House prices fall when Housing Benefit is cut. That is the central finding of research by Nils Braakmann and Stephen McDonald, to be presented at the Royal Economic Society''s annual conference in Brighton in March 2016.

Their study looks across local authorities to see how house prices were affected by changes to Housing Benefit made in June 2010 to cut the amount that private renters could claim. They find that the more people in an area who received Housing Benefit, the more house prices fell: if 1% more of the local population claim Housing Benefit, average prices fell by around 0.5%.

This effect was stronger for flats and in areas with low demand for housing, and negligible for detached houses. As a result of the cuts, more Housing Benefit recipients moved home compared with other renters. Prices fell immediately after the cuts were announced, suggesting that landlords anticipated that fewer people would be able to rent.


In June 2010, the UK government announced changes to Housing Benefit that cut the amount that recipients living in privately-rented accommodation would be able to claim. This study investigates the impact of these reforms on house prices by analysing property transactions across local authorities. Among the findings:

? The reforms caused average property prices to fall in relation to the proportion of the local population who received Housing Benefit.
? Average prices in a local area fell by an estimated 0.5% for every 1% more of the local population in receipt of Housing Benefit.
? Price falls were greatest for flats, but there was no impact on the prices of detached houses.
? Effects were greatest on prices in areas where there is less demand for homes.
? The cuts led to more housing benefit recipients moving home in comparison to other renters.

Housing Benefit is one of the largest items of welfare expenditure made by the UK government. In his first budget in June 2010, Chancellor George Osborne announced plans to reduce this by limiting the amount that could be claimed by individual households.

These changes included introducing a cap on the maximum amount that would be paid for a property with a given number of bedrooms, cutting the maximum number of bedrooms that could be claimed for from five to four, and lowering local reference rents on which the levels of housing benefit are set. The changes came into effect in England in April 2011.

These reforms would be expected to reduce property prices if they led to lower financial returns from letting property to households in receipt of Housing Benefit. This would happen if landlords were forced to reduce rents or if recipients fell into arrears more frequently. To investigate whether this happened, more than 3,000,000 prices for property transactions in England between January 2009 and December 2013 were analysed.

The results show that property prices were lower following the announcement, and that the fall in prices was greater in local authorities that had a greater proportion of the local population in receipt of Housing Benefit. Further, prices were lower in the period immediately following the Chancellor''s announcement, suggesting that landlords responded before the reforms had come into effect.

The impact of the reform was not the same across property types. Housing Benefit recipients are most likely to live in flats and average prices fall more for flats than terraced or semi-detached houses. The prices for detached houses are unaffected by the changes.

There was no observable impact of the reform in London and the reforms had a bigger impact in local authorities with greater numbers of vacant properties. This indicates that the buoyancy of local housing markets mattered and that the reforms had little effect in places where demand for housing is strong.

Finally, analysis is conducted using the survey Understanding Society to explore the behaviour of individual households following the Housing Benefit reforms. It is found that benefit recipients were more likely to move compared with other renters, which suggests that the cuts induced recipients to move home.