New Local Housing Allowance Rates and Landlords – How the New LHA Rates Have Huge Implications for All Landlords
The whole issue of the government’s reform of the levels of Local Housing Allowance (LHA) rates has raised a lot of heat on the various discussion forums. In some of these, private landlords are cast as the villains of the piece but often it is the last government who gets the flak for their approach to LHA.
The arguments usually go something like this.
Someone – who is usually keen to point out they are a taxpayer – will say, “I cannot afford to live in say, Westminster borough myself, so why should I have to pay out of my taxes for those on benefits to live in such locations?”
They will point to the figures that show that the average Greater London rent in the private rented sector is £403pw for a 4 bed and £184pw for a one bed, and will say, “Hey, cheaper accommodation IS available below the new capped LHA rates – you’ll just have to move for it, like people have to move when they need a new job.”
The very real concern is that as a result of the new caps, some vulnerable people will be forced to move from their old homes in these expensive areas to other areas – one has horror visions of armies of old grandmothers with disabilities and young Mums being forcibly moved to cheaper boroughs further out.
Those who may be asked to move to areas where rents are cheaper will rightly point out that it was not they who sold off the council housing stock so it should not be them who have to suffer.
To this, the “taxpayer” inevitably replies, “Sure, and it was the bankers who caused the current economic crisis, but we will all have to pay for that too, through higher taxes. It’s a shame you now have to move out of expensive Westminster but that’s life. Welcome to the real world.”
And so the argument goes on.
Big Hit
Landlords letting in central London and other “expensive-to-rent-in” UK boroughs to LHA dependent tenants, whose LHA rates will be hit by the new capped rates will soon face a big hit on LHA rates payable once the new rates are implemented next year. (In places like Westminster we are talking huge numbers of LHA dependent tenants) And tenants in these areas will struggle to make up the difference once rates are cut to below the new cap.
So what will these landlords do? Well, they will have to 1) Accept reduced rents from their old LHA tenants but keep going or 2) Give notice to the LHA tenants and let to non LHA dependent tenants instead or 3) Sell up.
What will the tenants do? Well, if they cannot afford to make up the difference somehow, it looks like they will have to move to different boroughs where they can still get the accommodation they need at below the new LHA cap.
If large numbers do this I can only see additional demand placed on housing in neighbouring boroughs which (for now) have cheaper rents.
So landlords with existing residential property in places like Southwark, Lewisham and Tower Hamlets could well see rental demand rise strongly and even house prices go up.
In next weeks’ blog I’ll show how these changes have huge implications for both “expensive-to-rent-in-boroughs” as well as neighbouring cheaper ones and I’ll look at what the local authorities should be doing now to plan for this.
Useful Links for Landlords
This site, run by the London Mayor shows the level of private rented sector rents in different parts of London (using VOA data): http://www.london.gov.uk/rents
Here, using this site, you can what a tenant can get under LHA in different areas for different bedroom sizes:
https://lha-direct.voa.gov.uk/Secure/LHASearchIntro.aspx
Here are the likely new rates from next year:
http://www.voa.gov.uk/LHADirect/LHA-emergency-budget-news-2010.htm
Article by David Lawrenson of LettingFocus.com
www.LettingFocus.com is the home of Private Rented Sector and Landlord Information.
I’m David Lawrenson, a landlord and property investor myself for over 25 years and author of “Successful Property Letting” – the UK’s top selling commercially published property book for the last 3 years.
Services to Businesses and the Public Sector
Primarily I am a consultant to banks, local authorities, social housing providers, insurers and other organisations – helping them with their landlord facing or buy to let product strategies and services.
For example, I help banks improve their buy to let mortgage lending practices and I help housing association / local authorities find private landlords (private rented access schemes, local letting agency models etc.)
I also write for property websites and am regularly quoted by the media.
Services for Private Landlords
We also find some spare time to help landlords and property investors by coaching them in how to make money in the private rented sector using ways that work, which are ethical, fair to tenants and which involve minimal risk to the investor. We pride ourselves on giving independent unbiased Buy to Let Advice on a one-to-one mentoring / coaching basis or through our occasional group seminars.
Thanks David – the implication of these lower rates in Westminster will not just be felt by landlords, but more importantly by the vulnerable people we house. The state has come to the private sector to help them with a housing crisis which they are partly responsible for. To cut the LHA rates to a level where it does not make sense for the private sector to operate in an area where it is desperately needed is very short sighted.
Comment by Dan — 1/7/2010 #
David,
Great article. Just goes to show that one man’s loss will be another mans gains.
