Monday, Nov 09, 2009

£17bn, the true cost of house inflation

Daily Mail: £17bn, the true cost of house inflation

This article contains something of a non-sequitor since house prices and rents are not always in synch. I agree that the housing bubble needs deflating but surely the housing benefit problem is a separate issue? Perhaps housing benefit should be capped at the average rent for a 4-bedroom house in the UK (averaged over the whole country) so that claimants will have to switch "to a much cheaper and less convenient area" as the article points out most people have to.

Posted by tenant super @ 04:22 PM (1152 views)
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1. mark wadsworth said...

That £17 billion headline figure is all lies, of course.

Two-thirds of this is money being paid from one branch of state (DWP) to another branch of state (councils or Housing Associations). The real cash cost of social housing is in fact minimal, once you minus off the half of social tenants who pay some or all the rent.

One-third of HB is paid to private landlords, and I agree that this should be scrapped - it is a subsidy to land ownership and thus inflates rents and prices without increasing supply. Far better to spend that money on building new social housing.

Ditto Council Tax Benefit.

Monday, November 9, 2009 04:44PM Report Comment

2. dbc reed said...

Blimey someone on The Hate Mail is saying tax the speculators to bring down house prices to affordable levels and criticising efforts to reinflate a property bubble.

Monday, November 9, 2009 05:35PM Report Comment

3. drewster said...

I'm amazed that the Daily Mail has found itself able to criticise the housing bubble, even if it's basically just poor-bashing.

MarkW - Do you know whether that one-third/two-third proportion has changed much over the years? I would imagine that the amount paid to private landlords has increased in line with the rise in BTL etc.?

Monday, November 9, 2009 05:42PM Report Comment

4. stillthinking said...

But what of the foregone income if these properties were let openly, and not restricted to rental from a different department.

If I had a kid at university, and I let them stay rent free at my flat which I own, then yes whether I say here is your housing benefit and promptly take it back makes no difference. But I am foregoing rental income, so there is a real cost to me and the equivalent is true for social housing and housing benefit. The 17 billion or whatever portion it is, is foregone income because it is priced against what would be received had those properties been rented out in the marketplace.

Really, if the economy were stable it would make no difference whether the government owned the social housing, or the government sold all the social housing and used investment income from the sale to cover housing benefit paid to private sector stock i.e. gov. social housing ownership doesn't affect hb underlying costs.

Whether or not the government owns the property doesn't detract from the running costs, and the running costs in this case is the market rental value of the properties which could otherwise be used to reduce tax, by 17 billion.

Basically it does cost 17 billion, it seems to me.

Monday, November 9, 2009 05:45PM Report Comment

5. stillthinking said...

Opportunity cost. The cost of doing one thing or another. The opportunity cost of providing free social housing(one department paying another) is the lost opportunity of renting to the private sector i.e. a missed opportunity of 17 billion and hence a 17 billion cost.

Monday, November 9, 2009 05:48PM Report Comment

6. mark wadsworth said...

@ Drewster, you can check the split here

Broadly speaking 3.2 local authority/housing association tenants @ £80 a week = £13.3 bn per annum and 1.2 million private tenants @ £105 a week = £6.5 billion per annum. Which adds up to rather more than £17 billion - the DWP figures say the overall average weekly claim is £81.03 a week. Ho hum. Either way, a two-thirds to one-third split is correct enough for our purposes.

@ Stillthinking, sure, if you take an individual council house or council flat and turf out the family, you could rent it out for more than the offiial council rent (and this might be appropriate with those council flats in Central London which can be sublet for 5 times the official rent). But if you turfed out every single council tenant in the country and scrapped Housing Benefit, then bearing in mind how little they can afford to pay, 'market' rents would come down a heck of a lot. Plus it would be really hard-hearted. I'm right wing and everything but not a monster. This seems like an insane policy to me.

And if we're going to play the 'notional cost' game, don't forget that council flats are going up in value every year but the tenants aren't getting a penny.

If you are a Home-Owner-Ist you pay £10,000 mortgage and your house goes up £8,000 a year in value so the real cost to you is £2,000.
If you are a council tenant, you pay £2,000 a year in rent and don't get a capital gain.

So the balance between the two seems perfectly fair to me. Or do the Home-Owner-ists think that a tax free capital gain is acceptable but a discount on your council rent (approx equal to the capital gain) is unfair?

Monday, November 9, 2009 08:32PM Report Comment

7. stillthinking said...

