Wednesday 24 October 2012

Tenants right to chose the Residential Landlords Association view

                 BRIEFING -

Text Box: As one of the largest associations representing private sector landlords, the Residential Landlords Association (RLA) are calling for tenants to have the right to choose who should receive their housing benefit.
Tenants Are Calling For Choice

q  Currently private sector tenants have no say over who receives their housing benefit; except in very restricted circumstances, it has to be paid directly to them. This is despite the fact that many tenants on benefits would prefer to have the option of knowing their rent has been paid direct to their landlord. It allows them then to budget for other expenditure knowing that their home is secure. In this way, tenants retain full financial responsibility without the need for them necessarily to have the money paid to them.  This is likely to continue once universal credit (UC) is introduced starting in April 2013.

q  Evidence shows that particularly those tenants struggling to manage their finances would prefer to have the right to choose to have their Local Housing Allowance (LHA) or their housing costs under UC paid directly to their landlord. In October 2009, data from a survey of LHA claimants by Shelter, one of the supporters of this amendment, found that of the claimants who would choose payments to be made directly to their landlord, 95% were struggling to manage their finances. Almost half of the claimants who have had experience of both forms of payment believe that landlord payment better helps them in managing their rent and household budget. Likewise,in a recent survey carried out by the research consultancy,Policis, 93% of tenants in the social rented sector argued that it is better for housing benefit to be paid direct to landlords.

q  Crisis, Shelter,the Citizens Advice Bureauand the tenants’ organisation, TAROE, all support giving tenants the right to choose as they see that the removalof this right has led to more tenants falling into arrears and more being under threat of eviction. Figures from the British Property Federation indicate that since the removal of direct payments to landlords in 2008, tenants have defaulted on millions of pounds worth of rent. For example, £287 million of all UK rent went unpaid in October 2011 compared to £243 million the previous month. Similarly, in its most recent figures, LSL Property Services has reported an increase in rent arrears, increasing from 8.6% in September2011to 10.1% in October.

q  Support for tenant choice has also been given by The Money Advice Trust who run the national debt line. Their Chief Executive, Joanna Elson, has said of the amendment sought:“We feel that this would enable many tenants to avoid housing benefit arrears and thus tackle their debts and manage their money wisely.”

q  There has been a rise in the number of tenants in the private rented sector who have been made homeless, ‘Inside Housing’ has reported: “Homelessness charities and landlords suggested the rise may be linked to a legal change which saw local housing allowance paid directly to tenants from April 2008.”This also leads to a cost implication resulting from paying LHA to tenants. When LHA is not passed to the landlord as rent the consequence can be eviction for non-payment of rent. Lack of social housing forces defaulting tenants into expensive bed-and-breakfast accommodation, an additional cost to society and a burden on public housing administration. Homeless Link isalso calling for tenant choice.

Public Concern

q  A recent survey by DEMOS shows that 75% of respondents disagreed with the idea of paying money for rent to tenants instead of landlords.  This indicates overwhelming public concern with the Government’s plans.

Supporting Housing Growth

q  The Government has claimed there is no evidence that landlords have suffered increased arrears as a result of payment being made to tenants. On the contrary; a clear indicator of increased arrears is the number of cases where payment has been transferred to the landlord because a tenant is 8 weeks in arrears or more.  For example, Hull City Council tell us that following the introduction of direct payments to tenants in their area, the number of cases where  payment is switched to the landlord for this reason jumped from under 4% of their case load to approximately 12%, a threefold increase. Other local authorities have had the same experience. Furthermore, David Newnes, director of LSL Property Services has clearly concluded that “we expect tenant arrears cases to climb over the next twelve months.”

q  A further consequence of the current arrangement is that many landlords are now reluctant to rent to tenants on benefits for fear that they will not receive the rent. This makes life more difficult for tenants seeking accommodation and may force them to accept a lower standard of housing. In a recent survey of RLA members, of those who would not rent to tenants receiving housing benefits, 45% reported that it was due to a lack of guarantee of receiving the rent.

q  In its submission to the House of Commons Work and Pensions Select Committee inquiry into housing benefits, Crisis said:“The reintroduction of choice over who housing benefit is paid to would help to mitigate some of the impacts of these cuts by, for example, incentivising landlords to continue to rent to tenants in receipt of LHA.”

q  At a time when the demand for private rented properties is far outstripping supply, and given that the Localism Actprovides a much greater role for this sector in housing those who find themselves homeless, greater support is needed to access much needed finance for new housing. Without tenant choice however, many lenders have expressed concerns about the viability and security of providing finance for new properties, as evidenced by the Council of Mortgage Lenders’(CML) support for tenant choice.

Promoting Independence and Financial Responsibility 

q  The Government isproposing that the default position in both the private and social rented sectors should be that payments should go to the tenant, arguing that this supports tenants by encouraging them to manage their own finances. This position however denies them the opportunity to make a rational decision about what is best for their own circumstances.

q  On behalf of the Government Lord Freud’s principle argument has been the Government’s desire to ensure that the payment of benefits mirrored as much as possible the payment of a wage or salary to recipients for them to manage. His argument however failed to note that unlike a wage, Housing Benefits are tax payer funded. As such, the Government has both a responsibility and a duty to ensure they are used for their intended purpose, not least to address the increasing problem of housing benefit fraud.

q  The Private Sector already faces higher interest rates from lenders because benefits are currently paid to tenants.  Quite rightly, lenders are concerned about a lack of security of income.  CML estimates that if the Government switches payments in the social sector to tenants then housing association borrowing costs will increase by 1%, which means that fewer new homes will be built and rents will be more expensive.

q  It is surely completely alien to this Coalition’s philosophy to take the view that the Government should decide for tenants what would be the most responsible way for them to manage their own finances. Tenants themselves are in the best position to make an informed choice about what provides them with greatest security based on their own individual circumstances.

q  Whilst the Government has committed to a pilot scheme to test the payment of housing benefits directly to tenants in the social sector, it has failed to test the principle of tenant choice within the pilot schemes.  Nor has it considered the private rented sector in these tests.

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