Wednesday, 23 April 2014

Ensuring benefit is paid to landlords not tenants would attract investment

Investors scared off by direct payment plan

Institutional investors are turning their backs on the housing sector because of concerns about plans to pay housing benefit directly to tenants.

The government should rethink one of the main pillars of the Welfare Reform Act as a result warned Mick Kent, chief executive of Bromford Group, on Tuesday.

Mr Kent claimed fears over increased arrears as a result of tenants receiving benefit directly was the main risk factor that prevented institutional investors, such as pension funds and insurance companies, from reducing their expected returns from housing associations.

During a session at the Chartered Institute of Housing’s annual conference on how housing could be used to boost the UK’s ailing economy, Mr Kent challenged Peter Schofield, director general for neighbourhoods at the Communities and Local Government department, to end direct payments.

‘That in itself could go a long way to getting market expectations of yields [for lending to social housing providers] to match what we can deliver.’

Mr Kent said new investors to the sector are demanding returns of at least 7 per cent, as opposed to the 4 per cent to 5 per cent that he believed could be delivered by housing associations.

He later told Inside Housing that the imposition of direct payments was ‘a philosophical argument’ and would not save money.

‘I just think it’s potty,’ added Mr Kent. ‘At a time when everybody is saying that the cupboard is bare why would we want to risk the potential to bring in other sources [of funding].

Bromford Group, which owns and manages 26,000 homes in central England, is involved in running one of five pilot projects to test the impact of direct payments.

Mr Kent said most tenants affected by the change ‘had not yet understood’ that it would apply to them.

Earlier, Mr Schofield had called on social landlords to make themselves more attractive to new investors, having warned that grant funding could no longer be relied on.

Institutional investors are ready and willing to lend to the UK,’ he told delegates. ‘Investors are hungry for exposure to UK infrastructure and we need to encourage them to see housing as a part of that.’

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Readers' comments (12)

  • I dont blame them being scared off. In the vas majority of cases the tenants will simply NOT pay the LHA element of Universal Credit to the landlord.

    Why is it only Freud who cannot see this ?

    All will be shown in the pilot tests........

    This is a 'MUST' U turn on policy.

    Nice idea in an ideal world but TOTALLY unworkable.

    Let the tenant decide on day 1 of the tenancy if they are willing to let the LHA element go direct to landlord - PLEASE !!

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  • Peter Wicks

    Gary..You must be having a laugh mate, I would not trust any investors to do the right thing for hard up tenants...lets be honest here,investment firms made their fortunes by get rich schemes such as this one,I would no longer trust these so called investors than I would trust a turkey farmer telling the flock that Christmas is canceled!

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  • Peter....I agree that there are some shark investors out there but without proper investment in social housing or by private landlords there is going to be a big demand for cardboard boxes within a year !

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  • So, as it turns out in the text, institutional investors don't have a directly-sourced view but one which Mr Kent - who clearly has a personal view - constructs on their behalf.

    It's hearsay, mate. It's inadmissable. There's method, even if it's desperately cack-handed, in Mr Kent's potties.

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  • C'mon Sense

    The type of investors looking to fund are hardly 'shark' investors, but pensions funds, unions etc. With Govt funding all but now gone, and the demands for housing ever growing there needs to be an alternative, affordable, source of funding. I'm currently involved in putting such a deal together and clearly any additional risk factored in has in impact on the returns required. There is an assumption (either rightly or wrongly) that there is a possibility that arrears may increase with direct payements - perhaps more will be known once the pilots have had a chance to deliver some accurate data.

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  • raindrop

    Sorry but these property's was build by hard working taxpayers. Which is our taxes. It was our Council Tax, Poll Tax that paid for the building of these property from day one.

    Some bad Housing Association need to learn a lesson in Customer Service and fair and just Service Charges.

    Well suppose to manage our interests. If I do not feel. I gettting and Service and can one hundred per cent proof it.

    I would withhold my Rent.

    I love to now due to the Housing Trust is not adhere to the Services I'm support to get under my Service Charges payments and what my Rent covers has a General Needs Tenant

    I love to now due to the Local Authority is not adhere to the Services I'm suppose to get under my Council Tax Payment

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  • raindrop

    Sorry my grammer bad been up since 05:30 with Noise Nusiance and not been sleeping well. Due to ongoing issues with my Housing Trust.

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  • C'mon Sense

    Raindrop - sorry to say that unless you live in a council funded property then yours wouldn't have been funded solely by tax payers, but also by loans taken out by the RP.

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  • "In the vast majority of cases the tenants will simply NOT pay the LHA element of Universal Credit to the landlord"

    Gary, would you like to evidence the above for me?


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  • Nora, I understand your anger at this comment but the evidence is called 'Bitter Experience' and says that even if 90% of the decent and fair minded tenants pay their rent on time, the costs associated with dealing with the remainder who deliberately won't, far outweigh the benefit of treating the decent ones as grown ups. Why take the chance? What difference would it make to the tenants if their HB went direct to their LL?..In some cases, the tenants would want this as at least they would know that they would always have a roof over their head worked in the past. No, this new system is just to allow condems to get rid of staff somewhere IMO.

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