Welfare Reform Committee

Meeting date: Tuesday, November 19, 2013

Official Report 515KB pdf

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“Early Impacts of Welfare Reform on Rent Arrears—Research Report”

Good morning and welcome to the Welfare Reform Committee’s 19th meeting in 2013. The convener is running a little late, so I will convene the early part of this morning’s meeting. I remind everyone to ensure that mobile phones and other electronic devices are switched off, as they interfere with the broadcasting equipment.

Agenda item 1 is an evidence session on the Scottish Housing Regulator’s report “Early Impacts of Welfare Reform on Rent Arrears—Research Report”. I welcome the Scottish Housing Regulator’s chief executive, Michael Cameron, and its analysis and research manager, Kirstie Corbett. I invite Michael Cameron to make an opening statement outlining the outcomes from the initial research.

Thank you for the invitation to present the findings of our recent research into the early impacts of welfare reform on the rent arrears of social landlords in Scotland.

Perhaps I can start by introducing what the Scottish Housing Regulator is and then ask my colleague to take you through the findings from the research. We are the independent regulator of social landlords in Scotland and we are directly accountable to the Scottish Parliament. Our single statutory objective is to protect the interests of tenants and others who use the services of social landlords in Scotland. Our functions are to monitor, assess and report regularly on social landlords’ performance of housing activities and on registered social landlords’ financial health and standards of governance and to intervene where appropriate.

We regulate to protect the interests of around 600,000 social tenants and their families, which equates to about a fifth of all households in Scotland. We also look to protect the interests of the around 40,000 households who apply as homeless or potentially homeless each year. We look after the interests of around 100,000 people who receive factoring services from social landlords. We also protect the interests of around 500 Gypsy Traveller families who make use of sites provided by social landlords. Just for clarity, I should say that the social landlords that we regulate involve two main groups: the 183 registered social landlords, which are mainly housing associations and co-operatives; and the landlord and homelessness functions of the 32 Scottish local authorities, of which 26 are still landlords.

The purpose of the research was to gather information that would help us to understand the early impacts on social landlords’ rental income that might result from welfare reform changes. We also wanted to find out what early actions landlords were taking and what key challenges they faced as a consequence of changes in tenants’ benefits. We published the report on those findings last month. We will run a further iteration of the survey—we issued that to social landlords on Friday—and we aim to publish the results from that survey early in the new year.

Kirstie Corbett will take you through some of the findings.

Good morning, everyone. I will take you briefly through the background methodology and some of the headline findings from our report. As Michael Cameron pointed out, our purpose in undertaking the research was to gather information to help us to understand some of the early impacts of welfare reform on landlords’ rent arrears.

On methodology, we undertook an online survey of all RSLs and local authority landlords in Scotland. We sought responses from 187 landlord organisations, as we had excluded Abbeyfield societies and some other landlords with specialist services that do not come within the remit of the legislation. The survey was open for five weeks or so and we provided support as required so that landlords could complete it. The response rate was a very encouraging 84 per cent, which represents 157 of the 187 landlords that we wrote to. Of those 157 responses, 137 were from registered social landlords and 20 were from local authorities. There were some smaller numbers of responses to specific questions, but I will highlight that where that has been the case.

The landlord response to the survey equated to coverage of around 80 per cent of social landlord tenants in Scotland. To benchmark that, we used some administrative data to check off where the responses had come from. We seem to have had a good level of representation of tenants in the responses to our survey.

The research findings present an overall picture nationally of rent arrears of 3.97 per cent at 30 June 2013. That figure gives arrears as a percentage of rental income for the financial year and is the standard measure of expressing arrears across Scotland. In terms of financials, that equated to a total of just over £63 million-worth of arrears for the respondents to our survey. Compared with the arrears position in the previous two years, which is what we asked for in the survey, arrears seem to have increased from June 2011 to June 2012 to June 2013. The picture was of an increase over time as at June.

When we looked at the differences between RSLs and local authorities, we saw that local authorities tended to have a slightly higher level of arrears across each of the three years at June, including at June this year. However, there was more of an increase for local authority landlords than there was for RSLs. That was the big picture that came through from the information that was available to us on arrears when we looked at local authorities and RSLs distinctly.

