The changes to Local Housing Allowance and the rest of the Housing Benefit system have been covered frequently on Red Brick. We don’t think much of them.
But one argument that the government deployed seemed logical to a lot of people. That was the common Ministerial assertion that, because LHA claimants make up as much as 40% of the private rented market, the level of LHA payments must be a big factor in the rise in private rents over recent years. And the corollary was that cuts to benefit, and hence to tenants’ ability to pay, would inevitably lead to a fall in rents, which would be a good outcome.
In my old economics textbook I find some support for this in theory: if supply is constant and effective demand falls, then the price should fall as well. Cue much Tory-speak about the good old market mechanism.
However in the real housing market demand is in such excess over supply that the neat little supply and demand chart really doesn’t work. If you reduce benefits so that tenants in high demand relatively expensive areas have to move out, there are many people willing to replace them at the same price. The price will not fall. Yet in the cheaper areas where the tenants are expected to move to, there will be more people chasing the small proportion of homes that become available at or below the 30% percentile (the new cap) at
any one time: the price is likely to rise.
A new report ‘Leading the Market’ from the Chartered Institute of Housing and the British Property Federation pours more cold water on the ‘LHA causes high rents’ argument.
They conclude that
“The increase in average rent levels during this period (2008-2010) is entirely due to a shift in the relative distribution of the caseload from the North and the Midlands towards London and Southern England. After adjusting for this ‘caseload effect’ average housing benefit rent levels fell by 1% (instead of the reported 3% rise).”
“We found no evidence for a relationship between the LHA inflation rates and the proportion of the market that is let to housing benefit tenants.”
“There is no evidence to support the contention that the LHA is inflationary or produces a feedback loop.”
“Our findings call into question the Government’s strategy that it can use its power as a bulk purchaser to force landlords to reduce their rents. If LHA rates do not contribute towards rent inflation then conversely they cannot be used as a tool to force rents down.”
In short the policy is not just wrong in principle: it is wrong in theory and it is wrong in practice.
George Osborne would do well to read more of John Maynard Keynes, and in particular his General Theory of Employment Interest and Money published in 1935. Unlike Osborne and Cameron, Keynes (a capitalist economist and a Liberal) learned lessons from the Great Depression and was determined never to see it repeated.
One of JMK’s well-known sayings – ‘When the facts change, I change my mind. What do you do, sir?’ – was uttered after he was criticised for changing his position on monetary policy during the Great Depression. It applies well now to Osborne’s repetition of the Great Depression mistake (and indeed Japan’s more recently) of cutting demand in a recession.
But it might equally be applied to private rented sector rents and the policy of slashing the Local Housing Allowance for private tenants. Minister after minister, from Cameron down, trotted out the line that cutting benefits would reduce rents, that the HB sector was holding rents up high, and that the free market would respond to HB cuts, effectively lowering demand, by lowering price. Iain Duncan Smith frequently said that the fact that his department was responsible for 40 per cent of the private rental market was ‘staggering’ and that the aim of the reforms was ‘to drive down market rents’.
Logical thinkers came to different conclusions. With current levels of excessive demand, tenants forced to move by cuts in their HB payments would be easily replaced by new tenants able to pay market rents. There would be no price reduction in more costly areas. However, the displaced tenants would be looking for homes in lower rent areas, boosting demand and competition for the cheaper homes that come on the market. Rents in those areas would be likely to rise. The problem would be compounded by a proportion of landlords taking family homes off the market to make them available instead to the growing number of single people who would only receive the shared accommodation HB rate in future. Letting to 4 or 5 singles was likely to be more lucrative than letting to a single family.
The anecdotal evidence is that sharing and overcrowding are increasing as people, and especially larger families, try to find cheaper – which often means smaller – accommodation. Harder evidence, from agents and landlords, shows that rents continue to rise above inflation.
Nor are there any signs of rents turning down in the future. The head of research at Savills recently concluded “High rent rises are not confined to the prime market and, as more aspiring buyers are frozen out of home ownership, demand for private rented stock in the country as a whole can only grow. Our prognosis for the private rented sector as a whole remains extremely bullish.”
