Category Archives: Policy

Summertime… but the living ain’t easy!

Andrew Arden QC & Robert Brown

The bedroom tax is now 16 months’ old. Publication of a new report shows that it is not working.

We considered part of the Government’s package of benefit reductions (or “reforms” as the Government insists on calling them) a few months ago, in ‘Being for the benefit of Mr Tight’. One of the key measures is the bedroom tax. To recap, the bedroom tax is implemented by regs A13 and B13 of the Housing Benefit Regulations 2006 (SI 2006/213) (as inserted by the Housing Benefit (Amendment) Regulations 2012 (SI 2012/3040)). It requires local housing authorities to calculate the housing benefit payable to social housing tenants by, inter alia, reference to the number of bedrooms for which the claimant is eligible, defined by the number of occupiers of the property – for instance, a couple are expected to share a bedroom; likewise, two children under the age of 10 are expected to share. If the property contains an extra bedroom, the housing benefit payable is reduced by 14 per cent; if two or more extra bedrooms, by 25 per cent.

As we noted back in April, the impact assessment supporting the amending regulations suggested no great financial savings, maybe even none. The theory behind the bedroom tax was that under-occupied social housing should be freed up in order to allow families to move out of over-crowded housing. As we said then

“In reality, it is not so simple: there are many more cases where an extra bedroom is legitimately required than the Regulations provide for; and, it is outright ignorant to assume that moving is simple or in many cases even possible, especially if a social landlord (offering an affordable rent) does not have (or is not willing to offer) an appropriate, smaller property. Thus, there is no qualification on the reduction that smaller, affordable accommodation is available, or that the local housing authority will make it available. …

“We do not need to rely on our experience of working with social landlords and tenants to know just how exceptional it is to be able to make this sort of home-swap. Not only is it general knowledge but it was also the predictable consequence of an increasingly-capped housing benefit system that more and more private landlords would cease to accommodate tenants dependent on it.”

You no longer need to just take our word for it: DWP has now published an interim report, Evaluation of Removal of the Spare Room Subsidy, which looks at the first six months of the bedroom tax. A final report is promised for 2015 but for now there is much to take from the interim report.

Discretionary housing payments (which, if Government is to be believed, are the solution to any discrimination caused by the bedroom tax) are not sufficient. The interim report notes that some disabled applicants for DHP have failed means tests applied by local authorities, because they are in receipt of disability benefits – even though those benefits are meant to help with some of the extra costs of having a long-term disability or health condition and are not intended to help with housing costs: see Burnip v Birmingham CC [2012] EWCA Civ 629; [2013] H.L.R. 1.

Another concern in relation to DHPs was that some benefit claimants affected by the bedroom tax had either failed to apply for a DHP altogether or failed to provide adequate evidence in support of their application, especially where there was a mental health condition.

Finally, so far as DHPs are concerned, awareness of their availability is too low: over half of those who were affected by the bedroom tax and had not applied for a DHP said that they were not aware of the possibility.

Tenants, meanwhile, are clearly struggling with the financial impacts: 57% say that they have spent less on household essentials, 21% that they have borrowed money from family or friends, 3% have borrowed money via a credit card, while 3% have borrowed money through a pay day loan. The researchers do not appear to have asked tenants whether they had borrowed from a loan shark, but we note that 2% of affected tenants said that they had taken some “other” action, which must raise concerns about the measures to which tenants are being forced to resort.

On the other hand, only 13% of tenants said that they had looked at moving to another social housing property. Just 3% said that they had looked at moving into the private rented sector although those who had done so did appear (according to the report) to have had some success: 1.4% of affected claimants (i.e. half those who had looked into it) moved out of social housing and into the private rented sector. The net result for the HB bill is fairly obvious.

Unsurprisingly, rent arrears have increased. While the interim report was careful not to attribute this directly to the bedroom tax, it is surely the most obvious candidate. The conclusion seems logical: 41% of affected tenants are reported as having paid the full shortfall; if 41% did…

And what does the interim report say about the grand aim of the bedroom tax: incentivising tenants to move to smaller properties and free up space for larger households? Very little, it seems. A mere 4.5% of affected claimants managed to move to a smaller property.

