Opinion: Are the poor going to be driven out of the south by the Coalition’s housing benefit reforms?

A shocking story in the Guardian this week that, not content with driving the poor out of Kensington and Chelsea, the Coalition’s cap on housing benefit would force them out of southern England altogether. Worse, this came from the Chartered Institute of Housing (CIH), who sound like they ought to know what they are talking about.

I rang up the CIH and asked how I could get hold of a copy of the study and was surprised to hear that there has been not actually been one. They are apparently ‘doing some work for a Select Committee’ which may be released some time in the future.

So I went back to the story in the Guardian. What the CIH have done is to assume that rents increase by 5% a year over the next 30 years and that the housing benefit caps will increase only by the CPI measure of inflation. They look at the number of Broad Rental Market Areas (BRMA) within each region of the UK and see how many of these will be above the HB Cap based on these extrapolations.

Even on this data there is only 1 (out of 14) BRMAs in London currently affected, while in 10 years time outside London (which would be severely affected) only one area in the east and 3 in the SE (out of 18 and 29 respectively) are affected. After 20 years, though, most of southern England is affected, and by 30 years virtually the whole country.

The key assumption is that rents increase 5% a year (presumably over CPI, although this is not clear). The Guardian says that 5% has been used ‘because rents rise at an average of 5% a year’ as if this is an immutable law of nature. I have no idea if this figure is accurate but let’s suppose it is. Why should the next 10, 15 or 30 years be like the last?

In the last 10 years we have had a (mostly) booming economy, large-scale immigration from eastern Europe and more people living alone. There seems no reason to assume that these factors will continue to influence rent levels in future, nor does the assumption that rent levels increase evenly across the country seem likely to be true. It is also, of course, possible the HB Cap might be raised in future by more than CPI.

This is also a completely static analysis. If rents have risen by 63% in 10 years, who will be paying these rents? Is it not likely that an increase in rents of this level would encourage more rental housing to be made available? If poor people are moving out, who is taking their places?

It would be possible to have used exactly the same ludicrous projections to write an entirely different piece for, say, the Daily Mail. One could take the current HB cost (£21.5bn) and project forward using the same 5% annual growth. This would produce the story that within 30 years housing benefit will be costing nearly £100bn — clearly showing the need for reform of the HB system!

There is nothing unusual in the Guardian having stories attacking Coalition policies so one can understand why they ran this story (which was picked up and got extensive coverage elsewhere). But this is a particularly egregious example of a complete lack of any critical thought being given to a story which fitted their political agenda.

There clearly is a debate to be had about the Coalition’s housing benefit reforms – but it will not be helped by absurd analysis which mainly show that if you put nonsense into a spreadsheet you will get nonsense out.

* Simon McGrath is a Lib Dem member.

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40 Comments

  • Liberal Neil 12th Nov '10 - 3:42pm

    Well said.

  • patricia roche 12th Nov '10 - 3:48pm

    thats all right then. A price worth paying.

  • Dominic Curran 12th Nov '10 - 3:49pm

    Very well said. Good piece, Simon. Will you be sending it to said Guardian journlaist?

  • An excellent critique, although I would aim the main fire not on the press, the nature of which is to be biased, but the Chartered Institute of Housing; presumably the CIH wishes itself to be seen as an objective commentator on such matters, not a body hawking itself around to lazy hacks.

  • The trouble is that whilst the Guardian piece is clearly rubbish, (OK maybe not rubbish but a worst case scenario). Some of the figures the government are using have been shown to be equally dodgy…

  • My point is who cares? or are we thinking that those regions outside London/SE are 2nd class citizens?

  • LITTLE ANGUSSIE 12th Nov '10 - 4:15pm

    It is NOT Government and the taxpayer’s job description to pay rents for people to live in a house or area where they cannot afford too.

    We would all love to live in the most affluent areas of the city/country but if we cannot afford to we will rent or purchase property where we can.

    This is another tactic of the labour party to buy votes. It is absolutely absurd that people who do not work, or immigrants coming into the country who have never paid a penny of national insurace, are living in huge expensive houses and drawing almost £100 K of housing benefit – not to mention the tranche of other benefit largesse they receive.

