Lenders, tenants and landlords unite on welfare concerns
Published: 21 September 2011 | Author: Bernard Clarke
Following last week’s second reading of the Welfare Reform Bill in the House of Lords, the government has re-stated its commitment to proposals to pay housing benefit directly to tenants as part of wider plans for welfare reform. It has now launched a search for up to half-a-dozen partners in the social housing sector to take part in a series of "demonstration projects" next summer to test key elements of its proposals.
The government believes that encouraging benefit recipients to take greater responsibility for managing their own financial affairs is a crucial part of its welfare reform initiative.
Lenders, tenants, consumer groups, landlords and social housing providers all remain concerned about the potential impact of the proposals, yet the government remains emphatic that the question is not if, but how, direct payments of benefit to tenants will be implemented.
The Department for Work and Pensions (DWP) said last week that its demonstration projects would help gather useful information for introducing "safeguards" to ensure that proposed reforms do not create unintended problems for those affected by the proposals.
The DWP said the demonstration projects were an important element in the government’s plans to roll out universal credit, and re-affirmed that it wanted to work closely with local authorities and the housing, lending and voluntary sectors on its plans for implementing the proposals.
Lenders continue to fund housing in all tenures, and have so far provided more than £60 billion of finance to social landlords. Crucially, this funding is underpinned by the certainty of guaranteed payments of housing benefit to landlords, which has reinforced lender confidence in the reliability of income for the sector. This, in turn, has enabled lenders to provide funding at lower rates, which is attractive to social housing providers.
But paying housing benefit directly to tenants will introduce greater uncertainty about the flow of income to social landlords. And, in what is already a risk-averse lending environment, this is likely to diminish the confidence of lenders in funding the sector.
Housing associations – and politicians
Some of the potential implications of this were outlined during the second reading of the bill by the Liberal Democrat Baroness Falkner of Margravine, who is also a non-executive director of Hyde Housing Association.
Baroness Falkner said that, against a challenging backdrop of a shortage of supply of homes, with diminishing investment in housing by taxpayers, reduced government grants and a general tightening of credit, "associations are being asked to provide more affordable housing." She argued that "arrears are bound to increase with direct payments to residents and the level of risk that housing associations will incur will rise."
She forecast that credit rating agencies would downgrade the status of housing associations and that "borrowing for building in certain parts of the country might rise by as much as 100 basis points." She continued: "The government’s stated desire to increase the supply of housing, in particular, social housing will not therefore be met (and) several questions also arise from the proposals concerning choice, efficiency and value for money."
Research shows that many social housing tenants are also concerned about the added responsibility of managing all their outgoings, including the payment of rent to their landlord, from the single monthly benefit payment the government is proposing to make in future. The evidence suggests that many would prefer payments made directly to their landlords, as this would provide them with greater financial security, certainty and peace of mind.
A recent survey of 1,000 tenants carried out by the research consultancy Policis, working with the National Housing Federation (NHF), found that 93% were in favour of the government paying rent directly to their landlord. Meanwhile, in 2009, Shelter said that, among those claimants who would choose payments to be made directly to their landlords, 95% were struggling to manage their finances.
Organisations representing tenants, landlords and housing managers in both the social and private rented sectors, as well as lenders, have now joined together to support an amendment to the bill that would enable benefit recipients to choose whether to receive their housing payment themselves or have it paid directly to their landlord.
The amendment has widespread support from a large number of bodies representing tenants, landlords and those in the social housing sector. Both the NHF and the CML are backing the amendment, alongside the:
- Money Advice Trust;
- Tenants Information Services;
- National Landlords Association;
- British Property Federation;
- Residential Landlords Association;
- National Association of Arm’s Length Management Organisations;
- Tenants and Residents Organisation of England;
- Tenant Participation and Advisory Service, Scotland;
- Scottish Federation of Housing Associations;
- Community Housing Cymru; and
- Northern Ireland Federation of Housing Associations.
