My chain of thought on this started with a conversation with a developer back in March about the bedroom tax. When he asked me if I thought it was fair he probably wasn’t expecting a detailed, researched answer setting out statistics, what North Herts Homes has said and the failings in pilots of Universal Credit but that’s what he got. Thinking about it, the point he added was blatantly obvious and I’m slightly embarrassed I didn’t mention it in my original post. He agreed about the unfairness of what I was describing but added another factor. “We can’t get planning permission for smaller social housing.” This isn’t a “boo hoo poor little developer” point because what he’s talking about is the size of the properties being allocated as social housing on the development. Whenever a developer wants planning permission, they have to account for the requirement to build social housing, (although the Government’s taken steps to relax this rule which could result in even less social housing being built) and this is what he was talking about. He was basically saying he builds what he’s told to build when it comes to the size of social housing. That said, even if they were given planning permission to build smaller properties, when social housing started being mixed into private estates there were concerns it would suppress the value of the private properties, put private buyers off and therefore reduce the profitability for the developer. I suspect that concern would crop up again for some developers if they were asked to add, for example, one bed flats into a development of three and four bedroom houses.
Our conversation started over the assumption that a social landlord had plenty of cash available. The previous day I’d heard the results of pilots which showed an extraordinary rise in rent arrears in areas where Housing Benefit was being paid directly to the claimant, rather than to the landlord. The Universal Credit pilots involved a very small sample and some people were deliberately kept out of the pilot because it was believed that they wouldn’t be able to handle direct payments. In theory this ensures individual autonomy and, in theory, it’s hard to argue against direct payments without seeming patronising, a supporter of the nanny state. The practical reality is that people struggled. They couldn’t manage their personal finances effectively.
I’d love to be able to say that our education system has successfully prepared everyone for managing their money. I’d love to be able to say that people’s household incomes aren’t stretched painfully thin and they don’t have to make choices like whether to feed the meter today for a less immediate risk of being evicted. The reality, though, is that education does fail many people and that poverty is real. A third of the UK population is unable to add up two three figure numbers (and 20% are functionally illiterate). Household budgeting includes doing precisely that. It is inevitable that people with poor numeracy skills will be among the poorest in our society. It’s inevitable that many will be in receipt of benefits. Housing Benefit is also received by people with better numeracy skills – it’s a broad reaching benefit – but we shouldn’t create a system that is too complex for many recipients to handle.
The statistic on numeracy skills also makes a mockery of the Government’s claims that unemployed people make an active decision to stay out of work to keep benefits after calculating them. In an interview with Sky from his own home on 31 March, Grant Shapps defended benefits changes by saying that people can believe the Government when it says they’re better off in work without having to “study the Job Centre Plus computer for an hour and a half” (if JCP’s online calculator takes that long to use, its developer should be put down). And these pilots didn’t even include people with learning disabilities or mental illness. So, in addition to the tenants who will be unable to top up their rent after their Housing Benefit is cut by the Bedroom Tax, social landlords face further drops in rental income under Universal Credit.
It’s also been correctly pointed out elsewhere that redesignating properties as having less bedrooms will help the tenant who would otherwise be subjected to the bedroom tax but will reduce the amount of rent the social landlord can charge, which will have a knock on effect on cash flow and, in all likelihood I would think, capital spending.
If the outcomes of the Universal Credit pilots are replicated nationally, will we see an increase in private sector arrears and a decrease in the availability of private rentals to Housing Benefit recipients? Where Housing Benefit is highest, it’s down to the demands of private landlords. They set the rents and we don’t have rent control mechanisms in place. They’re entirely in it for the money. Over the past five years, home owners have been helped to keep their homes when they default on their mortgages but I don’t believe for a second that most private landlords will be sympathetic to their tenants if they go into arrears. It’s equally unlikely that the Government will feel that there is any political imperative to protect renters who get in arrears (if anything, I expect the Government to say that the failure to properly budget constitutes incontrovertible proof that people on benefits spend them on useless things like booze, fags and gambling and that the rise in rent arrears proves that benefits should be reduced). In fairness to individual private landlords, if a landlord has a buy to let mortgage on the property, he may well go into arrears himself and risk repossession if he allows his tenant’s arrears to mount up. Owners of investment properties can’t expect to be treated the same way owner-occupiers are if they go into mortgage arrears.
If housing wasn’t already stretched thinly, this might all start bringing rents down a little bit but the rental market is so overheated in areas like here in the South East that it’s entirely plausible that we won’t see a reduction in rents. I suppose one possibility is that we’ll see shifts in market rents for different sizes of properties. People driven out of social housing may look for a smaller property but they’re already occupied by other renters. If demand for larger properties dips, private renters who aren’t on benefits may be able to consider moving to a larger property but wages are suppressed across the board. How many people would be able to afford to do that?
There is a slim chance this could produce a beneficial change for young house buyers. If lenders are unwilling to give buy to let mortgages, owner-occupiers stand a better chance of being able to buy properties which would be attractive to investors. However, the words in my head as I write this are “no DSS”. Whether properties remain in investors’ hands or are bought by owner occupiers, the one thing that seems a near certainty is that less privately owned properties will be available to people on Housing Benefit. These outcomes seem to fit the Government’s ideological desire when it comes to the distribution of housing. They hurt the poorest but possibly put a few more middle income people onto the housing ladder. If you want to be really cynical about it, it also blocks upstart investors who need mortgages so that only cash buyers can confidently buy to let. That would be a satisfactory outcome for wealthy investors the Tories may want to woo in 2015.