National Housing Federation: Housing benefit bill doubles as landlords demand more

| October 22, 2012 | 0 Comments

By
Ed Monk, Gerri Peev and Simon Lambert

03:03 EST, 22 October 2012


|

11:57 EST, 22 October 2012

Rent rises of 37 per cent in just three years have pushed more working families on to housing benefit, almost doubling the cost to the state and hampering the Government’s deficit reduction plan, according to the National Housing Federation.

An NHF report today warned that since 2009 there has been an 86 per cent rise in housing benefit claims by working families, with 417,830 more households now receiving the payments. A further 10,000 are applying every month.

The federation said that a 37 per cent rise in private rents in that time is to blame. This has been driven by climbing onto the property ladder remaining a distant dream for many, with the report highlighting how house prices have risen three times faster than wages since 2001.

The shadows of children playing are cast on the wall of My Street in Salford. More families are claiming housing benefit as private rents have risen by 37 per cent in six years

The shadows of children playing are cast on the wall of My Street in Salford. More families are claiming housing benefit as private rents have risen by 37 per cent in six years

The NHF report forecast rents to keep going up, with the increasingly important private rented sector tipped to see a 35 per cent rise by 2018, far higher than the 21.7 per cent forecast for Housing Association rents.

Rents are also tipped to outstrip house prices, but with mortgage lending criteria still tight and lenders demanding big deposits, hopeful first-time buyers are unlikely to be able to benefit from the advantage of owning a home instead of renting.

Those with incomes of less than £16,000 a year can claim housing benefit if they do not have savings of a similar amount. However, under the complex system, people who earn more can also qualify for help depending on the size of their family and any disabilities.

Rising rents leads to more housing benefit claims because eligibility is based on the proportion of a claimant’s income that is taken up by rent. Rent rises have been racing ahead of wage rises, while many have had to get by on a reduced income from part-time work because they cannot get full-time employment. 

The effect of this is to make greater numbers eligible for housing benefit.

Housing benefit claims have doubled in the last decade to reach £21billion a year – and Work and Pensions Secretary Iain Duncan Smith has warned that without action, the bill will rise to £25billion by 2015. The Government has already pledged to take away housing benefit from most under-25s who are out of work.

Rising tide: Rents will continue to increase says the NHF, making a difficult situation worse.

Rising tide: Rents will continue to increase says the NHF, making a difficult situation worse.

The NHF said that rent rises are
unlikely to abate in the years ahead. The federation, which represents
1,200 housing associations, has forecast rents to soar by a further 35
per cent in six years.

The average rent in England is £181 a
week, but this is set to rise to £225 by 2018 – and prices are predicted
to reach £404 in London.

The report predicts that private rents
will be fairly stable through 2013 but could see steep increases from
2015 to 2018 of around 6 per cent a year as interest rates rise and
house prices increase, leading landlords to demand more.

The NHF said the weakness of the
economy will see modest falls in house prices into 2013, but demand
conditions will support renewed house price growth of 5-6 per cent a
year across England from 2015 to 2017.

Overheated: More demand due to people unable to buy a home and a lack of supply will mean rents rise faster than house prices, the NHF forecasts.

Overheated: More demand due to people unable to buy a home and a lack of supply will mean rents rise faster than house prices, the NHF forecasts.

Chief executive David Orr said
millions of squeezed families are struggling to keep a roof over their
heads. ‘These people are the “strivers” the Government wants to help,
yet their future is looking bleak,’ he said. ‘Only by addressing the
chronic undersupply of new homes can we stem the financial pressure on
families and government.’

The NHF warns that 2011 saw the
creation of 390,000 new families, but only 111,250 new properties. By
2014, 140,000 homes are expected to be built each year – but the
increase will flatten out by 2017. The group has called on ministers to
release publicly-owned ‘brownfield’ land to housing associations so they
can build more properties.

Disused land owned by the Government is the equivalent of two cities the size of Leicester.

Affordability gap: House prices have increased more than three times as fast as earnings, the NHF report shows.

Affordability gap: House prices have increased more than three times as fast as earnings, the NHF report shows.

It is a long-standing property truism that when sales slump, lettings do well, writes Simon Lambert. The test of whether this still applied in the post buy-to-let boom world arrived with the property slump that hit from 2007 onwards, and it seems it does.

The anatomy of the five-year property market slump so far is that house prices first tumbled – at one point they were down almost 20 per cent in a year – before staging a sharp recovery that ran out of steam and left all regions except London flatlining or gently falling.

Low interest rates have put a platform under house prices by limiting the number of forced sellers, but the real slump is evident in transactions – property sales are running at roughly half to two-thirds of the long-term average level.

Priced out: Rents will keep rising for as long as most are unable to get on the property ladder, says Simon Lambert.

Priced out: Rents will keep rising for as long as most are unable to get on the property ladder, says Simon Lambert.

With limited house price falls and stagnant wages not putting the substantial deposits required by lenders for good mortgage rates within savings distance, first-time buyers are a rare breed.

Meanwhile, those who have fallen or stepped off the property ladder find it hard to climb back on.

The table above also provides a stark illustration of just how much harder it has got to buy a home over the past decade, by comparing house prices and wages.

