Uncertainty and anxiety prevails in the social housing sector as the welfare reforms introduced by the Welfare Reform Act 2012 creep ever closer.
The major concerns to landlords who house tenants in receipt of housing benefit will be the direct payment scheme and 'bedroom tax'.
Payments of housing benefit, as part of an all-encompassing 'Universal Credit', are to be paid directly to tenants renting in the private rented sector, regardless of arrangements currently in place, from April of this year (the first local authority areas where this will be implemented will be Tameside, Warrington, Oldham and Wigan). This is a departure from the current system where local authorities can pay housing benefit to landlords, where the tenant has accrued two months' worth of arrears or if the tenant is considered vulnerable. The DWP has confirmed that there will be a mechanism for the payment of housing benefit direct to the landlord following a trigger event. However clear details of this mechanism have not yet been announced.
The potential problem with the introduction of direct payments is that, whilst most tenants will pay their rent without issue, those that won't will be evicted by landlords because of rent arrears. With no clear safety net in place, landlords are concerned that unrecoverable arrears could mount up, which, when multiplied over several hundred properties, could have a catastrophic impact on their business.
'Bedroom tax' is the penalty system, which is to be introduced in April 2013, for working age tenants in receipt of housing benefit where they have one or more spare bedrooms. Tenants who meet the criteria will have their benefits reduced by 14% for one spare bedroom and 25% for two spare bedrooms.
The fear is with 'bedroom tax' that tenants will have to further finance their rent by making up the greater shortfall between what they receive in housing benefit and what they need to pay in rent. For landlords this increases the likelihood of tenants falling into arrears.
More arrears = more possession claims = more cost to landlords = more legal aid claims = more clogging up of the County Courts = a greater burden on the taxpayer.
The Guardian reports that the impact of 'bedroom tax' is expected to be felt hardest in the north of England, where there is the greater shortage of one-bedroom homes. They estimate that 40% of social tenants in the north could be affected, compared with the nationwide average of 20%.
Will the reduction in the amount a housing benefit tenant can pay in rent and the spectre of benefit being paid directly to the tenant increase the likelihood of landlords refusing to let to housing benefit tenants? I would suggest so.
Will the inevitable fall in rents caused by welfare reform encourage landlords to reinvest in their properties when inflation is rising? I would say no.
As most landlords are acutely aware, local authorities invariably advise tenants who have requested to be rehoused by them that they must remain in the property until they are served with an eviction notice or they risk being deemed as intentionally homeless. The result being the burden, and cost, of obtaining an eviction notice falls upon the landlord.
This year is going to see major changes for landlords and they must be ready to act dynamically and decisively in order to stay ahead of the game.