The unbearable weight of arrears

Over the past few years, rent collection performance amongst RSLs has declined, and rent arrears have increased by about 0.5 per cent a year. In 1998/9, almost three fifths failed to comply with the Housing Corporation's requirement that arrears should not go above 5 per cent.

Our study, commissioned by the Housing Corporation, involved an in-depth look at what is happening to RSLs, their responses and how rent collection performance indicators could focus on genuine performance differences in areas where RSLs can exert control.

It is clear that RSLs are increasingly vulnerable to factors outside their control which are having an adverse impact on rent collection ability:

• Payment of housing benefit direct to RSLs four weeks in arrears for new claims since October 1996;
  
• Widespread delays in administering housing benefit claims, exacerbated by the DSS anti-fraud verification framework;
  
• Procedural changes and delays within the judicial system;
  
• Low demand, high turnover and "landlord hopping" to escape rent debt;
  
• Poverty, vulnerability and intermittent or part time working (more tenants appear to be moving in and out of employment as a result of the Government's New Deal initiatives).

Direct payments of housing benefit to the landlord make up 60 per cent of RSLs' rental income. Difficulties and delays with housing benefit administration are having a significant impact on arrears:

Current tenants' arrears average 5 per cent of the rent due. However, only 2 per cent is due from tenants themselves, while 3 per cent is outstanding from local authorities. Of this, 1.75 per cent arises because housing benefit direct is being paid four weeks in arrears, and 1.25 per cent from other delays in local authority housing benefit administration.

There is scope for improved performance amongst RSLs with the highest arrears, who were owed larger amounts by tenants themselves (between 3.3 per cent and 5.8 per cent) as well as by local authorities.

Many RSLs have responded to increasing arrears by changing their approach in various ways. For example, by

• Closer monitoring and new or enhanced IT systems;
  
• Reviewing generic housing officer workloads, structuring their time, and/or reducing their range of responsibilities;
  
• Increasing resources devoted to managing rent arrears;
  
• Restructuring into specialist teams (lettings, tenancy management, income collection, etc).

Most changes were too recent to assess the impact on arrears performance, although a third of those that have adopted a specialist approach (or have some specialist staff) reported a steady decrease. Several highlighted the importance of persistence and sustained effort, the importance of personal contact, and the risk of staff becoming demoralised by a lack of success.

Most RSLs classify rent accounts according to current payment source, and monitor amounts due from each payment source, particularly where tenants are paying the rent themselves (often called "true arrears"). Many also monitor the cycle of weekly HB payments from each local authority. Greater emphasis is placed on "is the rent being paid?" than on "how much is owed?".

Almost half routinely maintain estimates of amounts due from housing benefit. Whilst nearly a third could use their IT systems to estimate the impact of being paid four weeks in arrears, only 6 per cent used them to calculate the impact of housing benefit delays. Only one in ten associations split individual rent accounts between amounts due from housing benefit and amounts due from tenants. Most felt it was difficult if not impossible to do so, and not worth the required investment in IT and staff time.

The Housing Corporation's Performance Standard is: "RSLs should... maximise the collection of rent due." The corporation applies three compliance tests covering rent collection, rent arrears and rent losses due to voids and bad debts.

Nearly two-thirds of respondents believe that the current arrears compliance test is unachievable, and three-quarters want it to change. Although some would like a flexible approach that takes account of individual circumstances, most want the test limited to current tenants' arrears excluding amounts due from housing benefit. This approach would:

• Focus the standard on tenant indebtedness;
  
• Remove the impact of different approaches to former tenant arrears;
  
• Provide a direct comparison with local authorities.

If the test were "4 per cent of the rent due", it is likely that up to a quarter of associations would still fail.

The imperative is to maximise income collection. Levels of arrears are secondary and less important than whether the debt is increasing or reducing. A more rounded approach would place rent arrears within the wider context of income collection, for which there would be three key measures, the proportion of the rent collected, proportion of the rent due written off for voids and bad debts, amounts owed by current tenants as a percentage of the rent due.

The RSL arrears performance indicator should focus on current tenants' "true" arrears by separating out the amount owned by tenants (including a any housing benefit which tenants receive themselves or are due to receive to help them pay the rent) from the outstanding direct housing benefit payments due from the local authorities.

Distinguishing between tenants' and local authorities' arrears would allow a spotlight to fall on the two different types of indebtedness. Providing verifiable estimates of outstanding housing benefit would be a challenge for many RSLs. Nevertheless, with such a major impact on performance, RSLs indicated a willingness to comply, given an agreed method for estimating amounts outstanding at the year-end.

The current arrears performance indicator masks good, improving and bad performance by RSLs in collecting the rent due from tenants. Some RSLs have made considerable strides forward in controlling arrears and monitoring rent collection success. The research suggests that it is time for a change in the indicators, and that RSLs are committed to additional work if necessary to achieve a more accurate picture.