The rise in housing benefit is driven by a rise in need. No more, no less

It's not greed, it's not fraud, it's just more people needing help to live their lives, writes Declan Gaffney.

It’s safe to say that housing benefit has few defenders on any side of the political debate.

All parties agree that spending is out of control and needs to be reined in. The right has ruthlessly promoted the claim that housing subsidises the underserving poor to live in accommodation ordinary workers couldn’t afford. The left responds by saying that it is landlords rather than tenants who are milking the system. Thus Owen Jones writes:

Greedy landlords are fully aware that most cannot afford to pay their extortionate rents. But they also know that the taxpayer will step in and subsidise them with housing benefits… Instead of wasting billions on housing benefit, we could spend it on building housing, creating jobs and stimulating the economy.

What the left and right criticisms have in common is more important than what distinguishes them. Housing benefit exemplifies the gruesome two-step of current welfare debate.

  • Step one: claim that expenditure is at unprecedented and unsustainable levels.
  • Step two: blame this on some unpopular group milking the system—greedy landlords or irresponsible tenants—thus suggesting that expenditure can be cut or redirected to other purposes without pain.

Step two is wishful thinking, as I’ll argue below. Step one is easily dealt with. Look at this chart:

 

The green curve shows expenditure on housing benefit as a share of GDP, indexed to 1978/9, from that year to 2011/12. (It’s the share of GDP that counts when the sustainability of expenditure is at issue.) Spending now, four years after the onset of recession, is at almost exactly the same level as it was in 1995/6 four years after the last recession. In the intervening period it first fell dramatically as the impact of the early 90’s recession receded, then rose sharply when the global financial system collapsed in 2008/9. There has been no long-term upward trend since the early 1990's, so the rhetoric of unsustainability is completely misplaced.

The red curve on the chart, which takes out the effect on expenditure of changes in the number of claimants, shows that the recent rise in expenditure is overwhelmingly driven by the caseload (the dotted blue curve). It also allows us to see the impact of the switch from supply-side to demand-side funding during the late 1980s — that is, the switch from directly subsidising social rents and building homes to giving tenants the money to pay higher rents.

This doesn’t represent a change in overall expenditure but a redirection of subsidy to a different channel.1 The impacts of that switch, particularly on work incentives and poverty traps for lower income groups, have been hotly debated, but the point here is that this step change in housing benefit spending doesn’t represent an additional cost to taxpayers (except in the form of any negative impacts on employment). So even in this long-term perspective the notion that housing benefit represents an increasing burden on the Exchequer is wrong.

What about the other item on the charge sheet—that housing benefit expenditure is wasteful because either landlords or tenants are milking the system on a grand scale? Both these claims, if we are to make sense of them, involve similar economic assumptions.

To see this, consider how landlords might be able to raise rents above market level to capture the subsidy—bearing in mind that if rents aren’t above market level, there is no subsidy (left critics have been surprisingly uninterested in demonstrating this). The private rented market is dominated by small-scale, uncoordinated cottage industry operations, so we can rule out the notion that landlords are using market power to drive up rents. (An exception, but a small element in total spending, may be the market in temporary accommodation for people meeting local authority homelessness criteria).

The other possibility would be if tenants were to some extent indifferent to rent levels. That could allow landlords to use price discrimination (charging more to housing benefit claimants) to extract above-market rents from taxpayers. Alternatively, even if landlords didn’t use price discrimination, tenants might choose more desirable (expensive) properties if they weren’t worried about the rent—the government’s main argument for cutting entitlements. Thus the greedy landlord and irresponsible tenant stories turn on the same explanatory mechanism of tenants failing to respond to prices: they differ only in who is said to be extracting the unfair advantage.

Which raises the question: why would tenants be indifferent to rents? The higher the rent level, the more earned income will be subject to punitive marginal tax rates as housing benefit is withdrawn. You would have to suffer from extreme myopia or have minimal expectations of your future earning capacity not to take this into account in choosing accommodation. Add to this that about half of private rented sector claimants were living in their current accommodation before they made their claim, so they would have been making the same tradeoffs as anybody else when they chose where to live.2

Fortunately, all this can tested empirically.

