Investigating the effect of Welfare Reform on Private Renting
The private rented sector (PRS) over the past twenty years has changed significantly, doubling between 2001/02 and 2011/12 and now provides a home for 4.7 million households (MHCLG, 2018a). Tenants are becoming more diverse, with an increasing number of families, ageing renters, and the most vulnerable calling the sector home.
Private landlords are now playing a vital role in providing housing to those on low-incomes and the homeless. Recently, there have been many policy changes that affect the most vulnerable in society and their ability to access a safe and secure home in the PRS. These include the roll-out of Universal Credit (UC), the freeze to Local Housing Allowance (LHA) rates, the two-child limit under tax credits, and the extension of the Shared Accommodation Rate (SAR) to all single people under the age of 35.
The principal aim of the present study was to examine the effect of welfare reforms on the private rented sector, including but not exclusively the impact of universal credit on landlords and the broader sector. A further goal of this report is to continue the monitoring of key trends in the sector. The research findings are based on the responses of 2,234 landlords across the UK.
Our Key Findings
- Our research amplifies concerns surrounding the impact of universal credit and broader welfare reforms on private landlords, specifically regarding rent arrears.
- We found that 61% of landlords that let to tenants on Universal Credit have experienced their UC tenants going into rent arrears in the past 12 months. This is over double from 27% of landlords in 2016, and a significant increase from the previous year where it was 38% of landlords.
- We found that the amount owed by Universal Credit tenants in rent arrears has increased by 49% in comparison to the previous 12 months. This has increased from £1,600.88 in 2017 to £2,390.19.
- Rent arrears for Universal Credit tenants are likely to be driving homelessness, with 28% of landlords regaining possession of their property from a UC tenant and the primary reason being rent arrears (77% of landlords).
- The significant increase in rent arrears for both UC tenants and ‘legacy’ Housing Benefit tenants also points to much broader issues than just the implementation of Universal Credit. The findings suggest that the freeze to LHA rates since 2016 and that LHA rates had not increased with market rents between 2010 and 2016
Our Key Recommendations
- Universal Credit needs to be paused from further roll-out to monitor the impact of current changes and to develop the service further to ensure tenants and landlords are not put in a dangerous financial situation with increasing rent arrears.
- Going forward the Alternative Payment Arrangement system needs to be significantly improved. There are efforts underway to improve this already by the DWP to move this to an online system. However, it is essential that this is working well before migration is started from next year.
- We would recommend that to mitigate the risk of rent arrears for claimants, that Work Coaches and Case Managers ask tenants during the application process if they need or desire direct payment to landlords from the start of the claim as a standard question. This could build on the housing confident scheme previously delivered by DWP.
- The increasing rent arrears for housing benefit and universal credit tenants indicates broader issues in the private rented sector. We believe that the current LHA freeze needs to be reviewed and lifted urgently, especially with the lifting of the freeze for social landlords. Not only does this have broad support across the industry, but it will help to lift tenants out of poverty and decrease the risk of homelessness for families.
- There are increasing regulative burdens being placed upon landlords in a piecemeal fashion. There needs to be a large-scale review of the changes introduced in the past two years to identify the impact on the development of the sector. More and more landlords are now planning to sell properties, without change there is going to be a contraction of the private rented sector. While it may be the intention of the current government to encourage home ownership, fewer properties to rent will not support those who cannot afford to buy or seek to rent due to their circumstances.