Why are social landlords petrified of the room size issue in the bedroom tax? They shouldnt be and that is what I discuss here and I argue they shouldnt be as it is in their best interests for it to be applied universally and adopted by every local council – and it’s in every councils interest too.
Primarily social landlords believe if a room measuring less than 70 square feet in floor space is deemed to not be a bedroom then they will suffer a rent loss. I believe strongly that they will NOT see a reduction in rent and also believe strongly they will not suffer a reduction in housing benefit. I discuss why I believe that below after some context.
Second to this is that social landlords also believe that if a property is deemed to be a 2 bed and not a 3 bed property then the asset value of that property will fall and that does raise all sorts of financial headaches for social landlords, which it would. Yet note well that this secondary argument is entirely dependent on the first, that a property deemed to have one fewer bedroom will mean a rent reduction and a housing benefit reduction. Put another way if there is no rent or HB deduction or loss then the asset value issue goes away too. So it is time I discussed the rent loss and housing benefit deduction issue which is THE central issue.
The room size issue stems from the 1985 Housing Act and sections 325 and 326 on overcrowding. It says there that a room with a floor size area of less than 50 square feet CANNOT be a bedroom. It also says a room between 50 and 70.1 square feet is in effect half a bedroom (which again means it is less than one or 1.0 bedroom.)
Note that (a) the notion of under occupation was not around when the 1985 Housing Act was drafted; (b) councils and social landlords have argued the 1985 Act ONLY applies to overcrowding and NOT to its opposite, under occupation which is what the bedroom tax is – a tax or deduction on under occupying; yet (c) this has never been legally tested and so it can only be a best guess by those who argue it does apply and those that argue it doesn’t apply.
That latter point is significant as whenever I or others raise the room size argument it is shot down in flames by councils and social landlords and by many others such as social landlord lobbies in the CIH and NHF. Yet they cannot be so definitive and nobody can as it has yet to be tested in law and they are scared of it being applied because they have not considered the issue correctly.
Also relevant here are the two separate arguments which many wrongly confuse as the same “reclassification” issue. Firstly, a landlord can choose to reclassify its own properties and a number have done so already yet for various (financial) reasons and have accepted a rent loss. This is largely because the properties were difficult to let and became impossible to let with the bedroom tax. That is a landlord (financial) reclassification.
The second issue is a local council rules that (a) any room under 50 square feet cannot be a bedroom or (b) a room of between 50 and 70 square feet is not a bedroom; or (c) both of these. This is a council ‘reclassification’ and significantly based on a legal underpinning and not a simple financial reclassification that some landlords are doing for some of their properties.
This has received scant discussion yet councils are the SOLE decision maker for the two major questions that form the bedroom tax, namely what is a bedroom and how many bedrooms does a property have. Every council has to define these in order to make the bedroom tax decision which is a decision on whether the tenant (the HB claimant) has too many bedrooms or not. Yet too many landlords state in legal error that it is they who decide the number of bedrooms in a property for the bedroom tax- as do many councils in even greater legal error. Social landlord don’t decide the number of bedrooms for bedroom tax purposes and it is entirely a matter for local councils. The social landlords did inform councils of their view or opinion on how many bedrooms a property has yet all councils were free to disagree with that landlord view as they do daily with private landlords views on how many bedrooms their properties have and the last full year figures I can see show 219,000 council referrals to the independent Rent Officer service for these cases.
The bedroom tax decision making process shows a council cannot impose the bedroom tax UNLESS they answer the two questions. This is wholly a council decision and is NOT a reclassification yet if a council does rule this then ALL social landlord properties in that area have to be treated this way as in Welwyn. In this case it doesn’t matter whether a social landlord reclassifies or not as the rule still applies.
So let’s invent a social landlord with properties in Welwyn and let’s call them Acme Housing Association. Acme had no intention of reclassifying but the council’s decision means any room under 50 square feet cannot be a bedroom. Acme have say 5% of their properties with previously thought bedrooms of less than 50 square feet and all are (formerly) 3 bed properties which have now become 2 bed properties plus a boxroom.
Acme’s finance director is worried that these properties which have a rent of £100 per week and receive £100 in housing benefit will have to reduce to £92 per week and £92 per week in housing benefit will only be awarded.
Why is this not an issue?
Acme is under the impression that the HB department will reduce the HB level which means that the local HB department have the powers to do that. Yet they do not in all reality. A council can only restrict a HB level if the rent is unreasonably high and that term is very significant indeed as I argue below.
Firstly, Acme also has 1 bed properties with a rent and HB income of £150 per week which are sheltered housing units yet they receive £150 per week in HB for. So £100 per week in HB for a 2 bed + boxroom property cannot be unreasonably high when the same HB department is paying 50% for a 1 bed property in HB.
Secondly, Acme also operate the affordable rent model which sees social property rents set at 80% of the local gross market rent (GMR) properties. As the GMR for a 2 bed is £200 per week then Acme already rents 2 bed only properties at £160 per week and receives £160 per week in HB. Therefore a HB level of £100 per week for a larger 2 bed plus boxroom cannot be by any definition unreasonably high.
As such the local HB department at the council cannot restrict the rent to a lower level because such a rent is not unreasonably high.
Prior to 1 April 2013 the local HB department could have referred the rent to the independent Rent Officer service yet this power was taken away on that date. Hence the ONLY HB regulation open to councils is to restrict the rent because it is unreasonably high yet the above two simple reasons show that the £100 pw HB rent is not unreasonably high and so in reality councils cannot restrict or reduce the HB payment levels.
In summary HB departments at councils have no real options or powers to reduce or restrict the HB amount paid for the former 3 bed properties now deemed to be 2 bed plus a boxroom.
If the rents and HB income are not reduced then the social landlord does NOT suffer a rent or income loss. This also means the asset value of the properties does not change too and so social landlords have nothing to worry about. In fact social landlords knowing that a HB reduction is near impossible for the local council to impose should actively promote and lobby their local council to decide that anything under 50 square feet is not a bedroom and anything between 50 and 70.1 square feet is less than one bedroom because it is hugely in landlords financial interest to do this.
I estimate – and that is all it is – no more than 5% of social landlord properties contain a purported ‘bedroom’ of less than 50 square feet. I would also estimate between 15% and 20% contain a purported ‘bedroom’ of between 50 and 70 square feet. So collectively let’s say for argument it is 20% for both. 20% of the 660,000 bedroom tax affected properties is 132,000 properties which would either not be subject to any bedroom tax deduction at all or we see this reduce from 25% down to 14%. That is a huge potential financial loss removed from social landlords.
Note: As 81% of bedroom tax households under occupy by 1 ‘bedroom’ and 19% by 2 or more ‘bedrooms’ then about 107,000 properties would be taken out of the bedroom tax altogether and the other 25,000 would fall from a 25% deduction (or bedroom tax) down to 14%. This approximates to a £91m per year reduction in financial risk to social landlords.
IF my argument that HB departments have little chance of reducing or restricting HB payments is correct, and I think that it is, then that £91m per year figure should make the social landlord and councils sit up and take notice and finally get around to looking at the issue with the full consideration it deserves.