Boris needs to solve the government’s housing policy time bomb
And what an agenda. Rachmanesque rentiers aside, the government’s reforms have unwittingly created a toxic policy mix that is a ticking time bomb – one with a short fuse, at that: detonation 2013.
Much was made of Newham’s recent efforts to ’ship’ people on their housing waiting lists to boroughs outside London. Their underlying reasons for their doing so stem from the combination of the government’s new housing benefit limits with their affordable rent scheme’s cap of up to 80 per cent of the private market rent. They were far from alone.
The government’s model for increasing the supply of new affordable housing is predicated on a 60 per cent drop in capital funding. Housing Associations, as the main deliverers of social housing, have to make the numbers work one way or another, and the only way to do this is to increase rents, changing the investment model from one of up-front investment to one where future rental revenues fund development. Where ‘affordable rents’ of up to 80 per cent of private rents are used in London, in most cases it would represent a huge leap above existing social rents. Therefore in practice London councils are setting the new rents at closer to 60 per cent for family-sized homes and 80 per cent for smaller units. Yet the basic point remains: rents are going up for the poorest, as well as threatening workless families with the possibility of being forced out of their homes if their social housing costs push them beyond the Household Benefit Cap.
There is also ambiguity: councils are supposed to maintain a ‘local connection’ when placing families in accommodation, but the terms of how this should be applied under the terms of the Localism Bill are yet to be finalised. If the restrictions are tight, it could lead to a paradox. Consider a larger family with three children, whose rent and other income from Child Benefit and Tax Credits takes them over the Household Benefit cap of £26k. Any home they are placed into has, to be lawful, to be affordable – but it may also have to be local. There will be occasions where this can’t be legally achieved. What will happen in this scenario?
This could force an even greater proportion of people into temporary accommodation, which is currently capped at £500/week (as opposed to £400/week for the new Local Housing Allowance) – ironically a more expensive arrangement, increasing costs in the short term. Until, that is, the new 80 per cent caps come into play here too in 2013. Of course temporary accommodation is the emergency solution. What happens when people then fall outside of that net?
This is the question that hasn’t been answered. Will families be cleft in two to redefine ‘households’ for the purposes of claiming benefits, further increasing costs and reducing supply? Will they be bussed out of the capital, beyond any communities or support infrastructure they happen to have, potentially into areas with even fewer employment prospects? Will these same dynamics not prevail elsewhere in the UK?
The consequences of the 80 per cent cap and rising rents on incentives to work are also severe. Consider a couple living in a one-bed property for £250/week. If that is 80 per cent of market value then the full amount would be £312.50/week. That’s £16,250 rent over the course of a year. What proportion of benefits claimants are realistically able to earn salaries in the labour market that will sustain that? That’s before you even get onto the household incomes required to sustain a 4-bed house at £500/week – a challengingly low price to find in its own right in the capital.
The counter argument is that benefits claimants shouldn’t be allowed to claim for rents they could never afford to begin with. But many claimants could, before hard times hit, and in any event we’re looking at what’s currently the case. If the system provides the slack, this bulge will fill up, and the incentives that result from people being able to live above their potential means will play out. The costs of a tenant not working are significant: additional benefits paid, as well as lost tax revenues – not to mention the atrophying of the individuals’ skills base and the potential effects of long-term unemployment on their health, future employability and earning potential.
So the 80 per cent cap will therefore create all sorts of distortion effects, including a ‘bulge’ of people further disincentivised from finding work. Costs saved by benefits cuts will cascade into greater temporary accommodation bills, and beyond. Many may be faced with the prospect of homelessness. It’s a mess.
The fairness arguments around families receiving more on benefits are important ones. Yet so are the pragmatic ones; regardless of how this situation came about, if this issue is not properly addressed, then come 2013 we could see thousands of families facing being turned out onto the streets. Human interest aside, with estimated costs to the state for homelessness of £25k-£30k per person, nudging benefits caps above £26k per household seems the more appealing of the two choices.
Boris has more political capital now than he’s likely to have for the remainder of his term – and political capital that could be bolstered by demonstrating his social awareness by forcing the government’s hand on this issue – an issue that’s most acute in London. As this crisis comes to the boil, it may be the perfect opportunity for him to do exactly that.Tagged in: benefits, boris johndon, household benefit cap, housing, Housing Association, Localism Bill, mayor of london, Newham, olympics, Peter Rachman, renting
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