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The Economist: " Private Landlords May Be Hurt As Much As Poor Tenants

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Most of us already know most of this. Still, it is interesting to see that our point of view is becoming mainstream (finally!).

http://www.economist.com/node/17465301

Housing benefit

Where the heart is

Private landlords may be hurt as much as poor tenants by the government’s reforms to housing benefit

Nov 11th 2010

OF ALL the welfare cuts announced by the coalition government, those curbing housing benefit have so far excited the most controversy. Opponents have conjured up a nightmarish vision of a mass exodus from cities as claimants are driven out of dearer areas. The cuts were described as “potentially devastating” by Labour in a parliamentary debate this week. The rhetoric overlooks the fact that private landlords as much as housing-benefit tenants may be the losers, since they will face pressure to lower their rents. And it obscures the bigger question: whether the government can really get a grip on the spiralling expense of this welfare payment.

20101113_brc634.gif

Housing benefit provides means-tested support for the housing costs of 4.8m poor families, including 1.6m pensioner households (aged over 60). It will cost £21.5 billion this year, or just over a tenth of the total welfare bill in Britain. The payment goes to families living in “social housing”, both traditional council homes and those provided by housing associations, and to tenants renting from private landlords, with roughly a third in each category.

The cost of housing benefit has risen steeply of late (see chart). Spending stayed steady in real terms for the best part of a decade from the mid-1990s. But since 2004 it has risen by over 60% in cash terms and 40% after inflation. The government is intending to make annual savings of £2.25 billion in four years’ time; it will also implement a reform planned but deferred by Labour which will save another £550m a year in 2014-15. That would hold the cost of the benefit roughly constant in cash over the next four years and lower it by close to 10% in real terms by 2014.

The surge in costs has been driven by a rise in working-age claimants, up from 61% to 67% of the total since 2004. The government is directing its reforms at this group, and in particular at the private rented sector, which now makes up 40% of the total bill, up from 25% six years ago. Local councils used to pay housing benefit direct to private landlords, but most claimants renting privately now get a local housing allowance (LHA) equivalent to median rents in their area. When that reform was introduced in 2008 they were allowed to keep up to £15 a week if they secured a rent below the LHA, in the hope that this would drive down rents. That hasn’t happened and the excess payments will be scrapped from next April (as envisaged by Labour).

We’re outta here

This clampdown has caused little fuss, but two other coalition reforms that will together save a bit less have ignited a rumpus. Rowan Williams, the Archbishop of Canterbury, added his voice to the worriers on November 7th, expressing his concern that they could lead to “social zoning”. From next April, the total housing benefit families get will be subject to caps depending on the size of the home, with a maximum of £400 a week for a four-bedroom house. The change will eventually save £65m a year. A bigger saving, of £425m by 2014-15, will begin next October by restricting the LHA to the cheapest 30% of rents in an area rather than the median.

The row has been most heated in London, where rents are much higher than the rest of the country. Official figures show that of the 21,000 households affected by the cap nationally, 17,000 are in the capital. London Councils, which lobbies for the city’s local authorities, reckons 82,000 families may be at risk of losing their homes. Of these, 15,000 would be hit by the cap and the remaining 67,000 would be affected by the lower LHA.

The cap will almost certainly force some families to move out of central London, because the average loss for those affected in the capital will be £81 a week: a lot for those on low incomes. But their plight is unlikely to arouse public sympathy, since many are living in homes and areas unaffordable to most taxpayers—an objection recognised by Labour itself in office.

The other reform, lowering the LHA, will affect many more people and not just in London. Among all tenants receiving the LHA nationally, 83% will lose; in the capital, the figure is 71%. Losers in London will face bigger shortfalls, of £17 a week compared with £9 a week nationally.

But will this really spur a mass flight from London? That turns on whether landlords evict tenants no longer able to pay as much or lower their rents. Some landlords are claiming they won’t bring them down; but they would say that, wouldn’t they? Ministers point out that the government can use its market power to push rents down, because housing-benefit tenants make up 40% of the privately rented sector.

Putting on the squeeze

Can it? The record over the past decade has been discouraging: rents paid by housing-benefit tenants have risen faster than the market as a whole. The introduction of the LHA made things worse; between late 2008 and early 2010 private rents fell by 5% because of the recession, while those paid for with housing benefits rose by 3%. For ministers, however, this only goes to show how costs have got out of hand and the broad scope for using the government’s position to squeeze landlords.

