The OBC – 130,000 more homeless families next year?

Many of my recent posts share a similar theme that the Overall Benefit Cap is the most dangerous of the ‘welfare reforms’ and will do the most damage to social housing and it is the greatest risk to social landlords bottom line.  Here I develop that even more and show:

(a)   The OBC to be a massive transfer of arrears risk from the private rented sector to the social rented sector

(b)   The bedroom tax is a temporary measure which has a solution whereas the OBC is a permanent one and doesn’t have a solution

(c)    The OBC within 6 months of introduction in April 2013 will see an additional 100,000 plus families evicted and made homeless

(d)   The OBC directly creates poverty amongst social tenants

The bedroom tax is a scandal social landlord’s cry, with justification, yet it only levels the playing field with the PRS and private tenants are paid LHA based on their family composition not on the property they occupy which is what the bedroom tax does.

It will take us 7 years to deal with the bedroom tax and make better use of stock social landlords cry.

So the bedroom tax is temporary and can be solved within 7 years then!

The rest of this post looks at what the OBC will do in the next 7 years with the view of making social landlords and social tenants wake up and smell the coffee.  The OBC is the death of social housing, the OBC will massively transfer risk of arrears from the PRS to social housing; the OBC will massively attack housing association finances and so much more.  Yet social landlords still bemoan and focus upon the bedroom tax and direct payment of HB to tenant which by comparison are insignificant compared to the permanent damage the OBC will have.

The OBC is simple in its workings, frighteningly so as at inception in April 2013 less than 6 months away it takes the cap figure of £500pw deducts the amount of welfare benefits tenants get and the residual becomes the maximum payable towards rent.

For example £500 cap, 5 child family gets £464 in welfare benefit means what is left (the residual) is just £36 pw and so that is all the family gets towards its rent on its London typical 4 bed SRS property of £136pw.  Housing Benefit is cut by £100pw in that example and HB is the ONLY benefit to be cut or capped in the OBC.

[The ‘large’ family issue is well-known and I call this the fundamental flaw in the OBC as the crudeness of the cap level impacts harshly on those with the highest welfare benefits, namely large families.]

That HB is the ONLY benefit to be cut or capped is a major transfer of risk to arrears from central government to social landlord and surprisingly not seen that way by social landlords who rely on HB for 62% of their income!  And social landlords expect and generally receive 100% or full rent in HB.  From April 2013 less than six short months away that no longer happens.

I argued earlier this week that the OBC is much worse than the bedroom tax which was largely well received yet had a few typical comments from social landlords along the lines of we have very few large families and ten times as many tenants will be hit by the bedroom tax than by the OBC.  That has some validity if you only look at the ‘now’ and not into the immediate future, if you ignore the context, if you see it in a vacuum and just at April 2013. Yet that is a dangerous view and a blinkered one.

Time to look at numbers and figures to explain.

RENT LEVELS 2013 AND 2015

BEDROOMS PRS-2013 PRS-2015 SRSL-2013 SRSL-2015 SRSP-2013 SRSP-2015
2 154 161 115 125 78 84
3 177 185 126 137 86 95
4 309 323 137 149 101 112

KEY: PRS = private rented sector; SRS = social rented sector; L = London; P = provinces

WELFARE BENEFIT LEVELS 2013 AND 2015

FAMILY SIZE / CHILDREN 2013 2015
A)       2 parent 2 children (3 bed) 258 271
B)       2 parent 3 children (3 bed) 324 338
C)       2 parent 4 children (3 bed) 392 408
D)       2 parent 5 children (3 bed) 464 484
Overall Benefit Cap (OBC) 500 515

Let us start with family composition (A) with 2 children of 11 and 13 one boy and one girl.  In 2013 when the OBC starts they receive £258 in welfare benefits and live in a 3 bed PRS property in the average provincial town with a rent of £177pw – a total benefit figure of £435pw.  They will not be affected by the cap.  However if they live in Welwyn Hatfield, Grant Shapps constituency they will pay an average rent of £255 and so be capped as the total is £502pw. Yet God forbid they live anywhere in London with an average 3 bed rent of £403pw as this takes them subject to a £161pw cut which is clearly unaffordable and will lead sharply to arrears to eviction to temporary homeless accommodation (B&B hotel).

