Monday, December 22, 2008

Housing Disbenefit

Just down the road from Dave - £1755 pw

You will have seen the press reports about Francesca Walker and her £2m five bedroom house in Dave C's Notting Hill. Actually, it's only rented - at a mere £91 grand pa. But the choker is, we're paying for it.

Just like we paid for Afghan single mother Toorpakai Saiedi and her seven children to live in this £1.2million property in Ealing - part of her £170 grand pa welfare benefits (no wonder her son looks chilled):

Government regulations oblige local councils to house all kinds of people. According to the Sunday Times, Kensington and Chelsea Council had to house Ms Walker in a five bed house within the Royal Borough, and reckoned the £2m pad was the only suitable property available. Even though it is privately owned.

As we all understand by now, handing our wallets over to the Simple Shopper is never a good idea. But allowing the Shopper out in the shark infested waters of the property rental market is asking to get our hands chomped off as well.

When last sighted (2006-07), spending on Housing Benefit amounted to £13bn pa. Our guess is that it is now close to £15bn pa, and will be shooting up in the slump. So it's big. And it raises all the usual questions.

First, can we trust the Shopper to get value for money? The ST easily found an alternative five bed property within the Royal Borough for half the price of the one rented for Ms Walker. As usual, the Shopper has paid way over the odds.

Second, can we trust the Shopper to spot fraudsters? The property rental market is notorious for right dodgy geezers who'd swindle their own grannies, let alone the local council. Especially when the local council is not handing out its own dosh - they get fully reimbursed by the Department for Work and Pensions, a surefire recipe for overpayment.

Sure enough, the Shopper gets legged over left right and centre. According to the latest National Audit Office fraud drains-up (blogged here), as much as £0.9bn of Housing Benefits payments went walkabout in 2006-07. Indeed, Housing Benefits handed out to working age people like Ms Walker and Ms Saiedi had by far the highest incidence of overpayment of any welfare benefit - up to 7%... and that's only what they estimate.

Third, can we trust the Shopper to come up with an even halfway rational system for ensuring its own purchases don't drive up the market price of rentals?


Last week - before news of Ms Walker - we received a couple of very interesting emails from property expert Richard B. He explains precisely how the current system of Local Housing Allowances -the basis of Housing Benefits paid on private rentals - works:

"The amount paid in each area is determined by the Department of Work and Pensions which publishes figures each month showing what the median rent is for different sized properties in a given geographic area. People can claim up to the median rent for the type of property they require, with their requirements determined by the size of their family."

But as Richard points out:

"The Local Housing Allowance, because it is based on the median rent, is creating an ever-rising floor for rental rates that is completely disconnected from local incomes. If you're a landlord, why would you rent for anything less than the LHA even if 50% of local workers don't have the incomes to pay the LHA rents?

It's free money. As landlords raise their rents to the LHA level, when the rates are recalculated each year, the lower 50% of the distribution has been truncated so the median will be progressively higher and higher following each round of recalculation. At the same time, because the government is guaranteeing landlords an above market rent, it drives up property prices and prices people who are actually working out of the housing market."

This is classic Shopper. The DWP has assumed it can somehow impose its benefits system on the world without affecting the way the world behaves. It has entirely ignored the horrific rent boosting feedback loop Richard describes.

But there's worse.

Richard is so concerned - nay, incensed - by this, he has trawled back through government websites, to compare the old DWP housing allowance rates with the new ones. And he has discovered that they have gone through the roof over the last year:

"As of 31st March 2007, housing allowance in central London for a 5 bed property was 737.50 pounds per week. As of December 2008, that allowance is now 1,950 per week. For 2 bed properties, the housing allowance in central London went from £400 per week to £540 per week. All of this is happening when market rents are supposedly declining."

Arithmetic check - £737.50 to £1950 is a 164% increase.


Richard explains:

"In previous years the Department of Work and Pensions classified the size of houses by counting the total number of rooms. Thus a house with a lounge and 2 bedrooms and a house with a lounge, a dining room and a bedroom would both be counted as houses with 3 rooms and appropriate for a family needing 2 bedrooms.

Now, they look at the number of bedrooms when calculating property sizes and determining median rents in the area when setting the guide for housing allowance. This means that the house with a lounge, dining room and a bedroom is now counted as a 1 bed property, which, if you were to include it in the pool of 1 bedroom properties, would most likely raise the average rent for that size property.

This effect is probably small for 1 and 2 bed flats, but at the larger end of the scale, it could be huge, and that's where you see the biggest jump in housing allowances between last year and this year. There's a huge difference in market rents between a 3 bed property with a dining room and a study, and a 5 bed place with a dining room, study, conservatory, indoor pool, etc, but the DWP is now lumping them all together."

We're spitting blood.

At a time when we're all being forced to watch the pennies, how dare these arrogant incompetent clowns at the DWP throw billions of our money around like this?

None of us wants to see people without a roof over their heads, but I'm sorry, if you have to throw your self and your five kids on the taxpayer's mercy, you should not expect to be housed in a £2m pad next door to Dave.

And landlords who want to rent to DSS cases (as they still seem to be called) should never expect top dollar. In exchange for the certainty of payment we'd impose an automatic 25% discount off the open market rental.

(Big HTP to Richard B)


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