But even if the claims of social cleansing turn out to be scaremongering, any savings will be cancelled if the number of claimants goes on rising. Along with rising costs in the private rented sector, the other main reason for the jump in spending is the recession. Between 2007-08, before the downturn, and 2010-11, the total number receiving housing benefit has risen by 18%.

The prospects for making savings in housing benefit are thus tied into the outlook for the economy and unemployment. They are also linked to wider welfare reform—the subject of an announcement made as The Economist went to press—because the more people that can start to pay their way, the less reliant they will be on the state for help with housing costs.

Edited by Tired of Waiting

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Nice B) That's my kind of government

Yep. :) A (little) breath of fresh air.

I would prefer stronger medicines, al round, but better a little pressure downwards than nothing.

And much better than the last government, pushing housing costs up! :blink: The lunatics! What were they thinking?!?!?!

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Its nice to see an article on the subject that actually uses facts instead of emotive fear-mongering.

So 40% of all private renters are claiming HB. That means currently the rent on those 40% of properties is determined by the median of the remaining 60%. Well, if I make the not too unreasonable assumption that those make up the nicest and priciest of the 60% of rental stock then the slum landlords are essentially getting paid a rent equal to that of the 70th percentile of all properties.

I wait to see how the universal credit will work, but I would love to know what the HB properties would command without the current system. From what I've heard from people in the business, in London rents would drop £200+ a month in the benefit hotspots.

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If the Tories are all about free enterprise and aspiration then low living costs - in this case rents - should be at the heart of their programme. You can't be a risk-takin', go-getting entrepreneur if you can't breathe for high rents or massive mortgages.

So 40% of all private renters are claiming HB.

So an astonishing amount of taxpayer's money is being used to prop up private property investment.

Edited by CrashedOutAndBurned

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Its nice to see an article on the subject that actually uses facts instead of emotive fear-mongering.

Yep.

Most of our press is a disgrace.

BBC included, with the aggravating fact that it poses and is believed to be "impartial". :rolleyes:

So 40% of all private renters are claiming HB. That means currently the rent on those 40% of properties is determined by the median of the remaining 60%. Well, if I make the not too unreasonable assumption that those make up the nicest and priciest of the 60% of rental stock then the slum landlords are essentially getting paid a rent equal to that of the 70th percentile of all properties.

Of the original 70th percentile. But that has been recalculated yearly. Each year he new HB becomes the new floor, pushing the new average up. Repeat every year...

I wait to see how the universal credit will work, but I would love to know what the HB properties would command without the current system. From what I've heard from people in the business, in London rents would drop £200+ a month in the benefit hotspots.

The next decade will be very interesting indeed. I just pray the coalition get re-elected, to be able to finish the correction. Otherwise, emigration will be a must.

Edited by Tired of Waiting

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Of the original 70th percentile. But that has been recalculated yearly. Each year he new HB becomes the new floor, pushing the new average up. Repeat every year...

Hi ToW. The LHA hasn't been around that long and tbh I haven't ever completely understood this argument. I suppose it depends on the HB cases taking over more and more of the private rented stock which pushes the median rental price of the fewer market properties higher?

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Its nice to see an article on the subject that actually uses facts instead of emotive fear-mongering.

So 40% of all private renters are claiming HB. That means currently the rent on those 40% of properties is determined by the median of the remaining 60%. Well, if I make the not too unreasonable assumption that those make up the nicest and priciest of the 60% of rental stock then the slum landlords are essentially getting paid a rent equal to that of the 70th percentile of all properties.

I wait to see how the universal credit will work, but I would love to know what the HB properties would command without the current system. From what I've heard from people in the business, in London rents would drop £200+ a month in the benefit hotspots.

Thanks to goverment largesse with taxpayer's money, with a few upwards adjustments over a number of years the taxpayer bung starts waggling the tail of the private rental market.

Edit, Also swamps the market with volume..........

Employed-and-unemployed-JSA-housing-benefit-claims-November-2008-July-2010.gif

Edited by OnlyMe

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Labour's gut reaction was to oppose this because Labour people are far more likely to do Buy To Let. They are less likely to understand shares (or more accurately want to understand). Party political activists generally tend to be older and more affluent than average, which will tend to aggravate this. I suspect that the same social trends also affect senior media people as well, who tend to not want to understand business and tend to be relatively affluent, hence the pro-BTL assumptions.

The Tory high command have decided that house prices need to come down in relative terms (good) but slowly (bad). Their activists don't really like it, but when the high command is genuinely in control it's going to get its way - particularly on issues where the general public back them. Labour's high command is not in control and so goes by its gut rather than its head.

