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Housing Benefit Pushes Up House Prices


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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.

As previously discussed demand is increasing (PRS HB claimant caseload up nearly 50% in the 30 months to May 2011) while supply is being reduced (less tenancies available with rents that are affordable to HB claimants). As highlighted in the government's advisory committee report cited earlier this may have the effect of pushing up rents...

'The Housing Benefit (Amendment) Regulations 2010 (S.I. No. 2010/2835). The Rent Officers (Housing Benefit Functions) Amendment Order 2010 (S.I. No. 2010/2836). Report by the Social Security Advisory Committee under Section 174(1) of the Social Security Administration Act 1992 and the statement by the Secretary of State for Work and Pensions in accordance with Section 174(2) of that Act '

http://www.official-...80108509551.pdf

The Committee's Report

[...snip...]

Removing the £15 excess payment from 2011

4.23 We have also previously reported on a proposal to remove the £15 excess payment and recommended that it be retained. In response to our report the previous administration decided to delay its removal for a year. We supported the retention of £15 excess when we reported last year because we believe that it supported tenant choice and responsibility. We still believe that this underpinning policy is correct and that if the excess is removed it is likely that landlords will respond by simply raising their contractual rents to the level of the LHA rate (this may be even more likely when considered in conjunction with the proposed upper limits for LHA).

[...snip...]

Setting LHA rates at the 30th percentile of rents in each BRMA from October 2011

4.24 The problems faced by those claiming HB who are trying to access housing in the PRS are well-documented. Landlords' willingness to let to households claiming HB is limited in many areas, particularly since direct payment of the HB to the landlord was made exceptional under the LHA arrangements. Even with the LHA set currently at the median of the rents in each BRMA, not all properties are available to HB tenants and we are concerned that moving to a calculation based on the bottom 30% of rents, will mean more tenants chasing fewer 'affordable' tenancies and may have the effect of pushing up rents. We believe that this may have particularly damaging effect on the market for rooms in shared properties that are subject to the one bedroom shared accommodation rate for people aged under 25, an area of provision that is already under considerable pressure.

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.

When setting LHA rates Rent Officers are required by law to exclude from their data tenancies where Housing Benefit is "affecting or influencing the agreed rent". This is to prevent HB from "directly leading a market" (up or down) in the manner you describe.

'Rent Officer Handbook - Lettings Information - HB':

http://www.voa.gov.u...rmation-HB.html

  • When they make their decisions under the HB scheme, rent officers are directed by law to "assume that no-one who would have been entitled to housing benefit had sought or is seeking the tenancy".

The wording of the legislative framework does not state that rent officers must ignore housing benefit tenancies, but rather determine that the housing benefit element is not affecting or influencing the agreed rent. HB should not be the determining factor in a rent. An obvious example, is where a tenant agreed the rent and previously paid this from his or her own pocket without the assistance of HB.

There may be neighbourhoods or parts of a locality or BRMA where in the rent officer's professional judgement HB has not influenced rental levels. If the rents for those tenants known to be assisted by HB are similar or reflect those rents that are not, this may suggest that HB has not influenced rental levels.

If, in the expert opinion of a rent officer, a tenancy agreement has been made and there was no effect on the agreement by the possibility of the receipt of housing benefit then this figure must constitute a confirmed rent.

The principle behind the law is to prevent housing benefit from directly leading a market. Under the LHA scheme a tenant is aware of the amount of money (or allowance) that they have to contribute towards the rent of their dwelling. The tenant will make an informed choice, based on a number of factors, including affordability, as to whether or not they should choose a given property. This decision making process will occur regardless of the presence of housing benefit in assisting in the payment of rental liability.

Therefore, if, in the rent officers opinion, the agreed contractual rent is reasonable for a location then this may be used as confirmed lettings information.

Edited by CrashConnoisseur
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\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.

Years ago, were there not such things as rent controls?

