associations that do not embrace CBL with enthusiasm and vigour should hang their heads in shame, for these organisations are manifestly failing the people they are supposed to be helping.
But perhaps we can go further. The same article notes that more than half of the people on social housing waiting lists do not meet the legal definition of being in ‘housing need’.
The introduction of CBL improves the quality of housing that we are offering to many people who are not in urgent need of a home.
Perhaps it is time for a new bargain with this group of people. By implementing a CBL system we have given them access to a quality product that they would not otherwise have access to: a house at social rents that suits them.
And very often when companies offer a better quality product they charge a higher price. Perhaps it is time therefore to charge people who do not meet the legal definition of housing need a higher rent, in exchange for greater choice of property. If they prefer the lower rent, they can remain in the old, unsatisfactory system in which they are allocated a house. I bet very few do.
A modest rent supplement of, say, £4 a week, would generate approximately £3.5 million in Coventry alone over the next five years - and ever bigger amounts in the future, as more people come under the system. That in turn would allow an extra 50 social houses to be built. Not a large number but, as another saying goes, every little helps.
At a national level, and in the fullness of time, perhaps 40 per cent of houses would be on such tenancies, raising around £400 million a year - enough to build 5,000 extra social houses every year. Even 5,000 is not that large a number, but if the scheme had been running nationwide
since World War II it would have added up to a further 300,000 social houses.
No doubt many people will oppose such an idea. They will come up with lots of reasons why it couldn’t work or wouldn’t work or shouldn’t work. But I wonder how many of those people also thought that CBL wouldn’t work?
The social housing sector, like all sectors of the government, is going to need to become a lot more ingenious over the next few years. The harsh reality is that the government has run out of money, and the likely implication of this is that every part of the government is going to be asked to find savings and develop new revenue streams.
If we are serious about building more social housing for people in genuine housing need we will need to use all the ingenuity that we can muster.
Do not rush to dismiss this idea, or any other idea that could generate more money to build more houses to help more people in need.
Dr Tim Leunig is an academic in the department of economic history at the London School of Economics
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Readers' comments (9)
Brian Capaloff | 03/04/2009 9:37 am
Definition of housing apartheid = 'Perhaps it is time therefore to charge people who do not meet the legal definition of housing need a higher rent, in exchange for greater choice of property.'
Yet further arguments, in addition to proposals to end secure tenancies, which only help towards the creation of sink estates and which would clearly help to identify housing for 'the poor'!
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Brian Capaloff | 03/04/2009 4:38 pm
I have just noted that Mr Leunig is the wonderful egalitarian and supporter of the UK's manyand varied communities, who suggested that people leave Liverpool and go to more affluent areas. I can start to see a theme here, whereby the UK is split literally as well as metaphorically into the haves and have nots. I assume 'the poor' can live 'oop north'?
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Bernard Townroe | 08/04/2009 12:43 pm
Doubtless this is a little out of left field but could the rise in the numbers on council housing registers even before the economic downturn have something to do with the rise in house prices (as people exercised their 'choice' to borrow ever increasing amounts of money on assets that patently were not sustainable at the values being touted), leaving people with little choice but to go to the council for help?
I'm all in favour of the principles of CBL but there is a world of difference between choice as a principle to be followed or a laissez-faire interpretation that defines choice as the difference between being able to 'choose' to afford to buy or not.
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tim leunig | 09/04/2009 12:46 pm
I am not trying to reserve housing for those in need, and certainly not to create ghettos, merely suggesting that those not in need could be asked to pay a little bit more in order to provide more housing for those in need. My scheme would mean more houses, and fewer people in need staying homeless. Given that the government is bankrupt, and that we can whistle in the wind for more money, if you don't like this idea, then provide alternative ways of delivering more houses.
For the record I have never suggested that anyone leave Liverpool. Don't believe everything you read in the papers!
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Joe Halewood | 10/04/2009 5:24 pm
The article does not say anything at all about local factors in Coventry. For example the mass pull out by private landlords rom the city after new university accommodation was built and also the ending of asylum contracts. Hence this could easily explain why (a) waiting lists rose and (b) why the 13000 did not apply to go on the register before 2004.
The obvious choice? I can give many more obvious choices such as (i) taking RTB off the statute book (ii) freeing up cncils to have a level playing field indeveloping new housing ...i could go on ...all of which would create far more supply that (obviously) is a bigger issue than CBL. Surely an economist can see that lack of supply is an obvious issue here.
Or perhaps in my own field the government should double SP funding. Their own (very conservative) statistics show SP saves the public purse £1.70 for each £1.00 it invests - One doesnt need to be an economist to see the merit in that.
I agree that ingenuity and new ideas are needed to meet the crisis of supply - for that is what it is and what we have. There will need to be compromises on long-held views and changes to them. Yet if one thing that 'economic history' has told us it is that the economics of housing in the UK are chronically skewed and have helped to create the increase demand for social housing as Bernard Townroe correctly states.
Do we really need another world war to have enough homes fit for people to live in? And what typesof homes do they need to be? This polemic about CBL ignores that more homes are needed because we have smaller and smaller families, that divorce and separation rates are increasing and many other reasons that mean one thing - more smaller properties are needed - that is one and two-beds not the 3,4 and 5 of yesteryear.