Even if the government believed its little bit of idiot economics when it started the policy, surely the evidence is accumulating that they are just wrong, rents will not fall and people will be put through endless misery because of it.
The facts have changed. But does Iain Duncan Smith have the bottle to change his mind as JMK suggests he should?
Channel 4’s ‘Landlords from Hell’ Dispatches documentary on Monday showed people with no options being forced to live in the most appalling conditions in private rented housing, in one case with a sickeningly violent landlord masquerading as a charity.
The shocking thing was that it wasn’t shocking to anyone who has worked in the lower end of the sector over the last 30 years. When I worked there in the 1980s, I can recall a house being discovered by environmental health officers in Haringey which had 50 people living there in shifts. The growing housing shortage is clearly making things worse, and it is inevitable that the housing benefit cuts will make the scramble for the cheapest and worst homes even more intense.
Anecdotal evidence tells me that there are fewer environmental health officers and housing advisers working in the sector than there were then, and the Chartered
Institute of Environmental Health’s journal EHP regularly reports cuts in posts and services. Back then, in boroughs like Haringey and many others, programmes like Housing Action Areas meant that the poorest areas were identified and additional powers taken for small areas of particular housing stress. Local teams of housing advisers (who understood tenants’ rights) and environment health officers (who understood property law and enforcement) worked together to go systematically from house to house dealing with bad conditions. Although landlords sometimes responded by ending a tenancy, it was the council and not the tenant that was responsible for action being taken, making it clear to the landlord that getting rid of the tenant was no way out, thereby making tenants feel less vulnerable. Picking up a small number of homeless people as a result of a large programme of intervention was seen as a price worth paying. The method was carrot and stick – grants were available to help with the works, but we would not shy away from compulsory purchase when it was necessary.
Things seem to have got worse over the years despite many changes in the legislation and
the introduction of the health and safety rating system. The service and enforcement of notices seems to be as complex and bureaucratic as ever. The sector has grown but resources, especially the number of housing environmental health officers on the ground, seem less, and it is less common to have local teams who get to know the landlords and develop relationships with them. The system seems to have reverted to responding to tenant complaints rather than planned programmes of inspections focusing on the riskiest properties.
A system that puts tenants at risk – of eviction, and occasionally of harassment – if they
complain will never work effectively. It is interesting that the CAB’s advice on getting repairs done starts with the warning: “Trying to get a repair done may put a tenant at risk. People with limited security may face eviction if they take action against their landlord.” This is the central conundrum in dealing with bad conditions in the private rented sector.
Labour’s proposed reforms following the Rugg Review were a start but are now abandoned, and the current government’s laissez faire attitude is seriously deficient. Anyone watching Grant Shapps’ interview with Jon Snow would spot the complacency and, frankly, lack of concern. There is nothing wrong with emphasising that most landlords are good, and that most tenants are satisfied, but this is no excuse for failing to have a strategy to tackle the bad landlords and the bad properties.
Private renting is the last great unmodernised industry, run by amateurs and too often
driven by the dream of the quick buck. The landlords’ organisations seem far more responsible and less defensive than they used to be: they also support action against rogue landlords and support the professionalisation of the industry.
There seems to me to be a great opportunity – rising demand, good returns, a flat property
market – for radical reform that will benefit tenants and landlords together. Taxation of private renting needs reform to encourage investment in repairs and improvements. I would argue for a stronger measure of security of tenure and the abandonment of the worst aspects of the local housing allowance changes as well. But the way forward for private renting must be based on proper regulation against a clear code and standards, a professional service, clear contracts between service provider and consumer, and swift intervention that is driven by council inspection and not tenant complaints. Just like any
other industry that has a major impact on people’s lives.
I doubt very much if he will recall it, but I met Jon Snow in 1973 when I organised a
conference on homelessness in London’s West End on behalf of Voluntary Action Westminster and he was the main guest speaker. Jon worked at New Horizon Youth Centre but he was already a stunningly charismatic and committed man. I understand
he has kept in touch with New Horizon ever since. I have only come across him once since, when he devoted almost the entire Channel 4 News to a brilliant analysis of the Westminster Auditor’s guilty verdict on Dame Shirley Porter’s gerrymandering.
