Arses and elbows – LHA rent freeze for 2012/13 HAS been announced

Arses and Elbows – with a title like that you’re right it’s another Housing Benefit story from the hapless Coalition!

This latest one shows that when it comes to Housing Benefit matters you can’t believe a word that comes out of the CLG and that Pickles as Communities Minister and his Housing Minister Grant (Kylie) Shapps simply don’t talk with the DWP.

The latest cock-up concerns Local Housing Allowance (LHA) which is the Housing Benefit paid for privately rented properties which the Coalition have announced in Parliament will be frozen in 2012/3.

I was alerted to the freezing of LHA by a number of tweets from private landlord organisations which I thought strange for two reasons.  Firstly, none of them mentioned or referenced an exact source, and secondly the CLG announced in the draft impact assessment that accompanied the RTB consultation on 22nd December that the policy for rent inflation was:

Policy

  • RPI      + 0.5% beyond
  • •      Local Authority rent = RPI + 2.5% to 2015 as part of the Local Authority      rent convergence criteria,
  • •      Local Housing Allowance rent = RPI + 0.5% 2012, beyond, CPI 2013-15
  • •      Market rent = RPI + 0.5%

It says clearly that LHA will increase by RPI+0.5% and the date here is significant as the RTB consultation was issued 16 days after the following speech on 6 December 2011 in Parliament by Steve Webb at the DWP. The announcement says:

On local housing allowance, at the emergency Budget in June 2010, the Government announced that from 2013, local housing allowance rates will be calculated annually by using the lower of the rent at the 30th percentile of local rents or the previous year’s rate uprated by reference to CPI. This will end the monthly uprating of LHA rates and bring the system into line with the uprating of other pensions and benefits. As part of the preparation for this change, we need to fix LHA rates, to establish a baseline from which they will be uprated in future. As the new cycle for uprating LHA will be annual, we have decided that the baseline should be one year ahead of the first uprating event. Therefore, LHA rates will be fixed from April 2012. This approach means that there will be no reductions in ongoing awards as a result of this change

It is therefore clear that DWP announced a LHA freeze on 6th December 2011 yet obviously CLG were not listening as 16 days later they say LHA will increase by RPI+0.5%

I have highlighted two separate parts of the above statement of the 6th December.  The first says correctly that the June 2010 emergency budget did say LHA will be uprated annually and from April 2013.  It said nothing at all about the financial year 2012/13 however. The second highlighted part shows the clever (ie sinister and devious) use of the 2013 ‘annual’ uprating to say that this is conditionality and justification for a LHA rent freeze during 2012/13.  “Therefore, LHA rates will be fixed from April 2012

There is of course no such conditionality.  Instead this means that LHA rates, which have changed monthly since it began, will now remain the same from April 2012 right through until March 2013 – an increase of zero and in real terms a below inflation position.

On the one hand this is good you may think.  It reduces in real terms the HB paid to private landlords.  Yet given that LHA only pays part of the rent all it means in reality is that tenants in private rented housing will have to pay a higher proportion of their rent out of other income, earnings, savings or benefits.

Currently national average LHA in-payment is £111.69 (see tab 5) and current national average rent charged by private landlords is £168.86  So currently private tenants have to make-up £57.17 weekly to meet their contractual rent or in percentage terms the tenant top-up is 34%.  IF private landlords put up their rents as CLG envisage by 3.8% in 2012/13 the average rent charged will rise to £175.00 per week yet LHA will remain at £111.69.  The tenant top-up out of earnings, savings or benefit will therefore be £63.32 and a rise to 36%.

That figure assumes PSR rent levels increase by just 3.8% which is hugely optimistic given the December 2011 RPI figure is 4.8% alone. If it remains at 4.8% then the increase is likely to be 5.3% which sees national average rent rise to £177.81 and the PRS tenant top-up averages £66.12 per week or 37% of the rent having to be topped up.

The tenant top up going from £57.17 to £66.12 is a 15.66% increase!

Moreover, once private landlords realise that LHA rates are to be frozen in April 2012 and at the April 2012 figure you can rest assured that they will seek to increase rents over the next two months to make the April 2012 rent figure as high as possible to mitigate the LHA freeze. That is not a slur on PSLs rather it simply reflects reality or as the Coalition would say the market responding to this very sneaky and very ‘cloak and dagger’ LHA freeze.

Furthermore, this makes my comments about Shapps plans for private landlords even more incredulous as it makes private and social rent level convergence even sooner and far more quickly than he plans.

Note well that the above calculations don’t include the benefit capping of the Welfare Reform Bill as this doesn’t come into operation till 2013.  But as I have commented on these the only benefit to be capped or cut will be Housing Benefit and this will see the average tenant top-up increase by far more than the 15.66% stated above.

This means even more evictions will happen and an even greater HB diaspora will result as the ending of private landlord ASTs – already the largest cause of homelessness – will increase even further. And of course cost the public purse far more in temporary accommodation on a national basis.  LB Southwark announced last week that average cost of temporary accommodation is £18,000 per year and temporary accommodation stay is 3 years on average.  The 3 year length of stay in temporary accommodation after homelessness is a London phenomenon mostly, yet the £18k per annum cost is a national one with plenty of provincial towns and cities paying much more than the £49 per night this figure represents.

To return to private sector landlords and the housing minister.  Why has Shapps kept this freezing of LHA quiet?  Does he know about it?  I would be highly surprised given all the criticism the housing minister receives over PSL rent levels that he would knowingly not tweet about it.  Either he doesn’t know which makes him incompetent or he does and he knows that PSLs will increase rents significantly before April 2012 (the rational market responding argument) and has chosen not to publicize this freeze hoping that PSLs don’t realise? So which is it Grant?  Are you incompetent or just plain devious?

There are so many other aspects to this such as if PSLs are said to be reluctant now to take on benefit claimants how much more reluctant will they be in 2012/13?  Is Shapps hoping the inevitable PSL rent increases can be blamed away on the Olympics with many stories emerging of landlords putting rents up significantly and issuing notice to current tenants ahead of that?  Or perhaps it’s just the Grant Shapps is not privy to cabinet as the Coalition took the Housing ministry out of the cabinet and so decisions made by DWP don’t filter down to him.  Yet of course Shapps can read Hansard just like you and I can’t he so it can’t be that.

What did you say last week Minister?

But with the prime minister putting housing centre stage on the road to economic recovery, I am determined that we shall not repeat these mistakes of the past.

At this rate your naively high housebuilding assumptions need to be increased significantly and incorporate far more hostels and temporary accommodation as PSLs will evict benefit claimants far more rapidly won’t they? After all that’s just the (rational and unregulated!) market reacting isn’t it?

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