Housing Benefit reforms are based on mistaken beliefs

Posted: September 29, 2011 in Uncategorized

Richard Exell by Richard Exell

Research into rents in London shows that an underlying assumption behind the government’s Housing Benefit reforms is mistaken. As we’ve noted over the past year, the availability of HB will be restricted and the amount of help tenants get will be reduced by the government’s proposals for Housing Benefit and cuts in support for local authorities. These include:

  • Cuts in Area Based Grants;
  • Raising rents in new social housing to 80% of the market rate;
  • Setting Local Housing Allowance at the level of the bottom 30% of local rents, instead of the 50th per centile;
  • Setting a maximum level of HB, by number of rooms and introducing the ‘benefits cap’, which will have its main impact on people who receive large amounts of HB;
  • At present, if you are under 25, the maximum HB you can claim is equal to the rent for a room in a shared flat; the Spending Review announced that this age limit will be raised to 35.
  • From 2013, uprating HB by CPI, not RPI.

It has been obvious for some time that people in London, where rents are highest, will be hardest hit, with London Councils warning that that 82,000 households could be made homeless in the capital; by 2020, every tenant’s HB will be less than enough to cover their rent.

Like many others, we have feared that the pressure on council housing services will intensify, families will be forced out of the communities they have always known, children’s educations and healthcare and caring arrangements will be devastated, unemployed people will be forced to move to areas where jobs are harder to come by and vulnerable groups will be hardest hit. However much local authorities and charities try to ameliorate matters, there will be an increase in homelessness.

The government’s argument in response has been that we’re over-estimating the disruption, because these reforms will force rents down. Rents have gone up because landlords know the government will pay tenants’ rents and most HB claimants should be able to negotiate lower rents when their benefits come down.

This has always been a weak argument – the British Property Federation (among others) have pointed out that it rests, at least in part, on distorted figures and last year a survey by London Councils found that about 60% of 270 landlords who responding to a survey said they would not lower their rents at all in response to the changes in Local Housing Allowance.

The London Residential Review, published by property network Frank Knight, reports on a property market that is once again pulling away from the rest of the country. Rents “have jumped by 25% since their low point in June 2009″ and “increasing competition between tenants has, in turn, boosted rents”. Landlords are renegotiating rents upwards, not because of HB, but “while supply remains so constrained” and the organisation “expect[s] rents to continue to rise due to the supply shortage.”

Of course, Frank Knight are best known for dealing in ‘prime’ properties, but Residential Lettings London report a similar picture for average rents, which have risen 6.6% in the past year for both flats and houses. yesterday, HomeLet, a “tenant referencing specialist” reported that the increase was, in fact, 12.2%.

Now, I suppose one lesson we should draw from the fact that these figures are so different is that we should be careful about using surveys like this, which are often extended press releases for the businesses behind them. Nonetheless, they do all indicate that there is currently a landlords’ market: the notion that claimants will be able to force rents down because their HB has been cut looks more dubious than ever.

If the government was planning to increase the supply of rented accommodation at the same time as cutting help for tenants, then they might have some chance of success. But their gestures in that direction are feeble in the extreme (surprise, surprise, this is one of Nick Clegg’s jobs) – the reforms will put most pressure on the poor and weak, hardly any on landlords.


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