I have always worked on the basis that about a third of Housing Benefit is paid to 'private' landlords, which turns out to be understated. I have now stumbled across some fine statistics from the ONS, which give a breakdown of HB claimants by local authority etc.
There are four million claimants, 60% are 'social' tenants and 40% are 'private' tenants (go to tab LA and insert your own row for the totals), and there are slightly more private claimants in Greater London than in the rest of the country on a per capita basis (there are a lot more social tenants in London on a per capita basis as well).
Seeing as rents demanded by 'private' landlords are higher than headline rents demanded by local councils (or Housing Associations) and rents in London are double what they are in the rest of the country, I think it's safe to say that rather more than half the £20 billion Housing Benefit bill goes to 'private' landlords (this is a real cost to the taxpayer, pushes up rents for private tenants who are not eligible for HB and ought to be scrapped forthwith).
The remaining less-than-half is shuffled back and forth between government departments (this is not a cost to the taxpayer and is probably not even a notional cost either, which I explained here).
Wednesday, 12 January 2011
Housing Benefit
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22 comments:
You might be interested to check out Table 122 in Professor Steve Wilcox's invaluable UK Housing Review, available for free download.
That shows that in 2007/08 for Great Britain the expenditure on Housing Benefit was actually a little lower in the PRS than to either housing associations or to local authorities, so a bit under a third of the total.
That's changed since the downturn. At Figure 5 of Support with Housing Costs we showed the causes of growth of the Housing Benefit bill over the 18 months or so covered by the most up to date statistics we had, the DWP's Housing Benefit & Council Tax Benefit Caseload Statistics.
I don't think those stats are designed to convey the annual cost, but it's easy enough to work out an approximate value for what the annualised sum would be from the number of recipients in each tenure and the average weekly claim. I make it £12.5 billion in the social rented sector and £8.3 billion in the private rented sector for the last data (April 2010), see Table 4 and Table 5. Of course those won't be the actual annual costs for the year as that is just the monthly snapshot, but it's illustrative of the situation at that point in time.
"(this is a real cost to the taxpayer, pushes up rents for private tenants who are not eligible for HB and ought to be scrapped forthwith)"
It only pushes up rents for private tenants because the HB payable to tenants of private landlords is greater than the HB payable to tenants of social landlords. If the two were the same, Ricardo's law says that the rents would be the same. Yes, it would get rid of some of the private landlords, but I'll bet that others would come forward to take their place.
In any case, HB paid to tenants of social landlords is also a cost to the taxpayer, in the sense that an income foregone is a cost. The income foregone in this case is the income the social landlord could have made from letting the property to a tenant not in receipt of HB. So long as there are no empty properties belonging to social landlords, the cost to the taxpayer is the same, whether the HB is paid to social or private tenants, provided, of course, that the private tenant is not paying more for the same accommodation. Having two levels of HB for the same accommodation is what should be scrapped forthwith, not HB payments to private landlords.
B: "[HB] only pushes up rents for private tenants because the HB payable to tenants of private landlords is greater than the HB payable to tenants of social landlords."
Not really. Social housing is rationed by waiting list (and other non-financial considerations) and not by price. HB claimed by councils is lower for the simple fact that rents demanded are lower, and these rents are to some extent 'made up figures'.
They could in theory drop council house rents to £5 per week and pay every council tenant's rent for them via HB, in which case the nominal HB paid to councils falls to £1 billion. Does this make the taxpayer better off? Nope.
Or, imagine there was no council housing at all, just HB to 'private' landlords. Would this push up rents? Yes of course.
"it would get rid of some of the private landlords, but I'll bet that others would come forward to take their place."
Correct. Most houses have a real rental value, if HB subsidies fell and even if rents fell, the houses would still be worth owning and renting out (or buying to live in yourself).
"The income foregone in this case is the income the social landlord could have made from letting the property to a tenant not in receipt of HB. "
That was the whole point of the post I linked to at the end. The net income foregone minus headline rents inflated via HB shuffle is very small indeed. Considerably less than the cost of EU membership, for example.
"So long as there are no empty properties belonging to social landlords, the cost to the taxpayer is the same, whether the HB is paid to social or private tenants,"
Nope, because HB to 'private' landlords is a real cash cost, HB to councils is not a cash cost at all (the real cash cost to the taxpayer = actual running costs minus actual cash rents paid by social tenants above and beyond HB) and is not a notional cost either.
