Benefits bill pushes government spending on housing to highest level since records began

Government spend on housing has increased to its highest level since records began due to housing benefits, according to a landmark report. The report, the UK Housing Review 2024, known colloquially as the UK’s housing ‘bible’, notes that subsidies should shift away from housing benefits back into investment to creating more social housing.

Government spending on housing in 2021/22 was £30.5bn compared to £22.3bn in 1975/76 – not adjusted to inflation. However, out of the £30.5bn, only 12% of government spending is used to build or improve homes. The rest, or 88%, is used to provide housing benefits.  

The share of government spending on benefits has dramatically increased from £1bn in 1975/76 to £26.8bn in 2021/22.

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Housing benefits – and the housing allowance within universal credit – are the primary subsidy the government uses to help people in housing need since the early 2000s after the phase out of mortgage interest relief. 

The emphasis on housing benefits paid by the government means less investment in the construction of new social housing. Renters are reliant on the private rental market – often more expensive for both tenants and the government.

John Perry, a policy advisor at Chartered Institute of Housing, said the review is evidence the government needs to have a long-term strategy for housing.

He said: “We have a situation where, in real terms, we’re spending a bit more than we used to in the 1970s on housing, but almost all of that money is going into the benefit system rather than housing.

“So the issue is, how do we turn that round? Because you can’t suddenly take benefits off people and start paying it in grants to housing associations or local authorities to build more homes.

“What we’re arguing is that they need a bit of long-term thinking on the part of the government, they need to invest money now in order to save money in the future, because eventually, you will save money if you’ve got tenants in social rented homes who would otherwise be in the private rented sector, with higher rents and getting higher benefits.”

According to the report, the government has gained £9.4bn over the past decade from Right to Buy receipts, in no small part due to the historic investments in social housing. The value of housing stock within England local authorities, meanwhile, was around £122bn in 2022.

Perry said the money, or capital receipts, could be released from council house sales in a similar way to New Labour in 1997.

“The problem is, the Treasury will always argue that those receipts have really been spent,” he said. “They either were fed back into social housing directly to the local authorities that got some of the receipts or they were taken into account when the affordable homes program was divided.”

Under the current rules tenants can buy their council home after living there for three years for 60% of its value if it’s a house or 70% if it’s a flat. The maximum discount is £102,400 or £136,400 in London.

Councils, however, are reluctant to build new homes with the money they receive because it doesn’t cover the costs of building a new property, which they may well have to later sell at a discount.

As a result the Local Government Association claims in recent years that only around 40% of those sold were replaced.

Analysis by the Big Issue has previously shown more than 200,000 of England’s most affordable social homes have disappeared in the last decade. 

While housing benefits help struggling families with the cost of living, the public funds are used to prop up a private rented sector riddled with poor quality housing and many ineffectual landlords, instead of investing in affordable social housing.

The scale of the social home shortage, a failure to build enough new homes, and the continued impact of the Right to Buy scheme, has seen private rents rise to record levels with a housing benefit bill swelling to an estimated £23.4bn to cover it. 

Anny Cullum, a policy officer and researcher for ACORN, a tenants union, said the need for social housing “must not be left to the whims of the open market”.

She criticised the government for being rewarded as a result of decades of under regulation in the private rented sector.

She said: “Housing benefit has become a direct subsidy for private landlords to charge extortionate rents. The Right to Buy has seen the direct transfer of good quality affordable homes for the public good into assets for private owners – and stopped local councils being able to replace these lost homes. 

“Landlords are businesses and they operate to make profit. We cannot expect them not to take advantage of the desperate demand for homes by putting the rent up. That’s why we need rent controls in this country. 

“It doesn’t need to be this way. By reversing the barriers to building social housing brought in by the Right to Buy, by giving ring fenced investment to local governments to build and by bringing in laws to control rents, our country can stop giving private landlords so much public money and start putting it to good use.”

The UK Housing Review 2024 suggests there are hidden benefits associated with additional social housing, such as reducing the need for costly temporary accommodation, decreasing homelessness, alleviating overcrowding and improving health.

Francesca Albanese, executive director of policy and social change at Crisis, said: “This report lays bare that our failure to sustainably build the levels of social housing we need to end homelessness is causing government spending on housing benefit to balloon. 

“We know through our services how difficult it can be for people renting privately who fear eviction for simply asking for repairs and the lack of options facing them when they can’t afford to pay their rent. No one should have to choose between heating their home or putting food on the table in order to keep a roof over their head. 

“With homelessness at record levels, it is critical that the upcoming budget maintains investment in housing benefit so that in the short-term people can continue to pay their rent. But to help end homelessness for good the government must commit to building 90,000 social homes each year if we’re to start to bring these numbers down. 

“Only by simultaneously tackling both homelessness and the housing crisis will we create a future where everyone has a safe and stable home.” 

Suzanne Muna, secretary at the Social Housing Action Campaign, said it is “increasingly clear” the current model of housing delivery in the UK is not sustainable.

She said: “The fact that the government is spending money subsidising housing benefits rather than delivering new homes firstly shows what a misjudgement has been made to show preference for housing associations rather than councils to deliver public housing.

“If council housing represented the majority of social housing, it would mean that any benefits paid to support housing costs would at least be recycled into the public purse. The lack of coherent thinking in relation to the whole of the housing crisis has meant that the housing benefit bill has increased hugely, as has the cost of temporary accommodation.

“It is an unsustainable model, but the solutions cannot penalise those who are already struggling by real terms cuts to benefits even further. This would be counterproductive by increasing homelessness, whether rough sleeping or in temporary accommodation, and only exacerbate the housing crisis in the long run.”

She believes one of the first priorities for the government should be rent controls.

“Both social and private rents are being allowed to rise at rates above inflation – far outstripping it in the case of private rents. Rent controls have to be introduced to reduce pressure on both individual budgets and the public purse.

“For most people, this seems to be a no-brainer and clearly in the public interest, but it is not what landlords want because they are happy to be raking in the extra income, and unfortunately it is the landlords who are the ones with the government’s ear at the moment.

“It also shows the unhealthy dependence that government has on private landlords, which includes housing associations, to deliver new properties so they don’t want to upset them by constraining rents.”

A Ministry for Housing, Communities and Local Government spokesperson said: “This government will deliver the biggest boost to social and affordable housebuilding in a generation and will set out details of future investment at the next spending review.

“This will give councils and housing associations the stability they need to be able to borrow and invest in both new and existing homes, while also ensuring that there are protections for existing and future social housing tenants.”

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