Written evidence submitted by the Residential
Landlords Association
SUMMARY
1. Over 75% of those respondents say that they
will not be prepared to reduce their rental levels as a result
of the Government's proposals. 54% say that they intend to stop
letting to LHA claimants.
2. Landlords do not have to provide accommodation
to LHA customers and they will only continue to do so while it
is economically advantageous to them.
3. There is already evidence that landlords are
moving out of the LHA sector. These proposals will accelerate
this trend. Landlords are able to find other tenants.
4. The RLA believe that the cuts will not be
realised in the first place or they will increase the cost to
the Treasury in other areas. They will not help benefit customers
into work. They could lead to barriers to work being erected because
benefit customers will be driven into ghettos.
5. The overall reduction in landlords' income
will result in the loss of the amount of accommodation for the
low paid and those wholly benefits.
6. Reduction to the 30th percentile
point coupled with linking of LHA rates to the Consumer Prices
Index will have the most impact.
7. Some many think all landlords represented
are crying wolf. This is not the case. Landlords are not going
to simply swallow the reduction and continue to rent as at present
to LHA customers.
8. Beside the budget proposals the main concern
of landlords is that LHA is normally paid direct to tenants. This
jeopardises landlords' income. Landlords want to see the return
to the old system so that tenants can choose. This is already
causing withdrawal from the market for LHA customers.
9. The RLA does not accept this Committee's views
on direct payments when it reported on this in the previous Parliament.
We believe that arranging for direct payment is part of managing
the tenant's financial affairs.
10. Landlords are generally small business people.
Our survey results indicate the average number of properties rented
out to the housing benefit/LHA market is an average of 8. Loss
of income can have serious consequences.
11. Previous RLA surveys show that 90% of landlords
of those who are on LHA benefits had to apply for direct payments
because the tenant was more than 8 weeks in arrears. 97% of all
respondents support the change back to the old position.
12. The Government and the Committee have chosen
to ignore the fact that in the social/public sector rents are
still paid direct/rebated. Helping tenants to improve their financial
responsibility does not seem to matter in the case of public sector
tenancies even though there are more tenancies in that sector
who are assisted by HB .
13. Small landlords in the PRS less able to take
the knocks resulting from non payment. If direct payments are
to continue to tenants then LHA rates ought to be higher to reflect
the financial risk to landlords.
14. The RLA recognises the need to curtail public
expenditure and supports the Government's objective of getting
people into work and off dependency on benefits. However, the
purpose of HB/LHA is to support individuals by helping them meet
their housing costs. We do not believe that it should be used
as a tool to force people into work.
15. HB/LHA must not be looked at in isolation.
They are part of a wider benefit system. If you cut the level
of LHA it impacts on overall household income whether this is
received from other benefits or tax credits or wages.
16. The worst off in society will be hurt. We
already have some 13.4 million living in poverty.
17. Poverty levels will rise as a result of these
measures.
18. If LHA falls short of the amount required
to pay for accommodation recipients will have to look at other
sources of income and if they are solely supported by benefits
these are the benefits already set at the basic minimum anyway.
19. The RLA does not believe that the individual
tenants will be able to trade down to find alternative accommodation.
This is not practical or realistic.
20. The woeful shortage of housing overall is
at the heart of this problem.
21. Landlords have to compete to purchase properties
with owner occupiers. They have to find capital and need a proper
return on that capital investment.
22. PRS rental levels inevitably reflect an investment.
This is unlike the situation in the public sector where there
is no requirement for a return on investment.
23. Returns in the private rented sector are
not excessive. Rental returns are inadequate anyway and landlords
are dependent on capital returns which are not available at the
present time.
24. HB/LHA customers are not able to access public
housing because there is not enough of it. Without support in
the PRS they will be homeless.
25. The purpose of HB/LHA is to support housing
costs and this helps low wage earners find accommodation. Wages
have to be kept at a low level to provide jobs and ensure competition
is retained globally.
26. The RLA does not think that they are going
to be able to find alternative cheaper accommodation. The very
proposals themselves will make it even more difficult because
of the reduction in the percentile to 30%. They will be shut out
70% of properties in the market from LHA customers.
27. The first option is for the tenant try to
negotiate the rent with his/her landlord. Our survey evidence
is that landlords will not be willing to concede a reduction.
Landlords themselves are already operating on a low return. Those
with loans are facing higher margins from banks. The position
could become worse as interest rates rise.
28. It is not easy to expect tenants to move
to cheaper areas. The position is even worse in and around London.
29. By expecting tenants to move to obtain cheaper
accommodation will be a major adverse consequence on society with
ghetto-isation and more degraded poor quality areas with sub-standard
accommodation.
30. Increasingly, local authorities have been
asking the PRS to house the homeless because there is insufficient
social housing. Our evidence is that PRS landlords will turn away
benefit customers again this will increase the level of homelessness.
31. HB/LHA's role is not to incentivise people
into work. You cannot look at one means tested benefit in isolation
and expect this policy to succeed in this object.
32. HB/LHA is not a subsidy for the PRS. It is
intended to meet housing costs so that individuals can obtain
decent/affordable accommodation. They are low paid or wholly dependent
on benefits and cannot afford accommodation without support to
meet its full cost.
33. These proposals in any case bear down equally
on the low paid as much as those who are dependent on welfare
benefits.
34. The Government's proposals assume that work
is available. The RLA does not believe that it is at the moment
nor in the foreseeable future that this will be the case. The
reduction in public sector jobs will make the position worse.
35. The main tool to get people to work seems
to be the 10% reduction in job seekers allowance after 12 months.
What will happen however if there is a break in continuity of
claims? Landlords will refuse tenancy applications from those
in receipt of JSA or if they are already in a tenancy will have
steps to evict them/refuse to renew the tenancy.
36. Even though this measure is postponed until
April 2013 we do not think that unemployment will have fallen
sufficiently by then other this will just increase homelessness.
37. If, as a result of the Government's proposals
the level of support for housing is reduced particularly for those
in work it eats into their wages/tax credits. This will be a disincentive
for work because they incur other costs such as travel to work
costs.
38. It is likely that more and more LHA customers
will be concentrated in the areas of low value, poorer quality
accommodation which they cannot get out of. This will reduce job
mobility.
39. Of particular concern is the particular impact
on all of this on low paid workers.
40. The PRS market is made up of a number of
sectors of which LHA is only one. Landlords will look to let their
properties to non benefit customers. This is going to be particularly
easy in certain areas such as the South East/London where there
is considerable demand.
41. Levels of rents vary across the country.
Cost of acquisition/value of the properties is of vital significance.
A flexible system of housing support dependent on local market
rents is extremely important.
42. PRS rent levels are not excessive when measured
against the social/public rented sector. This is subsidized in
other ways, eg the £37 billion spent on decent homes programme.
43. The RLA believes that the PRS gives good
value for money and compares well when comes to tenant satisfaction
surveys. The PRS faces challenges because of its older stock.
Low rents mean poor quality accommodation which is not well maintained.
44. Breaking the link between market rents and
LHA rates by linking LHA to CPI is of particular concern.
45. The Government believe that landlords will
accept a reduction in rent because of landlords renting properties
to HB customers in the PRS do charge less and supposedly according
to emerging research those not on benefits pay around 10% lower.
Landlords will not agree to this reduction particularly because
their income from LHA claimants is far less secure. This is shown
by the results of our survey referred to above. This process of
disengagement from LHA customers has started already because of
the current system of direct payments to tenants. It is all about
security of income.
46. RLA research shows that nearly 45% of landlords
have experienced problems due to the tenant failing to pay rent
from LHA received. 24% have experienced administration problems.
About one third are concerned because they have been unable to
secure direct payments.
47. If the Government were to rethink its position
in relation to direct payments then this may persuade a number
of landlords to continue letting properties to LHA tenants.
48. Rental levels are improving as is demand
from tenants. This shows that landlords in PRS can let to tenants
other than benefit claimants.
49. As the quantity of accommodation available
to LHA tenants decreases this itself will push up rents. In turn
this will reflect through into LHA rates thus cancelling out some
of the supposed savings.
50. When it comes to looking at regional variations
of more concern is differences within individual broad market
rental areas. LHA had started to break up ghettos but the old
situation is going to return.
51. In London there are going to be particular
problems because of the caps (coupled with the abolition of five
bedrooms) as well as the reduction to 30% BMRA/LHA levels.
52. Normally, LHA does not underpin market rental
levels. Even in those areas where there are more benefit customers
market rents depend on other factors because some tenants still
work and rents also reflect capital values/investment. The LHA
market does not exist in isolation even in these areas. The level
of borrowings and the cost of borrowings are also important factors.
Landlords may have little choice in setting their rent levels.
53. So far as shortfalls of rent are concerned,
landlords try to recover these but currently experience difficulties
in many cases. Many tenants already have considerable shortfalls
(£23 per week is the average). Having to repay previous overpayments
can also cause shortfalls.
54. As shortfalls increase as a result of these
proposals landlords' attitudes will harden. Linking rates to CPI
will worsen the gap.
55. Landlords are not going to be prepared to
accept this situation and it is going to lead to eviction/refusals
to renew tenancies.
56. Shortfalls are exacerbated by the current
system of direct payment to tenants. This leads to rent arrears.
Landlords have to look at the real return on their investment.
57. Undoubtedly, the Governments' proposals will
lead to increase the number of evictions because of rent arrears.
Landlords will refuse to renew tenancies which run out. Tenants,
as a result are going to find themselves homeless.
58. Landlord confidence is at a low ebb as a
result of these measures. This links in with reduction in rent
levels and the shortfalls/rent arrears. Coming on top of the situation
regarding direct payments to tenants this will push landlords
over the edge.
59. Community cohesion is going to be adversely
affected. Tenants are going to be forced to move out of areas.
As already pointed out this is going to lead to ghettos.
60. The RLA welcomes the allowance for an extra
room for carers. However, no provision has been made for couples
who have to sleep apart due to medical conditions.
61. The RLA has campaigned for the abolition
of the under 25 rule. The position for them is going to be made
worse by these measures.
62. Problems can be made worse for larger families.
There is already a shortage of four/five bedroom social housing
anyway. With older families because of the uprating in non dependent
allowance there will be pressure on children to leave home. They
may not be able to find accommodation at all but ironically if
they can this will cut back on savings because of new LHA claims.
63. The proposals can lead to an increase in
overcrowding. There will be more hot bedding and sofa surfing.
Landlords will be blamed for this when it is not their fault.
64. Since the deregulation of rents in 1988 LHA
has been tied into market rents. Breaking this link will have
adverse consequences. Levels of rental support will drop and tenants
will have to raid other benefits/low wages to try to make up the
difference. Many will not be able to do so.
65. There is a technical objection to the use
of CPI which has been raised by the Institute of Financial Affairs/Royal
Statistical Society. CPI impacts adversely on those who live on
benefits.
