LHA rent freeze will be annual – a further new and important update

On Monday this week I confirmed and revealed the LHA rent freeze that will take place from April 2012 to March 2013 which was released to Parliament on 6 December 2011 but up until this week hadn’t been discussed or covered in the national or the housing media.  LHA is the amount of help private tenants get towards their rent.  It is a contribution toward the rent as it typically covers two-thirds of the rent with tenants having to find an average of £57.17 per week from savings, earnings or benefits.

One impact of this freeze would see tenants having to find a further £9 or so per week during 2012/3, from £57 to £66 each week as their rent rises but the LHA benefit remains static – a near 16% increase.  One easy way to measure this is that currently as a national average LHA covers 66% of the rent and by March 2013 it will cover 63% of it.

Well it’s only a one-off isn’t it as my blog reported the DWP Minister who said that?

No!  This is going to happen every year and so the devastating consequences of it I discussed in my blog Monday will happen every year.

I have been alerted to a further announcement by the DWP (I’m very grateful and you know who you are) from back in October 2011.  Again this was not discussed or mentioned (or picked up by me) in the housing media at the time which is worrying.

If my post this week worried the sector then this confirmation today is going to increase those worries far more as it reveals that LHA will be an annual figure every year and not change monthly as it does now.

This annual LHA rate is revealed on page 6 when it says:

Under the proposed changes all Local Housing Allowance rates in GB will be set annually on a common date and will apply for the whole of the following year.”

The impact I discussed on Monday said just the 2012/3 change would lead to;

(a) Private sector landlords increasingly refusing to take benefit claimants;

(b) Private sector landlords increasingly evicting current benefit claimants by ending ASTs – already the largest cause of homeless presentations

(c) A huge increase in demand for social housing

All the consequences of which will create significant change and significant worry.  I then issued a follow-up post which specifically looked at the 2012/3 LHA rent freeze consequences for supported housing  and this also attracted 20 times the views in a day that a post typically attracts in a week.  This argued that:-

(d) Homelessness would increase just at the same time when homeless services would have to turn more people away

(e) Domestic Violence and Abuse services would also have to turn more people away

(f) The significant decrease in availability of ‘move-on’ from all supported housing would destabilise all accommodation-based supported housing services such as hostel and refuge, and

(g) The impact of the LHA freeze would penalise hostel and refuge services through the SP outcomes and SP contracts and commissioning terms and decisions would have to be renegotiated

Again setting an annual LHA rate exacerbates these threats to supported housing. The problems have become far worse.

The DWP rationale for this annual LHA rate setting change is also explained on page 3 when it says:

In the longer term, some landlords may not be able to increase the rents that they charge to Local Housing Allowance claimants by as much they would have done in the absence of this measure

DWP clearly recognise from the above that private landlords, the only ones where LHA applies, will seek to increase rents year on year.  Yet some landlords conveniently could be 1% or 99% and some is used very conveniently by the DWP here! And elsewhere in the document they forecast this to be 4% per year and above the CPI rate of inflation which they will apply to LHA after 2013.

What this means is that LHA that typically covers 66% of rent now will cover just 63% of rent at March 2013 and may well only cover 61% by March 2014 and 59% by March 2015.  The impact is therefore that private tenants will have to make-up a higher proportion of their rent year on year from savings, earnings or benefits.

That is unsustainable of course as that trend which is the Coalition policy not only sees private landlords viewing benefit claimants as a risk too far, it sees benefit claimants seeing private tenancies as a risk too far.  It is a double whammy and the policy of effectively freezing LHA rates annually as will happen from 2013/14 makes this so much worse.

Further I previously discussed that Coalition plans for private landlords reducing rent are nonsense.  The PSLs have the goods the market wants but Grant Shapps is trying to deny that despite being an advocate of the free market and how it works.  The PSLs are in the driving seat in simple terms.  But yet again this annual setting of the LHA rates being year on year makes the PSL position even stronger. I called Shapps plans toward PSLs bizarre and unworkable: they are even more bizarre and more unworkable because of the annual LHA rate setting.

Moreover, because we know 75% of all new HB/LHA claimants since the election in May 2010, 127,000 out of 170,000, are in work it makes working private tenants see private tenancies as a risk too far as well. As they receive less and less of their rent in LHA payments they too will see private renting as a risk too far and further increase demand on social housing.  Despite many more reports recently stating ownership is less costly than renting and even one from the Halifax yesterday that said BTL is cheaper than renting the lack of mortgage availability means that renting will continue to be the only choice for many.

So this annual LHA rate setting will in summary:

  • Further increase homelessness
  • Further increase demand on social housing
  • Increasingly make private landlords even more reluctant to accept benefit claimants
  • Increasingly make private landlords end more ASTs of existing private tenants on benefits
  • Further increase the numbers of roofless people turned away from hostels
  • Further increase the number of (mainly) women and children being turned away by refuges
  • Lead to a seasonal huge private rent increase ahead of every April
  • Cost the public purse ever more as private landlords increase market rents at a higher rate

Yet the DWP expect to save £125m per year from this annual change!  They say in the impact assessment that these are ‘notional’ changes that will force private landlords to reduce rent levels.  Delusion writ large.

But, finally let me argue against all of the above.  Let’s say the DWP are correct and this will save £125m per year in LHA which they do in this impact assessment.  I ask you note that the DWP also say they expect 1.4m LHA claimants by 2013.  They say:

Cost relate to the notional reduction in benefit income received by these households. It is estimated that there would be around 1.4 million HB recipients on the Local Housing Allowance in 2013 and they may experience a notional loss in their benefit due to it being uprated by the Consumer Prices Index rather than market rents.”

Currently in the latest official figures for October 2011 there are 1.24m LHA claimants and this is rising by 6,000 per calendar month as the ever reducing private tenants on HB are switched to LHA.  BY April 2013 we can add another 96,000 to the 1.24m LHA claimants making 1.336m.

The 1.4m DWP expect is a rise of 5% in the number of LHA claimants.

The LHA bill is at October 2011 £7.23bn comprising 1.24m claimants at an average £11.69 per week.  A 5% increase in numbers and LHA remaining at £111.69 will see a net increase in cost of around £362m per year.  Yet the DWP insist it will fall £125m.  Hence even if the DWP are correct there will still be a £237m increase in the yearly LHA public purse bill!

Those of you who read my post that the overall HB bill will be over £30bn by 2015 which also detailed the Coalition’s target figure at £18bn should know I hadn’t factored in the 5% increase in claimants the DWP estimates!!

How remiss of me!

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