The Prime Minister’s recent suggestion that young people under the age of 25 might be barred from receiving Housing Benefit has re-ignited the debate about welfare reform. Talk of a further ‘benefits crackdown’ duly generated the positive headlines that Downing Street strategists were after, while opponents howled in apocalyptic objection to this latest attempt to control the benefits bill. Pretty soon, the political debate moved on, everyone having fulfilled their roles to perfection. Evil Tory bogeymen, tabloid headline writers, charity campaigners all did exactly what we would have expected them to do. Maybe the specific proposal will remerge in future as concrete government policy, maybe it will be one of those kites which don’t fly for long. Either way, the whole episode acted as a giant smoke screen to the reasons why Housing Benefit has been rising – and how reforms might control its future increases in a sustainable way. 
 
The root of the problem is not a sudden spate of 24 year olds claiming Housing Benefit. Instead it is a gradual, but ultimately dramatic shift in the balance of public expenditure on housing. In the 1970s, 80% of spending went on building new affordable homes, with just 20% going on cash benefits to help people pay their rent. During the current four-year spending review period, there will be £4.5bn of capital investment in new affordable homes while £95bn will be spent on housing benefit. Of that, more than £30bn will go to private landlords due to the chronic lack of affordable housing.
 
This is the result of a generation-long Labour-Tory consensus to allow public money to be shifted from building homes to subsidising rents and to run housing policy from Whitehall, with local government left as a delivery agent. While the economy was growing and public expenditure rising, the flaws in this approach were camouflaged. A host of initiatives – like first-time buyer gimmicks – covered up the absence of strategy. The last Labour government improved the stock of social housing but didn’t challenge the status quo. Sadly, the coalition is making things worse.
 
The truth is that Housing Benefit has spiked in recent years largely because unemployment has risen and household incomes dropped. But the long-term, unchecked, increase in benefit spending is significantly rooted in the housing market, especially the greater reliance on the more expensive private rented sector. The government, conscious of the need to control expenditure, has pegged back eligibility to benefit and dramatically reduced capital spending on housing. But because it has not addressed the root causes of the rising benefit bill the annual savings made from cutting investment over this spending review will be cancelled out twice over by higher housing benefit – even with £2bn of benefit cuts.
 
We are beginning to see the impact of this failed settlement. Affordable house building has fallen by more than 70% between 2009/10 and 2011/12. The fact that construction on less than 16,000 affordable homes began last year will, in turn, put further pressure on the housing benefit bill as need gets squeezed into the private sector. And local councils are left in an impossible bind, with responsibility but little power.
 
With the next spending review set to deliver further cuts to both capital investment and the benefits bill, it is time to set out on a new course in housing policy – with the liberal principle of localism at its heart. The key goal is to shift spending from paying out benefits to building more homes. That is not straightforward to achieve but could be done by breaking down the divide between capital grants and benefit spending at the local level, where councils are capable of striking the balance that is right for their area.
 
IPPR’s proposal is that councils should be given an Affordable Housing Grant – made up of projected housing benefit and capital spending in their patch – with a legal duty to use those resources to improve access to affordable homes in their area. This would substantially enhance their scope to get house building going by striking better deals with private landlords, borrowing against their significant assets, rent receipts and revenues, and “investing to save” their multi-year government funding. Over time, this would act to keep rents more affordable for households – and cheaper for local authorities to subsidise where this was still needed.
 
Combined with local control over planning, social housing allocation and regulation of the private rented sector, this new direction would constitute an institutional reform capable of advancing the devolution of power out of Whitehall and securing investment into house-building at a time of public finance constraint. 
 
This strategy would mark a radical departure from three decades of housing policy. It does not fall neatly into established ideological camps and will be uncomfortable for some in the housing sector – and strand of opinion on both the Left and the Right. It accepts the need for fiscal discipline, but rejects the argument that this means less affordable housing and more social segregation. It agrees that the British state is too centralised, but believes that localism is more than just devolving cuts.
 
On current trends and policy, Britain is set for a decade of chronically low levels of affordable house building and repeated attempts to hack back housing benefit – with some denying the problem and others denying reality. There is an alternative. We need a coalition of political forces from across the spectrum to be brave enough to grasp it.
 
* Graeme Cooke is Associate Director at IPPR