Research Is Needed Into Implications of Budget Changes to Housing Benefit Rates for London Boroughs

The detail of how the change to Local Housing Allowance / Housing Benefit rates will be managed in practice will be interesting and the government will need to tread very carefully and will have to carefully consider the needs of the old, the sick and the HB claimants with young families in all this or they could be facing a PR disaster. Visions of vulnerable people being forcibly moved from expensive central London boroughs to cheaper neighbouring boroughs sound worrying.

Local Authorities Face A Big Challenge

Local authorities will now also need to get a whole lot smarter with what they call their “private rented sector access schemes” or “social letting agencies”  (For the uninitiated these are the schemes they have in place to try to move the large numbers of (often young) people who are stuck in possibly unsuitable council and RSL accommodation because there is no social housing provision available that they could qualify for.)

If they have not already done so, the local authorities, especially in the more expensive London boroughs will need to team up seamlessly with other outer boroughs to find housing solutions for those who will find themselves priced out of some areas.

All local authorities will also be an even greater need to make sure they do all they can to ensure LHA processing systems are fast, especially at making payments direct to private landlords if their Local Housing Allowance dependent tenants don’t pay their rent. If there is a failure to deliver this, private landlords could really start to desert the business of letting to LHA dependent tenants (starting with the more up market boroughs first.)

At LettingFocus we help local authorities and RSLs in this area and we think that a properly thought out strategy for the private rented sector (PRS) – one that makes the most of what it has to offer tenants should be at the heart of any local authority’s housing strategy, not on the periphery as is so often the case.

For councils, getting the strategy right for the PRS should not be that hard because the reality is that even after the budget changes are implemented, many private rented sector landlords outside the most expensive areas should still be happy to let to LHA dependent tenants (yes, even after rents have been set at the 30th percentile rather than the old median level) just as long as they are paid promptly.

What Private Landlords Want (and Don’t Want)

This is important because many studies have shown that private landlords aren’t too bothered about being incentivised to let to benefit dependent tenants.

It’s our opinion (and this is backed up by research from practitioners in the  housing charities) that the rent guarantee schemes, bonds and landlord incentives as used by many local authorities are not the most efficient way of incentivising private landlords.

All landlords really want is their rent to be paid on time, every time and with the minimum of hassle. What private landlords don’t like is void periods and having to pay to recruit new tenants. They do like tenants who pay and who stay for long periods. Tenants who are on LHA stay longer and landlords like this.

But the trouble for private landlords is that they also see tenants on LHA as a “potential hassle” – not the tenants themselves (though some, just like private tenants will have “issues”), but rather the system.

Landlords know the application forms for Housing Benefit are very long, complicated to fill out and that it is all too easy for even the most clued up tenant to fill them out wrong. This makes LHA awards and payments often late with the result that the LHA dependent tenant is perceived by landlords to be too high a risk.

Solutions

But there are solutions for all these things. Take the risk of tenant default, for example. In private rented sector access schemes, it ought to be possible for a local authority to sufficiently reference check a former council housed tenant and provide a private landlord with a cast iron and underwritten guarantee that the tenants won’t default. Insurance ought to be available to cover this, thus giving an added comfort level to the private landlord.

But if the local authority is managing LHA and rent payments properly, we would argue there is no need even for external rent guarantee insurance. In other words, the local authority could “self insure” and save the premiums.

Local authorities have to put in place (where necessary) and then sell the benefits of LHA dependent tenants to private landlords, but all this will count for nothing if the authority cannot make the LHA system of application, award and payment faster.

In recent years lots of private companies have sprung up offering solutions to local authorities in this arena – recruiting landlords willing to let to pre-screened Housing Benefit tenants and dealing with all the admin for the landlord and council.

We think most of these are too expensive and involve too many “hand offs.” In our opinion, local authorities should look very closely at what’s on offer and whether it is good value for money for the ratepayer.

At LettingFocus we cast an independent eye over such proposals for councils.

Villains

Private landlords are often cast as the villains of the housing piece. Is this fair?

Well, some of them sure aren’t angels. But post Thatcher and the sale of swathes of council stock, I don’t see anyone else (including the institutions hungry for tax breaks to induce them to enter the PRS) providing much accommodation just now, so I guess local authorities will just have to learn to live with their private landlords.

Certainly, many private landlords targeted areas where they knew the LHA rates were (previously) pretty generous relative to the capital values of properties. They invested in these areas for the good yields knowing that the level of local LHA dependency was sufficiently high and that the government (by setting LHA based on median local rents) was actually bidding up and in effect, setting rent levels in some areas. And since landlords and tenants knew what was payable (because the figures were published by the Valuation Office), they rather unsurprisingly tended to set rents at the maximum payable by the state under LHA.

Now, following the last budget and the caps on LHA levels, some of these landlords will have to think again – which goes to show the risk to them of developing an investment and lettings business based on what the government does. Some may sell but some could come to realise that in reality they cannot get any more than the new LHA rates from private-non-LHA-dependent tenants. For them, the LHA gravy train doth end here! And so it should despite the protestations from some landlord groups.

How many of these landlords will stop taking LHA dependent tenants and / or sell their properties or just accept that they are not going to get as much in future is a big question but with a bit of quick but targeted research this is a question that can be answered within weeks.

Hand Wringing Must Stop

And those involved in housing at local authorities must surely stop wringing their hands and find out the answers to these questions pretty quickly because the result of the changes to LHA rates could be that a lot more people will be seeking housing in the less expensive boroughs of towns across the UK. These neighbouring boroughs will need plans to manage the increased numbers seeking housing and they will need them fast.

Local Authorities Must Engage With Landlords

People working in local authorities may not like having to depend on private landlords so much. I can understand this and as a landlord myself I agree with most of them that selling off council homes was a huge policy mistake. But that’s what happened and is now history. And so, going forward local authorities and others in the business of the housing will have to accept that they will have to continue to depend on private landlords to house people. Their challenge is to make sure they properly engage with landlords.

On their PRS access schemes, they will need to be sharper at finding good landlords cheaply by revising their own ways of working and in a way that incorporates landlords needs – not using external private companies.

One way to do this would be to use the internet much more effectively and stop mucking about with localised letting schemes, local advertising campaigns and private entrepreneurs solutions to attract landlords. There are much more effective ways available.

Once they have efficient systems to attract landlords, the local authorities should make letting to LHA dependent tenants actually sound like a good idea. And to do this, they must reduce the risk that landlords currently perceive exists in letting to tenants on low income and who are benefit dependent. So, local authorities will also need to improve the marketing message that letting to LHA tenants is actually OK.

MORE ABOUT LETTINGFOCUS AND WHAT WE DO

LettingFocus.com is the home of Private Rented Sector and Landlord Information.

I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years. 25,000 copies sold.

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Primarily I am a consultant to banks, local authorities, social housing providers, insurers and other organisations – helping them with their landlord facing or buy to let product strategies and services.

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We also find some spare time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor. We pride ourselves on giving independent unbiased Buy to Let Advice on a one-to-one mentoring / coaching basis or through our occasional group seminars.

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