Written evidence submitted by Royal Institution
of Chartered Surveyors
SUMMARY
RICS is concerned about the impact of proposed reforms
on people receiving housing benefit, social housing providers,
private landlords and local authorities. These reforms could,
in a worst case scenario, bring about an increase in levels of
homelessness and place additional pressure on services dealing
with this problem.
Changes to housing benefit could lead to significant
operational cost increases for housing associations due to the
need for new structures for additional payments, extra staff and
greater levels of advice. At the same time it will be likely that
housing associations' income levels will decrease due to residents
receiving lower housing benefit payments without an equivalent
rise in other benefits. The risk of arrears will rise, which may
make it more difficult for housing associations to attract loans
to make up cost shortfalls and fund future development.
In the private rented sector (PRS), landlords may
be reluctant to accept tenants who are in receipt of housing benefit
and stop offering properties in this market. This sector will
also be impacted by Local Housing Allowance (LHA) caps which will
limit the number of PRS properties that are available. However,
private sector landlords may be pleased with the reintroduction
of the option for direct payments of housing benefit.
KEY POINTS
- Levels of arrears in both the social and private
sectors will increase as tenants face difficulties meeting rent
payments with reduced benefits.
- Shortfalls will mean people have to move to cheaper
accommodation or meet additional rent payments.
- Private landlords may refuse to accommodate anyone
who will be affected by changes in housing benefit.
- A lack of supply means there are not variations
in property size to facilitate easy movement to smaller homes.
- Homelessness services will struggle to cope as
they will have difficulties finding alternative accommodation.
LEVELS OF
RENT INCLUDING
REGIONAL VARIATIONS
Setting Local Housing Allowance rates at the 30th
percentile of local rents instead of the 50th percentile could
result in upwards pressure on rent and result in a shortage of
housing. In turn this will put pressure on waiting lists and local
authorities as appropriate stock may not be available to meet
the needs of these residents. There may lead to increased movement
of tenants from unaffordable areas placing extra pressure on cheaper
areas which may have fewer employment opportunities.
Changes to the levels of rent may force landlords
in the private rented sector who are currently willing to accommodate
housing benefit claimants out of the market. Those who are still
prepared to stay in this market may need to reduce rent levels
within proposed caps.
RICS believes that before any changes are introduced
the Government should carry out a thorough examination of their
impacts at a regional level. There needs to be a clear evidence
base for the policy which takes into account differences between
areas of the country and who will be affected. Housing Benefit
policy also needs to be clearly aligned with housing supply policy
to ensure a clear link between the two. This may prove difficult
to undertake at a high level due a split between central government
departments looking at these issues. Further difficulties may
arise as housing benefit policy is a reserved matter but housing
supply policy is devolved to national governments which will need
to be included in discussions.
SHORTFALLS IN
RENT
The proposed reforms could lead to both social and
private landlords accruing significant arrears. In the social
housing sector the reduction of housing benefit by 10% could have
a significant impact. On an average rent of £70.00 per week
this could result in arrears of approximately £350.00 in
a year if a resident is unable to find employment and is unable
to find the 10% shortfall from their existing benefits.
In addition to the arrears caused by the shortfall
there will also be increased operational costs as housing associations
will have to process more payments from residents who are not
currently making personal payments. It is estimated by one housing
association that they may have to recover £1 million per
year from residents who have not previously had to make a payment
and who will be receiving no additional benefit to make this payment.
Research carried out by the homelessness charity Crisis shows
that 86% of housing advisors believe that a reduction in LHA of
£5 per week would make it difficult for claimants to meet
rent payments[283].
If tenants are forced to move a further set of problems
may be created due to a lack of supply of appropriate housing.
A general lack of supply in the market means that there are not
the variations of property size to facilitate moves to smaller
homes. Other impacts on housing associations could include:
- Potential loss in income may affect financial
plans limiting ability to invest in asset management, development
of new homes and economic inclusion services.
- Loss in income will also impact on ability to
provide additional resources to deal with increases in arrears
and customer communication.
- Vulnerable income streams may affect lenders
confidence in housing associations resulting in difficulty accessing
credit at reasonable rates of interest.
RICS would like to see increased levels of Government
support to housing associations that are affected by changes to
housing benefit policy. In particular guidance and best practice
on dealing with the impact of shortfalls in rent and processing
additional payments should be disseminated with Government assistance.
A significant lead in time will also be required to ensure housing
associations have put in place the necessary procedures.
LEVELS OF
EVICTIONS AND
THE IMPACT
ON HOMELESSNESS
SERVICES
Levels of arrears are likely to increase following
the proposed changes particularly as the number of people making
separate private payments alongside housing benefit rises. It
is likely that the increase in evictions would not be immediate
but would take some time to filter through.
As this takes place homelessness services will struggle
to cope if there are difficulties finding alternative accommodation.
If the resident was evicted because they had been out of work
for a year and had a 10% shortfall in their housing benefit it
may be difficult to find a new landlord in either the private
or social sectors who will provide them with accommodation.
LANDLORD CONFIDENCE
Housing associations will be concerned that they
will be unable to ensure that rents are covered by housing benefit
if this is affected by the amount of time a resident has been
out of work. Private landlords may be reluctant to rent homes
to tenants if they think there is likely to be a shortfall in
rent payments at some point in the future. Key concerns for landlords
are likely to include:
- Unwillingness to rent to benefit claimants due
to potential loss of 10% housing benefit after 12 months of claiming
job seekers allowance.
- Local Housing Allowance caps will limit number
of PRS properties whose rent levels fall within 30th percentile
of local rents.
- However, the reintroduction of option for direct
payments (where the tenant can choose to have LHA paid directly
to their landlord) may increase PRS landlord confidence.
- In a climate with more constraints on public
funding for capital investment, less certainty over levels of
housing benefit could damage future funding models with external
funding institutions for future development.
Many landlords in the private sector are already
unwilling to lend to Housing Benefit claimant. In research conducted
by the National Landlords Association 54% of landlords said they
would not rent to benefit claimants due to a fear of arrears[284].
This position may get worse if landlords are concerned about the
loss of 10% of housing benefit payments. One of the factors cited
for this reluctance is direct payment of LHA to tenants so a return
to payments to landlords could help redress the balance.
This could have considerable knock on effects on
landlords, particularly relating to their ability to access finance.
Major banks have been reluctant to lend to both housing associations
and private investors as a result of the credit crunch and economic
downturn. Any changes that increase the lack of certainty regarding
levels of income would prolong this reluctance to lend rather
than encouraging banks to view housing as an effective investment.
If landlords in both sectors are unable to access finance their
opportunities to invest will be limited damaging the overall level
of supply.
To address these problems, the Government should
continue to seek agreements with the major banks to support continued
lending to the residential sector. Pushing ahead with the reintroduction
of direct LHA payments may also encourage some landlords to continue
renting homes to people receiving housing benefit and maintain
levels of supply.
13 September 2010
283 Crisis Housing Benefit Survey 2010
http://www.crisis.org.uk/data/files/publications/1003%20Housing%20Benefit%20FINAL.pdf. Back
284
Local Housing Allowance NLA Members' Survey http://www.landlords.org.uk/publicpolicy/documents/NLA-LocalHousingAllowance-membersurvey.pdf
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