Getting behind the rent

Lost in translation

New research has claimed an indisputable link between the introduction of Universal Credit and tenants getting behind in their rent. The implications for landlords and tenants alike are significant, but it can be fixed – if the Government is prepared to listen

By Mark Cantrell

This article first appeared in the August/September edition of Housing 

IRONICALLY, for a welfare benefit supposedly built to better support claimants into work and out of poverty, Universal Credit isn’t quite up to speed when it comes to dealing with some of the realities of life at the bottom of the labour market – and this has implications for landlords.

Rent arrears is a problem; not only is it a direct detriment to a landlord’s income stream, but dealing with the issue is itself a further drain on resources that could be deployed to other effect. What’s more, it can indicate hardships taking root in the communities where they operate for which there may be no immediate and direct solution to hand – just a further strain on resources.

Exasperation might prompt some to accuse tenants in rent arrears of being feckless – incompetent and irresponsible – when it comes to managing their money. For sure, personal mismanagement is a real and present factor in why some people fall behind with the rent, but it’s not the entire story. The reasons for arrears can be many and varied, but recently a further causal factor has been added to the mix, with the publication of research that claims an indisputable link between rent arrears and the introduction of Universal Credit.

Released in June 2016, the study was a joint endeavour by the National Federation of ALMOs (NFA) and the Association of Retained Council Housing (ARCH), which set out to examine the impact of Universal Credit on council tenants.

The headline findings proved quite startling, disconcerting even. It revealed that 79% of tenants receiving Universal Credit were in rent arrears. Moreover, only half of them had been in arrears before they were moved on to the new benefit. It doesn’t bode well, then, as the benefit continues to be rolled-out across the country.

“These survey findings continue to be extremely concerning for everyone involved in managing social housing in this country,” said John Bibby, chief executive of ARCH. “Despite the best efforts of ALMOs and local authorities to help prepare and support tenants claiming Universal Credit our research shows that one year on the proportion of claimants in rent arrears is still shockingly high. A review of current policy is imperative if we are to reduce unnecessary hardship within our communities.”

The research followed up a study conducted a year earlier, when the process of rolling Universal Credit out beyond its initial pilot zones was getting underway. This earlier study found that 89% of tenants on the new benefit were in arrears. So this new one, at least, has offered a little slice of positive news, even if the impact remains high. But the latest research not only set out to identify the extent of rent arrears that can be attributed to Universal Credit, it also wanted to know why the new benefit was tripping people up. In simple terms, you could say it boils down to design flaws.

“Although half did already have arrears, there is an element of people who went on Universal Credit quite early. Anecdotally we think it is possibly because these people are likely to be in and out of benefit and have had a change of circumstance,” said Chloe Fletcher, the NFA’s director of policy. “We know from housing officers and rent recovery officers that those types of people who have got quite different working arrangements – who are in and out of work, or on zero hours contracts – are often the people they find it difficult to collect [their] rent, because these people are managing on very low and changeable incomes, which makes it difficult to plan their financial affairs.”

The critical issue, the research found, is the length of time – six weeks – it takes to process claims and the fact that payments are made in arrears, whereas rent payments are expected in advance. For those leaving work, there’s a further seven-day period added to the length of time it takes before they receive Universal Credit. What’s more, it’s a week for which they receive no payment.

“These are people who are on very low incomes, who will not have savings, may have been in and out of work, on zero hours contracts,” said Fletcher. “People who lost their job, or their contract ended, may not have a significant wage cheque at the end, but they are expected to see themselves through that initial seven-day period. Given this is a safety net benefit and the vast majority of people claiming this are on very low incomes to start with, and are in that very insecure labour market, we don’t think that is reasonable.”

There is an element of forewarned is forearmed to this report. In disseminating their findings, the NFA and ARCH are providing housing associations an indication as to what they can expect once Universal Credit rolls up on their doorsteps. That is if it is not successfully reformed before then. That’s not necessarily an unrealistic hope. The research is also intended to provide the evidence needed to persuade ministers at the DWP that this flagship policy needs a little spit and polish if it is realise its aspirations.

Both NFA and ARCH are calling for the DWP to abandon the current seven-day waiting period. Furthermore, they want the Government to review the policy of monthly in arrears payments to ascertain if this is causing “unnecessary hardship” and longterm disadvantage to claimants. It also wants the processing of Universal Credit claims speeded up to three weeks, bringing it more in line with Housing Benefit.

None of these points are fundamental issues with the benefit, neither do they call into question its reasoning and aims. Furthermore, the DWP is not unaware of the problems. During a debate in the House of Lords on 13 July, the research cropped up in questions from peers put to welfare reform minister Lord Freud. In answering them, he announced he had commissioned a review to “help understand the true level and causes of these arrears”.

