Market rents for council house tenants will be counter-productive

Alex Morton joined Policy Exchange in October 2010 as a Research Fellow in the Economics unit. His research focuses on housing and planning reform. He previously authored Making Housing Affordable: A new vision for housing policy for Policy Exchange.

The coalition has rightly made a huge issue of the six million people on out-of-work benefits and the higher poverty and government spending this caused.  Iain Duncan Smith’s long term reforms to ‘make work pay’ could save billions and cut poverty simultaneously.  That is why it is so disappointing that the coalition appears to be about to increase rents on new social tenancies toward market levels and tell these new council tenants ‘get a job and lose your home’.

Because council housing goes to those in greatest need then only 30% of new tenants have a job – the rest rely on housing benefit.  What this means is that for every £1 government gains from higher rents, they will lose 70p or so due to higher housing benefit.  These changes may stop tenants moving off welfare – because if they do they would be kicked out of their home – so the proposals may end up costing the government more in higher dependency levels than they gain in rents.

These proposals thus drive a coach and horses straight through the work of Iain Duncan Smith at the DWP.   On top of the fact that they may end up costing more than they save they will heavily increase the rents of the ‘working poor’ – e.g. families on the minimum wage who go out to work rather than live off welfare.

In addition, as these changes will only apply to new tenancies, existing social tenants will be reluctant to move – because they would lose the benefits of their existing tenancy.  To take just one example, over half of all new tenants move into a social property where the previous tenants have moved into the private sector.  Under these rules, social tenants wouldn’t leave the sector unless they were very sure they wouldn’t have to rely on social housing in future.   So while the government might gain by kicking new working tenants out of their homes after a few years, it will lose because fewer existing tenants would move out of the sector.

So the proposed measures are likely to both increase government expenditure and reduce the numbers of new social homes becoming available for new tenants.   Tenants won’t leave their existing property to enter the private sector, to get a job, to care for family members.  All this will cost the government money in the long run.

Iwould urge the government to reconsider their approach, which was not in the coalition agreement and is likely to lead to higher government spending and greater welfare dependency.  To proceed with the proposed measures would be a costly mistake.