It must be fair to say that the Coalition Government's Welfare Reform policy has encountered some difficulties over the last few months. One good thing about the ConDems attempts in this area has been that there rather ill-informed efforts have had the effect of exposing the real problems. One of these, which seems finally to be gaining some traction in our public discourse is that the lack of supply of social housing is the major cause of the now £24bn housing benefit bill. Over-occupation, unwillingness to work, claims by under 25's and immigration have been exposed as sideshows. The real culprit is private sector rents that are unaffordable even for those in full time work. This story was taken further when Daniel Boffey, writing in Sunday's Observer, pointed out that:
'Across the capital at least 36% of one-time council homes are now rented out privately but that proportion is even higher in some of the poorest areas where average private-sector rents, often paid by tenants on housing benefit cost as much as £230 a week more than council rents.'
Ed Conway, the Economics Editor for Sky news, has an illuminating piece on his blog about the role of the Thatcher government played in creating the current housing crisis. This is based on previously secret papers from 1984 that have now been released by the National Archives. Thatcher was determined to cut the Government's deficit and to that end a big cut in the housing budget was proposed such that between 1979/80 and 1985/86 the public housing programme would be cut by 52%. Both Ian Gow, her Housing Minister and Patrick Jenkin, her Environment Secretary, argued against these cuts, with Gow going as far to warn that to proceed would lead to increased homelessness. Jenkin made the point in Cabinet that at the time 'the formation of new households was running at 190,000 a year.' He estimated that 75,000 new public sector houses would need to be built to cope with this, although he was prepared to go down to a figure of 40,000. However, Thatcher thought that 15,000 to 20,000 would be adequate, egged on by her then advisor, now Tory MP, John Redwood, who wrote in a note to her that, 'We should be robust about increasing council house sales and reducing the level of new build.'
There seems to have been a firmly-held ideological belief that as the public sector withdrew from the housing market, it would create space that the private sector would quickly fill. Thus warnings about increased homelessness could be dismissed as it was believed that they would prove false because they were based on a lack of understanding of the workings of free markets. Sadly, the truth turned out rather differently than the disciples of Adam Smith had promised, as this chart, reproduced by Conway in his post, demonstrates.
It is no wonder then that, despite the Coalition's constant attempts to blame the previous Labour Government for the Deficit in general and uncontrolled Welfare spending in particular, the rapid rise of Housing Benefit came under the Thatcher and Major Governments, not under Blair and Brown, as this chart from the IFS clearly shows.
It is pretty clear now that a decision to reduce spending on council housing coupled with the Right to Buy policy, came together under the previous Conservative Government to create a perfect storm of rising prices, rising rents and rising welfare benefits to pay those increasingly unaffordable rents. Moreover, it is becoming clear that more and more housing benefit is going to relatively wealthy private landlords. In other words, it's become a tax payer subsidy to the private rented industry.
The UK is now a world where a family can be in an identical house to their neighbour, but are having to pay, with taxpayer support, 2, 3 or 4 times their neighbour's rent, because their neighbour is lucky enough to be in public housing. Surely, in these circumstances the time has come for us to borrow more to invest in Council Housing as a means to reduce the nation's Welfare bill.
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