Housing Benefit Pushes Up House Prices

[CrashConnoisseur]

Connoisseur, can you give a link to show how rent officers determine the market rates?

Here....

'Rent Officer Handbook - lettings information : sources':

http://www.voa.gov.uk/corporate/Publications/Manuals/RentOfficerA-Z/l-roh-lettings-information-sources.html

Rent Officers must seek out a wide range of sources of lettings information in order to ensure they have a diverse range of information, not limited to one or two individual sources, as this could present the risk of bias, not reflect the whole PRS and potentially skew the LHA median calculation. A range of sources of information exist in most towns and cities. Common sources are identified below.

[Fairies Wear Boots]

If they are capable of outbidding you, then you might be entitled to benefit yourself.

Or it may be the case that you do not wish to spend 60% of your income on renting a bedsit/flat/house. The benefit claimant is forced to spend that much. This discourages them from working as all their income would be then spent upon rent

I had an unemployed friend in London who reckoned he needed to get a job paying 30K to be as well off as not working. He was only getting 65£ a week in the hand.

[miko]

I had an unemployed friend in London who reckoned he needed to get a job paying 30K to be as well off as not working. He was only getting 65£ a week in the hand.

And that is the big problem . The housing costs that get paid by the state when not working are so large that if you are working they take everything you get.

[Self Employed Youth]

I had an unemployed friend in London who reckoned he needed to get a job paying 30K to be as well off as not working. He was only getting 65£ a week in the hand.

I'm currently getting £53.45 in the hand. I need about £9k to be as well off as not working. Any job at minimum wage, under 30 hours I refuse.

If I work 48 minutes I'll be a fiver better off (assuming no transport costs), from 48 minutes to 30 hours I'll still only be a fiver better off (assuming no transport costs).

And there aren't many full time jobs about! Part time jobs are only ok for single parents and the over 50s due to the tax credit part of the tax-benefit system. Or people ineligible for benefits due to partner' income, savings etc.

[CrashConnoisseur]

whilst the top argument is sound market theorywhat is the market basis for the second assertation....

Properties available to HB claimants (from the start of the tenancy) are a subset of the Private Rental Sector (PRS). Relatively few Letting Agents will consider HB claimants even with a guarantor and many landlords have a "No DSS" policy. Many properties are too expensive anyway; even before the cuts almost a half of Local Housing Allowance (LHA) claimants had to make up a rent shortfall. The coalition's cut from setting LHA at the median to the 30th. percentile is likely to reduce both the number of landlords willing to let to HB claimants and the number of affordable properties. While some landlords will reduce their asking rents, not all will. So an increasing number of HB claimants will be chasing a reduced supply of low-end rental properties. Basic economics tells us this is likely to push up these rents.

'House of Commons Written Answers 10 November 2010':

http://services.parl...rs/part012.html

Steve Webb: In August 2009, 48% of those receiving housing benefit under the local housing allowance arrangements had a shortfall in their rent caused by the customer's contractual rent being higher than the appropriate local housing allowance rate.

Edited September 10, 2011 by CrashConnoisseur

[Mr. Piddle]

\years ago, the amount you could receive in HB was based on your need (lets say your need was a 2 bed flat) you would only receive just enough to rent a low priced one based on your area.

But nowadays this is not happening, they will give you what ever you demand to live where ever you like as no-one (not even the council) seem to know what a fair rent is.

[Self Employed Youth]

\years ago, the amount you could receive in HB was based on your need (lets say your need was a 2 bed flat) you would only receive just enough to rent a low priced one based on your area.

But nowadays this is not happening, they will give you what ever you demand to live where ever you like as no-one (not even the council) seem to know what a fair rent is.

