Social housing rent rise will burden welfare bill

20 Oct 10
The Housing Benefit bill is likely to soar after Chancellor George Osborne confirmed that rents for new social housing tenants will rise to 80% of the market rate, Public Finance has learnt

By Lucy Phillips

20 October 2010

The Housing Benefit bill is likely to soar after Chancellor George Osborne confirmed that rents for new social housing tenants will rise to 80% of the market rate, Public Finance has learnt.

The measure contained in the October 20 Spending Review was part of a 50% cut to the social housing budget. Osborne claimed the move, alongside £4.4bn of capital funding, would enable the government to build 150,000 affordable new homes over the next four years.

But Karen Buck, shadow work and pensions minister, told Public Finance that the step was ‘extraordinarily inconsistent’ with the coalition’s drive to cut the housing benefit bill and increase incentives for work.

‘Very high rent can only work as a disincentive for work,’ she said. People living in social housing and looking for work would need to find jobs where they were paid much more, she warned. In many cases rent increases could be as much £200 a week, Buck said.

Some 65% of social home tenants are already on benefits.

Buck added that a large proportion of housing costs would be shifted from the Department for Communities and Local Government to the Department for Work and Pensions. Things would be exacerbated further when a total cap on all household benefits is introduced in 2013, with more families suddenly likely to hit the £500 a week limit.    

Richard Parker, head of housing at Pricewaterhouse Coopers, warned that the way social housing was allocated would need to be changed since any new tenants would need to be ‘better off than today’s’. If the greatest proportion were on benefits, as currently is the case, ‘higher rents will feed through to a higher benefits bill,’ he told PF.

Parker added: ‘I would hope that someone had done some work in the Treasury that would have modelled this, that it won’t result in people in social housing not being able to afford to live in it. You would just hope that analysis is done.’

But Parker also said it would make social housing a more attractive opposition to other sectors. ‘There’s no doubt it could be a catalyst for additional supply and new build,’ he said.

The Chartered Institute of Housing agreed that raising market rents would support some new house building, but warned: ‘These new “affordable rents” will not work in all housing markets and should not replace much needed social housing lettings for people on low incomes, including carers and pensioners.’

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