Welfare Reform Incentives? – Landlords Need a Clearer Picture

Latest Landlord News by:  Madalena Penny

Earlier this year, insightful researchers at landlord network, ‘Legal 4 Landlords’ predicted that the government would use LHA direct payment policy as a bartering tool to lever pressure on landlords in a bid to reduce the rents for housing benefit claimants.

As forecast, earlier this month in a press release from the Department of Work and Pensions, it was revealed that £50 million will be allocated over the next four years, which will go towards providing housing advice, helping local authorities work with landlords and tenants on renegotiating rents, or where needed, helping with the cost of moving.

It appears now that a strategy has been implemented by the government through further statements revealing, ‘that ministers are keen that landlords from the private rental sector work with local authorities and tenants where appropriate to agree to reduce their rents in return for direct Housing Benefit payments.’

Landlords now face some considerable choices as to the exact implications of this proposal and will have to digest all the ramifications and pro’s and cons before deciding on a course.

Reducing rents for LHA tenants may seem reasonable on the surface. A further fact to consider is the implication this will have on tenants who do not receive housing benefit.  No tenant in this situation will be at ease with rent rises, which would be forced upon them, while the unemployed tenants next door receive a reduction for the same type of property.  A rent increase enforced on non-LHA tenants could be construed as subsidizing the rental loss created by the rent reduction applied to LHA tenants.

The DWP believe that when landlords reduce their rents to a level that is affordable to the tenant, the result will bring an overall downward pressure on rents in the private sector resulting in more properties becoming available to those on housing benefit.

Landlords should be particularly careful before deciding on a reasonable rent and take into consideration interest rate rises along with maintenance costs on the property.

However, before any landlord should enter into negotiations with a local authority concerning any direct payment for rent reduction trade-off, in the same press release, it was revealed that a £130 million transitional fund has been established to help those affected by the reforms and shortfalls in housing benefit, to be dispersed at the discretion of the local authority.  The distribution of these discretionary payments has been recommended as thus:

· East Midlands £1,270,098

·  Eastern £2,203,059

·  Greater London £4,159,705

·  Inner London £4,021,349

·  North East £866,262

·  North West £2,986,408

·  Scotland £2,676,839

·  South East £3,797,937

·  South West £2,236,504

·  Wales £1,422,995

·  West Midland £2,345,663

·  Yorks and Humberside £2,013,181

While certain aspects of the Welfare Reform Bill have been highlighted this week, the most significant amendment would be attributed to the abandonment of the proposed 10% housing benefit cut that was due to be imposed on claimants who are in receipt of Jobseeker’s allowance for more than 12 months.

The lack of consistency surrounding the Reform Bill along with guidelines and proposals from the government to landlords concerning incentives and initiatives is frankly not detailed or structured enough to give landlords a realistic view.

As part of their ongoing research, Legal 4 Landlords are corresponding with the DWP in hope to secure some fact-based information.  However, L4L researchers are of a view that Local Authorities will be given the responsibility to communicate with private landlords and landlord groups to promote incentives and will probably set a ‘reasonable’ rent for housing benefit claimants,  based on their own region and borough, which will be forwarded to landlords.