Housing benefit is out of control, but there is an alternative
In the 1970s, 80% of public spending on housing was on building new affordable homes, with just 20% going on cash benefits to help people pay their rent. This was an era when local authorities were building about 100,000 homes a year and social housing was for the majority. More than three decades later, the balance of spending has radically reversed. During the current four-year spending review period, there will be £4.5bn of capital investment in new affordable homes while £95bn will be spent on housing benefit. Of that, more then £30bn will go to private landlords due to the chronic lack of affordable housing.
This balance of spending is the result of a generation-long cross-party consensus to allow public money to be shifted from building homes to subsidising rents and to run housing policy from Whitehall, with local government left as a delivery agent. While the economy was growing and public expenditure rising, the flaws in this approach were camouflaged. A host of initiatives – like first-time buyer gimmicks – covered up the absence of strategy. The last Labour government improved the stock of social housing but didn't challenge the status quo. The coalition is making things worse.
Housing benefit has spiked in recent years as unemployment has risen and household incomes dropped. But the long-term, unchecked, increase in benefit spending is significantly rooted in the housing market, such as a greater reliance on the more expensive private rented sector. This government has responded by simply trying to chop bits off housing benefit, rather than address the causes of its rise. The annual savings made from slashing capital investment over this spending review will be cancelled out twice over by higher housing benefit – even with £2bn of benefit cuts.
We are beginning to see the impact of this mess. Figures out last week showed that affordable house building has fallen by more than 70% between 2009/10 and 2011/12. The fact that construction on less than 16,000 affordable homes began last year will, in turn, put further pressure on the housing benefit bill as need gets squeezed into the private sector. And local councils are left in an impossible bind, with responsibility but little power.
With the next spending review set to deliver further cuts to both capital investment and the benefits bill, IPPR is arguing for a new strategic direction for housing policy. At its heart would be a simple proposition: to shift spending from paying out benefits to building more homes. This is not straightforward to achieve and we argue that it requires the divide between capital grants and benefit spending to be broken down at the local level, where councils are capable of striking the balance that is right for their area.
Our proposal is that councils should be given an affordable housing grant – made up of projected housing benefit and capital spending in their patch – with a legal duty to use those resources to improve access to affordable homes in their area. This would substantially enhance their scope to get house building going by striking better deals with private landlords, borrowing against their significant assets, rent receipts and revenues, and "investing to save" their multi-year government funding. Over time, this would act to keep rents more affordable for households – and cheaper for local authorities to subsidise where this was still needed.
Combined with local control over planning, social housing allocation and regulation of the private rented sector, this new strategy would be a far more ambitious institutional reform than the coalition's half-hearted localism. Councils would be required to forge a consensus for their spending plans and housing strategy among a balance of local interests represented on an affordable housing panel – made up of providers, landlords, tenants and owners – and be accountable for progress in improving local affordability.
This approach would require an amendment to the government's benefit reform plans, though problems and delays in the implementation of the universal credit will only increase. In addition to local control of housing expenditure, an alternative option would be to turn the planned housing element of universal credit into a temporary entitlement, for say 12 months, to ensure people have immediate help at the point of crisis. If this were accessed on the basis of having a recent work record, it would mean a step towards a more contributory welfare system.
This strategy would mark a radical departure from three decades of housing policy. It does not fall neatly into established ideological camps and will be uncomfortable for some in the housing sector. It accepts the need for fiscal discipline, but rejects the argument that this means less affordable housing and more social segregation. It agrees that the British state is too centralised, but believes that localism is more than just devolving cuts.
On current trends and policy, Britain is set for a decade of chronically low levels of affordable house building and repeated attempts to hack back housing benefit – with some denying the problem and others denying reality. There is an alternative.