66. The RLA is opposed to the abolition of the
excess entitlement. As 47% of LHA claimants receive this it does
give tenants incentive to negotiate their rents. This incentive
will disappear and landlords will simply put their rents up to
the LHA rate. There will be an adverse impact on child poverty
in particular as well.
67. The Government could look to save money by
centralising LHA administration. Direct payment to landlords would
also mean less financial transactions were involved with less
cost.
68. The amount made available for additional
discretionary housing payments is woefully inadequate. There need
to be clear transparent policies in place as to how these amounts
will be administered.
69. The RLA is perturbed at the lack of transitional
arrangements for those already in receipt of LHA
70. The RLA has set out the rationale which underlines
its views looking at the macro position due to the lack of overall
housing provision including public/social housing. Only the PRS
could cater for the extra number. However, the PRS will only be
prepared to provide accommodation for LHA claimants if it is economically
viable to do so. Low earners/benefit customers are dependent on
financial support to access housing in the PRS and if support
is inadequate to meet what landlords want as a result then landlords
are not going to cater for this sub-sector of the market.
71. Even though the State may try to dictate
the price it is not to say landlords will accept it. They will
look at alternative markets. The position is worsened by there
being lack of security for landlords' incomes. Tenants themselves
have no realistic alternative resources because they are on minimum
incomes anyway.
72. Housing support is vital to enable the low
paid/those on benefit to live. Landlords are not going to provide
the accommodation without there being a proper return.
73. Confidence on the part of landlords as providers
of this accommodation is falling. A change back to the old system
of payment of benefits could help, particularly due to the current
hostility by landlords to the present method of direct payments
to tenants.
About the Residential Landlords Association ("RLA")
1. The RLA is one of the three bodies representative
of residential landlords in England and Wales. Two of these organisations,
of which we are one, have direct membership. The RLA has over
8,000 subscribers representing over 13,000 members (as corporate
membership entitles those members to five memberships). Our membership
continues to grow. Members who include letting and managing agents
rent out properties in all subsectors of the private rented sector
("PRS") including letting to those who are in receipt
of housing benefits ("HB") or local housing allowance
("LHA").
RLA Survey/Information gathering
2. To help in the preparation of our evidence
we have recently conducted a survey of landlord's concerns/intentions.
This is at Appendix 1 [not printed]. 71% of respondents say that
they would not be prepared to reduce their rental levels as a
result of the Government's proposals. 53.5% state that they intend
to stop letting to LHA claimants. These figures make disturbing
reading. Details of this survey have been sent not just to members
but more widely through our data base of over 40,000. We received
around 860 responses. We have also conducted a focus group discussion
in Hull with landlords who are involved in letting to the LHA
market to establish their opinions. Additionally, we have had
contact with landlords and others on an individual basis who have
contacted us to give us their views on the Government proposals.
RLA Directors have hands on experience of the HB/LHA market.
The RLA's general view of the proposals
3. As the RLA is representative of landlords
some may well say that our evidence is tainted by self interest.
At the end of the day, however, landlords are the providers of
a service. Ultimately, they do not have to provide accommodation
if they do not want to. They will only continue to carry on with
this service so long as it is economically advantageous to them
to do so and they receive a realistic return on their investment.
If, however, they can find alternative buyers for their services
and it is more advantageous for them to deal with them they will
abandon the HB/LHA market. We therefore feel that we can best
service inquiry by reporting to the Committee on landlords intentions
and concerns as well as setting out what we believe will be the
consequences once these proposals start to take effect. The evidence
put before the Committee reflects the providers view.
4. Many tax payers no doubt welcome these proposals.
They see them as reducing public expenditure, penalising the work
shy and cutting back on landlords' incomes. However, the RLA believes
that these cuts will be imaginary because they either will not
be realised in the first place or they will increase costs to
the Treasury elsewhere. In themselves they will not have any significant
impact on helping benefit customers into work. In fact, perversely,
they could lead to barriers to work being erected as benefit customers
are driven into ghettos. The reduction in landlords' incomes will
result in a loss in the amount of accommodation provided both
to the low paid and those wholly dependant on benefits. All of
these factors will have adverse consequences which we will highlight
in this evidence.
5. The Government's proposals bear down disproportionately
on those in receipt of LHA. Initially, it is the reduction to
the 30th percentile point in determining rent levels,
but, later on, it is the linking of LHA rates to the Consumer
Prices Index (CPI") which will have the most impact. The
loss of up to £15 in the excess payment and the caps (coupled
with the abolition of the five bedroom rule) will also operate
to reduce LHA payments and caps in particular will have a significant
impact in London. The abolition of the £15 excess rule will
increase the level of poverty generally and child poverty in particular.
It will also be counter productive in that it will mean that rent
levels will equal the LHA rate across the board (unlike at present).
6. The Government are clearly looking for a 10%
reduction in the LHA level (see Table 1 of the Impact Assessment).
According to the Government's Impact Assessment the average current
LHA rate is £126 per week which will be reduced by £12
per week as a result of a package of measures across the board.
This figure is based on March 2010 statistics but the latest DWP
statistical survey, June 2010, showing the position at March 2010,
shows that the current average award is in fact just short of
£113 per week, which is significantly lower than the figure
used in the Impact Assessment Study. Very importantly, this ignores
the subsequent linking of increases in the benefit to CPI, which
will mean that over time the impact will be far greater and have
a more significant adverse consequence which we explore further
in this evidence.
7. The big question is whether landlords who
let currently to HB/LHA claimants will accept this and reduce
their rents commensurately. Alternatively will landlords maintain
their rent levels and expect to recover the shortfall from tenants.
If they do this, in turn, will the tenants affected be able to
afford these shortfalls bearing in mind the other impacts on household
budgets currently anticipated, eg the increase in VAT rate, reduction
in other benefits, below inflation wage increases (where they
are in work) and rising inflation eg for food stuffs. The other
option open to landlords is simply to leave the benefit market
altogether, where they can. Our evidence is that this is what
will happen. Significant numbers of landlords will not reduce
their rental levels and will desert the market for LHA customers.
8. Landlords themselves may of course not have
freedom of choice, because they in turn face their own financial
pressures, particularly the need to service loan repayments. Landlords
also want to see a worthwhile return on their investment. In all
of this much will depend on whether landlords find that they have
an alternative market, particularly renting out to non benefit
customers.
9. The RLA opinion is that in the current climate,
as the private rented sector expands, more and more landlords
will be able to rent out their properties elsewhere Landlords,
therefore, will be able to shift their customer base away from
the LHA market. Some may well say that landlords are "crying
wolf" and in reality they will not do so. We believe that
if the Government is assuming that landlords will simply swallow
the reduction in rental income and continue to rent as at present
to LHA customers then our view is that this is a misplaced assumption.
10. The estimated cost of LHA for 2009-2010 was
£2.6 billion (Hansard 26 March 2009). The overall
cost is only around x% of the overall cost of the HB budget so
the proposed cut backs are bearing down disproportionately on
this sector.
Direct payment of LHA to customers
11. Beside the budget proposals the main concern
on the part of landlords, so far as LHA is concerned, is that
LHA is normally paid direct to tenants; rather than landlords
as was the case under the HB system. This puts landlords' incomes
in jeopardy. Repeatedly landlords and their representatives have
argued for a return to the same system as under HB; that is to
say a system of tenant's choice. Prior to the General Election
both Parties now comprising the Coalition Government stated that
they supported a return to a system of tenant's choice so that,
if the tenant wanted it, the benefit could be paid direct to the
landlord. Since the General Election the Coalition Government
has been silent on this issue, despite Parliamentary questions.
The Government has indicted that it will be looked at as part
of the two year review of LHA. However, the DWP Paper, 21st
Century Welfare, indicates a single payment system, including
housing costs, paid to the tenant.
12. The feedback which the RLA is receiving from
its members and landlords more widely is that if, as now seems
likely, the current payment system direct to tenants is retained,
coupled with the reductions in the level of LHA resulting from
the Emergency Budget, will lead to a refusal to lower rental levels
coupled with wide scale withdrawals on the part of landlords from
providing accommodation to LHA customers. The ongoing lack of
security of income, coupled with a reduction in that income, will
mean that landlords will no longer consider it economically worthwhile
to rent properties to the LHA market.
13. This Committee addressed the question of
change in the method of payment in its report on the local housing
allowance in the last session of Parliament. Whilst acknowledging
that its finding was controversial the Committee found that direct
payments to tenants resulted in a positive increase in personal
financial responsibility and financial inclusion. However, the
Committee also thought that direct payments to tenants added to
the time spent on administration.
14. Whilst the RLA agrees that it is important
to try to enhance financial responsibility on the part of tenants,
the RLA strongly disagrees with the Committee's views believing
that the arguments in favour of retaining the present system of
payment is far outweighed by other important considerations.
15. The arguments advanced by the Committee as
to why direct payments to tenants (rather than landlords) should
continue are as follows:
- i. By signing up to direct payments to their
landlords tenants are abdicating financial responsibility. They
do not have to bother.
- ii. It is not a real choice (ie landlords
insist on direct payment).
- iii. It diminishes tenants powers over rent
levels.
- iv. It is part of the dependency culture.
- v. It is worthwhile noting that under LHA
72% of benefits are paid to tenants and 28% to landlords, whereas
before it was 46% to tenants but 54% to landlords.
16. Quite rightly the Committee did acknowledge
that more help was needed for tenants particularly more supportive
vulnerability policies than those currently operated by most local
authorities.
17. The RLA evidence to the Committee that choice
as to where LHA was paid was part of financial management was
acknowledged. We do not consider that actually having to handle
the cash is an essential part of financial management. Making
a choice as to how benefit is paid is just as much a choice. Indeed,
unfortunately, by making the tenant receive the cash this immediately
puts temptation into the hands of the tenant so that the money
paid as housing support costs ends up being used for something
else. Landlords view this as fraud.
18. The fundamental consideration for landlords
is security of income. Landlords are generally speaking small
business people. Interestingly, our survey results indicate that
the average number of properties rented out to HB/LHA claimants
by respondents was on average 8.13. Loss of income from just one
property can have a severe and disproportionate effect. Unfortunately,
experience shows that where direct payment is made to the tenant
there is a very considerable risk that the rent will go into arrears.
19. At Appendix 2 [not printed] is an earlier
survey conducted by the RLA and analysed by PDRC carried out in
December 2009. This showed that 90% of those who currently had
LHA tenants had had to apply for direct payments because the tenant
was more than eight weeks in arrears. 97% of all respondents supported
a change to the regulations. The risk of non payment coupled with
the "hassle" factor associated with LHA claimants are
the two major factors which deter landlords from renting out to
LHA claimants.