It's been suicidal for Labour. The general public are against them on this and most benefits claimants won't care unless they are chucked out - and that's going to be a tiny amount.

Edited by IP Newcomer

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Hi ToW. The LHA hasn't been around that long and tbh I haven't ever completely understood this argument. I suppose it depends on the HB cases taking over more and more of the private rented stock which pushes the median rental price of the fewer market properties higher?

I first noticed this in the past few years, with the economy in serious trouble, but rents here (south) were still going up. It didn't make any sense. I think that since 2007 rents here have gone up by at least 10%, possibly 20%. This wasn't making any economic sense. Then I found out about the LHA, and our local rates, and they were/are much higher than what we pay here. We are a couple, both with above average income, and we still would find the "50th percentile" absurdly expensive for us.

And there is another potential problem. It seems that the local government gather the data on the average rents by... asking letting agencies! if this is true, they are asking VI to fix their income! It would be absurd. I do hope this is just an unfounded rumour. But alas, it is quite possible.

Edited by Tired of Waiting

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I first noticed this in the past few years, with the economy in serious trouble, but rents here (south) were still going up. It didn't make any sense. I think that since 2007 rents here have gone up by at least 10%, possibly 20%. This wasn't making any economic sense. Then I found out about the LHA, and our local rates, and they were/are much higher than what we pay here. We are a couple, both with above average income, and we still would find the "50th percentile" absurdly expensive for us.

And there is another potential problem. It seems that the local gather the data on the average rents by... asking letting agencies! if this is true, they are asking VI to fix their income! It would be absurd. I do hope this is just an unfounded rumour. But alas, it is quite possible.

I think it must be due to benefit claimants crowding out those who pay. The number claiming HB has rocketed and I think most of the increase is in the private rented sector.

I know a few people, returning from abroad, who are living with parents despite having families of their own because of the high rental costs. Since they work it just doesn't make sense. Meanwhile there are no hindrances to those who are dependent on benefits. If there is a shrinking pool of rental properties going to those who pay their own way and the LHA is based on that then I can believe that rents are going up.

That said, I have been paying the same rent for nearly 4 years and it is quite a bit below LHA but my landlord is a clever fellow and is happy to have a responsible family in than face the prospect of voids and then benefit claimants who, if they are placed by the council, don't even have the incentive to protect their deposits.

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Most of us already know most of this. Still, it is interesting to see that our point of view is becoming mainstream (finally!).

Speak for yourself not the forum. It's clear from your previous posts on the subject that you are ignorant of how the Housing Benfit system works and consequently many of your conclusions are incorrect.

Edited by CrashConnoisseur

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Labour's gut reaction was to oppose this because Labour people are far more likely to do Buy To Let. They are less likely to understand shares (or more accurately want to understand).

the problem for the non-centrist blairites in the labour party is not that they don't understand shares, they simply don't believe in them - to believe that long term stock ownership can be a good investment is to deny socialism and accept the superior economic growth of capitalism

BTL apparently does not contradict this so it is socialistically kosher

Edited by Si1

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Each year he new HB becomes the new floor, pushing the new average up. Repeat every year...

There is no evidence to support such a notion. Since national roll out in April 2008 LHA rates have in most areas remained flat or fallen. In any case when a Rent Officer calculates LHA rates they are required by law to exclude rents for tenancies which are assisted or influenced by HB. Thus LHA rates are set only by reference to rents paid by non-HB tenants.

'Rent Officer Handbook - Lettings Information - HB':

http://www.voa.gov.uk/instructions/chapters/roh/l-roh-lettings-information-HB.htm#P76_761

  • When they make their decisions under the HB scheme, rent officers are directed by law to “assume that no-one who would have been entitled to housing benefit had sought or is seeking the tenancy”.

The wording of the legislative framework does not state that rent officers must ignore housing benefit tenancies, but rather determine that the housing benefit element is not affecting or influencing the agreed rent. HB should not be the determining factor in a rent. An obvious example, is where a tenant agreed the rent and previously paid this from his or her own pocket without the assistance of HB. There may be neighbourhoods or parts of a locality or BRMA where in the rent officer’s professional judgement HB has not influenced rental levels. If the rents for those tenants known to be assisted by HB are similar or reflect those rents that are not, this may suggest that HB has not influenced rental levels.

If, in the expert opinion of a rent officer, a tenancy agreement has been made and there was no effect on the agreement by the possibility of the receipt of housing benefit then this figure must constitute a confirmed rent.

