A question from Eoin that we can answer

This is absolutely friggin bonkers. Why should we pay more than £20bn a year in Housing Benefit payments when you could build more than 150,000 affordable homes for that price.

Because there are 4.9 million people who get housing benefit.

At June 2011:

The total number of people receiving Housing Benefit was 4.90 million

Thus we help 4.9 million people (and their extended families we can assume) with the £20 billion rather than 150,000 people (extended families ditto) with the £20 billion.

Think it through laddie.If we spend the £20 billion on 150,000 affordable houses then there\’s 4.75 million people we\’re not helping with their housing costs in year one. They will presumably be homeless as they cannot afford anywhere to live.

True, in year two this declines to only 4.60 million (that\’s 4,600,000) people dossing rough while 300,000 now live in affordable housing.

Ah, what the heck, let\’s get them all into affordable housing right away!

So all we need is 326.66 times our housing benefit budget of £20 billion to build affordable housing for them all.

£6.5 trillion or so.

Getting on for five years of all output in the UK by everyone everywhere. 5 times GDP.

Hmm, you know, £20 billion a year on housing benefit is starting to look pretty cheap really.

18 comments on “A question from Eoin that we can answer

  1. The government could however borrow money, build more council houses, and thus reduce the housing benefit bill over the long term. Instead of spending £20bn per year, rising with inflation, we could use the same money to pay off a mortgage the cost of which declines in real terms.

    Assuming 2.45 people per home, we need 2m homes with a £20bn annual budget; that’s £10,000 per home per year. Stick those numbers into a mortgage calculator and with borrowing at 4.95% you can repay a £125,000 mortgage over 20 years, or £155,000 mortgage over 30 years. Government pays less for development land, thanks to its unique power to grant itself planning permission, so it should be easy to build a small house or flat for much less than £155,000. In many cheaper parts of the UK the government could simply buy up existing houses. Within 20-30 years your only costs are operational, not capital.

    I suspect that’s what Eoin was getting at; though he should have made it clearer.

  2. “so it should be easy to build a small house or flat for much less than £155,000.”

    You joke I hope. Council housing is built to specs far higher than the private sector.

  3. We coiuld of course encourage people who don’t work in London but get housing benefit to live there, to move to empty houses in the North and save quite a lot of money that way.
    You can buy houses in Burnley for 30k unless you have an idiot running the scheme this would be saving the tax payer money within 3-4 years.
    Of course as it is the Government it will probably lose money.

  4. Andrew Montgomery, a few major problems with your calculation:

    1) There are a lot more than 2 million households receiving housing benefit. There are 3.9 million single adults or single parents, plus 1 million couples. I’m not sure if the couples are counted as 1 recipient or 2, but even so there must be at least 4.4 million households.

    So you’ve only got £4,500 per home per year.

    2) You’re ignoring the maintenance and admin costs.

    According to the Tenant Services Authority, the average cost of management and maintenance for social housing providers is £2,983 per home per year. Add to that the average major repair cost of £519 p.a and the average depreciation/impairment of £245 and you’ve got a total annual running cost of £3,747 per home per year.

    Figures here:
    http://www.tenantservicesauthority.org/upload/pdf/Understanding_Social_Housing_Costs_20110325102844.pdf
    (n.b. – these are actual average housing association figures, so you’re unlikely to do much better from any public sector alternative)

    So after paying for the maintenance and management, you’ve only got an average of £750 per home per year left from your housing benefit figure.

    Even with cheap interest rates and a 35 year mortgage, that’s going to get you £17,000 at the most.

    And you’re not going to be able to build even the cheapest home for that money. Even Jim’s container homes, once they’re built to UK housing standards and fitted up to the utilities, will cost more than that.

  5. Far simpler just to remove the housing subsidy – if you can afford to pay market rents you should pay market rents, if you can afford to pay 80% of market rents you should pay 80% of market rents…and so on.

  6. It seems to me that you all are ignoring the most significant unintended consequence of the housing benefit: it increases rents as well as prices of purchasing a house.

    Now, I’m not British, don’t know the system there so well, and the housing benefit there may be somewhat different than what it is here, but I think the fundamental market mechanism is the same: because there’s no point in renting out a flat or a house to someone paying less than what another potential tenant is entitled to get via housing benefit, the housing benefit also defines a minimum for what anyone has to pay with his/her own money.

    If housing benefit was abolished and money used for new public housing, the current houses would not stay empty, of course. The rents would have to come down – not only for those who get the housing benefit, but everyone.

    This would be good. But then it would of course have the further unintended consequence that private sector construction projects would be less profitable, and would diminish. This would again cut the supply of private sector housing. On the other hand, it would again have the consequence that supply of construction resources would exceed demand and building the public sector housing would become cheaper…. go figure.

    Anyway, the mechanisms of unintended consequences seem to beat everyone out of their senses.

