landlord rent guarantee insurance – Housing benefit reforms: a huge gamble on rent cuts
landlord rent guarantee insurance
The new housing benefit calculation represents one of the most radical acts of welfare reform in decades, says Linton
Chiswick, and risks banishing entire communities to seaside ghettoes.
Confusion reigns
The beginning of the year saw the rolling out of the new housing benefit reforms to existing claimants who were unaffected
back in April of last year. More than two years after the details were announced in the commons and debated by the media –
and despite a nine-month grace period for those affected to make new arrangements – confusion still reigns.
There’s anecdotal evidence that letters sent by councils to affected tenants are being disregarded or simply misunderstood.
And – despite such a long period of debate – there’s little agreement between pressure groups and the government about the
likely effects of one of the most radical welfare reforms in decades.
The new rules will see entire communities kicked to the curb, or banished to seaside ghettoes with little more than wet sand
and melted ice-cream for comfort, pressure groups say. According to the government, exploitative landlords will be the first
to suffer, and the net effect will be to make renting more affordable.
Claimants to feel the pinch
What’s certain is the vast scale of the reforms. The government’s stated objective is to shave, or rather slash, £18 billion
off the welfare bill for the next four years. Half the budget is spent on pensioners, but spending on the elderly is more or
less ring-fenced. Any suggestion that the welfare claimants who are left will – individually – notice pressure rather than
pain is absurd.
Under the new rules, the local housing allowance (a weighting system) will be calculated from the 30th percentile of a
neighbourhood’s spread of rents rather than the median. To discourage the private rental market from responding with
aggressive inflation, the reforms will cap housing benefit at different levels for different sizes of property, from £250 a
week for a one-bedroom flat to £400 for a four-bedroom house.
New research by the Chartered Institute of Housing (for the Guardian newspaper) suggests that more than 800,000 properties
will become ‘unaffordable’ under the new rules, a quarter of a million properties in London and the south east. Where will
people live? In hopeless, crime-ridden housing benefit ghettos along the seedy Kent coast, they say.
Threat of homelessness looms
Shelter’s take is similar. Historically critical of even the old system, Shelter points out that more than 80% of claimants
already found it ‘fairly’ or ‘very’ difficult to find accommodation. Is there a danger of homelessness? The Cambridge Centre
for Housing and Planning Research expects 250,000 households to find themselves in arrears as a result, with as many as half
of those evicted. Shelter claims that three in every five councilors expect significant new costs as a result.
When Westminster council’s Philippa Roe launched a defence of the new policy in the Telegraph (remember, Westminster’s one of
the super-expensive neighbourhoods targeted by the reforms), she didn’t deny there’d be migration.
‘Whilst we do not doubt some households may need to move,’ she admitted, ‘they may not have to move very far. Even if larger
families do need to move further afield, Westminster has excellent transport links which will allow those who move an easy
trip back to visit friends or to go to work.’
The idea that larger families will be able to live anywhere close enough to Westminster – as rents currently stand – for £400
a week to make it economically viable to commute in to do a low-paid job is fantasy. Which points to the crux of the
argument.
Landlords milk the system
The government and Roe are obviously correct in the assertion that the previous system was unfair, unaffordable and a
cash-cow delivering to unscrupulous landlords. The old upper limit of £2,000 a week gifted the kind of property spending
power associated with a £300,000 a year salary.
Even after the cuts, the new annual housing benefit limit of £20,800 translates to combined household income of £60,000,
where the average wage is a whisker over £25,000. But good reforms deal with the practicalities of where we are now, rather
than simply reacting to a sense of injustice.
At the core, we’re seeing a gamble that – despite recent history – landlords will respond to the reforms by lowering their
rents. Certainly, it’s possible that this is exactly what they’ll do. Alternatively, it may turn out that, encouraged and
strengthened in their resolve by a eurocrisis-influenced credit drought, landlords decide to take advantage of frustrated
buyers (either first-time buyers or families forced to relocate but unable to buy/sell and so temporarily turning to the
lettings market) and push the whole rental market up by going in above that (fluid) 30th percentile.
We’ll all find out soon enough. But housing benefit claimants will find out a little bit sooner than the rest of us.
SOurce: http://citywire.co.uk/money/housing-benefit-reforms-a-huge-gamble-on-rent-cuts/a556946