Housing benefit freeze could fuel homelessness, report warns

Lily Canter
30 August 2018
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A freeze on housing benefit could force thousands of tenants into homelessness, particularly single young people, the Chartered Institute of Housing (CIH) warns.

New research produced by the professional housing body shows that more than 90% of Local Housing Allowance (LHA) – which is a benefit for private renters – now fails to cover the cheapest rents. This means it is failing to fulfil what it was originally designed to do.

Housing allowance rates were frozen for four years in 2016 and have now fallen so far behind private rental rates that in some areas the shortfall is more than £3,000 a year.

CIH chief executive Terrie Alafat CBE says: “Our research makes it clear just how far housing benefit for private renters has failed to keep pace with even the cheapest private rents. We fear this policy is putting thousands of private renters on low incomes at risk of poverty and homelessness.

“We are calling on the government to conduct an immediate review and to look at ending the freeze on Local Housing Allowance.”

LHA rates are designed to cover the cheapest 30% of homes in any given area. However, they have not been increased in line with local rents since April 2013 and remain frozen until April 2020.

As a result, renters face gaps ranging from £25 a month on a single room in a shared home outside of London to more than £260 a month on one to four-bedroom homes in some areas of the capital.

Over a year the gap ranges from £300 and £3,120, which the CIH warns could force renters to choose between paying for basic necessities like food and heating or their rent.

The government introduced targeted affordability funding in 2014 to bridge the biggest gaps, but the CIH’s new report has found that its impact has been negligible, covering only a handful of the shortfalls completely.

Time to reform housing benefits

Matt Downie, director of policy and external affairs at Crisis, adds: “Homelessness is not inevitable – there is clear evidence that it can be ended with the right policies in place. The government must urgently reform housing benefits for private renters, so they not only match the true cost of renting but also keep pace with future rent changes.”

The CIH says the policy is hitting single people aged under 25 particularly hard, because they are only entitled to LHA to cover the rent on a bedroom in a shared home. The level of other benefits they are entitled to is also much lower.

David Smith, policy director for the Residential Landlords Association, says the report serves as a reminder of the difficulties facing young people in the private rental sector.

“With many unable to afford a home of their own, and waiting lists for social housing remaining long, we need to do more to support those who desperately need a thriving private rental market to provide the homes they need and to sustain existing tenancies.

“This means lifting the Housing Allowance freeze so that it better matches the realities of today’s private rental prices,” Mr Smith says.

This policy would not necessarily lead to substantial increases in government spending, in his opinion.

“Official data shows that in the year to July 2018, private sector rents across Britain increased by just 0.9%, far less than inflation,” he adds. 

A government spokesperson says: "We spend £24 billion a year on housing benefit each year. And since April we've provided additional, targeted housing support for low-income households by increasing more than 200 local housing allowance rates.

"Since 2011, we have provided a further £1 billion in Discretionary Housing Payment for local authorities to support vulnerable claimants with their housing costs.”

The spokesperson adds that the government has also delivered over 378,000 new affordable properties since 2010 and is investing a further £9 billion in affordable homes to buy and rent.

Comments

In reply to by anonymous_stub (not verified)

Of course, the other way of looking at it is that it's not housing benefit that is in need of reform but a cap that should be placed on rents in the private sector. For far too long, taxpayers have been subsidising greedy landlords.

In reply to by John McKay (not verified)

build to rent, who in their right mind is going to rent a brand new property to some one on benefits, not going to happen is it?

