Tom* currently receives £110 a week from Gravesham Council to pay for his one-bed flat in Gravesend, Kent. But his stipend will fall to £68 next year, as the coalition's cuts in local housing allowance (LHA) take effect. His landlord, Marion Money, cannot afford to cover such a hefty shortfall. "The reality is he's going to move on," she says.
Such dramas will play out across the country over the coming year. Gravesend is in the London commuter belt, so Ms Money believes she can easily fill the flat at the previous rent from the private market. But landlords in more remote towns without strong private sectors may find it tougher. Faced with a choice between a void and a rent cut, most landlords will take the rent cut - dragging down rents even for those landlords who have no exposure to housing benefit.
The best-known plank of the government's LHA reforms is the cap system. The populist press reacted with predictable indignation when it emerged in October 2008 that Ealing Council was paying £12,000 a month to a private landlord to house a mother and seven children. A year and a half later, housing-benefit caps were one of the most trumpeted money-saving devices in George Osborne's "tough but fair" Emergency Budget. As of April 1, LHA has been capped at £400 per week for a house with four or more bedrooms, falling to £250 per week for a one-bedroom property.
In reality, these caps will only affect small areas of London - notably the boroughs of Westminster, Kensington & Chelsea and parts of Camden and Hammersmith. Council tenants in these prime areas will probably be forced to move further out. But since the London rental market is very strong, landlords are unlikely to suffer: benefit claimants can simply be replaced by private tenants. Alternatively, with central London house prices setting new records every month, landlords can simply sell up.
A far more significant measure for most landlords - including Ms Money - is the reduction of standard LHA rates from the median level of the local rental market to the 30th percentile. This will make renting to tenants on benefits financially unattractive for all but lower-quality homes that would command a low rent on the private market. So landlords who specialise in letting ex-council properties back to council tenants may lose out: unless the local market is extremely buoyant, they will struggle to persuade private tenants to fork out the market-median rents they received from the public purse. Moreover, in areas where social tenants form the bulk of the market, the reduction will depress rents generally - possibly leading to a vicious spiral as the 30th percentile LHA rate is revised down to the new market level.
Another tweak to the rules will turf social tenants under the age of 35 out of one-bedroom flats into house-shares. Individuals aged 26 and over are currently entitled to live by themselves - and consequently receive more housing benefit. But from next year, the age threshold rises to 36. Tom in Gravesend is a victim of this reform.
Further seemingly innocuous but potentially momentous changes are on the cards as part of government's welfare reform bill, currently being debated in parliament. The Treasury wants to link future LHA increases to the consumer prices index rather than market rates - effectively creating a two-tier market. And it wants to impose an overall cap on benefit payments at £26,000 per household as part of the so-called "universal credit".
It's unclear how this will work in practice - indeed if it will work. David Lawrenson, a private rental sector expert at www.lettingfocus.com, thinks linking rents to inflation is unworkable. He welcomes other measures - including the reduction in general LHA rates - but says it is too early to forecast their impact with any certainty. The government has sensibly allowed a transitional period for existing tenancies to avoid a sudden crisis as households all scramble for cheaper homes at the same time, so most tenants have not yet been affected.
Some landlords may even benefit. For example, an exodus of council tenants from the prime London boroughs may push up rents in cheaper neighbouring boroughs such as Lambeth and Southwark. And demand for shared flats will increase as the likes of Tom look for new rooms. To complicate matters further, the reforms will play out against a national backdrop of rising market rents as would-be first-time-buyers cannot muster up the deposits now necessary to buy. In most cases, LHA reform will act as a counter-current - but exactly how can only be understood at a local level. As we always stress, it's best to stick rigidly to areas you know when you buy-to-let.
*For confidentiality, his name has been changed.