“I appreciate the concern with this. The reality is that there are a lot of factors at play and Universal Credit is not the sole issue. Many people are coming into Universal Credit with pre-existing arrears. Safeguards are in place for claimants, including advances, budgeting support and alternative payment arrangements. Research shows that over time claimants successfully reduce their arrears,” he said.

Lord Freud later added: “The essential fact is that landlords like their money paid in advance and all benefits systems pay in arrears, so we do not know how much of this is what the ALMOs call book arrears and how much is real arrears. We need to get to the bottom of that and we need to get to the bottom of what are the processing and payment systems issues. We need to understand what the existing arrears are.

“They are much higher than we expected—50%—and that is a frightening fact. We may be looking at a group going into [Universal Credit] which is unusual because it is moving up and down, and we need to understand and quantify those factors.”

Some may read into this Government prevarication; others may welcome it as an acknowledgement of a problem and so the first step towards a solution. Be that as it may, the wheels turn slowly for those landlords and tenants wrestling with the rent arrears triggered by Universal Credit. But maybe it is a start, all the same.

As it is, Universal Credit is not seen as the problem, per se; a few tweaks to its implementation and administration would, so the arguments go, make the benefit roll so much smoother for all concerned.

“The NFA supports the idea of Universal Credit,” said Fletcher. “Once it gets going and it’s done properly, in many ways it will be much better for the claimants to manage their money in future. So, whilst we believe in the principles of the new mechanism, there are minor things with the policy that we think need changing, which would make a big difference for claimants.”

One might say, then, that Universal Credit is a good idea, it has just kind of lost some its meaning in its translation into practice. A little reinterpretation will make its meaning clear. 

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Rental issue

The households most likely to have fallen into rent arrears included lone parents with dependent children, or those where the householder was unemployed, according to the latest English Housing Survey (EHS).

• Lone parents with dependent children were more likely than other types of household to be in arrears (24%) or have been so in the previous 12 months (27%). Single person households and couples without children were least likely
• Households where the person responsible for the tenancy is unemployed were more likely to be or have been in arrears at some point in the previous 12 months (27% and 29% respectively). Those where the head of the household was retired were least likely to be or have been in arrears
• Of those who did not have their rent paid by Housing Benefit, 364,000 households (14%) were in arrears. A further 348,000 households had fallen behind in their payments at some point during the previous 12 months. This had changed little since 2011-12, the EHS said
• The main reasons given for rent arrears were debts or other responsibilities (27%), reductions or delays in benefit payments (22%), and unemployment (21%)

(Source: English Housing Survey)

This article first appeared in the August/September 2016 print edition of Housing magazine. The article was subsequently republished on the HousingExcellence website, 4 October 2016

Cover Story: May The Lady Be For Turning?

Britain on the blink

Can housing save the economy from the Brexit blues? 

The collapse of David Cameron’s Government opened a Pandora’s Box for Britain, but a window of opportunity for the social housing sector. Can the new Prime Minister be persuaded there’s more to securing a decent home than ownership alone? Well, some voices are willing to try

By Mark Cantrell

First published in the August/September edition of Housing magazine 

THE last couple of months have seen a remarkable uprising against an orthodoxy fervently embraced by Government, but while the ‘old order’ has been swept away (kind of), the legacy of that discarded regime remains a force to be reckoned with.

No, we’re not talking about the Brexit vote, per se, though it certainly threw things into some disarray. For politics junkies, the meltdown in the country’s political leadership may have proved an entertaining circus, but to sober policymakers urgently looking for a little, well, leadership, it has been something of a sorry farce.

The Conservatives sheathed the knives and regrouped first. Now – after Theresa May’s root-and-branch Cabinet reshuffle – Government is back in the business of governing. About time too, it might be said. There’s likely a lot of trouble ahead.

Brexit or no Brexit, the UK languishes under the grip of a worsening housing crisis. The vote to cut loose from the EU has left the country under a brooding cloud of uncertainty, but it seems likely that it will rain further misery on the bereft victims of Britain’s broken housing market.

On that note, we come up against that peculiar orthodoxy; namely, that creating home owners is the only game in town when it comes to Government housing policy. There was nothing unique to David Cameron’s love affair with home ownership and first-time buyers – you can track it all the way back to the last Labour government and beyond – but during his time at the national helm, it was allowed to become a rather all-consuming affair.

Dissent has been bubbling away for some time, and would have broken to the surface regardless, but Brexit has given it an added urgency. The collapse of Cameron’s Government, meanwhile, has offered an opportunity to make the case anew for a radical change in housing policy.

Town hall chiefs rattled the cage, if not their sabres, during the Local Government Association’s annual conference, making a strident call for a renaissance in the construction of council housing.