Using information that we had gathered as part of our on-going data collection series, we were also able to look at the differences between the March and June figures to tease out seasonal variations that might underlie some of the shift or increase. Looking at RSLs only—we do not have the same information for local authorities—we saw that the percentage arrears level was 3.7 per cent at March 2013. The figures from our survey showed that, for that group of landlords, the percentage had come down very slightly by June. However, in money terms, that equated to an increase of just under £800,000. That is possible because the rental income for the two different periods of time was slightly different.

Essentially, when we looked back at the March to June change for the previous two years, we saw that there was a seasonal pattern of reduction in the level of arrears between March and June. However, for this year, our survey data suggested that the reduction between March and June was smaller, so we felt that there could be something more underlying the big-picture information. Digging below some of those percentage arrears figures, we saw that between March and June there was actually an increase in money terms of £400,000, whereas in 2011 and 2012 there had been quite substantial decreases in the level of arrears, of around £3 million to £3.5 million, between March and June. This year, the big picture was that we saw a slight increase in the amount of money between March and June whereas there had been a decrease in previous years.

Digging below that to the individual landlord level, we saw that around 65 per cent—or two thirds—of landlords had seen an increase in their arrears position between March and June. In previous years, the number of landlords showing that increase was smaller. Therefore, although we have seen a seasonal pattern of reduction in arrears between March and June across a number of years, this year’s reduction was much smaller and there was a slight increase in cash terms. That is the take-home message on the arrears position.

We also looked at underoccupancy. From our survey data, we saw that one in eight tenants was underoccupying at 30 June. That equated to just under 60,000 tenants or 13 per cent of the tenants covered by our landlord survey. There were slight differences between local authorities and RSLs. Local authorities seemed to have a slightly higher level of underoccupancy.

We asked landlords to estimate the impact they felt that welfare reform was having on their arrears position at the end of June, and their response to that was very consistent and showed that around 68 per cent of landlords estimated that up to around 5 per cent of their arrears at the end of June arose from welfare reform. A further 19 per cent of landlords suggested that up to around 10 per cent of their arrears arose from welfare reform. Again, local authorities were slightly more likely to attribute a higher percentage to welfare reform, and more of them estimated that, at the end of June, welfare reform was having an impact on their arrears position of between 15 and 20 per cent.

We asked landlords how confident they were in making those estimates. Again, the responses were fairly consistent across all landlords. Around 90 per cent of them were either fairly or very confident about their ability to estimate that level of impact. There were slight disparities between the positions of RSLs and local authorities on that question. Local authorities suggested that they were more likely to be unsure or slightly less confident of their ability to estimate the impact at that point in time.

We asked about the action that landlords were taking at the end of June to deal with impacts of welfare reform. They were consistent across all landlords. Everyone was focused on actions that supported tenants. The top three actions were providing information, advice and guidance to tenants; visiting individual tenants; and engaging vulnerable tenants. There was again a slight difference between RSLs and local authorities, in that local authorities were slightly less likely to suggest that they were revising their financial budgets or projections. Possible reasons for that might be that RSLs are more self-contained businesses and so might have had a stronger impetus to do that at that point in time.

There was a fairly consistent picture across all landlord respondents on the challenges that they faced at the end of June in dealing with the impacts of welfare reform. The challenges included increased workload, income reduction, and encouraging tenants to prepare to or respond to the impacts. Local authorities highlighted a slightly different pattern in that 60 per cent of the local authorities that responded to the survey suggested that housing stock availability was their biggest challenge, in contrast to RSLs. We felt that that response was an underlying driver for some of the other differences between local authorities and registered social landlords. RSLs might have felt that challenges around housing stock presented them with slightly different concerns.

That is a quick summary of the findings from our research.

10:15

Thank you, Mr Cameron and Ms Corbett—that was very comprehensive. I will ask a couple of opening questions. I think that Ms Corbett said that one in eight tenants is underoccupying. Is the term “underoccupying” used on the basis of the United Kingdom Government’s housing benefit policy, or has the Scottish Housing Regulator used the term historically?

In essence, the wording of the question was, “With reference to the legislation that came into play on 1 April on the size criteria and its impact on housing benefit, what number of tenants are currently underoccupying?”

So the question was rooted in the process of welfare reform. Your organisation has not used that terminology historically, and you have not measured that historically.

