Cities Outlook 2016: The growth of housing benefit

Trying to limit spending on housing benefit will not in itself deliver a low welfare economy.

One of the most surprising findings of this year’s Cities Outlook was that cities with low welfare spending have seen the largest growth in welfare spending in the last decade.

The growth of housing benefit spending is one of the main reasons for this. As the map below shows, housing benefit grew most strongly in cities in the Greater South East. At a national level, real housing benefit spend increased by 47 per cent between 2004/05 and 2014/15. But it went up by 82 per cent in Crawley, and it doubled in Aldershot.

Growth in housing benefit, 2004/05-2014/15 (2014/15 prices)

16-01-25 Real Housing Benefit change-01

Source: DWP 2015

The result is that housing support makes up a considerable share of overall benefit spending in these cities. While spending on housing related benefits accounts for 9 per cent of all welfare spending in Barnsley, it accounts for 19 per cent in Slough and 23 per cent in London.

These rises are a result of the strong economic performance of these places. The growth of job opportunities has increased the demand to live there. But because the rate of house building has not kept up with this increase in demand, house prices have increased instead. And the result is that this has pushed up spending on housing benefit too.

To curb increases in housing benefit, the Chancellor has announced that housing benefit payments will be frozen for the next four years. While this will limit further growth in the total housing benefit bill, it won’t deal with the root cause – the shortage of housing in our most successful cities. And it won’t reduce the requirement for housing benefit either. In the short term it means that claimants will have to contribute more to their housing costs. And post 2019, assuming that further caps will not be put in place, housing benefit spend will likely rise sharply again to meet this requirement.

To manage welfare spending increases in our most successful cities, we shouldn’t be looking to simply place constraints on the generosity of spending. We should be encouraging greater house building too.

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