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LHA Debate continues as campaigners call for urgent reform

02 Mar 2010

The debate surrounding the Local Housing Allowance (LHA) system has continued to rage in recent months, with landlords organisations claiming that the scheme is failing.

In October, the Conservatives brought the spotlight back onto the issue by proposing changes to the system if they were to get into power following the next general election, which will definitely take place within the next few months.

Shadow housing minister Grant Shapps said that tenants would be able to choose to have their allowance paid directly to their landlords rather than it going into their bank account.

Like landlords organisations and housing charities, he said that the current system had failed both occupants and proprietors. Mr Shapps claimed that it had led to a lack of affordable rental housing as some landlords often advertise that they will not take tenants with housing benefits.

Indeed Tom Entwistle, editor of landlordZONE.co.uk, said he had seen such a trend:

"Some landlords have told us that they are losing thousands of pounds every year and many have moved away from housing vulnerable tenants because of this law," he commented.

LHA was introduced by the government in April 2008, with housing benefit being paid to the tenant rather than directly to the landlord.

Mr Shapps said that the Conservatives' proposal would destigmatise the system, as well as increase the supply of affordable tenancies.

Shadow work and pensions minister Andrew Selous added: "We believe that tenants should have the choice of where their rent money is paid to, especially if it makes the difference between a property being available to them or not."

"The government are blind to the problems that low income tenants are facing and should restore this choice to tenants now." he continued.

Mr Entwistle said the Conservatives' proposals would be welcomed by landlords.

"I was at a meeting when this idea was first introduced to landlords by the department concerned (now renamed DCLG) and it was received with incredulity," he commented, adding that councils and housing associations' exemption from the legislation "says everything".

"Private landlords have been - in my opinion - guinea pigs in this expensive, well meaning but completely flawed social experiment.

"The idea was to make those in receipt of benefits more responsible citizens; but unfortunately human nature being as it is, some find this extremely difficult. In fact many tenants say they would actually prefer their rent to be paid direct," he stressed.

Accordingly, chancellor Alistair Darling announced in his pre-Budget report that there would be a review of housing benefit, which the National Landlords Association said was "well overdue".

A spokesperson for the organisation said it remained unclear when this review would take place, however.

"We are calling for that review to be brought forward but, not only that, further [for them] to make changes as quickly as possible," he commented.

"It is anyone's guess whether that could happen before a general election is called," he added.

The representative said that LHA reform could be simply and easily undertaken.

"To make changes, new legislation doesn't have to be brought in. The government, if they were so minded, could make changes and reinstate direct payments if they wanted," he claimed.

"A lot of rent money has not been finding its way into landlords' pockets in order to pay rent," the spokesperson continued.

"In a financial climate such as we have now, that has been putting significant financial pressure on landlords and so directly contributes towards landlords potentially defaulting on mortgages and accruing large amounts of rent arrears."

The NLA estimates that total rent arrears across the UK since the introduction of LHA could be over £220 million.

It conducted a survey of over 1,000 landlords and found that the average proprietor has experienced £4,400 of arrears since the new system was put in place. The organisation began a campaign in April this year to get direct payments to landlords reinstated.

However, it is not only buy-to-let owners that are dissatisfied with the system. Recent research by housing charity Shelter found that tenants also believe LHA is failing.

The survey of over 450 claimants revealed that 95 per cent felt the current system is taking away choice and causing them serious financial hardship as they are struggling to manage their money.

Shelter said in its report, For whose benefit?, that LHA is in urgent need of reform and called on the government to immediately restore choice to tenants about whether the money is paid direct to them or their landlord.

"LHA was intended to introduce desperately needed reform to housing benefit. While we support the original principles of the system, LHA is currently failing tenants and landlords," said Kay Boycott, director of policy and campaigns at the charity.

The survey showed that 81 per cent of claimants found it fairly or very difficult to find a suitable, affordable home and over half (59 per cent) said they had to make up rental arrears. Many of the respondents said they were trying to pay off the debt by sacrificing essentials such as food or sufficient heating.

According to Shelter, tenants are, in many cases, unable to afford rent because the boundaries used to calculate LHA, known as Broad Rental Market Areas (BRMAs), are too large.

Those in expensive parts of BRMAs are therefore being forced to move house or find extra money to pay make up the shortfall.

Reflecting the NLA's figures, the Shelter research showed that a quarter of claimants have fallen behind on their rental payments and the majority of respondents who had used both the new and old system said they would prefer to have the benefit paid direct to their landlord.

The survey also backed up the Conservatives' claims that landlords were discriminating housing benefit claimants. It revealed that 60 per cent of respondents had experienced difficult in finding landlords who were willing to take them on as LHA tenants.

"Many claimants are already struggling financially, so when they get rent money paid into their bank account there is a huge temptation to spend it on necessities such as food or bills rather than paying their rent," Ms Boycott said.

"It is vital that the government makes urgent changes to LHA to ensure claimants do not continue to be disadvantaged," she concluded.