What’s wrong with private landlords collecting £9bn in Housing Benefit?

In the private sector, Housing Benefit goes towards landlord costs and profits. Virtually none of it contributes to building the new homes we so desperately need.

David Orr

By David Orr, Chief Executive of the National Housing Federation

22 August 2016

Did you see the headline in the Daily Mail? ‘Private landlords rake in £9bn a year from Housing Benefit’. This headline was repeated across the newspapers, and was the opening line in the coverage on BBC and Sky News.

This was a story that came from analysis by the Federation’s research team, with the news coverage fronted by some of my colleagues. So was this an attack by us on private landlords? Why do we care if Housing Benefit is going to private landlords if it means that people can have secure homes to live in? Does it mean that we are opposed to the private sector?

The short answer is no. What we’re opposed to is how chaotic and inefficient our housing system has become. As a nation, we now spend over £24bn every year on helping people pay their rent through Housing Benefit. We spend less than one tenth of that on public capital support for new homes. There is £15bn in Housing Benefit spent on supporting tenants in the social sector, but this money helps housing associations and, increasingly, local authorities to build new homes. In the private sector, because it mainly consists of small scale buy to let, the benefit goes towards landlord costs and profits. Virtually none of it contributes to building the new homes we so desperately need.

This is not the fault of individual buy to let landlords, many of whom provide an excellent service. It is the fault of a system which, incomprehensibly, can make it easier to get a mortgage for buy to let than a mortgage for buy to own. The Government has expressed huge concern at the reduction in those who own their homes from 71% of the population to 64%. It is right to be concerned. Successful housing economies, indeed successful economies, make it possible for people on low to middle incomes to own housing as well as the rich. Our economy presently fails to do this. 

Buy to let owners are purchasing houses that are already there. They buy homes that 20 years ago would have been bought by first time buyers. These same people can’t now afford to buy, so they live in the homes they would have bought, paying rent to landlords which has to be enough to cover the cost of the mortgage and deliver a profit for the landlord. They end up paying more to rent than they would need to repay a mortgage. And the asset (or the home as we really should think of it) is owned by the landlord.

This is a massive change in tenure of existing homes from ownership to renting. In a market where we have for decades been building far too few new homes, this change in tenure has made it ever harder for people to own. And buy to let makes virtually no contribution at all to building the new homes we need. Instead of extending access to assets and wealth to the many, it concentrates assets in the hands of the relatively few.

Of course there is a critical role for private or market rented homes. Increasingly, in addition to building homes for social rent, shared ownership and market sale, housing associations are exploring how they can increase the supply of new homes by building for market rent. There is a huge amount of institutional finance that can and should be used to invest in building new homes for rent. And sometimes, the tenants in these homes may have to be supported in paying their rent through Housing Benefit. But this allows housing associations to build new homes, adding to the overall stock and reducing housing stress, rather than inefficiently and expensively changing the tenure of existing homes by taking them out of the reach of first time buyers and into the rental market.

We have a housing crisis. All our efforts should be focused on building new homes and regenerating poor quality and empty homes so they are places people want to live. Such money as is available from the state should be clearly targeted on strategies to increase supply rather than paying for the rising cost of our failure to build the homes we need. Housing associations have been calling on the Government to lift restrictions on existing funding for housebuilding so that we can continue to build through challenging economic times.

We have been accused of being unfair when I said: “It is madness to spend £9 billion of taxpayers’ money lining the pockets of private landlords rather than investing in affordable homes.” I concede that “lining the pockets” may be eye-catching language. We need this story to be eye-catching, though, because we have a unique opportunity right now to make the case for the power of public investment in new homes. The bottom line is that expensive buy to let might be a means by which landlords reasonably seek to earn an income and help others access homes when nothing else is available. It is not, and never will be, a contribution to ending the housing crisis.

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