The heart of the housing benefit problem

The trouble with oppositional politics is that it’s always more important to blame the other side than it is to understand a problem properly. There was a classic example of this on the radio this morning. Iain Duncan Smith, the Work and Pensions Secretary, was explaining the changes to housing benefit that come in today. Yes, many households will see reductions in their housing benefit, he says, but the welfare system has to be reined in.

The narrative that Duncan Smith was working to was that housing benefit doubled under the last Labour government. The implied message there is that Labour were soft on welfare, allowing all kinds of scroungers to enjoy discounted housing at the expense of the hardworking people of Britain.  But while that’s a convenient political point, it ignores the real reasons behind that rise in benefits.

In the decade after Labour came to power, there was a long property boom. The average price of a house doubled and then some. The cost of renting has also risen to unprecedented highs.

Growth in average wages in Britain has not kept pace with the cost of housing. Inevitably, this means that many people have been spending an larger percentage of their earnings on housing. For those on low incomes, that may push you into eligibility for housing benefit.

As evidence of this, you need look no further than the sorts of households claiming the benefit. In the past, housing benefit was closely correlated to unemployment, but more and more working people have been applying. In the last few years, the majority of new sign-ups to housing benefit have been from working families.

The problem with a political explanation of problems rather than a factual understanding of them, is that your solutions don’t get the heart of the matter. So the coalition government’s new plans today will cut the benefit budget, but it won’t do anything to actually solve the underlying problem – housing is too expensive in Britain today. (Before anyone mentions the housing shortage, Britain hasn’t had one since 1971 and that’s whole other post)

Instead, other parts of the government are making things worse. The chancellor’s latest budget includes measures to try and jumpstart the property market again, the very source of the problem. And who can blame them? Rising house prices work magic for the economy – until the inevitable correction of course. But with any luck, that can always be blamed on the opposition.


  1. I’m confused, are you saying that because there is over the whole of the UK more dwellings than households, there is no housing shortage in the UK?

        1. If you want a one word answer, then no, I’m not saying that there’s no shortage. There are actually shortages, plural, but they’re not national. There are regional shortages. There are also shortages of certain types of housing, often affordable housing or council housing, although there’s apparently a shortage of luxury housing in London too.

          My point is simply to note that you’d need to go back to 1971 to find a bona fide national housing shortage. Since London and the South East have a problem, and our politicians and media are based there, the crisis tends to be extrapolated across the country as a whole.

  2. I suspect that there are more than enough properties for everyone. They are not on the market because the buy to let market swallowed them up and now there are a lot of landlords around. You only need three or four properties under your belt to stop working full time or stop working altogether and that is the direction many headed for. A case of haves and have-nots.

    1. There has been a rise in private renting in the last couple of years, definitely. There are houses on the market though, often at very affordable prices. The problem is they’re not in places where people want to live.

      1. I think this location problem is more of an issue than the rise of buy-to-let. Places are less than half the price in Manchester compared to London for example.

        Buy-to-let basically means there are more properties on the rental market and less on the home owner market. If anything rented properties are probably more densely (and so efficiently) utilised. In London many are multiple occupancy shared properties. As people settle down and get married later we have a growing demand for more rented properties anyway. Other developed countries have home-ownership rates of as low as 42% (Germany) while the UK’s rate is 69% (http://en.wikipedia.org/wiki/List_of_countries_by_home_ownership_rate).

        1. I think it’s true what you say about German house ownership rates. As someone who has spent time in Germany I can tell you that over in German the rental market is strictly regulated in favour of tenants. Properties much be kept at a minimum standard. In the uk you are lucky to get ahold of your landlord if there is an issue and there is practically no regulation other than that for homes in multiple occupation.

  3. Conservative manifesto 1987 – ‘And we will revise the housing benefit system to ensure that it prevents landlords from increasing rents to unreasonable levels at the taxpayer’s expense….’ What happened?

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