Imagine reader you are one of the 90% of private landlords in the UK who own less than 5 properties it is commonly said, that rent out properties that they have inherited or bought on a buy to let basis. The BtL idea is simple. Buy a property, rent it out with your mortgage and landlord costs covered by the rent and upon retirement you have some very welcome equity with the asset value appreciation the properties bring.
Far more common than you imagine and we have a massive housing shortage with huge waiting lists and people cannot afford to get on the property ladder and houses always rise in value don’t they? So imagine YOU have a 3 bed a property, the most common type and YOU are renting it out.
Here is why – without any hyperbole or speculation whatsoever – private landlords will evict all current benefit families and refuse to house all benefit families ever again.
The issue is the Tory overall benefit cap which could see all of the detail below happening in just 5 weeks time!
What the state will pay in housing benefit to private landlords is fixed on a local basis and called Local Housing Allowance, or LHA, the private rented version of Housing Benefit. Here is a list of how much LHA is payable in a number of cities across the country on a weekly and monthly basis.
Bristol £175.74 pw / £761 pcm – Liverpool £120.82 pw / £523 pcm – Leeds £151.50 per week / £656 pcm Birmingham £132 pw/ £571 pcm – Hull £103.56 pw / £448 pcm – Cardiff £150 pw / £650 pcm Glasgow £137.31 pw/ £595 pcm – Newcastle £115.07 pw / £498 pcm – Ipswich £129.47 pw / £561 pcm
Now watch what the Overall Benefit Cap of the Tories means to you, the private landlord in any of these areas (that represent all areas outside of London) and you will see why private landlords will no longer rent out their properties to the benefit family as to do so would be business suicide!
The current £500 per week OBC for families applies right across the country and the Tory plan is to reduce this to £440 per week in London and less than that in the regions and here I assume 90% of London figure or £396 per week outside of London to illustrate.
A tenant household of 2 parents and 3 children gets the same amount of welfare benefit and child tax credit anywhere in the country and this will be £334.56 in this financial year of 2015/16. When this £334.56 is taken away from the CURRENT £500 pw cap it leaves a maximum of £165.44 pw or £716.36 pcm as the maximum amount of LHA this family will receive for a 3 bed property.
Currently with the £500 pw cap it is only in Bristol in the examples above that the 2P3c household needs to find money from their welfare benefit to top up the rent and then it is £10 per week to meet the rent. In Liverpool all the rent will be paid as it will in Leeds, Birmingham, Hull, Glasgow, Newcastle, Cardiff and Ipswich. In short the current overall benefit cap has little impact outside of London and the South East (excepting a few pockets in the North such as York and parts of Trafford and a few more not necessary for this argument.)
YET when the £396 per week regional cap is brought in the 2P3C household will only receive £61.44 pw in LHA or £266 pcm to pay towards rent. That means in Hull, the lowest rent area the 2 Parent 3 Child household will have to find £182 pcm from their welfare benefit to pay the rent. Remember this is the lowest rent area and the top up in Hull is the equivalent of 3 times the unaffordable bedroom tax and is a financial risk too far. A simple question:
Would you reader in Hull let YOUR property to a 2 parent 3 child benefit household who you know only receive £266 in benefit to pay your rent of £448 per month?
Of course not you could not afford to take what amounts to a £2,184 yearly risk or a 40.6% risk
If you were the private landlord in Liverpool another low rent area the same 2 parent 3 child family would also only get £266 per month in LHA and YOUR rent on YOUR property is £523 per month. That’s a £257 per month risk or a £3,084 per year risk or a risk to 49.1% of YOUR income.
Stay with my home city of Liverpool where I know a number of people who do own and rent out houses. So pretend you are one of them and I now ask would you rent out your £525 per month property to a single parent with 2 children (1P2c).
The 1P2C household receives £225.55 pw in welfare benefit and child tax credits an so has £170.56 pw or £738.52 per month left of her benefit cap figure of £396pw. A safe bet and not risky? No!
