Local Housing Allowance

The Local Housing Allowance is one subject that seems to raise the heckles of landlords judging by the response to our recent article about the way the Local Housing Allowance is being implemented differently for private landlords and public sector landlords such as housing associations.

The old Housing Benefit system

For those landlords that may not have come across the Local Housing Allowance it is this governments replacement for the old system of housing benefit. This system as most landlords would testify was far from perfect. There were often delays in the Local Authority processing the application from the tenant which often meant landlords were waiting several months to receive their rent despite having to shell out the mortgage payments. Also the benefit payment was not always for the whole market rent. The housing benefit office at the local authority would make a judgement about the maximum rent charged for the particular rental property. This may have been less than the market rent. Also where the tenant is judged to be able to be afford to make a contribution towards the rent then the amount of the housing benefit payable could be less than the maximum rent. In both cases resulting in a shortfall of rent meaning that the landlord would have either to chase the tenant for the difference which often amounts to a few tens of pounds a month or in many cases not bother and take a defacto rent cut. The big advantage for landlords of the housing benefit system was that at least landlords would get paid direct by the Council meaning that once the process had been completed their rent was guaranteed. NO LONGER!

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The government in their wisdom have decided to replace the housing benefit system with the Local Housing Allowance (LHA), but only for private landlords mind - not for Housing Associations or other social landlords. WHY? Because they think its a good idea for tenants to have complete control of their rental money so they get used to handling their own finances. This makes sense in a kinda idealistic, wishy washy, I'm not responsible for the consequences, dreamy world that most Labour politicians inhabit. However, for landlords that have to live in the real world there are a number of drawbacks of the Local Housing Allowance:

1. Inevitably the Local Housing Allowance will lead to a higher number of rental voids as vulnerable or inexperienced tenants spend their rental money not on rent but other things, leaving the landlord short and in very many cases the tenant eventually homeless.
2. The local housing allowance is anti competitive. The introduction of the Local Housing Allowance only for private landlords and not for social landlords introduces a two tiered system of benefit that favours the social landlords who continue to received payment direct and discriminates against private landlords who will be faced by higher costs of rent retrieval and potentially higher voids. Private landlords who for the most part are amateur landlords (they work as well) are much less well equiped to deal with defaulting tenants than their social landlord rivals who should be professional housing providers with all the additional resources at their disposal such as dedicated legal teams and rent collection departments.
3. The big attraction to private landlords of renting to benefit receiving tenants is the certainty that they will get rental payment direct from the state. A blue chip tenants effectively. Take that out of the equation because of the Local Housing Allowance and what incentive have good landlords with attractive properties got to rent to a benefit receiving tenant rather than an employed professional tenant? NONE!
The result will clearly be less landlords to provide accommodation to tenants receiving Local Housing Allowance giving these tenants even less choice and less attractive rental property than before.
4. Finally, excuse my ignorance about the aims of the Local Housing Allowance which enabled the tenants to have responsibility over their life and money. Well isn't that what the previous system of housing benefit did. Tenants could choose to rent more or less expensive property and where they wanted a better standard of accommodation then they just had to budget for it by making extra payments over and above the maximum rent. Surely this is already a way of exposing tenants to financial discipline without taking a gamble that the tenant wont pay the rent, the landlord might not get paid and the tenant becomes an added burden to the already over stretched social housing sector?

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