Housing Benefit cuts: a sensible solution

| October 28, 2010
Housing Benefit cuts: a sensible solution

The recent furore of cuts to Housing Benefit is politically expedient, but I doubt many of the people clamouring against the cuts have ever seen the reality of the system.

The truth is that landlords have been shafting councils for Housing Benefit for decades.

And because the public sector has been forced to put so much taxpayer money into the market, it has artificially inflated rents for everyone.

Let’s be clear – there is going to be no mass exodus of “the poor” from cities across Britain.

The most likely reality is that landlords who leech the housing benefit system will be forced to cut rents.

Simple economics says that there can be no mass exodus from the cities of people on benefit unless there are people to replace them.

Judging by the numbers being imagined by Boris Johnson and co there are millions of hard-working families who are ready -and willing – to push their families into inner city housing estates at a moment’s notice. Nothing could be further from the truth.

In fact, the limits proposed are more than reasonable, and should force rents down not simply for those on Housing Benefit, but across the rental market. After all, taxpayer money into rents has skewed the market long enough as it is.

The hardest hit will not be the poor, but instead the rich.

The ones who buy a property, move a relative in, and then siphon off the Housing Benefit to pay the mortgage. Such as those who buy a Chelsea property for a son or daughter to study in London, all paid for by the tax payer. No longer.

There are great inequalities in the UK property market, from prices to rents, and the presence of massive public spending is always going to distort any market. It’s been left unleashed in Housing Benefit for too long.

While capping rents in itself is a fair ideal, in practice it would simply be a government attack to control markets, and that never works when done directly.

Controlling public spending into them, on the other hand, is a means to effect the same outcome.

I’ve spent time in my youth claiming Housing Benefit. I’ve seen the system from the inside, and thought it was corrupt and badly managed even then.

Now the time is more than due for it to be addressed.

Of course, no doubt some otherwise-deserving people will be adversely impacted by the changes. These major overhauls always do. But in the main, most people will see little difference.

Excepting, of course, the very landlords who have milked the system for so long, and suddenly find that they cannot.


Comments (5)

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  1. Amy says:

    Erm, how about no. To all of the above.

    Of course rents will be pushed higher. With the number of people unable to buy, the demand for rent has increased 44% from last year, with only 1% increase in buy to let property. If you haven’t already worked it out, because of the extremely high demand, landlords can charge higher prices regardless of the circumstances.

  2. With reference to Brian’s comments and those of the Housing Minister on Question time last night I would like to ask what evidence there is to support the view that housing benefit is lucrative to landlords and is inflating the true cost of rental rates. Surely this depends on a number of factors but particularly the proportion of properties let to benefits claimants within a particular locality i.e. to have an affect it needs to be significant. Is there a high proportion of affluent parents who have purchased bijou pied a terres for their offspring to rent while studying in Kensington and Chelsea and if so are they able to claim benefit while doing so? I would agree that this would be entirely wrong, but is it actually the case and if so does it reflect the general situation?

    I have built a portfolio of 11 properties in a suburban area, 2 of which are currently let to tenants on housing benefit(one of whom is working as a care worker on a low salary). The experience I have had during my 9 years as a landlord is that properties occupied by benefit claimants involve much higher maintenance costs, have an unreliable income stream, involve far greater void periods and generally require a much higher level of management. Even before the recent announcements I had become reluctant to let to tenants in this position. In view of the higher risks involved in letting to these tenants it would be reasonable to expect higher rentals.

    In practice my own rental charges do reflect local market rates to produce an approximate gross return of 6% rather than who the tenant is or more particularly where his or her income derives from. After maintenance and finance charges I am lucky to see a profit but my investments are intended to produce a long term capital gain for retirement rather than a revenue stream for the present. I am inclined in future to avoid tenants on benefits and with current market demand am confident that I will not need to review this policy or to reduce my rents.

    I support the principles of benefit reform but am concerned that the proposals are being driven by dogma, and anecdote rather than hard evidence and without full consideration of the likely affects and outcomes.

  3. Brian Turner says:

    @Amy – rental demand has indeed gone up, but we’re talking especially about first time buyers here driving the market because of their inability to put up large deposits to get on the ladder.

    @Small Landlord – certainly not every landlord is screwing the Housing Benefit system, but there are plenty that are, especially those with low quality housing that would not be able to compete on the open market because of their poor condition. I saw plenty of friends in these when I was long term unemployed in the 90′s. Yet these properties are awarded full market rates despite being run down simply on the basis of the number of rooms, etc, rather than actual condition of the property. In other words, a 4 bedroom terraced gets the same rate of housing benefit, regardless as to whether it’s spotless or a health and safety danger. That unbalances the open market rates as good landlords price above the run down rental rates, and then the run down rental rates are raised to match the market ones! It’s something endemic to the sytem itself, and allowed to proliferate by local councils without government caps – so far. As for rich people buying properties for siblings – certainly been happening for decades. To qualify for Housing Benefit, the property owner simply has to declare that the property is indeed an investment property intended for the rental market. Once that’s done, the cheques are sent.

  4. Thanks for the explanation Brian – although I’m not persuaded. Is the level of abuse sufficient to skew the system? As Amy points out there are other more obvious pressures.

    Its also worth saying that I am also an accredited landlord, having received some local authority training. To maintain my accreditation I have undertaken to provide homes that meet both the decent homes standards and compliance with the Housing Health and Safety Rating System. The 2 homes I let to benefits tenants, under the authority’s rent deposit scheme, had to be inspected by the local authority’s enforcement officers. Perhaps things have moved on a bit since the 90s? If you are a rogue landlord though this would be further disincentive to taking tenants in this position. However, I wonder how much enforcement/checking will be undertaken in future in view of the intended public sector cuts.

  5. Brian Turner says:

    Indeed, my observations may be old, but it’s difficult to perceive any major significant changes to the system that would stop rogue landlords.

    When I was on the dole, despite someone dying from a CO2 leak round the corner the previous year (that landlord was cleared despite no gas checks for years), our shared property was still subject to C02 leaks, enough to put one resident in hospital. Had a detector put in my room, changed colour. Landloard came down, ran a smoke test on the fire – everything blew back into the room. His attitude was that it was just from cold air and there was only a small CO2 leak!!

    With the influx of asylum seakers housed into that same area at a later date, I would be surprised if these same landlords were not operating.

    Whatever the overall concerns about HB benefit cuts, I just don’t see the doomsday mass exodus scenario being envisioned by some politicians. However, I do see rogue landlords who have built their business model around playing the system as being the ones to suffer.

    Of course, there is much conjecture until the cuts are realised – I just think the HB system needs cleaning up, and that with rogue landloards pushed out (both poor quality housing ones, plus the rich playing the system), this could only have a beneficial impact on the rental market in general.

    2c.