A challenge to ‘In the Black Labour’: Housing benefit will continue to rise unless we tackle the buy-to-let market

In a follow-up to their 2011 report In the Black Labour, Graeme Cooke, Adam Lent, Anthony Painter and Hopi Sen reaffirm their commitment to fiscal conservatism.

In a follow-up to their 2011 report In the Black Labour, Graeme Cooke, Adam Lent, Anthony Painter and Hopi Sen reaffirm their commitment to fiscal conservatism.

Alongside this they propose a series of policies they consider will further social justice and go hand-in-hand with their recommendations on fiscal austerity to the Labour leadership.

Some good ideas are included, setting achievement of greater social justice in the context of a growth strategy and measures that don’t carry large public spending commitments but improve equality, such as introduction of a living wage, confronting reservoirs of power and wealth and promoting the value of micro-enterprises in retaining wealth in local economies.

One area where the authors should have a rethink, however, is around their dismissal of Ed Miliband’s first steps in suggesting ways of rebalancing the UK’s housing subsidy system. The ‘In the Black’ view is that:

“Bearing down on emerging drivers of structural welfare spend are more tricky than many would be willing to admit. Pushing down on one area of expenditure can lead to expenditure elsewhere. For example, a policy of holding down housing benefit appears straightforward, until one realises that the main driver of structural additional expenditure on housing benefit prior to the recession was the expansion of the social rented sector rather than simply growth in the private rented sector”.   

While no-one claims that recalibrating welfare spending will be easy and without political risk, their underpinning analysis is unsound, does not take a long enough view of housing policy trends, and skirts across the surface of the statistics. In a forthcoming piece for Compass, the Human City Institute presents more in-depth findings over a longer policy timeframe.

The housing benefit bill for social housing has grown appreciably, with a tenfold increase in the total bill since 1979. But social housing has certainly not expanded numerically; quite the reverse. It has almost halved in size since 1970s. Social housing’s housing benefit bill has been driven by twenty-five years of above RPI rent increases.

This has come about because of the introduction of private finance into the housing association sector, stock transfer from local councils and dismantling of rent regulation from 1988 onwards.

Housing associations now own more than half of social housing and, while there has been rental convergence, rents stay higher for housing associations than councils. This trend will continue as Grant Shapps’s ‘Affordable Rent’ programme, with an even greater private financial component, is rolled out.

The policy, introduced by then housing minister and current chief whip George Young, reduced capital subsidies to housing associations and introduced assured tenancies that drove up rents with housing benefit taking the strain, as Young recognised at the time.

Housing associations have since attracted £40bn of private finance underwritten by the taxpayer via housing benefit. The housing benefit bill continues to get larger while the number of social homes declines as waiting lists balloon. This is the legacy of the Housing Act 1988 and illustrates the fallacy of expecting a free lunch from private lenders.

Housing benefit will continue to rise as a direct result of both introducing the market into social housing, and the doubling in the size of the private rented sector, bolstered by the Buy-to-Let phenomenon in the last ten years.

So a return to a more economically rational housing strategy is called for: One that subsidises productive house building while radically reducing the amount of housing benefit going into the pockets of private landlords and financial institutions at the expense of social tenants’ employment prospects.

A faster pace of transfer of subsidies could be achieved by reintroducing rent control so that private landlords and financial institutions are in this together with the rest of us. The result over time will be greater economic activity, growth and employment and less corporate socialism.

6 Responses to “A challenge to ‘In the Black Labour’: Housing benefit will continue to rise unless we tackle the buy-to-let market”

  1. LB

    So no mention of the elephant in the room.

    5 million migrants are living somewhere.

    5 million migrants aren’t earning over 40K a year each so that they are paying their way.

    Economics 101. Increase demand, and do not increase supply accordingly and you get price rises.

    Simple solution – sort out the migration issue. You need concentrate on the low skilled end, because its these workers who compete against those who want social housing or the equivalent properties in the private sector, driving up their costs.

