Opinion: 'the sleights of hand in the changes to Local Housing Allowance funding'

Published by Max Salsbury for 24dash.com in Housing and also in Finance, Regulation

David Lawrenson of Private Rented Sector consultants LettingFocus.com explains the “work arounds” and the sleights of hand involved in the latest changes in Local Housing Allowance funding.

The Government has just voted to cap rises in several benefits, including local housing allowance (LHA) base rates, at the lower of 1% or the 30th percentile of LHA – which means that in practice LHA is being uncoupled from the general local levels of rents with some of the savings thus made being reinvested in exempting areas identified as high cost or subject to high rent inflation, (though it is not yet clear how this will work in practice).

The National Landlords Association (NLA) observes it thus:

“Not long ago many landlords were convinced to lower rents to a rate that could be met by the [local reference rent] in return for a guarantee of direct payment of rent. However, with the promise of direct payment to landlords very likely to be removed next year [once Universal Credit rolls out], those same landlords will likely feel the need to increase their rent back to market level simply to cover the increased risk that the rent will not be paid over [by the tenant-recipient]”.

Private Landlords will Continue to Exit

I would go further than the NLA and make the case that many of these landlords (the few remaining landlords who still do LHA lets) will likely stop letting their properties to the LHA dependent end of market altogether, especially in places like London where a thriving non-LHA tenant alternative exists.

The strangeness of all this is that meanwhile we increasingly see local authorities, especially in London, being given central government money to spend, in part, on giving incentives to try to get landlords to let their properties to tenants on LHA. Indeed the same NLA magazine issue reports how the London Borough of Barnet is offering landlords “incentives of up to £3,200 to take on LHA tenants”. Many other London councils do the same and I have no doubt we will see more of this.

Sleights of Hand

So, what the Government taketh with one hand, the Government also giveth with the other.
It has to do this because it knows it can not afford ever more people to be homeless on the streets or in bed and breakfast accommodation (which costs a lot more than accommodation provided by private landlords does).

Why the sleights of hand? Why not just set LHA at a rate to track the level of local rents and allow tenants to continue to have the option to nominate their landlords to receive LHA?

Well, politically this is important, because whilst the media will probably not notice the grants and subsidies to local councils that serve to prop up the crumbling edifice, they most certainly did notice the mythologised family in Acton whose landlord was being paid over £150K a year in LHA.

That story, from sometime back in 2008, of course, led to a national outcry and the rolling back of the housing benefit/ LHA monster. It led to the cutting of LHA rates and the curtailing of direct payments to private landlords in favour of giving tenants responsibility for their own financial affairs (even though many tenants say they do not want this).

Control of the Media Story

By whatever means it takes, it seems the Government has decided that stories like the landlord getting £150K from one family’s LHA must not be allowed to reappear again – and if Peter can be robbed to pay Paul and no one notices (especially the tabloids) and the whole system continues to appear to creak along, then the objective will have been achieved.

Unfortunately, it seems that both the previous administration (who initially moved to stop direct payments to landlords whilst still generously allowing the councils some useful workarounds), and the current one (who have gone even further) seem signed up to the same policy of obfuscation. New thinking is needed.
Meanwhile, private landlords who are still intent on still letting to the LHA-dependent will need to keep a keen eye on what incentives are available locally and see if they compensate for the lower returns. Tenants will have to make do.