On the basis of these two little episodes I have taken it as read that he had a feel for housing issues as they affect people at the very sharp end. He himself says that what he saw of poverty and homelessness in the West End in the 1970s has informed his life ever since.
Jon has now revisited the bad end of the housing market for a Dispatches programme which airs next Monday. He calls it ‘a shocking eye opener’. On his blog, Jon says;
This month I have spent hours in flats and houses in which you would not leave a dog for an hour. I have smelt the dank fungi that leaches its way across the walls of a two-bedroom flat in Rochdale and wandered between rows of garden sheds to the West of London in which rafts of men live two, three, and four, to a shed. At night you hear the voices in the dark, see the chinks of light through the boards, hear the clank of cooking pots as they prepare supper at the end of a working day.
It perplexes me that society can be so consumed with the state of education and health provision in Britain, and yet turn so active a blind eye to the true state of where people actually live.
At a time when it seems to be increasingly acceptable to blame the poor for their poverty and the homeless for their homelessness, and politicians line up to talk about housing benefit as if everyone was getting tens of thousands of pounds to live in luxury, the programme will show what life is really like at the bottom of the housing market in the worst of the private rented sector.
It is, says Jon, ‘a shocking and upsetting watch’. And as the government rips the homelessness safety net to shreds and cuts housing benefit to the bone, lets hope it makes them feel just a little embarrassed.
Labour Housing Group and Socialist Health Association held a conference ‘Prescription for a healthy Britain’ on Monday 13 June. Conference papers are available on the LHG website here. In a guest post, LHG Vice chair Marianne Hood picks up the conference theme.
Despite the fact that the links between health and housing have been recognised for well over 100 years, and despite over a century of public health and housing interventions, we still have people with the worst health living in the worst housing.
The original impetus in the 19th century for improving housing conditions (for example slum clearance to tackle squalid living conditions, severe overcrowding and dilapidation) was clearly focussed on improving health outcomes. Sadly, in the 20th century the focus shifted to issues of ownership, access, management and cost – losing the link between improving housing to improve both mental and physical health.
Now in the 21st century many of the policies being driven forward by the Tory-led coalition risk returning us to that early 19th century situation with severe overcrowding and the poorest and most vulnerable people being driven into the poorest homes in an unregulated private sector. Make no mistake, there is a wealth of evidence to show that the private sector, especially the private rented sector, contains the highest proportion of ‘non-decent’ homes with a significant percentage of older people living in the very poorest private sector homes.
If investment in housing is not substantially increased, much of the expenditure on health and care programmes will be totally ineffective. In a report commissioned specially for the LHG/SHA Conference earlier this week, environmental health expert Stephen Battersby* reminded us that poor housing conditions cost the NHS at least £600 million per year, that the one-off costs of works to improve private rented housing gave an annual financial saving to the health sector, and that every £1 spent on providing housing support for vulnerable people can save nearly £2 in reduced costs of health services, tenancy failure, crime and residential care.
The Labour Housing Group believes that housing should be recognised as a community capital asset that needs to be properly maintained, most of our current housing will still be here in a hundred years time, because if it is neglected the cost of demolition and replacement will ultimately fall on the state.
Surely we owe it to current generations, and to our children and our children’s children, to have good housing and health policies fit for the 21st century? Policies that recognise that investment in housing is an essential prerequisite for tackling inequality overall but especially health inequalities. *University of Surrey and University of Warwick, current President of the Chartered Institute of Environmental Health.
I was suitably riled listening to Grant Shapps on World at One at lunchtime today, failing to answer sensible points and questions about the housing market from Tony Dolphin and Owen Hatherley. His ability to avoid any question and reply in ludicrous blandishments never ceases to amaze me.
According to Shapps, house price inflation only occurs under Labour. He must have been too young to remember the boom under Thatcher – and even worse the bust when home owners were abandoned with vast amounts of negative equity, a huge number of repossessions – and no government help. At least when the bust came in 2007 – and never forget it was an international banking bust whereas Thatcher’s was home grown – the Labour government took a series of important steps to protect tens of thousands of home owners, and the tenants of home owners, from foreclosure and homelessness.