Straight away we see how the OBC captures a PRS family with 2 children in London and makes them homeless.  It obviously will capture though with 3 or more children too and all average private rent figures used here come from the VOA official study of almost half a million private rents in-payment and the most authoritative and reliable PRS data we have. 

So every family with 2 children or more living in the PRS will be made homeless because of the OBC.

London has 280,930 PRS tenants claiming housing benefit according to official DWP HB figures.  I don’t have figures on what % are in 3 bed (or higher) PRS properties but if it is 36% – not an unreasonable assumption – then it is 100,000 families the OBC will directly make homeless in London alone in 2013!

These PRS families from the temporary B&B in London can’t be re-housed in the PRS anywhere in London or many of the provincial environs either.  They have to move out of London or hope social housing becomes available there which of course adds 100,000 to demand for social housing in London alone.  This is of course unlikely and so you thought the Newham to Stoke fiasco was bad looking to export 50 homeless families!!

Each of the London Boroughs will have 3,000 homeless families to export next year and of course before that find 3,000 B&B hotel places in London and pay the cost of them.

Big tip there for the PRS about developing B&B hotels in the capital!  With that demand you can charge what you like can’t you?  Crunch the numbers at just 6 weeks in TA and that’s 18,000 rent weeks per London Borough.  At £69 per night per room in a Travelodge and assuming two rooms per family that’s about £17.4m per LB per year or across London at a maximum 6 weeks (haha!) that’s 600,000 rent weeks @£966 per week, a mere £580m….just for London alone.  Wow, the Tories really have thought the OBC through haven’t they!!

Outside of London?

Lets us assume that the 2 child family receiving welfare benefits can afford to pay £30pw out of their weekly £258 welfare benefits towards rent.  That is a huge assumption considering all welfare benefits are at a minimum subsistence level; however this means all areas with an average 3 bed PRS rent higher than £272 per week will be unaffordable.

This will include the following areas using VOA official figures of 2011 PRS rents and in brackets is 35% of PRS housing benefit claimants there:-

Brighton – (4869)

Oxford – (1275)

Surrey – (5800)

Most of Hertfordshire – (5500)

Much of Essex – (12000)

The above far from comprehensive list adds another 30,000 that the OBC will make homeless AND that figure of 130,000 so far, and it could be higher, is based on 2 child families in a 3 bed PRS property.

This is not just about large families.

What it does show is that the risk-averse private landlord will – justifiably with the profit motive – evict those families who are at risk of building up arrears.  Because that leads to homelessness, temporary accommodation and then being re-housed in social housing its is a transfer of rent arrears risk from the PRS to the SRS. 

The OBC directly and very quickly becomes just that, the transfer of financial risk from private to social housing.

So far we see the OBC transferring families’ small and large (hopefully) to social housing – as where else can they go? – And the risks to arrears that holds AND massively increase demand transfers to social housing.

Possibly if some of the London and SE families follow the Newham to Stoke idea and export their homeless families then this increases PRS costs in the likes of Stoke or Hull or wherever the OBC diaspora finishes.  The Newham model saw a 56% rental increase being offered to Stoke private landlords which of course would have the effect of seeing existing Stoke tenants evicted and made homeless to make way for them!  It also sees average PRS rental prices rise and so would see more paid out in LHA by the public purse (on top of Stoke paying for the increased homelessness costs of Stoke residents!)

So far we see the impact of the OBC on the private tenant and the PRS landlord and how that impacts on social housing demand and social landlord risk of arrears, so what about social housing tenants?