    Now there is no money, the mindset of the subsidised must change and instead of never ending rent subsidy to keep them in comfort when working people cannot afford the same, they move to somewhere they can afford to live. Why should the taxpayer continue to pay this iniquitous benefit?

  • Grammar Police 12th Nov '10 - 4:27pm

    2 other quick points are: just because the rent is more than a housing benefit cap doesn’t *automatically* mean the person will be made homeless – how many families currently ownly get part of their rent paid by housing benefit?; and the cap affects housing benefit paid to those in private rental accomodation – the poorest families claiming housing benefit tend to live in social housing.

  • David Allen 12th Nov '10 - 5:20pm

    Simon McGrath says that the CIH experts are making crazy assumptions. Well, perhaps they are. As a non-specialist, I wouldn’t know. What I do know is that the CIH (and also Shelter) seem to have been quite happy to let the Guardian publish their very detailed results. I don’t hear CIH jumping up and down complaining that the Guardian have misrepresented them, do I?

    So when Simon says “I rang up the CIH and asked how I could get hold of a copy of the study and was surprised to hear that there has been not actually been one. They are apparently ‘doing some work for a Select Committee’ which may be released some time in the future.” Well, ten out of ten for spin doctoring skills, Simon!

  • @SImon
    “The key assumption is that rents increase 5% a year (presumably over CPI, although this is not clear).”

    Rents in this Country have fallen slightly in relation to wage inflation over the last three decades, but they are quite stable – this would tend to suggest that (any increase in?) HB has had no effect on pushing up average rents during that period. Why on earth would you, or they, presume that rents would rise at 5% above CPI??!! – I can only assume they mean what they say: 5% a year, nominally, although quite why they think this is anyone’s guess and I’m guessing they’ve based it on rent rises in the South East in recent years. This does sound like a slightly exaggerated prediction though, given that wage inflation is now much lower than 5%.

    House prices rose well above CPI in the last decade, but that was entirely due to the credit bubble.

    This whole issue really is typical tory Daily Mail tosh though. They tories are cherry-picking examples of a small minority who receive large amounts of HB to subsidise private landlords in slums that happen to be located in posh postcodes. Quite why the Lib Dems have turned into Daily Mailites is beyond my comprehension.

    The problem’s easy to solve – just build more council houses – they generate a profit for local councils anyway. 90% of land in this Country is undeveloped – it’s not like we’re short of the stuff. But why bother with something sensible like that when you can lay into the poor, rather than the rent-seeking slumlords.

  • Grammar Police 12th Nov '10 - 6:49pm

    @ Matt

    “There are more claimants of Housing Benefit, from people in Low Paid work, than there is from those on Unemployment Benefit.

    Single people with No Dependants who are on benefits are not seen as needy for social housing as those with children and so are forced to rent in the Private sector.”

    This doesn’t contradict what I said in any way.

  • Grammar Police 12th Nov '10 - 7:04pm

    @ Matt
    [sorry, pressed return before had properly finished]

    This doesn’t contradict what I said in any way, which was “the poorest *families* claiming housing benefit *tend* to live in social housing.” [emphasis added].

    You simply pointed out that single people with no dependents are less likely to get social housing.

    You might be interested to read that according to DWP figures, “Just over 69 per cent of Housing Benefit recipients were tenants of Social Sector landlords and almost 31 per cent were tenants of Private Sector landlords. “

  • No one seems to answer the 64 million dollar question – the cap only affects LONDON. Why shouldn’t London then subsidise the rents over and above the average by its own taxpayers, businesses or hotels (tourist tax). Why should those that do not benefit from London’s prestige or opportunities subsidise them?

  • @Grammar Police
    You might be interested to read that according to DWP figures, “Just over 69 per cent of Housing Benefit recipients were tenants of Social Sector landlords and almost 31 per cent were tenants of Private Sector landlords. “

    (slightly off topic)
    So if I read that right, the argument that social housing should be for the most worthy (vulnerable, low waged, disabled etc) is basically proven especially when you consider that social housing rents are less than the private sector rents but the HB payments are higher, pointing to the conclusion that the majority of social tenants deserve to be there (or, if your a heartless Tory, they are all workshy scrounging parasites)

  • @Bravheart
    In that link you’ve provided it states, “Since 1997 private rents have jumped by nearly 60 percent”. I presume that’s a 60% nominal increase, which works out at 3.68% a year. Rents tend to increase with wage inflation, as do house prices over the long run – the only difference being that house prices go through huge deviations from their long term trend known as bubbles thanks to land price speculation. House prices still have a way to fall to get back to where they should be imho.