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The things I don't like about LHA/HB are:

a. It is a landlord subsidy. It allows the landlord to charge more than the economic rent. Certainly more than he could charge to a "paying customer".

b. It makes the LHA claimant a kind of outsider from the economic system. By this I mean that the rest of us, when we buy things, have a stake in the process. We have a vested interest in buying the best we can at the lowest price. We may not always do it well, and I personally I hate asking for deals and discounts. But I know that I do have the right to negotiate. LHA takes away that freedom and right from claimants. It is essentially a benign infringement of their rights. But it is still an infringement. It's like telling them they have to have their energy from British Gas, and at the most expensive tariff because the taxpayer will pay the bill anyway. They are being forced to function financially in a different world from the rest of us.

c. The LHA is a regional subsidy paid to claimants in London/SEast. Why does someone get 4x as much LHA in London than in Hull? Non LHA claimants have to take regional price variations into account when deciding where to live. It is illogical that those who are unemployed or on low wages should be insulated from that reality. It also subsidizes the North-South divide. Without this regional subsidy more employment and wealth would be distributed nationally. Obviously it would need to be phased in slowly and with some exceptions (to keep hospitals and schools running). But why not allow market forces to operate?

I do think a national "citizen income" as mentioned elsewhere is the way forward. A unified benefit that gives people the freedom and responsibility to manage their budget.

Edited by ingermany
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Interesting to hear the theories, assumptions, views etc expressed, but my original post was empirical evidence about what councils are prepared to pay. It might be that there is a theoretical limit, but where landlords drive a hard bargain and the local authority is compelled to house, I maintain that local authorites capitulate to the landlord's, or agent's demand.

I therefore stick to my original point. IN PRACTICE, and generally speaking, local authorities are prepared to spend more on behalf of their social clients than a private tenant would be prepared to pay.

Therefore, it is likely that rents are distorted through laziness or unwillingness of local authorities to be aware of, or negotiate properly in the interests of value for the tax payer and this also adversely influence house prices.

I might add that there are still an enormous number of very expensive so-called "executive" leases that are negotiated far above normal market rents because corporations are too lazy to negotiate decent leases on behalf of their employees.

Edited by VacantPossession
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I therefore stick to my original point. IN PRACTICE, and generally speaking, local authorities are prepared to spend more on behalf of their social clients than a private tenant would be prepared to pay.

Therefore, it is likely that rents are distorted through laziness or unwillingness of local authorities to be aware of, or negotiate properly in the interests of value for the tax payer and this also adversely influence house prices.

Considering a property in London can attract LHA of £400 per week and the most I have ever earned in a week has been £350 (after tax) for working an 84 week at minimum wage, one has to ask, where the bloody hell are the rent controls and why is the minimum wage so low!

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Considering a property in London can attract LHA of £400 per week and the most I have ever earned in a week has been £350 (after tax) for working an 84 week at minimum wage, one has to ask, where the bloody hell are the rent controls and why is the minimum wage so low!

That's a very fair point, and I entirely sympathise. Tougher negotiation by local authorities might have a spin off resulting in your situaiton being more tolerable. I wish you every good fortune and hope your circumstances improve.

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Considering a property in London can attract LHA of £400 per week and the most I have ever earned in a week has been £350 (after tax) for working an 84 week at minimum wage, one has to ask, where the bloody hell are the rent controls and why is the minimum wage so low!

Rent controls + plentifull council housing made being a landlord not a great investment and many of the landlords who owned multiple properties sold up after world war 2.

Add in the chance for young people to buy with the help of tax relief on the interest part of the mortgage and in the 50's/60's and 70's many people who would have either rented privatley or from the council had the chance to become home owners. There was also still the choice if you did not want the burden of a mortgage you rented from the council .

I have lots of relatives who when they married 40 years ago got a council flat in London ( yes even in London there was a good supply ) . You got married put your name down on the council and got one , no you did not need to have children or some dissadvantage that took you to the top of the list. I remember one of them laughing at me when I first bought my own home and took my holiday on the Isle of white instead of some far flung exotic location , they could not understand the concept of not having a great holiday and buying a home instead.

Thatcher changed all that , she sold off the council stock at rock bottom prices and rent controls were a thing of the past add in the six month AST's and buying to let was sure to take off.

Today while some of those same relatives I had took up the option to buy and have done really well from the situation their offspring are struggling to pay high mortgages , or high private rents , they have no chance of a council flat anywhere . The whole system has been fked.