The principle behind the law is to prevent housing benefit from directly leading a market. Under the LHA scheme a tenant is aware of the amount of money (or allowance) that they have to contribute towards the rent of their dwelling. The tenant will make an informed choice, based on a number of factors, including affordability, as to whether or not they should choose a given property. This decision making process will occur regardless of the presence of housing benefit in assisting in the payment of rental liability.

Therefore, if, in the rent officers opinion, the agreed contractual rent is reasonable for a location then this may be used as confirmed lettings information.

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That said, I have been paying the same rent for nearly 4 years and it is quite a bit below LHA but my landlord is a clever fellow and is happy to have a responsible family in than face the prospect of voids and then benefit claimants who, if they are placed by the council, don't even have the incentive to protect their deposits.

I have to say this about private renting - you have to house hunt for a good rental with the same attitude you would for buying a property, the average headline asking rental values are just a beginning to negotiate down from

I think many many people don't fight for a low rental, and consequently don't realise the value they CAN get if they try a bit harder

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they are required by law to exclude rents for tenancies which are assisted or influenced by HB.

the trouble is - that if the rental market is reasonably efficient then ALL rents are influenced by HB, by landlord-arbitrage, so what ToW says will happen can still come about quite easily

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I have to say this about private renting - you have to house hunt for a good rental with the same attitude you would for buying a property, the average headline asking rental values are just a beginning to negotiate down from

I think many many people don't fight for a low rental, and consequently don't realise the value they CAN get if they try a bit harder

indeed. And the ConDem's are removing the incentive for HB claimants to seek out and negotiate rents below the LHA rate (and by extension, landlords to offer them). Will that help to reduce rents?

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indeed. And the ConDem's are removing the incentive for HB claimants to seek out and negotiate rents below the LHA rate (and by extension, landlords to offer them). Will that help to reduce rents?

isn't what actually happened the HB claimants just didn't pay the rent?

maybe I am being judgemental, but the majority of HB claimants probably aren't bright enough to negotiate in the way you are implying, so I doubt your proposed mechanism actually exists.

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There is no evidence to support such a notion. Since national roll out in April 2008 LHA rates have in most areas remained flat or fallen. In any case when a Rent Officer calculates LHA rates they are required by law to exclude rents for tenancies which are assisted or influenced by HB. Thus LHA rates are set only by reference to rents paid by non-HB tenants.

'Rent Officer Handbook - Lettings Information - HB':

http://www.voa.gov.u...-HB.htm#P76_761

The rules can't really account for the influence of HB rates on the private market. I mean, come off it!

Plus the figures are collected from EAs/rental agents - any allowance for that influence??

I've spoken with a rent officer about this - he was resigned to the fact that the rules are divorced from reality. In a Heather Mills kind of way.

Edited by okaycuckoo

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I've spoken with a rent officer about this - he was resigned to the fact that the rules are divorced from reality. In a Heather Mills kind of way.

:lol:

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the trouble is - that if the rental market is reasonably efficient then ALL rents are influenced by HB, by landlord-arbitrage, so what ToW says will happen can still come about quite easily

The rental market isn't homogenous. The vast majority of Private Rental Sector properties are not available to HB claimants so their rents are not likely to be influenced by LHA rates. As the article above states rents generally have been falling.

'Meeting Of Worlds' [January 2010]:

http://www.fasttrak.co.uk/Press.aspx/NewsArticle/4

“The fact is that most landlords and agents will not deal with social housing tenants. In Dartford in Kent, where I have my own agency, Breeze Residential Group, there are 20 agents, but not one of them apart from Breeze will accept social housing tenants.

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The rental market isn't homogenous. The vast majority of Private Rental Sector properties are not available to HB claimants so their rents are not likely to be influenced by LHA rates. As the article above states rents generally have been falling

straw man, tho not a malicious one I'm sure

it is still a sufficiently efficient market to permit arbitrage to influence prices

my assertion is that whatever real terms falls in rental prices have occurred would have been much greater than without HB

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Plus the figures are collected from EAs/rental agents - any allowance for that influence??

Confirmed rental data (not asking rents) is required to be obtained from a wide range of sources...

'Rent Officer Handbook - lettings information - sources':

http://www.voa.gov.uk/instructions/chapters/roh/l-roh-lettings-information-sources.htm#P76_776

Rent Officers must seek out a wide range of sources of lettings information in order to ensure they have a diverse range of information, not limited to one or two individual sources, as this could present the risk of bias, not reflect the whole PRS and potentially skew the LHA median calculation.

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