    @Benjamin
    “One thing is certain, meeting our housing needs will never be something private developers will do for us, it is not in their interests for the gap between supply and demand to shrink.”

    The shortage of land with planning permission keeps land prices high. I’m not sure that developers profit from high land values, given they have to buy the land to be able to build on it and then sell it.

    A compulsory purchase of agricultural land (which is a fraction of the price of land with planning consent) to build new towns/developments would help solve the problem. However, it is the current owners of land – homeowners – that are the biggest objectors to expanding their towns. I don’t think their objections are based solely on trying to preserve Britain’s green and pleasant land.

  • What will happen is all the rich will stay in the nice house,s with gardens and anyone who needs HB will go into high rise flats .These will be within a mile or two and they will not have to leave the area this will please the Tories and Simon Hughes . Please remember there is 2million OAP,s getting HB,and lots of very vulnerable people the papers say £2000 a week in HB gets paid left right and centre but that goes to a tiny amount of big families.The good rental houses up here in Edinburgh don,t take DSS and they want a months rent plus one month deposit .Rents for the good area will not go down as there is to much demand for these houses.
    Andrew Edinburgh

  • Simon McGrath 12th Nov '10 - 10:14pm

    @Liberal neil & Dominic – thanks.
    @john ‘My point is who cares? or are we thinking that those regions outside London/SE are 2nd class citizens?’
    Not sure I understand what point you are making

    @Sarah I don’t have a view on the rate of rent increases. If the CIH assume 5% not CPI +5% then they must also have a view on the likley rate of CPI – again they don’t tell us what they have assumed here.
    Are you sure that Council houses generate a profit for councils? If so why don’t they simply get private firms to build them for the councils?
    @Braveheart – the Spectator article is an interesting one. I am all in favour of an informed debate on the changes, I just don’t think the CIH figure are right.

  • @ matt
    great post m8 ,
    Someone should send your point to IDS ,how could someone think £1 a day is a lifestyle choice
    Andrew Edinburgh

  • @Matt – you misunderstand my point – the maximum figures are totally amazing to people that live outside London and the SE. I’m talking about the cap. In Stockport we already have a cap of £650 – as does Manchester – the Labour run council was asked how many would have to leave their homes – the answer came `none`.

  • Dave Parker 13th Nov '10 - 3:31am

    Simon McGrath wrote:
    “One could take the current HB cost (£21.5bn) and project forward using the same 5% annual growth. This would produce the story that within 30 years housing benefit will be costing nearly £100bn — clearly showing the need for reform of the HB system!”

    But it wouldn’t show any such need, because GDP (unadjusted for inflation, as is presumably the projected rate of increase of rents since it’s being compared with an inflation measure) would be expected to rise in like proportion.

    Rents are almost certain to outstrip inflation, because with the best will in the world the supply of housing will remain limited while the number of households outstrips population growth, itself expected to remain buoyant. That’s why people like “bricks and mortar”: it’s a sound long-term investment, with good reason. In the absence of extensive new public provision, housing values are far likelier to reflect income growth than inflation.

    If rents weren’t expected to rise faster than inflation, there’d be no reason to link LHA to the CPI. The whole exercise is being undertaken as a cost-cutting measure. But Simon reckons he knows better even than the government he supports – all on the basis of an entirely unfounded assumption that would have rents halving relative to incomes over a few decades, when plentiful experience indicates nothing of the sort.

    Coupled with the likely 25% drop in housing benefit limits when the new allowances start, the de-linking from actual local rent increases means massive suffering for claimants across the country. Many will be forced to move, and even when they re-locate to cheaper areas the limitation to the cheapest 30% of lets – often unavailable to claimants in any case – means most will eventually be left without enough to pay for the roof over their head, should they still have one as ever more landlords specify “No DSS”.

