Budget: Housing, Building, and Local Housing Allowance

Note to self: 100 lines – this is not a housing blog. Nonetheless:

I was glad to see that some kind of extra housebuilding programme did make it into the budget following my pessimism earlier in the week, though disappointed that it only seems to be £500m compared to the £1bn which had been leaked, and of that only £100m will be delivered through Councils. As I think a Lib Dem MP pointed out, that adds up to about a dozen houses per Council area, on average, and it is dwarfed by the sums being spent to encourage the price of existing houses to go up in mortgage bailouts, guarantees, rescue schemes and the like. Setting Councils free to borrow money and build housing for a mixture of social use, market rent, and sale – in whatever partnership model with building firms they choose, would make a lot more sense in this economic climate and context.

That aside, I was perhaps more worried by something which seems to be being seen as a footnote to the budget. In the press notice here, we see the following;

From April 2010, households will no longer be able to keep any of the surplus if the LHA they receive is higher than their rent.

This may take a little explaining, please bear with me. Once upon a not very long ago, if you couldn’t afford to live on your income or benefits, and were eligible for help with your housing costs, you found a flat, and the landlord claimed your rent from the Government, or you claimed and it was paid to them. That had some benefits and some flaws, in particular it meant landlords could discriminate – “No DSS”, as adverts used to say. Now, instead, you apply for help, this is calculated based on “Local Housing Allowance” (roughly the average price for the cheapest x% of the number of bedrooms you need in the last year, roughly), and then you find a flat based roughly on that amount.

So suppose you are a single parent with two young children. You will be assessed as needing two bedrooms, and told your local housing allowance in, say, Leeds, is therefore £121.15 a week. Having applied for this, you set about finding a flat to rent. I’m given to understand that isn’t too difficult in Leeds at the moment. Now, if you can find a flat that costs £121.15, so much the better. If you find one that costs £130 a week and are prepared to pay £8.85 out of your own pocket, that’s fine too. Even better, if you can get one that’s acceptable to you for £110 a week, this one, maybe, then you get to keep the £11.15 all to yourself, buy some sweeties or your bus pass or whatever.

That’s where the Government is aiming to claw back the money. Now, the most you can get is what you’re actually paying. In principle, that seems entirely reasonable. In practice, there’s a big flaw with it, which is why personally I’d suggest clawing back maybe 50% to 75% and leaving people with an incentive to shop around.

Firstly, it may not save the sum of money cited. I might be prepared to live in a fairly grotty flat in the dodgy bit of Roundhay in exchange for an extra £10 a week on my low income. Discovering that there’s no incentive to make that saving however, I might decide to spend up to the maximum and get somewhere a bit nicer. I could head a bit out of town but still, I think, technically be in the City of Leeds Council area, and get this nice end terrace with garden and room for a ponyconservatory. Why shouldn’t I, I’ve effectively been given a target expenditure now, instead of a cap.

This threatens to exacerbate another problem some people have claimed exists with local housing allowance, which is that it ‘bids up’ the cost of lower-end rental housing and is necessarily inflationary. If there are ten similarly sized but differently appointed houses on the market in a town, for rent at £100, £200, £300, £400 and so on, then the ‘local housing allowance’ will be set at the average of the lowest three or thereabouts – £200. If, in response to this, the landlord of the first house realises nobody will need to pay less than £200, he can raise his rent to £200. The next year, the average of the cheapest three houses has risen to £233, meaning the local housing allowance needs to go up, meaning… and so on. I’m not certain this has really happened to the extent people believe, but this change certainly makes it more, rather than less, likely that it will in the future.

Of course, if the public sector was the landlord more often… but there I go again.

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3 responses to “Budget: Housing, Building, and Local Housing Allowance

  1. “Of course, if the public sector was the landlord more often..”

    Or if we just had a system of rent control/influencing which spanned tenures, rather than being restricted to councils and housing associations…

    • thelocalgovernmentofficer

      Well, yes. That’s a whole other argument on which I’m not sure I’m even qualified to have an opinion. I’m inclined to agree in principle but not sure how rent control tends to work out in practice. Perhaps one of my readers with an economics background could take up the question for me.

      In any case there are even more urgent reforms needed for private tenants if we were going to start legislating on their behalf – protection from retaliatory eviction, protection from immediate eviction when their landlord is repossessed and hadn’t got consent to let from his mortgage lender, that sort of thing!

  2. Pingback: On the Buses « The Local Government Officer

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