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A better balance

We need a mix of grant and benefits to fund more homes and reduce the housing benefit bill

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One of housing’s eternal debates is ‘should government subsidise the property or the person - the home or the occupier?’.

So how do the arguments stack up between bricks and mortar subsidies (grants that reduce capital costs of building new housing) and personal subsidies (benefits or tax reliefs that reduce the revenue costs for tenants or owners)?

Of course the answer is that both kinds of subsidy are needed and the trick is to get the mix just right.

‘Let housing benefit take the strain’ said government ministers of the 1980s. And over the past 30 years, grant levels for social housing have dwindled while rent levels have risen. Housing associations have borrowed a growing proportion of the cost of each home they have provided and, to the Treasury’s delight, none of this money has affected national debt, public expenditure, or the dreaded deficit. But the ever-rising rents to pay for the bigger loans have meant the housing benefit bill has grown.

The pain of high rents is felt most by social housing tenants in work and by those in retirement with reasonable occupational pensions. If their income is above the level for housing benefit, they have had to face rents that - by increasing more than wages or occupational pensions - absorb a larger and larger proportion of their earnings. For those on the edge of work, or working but still qualifying for housing benefit, higher rents mean more people unable to keep a fair proportion of their earnings.

A regime of low grants and higher rents makes private sector financiers more nervous in lending to the sector. To say nothing of the hazards when help with the rent is reduced and risks of arrears and costly evictions are multiplied.

Good, old-fashioned grants that reduce the upfront costs of providing more homes have many attractive attributes. For starters, they lead directly to an increased supply of affordable homes, unlike revenue support for tenants (like financial help for home buyers) which results in increasing demand but not increasing supply, which means higher rents and house prices.

Grants mean lower rents so the cost to the Treasury for housing benefit falls. Work by Oxford Economic Forecasting, for the Joseph Rowntree Foundation, has demonstrated that reductions in grant paid for by increases in rent are inflationary and lead to significant net losses for the exchequer. Lower rents also support the government’s welfare policy objective of incentivising more people to move into employment.

The clear conclusion is that the current mix needs to change.

Lord Best is president of the Local Government Association

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