If the Government is concerned about wasted space, it is not even clear that the right people are being targeted. A recent research paper, ‘Quantifying the extent of space shortages: English dwellings’, has concluded that, if the Government wishes to identify oversized homes, the relationship between the number of inhabitants and the number of bedrooms is a poor metric to use. The researchers found that under-occupation was less common in dwellings where HB was paid and that most properties for which HB was paid were undersized when compared with the space standard adopted by the Greater London Authority for new-build homes. The researchers also found that, somewhat counter-intuitively, 75% of households who lost some HB due to the bedroom tax were undersized when compared with the space standard. Based on their analysis, only 19% of those affected by the bedroom tax actually had more space than they needed. One cause of the problem is that properties in the UK are simply too small: the UK has the smallest homes by floor area in Europe. As the research paper concludes

“the vast majority of homes are at or below acceptable space standards. This physical shortcoming has been mitigated by residents having low occupation rates, which are necessary and should not be regarded as a wasteful use of space.”

Assuming that the policy goal is a legitimate one, the bedroom tax fails to achieve it because the brute-force methodology does not identify those properties with excess space.

The future for the bedroom tax is uncertain. Labour have said that they would scrap it, while the Liberal Democrats have undergone a partial change of heart and no longer support its current implementation. Given the damage that is being done to tenants, and to the budgets of social landlords, the real question is whether change can await the final report and the general election.

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Rent Control to Major Debt

(with apologies to David Bowie)

ANDREW ARDEN QC AND ROBERT BROWN

With house prices and rents unaffordably sky high, we wonder whether it is not time to think again about a method that was historically successful both for tenants and owner-occupiers – rent control.

As house prices sky-rocket and would-be owner-occupiers drift aimlessly in space with no hope of ever returning home, our thoughts turn wistfully to an era of rent controls when tenants could remain in accommodation at rents that they – and through housing benefit – the state could afford until they had saved enough to buy at a price that was not excessively inflated by scarcity.

When Ed Miliband recently spoke of tenancies with minimum terms of three years during which rent increases would be subject to an upper limit, the landlord lobby started to shriek “rent control” as a term of abuse. Strictly (oh so strictly) rent control in its legal sense referred back to the method of fixing rents abandoned in 1957 which had led to levels that were, we accept, unsustainable; but rent control in its popular sense, meaning controls on rent fixed either by realistic formula or an independent body (the Rent Officer), had much to recommend it and – if we look back now – we can see that it generated (over its tenure: 1965-1988) the climate in which the high rise in owner-occupation could follow

In short, if house-owners can make more money selling than renting, then hey, guess what, that’s what they’ll do. Market rents – under assured tenancies – will always go in only one direction (we won’t bother to say which – as if…!) unless and until building to rent is perceived as producing more profit for the construction industry which, we see historically time and time again, it never does, for the very simple reason that the return on investment takes so long – decades – that it is inherently uncertain, vulnerable both to financial market forces and to political shifts in residential landlord-tenant law.

With rent control, you know what you get; sure, it creates scarcity in the rental market, which is why fair rents (1965-1988) excluded scarcity value, and only functions if accompanied by relatively full security of tenure (1974-1988, following the abolition of the furnished tenancy exception) – i.e. exceptions for, e.g., truly temporary arrangements (holiday lettings, student lettings, fully-serviced lettings) and “personal” lettings (i.e. resident landlords, absentee owner-occupiers).

Traditionally, security has been applied to existing lettings: the flood of evictions would not be tolerable. The shrill cri de coeur of the small buy-to-let landlord is not politically acceptable in the run-up to an election but – if rents are properly set – the consequence is not that they lose money but that they lose the ability to make more each time the market rises and/or to evict in order to sell when that becomes their choix du jour. (Yes, one of us is just back from a holiday in France).

In any event, as an earlier post suggested – ALL IS FORGIVEN: BRING BACK THE FAIR RENT (and slash the social security bill, why don’t you?)! – it is not all or nothing: it would be possible to try out an exemption from security for, say, the landlord who only owns one or two properties (with appropriate definitions to minimise avoidance) while re-introducing fair rents.

There are as many houses beforehand as there are after rent control is introduced, and those which are not re-let are available for sale, at prices that, if not exactly affordable to everyone are a lot more affordable than now and that tenants will be able to save for if not having to pour every last penny into rent.