To look at social housing tenants it is easier to begin with rent levels which to save scrolling up reader are reproduced again below:

RENT LEVELS 2013 AND 2015

BEDROOMS PRS-2013 PRS-2015 SRSL-2013 SRSL-2015 SRSP-2013 SRSP-2015
2 154 161 115 125 78 84
3 177 185 126 137 86 95
4 309 323 137 149 101 112

Social rent levels in London are higher that provincial SRS levels and at inception of OBC in six months time we see a 3 bed rent level of £126pw meaning any family with welfare benefit level of less than £374pw won’t be cut.  Yet a 4 child family at £392 may just be able to manage (despite plunging into poverty) as this is an £18pw cut in HB, yet still £940 per year in London.  A 5 child family on £464 of welfare benefits in a 3 bed house will be evicted nationally as they won’t be able to find between £50pw in the low-cost provinces and £90pw in London towards their rent.

Jump forward to the end of this parliament in just over 2 years and we see the same 4 child family in London having an OBC of £515, welfare benefits of £408 and a rent of £137 so the tenant make-up goes from £18pw in 2014 to £30pw in 2015 – the systemic flaw in action and becoming unaffordable and/or placing tenants in poverty as any amount of tenant make-up to pay rent have to come from subsistence level welfare benefits.  Factor in the increased risk that direct payment to tenants holds and especially monthly benefit payments and this 4 child family in a 3 bed SRS property in London becomes a risk too far financially for social landlords.

Go the 2020 and the end of the next parliament and we see an OBC of £555 and welfare benefits for a 3 child family being £377 yet a London 3 bed SRS rent of £171 making £555 in total – the same as the OBC.  Compare that to 2013 when OBC starts of a £500 cap WB of £324 and a London 3 bed rent of £126 making a benefit total of £450 – yet the £50pw difference has disappeared and again is the systemic flaw in action.

The systemic flaw in essence sees the value of the OBC erode year on year as rent levels rise faster than the overall benefit cap or OBC.  It directly creates poverty for the social tenant on benefits and that’s whether the tenant family has been living on them for 20 years or has just become unemployed after working full-time for 20 years.  This is not a Daily Mail issue of all those on benefits are morally repugnant etc, it applies to a one wage earning family where that one wage earner has just lost his or her job – a common occurrence in today’s austere times.

In 2020 a 4 child family in Hull – the lowest social housing cost area – will get £456 in welfare benefits and will have a 3 bed SRS rent of £126pw a total of £582 against an OBC of £555.  So in 7 years a 4 child family becomes a financially risk too far for social landlords in the lowest cost provincial area!  The £27pw make up then is a change from a minus £23 figure in 2013 (£392 in WB + £85 in rent = £477) – again a £50pw reduction in overall benefit because of the systemic flaw.

Just 7 years time – the time frame that social landlords now are saying is needed to make best use of stock and deliver a solution to the bedroom tax!  The bedroom tax is thus in that sense a temporary issue in comparison to the permanent and increasingly punitive OBC which will have far more devastating financial consequences for the SRS landlord and the SRS tenant.  How many PRS tenants with large families will have been evicted by then and seeking SRS accommodation?

As I said earlier factor in the context of direct payment to tenant, monthly paid and of course the council tax benefit cut for working-age tenants (and the £10bn pa further welfare benefit cuts now confirmed last week which will also fall on working-age tenants) and we begin to see why 4 child families cannot afford social housing and when they try they are plunged into poverty and are a financial risk too far for even the cheapest rent of social landlords nationwide by 2020.

Go to end of the next parliament in 2025/6 and we see OBC of £597pw and 3 child WB of £430pw.  This leaves a maximum of £167pw from the cap to pay for rent.  Yet a London 3 bed SRS property will cost £208 pw by that time – a shortfall of £41pw, and a low-cost provincial 3 bed SRS rent in Hull will be £184pw – a shortfall of £17pw.

In just 12 years time (5 years after the bedroom tax has a solution) the OBC with its inherent systemic flaw makes social housing unaffordable for a 3 child family nationwide!

This brings me back to the fundamental question….Where the hell are families going to live?

