How have welfare reforms impacted the private rented sector? A review of our research & policy work

The PRS has grown significantly in size over the last twenty years and now plays a vital role in providing a home for those on low-incomes and the homeless. Recently, there have been a lot of policy changes that affect the most vulnerable in society and their ability to access a safe and secure home in the PRS. These changes include the roll-out of Universal Credit and direct payment to the tenant as standard, the freeze to Local Housing Allowance (LHA) rates, and, the extension of the Shared Accommodation Rate (SAR) to all single people under the age of 35.

At the same time, political attention towards the growth of the PRS has intensified, with significant regulative changes occurring. Whether this being the divergent approach to policy across devolved regions, such as the removal of Section 21 notices in Scotland or the national licensing of landlords and registration of private rented properties across Wales, to taxation reform including the 3% Stamp Duty levy and the removal of Mortgage Interest Relief for private residential landlords.

There has been limited previous research on the impacts of these changes, and over the past year, we have focussed strongly on developing an understanding of the effect of welfare reform on landlords, tenants and the broader private rented sector. To do this, not only have we undertaken internal research, but we have also commissioned academics at universities across the UK to conduct independent research for us.

Last year we launched PEARL with the publication of a report from Sheffield Hallam University that investigated the impact of welfare reforms on the access to privately rented homes for the under-35s. This research found that while the majority of landlords were happy to let to all or some under-35s, there are some landlords that have decreased lettings to some groups of under-35s, particularly Housing Benefit/Universal Credit claimants. The reasons for the changes in letting strategy were down to two categories, firstly, fears about financial risk, and secondly the difficulties over managing these types of property. This research highlighted concerns from landlords about the changes introduced by Universal Credit and the direct payment to tenants.

Following this report, we launched our quarterly survey findings in our report titled “Welfare Reform and Universal Credit: The Impact on the Private Rented Sector”. Our research findings, based on a survey of 2,974 landlords, presented a stark account of issues experienced by landlords with the introduction of universal credit. We found that 38% of landlords had found universal credit tenants going into rent arrears in the past 12 months and were owed on average £1,600.88. The issue of rent arrears for universal credit tenants is also one of the leading reasons for a landlord to regain possession of the property (64% of landlords). These findings indicated that further reform is needed to universal credit, the government needs to ensure that it is easier for landlords to claim alternative payment arrangements (APAs) to keep rent arrears to a minimum. Without intervention, landlords will continue to be unwilling to provide homes to those on universal credit.

Further policy changes, such as the cap on Local Housing Allowance (LHA) rates and tax changes were identified by landlords as acting as a barrier to renting to benefit claimants or homeless people. Therefore, our research recommended that the freeze on LHA rates was ended and that the restriction of mortgage interest relief (MIR) should be reconsidered.

This finding was back up by further research from Sheffield Hallam University that explored the impact of the changes to MIR, welfare reform and access to homes for the under-35s. This research found that the MIR changes would make about one-in-five landlords less likely to let to some groups of under-35s. These findings are likely to have a particular impact on landlords with larger portfolios and those who let to claimants of Housing Benefit and Universal Credit. This is a significant concern given the effects of welfare reform on the access to homes for rent.

What have we done with the research and how are we working with the DWP

The excellent research that PEARL has produced over that past year has enabled the RLA to present evidence on landlord sentiment, and rent arrears as Universal Credit continues to roll out and build a picture that is tracked annually.

This has proven invaluable in positioning the RLA as leading the way in PRS research in the welfare sector. Amongst the welfare changes that are mentioned previously, perhaps the most high profile reform is Universal Credit.

The RLA submitted written evidence, using the findings of the PEARL Welfare Reform and UC report to the Work and Pensions Select Committee last year.  We were then later invited to present oral evidence to the committee chaired by Rt Hon Frank Field MP in September 2017.

This was an excellent opportunity for the RLA where we could present directly the experiences of our members, who were suffering substantial rent arrears and relationships with tenants breaking down feeling that the system was working against them as outlined in our research findings.

One of the key asks I put forward to the Work and Pensions Select Committee was that the DWP increase their engagement activity with the Private Rented Sector and their representatives. To listen to their concerns but by coming out to meet us, and ultimately try to level the playing field as much as reasonably possible between private and social landlords.

In UC guidance and regulations the PRS may not be recognised as having a defined ‘welfare role’. However, many landlords and agents who have tenants that are in receipt of benefit – be that legacy or UC, will in reality play a crucial role in that tenant’s life. This too has come through in PEARL’s research.

Many landlords and agents I speak to regularly are more than happy to take on this broader social responsibility role. However, as a consequence, they are often financially losing out themselves because they don’t have the tools available to them to help them to help their tenant in the long run.

Familiar issues such as payment delays, restrictive information sharing and consent problems and the dreaded UC47 form which many find unreliable and confusing in a manual format in what should be an ‘agile, online’ system has pushed private landlords to the point of despair.

