And presumably, once this policy has been shown to be a disaster as well, the government will re-define homelessness by spelling it differently.

“When I use a word…it means just what I choose it to mean”
This is beginning to be more associated with the lib dems than Humpty Dumpty

“and I have reported on evidence from the British Property Federation rebutting claims that Housing Benefit pushes rents up.”

Seriously? You are really (or they) trying to say that increasing the amount of money available to pay for a largely static supply doesn’t push up prices?

I’m sorry, but which planet did you do Econ 101 on?

@TimWorstall

5% of the housing stock is lived in by people who receive housing benefit to partially pay the rent. It is not likely that this 5% are driving the rest of the housing market.

These houses are predominately at the bottom end of the market due to rules forbidding more than the median rent being paid, the £15/week incentive for tenants to choose a sub-median rent property and “no DSS” rules of most decent housing.

I’m sorry, but which planet did you do Econ 101 on?

Housing benefit pumps £20 billion a more into rent than the market unadorned would provide. It’s straight Ricardo that an increase in the amount being paid in land rental gets capitalised into land values.

Tim W – I suppose they didn’t teach you in Econ 101 that sometimes the real world (a place you don’t seemingly don’t like to inhabit) doesn’t exactly behave in the way that simple economic models do.

Why not read the study and understand it before you make sneering comments? It might be less embarrassing.

Strangely Sunny, I did read (at least the press release for) the report before I commented.

They don’t address, in any manner at all, the point I’m making. Nor do they refute what Richard says they do, that HB pushes rents up.

The report’s press release is here:

http://www.bpf.org.uk/en/newsroom/press_release/PR6710_Welfare_Minister_fiddles_figures_to_accuse_private_sector_landlords_of_inflating_benefit_bill.php

“Landlords have accused the Coalition’s Welfare Reform Minister Lord Freud of fiddling government figures in order to lay the blame for rising housing benefit bills on the doorstep of private sector investors.”

That’s their first and major desire: to refute that landlords are resonsible for the rising HB bill. Different things, no?

First four paras go to refute this allegation: that the rising benefit bill is a result of landlords. They’re probably correct.

“It wrongly claimed in one newspaper article (Daily Telegraph, 17 October) that “on average, private landlords charge higher rents to housing benefit claimants than working adults in equivalent accommodation, but provide worse conditions”. The report however found the difference was “not statistically significant”.”

That’s refuting a different allegation: that landlords willing to take DSS tenants charge higher rents for worse properties than those not willing to. They might be right, they might be not.

The final point they refute is that HB distorts incentives to work, they note that while this is true it applies only to a small subset with young children, not across the market as a whole.

Again, might be right, might not be.

But none of those three things they say the Minister had said, and which they claim to refute, is actually what Richard said above.

“on evidence from the British Property Federation rebutting claims that Housing Benefit pushes rents up.”

*Of course* HB pushes rents up. For HB provides £20 billion a year more than the market on its own would provide in rent. Such a subsidy to land is always (but always, you can see this in the increase in farmland prices when subsidies were decoupled from production and were linked simply to the ownership of land) reflected in an increase in the capital value of that land. For the rent collectable from the land has increased by £20 billion.

We’ve known this for 193 years now, since Ricardo published.

The error is not in my application of Econ 101 on rents: it’s that Richard has claimed refutation of something the Minister didn’t say and the landlords didn’t even attempt to refute.

@8

All well and good – but the corollary to your comment is that as an advocate of free trade (and coincidentally a very wealthy man) himself, would Ricardo not have developed his theories from a pre-conceived notion of free trade always being the right thing?

Err, there’s nothing about free trade here, is there?

But if you do want to talk about land rents, Ricardo and free trade, why not?

It was Ricardo’s analysis that led to the repeal of the Corn Laws. You know, that free trade in grain that made the lives of the urban and industrial working classes so much better? By lowering the price of bread?

For as he pointed out, the import duties on grain had the effect of raising the price of domestically produced corn. In turn, this meant that landlords (you know, those Tory Bastards) could charge more in rent. Because more could be earned from land then landlords could charge more in rent (which brings us back to out HB. If £20 billion a year more can be made in rent then of course rents will go higher and capital values of rental properties will rise).

Exactly Ricardo’s analysis is what made life for millions of the working class better: less of their incomes went to the Tory landowners.

You think this is a bad idea why?

@10

But I don’t believe that the theories will necessarily hold true in the 21st century, where most people live in urban and suburban areas of high-density living and where the work they do is not in anyway dependent on the land they live on.

