Homeless epidemic and social landlords going bust? Inevitable unless …

UNLESS housing benefit is taken out of both the Universal Credit and Overall Benefit Cap policies then the UK will see (a) a homeless epidemic and, (b) many social landlords going bust within a few years. 

That is not scaremongering or hyperbole or anything similar; rather it is simple arithmetic fact as this long and detailed post evidences and my two conclusions are regrettably inevitable.

The Detail

Table 1 below is a simple and broad representation of the current position of the Lone Parent and 3 Child household in the average 3 bed social housing property who receive around £90 per week in housing benefit set against an average SRS rent of £100 per week.

Table 1 – Benefit Freeze and Rents increase by CPI+1%

Notes:

The table assumes rent levels stay the same until the end of the financial year 2019/20 and from April 2020 until March 2025 the social rent formula announced of CPI inflation plus one per cent is implemented and CPI is also at its current 3% figure. It further assumes that the Overall Benefit Cap (OBC) limit remains at £20,000 per year in the regions and the figures illustrated are for the UK regions.

Table 1 reveals:

• That housing benefit which now pays 90% of the rent and leaves the household to find £10 per week to meet rent moves to housing benefit covering just under 74% of the rent with the tenant having to find £31.67 per week from other subsistence levels benefits to meet the rent.
• The existing tenant and particularly with a freeze on all other subsistence level benefits will accrue significance arrears and likely to be evicted for that level.
• The 440,000 new SRS tenants per year and 2.2 million new SRS tenancies in this 5 year CPI+1% rent increase period will see an increasing percentage of them denied to the ‘benefit tenant household’ and thus go direct to the homeless queue.  The social (sic) landlord can’t afford to house them as they are too financially risky.

Note well that all the above conclusions occur with a benefit freeze and Table 2 below illustrates what will happen if other benefits increase with CPI inflation (as they did before the current benefit freeze) and the numbers are staggering.

Table 2 – Benefits increase by CPI & Rents by CPI+1%

Table 2 reveals:

• The £10 per week and £521.79 per year benefit household rent top-up increases to a staggering £2,315.64 per year rent top up.
• Housing benefit which covered 90% of the social rent level in March 2020 only covers 63.52% of the social rent by April 2024.
• The homeless impacts of the above two bullet points for existing and prospective tenants need no further explanation or comment.

Yet the impact on UK social landlords ability to fill their 440,000 new tenancies each year does need comment as social (sic) landlords will struggle to fill this typical average 10% churn each year.

As Table 2 shows the prospective benefit tenant with 3 children will be refused housing on affordability grounds meaning that only smaller sized benefit households can be accepted by the social landlord – or many more exempt pensioner households and/or self-paying tenants only.

Before I add further comments on affordability and social (sic) landlords going bust let’s look at the typical average scenario in the UK regions for the couple with 2 children which Table 3 below illustrates.

Table 3 – Benefits increase by CPI and Rents by CPI+1%

• As you can see the current (and assumed 2019/20) position is that the couple with two children benefit household receive up to £117 per week in housing benefit set against a social rent of £100 and thus they have no rent top-up or shortfall.
• Yet by April 2024 they will have a £1,105.84 per year shortfall and housing benefit which covered all of the typical regional social rent will only cover 82.58% of the social rent.
• As such the figures (which are pesky and indisputable facts) show that the average social rent property becomes unaffordable for the smaller -sized benefit household who too will be refused a new SRS tenancy.
• This means that social (sic) landlords will have to populate their 440,000 each year new social tenancies with less and less benefit households and more and more exempt pensioners and/or more and more self payers.
• Yes that also means too that more and more smaller sized benefit households will be refused social housing and go straight to the homeless queue as well

You can see why my opening conclusions were made and why they are inevitable and when you look at what percentage of social tenant households are households in receipt of housing benefit it is currently 74% and some 3.2 million of 4.37 million social housing properties.

When you analyse by household type who receives housing benefit you see that just 1.3% of social tenants have 5 or more children, which was the principal cohort affected when the overall benefit cap policy began in 2013 yet over 74% of benefit households have two or more children and who will ALL be affected by the affordability issue when rent increases interact with the OBC policy from 2020 onwards.

Now let’s get really scary and look at the illustration in Table 4 below which represents a couple with one child living in a two bed social housing property at a current and 2019 rent of £145 per week.  This rent level exists now at social rent in the highest UK rent areas in the regions such as Guildford and other parts of Surrey and Hertfordshire (and actually higher than central London rent levels too) – and a 2 bed £145 per week rent is becoming more common in many other parts of the UK with the misnamed and ever increasing ‘affordable (sic) rent’ model.

Table 4 – Couple with 1 child and CPI benefit increase & CPI+1% rent increase

In March 2020 there is still £39 per week and £2,034.96 per year headroom in housing benefit yet by April 2024 this becomes a yearly shortfall and yearly rent top-up of £960.48.  Housing benefit pays 89.57% of the rent to the couple with just 1 child who are on benefit.

Comments

The above figures took 20 minutes in a bog standard Excel spreadsheet to do.  It is not rocket science and the assumptions made are not hyperbolic or the worst case scenario by any means and I have yet to meet anyone who thinks that the benefit freeze we currently have can possibly remain in place for much longer if only for political reasons.

It was almost 5 years ago that I first warned of what I termed the systemic flaw in the Overall Benefit Cap policy and over 4 years ago I began presenting this at social housing seminars and workshops and the theory is correct and has been scrutinised ad infinitum and shown to be correct

The systemic flaw is the key to understanding the the OBC policy and particularly the zero sum nature of the OBC policy which works by deducting the total amounts of household welfare (base benefit such as IS or JSA plus Child Tax Credits plus Child Benefit) from the cap limit.  What then remains is the maximum residual amount of housing benefit that can be received – a zero sum process!

