Councils and housing associations see rent arrears and evictions rise

Local authorities and housing associations have seen a significant rise in average rent arrears and the number of evictions is starting to rise, research by Grant Thornton has revealed.

Organisations surveyed for the advisory firm’s Easing the burden: The impact of welfare reform on local government and the social housing sector report attributed the increase in rent arrears at least in part to welfare reform.

“This comes from the direct impact of the spare room subsidy and to a lesser extent the benefit cap,” Grant Thornton wrote. “It is also likely to be affected by the indirect impact of disposable income being reduced through reforms to council tax, benefit sanctions, means testing and limits to jobseekers allowance as well as the impact of economic recession in the recent past.”

The survey of 75 organisations found that 63% of local authorities and 86% of housing associations had seen a rise in average rent arrears since 2012/13.

The increase was above 5% or more of the prior year’s average level of arrears, in a significant minority of these cases, Grant Thornton said.

The firm said it seemed clear from its discussions with local authorities and housing associations that tenants were “increasingly not willing or able to cover the reduction to their housing benefit” caused by the spare room subsidy.

“Expectations for bad debts have had to increase accordingly, leaving some organisations with a significant deficit in income to deal with,” the report said.

Grant Thornton acknowledged that both types of organisation preferred to work with tenants to avoid evictions, at least partly because eviction and subsequent homelessness were likely to create a more expensive problem, for local authorities in particular. This was being managed partly by using discretionary housing payments (DHPs).

Despite this, 21% of authorities with housing stock in the survey reported a “sharp increase” in eviction notices being served (ie over 5% since 2012/13).

Other key findings from the survey included:

• The vast majority of local authorities and housing associations surveyed had seen at least some movement to smaller properties as a result of the reforms to housing benefit such as the spare room subsidy. “This was significant at 40% of local authorities with housing stock and 57% of housing associations in the survey." (In this case ‘significant’ was defined as a movement of 5% or more, of those housing benefit claimants affected)
• The overall scale of movement was “still quite small and it was rare for more than 10% of affected claimants at a particular organisation to have moved as a result of the reforms”.
• Almost half (48%) of the housing associations had seen a change in housing demand profiles in favour of smaller properties and 37% had changed their housing development plans to accommodate this.
• Some local authorities (28%) reported a small increase in void losses for larger properties and this was mirrored by responses from the housing associations. This indicated that the demand for larger properties had declined slightly following the reforms. But the general shortage of housing propping up demand was considered "likely to have dampened the effect on any potential increase in void levels".
• A significant minority (41%) said they had seen a rise in homelessness that they wholly or partly attributed to housing benefit reforms.

In relation to the spare room subsidy, Grant Thornton noted how many local authorities had been using DHPs to help some tenants stay in their homes – particularly those for whom the ‘spare’ room was needed due to disability or where children moved between addresses as a result of parents living apart.

When asked if they thought that most DHP claimants were dependent on this money to pay rent in the long-term, 68% of respondents thought this was partly true and 27% thought this was mostly true.

The report suggested that a shortfall in DHP utilisation could be explained by the stringent application process operated by local authorities and a desire to avoid an over commitment that would require the authorities to use their own funds, rather than a lack of demand. “Looked at in this way, the figures indicate relatively high demand for DHP funding in 2013/14.”

The report warned that although there were signs that the spare room subsidy policy was now starting to achieve its policy objectives, a number of barriers continued to reduce its impact.

These were that:

• There was a national shortage of affordable housing – "particularly acute for smaller properties" – which limited the options for tenants looking to move in some parts of the country. “Increasing private rental costs in some regions exacerbate this”;
• Local authorities were using DHP sympathetically, to subsidise tenants in many cases reducing the number of people who would otherwise be forced to move home;
• The reform was unpopular with the media and significant numbers of tenants, creating political implications locally and nationally;
• There remained some legitimate questions about its fairness to tenants under some common circumstances, such as disability, infirmity or joint custody arrangements.

The survey meanwhile also revealed that many local authorities (59%) were reporting an increase in applications for social housing.

“This was significant in the majority of cases – that is, there was a rise of over 5% of total applications compared to the prior year,” the report said. “One of the primary reasons cited by applicants was eviction by private sector landlords – for example, due to the accumulation of arrears, or a flat refusal by landlords to take benefit recipients. This supports the view that rising demand and rising prices in the private sector rental market in some regions is compounding the problem of finding affordable housing alternatives for benefit recipients.”

The cost of administering housing benefit was meanwhile perceived by 47% of local authorities and 51% of housing associations to have risen as a result of welfare reform.

Commenting overall on the report’s findings, Grant Thornton said the new government needed to take stock of the impact of the welfare reforms on local government and consider the challenges that had yet to be resolved.

Paul Dossett, the firm’s head of local government, said: "In general, welfare reform has prompted an impressive response from many local authorities and housing associations and has been a key driver for innovation and improvement.

“The question is, can they continue to make efficient use of rapidly reducing resources? Our research suggests that without flexibility from Whitehall and further measures, such as devolution of welfare funding, this is unlikely."

In addition to calling for further devolution Grant Thornton urged better co-ordination of national policy in areas such as house-building, health and social care integration, and the policy towards supporting groups of foreign nationals who have bypassed official immigration channels.