My Lords, as others have said, this is a modest amendment, so modest that I hope it is not only going to be acceptable to the Government but it might even be welcomed by them—you never know—as it only specifies how the firm undertaking given on 14 December 2011 by the noble Lord, Lord Freud, on Report of the Welfare Reform Bill will be followed through.
The noble Lord, Lord Freud, agreed:
“If it then becomes apparent that local allowance rates”—
that is, private sector HB—
“and rents are out of step, they can be reconsidered”.—[Official Report, 14/12/11; col. 1324.]
After I pressed him, he agreed to,
“change the word from ‘can’ to ‘will’”.—[Official Report, 14/12/11; col. 1325.]
So the substance of this amendment has already been agreed. This amendment is merely about process. The commitment made by the noble Lord, Lord Freud, needs to be embedded in primary legislation with follow-up regs so that we can have an agreed timetable and we can all enjoy what the Minister referred to as the certainty that would follow—certainty for the markets, should they be so interested, for the public, for the recipients and, above all, of course, for Parliament.
The noble Lord, Lord Newby, and the noble Baroness, Lady Stowell, did not have the considerable and extended pleasure of being active in the Welfare Reform Bill—how wise of them—so it might be helpful to them and the House if I retrace our steps a little. Why, first in Committee and then on Report, did we press for this review, which the noble Lord, Lord Freud, agreed to? The noble Lord, Lord Best, had already persuaded the noble Lord, Lord Freud, of the need for a high-powered independent review of the full housing implications of the Welfare Reform Bill for families. I pay tribute to the noble Lord, Lord Best, for persuading the Minister, and to the noble Lord, Lord Freud, for the open-minded, evidence-based way he responded, which was to agree to the review.
None the less, a partial and particular problem seemed to many of us to persist: the connection of the private rented sector—PRS—rents and local housing allowance; that is, LHA. Why? It is clear that we have three housing tenures—owner-occupation, PRS and social housing—but we have only one housing market and that housing market works effectively and efficiently only if there is a rough match between supply and demand, which there is not. We can all see that the housing market is currently in crisis.
Burdened with student debt and unable to build a deposit for owner-occupation while and because they are paying very high rents in the private rented sector, people in their 20s are now living in that sector not for five years but for 15. It is no longer tenure of transit but a permanent tenure of long stay. Rather like in the 19th century, when people consumed more potatoes whenever their price went up, as more people unable to afford to buy remain in the private rented sector, the more they push up demand and push up rents—which absorb more of their income and make it impossible for them to afford a deposit, move out and buy. So the higher the rent, the longer you stay in the private rented sector.
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The result is that we are building fewer than 100,000 houses this year—the lowest number for 30 years—at a huge cost both to those needing homes and to those needing construction-related jobs. We need 250,000 houses—two and a half times the number being built.
New households are forming three times faster than new homes are being provided, so the existing stock, especially in the PRS, soars in price. Those seeking to move out and up into an occupation cannot do so; those seeking to move out and sideways into social housing cannot do so either as local authorities and housing associations have seen their building programmes devastated—as in my housing association, in which I declare an interest as its chair.
An increased number of prospective tenants entering the PRS push up their rents as a result. This has a double whammy on the LHA bill—higher rents, pushed up by the greater number of those who cannot buy, while those same higher rents and reduced access to social housing increase the housing benefit bill for the neediest. Just at the point when government, understandably, wants to bear down on HB costs, it finds its efforts destroyed by the shortage of housing supply in the market. I sympathise, but the Government’s folly lies in their response. Housing, like potatoes, is not a discretionary item—its consumption cannot be reduced except by illegal overcrowding in illegal slums—yet it is being treated by government as though it were rather like going to the cinema. People cannot choose not to have any housing unless they sleep rough or in cars or on cathedral doorsteps. They must live somewhere and must pay for it. The Government, instead of seeking to increase the supply of housing substantially—which is the only answer apart, possibly, from rent control—have chosen to drive down the HB bill by fixing it to below average rents.