When the OBC limit / cap figure remains static and either (a) benefit increase or (b) rents increase then less and less can be paid out in the maximum housing benefit level.

The OBC limit  / cap figure was savagely cut by 23% from November 2016 in the regions and from £26,000 per year to £20,000 per year household income in the face of zero political opposition.  The reduction in the OBC limit was in the 2015 general election manifesto too of (Miliband) Labour and it was noticeably absent in the (Corbyn) Labour manifesto of 2017 and has been from every Labour conference or policy document under Corbyn’s leadership.

The OBC policy has very high public approval ratings in large part due to no political opposition to it and very few understand how it works.  The systemic flaw explains that in writing yet the Tables 1 through 4 above really hit home as to what it really means.

This is why instead of just illustrating the savagery of the OBC policy and how it interacts with benefit increases and/or rent increases I have suggested that the ONLY solution is to take the payment of rent out of the OBC and UC policies.  A solution has to be found and this solution is workable even politically.

Yet before that line of argument is explored there is an URGENT need for exposing the extent of the problem which is the real purpose in Tables 1 to 4 above.

• The social landlords fail to see the problem
• The politicians of all parties fail to see the problem
• The homeless lobbies of Shelter et al fail to see the problem
• The poverty lobbies of JRF et al all fail to see the problem, and
• The tenants fail to see the problems which are epidemic levels of homelessness and social landlords going bust?

Social landlords – were whooping and a hollering when the CPI+1% inflation busting rent increases in the 2020 – 25 social rent formula was announced yet completely failed to see this meant they would have to get a completely new core customer as their current core customer becomes financially toxic.  Why social landlords with their claimed social purpose believe they have a God-given right to inflation busting rent increases is another question!

A recent (September 2017) research report from the Chartered Institute of Housing (CIH) and the University of Sheffield revealed the extent of current refusals by social landlords to house benefit households yet the social landlords seemingly and conveniently want to ignore this: As perversely do CIH who came out in favour of the CPI+1% rent increases despite what they released in that report (below):

The Politicians – let’s just say they all didn’t realise what this OBC policy meant and opposition parties have shied away from challenging it because of its electoral popularity (and shied away is a polite way of saying abject shithousery!)  A figure of well over 200,000 additional households containing 500,000 children PER YEAR could easily be refused social housing due to affordability issues I detail.

The Homeless Lobbies – of Shelter and the rest are so fixated on solving symptoms not causes (e.g. LHA unfreezing) that they miss the total removal of the social housing safety net for low income and benefit households that the SRS has always been.  The rent increases and OBC interaction mean that safety net has gone and the social landlord refusals to accommodate will see homeless presentations and number of homeless families rocket.

The Poverty Lobbies – of Joseph Rowntree Foundation (JRF) and CPAG have also missed this OBC / rent rise interaction and they like all of the above have been practising abject lazy analyses of the homeless / poverty issues this creates.

Solution

Housing benefit being taken out of Universal Credit and the OBC policies is the ONLY workable solution.

For the OBC policy – reduce the cap figure to say £15,000 per year right across UK including London and keep the payment of rent outside the policy.  This removes the homeless aspect the policy overtly and directly creates.

For Universal Credit – take the payment of rent out and make UC five benefits into 1 rather than 6.  The UC claimant still has to go to the local council for council tax relief which is outside of UC and so continue to claim HB / LHA from there too.

For the government UC could be rolled out much more quickly as much of the recent criticism has been of the direct arrears to eviction to homeless pathway UC creates by including housing benefit and I restate UC claimants have to go to their councils anyway for council tax relief so going there for HB / LHA is not a difficult change.

For social and private landlords the payment of rent continues as before and takes away the arrears to eviction to homeless pathway for existing tenants AND it takes away the affordable issues for the 440,000 new social tenants each year as rent costs (subject to other cuts) are paid.

For homeless and poverty lobbies – the same issues are removed.

For tenants both existing and prospective – the threat of taking the roof away from over the heads is removed.

Hence, social and private landlords and homeless and poverty and all other related lobbies will be on the same side and all seeking the same removal of housing benefit from UC and OBC.  A homeless and poverty epidemic can be avoided and the truly offensive nature of UC with direct and monthly payment and the OBC with its even more direct homelessness aspect will be removed.

Local government should also lobby long and hard for this given the huge amounts they will save from NOT having to purchase and procure massively increased numbers of temporary homeless provision and its huge cost.

So many other benefits will be achieved not least keeping housing benefit experts in every local council rather than within UC and so trades unions would also benefit from this change too and most importantly of all the provision of a roof over the heads of over 500,000 UK children per year can be assured.

Summary

Having a secure and stable roof over your head and the heads of your children I cannot begin to describe the importance of and of course I would be biased in any such comments anyway.

It is suffice to say that a secure and stable roof is far more important than political niceties and I couldn’t give a stuff if (and when) the Tories say we have cut the OBC to £15,000 and we have done so because we are caring Conservatives or any such phrase; and we have done this to help solve the UK housing crisis as it provides greater stability for landlords … blah, blah, blah.  And it would allow all other political parties to save face too as it would the homeless and poverty and other lobbies who have all missed the offensive and dangerous consequences I detail if nothing is done and the current direction of travel continues.

The purpose of the above is to open up a huge debate as to HOW the payment of rent through what is now still 90% housing benefit can continue and be taken out of the overall benefit cap and Universal Credit policies.  It simply cannot remain in either of these policies if by 2024 you do not want to see UK homelessness reach epidemic proportion and the UK’s most marginalised and financially vulnerable unable to afford the cheapest rented housing option.