“The housing crisis is affecting more and more families every year,” said Councillor Peter Box, the LGA’s housing spokesperson. “For many, studying hard and succeeding in work will no longer guarantee an affordable and decent place to live. Even if the country is able to achieve full employment in 2024, around four million working people will need some type of affordable housing as wages struggle to keep pace with house prices.

“Bold new action is needed in the wake of the UK’s decision to leave the European Union. National and local government must come together around our joint ambition to build homes and strong, inclusive communities.”

Box was speaking at the launch of the LGA’s Housing Commission report. The document pointed out that the last time the country was building more than 250,000 homes a year was in 1977/78, when councils built 44% of new homes. Since then, of course, changes in Government approach saw councils’ contribution collapse.

This has left a gap in supply that private house builders and housing associations have never been able to fill. Private developers in England have only been able to build an average of 90,000 homes a year since 2009/2010. In 2013/14 this was around 77% of all new homes, the report said. In comparison, the same year councils were only able to build 1% of all new homes; a situation that must end, according to the LGA.

“A renaissance in house building by councils must be at the heart of this bold new action,” Box added. “The private sector clearly plays a crucial role but it cannot build the homes we need on its own, and will likely be further restricted by uncertainties in the months and years ahead.”

Somebody certainly has to build. The Government has made it clear that the one million homes ‘ambition’ remains in force. But Brexit saw private housebuilders’ share prices take a double-digit hit; confidence in the sector’s prospects in terms of skills, labour, market conditions, has also felt the pinch. A downturn in the industry – with its knock-on economic impact – is a real and present danger.

Ten days after the LGA report, the cross-party House of Lords Economic Affairs Committee (EAC) published Building More Homes, which provided a highly critical assessment of the Government’s housing policy. The document makes clear that, in the EAC’s view, the housing crisis will never be resolved unless councils are once again allowed to become major players in the provision of new homes.

Among its criticisms, the EAC said the Government had created uncertainty in an already dysfunctional market by frequent changes to tax rules and subsidies for house purchases, reductions in social rent, and the extension of right-to-buy. All of these changes served to reduce the supply of homes for those who need low-cost rental accommodation. Furthermore, its narrow focus on home ownership neglects those who rent their home.

“The Government is too focused on home ownership which will never be achievable for a great many people and in some areas it will be out of reach even for those on average incomes. Government policy to tackle the crisis must be broadened out to help people who would benefit from good quality, secure rented homes,” said the EAC’s chairman, Lord Hollick.

“It is very concerning that changes to stamp duty for landlords and cuts to social rent could reduce the availability of homes for rent. The long-term trend away from subsidising tenancies to subsidising home buyers hits the poorest hardest and should be reversed. If the housing crisis is to be tackled the Government must allow local authorities to borrow to build and accelerate building on surplus public land.”

As for the goal to deliver one million homes by 2020, the EAC’s report argues it is insufficient, either to meet demand for new homes, or to moderate the rate of house price increases. Indeed, it calls for 300,000 homes to be built each year “for the foreseeable future”.

“The private sector alone cannot deliver that [figure]. It has neither the ability nor motivation to do so. We need local government and housing associations to get back into the business of building,” Lord Hollick added.

“Local authorities are keen to meet this challenge but they do not have the funds or the ability to borrow to embark on a major programme to build new social homes. It makes no sense that a local authority is free to borrow to build a swimming pool but cannot do the same to build homes.”

The day before Building More Homes was published, the Chartered Institute of Public Finance and Accountancy (CIPFA), together with the CIH, revealed something of the damage Government policies had inflicted on councils’ ability to deliver new homes.

In their joint report, ‘Investing in Council Housing’, the two organisations said plans to build 500,000 new homes over the next 30 years had been scuppered by Government’s fickle approach. In the scheme of things, and over that time-scale, such figures (around 16,600 a year) are small-fry, given the extent of the undersupply of housing, but it represents a significant escalation from a historically low base.

Growth begets growth as it were. There were high hopes of the self financing settlement in 2012, and councils took on £13bn of extra debt finance to fund building, based on future rental income. However, policy changes have dashed hopes and shrunk that potential, such that only 45,000 homes (1,500 a year) are now expected. That’s little more than councils managed pre-settlement, according to CIPFA and the CIH.

“The situation is desperate,” said CIPFA chief executive, Rob Whiteman. “Families across the country will not get the homes they need because the Government keeps on tinkering with housing policy without properly thinking it through.

“At best, successive governments have turned a blind eye to the consequences of inconsistent housing policy, at worst they have deliberately set out to undermine local authorities’ best laid plans.

“By reducing rents to soften the blow of welfare cuts, the Government has choked the revenue streams that were meant to fund new house building. At the same time, the right-to-buy policy has led to assets being sold off, further reducing the ability to councils to finance new homes.