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/BenefitsTaxCreditsAndOtherSupport/On_a_low_income/DG_10018928

Limits for Local Housing Allowance

A limit will be introduced so that Local Housing Allowance will not exceed:

• £250 a week for a one bedroom property (including shared accommodation)
• £290 a week for a two bedroom property
• £340 a week for a three bedroom property
• £400 a week for a four bedroom property

The maximum rate of Housing Benefit will be limited to the rate for a four bedroom property.

THESE ARE THE MAXIMUM AMOUNTS (ONLY IN THE MOST EXPENSIVE PARTS OF LONDON)

Have a look at Liverpool LHA for example;

http://liverpool.gov.uk/benefits-and-grants/housing-benefit/local_housing_allowance/

LHA rates set for September 2011

Bedroom ratePrice per weekRate four weeklyRate per monthShared£56.50£226.00£244.831 Bedroom£91.15£364.60£394.982 Bedroom£109.62£438.48£475.023 Bedroom£121.15£484.60£524.984 Bedroom£144.23£576.92£625.00

LHA rates set for August 2011

Bedroom ratePrice per weekRate four weeklyRate per monthShared£57.50£230.00£249.171 Bedroom£90.00£360.00£390.002 Bedroom£109.62£438.48£475.023 Bedroom£121.15£484.60£524.984 Bedroom£138.46£553.84£599.99

[Georgia O'Keeffe]

Properties available to HB claimants (from the start of the tenancy) are a subset of the Private Rental Sector (PRS). Relatively few Letting Agents will consider HB claimants even with a guarantor and many landlords have a "No DSS" policy. Many properties are too expensive anyway; even before the cuts almost a half of Local Housing Allowance (LHA) claimants had to make up a rent shortfall. The coalition's cut from setting LHA at the median to the 30th. percentile is likely to reduce both the number of landlords willing to let to HB claimants and the number of affordable properties. While some landlords will reduce their asking rents, not all will. So an increasing number of HB claimants will be chasing a reduced supply of low-end rental properties. Basic economics tells us this is likely to push up these rents.

'House of Commons Written Answers 10 November 2010':

http://services.parl...rs/part012.html

like i said its nonsense,its not addressed the point , just repeating what was said and actually ignoring fundamental economics and more importantly maths, like i said supply doesnt change, you are making an assumption that suggests given an economic change all prevailing conditions will remain identical to prior to the change in economic condition, all changes have an economic impact and change behaviour, thats how the economy works, where does the new demand (and just as important increased money come from, seeing as it is actually reducing ) to push up prices given overall supply is unchanged, The population of landlord property is unchanged, or they sell it and the popn of renters is reduced, supply doesnt fall unless the house evaporates, someone still uses it, that removes demand from somewhere else, it is net zero from a number of properties perspective and a net reduction in the population of funds being spent by the gross population,

Every single subsidy the govt makes in the economy whatever it may be relating to is at its core a price fix, it cant be anything else and can only result in the floor increasing to meet that subsidy that could not be acheived without the fix or the subsidy, every subsidy then becomes self fulfilling or it wouldnt be needed

Edited September 10, 2011 by Tamara De Lempicka

[Self Employed Youth]

The benefit claimant is not forced to spend that much, they do not earn any money, it is my money they are spending. It is me who is competing with them using my tax money. They have no money to spend they are on benefits. I am not entitled to benefits because I am working and paid tax and have savings.

Your money is the money you earn or the money you receive from the state, you might have even inherited it, perhaps found it, or won it on the lottery. Where it comes from does not really matter.

A few weeks ago I was working, now I am claiming dole whilst I find another job. I paid into the state when working, the state pays out to me when I'm not working.

You say you are competing with people on benefits, I appear to be competing with myself. My ability to haggle is hindered by housing benefit. I'm in effect forced to pay whatever rent is demanded by the housing association.

Housing benefit sets a minimum price, but that housing benefit is money paid to a claimant to pay to a landlord, but only if the claimant has a landlord in the first place. That person is forced in effect to spend it on rent.

