Setting the record straight
An exclusive survey of more than 200 councils reveals Mr Cameron spoke out of turn when he claimed private rents were dropping. Carl Brown reports
‘What we have seen so far, as housing benefit has been reformed and reduced, is that rent levels have come down, so we have stopped ripping off the taxpayer.’
With these words, spoken in parliament on 11 January, prime minister David Cameron provoked a storm of protest. Housing professionals could not believe what they were hearing as it flew in the face of what many were seeing in their own areas.
The claim came at a vital time for the government as it attempted to head off a rebellion over its benefit reforms in the Lords. On the face of it, Mr Cameron’s words suggested its reforms were starting to work.
Number 10, challenged by organisations like the Chartered Institute of Housing to prove the claims, subtly changed course. A spokesperson clarified it was ‘hearing of cases’ where private landlords were voluntarily charging lower rents in return for getting local housing allowance paid direct - as they have been able to do since April 2011, when the Department for Work and Pensions changed LHA rules in a bid to ‘exert downward pressure’ on rents.
But to date the pri-me minister’s office has not produced any data or evidence to back up the claim that landlords are reducing rents as a result of the changes, meaning the sector cannot judge whether they are likely to be having any meaningful impact on rent levels.
Body of evidence
Today Inside Housing can reveal just how wide of the mark Mr Cameron was.
Out of 204 English councils to respond to Freedom of Information Act requests, just 36 local authorities reported any rent reductions in return for direct payments of LHA.
Seventy councils said there had been no rent reductions with 98 unable to provide any data at all.
The reductions reported by the 36 councils were extremely low, with most in single figures. For example, 12 councils reported a total of 65 private landlords had reduced rents between them - an average of fewer than six each.
Collectively these 12 councils have 68,610 benefit recipients housed in the private rented sector. Even if these landlords own 13 properties each (the average portfolio size of private landlords according to buy-to-let mortgage provider Paragon) this still only equates to 845 properties - meaning just 1.2 per cent of rents would have been reduced.
A response from Chelmsford Council in Essex, which has 2,320 private tenants claiming benefit, says: ‘We have had cases where the landlord has stated that the only way they will grant a tenancy is if LHA payment is made directly, but a vanishingly small number are prepared to reduce the rent charged.’
Hammersmith & Fulham Council in west London, a flagship Conservative borough, says it knows of ‘hardly any’ landlords to have dropped their rents.
Leeds Council, which says it has worked to encourage landlords to reduce rent, reported 130 reductions in return for direct payment of LHA. This is out of 19,310 private rented sector housing benefit claims, meaning just 0.7 per cent of rents have gone down.
Sam Lister, policy and practice officer at the Chartered Institute of Housing, says: ‘It would be surprising if there weren’t any private landlords anywhere who didn’t reduce rent - but that is not the same as saying the reductions are affecting rent levels, which is what he [Mr Cameron] is implying.’
‘The private rented sector is the one part of the housing market that’s growing, why would landlords reduce the rent?’
Instead of slashing rents, landlord bodies are warning private landlords, particularly those in high-demand areas, will simply no longer let homes to tenants receiving LHA.
‘It is possible the government’s plans to make LHA rates more affordable may conflict with what is actually financially viable in some areas,’ explains a spokesperson for the National Landlords Association.
Chris Town, vice chair of the Residential Landlords Association, says: ‘When there is an alternative to taking tenants on benefit, landlords will always take it, it is simpler.’
Mr Town says there is therefore a correlation between local housing markets and the willingness of landlords to drop rent.
It is striking that, of those councils which confirmed rent reductions, Walsall, Sunderland and Hull, all areas of low housing demand, are among the highest. Twenty six landlords have reduced rents in Walsall and Hull while in Sunderland 27 are charging less.
These numbers, while still pitifully low, suggest the rent reduction policy is more likely to work in areas where demand and therefore, rent, is already lower than in those areas with high demand and high rents, which are more likely to exceed the new local housing allowance caps. This calls into question how effective the coalition’s policy aim of reducing rents in high-value areas will be.