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Interesting to hear the theories, assumptions, views etc expressed, but my original post was empirical evidence about what councils are prepared to pay. It might be that there is a theoretical limit, but where landlords drive a hard bargain and the local authority is compelled to house, I maintain that local authorites capitulate to the landlord's, or agent's demand.

I therefore stick to my original point. IN PRACTICE, and generally speaking, local authorities are prepared to spend more on behalf of their social clients than a private tenant would be prepared to pay.

If they are "social clients" then that suggests the property is being used to house homeless people, vulnerable women, etc. under the Supporting People Programme. Councils receive additional funding for that which is separate from Housing Benefit (£400 million total for all English councils in 2011-12). Councils have no duty to find accommodation for or negotiate rents on behalf of private HB claimants.

Have you checked to see if the council is paying a higher rent than the LHA rate?

Enter the postcode of the property here:

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

'Supporting people':

http://liverpool.gov...porting-people/

What is supporting people?

The supporting people programme commissions housing related support services through a working partnership of local government, health, probation, support providers and customers that use support services.

The support available can help vulnerable people to live more independently.

Examples of the kind of services commissioned and funded through the supporting people programme include domestic violence refuges, homeless hostels, sheltered housing and floating support services.

'Housing Minister Grant Shapps responds to Guardian article about Supporting People funding' [January 2011]:

http://www.communiti...ewsroom/1825375

We've entirely protected homelessness funding at £400m in the spending review, and took deliberate steps to protect this central funding so that the impact of cuts do not fall on those most in need.

'Scale of Supporting People cuts uncovered' [January 2011]:

http://www.insidehou...6513408.article

Inside Housing's analysis of the government's 2011/12 financial settlement for 150 English councils shows that Supporting People pots will shrink in 16 town halls by more than 30 per cent. Of the 67 councils to lose money, Camden Council in north London will suffer the biggest cut of 60 per cent.

In an apparent redistribution of supported housing cash across England, the government will swell 83 councils' budgets. The largest increase goes to Conservative-led Bexley Council, which will see its allocation almost double from £3.7 million for 2010/11 to £7 million in 2011/12.

Inside Housing's analysis comes as the Labour leader of Nottingham Council accused the government of misleading the public about the scale of Supporting People cuts.

Edited by CrashConnoisseur
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As previously discussed demand is increasing (PRS HB claimant caseload up nearly 50% in the 30 months to May 2011) while supply is being reduced (less tenancies available with rents that are affordable to HB claimants). As highlighted in the government's advisory committee report cited earlier this may have the effect of pushing up rents...

I can see how removing the £15 'bonus' could have increased rents, however as far as demand goes, perhaps it has been increasing (past tense), with generous benefits. But it seems unwise to extrapolate, considering these benefits will shortly be reduced (see my point about demand being elastic).

When setting LHA rates Rent Officers are required by law to exclude from their data tenancies where Housing Benefit is "affecting or influencing the agreed rent". This is to prevent HB from "directly leading a market" (up or down) in the manner you describe.

Don't know the ins and outs of this but presumably HB affects or influences all rents, whether directly or indirectly. To illustrate, if LLs decide they are not going to bother with HB following the changes then that would push up supply for non-HB tenants, reducing non-HB rents and thus rents overall. How can this be taken into account in their calculations?

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Years ago, were there not such things as rent controls?

Rent controls usually result in a shortage of supply and no incentive for landlords to improve properties. For example, see Stockholm...

'Backward' rental market must be fixed: expert' [February 2010]:

http://www.thelocal.se/24910/20100210/

The wait for a rental apartment in Stockholm averages 104 weeks, rising to as much as 20 years for attractive areas, according to a new report published this week.

Of the eight comparable EU cities studied in the Swedish Property Federation (Fastighetsägarna) report, Stockholm stood alone as the city with a long waiting list. It was also the only city with a generally regulated housing system.

Currently, longer-term visitors to Stockholm are faced with two stark choices - buy a house or a tenant-owner apartment (bostadsrätt) or join one of the many long queues for a regulated apartment (hyresrätt). If neither option is viable, there also exists an informal "second-hand" rental market that offers sublets at something close to market rates.

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Rent controls usually result in a shortage of supply and no incentive for landlords to improve properties. For example, see Stockholm...