20. In their previous findings the Committee
ignore the elephant in the room. This is the fact that there is
direct payment to registered social landlords and rebates for
tenants of local authority landlords. Thus, there is no attempt
to lift them out of benefit dependency. We regret to say that
this is the fundamental flaw in this argument. There are significantly
more tenants in the social rented sector in receipt of housing
benefits. The total number is 3,288,000 as against 1,428,000 (based
on March 2010 from the DWP statistical return for June 2010).
It is clear that for local authorities and registered social landlords
security of payment is the overriding consideration. Indeed, much
concern was expressed by the lenders who have funded registered
social landlords at the prospects of the loss of direct payment
to landlords; so much so that the former Government did a volte
face. Thus the multitude of small business people who make up
the PRS who let to HB/LHA claimants are sacrificed on the alter
so as to educate their tenants in personal financial responsibility
but an entirely different rule applies to the public/social sector.
You have to set the same rule for all. Indeed, there is an argument
that because small landlords in the PRS are less able to take
the knocks it is even more important that they should have the
security of payment which would be afforded by a return to the
previous rule allowing payment to landlords at the choice of the
tenant. Indeed from a financial perspective there is a strong
argument that LHA rates should be higher to reflect the lack of
security of income. One has to look at the real income received
by landlords net of arrears/shortfalls rather than the notional
income suggested by levels of LHA awards. We will return to this
issue again when looking at the individual topics which the Committee
are considering in this inquiry.
Government's reasons for change
21. The Government argue that the purpose of
the proposed changes is to control and reduce the overall cost
of housing benefit. They say that the measures announced will
provide a fairer and more sustainable housing benefit scheme by
taking steps to ensure that people on benefits are not living
in accommodation that will be out of reach of most people in work.
They argue that this will begin to address the disincentives to
work in the current system created by high rates of benefit (see
Explanatory Memorandum dated 23 July 2010 sent to the Social Security
Advisory Committee).
22. The RLA recognises the need to control public
expenditure and the RLA supports the Government's objective of
getting people into work and off dependency on benefits. Nevertheless,
the purpose of HB/LHA is to support individuals by helping them
meet their housing costs whether in whole or in part dependent
on their individual financial position. This should not be lost
sight of and the RLA does not believe that this series of measures
will help achieve Government's objectives but, rather, it will
be counter productive for the reasons we demonstrate in this evidence.
HB/LHA in context - the macro overview
23. The RLA does not believe that HB or particularly
LHA should be looked at in isolation whether from the wider benefit
system, the part it plays in overall housing provision or its
role in the wider economy. HB/LHA provide the necessary financial
support towards the cost of accommodation, a roof over ones head,
which is one of the essentials of survival. It is but one of a
series of benefits. Other income related benefits be they income
support ("IS"), Job Seekers Allowance ("JSA")
or Employment and Support Allowance ("ESA"), or Incapacity
Benefits ("IB") all go towards meeting the other essential
elements such as food, water, heat and light. Together they make
up a package of support which along with tax credits provide assistance
for those in work, the elderly, and those who are entirely reliant
upon welfare benefits. HB/LHA provide the housing costs element
of this support for those who rent. Indeed, the cost of accommodation
will be the single most expensive element in this package of support.
As a result of the Government's proposals tinkering with the housing
support element particularly in relation to LHA will in turn impact
on the overall household income whether this is received from
other benefits, tax credits or wages.
24. These proposed cuts are aimed at the worst
off in society. We already have some 13.4 million living in poverty
(ie at or below 60% of the median income). It is inevitable that
as a result of these proposals this number must rise.
25. It is important to recognise that if one
benefit, such as HB/LHA, falls short of the amount required to
pay for the essential commodity/service in question, accommodation
in this case, then recipients will have to look to another source
of income. If that other source of income, is a means related
benefit, is already set at the basic minimum requirement. Thus,
in this situation, the individual has "nowhere to go"
financially. The alternative is that the accommodation is lost.
26. These proposed cuts are predicated on the
individual affected being able to shop around and trade down so
far as finding alternative accommodation is concerned. For reasons
which we explain in the next section we do not believe that in
many cases this is either practicable or realistic. It also pre-supposes
that there are landlords out there who will still be willing to
provide the necessary cheaper accommodation.
27. Looking at this in the overall context, the
woeful shortage of housing in this country is very much at the
heart of this problem. We simply do not have enough accommodation
available. This forces prices up and in turn leads to increased
rental levels. It is no good blaming landlords for this situation.
28. After all, landlords have to compete predominantly
with the owner/occupied sector in order to acquire properties
to rent out in the PRS. As with any investment, a landlord has
to provide the capital to acquire the property and quite possibly
to also refurbish it to make it fit for letting. As with any other
investment the landlord expects to see a realistic return on his/her
investment. The acquisition cost is one of the major factors in
setting that level of return. As a result of the last boom in
house prices culminating during 2007 landlords have increasingly
had to pay more and more to acquire properties to rent out. Since
the advent of the credit crunch due to the restriction on available
mortgage funds, despite falling house prices, it has become increasingly
difficult for landlords to be able to raise the funds to acquire
properties anyway. This will continue to be the case until there
is an easing in credit conditions.
29. PRS rental levels will, inevitably, reflect
the investment. On the other hand in the social/public sector
the reason why rental levels are lower is that they are essentially
based on cost of provision and are not required to show any return
on investment. Over the years successive governments on behalf
of the tax payer have chosen to provide accommodation and set
rental levels which, unlike the PRS do not show any return on
that substantial investment. Furthermore, unlike the PRS, there
has of late been a significant investment in the public/social
sector through the Decent Homes Programme. Communities and Local
Government (CLG) have estimated that up until March 2011 this
amounts to around £37 million (not far short of the annual
defence budget) and that there are according to CLG some £6
billion worth of work still outstanding. To all intents and purposes,
with the virtual abolition of grants, no such financial assistance
is made available to the PRS. The PRS has to maintain its stock
from its own resources. Often, in contrast particularly to RSL
stock, this is older pre-1919 stock with consequent higher costs
of maintenance and repairs.
30. The RLA does not consider that the level
of return on investment in housing in the PRS is excessive. Landlords
are not making huge profits, contrary to popular misconception.
In any event rental yield in itself does not give a sufficient
return. Residential landlords rely partly on rental yield but
also on increased capital values over the long term. Traditionally,
rental returns on residential accommodation in the PRS have been
in the region of 3 to 4% per annum. The IPD UK Residential Investment
Index 2009 showed a return of 2.7% for the year 2009. For the
previous three years to the end of 2009 it was 3%, for the five
years up to December 2009 it was 3.27% and over the previous nine
year period up to December 2009 it was 3.8%. These are hardly
large returns based purely on income when compared to returns
on a Building Society account. Rather, the market is very much
looking at a return on capital as well but this has largely disappeared
at present due to the recession. Over the past nine years the
combined return on income and capital has been 10%; again not
a huge return. However, the past three years up to 31 December
2009 the return on capital was only 0.1% reflecting the slump
in property prices as a result of the recession.
31. In fact these figures, being national figures,
disguise considerable variations as between the different regions.
For example, in northern England the total return over the last
three years up to 31 December 2009 is in negative territory at
approximately minus 3.5% (combined capital and income) according
to IPD. When compared with other investments, taking into account
the risk and the substantial amount of capital required, one can
hardly argue that residential landlords are receiving excessive
returns for their investment, having regard to the risk of default
and voids.
32. HB/LHA enable the low paid/those not on benefits
who would not be able to afford owner/occupied accommodation and
who are not able to access the social/public sector (due to the
lack of available accommodation in that sector) to obtain support
for their housing costs. Without this support they would be homeless.
33. Looking at this across the wider economy,
by providing support for housing costs HB/LHA helps the low waged
in particular to find accommodation. Both due to competition in
a global economy and to avoid the danger of increased wage levels
pricing workers out of the jobs market, the tax payer has no option
but to subsidize housing costs in the form of rents. This is a
part of the macro overview but we look in more detail at this
aspect when looking at the Committee's topic regarding incentives
to work.
Can tenants obtain cheaper accommodation elsewhere?
34. In theory, if an individual is faced by the
reduction in their income they have to shop around and try to
find cheaper goods or services. This theory breaks down if you
are already at rock bottom. After all, if you already shop at
Aldi or Lidl, rather than Tescos there is hardly anywhere else
cheaper to go. At least with food supermarkets are well stocked.
You have no problem finding the alternative; it is simply a matter
of price. Likewise with electricity. You can try to switch electricity
supplier but once you have found the cheapest at any one time
you cannot get any cheaper. Suppliers are nevertheless out there
The position with accommodation is rather more complicated. You
have to try to negotiate with your landlord for a rent reduction
if that is possible or, alternatively move, so as to trade down.
Unlike the supermarket or the electricity supplier the question
is much more whether there is any accommodation elsewhere when
and where you need it; let alone is it available at a cheaper
price? Also, associated with moving accommodation are the inevitable
expenses (eg van hire to move your furniture; possibly finding
a deposit and so on).
35. The very proposals themselves are designed
to make it even more difficult to move. The reduction in the percentile
for fixing rents in each broad market rental area is reduced from
50% to 30%. DWP's statistics show that at the moment across the
country just over 50% of the market is available to LHA tenants.
By definition, this will be reduced once the change in the percentile
level takes effect. They will, therefore, be shut out of approximately
70% of the market because of the rental levels.
36. As already indicated the first option is
to endeavour to agree a rent reduction with landlords. Our survey
evidence shows quite clearly that landlords are not generally
speaking willing to concede any reduction in rent. We look further
at the issue surrounding this when it comes to looking at the
topic of rental levels. Landlords themselves are already operating
on a low return on their investment in income terms, face the
attendant difficulties with benefit customers as regards obtaining
payment, face banks demanding higher margins on their lending
and the option of alternative lets to non benefit claimants, are
hardly likely to agree a reduction in rent.
37. It is often extremely difficult to expect
tenants to move to cheaper areas particularly those who have families.
We have to consider the consequent upheaval and, where applicable,
a change in children's schools, even if cheaper accommodation
is available. Again, as already pointed out this presupposes that
landlords are prepared to reduce rental levels which are charged
to tenants.
38. The position is even worse in and around
London. Here, unlike the rest of the country the caps come into
play. Tenants who are no longer able to afford accommodation in
Inner London are presumably expected to move further afield into
the outer London boroughs. Again, will the accommodation be there
for them? Bearing in mind the severe shortage of accommodation
available generally in the London area for those on a low income,
we do not believe for one moment that they will be able to move.
Overall, the RLA's view is that by expecting tenants to move to
obtain cheaper accommodation will have major adverse consequences
on Society, particularly community cohesion, which we address
later in this evidence. There will be ghetto-isation for those
benefit claimants who are even lucky enough to find accommodation
in poor quality deteriorating areas.