By building, owning and renting out a unit of social housing, the council is not depriving the taxpayer of anything - consider, would the taxpayer be better off if all social housing were demolished? I think not.
"Having two levels of HB for the same accommodation is what should be scrapped forthwith, not HB payments to private landlords."
Nope. HB to 'private' landlords is a real cost. They throw £10 billion a year at this and solve nothing. Far better to scrap it (-> lower rents for everybody, -> lower house prices for everybody), take that £10 billion and build 200,000 new units of social housing a year until there is no more waiting list.
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Whatever your political views about social housing are, the basic laws of economics and accounting apply here just as much as anywhere else.
On a political level, I was always instinctively against social housing*, but there is absolutely no economic or financial justification for this prejudice, so I dropped it a year or two ago.
* Instinctively, I was also against selling it off at undervalue to create a larger class of Home-Owner-Ists, and this instinct has a lot of economic or financial justification, even though it sounds leftie.
JV, your comment initially went to spam.
Yes, Table 122 shows a roughly 2/3 to 1/3 split. The horrible realisation dawns that maybe (just maybe) the ONS figures I was using treats Housing Associations as 'private' landlords, which in reality they are not*.
So my original assumption of 2/3 to 1/3 might have been correct after all, but this does not detract from the basic principles of economics and accounting outlined here.
* When I am in charge, all their homes will be promptly handed over to the local councils in which they are situated.
a lot of HB goes to dodgy landlords who are overcharging with the connivance of their various 'friends' (Councillors and council officers) who get to decide whether the rent in question is a 'fair market rent' for the area (answer = "yes of course it is, and thanks so much for that brown envelope")
some low-hanging fruit here
To me social housing is like progressive income tax, something people do because they don't understand why landed capitalism doesn't work. It's done because as solution to the visible problem it *kind of* works. That said, there are costs to the taxpayer.
1) The initial construction cost
2) Any foregone rents by letting them out below market rate.
They're probably not enormous (especially as 1 is a sunk cost at least 30 years old for the most part), but they do exist.
I won't mention the possibility of selling the houses (even at market rate).
"The real cash cost to the taxpayer = actual running costs minus actual cash rents paid by social tenants above and beyond HB"
To be accurate, as I pointed out before, it = actual running costs PLUS INTEREST PAID ON THE LOAN REQUIRED TO BUILD THE HOUSING minus actual cash rents paid.
(When I say "TO BUILD THE HOUSING" I really mean "build" - you will no doubt otherwise point out that a lot of the value is the land value.)
This interest, even on the building cost, is a significant sum. 60% of 4 million = 2.4 million social housing units. Say build cost = £20k each, that's £48 billion. At 5% that would be £2.4 billion a year.
ND, yes, let's pluck it.
F, social housing is the second least-bad solution to Home-Owner-Ism short of LVT.
AC, I do this for a living. Imagine you were a 'landlord with a conscience' who had power to grant himself planning permission, and you decide to build housing for The Deserving Poor and do full cash and notional cost accounting.
1. The land costs you nothing, in cash terms (acre of ag land without planning = £5,000), and you grant yourself planning for free.
2. You build a unit of social housing for £50,000.
3. You borrow money to do this at the same rate that the state pays, which is about inflation + 1.5% per annum. Cash cost of interest = £750.
4. Repair costs, insurance etc another £1,000 per year.
5. Total cash cost £1,750 per unit per year = £37 per week.
6. If you want to include depreciation on bricks and mortar = £50,000 x 2% = £1,000, feel free to do so, but this is covered by cash cost £1,000 from 4. above, and if you do so, you also have to include capital appreciation of £50,000 x rate of inflation. These net off to nothing.
7. So provided you can collect rents of a very modest £37 or more per week per unit, you are ahead of the game.
FFS, I am as right wing as they come, but I fail to see how social housing can be anything other than a good investment from the point of view of local council, society in general or the taxpayer.
Clearly, social housing is an appalling investment from the point of view of the Home-Owner-Ists, but that is a separate issue.
