Why don’t people just move away from London?
It’s cheaper and nicer almost everywhere else.

“But in recent years council housing has actually been in surplus, making a net contribution of £113m to the Treasury in 2009/10. The main subsidy is the grant used to cover part of the cost of building the homes, but that is more than made up by rent payments and the reduced benefit bill. If all those social tenants receiving benefits were to rent privately it would cost an extra £5.3bn a year in housing benefit payments.”

If you want to talk about subsidy etc and you’re not including opportunity cost then you’re not doing it right.

The difference between market rents and below market rents is a subsidy.

Tim, that’s a preposterous definition to use anywhere except in academic discussions, not least because market rents reflect a completely dysfunctional market while social rents reflect the actual cost of providing the homes.

@2. Tim Worstall

“he difference between market rents and below market rents is a subsidy.”

This statement is wrong on two levels. It assumes a perfect market, and one of the reasons for the differenxce is that the market is not perfect: there is an undersupply of housing in this country that the housebuilding industry is unwilling to fill. Therefore rents are higher than the market rent. Further, social housing providers can generally borrow at lower rates that private ones, so their rents can be lower.

Why don’t people move out of London?
Well many do when they retire or come into a lot of money. If they don’t need to work. If they do plan on getting a job they will need to be where the jobs are.
Understand now?

“not least because market rents reflect a completely dysfunctional market while social rents reflect the actual cost of providing the homes.”

A subsidy doesn’t depend upon production costs. In this case it is the difference between what could be got in rent if they were rented on the open market and what they are rented at.

Yes, this really is a subsidy.

I don’t think there should be social housing at all, agreed (sheltered housing being entirely another matter). But if there is going to be social housing then it should be at market rents: with housing benefit going to those who cannot afford those.

Having the prices artificially pegged low allows Bob Crow and Frank Dobson to live in (and, notoriously, Lee Jasper) subsidised housing.

Which really ain’t the point of it all at all, is it?

6

You bet HB is a subsidy whether it be for private or social housing, we’ve now reached a stage where the welfare state is supporting those in full-time jobs because employers won’t pay a living wage. Tax credits and council tax benefits are another way of extracting money from the poor to pay for the rich.

Claire (#5); what kinds of job paying near the minimum wage are only available in London?

@JasonW #8:

Like it or not, London is the engine of the UK economy (and I don’t mean the City – I mean London); the reason why housing costs are cheaper outside London is that there are no jobs there.

@7 steveb

That’s one perspective. When I started out things were more affordable because house prices hadn’t gone mad. What happened there?

In myth three we learn that new claimants were responsible for the increase in the bill and not increases in rent. But in myth one we learnt that the increase in new claimants that was probably caused by increases in rent. So who knows what to make of that?

In myth two to we learn that “only” 139 families receive rent totalling in excess of £50,000 annually. Only! That’s right folks–those familes receive a trifling £7 million plus every year. And only around 32,000 receive rent in excess of £20,000, for an unimpressive £650 million every year. Perhaps these are people who until recently were paying their own rent for themselves, but then suddenly it went up by £20k a year. Sadly, the OP is quiet on these little details.

In myth four, we learn that even though the government is handing out fistfuls of cash for grossly inflated rental prices ‘pon the regular, the rents just keep going up. Strange, isn’t it? It truly is a mystery! Oh, well…

@9

‘the reason why housing costs are cheaper outside London is that there are no jobs there’

Evidence? Plenty of high skilled jobs where I live ‘outside London’

@Max #12:

Plenty of high skilled jobs where I live ‘outside London’

Where is that – and define “plenty”?

@ Robin Levett#9 “Like it or not, London is the engine of the UK economy (and I don’t mean the City – I mean London); the reason why housing costs are cheaper outside London is that there are no jobs there.”

Well it’s true that London represents something like 20% of the UK’s economy, primarily through financial services (thank goodness for all those bankers – what would we do without them?) but as it’s so rich I’m uncertain as to why the rest of us should subsidise it.

