The IFS warns that changes announced in the July budget could also decrease social housing stock
New research by the Institute for Fiscal Studies (IFS) suggests that reductions in social rents announced in the July Budget will be of ‘little or no direct benefit’ to most of the 3.9 million households in England living in social housin. They will, however, benefit the Exchequer.
This is because most of those renting their home from councils or housing associations have low incomes, and therefore receive housing benefit to cover all or part of their rent. As rent prices fall – the July Budget announced a 1 per cent annual reduction in social rents in England for the next four years – housing benefit will typically be reduced pound-for-pound.
The IFS predicts this will save the Treasury £1.7 billion. Meanwhile social tenants’ disposable incomes will rise by only £0.7 billion. These figures assume that all those entitled to housing benefit take it up.
Some tenants will gain from the rent cut, and these will tend to be those around the middle of the income distribution. Of the 3.9 million households in social housing in England, 1.6 million will gain an average of £420 per year, 1 million of which have someone in work.
Worryingly, the IFS also suggests that the rent cut could decrease the amount of social housing stock available. Although the cut will, on average, strengthen the financial work incentives of social tenants, they will also increase the financial incentive to seek access to social housing.
And by reducing the annual rental income of social landlords by £2.3 billion, the cut could also reduce the amount of new social housing supply. The Office for Budget Responsibility (OBR), estimates that 14,000 fewer social sector properties will be built between now and 2020/21 as a result of the July Budget announcements.
Robert Joyce, a senior research economist at the IFS and one of the authors of the report, said:
“Recent policy on social rents displays a worrying lack of consistency. The government had committed to increasing social rents for ten years; but after just one of those ten years, it announced that rents will instead fall for the next four years.
“This instability could damage the ability of social landlords to plan and finance new house-building.”
Ruby Stockham is a staff writer at Left Foot Forward
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