Merely suggesting that provision of social housing represents a real cost irrespective of whether the homes are owned by the taxpayer or not, quite aside from pushing private prices up.

If it is acceptable for the working population as a whole to make hard decisions on locality based on cost, then it is ok for housing providers to make hard decisions about locality based on cost too.

Monday, November 9, 2009 09:16PM Report Comment

8. Mark Wadsworth said...

StillThinking "Merely suggesting that provision of social housing represents a real cost irrespective of whether the homes are owned by the taxpayer or not, quite aside from pushing private prices up."

Does not compute. There are three completely separate aspects to this:

Social housing

1. In cash terms, is a very modest cost to (or possibly a modest source of income for) the taxpayer (if we ignore transfers between DWP and RSLs).

2. In opportunity costs, an individual home might be let for only half of market rent, but if all social tenants were turfed out, housing benefit scrapped and all homes offered for re-let at 'market rents' (i.e. as much as people can afford), the former social tenants would form the bulk of those offering to rent them; they can't afford very much ergo the 'market rent' would not be much higher than what social tenants pay on average (net of HB) which is £30 to £40 a week.

3. The more social housing there is, the more housing there is, and as there are vast numbers of lower income people indifferent between private and social renting, the existence of social housing must keep rents down.

Housing Benefit for private landlords

1. Is a complete waste of money, it'd be better spent on building more social housing.


1. Pay mortgages based on market prices and make capital gains that reduce the true cost of buying, in the medium or long term to £nil. Shouldn't begrudge social tenants who don't pay much but don't make any lovely tax free capital gains either.

2. If they think that being a social tenant is such a bl00dy great deal, why don't they get themselves on the waiting list?

Monday, November 9, 2009 10:37PM Report Comment

9. mark wadsworth said...

Stillthinking, I replied but forgot the admin password, so to sum up, you have to distinguish between proper state-owned social housing (which includes Housing Associations) which is a good deal all round (albeit some is badly run) and Housing Benefit for private landlords (which is money down the drain). It's two completely separate issues. And the Home-Owner-Ists can stop whining, if they thought be a social tenant was such a great deal, why don't they get on the list?

A social tenant may superficially pay a 'below market' rent (although closer inspection tells us it is not that much below a true market rent - it is more that private rents are far too high because of artificial scarcity) but his rent is a real cost to him. OTOH the Home-Owner-ists effectively pay nothing for their accommodation because the tax-free capital gains they have accrued over the last forty years more than wipes out the mortgage payments.

So really, to balance out social housing and owner-occupation, we should increase social rents by £10,000 a year but when they move out or die, the council should repay them all the rent they have paid over the years. That would level the playing field (albeit rather pointless).

You pays your money and you takes your choice.

Monday, November 9, 2009 10:44PM Report Comment

10. tenant super said...

@ MW

Increasing social rent by 10k a year does seem pointless since in many areas 40% plus have no income other than social security and the remaining tenants, in the main, are in low paid work. There is no need to 'balance out' because those social tenants who work and pay their own rent, generally earn much less than an owner occupier. In Lewisham for example, anyone earning over 16k is not eligible for social housing. The complaint about social tenants who end up on good salaries and laugh all the way to the bank refers to such a tiny minority, it seems silly to try to legislate for it.

You can suggest evicting people when they earn over a certain level (as happens in USA housing projects) or having rent as a proportion of salary but that disincentivises people from striving to improve their prospects. Also, it will mean when people hit a certain level of income, it will be cheaper to move out and so turns social housing into ghettoes instead of balanced working communities.

I am also right wing, but I think the bitterness towards social housing tenants who are paying what I think is a fair rent is, in my opinion, just as distasteful as the bitterness between the Home-Owner-Ists!

Tuesday, November 10, 2009 10:58AM Report Comment

11. easybetman said...

Hi MarkW: You said: "if they thought be a social tenant was such a great deal, why don't they get on the list?"
Perhaps there is something called self respect? There are plenty of very profitable, legal, but unethnical good deals - why don't everyone goes for it ?

I agree that a roof over the head is a natural human right. But be able to choose where you want to live at other people expenses is not. The housing at Chelsea bit is rather interesting. It is much better to let those you can pay to stay in those Chelsea and Kensington blocks and levy LVT on it.

"tax-free capital gains" - house price always go up then? What if house price goes down? The social tenant is also being insulated from the downside risk.

Tuesday, November 10, 2009 11:32AM Report Comment

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