AC, remember also, that if you are a Landlord With A Conscience, you can either do what I just outlined, or
b) Pander to NIMBYs and refuse to build anything.
c) Pander to Home-Owner-Ists and sell off your housing for undervalue to guarantee a quick profit for the purchaser.
d) Grant the planning permission to your mate the local developer who proffers you the proverbial brown envelope.
Can you please explain to me how options b) c) or d) actually benefit The Taxpayer, or the economy in general or society in general?
Peace!
I agree with all of your calculation, but you left out the interest in your original comment.
AC, on a notional cost basis, you have to include interest (say inflation + 1.5%) as an expense, but you also have to include capital appreciation (value rises with rents, which rise with wages = inflation + 2%) as income. The two net off to more or less nothing so it is perfectly acceptable to ignore them both.
"They could in theory drop council house rents to £5 per week and pay every council tenant's rent for them via HB, in which case the nominal HB paid to councils falls to £1 billion. Does this make the taxpayer better off? Nope."
This is only true if all council tenants are in receipt of HB, which they are not. Some pay hard cash earned from outside the system. So, while of course dropping council house rents to a fiver a week would make the taxpayer worse off, it doesn't disprove that a council house occupied by a HB claimant represents a loss of income compared to one occupied by a non HB claimant.
"Or, imagine there was no council housing at all, just HB to 'private' landlords. Would this push up rents? Yes of course."
Why? Ricardo's law says that rents are limited by ability to pay. Therefore whether rents are pushed up depends on the level of HB. Would it push up rents at today's level of HB? Yes, of course. Would it push up rents if HB was capped at "council house rent" level? Not according to Ricardo it wouldn't.
"By building, owning and renting out a unit of social housing, the council is not depriving the taxpayer of anything"
No of course they aren't, unless they let out that unit to an HB claimant, in which case they are depriving the taxpayer of the rent they would have got from a cash-paying tenant.
"Nope. HB to 'private' landlords is a real cost. They throw £10 billion a year at this and solve nothing."
Apart from housing a lot of people who would otherwise have nowhere to live. I don't call that nothing. Yes, the same result could be achieved more cheaply, but that is a problem with how the system is run, not the system itself.
"Far better to scrap it (-> lower rents for everybody, -> lower house prices for everybody), take that £10 billion and build 200,000 new units of social housing a year until there is no more waiting list."
It's only better if you think that somehow a local authority is a better provider of accommodation than a private landlord offering the same service at the same price.
Slightly to muddy the waters, there was an item about housing benefit in last week's Private Eye which suggests that in many parts of the country social rents are actually higher than commercial ones.
"Research from the Chartered Institute of Housing shows that across much of the north of England rents will fall if social housing landlords charge 80% of the market rate. This is because many social housing landlords in the north and Midlands currently charge above market rents. Particularly badly hit will be places such as Hull, Blackburn and Bolsover. In Bolsover rents in the social housing sector would have to fall by an average of 32% in order for tenants to be paying 80% if the the market rents."
This suggests, of course, that while in rich parts of the country HB is a good racket for private landlords, in poor areas it's more of a money-raising scheme for councils. In both instances, the market gets distorted.
The H, yes, I mentioned that effect in the post I linked to at the end (based partly on Prof John Hills' figures). If you include rent 'lost' from flats in central London, you have to include 'inflated' rents as you outline.
B: "Ricardo's law says that rents are limited by ability to pay. Therefore whether rents are pushed up depends on the level of HB. Would it push up rents at today's level of HB? Yes, of course. Would it push up rents if HB was capped at "council house rent" level? Not according to Ricardo it wouldn't."
HB by definition increases 'ability to pay' therefore pushes up rent levels. Even if HB were capped at lowest decile rents, it would still push up rents, however slightly. Even more important than Ricardo's Law in this context is the golden rule that 'subsidies don't make things cheaper, they make them more expensive'.
"[Social housing is] only better if you think that somehow a local authority is a better provider of accommodation than a private landlord offering the same service at the same price."
Their cash running costs are probably the same (councils overspend but get economies of scale), and for very low paid, HB covers all the rent. There are four million people in the queue for social housing and none in the queue for 'private' rented accommodation (which suggests that people prefer social to private, for a given price, which is effectively £nil); and there are two or three times as many people in 'social housing' as in privately 'owned' housing.
Are you telling me that these nine million people are all wrong?
"HB by definition increases 'ability to pay' therefore pushes up rent levels."