“We need urgent action to reset the self-financing settlement, with assurances that its foundations won’t be pulled away the moment government attention turns to something else.”

There’s already a lot there for May to consider, if she is so inclined, but the National Housing Federation (NHF) has added its own proposal to the mix. The organisation, again with the backing of the CIH, has also called on the Government to take a long hard look at its housing policies, and allow councils and housing associations the much greater leeway they need to build homes. It’s not just about tackling the housing crisis anymore, vitally important though that is, but shoring up the economy against the potential impact of Brexit.

The NHF is calling on the Government to relax restriction on the tenure of homes, allowing housing associations to build more on their terms, and offer councils a ‘new deal’ including greater flexibility on the borrowing caps they face. Furthermore, it wants the government to switch some of the £7bn planned funding from supporting home ownership to supporting “affordable” rental properties.

“The warning signs are flashing amber – housebuilding may be set for a slowdown – but housing associations have a track record of building through tough times. Demand for good quality rented homes remains high,” said David Orr, the NHF’s chief executive.

At the time of writing, it is impossible to say beyond the flimsiest of speculation quite what direction May will take on housing. There is a clear economic – as well as social – case to be made for government to invest in housing across tenures, but then there was before Brexit too; there’s no guarantee that this new Conservative administration will be any more amenable to the arguments than was the last.

May showed a ruthless hand in purging the personnel of a Government of which she herself was a veteran member, but will she prove as ruthless in purging the policies of the recent past? The course she steers, inevitably, will depend on the economic and political waters – and on some hard and canny lobbying too. 

 

The new Prime Minister is not entirely unaware of the issues. When she launched her leadership campaign, she said: “[U]nless we deal with the housing deficit, we will see house prices keep on rising. Young people will find it even harder to own their own home ... And more and more of the country’s money will go into expensive housing instead of more productive investments that generate more economic growth.”

But as the campaigning organisation Generation Rent said when Theresa May ascended to leadership: “[G]iven the Government’s shameful record on affordable housing, and their manifesto commitments to home ownership gimmickry, we cannot take anything for granted.”

Okay, so calling it an uprising is putting things a little strong, but for now, that orthodoxy of ownership is vulnerable and open to question. It won’t remain so. 

 

# # # 

Rabble rousing

Among its proposals for a council house renaissance, the Local Government Association is calling for:

• National backing for new local government housing delivery models to build new and different types of homes. This must coincide with a revitalisation of council house building by allowing councils to keep a greater proportion of right-to-buy receipts and to combine receipts with Homes & Community Agency funding
• Allow councils to set planning fees locally so they can cover costs and continue to develop a proactive planning approach for unlocking housing growth, and developing powers for councils to ensure homes are built on sites where planning permission has been granted but building may have stalled
• Build a new market of homes attractive and suitable for older people that are better able to meet their health needs and support them to move, which, in turn, would release more family homes into the local market

The Economic Affairs Committee proposed a number of recommendations for tackling the housing crisis, including:

• Lifting restraints on local authority borrowing: councils should be free to borrow to fund social housebuilding as they are other building programmes. This would enable local authorities to resume their historic role as one of the major builders of new homes, particularly social housing
• The current historically low cost of borrowing means local authorities could make a large contribution to building the houses needed for the future. Further, the new Prime Minister has announced that the Government will abandon its fiscal target. This paves the way to increase local authority borrowing powers, the committee said
• The Government’s reliance on private developers to meet its target of new homes is “misguided” according to the committee, which described the private sector housebuilding market as “oligopolistic”. Its business model is based on maximising profit margins (not unreasonable given they are private businesses), meaning it is not best placed to tackle the housing crisis, the committee argued. To address this, it recommended that local authorities be granted the power to levy council tax on developments that are not completed within a set time period

The National Housing Federation, outlined its case in a post-Brexit proposal, which included these points:

• By making £7bn of allocated funding available on a more flexible basis, focusing less on tenure and more on overall supply of affordable housing, the NHF estimated its members could deliver over 300,000 new homes over the course of this parliament – close to a third of the Government’s one million home ambition
• Housing associations would be able to use Government investment more flexibly to deliver a range of affordable housing, including “affordable” rent, rent-to-buy and shared ownership. This flexible approach would enable housing associations to deliver homes that meet the needs and challenges of different areas and markets
• Housing associations could sign up to deliver an agreed number of affordable homes, but with flexibility to decide what tenure these homes should be as the market changes. This could include a target for the number of homes that are available for home ownership, either immediately or over time
• Alternatively, it argued, the Government could offer a commitment that if the market cannot support homes built for sale, then housing associations would be able to switch the tenure of these homes to rented homes with Government support

This article was first published as the cover story for the August/September 2016 print edition of Housing magazine. It was subsequently republished on the Housing Excellence website, 27 September 2016