Shapps simply fails to deal with the issues raised by two important reports today. The first, the one that grabbed the headlines, was from the Halifax who coined the phrase ‘Generation Rent’ to show that people no longer feel that they will be able to buy and that half of 20-45 year olds now think renting is the norm, similar to much of the rest of Europe.
The second, Tony Dolphin and Matt Griffith’s serious piece of work for IPPR, Forever Blowing Bubbles? takes a long hard look at housing’s role in the UK economy with a proper historical perspective. It makes a series of recommendations for mortgage regulation and the importance of stopping borrowers from thinking that housing market is a one-way bet. They also make a strong case for reform of the private rented sector to provide a real alternative choice for those who need to hedge their move into home ownership. As they say, “tenure rights are weak and the sector is poorly prepared for larger families and their needs. The professionalisation of the sector is much needed to make it the natural choice for those who wish to sidestep the risks of the owner-occupied housing market.”
At one level it seems obvious, but they demonstrate the importance of looking at the housing market as a single entity and not two markets of different tenures, arguing for “reform of the PRS to make it a less destabilising influence in the UK housing market. As we have seen, BTL (buy to let) investment has too often been speculative, volatile and a cause of pro-cyclical price pressures in the housing market. Worse still, it appears to have cannibalised existing housing stock, led to a weak response in total housing supply, distorted existing supply incentives to encourage the overproduction of small city-centre flats, and driven out large institutional investors by pushing prices up beyond sensible yields.”
Owen Hatherley, whose interesting article on home ownership and renting is also published today, put it to Shapps that people who could no longer afford to become home owners were left at the mercy of the unregulated and insecure private rented sector, and therefore faced no real choice at all. And that secure public sector tenancies should be a genuine option. Exit stage right for the Minister, off on another ramble about some excruciatingly complex shared ownership option he’s invented (effectively a cut-back and rebranded Labour scheme).
The Government avoids the big questions in housing policy today, especially how the housing market – and the vast majority of people live and will continue to live in market housing – can be made to work for people on low and moderate incomes. There is a real opportunity for Labour to build on these interesting reports and come to some radical but sensible and appealing policies of its own as the Housing Policy Review takes shape.
Founder of Red Brick. Former Head of Policy for Shelter. Select Committee Advisor for Housing and Homelessness. Drafted the first London Mayor’s Housing Strategy under Ken Livingstone. Steve sits on the Editorial Panel of Red Brick.
Just published on the Labour Housing Group website is a fascinating article by LHG Executive member Graham Martin, who tries to predict what will happen to the 3 main tenures between now and Xmas four years hence, when we will be 5 months away from the most likely date of the next General Election. What will the Labour Party, when returned to government, be facing in housing? Here is a summary of Graham’s conclusions (figures are for England only).
Social Housing
Housing Associations currently own around 2.3m affordable homes. Given the size of the stock, the overall numbers will change slowly despite the planned changes.
The current (inherited and new) social rented programme will produce about 100,000-120,000 extra ‘target rented’ properties. But between 100,000-170,000 existing target rent homes will be relet at intermediate (upto 80% market) rents. In 2014 it is likely to be 50,000 fewer in total than now.
There will be around 285,000 more homes let at intermediate rents (say 135,000 relets and 150,000 new build).
The debt funded/rental cross-subsidised new Intermediate rented homes will be produced mainly in London and the South East (with some in the South West and Midlands) as it is here that the maths work best. In other parts of the country, intermediate rents will result in either a small increase or even a rent reduction, making development on the new model unviable.
The biggest impact is likely to be caused by the interaction of the various benefit changes, and in particular the overall benefit cap of £26,000, restricting tenants’ ability to pay.
Council house numbers will change slowly. There is little appetite and resources for significant stock transfers. Some other conclusions:
The reform of Housing Revenue Accounts is likely to improve councils’ financial strength and their ability to invest in their own stock. There is a risk that there will be a smash and grab raid on HRA money (rising rents, financially more secure) to cross subsidise the General Fund.
The provision by councils of Intermediate rented housing is likely to be slow.
Management issues around benefits are likely to be the same as with Housing Associations.
Changes to statutory homelessness rules, and changing letting priorities will have a significant impact.
