Housing benefit row

The inevitable row has erupted over the government’s proposal to restrict housing benefit. The argument is that poor people will be forced out of areas where rents are high. At the same time, a report from the Audit Commission today noted that 1,600 homes occupied by unauthorised tenants have been recovered by councils, with a replacement cost of approximately £240 million.

The Campaign as such has no view on the rights and wrongs of housing benefit, and the latter is trivial in the overall scheme of things but all the same, the economic implications of both are of interest. One of the effects of housing benefit is to drive up rents and house (ie land) prices, so this puts money into landlords’ pockets. And where housing is made available at less than market rates, there will be an incentive to sub-letting and other kinds of unauthorised activity – we hesitate to call it fraud when the authorities themselves have set up the conditions in which this can flourish.

Both the housing benefits system and “subsidised” housing are attempts to mitigate the effects of leaving things to market forces. But market forces themselves are not a natural phenomenon and their effects depend on the legal and fiscal framework in which transactions take place. We note in passing that if substantial land value taxation were in place, the funds pumped into property through the housing benefit system would be recouped, and we would suggest also that, on the whole, people would be able to afford housing not too far from where they worked.