Who benefits from housing handouts?

Rumours that the Tory-led UK coalition government is thinking of ways to reduce the housing benefit bill are surprising. As a form of ‘welfare dependency’, the state’s allocation of housing benefit to cover the cost of renting from private landlords has never been in the Conservative Party’s firing line. It is only with newspapers unearthing stories of ridiculous housing-benefit claims on rented properties that such a waste of public money has been exposed. The extravagant payments handed out in housing benefit have largely remained hidden because they subsidise, not the ‘feckless poor’, but Tory-voting middle-class landlords. It was the Conservatives’ need to appeal to this constituency’s material interest, through state largesse, which over a number of years has both out-priced tenants and drained the public purse.

Property ownership has always been important to Conservatives because, by having a stake in private assets, individuals tend to become conservative-minded. For example, then-prime minister Margaret Thatcher’s introduction of the ‘right to buy’ scheme in the early 1980s, whereby council-house tenants could buy rented properties from local authorities, was designed to turn traditional Labour Party voters into Conservative ones. Later on, the Housing Act 1988 was designed to feather the nests of already existing Tory supporters and, in the process, expand the rented sector without building any new homes. It certainly did increase the rented sector, but the state has footed the bill for it ever since.

Prior to the Housing Act 1988, private landlords could not simply charge whatever they liked for a shoddy room or flat. Rent prices were fixed in line with the amount that councils charged for social housing. This, the fair-rents scheme, meant that low-income workers did not have most of their wages eaten up by rent and therefore had an incentive to work and be financially independent. Indeed, even taking up low-paid work meant that someone was always better off working than relying on unemployment benefits. The 1988 Housing Act changed that.

The Conservative Party realised that there was a growing housing shortage in the UK. But rather than build millions more homes, or allow property developers to tarmac over the Green Belt and in the process alienate shire-based Tories, the government provided incentives for home owners to rent out spare rooms and second homes. In doing so, the Act strengthened the power of landlords over tenants, eviction and rent prices. And the introduction of short tenancy agreements enabled landlords to increase the rent annually.

In theory, tenants could refer the landlord to the Rent Assessment Panel if it was felt that the rent charged was above the market value. In practice, people desperate for a place to live were unlikely to start a tenancy by challenging the landlord. Besides, most people were not aware of this opportunity for legal redress anyway. As a consequence, landlords could avoid the notice procedure by increasing the rent through a renewal-tenancy agreement. The abolition of the old fair-rents scheme, then, did encourage more landlords to enter the private sector. But it was still not enough to deal adequately with Britain’s housing shortage and, with a monopoly on living space, especially in the south-east of England, landlords have been able to massively increase rent prices over the past 20 years. The majority of people’s incomes cannot cover such artificially inflated prices so, in order to keep landlords sweet, the state ended up footing the bill with housing benefit.

The best solution to this mess would, of course, be for a massive house-building programme in Britain to end the monopoly of existing landlords and reduce house prices in the process. The less that individuals have to shell out on such basics as rent, the more incentives there are to take up paid work and be financially independent. Abolishing housing benefit for 16- to 24-year-olds should be welcomed, not because it attacks the ‘feckless poor’, but because it attacks the dependency culture of middle-class landlords.

Neil Davenport is a politics teacher based in London. He blogs at The Midnight Bell.