Housing Benefit caps will force down private rents, says Freud

3 Nov 10
The government’s cap on Housing Benefit will trigger a fall in private rental rates, the welfare reform minister has claimed.
By Mark Smulian

4 November 2010

The government’s cap on Housing Benefit will trigger a fall in private rental rates, the welfare reform minister has claimed.

Giving evidence to the work & pensions select committee yesterday, Lord Freud said that as 40% of private sector tenants received Housing Benefit, their landlords would be forced to cut rents in response to the cap.

The plans include lower caps on local housing allowance rates from next April, and a 10% cut in the benefit after one year for people claiming Jobseeker’s Allowance. The proposals have prompted claims that poor families will be forced out of their homes.

But ministers have said that most tenants affected by reduced Housing Benefit would be able to negotiate lower rents with their landlords.

Faced with scepticism from Labour MP Glenda Jackson, who predicted many people would be made homeless, Freud said the government was ‘the dominant buyer of private rented accommodation’ – with 1.46 million out of the sector’s 3 million homes occupied by benefit recipients.

The minister also said that landlords had increased rents for tenants on Housing Benefit faster than for others because they knew the government would pay.

‘Our data shows that since 2007 private rental market rents have increased by 15% overall, but by 25% for those on Housing Benefit,’ he said. ‘Benefit claimants’ rents have gone up faster than those of the whole market and so the government has been driving the whole rental market up.’

Freud said ‘one of the most shocking’ statistics he had discovered was that for 15 months after the financial crash in November 2008 rent levels fell by 5% while Housing Benefit payments rose by 3%. ‘We have got to break that feedback where government paying into the market pushes up the amount we have to pay,’ he said.

But landlords’ groups said Freud should retract these claims. The British Property Federation and Residential Landlords Association said 87% of the rise in the Housing Benefit bill since November 2008 can be attributed to additional claimants and an increase in payments in the social rented sector. Only 13% is due to increases in average payments in the private sector.

Ian Fletcher, director of policy at the BPF, said landlords were ‘not prepared to take the rap for the government’s unpopular policies’.

Freud added that the government had earmarked £140m to overcome transitional problems caused by the new benefit rates. ‘Our expectation is that that will be adequate to support people to stay in the homes they need to stay in,’ he said.

He added that he was ‘not expecting significant increase in homelessness’ as a result of the changes.    

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