Housing benefit system is nonsense

A few years ago I found myself at a parliamentary breakfast at which I defined a key worker as the son or daughter of a politician, a quip that the MPs around the table found hard to digest.

I was subsequently disabused of that notion by a senior civil servant from the Department for Communities and Local Government.

He lectured that key workers were defined by the fact that their salaries were negotiated at the national level, so it was pragmatic to offer them cheap housing rather than use a national pay structure based on the ability to afford housing in, say, London.

As a result of the liquidity crisis it would seem that low paid key workers now have a better chance of getting on the housing ladder than equally hard working consumers who aren’t nurses, policemen or teachers.

Another anomaly is the way the state subsidises not only social housing but also the wider rental sector at the expense of home owners.

It’s hard to believe but the state helps home owners with mortgage repayment difficulties to the tune of £355m a year while housing benefit costs around £15.2bn.

The rental sector represents about one in three households so the government’s goal of increasing home ownership is at odds with its disproportionate support for a min- ority group. Indeed, that £15.2bn has probably been driving the buy-to-let market and has been throwing up some interesting situations.

Just consider this case involving housing benefit. A local authority in Surrey is helping an unemployed couple with five children rent a five-bedroom detached property complete with its own jacuzzi for £2,700 a month.

Apparently anything less won’t meet their housing needs. Such a property would sell for around £750,000, so let’s reverse the proposition.

Assume that it’s being bought by a high earning couple who suddenly find themselves out of work with a £500,000 mortgage.

After nine months they become eligible for income support mortgage interest but only on the first £100,000 of the debt.

If interest is being charged at 6.5%, the state would pay them about £542 a month – over £2,000 a month less than the family on housing benefit.

But that’s not all. The home buyers’ total interest bill on £500,000 would be £32,500 a year – just £100 more than the £32,400 paid in housing benefit to the family with five children.

But because the buyers would be defaulting on their mortgage to the tune of £26,000 a year they would be forced to sell up to find a more humble home elsewhere with the remainder of their capital. This makes no sense.