Memorandum-to-the-Prime-Minister-on-Unaffordable-Housing

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Appendix 7 - Some problems of demand side support The rising cost of housing related benefits (Peter Ambrose and Paul Nicolson) An inevitable consequence of <strong>the</strong> rise in all categories of rent evidenced in Appendix 3 has been <strong>the</strong> increasing cost <strong>to</strong> <strong>the</strong> Exchequer of housing benefits and related allowances.The average benefits paid weekly <strong>to</strong> housing association tenants rose from £32.20 in 1992 <strong>to</strong> £58.00 in 2003 while for private tenants <strong>the</strong> rise was from £40.70 <strong>to</strong> £71.60 (Wilcox 2004,Table 116b).The national cost rose from £5.4 billion (1986/87 outturn) <strong>to</strong> £15.8 billion (2002/2003 outturn) and <strong>to</strong> a planned £19.7 billion in 2007/08 (Wilcox 2004,Table 114).This form of housing support makes up over 14% of all social security benefits and tax credits. This raises <strong>the</strong> strategic issue of <strong>the</strong> longer term rationality of spending so much housing support on <strong>the</strong> demand side, where it works <strong>to</strong> support rising rents, ra<strong>the</strong>r than on <strong>the</strong> supply side, where it would work <strong>to</strong> stimulate housing production (Strategic Issue 4 in Appendix 1). How it fits in with <strong>the</strong> Appendix 1 model In terms of <strong>the</strong> framework in Appendix 1 <strong>the</strong>se payments flow along line B at <strong>the</strong> bot<strong>to</strong>m of <strong>the</strong> diagram. Until <strong>the</strong> 1990s <strong>the</strong>re were also substantial flows along line B in <strong>the</strong> form of MIRAS, <strong>the</strong> tax concession <strong>to</strong> purchasing owner-occupiers.The cost of this concession peaked at £7.7 billion per year in 1990/91 when it was worth £800 per year <strong>to</strong> each recipient (Wilcox 2004,Table 105). By <strong>the</strong> end of <strong>the</strong> 1990s MIRAS had effectively been ended. It had become obvious that <strong>the</strong> concession, which was available <strong>to</strong> <strong>the</strong> purchasers of existing as well as new homes, simply worked as an additional fac<strong>to</strong>r pushing up house prices ra<strong>the</strong>r than as a stimulant <strong>to</strong> increase housing production.The same argument, in relation <strong>to</strong> rent levels, applies <strong>to</strong> housing benefits.There is little evidence that this increasingly expensive form of support helps <strong>to</strong> increase supply but clearly it increases rents <strong>to</strong> <strong>the</strong> evident benefit of <strong>the</strong> owners of rented property. It is widely and correctly seen as a subsidy <strong>to</strong> landlords. But as long as housing costs remain at current levels of unaffordability it is also essential <strong>to</strong> <strong>the</strong> incomes and well-being of <strong>the</strong> unemployed and low paid. A ‘gap-plugging’ measure - opportunity cost of <strong>the</strong> support This form of support is a clear example of a self-defeating ‘gap-plugging’ subsidy (discussed fur<strong>the</strong>r in Appendix 16) that is a clear second-best <strong>to</strong> policies geared <strong>to</strong> reducing rents. Over much <strong>the</strong> same period as housing benefits have at least doubled in real terms <strong>the</strong> investment in local authority and housing association new build and renovation and private renovation has fallen in real terms from £6.1 billion in 1983/84 <strong>to</strong> £2.8 billion in 2000/01 (Wilcox 2004 Table 62b).Thus in very rough terms over <strong>the</strong> past 20 years <strong>the</strong> ratio of public investment in <strong>the</strong> production of rented housing compared <strong>to</strong> public funds spent on supporting rent levels has fallen from near parity at a ratio of 6 <strong>to</strong> 5 <strong>to</strong> a much lower ratio of 3 <strong>to</strong> 16.This is equivalent <strong>to</strong> a fall from over 54% of <strong>to</strong>tal support <strong>to</strong> about 15%.The relationship between <strong>the</strong> two trends is Zacchaeus 2000 Trust - <strong>Memorandum</strong> <strong>to</strong> <strong>the</strong> <strong>Prime</strong> <strong>Minister</strong> - May 2005 47
shown in Figure 3. (£ billions) 25 Figure 3 - Social housing investment and housing benefit 1987-2007 (planned) Source:Wilcox 2004,Tables 57a and 114 The results in terms of an acute shortage of low rent housing were evidenced in Appendix 4.The rise in housing support payments has clearly been caused by <strong>the</strong> growing gap between rising rent levels and <strong>the</strong> persistent low incomes of many of those seeking public sec<strong>to</strong>r housing. Some adverse effects on recipients Dependence on housing benefit payments <strong>to</strong> cover necessary rent outgoings, while currently necessary for millions of people, brings its own difficulties for recipients.These come under three main headings - stress arising from <strong>the</strong> pressures exerted by benefits agencies, very high marginal tax rates when moving in<strong>to</strong> work and take-up rates below 100%. 48 20 15 10 5 0 Total housing and related benefits GB (cash) Gross social housing investment GB (cash) Zacchaeus 2000 Trust - <strong>Memorandum</strong> <strong>to</strong> <strong>the</strong> <strong>Prime</strong> <strong>Minister</strong> - May 2005
Page 1 and 2: Z2K ZACCHAEUS 2000 MEMORANDUM <stro
Page 3 and 4: 2 First published in Britain in 200
Page 5 and 6: Introduction The Prime</str
Page 7 and 8: 6 Zacchaeus 2000 Trust - Me
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Page 11 and 12: Recommendation 2 Policy should buil
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Page 51 and 52: Housing Association 3 Private Landl
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Page 81 and 82: is regarded as an essential step al
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Page 89 and 90: The size of land value gains The ga
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Page 95 and 96: decline in Federal support for hous
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upward wage pressure and fewer recr
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healthy living. Poverty happens und
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Phibbs, P. and Young, P. (2005) Hou
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Memorandum-to-the-Prime-Minister-on-Unaffordable-Housing

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