LHA: we cannot and will not go on like this.

Vincenzo Rampulla NLA Public Affairs Manager

Last night, I went to a post-Budget seminar to find out what the experts thought of the highly gloomy 55 minute Budget statement delivered by the Chancellor earlier in the day. There was plenty to talk about, but despite the furore over CGT, the group of diverse individuals chose to focus their harshest criticisms on the Chancellor’s housing benefit cuts.

On the panel was the former Department for Work and Pensions minister Kitty Usher. Now chief economist at the think-tank Demos, she acknowledged that Housing Benefit had been the hardest issue to tackle with the Housing Benefit bill having inflated over the last ten years from £14 billion in 2000 to £21 billion today.

So, it is clear to everyone: Government, Opposition and Local Authorities, that carrying on as we have been was not an option. The current Housing Benefit bill is both unsustainable and unmanageable.

Cuts were always on the cards. This wasn’t reform, this wasn’t efficiencies; these were just cuts – pure and simple.

The first thing is that it’s not really Housing Benefit as a whole that has been cut; just Local Housing Allowance. Limiting social sector Housing Benefit to appropriate-size properties will only save £500m. And it will only start making these savings from 2013 onwards, a very small part of the £11bn savings the Chancellor wants to make.

That means that only the private-rented sector will bear the brunt of these cuts.

Why? Well it seems that the Chancellor seemingly believed the tabloid press and thinks that landlords across the UK were fleecing Government to house families for £104,000 a year in housing benefit.

As the Chancellor of the Exchequer, you would expect a little more focus on the figures his DWP colleagues have been publishing. The average weekly award for LHA was £112 per week, or £5,824 per year. Also, civil servants already know that almost half of LHA tenants have a shortfall of almost £100 per month.

Rather than face up to the reality that it costs a lot to invest in housing the message is clear – it’s cheap housing or nothing.

But what will the cut really mean?

Wading through the Treasury’s Budget Red Book, the cuts look to be two-stage.

A cap on LHA rates from next April-

  • £250 per week for a 1 bedroom property
  • £290 p/w for a 2 bedroom property
  • £340 p/w for a 3 bedroom property
  • £400 p/w for all properties with 4 bedrooms or more

While this won’t affect the majority of claimants, this will not be a painless cap. And not just families in London dealing with expensive local housing markets, families living in Brighton (and other cities) will also find it even harder to rent.

That is only the first stage.

In October 2011, LHA rates will be set at the 30th percentile of local market rates rather than the current median value, a very painful 20 per cent cut. Tenants already struggling to find landlords willing to take on LHA tenancies will now find themselves excluded from 70 per cent of local housing market.

Last year Shelter reported that out of snapshots in four Broad Market Rental Areas, every area had less than 50 per cent of the PRS affordable under the maximum LHA award.

What will this mean to the current 1,015,033 LHA recipients is simple: their challenge is to find cheap property that they can afford. Standards, quality, professionally-managed properties don’t matter, just find cheap housing.

The idea that landlords will muddle on regardless is silly.

Can they all afford to drop their rents by 20 per cent? That’s a very high bet for the Government to be taking. So far no one from the Treasury or DWP has contacted us to discuss how they think these cuts will work in practice.

Whether they want to face it or not, the reality is that these cuts will drastically reduce supply as landlords move out of the LHA market. The spiralling journey towards less choice and less affordable housing will mean an exodus of housing benefit tenants to the few areas where they can afford to rent.

Nicola Smith from the TUC wrote yesterday about the changes:

“…it seems highly likely that they will lead to LHA recipients being marginalised into the worst accommodation in the poorest areas, or to it being impossible for families to be accommodated at all – which will mean that the costs of temporary and bed and breakfast accommodation, as well as social service budgets, will rocket.”

Under the previous Government, LHA meant dealing with the very real risk of rent arrears. Many tenants frequently dipped into LHA payments to meet other costs, leaving landlords footing the bill to the tune of millions. Under this new Government, landlords renting to LHA tenants face unsustainable rent levels.

We cannot go on like this.

18 thoughts on “LHA: we cannot and will not go on like this.

  1. If the LHA rate cut goes through I see arrears and evictions in the future of a couple of my tenants – mind you, I saw that one of the LHA recipients could afford Sky + HD when I was still dithering over the expense.

  2. When claimants have been jobless for a year their LHA will be reduced by 10% – THIS IS A DIRECT HIT AT THE PRIVATE LANDLORD. The government wants affordable housing – do they mean cardboard city? I agree with the capping of LHA but to reduce it further when some one has not got a job because there are no jobs is really kicking some one when they are down.
    Social housing should be means tested. Working people with good incomes are taking up the affordable housing at the taxpayers’ expense.

  3. I can’t beleive where these figures were taken from. A 3/4 bed semi with garage & gardens rents for £695 per month in Sunderland, approx £160 pr wk managable for working family or those on benefit. What out rage would there be if housing benefit claiments had to pay for rent for the first 13 weeks with no back dated benefit the same as homeowners have to wait for support towards mortgage interest when they become unemployed.

  4. The new caps still seem pretty high – more than i get as market rents 4 smart flats in London SW11 : if you can’t afford rent in an expensive area – move somewhere cheaper! Get a life! All let properties should be of a reasonable standard given all the regulations landlords have to confirm with. People should learn to save a bit when they work to tide them over when they can’t – instead of blowing it all on beer/cars/sky tv.

    1. Nick, with greatest respect you are wrong.

      The NLA CGT Campaign as the right campaign and garnered some success. Landlords wil (mostly) now pay 28% not the trailed 40%. That is only marginally more than the bottom rate (24%) under the old system with maximum taper. It was the right course of action.