  7. pjt, agreed that housing benefit causes rents to increase. But you can get rid of most of that without building more public sector housing.

    Just scrap housing benefit, and increase cash benefits instead. That way the recipients have a motive to negotiate rents downwards or move to cheaper areas.

  8. pjt: I think you’re onto something, though. Why don’t governments build new social housing? Easy: if they did, the extra supply would depress house prices. And we all know that in British politics, lower house prices are the quickest route to the Opposition benches…

  9. Yeah, but he’s got a grand plan in which the Government pays for some houses to be built, then the rents from those houses (despite being half the market rate) help pay for the next lot to be built, and so it goes on until there are houses everywhere and everyone’s building even more and it’s all free forever.

    It’s magnificently, exhilaratingly bonkers and just goes to show what happens when someone confuses the ability to work a spreadsheet with analysis. But it’s the heart of his economic programme, so your petty and penny-pinching arithmetic is unlikely to shift him, Tim.

  10. The whole justification for having housing benefit and council housing is to force the poor to live in better housing than they would otherwise. If we just gave them the money, they wouldn’t spend it on superior housing, they would spend it on vices and live in slums.

  11. @Richard: thats already been tried I think. The issue then arises that private landlords won’t rent to benefit claimants because you have the problem of getting the rent out of some of the flakier sections of society.

    Unfortunately we have such a feral underclass that if you don’t bypass them entirely, any money you give them for rent ends up being spent elsewhere. In a rational world what you say makes eminent sense. Alas the sections of society that claim housing benefit are rarely so rational.

    Or rather they are very rational:

    ‘The Social have given me an extra £400 for rent this month, I’ll spend it and when I get chucked out of the house for not paying the rent the Social will have to rehouse me, especially as I have 5 kids……’

  12. Philip Walker – I think the reason why more social housing isn’t built is that it costs the government a lot of money.

    Average social housing rent = £78.27/week
    source – Tenant Services Authority:
    http://www.tenantservicesauthority.org/upload/pdf/Statistical_release_August_2011r.pdf

    That’s £4,070 p.a.

    Average cost of operating that home (maintenance, repairs & management) = £3,747 p.a. (see comment #7 above).

    That leaves £323 p.a. to pay for the building costs, which will fund a mortgage of £7,500 if you’re lucky – and you can’t build even a flat to modern regulations for anything like that.

  13. Jim, we already pay housing benefit to the tenant – direct payment to the landlord stopped a few years ago for most tenants (2008, I think).

  14. Fair points, Richard. The averages are misleading though. 68% of housing benefit recipients already live with registered social landlords where rents are already cheap; so we need only target the 32% living in private rented accommodation, and only those where the rent is significantly higher than social rents.

    Looking at the figures from the other end, a family in West Lothian can claim £127 a week in Local Housing Allowance for a three-bedroom property. Over 52 weeks that’s £6,604 per year – and that’s just what the claimant receives, not including the local authority’s admin costs.
    West Lothian isn’t a high-wage area and your PDF tells us that wages are a major component of management & maintenance costs; furthermore brand new homes should cost less to maintain; so let’s assume £2,100 per year m&m cost. That leaves £4,500 a year to pay off a mortgage of £70,000 over 30 years at 4.95%. (Yields on 30-year gilts are currently just 3.56%.)

    Remember that this repayment figure is fixed; it won’t rise with inflation. After 30 years if the houses are built to a decent standard you can refurbish them and rent them out for another 30 years.

    Those management & maintenance costs seem high, but as you say “you’re unlikely to do much better from any public sector alternative”. Therefore we should try privatising the m&m while retaining public ownership of the houses and land. There is much evidence to suggest that private landlords can be very good at keeping maintenance costs low.

  15. @Richard: I think that while that was introduced in 2008, they have rowed back from it being 100% across the board. This from the CAB website:

    “Housing Benefit is paid by your local authority.
    If you are a local authority tenant, you will not get your Housing Benefit paid to you directly. Instead it will be taken off your rent so that you either pay no rent or a reduced rent (also known as a rent rebate).
    If you are a private or housing association tenant and you don’t come under the Local Housing Allowance rules, you may get Housing Benefit paid directly to you or to your landlord, depending on your circumstances.
    If you come under the Local Housing Allowance Rules, your local authority will normally pay Housing Benefit to you, rather than to your landlord. You will not be able to choose to have it paid direct to your landlord. However, there will still be some circumstances where your local authority can decide to pay Benefit direct to your landlord instead of you, for example, if you’re unlikely to pay the rent or have difficulty managing money.
    From 1 April 2011, if the landlord agrees to lower the rent to help you stay in the property, it may also be possible for the landlord to be paid direct from the local authority.”

    Basically, if you don’t pay the rent, or are considered the type that wouldn’t pay it if given the cash, then they can pay the landlord direct, plus if you are State tenant you never see it anyway.

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