    It’s a malicious and barbarous policy contrary to human decency. No unsubstantiated waffling about implausible future scenarios can disguise that. People will suffer. Hundreds of thousands – perhaps eventually millions- will be moved from socially mixed to deprived areas. And that isn’t good news for LibDems who tend to benefit from just the kind of mix that’s under threat.

  • I think people may be going over the top on this. I earn £14,000 per annum, and pay £550 a month rent for 1 bed flat in Milton Keynes in Bucks. I get no housing benefit for it (haven’t tried to get it so don’t know if I’m eligible), so I don’t think there will be that many people like me who will be effected by this.
    I’m also pretty sure that £1600 a month would be enough for a family to get a decent 4 bed house in MK, so especially if one of the parents is working there shouldn’t be too many problems.

    I don’t really know the rental situation in London, but certainly in Milton Keynes, people should still be able to live in decent accommodation. The only people who should have to move house are probably the people living in accommodation that couldn’t be afforded by the average lower earner, and they can still live in a decent place, albeit not in a middle class street.

  • (It’s a malicious and barbarous policy contrary to human decency. No unsubstantiated waffling about implausible future scenarios can disguise that. People will suffer. Hundreds of thousands – perhaps eventually millions- will be moved from socially mixed to deprived areas. And that isn’t good news for LibDems who tend to benefit from just the kind of mix that’s under threat.)

    I’d wager you a fiver that that won’t happen.

    That’s the trouble with the left these days. They see the economy as a `static` situation. By all means don’t cut anything – tell me how much extra tax the ordinary person will pay, the very strict regime on benefits (will make your eyes water) and the need to cut back personal lending – that’s the trouble all the upsides are talked about but none of the `downsides`.

    Another point – why should ordinary taxpayers say in Reading or Milton Keynes or Stockport subsidise the exacerbation of an international city with all its prestige and opportunities. It’s pretty obvious there’s a two-tier rental market – London and bits of the SE and the rest of Britain. The answer is for London to find within its own borders by taxation of any sort to supplement the amount it gets from Government in the way of average HB. It’s not for others to keep the trough going so that one part of the UK is allowed to `live the luxury it’s become accustomed to`.

    As for the 30th percentile – a lot of hard-working people can only afford to buy in such places (like me). Why should I subsidise others who simply want to live in a particular street rather than round the corner. Yes it’s tough for people in London – the real person you should be targeting is Boris Johnson who will have to dig into his own pockets (or those of tourists, corporations or taxpayers) to fund the gap.

    As I understand it there are discretionary grants for London councils (notice only London ones – I wonder why?).

    Sure it’s disconcerting – that’s life. Until we get this deficit under control there are no political choices anyway. Nobody owes the UK a living and in a global economy it has to be earnt – ask a German.

    And before someone goes on about the banks that’s just a way of infantilising the situation. Basically Labour colluded with the banks to provide a housing boom and over easy credit for electoral gain. Many were seduced into borrowing more than they could earn and now we’re all paying the price INCLUDING people who were never to blame. That’s still not an excuse not to change the system unless of course you think that the economy is just a playground and never-ending HB is something ordinary people have to subsidise.

  • Sam – the LHA rate for a 4 bedroom house in Milton Keynes is £241.64 a week or £1047.11 per month at the moment and that’ll go down when LHA rates are taken from the 30th percentile in October 2011 rather than the 50th percentile taken now.

    The LHA rate for your 1 bed flat by the way is £120.82 at the moment or £523.53 per month. Though this will go down to the 30th percentile too in October 2011.

    But if your under 35 years old from April 2012 you’ll only be entitled to the shared room rate which at the moment for Milton Keynes is £72.50 per week or £314.16 per month, this will go down, again when taken from the 30th percentile in October 2011.

    But if your unlucky enough to be unemployed and on JSA for 12 months from April 2013 you’re going to have another 10% of that deducted.

    Not having a go at you in anyway, just sharing information. But you can check the LHA figures for any number of bedrooms/areas/authority at

    https://lha-direct.voa.gov.uk/Secure/Default.aspx

    They are adjusted up and down every month. If people checked this they would see that rents are already capped at a local level at no where near the the London levels that are getting all the headlines.

    Regards
    Tony

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