If there are enough properties then CBL is a great idea as the (obvious- again!) outcome will be that tenants will better look after properties of their choice in areas of their choice (and my granny never sucked eggs as far as im aware!) Yet in times of scarcity of supply advocating more CBL, that as Tim admits increases demand on waiting lists does and cannot do b****r all to increase supply seems a perversity.
That said Im not an economist and so I would welcome his thoughts on how increasing demand will increase supply when- in his own words - the principal supply provider(s) are bankrupt!
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Brian Capaloff | 13/04/2009 12:47 pm
If this article in The Guardian - http://www.guardian.co.uk/commentisfree/2008/aug/13/regeneration.conservatives - was not advocating encouraging a migration to the South East I don't know what is! And to merely suggest that those 'not in need could be asked to pay a little more in order to provide more housing for those in need' is in itself an advocating of some form of housing apartheid, however you wish to spin it.
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Joe Halewood | 13/04/2009 1:09 pm
Can anyone explain to me - a person with more than arudimentary knowledge of economics - how CBL can help with the housing crisis?
The crisis in social housing is one of chronic undersupply as everyone is aware and Tim Leunig states in his article that demand (waiting lists) are increasing. So if CBL increases demand as he states where is the increased supply need this generates going to come from?
If the current system has a massive undersupply - that it does - and CBL creates even more demand - as Tim asserts - then isnt this just going to create an even bigger gap between available supply and customer need?
Perhaps im being far too simplistic over the apparent law of supply and demand here? While im away that for mosts goods and services if you create a demand that supply will often follow, the difficulties of increasing the supply of social housing units is well known - and is highly unlikely to happen from social housing providers. It is also highly likely that private sector landlords (PSL) will not increase their supply given the LHA rules and other impending changes to HB- This is also well documented and accepted.
So - where are the huge numbers of social housing units to come from anyway without a learned academic advocating increasing that demand by way of CBL?
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Tim Leunig | 15/04/2009 11:32 am
CBL helps with a housing crisis because the evidence is that it speeds the housing process up, reducing voids. Second, it gets more people on the list, including those in dire need, who were otherwise put off. Making housing accessible in reality and not in theory to this group must be a good thing, surely? And even if it had no effect, it would still be good because the people who are housed like their housing more.
And charging a small premium to those able to pay it would lead to more houses being built. It is all very well saying that social housing generates £1.70 of return for every £1 spent, but the government doesn't have £1. In addition, almost all spending advocates can generate reputable numbers like this - the Eddington Report (which I reread last night) identified any number of schemes which generate more than £8 of return for every £1 spent. But do they happen? Nope. And in a world in which £8 schemes don't happen, there is no chance of £1.70 schemes getting the go ahead.
So my scheme means more social housing, shorter voids, happier tenants. Is that such a bad outcome?
For the record, I have advocated elsewhere building many more houses, so that property becomes cheaper, and proposed mechanisms that would build support for big building programmes. But a columnist cannot do everything in one column!
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Joe Halewood | 16/04/2009 1:09 pm
I don’t disagree that CBL can speed up the housing process and also reduce voids. Yet we are in a housing crisis – a crisis of chronic under supply and of ever increasing demand. We all agree that demand cannot be met at any time in the foreseeable future because of lack of funds etc.
So, advocating CBL will lead to reduced voids. Yet, it will lead to a greater number of persons demanding social housing and more and more people chasing every available social housing property. In simple terms demand will escalate.
While I tend to agree that people will like their housing more, these will be the fortunate few. The great majority will not be able to access social housing and will become even more resentful of their current situation. Their ‘lot’ will then be the private sector with its greater insecurity of tenure, higher cost and increasingly its unwillingness to take on HB claimants. This in turn will and does lead to increased homelessness and even more demands on social housing. Hence a strong argument is that the application of CBL increases more demand for priority cases, leaving fewer choice through reduced availability for non-priority cases.
CBL would then massively increase council costs on homelessness with ever increasing use of B&B needing to be use for homeless cases.
I didn’t say every £1 generates a £1.70 return, rather that the government’s own figures state that each £1 spent saves the public purse £1.70. As all government spending is (largely) a cash-limited pot then increasing spending here must eventually make more funding available ceteris paribus. The fact that this money is spent on sustaining and maintaining tenancies for ‘vulnerable’ people also makes the quality of life better for those social tenants and for their neighbours. Yet, the reduction in funding here has seen 200,000 less people being supported – surely an increased cost to the public purse.
One final point. The private sector landlords have always had CBL as they are 100% free to choose who they accommodate. Their rents are much higher on average. And increasingly they will not take HB claimants. All of these points are valid and dont hold any contentions.
So, the more you increase choice into the social rented sector the greater the likelihood is of (a need for) increased rents and a dramatic revising of HB - none of which is likely to happen in 20 months of Sundays!
In summary CBL is like many theories in the 'economic history' of housing - blithely superficial and an immediate term 'fix' that will lead to greater need and problems just around the corner.
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