The Coalition has outlined its plans for housing benefit cuts, which incidentally will affect 90% of claimants in Wales (hat-tip to Sunny for the link), and the housing market, especially that for rentals is currently (and this is, I’m fairly certain a term widely-used in economic circles) royally fucked up.
These housing benefit reforms could (and I emphasise could, not will) end up in a much more affordable rental market in the long-term. The stages that would lead to such an outcome are as follows:
1. Gov’t cuts housing benefit, leading to lower demand for expensive rented accomodation.
2. Expensive accomodation is either reduced in price or sold as it is now unprofitable/impractical to keep going as before.
3. Rents come down across the board as the market corrects itself to a lower “ceiling rate” (my own term) and lesser properties fall into line.
4. House prices themselves come down as surplus/unprofitable rental accomodation is put on the market, and the cycle repeats stages 2-4.
All this, however, will take time. And in the meantime, it means low-income families being chucked out of accomodation they can no longer afford, or seeing their disposable income swallowed up by larger rent payments in the early stages. Result? Great amounts of pain and hardship for the working class in the short-to-medium term.
Cutting housing benefit is not the only way to bring down rents, however, and here I will attempt to (briefly) explore a few alternatives.
Alternative 1: Build more council houses – this is not going to happen on any appreciable scale since the current government is unwilling to spend big on capital investment projects, but would affect the market from the supply side – more cheap accomodation means less demand for more expensive houses from private landlords.
Alternative 2: Introduce rent controls – very difficult to police and monitor, and with the added problem that there would have to be variable rates between Greater London and, say, Sheffield. Presumably these variable rates would simply result in a rolling system of social cleansing as landlords take advantage of the most profitable areas, leaving areas with low caps (and subsequently smaller margins) underutilised.
Alternative 3: Bring in a second home tax – if the tax was an appreciable amount, this could make it much more expensive for rentiers who rely on property rental for income to operate, especially if the tax increased for every property owned. The problem with this, once again, is policing the system. If landlords use aliases or family members on documents (which many already do), they could dodge this kind of legislation. Similarly, it could be brought in on all property over a value threshold, similar to a mansion tax, but applicable across all property owned, not each individual one.
Alternative 4: Buy vacant properties and convert them into low-cost housing – a much cheaper option than building council houses from scratch, especially if the houses are sold quickly at a minimal profit or at-cost. It would provide less of a boost for the construction industry, but would be a quick and relatively cost-effective way of introducing large amounts of low-rental properties into the market in areas where it is appropriate. The main downside of this option is that many vacant properties are in areas where there is little work, and likely to be even less as the Coalition’s spending cuts really bite. As a result, there could be trouble finding buyers for these properties.
Finally, this is just a top-of-the-head quick outline of a few other options we have, and each has costs and benefits to take into consideration. Most importantly, the Coalition’s contention that it has “no choice” on this is a lie, or is untrue (and the two are slightly different). This pain and suffering on the part of some of our poorest citizens is not a necessary evil, but a political choice.