There will be a debate, entitled "The effect of Universal Credit on the private rented sector". This will be led by Stephen Lloyd MP and will take place in Westminster Hall at 9.30am on Tuesday 9th January 2018. This landing page brings together relevant material to inform the debate.
The private rented sector (PRS) is the second largest tenure in England after owner occupation. In 2015-16, 4.5 million households lived in the sector, accounting for 20% of all households. The number of families with children living in the PRS increased from 30% to 36% between 2005-06 and 2015-16.
In recent years the PRS has seen what it describes as "significant policy and regulative changes" as a result of "taxation reform, energy efficiency measures, increasing regulations, and welfare reform." Various aspects of welfare reform are viewed as representing a challenge for the PRS - it is not unusual for private landlords to advertise properties stating that they will not accept applications from Housing Benefit (HB) claimants.
There are concerns that the roll-out of Universal Credit will exacerbate private landlords' reluctance to let to people who are wholly or partially reliant on benefits to meet their housng costs.
Historically, landlords were reluctant to let to HB claimants because of delays in processing HB applications, but since April 2008 a key factor influencing landlords has been the introduction of the Local Housing Allowance and the requirement that this, except in certain specified circumstances, is paid to claimants rather than landlords. Restrictions on the level of LHA paid to claimants were introduced by the Coalition Government in April 2011 (the LHA is now based on the 30th percentile of market rents instead of the 50th percentile) – these changes led various housing bodies, including representative bodies of private landlords, to argue that HB claimants were being priced out of the market.
Further restrictions have been introduced; for example, increases in LHA rates were capped at a maximum of 1% in 2014-15 and 2015-16 and have been frozen since April 2016. The freeze on LHA rates will remain in place for four years to 2019-20. This measure is forecast to save £4 billion a year by 2019-20. The freeze has added to landlords’ concerns about the gap between LHA and market rent levels. Evidence of disparities between actual rent levels and LHA rates payable submitted to the Communities and Local Government Select Committee’s inquiry into homelessness (2016) led the Committee to recommend that “Local Housing Allowances levels should also be reviewed so that they more closely reflect market rents.”
Alongside restrictions to increases to LHA rates, the Government introduced Targeted Affordabilty Funding whereby a percentage of the saving realised is used to allow for higher LHA increases in areas experiencing the highest rent increases. The Autumn 2017 Budget announced an increase in this funding:
Targeted Affordability Funding ・ To support Housing Benefit and Universal Credit claimants living in areas where private rents have been rising fastest, the government will increase some Local Housing Allowance rates by increasing Targeted Affordability Funding by £40 million in 2018-19 and £85 million in 2019-20. This will increase the housing benefit awards of approximately 140,000 claimants in 2018-19, by an average of £280, in areas where affordability pressures are greatest.
Other factors cited as reasons for landlords’ reluctance to let to HB claimants include:
More detailed information can be found in the Library Briefing Paper Can private landlords refuse to let to Housing Benefit claimants? (CBP07008). Since this paper was last updated in November 2016, more evidence of the impact of HB reforms on low-income households in the private rented sector has been published. For example, in October 2017 the Institute for Fiscal Studies (IFS) published an analysis funded by the Joseph Rowntree Foundation which found:
Around 1.9 million privately renting households (containing 4.8 million people) are entitled to less HB than they would have been without reforms introduced since 2011, by an average of £24 per household per week. Reforms have also cut the entitlements of 600,000 social-renting households (containing 1.3 million people) by an average of £19 per household per week.
The reforms have so far:
- Cut the HB entitlement of two-thirds of low-income private renters and one-sixth of low-income social renters.
- Increased the number of low-income renters facing a shortfall between rent and HB entitlement by 200,000 households in the private sector (containing 600,000 people, or 12% of low-income private renters) and by 300,000 households in social housing (containing 700,000 people, or 10% of low-income social renters).
HB entitlements are forecast to fall further behind rents in the coming years. For private tenants, this is because the locally varying caps on HB awards are no longer updated according to changes in local rent levels. These caps are to be frozen until April 2020 and then increased each year in line with national household inflation as measured by the CPI.
More information can be found in the full report: The cost of housing for low-income renters, 13 October 2017.
There has been a substantial increase in homelessness in England due to the endind of assured shorthold tenancies (ASTs). In 2010/11, this was given as a reason in 6,630 cases (15% of the total), rising to 18,270 cases (31% of the total) in 2016/17. In London, 31% of homeless acceptances between July and September 2017 were due to the ending of an AST. The December 2017 homelessness statistical release refers to affordability issues in the private rented sector:
This indicates that affordability is an issue, as more households facing the end of a private tenancy are unable to find an alternative without assistance. The increase in the end of tenancies is also related to the expansion of the private rented sector, which has doubled in size (since 2002) and now houses 4.5 million households (2015/16).
Homelessness Monitor: England 2017, an annual state-of-the-nation report looking at the impact of economic and policy developments on homelessness, attributes the rise in homelessness from the ending of ASTs to welfare benefit reforms and rising rent levels:
Despite a continued growth in the overall size of the private rental sector, which is now larger than the social rental sector in England, half of all local authorities, and virtually all in London, described it as “very difficult” to assist their applicants into private rental tenancies. These difficulties were attributed to the combined effects of rising rents and welfare benefit restrictions, particularly frozen Local Housing Allowance rates.
In addtition to the factors listed above, private landlords are now increasingly citing concerns about the roll-out of Universal Credit (UC) as an issue that will influence whether or not they will let to UC claimants.
Research from the National Landlords Association's Quarterly Landlord Panel (780 respondents, second quarter of 2017) found that "just two in 10 landlords say they are willing to let to tenants in receipt of housing benefit or universal credit." The NLA research also found that the proportion of landlords who said they were willing to let property to housing benefit claimants had fallen to just 20%, down from 34% at the start of 2013.
The Residential Landlords Association (RLA) submitted updated written evidence to the Work and Pensions Select Committee inquiry on Universal Credit in September 2017. This evidence contains the headline results of a survey of RLA members conducted in August 2017 - the survey findings are reproduced below:
- In the past 12 months 38% of landlords have experienced UC tenants going into rent arrears.
- The median amount owed in rent arrears by UC tenants was £1,150.
- In the past 12 months 29% of landlords had evicted a tenant who was in receipt of housing benefits or UC and the main reason for regaining possession of the property was rent arrears (64% of landlords).
- Only 13% of landlords were willing to let properties to tenants on UC.
- 63% of landlords reported the lack of direct benefits or UC to the landlord and made them less likely to rent to tenants on UC.
- For those landlords who had requested a landlord managed payment 44% of them found the application process difficult.
- Of those landlords who had contacted the DWP for assistance with their UC tenant 45% had found them either unhelpful or very unhelpful.
The RLA's Septemer 2017 submission to the Committee called for:
More information can be found in the RLA's report, Welfare Reform and Universal Credit - The impact on the private rented sector, August 2017.
The key changes announced in the Autumn Budget 2017 on 23 November are listed below - some of these changes relate to issues raised by private landlords:
Additional information can be found in the Library briefing paper: Housing costs in Universal Credit (CBP06547, updated on 31 December 2017).
Commons Debate packs CDP-2017-0267
Author: Wendy Wilson