The answer has to be in social housing obviously as after all that is the purpose of social housing and it can’t and won’t be the private rented sector.  Yet what a huge financial risk the OBC becomes for social landlords and social tenants.  The risk of arrears for social landlords is monstrous as the 3+ child families will end up there.  4 child families in 2025 will get £88 towards a rent of £184 for a 3 bed SRS property and a 5 child family won’t get a penny in HB and a £5pw cut in welfare benefits too by 2025 and will have to pay full rent!

What the hell are social landlords to do to mitigate against this huge risk to arrears which threatens their very survival?

Will registered providers still have 100% nomination agreements with their local councils, the ones struggling with huge homeless demand and huge homeless cost and will want to move the large families out of TA into social housing?  RPs will have to renegotiate these or suffer the high risk of arrears tenants they will give.

What about choice based lettings?  Greater priority for tenants with larger families and been homeless longer?  That becomes a choice too far for RPs as all it will see is them having to take tenants with the greatest risk to arrears. RPs will want and will need more control and more selectivity over who they accommodate directly because of the arrears risk the OBC creates and that can only men denying tenant choice!

Nomination agreements and CBL will act as constraints to RPs becoming more risk averse which they will need to become for financial survival.  There are many other constraints to this and RPs cannot become financially risk-averse as we know the PRS is and can be and with the OBC will be.  I haven’t even begun to discuss other matters here such as the ‘affordable (sic) rent’ model with its 65% higher SRS rents and how the OBC will impact.  AR is a huge risk too far for RPs a point I made many months ago yet it hasn’t stopped RPs getting involved in this fiasco to the detriment of social housing as a model.  Those RPs that haven’t got involved in the AR farce can afford a little pat on their own backs as they will be better placed to survive the huge risk to arrears that the OBC gives.

Hang on Joe it’s the coalition that developed and introduce the OBC so why are you having a go at social landlords?

Because social landlords have become obsessed with the short-termism of the bedroom tax and got wound up over direct payment of HB to the tenant and don’t see the bigger picture – that the OBC is the most pernicious, punitive and damaging of all the welfare reforms to the survival of social housing and to the survival of SRS landlords.  In doing so they have been unbelievably inept and let themselves and more importantly their vulnerable tenants down they have refused to even see the dangers let alone challenge or lobby against the OBC.

This is a policy that will create mass homelessness something Shelter, Crisis, Homeless Link et al haven’t stated, yet that doesn’t excuse social landlords from seeing the inevitable increased demand and increased risk to arrears it places on them.

This is a policy that acts as the greatest contraceptive in the history of mankind, which means initially large families have to work and increasingly means smaller and smaller families have to work.  Yet even if they do the risk of unemployment still leaves the huge risk to arrears for social landlords.

This is a policy that when spun initially by the coalition saw a 74% approval rating from Joe Public and the lack of challenge  – not even when Joe Public went into uproar over the Newham to Stoke fiasco – only serves to harden the public’s perception.  Social landlords do have a role as experts in the field and a role to challenge ridiculous policy that damages their sector, or their movement and especially their business.  Yet social landlords didn’t and to make matters worse for themselves they jumped on the AR bandwagon!

The lack of challenge by social landlords to the OBC is chronic ineptitude – and yes of course the CIH and NHF and all the other supposed umbrella groups that claim to represent the sector have been noticeable by their silence on this issue.  Yet even those that maintain that there is no sector and it’s a case of each social landlord for themselves have also done nothing to challenge the outrageous consequences of the OBC. Social landlords acquiescence to the OBC makes Neville Chamberlain seem like a master tactician by comparison!

More importantly social landlords like to perceive themselves as community champions offering more and more services to social tenants.  Yet here with the OBC are saying absolutely nothing about the OBC plunging those same tenants into poverty.

What’s the point of bigger ASB teams, setting up credit unions and all the other added services for the social tenant if the social tenant can’t afford to live in social housing?

The OBC starts in less than 6 months but the ‘sector’ response is we have a tiny minority of large families!  Wake up and smell the coffee and put a large brandy in it while you’re at it!

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