14

Yep, those good ole bankers.

@13

Where is your evidence that ‘there are no jobs outside London’?

West Midlands is where I am. Here’s a few:

http://www.totaljobs.com/JobSeeking/WestMidlands_l1661_t3.html

http://www.jobsite.co.uk/cgi-bin/advsearch?search_type=quick&location_within=20&fp_skill_include=&location_include=west+midlands&search_salary_type=A&search_salary_low=ANY&jobtype=E&daysback=7

Doesn’t look like ‘none’ to me.

9. Robin Levett

” Like it or not, London is the engine of the UK economy (and I don’t mean the City – I mean London); the reason why housing costs are cheaper outside London is that there are no jobs there. ”

With the exception of the North East, all those regions with no jobs outside of Londonia have a lower unemployment rate than Londonia. The employment rate in Londonia is the second lowest in the country after the North East and the inactivity rate is the highest in the UK.

1. So it’s only a minority of HB claimants who work. But the fact that they work doesn’t have anything to do with the fact that many working families who don’t get HB can’t afford the kind of house HB claimants live in. The reason? Working people on HB are effectively being given a bonus on top of their pay.

2. So £7m is wasted by 139 families. And 32,000 families waste nearly three quarters of a billion pounds. Did I say waste. Yep. Because they are in houses which they don’t need. A working family without HB will make do with sharing bedrooms, but for some reason HB claimants say it’s their human right for the state to provide them with a bedroom per person. So HB claimants should be put on an equal and fair footing with working families and make do with smaller houses.

3. At least thats a good myth to put to bed. No greedy landlords. Can we have more landlords please. No rent controls, less beaucracy, fewer hurdles and especially rent paid direct to the landlord rather than to the claimant and then to the landlord and we might have more houses put onto the rental market.

4. Low paid workers have to move to cheaper parts of London, but commuting in London is easy and cheaper than paying higher rents in expensive parts. Those one HB will have less of their take hom pay used for rent, so 35% might be for those not on HB.

5. If landlords find it difficult getting rent of HB claimants, then of course they will be reluctant to rent to HB claimants. See point 3 above.

6. Putting all HB claimants into council housing won’t save the exchequer money. All it does is move the bill from one department to another. I have no problem with housing benefit costing billions so long as it really is used to help those really in need rather than those who want to have a bedroom per person. And when you have home hoggers (like bed hoggers in the NHS) like Bob Crow depriving those who do really need a council home and they aren’t vilified by the left then you know that the problem isn’t really being looked at by Labour councils. Nor are any councils actively working to bring down the number of council houses illegaly sub-let.

7. To get more people to afford the rents, change the NMW. Make it a RMW. What’s R? Regional. It is plainly stupid to have a national minimum wage to cover Sunderland and London. London is more expensive to live in than Sunderland. So the minimum wage should be set at levels to reflect this. Currently Londonders find it difficult to find a good home, whilst those public sector workers living in Sunderland can afford to live quite comfortably.

8. Covered by Tim Worstall.

9. There aren’t any cuts. This government is spending more than the Labour government. The tories are making cuts in some places to make it look like they are doing something but in reality the total spending by governement is still going up and the deficit is still increasing as is the debt.

10. Make it easier to build – that will save money. Red tape and regulations and beaucracy always costs more.

” Using my interactive London Rents Map, you can see that a worker on the National Minimum Wage of £6.08/hour cannot afford a cheaper (lower quartile) room in a shared flat in any borough in London. But if they were paid the London Living Wage of £8.30/hour then fifteen boroughs would become affordable. ”

Do you not think reasoning from your interactive map is a tad static? Considering the economy is dynamic, what do you think would happen with rents if more people were upgraded to the living wage of £8.30? Go down? Stay the same? Go up?

If we played a little mind game and imagined the wages in Wales going up to the same level as the wages in London. Would we expect house prices and rents to stay the same as they were at the previous level of wages or go up?

