The Daily Hatemail ran one of its regular articles wailing about the £17 billion cost of housing benefit ...
Figures obtained by the Conservative Party last week revealed that one in six UK households is now reliant on housing benefit*. In Hackney, the local authority with the most subsidised housing, 41.9 per cent of households receive the benefit...
The article was posted on the HPC 'blog yesterday, and I went straight into my usual rant:
That £17 billion headline figure is all lies, of course.
Two-thirds of this is money being paid from one branch of state (DWP) to another branch of state (councils or Housing Associations). The real cash cost of social housing is in fact minimal, once you minus off the half of social tenants who pay some or all the rent. One-third of HB is paid to private landlords, and I agree that this should be scrapped - it is a subsidy to land ownership and thus inflates rents and prices without increasing supply. Far better to spend that money on building new social housing.
T'was DBC Reed who actually bothered to read the article, and what amazed him (and me) was that this was more or less exactly what The Hatemail were saying - the piece is actually about the ridiculous amounts of money paid in HB to private landlords (thousands of pounds a week in some parts of London) rather than being a rant against social housing in general, and it concludes with this:
But the system [of subsidising private landlords] remains over-generous. Not only that, it creates a benefits trap: people have a disincentive to get a job or to work more hours.
The best way to slash the £17 billion housing benefit bill would be to adopt a cheap housing policy: build more homes and raise taxes for property speculators, allowing house prices to fall so that more people would be able to afford to buy a home on the open market.
Instead, the Government is trying to reinflate the housing market. What we gain on our houses we will lose through the extra taxes needed to subsidise housing benefit claimants.
That's me told, I suppose.
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On the HPC thread, there followed the usual debate about the cash cost and notional cost of social housing. My view being that it is only the cash cost that is of relevance to the taxpayer (i.e. the interest on the bricks and mortar, repairs, insurance etc minus rents actually paid, net of HB, which is about £30 per week per household on average). The cash cost is therefore probably negligible.
If you want to look at the notional cost of social housing (i.e. to account for the shortfall to the taxpayer that arises because it is let at below market rents) then you would have to base it on the maximum income that you could milk out of allsocial housing on average, i.e. to assume that all social tenants were turfed out and all properties sold off to private landlords and these landlords tried to let them out for the highest amount that potential tenants can afford.
The bulk of people wanting to rent them would be former social tenants, who simply can't afford to pay very much, so the new 'market rents' probably be lower than the headline rents charged by the council/the Housing Association (but possible above the average weekly rent of £30 that is paid currently). The new market rent might be £2,500 per year on average, or £1,000 more than is currently paid.
On that basis, the total notional cost of social housing to the taxpayer might be £4 billion - or 0.3% of GDP. But if you are going to go this far, wouldn't you also have to factor in the notional social cost of people sleeping rough, a million or two pensioners being evicted, entire families being crammed into one bedroom like in Victorian times with all the misery that entails? So even on a notional cost basis, it's a break even.
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Finally, no doubt some Home-Owner-Ist will complain that it is unfair that people who "take responsibility" have to pay £10,000 a year for a mortgage but social tenants can rent a similar sized property for £3,000 a year.
Why is that unfair? If it's such a fantastic deal, why don't they get themselves on the waiting list for social housing?
Don't forget that the capital gains accrue to home-owners more than cancel out the mortgage cost. So a fair comparison would be to imagine that social tenants had to pay £10,000 a year rent but were refunded all the rent that they had paid at the end of the tenancy (or that their heirs were refunded this when they die). That seems a bit daft, so why not continue what we're doing, charge them a rent that more than covers the costs and leave it at that?
* You don't need to be the Conservative Party to obtain these figures, you just do a bit of searching on the DWP website, to find their annual statistics. To sum up, there are 3.2 milion households in local authority/housing association housing claiming HB @ £80 a week on average = £13.3 bn per annum (about eighty per cent of social tenants) and 1.2 million households in privately owned housing claiming HB @ £105 a week on average = £6.5 billion per annum. Which adds up to rather more than £17 billion - the DWP figures say the overall average weekly claim is £81.03 a week. Ho hum.
What on earth does it mean?
3 minutes ago
15 comments:
"If it's such a fantastic deal, why don't they get themselves on the waiting list for social housing?"
I know, it is because they are white men and know they would not get a council house ever.
Or they do not think making yourself as needy as possible to get a cheap house is moral.
"...because they are white men and know they would not get a council house ever."
Hence my enthusiasm for scrapping housing associations (who are accountable to nobody) and having all social housing under control of democratically elected local councils. Then vote for the party that makes it clear they'll be less PC when they allocate it.
And yes, waiting lists are far too long, so let's just build more of it. That way you wouldn't have to make yourself 'needy', you'd just have to show you can pay the £50 or £80 a week rent, job done. There's nothing 'immoral' about not being able to afford to buy a house.
"The cash cost is therefore probably negligible."
Sorry, Mark, that really is extremely silly.
If a house costs (say) £100k and the government borrows the money at (say) 3% then the interest alone comes to £57 per week.
AdamC, here is a crash course in 'notional costing'. This is my job, this is what I do:
You compare the income/gains you are generating from an asset and compare that with alternative uses, such as selling it and sticking money in the bank.
1. A council house is generating plus/minus nothing in cash terms, but steadily appreciating in value at inflation plus 3%.
2. The house could be sold and the money put in the bank for 4%.
1. shows a slightly better return than 2., ergo there is no notional cost in not selling them off. If they did sell them off, they'd only squander the money and end up paying twice as much in Housing Benefit in future.