We certainly have not measured that historically, and it is not part of our normal data set that we collect annually from social landlords. One reason why we wanted to undertake a specific survey was to help us to understand some of the dynamics that might be going on with the introduction of the legislation.

The biggest challenge that was identified by landlords is increased workload, with 59 per cent identifying that as a challenge, and the second greatest was income reduction, which, to be fair, was only just behind at 58 per cent. I suppose that that is the challenge that leads to concerns about arrears. Can you quantify what “increased workload” means? I presume that it, too, might relate to work that is associated with arrears.

We gathered some open text responses, which involved asking landlords to give additional information if they felt that the choices that we had given them in the survey did not encapsulate their position. To be truthful, we still have to analyse that text, but we do not have any further detail on the response on increased workload, because that was an option that the respondees could choose or not choose. We might be able to dig under that in future surveys, and it is possible that it will come out through work by other organisations. However, I am afraid that I cannot expand further on that on the basis of our survey.

You used what you describe as open text. That is a new term to me, but, from what I understand, it means that people could provide additional information about their experience. That information is available. You might not be able to quantify it, but it still might be useful evidence. Are you still gathering that and, if so, will it become available in due course?

Yes.

The convener has now arrived, so, after Alex Johnstone asks the next question, I will hand over to him.

Over recent weeks, we have heard evidence from a number of people. A couple of witnesses have commented specifically on an issue that I want to explore to find out whether you have any information on it. We have been told that the increase in arrears that coincides with introduction of the underoccupancy charge does not always correlate directly to the increased charge. That is, there is evidence that arrears are building up against rent as well as against the component that is the underoccupancy charge. Of course, the other thing that has come from our evidence is that the situation differs substantially among local authorities and among landlords. Did you find any information that might assist us in looking more closely at where that is a problem and why it is a problem?

We did not find any such information in this survey, unfortunately. We wanted it to be as easy and straightforward for landlords as possible in order to encourage an initial response from them. So, the question that we asked around arrears was very much couched in the terms that landlords are most familiar with and which would provide them with an easily recognisable measure with which they could respond quickly. We should also bear it in mind that the information that has been given to us for the survey is not audited accounts; it is not year-end data and has not been passed by committees or boards.

Bearing those two points in mind, we went for a very straightforward question that, in essence, asked, “What is your arrears position at this point in time?” We made that measure align with measures that landlords provided to us through the course of the year in our more standard reporting. Underneath all that, we were not able to disaggregate the aspects of arrears that arose from different causes. Our attempt at making a causal attribution was in gathering information that we could compare reasonably directly to the year-end data that we already held and that was already published. The idea was that we would be able to gather information at the end of June and compare that with an arrears position at the end of March, but we have not been able to disaggregate that information any further.

Thank you.

Okay. We move to Annabelle Ewing.

Thank you, convener. I have a question about the general scope of the research thus far. I note that you state on page 3 of the report that

“We invited all 187 RSL and local authority landlords to complete the survey. In total 157 landlords responded”.

What was the reason for the other 30 not taking the opportunity to respond to the survey? Do you feel that the uptake in terms of responses might increase for the surveys to come?

There is quite a variety of reasons why landlords did not respond; when we analysed the reasons, we identified no particular motivation for not participating. As my colleague Kirstie Corbett set out, we did not establish the survey as a regulatory return, given some of the issues around timing and how quickly we wanted responses.

We know who did and did not respond. In the next iteration of the survey we will encourage all landlords to respond. Depending on what patterns and broader impacts we see, we might consider turning this type of survey into a regular regulatory return.

Okay. What reasons did the non-returns encompass? Aside from the fact that the scheme is voluntary at the moment, did the reasons include landlords not being able to collate the information, for example?

The reasons that were given for not being able to complete the survey were largely administrative, rather than anything more substantial.

Okay. Thank you.

I think Mr Cameron said that you have put out another call for evidence for the next pattern. I am aware that the report covers only three months, so it is a bit too soon to tell what will be the direct impacts of the bedroom tax on tenants. You said in the report that you

“did not seek to examine the effects of landlords’ own actions to address the impact. Nor did we analyse the influence of Discretionary Housing Payments”.

