Can't really understand how a subsidy drives up rents and, at the same time, it provides a minimum rent. Surely that is a contradiction?
The old system was based on 50th Percentile, so at most the house could rented through private authority/housing benefit is the middle priced one in the area. Take 10 houses as an example, from most expensive.
Rent £/week
1. £100
2. £90
3. £89
4. £85
5. £70
6. £65
7. £60
8. £59
9. £58
10. £55
With 50 percentile, a private landlord in an open market can choose to rent to DSS tenants, and with a quick talk with an estate agent figure he can charge £70 a week.
This means that private tenants will have to rise to that level if most/all landlords consider the minimum they can accept (and why should they not, someone is paying it even if its the state).
A year later and the maket looks like this
Rent £/week
1. £110
2. £100
3. £90
4. £85
5. £80
6. £70
7. £69
8. £68
9. £67
10. £60
Prices normalise around what the council/DSS will pay, and actual market price increase, because of the new virtual floor price of £70 which increased competition around this middle price range (also allowing 'better' property to demand more from non DSS individuals).
Now a landlord looking to rent in this year, will again go to the estate agent and because of the above the new 50th percentile is £80. Year on year this increases, effectively dragging the price of rental up because of state subsidy.
This does no one but a landlord any good, and £20bn+ on housing benefit up from a few £bn in early 2000's
The new housing benefit model is 30th percentile so the house at no 7 or cheaper, with the idea of both saving money and depress the rental market in the long term by returning true competition to the mid point. Hopefully year on year decreasing the cost of rent.
If your being cynical you could claim that rental/estate agents may be tempted to increase the average asking price, as they are the source of local knowledge councils use to asses what the above 50th percentile is.
*There is now also a maximum price per property for an individual/family, but this generally only affects London, which does have the a pretty dysfunctional property/rental market, but there are also international pressures here (beyond although aided by generous Housing Benefit).