[CrashConnoisseur]

\years ago, the amount you could receive in HB was based on your need (lets say your need was a 2 bed flat) you would only receive just enough to rent a low priced one based on your area.

That's still the case. Each claimant's circumstances are assessed to determine the number of bedrooms they are entitled to. Most single claimants under 35 are now limited to a room in a shared house.

But nowadays this is not happening, they will give you what ever you demand to live where ever you like as no-one (not even the council) seem to know what a fair rent is.

For Private Rental Sector (PRS) tenancies the amount payable for the assessed number of bedrooms is paid up to a maximum amount: the Local Housing Allowance (with various deductions for services, savings, income, etc.). As previously discussed the rate of LHA is determined by a Rent Officer working for the local Valuation Office (part of HMRC). The LHA is now set at the 30th. percentile (formerly the median) of rents in a Broad Rental Market Area (BRMA) for properties of that size (number of bedrooms).

If claimants could get "whatever you demand" then half of LHA claimants wouldn't have a shortfall in their rent.

'House of Commons Written Answers 10 November 2010':

http://services.parliament.uk/hansard/Commons/ByDate/20101110/writtenanswers/part012.html

Steve Webb: In August 2009, 48% of those receiving housing benefit under the local housing allowance arrangements had a shortfall in their rent caused by the customer's contractual rent being higher than the appropriate local housing allowance rate.

[witsended]

Not sure where some of the other posters live, but a relative who works in HB office of a small West Midlands city says that the going rate there is £415 a month for a couple with one child, a single person around £350,which means most claiments live in dumps because of the shortage of social housing.

[CrashConnoisseur]

Not sure where some of the other posters live, but a relative who works in HB office of a small West Midlands city says that the going rate there is £415 a month for a couple with one child, a single person around £350,which means most claiments live in dumps because of the shortage of social housing.

And that one-bedroom rate is for single people over 35. In general, HB will now only cover decent accommodation in those BRMAs with lots of high-end properties which pull the 30th. percentile rent up.

[CrashConnoisseur]

....you are making an assumption that suggests given an economic change all prevailing conditions will remain identical to prior to the change in economic condition,...

I make no such assumption (and nor does the government's advisory committee in the report). In my post, which you quote, I mention three ways in which the market is likely to change: some landlords will increase rents to the new LHA rate, some will reduce rents, while others will stop accepting HB claimants.

The population of landlord property is unchanged,...

HB claimants don't rent from the "population of landlord property" they rent from a subset of that population which is available to them (limited by landlord policy and price). The size of that subset is being reduced while demand continues to increase (PRS HB claimants up nearly 50% in the 30 months to May 2011).

[gf3]

If you ask me, they should scrap housing benefit entirely and pay the housing element direct to claimants, to do with as they please.

It would force rents down, as people could choose to sleep on sofas etc. and pocket the money, rather than it being forced into the housing market unto a landlord, or not be paid at all..

I agree with you.

This would encourage people that have paid off their mortgage to retire early and youngsters to stay at home with parents. There would be more jobs about for people that have high living expense.

I think welfare benefits should work on a reverse auction. If I can live off £150 a week benefit why can't I under cut a person that need £300 a week then they can pay my benefit out of their wages instead of the other way round.

[MongerOfDoom]

http://www.direct.go...ome/DG_10018928

Limits for Local Housing Allowance

A limit will be introduced so that Local Housing Allowance will not exceed:

Does anybody know when this will happen please? I am fairly sure I heard there was a U-turn and this particular limit would not be introduced in April 2011, so the "will" in the quote probably still applies.

What I really want to know is when to expect rents to change in response to the legislation. I see that in January single people under 35 will no longer qualify for self-contained accommodation, but it will presumably be some 9 months before existing tenants are affected, and then only ones renting privately (council housing being sufficiently cheap that even the single room rate will be enough to provide a self-contained flat). So maybe the cost of rooms in shared houses will start to go up sometime next year while the cost of 1-bed flats will go down? Similarly, the changes introduced this April will (it would seem) take between nine and 21 months to have an effect on existing recipients, so perhaps rents on homes between the 30th and 50th percentile should decrease next year?

