Since the Prime Minister re-announced his promise to reduce the benefit cap from £26,000 to £23,000, a great deal of attention has been focused on the impact it would have on both tenants and future housing supply. Whilst we support the push to reduce benefit dependency where possible, we feel that the impact of the proposed cap is not well understood.
In previous times, changes to the welfare system had a far more indirect impact on social housing development. Today, the model relies heavily on Housing Benefit as the main form of subsidy. This means that changes to the welfare system have a far more direct impact on supply. But perhaps simply referring to the model’s ‘reliance’ on Housing Benefit is underselling things somewhat; Housing Benefit goes to the very heart of the funding model which, under this Parliament, has moved away from capital grant to revenue subsidy collected through higher rents – at up to 80% of market rents. The benefit cap therefore becomes vital in a number of key ways.
Firstly, lowering the cap creates a situation where collecting rent becomes much more difficult and would lead to an increase in arrears. In setting rent levels, Moat has taken steps to ensure that no family moving into a property would be set an unaffordable rent. But a tipping point is reached when the cumulative effect of rent plus ‘living benefits’ becomes greater than the cap itself. We consider this the point at which a family is placed at excessive risk of falling into arrears. Leaving aside the consequence of higher management costs, there is a social element to this; nobody wants to see higher credit card usage, or people forgoing heating or food to cover their rent.
Secondly, higher arrears and bad debt puts off investors. Lenders and investors agree funding programmes (and, indeed, may agree future funding programmes) based on housing association tenants’ ability to afford their rent.
Our modelling clearly shows that this would become problematic for many additional families under a £23,000 cap.
Thirdly, and this is a point that we can’t ignore given the context of a housing shortage: higher risk equals higher borrowing costs. And higher costs, mean a reduction in the number of homes we can build.
Fourthly, aside from impacting the number of homes built, the cap forces a sharp re-think about the type of homes we build too. For example, the benefit cap at its current £26,000 level has virtually stopped development of four bedroom homes in the South East, as very few families in these homes (even those in-work and on partial benefits) would have remained below the cap. Our modelling shows that, for people on full Housing Benefit, the proposed £23,000 cap wipes out three bedroom Affordable Rent homes across the South East, and places people in two
bedroom properties under severe pressure.
So what are the alternatives to this proposal? There seems to be a growing consensus that in order for the benefit cap to work in the long-term, London and the South East will require a different treatment. We would welcome further debate about this, and are keen to speak to government, other housing associations, and partners about a system of regional caps, and what that might look like in reality.
Moat will continue to lend its support to the reduction of benefit dependency. But we must go about it in a way that doesn’t harm other important objectives. What we have in the case of this proposal, is a solution that will be far outweighed by the problems it creates. Surely we can do better than that.
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For further information, please contact Angelo Sommariva, Public Affairs and Policy Manager, Moat, at
angelo.sommariva@moat.co.uk