All of this feeds through to more demand for renting property.

The latest English Housing Survey, produced by the Department for Communities, bears this out.

Britain is still a nation of home owners – but less so than in the halcyon days of the property boom – the 14.45m owner occupiers made up 66 per cent of households in 2011 compared to 71 per cent in 2005 (14.79m).

At the same time the number of private renters rose from 2.45m in 2005 to 3.62m in 2011 – to make up 17 per cent of households. In 1999 there were 2m private renters, or 10 per cent of households.

Thanks to Britain’s liberal lettings market even a relatively modest decline in home ownership can push up rents. Private tenants will typically be on Assured Shorthold Tenancies, which only last 12 months and can see many tenants leave after six months. These give plenty of opportunities for regular rent rises and with demand robust landlords can ensure their rents keep pace with inflation, or even outpace it.

Personal experience bears this out. My old flat, which we sold to a couple for a buy-to-let investment, was let within 18 hours of them advertising it on a Friday evening (for free on listings website Gumtree). I thought the new owners were asking about £150 per month too much in rent – it was let for the asking price and if the couple who took it hadn’t done so there was another prospective tenant waiting in the wings.

Yes, this was London, where flats let in days and even hours, but in popular locations across the country this a similar if less pronounced effect is also occurring.

That one-bedroom garden flat of ours, in an ordinary North London Victorian road, was a classic first-time buyer property. With a 20 per cent deposit ,a first-time buyer with a repayment mortgage at a 5 per cent interest rate would have had monthly payments that matched the rent. The problem is that to get into that position they would have needed a £50k-plus deposit. Unworkable for most.

As long as that story is replayed in many places across the country – rents will keep on rising.

The comments below have not been moderated.

Well THANK YOU TORYS! Abolishing rent control worked out fine if you’re a rich Tory landlord.

Lord Funnymoney
,

London, United Kingdom,
22/10/2012 17:38

Why are rents rising if the lending rate is so low? Buy to let homes are an alternative to pensions. So as most only are really interested in covering the mortgage and a little percentage extra, they will sell years later and get their lump sum back. So if the mortgage rate is at an all time low, why has the rents gone up 3 times? They must just be greedy… like everyone else.

daz
,

Cheshire,
22/10/2012 17:37

Satchel. You do not know me so have made an assumtion. I left school at 15 with a basic education Started working for BP at 20 years of age and worked my way through the system for 33 years on shift work
My wife was diagnosed with MS at 27 years of age and I cared for her as well as working full time.. After my wife died at 50 I was at breaking point so asked for early retirement. I bought the flats to suppliment my pension, and I needed to still work. I do all my own repairs, cleaning and re-furbishments. I care for my tenants like family. it is who I am, I cannot change from being a giver to a taker. I have just spent 10 months un- paid totally re-furbishing two flats in an old Victorian house. To cap it all just as I retired I was diagnosed with Bowl cancer, I have been living with NO large intestine (Bowl) for Nine years
I still work virtually full time. I feel week and washed out all the time I would consider myself to be altruistic. Why are YOU Bitter and Selfish, Try giving

Graham
,

York, United Kingdom,
22/10/2012 17:30

Tax credits and housing benefits cover up low wages. Part-time jobs leave the country with far higher bills. Short term rent can go above these limits, if the council can not find homes they they are put in BB at many times the new caps. If Osborne was on top of this we would have seen these costs going down. Each time the Goverment hands over £10K to a landlord, they have to cut a NHS worker or a Front line forces member or a home help etc. How many home loans(BTL loans) are being paid by tax payers?

Nick
,

London, United Kingdom,
22/10/2012 17:20

Long renting instead of home ownership has proven to be the worst financial decision an individual could of ever made!

Quentin
,

Cheshire,
22/10/2012 17:02

So the Goverment borrows money to give to landlords to buy a second home? Well MPs do it, Minister get a free home and rent out their London homes for £1K per week. So tax payers fund their rental income.

Dave
,

London, United Kingdom,
22/10/2012 16:59

Jim, London – Appreciate your gracious response – my understanding is that those claiming above the max £400 pw HB cap, will have their HB reduced at next annual benefit review, or earlier than that if they change their abode. Beyond that Universal Credit starts in Oct 2013, with max £500 pw overall benefit – albeit we are told there are “transition arrangements” in place to smooth out shortfalls. In bigger picture – with 87.5% of HB claimants being IN WORK – it flags the low real value of UK wages.

Realist01-Surrey
,

Kingston,
22/10/2012 16:56

We’ve put our rents down, we have a lovely tenant of 18 months and we would never even think about putting his rent up – a good tenant is priceless!

Elaine
,

Nuneaton, United Kingdom,
22/10/2012 16:50

We lived in private rented accommodation until this year. Every year we had a £50pcm increase. I thought a mortgage on a bigger house would be expensive, but now it’s cheaper than our rented 2bed terrace.

If you are paying £750+ in rent, I’d seriously consider buying.

Kentish Lad
,

Hampshire,
22/10/2012 16:41

If you put £23billion extra , into any market, when there is a shortage , there is only one result, rents will increase.

BILLCOLIN
,

Bolton,
22/10/2012 16:36

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