What does the budget mean for the people Shelter helps every day?
Housing benefit has long been in the sights of the Treasury. Suspicious of its costs but reluctant to tackle the lack of affordable homes driving it, George Osborne has singled out support for housing costs for substantial cuts. There were welcome measures on reducing tax breaks for landlords and lower social rents for some, but overall the budget was pretty bleak.
Local Housing Allowance
The major housing announcement today that will be felt by hundreds of thousands of people is the freeze to Local Housing Allowance (LHA) rates for 4 years: twice as long as we expected. Many (39%) receiving LHA (housing benefit for those renting privately) already work but are still struggling. Most of the country will quickly become unaffordable and we expect it to become virtually impossible to find a private rented home in 60 local authorities by 2019 – meaning LHA won’t even cover 10% of properties in each area.
Thankfully there will be additional Discretionary Housing Payments (DHPs) and the hint of boosting the Targeted Affordability Fund that allows increases above the freeze in some areas.
However, this won’t offset the big freeze overall and those struggling to pay rising rents could face rent shortfalls, arrears and greater risk of eviction. The ending of an Assured Shorthold Tenancy is already the leading cause of homelessness; making it harder for people to keep or get a new tenancy will push thousands of households closer to homelessness.
Reducing Social Rents
The big surprise today was the reduction in social rents by 1% for four years. This is good news for those on low incomes in social housing whose rent will be reduced – something we welcome. And it brings massive savings for the DWP, at a time when we’ve long said the best way to reduce HB spending is to reduce the cost of housing.
However, it is likely to come at the cost of new affordable homes – which are desperately needed by those struggling private renters facing a cut in support. Housing associations will be particularly hit as their revenue drops, undermining their ability to borrow and build – even the OBR think this could mean as many as 14,000 fewer homes. The Government should ensure direct investment in building through an increase in the Affordable Homes Programme as soon as possible to offset this risk.
Increasing Social Rents
Whilst some in social housing will see their rents reduced, others will see the opposite – substantial hikes (get advice here). Those households earning over £40,000 in the capital and £30,000 elsewhere will now have to start paying market or near market level rates. These thresholds seem incredibly low at a time when rents are so high – so low in fact that households could now find they need housing benefit after years of paying their rent independently. Instead of bringing social renters in line with private tenants they should really focus on building affordable homes we desperately need.
There was also a worrying little nugget on reviewing life tenancies for social homes – much more detail will be needed but this risks losing one of the great benefits of social housing – the security its gives families. Without the necessary investment in new social homes, the risks forcing low income households into an unfair game of musical chairs chasing the few genuinely affordable social tenancies.
Housing Benefit for 18-21s
Something we’ve long opposed was sadly confirmed today; the long rumoured removal of housing benefit for 18-21 year olds. For some people – care leavers, people fleeing domestic abuse, or those estranged from their parents – living at home is simply not an option. The mention of exemptions is certainly welcome, these will need to include particularly vulnerable groups, care leavers, young adults in temporary accommodation, and those who simply cannot move in with parents. The government must come forward with further guarantees as soon as possible, but we remain concerned that too many will fall through the gaps and homelessness could increase. You can back our 18-21s campaign here.
Reducing the Benefit Cap
And so to the Overall Benefit Cap. Lowering it from £26,000 to £23,000 a year in London and £20,000 outside of it will drag in an estimated 90,000 extra households. The type of households hit will also radically change; previously the Government sought to limit the benefits of large households in expensive areas. But now those to be capped will include families with 1 child living in Guildford, or 2 children living in Leeds or Plymouth – something a lot harder to characterise as gross excesses.
There’s little evidence to suggest most of these families can move in to work – the key aim of the cap. Most worrying of all – as with the previous cap – is that it hits housing benefit first – the very support that helps keep a roof over people’s heads is where people lose money. And we still haven’t had those much needed exemptions for homeless families who face being moved from pillar to post at great expense to councils. If you’re affected by the cap, see how we can help.
