Housing benefit – a disaster waiting to happen?

I’m on the management committee of a community based housing association. We had a meeting on Wednesday at which was agreed the association would have a short five-year strategy, as well as annually reviewed triennial business plans, to get us through the tough years ahead. One of our strategic objectives for the next five years had to be to cope with the changes to Housing Benefit and introduction of Universal Credit in the next two years. In the spirit of business jargon and positivity I suggested a positive spin on this objective. In the end it was agreed that there is nothing whatsoever positive about this so the strategic objective will be something along the lines of “dealing with the benefit changes”.

With this, and the Public Accounts Committee report on “affordable rent”in mind (also so these strong words about Uncle Eric) I thought I’d do some depressing crystal-ball gazing as to where I think the welfare benefit changes are going to lead us in a couple of years. The changes I am specifically talking about are:

• The reduction in housing benefit for under-occupiers (aka “The Bedroom Tax”);
• The introduction of Universal Credit and the housing part of this being paid directly to tenants;
• The cap on Universal Credit;
• The introduction of mid-market and affordable rent; 
•  The changes to Council Tax benefit.

I can only write based on what I’ve been told by housing managers and what I’ve read online. But here goes. 

From April next year with the introduction of the bedroom tax housing associations (HAs) will see a slow increase in rent arrears as tenants struggle to make ends meet. About a year later this will start to feed into increased levels of intentional homelessness as tenants is large amounts of arrears are evicted. Shortages of suitable smaller (one-bedded) properties in places like Edinburgh mean this will probably mostly affect young single people, throwing them into cycles of homelessness, including street homelessness.

As people are made homeless through rent arrears they will increasingly resort to the already highly pressured private rented sector for suitably sized properties and the housing benefit bill will skyrocket. For those lucky enough to be in areas where their rent will fall within the benefits cap, they should be more stable. For those in places like London, forced displacement or street homelessness probably beckon. Mid-market rent in Scotland and affordable rent in England will also put a further upward pressure on the housing benefit bill, although the ending of the right-to-buy in Scotland may reduce this marginally here (see this paper on the estimated cost of the RTB on the housing benefit bill).

HAs will increasingly struggle to finance their debt as arrears grow and I think in the next two years a large HA will go bust. We might also see more consolidation among smaller HAs that have overstretched themselves. The initial results from the Universal Credit direct paymentspilots are not brilliant, so when this is introduced we are likely to see a further uptick in arrears and more HAs struggling to keep their business afloat. In Scotland I can specifically imagine one of the fancy new financing deals going badly wrong, especially if housing for sale in developments is not sold, and what limited capital expenditure there is in housing will be swallowed up bailing out risky developments  where the sums just didn’t add up. I don't understand local authority housing revenue accounts, but I can also see some local authorities, particularly those in Scotland building a lot of new homes through debt finance, being hit hard and having to cut services to pay debt repayments.

In England, the widely underreported changes to Council Tax benefit will probably mean a lot of vulnerable households losing even more of their income and being thrown into debt. As families are plunged into fuel poverty their energy bills will be greater than their rent and they will end up in debt to energy companies as well or living in dark, cold homes. So you’ll have poor homeless people with rent arrears debt and Council Tax debt, which I’m sure everyone will want to house. 

So, that’s about it. I foresee an absolutely staggering and shocking increase in homelessness and the housing sector being utterly mangled. This is kinda why we thought we should have five year strategy to weather the storm.

Of course I could be completely wrong. Alternatively, the economy could suddenly leap up to a 3 per cent growth resulting in a massive increase in the delivery of housing, especially in pressured areas where the planning reforms have (of course) meant that NIMBYs will throw open their arms to massive housing allocations. The booming economy and benefits changes will incentivise everyone to work, the lame will walk thanks to ATOS, and the new Britain will emerge.