London certainly has an engine and we know that engine exists because of the ten of billions of hidden public spending that is put as petrol into the engine as can be seen by land prices and the high rents the OP complains of. See the George Theorem for how public spending ends up in land prices. What you need is a LVT and not micro managing rents.
http://en.wikipedia.org/wiki/Henry_George_Theorem

By a wide consensus in the American media, San Francisco is easily the most “liberal” city in the country. Registered Democrat voters there outnumber registered Republicans 5 to 1. For all that, San Francisco is a thriving prosperous city, so much so that: “According to a report released this week by the National Low Income Housing Coalition, San Francisco is the most expensive place in the country to rent housing.”

This has prompted the civic authorities to consider a constructive initiative, which is perhaps worth considering as one option for alleviating the shortage of affordable housing in London:

San Francisco considering tiny micro apartments to combat sky-high rent – Units as small as 220 square feet would be some of the tiniest pads in the country. Plans include window seats that would turn into beds and beds that turn into tables.
http://www.nydailynews.com/life-style/real-estate/san-francisco-allowing-micro-apartments-article-1.1167886

Btw the combined populations of San Fancisco, Oakland and San Jose around the San Francisco Bay Area is about the same as the population of the greater London area.

For a check on London’s unemployment stats, try:

ONS Regional Labour Market Statistics September 2012
http://www.ons.gov.uk/ons/dcp171778_278442.pdf

- Employment rate highest in the East of England (75.0 per cent) and lowest in the North East (66.9 per cent)
- Unemployment rate highest in the North East (10.4 per cent) and lowest in the South West (5.7 per cent)
- Inactivity rate highest in the North East (25.2 per cent) and lowest in the East of England (19.7 per cent)
- Claimant Count rate highest in the North East (7.7 per cent) and lowest in the South East (3.1 per cent)

Recall that about 40 per cent of London residents were born abroad.

I think what this article demonstrates is that some people will defend any government spending whatsoever, no matter how ridiculous it might be, even if it basically amounts to paying millions and millions to private landlords so that private business can have the benefit of cheap labour. After all, the families receiving the housing benefit are not getting the surplus here—they are giving it to landlords for vastly over priced housing, which directly benefits their employers, who are able to pay them lower wages.

22

The biggest myth of all is that the tax system extracts monies from the wealthy/better-off and the welfare state redistributes monies to those who are poor through disablement/unemployment.

@ 23 steveb

“The biggest myth of all is that the tax system extracts monies from the wealthy/better-off and the welfare state redistributes monies to those who are poor through disablement/unemployment.”

If by “myth” you mean “something that is totally true”.

24

There are several slightly different definitions of the word ‘myth’, the one I am using is – ‘An imaginary or false collective belief that is used to justify a social institution’.

@ 25 steveb

Except it’s neither imaginary or false. Richer people pay more tax; poor people are more likely to receive benefits. System’s far from perfect but it’s not non-existent.

27

What makes you think that rich people are more likely to pay tax and poor people receive benefits? I suppose it is counter-intuitive to say that rich people receive benefits from the welfare state and poor people pay taxes, but this is the case.

@ 27 SteveB

“What makes you think that rich people are more likely to pay tax and poor people receive benefits?”

I said the rich pay MORE tax and the poor receive MORE benefits. Check out our tax system: on income, we have a tax-free allowance, then banding after that. Some other taxes aren’t directly predicated on income but are inevitably correlated (council tax, inheritance tax etc.)

And even were that not the case and all tax was a single flat rate, the rich would STILL pay more due to earning and spending more.

“I suppose it is counter-intuitive to say that rich people receive benefits from the welfare state and poor people pay taxes, but this is the case.”

Well aware of it and never said otherwise. You’re arguing with someone who isn’t there.

28

Have to go to work but will answer you post in more detail later, but, please note, I said ‘tax’ not ‘income tax’.

@ 29 steveb

“Have to go to work but will answer you post in more detail later, but, please note, I said ‘tax’ not ‘income tax’.”

Well, yeah. Please note that I didn’t limit my response to income tax.