39. All of this is occurring at a time when the
waiting lists for social housing are increasing. The latest available
figure is that there is a waiting list of 4.5 million for affordable
housing. In the year 2007-08 only 30,677 new affordable homes
were built, primarily by housing associations. The previous Government
had a target of building 3 million new homes by 2020. This involved
an additional 240,000 units per annum. David Orr the Chief Executive
of the National Housing Federation is reported as saying that
we will be lucky to achieve 1.6 million by 2020. (This was his
prediction quoted in the Daily Telegraph on the 18 September 2008).
This was before the full horrors of the credit crunch struck home.
We simply do not have nor are they likely to have enough houses
available in the social/public sector. These shortages of available
affordable accommodation, with the problems facing the owner/occupier
market, are one of the reason why the private rented sector is
now such an important expanding sector. The size of the Sector
has risen from less than 10% in 1988 up to just over 14% of overall
housing stock. We do not believe that when these proposals are
put in place LHA tenants will have much of a role to play in this
expansion going forward. Our local housing allowance survey showed
that in 2009 the nature of the LHA penetration had plateaued.
40. Increasingly, local authorities have been
looking towards the PRS to house the homeless and to cater for
those who are unable to access social housing. Applicants for
this kind of accommodation are normally benefit customers. Increasingly,
however, the evidence available to the RLA shows that the PRS
landlords will turn away from benefit customers and look elsewhere
to fill their accommodation. Many local authorities have operated
housing options or similar schemes to facilitate PRS lets to benefit
claimants. Local authorities who have been hostile towards the
PRS in the past have turned to the PRS to look for accommodation
for these cases. This trend is going to be turned on its head
and the social/public sector housing is in no position at all
to deal with the consequences.
Topics which the Committee wish to consider
41. We believe that it is important to give an
overview to put matters in context before embarking on considering
the individual topics upon which the Committee seek evidence.
In any case, inevitably from the landlords' perspective there
is much overlap between some of these topics, particularly levels
of rent, shortfalls in rent, levels of evictions (and impact on
homelessness) and landlord confidence. We now turn to put forward
our evidence on the individual topics.
Incentives to work and access to low paid work
42. The Government argue that its proposals will
incentivise work. However, the RLA does not believe that this
is a purpose for which HB/LHA should be used. It is not their
role. In any case, one cannot look at one aspect of the means
tested benefit system in isolation to try to achieve this purpose
bearing in mind the point which we have already made that it is
simply one element of the overall package of benefits although
a very important element.
43. HB/LHA is not a subsidy for the PRS. The
function of HB/LHA is to support those in need to meet their housing
costs so that they can obtain decent and affordable accommodation
for themselves and, where applicable, their families. It is not
the role of HB/LHA to try to force individuals into work.
44. By definition, by and large, those who require
support for their housing costs via HB/LHA and who are working
will be low paid. Many of them provide essential services; services
without which the economy and Society could not function. They
cannot pay the full cost of accommodation and they need a support
for their housing costs.
45. There is something of a contradiction in
terms in the Government's case because the Government's proposals
bear down equally on the low paid in work and those who are wholly
dependant on welfare benefits. With the exception of the 10% cut
after 12 months for JSA there is no distinction between the two
categories, so far as those of working age are concerned. It is
therefore difficult to see how the main objective of these proposals
of incentivising work will therefore be achieved via these measures.
46. In the longer term, if we lose sight of the
purpose of HB/LHA i.e. subsidised housing costs this will be to
the detriment of the economy and Society more generally.
47. The Government's proposals are based on the
assumption that there is work available. Unfortunately, at the
moment and for the foreseeable future, the RLA does not believe
that this is the case. So far, it is fair to say that jobless
totals have not risen as much as anticipated as a result of the
recession but we consider that this is about to change as a result
of the forthcoming Comprehensive Spending Review (CSR). It has
been predicted as a result of the CSR that up to 600,000 jobs
in the public sector will be lost over the next 4 years. It is
not, however, just about direct job losses. In many areas of the
country, particularly the north and former industrial areas, local
economies are heavily dependant on the public sector. The private
sector also depends on the public sector e.g. for contracts.
48. Furthermore, the low paid face competition
for jobs from EU migrant workers, particularly from the recent
Accession States. The recently announced Government changes to
immigration policy do not affect this sector at all.
49. Obviously, the main tool to try to compel
the unemployed into work is the 10% reduction in JSA after 12
months. In the first place, there does not seem to have been any
consideration about breaks in continuity of claims. For example,
if a JSA claim is broken for a fortnight does this restart the
12 month clock.
50. To put matters into context if a family on
JSA is receiving LHA of £300 per week then a 10% reduction
will reduce the rental payment by £30. How is the benefit
customer going to make this loss of benefits up? They will already
be on minimum benefits through JSA anyway.
51. From the landlords' perspective, in the first
place a landlord will refuse a tenancy application from anyone
already in receipt of JSA, especially nearer the end of the 12
month period for fear of a benefit cut. If the benefit customer
is already a tenant then very quickly shortfalls will mount up
and the landlord will take steps either to evict or will decline
to renew the tenancy once it has come to an end. Thus, this measure
is going to shut the most vulnerable out of accommodation altogether.
52. This change is trying to take effect from
April 2013 by which time presumably the Government consider that
unemployment will have come down. We find this hard to believe
since there is still talk of a double dip recession. Furthermore,
the direct job losses in the public sector are scheduled to take
place over the next four years starting from April 2011, although
some have already taken place already. The RLA does not think
for one moment that by the time this measure is implemented unemployment
will have fallen sufficiently. If there is no job to find then
there is no job to find and the inevitable consequence will be
the 10% reduction in benefit. One only has to watch television
and read the newspapers to see stories of unemployed who have
submitted countless CVs to prospective employers and do not even
receive one acknowledgment let alone an interview.
53. The Government's proposals are predicated
on the ability of tenants to find work. We do not believe that
there will be sufficient jobs particularly with the forthcoming
public sector cut backs. If there is not enough work to go around
particularly with an expanding working population, exacerbated
by the elderly having to stay in work longer due to shrinking
provision pension, coupled with inward immigration from the EU,
however hard individuals try there are no jobs to be had. The
position is even worse in the older industrial areas. However
hard people try to get a job will be penalised. Unfortunately,
landlords will not be able to differentiate between them and workshy.
The consequences are going to be the same; either a refusal of
accommodation for someone who is already on JSA or eviction if
they are in accommodation because they can no longer afford to
meet the rental payments. A landlord in Barrow in Furness has
drawn the situation there to our attention. There is a persistent
problem of long term unemployment in that area. This is just one
example of this problem.
54. Unfortunately, the inevitable consequence
of this measure rather to incentivise individuals into work, will
simply be to increase the levels of homelessness with all the
consequent costs incurred by local authorities in dealing with
those concerned.
55. So far as the low paid are concerned as from
the autumn of this year the national minimum wage for an adult
will increase to £5.93 per hour. About 750,000 members of
the work force are paid at the minimum wage (representing 3.2%
of all jobs held) according to the Low Pay Commission. The national
minimum wage is set roughly at 51% of median earnings. Obviously,
the national minimum wage level underpins wage levels certainly
for the lower paid. Since the national minimum wage was introduced
in 1999 the national minimum wage level has risen by 61% whilst
during that period average earnings have risen by 48% (according
to the Low Paid Commission). For those in receipt of the national
minimum wage or on low pay generally, clearly LHA plays a vital
role to supplement earnings by supporting them with some, but
often not all of their housing costs in the form of rent. If,
as the result of the Government proposals, the level of this support
is reduced then it eats into their wages or tax credits, which
have to be used to contribute even more towards their housing
costs. For them surely these measures will operate as a disincentive
to work; not an incentive. One has to bear in mind the other costs
associated with work, particularly travel costs and possibly some
element of child care costs.
56. Perversely, the Government's proposals could
actually provide a barrier to work. It is perfectly foreseeable
that the consequence of these changes will be that over time,
in many parts of the country, more and more LHA customers will
be concentrated in areas of lower value, poor quality accommodation.
These will be in decaying areas resulting in lower rental levels,
simply because that is all LHA claimants will be able to afford.
This will, in turn, accentuate the benefit and dependency culture
with an increasingly sense of hopelessness. LHA claimants will
not be any better off in work. Their job mobility will be restricted
because they will not be able to afford to move nearer work to
get jobs and out of the ghetto areas which will be created. The
situation will result because PRS landlords will look more and
more to let to non benefit claimants in other areas.
57. Another concern in relation to the low paid
is the impact on essential workers. Often they have to work unsocial
hours. They need to live close to work. Again, if as is likely
we see a marginalisation of accommodation into poorer areas these
are likely to be away from city and town centres with consequent
travel time and costs. There is clearly a shortage of social/public
sector housing available for these workers, again particularly
in London and the South East. If they do not receive the necessary
support via LHA to contribute towards meeting their housing costs
how are employers such as the NHS expected to recruit workers
to these essential positions?
58. We have to look at these issues in the context
of lower paid workers such as street cleaners, shop workers and
so on. All of these lower paid workers need adequate support to
meet their housing costs. One of the important elements of the
current HB/LHA system is that it is sufficiently flexible to meet
to deal with local PRS rental conditions. These vary widely from
place to place across the country. The result of these Government
proposals will, however, be to stigmatise benefit claimants. The
problem will be both those in work and those out of work. The
reduction to the 30th percentile when fixing rents
will impose a squeeze at both ends. It will make it much harder
for benefit customers, including those in low paid work, to find
suitable affordable accommodation. It will bear down at the other
end of the market because more and more wherever possible landlords
will seek to let to non benefit claimants. Landlords will look
at alternative markets. The point must be made that LHA is only
one subsector of a varied market. This was identified by Julie
Rugg and David Rhodes in their reports on the private rented sector
for CLG. They, quite rightly, identified a considerable number
of sub-sectors in the PRS of which the HB/LHA market is but one
sub-sector competing with others.
59. In some areas, particularly under the South
East, it will be relatively easy for landlords to disinvest from
the LHA sector and let to other market segments. There is always
a high demand for rentals in these areas. This is also true of
other areas particularly major cities such as Birmingham, Manchester
and Leeds which have more vibrant local economies. Even in other
more deprived areas such as Hull this is happening. Increasingly,
however, in other areas wherever possible landlords will be looking
for non benefit customers as their tenants in the future as a
result of these proposals, coupled with all the problems associated
with the system of direct payments to tenants.
60. When it comes to the minimum wage we have
to accept that if this is increased in real terms significantly
beyond its present level it will mean that the low paid cannot
access jobs. Jobs for them will disappear. This has been accepted
by successive Governments and by successive reports of the Low
Paid Commission. It is the reason why the national minimum wage
has been generally accepted by employers. At the same time, we
have to compete on an international level and keep our labour
cost levels down. Germany, for example, has recently been very
successful in containing its wage costs and is now enjoying considerable
success again in an export led recovery out of the recession.
A price has to be paid for this. Housing costs for those in the
rental sector have to be subsidized. Individual families need
to be kept out of poverty so that they can live at a decent level.
