Housing and Debt

The Citizens Advice Bureau has reported that council tax debt was the most common issue for its clients between January and March 2014.

The debt charity StepChange has also reported a dramatic increase in clients seeking help due to council tax arrears, from 25,500 to 45,561 between 2012 and 2013.

This is bad news, but has not come as a surprise to charities and churches who campaigned for some of the most harmful aspects of the Government’s Welfare Reform to be reconsidered.

The underoccupancy charge or ‘bedroom tax’ gained the most coverage in the media, but analysts including the Joseph Rowntree Foundation identified the changes to council tax benefit as, perhaps, even more serious.

This Government is aware of the worsening shortage of affordable housing, yet its proposals do little to support this across different tenures. 

At present, the Government invests around £1bn in housing, yet it pays out around £25bn in housing benefit.

Much of the increase in this sizeable bill is from private renters on low incomes who require housing benefit to meet the cost of ever-inflating rents.

A sensible housing strategy would substantially increase investment in housing, in particular social housing.

This would have a cascade of positive effects: people on low incomes would have access to the social housing they need on lower rents than the private sector; the Government would have an increased, assured revenue stream from social housing; pressure on the private rented sector would fall, ending the scarcity market which incentives landlords to keep rents high; this would limit one factor keeping property prices high, making mortgages more affordable for those able to buy.

Instead, the Government has systematically chosen incentives which support a minority while leaving the causes of the housing crisis untouched.

For example, the Help to Buy scheme aims to support first time buyers to get a mortgage on properties valued up to £600,000 with as little as a 5% deposit.

This has proved controversial: even business leaders have criticised this scheme as liable to inflate house prices and lead to a housing bubble and house prices are indeed rising dramatically once again, though George Osborne is unconvinced that Help to Buy is the cause.

Another Government intervention is Funding for Lending whereby the Bank of England lends money to banks cheaply, to encourage them to lend to businesses and individuals.

Yet concerns about borrowing for mortgages led the Governor of the Bank of England to withdraw funding for mortgage lending from this scheme.

Likewise the New Homes Bonus scheme is likely to incentive the building of expensive properties in affluent areas rather than the affordable properties that are needed.

As the National Audit Office said “on average local authorities in areas with higher relative house prices receive higher payments for similar new homes”.

Whether or not Help to Buy has fuelled the current housing boom, it has little to offer the many people in the UK who cannot afford to buy a home and who are faced with rising rents and stagnant wages.

Some economists may say there that the wider economy requires property prices to remain high and benefit reforms to be seen through, however painful to disadvantaged sectors of society.

This is debatable, but if so there is one major taboo that the Government must face – the need for higher taxes on property.

Commentators across the political spectrum have pointed to the illogical council tax banding system, the need for a tax on land that discourages land-banking and speculative purchases, the argument for changes to capital gains tax and stamp duty.

Instead of painful changes to those for whom a loss of £10 a week or in benefit may make the difference between surviving – just – and a visit to a foodbank, rational changes to our taxation regime could fund the affordable housing the UK needs and limit the need for further punitive benefit cuts.

For a Government to support the economic factors which keep the cost of a home high is not just cruel to those on low incomes – in the long run it is detrimental to the economy as a whole.

It is time to stop throwing fuel on the fire of property speculation and invest in the future.