Welfare Reform Bill

Memorandum submitted by the Residential Landlords Association (WR 02)

THE IMPACT OF UNIVERSAL CREDIT ON HOUSING

The Universal Credit and Housing Benefits

Universal Credit will replace the current system of housing benefits, including local housing allowance (LHA). This leads on from reforms to LHA to be rolled out from April 2011. Although we welcome the principle of the universal credit, we have major concerns about some of the Government’s further proposals relating to housing benefits.

Changes to the Local Housing Allowance From April 2011

q The LHA was rolled out nationally in April 2008 as a new way of calculating Housing Benefit for tenants in the private sector. LHA is means tested and paid to tenants based on the household size and the area where they live. Payment is usually made to the tenant who is then expected to pay it to the landlord. Certain benefits passport tenants into LHA without a means test.

q The country is divided into Broad Rental Market Areas (BRMA) with rent officers setting individual LHA rates for each BMRA, which are published by councils to provide clarity to landlords and prospective LHA tenants. Importantly, the rates are based on non-housing benefit rents.

q Prospective tenants are given the opportunity to "shop around" with their allowance. If they see a property they like exceeding the LHA they would receive or there is no alternative, they are required to make up the difference.

q From April 2011 Local Housing Allowance Rates will be capped at £250 per week for a one bedroom property, £290 per week for a two bedroom property, £340 per week for a three bedroom property and £400 per week for four bedrooms or more.

q A limited measure is to be introduced to allow local authorities to pay LHA direct to landlords where it will assist the tenant in obtaining or retaining a tenancy.

q LHA will be calculated based on a formula that enables claimants to access and afford the lower 30% of properties within each room size category (known as the 30th percentile). Previously, it was calculated so that claimants had access to half the market.

Further Reforms

q The Welfare Reform Bill proposes further major changes both to the present system of LHA and to how housing costs are paid as part of the universal credit.

q From 2013/14 the Welfare Reform Bill proposes that LHA rates will be up-rated in line with the Consumer Prices Index (CPI) breaking the link with market rents.

q At present a single claimant aged up to 25 only receives LHA based on a shared room rate, which is significantly lower than the LHA rate for a self contained one bedroomed flat. The Government is proposing to increase the age from 25 to 35.

Impact of Benefit Changes

The Government argue that they have to reduce benefit rates to save money but they believe that landlords will reduce rental levels.

Following the Emergency Budget of June 2010 the RLA surveyed its members to seek their views on the

planned changes. The survey results were complemented by a Landlords Panel survey. The results

were:

q 71% of respondents said that they would not decrease their rents. A recent study for the British

Property Federation put this figure at 88%. Although the Government’s whole case is based on the assumption that this will happen our survey evidence (along with that carried out by the Local Government Association in London) contradicts this.

q 46% of respondents stated that they will look to re-let away from HB and LHA tenants as a result of the proposed cuts to LHA. Total displacement of HB and LHA tenants could be as high as 52%.

Tenants Right to Choose who Receives their LHA

q The greatest difficulty facing landlords with HB and LHA tenants is the inability for tenants to choose to have their benefits paid directly to their landlord giving them peace of mind. Of those who would not rent to HB and LHA tenants, 45% reported that it was due to a lack of guarantee of receiving the rent.

q By far the biggest incentive given to chang ing this would be abandoning the policy of paying benefit direct to the tenant (32%) . However, the Government is only proposing to relax the rules regarding direct payments if landlords are prepared to reduce their rent levels. Many cannot afford to do so and others have alternative markets because there are more non - benefit recipients looking for tenancies in the Private R ented S ector (PRS).

q The Government ha s further argued that paying benefits direct to tenants promote s financial responsibility. This is despite evidence clearly showing that for those tenants on benefits struggling to managing their finances, being empowered to choose, if they wish, to have their LHA paid directly to their landlord would provide them with piece of mind.

q In October 2009, data from a survey of LHA claimants by Shelter found that of the claimants who would choose payments to be made directly to their landlord, 95% are struggling to manage their finances. Almost half of the claimants who have had experience of both forms of payment believe that landlord payment better helps them in managing their rent and household budget. And figures from the British Property Federation indicate that since the removal of direct payments to landlords in 2008, tenants have defaulted on millions of pounds worth of rent. For example, £276 million of all UK rent went unpaid in December.

q In its submission to the recent House of Commons Work and Pensions Select Committee inquiry into housing benefits, Crisis recommended:

"the reintroduction of choice over who housing benefit is paid to would help to mitigate some of the impacts of these cuts, by for example incentivising landlords to continue to rent to tenants in receipt of LHA. The ending of direct payments to landlords has been opposed by many tenants, landlords, and voluntary sector organisations and when in opposition, the Conservatives committed to reinstating choice."

q The RLA supports calls from organisations, such as Crisis and Shelter, for LHA claimants to be given the opportunity to choose who receives their allowance, themselves or their landlord. It is in the tenants’ best interests to make an informed choice about what provides them with greatest security. It is generally accepted that current policies meant to protect vulnerable tenants are not effective. This would be consistent with the Prime Minister’s calls for greater consumer and user choice, as articulated recently in his article for the Telegraph. It would empower tenants, moving away from the current position whereby the state dictates that financial responsibility is best served through payments to tenants. Rather, tenants themselves should be able to make a choice based on their own individual circumstances.

q In the meantime, the rule by which the LHA can be paid directly to landlords only once a claimant becomes 8 weeks in arrears should be replaced to make it when a sum of the equivalent to one contract period’s rent (e.g one month) falls into arrears for 14 days. This would prevent tenants in difficulties from getting into further debt. LHA should be paid 1 calendar monthly in advance in line with normal rental payment practices.

The P roposed L ink of LHA to the CPI

q Housing costs vary markedly from place to place. They also vary according to the accommodation needs of claimants. Although there are some local variations, no other living costs vary in the same way as rents. Over the years , rents have gone up generally speaking in line with average earnings. CPI is made up of a basket of goods and services and PRS rents are only a small element of these ; the cost of eating out is a larger element in the CPI basket! CPI is, therefore, a wholly inappropriate way of measuring rental levels in the PRS. As the respected Institute for Fiscal Studies has concluded " under   current   benefit rules the coverage of the CPI does not look like an improvement over the status quo."

q When taken in conjunc tion with the reduction in the L HA rate to the 30 th percentile effective from April 2011 onwards, de - linking LHA rates (or housing costs rates when the universal credit comes into force) will mean that it will be increasingly difficult for claimants, including those in work, to cover their housing costs.

q As a result claimants will struggle to meet their rent commitments whether from other benefits or their earnings. If they are in work they are likely to be on low incomes anyway.

q Claimants will be forced to move into cheaper , lower quality accommodation. We can expect to see an increasing ghetto-isation of claimants. Claimants will also be forced to move away from where work is available, running contrary to the Government’s policy of increasing the number in work.

Increasing the Age Limit for the Single Room Rate

q The Government estimates that 88,000 claimants will be affected by this measure. Other estimates suggest that it could be as many as 120,000. This group will already see a reduction in their LHA rate because of the introduction of the 30 th percentile.

q There will simply not be enough shared house/bedsit accommodation available for those who have to leave self contained flats. Local authorities are using new planning powers to rest rict the number of shared houses and s ocial housing is often not available to this group. As a result shared house rental levels are going to be forced up which itself will put pressure on the housing benefit budget and make it harder to find shared accommodation .

Rising Rents

q Some commentators have suggested that rents have been inflated by landlords knowing that tenants are subsidised by housing benefits and that reducing these benefits will bring rents down. Although there will be some individual cases, the truth is that rents across the sector are rising because of a shortage of supply. An analysis of figures within the Department for Work and Pension’s publication, "Housing Benefit and Council Tax Benefit Caseload Statistics " (July 2010) shows that in fact only 13.2% of the increased LHA expenditure relates to increased private sector rents. Much of the increase in LHA is due to additional claims as a result of the recession and the transfer of local authority tenants to Housing Associations.

q At a time when supply should be increasing to meet growing  demand and take advantage of higher rents, available stock levels in the sector fell by 14.5% in the third quarter of 2010 compared with the second quarter. This led to rent increases over the same period of 1.4%. (Findaproperty.com’s Rental Index - September 2010).

Conclusion

The RLA is calling on MPs to use the opportunity provided by the Welfare Reform Bill to:

q Empower tenants by giving them the right to choose themselves who they would prefer their housing benefits to be paid to – themselves or their landlords.

q Provide for automatic payment of the benefit to landlords when a tenant becomes 14 days in arrears on their rent. This would better support tenants to address financial problems quickly.

q Maintain the link between benefits and Market Rents rather than CPI.

q Maintain at 25 the age limit at which claimants can claim only for a room in a shared house.

March 2011