In reply to by anonymous_stub (not verified)

Housing Benefit rates are only one issue. There’s Universal Credit, Council’s paying in arrears, clawing back over-payments, selective licensing, an atrocious Court system and IMHO the worst one of all – S24.If a landlord can now see his tax bill rise several hundred percent then what choice has he/she got but to get the best possible price for the property they can achieve, or sell up. With the best will in the world that leaves out benefit tenants.S24 is supported by the abomination known as Shelter. This ‘charity’ are systematically doing all that they can to shrink the PRS and it’s the low-paid and benefit tenants that will suffer. With landlords leaving the sector in their droves what else could anyone reasonably expect?Of course the Build-To-Rent brigade will be rubbing their hands with glee as they see competition driven out and rents rise.In Shelter’s last published accounts was an interesting sentence…. “Legal & General have collaborated with us on the development of our policy campaigns”. Isn’t it interesting that L&G are one of the biggest BTR companies in the country?The Shelter web page showing corporate sponsors had the L&G logo on it till very recently. but now it’s vanished.Landlords, tenants, councils, mortgage brokers and many other industry professionals openly state that landlords are leaving the sector because of S24, yet Shelter still makes no reference to it being a problem. Instead they use smoke and mirrors stating that ‘no fault evictions’ are the leading cause of homelessness. This is rubbish! It’s an outright attempt to mislead people. S21 is NOT a cause, it is a mechanism or procedure. The causes include non-payment of rent, anti-social behavior and possibly the biggest one by far is now the removal of mortgage interest relief. This is a shambles and is only going to get worse until Government wake up and smell the coffee.

In reply to by andrew townshend (not verified)

I agree with you Andrew, if it's left down to the owners (BTR company). How would a benefit tenant afford all the extras that these companies say they will include such as gyms and so forth? So the problem just gets bigger and bigger.

In reply to by John McKay (not verified)

Well said. I totally agree with you.

In reply to by anonymous_stub (not verified)

Well balanced article. Great to see the facts out in the open.

In reply to by anonymous_stub (not verified)

but this is why we say no dss, the housing benefit doesn't cover the rent, the housing benefit is paid 4 weekly in arrears and it's paid to the tenant who then spends it on other things, landlords aren't mugs.

In reply to by David Roberts (not verified)

I usually see the term 'greedy landlords' from readers of The Guardian David. Is that a publication you subscribe to?May I ask what you would call greedy please? A typical gross yield on a property outside London is around 5 to 6%. In London you'll be very lucky to see 3%. Then you have to subtract costs of maintenance, agents fees if you use one, licensing if in such an area, voids, insurance, etc. Net yield is not all that great but should of course provide a profit. With HB tenants the sad fact is that the risks are higher. Many landlords have withdrawn from this market because they can no longer make it work., so how is that greedy please? If you're also of the mind (and I'm not saying that you are) that rents are 'soaring' or 'sky-rocketing' (favourite Guardian terms) then you only have to look at the data to know that generally rents keep pace with inflation. Now we have S24 and I know I didn't explain what that is in my first post so apologies if you don't know. I'll enlarge upon it now. Osborne put a ticking time-bomb in place with the phased in restriction of mortgage interest relief. So to use a real life example of a friend of mine... he has a full-time job and earns about 30k. His plan with his large property portfolio was to keep rents as low as possible as he doesn't need to see a profit from them. When he reaches retirement he will sell up and that is his pension fund. All well and good, though I'll add that out of the hundreds of landlords I know, I think he is the only one that is in it for capital gain. So when S24 is fully phased in in 2020/21 HMRC now see his 100k (roughly) of mortgage interest added to his 30k and a fictitious income is arrived at of 130k. He moves up a tax bracket and also loses his personal allowance. The last stage is that 20% of his interest bill is granted back as a tax credit, so his taxable income is deemed to be 110k but he has still lost his personal allowance and is being taxed more than he earns. And you call landlords greedy??? :)If a landlord has one property he has a choice. He can either sell up or increase rents. Doing the first almost certainly displaces a tenant that then has to find somewhere new to live in a shrinking market. Doing the latter may result in the same in that the tenant cannot afford the new figure and has to move on, or if he/she can then there is rental inflation.If a landlord has hundreds of properties then it is far more likely that they will be mortgaged heavily and will thus be hit harder by S24 (unless they're a corporate landlord). Selling portfolios quickly is largely unlikely and may result in a CGT bill larger than profit. The only choice then is to raise rents and due to volume this becomes the new market rate. This isn't 'greed' it's survival! It is a situation forced by Government and supported by Shelter.

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