How housing traps people in unemployment

If we're to move away from using housing benefit to prop up a dysfunctional housing market, we desperately need to think much more carefully about rent levels and wages, writes Rebecca Tunstall.

Housing benefit is preventing poverty and homelessness, but propping up a dysfunctional system and hindering work incentives. We need lower housing costs to make work pay and close the unemployment trap.

The traditional role of housing policy has been to improve living conditions, but over the past 20 years policy-makers have tried to extend its impact. A report for the Joseph Rowntree Foundation shows that housing benefits, housing costs, location and options for mobility can affect job opportunities and incomes.

Housing benefit, claimed by four million households, has a positive impact on living conditions, and it is hard to see how millions of households could avoid homelessness or hardship without it. But cuts for private tenants have already meant people going without essentials, and there is widespread concern over the changes for social tenants from April.

But like many other benefits, and in combination with them, housing benefit creates an unemployment trap.

For each extra £1 in earnings, people lose 65p in Housing Benefit. Those claiming other benefits too can lose 90p in the pound or more, and the effect lasts nearly until earnings reach average levels. So unless good wages are in command, people receiving housing benefit may be no better off in than out of work.

There is a trade-off between support to prevent homelessness and deprivation on the one hand, and maintaining an incentive to work on the other. Universal Credit, to be introduced in phases from April at great organisational cost, will redesign the unemployment trap somewhat although the effects may be lost in other benefit changes.

There appears to be precious little by way out of this conundrum. That is unless you have more low-cost housing, such as that providing by councils and housing associations, which makes it markedly easier to make work pay.

For a typical household, for each £10 less rent they have to pay per week, they can escape the unemployment trap by at £50 less in gross earnings. However, over the past ten years increasing numbers of those with low skills and low income prospects have been housed in higher rent private tenancies. In 2010 the average private rent in England was £150 a week, compared to council rent at £67. This has introduced a new structural difficulty in making work pay.

If regional location is seen as an attribute, it is an important contributor to a 'housing effect' on employment, since different labour markets offer very different opportunities. Evidence suggests that the ability to move home does have effects on employment, but the effects are modest, because most moves are local, and because low-paid (and often insecure) jobs may not justify taking a whole household from one end of the country to another.

Policymakers have focused concern on perceived low mobility of social tenants, part of the inspiration behind benefit reforms. It's true that these reforms encourage affected tenants to move—but to do so in a specific direction: towards cheaper areas, which are likely to have worse job opportunities. Home owners are also trapped, and no more mobile than social tenants. Research has suggested that high rates of home ownership lead to higher structural unemployment rates by preventing mobility.

Wages rather than housing circumstances provide the main financial work incentive, and higher wages would help people jump any shape of the unemployment trap. The trouble is overall work incentives have been falling for a long time—since the 2000s due to stagnant real wages for people with lower skills.

Is it fair to ask the housing system to pick up the slack? Probably not. But if we're to move away from using housing benefit to prop up a dysfunctional housing market, we desperately need to think much more carefully about rent levels and wages.

Photograph: Getty Images

Rebecca Tunstall is Professor of Housing Policy at the University of York. She wrote the latest Joseph Rowntree Foundation report on housing and poverty.

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Geoffrey Howe dies, aged 88

Howe was Margaret Thatcher's longest serving Cabinet minister – and the man credited with precipitating her downfall.

The former Conservative chancellor Lord Howe, a key figure in the Thatcher government, has died of a suspected heart attack, his family has said. He was 88.

Geoffrey Howe was the longest-serving member of Margaret Thatcher's Cabinet, playing a key role in both her government and her downfall. Born in Port Talbot in 1926, he began his career as a lawyer, and was first elected to parliament in 1964, but lost his seat just 18 months later.

Returning as MP for Reigate in the Conservative election victory of 1970, he served in the government of Edward Heath, first as Solicitor General for England & Wales, then as a Minister of State for Trade. When Margaret Thatcher became opposition leader in 1975, she named Howe as her shadow chancellor.

He retained this brief when the party returned to government in 1979. In the controversial budget of 1981, he outlined a radical monetarist programme, abandoning then-mainstream economic thinking by attempting to rapidly tackle the deficit at a time of recession and unemployment. Following the 1983 election, he was appointed as foreign secretary, in which post he negotiated the return of Hong Kong to China.

In 1989, Thatcher demoted Howe to the position of leader of the house and deputy prime minister. And on 1 November 1990, following disagreements over Britain's relationship with Europe, he resigned from the Cabinet altogether. 

Twelve days later, in a powerful speech explaining his resignation, he attacked the prime minister's attitude to Brussels, and called on his former colleagues to "consider their own response to the tragic conflict of loyalties with which I have myself wrestled for perhaps too long".

Labour Chancellor Denis Healey once described an attack from Howe as "like being savaged by a dead sheep" - but his resignation speech is widely credited for triggering the process that led to Thatcher's downfall. Nine days later, her premiership was over.

Howe retired from the Commons in 1992, and was made a life peer as Baron Howe of Aberavon. He later said that his resignation speech "was not intended as a challenge, it was intended as a way of summarising the importance of Europe". 

Nonetheless, he added: "I am sure that, without [Thatcher's] resignation, we would not have won the 1992 election... If there had been a Labour government from 1992 onwards, New Labour would never have been born."

Jonn Elledge is the editor of the New Statesman's sister site CityMetric. He is on Twitter, far too much, as @JonnElledge.