The point is this: the system worked; yes, there was homelessness, but nothing like today; yes, there were evasions and evictions but, again, nothing like now; just because it is an old system does not make it wrong – rent control didn’t cause the financial collapse – that was caused by bankers not landlords.

In some ways, it was all predictable and maybe even predicted. The Housing Act 1980 foreshadowed the end of protected tenancies – secure private lettings at fair rents – in two ways: it introduced the shorthold ground for possession, a mandatory ground fulfilled by compliance with procedural requirements; and, it introduced a new form of tenancy, in build-to-rent accommodation, based on Landlord and Tenant Act 1954 principles and as such let at market rents – they were called… “assured tenancies”.

This was the now forgotten first incarnation of the assured tenancy, forgotten not least because – and this is part of our core thesis (well, alright, if not thesis then story-line) – build to rent just does not work on any scale significant enough to make an impact. A massive failure, all that survived was the name, handed on like an unused wedding dress to a policy of market rents with no security, under the Housing Act 1988. (There is a tendency to treat assured shortholds as starting with the Housing Act 1996 presumption, but this really served to sweep up the few private landlords who had failed to keep pace with the practice adopted from 1988 by the better-informed).

A recent case in the Court of Appeal (Loveridge v. Lambeth LBC [2013] EWCA Civ 494; [2013] 1 W.L.R. 3390; [2013] H.L.R. 31, now en route to the Supreme Court) served to spotlight the intended effect: housing is as valuable when rented as to an owner-occupier; otherwise, the would-be owner-occupier could always outbid the would-be landlord. Again and again, with less rather than more sophistication than Charlie Brown, policy tries to drive house-building with promises of a rental return; again and again, it fails.

It didn’t work in 1980; it is not working now. Build to rent needs subsidies – and gets them (in the hands of social landlords); even the availability of social housing grants – subsidies – for otherwise unregistered landlords is not making any impact.

Everyone agrees we need more houses and that means building them. Everyone knows that to be sufficient, this means houses for sale. Common sense tells us that if people cannot save to buy, there will not be enough prospective owner-occupiers who can afford to buy, which means that there will be less available. It also tells us that if there is less available, it will cost more. True, house prices in many areas are not rising as fast as the foreign money-fed London market, but they are still rising back towards the peak prices of 2007 (as this chart shows) and the problem of people not being able to afford to buy is far, far from confined to the capital.

As our last post – There may be trouble ahead – focused on, the problem is going to get worse when bank rates start to rise and borrowers have to confront the consequences of unaffordable, major debt (well, at some point we had to justify the title, though we freely admit the title came before the post!).

The Government’s principal attempted solution so far, the Help to Buy Mortgage Guarantee Scheme, has had an effect in enabling some purchasers to get on the housing ladder but as Danny Dorling points out in All that is Solid: The Great Housing Disaster, one of the consequences is to support and possibly further increase house prices (in the first six months of the scheme, applicants were assisted to buy 31 properties valued at over £500,000; one in ten applicants had an annual household income of over £80,000). This in turn may contribute to financial risks (a point the International Monetary Fund recently noted). It will also allow rents to remain high. If rents are high, the housing benefit bill stays high.

The next proposed solution, Affordable Rent to Buy, has some attractive features: Government will provide loans to landlords to enable them to build new houses; and those properties will have to be let out at an “Affordable Rent” (i.e. 80% of market rent) for at least the first seven years. This may provide an opportunity for some would-be purchasers to save money that would otherwise be put towards the rent but it strikes us as falling far short of what is needed. In any event, the developer would be able to sell the property to anyone after seven years. This does not make building to rent profitable; it merely provides public funding to boost the profits of those willing to build for a deferred sale (at minimal risk – the loan will be provided at a low interest rate).

The nettle will of course not be grasped before 2015; we fear it will not be grasped afterwards. If not, then we do not expect to see any change in the current imbalance. Young people now draining their bank balances for rent or living at home hoping to save faster than prices rise may see their prospects disappearing further and further into space. Can you hear me, major debt? It is even a commonplace – “generation rent” will never own. Can you hear me, rent control?

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