Home Ownership
Graham projects that house prices might fall another 20%, maybe 25%-30%, as measured against inflation. This will be mainly due to the long term ‘deleveraging’ of the residential mortgage market – i.e. there will not be the money to lend to home owners to buy new homes (such money as there is will go mainly to those buying the nicest properties with the biggest deposits).
Home construction for home ownership will be remain low until 2014, after which is may start to increase again (from a very low base).
The lack of affordable homes for (all but the best off) first time buyers will result in increased pressure on the rental market, and more adult children living in the parental home.
Private Rented Sector
The hardest to predict. The only certainly is that there will be big change.
The changes to Housing Benefit (and total benefit) rules will profoundly impact on the sector. Landlords may split their properties into smaller flats to respond to the benefit caps and ceilings. Savills are projecting that the impact will be, first, large falls in demand for and rents of 1 bedroom flats (due to under 35’s now being subject to the ‘single room rate’ rule), and, secondly, increased demand for larger ‘shareable’ properties.
The new 30% centile cap on maximum HB and the plan to greatly widen the ‘Broad Market Rental Areas’ will have a big impact. There are areas where over 30% of private tenants are dependant on HB, but will be constrained to living in the 30% of cheapest properties. 40% into 30% just does not go….
It is likely that the gap in housing (especially ‘green’) quality between other tenures and the private rented sector will grow significantly upto 2015.
Regulation and quality control are likely to be drastically reduced due to spending cuts, and there is a danger that undesirable landlord practices will increase. This is unfair to tenants but also to responsible landlords and managing agents.
There is an opportunity to promote high quality institutional landlordism, with investment available if the regulatory structure is right. REITS – Real Estate Investment Trusts – could work well in residential letting, kick starting the UK residential construction industry, and providing high quality, long term rented property at market rents.
Founder of Red Brick. Former Head of Policy for Shelter. Select Committee Advisor for Housing and Homelessness. Drafted the first London Mayor’s Housing Strategy under Ken Livingstone. Steve sits on the Editorial Panel of Red Brick.
In a recent post I made the observation that government impact assessments, and especially equality impact assessments, tended to reveal more about a policy than all the other official documents put together, and that looking at any policy from the point of view of those most likely to be worst affected tends to expose the downside or weak links in the argument.
The point is well supported by the DWP impact assessments on the housing benefit changes, or more correctly the Local Housing Allowance changes, published last week.
At constant prices, and taking account of the recent minor concessions in the proposals, the LHA savings will start in 2012/13 and build up to £1040m in 2014/15, slightly offset by piddling amounts for increased discretionary payments and an (extremely welcome) allowance for an extra room for a carer. In 2014/15:
– removing the £15 bonus for people achieving a rent below the LHA rate (the shopping around incentive) will save £550m
– setting Local Housing Allowance at the 30th percentile of local rents will save £425m, and
– capping LHA rates will save £65m.
The first point to note is the relatively small saving from the ‘cap’, given that virtually all government comment on the LHA issue has focused on excessive benefit payments to people in high rent areas, especially in central London. 17,400 households are affected – often very severely – by the caps. The much higher saving from the ‘30th percentile’ change will have far more impact. It will affect more than three-quarters of a million households in all parts of the country.
Nearly everyone will lose: over 900,000 households, a stunning figure. The national average loss is £12 per week, from an average benefit of £126, but the hardest-hit group, households needing a 5 bedroom property, will lose an average of £57 per week as the 5 bed rate is withdrawn entirely. All the regions/nations are hit, with London top with an average loss of £22 per week. The biggest groups numerically are those in the 1 and 2 bedroom categories, who will face average losses of £11 and £15 respectively. The lack of grip on the reality of what it is like to live on a very low income is illustrated by the argument that “only four per cent of cases will have a shortfall of over £20 a week” – well, that’s all right then.
DWP refuse to make an assessment of the number of households that will have to move. They say they can’t predict behaviour, and customers have options – for example, “some may start work or increase working hours”, others “may be able to renegotiate their rent with their landlord and others may have resources such as savings they can fall back on”. To be fair, they do note that the Greater London Authority’s estimate that over 9,000 households may need to move in London as a consequence of the caps, and that 6,800 of those will be families; and Shelter’s estimate that between 68,000 and 134,000 households may have to move nationally.
