to think high house prices are the problem?

[benefitcapclaptrap]

Just watched a news item about the benefit cap being introduced today in some areas. Not sure I totally agree with it but I understand that the reason for it is that the welfare bill is too high. What I don't understand is how reducing housing benefit payments will solve the problem in the long term.

As I see it, the reason housing benefit spending is high is because the rents charged are also high. Too high in fact for the (mostly working,but low paid) tenants to be able to afford to pay without assistance. The usual reason given for high rents is lack of available properties, but I can't see the evidence for this locally (south east) or in other towns I have visited.

Instead, I would suggest that, the reason for high rents and demand exceeding supply is actually due to the cost of buying a house being far too high. A large proportion of people who would like to buy a house (and in the past would have been able to afford to) have been priced out of the housing market. Therefore they have no choice but to rent those same houses from a landlord that could afford to buy it. This means the rent is at a rate that not only covers the mortgage the tenant couldn't afford plus extra for maintenance and I presume some amount of profit. So it would follow that the tenant quite likely will not be able to pay the whole rent their self and must apply for housing benefit.

Am I being unreasonable in thinking that if house prices were lower and affordable to most people on an average wage there would be a lower demand for rental properties. In turn this would mean lower rents for those who can't or don't want to buy and mean lower bills for housing benefit. Also if people didn't have to spend such a high proportion of their income on the basic necessity of a home to live in, there would be less need for top-up benefits (e.g. tax credits) and people would be able to spend more which would get the economy moving again.

So AIBU?

[HollyBerryBush]

Your logic is there


But! what about the house owners? Who would foot the hypothetical bill and take on the debt if house prices were slashed?

[CloudsAndTrees]

You are right, but its not that simple. It's not just that house prices are too high, it's what housing costs in relation to wages that matters. You could also say wages are too low, and it would be the same.

If house prices were somehow lowered, you would have lots of individuals losing a significant asset. If wages were higher, some people would lose their jobs, taxes would have to go up, big companies would relocate and small ones would close.

[Fargo86]

You can't artificially lower house prices. The problem is too many people, too few houses. Either we need more houses, or less people.

[CloudsAndTrees]

Also, and I'm just speculating here, I realise I may be wrong, but doesn't most housing benefit go to social housing tenants anyway seeing as so many private landlords don't accept HB?

[manicinsomniac]

I'm not a home owner nor have I ever looked at becoming one but, as far as I know, house prices are massively lower than they used to be?!

[TunipTheVegedude]

Fargo, house prices have been artificially held high for the last few years. It's what the low interest rates, stamp duty holidays and various government schemes to help buyers have been for.
If the supports were withdrawn the bubble would deflate. But obviously if it happened quickly it would be horrible for a lot of people (repossessions etc) and the banks would lose a lot of money.
Instead the plan appears to be to keep prices high so people feel like they have substantial assets and keep spending, and inflate away the bubble. Which will also hurt.

[HollyBerryBush]

Even if prices stabilised and didn't increase by inflation only - it would take a generation to bring back into line with earnings.

Although, M&D bought their house for £3,600 back in 1966, I think my dad was on £29per week, so that's roughly £1500pa. So taking it back to those days a house should be double your annual income IYSWIM. I know they could have afforded £4,200 but they were horrified at the repayments.

[ihategeorgeosborne]

Fargo, the problem is that house prices are being kept artificially high, through low interest rates, lax lending criteria and QE. This will be further exacerbated by George Osborne's funding for lending schemes and home buy schemes. All this does is remove the risk of lending from the bank to the government, i.e. the tax payer. We would like to buy a house but won't even consider it in this climate, as I don't think it will end well.

[ihategeorgeosborne]

Also meant to add, Op YANBU

[RenterNomad]

You're assuming that all landlords bought at the top of the market. Not all did, and those who have lower outgoings (mortgage payments) will be enjoying better yields, but will keep their rents at "market" levels - why wouldn't they?