'Backward' rental market must be fixed: expert' [February 2010]:

http://www.thelocal.se/24910/20100210/

A little link from Shelter for you...

http://localhousingwatch.org.uk/local_authority.php?la=230

There are 97,374 households on the waiting list for affordable housing in your area – at current letting rates this will take 20.86 years to clear.

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Considering a property in London can attract LHA of £400 per week and the most I have ever earned in a week has been £350 (after tax) for working an 84 week at minimum wage, one has to ask, where the bloody hell are the rent controls and why is the minimum wage so low!

That hits the nail on the head. As far as London is concerned there is an implied minimum wage that is MUCH higher than other parts of UK. LHA obscures this.

I know that the thread is about trying to quantify the effect, and that would be interesting, but it is important to stress the principle. That the whole purpose of this subsidy is to maintain higher housing costs and to create a variable pay structure across the UK in order to support areas where housing is unaffordable for ordinary people. It is brutal, but if housing in an area is unaffordable for ordinary people they just shouldn't live there. Then housing costs will go down because of market forces.

Edited by ingermany
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That hits the nail on the head. As far as London is concerned there is an implied minimum wage that is MUCH higher than other parts of UK. LHA obscures this.

. It is brutal, but if housing in an area is unaffordable for ordinary people they just shouldn't live there. Then housing costs will go down because of market forces.

I think that you will find there are many jobs in London paying the NMW , the same NMW that the rest of the country get.

As for ordinary people just not living in places where property is unaffordabel , Yes I would love it if all the ordinary people in London just upped sticks and went somewhere else then the global rich who have taken over their housing might wake up to the fact that they might need to pay a bit more for the services of these people that make their lives in London so pleasent.

But then if the ordinary people shifted out of London on mass the places they go to would go up in price due to the demand put on property in these areas , back to square one on that . How about planning and building enough housing in areas people want and need to be in like London ( the space is there ) so people can work and pay a relative price for the roof over their heads .

And while we are about it how about some tax's put on the foreign buyers hoovering up the property in London and renting it back to those who have been priced out.

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I think that you will find there are many jobs in London paying the NMW , the same NMW that the rest of the country get.

Yes, but the person in London may be getting NMW plus £1600 per month in housing benefits. A 20k per annum tax free subsidy. Equivalent to around 30k per year added to salary. If I was living in UK and had clawed my way up to a demanding management position earning 50k and was struggling to find the rent/mortgage I'd be pretty pissed off.

It's the lack of transparency that is most objectionable. If the calculation is that a household needs 50k income to live in London, then employers should find the money. LHA has created wage inflation by stealth, but only for those living in certain areas and with eligibility criteria for LHA.

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How about planning and building enough housing in areas people want and need to be in like London ( the space is there ) so people can work and pay a relative price for the roof over their heads .

And while we are about it how about some tax's put on the foreign buyers hoovering up the property in London and renting it back to those who have been priced out.

That would be good, and really shouldn't be beyond our capability. It just takes a change of mindset. I recall Brown's pre-election boast that we had weathered the global housing crash because, unlike America, we had wisely created a housing shortage to keep up prices and preserve the nation's wealth. That sort of sentiment is widespread and utterly offensive.

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Years ago, were there not such things as rent controls?

rent control are as prevelant today as they were before, its just now it is called housing benefit and the control is to fix at a higher rather than lower price in tandem with planning monopoly, any form of rent control up or down is nonsense, the market is perfectly capable of finding a price, the single purpose of price fixing and govt is to redistribute away from equilibrium.

Rent controls belong in the same bag as london weighting (a subsidy to london) and tax credits (a subsidy to the private sector) they create the very problem they are meant to fix. The UK today is laughable in its price fixing and could give 1970/80s USSR a run for its money (which is probably why it is going bust if it continues on this path)

Edited by Tamara De Lempicka
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But then if the ordinary people shifted out of London on mass the places they go to would go up in price due to the demand put on property in these areas , back to square one on that . How about planning and building enough housing in areas people want and need to be in like London ( the space is there ) so people can work and pay a relative price for the roof over their heads .

And while we are about it how about some tax's put on the foreign buyers hoovering up the property in London and renting it back to those who have been priced out.

London is Cornwall on steroids!

Thanks to connoisseur for adding ballast to the discussion.

Edited by okaycuckoo
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