Looking at progress against the pillars of the Beveridge welfare state: health, housing and education, many commentators have identified housing as the ‘wobbly pillar’, starved of investment or ineffectively maintained. With this being said, an article titled retired homeowners see wealth increase shows a step in the right direction when it comes to elderly homeowners profiting from the ownership of a property. This is possibly a reason as to why many people are so eager to become homeowners earlier on in life.
The forthcoming UK Housing Review will show that the past two years has seen the highest sustained investment in social housing in the last three decades. 1 However, with 4.5m on housing registers and affordability ratios extending beyond the average there is a clear and pressing need for change.
The Hills Review into the future of social housing (2007) underlined that while there is a wide range of ways of supporting better housing provision, Britain has traditionally focused on three ways of providing housing support: the provision of social housing at affordable, sub-market rents; means-tested Housing Benefit; and tax benefits for owner-occupiers. 2
The proportion of total welfare bill taken up by housing has increased considerably over recent years, and reform has been slow. The coalition government entered power with a commitment to reducing the welfare bill. The Emergency Budget of June 2010, the Spending Review, and consultation on the creation of the Universal Credit, have ushered in a dramatic and wide scale reform of Housing Benefit. This is an appropriate time for those interested in a Citizen’s Income to consider these changes and to ask where housing best fits with a Citizen’s Income.
Housing Benefit
Housing Benefit (HB) is means-tested and directly supports people’s real housing costs. As such it is already targeted at those most in need. Housing Benefit is available to those in work and to those out of work, and so it should, if effective, form an important part of a range of incentives and nudges to move off other out-of-work benefits and into employment.
Of the 4.7m households that claim Housing Benefit, 76% are retired or not expected to work due to illness, disability, or caring commitments. The remaining 24% of claimants are of working age and expected to work, with 540,000 (50%) in employment. It is estimated that around half of employed households who would be eligible for Housing Benefit do not claim. 3
Debates over the reform of Housing Benefit are many and varied. However, it is feasible to summarise two broad issues of interest to supporters of a Citizen’s Income:
- Increasing costs to the public purse, because of pressure in the UK housing market and concerns that a system that allows for payment of up to 100% of unregulated private market rents creates an incentive for landlords to maximise rental return from HB claimants and a lack of incentives for HB claimants in the private sector to seek suitable accommodation and lower rents. The Government’s analysis is that, without reform, expenditure is expected to rise to £24bn by 2014/15. 4
- The high taper rate of HB contributes to the poverty trap and means that recipients have few incentives to find work. Housing Benefit has a taper rate of 65% which is applied to income above the applicable amount. The Housing Benefit and Council Tax benefit taper rates are additive, so the marginal deduction rate faced by a claimant in receipt of both Housing Benefit and Council Tax benefit is 85%, so net incomes rise in very small proportion to gross earnings. In his report on the future of social housing, John Hills used the example of a couple with two children, paying a rent of £120 per week. In this case, the household would gain only £23 a week from an increase in earnings from £100 to £400 per week. 5
Reforms in the last two decades, like the introduction of Choice Based Lettings for social housing, and the creation of the Local Housing Allowance for those receiving Housing Benefit in the private sector, have put a greater emphasis on Housing Benefit as a system which encourages and supports its recipients to make more active choices from the options that they face.
Since the budget in June 2010, the coalition Government has announced a number of significant reforms to Housing Benefit:
- Local Housing Allowance rates will be set at the 30th percentile of rents in each Broad Rental Market Area rather than the median rate, meaning that tenants will only be able to claim rent for the cheapest 30% of properties in the local area.
- Extending to 35 the age below which single people can only claim HB for a room in a shared house. Currently the single room rate is limited to people 25 and under.
- Increases in non-dependents’ deductions over a three year period from April 2011.
- Tenants who have claimed JSA for more than one year will lose 10% of their HB entitlement from April 2013.
- Government intends to limit claims of HB of working age people to the size of accommodation they are deemed to need. More detail on this is expected in the coming year.
- Housing Benefit will be reduced by the Government’s proposed total benefits cap, projected to be £26,000 per year ( £500 per week) by 2013.
