Cheaper rents

Procrastinator333

HAMISH_MCTAVISH wrote: »

Yes.

It will more likely be £1.8bn gone from the "renting is soooooo much cheaper than buying, look how much money I'm saving every month" crowds savings accounts overnight.;)

You assume private renters will fill the gap - If landlords could squeeze £1.8bn more from tenant, they would have done it already.

If 1 in 100 renters claim HB, this makes no difference, but if 30 or 40 renters in 100 claim HB, then very rapidly, those 30 to 40 move from affording the average to being in the 30th percentile (or shouldering more cost themselves). That will reduce competiton above that point.

I struggle to see how this can't be a drag on rents - Which I like becasue I may even push for a rent dcrease next year after 2 years of a flat rate :beer:

Generali

Procrastinator333 wrote: »

You assume private renters will fill the gap - If landlords could squeeze £1.8bn more from tenant, they would have done it already.

If 1 in 100 renters claim HB, this makes no difference, but if 30 or 40 renters in 100 claim HB, then very rapidly, those 30 to 40 move from affording the average to being in the 30th percentile (or shouldering more cost themselves). That will reduce competiton above that point.

I struggle to see how this can't be a drag on rents - Which I like becasue I may even push for a rent dcrease next year after 2 years of a flat rate :beer:

Falling housing benefit is a cut in demand. A fall in demand with supply remaining the same => a drop in prices for an 'inferior good'* such as rented accomodation.














*An inferior good is one where a rise in income leads to a fall in demand.

HAMISH_MCTAVISH

Generali wrote: »

Falling housing benefit is a cut in demand. A fall in demand with supply remaining the same => a drop in prices for an 'inferior good'* such as rented accomodation.

*An inferior good is one where a rise in income leads to a fall in demand.

Demand for cheaper housing will increase, and mostly for long term tenants, so little opportunity to churn and few vacancies coming uip for non benefits folks.

So those people with the ability, but not the desire, to spend more like the ones living in cheaper housing to save a deposit for example, will be squeezed out and have to move up the scale.

Or the price of all cheaper housing will increase, as supply fails to meet demand, and the 30th percentile calculation will move upwards accordingly.

Procrastinator333

HAMISH_MCTAVISH wrote: »

Demand for cheaper housing will increase, and mostly for long term tenants, so little opportunity to churn and few vacancies coming uip for non benefits folks.

So those people with the ability, but not the desire, to spend more like the ones living in cheaper housing to save a deposit for example, will be squeezed out and have to move up the scale.

Or the price of all cheaper housing will increase, as supply fails to meet demand, and the 30th percentile calculation will move upwards accordingly.

Or Demand from the 30th percentile upwards falls away and the landlords are forced to reduce rents to attract tenants.

This is something there will be no answer for in a debate. We will all find out in time.

Jowo_2

Last year in the UK there were around 550 households claiming more than 30k per year in LHA/HB (about £575 per week) with about 140, I think, in 3 central London boroughs. The total HB/LHA bill is around £20 billion per year.

As the limit has been capped to £400 per week, there will be many more than 550 households this affects. The limit is also reduced for 1, 2 and 3 bedroom properties which means virtually all tenants currently in self contained accommodation in central London (such as Westminster, Chelsea, Kensington, etc) will no longer have their full rent met through LHA and will be vulnerable to their landlords serving them notice before next April.

There are some threads on this in Discussion Time and the House forums.

Despite this high profile cap for the tiny percentage of households with LHA payments larger than average earnings, Shelter provide a more balanced view. I think the average LHA payment is £80 a week.

"The vast majority of housing benefit claimants are either pensioners, those with disabilities, people caring for a relative or hardworking people on low incomes, and only one in 8 people who receive housing benefit is unemployed....We are really concerned that even at current levels, nearly half of Local Housing Allowance claimants are already making up a shortfall of almost £100 a month to meet their rent."

Generali

HAMISH_MCTAVISH wrote: »

Demand for cheaper housing will increase, and mostly for long term tenants, so little opportunity to churn and few vacancies coming uip for non benefits folks.

So those people with the ability, but not the desire, to spend more like the ones living in cheaper housing to save a deposit for example, will be squeezed out and have to move up the scale.

