Ministers to Announce Housing Reform

Latest Landlord News by: Madalena Penny

The Department of Work and Pensions has responded to private rented sector researchers regarding ministers’ incentives to landlords to reduce rents and in return pay housing benefit direct to them rather than the tenant on a temporary basis.

The announcement made last month by Lord Freud prompted Legal 4 Landlords to ask the DWP the amount of rent reduction required by landlords for the LHA payment trade-off.

The Government have stated that it is looking at a wide variety of issues relating to benefits and pensions against the background of the spending reviews, and believes that reform is needed in a number of areas, and will make announcements over the next few months as Ministers develop policies to introduce the reform.

The DWP further added that the Government is acting to stop the rapid increase in Housing Benefit expenditure, which they expect to reach £20 billion this year.  They stated further that the Government believes rates of Housing Benefit in the private rented sector have increased to unmanageable levels, and many customers are able to enter into rental commitments that people earning a reasonable wage would not consider.

They did however mention that local authorities can make discretionary housing payments to customers who’s Housing Benefit falls short of their rent.  The Government will treble its contribution to their discretionary housing payment budgets to allow local authorities to give additional support where they consider it is needed.

Unfortunately they did not explain how the discretionary payments would be spread and if they would be spread equally throughout regions.  With demand outstripping supply of rental properties, rents in the private rented sector have risen steadily prompting new investment into the sector.

Ministers should be warned however, that pressure to heavily reduce rents could result in deterring such investment in the future.  As the unemployment figures are predicted to rise this year, landlords should also take note that subsidizing rents for housing benefit claimants will invite strong criticism from working tenants who do not receive such subsidies and could potentially create a barrier for unemployed recipients of housing benefit to enter into jobs that would make increasing rents unaffordable.

Further consequences could result in BTL properties losing value due to reduction in rents if policy is not implemented correctly,  affecting yields.  An additional consideration is the effect of rising interest rates further down the line, which could severely hamper landlords who choose to reduce rents.

Ministers are of course addressing issues that will ease the rising housing benefit bill, but landlords should be aware of the long-term ramifications before deciding on accepting incentives.