“David Cameron insisted today
no one will be made homeless
by limiting ‘extravagant’ housing benefits”
Daily Mail
Contrary to the assertions of leading members of the coalition, including David Cameron, the impact assessment notes “a risk of households falling into rent arrears leading to eviction and an increase in the numbers of households that present themselves as homeless”…. and that “any resulting population movement could have wider impacts. People who move may need to rearrange their children’s schooling, healthcare arrangements or, where relevant, social services support; they may also need assistance with finding accommodation.”
Other specific groups affected by the changes include:
Disabled people, especially those who may have to move across a council boundary, because care and support packages do not move with the person and settled arrangements will be disrupted as the new authority carries out a new assessment. This “could lead to gaps and delays in new arrangements being put in place and consequential distress for the individual.”
Large families, who often have poor employment prospects and a much increased risk of poverty: for them, the “cap could affect their risk of overcrowding and the associated health and educational effects.”
Ethnic minority groups, who tend to have a higher proportion of large families, will be likely to be affected disproportionately. Further research may be commissioned in this field as there are “limitations in current data.”
Quotable quote from the impact assessment
“the impact assessment recognises that there are a number or risks as follows:
– increases in the number of households with rent arrears, eviction and households presenting themselves as homeless;
– disruption to children’s education and reduced attainment;
– disruption to support services for people with disabilities and other households with care and support needs;
– increase in the number of households living in overcrowded conditions; and
– a decrease in the number of and quality of private rented sector properties available to Housing Benefit tenants.”
Founder of Red Brick. Former Head of Policy for Shelter. Select Committee Advisor for Housing and Homelessness. Drafted the first London Mayor’s Housing Strategy under Ken Livingstone. Steve sits on the Editorial Panel of Red Brick.
Yesterday’s marathon Commons debate on the proposed housing benefit changes produced more heat than light. There were a lot of apparently conflicting statistics, especially about the number of people affected and the number of people likely to have to move home as a result.
The main government theme – sorry, but I can no longer distinguish between Tory and Liberal members of the government, I had thought the Minister, Steve Webb, was a Liberal Democrat until I heard his speech – was to attack Labour’s ‘scaremongering’. But as the government has yet to publish any meaningful analysis of the proposals, or to demonstrate how the savings are calculated, the opposition has to rely on its own analysis and that of the housing organisations like the National Housing Federation and Shelter, and all have predicted dire outcomes.
There was an interesting debate about the impact the Local Housing Allowance has had on rent levels in the private rented sector. In short, Labour argued that rent levels, especially in higher rent areas, have been dragged up by buoyant and growing demand from non-HB tenants, especially the growing group of people who would have become owner occupiers in previous times who now can’t or won’t take a risk on buying. Therefore LHA, being linked to the median rent, follows the market rather than leads it. Labour in office had decided to remove the highest rents from the calculation of the median to reduce the impact the top of the market was having on the measure that determined the going LHA rate. The government benches took two slightly different views; on the backbenches several claimed that the LHA level was determining the rent levels, driving the market up, but the Minister relied on the more limited construction that, as the LHA supported 40% of rent payers in the sector, it must therefore have some effect on the price.
This seems to me to be a proper debate about a fundamental issue. How does state intervention impact on a market, especially one with inelastic supply, which caters for the very rich and the very poor and lots in between and has little consumer protection? We will be more and more dependant on private renting in the future, and this is a question worthy of proper study and analysis. One factor may be the differences between the market in high rent areas and those in areas where the gap between social and market rents is really quite small and where there are fewer richer people entering the market.
Another noteworthy feature of the debate was the number of speakers from places well away from London. The government has been keen to keep the debate focused on the more extreme cases where the national cap will now apply, but there were speeches about Glasgow and Sheffield and Sunderland and elsewhere identifying the likely losers and the impact the losses might have on families.
The only real sign of dissent on the government side concerned the proposal to cut HB by 10% for anyone on job seekers allowance for more than a year, irrespective of how hard they had looked for a job, and LibDem Simon Hughes said he would oppose this – although the remainer of his interventions gave me the impression that he might end up supporting the rest of the package, making it much more likely that it will go through.
