On the money

The housing association sector has been generating mixed messages about local housing allowances. Associations see the allowances – which involve a flat rate of housing benefit based on locality and household size being paid to tenants rather than landlords – as a means of escaping the constraints of rent restructuring and as a possible cause of increased arrears.

But the reform has other implications, both positive and problematic, of which social landlords should be aware.

The government now clearly sees rent restructuring as a transitional mechanism leading to the likely introduction of flat-rate local housing allowances at some point in the next decade. The theory is that restructuring will generate a more coherent structure of rents, which would ease that transition. This is likely to be achieved – at least if the level of average local target rents is taken as the basis for setting local housing allowances.

That is not to say that there will not be any problems. The ODPM’s three-year review of restructuring, completed on 13 July this year, found that in a small minority of cases landlords would not have completed the phasing of rents to target levels by 2011/2. Even then, a further minority would have target rents some way above local sector averages, whether because of the characteristics of their stock or variations in valuation methods.

For the small number of associations concerned, the advent of a local housing allowance based on local sector average target rents could be highly problematic. If their rents are higher than the local housing allowance level, their tenants could run up arrears or choose to move to council or private rented homes with lower rents.

More generally, one of the reasons that authorities have been quick to volunteer as private sector pathfinders has been that the allowance is essentially a “no-loser” reform. Claimants either get as much as they did under the old regime or they get more.

But one of the problems with a social sector local housing allowance is that it is difficult to devise any useful reform that does not involve both gainers and losers. This is because, in the great majority of social sector cases, housing benefit payments are based directly on prevailing rents. There are some limited provisions for restricting rents where properties are under-occupied or where housing association rents are excessive, but these are rarely applied.

In that context, any flat-rate approach (whether based on average local target rents or average local target rents plus 5% and so on) will inevitably result in some losers and some who gain. From a political viewpoint, it’s therefore likely the allowances will only initially be introduced for working-age or new tenants, rather than for all current tenants. In any event, the first hurdle for the Department for Work and Pensions is to devise a scheme that will attract volunteer authorities to act as “pilots”.

So what messages are there in this for social sector landlords? One is to watch closely to see how the direct payment arrangements operate in the private sector local housing allowance pathfinders. These will be far more telling than London & Quadrant’s experiment of paying benefit to tenants, often cited by associations in the case against the reforms. The L&Q experiment reported a big increase in arrears but did not use the same methods as the DWP pathfinders to decide whether tenants were too vulnerable to be included in the scheme.

Another message is for the small minority of housing associations with rents well above the rent restructuring target and unusually high valuations that could be adversely affected by the allowances to review their valuations and/or rent phasing arrangements. Compliance with rent restructuring will not be sufficient to enable them to make a smooth transition to the new allowance regime.