Buy to Let Mortgage Tax Breaks and the Wear and Tear Allowance
Reducing buy to let mortgage tax breaks was a very welcome announcement, as is the decision to clampdown on the landlord’s Wear and Tear allowance – something we’ve called to be reformed and that should generate millions of pounds. It is crucial these savings are reinvested in building more affordable homes and improving rented accommodation.
Summary
Overall, it’s a bad budget day for housing and those struggling with housing costs. By definition, people in receipt of support do so because they are unable to afford what the State has previously designated as the bare minimum to live.
It’s welcome that the government appears to have realised the impact of rising housing costs on the benefit bill. But they need to go much further, committing to the big, bold programme of affordable housing needed to reduce high housing costs and further ease pressure on the benefits bills. Until they get these under control, they will never meaningfully get on top of welfare spending.
Only if you invest in affordable homes by rebalancing investment and having a housing strategy that recognises house building, rents, benefits, and homelessness are part of the same problem, can you permanently bring down the welfare bill.
If you just slash and burn benefits in the hope people in genuine need will miraculously find well paid jobs, cheaper homes or fewer children, you’re unlikely to succeed in anything but making more people homeless.
We will always campaign to fight bad housing and homelessness, and with your support we can help more people.
11 YEARS OF NO RENT INCREASE!!! 2008-2019
Those Landlords who rent to housing benefit tenants, will notice their rent has been largely frozen since 2008. In the Budget, it was announced Housing Benefit will be frozen for another 4 years until 2019. That means a landlord with a housing benefit tenant would have 11 years of no rent increases.
How is it fair for the Government to impose no rent increase for private landlord with housing benefit, whilst at the same time increasing taxes for private landlords?. They can’t have it both ways.
George Osborne wants to have his cake and eat it.
Shelter go on to welcome these tax increases. If housing benefit rents will be been frozen for 11 years, is it fair landlords are burdened with increase costs?.
With housing benefit tenants you have no prospect of increasing rents to cover this tax change. The only way is to evict the tenant, which some landlords will find distasteful, but may have no choice, because of the tax change.
Landlords are already reluctant to take on housing benefit tenant and this will make it harder, as it will increase the gap between housing benefit rent and market rents.
I blame Shelter for all the landlord bashing. In my opinion this is why this taxation has come in.
Lets not forget, LHA housing benefit is been paid directly into tenants bank account and landlords are having difficulties collecting rents. Is it fair, if a tenant has not paid the rent, but the landlord still has to pay tax?
To my mind there is no legislation that demands private landlords of tenants receiving housing benefit can not increase the rate of rent charged.
Please tell me if i’m wrong.
No, you are not wrong.
The poster appears to have mixed up two unrelated matters and seemingly has got confused in the process. As you know the LHA scale is reviewed every so often (monthly or three monthly. I can not remember exactly) If rents in the market have increased in the period then the LHA rate will increase – based upon the lowest 30 percentile figure rather than the median.
If the posters rent are always at the top of the scale then it is possible that the posters tenants will not receive the full amount of any increase imposed. I cannot think of a circumstance that will have prevented any increase over the last 11 years not being partially or wholly reflected in an HB award.
It is probably a case of a landlord feeling always being hard done by tenants, the council, the government or anyone else.
If the poster would like to explain the point in detail I would be interested.
“As you know the LHA scale is reviewed every so often (monthly or three monthly. I can not remember exactly) If rents in the market have increased in the period then the LHA rate will increase – based upon the lowest 30 percentile figure rather than the median.”
Yes, when the LHA was introduced it did track market rents. The Government changed the way the LHA rate was calculated from the 50th to 30th percentile. With every successive budgets the link between LHA and “market rents” have been broken.
Effectively you have two levels of rents. The LHA rent level (which is near 2008 rent levels) and market rents.
No I am not confused. You can check Housing Benefit has been frozen for a further 4 years. Someone on Money Saving Expert raised this question :
http://forums.moneysavingexpert.com/showthread.php?p=68750049
You will see that I had already cited the percentile calculation in the previous post.
