Saturday, 01 November 2014

Rent arrears to rise 51% under welfare reforms

Housing associations expect their rent arrears to increase by more than half as a result of the government’s welfare reforms.

A survey of 232 housing associations conducted by Ipsos Mori for the National Housing Federation has found on average registered providers expect arrears to rise by 51 per cent. If this is extrapolated across the sector it will mean an increase of £245 million.

Paying housing benefit direct to tenants rather than landlords is expected to have the biggest impact, with more than 80 per cent of housing associations saying this will affect them significantly. Twenty two per cent said the changes will make it harder for them to meet their loan covenants, with 10 per cent of those involved in the affordable homes programme saying direct payment will make it harder for them to deliver their house building commitments.

The under-occupation penalties for working-age families on housing benefit are the next greatest issue, with 60 per cent of associations raising concerns. This rises to 80 per cent for landlords operating in Yorkshire and Humberside, the east midlands, and east of England.

The survey also found 57 per cent of housing associations are concerned their tenants know little about the upcoming changes, despite efforts by landlords to prepare them for the reforms. It found 95 per cent of landlords are looking at the risks of welfare reform, and they are planning to spend an average of £50,000 during 2013 preparing for the impact.

The report is intended to act as a baseline for a series of reports the NHF is planning to examine the impact of the government’s welfare reforms on the housing sector.

NHF chief executive David Orr said: ‘Housing associations are doing their best in tough circumstances to cushion the blow for their residents. But there is still a lot of uncertainty, including in government, as to the full impact of its reforms. We need more time to understand and prepare for the impact of these massive changes to the welfare system.

‘In these difficult times, the best way to help residents manage their finances is to allow them to continue having their support for housing costs paid direct to their landlord. Otherwise we are in danger of seeing rises in homelessness and families really struggling to make ends meet.’

Readers' comments (20)

  • Andrew Schofield

    Everyone should be doing as much as they can to Successfully Manage the effects of Welfare Reform.
    Everyone needs to change - this is here for the long term.
    Our clients are reducing current arrears and freeing up their staff time so that they can get much closer to their tenants. They will manage the effects very well - for the benefit of their organisation and their tenants.
    they are getting in control and preparing for the future.
    Are you??

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  • The NHF, on behalf of landlords, has consistently explained the impact of welfare reforms to the government. Just as other landlords, Paragon has been working with its customers to cope with the changes. Clearly, there are numerous risks involved with the number and sclae of changes that we are all embracing.

    However, this article is most alarming and it could be interpreted by other stakeholders that the sector's risk profile has increased dramatically. The financial institutions would take a very dim view of the sector if they too take these findings seriously.

    Dilip Kavi
    Group Chief Executive
    Paragon Community Housing Group

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  • I believe that the sector is doing what the sector does very well - recognising the risks and then minimising those risks (to support our most vulnerable, to manage our businesses and to protect our role as long term investors).

    The reforms could have devastating effects on some of our residents and it may affect the way our business' operate - Wandle's response, I suspect, reflects the response of our sector - to embrace the challenges of change and to work in, and forge, great partnerships to manage the threats - enabling new relationships and ensuring that there are opportunities, as well as challenges, that come from the changes.

    Wandle are working closely with Shepherds Bush on their brilliant "staying first" advise offer, we are putting in place "trusted partner" banking arrangements, using volunteers to call up residents to understand their needs, interviewing 2,500 of our most vulnerable to provide support packages, working closely with CAB's to put in place great partnership arrangements, investing in digital inclusion and continuing to explore employability opportunities - including reviewing 16 hour a week posts in our own business for our residents.

    So - it is tough. But by thinking differently and working together through our networks, PlaceShapers Group, our Federation and all of our great stakeholder relationships - we should use this as a way to not only challenge Government policy - but also to prove to those that doubt, that Housing Associations are fantastic enterprises that play a key role in our society not only today but into the long term future.

    Sara Thakkar
    Chief Executive
    Wandle

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  • Colin McCulloch

    There's an argument that I heard that the sector should be doing absolutely nothing to mitigate at all, basically to highlight how insane most of the welfare reforms are. By mitigating, we're doing the work of the DWP and the government free of charge.

