Up to £2bn in extra housing benefit being paid out to tenants in ex-council homes - report

Published by 24publishing for 24dash.com in Housing and also in Central Government, Communities, Local Government

It could be costing the Government as much as £2bn-a-year extra in housing benefit to support tenants in the private sector now renting ex-council homes sold through the Right-to-Buy, according to a new report.

That estimate comes from a People, Place and Policy paper looking at the impact of Right-to-Buy re-sales on the £22bn-a-year housing benefit bill.

Around 2.5 million homes have been sold in the UK after Margaret Thatcher brought in the Right-to-Buy (RTB) over 30 years ago.

However, in a significant number of cases, the homes have ended up in the private rented sector, after being resold by tenants.

This has cost the Government more in housing benefit to support tenants in those homes than if the properties had remained at council rents.

A study in 2003 showed that 21% and 31% of houses bought under the RTB within approximately three years were no longer owner-occupied on estates in Lambeth and Camden respectively. Another study estimated around 20 per cent of Birmingham’s RTB sales were in the Private Rented Sector (PRS) by 2001.

Nationally, around a third (1.6 million) of the private rented sector is either partly or wholly funded through housing benefit.

Drawing on analysis from Renfrewshire in Scotland – where 57 per cent of the original council stock has been sold since 1981 – the paper estimated that ex-RTB homes are the source of over 40 per cent of Local Housing Allowance (LHA) claims in three council areas.

It estimated that the 1,526 claims of LHA in Renfrewshire from ex-RTB stock at £40/week extra was costing an estimated £3.2m more per year than if the stock had remained with the council.

Applying a similar method when analysing the impact in North London borough, Camden – which has sold nearly 10,000 council homes – it estimates the Government could be paying as much as £18.7m a year extra through LHA on RTB stock.

Extrapolating the figures, the paper estimates the extra costs of housing LHA claimants in ex-RTB stock is between £0.5bn and £2bn a year, based on different assumptions.

Any errors contained in its speculations, it said, “would mainly involve under-estimates”.

It said the final figure of a possible £2bn/year additional expenditure “significantly exceeds the income generated through RTB capital receipts in any single year of the past decade”.

The paper noted: “Far from generating income for new housebuilding, extending the RTB may simply increase the annual burden of rent support on the Treasury with a net loss overall, every year, for the foreseeable future even at the new LHA rates.”

It said that any appraisal of the RTB, and consideration of its future expansion needs to recognise this “unanticipated consequence of commodification”.

The report concluded: "The UK government has capped LHA payments and reduced household entitlements as it baulks at the rising costs of market rents for housing that are the outcome of its deregulation and marketisation policies."