Also, benefit cuts will be affecting "middle class" tenants (non-HB, long term private rental sector dwellers) through child benefit/WTC squeezing = a squeeze on disposable income, but I imagine that will negatibely affect ability to buy, rather than, particularly, reducing house prices. "Help to Buy" seems aimed at helping housebuilders, not changing the fortunes of all owner-occupier wannabes (it only affects newbuilds).

[expatinscotland]

'Also, and I'm just speculating here, I realise I may be wrong, but doesn't most housing benefit go to social housing tenants anyway seeing as so many private landlords don't accept HB?'

No, most of it goes to private LLs.

[RenterNomad]

Sorry, my point about "middle-class tenants" was in response to cloudsandtrees about HB.

[VelvetSpoon]

Isn't the root cause though the complete lack of social housing in many areas? Far too much got sold off in the old right to buy days and wasn't replaced. If there was more social housing (which is generally let at below market rent) less need for private rents, prices should fall. The only reason there are so many BTL landlords is because a) it seemed at one time like a way to make money and b) to fill the gap left by lack of social housing.

[MrsBucketxx]

historically people didn't own their own home, they rented, its only a recent thing post Maggie Thatcher that started the right to buy scheme that the ordinary person could afford to buy,

this pushed prices through the roof as more people got onto the housing market, and more private housing wasn't being built, no one wants to move down or step off the property ladder do they?

investment rental property where therefore more and the cost has to be passed on somewhere.

the government should be building lots if smaller housing and houses for rent. its will ease the market all round.

[Rosesandlemons]

I agree the housing bubble is still very much there. I predict that we are due for another crash in the mid-term. It's the only way out economy can get back to normal, but unfortunately it isn't going to please house owners. Despite being in recession, the housing market is very much at a peak.

[ihategeorgeosborne]

It doesn't just affect new builds though Renter as they're offering a mortgage guarantee scheme on ALL properties from next January. The government will guarantee any losses to the bank of up to 25%, to encourage them to lend to more people at lower interest rates. The problem is that this will be taken up by people who are predominantly already asset rich. It will also guarantee to push prices higher which will not help the first time buyer.

[Confuseddd]

I think buy to let landlords should be taxed out of sight. I think they're a blight on the market. And local authorities need capital to build more social housing. Then they wouldn't be paying housing benefit over to rip off landlords.

[JenaiMorris]

Abolishing rent controls was a big contributor.

[MrsBucketxx]

confused why should I be taxed on an investment I barely make 20 quid a month on.

oh do shut up

[CouthySaysEatChoccyEggs]

You may be only making 20 quid a month now, but if your tenants are on Housing Benefit, you will end up with an asset (the house, which you can sell to release the cash from that asset) PAID FOR BY THE GOVERNMENT.

In essence, the government is buying you an asset!

[FarBetterNow]

The money lenders make bigger profits if they lend you more money.
The more you borrow, the more interest you pay over the term of the loan.
The bankers win again!

It is madness that the sign of a healthy economy is when house prices increase monthly.

[ihategeorgeosborne]

Too right FarBetter. How is healthy for families to have to pay up to half their income in some cases on rent? It is ridiculous. No wonder the country is broke. The beneficiaries as ever, are the already asset rich, which is precisely why this government won't change the status quo.

[Rosesandlemons]

I think land lords need more credit. They have saved up
A deposit to buy the house, they have paid solicitors etc. In reality it's only financially viable of you have lots of properties. They are lucky to break even. Yes they will end up with a property, but one they deserve after 20 years of stress. If they want to sell they will pay capital gains tax, so if they have bought at the peak they will be lucky to make any money at all

[CloudsAndTrees]

Thanks. Expat, have you got a link?

The whole thing confuses me because there are so many stories of people unable to get a private rental because they claim HB/LHA, but that cant be that significant a problem if the majority of HB/LHA goes to private landlords?

[specialsubject]

it was only a matter of time before a landlord-hater appeared.

in my experience of renting out my property (disgusting, I know - sorry) - the rent went up and down by about 20% between tenants. If no-one will rent it at the price you ask, you drop the price until someone does. It's called supply and demand.

BTW many private landlords cannot take HB tenants - can't get insurance.