To do this their housing costs have to be supported by HB/LHA.
It is a modern form of the Speenhamland system linked to rental
levels rather than the price of corn.
Levels of rent, including regional variations
61. Whilst there can be local variations which
can depend on the cost of transport or the extent of competition,
broadly speaking the price for commodities such as food or fuel
is the same from one place to another. Likewise, for the cost
of electricity and gas. Rents are, however, entirely different.
Across the country, rent levels vary considerably and, of course,
rent levels vary according to the type size and location of a
particular property. The cost of acquisition/value of the property
is of vital significance when it comes to setting a rent and this
will depend on these various factors. This is why a flexible system
of housing support dependant on local market rents is so important.
62. Implicit in the Government's case for their
purposes is somehow the suggestion that PRS rent levels are excessive
when measured against those in the social/public rented sector.
This is an illusion. The reality is that when one looks at the
private sector, (both owner/occupation and private renting), as
against the social sector has the appearance of being a cheaper
alternative but this is not the case. As we have already pointed
out there is no element of return on investment. This is the vital
difference. Although we have not built a Council house for over
25 years (a slight exaggeration but not far from the truth) £17-18
billion is still owed in repaying borrowings to pay for local
authority housing stock. This is currently paid for by the tenants
through rents (subsidised by housing benefit) ("The Reform
of Housing Revenue Accounts Subsidy - House of Commons Library
Briefing Note - SN/SP/4341). The Decent Homes Programme in
the public sector (which is not even yet complete) will have cost
at least £37 billion by March 2011, as we have pointed out
above. Low rents mean poor quality properties as we are discovering
following years of low rents as a result of the fair rents system
in the PRS. Likewise, the provision of affordable housing by housing
associations is subsidized in various ways by grant and is not
entirely dependant on rental income. Landlords in the PRS receive
no such public subsidy.
63. To give some idea of the comparisons taking
a three bedroomed house in Milton Keynes the position is as follows:
Local authority stock rent - £79 per week
Housing Association - £94 per week
Private rented sector LHA amount £129.50 per week
64. Currently, local authorities/arms length
management organisations are undergoing a programme to bring their
rental levels in line with those charged by RSLs/housing associations.
65. The position is confirmed by the averages
disclosed by Table 1.1 in the Housing Benefit/Council Tax Benefit
statistics in the DWP Statistical Summary dated 15 June 2010.
Tenancy Type - Average rents -
Local Authority tenants - £67.44.
Registered social landlord tenants (housing associations) - £77.02.
Private regulated tenants (ie the old so called fair rent system)
- £75.91.
LHA tenants - £112.94.
Non LHA tenants (ie HB tenants) - £103.65.
66. The RLA would contend that the PRS gives
good value for money. It compares well with the public/social
sector when it comes to tenant satisfaction surveys. The PRS,
however, faces significant challenges because compared to other
sectors its stock is made up of older properties.
67. Landlords in the PRS letting under old style
regulated tenancies (ie subject to the Fair Rent Legislation)
are being compelled to provide the same kind of subsidy to their
tenants as the social/public sector is having to provide to theirs.
It is well known that these private regulated tenancies often
represent properties which are in the poorest condition/state
of repair. As already indicated the same has happened in the social/public
sector resulting in the need for the Decent Homes Programme. This
is inevitably what happens when actual rents are divorced from
market rents. This will be what will happen if the link is broken
between market rents and LHA rates once benefits are up rated
by referenced to CPI.
68. The Government's proposals are based on landlords
in the PRS reluctantly accepting a 10% reduction in rental levels
where their tenants are in receipt of LHA. In support of this
approach the Government seek to rely on two assertions. Firstly,
they argue that landlords renting properties to the reducing HB
sector of the market (ie non LHA tenants) charge approximately
10% less to those tenants. Secondly, they rely on what they say
is emerging research as to rent levels charged by landlords to
those not in receipt of HB/LHA. They claim based on this research
that landlords letting to these tenants charge a little over 90%
of the going LHA rate. We have not seen this research so it is
difficult to comment on it. For example how far are those in work
actually in receipt of tax credits to help them meet their living
expenses?
69. The RLA strongly believes that if this is
the Government's approach then they have miscalculated. We would
refer at this stage to the results of our survey, 71% of respondents
say that they would not be prepared to reduce rental levels
at all as a result of the Government's proposals. Only 22.5% say
that they would be prepared to reduce the rent by the required
10% which would be needed to meet the Government's objectives.
Coupled with this is the fact that some 53.5% of landlords say
that one way or another they will cease to provide for LHA tenants
at the end of their current tenancy either by re-letting elsewhere
or selling/redeveloping their property. But it is clear that landlords
will vote with their feet so suggested savings will not materialise
because of the resulting costs in other directions.
70. These two key findings from our survey should
serve as a stark warning to the Government of landlords' intentions
in response to these proposals. Additionally, we discussed this
issue with our focus group of Hull Landlords. During the discussion
it became clear that many landlords who had previously rented
out properties to LHA claimants were not renting these properties
to benefit customers. The key reason given was the difficulties
experienced as a result of the change over to direct payments
to tenants. Thus it is clear that disengagement from LHA claimants
is already occurring on a large scale. Hull is one of those areas
where one might expect it to be more difficult to get away from
the LHA market but clearly this is not the case from discussing
the situation with local landlords. Again, this should serve as
a warning to the Government of what will happen. These do not
appear to be idle threats. Landlords are going to abandon the
LHA market.
71. In Hull currently LHA recipients are predominantly
those who are out of work. The breakdown between different categories
is as follows:-
- (1) Those who are working age but there is
no one in the household working so they receive LHA and entirely
dependent on benefits - 35,385 - 76.51%
- (2) Those who are of working age who are
in work (whether full time or part time) but claim LHA - 1,281
- 17.31%.
- (3) The elderly above working age who receive
LHA - 435 - 6/18%.
NB: out of these 435, 10 currently have some earned
income.
It can therefore be seen that as landlords from Hull
progressively withdraw from the LHA market, as they are doing,
the impact will be greatest on those who are out of work. It is
disturbing that in Hull where there is generally speaking over
supply of accommodation in some areas but landlords are able to
find other tenants.
72. The reluctance of landlords to engage with
HB/LHA customers can be seen by looking through newspaper or other
advertisements for properties to rent. Often the advertisements
state "no DSS". Alternatively, they may say that only
a certain type of applicant is acceptable eg a professional person.
Indirectly, by asking for rental deposits many LHA claimants are
shut out anyway because often they are unable to raise the money
for a deposit. Just as an example the Barnsley Chronicle on 27
August 2011 Property to Let Section has the following:
| Total number of advertised properties to rent
| 54 |
| Number stating no DSS | 11 |
| Number otherwise indicating DSS tenants not acceptable
| 4 |
| Number stipulating a deposit | 21
|
| Three only expressly said DSO tenants are welcome.
| |
73. Of course, that is not to say that in other cases landlords
will check with applicants and refuse to take benefit customers
even though this may not be mentioned in the advertisement. This
is a well recognised ongoing phenomenon and is again significant
evidence to demonstrate the reluctance of landlords to take on
LHA customers.
74. Why then are landlords so concerned as to these proposals
affecting LHA tenants when compared with PRS tenants who are still
in receipt of HB/LHA or those in work? This comes back to the
security of payment point which we made at the outset. It is the
fact that benefit is paid normally to the tenant rather than the
landlord which is a key factor. It is human nature that if you
are secure in your income and do not have problems in obtaining
payment then you are prepared to accept a loss. It is the difference
in interest rates between secure and unsecure lending. The secured
lender always takes a significant lower rate of interest.
75. In any case those tenants still in receipt of HB instead
of LHA are longer term tenants who have not moved for some time.
The landlord knows where he/she is with these. Those in work are
found by landlords to be more reliable when it comes to payment.
Our survey shows why landlords are concerned about LHA. 41.7%
have experienced problems due to the tenant failing to pay rent
from LHA received. 24.3% have experienced administration problems
by the local authority. Significantly 34% are concerned because
they have been unable despite trying to do so to secure direct
payments. Much concern has been expressed about the way in which
local authorities operate their vulnerability policy when it comes
to direct payment of LHA. The earlier survey at emphasises the
concerns. Often, in practice, the landlord has to wait until the
rent is eight weeks in arrears. By then anyway it is too late
to retrieve the situation and the damage is done. As we have already
pointed out, if you are going to take a 10% hit on your rent and
you experience all of these difficulties in getting the rent is
paid then this is the reason why landlords are not going to be
prepared to accept the Government's proposals.
76. Clearly, if the Government were to rethink its position
in relation to direct payments it is likely that significant number
of landlords may be prepared to reconsider their views going forward
as to whether they are prepared to continue to rent out their
properties to LHA customers.
77. Independently of concerns regarding LHA the most recent
Royal Institution of Chartered Surveyors Residential Letting Surveys
(July 2010) reports that the outlook for rents remains firm on
rising tenant demand. They report that rental growth has risen
for the second consecutive quarter and that yields have improved
for a second consecutive quarter with this being the fastest pace
since the back end of 2008. As we have already pointed out the
IDP survey shows that the current income yield is 2.7% which is
historically low. The RICS report therefore points to a correction
occurring. This means that if rental levels are again rising this
will make it easier for landlords to find suitable alternative
tenants.
78. Importantly, rising rental levels must seriously call
in to question of the Government's projected savings. Whether
set at the 30th or 50th percentile rising
rents will mean increased LHA rates which will cancel out or at
least reduce the projected savings. This is as a result of the
major structural issue which we have already pointed out. It is
due to the overall lack of housing provision and particularly
social provision. With a waiting list of 4.5 million currently
and no signs at all of any significant investment the social sector
is not going to be able to take up the slack anyway. This is going
to cause the upward pressure on rents. The structural imbalance
between supply and demand which we have already highlighted is
going to cause ongoing rental increases. Divorcing LHA rates from
the market by linking them to CPI is not going to solve the problem
either. It will mean that there is increasing shortfall in housing
support for those individuals who need it with the consequences
we have highlighted elsewhere in this evidence.
79. The Committee seek evidence on the question of regional
variations in rental levels. The data provided by the Government's
own impact assessment gives a flavour of the different rents payable
for different types of accommodation in different areas across
the country. These differing rent levels reflect differing housing
conditions in the broad market rental areas but they can only
give a broad brush overview. Very significantly, it is the differences
within these areas which can be very important. Take Leeds or
Sheffield both of which are each a broad market rental area. Both
have affluent areas (the north in Leeds and the south west in
Sheffield) with significant student populations as well. Each
have poorer areas with lower rental levels. The RLA fees that
just looking at regional variations does not really give any meaningful
picture but only a flavour of the situation at best. You need
to burrow within the individual areas and look at the impact on
localities. The affluent areas will not be touched. The question
which has to be looked at is within the broad market rental areas
and what will happen in the poorer parts of the area as a result
of the Government's proposals. As we said in our evidence to the
Committee when it was reviewing the local housing allowance we
believed that the LHA had started to break up the ghettos. We
gave the situation in Leeds as an example. We now believe that
the Government's proposals will reverse this trend and will again
lead to ghetto-isation for LHA claimants with all the adverse
consequences which result. The trend will be for LHA claimants
to concentrate in poorer degraded localities which will be islands
of deprivation.