I also see that that starting in April 2013 there will be changes affecting social tenants renting accommodation that is too large (but only if they are of working age). I don't know whether to expect a non-trivial impact, but it would presumably just slightly increase the difference in the cost between small and large properties?

Many thanks for any comments, reasoned predictions, etc.

[aa3]

Paying whatever the market is at for rents only works in a city where they allow large scale development. As then if the rents rise too much, a ton of more houses are built to take advantage of the situation, and that moderates rents.

What we have is a situation where there is 100 people but only housing space for 95 of them. Naturally some.. 5 of them.. are not able to find housing, so then the council steps in with infinite money to outbid and get those 5 houses. That means 5 different people end up without housing. So the council steps in with huge money and outbids and gets those 5 housing.

The rentiers have captured the political process in most cities so they keep the game going. Gradually adding more houses to their BTL empires and transfering money from the public purse to their private banks accounts.

[Trampa501]

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/BenefitsTaxCreditsAndOtherSupport/On_a_low_income/DG_10018928

Limits for Local Housing Allowance

A limit will be introduced so that Local Housing Allowance will not exceed:

• £250 a week for a one bedroom property (including shared accommodation)
• £290 a week for a two bedroom property
• £340 a week for a three bedroom property
• £400 a week for a four bedroom property

The maximum rate of Housing Benefit will be limited to the rate for a four bedroom property.

THESE ARE THE MAXIMUM AMOUNTS (ONLY IN THE MOST EXPENSIVE PARTS OF LONDON)

Have a look at Liverpool LHA for example;

http://liverpool.gov.uk/benefits-and-grants/housing-benefit/local_housing_allowance/

LHA rates set for September 2011

Bedroom ratePrice per weekRate four weeklyRate per monthShared£56.50£226.00£244.831 Bedroom£91.15£364.60£394.982 Bedroom£109.62£438.48£475.023 Bedroom£121.15£484.60£524.984 Bedroom£144.23£576.92£625.00

LHA rates set for August 2011

Bedroom ratePrice per weekRate four weeklyRate per monthShared£57.50£230.00£249.171 Bedroom£90.00£360.00£390.002 Bedroom£109.62£438.48£475.023 Bedroom£121.15£484.60£524.984 Bedroom£138.46£553.84£599.99

Those rent figures still look quite generous to me. I suppose they are distorted by the London/South-East effect. I wonder if the government intend on keeping rigidly to those limits, whilst encouraging an inflationary regime that will erode those values? For example maybe in 4 years time the average rent will become 600 a week?

I personally think the govt. should introduce a "nudge" system for hb in London. You can claim 100% hb for your first year, but this would be reduced by 10% for each additional year you claim from the system - unless you agree to move out to a low cost area of the country like the north or Wales (nothing to stop them living next to the coast in low cost areas!). In this way you still have the safety net for folk genuinely unable to find work, but if it becomes a long term condition then you should move away from the capital and enjoy a slower pace of life whilst costing the taxpayer less - it would also free up housing for people working and paying into the system. I'd waive the reduction in hb for pensioners, as it would be unfair to force them out after possibly working all their lives.

Edited September 11, 2011 by Trampa501

[@contradevian]

http://www.direct.go...ome/DG_10018928

Limits for Local Housing Allowance

A limit will be introduced so that Local Housing Allowance will not exceed:

• £250 a week for a one bedroom property (including shared accommodation)
• £290 a week for a two bedroom property
• £340 a week for a three bedroom property
• £400 a week for a four bedroom property

The maximum rate of Housing Benefit will be limited to the rate for a four bedroom property.