      Absolutely no one saw the LHA cap coming in this way. Hence why the NLA is still figuring out strategy on this.

      The NLA did not lose the plot.

  5. Interesting that once someone has been on JSA for a year the 10% is going to be hacked off the LHA, not the JSA – Why? This is a direct attack on landlords, with an expectation we provide housing to those on benefits, at lower rents than to working tenants, and where providing that service takes about double the effort to manage (the typical benefit claimant isn’t so good at communicating, needs more support, pays in arrears, cannot provide a deposit, and of course managing their claim and the relationship with the council, with which the tenant often need support).

    I provide housing to many people on benefits. However these changes mean I am now reassessing that strategy and likely to refocus on working tenants. The sad result of landlords like me making this decision (on top of many who have already left the market) is less choice for tenants, and less choice means lower standards of quality and more importantly lower levels of safety.

    The expectation seems to be if a landlord wants to rent a property to someone on benefits, they should now accept ~20% less than market rent (~30% after 1yr if unemployed). In my experience tenants struggle greatly to top-up the rent, so I don’t take people on in that scenario. If it’s more difficult and less profitable, why would I do it? This policy has clearly not been thought through and as the case studies pour in in late 2011 the Daily Mail is going to shift from “Family paid £104k a year in housing benefit” to “Housing benefit for family of five only enough for 2bed flat”

    Perhaps there’s an opportunity for a joint campaign between NLA, RLA, ARLA, Shelter and the CAB to lobby for a sensible review of these changes. 2011 is very, very soon to make such an enormous change.

  6. It’s back to landlords not able to invest in improvements and cut backs on everything including EPCs, hardwired smoke detectors and all compliance issues. Breaking the law, but will most landlords care if they have no money to re-invest. Tenants will only suffer as a result of this. Just becasue someone has fallen on hard times it doesn’t mean to say we should be giving them a second class status.

  7. So here we have a government policy that in effect targets savings on the back of the private sector landlords. PRS landlords are the most financially cost effective housing resorce this country has by a mile. How is it, that the well known & grossly inefficient sqandering of public money by the Social Landlord sector (council housing in all but name) is set to continue? If the wider private sector is to be the route out this nations financial mire, then perhaps, the glaringly obvious solution at a housing level, is to run-down the Social landlord sector and divert resources to the PRS who could & would deliver housing on a cost effective,efficient & responsive basis.

  8. Yep – Landlords have not paid CGT and do not pay CGT until they become ex-Landlords. I have been renting out for 20 years and never paid CGT.

    1. Well, of course, no one is arguing that CGT is relevant UNTIL you sell an asset and realise the capital. But landlords are doing that all the time. Landlords are entering the market, and landlords are leaving the market. For a whole host of reasons, the CGT issue is relevant for landlords.

      But yes, for those landlords letting on HB or LHA, these changes are pretty awful too. We are figuring out how we can deal approach this.

      What would you do?

  9. @Sue & @ollie – you’re right about the additional 10% cut to LHA after 12 months for JSA tenants. It’s nonsensical to attack long term unemployment by cutting housing benefit.

    @Nick – I read your blog post. I think asking how we got here is a good place to start but we’ve also got to have a credible answer to the question “where do we want to be”.

    Not just on the direct payment to landlord issue, which is important and where we’ve already won the argument, but on LHA/Housing Benefit as a whole.

    Before the last Government left they did a consultation on the long term changes needed in Housing Benefit. There was some silly proposals, some misguided ideas, but also some good options for improvement.

    We need some more of that kind of long-term thinking.

  10. It’s my understanding that LHA is not granted until the tenant has found a property and signed a tenancy agreement but the ‘pre-tenancy determination’ only shows the maximum benefit that could be paid for that particular property.

    There is no full assessment of the tenant’s ability to pay the rent because the council only establishes what amount of Local Housing Allowance (LHA) they are entitled to after the agreement is made. This also includes establishing how much they can afford to pay towards the rent themselves (if they need to do so).

    Private sector landlords have been able to charge what they like in a ‘free market’ society and local authorities have chucked money at them to make up the shortfall simply to to get people off their books.

    It’s a complete mess and I’m sorry to have to say this but both sectors have contributed to it.

    Miss Sharon Crossland AIRPM
    Leasehold Life

    Both sectors have contributed to this

  11. Sharon, I agree it is a free-market economy, and in accordance with that rents charges are those the market supports. In looking for a cause for that, the low volume of housebuilding and lack of council housing is where we need to look. Any landlord who tries to charge too much rent will have an empty property for a very long time.

    Although many criticise Buy To Let, its rise has increased supply and doubtless kept rent levels much lower than they would otherwise be.

    I question whether the government have thought through the practicalities about reducing benefit for social tenants already in a property – if the housing benefit no longer covers the rent, and they cannot find work or make it up from other benefits, they will get into arrears, and the landlord is likely to evict. It therefore seems highly likely that these new policies will result in pretty large numbers of housing benefit claimants being evicted. Many will move into smaller and more affordable properties, but what if the benefit doesn’t cover that either? What about over-crowding? How much worse will this be when even less landlords are willing to tolerate the downsides of housing social tenants?

  12. Hi Ollie,
    I’m interested in your last question where you ask ‘how much worse will this be when even less landlords are willing to tolerate the downsides of housing social tenants?

    I wouldn’t worry if I were you as there are plenty of rogue landlords in the middle to slum end of the PRS who will take up the slack!
    I should know, most of my private blockof flats is comprised of them along with anti-social tenants to boot!

    Kind Regards
    Miss Sharon Crossland AIRPM
    Leasehold Life

  13. I have added you to my bookmarks, this page is so great! Can anyone else suggest any related subjects I can search for to find out more information?

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