Tuesday, 15 March 2016

Universal Credit and Support for mortgage interest

From New Policy Institute:

Why is the safety net [Support for Mortgage Interest] less effective for owner-occupiers [than renters]? Firstly, “the Government believes that taxpayers should not in effect be helping people to acquire personal assets through any potential long-term rises in house prices.”

It is not clear whether this still applies when Help to Buy gives support for those acquiring personal assets.

And we might add, when taxpayers help Buy To Let landlords pay off their mortgages by subsiding rents.


Mark Winstanley said...

I agree with your point of view of this article. This is a good article. Very timely given us so much useful information. Thank you!

Marc The Phone Man

james-mccreary said...

I'm hoping you can help me understand the issue of taxpayers subsidising landlords through Housing Benefit. Really not trying to be difficult – I just can't quite get my head around all the moving parts.

Say that housing needs to be provided by someone - public or private. If the government isn't providing it, the private sector has to – and HB needs to be set at at level that is close to private rents, to encourage landlords to rent to HB recipients. Landlords do so, and are taxed on their profits.

I'm not here to defend landlords. But my question is: short of local authorities directly providing all the housing that the sector needs, what would be a better system?

Mark Wadsworth said...

JMC, look at the cost to the taxpayer.

If somebody lives rent free in social housing, it costs the taxpayer £50 - £80 pw in upkeep. If somebody lives in private rented housing, it costs the taxpayer an average of £160 pw in upkeep + rent.

So instead of the state collecting the value of the rent via LVT, it is paying it out IN CASH. With owner-occupiers, the state is not collecting the rental value via LVT, but at least is not paying it out in cash.

The alternative to Housing Benefit is less or no earmarked Housing Benefit and correspondingly higher welfare payments (income support, JSA, WTC, whatever).

james-mccreary said...

MW - What you seem to be saying is that it's a better deal for taxpayers if someone lives in social housing rather than private housing that's funded by HB. That makes sense to me.

The ideal course of action then would be for local authorities to provide enough social housing to meet demand – but there's no indication that that's going to happen any time soon.

In the meantime, how would it help to remove/reduce HB and make up the difference in other benefits? Landlords will still need to be able to charge roughly the same to a benefits claimant as to a non-claimant. If they're unable to charge as much they'll either rent only to non-claimants, or sell up because the business won't be profitable anymore (which may be a beneficial outcome on the whole but doesn't solve the issue of where benefits claimants are going to live). So enough benefits in total need to be paid out for claimants to afford these rents plus their other living expenses.

So it seems to me that the only things that would ease the burden on the taxpayer would be to (a) build more social housing, and/or (b) rents to fall more generally [which would be a likely consequence of (a)].

Again, genuinely not trying to provoke here – just to understand.

Mark Wadsworth said...

JMC, yes good summary, it's as simple as your a an b at the end. But there is a difference between paying £150 in flat rate benefit instead of £70 cash benefit and £80 earmarked HB. The former pushes up rents much less than the latter.