Deconstructing the bedroom tax?

The Sunday Mirror today runs a story of a social landlord in Liverpool, Cobalt Housing, who are knocking down walls to turn their very large numbers of 3 bedroom properties into 2 bedrooms for bedroom tax purposes.

Yet all it not what it appears and this requires a lot of comment.

Firstly, this is a practical and commonsense move by one landlord and one landlord alone, and secondly, it is not social landlords finally ‘seeing the light‘ as  tenants are saying on Facebook and other social media anti bedroom tax groups.

Cobalt’s move is practical and if the Chancellor does go ahead with the 10% cut to all Housing Benefit plans as many forecast he will in Wednesday’s Autumn Statement it is a remarkably clever move for Cobalt, although I as conclude a hugely dangerous one and one that is not likely to be replicated elsewhere.

Cobalt Housing has some very unusual housing circumstances brought on by the bedroom tax:

Primarily that 73% of its total (and former council house) stock is 3 bedroom properties and ‘family homes’ and this is double the national average of 35.9% of 3 bed properties across social housing.

Secondly, the vast majority are in an area called Norris Green which 30 years ago was a highly desirable area and very hard to access a council property.  In housing jargon it was ‘dead man’s shoes’ given the minute possibility of ever getting a council house there.  Yet then the opposite perception happened and it got a bad reputation and the council couldn’t give them away and a single person could have their choice of whatever 3 bed property they chose.

The bad reputation was not entirely deserved and a huge amount of community rebuilding of its reputation back has been going on for a number of years and for which some credit is due to Cobalt as the main landlord in the area.  Yet this meant when the bedroom tax began a number of tenants abandoned properties and the risk of community blight was all too apparent.

Cobalt’s MD Alan Rogers is quoted in the local Liverpool Echo saying this about the scheme

The conversions cost £700–£800 and this figure is expected to rise to £1,300 next year alongside other improvement works.

So far, Cobalt have completed 83 properties and plan to convert a further 120 and make three-bedroom properties into more spacious two-bedroom houses. Mr Rogers said the tax was unfair, adding: “The problem with the bedroom tax is that it is retrospective, it isn’t fair as it affects people who didn’t expect it when they signed a tenancy. “The rent will be less but it is a sustainable outcome as the houses will be let. “We are looking to find other ways to make housing affordable such as doing away with pre-paid meters.”

Yet for me Alan Rogers misses a much bigger issue and much bigger selling point of this idea and I highlight.  The average bedroom tax in Liverpool is £771.72 per year currently and may rise by 52% to £1,173 per year from Wednesday if Osborne’s proposed plan to limit HB to 90% of the rent level charged does emerge as many expect.

The payback time for the £750 median cost of conversion is less than a year and will fall to 7 months if the max 90% HB to rent plan happens.  So for those landlords with similarly very high bedroom tax issues as Cobalt have the knocking down of walls makes huge financial sense.

Also note well the entire programme is for 200 houses which is about 3% of Cobalt’s total stock and just 4.5% of its 3 bed total properties.  Yet Cobalt will have a higher percentage of bedroom tax affected households than the Liverpool average which is 22% .

The physical alteration from 3 to 2 beds or knocking down walls is very much a last resort and used when all other ideas fail or fail to be considered.  This is because landlords lose asset value as instead of having 70% 3 beds and 30% 2 beds they become 65% 3 beds and 35% two beds and as a 2 bed is worth less than a 3 bed landlords risk the asset value loss and potentially as their borrowings have interest rates set against the total value.  If that value falls then interest rates may increase as the risk of default increases.

ALL landlords are much better served adopting the approach taken by Coast & Country in Redcar and supporting their tenants to appeal the bedroom tax and for one key reason I have stated before and stated until I am blue in the face!!

If the tribunal says the property only have 2 bedrooms and not 3 bedrooms then the tenant wins and so does the landlord as the rent stays the same and the asset value stays the same.  The landlord does NOT reclassify the property and does not reduce the rent or reclassify the property as 2 beds from 3.

There is absolutely nothing the councils HB department or central government can do about this as there are no powers with HB regulations to force a cheaper rent or a re-designation of the property.

HCA (housing regulator) figures sees the average difference between a 2 and a 3 bed of less than £6 per week and so what you may call a 2 bed plus boxroom property can ALWAYS be said to be a reasonable rent level by being £6 higher per week than a straightforward 2 bed property.  The only powers local council HB departments have is to say the rent in “unreasonably high” and less than £6 per week on top of a typical £90 per week two bed for a 2 bed plus boxroom can never be argued as being unreasonable.

This is worth restating again and again and IF Osborne goes ahead with his plans in the Autumn Statement on Wednesday for Housing Benefit to only cover a maximum of 90% of the rent level this means the bedroom tax increases 52% and landlords as well as tenants are so going to be in the brown smelly stuff!

The bedroom tax appeals route has already become a stronger option with a number of Upper Tribunal decisions recently on what is and is not a bedroom and by way or size, usage and reasonable alternate usage.  Yet more importantly for social landlords and their stubbornly closed minds over the bedroom tax the UT issued a decision which is binding which said explicitly that how they designate a room (as bedroom or not) is of little legal consequence when it comes to the bedroom tax.

The final sentence of this Upper Tribunal decision (CH/4631/2014 of 22 September 2015) says it all – the 3JP (Fife- Nelson) decision makes it clear that:

“…the landlord’s designation is only a starting point and IS NOT DETERMINATIVE…”

landlord designationnot determinativeWhen landlords and their staff invariably said you signed for a 3 bed therefore it is a 3 bed or similar they were and are legally incorrect.  Also this week the UT clarified that many First-tier Tribunals and indeed the vast majority of councils have the appeal procedures wrong and they have been denying appeals unlawfully.

