Outline of the study

This economic analysis examines whether better value for money could be achieved by redirecting some of the £30.6 billion spent annually on housing benefit and Universal Credit housing costs in England. The research investigates the potential savings from moving people from expensive private rental accommodation to lower-cost social housing, comparing the costs of building new social homes against ongoing benefit expenditure.

The study analyzes two main government housing subsidy approaches: supporting rents through benefits (£7.9bn annually for 1.7 million private renters) versus providing low-cost social housing. It calculates the economic case for prioritizing social housing construction over ongoing private rental subsidies, examining costs, benefits, and wider public sector impacts of a targeted expansion programme.

Findings in brief

• Private rental subsidies are expensive and growing - government spends £7.9 billion annually supporting 1.7 million private renters through housing benefit, with costs forecast to rise as Universal Credit expands
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• Social housing offers dramatically better value - social rents are 20-65% cheaper than private rents in most areas, and 220-240% cheaper in London, meaning substantial ongoing savings per household
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• Quality standards are inverse to cost - 29% of housing benefit recipients in private rental live in non-decent accommodation compared to regulated social housing with lower rents
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• Moving households saves £1,100-£7,760 annually - each household moved from private rental to social housing saves £1,100 per year in benefits, while those moved from temporary accommodation save £7,760 annually
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• Investment costs can be offset by savings - building 10,000 new social homes annually would cost £700 million in grants but generate £44 million annual revenue savings plus wider economic benefits
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• Temporary accommodation costs have exploded - local authority costs grew 55% in five years to £1.2 billion annually, with £572 million potentially saved by using social housing instead of private rentals
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• Housing need is massive and worsening - 3.5 million households were in housing need before the pandemic, with 353,000 private renters now in arrears (up from 3% to 9% during COVID-19)
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• Most benefit recipients work but struggle with costs - most private renters receiving housing benefit are employed, but 69% in lowest income groups spend 30%+ of income on rent

Recommendations in brief

• Scale up social housing construction - build 10,000 additional social homes annually at £70,000 grant per unit, increasing the Affordable Homes Programme by 28% to achieve significant benefit savings
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• Target investment in high-cost areas - prioritize social housing development in London and southern regions where rent gaps are largest and savings potential is greatest
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• Develop temporary accommodation alternatives - use social housing to replace the 73,700 private rentals currently used for temporary accommodation, achieving £572 million annual savings
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• Reform Local Housing Allowance rates - recalibrate benefit rates to reflect real private market rents and address the gap between 30th percentile coverage and actual housing costs
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• Address under-35s housing crisis - close the gap between shared accommodation rates and one-bedroom flat costs, particularly the £230 monthly shortfall in London
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• Implement welfare system reforms - delegate powers to provide housing cost top-ups to regional authorities, increase basic benefit levels to help with rent shortfalls, and retain improvements to benefit-rent linkages
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• Test innovative financing approaches - explore revenue support alongside capital grants, repurchasing ex-right-to-buy properties, and converting affordable rent homes to social rent levels
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• Strengthen private rental regulation - enact promised tenancy law reforms to end no-fault evictions and improve enforcement against poor conditions and rogue landlords

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