One of the government’s preferred names for the bedroom tax is the ‘under-occupancy penalty’. Yet the penalty only applies to under-occupation in social housing, while we know that the country needs to make much better use of its limited housing stock overall. Since the bedroom tax was introduced, it’s been clear that it is causing hardship and suffering for thousands of people. It’s not fair, it doesn’t work (even on its own terms) and we think it should be scrapped.
But if we are going to make the best use of the homes we already have, where should we start? All recent governments have struggled to increase house-building at a sufficient rate to keep up with growing demand. Therefore, in addition to a much-needed programme to build new homes, tackling under-occupation effectively across all tenures could be a big help. What might such a policy look like?
It should start from a proper analysis of the problem. Figures from the English Housing Survey analysed for the newly published UK Housing Review 2015 shed new light on under-occupation. Perhaps surprisingly, they show that social housing already provides smaller homes on average than either the private rented sector or owner-occupation. At just over 52 square metres, the average social home is smaller than the average private rented one (55 square metres) or owner-occupied one (66 square metres). Furthermore, two-thirds of social homes have only one or two bedrooms. And of course social housing is now the smallest of the three sectors, suggesting that to be effective any policy to address under-occupation needs to look at the other sectors too.
In contrast to social housing, less than a quarter of properties in homeownership are smaller than three bedrooms. Such larger, owner-occupied properties are much more likely to be under-occupied. Defined by the English Housing Survey’s ‘bedroom standard’, more than half of homeowners are under-occupying compared with only 15 per cent of private tenants and just ten per cent of social tenants. Taking into account the much larger numbers living in the owner-occupied sector, this translates into 88 per cent of all under-occupying households being homeowners, with just seven per cent in private renting and five per cent in social housing. Yet government sanctions via the bedroom tax (for social housing) and caps on local housing allowances (for private tenants who need housing benefit) target only rented housing, ignoring nine-tenths of the under-occupation problem.
The government will argue that it targets these sectors because their tenants are subsidised through housing benefit. However, this ignores the potential to use the full range of government fiscal policy to tackle the issue. While there is no direct equivalent to housing benefit for homeowners (except of course for help with mortgage payments if a homeowner loses their job), the UK Housing Review shows just how extensively the private sector is favoured by all governments via the tax system and through loans and guarantees.
For example, the Review estimates that tax reliefs were worth over £14 billion to owner-occupiers in 2013/14, of which over half was due to capital gains tax relief and the rest was down to the continuing lack of tax on the rental value of owner-occupied homes (the old Schedule A tax). Those who argue that the absence of tax is not a subsidy should be reminded of the media response when the chancellor changed stamp duty land tax in the autumn statement – it was widely welcomed as a market stimulus. Certainly he and the industry were in no doubt that the £760 million per year he took off the tax bills paid by house purchasers was as good as a subsidy.
The second type of government action is its stimulus to the housing market by providing loans and guarantees. Help to Buy alone is worth nearly £10 billion in government loans and £12 billion in mortgage guarantees. But these are only the two largest among at least 17 different ways in which government subsidises homeownership, totalling over £30 billion. These subsidies receive far less scrutiny than grants and loans for social housing, yet in total they are worth only half of the financial stimulus for homeownership. It is a fair question to ask whether, like the under-occupation penalty, there should not be tests built into Help to Buy and other government stimuli to ensure that people aren’t buying homes bigger than they need.
But if tackling under-occupation is to form part of a wider housing strategy for all tenures then it needs to have a broader basis still. The Intergenerational Foundation has argued for a range of measures to discourage over-occupation: for example, ending stamp duty for those who downsize from larger homes, withdrawal of some ‘universal’ benefits for those in houses worth over £500,000, a property value tax and the abolition of council tax concessions for single occupation. Strangely, measures to encourage older homeowners to downsize have been neglected by all governments despite the huge potential for releasing large family homes and the fact that downsizing is more common in places like Australia. As well as or instead of starter homes, how about a stimulus aimed at encouraging the building of more two-bedroom, well-insulated and wheelchair accessible properties attractive to older people, to encourage them to sell their bigger houses?
As the UK Housing Review points out, in housing terms we now have ‘divided generations’, with younger people struggling to get family homes while older people have larger properties they no longer need. A more comprehensive government policy to tackle under-occupation could help reduce these divisions. The bedroom tax is just one of the most recent manifestations of the long-standing imbalance in housing policy – any serious attempt at tackling the housing crisis needs to start with a fundamental review.
Original post: Chartered Institute of Housing