Can the government achieve (part of) its housing benefit savings at the same time as it introduces right-to-buy for housing association tenants?
Or, will the lack of growth in housing supply and rapidly rising rents and house prices, especially in London, mean that the benefit bill keeps soaring? How can councils manage new dilemmas such as the recent Supreme Court judgment that restricts where local authorities meet their rehousing obligations? What does the history of housing benefit and social housing tell us about the likely impact of such policies?
Local authorities took over housing benefit in 1982-83, paying out just over £6bn in today’s prices to more than 4m households. Today the bill is over £24bn, but the caseload is just below the 2012-13 peak of 5m. In between, it once fell as low as 3.8m cases (2002-03). The overall bill would be £3bn lower if the caseload was back at 4.4m or £6bn lower if it could be cut back to 3.8m benefit households.
The main cost driver has been the increase in average payments in real terms (determined by rent levels, entitlement rules and income of tenants). Average payments have risen from £26 a week in 2014-15 prices to £94 a week. With a 5m caseload this increase adds £17.7bn to the bill. Average rents in each sector (council housing, registered social landlord properties and the private rented sector) have risen in real terms – on average faster than other prices and costs – but changes in tenure have also been important.
In 1982-83, of total social housing stock of 6.9m properties, fewer than 500,000 were what we would now class as owned by registered social landlords (RSL), with the rest being council owned. Of these, 3.6m council tenants, 200,000 RSL tenants and 650,000 households in private rented accommodation claimed housing benefit. Had these proportions of tenure prevailed until today, the increase in rents would have added £60 per week to average payment, or £15.8bn. So perhaps surprisingly, only about £1.9bn of cost is due to the shift towards RSL properties and private rented sector.
This is because of the rent convergence policy of successive governments. Councils were forced to put up rents due to loss of subsidy and central government clawed back some of the increased cost of housing benefit by taking more income from “hard working families” not on benefit.
Currently there are about 725,000 council tenants not in receipt of benefit paying in total just over £2bn more in rent than if rent convergence hadn’t been in place. So from the point of view of public finances as a whole, the extra cost of paying the higher rents charged by RSL and private rented property is more or less matched by the extra rent paid by non-claimant council tenants.
However, the reduction in council-owned stock and rent convergence has been a major contributor to the increase in the housing benefit bill. If council rents hadn’t increased, the current rent rebates would be £2bn less. Without right-to-buy, stock transfers to RSLs and other losses (for example demolitions) or rent convergence, the current housing benefit bill would be cut by over £10bn.
One other factor to look at is the balance between the social housing sector and private rented property. In 1982-83, total social housing stock was 6.9m units, of which 6.4m were council housing. In 2007-08, RSL properties and council properties were about equal at 2.4m.
Today there are just under 5m social housing units, a loss over 30 years of 28%. Partly in consequence there has been a rise in private rented tenants claiming housing benefit, up from an estimated 650,000 in 1982-83 to 1.6m now. Average payments to the sector are still 30% higher than those in the social sector adding about £2.2bn to the overall benefits bill.
Cutting through all this complexity, what conclusions can we draw?
First, economic growth should help reduce the caseload perhaps by as much as 1.2m which could save perhaps almost £6bn off the bill. However, this will be eroded if other trends continue: the decline in the social sector, the increase in rents and increasing use of the private rented sector.
This is probably only going to be noticed after the decline in caseload has finished and the next downturn hits the economy. History says it is rent rises that will drive the benefits bill, and cheap social housing controls it.
While short-term costs may be contained, long term they will not, unless the housing supply is increased and the decline in social housing stopped.
Stephen Hughes is an executive director at the LGA. He writes here in a personal capacity.