New plans by Grant Shapps are a recipe for increasing homelessness

Housing minister Grant Shapps recently announced plans to make the unauthorised subletting of social housing a criminal offence, with offenders facing up to two years in prison. The stated rationale is to free up dwellings for those on council waiting lists. But the policy fails to address the distorted economic incentives facing social tenants and in practice it is likely to exacerbate housing shortages while extending official intrusion into the private lives of tenants, lowering incentives for family formation and reducing labour mobility.

Criminal sanctions will raise the costs associated with unauthorised subletting, and this will tend to reduce the activity. However, such a reduction also means that those who previously rented such property from social housing tenants will be pushed into alternative accommodation, adding to housing waiting lists (either directly or indirectly through displacement in the private rented sector).

Moreover, it cannot be assumed that reducing subletting will free-up enough dwellings to compensate for this effect. Given long waiting lists in many areas – and much higher private sector rents – tenants will be reluctant to give up their social tenancies. With the option of subletting less attractive, more may choose to stay put rather than cohabiting or moving away to seek work. Some may live with partners most of the time while visiting their official residence periodically to maintain the tenancy. (By vacating the dwelling they would risk moving to the bottom of the waiting list should the relationship break down). Thus the likely effect of the crackdown on subletting is to increase the proportion of social properties that are empty or under-occupied. This in turn may increase the risk that the dwelling deteriorates (e.g. from damp) or is targeted by vandals or squatters – as the government’s own research on subletting recognises. 

Then there is the question of enforcement. There are practical difficulties in determining whether the correct people are occupying a dwelling, particularly if traditions of privacy are respected. There are grey areas such as friends and relatives coming to stay for a few weeks. The crackdown is therefore likely to involve further authoritarian intrusion into private lives. The economic costs involved in employing specialist inspection teams, instituting contested eviction procedures, prosecuting offenders and imprisoning them are also likely to be significant.

Rather than trying to cure the unintended consequences of state intervention with more intervention (the flawed approach of the government’s welfare reforms in general), Shapps should instead focus on removing the distortions responsible for the shortage of low-cost dwellings. Liberalising the planning system and rescinding burdensome building regulations would free the private sector to provide cheap housing as it did in the 19th century. Social housing, together with the £20 billion annual Housing Benefit bill, could then be phased out, with voluntary organisations catering for those with special needs.

11 January 2012, IEA Blog

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