Bridging the housing benefit chasm

Decisions by the UK Government to freeze housing benefit for private tenants fail Edinburgh says Susan Rae.

The purpose of housing benefit is to help households on low incomes pay for their rent, whether they rent privately or from the council or housing associations. In Edinburgh, there are far fewer socially-rented homes available than other areas: only 16% of homes in the capital; compared to 23% in Scotland on average. So, people on modest incomes who, in other places, would be in socially-rented homes, in Edinburgh find themselves forced to rent privately.

However, a report published earlier this year showed that, far from correcting that imbalance in the Edinburgh market, the rates of housing benefit in Edinburgh, for private tenants, are actually the worst in Scotland. In other words, the gap between what housing benefit pays and the actual cost of rents is widest in Edinburgh.

So, lower income households in Edinburgh are forced to rent privately because there are fewer social homes to choose from and they then find that what they get in housing benefit does not meet the rent much more so than anywhere else in Scotland.

Called Local Housing Allowance (LHA), housing benefit in the private sector is supposed to be set at the level of the lowest third of rents but because LHA has been capped, then frozen since 2015-16, the gap between the LHA rate and the actual bottom third of rents has grown into a chasm.

For example, in Edinburgh the 1-bedroom rate for LHA is £124 per week, but fewer than 5% of 1- bedroom properties are actually available at that rate. For 2-bedroom homes, the LHA rate is £150 a week, but fewer than 10% of lets are within that price range; and the average shortfall is a massive £33 a week, which people are somehow expected to make up from meagre incomes.

And it is not just the commercial sector that is affected. In developing plans for new housing Edinburgh has, more than any other council, included proposals for so-called “Mid-Market Rented” (MMR) schemes. As the name suggests, these schemes are meant to build homes at rents which lie somewhere in between the socially-rented sector and the private sector. After all, why else would there be grant aid for them?

However, the business cases and funding conditions are based on rents not being higher than LHA levels, on earlier assumptions about the level of LHA and how it would change over time. Sooner or later, a business case based on rents rising year on year and LHA being frozen are going to come into conflict. It has already happened in the case of National Housing Trust developments where rents for 3- bedroom homes of £9,815 in 2018-19 already outstrip LHA.

This is a complete failure of housing policy. So what can be done?

Firstly, and most importantly, Edinburgh needs more social homes to bring it up at least to the Scottish average. By that I mean proper socially-rented homes, at rents well below private market levels. That will take time to deliver so, secondly, in the meantime, the UK Government urgently needs to recycle more of the savings it has made from arbitrarily freezing LHA rates into bridging the rent chasm that has opened up in hotspots like Edinburgh. It has already done that to a very modest degree for LHA for 1 and 2-bedroom homes; it needs to do much more.

Finally, Edinburgh needs to look urgently at what it can do to arrest hyper-inflation in the private market. Since last December it has had powers to declare the city a Rent Pressure Zone. Sadly, those powers are limited but, coupled with action on loss of properties into the holiday market and lobbying the Scottish Government on stronger rent powers, the city should not sit idly by.