Until now, HB has always been tied to real, actual rents, precisely because rents vary from place to place and by type of property. Local housing allowance was in each area placed at 50% of the median local rent and adjusted monthly—that is how sensitive it was to local rent levels—so that half the houses or properties in the private rented sector should be available and affordable to a tenant on HB. The Government have now brought that 50% figure down to 30%—that is, less than a third of properties will now be affordable—believing without any evidence, and we have pressed the Minister on that on many occasions, that this would press down HB and rents would fall. They have done so because they seem to think that it is a tenants’ market. They have no evidence for that, understandably, because the evidence does not exist, and because it has not been a tenants’ market—it is not and it will not be. If housing-benefit tenants dominated the private rented sector then we would have seen rents begin to fall during the past year. But they have not, and they do not, because tenants on HB are only 20% of the PRS, so they do not have the leverage that government attributes to them. Tenants are now being punished for the fallacies, failures and folly of government policy. Do you remember those notices in landlords’ windows: “No Irish, no blacks, no dogs, no DSS”? I do. Well, that is reappearing. According to the National Landlords Association, nine in 10 private landlords say that they are reluctant to accept HB tenants because they do not have to. With five to eight tenants after every flat, it is a landlords’ market, not a tenants’ market, which is why cutting HB will not do anything to help drive down the bill.
By tying HB to 30% instead of the 50% median, all government is doing is subsidising the landlords of the least salubrious, most squalid property. However, HB tenants will now, Lord of the Flies style, compete savagely to occupy that property. Complain and you are out.
That is bad enough, but we have a second whammy occurring. Not only is the proportion of PRS property available to HB tenants being nearly halved, but HB will no longer rise even sufficiently to meet their needs. HB will in future be tied to inflation—this year, CPI—and not as in the past to what is happening to rents. For the first time ever, in other words, HB is being detached from what is happening to real rents in the market, whether at 50% or 30%. In the past decade, however, PRS rents have risen in real terms by more than 11%. As rents in London are rising by 7% a year and by 3.4% elsewhere, and as CPI is currently running at 2.7%, then HB, which is supposed to cover 30% of available properties, will instead cover only 20% in about five years and perhaps 10% or less in 10 years. Shelter estimates that in a third of the country the private rented sector will be inaccessible to all would-be tenants on HB. A third of the country will become a no-go area for tenants on housing benefit.
It gets worse. Local housing allowance will be uprated by CPI this year—as the Minister said, the Bill does not cover it this year—but thereafter, for the next two years, it will be uprated under the Bill by only 1%. London rents are rising by 7%. The Government’s own impact analysis expects rents to rise overall by 4% while the benefits to fund it are rising by only 1%, and these are benefits fixed to only 30% of rent levels.
The result of this double whammy is an increase in the number of people needing housing benefit as rents soar and an increase in the number of people finding that even the housing benefit that they receive will not cover the ever smaller proportion of properties that they can access to rent. Rents will be too high, housing benefit too low and landlords too reluctant. What is the result? Either tenants will seek to make up the difference out of their benefit income, thus increasing severe child poverty, or they will not. If they do not, they may face eviction and end up homeless. If they have children, they may ultimately end up in bed and breakfast before—with the lack of available social housing—probably being recycled into the private rented sector for the same sorry cycle to be repeated another year down the line. As all the housing dominos fall over, misery cascades down the tenures, and the Government are choosing for this to happen because it is a policy choice—not a necessity but a policy choice.
Homelessness is already on the rise, having increased by 22% in the past two years, and so is rough sleeping, which is up 31% in the past two years. All this is happening before the indecent bedroom tax takes effect for some of the sorry occupants of the private rented sector. The Government may tell us that a third of the expected savings from all this will be recycled to help those areas with the highest rents, and that is welcome. However, as with the discretionary housing allowance, they will end up trying to cover gaps and holes in
provision which I estimate will be five or 10 times larger than can be covered. Hence I offer this modest amendment.
The noble Lord, Lord Freud, accepted that that there could be a problem, though he argued that he expected the policy to work. However, he was open-minded enough to agree that there should and would be a review of what was happening to market rents and the adequacy or otherwise of local housing allowance to ensure safe and secure housing for those in need.
If rents and housing benefit diverge significantly, the Government must change the method of operating. That was the policy intent, and that was what the noble Lord, Lord Freud, accepted. I ask the Minister not whether the Government agree with the policy—they have already agreed the policy intent of this amendment—but how their delivery of the commitment of the noble Lord, Lord Freud, is to be secured. I beg to move.