THESE ARE THE MAXIMUM AMOUNTS (ONLY IN THE MOST EXPENSIVE PARTS OF LONDON)

Have a look at Liverpool LHA for example;

http://liverpool.gov...sing_allowance/

LHA rates set for September 2011

Bedroom ratePrice per weekRate four weeklyRate per monthShared£56.50£226.00£244.831 Bedroom£91.15£364.60£394.982 Bedroom£109.62£438.48£475.023 Bedroom£121.15£484.60£524.984 Bedroom£144.23£576.92£625.00

LHA rates set for August 2011

Bedroom ratePrice per weekRate four weeklyRate per monthShared£57.50£230.00£249.171 Bedroom£90.00£360.00£390.002 Bedroom£109.62£438.48£475.023 Bedroom£121.15£484.60£524.984 Bedroom£138.46£553.84£599.99

Glad someone has brought this up.

http://www.kirklees.gov.uk/answers/benefits/localrates.shtml

On my old flat in Huddersfield, Kirklees MC would only pay a maximum of arount of £345. Thats it, no more. The rent is £525 pcm so it wouldn't suit a HB tenant at all.

Edited September 11, 2011 by John Steed

[Damik]

Let me declare first that I fully support the concept of housing benefit. Also happy to pay local tax to support genuine need.

Now that's out of the way, my local authority, and many others, present little challenge to landlords who exploit the housing benefit regime by suggesting a "market price". Most local authorities capitulate to this with very little questioning, and I have evidence that there are no proper checks as to true market value for rental properties.

Example: two years ago I vacated an apartment on which I got the rent down to £750 from £850 due to rents reflecting the buying market. The moment I left and moved somewhere else, the landlord found he could not match even my reduced rent so, after several years refusing benefit clients, he turned tables, offered the flat for £875 and got that sum straightaway from the local authority. I know this because I checked with the new tenants. Since then I know of many similar flats where the same thing happens.

Further research suggests that local authorities are so keen to offload their own queues for housing on the private sector that they will do almost anything to save themselves the trouble. The result is that a significant proportion of social housing via private landlords ends up being between twenty and forty percent more expensive than it should be.

This in turn gives letting agents the ammunition to claim that rents are "rising". They are actually not rising if the market had proper influence. The fallout from this is that a large number of landlords are now attempting to value their properties on the basis of an entirely rigged rental market on the back of lazy councils who cannot be bothered to properly negotiate. Discuss.

it is interesting that some people have worked, paid tax, saved, purchased and are now happily living in mobile houses for fraction of normal accommodation costs. but we have to waste so much money on housing benefit. plus it is distorting the rental market for anybody else.

Edited September 11, 2011 by Damik

[MrPin]

Glad someone has brought this up.

http://www.kirklees.gov.uk/answers/benefits/localrates.shtml

On my old flat in Huddersfield, Kirklees MC would only pay a maximum of arount of £345. Thats it, no more. The rent is £525 pcm so it wouldn't suit a HB tenant at all.

That's a good anecdotal, and I do not think that is untypical.

[CrashConnoisseur]

Once that discussion takes place, do you not think Landlord says "look I'll give you £25 if you agree to a rent of £50 extra".

Perhaps if the landlord is a relative or friend otherwise they're more likely to say "look I don't normally accept tenants on benefits, but if you can pay [the full LHA rate] I'll consider you if you can provide two references." HB claimants are typically in a weak position to negotiate since so little accommodation is available to them. Generally, they have to accept what they can find on the landlord's terms. Landlord's aren't competing to attract HB tenants by offering inducements; it's the other way round: HB claimants often have to offer more than the LHA rate to obtain a place to live.

[Mr. Piddle]

Ive just checked in my area (Bournemouth) and it says:

1 bed = £504 pm

2 bed = £650 pm

3 bed = £800 pm

4 bed = £1000 pm

Thats more than I pay in rent (myself) for a 2 bed flat. and that still allows claimants to live in quite nice accomodation, rather than the really cheap grotty ones. (I guess they leave them for the people who work and pay their own rent)

Edited September 11, 2011 by mason

[leicestersq]

Paying whatever the market is at for rents only works in a city where they allow large scale development. As then if the rents rise too much, a ton of more houses are built to take advantage of the situation, and that moderates rents.

