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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Find the EU renegotiation demands dull? Me too – but they are important

It's an old trick: smother anything in enough jargon and you can avoid being held accountable for it.

I don’t know about you, but I found the details of Britain’s European Union renegotiation demands quite hard to read. Literally. My eye kept gliding past them, in an endless quest for something more interesting in the paragraph ahead. It was as if the word “subsidiarity” had been smeared in grease. I haven’t felt tedium quite like this since I read The Lord of the Rings and found I slid straight past anything written in italics, reasoning that it was probably another interminable Elvish poem. (“The wind was in his flowing hair/The foam about him shone;/Afar they saw him strong and fair/Go riding like a swan.”)

Anyone who writes about politics encounters this; I call it Subclause Syndrome. Smother anything in enough jargon, whirr enough footnotes into the air, and you have a very effective shield for protecting yourself from accountability – better even than gutting the Freedom of Information laws, although the government seems quite keen on that, too. No wonder so much of our political conversation ends up being about personality: if we can’t hope to master all the technicalities, the next best thing is to trust the person to whom we have delegated that job.

Anyway, after 15 cups of coffee, three ice-bucket challenges and a bottle of poppers I borrowed from a Tory MP, I finally made it through. I didn’t feel much more enlightened, though, because there were notable omissions – no mention, thankfully, of rolling back employment protections – and elsewhere there was a touching faith in the power of adding “language” to official documents.

One thing did stand out, however. For months, we have been told that it is a terrible problem that migrants from Europe are sending child benefit to their families back home. In future, the amount that can be claimed will start at zero and it will reach full whack only after four years of working in Britain. Even better, to reduce the alleged “pull factor” of our generous in-work benefits regime, the child benefit rate will be paid on a ratio calculated according to average wages in the home country.

What a waste of time. At the moment, only £30m in child benefit is sent out of the country each year: quite a large sum if you’re doing a whip round for a retirement gift for a colleague, but basically a rounding error in the Department for Work and Pensions budget.

Only 20,000 workers, and 34,000 children, are involved. And yet, apparently, this makes it worth introducing 28 different rates of child benefit to be administered by the DWP. We are given to understand that Iain Duncan Smith thinks this is barmy – and this is a man optimistic enough about his department’s computer systems to predict in 2013 that 4.46 million people would be claiming Universal Credit by now*.

David Cameron’s renegotiation package was comprised exclusively of what Doctor Who fans call handwavium – a magic substance with no obvious physical attributes, which nonetheless helpfully advances the plot. In this case, the renegotiation covers up the fact that the Prime Minister always wanted to argue to stay in Europe, but needed a handy fig leaf to do so.

Brace yourself for a sentence you might not read again in the New Statesman, but this makes me feel sorry for Chris Grayling. He and other Outers in the cabinet have to wait at least two weeks for Cameron to get the demands signed off; all the while, Cameron can subtly make the case for staying in Europe, while they are bound to keep quiet because of collective responsibility.

When that stricture lifts, the high-ranking Eurosceptics will at last be free to make the case they have been sitting on for years. I have three strong beliefs about what will happen next. First, that everyone confidently predicting a paralysing civil war in the Tory ranks is doing so more in hope than expectation. Some on the left feel that if Labour is going to be divided over Trident, it is only fair that the Tories be split down the middle, too. They forget that power, and patronage, are strong solvents: there has already been much muttering about low-level blackmail from the high command, with MPs warned about the dire influence of disloyalty on their career prospects.

Second, the Europe campaign will feature large doses of both sides solemnly advising the other that they need to make “a positive case”. This will be roundly ignored. The Remain team will run a fear campaign based on job losses, access to the single market and “losing our seat at the table”; Leave will run a fear campaign based on the steady advance of whatever collective noun for migrants sounds just the right side of racist. (Current favourite: “hordes”.)

Third, the number of Britons making a decision based on a complete understanding of the renegotiation, and the future terms of our membership, will be vanishingly small. It is simply impossible to read about subsidiarity for more than an hour without lapsing into a coma.

Yet, funnily enough, this isn’t necessarily a bad thing. Just as the absurd complexity of policy frees us to talk instead about character, so the onset of Subclause Syndrome in the EU debate will allow us to ask ourselves a more profound, defining question: what kind of country do we want Britain to be? Polling suggests that very few of us see ourselves as “European” rather than Scottish, or British, but are we a country that feels open and looks outwards, or one that thinks this is the best it’s going to get, and we need to protect what we have? That’s more vital than any subclause. l

* For those of you keeping score at home, Universal Credit is now allegedly going to be implemented by 2021. Incidentally, George Osborne has recently discovered that it’s a great source of handwavium; tax credit cuts have been postponed because UC will render such huge savings that they aren’t needed.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.

This article first appeared in the 11 February 2016 issue of the New Statesman, The legacy of Europe's worst battle