80. Whilst regional local variations are important, also of
importance in the RLA's view is the number of tenants seeking
accommodation in the different areas as well as the different
sub-markets which can exist within a particular area for rental
accommodation. For example, in London where there will be swingeing
reductions in benefit levels due to the 30th percentile
rule but more particularly the caps, there is already an over
supply of tenants anyway. Economically London and the South East
are recovering faster. They do not have the problems suffered
by the North, particularly with its higher dependence on the public
sector. Likewise, other regional Cities such as Manchester, Leeds,
Nottingham etc have more diverse local economies with greater
demand for rental accommodation from working people, young professionals,
students and so on.
81. In the RLA's opinion in particular localities much will
depend on what alternative markets are available but having said
that it is our view that wherever possible landlords will now
seek to disengage from the LHA market and seek available alternative
lets.
82. The reality is that the 30th percentile rule,
coupled with the cap, will have the effect of squeezing the market
from both ends. At the cheaper end less properties will be available
to LHA customers anyway. At the other end of the market there
is a better chance anyway for landlords to obtain alternative
tenants who are not in receipt of LHA anyway.
83. Perhaps to some extent the question of levels of rents
is based on the idea that in some way HB/LHA underpins rental
levels. The RLA does not believe that this is the case generally
speaking, although it may be true of certain areas where there
is a concentration of benefit customers. Away from such areas
there is a very real market. The landlord has a choice whether
to take on benefit customers or not. In these areas rental levels
are not driven by HB/LHA rates but rather by earnings levels and
the value of properties.
84. We do have to acknowledge that in certain localities (Blackpool
and Hull are sometimes cited as examples) the market is more dependant
on the level at which LHA is paid. At this lower end of the market
benefits do have a much more significant role. Even here we must
not lose sight of the reality that tenants in these areas do go
in and out of work, often perhaps on a part time basis so that,
as with the general market, the level of earnings is also a factor
in determining the going rate in those localities. The HB/LHA
market certainly does not exist in isolation even in these areas.
We have already pointed out the results of our focus group discussions
with local landlords in one of these areas, Hull, where in depth
discussions with local landlords indicate that they are moving
away from the LHA market and that it is possible for them to do
so.
85. As we have already pointed out in our evidence it is essential
to look at the total income in a household. This may be supported
by HB/LHA. There may be earnings. It is not just about the workers;
it is also about the low paid and the elderly who are, of course,
no longer of working age so that they are reliant on pensions.
We view the impact on rental levels as a result of the proposals
as being at least as detrimental for these groupings as for those
who are out of work. This is why, in our view, that the impact
of these proposals must be viewed in a holistic way; in the round
which is why, as we have already argued, it is wrong to isolate
HB/LHA not just from benefits as a whole but from household incomes.
If LHA rates are insufficient then Peter will have to be robbed
to pay Paul and there will be a significant adverse impact as
a result on people's lives. It is vital to consider the human
consequences.
86. An important issue for many landlords, in setting rental
levels, is the level of their borrowings. This is particularly
true of new entrants to the market, those thinking of investing
in the market and those existing landlords who have acquired new
properties in the recent past. The PRS is heavily dependant on
borrowings to acquire properties. Whilst official interest rates
may be low (Bank of England Base Rate currently being at 0.5%)
as a result of the credit crunch banks have aggressively sought
to increase their margins. They have also altered the terms of
lending so that interest rates are now much more based on LIBOR
rate (London Interbank Offered Rate); rather than bank base rates
as has historically been the case in the past.
87. The number of buy to let mortgage products on offer now
stands at around 260 (Source Northern Rock) whereas before the
credit crunch there were 2,000/3,000 such products on offer. The
current cheapest offer is one at effectively 5%. However, it is
not just about interest rates nowadays; it is also about initial
set up charges, arrangement fees etc, all of which increase the
effective rate of interest. Whilst being historically low interest
rates can only go one way. Inevitably they must increase because
they are being held at an artificially low level. Due to the increased
margins landlords who have significant borrowings face substantial
increase in interest costs in the future.
88. Landlords therefore have little choice in setting rent
levels in these circumstances. They must ensure that their rents
are sufficient to service repayments as well as the cost of management
repairs etc. There are other pressures due to possible breaches
of loan covenants which we look at the next section.
89. Landlords have always been unhappy with the way in which
local reference rents have been determined for the purposes of
HB. This is still relevant, albeit to a declining number of benefit
customers. It lacks transparency and was open to interpretation/manipulation.
The current system for LHA is somewhat more transparent. Some
landlords still voice concerns as to whether LHA allowances do
correctly reflect the going rate for market rents within their
areas. This adds to landlords' lack of confidence in the system.
Shortfalls in rent
90. When it comes to any shortfall in the rent as between
the amount contractually payable on the one hand and the amount
of HB/LHA landlords are inevitably the losers. The general experience
of landlords is that if a top up payment is due it can be hard
to obtain payment. "Blood and stone" comes to mind in
some cases. In other cases tenants struggle to pay shortfalls.
48% of people on LHA already suffer a shortfall. The average is
£23 per week currently (Hansard 5 March 2020). At
the moment one of the ways in which a shortfall can arise (usually
unwittingly from the landlords perspective) is that the tenant
is having to make a repayment in respect of previous benefit overpayment.
This is clawed back from the benefit and it means that the landlords
encounters a shortfall situation.
91. It is fair to say that at present landlords usually attempt
to recover such shortfalls but, on occasion have to accept the
inevitable and write them off. The Government's proposed changes
to LHA will result in a change in attitude, in all likelihood
a harder attitude. Inevitably, short falls are going to increase
in amount as well as in the number of tenants affected. The position
in this regard will be significantly exacerbated once benefits
become linked to CPI as the gap between rents and LHA levels widen.
Likewise, once the new rule comes in so that JSA claimants who
have been unemployed for more than 12 months suffer a 10% reduction
again this will give rise to shortfalls.
92. Inevitably landlords will no longer be able or willing
to accept the increasing levels of shortfalls which if the tenants
are unable to pay are irrecoverable now are going to be even less
likely to be recoverable they grow in size. Some tenants will
inevitably try to dip into other benefits/income to make good
these shortfalls. Bearing in mind that they are at minimum levels
already clearly they will struggle to do so. They may well have
to go short elsewhere.
93. The RLA believe that as the level of shortfalls rises
then landlords will seek to evict tenants and refuse to renew
tenancies once they have run their course. Importantly, as already
pointed out elsewhere, this will be a very good reason to avoid
benefit customers as tenants anyway and to let properties to non
benefit claimants, particularly those who are working.
94. The issue of shortfalls is compounded by the current system
of direct payment to tenants. Shortfalls and arrears are intermingled.
The landlord also loses out because money paid for housing support
is used for other purposes which will again lead to evictions,
refusals to renew or a disinclination to take on benefit customers
in the first place.
95. In all of this one has to take into account the cost of
tenancy changes. These inevitably impact on landlords. It is not
just a matter of rental loss due to voids but there are also potentially
advertising costs or fees paid to letting agents for finding tenants.
Work may need to be done to the property on a change over of a
tenancy.
96. Shortage in rents received may well cause problems for
those landlords who have mortgage commitments. They are significant
in number. Lenders lay down a requirement that the rental income
must usually cover the mortgage interest repayments by 125% and
stipulate loan to value ratios. Rental levels are also critical
to valuation and again lenders lay down loan to value requirements.
Yields govern capital values. At the moment many lenders are engaged
in re-examining their security because of the recession. They
are stipulating that properties should be revalued. If there is
a shortfall in rent for whatever reason then interest cover covenants
may be breached or properties may be down valued because of the
rental reduction leading to breach of loan covenants as regards
loan to value ratios. All of this is occurring against a background
of values which have fallen by around 20-25% from their peak.
In the Nationwide Housing Survey published last month (August
2010) shows that in the last two months house prices have fallen.
This will further exacerbate problems with lenders.
Level of Evictions etc
97. Eviction may be a misleading term in this context. Often
landlords will prefer to wait until the end of the tenancy and
then rely on Section 21 of the Housing Act 1988 to obtain a possession
order. Tenants, of course, may in some cases choose to leave voluntarily.
As tenants will be treated as homeless in this situation they
will be advised by local authorities to stay in the property until
the landlord at least obtains a Court Order. In the meantime the
landlord suffers because shortfalls/arrears of rent continue to
grow.
98. One concern is where benefit shortfalls cause rent arrears
how far local housing authorities will treat this as being intentionally
homeless. Local authorities will be under increasing pressure
to house the homeless so the experience of landlords is that authorities
will use every reason they can to avoid their statutory homelessness
duty.
99. For their part new landlords will be reluctant to take
on tenants who have been evicted/not had their tenancy renewed
because of arrears. Usually landlords obtain references wherever
they can and these will disclose the arrears history.
100. The question also arises as to whether landlords will
accept the shortfalls and live with them. For the reasons we have
explained elsewhere we do not believe that they will as they increase
in number and size. A lot of landlords will not be in a position
to do so financially anyway.
101. The level of evictions will depend on the extent of the
shortfall in benefits/arrears. This will cause particular problems
in London where tenants will have a cap to contend with along
with major reductions in benefit levels. Likewise, for those with
five bedroomed accommodation.
102. From talking to local authorities even if they are able
to provide accommodation which is clear that the number of four
bedroomed or larger houses is severely constrained in the public/social
sector anyway.
103. The increasing reluctance on PRS landlords to take on
benefit customers will mean that there is less and less accommodation
available in the PRS to house the homeless. In 2009 - 75,520 people
were helped by local authorities as being homeless according to
CLG statistics and around half of these were rehoused in the PRS.
104. The majority of landlords only have small portfolios.
Many have four or less properties. It is going to be extremely
difficult for them to ride out arrears or to accept reductions
in rents. The inevitable consequence must be that the proposals
will lead to an increase in arrears/non renewal of tenancies.
After all every benefit customer is affected by these changes
according to the Government's Impact Study. One has to look at
the cost to the sector overall even allowing for tenants themselves
making up shortfalls/the limited impact of discretionary LHA payments.
We have some 936,000 people affected with an average reduction
in rent just due to the 30th percentile rule of 10%.
Based on the Government's own figure of £126 per week at
£12 per week this means that the total amount of LHA taken
away from tenants (for them in turn to pay their rent) is going
to be in the region of £560,000,000 although the Government
estimate says it is £452,000,000
105. Even if tenants are able to struggle and make up the
shortfall at the extent of say one half (which is purely a guess)
the income to the sector from LHA claimants is going to be of
the order of £280,200,000. This is not an income loss which
small business people are able to stand. Added to this will be
the impact of savings due to the cap and the abolition of the
five bedroom rate.