The government's response
The government appears firmly committed to the principle of paying housing benefit to claimants as part of a more fundamental commitment to welfare reform.
In a speech to the NHF the day after the House of Lords debate, Lord Freud said: "Universal credit payments must include payments for housing costs…this means benefit claimants have to manage their own finances – their full finances – so when they do find work it’s easier to leave the safety of the welfare system. I am absolutely committed to making a single universal credit payment, wherever possible."
But the minister also acknowledged that there were widespread concerns about the proposals. "I know that this is a significant change for the social housing sector and I am fully conscious that housing benefit income steams are a vital component of housing finance, particularly in terms of funding of new housing."
Despite the government’s commitment to the principle of paying housing benefit to tenants, there was some comfort for lenders in the speech. "I am determined that the introduction of universal credit, and therefore direct payments to tenants, does not undermine the financial stability of the housing sector," the minister said. But he continued: "I remain utterly convinced that there are mechanisms available which will allow us to both introduce a single universal credit payment, which includes housing costs, whilst also providing protection for the sector."
The government believes that direct payments of benefit to tenants will represent a new challenge for only around 20% of recipients "who currently have no experience of budgeting and paying their own rent." Even if this estimate proves to be correct, the remaining 80% could also be affected but "perhaps will not feel the change so keenly," the minister said.
The government is already looking at a number of new ideas, including prioritised direct debits or escrow accounts. It is also studying the impact of incentives some landlords are already offering tenants to pay their rent on time.
Finally, the government is arguing that its planned demonstration projects and what it believes to be a lengthy run-in to implementation of its proposals provide room to adjust to the proposed new system. It is currently looking for partners for the demonstration projects, which will run between June next year and April 2013, before the planned introduction of the new arrangements, beginning with new claimants, from October 2013.
We understand that welfare reform is a key objective for the government. We want to work with ministers as they seek to develop workable proposals that do not present a threat to the interest of lenders, tenants, landlords and social housing providers and do not jeopardise another fundamental objective of the government: to increase the supply of housing.
Among our specific concerns are:
- The government believes that only 20% of benefit recipients have no experience at all of budgeting and paying their own rent. However, we believe there could be regional variation. And even at this level overall, we believe it represents a high proportion of tenants with a significant risk of falling into rental arrears. It is also likely that a significant proportion of the other 80% of tenants, who may not feel the change so keenly, are also at risk of falling into arrears. We agree with many of those in the social housing sector who believe the proposals could trigger arrears on a significant scale, disrupting the income of housing associations.
- The proposals impose requirements on some of those with the tightest household budgets to take on new responsibilities for managing their financial affairs. Many welfare recipients face particular challenges because their finances are much more finely balanced than the more affluent, potentially leaving them more prone to financial disruption. The government already accepts that a high proportion do not have any experience of budgeting or managing their finances, and many may have no experience of using some of the basic tools, like bank accounts.
- The challenges of managing their own finances will have wider consequences for many tenants. They are more likely to face fines and levies for a range of missed payments, and may find that falling into arrears threatens their security of tenure. Making tenants responsible for their finances against their wishes imposes additional worries and concerns, and problems that may unnecessarily arise from an inability to cope. The government needs to acknowledge this as it develops its proposals further.
- Prioritised direct debits or special account features have been proposed as potential solutions to the problems for tenants in managing their finances. But such measures will be expensive and difficult to implement and administer.
- The proposed reforms could create additional difficulties for a government with limited options and resources to deliver another key objective: an increase in the supply of housing. Moody’s has warned that the proposals could harm the credit rating of social housing providers, making it more difficult and expensive to finance much-needed new housing. That could place additional pressures on the private rented sector.
Lenders support tenants, consumer groups, landlords and managers in the social and private rented sectors in urging the government to let benefit recipients make rational decisions about what is in their own interests. We would like the government to guarantee that tenants should have a choice over whether or not their housing benefit should be paid directly to their landlord, and to accept an amendment to the Welfare Reform Bill in the House of Lords that will ensure this can happen.