What we have is a situation where there is 100 people but only housing space for 95 of them. Naturally some.. 5 of them.. are not able to find housing, so then the council steps in with infinite money to outbid and get those 5 houses. That means 5 different people end up without housing. So the council steps in with huge money and outbids and gets those 5 housing.

The rentiers have captured the political process in most cities so they keep the game going. Gradually adding more houses to their BTL empires and transfering money from the public purse to their private banks accounts.

aa3,

Yes exactly, this is what is happening. So say there are now 80 million people according to some in the UK, a figure I tend to believe more than the official 61 million. With housing volumes relatively static, that means the price of housing will rise as the demand for it increases. As you say, there is a huge amount of hidden homelessness. There must now be many homes converted to flats where people, particularly immigrants, are packed in tight. Huge numbers too, of young people living at home, there is no way that this will change without some sort of immigration control, and there is nothing to suggest that there will be.

The housing crisis in the uk is going to get worse.

[CrashConnoisseur]

Those rent figures still look quite generous to me. I suppose they are distorted by the London/South-East effect.

You're looking at the new overall caps which only apply to very expensive parts of London (14,303 claims in total). For the other 99.71% of claims the Local Housing Allowance (LHA) is capped at lower levels based on the 30th. percentile point of the distribution of rents for properties having the same number of bedrooms in each Broad Rental Market Area (BRMA). For example, in Stoke-on-Trent (Staffordshire North BRMA) the maximum rent payable for a one-bedroom flat is £78.46 a week (£340 per month).

You can find what the maximum rent payable (the LHA rate) is for your area by entering your postcode here:

http://www.hbupdate....erPostcode.aspx

I wonder if the government intend on keeping rigidly to those limits, whilst encouraging an inflationary regime that will erode those values? For example maybe in 4 years time the average rent will become 600 a week?

My understanding is that the overall caps are to remain fixed. From April 2013 LHA rates will be increased (uprated) by CPI and will from that point onwards be divorced from actual rents. Currently, the average private sector rent (for all sizes of house) paid by Housing Benefit is £111.62 a week.

[NEO72]

You're looking at the new overall caps which only apply to very expensive parts of London (14,303 claims in total). For the other 99.71% of claims the Local Housing Allowance (LHA) is capped at lower levels based on the 30th. percentile point of the distribution of rents for properties having the same number of bedrooms in each Broad Rental Market Area (BRMA). For example, in Stoke-on-Trent (Staffordshire North BRMA) the maximum rent payable for a one-bedroom flat is £78.46 a week (£340 per month).

You can find what the maximum rent payable (the LHA rate) is for your area by entering your postcode here:

http://www.hbupdate....erPostcode.aspx

My understanding is that the overall caps are to remain fixed. From April 2013 LHA rates will be increased (uprated) by CPI and will from that point onwards be divorced from actual rents. Currently, the average private sector rent (for all sizes of house) paid by Housing Benefit is £111.62 a week.

Something I've been wondering about is this. When this 30th percentile cap is introduced next month, it will lower LHA by an average of £40/month (£70/month in London) according to the government's own figures, which since demand is elastic (i.e. a proportion of LHA claimants could elect to remain at home for example, if not financially viable to move out) whilst supply is inelastic will IMO put significant downwards pressure on rents.

Now, if rents are going down and the LHA cap is based on the 30th percentile, then surely this will lower LHA further, effectively creating a downwards spiral. And by 2013 when LHA is linked to CPI, that would restrict any future rent increases to CPI.

So, I predict falling rents for the next couple of years followed by gradual increases in line with CPI.