30

I made particular reference to your statements on income tax because of your comment that the rich earn more so pay more tax, furthermore the can/do spend more. This is self-evident, and you will note that my comments @23 do not mention levels or degrees of tax paid and benefits received, rather it addresses the notion (I refer to it as a myth) that the poor are never get thought of as tax-payers and the rich as beneficiaries of the welfare state.

As this thread is about housing benefit, and I would assume that the wealthier/rich don’t directly receive housing benefit, I will use it as the main focus.

Firstly, as the OP suggests in Myth 7, the best way to reduce the HB benefit bill is for people to find work and to ensure that they are paid enough to cover their rents. However, the welfare state is now paying more in means-tested benefits, such as HB and tax-credits to people who are currently working than those who are unemployed.

The ability of employees to access quite high levels of benefits encourages employers to offer wages which are lower than the market rate because of the subsidy by the tax-payer and it keepts private rents high because landlords know that they don’t have to reduce them because of lack of demand. HB and tax-credits are monies transferred from the welfare state into the pockets of employers who pay low wages and landlords who are able to keep rents artificially high, it is an ‘invisible’ transfer’ but it is an indirect subsidy. The poor, who are also taxpayers, subsidize the profits of very large companies, the biggest group claiming tax-credits and, possibly HB, are those employed in the service/retail industries

In the past, the focus in myth 8, the availability of social housing ensured that low-paid workers were able to house their families because of the low rents. And those who may have become unemployed and received HB, the money went back into the pot.

The system is not just less than perfect, it’s become a cash cow to be milked by the wealthier and Beveridge will be turning in his grave.

@ 31 steveb

How would you go about preventing this, out of interest?

32

It is really difficult because we now have so many families who rely on those benefits, withdrawing HB to working families/singles or lowering the threshold for which they become an entitlement would eventually ‘force’, in the market sense, landlords to lower rents. But I would guess that doing so would be painful for a lot of people who will initially lose there existing homes because they are unable to pay the current rents.

More social housing, as mentioned in the OP, although it is a cost it is also an asset and provides an income, those tenants who are then in a position to receive HB will pass it back into the ‘tax pot’. Certainly a massive social housing programme will create real jobs and boost local economies.

Secondly, I would increase the minimum wage, those who argue that companies cannot pay also said the same when it was introduced. IMO, the low level of the existing NMW is also a green light for employers to offer only that amount.

Those who cry ‘what about competition from foreign markets’ are the ones who always argue that the market finds its’ own level, so cheaper goods from abroad should eventually bring down all costs in the UK, which includes labour. But this wouldn’t matter as long as consumers/labour are able to provide a good standard of living, it’s price relative to income that matters.

Of course, it’s easier said than done, the depletion of social housing stock to its’ current level happened over many years and so did the evolution of the high HB costs. This should have been done prior to the credit crunch rather than focus only on home-ownership, so it would also require a massive cultural change.

@ 33 steveb

Not sure about the NMW: with you in principle but don’t feel qualified to comment. A social housing programme would be good, though.

33

“But this wouldn’t matter as long as consumers/labour are able to provide a good standard of living, it’s price relative to income that matters.”

We tend to overlook the importance of quality, design and reliability in buying decisions. The relative price is not the only factor that matters. All that said, this is worrying:

Britain in the red by record £20.8bn
http://www.guardian.co.uk/business/2012/sep/27/uk-gdp-economy-data-second-quarter?newsfeed=true

35

According to the Mail Online (11th April, 2012), tax credits are now being paid to the tune of £31 billion, we could clear the national debt with that and still have change to implement a largish social housing programme.

36

I think you might find that the national debt is around £1 trillion, so…

37

Yep, got my wires crossed a bit but £31 billion would take us out of the red.

A microflat in London is up for sale:
http://www.bbc.co.uk/news/uk-england-london-19763791

@38

‘Out of the red’ for 1/4 trade deficit as per the OP, or some other figure?

If you’re arguing money & statistics & so on – oh dear.

40

So, what is your label for £31 billion?