Will you pull that information in from further studies and consultations, or will you just go straight for the kind of information that you have provided for this three-month report?

We plan to undertake surveys quarterly and we will try to keep them fairly tightly to the key statistical information that will enable us to analyse patterns and movements in respect of arrears. The type of analysis to which Linda Fabiani refers would certainly be more qualitative and would be a more substantial undertaking. We are aware that a number of organisations are conducting more detailed analyses and studies of the impacts of some of the legislative changes, so we would look to have our information complement that type of work rather than to replicate what is being done elsewhere.

I know that one of your roles, as well as protecting tenants’ interests, is

“Understanding the risks and challenges landlords face”.

I am also aware that, three months down the line, there are challenges that have been taken up very well by councils. For example, South Lanarkshire Council has done a lot of work in my area, and I know that housing associations are also doing a lot of work to try to maintain people in their homes.

I am particularly concerned about community-based housing associations as landlords, because in your role as regulator you have to ensure, I presume, that they maximise their income, under the financial strictures and rules within which they operate. How does that sit in terms of governance, especially when you are talking about voluntary committee members? How does it affect policies that housing associations may take on board because they see them as protecting the interests of their tenants, and which you may see as protecting tenants’ interests too, but which could be difficult to square with your role of regulating housing associations’ finances and governance?

We are charged with assessing, monitoring and reporting on the financial health of registered social landlords, including housing associations that are based in communities. There is a balance to be struck between our role in protecting the interests of tenants and the role of monitoring the financial health of RSLs. We do not see those two things as being incompatible or necessarily separate, however. It is clearly in the interests of tenants that their landlord is financially healthy, is able to maintain an appropriate level of service delivery to tenants, and is able to maintain and invest in their homes. We relate everything that we do back to our statutory objective of protecting the interests of tenants.

I am not trying to be difficult; I am just trying to understand how you balance that. Are you saying that protecting the interests of tenants comes first?

Absolutely.

So the role relating to landlords and governance is secondary?

What is important is that effective governance and financially healthy landlords deliver for tenants. Our focus on good governance and financial health is absolutely about protecting the interests of tenants.

By that do you mean tenants collectively?

Yes.

I would like to pick up on a couple of points, one of which follows on from the point that Linda Fabiani just raised, about the influence of discretionary housing payments. You have not measured that, but are you aware of whether discretionary housing payments were being made when you carried out your study? Were they a factor? Were some tenants and housing associations already applying for and benefiting from discretionary housing payments?

We did not collect any information specifically on DHP. We are aware that there are a number of other studies going on into the impact of discretionary housing payments. We certainly sense, from our wider engagement with landlords, that DHP has had a mitigating impact in the first few months of the period that the survey covered, but we have not looked directly at that.

Will you be able to take it into account in your follow-up surveys? Your new survey will be published in January. Will it measure the impact of discretionary housing payments?

We have not sought to measure the impact of any of the potential mitigating actions and measures that are in place. We wanted some consistency with the previous survey, so that we could track movements and patterns over the time of the survey, so we have not asked any question directly about DHP.

10:30

Do you have any thoughts about the difference between the figure that you have come up with in your survey, which indicates that removal of housing benefit and the bedroom tax will have an impact on just under 60,000, while the local authority survey’s figure is just over 80,000? Which is the more accurate figure? Which one can we work with? Are they both accurate?

It is our understanding that the research by the Convention of Scottish Local Authorities and the Scottish Government, which identified an unpacked figure of 82,500, was done on a more administrative basis. They used working-age housing benefit recipients and tracked the data through an administrative source. They had a wider coverage of local authority areas and were able to impute the figures for those that did not respond to their survey. Only two local authorities did not respond, but COSLA and the Government were able to use other information to make up the number and provide 100 per cent coverage.

Our survey was based on data from respondents only. We are quite happy to say that it did not achieve 100 per cent coverage. On the basis of some very rough maths, it is likely that the discrepancy in coverage might well account for the difference between our 60,000 figure and the 82,500 figure.

So, the difference is not a reflection of whether tenants are themselves identifying their RSLs as being affected by the bedroom tax.

That is not something that we would have pulled out or that we were aware of.

