Rent arrears

On the edge of a rental apocalypse?

So far, social landlords have weathered the welfare reform storm, but with its full force yet to be felt can the sector survive without leaving tenants to be blown away by the winds of change?

By Mark Cantrell

First published in the April/May 2015 edition of Housing magazine

FIRST there’s the calm, then there’s the storm, and if you’re really unlucky – it blows your house away. Actually, we’re talking about welfare reform and the impact it has on rent arrears, so it’s nothing like a storm as such; this is more like a policy neutron bomb – it blows away people but leaves the housing standing.

 Well, the nukes haven’t gone off yet, if you want to stick with the metaphor of Armageddon, but the horizon’s certainly looking cloudy if you want to run with the storm; either way, the impact of austerity and welfare reform has barely begun – and it’s bound to cause havoc with that basic business function of collecting the rent.

So far, for all the ructions over the bedroom tax and the like, the sector has fared rather better than expected. At the end of last year, Baker Tilly released the findings of a benchmarking survey with 70 housing providers. The purpose was to assess the impact of welfare reform. All told, the firm found that the impact had been significantly less than anticipated, but it warned against taking a false sense of security from its findings.

The average level of rent arrears during 2013/14 was 3.29%, slightly down on the anticipated 3.9% revealed in the survey the previous year. However, Baker Tilly said that providers predicted the rates will rise to 4.14% in 2015/16 once the wider Universal Credit takes effect.

“Our survey suggests that providers have coped very well with the removal of the spare room subsidy and the introduction of the benefit cap, but the risk from the introduction of Universal Credit hasn’t gone away,” said Gary Moreton, Baker Tilley’s head of social housing.

“While there remains some uncertainty as to when the policy will be fully implemented, evidence from the pilot areas clearly shows that tenants go into arrears when moved onto Universal Credit, so providers need to remain vigilant to this risk, and try to understand what mitigating steps they can take which are likely to be the most effective.”

As the report concludes: “The effects of direct payments on rent arrears, across the sector, is as yet unknown and if the benefit cap is reduced further, tenant incomes will become even more stretched. It is possible to liken the situation to a ‘calm before the storm’.”

The storm has already hit for some; those tenants hit in the pocket by the harsh realities of welfare reform. And it’s not simply about the impact of the bedroom tax. There’s the cap on benefits – currently set at £26,000 – and the prospect of direct payment to tenants of the housing benefit element under Universal Credit that is giving the sector’s rent collectors something of a headache. Well, don’t reach for the painkillers yet.

David Cameron has stated an intention to reduce the benefit cap to £23,000 should the Conservatives secure office following May’s election. This has set alarm bells ringing at Moat Housing, which operates across the South East. It has published a report into the likely impact of such a reduction. Its conclusion – devastating.

The Prime Minister’s proposal has severe implications for affordability in the local authority areas where it operates, Moat said – making both Affordable Rent and social rent unaffordable. In short, families on low incomes – whether on benefits, ordinary mortals’ wages, or a mix of both – will no longer be able to afford a home in the social sector.

According to the report, all three-bedroom properties where Moat operates would become “instantly unaffordable” for both Affordable and social rents under a £23,000 cap. Furthermore, two-bedroom properties would become instantly unaffordable at Affordable Rent in eight local authority areas where it operates, while they would become unaffordable in 83% of local authorities within two years. By the end of four years, they would have become unaffordable in all areas.

In terms of social rent, Moat’s report said that two-bedroom properties would become unaffordable in 80% of local authorities within four years and become universally unaffordable within six years. One-bedroom properties would remain affordable – but only in the short term.

Doesn’t bode well for rent arrears, does it?

This is speculation, of course – it all depends on the outcome of the election – but there’s nothing speculative about the impact of the Department of Work and Pensions’ (DWP) increasingly controversial regime of benefit sanctions, which were introduced under the Welfare Reform Act 2012. These are something of a wildcard, deemed as capricious in nature by critics; they can deprive tenants of income seemingly at the drop of a hat. Moreover, according to the charity Crisis, the sanctions regime operates to something of a ‘postcode lottery’.

In March this year, the charity released a report deploring the sanctions regime. This preceded a further critical report from the Work and Pensions Select Committee of MPs, which called for an independent review to investigate whether sanctions were being applied “appropriately, fairly and proportionately”.