106. Of particular concern in relation to evictions is the
10% deduction of benefit customers who have been on job seekers
for 12 months. This will come in addition to the other shortfalls/arrears
and clearly in that situation a landlord is going to be even quicker
to react and to evict tenants/refuse a renewal. That is if a landlord
will take such a tenant in the first place.
Landlord confidence
107. Coming on top of all the problems associated with direct
payment to tenants, these proposals will push landlords over the
edge so far as LHA claimants are concerned.
108. If the Government do go ahead with their proposals then
the RLA believes that the consequences are clear. We do believe
that to some extent, without incurring extra costs the Government
may be able to slow down the process and reduce its impact by
altering the method of payments so that the norm is no longer
that tenants are paid direct. The arguments in favour enhancing
financial responsibility are, we feel, shot to bits because this
rule is not being applied in the public/social sector. Having
put this evidence before the Committee we fear that this will
be one of those cases where it will give us no pleasure in five
years time to say "we told you so".
Our survey (of which over 95% of the respondents rent to tenants
claiming LHA) shows landlord confidence at two out of five (one
equals low and five equals high). When coupled with the intention
of respondents both as to what will happen to LHA tenants when
tenancies end and intentions regarding rental levels mean that
the proposed measures will in our view amount to a body blow for
the LHA market.
All of the reports which we receive are surveys and our discussions
with landlords indicate that landlords are out of patience with
LHA and have lost confidence in the system. We have already set
out our evidence in relation to rent levels, rent shortfalls and
evictions. All of these issues clearly undermine landlord confidence
in LHA. As a result wherever an alternative tenant can be found
landlords will cease to rent out to LHA customers. The shortfall
in support available for those in work will be as much a problem
for those as those customers who are entirely dependent on welfare
benefits.
Community Cohesion
109. In our evidence to the previous Select Committee on LHA
we cited the position in Leeds where ghettos had developed in
south Leeds prior to the introduction of LHA. Landlords experience
was as a result of the introduction of LHA and LHA customers were
enjoying increased mobility. This is now bound to come to an end.
110. Landlords are well aware that up and down the country
in cities and towns there are often poor areas where benefit claimants
and the low paid tend to congregate. These are often run down
areas of older accommodation. Each member of the Committee will
be aware of this from their own constituencies. Because it is
poorer quality and in a worse area inevitably the accommodation
is cheaper and this is what attracts benefit customers.
111. Our prediction based on experience and the evidence we
see is that there will be again increased ghetto-isation for benefit
claimants. They will be left with no option but to move to these
low quality areas and to live in less than decent accommodation.
There are only some 1,500 qualified environmental health officers
in the country and no doubt local authorities will face cuts in
the housing regulatory function. As we have testified to CLG Select
Committee we do not believe that the current system of housing
regulation is working. The reality is that it concentrates on
the generally compliant responsible landlord rather than homing
in on the rogues. Housing regulation is therefore not going to
help these individuals and at the end of the day if the rent is
insufficient the landlord does not have the wherewithal or incentive
to maintain let alone improve the property. As we have already
pointed out earlier this was amply demonstrated by the impact
of the fair rent system under the Rent Acts.
112. The problem of degraded areas into which benefit customers
have moved can only become worse as a result of these proposals.
Worst still will be the position of those who are made homeless.
There will be those who have to sofa surf or live in overcrowded
conditions. The RLA believes that an underclass will develop once
these proposals become effective.
113. All of these factors destroy community cohesion. We face
even lower levels of educational attainment, health problems,
increased dependence on drugs and alcohol and loan sharks preying
on the hard up.
114. We have already referred to the level of poverty and
this will inevitably increase; again with adverse impacts on community
cohesion. There will be increased levels of crime and begging.
The Conservatives have made play of the broken society and these
proposals can only exacerbate this.
Disabled etc
115. The proposal for an extra room allowance for carers is
to be welcomed. One issue not addressed by these proposals is
cases where for medical reasons a couple cannot sleep together
in the same bedroom, particular problems are elderly people. An
extra room ought to be allowed in this situation.
116. Although probably not strictly termed as being specialist
housing in the sense the Committee may employ the term, the RLA
has for a long time voiced concerns about the operation of the
under 25 rule and called for its abolition. This age group will
be further penalised by the Government's proposals. By way of
an example in Leeds on present projections the single room rate
will drop from £65 to £57 per week. This is going to
hit home hard and these individuals are debarred from finding
self contained accommodation already and it is now going to be
even more difficult to find a place in a shared house because
of the reduced housing support available because of the changes.
Older people, larger families and overcrowding
117. This particular topic links in with concerns over community
cohesion. At the moment it is fair to say that many benefit customers
are currently still in receipt of HB rather than LHA. This is
born out by the statistics which we have obtained in Hull for
the breakdown between working people and the elderly and for Leeds
. . However, as our survey shows in 2009 the percentage of elderly
tenants catered for by the PRS was around 12%.
118. Landlords predict that as the population ages and as
access to social housing becomes more difficult more and more
the elderly will have to turn to the PRS. They are then going
to face exactly the same problems as those at working age because
of the reduction in the available benefits as a result of the
Government's proposals. They are on fixed incomes. They are unlikely
to have any personal pensions available and will be dependent
on state pension/pension credits. In many cases they are unlikely
to have the option of finding paid work or will be unable to undertake
it anyway. Effectively, they are stuck on benefits. Thus, it is
likely as time goes on that these proposals will disproportionately
bear down on this group.
119. Large families also face particular hardships. Very large
families will be disadvantaged by the abolition of the five room
rate. We have already pointed out the lack of larger accommodation
available in the social sector. The uprating of non dependent
deductions is going to hit home particularly harder with this
group as children grow up. They face the double whammy of not
being able to obtain adequate assistance themselves but at the
same time they will come under increasing pressure to leave home.
It is well known that older children living at home are not able
to contribute/do not contribute to rents anyway and there are
no separate benefits available to them for this purpose. Ironically,
in some cases, it may well put increasing pressure on the HB/LHA
budget because some of them may be driven to seek accommodation
themselves if they are able to find it. This is because they will
have to leave home.
120. Overcrowding is also a serious concern. It is note worthy
that successive Governments have not overhauled the overcrowding
standards since the 1930s although they are generally acknowledged
as being unsatisfactory, with the possible exception of houses
in multiple occupation (HMOs) accommodation. Licensable HMOs are
subject to room size criteria/control of numbers and there is
power in the case of non licensable HMOs for individual overcrowding
notices to be served. Across the board there are powers under
the housing health and safety rating system (HHSRS) to deal with
overcrowding on a risk basis approach. With limited resources
and the problems associated with finding alternative accommodation,
as individuals are rendered homeless, it is questionable how far
local authorities would seek to use these powers other than in
the case of HMO accommodation anyway.
121. Our information is that as it becomes increasingly more
difficult for benefit customers to obtain housing inevitably overcrowding
will occur. For single people it may well take the form of sofa
surfing or hot bedding. For example, we are aware of one case
involving trainee chefs who work very long hours where the local
authority found that 12 people in London were sharing a two bedroomed
flat paying a rent of £55 each. Whilst we deprecate this
kind of exploitation unfortunately it is an inevitable consequence.
Rogues will take advantage of this situation. They always do where
shortages are concerned. This gives rise to reputational concerns
for the PRS.
122. In particular, it is likely that the overcrowding problem
will become serious in London where there are already considerable
pressures regarding the availability of accommodation across the
board.
123. The RLA's particular concern is that landlords will be
blamed for this situation. Some may even be prosecuted or subject
to enforcement action because of overcrowding. In reality this
will not be their fault in many instances but it will be a direct
result of the proposals once these are in force.
Up-rating of non dependent deductions
124. The major up-rating of non dependent deductions is going
to cause considerable problems for particular families with older
children, as we have already mentioned. Inevitably, this will
lead to tensions within households and at the extreme insistence
on adult children leaving home. It will exacerbate the problem
regarding shortfalls in rent.
Up-rating of benefits according to CPI
125. Whilst the Committee has not expressly called for evidence
on this issue the RLA believes that it is one of the most detrimental
of all of these proposals. When market rents were introduced by
the Housing Act 1988 the then Government gave a promise to link
housing benefit rates to market rents. The successive Governments
have honoured this, at least in principle. Now, for the first
time the Government want to move away from this principle.
126. Between 1998 to 2010 private rented sector rents have
risen by 63% from an average of £79 per week to £129
per week (CLG survey of English Housing). Over this period average
earnings have roughly risen by about 48%. This has resulted from
the structural problems which we have already referred to in the
housing market due to shortage of supply. With the ongoing shortage
of supply no doubt this trend will continue. The gap between market
rents and LHA rates will widen over time.
127. Clearly, the result of this will be that increasingly
LHA will not provide sufficient support for housing costs and
the shortfall in rent will increase. This will lead to all of
the problems we have outlined in the earlier section regarding
this topic. As we have also pointed out already it will mean that
benefit customers will have to try to make up the difference from
their other already minimum benefits or if they are working it
would eat further into low wages making it less and less financially
worthwhile for them to go to work in the first place.
128. The Government has chosen this measure of inflation not
just for this purpose but for uprating other benefits because
it is beneficial to do so CPI is, however, less representative
of the depreciation in the value of the currency than RPI.
129. A particular technical objection which has been raised
is in relation to how CPI is compiled to show how the worst off
will be badly affected by this change.. This was highlighted in
an article in the Daily Telegraph on the 30 August. As the CPI
Technical Manual explains, CPI uses geometric averaging as opposed
to arithmetic averaging. The RPI methodology is based on the assumption
that people buy the same goods as in the previous year. It measures
the average price change on the basis of the changed expenditure
of maintaining the same consumption pattern for households (see
paragraph 9.1.2 of the Technical Manual). There is also a different
treatment of housing costs. RPI methodology assumes that people
buy the same goods as in the previous year whereas in the CPI
methodology they are assumed to spend the same amount of money
on goods as the price increases. In other words the amount of
goods purchased falls in exact proportion to the rise in prices.
The amount of money spent does not vary.
130. The Government contend that CPI better reflects the spending
of those receiving benefits. Both the Institute for Fiscal Studies
and the Royal Statistical Society have also questioned this claim.
Under RPI it is assumed that as the price of goods rise people
look for cheaper alternatives. Whilst the assumption that people
spend the same amount will apply for most people rather than the
assumption that they buy the same amount of goods; this, however,
does not necessarily apply in the case of benefits recipients.
Those on minimum levels of benefits are only being provided with
sufficient amounts of money for them to get by. It is inherent
in this that they cannot respond to price rises by buying less.
