Is universal basic income too simplistic to meet housing need?

In a world with a universal basic income for all, what would you do about housing costs?

UBI – also known as citizen’s income or negative income tax – is a seductive idea that is now gaining ground, with support spanning the political spectrum from the Green Party to the ideas of the late US economist Milton Friedman. The hope is of a welfare system that would empower people rather than penalise them, offer freedom in place of sanctions and enable us to adapt to a rapidly changing labour market rather than being at the mercy of Google and Uber.

But where will we live – and how will we pay for it? These are questions housing and social security experts have been asking ever since the blueprint for the welfare state was laid out by Sir William Beveridge in 1942.

His system combined benefits at subsistence levels and others based on insurance contributions with action by the state to create the NHS, family allowances and full employment. But he admitted there was one problem even he could not solve: “The attempt to fix rates of insurance benefit and pension on a scientific basis with regard to subsistence needs has brought to notice a serious difficulty in doing so in the conditions of modern Britain. This is the problem of rent.”

Rents vary from place to place. If you pay a flat-rate allowance for housing, people in expensive areas will not have enough to pay the rent, while those in cheaper places will have a surplus. If you make it part of the insurance benefit, what is to stop people moving to an expensive house the moment they retire?

Beveridge hoped his new system of social security would mean the end of the hated means test. He tried to “make the most of a difficult situation” by proposing a flat-rate housing allowance on top of contributory unemployment benefit. After the war the government decided to meet actual housing costs but means test claimants. Housing benefit (soon to be absorbed into universal credit) did improve matters but it costs £25bn a year, is costly to administer and relies on means testing and steep withdrawal rates.

So what can supporters of UBI do? Many proposals simply ignore housing costs (and the equally difficult area of long-term sickness and disability) but that means retaining a means-tested allowance that undermines the simplicity that is meant to be one of the main points of the idea.

Another option is to include a flat-rate allowance for housing, possibly on a regional basis to reduce the worst anomalies. But that would still mean some people receiving more than their rent, while leaving others unable to pay for a decent home and at risk of homelessness. As Donald Hirsch argued in a report for the Joseph Rowntree Foundation last year: “It seems unlikely that a government would walk away from providing targeted support to those unable to afford acceptable housing, risking a return to slum conditions that were largely eradicated in the UK in the post-war years”.

A report published by the Royal Society of Arts in December floated the idea of a “basic rental income” granted to everyone who rents rather than owns a property, and with the additional costs incurred by central government paid for through a land value tax. It certainly seems a neat solution to use one idea fashionable across the political spectrum to fix the problems with another one – but is it a bit too neat?

The truth is that the “problem of rent” is an even bigger headache today than it was for Beveridge. At the time he produced his report there was strict rent control in the private sector, and Britain was about to embark on a massive programme of council house building. Now rents vary even more from place to place and the government is more intent on selling social housing than building, at the same time as it complains housing benefit is “out of control”.

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