Landlords increased AR income more than negates bedroom tax arrears

AR and the bedroom tax revisited – 28 July 2014

Below is an article I published in October 2013 which argued that the Affordable Rent model (AR) in which social landlords can charge up to 80% of private rent levels gives social landlords an incentive to evict the bedroom tax tenant.  I revisit it here some 9 months later as figures have emerged which reveal that some 38,000 or so AR properties came online in 2012/13, the year before the bedroom tax and gave social landlords an additional yearly rental income of about £93m.

A week or so ago the much and rightly maligned DWP commissioned report into the bedroom tax was published and my immediate comments on that were social landlords arrears had increased by £140m in 2013/14 – the first year of the bedroom tax.

There are no confirmed figures yet for how many AR units came online in 2013/14 with social landlords but even if we assume zero we see that social landlords have had two year (2012/23 and 2013/14) of circa £93m per year additional income, that is £186m in additional income to set against the £140m reduced income from bedroom tax arrears!

Does this explain the still no-brainer resistance of social landlords not supporting their tenants to appeal the bedroom tax?

As when a tenant wins an appeal the landlord keeps the same rent level, gets more in HB on an ongoing basis and gets a huge HB back payment to cover the bedroom tax charged / HB underpaid from the date of decision.

The article below is worth a re-read given the above developments which keeps the original position that bedroom tax evictions is an incentive as it allows relets at the much higher AR rent levels and now adds the charge that the increased revenue AR gives to social landlords outweighs the bedroom tax created arrears. As the cynic (or is that a realist?) would say – AR is a bung to keep social landlords acquiescing to the bedroom tax complicity in NOT supporting their tenants to appeal?

Hmm!

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“Affordable” rent gives social landlords the financial incentive to evict the bedroom tax tenant – Article October 2013

Have you ever wondered why social landlords have not stood four square behind the social tenant in the bedroom tax?  Could it be the governments ‘affordable’ (sic) rent programme gives social landlords a strong financial incentive to evict the bedroom tax tenant?  Here I argue precisely that.

The coalition’s affordable homes programme gives the ‘affordable rent’ level which is anything but affordable and the national average rent numbers below explain.

• Social rent                   £ 83 per week
• Private rent                 £163 per week
• “Affordable” rent         £130 per week

These rent figures above come from the 2012 English Housing Survey published by the government.  The new “affordable rent” figure comes from the coalition wanting social landlords to charge 80% of the gross market rent for all new lettings (new developments and new tenants to existing properties.)  The coalition idea is the difference of £47 per week per property (£130 – £83) is top-sliced by social landlords and used to fund the building of new social housing, rather than receiving capital grant.  It means as an average charging tenants £2,444 more per year or charging the public purse £2,444 per year more in housing benefit as like social housing all of the HB is paid.

Apart from increasing the public purse cost through increasing HB it also means the affordable rent tenant has to earn about £70 per week more to make work affordable over benefits than a social rent payer as they need to earn £3600 more pa gross to stand still.  So the new ‘affordable’ rent model is a huge welfare dependency issue.

It is also a near 60% increase in rent too as a national average and far more in London which I discuss below.

The last housing minister Mark Prisk wanted the majority of ALL new social housing lettings to be at the new ‘affordable’ rent and any social landlord that did not do this was by definition inefficient.  This is another classic case of the Tories letting housing benefit take the strain and the new housing minister will doubtless not have a different policy.

Last year, the first full year of the affordable (sic) rent programme the number of these lets rose dramatically as the Homes and Community Agency, the social housing regulator reported last month in its annual report which saw an increase from 6965 to 37755 a whopping 542% increase and the same report has the average HB received by them to be £114.89 per week compared to average social rent HB of £81.36 and average private level of housing benefit at £105.26.

What does this mean?

Firstly directly because of the ‘affordable’ (sic) rent model the social landlord has a strong financial incentive to evict the existing tenant!  Get rid of a troublesome tenant who pays £83 per week and the new tenant will pay £130 per week of £2,444 more per year.  Put that in the bedroom tax context and we see social landlords can afford to let the bedroom tax tenant run up arrears of say £700 as the new tenant will have recouped those losses in just 4 months. In fact who cares if the existing tenant is troublesome at all and so any initial perceived cynicism in my comment is removed.

The social landlord can take a short term loss of rent as it knows that the new tenant will be paying about 60% more in rent, either as a self payer or through housing benefit.  That is a national average figure which gets dramatically more in London where a typical 3 bed social rent may be £150 per week and a typical private rent may be £600 per week which gives a London ‘affordable’ rent level of £480 per week, an increase of £330 per week and 320%!

Secondly, to expose the economic madness of the affordable (sic) rent programme for the public purse just how much more will the housing benefit bill be?  Social housing has about 200,000 new lettings each year and typically two thirds of these are to tenants on HB or about 133,000 will be receiving on average £47 more per week in HB.  That’s an extra £325m per year onto the HB bill and a figure that will increase year on year. 

As ‘affordable’ rent is a social housing model all of the HB will be paid and note well that the LHA caps of £400 per week maximum do NOT apply to social housing but only to private rented housing.  So we will see social landlords getting higher HB levels than private landlords.  This will also mean that far more social tenants in London and other high rent areas will be caught by the overall benefit cap of £500 per week (and note that 46% of those caught by the benefit cap are social tenants anyway.)

This means the available pool of potential tenants to social landlords dwindles as a tenant on benefit or one with a sporadic work history becomes too risky for the social landlord.  The same also occurs with larger families as more and more of them will get caught by the overall benefit cap.  I should also add here that my systemic flaw theory which sees more and more get caught each year by the benefit cap as rents rise faster than the cap figure and the rise in welfare benefit levels.

So while the affordable (sic) rent programme provides a huge financial incentive for social landlords to evict the current tenant, it also create huge potential problems for social landlords when they do adopt the ‘affordable’ (sic) rent model.  And they HAVE to adopt it else central government will not give them capital subsidy to develop!  So the government message is adopt affordable rent and get screwed or don’t adopt and get screwed! Hence the ‘affordable’ (sic) rent programme screws the social landlord every which way….as well as screwing the tenant and the taxpayer too!!

Thirdly, affordable (sic) rent doesn’t just screw the public purse in terms of higher HB costs it also create a massive work disincentive – it creates welfare dependency.  The additional rent of between 60% and 320% over existing social rent levels means the family on benefit will have to find employment that pays so much more for it to be worthwhile coming off benefit and taking up employment.  Affordable (sic) rent actually encourages worklessness!

In summary, the affordable (sic) rent model is yet another back of a fag packet policy from this coalition that manages to screw the tenant, landlord and the taxpayer.