Not for council housing it doesn't, why should it for private housing?
"(which suggests that people prefer social to private, for a given price, which is effectively £nil)" Again, it's only £nil if they are in receipt of HB which is not the case for all council house tenants or potential council house tenants. Also, for a given price, potential tenants don't usually get a choice: private housing is more expensive than social housing, also the tenancies are less secure AFAIK. Those four million people queuing up for council housing aren't all homeless and looking for somewhere to live, they are looking for better accommodation or the same at a lower rent (and, currently, the chance to buy a house or a flat at a discount). Private landlords offering the same accommodation at the same rents as the council (some of the large rural landed estates do this) have a waiting list, too.
B: "HB by definition increases 'ability to pay' therefore pushes up rent levels." Not for council housing it doesn't, why should it for private housing?
I refer you to The Heresiarch's comment. Also, please run the thought experiment:
Would councils increase the rents they charge if HB were set by teh government at a flat (say) £500 per week per household?
Would councils reduce their rents if HB were scrapped?
"Their cash running costs are probably the same (councils overspend but get economies of scale), and for very low paid, HB covers all the rent. There are four million people in the queue for social housing and none in the queue for 'private' rented accommodation (which suggests that people prefer social to private, for a given price, which is effectively £nil); and there are two or three times as many people in 'social housing' as in privately 'owned' housing.
Are you telling me that these nine million people are all wrong?"
As i've discovered recently due to friends looking to purchase a property, ex-council houses (provided pretty much the whole estate is now private) are far more preferable because they tend to have larger rooms. There's a lot more private housing stock out there with cupboard bedrooms.
Mark, AFAICS, all The H is pointing out is that there are, indeed, private landlords who are prepared to charge the same or less than the council. Why is HB not inflating the rents paid to private landlords in Bolsover in the way that you say it always does or the HB subsidy making the rents more expensive? In Bolsover, at least, the taxpayer is getting a better deal out of HB paid to private landlords than it is for HB "paid" to Bolsover Council. In fact, in Bolsover, the taxpayer would be a lot better off if the council evicted all its HB claimants and only took working tenants to replace them.
"Would councils increase the rents they charge if HB were set by teh government at a flat (say) £500 per week per household?"
"Would councils reduce their rents if HB were scrapped?"
Well, no, because council rents are controlled by political, not commercial considerations, because of the duty of the councils to house the homeless.
HB doesn't always increase rents because it doesn't necessarily increase the ability of HB claimants to pay beyond that of non-HB claimants . Of course it increases the ability of the individual HB claimant to pay, but that is neither here nor there.
B, you are still not comparing like-with-like which is the key to notional costing.
It is surely the case that if HB were scrapped, rents would come down. It is also surely the case that rents, on the whole, are lower for the fact that councils built and held on to 4 million units of social housing. Had they never been built, rents would be much higher.
So if you want to include lost rent from social housing (which doesn't really exist), then you have to include the rental savings that everybody makes, even potential home owners who wouldn't dream of living in a council house, because there is less competition for those homes.
Well, no, because we'd still be in the same position if those 4 million units belonged to private landlords, all other things being equal. It's the number of units that counts, not whom they're let by.
If HB were scrapped, how would the unemployed be housed? What you are suggesting is that the council houses them free of charge. However it cannot do this for free. There is a cost associated with housing the unemployed and this must be met, ultimately, by the taxpayer. So what is the difference between the taxpayer paying that cost and paying the unemployed person money with which to pay their rent?
B: "what is the difference between the taxpayer paying that cost and paying the unemployed person money with which to pay their rent?"
Because if the council does it, it costs the taxpayer £37 a week (and there are enough council tenants paying full rent to cover this cost). If a 'private' landlord does it, it costs the taxpayer up to £400 per week (even if the Lib-Cons bring in the HB cap).
On behalf of taxpayers, I think £37 is a better deal that 'up to £400'.
"If a 'private' landlord does it, it costs the taxpayer up to £400 per week (even if the Lib-Cons bring in the HB cap)."
Not necessarily. I'm not arguing that the current levels of HB are correct, I'm arguing that there is nothing wrong with the principle of HB. The example of Bolsover shows that the taxpayer can end up with a better deal from a private landlord. As I said before, the fact that he doesn't generally is down to the level of HB paid, not the principle of paying HB.
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