Local Housing Allowance In The Private Rental Sector Article

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Local Housing Allowance in the Private Rental Sector

The Local Housing Allowance (LHA) overturned the established Housing Benefit system which has allowed landlords to receive Housing Benefit payments directly from local authorities. This suited a landlord in that they received a regular and guaranteed rental income and did not have to chase the tenant repeatedly for housing benefit.

Author: Chris Horne

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Local Housing Allowance – 1 rule for 1

Landlords are no doubt aware of the phrase one rule for one and one for the others.

This phrase has never been more appropriate than when referring to the actions of the Local Housing Allowance introduced by the Government on the 7th April 2008.

Housing Benefit vs Local Housing Allowance

Equally, the tenant would know their rent was paid and could concentrate their budgeting efforts on making their other benefits go further.

However, in their wisdom the Government decided to bring in the Local Housing Allowance, a system designed so that benefit is paid directly to the tenant and only paid direct to the landlord in exceptional circumstances, such as if the tenant is deemed ‘vulnerable’ or there are serious rent arrears (i.e. over 8 weeks worth).

This aspect of the new scheme has been very much criticised. A local coroner in Blackpool (one of the pathfinder areas) going so far as to suggest that benefit money was helping to fund the cities drug problem. Blackpool has a particularly large private rented sector as well as a very large drug problem, some calling it ‘drug death capital of the UK’.

This gives the Local Authority a little bit of discretion but the inference in the legislation is that the over whelming majority of tenants are paid direct. This compares with on Currently some 60% of benefit in the private sector is paid direct to landlords.

Local Housing Allowance – direct payment

The Government has not issued guidance to Local Authorities on the Local Housing Allowance as to when they should consider paying a landlord direct but in a written answer to a Parliamentary Question, the Minister with responsibility for Housing Benefit, Kitty Ussher outlined the governments view:

“We have not issued guidance on the payment of housing benefit directly to the landlord. If local authorities consider that the tenant is likely to have difficulty in relation to the management of their own affairs they may make payment to the landlord. For example, if the tenant is known to have a learning disorder or a drug/alcohol problem that would mean they are likely to have difficulty handling a budget, payment could be made to the landlord. If local authorities consider it improbable that the customer will pay their rent, for example, if the Local Housing Allowance (LHA) authority is aware that the tenant has consistently failed to pay the rent on past occasions without good reason, payment might be made to the landlord.”

Reason for the change

The reason given on the Department for Work and Pensions (DWP) website for payment direct to tenants is that it is “empowering people to budget for and to pay their rent themselves, rather than having it paid for them”, which “helps develop the skills unemployed tenants will need as they move back into work”.

One rule for one…….

All this is laudable stuff. Off course tenants should be treated as responsible adults as many of them are. However, not withstanding the argument that the benefit is being paid to house tenants and not to be potentially spent on holidays, consumer durables; the gripe I have with the new system is far more fundamental. It is that private landlords are being treated differently and are at a disadvantage to other landlords. This is because Housing Associations and other RSLs will continue to receive payments for their tenants directly.

This fact was recently confirmed by a report in the Financial Times over a reply given to the Council of Mortgage Lenders (CML), in which the government gave a firm re-assurance through the minister responsible for housing benefit, Kitty Ussher, that housing associations (HAs) and other registered social landlords would continue to have a guaranteed stream of income in the form of benefit paid directly to them.

Housing benefit typically provides 60% to 70% of the income of Housing Associations and most of this is received directly by landlords. This guarantees a strong and reliable cash flow, and is cost-effective for landlords.

That income is ultimately a source from which housing associations repay the funds they have borrowed to build and improve affordable housing.

The CML commented that: “The reality is, however, that any decision to pay housing benefit directly to tenants would expose the funding of the social housing sector to greater risk. That would have serious implications for Housing Associations, lenders and other investors.”

Discrimination against private landlords

All this is true, but it is also true for private sector landlords. This is pure and simple an act that distorts the market for housing provision and puts private sector landlords at a huge competitive disadvantage.

If this behaviour involved the actions of any other sector other than housing provision and involved the action of private companies the competition authorities would be crawling all over the government’s actions.

This inconsistency should not be allowed to stand. The government should either abandon the concept of the Local Housing Allowance or if they stick by their guns for their own political reasons; then they should ensure that all types of residential landlord are treated equally. Only this way can we have a balanced, responsive rental housing sector that offers choice and competition between different providers.

About Author

http://www.propertyhawk.co.uk
Chris writes for the The Landlords Homepage which includes Free Property Letting Software, free tenancy agreements, magazine, book, links aimed at the UK Buy to Let Market.

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Local Housing Allowance in the Private Rental Sector