They are already at minimum levels. Over time this means that
those already at these minimum levels will be able to consume
less and less because benefits will be cut in real terms. As the
Article referred to argues the Government appear to be punishing
the poor by lining benefits, including LHA, to CPI rather than
RPI.
Abolition of £15 excess
131. In its previous evidence to the Select Committee and
also in its response to the Social Security Advisory Committee
(SSAC) the RLA opposed the removal of the £15 excess entitlement.
It gives tenants the incentive to negotiate their rent with landlord
on the basis that they could keep any excess and not to the maximum
allowed. Statistics show that this has worked in 47% of claims.
It was argued by the then Government that this helped empower
tenants and give then greater financial responsibility. If this
is no longer to be the case one of the key elements of the LHA
edifice has been broken. The removal of the £15 excess rule
means that in future there will be absolutely no incentive for
tenants to try to and get a rent reduction because there is nothing
in it for them. We are also concerned at the resultant adverse
consequences in the terms of child poverty. The ability to retain
an amount of up to £15 has provided a very useful supplement
for those who are on the lowest incomes anyway. Furthermore, as
we pointed out to the SSAC previously landlords will have absolutely
no incentive to keep their rents below the local housing rate
and we do wonder how far this aspect has been taken into account
by the Government in their calculations regarding savings which
will result from their own proposals overall. Landlords will still
be receiving an appropriate rent for their properties (or, in
realty much less than it should be) so clearly they are not "ripping
off" the system. Quite rightly SSAC oppose this measure and
we would again reiterate our opposition to this particular proposal.
Administration and its cost
132. The RLA think that if the Government is looking to save
money this can be achieved by more efficient administration of
the system. The views of the RLA on local administration have
changed. We have always appreciated that there is the linkage
with Council Tax Benefit (CTB) in administration. The local link
has been valued by landlords. Now our considered view is HB/LHA
should be administered on a national basis alongside other benefits.
The current system necessitates a huge exchange of information
(often the same information) between the DWP and the local authority
(and vice versa). Whilst Job Centre Plus has streamlined the system
to a limited extent, the RLA now believes that significant savings
to the costs of administration, as well as improvements in efficiency,
can be achieved by merging HB/LHA administration under the auspices
of the DWP. As to CTB administration Council Tax could be rebated
on the instructions of the DWP. The administration of the CTB
system so far as it concerns the collection of Council Tax could
be administered through existing Council Tax offices; rather than
by separate benefit sections.
133. The RLA also believes that the restoration of the former
system of direct payment to landlords and tenant's choice would
achieve significant savings. At the moment local authorities have
to operate costly vulnerability policies with extra staff trained
to deal with difficult issues. These have to of necessity be dealt
with within a short time frame because of the eight week rule.
Otherwise, vulnerability policies are meaningless anyway. We also
believe that a smaller number of bulk payments to landlords must
be a less costly way of administering the payment system. Under
the old system if the tenant chose direct payment to the landlord
this could be logged and then acted upon via bulk payments. Local
authorities only had to administer the eight week rule for those
not on direct payments; not vulnerability policies. At the moment
considerable expenditure is having to be incurred in supporting
tenants as part of the process. Obviously, this would have to
continue where the tenant preferred payment to himself/herself
but there could be large savings achieved in those cases where
direct payments to the landlord were put in place.
134. It also has to be remembered that where direct payments
are made to the landlord should the landlord be held liable for
over payments then there is far more chance of recovering the
overpayment from the landlord (who will have assets) than from
the tenant. That is not to say that where the tenant is at fault
in such a situation the tenant rather than the landlord should
be pursued for the over payment.
Discretionary Housing Benefit payments
135. The Government have announced an increase from £10million
per year to £40million per year in respect of the allocation
to local authorities for discretionary housing benefit payments.
It has been reported that a calculation has been made which indicates
that even with this increase only 4% of LHA claimants could be
helped. Coupled with the fact that there is no provision for transition
from the old system to the new system for existing benefit customers,
clearly there is going to be a wholly inadequate fund available
to help those who are hardest hit by these measures. As local
authority finances are constrained following the CSR in October
then there is going to be no additional funding available from
local authorities themselves. Experience shows that local authorities
are not prepared to augment central Government funding for this
purpose.
136. It will be very important for local authorities to adopt
proper robust transparent policies for determining how they will
allocate payments under the discretionary housing benefit system.
These will be well publicised both to tenants and landlords for
them to be able to assist their tenants to be able to obtain such
payments in appropriate case.
Transitional arrangements
137. The RLA is perturbed at the lack of transitional arrangements
for existing benefit customers. Historically when changes have
been made, particularly changes of this magnitude, either existing
customers have been protected altogether or at the least the changes
have been phased in over a period of time. There is no such protection
here and, indeed, the change over will be on a hit or miss basis
depending on what is the date of the anniversary of the claim.
We would strongly urge that consideration is given to phasing
in these changes or, alternatively, making a substantially greater
sum available for discretionary housing benefit payments.
Rationale of the RLA view
138. The underlying rationale for the RLA's views is as follows:
- (1) There is a fundamental problem with housing provision
in this country because of the lack of supply.
- (2) The availability of public/social housing is inadequate,
the size of the sector relative to other sectors has declined
and there are no prospects of any real increase, resulting in
ever lengthening waiting lists.
- (3) This situation exists against the background of increasing
demand for housing due to a growing population and an increase
in the number of households, especially due to change in demographics
leading to smaller household sizes.
- (4) The only possibility therefore is to look to maintain
and increase the number of benefit customers housed in the PRS.
- (5) The PRS as a private sector provider will only be
able and willing to provide the necessary accommodation, so long
as it is economically viable to do o i.e. there is sufficient
return on capital and the PRS is able to defray its costs.
- (6) Investment in residential property is not a separate
asset class. PRS providers have to compete with owner occupation.
Increased house prices (although they have fallen back to a certain
extent) coupled with the structural problem and the overall lack
of supply have inevitably forced rents up in the PRS and this
trend will continue.
- (7) In any event PRS investment is dependent on a combination
of income and capital yield; not income return alone. Returns
are not excessive.
- (8) Low income earners and benefit claimants (whether
or working age or the elderly) are dependant on financial support
to access housing in the PRS and need such support to be able
to afford decent accommodation.
- (9) The State on behalf of the tax payer dictates the
price which it is prepared to pay and the extent of the financial
support which it is able and willing to given in the case of benefit
customers.
- (10) The private sector providers do not have to accept
the price that the Government fixes and it may not be economically
viable to do so. In many cases matters may be out of their hands
anyway because of the need to service loan repayments.
- (11) PRS landlords have alternative markets.
- (12) All PRS landlords do not have security of income
because of the current system of normally paying tenants direct
and this makes them increasingly reluctant to accept benefit customers
as tenants together with the problems surrounding arrears and
delays in payments.
- (13) It is the tenant who is contractually liable to pay
the full rent. If housing support is insufficient the question
is then whether benefit customers have alternative sources if
income shortfalls.
- (14) The benefit customers who are wholly dependent on
benefits are already at the minimum by definition. They will not
be able to have the essentials of life. Therefore they will be
unable to find sufficient money from elsewhere.
- (15) For their part landlords will not be prepared to
accept increasing shortfalls because, again it eats into to the
real return on their investment and prejudices their ability to
meet their costs.
- (16) For those who are in work but who claim benefits
they will be in receipt of low wages and in a lot of cases at
or just above the national minimum wage. They have other costs
associated with working. As their earnings increase benefits are
withdrawn so rapidly it makes little sense for them to work. They
will also struggle to meet shortfalls.
- (17) To remain internationally competitive and to ensure
that workers do not price themselves out of a job wage levels
have to be kept low for many jobs. The State has to provide financial
support for these individuals for their housing costs.
- (18) If this support is insufficient then landlords will
not provide the necessary accommodation in the PRS because the
returns are insufficient and benefit customers themselves are
not in a position to meet the shortfall in this State provision.
- (19) The net result is that it is no longer economically
worthwhile for PRS landlords as providers to continue to provide
the accommodation and they will either disinvest altogether or
seek alternative markets. There is no prospect of social/public
sector meeting the shortfall.
- (20) Alternative markets are already available and PRS
landlords are already moving away from benefit customers, not
least because of their concerns over the current payment method.
- (21) The Government's proposals which reduce the level
of state support housing costs for benefit customers in the PRS,
which is already insufficient, will cut this provision further
in the short medium and long term. The speed of withdrawal by
landlords from provision to benefit customers will increase markedly.
- (22) If you do not relate the price which the State is
willing to pay to the market cost then the effectiveness of the
benefit, in this case housing support, breaks down.
- (23) The Government's case is based on an increasing number
of benefit customers taking up work but this pre-supposes that
there is work available for them and the RLA's view that this
is unlikely.
- (24) As landlords continue to withdraw from providing
accommodation for benefit customers the smaller pool of available
accommodation will in itself push up rents even further. This
will track into and increase the level of LHA rates which will
be self defeating so far as cost cutting is concerned. The switch
over to the CPI link for uprating will not solve this problem
because it will simply exacerbate the situation by further decreasing
the available supply and further reducing the overall income for
benefit customers.
- (25) The consequences are that additional costs will fall
on Government in other areas which will have the effect of cancelling
out any apparent savings.
Confidence on the part of landlords as providers is falling. The
Government could go a long way towards reversing the current trends
by restoring the former payment method, ie payment to landlords
if the tenant chooses. This will help reverse the trend of a real
fall in return on investment.
Conclusion
139. Whilst the RLA acknowledges the need to constrain public
expenditure, we believe that the Government's intended savings
will either not occur at all or if they do will be offset by significantly
higher public expenditure elsewhere. Just as important, we believe
that as is so often the case these policies will have other consequences
both intended and unintended. These consequences will either damage
the social fabric and be so counter productive that whilst not
always measureable in monetary terms will outweigh the apparent
savings with the Exchequer. The major consequence will be the
refusal by landlords to take on LHA customers as tenants and will
also lead to eviction/termination of existing tenancies once they
have run their course.
140. It is vital to reiterate that it is not just these Government
proposals but it is the current system of direct payment and tenants.
One cannot over emphasise how hostile landlords are to this payment
method for LHA. A major disengagement for LHA housing provision
is already underway and this will be speeded up by the Government's
proposals in the emergency budget in June 2010 as these are implemented.
The reduction to the 30th percentile will shut out
many existing tenants from the LHA market anyway. Ironically those
who can obtain accommodation even though they receive LHA rents
will have to pay higher rents. This is already the trend as demonstrated
in this evidence but inevitably as LHA accommodation in the PRS
becomes more scarce rents will also rise. This will put up rental
levels thus influencing LHA rates even though they are set at
the lower 30th percentile. Moving over to up rating
according to CPI will not end these difficulties because that
will have different but just as adverse consequences over time.
The Government's agenda is one of fairness but do not think that
these measures will achieve this.
September 2010
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