Housing and the Universal Credit
Unifying current benefits for working and non-working households to create a single Universal Credit will help to simplify the system, but, critically, the focus of the Universal Credit is to improve the incentive to work by making work pay through creating a single integrated taper which will withdraw support more gradually as earnings rise. As the analysis of the white paper in the last Citizen’s Income Newsletter made clear, the Universal Credit will provide a simplified structure designed to cover a range of needs. The credit will be an integrated working age welfare payment for a basic personal living allowance with additional elements for households with children, people with disabilities or caring responsibilities, and housing costs. As well as replacing Income Support and Income Related Employment Support Allowance, and Working and Child Tax Credits, it will also include Housing Benefit.
The White Paper states that an appropriate amount will be added to the Universal Credit to meet the cost of rent or mortgage interest. If you are looking for mortgage brokers or advice on mortgages, visit Freedom Advice. A number of supporters of greater simplification and streamlining of benefits may view this as a fudged compromise, but this addition is potentially an important commitment to retain a link between benefits and the actual rent charged to individuals.
A system that does not take into account the real costs of housing could leave existing tenants unable to keep up rent payments and leave social housing providers unable to build new homes. To date, a reliable income stream of Housing Benefits has allowed independent housing associations to secure long-term loan finance at reasonable rates, such as a bridging loan, that has enabled them to build affordable, social, supported and specialist homes. Homes that neither the market nor local authorities have been able build, and tenants can afford them as well.
The actual impact of the Universal Credit on housing will only become clear as details are agreed. However, as the Universal Credit will assist mortgage interest costs as well as rents, it will help the welfare system to be more tenure neutral. However, individuals and families getting help with housing costs will have their earnings disregard reduced by a multiple of 1.5 times the eligible costs, down to the floor of minimum earning disregards for those with higher levels of housing costs. This will mean that the higher the household’s housing costs the less positive the financial incentives of the scheme.
The proposals for the Universal Credit are focused on people of working age and the upper limit for the Universal Credit will be the age of eligibility for Pension Credit. However, the Government is planning to change Pension Credit to provide support for rents and to add a further element to provide income-related support for pensioners with dependent children.
Housing Benefit and the Citizens Income
Due to the inefficiencies and structural problems within the UK housing market, dedicated support with housing to meet the real costs of rents and mortgages is needed. There are a number of possible responses that a CI might make to the Housing Benefit debate, which may be worthy of further exploration. To get the conversation started, here are three deliberately simplistic responses which in practice are not mutually exclusive:
- Leave it alone: Housing remains outside the CI as a payment to households rather than individuals.
- Bring it together: Look at the opportunities of a CI alongside a Universal Credit which would include a simplified, tenure neutral approach to housing costs. The interaction of a Universal Credit with a CI could offer a radical simplification of housing support making the system transparent, accountable and simpler to run. This approach would lead us to look at policy approaches and delivery mechanisms that will help support this in an era where central government is keen to see more localised leadership and reduced costs, such as authorities grouping together to provide streamlined and shared benefits services.
- Look wider: Rather than asking a technical question about how approaches to specific benefits might sit together, supporters of a CI could ask what we need a housing policy to do in order to help deliver the CI’s outcomes: redistribution of income, poverty reduction, clearer incentives to work and participate in society, and greater choice, control and autonomy for citizens in the housing market. This might focus on policies to improve the supply of social housing and ways to deliver more mixed communities through a variety of low cost home ownership options, as well as looking at the role of the private rented sector and asking what regulation and approach might be required.
Notes
1. https://www.cih.org/publications/downloads/ukhr.htm
2. Hills, John (2007) Ends and means: the future roles of social housing in England. Centre for Analysis of Social Exclusion, London School of Economics and Political Science, London, UK
3. National Housing Federation, Responsible Choices for a Fairer Future, July 2010.
4. The Rt Hon Iain Duncan Smith, Secretary of State for Work and Pensions, Speech to Institute for Public Policy Research, Tuesday 7 December 2010
5. Hills, John (2007) Ends and means: the future roles of social housing in England. Centre for Analysis of Social Exclusion, London School of Economics and Political Science, London, UK
