Last week saw the release of the latest Housing Benefit figures which includes details of the national position at November 2011. It will be no surprise to reveal that the overall HB bill has increased by a further £50m or so to reach £22.4bn.
The DWP official figures reveal the last 3 full years from November 2008 to November 2011 and make interesting reading.
Chart 1 – HB cost Nov 2008 to Nov 2011
As we can see Chart 1 above shows that HB has risen every month since November 2008 and is still rising every month.
So when Cameron said at PM Questions last month that Housing Benefit had gone down he was wrong and he misled Parliament? Sorry you say reader didn’t Cameron say that it was just rents that had reduced as after all that was what Labour Shadow Housing minister Jack Dromey challenged him on at yesterday’s PMQ’s? No. Cameron said Housing Benefit had reduced too and he clearly misled Parliament. What Cameron said on 11 January 2012 was:
“All parties are committed, as I understand it, to reform housing benefit. That was Labour’s commitment before the last election. The housing benefit bill is completely out of control. Labour’s own welfare spokesman said last week that at £20 billion, it was unacceptable and it had to change and what we’ve seen so far, as housing benefit has been reformed and reduced, is that actually we have seen rent levels come down. So we’ve stopped ripping off the taxpayer.”
Cameron said “…as housing benefit has been reformed and reduced”
Housing Benefit has indeed undergone reform and as some of the HB changes have become operational it is correct to say that HB has been reformed. Yet has Housing Benefit has been reduced? No it has not. The above Chart derived from the official DWP figures shows that clearly and unambiguously, meaning that it must be a knowing lie by Cameron. Either that or he is incompetent in not knowing his own government’s official figures, or both. The fact that the January 2012 known HB figure when Cameron made this comment was £22.3bn shows his comments (attempting to blame Labour) on the ‘£20bn’ figure was inept politicking too.
Further to this the Tories immediately after their budget in June 2010 in which they announced the HB reforms Cameron talks of says these reforms will achieve a reduction in the overall HB bill of “nearly £2bn” of the inherited £20.8bn HB bill by 2015. As such the Tory-led Coalition government’s target for the overall HB bill is £19bn. Yet currently it is £3.4bn above this target or in percentage terms 18% above target and rather than fall, it has risen by over £2.5m every day since they took office.
“Ministers are clear that the overall cost of HB, forecast to be around £20 billion this financial year, must be controlled and reduced. The package of reforms will save nearly £2 billion by 2014/2015.”
However to return to yesterday in Parliament we have to ask why Jack Dromey didn’t ask Cameron to apologise to the House and put the record straight on this Housing Benefit point? Would he have been so easily deflected if he had? An article on Inside Housing recounts the question Jack Dromey asked yet it is titled “Cameron rejects calls to correct private rent claim.” But as we can see from the verbatim quote above Cameron also said HB had reduced. So why didn’t Jack Dromey ask about this and why did Inside Housing just limit this to the private rent claim?
They are rhetorical questions but provide a link to a key aspect of the Housing Benefit cost, the rise of the private sector landlord (PSL) and the rise of the private rented sector (PRS) in relation to Housing Benefit and its cost.
Let’s look at the interesting cost and percentage rises in the Housing Benefit bill that are from the PRS and of course let’s bear in mind that the Housing Minister Grant Shapps has ruled out regulating the private rented sector.
Chart 2 – The November 2008 HB position
As we can see the private rented sector accounted for a quarter of the total number of HB claimants in November 2008. Yet as Chart 3 reveals they were paid one-third of the total HB bill.
Chart 3 – The November 2008 HB position by Cost
Its like having 3 houses to rent but being paid for 4 of them such is the HB largesse the taxpayer and public purse has to the private landlord and the private rented sector that I remind you Shapps refuses to regulate.
The overall HB cost in November 2008 was £16.7bn and the PRS received in total £5.523bn per year consisting of 1,054,810 claimants each on average receiving £100.53. The remaining £11.2bn consisting of 1,493,080 council tenants claiming HB at an average of £65.23, 54% less than PRS, and 1.616,290 HA tenants receiving £71.73 on average, or 40% less cost to public purse than a private tenant.
