Bedroom Tax – Landlord – reclassify all properties you financial idiot!

Social landlords should not only reclassify, they should reclassify all their properties and is very much in their financial interests to do so. Yet social landlord after social landlord is coming up with every excuse in the book not to do this and some of them are even creating fictitious government “rules” which say disallows this.  Shame on you YHN in Newcastle! There are no such rules and social landlords imply don’t have the will to reclassify despite the fact it is in their financial interests, as well as the tenant financial interests, if they do.

Here I look at how they should reclassify ‘smartly’ and why this is in the mutual financial interests of landlords and tenants.

Ever had to book a room in a hotel?  I’m sure all will be familiar with this and it is used here to illustrate why all social landlords should reclassify all their properties in terms of bedroom number as a way of safeguarding the huge financial predicament the bedroom tax policy has created. A decade or so ago you could book a single room or a double room.  Now you can book a single room, an executive single room, a double room, an executive double room, a superior double room and a family room and even a triple room or a quad room.

Yet to rent a social housing property it is a 1 bed a 2 bed or a 3 bed et cetera, and this is inadequate and does not accurately represent what is being rented.  A 3 bed property with 3 double rooms is bigger than a 3 bed property with 2 double rooms and a single and bigger still than a 3 bed with 1 double and 2 singles.  And then within this we have alleged ‘bedrooms’ of less than 50 square feet and between 50 and 70 square feet which in overcrowding legislation are not a bedroom and half a bedroom respectively.

So if you are a tenant with a 3 bed property that has 3 double sized bedrooms you should be paying more rent than a tenant with 1 double and 2 single sized bedrooms.  That must be both right and fair.

A table below makes this line of argument easier and I have also included some example rental costs to reflect the average cost difference between a 2 and a 3 bed property in social housing.

Table 1

Description

Now

After

A

 3 bed property with 3 double rooms

£90

£94

B

 3 bed property with 2 doubles, 1 single

£90

£92

C

 3 bed property with 1 double  and 2 singles

£90

£90

D

 2 double bed and large boxroom (50 – 70 sq/ft)

£90

£90

E

 2 double bed and small boxroom (under 50 sq/ft)

£90

£86

F

 2 bed, 1 double, 1 single and large boxroom

£90

£86

G

 2 bed, 1 double 1 single and small boxroom

£90

£84

H

 2 bed, 2 singles and large boxroom

£90

£84

I

 2 bed both singles and small boxroom

£90

£82

J

 2 bed both doubles no boxroom

£80

£80

Table 1 is illustrative and property types A through to I are all deemed 3 bedroomed properties yet vary drastically in their space.  Yet in HB terms and especially bedroom tax terms they are considered the same which is a total nonsense. I could have added 3 bed ‘parlour houses’ as they are often known which have additional living rooms which could make them 4 bed properties or still 3 bed ones – yet this merely emphasises the point that the current classification of rented properties just by the number of bedrooms is a nonsense and does not reflect what is being rented.

Put another way ask a tenant which of these types of “3 bedroomed” properties they would wish to rent at the same price and we would see 100% plump for Type A and none for Type I – Yet all are the ubiquitous “3 bedroomed” property for Housing Benefit purposes.

There needs to be a price differential between Types A through I yet in practice there is very little price difference charged by social landlords.  Reclassification is needed and along the same lines as the hotel room analogy I started with.

Reclassification could and would see Type A properties have a rent increase to reflect the additional good and property which is being rented.  Type I properties at the other extreme would see a reduction in rent charged.  Overall this protects social landlord incomes and also has the advantage of taking many now bedroom tax affected tenants out of the bedroom tax deduction and thus reduces the social landlords exposure to arrears risk.

I have attached some suggested alterations to the rent figures (again illustrative) which show that only types A, B and C remain as “3 bedroomed” properties but types D, E, F, G, H and I are between 2.0 to 2.99 bedrooms – These type D through type I properties would see tenant escape the bedroom tax altogether in 81% of cases as that is the DWP figures for those who under-occupy by 1 bedroom and the other 19% in these property types may see a fall from the 25% bedroom tax deduction down to a 14% deduction.

What this means is social landlord rental income would fall slightly in the first year yet would be readily and easily recovered through full application of the [(RPI+0.5%) + £2] formula in years two and onwards.  Types D through I can still be classed as “3 bedroomed” properties for asset value purposes and as their rental stream would quickly fall back in line with current levels the asset values would be largely unaffected as far as social landlords financiers are concerned.  This is smart reclassification which even Lord Freud called for back in May 2012.

Of course the same social landlords would have increased rental streams from types A and B as well.

Tenants and Housing Benefit – How can a tenant in a Type A or B property object to the rent increase?  They must recognise, as must the local council, that more rent is chargeable and fairly chargeable on a larger sized property.  Any such reclassification can and should and should have already been done on this basis and if it had then tenants would be happier as far less would be paying the bedroom tax, the social landlord would be happier as they would have avoided the enmity they are now receiving from tenants as well as reducing the financial risk of the bedroom tax.

Social landlords have often said it would take 5 years or 7 years and some 24 years for the bedroom tax downsizing (nonsense) argument to be resolved.  That is between 5 and 24 years of financial pain and threat of financial survival for social landlords.  The illustrative reclassification outlined above would see the financial risk to tenants and landlords overcome within 2 and at the outside 3 years. 

Social landlords are perfectly able to do this and central government would have little if any power to stop such as a “smart” reclassification.  Such a widespread sector wide reclassification is in the best financial interests and business survival interests of landlords AND tenants.

YET social landlord use trumped up and frankly ridiculous excuses not to do such a widescale reclassification.  YHN in Newcastle even state there are “strict government rules” to prevent this, when in fact no such rules exist at all.  Oh the rent setting regime only allows us to put a full integer in the box and so we can’t classify a property as a 2.5 bed property.  So get the rent setting software changed!  All of these are excuses and unacceptable ones.

I proposed the 2.9 bed property argument of which the above is a derivative back in January 2013.  Then last month Professor Steve Wilcox who is highly respected and rightly so for his expertise by all in housing proposed much the same argument in May 2013.  The ONLY thing stopping such as widescale reclassification is a lack of will by social landlords as the economics and business sense demonstrate it is the right thing for social landlords to do.

Finally, in terms of the bedroom tax, social landlords did NOT have any compulsion at all to provide any property data to local Councils who are the decision makers in HB, yet they did.  This not only means that social landlords chose to supply data, it also means social landlords have an obligation to provide accurate date in line with the rent charged on the property which is what paragraph 12 of the A4/2012 guidance says.

This assumes that the rent levels currently charged ARE accurate yet as I have pointed out above they are not and rent levels are broadly if not exactly the same for a type A property as they are for a Type I property.  In short rents are not accurate and do not accurately reflect what is being rented by tenants.  It’s about time and for their own survival that social landlords made sure rent levels are accurate and the only way for that to happen is widescale reclassification.

 

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