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.

Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.