This is now where our work with DWP is making good progress. Ministers and Civil Servants are showing they are willing to listen to our concerns and we have done some positive engagement work and user research work over the past ten months or so. Some of the work we have done includes:

• Setting up ten stakeholder events with landlord forums across the country and having DWP representatives at all 3 of our Future Renting Conferences this year to speak directly to landlords and hear their experiences
• Providing volunteers for DWP digital services to feedback on the UC47 direct payment to landlord process and how to improve it. This includes some of our members volunteering to go into private beta testing, feeding directly into the heart of service design
• Continuing to represent landlords at the PRS Stakeholder group in Caxton House putting forward the experiences of members
• Monthly phone calls with the DWP to discuss recurring themes coming into the RLA Landlord Advice Team and collecting data on the number of UC calls and types of calls to feed into DWP directly

The National Audit Office noted a lack of data gathering on rent arrears within the DWP. Once again an improvement on this has been promised to the social sector. However, nothing like this has been offered to the private sector. This is where the work of PEARL is crucial in reporting important trends to Government as Universal Credit roll-out gathers pace and managed migration looms.

We need our members affected by Universal Credit and other welfare reforms to keep participating in PEARL’s surveys as this research is the only data available on rent arrears in the PRS caused as a direct impact of Universal Credit and welfare reform.

The DWP and ministers are listening and engaging with us, and the research that PEARL has produced has been a key impetus for that.

Looking to the future – what can be done?

We are continuing with our research into welfare reforms to expand our understanding of the issues faced by landlords and tenants but to also to continue monitoring how the roll-out of universal credit is impacting the sector. We will soon be publishing our follow-up report on our latest quarterly survey findings, and this will provide an essential update on how landlords with universal credit tenants have fared. We will also soon be publishing the research we commissioned Manchester Metropolitan University (MMU) to undertake on the underlying causes of homelessness from the ending of a private rented tenancy. We expect these findings to drive policy changes further and make renting better.

Regarding current government policies we believe the following changes are needed to ensure tenants will be able to access secure and affordable private rented homes:

1. Firstly, we would like to see more flexibility around data protection in order for the DWP to share information about the progress of a claim or any decision or action that affects the landlord, without explicit consent, including if the claimant has been sanctioned or even an acknowledgement that an application for direct payment has even been received. Private landlords do not get access to a portal, and any explicit consent is given only for a particular piece of business once the initial assessment period ends. This can lead to frustrating delays for landlords if they cannot engage with their tenant. If the landlord had access to certain information, it could reduce the risk of potential eviction.
2. Secondly, a change to the Universal Credit regulations that would mean when a tenant leaves a property with arrears the arrears follow them and the landlord can claim the arrears back from wherever the claimant is – not just the current property. This lack of recourse does not reflect the ‘tenant responsibility’ ethos of the benefit and has left members sometimes in thousands of pounds worth of arrears that they cannot reclaim.
3. We would like to see the tenant decide from the offset of their claim if they would rather their landlord receive direct payment of their housing costs. We believe the tenant is the best person to choose if it is in their overall best interest to have the housing element paid directly to the landlord.
4. A wider welfare wish that extends beyond Universal Credit would be to lift the benefits freeze in the PRS too – not just supported or social housing. The plan is to lift this freeze in 2020, but we feel this must be brought forward more urgently. There is reluctance amongst private landlords to rent to tenants on benefits as LHA rates are frozen, and tenants have to find more to make up any shortfall in their rent. The decision as to who has their LHA frozen and who doesn’t should not be taken on tenure and instead be based on the individual. There is a broader affordability issue at play within the context of welfare reform.
5. We would like to see more examples of local, joint up partnership working between Local Authorities and Local Job Centres, using the expertise of housing professionals to reduce the risk of rent arrears, eviction and potentially homelessness. We know of examples in Leeds where housing staff from the local authority are being seconded into the Local DWP office to support work coaches and build their knowledge and expertise around housing costs. This is reassuring for housing providers given responsibility for housing has until recently sat with Local Authorities.
6. One of the most important things the Government can do to help prevent homelessness is to increase the supply of affordable housing. The Government seems to recognise this, however, recent measures taken seem to indicate that the Government does not see the PRS as having as an important a role to play in solving the housing crisis as home ownership and house building. Increasing stamp duty for Buy to let purchases, reducing Mortgage Interest Relief and changes to other tax allowances such as Wear and Tear are clear disincentives for small Landlords.
7. Despite encouraging the more efficient use of a property and meeting a growing housing need, local authorities are increasingly restricting the supply of shared accommodation through the use of Article 4 directions, removing permitted development rights for conversion of properties to HMOs. Additionally, councils are beginning to use Article 4 directions to restrict the conversion of office accommodation to residential property. The RLA believes that Government should put in place mechanisms to restrict the growing use of Article 4 Directions as a constraint on the supply of shared, and other, residential accommodation.  This power could sit with either the Secretary of State and apply more generally across England or could be devolved to the London mayor, and apply only to London boroughs.
8. Finally, we believe that the DWP should work with private landlords to develop a ‘Trusted Partner’ status model, where those landlords who demonstrate a high level of tenant engagement, good quality housing and willingness to participate in training can go through a ‘Trusted Partner’ intermediary to request direct payment from the offset. This would potentially increase the opportunity to safeguard the tenancies of the most vulnerable as happens in the social sector.