Ergo, whether in cash terms or notional cost terms, social housing is a good deal for tenants and taxpayer alike.
Also, your £100,000 figure is way off piste. It costs about £50,000 to build an average council flat - the council can get the planning permission for free.
And so on.
I would scrap all "social" housing. It's always rented to Marxist preferred groups and this breaks the equal treatment rule.
Far better to let people arrange themselves in the country via the citizens dividend, funded from the LVT.
AC1, sure, but as things stand, state-owned housing let for a rent that just covers the cash cost is the closest we have to LVT/CD.
Think about it, we could make tenants pay a higher rent (i.e. add on the ground rent (=LVT) and then pay them a CD out of the proceeds. Or we could just deduct the CD from the notional higher rent and have done with it, which is in practice what happens.
Once again I am going to hold up the Mail as the only popular newspaper in Britain that regularly prefers the truth to the establishment line.
Mark, I was talking about the cash cost not what you call the "notional cost" (and I would call the "opportunity cost").
In your post you said the cash cost was negligible. That is clearly not true.
Even if it only costs £50k on average to build a council home, and the government borrows the money at 3%, the interest alone comes to £30 a week, which you give as the average rent paid.
You have to add on to that the maintenance, and the cost of running the housing department, which must easily total the same again. Plus housing benefit at £80 a week average gives a total cost per home of £110 a week.
With 3.2 million households, the total CASH cost comes to £18 billion a year. That is not negligible.
As you pointed out, the notional cost is dificult to work out, but definitely even higher.
AdamC, can you try to be consistent please?
So let's look at the cash cost. The cash cost of social housing is the insurance, maintenance and let's agree the interest cost on bricks and mortar = say £45 a week.
You cannot add the £80 HB on top of that - it is a straight transfer from one branch of govt to another.
For example, councils could drop their rents to £35. The cash cost would be unaffected and the cost of HB would be £10 billion less. But councils need to get money from somewhere, so if HB went down by £10 billion then other grants to councils (or council tax) would have to go up by £10 billion.
Or by analogy, let us assume you give your child £5 a week pocket money and he spends £4 on magazines and sweets. The cash cost is £4 and not £9! The £5 is your 'expense' but his 'income' and thus makes the family as a whole neither richer nor poorer.
The average rent paid (net of HB) is (say) £35 per week, so the state makes a £500 loss per household. There are four million households in social housing, so the net cash cost is perhaps £2 billion per annum.
That is a) negligible and b) excellent value. Even £18 billion, which is wildly exaggerated, is only 1% of GDP which is not bad for housing a sixth of the population.
And as I pointed out, the opportunity cost is even lower.
I'm guessing this isn't the X Factor forum..?
Woops. I agree about not adding the housing benefit. Mea culpa.
However, I don't accept your figures. Average council rents in London, for example (which I guess are higher than the national average) range from £61 in Havering to £105 in Wandsworth. So the rent paid net of benefit is not £30 (except perhaps in Wandsworth).
And £45 is a low estimate for interest, maintenance, insurance etc.
Ultimately, though, the main argument in favour of encouraging home ownership is that home owners look after their properties (in general). Look at any council estate - you can tell which houses have been bought quite easily.
AdamC, now we are getting somewhere, but you are 'widening the debate'.
1. Central London rents are a special case, I wholeheartedly agree that the council should let them for 'market rents' of £400 a week (rather than social rents of £80) and use all that lovely extra money to build more council houses a little further afield. My averages are for the UK as a whole.
2. My estimate of £45 is just an estimate. A lot of council housing was built decades ago and the loans have long been paid off so interest is no longer a cash cost. Perhaps a fairer figure for brand new housing (see point 1) is £50 p.w., still not a huge sum of money...
3. ... and the more social housing is built, the higher up the social strata the new tenants will be, so if the bottom two deciles are already in social housing (including a quarter of all pensioners), then if we built social housing for the next decile up, they'd easily be able to afford £50 a week rent, the marginal cash cost really would be nothing.
4. I do not agree with your final point. A pinch of shit spoils a bucket of porridge - one or two bad families on an estate or in a tower block are enough to ruin for everybody else. And there are privately-owned blocks of rented flats (esp. on the Continent) that are very well maintained and run.
5. If you really want to 'encourage home-ownership', what is a better way of doing it - a) allowing more homes to be built to get the price down, or b) sell off council housing at undervalue to people who cash in a big capital gain after the three years are up or who rent it back to the council for 'market rents' - a huge real cash cost to the taxpayer?
6. And finally, there are some people with low or fluctuating incomes for whom home-ownership is simply not a sensible option - and being a tenant makes you more mobile if you are looking for work.
Home-ownership is not a panacea - and as we have seen from the last ten years, the obsession with home-ownership and house prices is poison for the real economy.
On your point 5, I'll have both of the above please :)
I agree about the obsession with home ownership - the key being that the home owners saw their houses as an investment rather than somewhere to live. The artificial scarcity ultimately caused that.
So let's loosen the planning laws and cut back on social housing.
AdamC, I can agree to that, but my original point was much simpler - that social housing represents very good value for tenants and taxpayer alike. Unlike Housing Benefit for private landlords which is money down the toilet.
The Ross Clark who put his name to the Mail story seems to be some kind of straight-talking freelance.Google Ross Clark on housing .He calls policy to prop up the housing market " a crude attempt to buy the votes of those who already own property" Times 2 Sept 2008.A bit right-wing for my taste but he represents the mother lode for quotes,coming right out with statements which most people hedge round with academic indeterminancy.
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