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Opinion: 'Social landlords don’t have to collect the bedroom tax'

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Opinion: 'Social landlords don’t have to collect the bedroom tax'

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Published by Jon Land for 24dash.com in Housing and also in Bill Payments, Universal Credit

Opinion: 'Social landlords don't have to collect the bedroom tax' Opinion: 'Social landlords don't have to collect the bedroom tax'

Current claims that the bedroom tax will increase the housing benefit bill by forcing under occupiers into the private sector are one dimensional. Social landlords do have choices on whether to pass on under occupancy charges. It’s a question of whether they do the maths and calculate the impact on their business and customers says Peter Hall, Managing Director of PHHS.

Lord Freud, the welfare reform minster, suggested last year that reclassifying property sizes for those to be hit by the bedroom tax may be an option some social landlords could consider. It was widely panned, but as Albert Einstein said: “If at first the idea is not absurd, then there is no hope for it”. The idea of reclassifying property sizes for those to be hit by the bedroom tax may seem absurd, but do the maths; think of the social and economic consequences for existing tenants and the areas they live in, and it becomes less absurd, and more of a rational response.

No phased roll out

When the housing benefit cap was introduced in the private sector last year, there was a grace period for existing tenants until their claim was reviewed, while new claimants faced the cap from the outset. The logical step would have been to follow suit in the social housing sector, but there is no such grace period for existing working age social housing tenants – other than the 12 months landlords have had to identify, inform, and work with the 670,000 households and individuals who will be affected from next April.

Yet we know there aren’t enough alternative 1 bed properties for the 400,000 of those who only qualify for them, and there are only 60,000 relets of existing 1 bed properties per year across the sector. Even if all 1 beds were only allocated to under occupiers ad infinitum from now on, some would wait for 7 years while being charged as much as £25 a week from an income of as little as £75 from next April . Add on council tax, utilities, other bills and existing debts, and it clearly becomes an impossible and unaffordable situation for many.

Impact in the North

We also know the impact will be worst in the North – hit by higher levels of underoccupation and by other benefit cuts already made or yet to be felt such as changes to ESA, tax credits, incapacity benefit and council tax. Recent estimates are that working age households will face an additional £4.50 per week in council tax, while across the North East, 50,000 under occupiers will need to pay an additional £30m p.a. in rent. The government’s Discretionary Housing Payments (DHP) funding currently stands at a possible £1.25m p.a.across the North East - leaving a shortfall of at least £28m in potential help for under occupiers. This won’t improve much even when the promised DHP increases kick in this April. Durham County Council has estimated the impact of welfare reform as a whole on the local economy in 2013 at £150m – worse in following years. That’s £150m less money going into local pockets, businesses and services when it already has the highest worklessness and the lowest job creation rates in the country.

Why make a bad situation worse?

The published draft HB regulations applicable from this April clarify proposals for landlords to define how many bedrooms a property has, and for local authorities to interpret that.

Landlords also have legislative and regulatory flexibility to charge lower rents. The target rent regime they all operate to defines a ‘maximum’ rent, while the HCA’s Value for Money regulatory standard expects all landlords to take ‘a view in the round of the optimum sustainable performance of all their assets – including for example financial, social and environmental returns - in the context of meeting their organisation’s purpose and objective’s’.                                                    

In line with those requirements there is clearly scope to review whether full rents for under occupiers from next April is a sustainable option delivering social returns which meet organisations purpose and objectives. And let’s face it, the differential between rents for 1 bed and 3 bed properties are fairly marginal across the sector – probably less than the £14 per bedroom which is intended to be deducted from tenant’s benefits.

Some landlords will be in a better position than others to consider this. The housing association sector as whole recorded a surplus of £1.1bn last year (c.f. the estimated £480m of extra payments to be collected from under occupiers), but there are widespread variations in ‘profitability’ and capacity to do something different which PHHS highlighted in December last year. Loan covenants and self financing assumptions for councils may also prevent some from even considering it – together with fears surrounding further loss of income from Universal Credit and Direct Payments.

The bean counters in the sector state that reclassifying  property on a significant scale will affect loan covenants and valuations. It would if it was long term and significant, but temporarily changing the tenancy agreement to state a smaller number of bedrooms and charging a lower rent isn’t going to affect the long term existing use or open market valuation of a property. There are lots of everyday examples where this already happens – e.g.  decanting tenants and charging differential rents for secure and protected tenants in their portfolios.

Some tenants will also undoubtedly pay their additional bedroom tax contributions. A  Wirral partnership Homes survey last year suggested that as many as 50% will. But many won’t or won’t be able to as we’ve seen in recent press coverage , leaving landlords in a difficult predicament. Take them to court for non payment, or write off the arrears on a case by case basis? A significant increase in court cases will lead to an impasse for the court system, and how will judges interpret compliance with the Civil Procedure Rules when there are no alternatives other than homelessness for some long standing tenants who have previously paid their rent?

Do the maths

Landlords need to start doing the maths – at least for year one of the changes. The average extra cost per under occupying tenant will be £676 per year based on an average of £14 per week additional payments. Once the extent of under occupation is known (and many haven’t got that far yet) , they should work out the potential loss of income from non payment , versus the additional staff time and costs in collecting rents, enforcing non payment, incentivising downsizing (costing some up to £10,000) and supporting tenants through the options etc. If the additional costs are more than the average of £676 per affected property, landlords should think rationally about the alternatives.

For some, temporarily reclassifying property sizes will be a rational business decision which will also have direct positive social and economic impacts for affected tenants and their wider communities -  putting money back into customers and community’s hands. Liverpool Mutual Homes was the first of what may be many to do so - planning to pay the bedroom tax for under occupying tenants who complete training programmes or voluntary activities on its estates on a something for something basis.

At its simplest and most transparent, reclassification could be on a universal time limited and conditional basis for those affected – giving breathing space for landlords and tenants to work through alternatives such as downsizing, taking in lodgers ,finding or undertaking additional hours work. In the North, with 20% turnover of tenancies a year common in a lot of areas, a normal position could be reached by year 5. At the very least, reclassification could be income based: for example, based on the individual contributions which may be required as a % of income and what is affordable.

Objectives, purpose and values?

Whatever individual social landlord’s objectives, purpose and values are, they should think twice about whether any existing investment plans for new homes, improving stock or ‘social value’ activities will deliver more benefits for the local economy than what will be taken out via the bedroom tax.

Last year's NHF 'Building Futures' report identifies £500m per year spent across the sector on investing in communities - helping people manage their money and get out of debt, job skills classes, youth enterprise projects, apprenticeships and skills training programmes etc. That’s roughly the same amount that will be taken out of existing tenants pockets nationally via the bedroom tax. The recent trend of ‘social value’ reports identifying how much landlords contribute to their local economy may also be of use to someone, but pale in significance compared to the direct economic and social impact putting money back into tenant’s pockets and local communities  will deliver particularly in the North.

Loan covenant and business plan assumptions may also not be breached if any loss in income through reclassification is matched by reduced expenditure or operating costs elsewhere to compensate for it - ideally prioritised with all tenants in the spirit of the value for money standard.

Social and economic black hole or new dawn?

Under occupation charges could be a black hole or a new dawn for both tenants and social landlords.  The social impact is becoming clear from recent press coverage. Evaluating whether under occupation charges are passed on is a rational response to an ill thought through big bang policy change. While the principle of reducing rents may seem like an anathema to many, so did developing without grant until recently. It may seem absurd, but as Albert Einstein also said, doing the same things in the same way and expecting different results were his definition of insanity.

 

 

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