There was not a ban or prohibition on you increasing your rents, it is just that there is a difference between the amount a claimant may have received by way of a full housing benefit award and the contractual rent. The difference would still be due from the tenant that he or she may pay from their own resources or perhaps from a DHP, or not at all.
I was aware of the freeze on the LHA rates that is covered in the next blog article. But we are all in this together as the government tells us.
“To my mind there is no legislation that demands private landlords of tenants receiving housing benefit”
Yes, I can increase the rent. The Government has frozen the LHA rate, so the tenant will not be able to pay any increased rent.
Two points. An 18-21 year old may have moved from the parental home in order to secure employment. They will have secured accomodation subject to contractual obligations. They lose employment due to factors beyond their control, cannot return to the parental home but are to be denied HB. Will the government amend housing law to enable the young person to terminate their tenancy without penalty, whilst they sofa surf while looking for another job.? Not likely.
Social rents are regarded as affordable. I don’t know the detail but why reduce them, except as an attack on the providers.
I’m confused why are you welcoming the buy to let mortgage relief reduction? For some landlords this will mean it will cost them more to have a tenant than to leave their property empty.
They’ll have two choices – Put the rent up to try to offset the additional tax (bad) or evict the tenant and sell the property (also bad).
Would love to understand more.
Absolutely right Sam. I am a private landlord and we will be selling down although we are not going to evict anyone – just wait for natural wastage.
What is horrifying is that the local authorities can’t cope at the moment. With social rents capped at 1% fewer social houses are going to be built, where exactly is everyone to go when the private rented sector starts shrinking?
I have been in property rental for years and it has been a good investment in the past but it isn’t today – our net return is about 3.2% for an awful lot of hassle. If we charged for our time we would be in negative territory.
So George has done us a favour in prodding us to leave the sector. I would like to see a scheme whereby we could transfer the amount we would pay in capital gains tax to some of our lovely tenants as a deposit so that they could buy the properties they have lived in for years. Seems a win win solution but no one seems to be suggesting this obvious solution.
Private landlords have benefited from as much as a 10% increase in rental income in the last 12 months, (http://homelet.co.uk/homelet-rental-index), and have also seen the value of their property increase an average of 6 percent, or £15,000, in the same period, (http://www.telegraph.co.uk/finance/property/house-prices/11312280/UK-house-prices-up-15000-in-2014-or-81000-in-London.html), with an expected increase of 25% over the next 5 years, (http://www.theguardian.com/money/2015/jun/11/uk-house-prices-rise-quarter-five-years).
While to the tenant it is their home, to the Landlord it is an investment and like any investment it can go up or down.
I don’t think private landlords should be complaining too loudly.
“Private landlords have benefited from as much as a 10% increase in rental income in the last 12 months”
“I don’t think private landlords should be complaining too loudly.”
The rent may have gone up by 10% according to Homelet, but they deal with high end tenants. The rental index applies to new rental contract, it does apply to rents paid by existing tenants. Many landlord don’t increase rent every, despite what Shelter say. The only time rent go up, is if the tenant leaves and the new tenant pays the latest prices.
Tenants whose landlords pay 40% or 45% will be impacted. Because their landlord will be under pressure to increase rents.
Institutional investors won’t be impacted. Plus they only pay 19% tax.
Those landlords with working tenants, may have scope to increase rents, but those on housing benefit tenants will have the unfairness of no rent increases over an 11 year period or to evict their tenant, so they can put a tenant who has a job. I am sure this is Tory policy to undermine those on housing benefit, but Shelter are more in favour of middle classes unable to buy their homes rather then single mums on benefits.
“an expected increase of 25% over the next 5 years, ”
So what if house prices go up. I can’t enjoy any price movement unless I sell.
I let my former home. The last tenants left with rent arrears and damage that cost me over £3500. This is a common story.
The real issue here is that letting out a property is a risky business that can causes losses to landlords whocan be struggling themselves. That is why there will be less and less landlords willing to take h/b tenants and more selling up.
People in need will lose out.
We need more affordable housing. The government appears to believe that private landlords can fill the gap left by inadequate public housing. It makes no sense.