A thorough and definitive briefing note has been produced by Peter Barker on this and is required reading for social tenant and social landlord. This is here and it includes template letters and is a game changer for landlord involvement and supporting tenants to appeal the bedroom tax.  IF and as many suspect when Osborne revives the old Conservative policy idea of only paying a maximum of 90% of rent in HB on Wednesday then it makes landlords supporting tenants to appeal the bedroom tax a necessity!

The 90% maximum HB to rent issue sees the national average bedroom tax that now stands at £795 per year will increase by 52% to an average of £1,208 per year and in aggregate what is now a £360m risk to arrears becomes a £547 million risk of arrears to social landlords – a £187 million increase in their financial risk.

For each property on average the bedroom tax HB deduction increase is £413 per year and the best part of £2000 extra during this parliament and until the policy can be got rid of.  Tenants cannot stand such an increase and neither can landlords and evictions and eviction costs are bound to rocket and over large swathes of England outside of London and the South East.

YET it should NEVER have taken the need for a 52% increase for landlords to support their tenants in appealing.  When the tenant wins at appeal the landlord wins and rent does not fall, and HB paid increases and there is no reclassification and no asset value loss either for the landlord.

The vast majority of social landlords have been stupid and obstinate in the bedroom tax by not supporting their tenants to appeal the bedroom tax and the you signed for a 3 bed therefore it is a 3 bed legal fiction is a big part of that.

Now with the yearly average bedroom tax risk even in the lowest rent areas becoming over £1000 per year and nearing £2000 per year in London the landlord decision NOT to support tenants appealing the bedroom tax becomes all too apparent as to how wrong it was.  It always made financial sense to begin with and saying nothing about improving landlord tenant relationships and the impact a good reputation has for landlord finances generally.

To return to Cobalt to conclude I have personal knowledge of Cobalt’s housing stock and know of 3 entire streets in which the alleged 3 bedroom properties have a tiny L-shaped boxroom often no more than 35 square feet in floor size which are designated as bedrooms when any tribunal would rule they are not.

Supporting their tenants to appeal the bedroom tax which would cost far less than £750 per household would see many hundreds of tenants taken out of the bedroom tax altogether.

These are 2 bedrooms (of decent sizes) and a tiny boxroom and there is no need to knock down wall at all and the only reason knocking down walls CAN make sense is IF Cobalt are then re-letting these former 2 bed+ boxroom properties as 2 bed properties and at the misnomer of “affordable” (sic) rent levels which even in low cost Liverpool are much higher then the 3 bed social rent levels they were charging before.

IF that is the case then Cobalt’s PR in this matter which they have clearly sought by getting this story in the national Sunday papers takes on a whole new meaning entirely and is a case of a shameful smoke and mirrors variety and highly dangerous too for ALL housing associations nationally.

The former impossible to let 3 beds typically had a social rent of £83 per week and the new 2 beds have become an ‘affordable’ (sic) rent of £95 per week. In very necessary specific terms £83 pw less 14% bedroom tax saw £71.40 or so in housing benefit income to Cobalt.  Changing that to £95 per week sees £95 per week in housing benefit being paid and is a clever clever move and a 33% increase in income and no bedroom tax arrears risk is very very clever indeed…superficially!

It works … IF the new tenant is always on housing benefit yet does not function and the tenant gets a raw deal if that tenant works as he or she would be better off in the ‘old’ non-converted properties and paying £83 per week rather than £95 in rent which is a 14% increase.

There is a certain symmetry in that as tenant is 14% better off if not working and 14% worse off if they do work.  Yet Cobalt is 33% better off if the tenant is on benefit and 33% better off if the tenant is in work which is much cleverer symmetry altogether!

If the tenant is on benefit then the HB bill will increase by 33%  from £71.40 to £95 per week and incur the wrath of IDS who will then say all social landlords are taking the mickey and use this one example to castigate all others and penalise all others too.  That is the real danger in this plan and a far greater danger than the smoke and mirrors PR as when social landlords get penalised for this you can bet your life it will be the tenant who bears the brunt of that.

I’ve just had a bit of a Twitter spat with a former HA board member over this who when I explained the £83 and bedroom tax position goes to one of £95 and no bedroom tax said that I never have a good word to say about HAs!  A case of losing the argument and resorting to blame the messenger by labeling me!

Yet the fact that this scheme does increase the HB bill by 33% it is bound to see IDS fume and Osborne – the same chancellor who only a few months back called HA’s inefficient – will make sure that all other housing associations suffer.  Blame the messenger all you like but I am just reporting what I see and MUCH MORE IMPORTANTLY revealing once again that it is the social tenant who will suffer for this contrived plan.

Just another reason social landlords would be far better supporting the tenant to appeal the bedroom tax too!

10 thoughts on “Deconstructing the bedroom tax?

  1. Joe back when it first became public knowledge that Coast & Country where supporting all tenants to appeal, I phoned the CE’s office of Riverside inquiring if there would do like wise. Riverside did write to tenants about pre 1996, am still waiting to hear from Riverside that they will do something like Coast & Country have done. You may have better luck getting blood out of a stone that I had with there response.

  2. there isnt one Tracey. why is a 2 bed worth less than a 3 bed when some 2 beds are worth more than some 3 beds. its the property overall size and condition which dictates its worth surely. surely an exact same size 2 and 3 bed is worth teh same just one has divided teh space therein differently.

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