    However instead what we get is complaints about how evil it is that poor people can’t claim 104,000 a year in housing benefit and are being cleansed from Knightsbridge and Kensington.

  2. LB

    Building more houses.

    Just like Spain and Ireland.

    Now look at the consequences of that building program.

  3. evanprice

    I am sorry, but you appear to completely ignore the impact of the massively increasing property prices over the period you discuss.

    This is because a return has to be made – whether you are a social landlord or a private investor. The return is needed to pay for the costs – which include the capital costs as well as administrative and running costs. If the cost of capital is substantial, because the capital is substantial, then rent will increase to cover that cost.

  4. anthonypainter

    Firstly, thank you for your considered response.

    I accept quite a bit of your analysis. In fact, the paper did note the social housing driver of the housing benefit bill and you also note it. Private housing supply is of course an influence alongside that.

    My question though is whether rent controls are the right response. The New York scheme is often mentioned but it’s very limited in fact and depends on low vacancy rates (ie when the market is tight). The problem with rent controls is that they are aimed at the tennant-landlord relationship when are real driver is the development of housing of all different types. You’d expect there to be perverse impacts if a rent control system was innapropriately implemented – in the worst case it may interrupt the supply of housing which contradicts the policy aim.

    I have to say that I’ve become increasingly orthodox on these issues over time. I don’t see why – in fiscally conservative terms – we can’t use the state’s superior borrowing power to fund low cost housing. I’d even go so far as to say that it’s an investment: it would reduce benefit spend enabling the transfer of cash to more productive activites, it would take some heat out of housing markets, and, of course, there is the short term economic benefit.

    I would prefer:

    – To adopt low cost building models for implementation at the local level (housebuilding has moved on considerably since the 50s/60s.)

    – LAs to proactively idenitify development opportunites. High tension markets would have particular reponsibility with severe sanctions if consents for public-social-private housing numbers weren’t met.

    – Pool all housing resources in a single local budget to be used as they see fit with the existing responsibility to house the homeless within their local authority. Rent subsidies may be one approach. Increasing the public (council) housing stock another – borrowing controls should be loosened. Rent controls might be one tool but if it distorts and discourages private investment then there will be no incentive to implement them.

    – The British Investment Bank should be able to invest in private and public housing where there is a shortage.

    All of this would create- increased housing supply, more manageable budgets, better housing, increased economic activity.

  5. LB

    The New York scheme is often mentioned but it’s very limited in fact and depends on low vacancy rates (ie when the market is tight).

    ==============

    It is in the UK, because of all the migrants that have arrived.

    So the New York problem is entirely valid.

    If you cut the returns, then you cut the money to maintain etc. End result is that you will not get properties that are maintained, cleared of damp etc.

    Remember too that under EU law, BTL is just part of the market and social housing is included. You have to apply the same rules to both.

    You need there to look at what sort of housing all these people want. Some are clearly not competing against those on sccial housing, they are buying in Chelsea

    What the UK doesn’t need is more debt. The state in so much debt it won’t pay because it can’t pay. Pensions for example are hidden off the books.

    We don’t need a BIB. If you want one start it. Put your own cash in. The unions can do the same. Oh, they have. It was the COOP. Look what happened to that.

    If you want investment, here’s an ideal. Allow people to keep all their NI, subject to the condition they invest it for their retirement. Lots of money available for investment. If a median wage earner had done this, then over the 40 years they would have a fund of 627K, instead they get 152K of state pension.

    So two easy solutions.

    1. Stop low skilled migrants from living and working in the UK.
    2. Allow people to invest NI.

    However, this doesn’t solve the real problem, a bankrupt state that can’t invest.

    The last bit. Brown and Blair invested hundreds of billions. Where’s the return? Where are the savings? (cuts)

  6. LB

    So why should councils invest?

    Look at Southwark and the Heygate estate.

    Kicked hundreds out of their homes. End result – properties left empty.

    The excuse. Too expensive to replace the lifts. Bolting on a new lift shaft and boarding up the old one?

    Er, I think we know the answer. No backhanders for a simple solution.

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