Raising housing benefit is an expensive fix that fails to tackle the problem of high house prices and rents, says Institute of Economic Affairs
Anti-poverty campaigners should ditch their support for housing benefit in favour of proposals to bring down the cost of housing for low income families, according to a free market thinktank.
The £21bn cost of subsidising mortgages and rents to low incomes families could be almost halved when the government passes legislation to ease planning rules and allow more house building, the Institute of Economic Affairs (IEA) said.
The number of people claiming housing benefit has increased by 780,000 since the beginning of 2009 to 5 million.
The IEA said that only when property developers and local communities have the freedom to build more homes will the cost of housing begin to fall.
The thinktank warned that lobbyists campaigning for increased government spending on housing benefit and tax credits wanted an expensive, taxpayer-funded fix that failed to tackle the long term problem of unaffordable house prices and escalating rents.
The report by the IEA will provide some momentum to the government’s attempts to reform the planning rules, which have already been watered down to appease protestors. Legislation is expected to return to the House of Commons in the new year where it
may meet with renewed protests from groups seeking to prevent building on green belt and other desirable plots of land around major cities.
The IEA argues that a mass building programme will not only benefit the economy by providing much needed jobs, but will also bring down housing costs by as much as 40%. Philip Booth, editorial director at the IEA, said: “The poverty lobby continually campaigns for increased housing benefit. However, this will only raise house prices further and exacerbate poverty traps. House prices have gone up 40 times since 1971 whereas prices in general have ‘only’ increased tenfold. Housing without subsidy is now out of reach of much of the workforce. If the UK is compared with other similarly densely populated countries, it is clear that the reason for this is quite simply, our planning system. This needs radical reform,” he said.
“It’s probably also worth nothing the impact of planning regulation on food prices due to its impact on the cost of retail spaces is also discussed in the chapter, I don’t think that’s something people have looked at much before,” he added.
The thinktank argues that “eliminating government interventions” in areas such as planning, energy markets and childcare means “living costs can be reduced dramatically, taxes could be cut, and the welfare state could be reformed to meaningfully address poverty in Britain”.
The chancellor George Osborne has made looser planning regulation a central plank of his growth strategy. In the autumn statement earlier this month he said Britain needed to build more homes to boost growth.
Charities have argued that route out of poverty for low income families is a rise in wages beyond the average 1.8% a year employers have paid over the last two years. The consumer prices measure of inflation topped 5% in 2011 and was 2.7% last month, still well above average wage rises.
The Joseph Rowntree Foundation has campaigned for employers to pay a “living wage” of £7.45 to boost incomes and make low income families less reliant on benefits.
Chief executive Julia Unwin said the £6.19 minimum wage was too low to sustain families without extensive state support.
“There is no doubt that working people will be hit by recent [austerity] measures. For the first time, more people in poverty are in working households than workless households, excluding pensioners. This is a scandal of our time. But it’s also true to say that this is not a static group. There is a vicious circle, which means people move in and out of work, remaining poor, remaining benefit dependent as they struggle to improve their lives. That is the reality of people’s experience,” she said.
“The fact that one in six people, almost five million, have claimed jobseeker’s allowance in the past two years is evidence of this reality. The insecurity and weakness of the labour market at the murky end means it doesn’t take much for a ‘striver’ to become a so-called ‘shirker’.”