There are a number of differences regarding the impact on both sectors, so perhaps you can enlighten me. Are there differences between the demographic spread of residents in council housing and residents in housing association accommodation? Are they more likely to be older, in which case they will not be affected by the bedroom tax? Are they more likely to be of pensionable age, in other words? Are there more people in receipt of housing benefit in one sector than in the other? Are rent levels generally higher for housing association properties than for council properties? I would have thought that they would be, in general. Could you expand on some of those differences?

I am not aware that there are an awful lot of such differences. Michael Cameron perhaps has more information about that.

No. We have a range of information that we have collected over a number of years, on some of the measures concerning registered social landlords, but we do not have the same information for local authorities, so we are not able to do a direct comparison. Where we have been able to compare, we have been made aware that RSLs’ rents are generally a bit higher than local authorities’ rents. We have some information on the demographics for RSLs, although the data will vary significantly among individual RSLs, not least because some of them are specialist providers that provide homes for people of a particular age or demographic. There is variation within the global figure.

As regards the impact, you got from the local authority landlords a response that was slightly different to that from the housing associations. Perhaps I am wrong to jump to this conclusion, but is the implication that local authorities have been slightly harder hit than the housing associations—that the increase in rent arrears is slightly higher for local authorities?

From the responses that we have, that is the case. I point out that six of the 26 local authorities that have housing stock did not respond to the survey, although that leaves a 75 per cent response rate for local authorities, which is reasonably representative. However, it is our understanding that that is the picture.

Did all the large local authorities respond?

Yes.

The report provides a snapshot of the first three months and page 11 shows the biggest challenges in that time. Are other challenges likely to come into play as you continue to monitor the situation? Was there anything about other challenges in the narrative that local authorities provided? I am thinking along the lines of cutting services, drawing back from capital expenditure, financial instability—particularly for smaller landlords—and the possibility that local authorities or housing associations might say that they cannot reach the Scottish housing quality standard. Is that being played out in the narrative? Will you ask about that in your second round of monitoring?

The things that you mention are not arising in great detail from the narrative as we understand it at the moment. We offered landlords a range of options to choose from to identify their challenges, on the basis of qualitative work that the Scottish Federation of Housing Associations did.

In our next survey, we will ask more open-ended questions, which will allow landlords to identify the challenges in a bit more detail. We hope that more detail will be provided on the kind of issues that you identified.

Does Mr Cameron have anything to add?

Not on the findings from the survey. As the regulator, we will have a keen eye on the issues that you have raised. We will want to understand not just the impact on rent arrears but the broader impact on landlords’ capacity to deliver for tenants, given the potential risks to landlords’ cash flows and revenues. We will want to understand what that might mean for impacts on planned maintenance programmes, on other service delivery to tenants and on rent levels. We will monitor those things closely in the coming period.

The witnesses might not be able to answer my next question. As people completed the survey, were they thinking of the short-term impacts in the first three months rather than the possible long-term impacts that the bedroom tax and other welfare reforms might have on them?

People might have been thinking about that, but we cannot comment on what might have been in respondents’ minds. From broader discussions with landlords, I think that they are aware of the potential longer-term impacts of the legislative changes. Many of them are starting to consider their longer-term business plans and what the impact of reductions in revenues might be on those plans. We are aware that landlords are giving this significant thought.

Even in good times, some associations have struggled with finances. In the past, we have heard comments from the regulator about various associations. Will you as the regulator pay closer attention to the finances and to capital expenditure, because of the impacts of welfare reform?

We are a risk-based regulator, so we continually assess risks to landlords’ ability to continue to deliver for their tenants. We have an annual process that will look at the financial health of registered social landlords. We have a narrower role with local authorities. We consider the financial health of registered social landlords annually by looking at not just their accounts but their financial projections.

We have just launched our annual risk assessment process and the potential impact of welfare reform on revenues is one of the top risks that we are focusing on.

You said that it is one of the top risks. What are the others?

We will look at a range of risks. We are focusing on a couple that relate to financial health, which include the impact of increases in landlord pension contributions to fund historical liabilities from the housing association pension scheme. We are also very aware of the risk of increases in the cost of borrowing for landlords. We have a close eye on a range of financial risks, which we consider when we assess each landlord’s position. We translate that into a regulation plan if we feel that we need to engage with a landlord because they might have more exposure to such risks.

