Cutting housing benefit – one brick at a time

Consensus has broken out in the fractious world of welfare reform. Thinkers and activists across the political spectrum are increasingly in agreement that the best way to reduce the housing benefit bill is to build more affordable homes.

Yesterday both the Reform think tank and SHOUT, the national campaign for council housing, called for renewed investment in genuinely affordable social housing as the sustainable way to reduce welfare spending. Capital Economics crunched the numbers for SHOUT and warned that without new social housing, the housing benefit bill will soar to a staggering £197 billion by 2065/66, up from £24 billion a year now. Reform also identified the 1980s shift from investment in social housing to demand side subsidies as the key driver behind rising housing benefit expenditure. It recommended significant capital investment in new social housing to reduce reliance on the expensive private rented sector and bring down HB spending over time.

Back in 2012 as the dust from the Welfare Reform Act settled, we asked ourselves at Shelter, what next for housing benefit? Was the government right; had the bill ballooned out of control? And how did the benefit need to be reformed to better support those who need it? We quickly realised, however, that continuing to view housing benefit through the lens of welfare reform missed the bigger picture – long-term failures of housing policy. The question was less how to reform housing benefit in its own right and more how to ensure it did less of the heavy lifting of housing affordability by shifting subsidy back into bricks and mortar.

Housing benefit expenditure has risen, crudely, because the decline in home ownership and rising housing costs mean more people are eligible for support – an underlying pressure magnified by the financial crash and the ensuing drop in incomes; and the lack of social housing and rising rents means supporting them is increasingly expensive. This has been recognised by the Office for Budgetary Responsibility, who note that the shift from social renting to private renting has put pressure on welfare spending.

This has not been accidental; back in the 1970s the consensus was that housing supply was adequate, with the assumption it was therefore more efficient to subsidise low income households to afford rents than to subsidise building yet more houses. If people struggled to pay the rent, housing benefit would, infamously, “ be there to take the strain”. Unfortunately, few noticed when the balance quietly tipped, a shortage of social housing developed and the cost of supporting renters to access the private rented sector increased.

By the time the housing benefit bill became the subject of political concern, the focus was not on the underlying pressures and political choices that had led us here, but on how to curb the perceived excesses and generosity of the system. Unfortunately this has meant that policy choices over the last five years have focused on reducing support for individual households, rather than tackling the underlying causes.

Since 2011, cuts to Local Housing Allowance (housing benefit for private renters) mean that the average award is now £7 a week less than it was pre-reform – despite private rents continuing to increase over this period. But the caseload also continued to rise and was slow to reflect the economic recovery, only beginning to fall last spring.  As a result total expenditure on Local Housing Allowance was £1.2 billion higher in real terms in 2014/15 than it had been in 2010/11, as the state found itself supporting more people, less well.

HBcosts

Admittedly, total benefit spending was less than it would have been without cuts, but the overwhelming effect has been one of continued cost pressure for the state – combined with new pressures for individuals now unable to access affordable rented accommodation.

A similar picture can be painted in the social rented sector, where benefit expenditure is now higher than it was before the introduction of the bedroom tax. In total, cuts that have borne heavily on individuals have barely constrained the overall housing benefit bill.

If July’s Budget indulges in more tinkering with entitlements and shifting of the burden of the housing crisis onto low income households, it is very likely to have the same effect. And nor can spending on housing benefit simply be cut by moving people into work – the doubling of the in-work caseload is proof of that.

If we’re serious about reducing housing benefit expenditure in a sustainable way then we have to increase the supply of genuinely affordable housing. This would mean working households would be less likely to need support to bridge the gap between high rents and low wages, and it would become cheaper to support people who continue to need housing benefit when unable to work. Lower rents also have the benefit of reducing work disincentives, allowing the benefits of Universal Credit to be better realised.

This doesn’t mean crudely switching spending from housing benefit to investment in supply. As both Reform and SHOUT make clear, we will need to accept capital investment in new social homes. But Capital Economics calculates that 100,000 homes a year now could achieve a net surplus for government within 20 years. Refusing to do this means accepting continued increases in spending, or imposing such severe cuts that many more may be put at risk of homelessness.

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