Or the price of all cheaper housing will increase, as supply fails to meet demand, and the 30th percentile calculation will move upwards accordingly.

In economic terms, my guess is that there will be a kink in the demand curve leading to a clustering of prices around the limit. Places renting at a little above the threshold will sees rents squeezed down on average, places renting a little below will see rents squeezed up. The further the price of a place is from the threshold, the lower the impact on the rent, above or below.

The fact is that housing benefit is in effect a subsidy on the consuption of rented housing services. Removing a part of that subsidy can only do one thing to demand and that is to reduce it.

HAMISH_MCTAVISH

Procrastinator333 wrote: »

You assume private renters will fill the gap - If landlords could squeeze £1.8bn more from tenant, they would have done it already.

If 1 in 100 renters claim HB, this makes no difference, but if 30 or 40 renters in 100 claim HB, then very rapidly, those 30 to 40 move from affording the average to being in the 30th percentile (or shouldering more cost themselves). That will reduce competiton above that point.

I struggle to see how this can't be a drag on rents - Which I like becasue I may even push for a rent dcrease next year after 2 years of a flat rate :beer:

*sigh*

At the moment, allowance is set to the 50th percentile. There will be a distribution around that level. Some will pay less, some will top up and pay more, but it'll be a fairly standard bell curve and they'll theoretically have access to a bit more than 50% of houses on the market.

By setting rents to the 30th percentile, then benefits claimants will now only have access to a bit more than 30% of houses on the market. This will concentrate benefits claimants at the bottom end, and squeeze out existing non-benefits tenants from those areas.

Now those who have been squeezed out will have to move up the ladder and pay more. There will be no houses left at the cheaper price. A good number of those people will be the FTB's saving for a deposit. They will no longer be able to save as much.

The other thing that will happen is that prices in that bottom end will rise as supply fails to meet demand. This will narrow the gap between cheapest and most expensive rents in an area, and will skew the median price upwards. And benefits will then rise again to match.

ILW

Jowo wrote: »

who receive housing benefit is unemployed....We are really concerned that even at current levels, nearly half of Local Housing Allowance claimants are already making up a shortfall of almost £100 a month to meet their rent."

Only having to pay £100 per month rent sounds pretty good to me.

Procrastinator333

HAMISH_MCTAVISH wrote: »

*sigh*

At the moment, allowance is set to the 50th percentile. There will be a distribution around that level. Some will pay less, some will top up and pay more, but it'll be a fairly standard bell curve and they'll theoretically have access to a bit more than 50% of houses on the market.

By setting rents to the 30th percentile, then benefits claimants will now only have access to a bit more than 30% of houses on the market. This will concentrate benefits claimants at the bottom end, and squeeze out existing non-benefits tenants from those areas.

Now those who have been squeezed out will have to move up the ladder and pay more. There will be no houses left at the cheaper price. A good number of those people will be the FTB's saving for a deposit. They will no longer be able to save as much.

The other thing that will happen is that prices in that bottom end will rise as supply fails to meet demand. This will narrow the gap between cheapest and most expensive rents in an area, and will skew the median price upwards. And benefits will then rise again to match.

*Sigh*

You assume people can pay more.

I don't think the economony or that budget is going to be giving much additional in the way of disposable income to the majority of people. Coupled with job losses. Where are all those private renters going to find all that extra cash? Many won't, so then the landlords either leave a property empty or accept a lower rent. After a few months of a void, they will quickly drop the asking price.

Once the 50th percentile properties start charging the 30th or 40th percentile prices, the 30th or 40th percentile prices have to be dropped in turn.

You assume renters will fill this gap.

I assume they won't be willing or able to and prices will have to adjust accordingly.

Each to their own and we will find out in the next couple of years.

macaque_2

Procrastinator333 wrote: »

This only starts 2011, so will be a while till it has any impact, but when it does, is there any reason why this isn't very simply - £1.8bn gone from landlords rent books overnight?

Good comment. Some people are trying to rationalise this to their own personal circumstances but the bottom line is that if £1.8b is sucked out of the rental market, the landscape is bound to change.