What happens if the tenant falls pregnant and is soon to be a 1 Parent 3 child household? Her child tax credit increases by just over £67 per week but her maximum LHA also falls by a corresponding £67 per week. The tenant will receive £292.70 in benefits and CTC leaving just £103.30 pw / £447.29 in monthly LHA and YOUR rent is £523 per month. The tenant will have to find £76 per month out of her benefit to pay the rent – again unaffordable and again too high a financial risk.
So even in a low rent area such as Liverpool it is too great a financial risk for a private landlord to house a single parent with 2 children on benefit. The situation is much worse in all of the areas above that have higher rent levels than Liverpool such as Birmingham, Ipswich, Leeds, Cardiff, Glasgow and Bristol. If the rent YOU charge on a 3 bed property is more than £450 per month then you would be taking a huge financial risk in renting it out to a benefit family of 1 parent and 2 children and any bigger household size would be financial madness.
The Tory Benefit Cap means that private landlords will no longer house the benefit family
Anyone working in social housing will now be saying OH SH*T at what this means! Anyone working for the local council homeless department and the local council Finance Director will be saying F*CK, F*CK, F*CK, F*CK! – and probably at the top of his or her voice too!!
It means that YOU reader as private landlord would do the same so not a moralistic snipe and YOU will (a) evict the existing tenant families on benefit which is easy to do; and (b) YOU as private landlord will no longer take the benefit family in the future.
Local councils will be inundated with thousands upon thousands of benefit families currently with private landlords who are seeking to evict them come May 8th if the Tories remain in office.
That is going to cost local councils a fortune to assess all cases in the first place which must then find the council has a legal duty to put these families in hugely expensive temporary homeless accommodation while they find alternative accommodation for them, which of course they will not find in the private rented sector, so that will have to be in social housing.
[Liverpool currently has over 20,000 private tenants claiming housing benefit and if 23% of them have 3 children or more which is the national figure thats 4600 very imminent evictions!! At say £500 admin cost per case just a mere £2.3 million initial cost and an ongoing cost of temporary homeless accommodation of circa £400 per case that is a mere £2 million PER WEEK!]
There will be a huge increase in demand on social landlords…..YET…..the social landlords cannot afford to house them either! The 2 Parent 3 child household is too high a financial risk even for the cheapest social landlord in a low rent area such as Liverpool where 3 bed rents typically average £98 per week.
The 2 Parent 3 Child family will only receive £63.52 per week as the maximum housing benefit and so will need to top up the rent of £98 per week with £36.48 per week from their welfare benefit. That is not just unaffordable and not just nearly 3 times the average bedroom tax in Liverpool, the real issue is that the local council could not discharge its duty with a 3 bed social housing property because the financial top up from benefits of that £36.48 per week is in homeless law terms ‘unsuitable’ to end the councils homeless legal duty.
This raises an extremely serious statement which I put in big shouty capitals below:
WHERE THE FUCK CAN THE 2 PARENT 3 CHILD HOUSEHOLD LIVE?
The answer to that is one of three possible options (a) NOWHERE, (b) permanently in high cost (£400 pw plus) unsuitable temporary homeless accommodation; or (c) the 2 parent 3 child family splits up to become two households of say a 1 parent 2 child household and a 1 parent 1 child household as then they could afford to live in social housing and the social landlord could afford to accommodate them.
(C) is the only ‘practical’ option and an horrendous one as the Tory Benefit Cap forces family breakdown (!!!) and of course increases the benefit bill as two properties and two lots of housing benefit will need to be paid just to rub salts into the wounds of the buffoon IDS who developed and advocates this overall benefit cap policy!
The overall welfare bill will rocket and you, me and every other taxpayer will have to pay more in tax as the overall benefit cap will cost every single taxpayer more. It will also see the current 90,000+ children who spent last Christmas in unsuitable temporary homeless accommodation increase to maybe half a million children next Christmas suffering that awful fate.
Now dear reader are you one the 78% of the general public who has given the overall benefit cap an approval rating of 78%!! If so do you still think an overall benefit cap saves money? If you do then you have the same numeracy skills as this coalition!
