The ‘problem of rent’ has just got worse

Originally written as a column for Inside Housing.

The UK has among the lowest levels of basic benefits in the developed world but spends more than any other country on housing benefits.

The two statements, which come from a new report by the Resolution Foundation, are of course connected and they are the result of deliberate policy choices over decades.

The first relates to the way that the benefits system evolved in the wake of the Beveridge report with low levels of working-age benefits supplemented by extra support for housing, children and ill-health.

Beveridge had confessed that he was unable to solve what he called ‘the problem of rent’ – how you account for housing costs that vary between different areas – in his blueprint for social security after the Second World War.

His fudged solution was to add a flat rate housing allowance to contributory unemployment benefit but that was rejected in favour of means testing in the scheme that was introduced. 

However, his whole report was written on the assumptions that full employment, mass council housebuilding and private sector rent control would continue.

By contrast, most European countries have more generous contributory and earnings-related benefits supplemented by a means-tested safety net.

This graph from the report shows the difference:

For clarity it’s worth pointing out that this is based on the OECD definition of housing benefits in kind, which includes payments for housing costs but not mortgage tax relief (still paid in some countries) or capital investment in social housing or the ‘subsidy’ of the lower rents it produces.

The second policy choice dates back to the deregulation of rents and decline of social housing in the 80s and 90s – reversing those assumptions made by Beveridge – and more recent falls in home ownership among low-income households that have left them paying higher rents.