London has the largest private rented sector in the country, a highly mobile population, substantial variations in rents between areas and (although Londoners hate to admit it) an excellent public transport system.

If housing benefit tenants care about rent levels, we would expect them to be in lower rent areas, subject of course to the availability of accommodation. If they didn’t care, we would expect them to be distributed across areas in accordance with the rental stock.

When a model in which the number of private sector claimants in each borough in 2010-11 is measured against (a) the size of the local private rented sector and (b) the lower 25 per cent of local rents, we find the latter "explains" 66 per cent of the variation in caseload between areas. Overall, a 1 per cent increase in rents implies a 1.7 per cent decrease in the number of claimants.3

Given this strong negative relationship between rent levels and private sector HB claims, the notion that landlords are capturing a large part of the subsidy by charging above market rents looks implausible.

This is even more the case when we look at what’s happened in London since the cuts to housing benefit in April 2011. Using the same model with post-reform data, there is no statistically significant change in the relationship between rents and caseload: even quite dramatic cuts to entitlements don’t seem to have made that much difference to the already very strong propensity for higher rents to drive down the number of claimants.

(This isn’t to say there has been no effect from the changes, but that if there has been, it’s small by comparison with what was already happening before they took place.)

At the same time, between 2011 and 2012, rents rose by 8 per cent in London, and they rose most for the type of larger property where the cuts had the most impact on tenants’ ability to pay—rents for three- and four-bed flats have risen by more than 10 per cent. So much for the government’s claims that rents are falling in response to the cuts

Given how much we spend on housing benefit in the private rented sector it would be surprising if there were no landlords taking advantage. But the hard lesson is that this probably has little impact on overall spending levels. Claims from the left that billions are being wasted "subsidising" private landlords are about as convincing as claims from the right that billions are being wasted subsidising irresponsible tenants to live in mansions.

There’s a longstanding debate about the merits of funding housing through demand rather than supply-side subsidy. (For a fair statement of the argument, see Shelter’s report). But suggesting that there’s a free pot of money available for housing investment in the form of subsidy captured by greedy landlords adds nothing to that debate.

If we want more housing investment, we’re going to have to pay for it some other way: perhaps by borrowing as Jonathan Portes has suggested. Taking that route would also have positive impacts on employment, thus reducing expenditure on housing benefit without hitting the incomes of struggling workers. But the welfare reform two-step is a distraction from the real issues, whether you lead with the right or the left.

1 See page 55 here.

2 See section 6.2 here.

3 Geek note: all variables in logarithms, all p-values <.01. The results are not driven by multi-collinearity between the independent variables.

A housing estate in Lambeth. Photograph: Getty Images

Declan Gaffney is a policy consultant specialising in social security, labour markets and equality. He blogs at l'Art Social

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The decline of the north's sporting powerhouse

Yorkshire historically acted as a counterweight to the dominance of southern elites, in sport as in politics and culture. Now, things are different.

On a drive between Sheffield and Barnsley, I spotted a striking painting of the Kes poster. Billy Casper’s two-fingered salute covered the wall of a once-popular pub that is now boarded up.

It is almost 50 years since the late Barry Hines wrote A Kestrel for a Knave, the novel that inspired Ken Loach’s 1969 film, and it seems that the defiant, us-against-the-world, stick-it-to-the-man Yorkshireness he commemorated still resonates here. Almost two-thirds of the people of south Yorkshire voted to leave the EU, flicking two fingers up at what they saw as a London-based establishment, detached from life beyond the capital.

But whatever happened to Billy the unlikely lad, and the myriad other northern characters who were once the stars of stage and screen? Like the pitheads that dominated Casper’s tightly knit neighbourhood, they have disappeared from the landscape. The rot set in during the 1980s, when industries were destroyed and communities collapsed, a point eloquently made in Melvyn Bragg’s excellent radio series The Matter of the North.

Yorkshire historically acted as a counterweight to the dominance of southern elites, in sport as in politics and culture. Yet today, we rarely get to hear the voices of Barnsley, Sheffield, Doncaster and Rotherham. And the Yorkshire sporting powerhouse is no more – at least, not as we once knew it.