I’m also highly suspicious of the assumption that taking £20bn of HB out of the equation will lead to lower rents, because the amount of cash to pay those rents will still be there – it just means that people who can no longer afford the rents without HB will be evicted and the landlords will welcome those that can. After all, it’s no skin off the landlord’s nose if the rent is being paid by a family who rely on HB to make the rent or, say, a young professional couple who don’t.

Given the choice between lowering the rent to a level the current tenants can afford, or evicting them and replacing them with tenants who can – what do you think a landlord is going to do?

@10. You’ll note that I’ve not said that rents will fall by the amount that HB will fall?

Ah, no, you didn’t note that.

All I’ve said is the blindingly obvious truth, that more money being made available for rents will increase rents.

This is the thing that Richard said he had shown to be wrong, the thing which the landlord’s organisation had, in their report, not even addressed.

I am not arguing, here, about whether the changes are a good or bad thing, not even addressing the idea that rents will fall or not.

Simply, and very simply, trying to point out that if more money is made available to pay rents, in the face of a (reasonably, relatively) static supply of properties to rent, that rents will rise.

That’s it, that’s all.

Now, if you’[re willing to agree with that, then we can go on to discuss what might or will be the implications of reducing that subsidy.

But are you with me so far?

@12

Actually I think that’s an overly simplistic supposition, if I’m entirely honest. What bothers me about economic theory is that it very often fails to take the human factor into account – or at least does so with the supposition that individuals will behave rationally given specific sets of circumstances. One of the reasons I like Paul Krugman (though I don’t agree with everything he says) is because he at least acknowledges this failing and tries to apply real-world examples where behaviour did not fit the expected pattern to the raw numbers.

To my mind, the hole in your supposition is that it doesn’t take into account the fact that money that was originally earmarked for things other than rent (e.g. savings) will at least in part fill the gap.

Curses – what is with my numbering fail today?

@timworstall

1. The LHA rent cap for a 4-bed in central London is coming down from £1,000/week (the median) to £400/week (below the 5th percentile). You have lost all touch with reality if you are suggesting rents will adjust to allow LHA claimants to stay there.

2. Landlords elsewhere have a number of options when faced with decreases in LHA caps including:

* maintain rent level and squeeze tenant
* reduce rent marginally and rent to new non-LHA claimant
* convert flat to more lucrative stock (renovate, reconfigure)
* sell flat to owner-occupation sector
* sell flat to developer/business

I think you erroneously discount these responses and over-emphasise the importance of a tiny proportion of the housing stock (5%) in determining prices.

Why not argue based on the perceived merits of the policy (and I see the advantages and assumed impact on work incentives and efficient allocation of housing for those with a right-wing worldview) rather than trying to pretend it won’t have much impact by falsely pretending rents will just adjust?

@ 14: because none of that is my argument at all.

I wanted to make a very simple point. Trying to claim that subsidising rents by £20 billion a year does not raise rents being charged is simply wrong.

Thus Richard is wrong in claiming that HB does not raise rents. He’s also further wrong in claiming that the landlords have shown this to be wrong: they didn’t even address the point.

@15 – But you haven’t proved it – you’ve stated that it’s your opinion, that it’s obviously true and then you invoked the names of a few dead economists. I haven’t seen any evidence.

@timworstall

It seemed to me you are suggesting rents will adjust so there will be little impact on claimants other than passing less benefit on to landlords.

Is this not what you are arguing?

I would agree that there will be a marginal impact on rents but that this will not be enough to prevent large population movements of LHA claimants.

bluepill,

evidence is a big ask in this case – we’d need to pick up variation in rents arising from variations in housing benefit, and somehow separate that from all the other factors at work. I haven’t google scholared it, but looks like a nightmare of an empirical problem.

so we have to work on “faith” and/or economic theory, and my guess would be that there is an effect on rents, but that it’s likely to be small. This means that if you are thinking about desirable neighbourhoods where families on big HB numbers are located, if they get booted out, any price decreases will translate into lower rents for the wealthy (the prediction of small price changes being based on my guess of the percentage of rental properties occupied by HB recipients). I know the real world is more complicated that econ 101, but in this case I don’t see why econ 101 isn’t the most reasonable guess. In neighbourhoods with lots of HB tenants and low rents, might we even see rents rise as former HB recipients move from more expensive neighbourhoods?

I’m not sure why people don’t seem to like the idea that HB has some effect on rent prices – this seems to be an example of a Chris Dillow small truth big error. If you think that the changes to HB are bad, acknowledging the effect on rents ain’t going to weaken that position much.

Hmm well if Tim W is correct then surely rents will fall when the HB cap comes along. I look forward to it! [/irony]