    I don't agree with this opinion but would we have been in a better place to fight them if we had refused to co-operate?

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  • I find the first 3 comments hard to believe.
    With respect, you sound like the management of Comet, Blockbusters and HMV for the last 2 years.

    These changes WILL, as the headline of the story suggests, result in at least a 51% increase in arrears. For any landlord who takes LHA tenants, the business will simply not work. Yes, you can employ lots of extra staff and try and educate tenants, but many of these tenants can resist anything but temptation.

    It will be a matter of time before a big social landlord goes to the wall.

    Credit ratings WILL fall as more landlords fail.

    The answer is so easy and surely will be obvious to the not believers (IDS and Lord Freud), but hopefully not before its too late for some.

    Allow the LHA element of Universal Credit to be paid to landlords, if both parties believe it would be in their interests, when a tenancy begins.

    There is currently NO definition of Vulnerability and NO provision for dishonesty.

    Currently landlords can speak about each case of LHA with the local Council, however under the new system the landlord will not be able to speak to the DWP. Tenants will all be paid on different days of the month.

    A cocktail of disaster waiting to happen - Those at risk can only hope the government reverse this element, which will cost them nothing to do. The consequences of not helping the landlords in this way will be more than expensive.

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  • Jono

    With many social landlords receiving the majority of rent income from HB, of course it is likely that these reforms will add to arrears. It will be a weaning process.

    One solution might be to increase costs - educating residents, hiring debt management staff and so on, whilst rent revenues fall. That doesn't seem to end well.

    Another solution might be to lower rents - if they are too high and the 'market' can't afford to pay, then lower them. Revenues still fall, but costs have not gone up. Then providers will have to look at staffing.

    Many social landlords are generously staffed - far higher staffing than their commercial equivalents. Executive pay and positions are, I suspect, far more prevalent in social housing than in the private sector. Another option would be to restructure.

    Of course many SLs will have high investment costs - mergers may help to accomodate those costs through greater efficiencies and economies of scale. Investment in more profitable private rented schemes may go someway to providing greater security.

    The good thing about the reforms is that they will prompt reform of the sector and innovation, long overdue.

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  • Jono - what an excellent idea - lets lower rents because tenants may not pay the full amount. What planet did you fall from?

    RPs (as they are know, not SLs) are continually evolving and restructuring to ensure efficiencies - ask anyone who works in the sector, however there is only so far you can go before quality becomes an issue.

    As for the social vs private salary argument, I suggest you do some background research before making statements which are unsupported both in terms of staffing levels and salaries.

    Clueless!!

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  • All these social landlords should definately be opposing
    the system of direct payment to tenants regarding housing benefit ,
    and should be doing this now , before any changes take place.
    The present system involves the DWP Jobcentres working
    closely with local councils to administer these benefits , so what
    will happen in the future ? how will civil servants deal with the
    ongoing rent increases ?

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  • Jono

    Housingplus

    1. Social rents are rising faster than inflation and salaries - in real terms they are becoming more expensive, less affordable
    2. Private rents are rising slower than inflation and in line with salaries - in real terms they are becoming less expensive, more affordable.

    Real decreases may be required, and it is not as crude a suggestion to align them on the basis of affordability as you make out. Maybe you can also tell high street supermarkets that they shouldnt reduce food prices, or fuel companies never to reduce the price of gas or petrol, because that would be 'clueless' and not viable.

    Trust me I have worked in both sectors around budgets and know in great detail the differences in pay and TOE. What qualifies your assertion?

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  • Chris

    Social rents are increasing as a result of government policy to maximise rents. Private rents are outrageously high and costing a future in housing benefits. Maxing out all rents will cost the nation far more than it can afford, and force many more hard working people into benefit dependency.

    If a social rent is currently funding the housing costs for the property, how does making the rent unaffordable really help anyone. It is being done apparantly to raise funds to build the needed homes - but these are going to be rented at equally unaffordable rents. So, in short, the idea is to charge someone more than they can afford to build a home that they couldn't afford either, just so that two-people can become benefit dependent when neither need be.

    And this is clueful!

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