One way London Councils could deal with the coming Housing Benefit crunch


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6:41 pm - February 24th 2013

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by Alex Harrowell

Over the 20th century, the UK made a political choice that we probably never articulated as such.

That is, we decided that the huge expensive city in the lower right-hand corner of the map had to remain a proper city, rather than shipping out its working class to a concrete jungle on the M25 and giving over the centre to the role of a dead museum, sorry, an exciting retail and heritage offer for high-value tourism, and the City and the East to the banks.

At the same time we decided that the outward sprawl had to stop, halting at the green belt. The solution, up to the 80s, was to make housing in the major cities into a public service. Since the 1980s and the key decision to sell the council properties accumulated up to then, the policy changed; instead of taking housing out of the market, we would instead subsidise it. As Tory minister Sir George Young said, housing benefit would take the strain.

Now, the strain will no longer be taken. Local housing allowance – it’s housing benefit but for people in private rentals – is to be drastically cut.

If the tenants can’t pay, they will get the stick. Councils are actively planning to rehouse over 100,000 people outside London.

Of course, faced with this prospect, people will try to survive somehow. On the tenants’ side, some of them will try to disappear in the black economy and tolerate back-garden sheds, friends of friends’ sofas, or perhaps squat in repossessed property rather than be shipped away from their jobs. (Yes, their jobs; housing benefit is mostly paid to people in work. Surely I don’t need to say this.)

On the landlords’ side, they will tell themselves that of course they can find new tenants. They will juggle financing between properties, personal loans, their credit cards, etc.

But there is a solution. Under Eric Pickles’ Localism Bill, councils get to keep their income from rent rather than giving it to the Government.

So, let’s buy the houses, quick. I propose that the London Labour councils, and indeed any others who want to join, launch a jointly-owned company to buy up the BTLers’ property and to manage it as social housing. We could organise this via London Councils itself, as it is now Labour-controlled.

How much is that again?

There are 52 weeks in a year, 133,000 households claiming, so that estimates the flow of housing benefit into rents for the people involved at £2.3bn a year. That’s quite a lot of money. There’s also a £2bn “affordable housing” fund controlled by Boris Johnson we might bid for.

Councils can borrow money from the Government at a 2.8% interest rate, being the rate the Government can borrow for 10 years plus 1%. This isn’t actually all that good. There is an enormous demand for safe assets that actually pay a coupon at the moment.

Some councils, therefore, have decided to issue bonds on the open market instead. At 2.5% for 10 years, the stream of housing benefit would be enough to pay off a £22bn bond issue.

This isn’t a new idea. In the 1970s, a lot of rental property was bought up by London Labour councils’ housing departments and they’ve still got more of it than you might think.

—
A longer version of this piece is at Alex Harrowell’s blog.

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Reader comments


1. Cherub

If the finance can be made to work the I hope this pans out. Local government has had this power as Quality Councils or Power of Wellbeing for some time but I’ve not come across many examples of this kind of use. Good luck.

2. BAJDixon

Great except 1) all the local housing allowance changes happened in 2011, 2) 23%of HB households are in work, not a majority.

3. Chaise Guevara

@ BAJDixon

I realise the OP didn’t provide one either (and should), but could you give a source for that second claim?

4. GO

“housing benefit is mostly paid to people in work. Surely I don’t need to say this.”

Most *new claimants* are in work. I suspect that’s what you’re thinking of.

http://www.insidehousing.co.uk/tenancies/majority-of-new-housing-benefit-claimants-in-work/6521183.article?MsgId=50359

There’s an article here about how the figures break down and why it’s hard to give a clear answer on how many are in or out of work. It’s true to say most claimants are not unemployed and claiming JSA/ESA, but not right to infer that most of them are therefore in work:

http://fullfact.org/factchecks/one_in_eight_housing_benefit_claimants_unemployed-27479

5. jungle

BAJDixon:

Point 1) They were agreed in 2011 – most of them come into effect over the coming year (although they keep putting it back), as do numerous other changes to the benefit system.
Point 2) I suspect the conflicting information is because HB is not the same thing as LHA. Although I do think saying it affects the employed is slightly misleading anyway; the main cap (£26k overall benefits) affects only the unemployed.

6. Luis Enrique

I don’t know nearly enough about these matters to offer an opinion either way, but it seems to me there is a risk this scheme could be cast as bailing out buy-to-let landlords, which might make it unpopular. It would push up prices, wouldn’t it? People think QE is bad enough because it involves buying a bond otherwise worth, for example, 99p and probably pushing up their prices to something like 99.2p, which everybody, particularly on the left, likes to describe as a cash handout for the wealthy (never mind that low interest rates screw savers).

7. cjcj

Luis – indeed.

If house prices are “too high” then let them fall!

8. Ken

Local councils and housing associations have the best understanding of those in need of housing and where it is needed most.

Most households claiming benefits are in work. High rents and more people pushed into the private rental sector due to a shortage of social housing means that many cannot pay housing costs and essential items.


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