In theory, sanctions imposed on people claiming JobSeekers Allowance or Employment Support Allowance should not affect their claims for Housing Benefit or Local Housing Allowance, but the system has been criticised for a lack of communication between JobCentres and councils that has led to some of those sanctioned losing their housing support too.

Back in January, the Residential Landlords Association (RLA) expressed its concern that sanctions were unfairly leaving PRS landlords with mounting rent arrears” because of this failure to communicate.

“The problem has, if anything, got worse despite both the Department of Work and Pensions and councils being well aware of its existence, not to mention the unnecessary rent arrears and untold misery it inflicts on tens of thousands of tenants. Landlords, already reeling from some of the worst affects of welfare reform, are also experiencing mounting rent arrears, caused by this same issue,” the organisation said.

Earlier still, in April 2014, the Scottish Federation of Housing Associations (SFHA) released a report – ‘Cause for Concern?’ – setting out its concerns about the impact of sanctions. Based on a survey of members, 69% had seen an increase in the number of tenants sanctioned in the course of 2013. Given that 60% of housing association tenants in Scotland rely on housing benefit to pay the rent in full or in part, it is little wonder that the SFHA considered JSA sanctions a “significant risk for social landlords”.

“When Housing Benefit claims are suspended as a direct result of a sanction, tenants are being left with no income to pay rent... While hardship payments are available from DWP for struggling tenants, too often these are ‘too little too late’,” the report said. “Sanctions can trigger a ‘catastrophic effect’ on a tenant’s ability to pay priority debts, and consequently tenants, who had never previously been in arrears, are now falling into rent arrears. In extreme cases, sanctions have caused tenants to terminate their tenancy after being left with no income.”

The obvious solution, of course, is to ensure that Housing Benefit isn’t interrupted when and if a tenant is sanctioned, but there’s a fly in that ointment – the prospect of direct payment. Is it feckless to feed hungry mouths before clearing a rent account or simply human? That’s the rock and a hard place a growing number of tenants are facing; indirectly, so too are their landlords.

Even without this sanctions ‘bomb’, housing associations are under increasing pressure to square their bottom line with their social purpose; in effect to fight for a future as a social landlord. One has to wonder, as the pressure mounts, if any – how many? – might break and opt for a path of least resistance that leads to a gentrified future catering to higher-earning groups.

For now, though, the fight goes on to preserve what passes for the sector’s body and soul.

“Like all landlords, we are now deeply immersed in the process of managing, as best we can, the impact of welfare reforms including the roll out of Universal Credit. Sadly, the sector’s worse fears have materialised and tenants’ arrears are growing. Individuals who have never been in debt are now being chased for rent arrears,” said Angela Forshaw, director of landlord services at Liverpool Mutual Homes (LMH), who is also the chair of Liverpool Housing Associations Welfare Reform Group.

“We are spending a massive amount of extra time, energy and resource to understand the underlying reasons, which are often very complex and extremely personal, so we can best tailor solutions. This requires a significant amount of additional non-mainstream tenancy work by housing officers who now need a far greater range of knowledge and skills than ever before. By its very nature, this kind of personal support work is very labour intensive and can take its toll. This on top of making sure tenants are on the right benefits, maximising income, minimising outgoings and where relevant, making DHP applications on their behalf.”

Unemployment is a big factor, but – as the Joseph Rowntree Foundation recently reminded with its report into poverty and social exclusion in Scotland – work is no guaranteed route out of poverty; nor indeed liberation from a reliance on benefits to help make ends meet. Some people, as we are becoming all too painfully aware, work hard for their poverty.

None of these issues are unique, of course, which is why LMH’s Forshaw more or less speaks for social landlords nationwide, whether or not she intended to.

“This is happening across the country. And it prompts the question: can the sector sustain this approach over the long term and as more people and families move onto Universal Credit?” she added. “While our efforts to engage in positive activity like helping people to find work are playing a vital role in minimising rent arrears, ultimately the system is against us and landlords are going to be significantly affected. It is hard to appreciate the promised simplified welfare benefits system when both parties – tenant and landlord – apparently lose out.”

Sadly, if the worst-case scenario comes to pass, it’s tenants that stand to lose the most – their homes.


This article first appeared in the April/May 2015 print edition of Housing magazine. It was subsequently published on the Housing Excellence website, 29 April 2015