My final question is slightly off this particular topic. It is around the reclassification of housing. During the second tranche of analysis, will you be looking at whether there has been reclassification of specialist, sheltered or amenity housing to mainstream housing to try to find more one-bedroom accommodation? Will that have an impact on the service that is provided to tenants across the country? Will you look at that kind of thing, too?

We have not included that as part of the analysis for the next iteration of the survey. We might be able to identify it through our normal annual collection of data from landlords, in which we ask about the nature and size of the accommodation. If there are any significant changes in patterns it might be possible for us to identify them through the annual data collection.

Will you adapt your annual data collection to take due cognisance of the impact of welfare reform?

We have already issued our data collection requirements for landlords, which relate particularly to the Scottish Government’s social housing charter. A number of the measures are pretty consistent with the information that we have collected through the survey. Not only will we be able to monitor that information on a quarterly basis; we will be able to track it on an annual basis as well, to give us a broader feel for movements and patterns that might be emerging.

You talked about the risks that RSLs face. I am aware that some RSLs are small, tightly run organisations. I wonder about the effect of risks creating bigger risks in other fields. I am thinking for example of levels of debt having an on-going risk impact on the ability to borrow at reasonable rates and the ability to complete capital and maintenance programmes. Are you doing a bit of work on that to try to mitigate it and to help out?

As a regulator we certainly have a very close eye to landlords’ level of debt and their revenue streams. Obviously the principal revenue stream for all landlords is rent. We are very alive to any impact on that revenue stream as a consequence of changes in benefits. We are also conscious that lenders to the sector are alive to the potential impacts on the creditworthiness of the sector as a consequence of some of the legislative changes.

10:45

I want to follow up on something that was being discussed when I came into the room. I apologise for being late and not hearing your opening statement.

The issue of disaggregation has come up repeatedly when we have discussed how the impact of the bedroom tax, in particular, can be measured. Some people have said that it will be quite complex to break down the differentials that are emerging between arrears that already existed in the system and those that result directly from the bedroom tax. You indicate in your research that you want to see that disaggregation. Will it be difficult to get that information? It has been argued that we know the date when the bedroom tax kicked in and the patterns of rent accounts prior to that date, so we will know what changes there are to them after that date. Is it as simple as that or will a complex form of data analysis be required?

We are not seeking to break down the level of arrears into those component elements, for two reasons. First, it is not necessary for us to have that information to enable us to regulate landlords effectively. We are more interested in the aggregate level of rent arrears and the impact that it may be having on landlords’ financial position.

Secondly, we see some practical difficulties for landlords in identifying different components of arrears with different reasons or origins. That is likely to become more difficult still as time goes on, and certainly as we get further into the proposed changes under the welfare reform legislation. We see some practical difficulties with landlords’ being able to identify exactly which arrears relate to which particular welfare reform measures.

When you disaggregate, what will you be looking for, then?

I clarify that we are not looking to disaggregate the arrears figures that landlords give us. We are looking for them to give us the level of arrears that they are facing at the aggregate level.

Okay.

We have an additional question in our second-round survey, which went out last week. We ask exactly the same questions on rent arrears and use the same measure as in the first round, but we also ask whether landlords can identify a monetary value for arrears that arise directly from the impact of the underoccupancy charge. That is a yes or no question. If they can, we ask them to say what value they attribute to that. If they cannot, we ask them to give us some detail on what the challenges and barriers to their being able to provide that information might be.

As Michael Cameron said, we are not seeking to disaggregate the information on an on-going basis, but we are taking the opportunity to ask landlords the general question of whether they can start to identify the monetary value of arrears that arise for that reason and, if not, what the challenges might be that prevent them from doing that.

It will be helpful to know that.

The figure that you got back from your survey was that the vast majority of landlords—over 90 per cent—were able to identify it. Over 90 per cent said that they were confident about that.

Yes.

I clarify that what we asked landlords was whether they were able to estimate it. It was very much an estimate that they gave us, rather than a hard figure.

We seem to have exhausted our questions. I found your report very interesting and I look forward to seeing the future work that you do. It might be possible that we could have you back in front of us to discuss the outcomes of that research as well. We look forward to seeing it. Thank you for your contributions.

10:49 Meeting suspended.

10:54 On resuming—