It is also unclear to what degree landlords that are responding to the LHA changes are reducing their rents.
Caps and changes to LHA have left, or will leave, some tenants with a gap between the amount they can claim in housing benefit and the rent they are charged (see table, below: Going up). Inside Housing has been calling for fairer welfare reform though its What’s the Benefit? campaign.
The DWP direct rent payment rule states councils can pay landlords direct if they consider it will ‘assist the customer in securing or retaining a tenancy’, and the rent is ‘affordable to the tenant’. Crucially though, this does not have to be at the LHA rate in all circumstances, meaning a shortfall could still exist.
One expert on the private rented sector, who did not wish to be named, says: ‘It is possible landlords are working with tenants to make rents more affordable, but we have not seen any evidence they have been reduced to LHA level.’
Jumping the gun
The other possibility, of course, is that Mr Cameron has merely jumped the gun and that as LHA restrictions are phased in on claim anniversary dates this year, more rents will be reduced.
This is certainly the hope of the DWP. In a response to a freedom of information request, the DWP says it has ‘no data records’ of how many landlords have reduced rents, but has collected ‘anecdotal evidence’ from around 80 councils. It states: ‘The majority have reported that they have used the new safeguard to help claimants negotiate down rents and all plan to use it during 2012 as transitional [payment] protection runs out.’
But that has clearly not happened yet, so why did Mr Cameron make his assertion?
It has not escaped the notice of cynics and opponents that the prime minister made his statement in the middle of the Welfare Reform Bill’s bumpy ride through the House of Lords - when his government was desperately seeking to convince peers that his package of reforms would not increase homelessness as tenants would be left struggling to meet their rents under the new benefit caps.
Housing minister Grant Shapps on 30 January, seized on a survey by estate agency LSL Property Services, citing it as the evidence Mr Cameron had used to support his claim. The survey did indeed show rents fell by 0.8 per cent in December - the second successive monthly fall. But a closer look at the figures reveals the seasonal drop in rents before Christmas was actually less than the 2.3 per cent drop in December 2010 and rents overall had actually risen 4 per cent year-on-year.
LSL says demand for private rented homes will rise as, given the eurozone crisis and sluggish economy, mortgage availability is unlikely to improve.
‘It won’t be long before rents resume their upward march,’ says David Newnes, director of LSL.
‘Now we know the truth,’ declares Jack Dromey, Labour’s shadow housing minister, in response to the FOI investigation. ‘The nationwide Inside Housing story exposes the reality of rising rents in most areas of the country and explodes the myth that rents are falling.
‘David Cameron and Grant Shapps are simply detached from the everyday lives of millions of hard-pressed tenants in the private rented sector.’
Number 10 has declined to comment further on Mr Cameron’s statement or on Inside Housing’s research.
Over the next few months the NLA, RLA and the DWP will both be conducting surveys and studies to gauge the extent to which landlords really are reducing rents. But the findings of our initial research, and the conclusion of the sector’s professionals are clear - private rents are not falling in the sector on any significant scale.
Going up: private rent levels by region
Source: LSL Property Service
|Region||Average rents||Year-on-year rental increase|
|London||£1,023||5.6 per cent|
|East of England||£737||5.0 per cent|
|South West||£629||-1.2 per cent|
|Yorkshire and the Humber||£539||3.9 per cent|
|North West||£570||3.7 per cent|
|Wales||£559||4.2 per cent|
|South East||£727||5.0 per cent|
|North East||£507||-1.3 per cent|
|West Midlands||£562||2.3 per cent|
|East Midlands||£547||3.8 per cent|
|England and Wales||£711||4.0 per cent|
Going down: private rent reductions
Source: Inside Housing freedom of information requests
Total PRS housing
Local housing allowance: the changes
- Rents calculated on bottom 30 per cent instead of the median from October 2011
- LHA caps of up to £400 a week depending on property size from April 2011 for new tenants and phased in from January 2012 for existing tenants
- Increases based on consumer price index from April 2013
- Extension of shared room rate phased in from January 2012