So what has has happened in the last 3 years?
Chart 4 – the November 2011 HB figures
The PRS has increased its percentage from 25% of all HB claimants in 2008 (in Chart 2) to 32% by 2011.
The numbers of PRS tenants claiming HB has increased from 1.054,810 to 1,587,720.
This is an increase of 532,910 new private tenants claiming HB in the last 3 years – a rise of 51%!
Chart 5 below reveals that the HB cost of private renting has increased from £5.52bn per year to £9.03bn over the 3 year period – a rise of 63% in that time!
Chart 5 – November 2011 HB claimants by cost
The cost of the PRS has increased as a proportion of all HB cost from 33% to 41% while the combined social rented sector has reduced from 67% of total cost down to 59%.
There can be no doubt that we have seen a seismic shift in Housing Benefit over the last 3 years from the social housing sector to the private rented sector both in terms of overall cost and in proportion of HB claimants. The simple charts above show that transition clearly and show that ‘letting HB take the strain’ has been the position of the latter end of the last Labour government and the current Tory-led Coalition. Yet this is the same Tory-led Coalition that vowed and promised to reduce the Housing Benefit bill by nearly £2bn and the same one that wont regulate the problem of that inexorable public purse cost – the private rented sector.
Yesterday also saw a must read article from Jules Birch in the Guardian in which he comprehensively looked at the rise and rise of the private rented sector. He covered all of the reasons and views from all quarters on why it has risen so much such as the availability of buy-to-let mortgages and many more. The numbers of PRS properties is soon to eclipse the number of social rented housing is a key fact from this obviously, but the reasons why are covered so comprehensively that I simply urge you to read the article.
He ended the article with:-
Private renting has in a sense come of age but it’s clear that there are still some growing pains to come. A future based on individual investors and six-month tenancies hardly looks sustainable. And yet for the foreseeable future it looks like private renting will be the only tenure that is expanding. Could social landlords be best placed to help?
I differ from Jules only in the interpretation of ‘foreseeable.’ We cannot create new social rented housing out of the ether, even if that definition of social rented housing includes the appallingly named “Affordable Rent” model of social housing that I maintain to be a con and will cost even more than the private rented sector largesse. So yes I agree that the PRS will hold sway in the immediate and short-term.
Yet, it also means the private sector landlords (PSL) hold all the aces as well and the DWP planned changes to Local Housing Allowance (LHA) – the variant of Housing Benefit paid for PRS properties – will dictate a fundamental shift in PSL behaviour and practises. The DWP unbeknownst to the hapless Grant Shapps announced that LHA will be frozen in 2012/13 and each year thereafter will rise at just 2% during which time the DWP expect the market rent to rise at 4% each year. I maintain (here and here and here) that this is unsustainable for the private landlord and the private tenant. A principal reason being that now in 2011/12 LHA accounts for 66% of the average private rent meaning that the private tenant on average has to find £57 or so each week from earnings, savings or benefit to just make up the rent. The DWP have issued rent inflation projections which show this £57 per week rises to £74 per week by the end of this Parliament in 2015 and to £104pw by the end of the next in 2020 (and up to £190pw by 2030!)
Private tenants on benefit are frankly too much of a business risk for private landlords in the real foreseeable future under my view of ‘foreseeable.’ If the DWP holds firm and freezes LHA in the next financial year and then pegs increases to 2% and market rent increases by 4%, or in other words holds firm and projections are correct, not only will PSLs refuse to accept any new benefit claimants, they will systematically evict current benefit claimants. Given too that we are informed Universal Credit will come online in 2013 and the overall benefit cap within that will reduce Housing Benefit and Housing Benefit alone, then the financial risk to EVERY private sector landlord big or small, is far too great for them to accommodate benefit claimants in the foreseeable future. PSLs will flee that market in droves.