Lets estimate some figures to see just how much more this perverse Tory Benefit cap is going to cost.
Currently there are 1,587,669 private tenant households receiving on average £107.19 per week in LHA a yearly sum of £8.8 billion. If 20% of these are evicted then 317,000 households instead of getting £107 per week paid in rent from the public purse they will cost say £400 per week and so the housing benefit bill rise by about £5 BILLION PER YEAR.
Yes that’s a FIVE BILLION POUND PER YEAR INCREASE FROM THE TORY BENEFIT CAP!
Note well that is just the increase in the housing benefit bill from the private rented sector alone. Add in the additional costs of those evicted and placed in expensive temporary homeless provision from social housing and you can double that figure.
Yes that would be a TEN BILLION POUND PER YEAR INCREASE FROM THE TORY BENEFIT CAP!
So dear reader if YOU were (or are) a private landlord would you evict the current benefit tenant families you have? Of course you bloody would!
The general reader – the £10 billion more cost figure is based on 20% being evicted and becoming homeless. That means each 1% that are evicted due to this ridiculous Tory Benefit Cap will cost £500 million more per year!!
The housing professional – Yes I have not covered the proverbial that will hit the fan with nominations agreements between social landlords and local councils over this. Or the fact that social housing will get castigated by IDS and central government as of course it can’t be his / their fault!
General – There are also many many more disastrous implications of the Benefit Cap policy too for social housing – landlords and especially tenants. If the Tories do not get voted out the reduced £23k cap and regional policy will come in and very quickly too and that is a nightmare scenario. The Labour Party also like the benefit cap and have advocated a regional cap for the last 3 years and Liam Byrne did this back in 2012. In other words the Labour Party do not have a clue about the impacts of the Benefit Cap they are only enamoured with the 78% public approval rating and scared to death of appearing to be the party OF welfare to go against the Benefit Cap.
ALL – The Tory Benefit Cap will be disastrous for social and private tenants, for social and private landlords and for every single taxpayer in the land. Hundreds of thousands will be made homeless and that includes hundreds of thousands of children who will have their life chance severely fucked up because of the policy.
ALL – If your first reaction is there is no way private landlords could afford to empty their properties, think again. The private landlords cannot afford to tenant their properties with the OBC. They may sell and there will be plenty of buyers too as many will be waiting in the wings to snap them up at 10% below market value and plenty of ‘amateur’ landlords willing to sell at that price to get out of renting and release their equity. Or the private landlords may well subdivide 3 beds into 3 bedsits or 2 x 1 beds and get more income and avoid the risky family benefit household and target the 1 bedroom market instead. To believe the private landlord will not react to the Benefit Cap threat, and it is a huge threat is naive. They will have to react and they will and quickly.
ALL – The figure of £400 per week is a very low one for the average cost of temporary homeless provision. One, yes just one family room at a Travelodge at £69 per night is £483 per week and the now infamous BBC London programme in 2013 say Westminster council spending £12,768 per month to house one family of 7 children in two hotel rooms – a mere £153k per year. That is the same London Westminster council that the Supreme Court yesterday said in the seminal Nzolameso case could not place its homeless families willy nilly 50 miles away in cheaper accommodation and has to stop these unlawful practices!
I could go on all day as to the impacts of this outrageous Tory Benefit Cap policy yet it is suffice to say two things.
Firstly the existing benefit cap policy and the bedroom tax and LHA cap and SAR cap make up the 4 welfare reform (sic) policies of this coalition that aimed to reduce the overall housing benefit bill. As the official figures show here they did not save a penny and actually cost more in real terms and the planned reduction and regionalisation of the Benefit Cap will make that extra cost so much worse for each and every taxpayer.
Secondly, and finally, is that simple question again. If you were the private landlord renting out a 3 bed property would you take the financial risk of renting your pension pot to the benefit family? There is only one answer to that and it is NO.
In housing over the past decade and more it has been speculated many times that the private landlord would withdraw from the ‘benefit tenant’ market: this times its a racing certainty with the Tory Benefit Cap.