Should landlords lower rents to fund housing benefit cuts?

From Phillip James Letting Agents in Worthing and Brighton & Hove.

Local Housing Allowance (LHA) is already a bit of a mess, with many landlords choosing to shy away from this sector of the rental market (see 2 reasons why landlords say “no” to housing benefit tenants). Now, with the Government’s budget cuts, even more landlords will be turning away housing benefit tenants.

There are two important cuts about to be made to housing benefit which landlords and tenants need to be aware of.

Cut no. 1

Currently, the amount of housing benefit paid to tenants is set at the median level of local rents. So claimants receive an amount equivalent to the price of renting a property in the middle of the range. From October 2011 however, the calculation will be made using the lowest 30th percentile of local rents. This means, tenants in receipt of housing benefit will no longer be able to afford properties priced in the middle of the range of their local markets and will be forced into cheaper properties. Otherwise, they will have to “top-up” their housing benefit with other income.

Cut no. 2

From April 2011, the amount of housing benefit paid for larger properties will be capped. The maximum that can be claimed will be as follows:

• 1 bed property – £250 per week
• 2 bed property – £290 per week
• 3 bed property – £340 per week
• 4 bed property – £400 per week

Looking at the levels of these caps, it is going to be large families and those in “expensive” cities like London or Brighton & Hove that will find their benefits cut.

Right or wrong?

Supporters of the cuts say that it is only right that those having their rent paid for by the Government should have to live in cheaper than average accommodation. Critics say that this will force housing benefit tenants into “ghettos” of low-quality social housing.

What do landlords and tenants need to do now?

In the run-up to these two cuts being implemented, tenants and landlords have decisions to make.

Tenants need to decide whether they will be able to afford to stay in their homes if that would mean “topping up” their housing benefit payments from other sources of income. If they can’t, then they need to start thinking about down-sizing to more affordable properties.

Landlords need to look at their income and expenditure for a given tenancy and decide whether they are in a position to accommodate the cuts in housing benefit by lowering their rents in order to keep their tenants. Landlords considering this option need to factor in a likely rise in interest rates just around the corner (see our recent article on landlords and interest rates).

Summary

What is obvious is that unless landlords drop their rents, many tenants will be forced to find cheaper accommodation or risk falling behind with their rent and being evicted anyway.

With demand for rental properties across East and West Sussex still very high and likely to remain so for a while, it is unlikely that landlords will feel they need to reduce rents to accommodate housing benefit tenants on lower levels of income. This will mean housing benefit tenants are forced into cheaper housing, one way or the other.

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