Residential Landlords Association
Why ‘freezing’ out the PRS and treating smaller landlords differently to Social Landlords will result in an increase in homelessness
Last week there was welcome news that the Government are going to make a U turn and no longer apply the Local Housing Allowance rate freeze to those tenants who live in supported and social housing from next year. However, this sense of relief did not stretch as far as the Private Rented Sector. We are left wondering – why?
Across all housing tenures we are aware of a lack of affordable housing, particularly social housing. In the context of a major housing shortage Local Authorities have been increasingly looking to the Private Rented Sector (PRS) to house tenants on low incomes, tenants in receipt of benefits and people who are at risk of homelessness.
Since 1999, the number of households in the PRS has increased by 126% to 4.8million, while the Social Rented Sector has decreased by 4% to 3.9million households, showing demand is growing more than ever.
The PRS has been able to respond with local initiatives working well, Local Authorities working with Landlords to source accommodation with incentives for landlords to take tenants normally placed into Council or Social Housing homes.
This has always carried a degree of risk for small PRS landlords who may not have the funds to cover a build up of rent arrears if this does happen. However, under current legacy benefits the system does offer the Landlord a route of recourse where direct payment to the landlord can be paid directly quickly, the rent payment goes in on the same day each month to the Landlord, there is a more personalised local delivery model and ability to communicate between the Local Authority and Landlord and perhaps most importantly the right to a tribunal if needed.
This is not the case with Universal Credit and perhaps the biggest challenge of all is the baked in 6 / 7 week wait for the first payment of Universal Credit – if the claimant is lucky.
The normal contractual position is that rent is due in advance at the outset of each period of the tenancy. This means that from the outset a tenant on a monthly tenancy (which is common in the PRS) is going to be two months in arrears before he or she even receives their first regular payment of UC housing costs. Therefore, under Ground 8 a tenant could be liable to eviction.
As the Universal Credit roll out gathers pace we see that there are challenges to all housing providers however, private landlords are at a distinct disadvantage when it comes to access to information to prevent arrears from escalating and are now starting to find the market unworkable.
The Social Housing Sector have access to a Landlord Portal and some have the ‘Trusted Partner’ status to help to see where tenants may benefit from direct payment of rent from the offset. PRS landlords do not have the same tools available to them to help them to help their tenant. Indeed, the Local Government Association has warned today, 3rd November that ‘Nine in 10 councils say private landlords in their area are renting fewer homes to low income households’.
Our own research found that 38% of landlords had experienced their Universal Credit tenants had gone into rent arrears in the past 12 months, owing on average £1600.88. When attempting to organise an Alternative Payment Arrangement (APA) with DWP, 47% of landlords reported this was unsuccessful. This is showing that the roll out is causing strain on the sector, and landlords may continue to be unwilling to let to UC tenants with change.
Universal Credit is just one challenge that private landlords working with low income tenants face. For low income families living in the PRS there is also Universal Credit allowances limited to support for two children for new claims after April 2017, with the ‘family element’ removed from tax credit and Universal Credit allowances for all new families after that date; income thresholds for Universal Credit reduced by cuts to the levels of the ‘work allowance’, alongside the lowering of the benefit caps and, crucially, benefit rates (including Local Housing Allowance rates) frozen for four years from 2016/17 until 2020.
All of this paints a very worrying picture. At present the Private Rented Sector is facing unprecedented targeting by the Government and Treasury. The restrictions on mortgage interest relief are causing landlords to reconsider their lettings strategies to take on a less risky return on their investment with reliable rent payments and possible rent increases to cover the extra costs. With the announcement that The Bank of England is to double interest rates from 0.25% to 0.50% the costs to many Landlords are going to continue to rise. Our research shows that 71% of landlords will be negatively impacted by the tax changes, and nearly 1-in-5 landlords are planning on reducing lets to under-35’s due to the changes.
Unfortunately, the reality is that in areas where there is high employment and high demand for PRS properties landlords can consider leaving the benefit market. With this in mind, the Government cannot expect Landlords to freeze rents for 4 years if inflation increases and interest rates rise alongside upward pressures.
The freezing of allowances means a real term reduction. The long term nature of the LHA benefit freeze is therefore another worry for landlords, particularly as there is no automatic review mechanism written in to the regulations for the PRS.
DWP are operating the Universal Credit roll out on a ‘test and learn’ basis and are now learning that Private Landlords are starting to exit the benefit market altogether. In response to some of the administrative problems that private landlords have faced where their tenants have moved across to UC the DWP are now starting to engage with PRS landlords to find solutions to try and make the process for direct payment quicker which is encouraging . However, the ‘test’ has shown that at a time where the Government are relying on the PRS to provide housing for some of the countries most vulnerable people, to treat smaller PRS landlords differently to social housing providers has worrying unintended consequences. DWP should ‘learn’ from this experience and lift the freeze of LHA rates in the PRS too.
We stand with the Local Government Association and call on the Government to also lift the LHA freeze in the Private Rented Sector to prevent unnecessary homelessness. We have also signed a cross sector letter warning the Government that ‘if the freeze is not lifted, previous research shows that more than one million households in Britain could be at risk of homelessness by 2020’. Ultimately, we feel the U turn on the LHA freeze should be person centred not tenure centred.
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