Housing benefit pushes up rents, says think-tank report
01-05-2015
Kate Allen, Property Correspondent
An array of To Let and For Sale signs protrude from houses in the Selly Oak area of Birmingham
©Getty
Housing benefit is pushing up tenants’ rents, while investor demand for buy to let property is crowding out first time buyers, according to a new report.
Rents in the private sector should be capped in a similar way to those of housing associations and councils, in order to help calm the housing market, the report, by think-tank Civitas, recommended.
As fewer people can afford to buy a home, the rented sector has grown: 18 per cent of households in England are now in privately rented accommodation, compared with about 10 per cent a decade ago.
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This growth has fuelled investor demand for buy to let properties, pushing up house prices and crowding out first time buyers, according to the report.
This is also pushing up the government’s benefits bill: the number of households in privately rented homes who claim housing benefit has more than doubled in the past decade, from 722,000 in 2003-4 to 1.7m in 2013-14. It is forecast to reach 1.85m households in 2018-19.
The amount of housing benefit going to private sector landlords has also more than doubled, from £3.9bn in 2003-4 to £9.5bn in 2013-14. It is set to top £10bn in 2018-19.
In 2004-5, 26 per cent of housing benefit payments went to the private sector, compared with 38.6 per cent today.
Private sector tenants face the highest housing costs in the country, with rents taking up an average 40 per cent of gross income, according to data published last summer.
Report author Daniel Bentley said housing benefit “effectively props up purchasing power at the lower end of the market” and “militates against fair prices by subsidising landlords’ rent demands.
“This vicious circle will only worsen as the private rented sector comes to represent an ever larger proportion of the housing market and more and more tenants have to fall back on housing benefit,” he said.
Private sector tenants should be given the right to stay in their property for as long as they want, with rents capped to the level of inflation, Mr Bentley said.
The Labour party has proposed cracking down on private sector landlords and giving tenants more rights, including longer term tenancies and a cap on rent rises.
Property developers and investors have opposed this idea, arguing that it would limit new housebuilding and investment.
Mr Bentley said tenancy reforms “needn’t result in an exodus of private landlords”.
He argued that many landlords invested in order to “capitalise on rising house prices” and their decisions were influenced by “a much broader range of factors”.
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