Government housing benefit numbers revealed for the first time show social landlord rents rising 14% above private landlords rent

Data revealed exclusively by RESI 13 shows that, contrary to widespread condemnation, private landlords are not the ones pushing up the housing benefits bill.

Forecast produced by the Treasury show that benefits paid to social landlords will rise by 9.4 percent over five years, compared with 7.9 percent for benefits paid to private landlords who house social tenants. This represents a 14 percent difference.

Questions will be asked as to why the Department for Work and Pensions did not previously disclose these specific findings from the figures which are published online here.

It will be one of the issues covered at this year’s RESI 13 property conference in Newport, Wales this September.

The revelation will also embarrass shadow work and pensions secretary Liam Byrne, who called for councils to be able force down private rents to reduce the welfare bill. Some London Assembly members have also called for rent caps.

But property experts have dismissed the idea as “absurd” saying a rent cap would act as “a wholesale disincentive for large scale investment in housing.”

Rent rises are a result of the government policy of CPI +1% for all social housing providers, which guarantees and underpins social housing rent to rise by the rate of inflation, and then by a further percent, every year until 2025.

The policy is important for local housing associations who need to guarantee future income and rental increases when attempting to raise finance for new housing projects. However, by guaranteeing social housing sector rental increases for the next decade the UK Government has locked itself into an increasingly expensive housing benefit bill.

In comparison, the market drives the private rented sector – with prices going up as well as down. Though rents have been rising in central London, outside of the capital rental increases have been far from uniform.

Savills research, which looks at the private buy to let market, though expecting rents to rise overall, expect a weaker economy and fears of public sector cuts to keep a lid on rental growth in the North and Midlands.

According to the IPD UK Residential Index, commercial residential rents rose by just 0.7% in the South West Midlands and Wales in 2012, and by just 1.2% in the North of England and Scotland – considerably less than 3.1% inflation seen last year.

According to the ONS and DWP almost two thirds of housing benefit expenditure is taken up outside the South East, but if much of the UK rents are, in real terms, actually in decline, this means the government will be paying more for social housing estates locked into CPI+1, while private landlords might actually be decreasing their rents to secure tenants.

The role of the private rented sector in reducing the UK’s deficit, and what private landlords have to offer in the social sphere will be discussed in detail at RESI 2013, where over a thousand delegates from across the PRS will gather in October.

Ian Fletcher, director of policy at the British Property Federation, said:

“Both main political parties seem to be in race to prove their machismo on benefits policy at present without necessarily thinking through the consequences. A overall cap on welfare spending is a prudent objective, but you need to look at the constituent parts and how they are projected to grow. It is difficult to see how you can squeeze much more out of private rented policy, as benefit is only being allowed to grow at 1% per annum at present.”

Darryl Flay, chief executive of Essential Living, developer of the country’s first rental brand, said:

“There is a huge undersupply of housing and professionalising the rental market has been a very welcome priority from all political sides. It is absolutely vital we stay away from potentially absurd policies such as rent caps which would act as a wholesale disincentive to major institutions who could play a key role in funding vital new homes.”

Mark Collins, head of residential at CBRE, said:

“Residential rents have been rising in the UK, particularly in London. However, Labour’s policies to cap rents quite simply doesn’t add up – the government should take more time to consult the sector.”