Why would a PSL rent to a benefit claimant? Makes no sense

Renting from a private sector landlord (PSL) increasingly make up the only option for many in the UK given the chronic shortage of supply of social housing and the lack of mortgage and buying options.

That position is well known outside of the social housing sector and amongst the general public. Yet what isn’t well known generally is that if you live in a private rented property and claim benefit toward your rent is that on average you will receive less than 70% of the rent the private landlord sets and charges. The other 30% you will have to make up from other benefits, savings or pay.

The chart below from the official figures reveals the percentage of the rent that is paid for through housing benefits if you live in a private rented property and the specific housing benefit paid is known as Local Housing Allowance or LHA.

One very simple question this raises is why should a private landlord rent to a benefit claimant?

If you reader were a private landlord with a few properties you rented out hoping that your costs are met or provide a small return hoping that the capital appreciation and asset value will provide equity for you pension – which sums up the majority of private sector landlords – would you take the risk of renting to someone, working or not, that you knew would only receive 68% of that rent cost in benefit? I doubt you would.

Look at the chart more closely and you see this reduces to around 60% of the rent on your pension no less by the end of this parliament and around 55% by the end of the next. Would you seriously rent to anyone on housing benefit? Of course not the risk of non-payment or arrears is a step too far.

The chart above was first published in a previous post which covers all the detail of the above chart yet the simple question Why would a private landlord risk renting to a benefit claimant can get lost in the other factors mentioned there. Why I have remade the point is that the simple point that it is a risk too far for a private landlord is largely lost on the social housing sector and the average social housing professional.

The private rented sector (PRS) invariably gets a bad press and while much of it is deserved and some of their practices horrific as the PRS is unregulated – a national scandal that reflects the political ideology of the right – the risk to renting to benefit claimants and why it is such a risk too far gets lost in portraying the PRS and the PSL as the bogey man. That is far too simplistic and frankly an easy ‘out’ in terms of viewing the PRS.

The social housing sector and many commentators on it, me included, castigate the system that allows the unregulated PRS to charge exorbitant comparative rent levels which cost the taxpayer about £3bn more per year than the equivalent number of social housing properties in housing benefit. Yet it is the system that is bust and broken and needs reform and crucially needs to see the PRS fully regulated; not for the sake of regulation or because of some leftist ideology, but because the system is dead as a Dodo. If PSLs will no longer rent to benefit claimants the system is well and truly buggered and all indications suggest it will be well and truly buggered sooner rather than later – the risk to a PSL of taking a benefit claimant is a risk too far as the simple chart shows. The laissez faire system of letting housing benefit take the strain is systemically flawed and collapsing.

However the real problem with the social housing view of the PRS is that it allows this rightist government to portray the social housing sector as leftist dinosaurs holding on to the great council housebuilding boom after WW11. That leads to Tory arguments such as the only reason the PRS charges 50% more in rent than social housing is because social housing is subsidised through housing grant.

There is some merit in that yet recently it has been mooted that this government is mooting taking away all ‘subsidy’ from (leftist?) social landlords. I commented on this last week saying the removal of ‘subsidies’ would create a level playing field, create a true ‘market’ so beloved by this rightist government and would see social landlords become private organisations … who would surely raise their rent levels to those of the existing PRS…. and add about £6bn per year to the taxpayer through increased HB in one fell swoop!

‘Subsidising’ social housing is one hell of an ‘invest to save’ programme as it save the taxpayer about £30bn per parliament!

Yet of course it is never seen or perceived that way and whose fault is that?

Regulated social landlords deliver much higher standards of housing, a better quality product than the PRS; they provide greater service levels too than the PRS, so they would inevitably charge at least the same as the PRS in this ‘free’ market. They would also blow the competition – the PRS – out of the water in competition terms and so rents would increase further too. Isn’t that the way markets work? Why would social housing landlords provide the same high service they do now for the same income as the PRS? That is also illogical in free market thinking and practice. So would the security of tenure reduce, would repair times reduce, would tenant involvement and tenant rights to involvement reduce to their levels in the PRS – ie none at all?

So reader, please tell me another sector or industry that delivers a much higher level of product and service at a massively reduced cost that is so castigated?  No I can’t think of any other example either!

In summary, portraying the PRS and the PSL as the bogey man is not only deeply flawed and lazy thinking by the social housing, it allows disingenuous rightist arguments over ‘subsidy’ and ‘leftist thinking’ to prevail. The social housing sector is doing itself a huge disservice in not understanding and recognising that the PSL not taking benefit claimant is anything more than a sensible business decision by the PRS.

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3 thoughts on “Why would a PSL rent to a benefit claimant? Makes no sense

  1. you make a lot of sense joe. I do feel that the time has come to remove the subsidy altogether but to do so will devastate lives before the market finds its level! As bricks and mortar subsidy has already been virtually removed, the logic should be that the rents across sectors should find equilibrium but as public sector rents rise, the PSR will not respond kindly to reducing their levels as the dwellings they provide are funded on their forecast rent streams too?!
    there will always be those households who have times in their lives when they need rent assistance but this should not be because the rents themselves are fundamentally unaffordable but that their income has dropped suddenly or lost thru unemployment. If HB was just needed in those circumstances then supporting the households only in their immediate time of need seems right. The way we have it currently sees many council/RP tenants on social rents that they no longer need the subsidy of because their incomes have increased, block these homes because they have security to do so.
    I cannot see how we can rejigg the system to create something more equitable and still ensure the needs of the most vulnerable are met?

    1. Hi Carmel – I agree PSLs will not reduce their rents, and why should they as they are in the box seat having what customers want – somewhere to live. I’m not beign an apologist for them in saying that just a realist. While they remain unregulated the current broken system will prevail and it cant carry on.
      The purpose of the blog was (a) simply portraying the PSL as the bogeyman is inept and lazy and (b) while the social housing sector persists in this lazy view the PSLs are laughing all the way to the bank
      The social housing sector meanwhile is castigated for delivering a better product and serice more cheaply AND is portrayed as the housing of last choice! That is truly bizarre
      In terms of ‘equilibrium’ of benefit the older post I refer to above shows that government rent inflation plans will see the HB paid to social landlords overtake the LHA rates they give to private landlords by 2029. This means of course that all will pay higher rents, the HB bill will continue to rocket and dependency levels also rocket – this from a government who say ‘work will always pay!!’ Once you scratch beneath the veneer of such pithy sayings and spin and see what the reality is and impacts are the system is severely broken and current policy is even more illogical.

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