This should be a matter of national concern. The White Rose county is, after all, the home of the world’s oldest registered football club – Sheffield FC, formed in 1857 – and the first English team to win three successive League titles, Huddersfield Town, in the mid-1920s. Hull City are now Yorkshire’s lone representative in the Premier League.

Howard Wilkinson, the manager of Leeds United when they were crowned champions in 1992, the season before the Premier League was founded, lamented the passing of a less money-obsessed era. “My dad worked at Orgreave,” he said, “the scene of Mrs Thatcher’s greatest hour, bless her. You paid for putting an axe through what is a very strong culture of community and joint responsibility.”

The best-known scene in Loach’s film shows a football match in which Mr Sugden, the PE teacher, played by Brian Glover, comically assumes the role of Bobby Charlton. It was played out on the muddy school fields of Barnsley’s run-down Athersley estate. On a visit to his alma mater a few years ago, David Bradley, who played the scrawny 15-year-old Billy, showed me the goalposts that he had swung from as a reluctant goalkeeper. “You can still see the dint in the crossbar,” he said. When I spoke to him recently, Bradley enthused about his lifelong support for Barnsley FC. “But I’ve not been to the ground over the last season and a half,” he said. “I can’t afford it.”

Bradley is not alone. Many long-standing fans have been priced out. Barnsley is only a Championship side, but for their home encounter with Newcastle last October, their fans had to pay £30 for a ticket.

The English game is rooted in the northern, working-class communities that have borne the brunt of austerity over the past six years. The top leagues – like the EU – are perceived to be out of touch and skewed in favour of the moneyed elites.

Bradley, an ardent Remainer, despaired after the Brexit vote. “They did not know what they were doing. But I can understand why. There’s still a lot of neglect, a lot of deprivation in parts of Barnsley. They feel left behind because they have been left behind.”

It is true that there has been a feel-good factor in Yorkshire following the Rio Olympics; if the county were a country, it would have finished 17th in the international medals table. Yet while millions have been invested in “podium-level athletes”, in the team games that are most relevant to the lives of most Yorkshire folk – football, cricket and rugby league – there is a clear division between sport’s elites and its grass roots. While lucrative TV deals have enriched ruling bodies and top clubs, there has been a large decrease in the number of adults playing any sport in the four years since London staged the Games.

According to figures from Sport England, there are now 67,000 fewer people in Yorkshire involved in sport than there were in 2012. In Doncaster, to take a typical post-industrial White Rose town, there has been a 13 per cent drop in participation – compared with a 0.4 per cent decline nationally.

Attendances at rugby league, the region’s “national sport”, are falling. But cricket, in theory, is thriving, with Yorkshire winning the County Championship in 2014 and 2015. Yet Joe Root, the batsman and poster boy for this renaissance, plays far more games for his country than for his county and was rested from Yorkshire’s 2016 title decider against Middlesex.

“Root’s almost not a Yorkshire player nowadays,” said Stuart Rayner, whose book The War of the White Roses chronicles the club’s fortunes between 1968 and 1986. As a fan back then, I frequently watched Geoffrey Boycott and other local stars at Headingley. My favourite was the England bowler Chris Old, a gritty, defiant, unsung anti-hero in the Billy Casper mould.

When Old made his debut, 13 of the 17-strong Yorkshire squad were registered as working-class professionals. Half a century later, three of the five Yorkshiremen selec­ted for the last Ashes series – Root, Jonny Bairstow and Gary Ballance – were privately educated. “The game of cricket now is played in public schools,” Old told me. “Top players are getting huge amounts of money, but the grass-roots game doesn’t seem to have benefited in any way.”

“In ten years’ time you won’t get a Joe Root,” Rayner said. “If you haven’t seen these top Yorkshire cricketers playing in your backyard and you haven’t got Sky, it will be difficult to get the whole cricket bug. So where is the next generation of Roots going to come from?” Or the next generation of Jessica Ennis-Hills? Three years ago, the Sheffield stadium where she trained and first discovered athletics was closed after cuts to local services.

This article first appeared in the 19 January 2017 issue of the New Statesman, The Trump era