Comment by Bobby Sidhu — 1/7/2010 #
This just smacks of selfish special interest pleading to me. Of course landlords of property in expensive boroughs want to rent it out to the state for fat fees, who wouldn’t, doesn’t mean they should be allowed to. There’s no need for those on benefits to live in desirable areas, it’s a complete waste and very unfair on taxpayers who pay for people to live in areas they can’t afford to live themselves. They should be moved to where property is less in demand, it’s not such a hardship. Rises in neighbouring boroughs can be held down by strict limits of benefit, the 30th percentile rule is a very good idea.
Comment by Gary — 2/7/2010 #
Dan
I tend to agree with you.
The sell off of the council houses still has big implications today and means this change (on LHA rates) really does have big implications for all the London boroughs and local authorities in particular – a point which I will turn to next week at the blog when I will show what they should be doing now to plan for this change. The blog is at http://www.lettingfocus.com/blogs
David Lawrenson
Topic Expert
http://www.LettingFocus.com
Comment by David Lawrenson — 2/7/2010 #
Gary’s comment is interesting and raises another implication (not expressed in my article originally) but one that’s worth making now.
The implication of the past way of doing things was that it could well have been the case that in areas where LHA tenants formed 25% plus of the market, the state was (by setting LHA at the median of rents) in effect bidding up rents against itself.
And since landlords and tenants knew what was payable (they would know because the figures were published!), they rather unsurprisingly tended to set rents at the max payable by the state under LHA.
In other words, in some places, the government had become the “underwriter of rents” and was so dominant, that it was actually setting local rents.
If this what was happening it was not so great for those tenants who did not qualify for LHA and who faced high rents in the private rented sector as a result.
David Lawrenson
Lettingfocus
Comment by David Lawrenson — 2/7/2010 #
It’s hard to see how rents could rise in less-expensive, further-distant boroughs if LHA benchmark rates are moved down from the median (50% percentile) rent to the 30% percentile rent, which will happen more or less at the same time as the caps are introduced in high cost boroughs. As almost 40% of tenants in privately rented accommodation in Greater London are on housing benefit, this is going to have a huge impact on almost every landlord in London (and will be a huge benefit for anyone struggling to pay their own rent). This reform is long overdue.
Comment by RichB — 2/7/2010 #
Really insightful and totally agree. As a landlord in Southwark, I am quite optimistic about the prospects. Tempted to buy in Deptford
Comment by proprateanalyst — 2/7/2010 #
A few months ago I read in the paper that a foreign Somalian woman with children and no partner has been getting Housing benefit paid at £12,000 per month. It beggars belief. The rate should be capped. I have no sympathy for these scroungers. £400 per week is more than fair.
Comment by steve — 3/7/2010 #
Overall rents will fall and even-out as there is less money to go around.
Comment by Simon — 3/7/2010 #
Less Planners lower density please: CV and RV are high due to inelastic supply. We need to help under occupied and lifestyle subsidised move and the less able stay, to move not to the burbs but other areas of inner London. Private rented supply increases becomes more affordable, rental tax can fund police and services to help in inner London. Then we set lower densities for development and start tearing up some fields and giving incentives, even bribes for companies to stop building in the city and locating elsewhere.
Re bankers and sell offs, the reason council houses were sold off was not simply a transfer of voting allegiance (Thatcher your own house vote Tory, Brown we’ll give you a tax payer funded job) but to pay off the huge loans for experimental concrete buildings that fell over or don’t fit the British way of life.
Comment by ebenzer howard — 4/7/2010 #
There is no reason why LHA claimaints in central London boroughs need to be housed in those boroughs with expensive rents subsidised by the taxpayer. Since they don’t work, they have no necessity of being near to work and should be moved out of London. If they complain – tough. You want to live in Westminster, then get a good job just like working taxpayers have to do if they want something they can’t afford. Don’t expect the taxpayer to subsidise your children and your lifestyle.
Comment by Anna K — 7/7/2010 #
Excellent point Anna K – we can’t have poor people in good postcodes. Where should these LHA claimints in Central London go to however? Obviously out of London. Perhaps they could be shipped in trains out to Wales or somewhere.
Comment by David — 7/7/2010 #
I have two rented flats in Hastings,both tenants on LHA.The 12 month rental review reduced both rents from £500 four weekly to £460,£40 per period down??? 8% is a big hit and the tenants say they can’t/won’t make up the difference. How can they do this? anybody know? Regards Graham
Comment by Graham E — 3/8/2010 #