Spectre of ghettoisation threatens South East as housing benefit is hammered

 By StephZ

One of the great joys of living in London is its social and economic diversity. One minute you can be walking past million pound mansions in Kensington and the next you will find yourself in the middle of a housing estate populated by a mix of native London working classes and first or second generation immigrants from all over the world. Get on a bus or a tube and a similar mix confronts you. 

Its quite a different story in other European cities, where poorer residents and immigrants in particular are often ghettoised in to particular areas of the city.  In Paris, the poor are located in 'Les Banlieues', grim, grey and endless blocks with high levels of crime and racial tension.

The are a variety of reasons for London's mix, not least the chaotic and organic growth of the UK capital, but the coalition government's recent announcement that it is going to massively reduce housing benefit could drive things in quite the opposite direction.  The local housing allowance for those on low incomes or unemployed will be reduced from the level below which 50% of local rents fall to 30% and capped at £400 for a four-bed and £250 for a one-bed home. 

According to The Guardian, this could result in a new form of 'social cleansing' as poorer residents are forced out of the richer areas of our cities and towns, in the South East in particular.  This is because demand in the private rented sector (PRS) remains bouyant in this region, so landlords will happily evict poorer tenants who are no longer able to meet their rental costs in the knowledge that there are plenty of wealthier tenants to take their place. 

The UK already has some of the highest levels of wealth inequality in Europe, with London the most unequal city the developed world according to research by Professor Danny Dorling, who in a recent book showed that London's richest were worth 273 times than the poorest.  More severe economic and geographical polarisation is only held in check by universal welfare programs like housing benefit.  The government, if it is to live up to its promise of not making the poor pay for reducing the budget deficit, needs to have a serious rethink on housing policy.  

Housing benefit is a massive cost to the taxpayer and there are many good arguments for reducing it from an economic efficiency perspective, but first the fundamentals need to be sorted out.  

House prices have to be bought back down to earth.  Increasing or creating new property taxes which would put off speculative buy-to-let investors in the PRS and bring first time buyers back in to the market, reducing the demand on the PRS.  The decision to raise capital gains tax by 10% is a step in the right direction but is nowhere near enough. Its a shame Vince Cable obviously lost the battle to raise it to the same 40% level as income tax.  Why is it fair or sensible to tax earned income at a 12% higher level than unearned asset appreciation?  

Secondly, its necessary to increase supply by building more homes and bringing empty properties back in to use.  Regarding home building, the Tories Green paper on housing suggested incentivising new house-building by matching local authorities' council tax take for each new house built for six years, with special incentives for affordable housing.  A great idea, but sadly no mention of this in the recent budget.  Instead, Eric Pickles, the local government secretary has abandoned local council building targets, resulting in the reversal of many thousands of planned new homes.  This will, of course, have a knock-on effect on the construction sector and jobs.  A nice bit of reverse-Keynesianism there then.

These non-sensical policies have no doubt been made easier to drive through by the demotion of the Housing Minister - the lively Grant Schnapps - from the coalition's cabinet.  Housing is not a marginal policy domain. It is absolutely fundamental to the productivity of the UK economy and the nation's well-being.  As such it should be at the forefront of the government's economic thinking. nef's program on a new economics of housing is seeking to put it there.