Pay to Stay Discussion: Key Issues

Forbes Solicitors held a discussion on “Pay to Stay” with Registered Providers (RPs) of social housing in response to the Government’s consultation on a compulsory policy whereby tenants of social housing with household income over a certain threshold should not be having their rent subsidised. Full details of the consultation by the Government can be accessed here.

The discussion was an opportunity to discuss the current state of play, as well as how this policy may be structured and its impact. It focused on the following issues:

  • do RPs currently operate the voluntary “Pay to Stay” model and how is it operated within the RP sector?
  • in response to the consultation and the income threshold:
  • should the starting threshold be set out in relation to eligibility for Housing Benefit? and
  • how should income thresholds operate beyond the minimum threshold?
    • what is the estimate of the administrative costs of implementing the scheme and what are the factors driving such costs? and
    • what wider issues arise for RPs in light of this policy including regulatory or governance issues, statutory rights, feedback from tenants, unintended consequences and restrictions on use of “Pay to Stay” income.

Voluntary “Pay to Stay”

Firstly, the RPs consulted did not operate the voluntary “Pay to Stay” and were not aware of any RPs that do or have considered it. The reasons for this included the lack of internal systems to facilitate such a scheme in relation to collection of information and regular adjustment. In addition, for many RPs requiring tenants to pay higher rents also throws up constitutional issues as in the majority of cases their objects are to provide housing at less than market rent to provide an alternative to the private rented sector.

Starting threshold in relation to eligibility for Housing Benefit

The discussion suggested that a tenant might qualify for some level of Housing Benefit while also having household income over the Pay To Stay threshold. The general view was that DCLG would not intend to produce an increase in rent where that increase would be included in an increased Housing Benefit claim.

Operating income thresholds beyond the minimum threshold

While RPs have not had an opportunity to consult their tenants widely, they are concerned about the impact this policy will have on them especially since the applicability of any relevant threshold will not consider net income, rather it focuses on the household gross income.

In addition, as to who is caught by the policy when calculating the threshold, RPs are concerned about the respective definitions especially in relation to partners living in the accommodation and other individuals within the household. The involvement of other individuals means that a further burden is placed on RPs to collect information about these individuals, when previously RPs have not required as much information about the financial or relationship status of non-tenants. Previously this sort of information has been of greater interest to benefit-paying authorities.

While tenants may resist providing some of this information, so placing further burdens on RPs, RPs on the whole thought that using a simple one-step adjustment such as a “cliff face” whereby a tenant over the threshold would automatically be required to pay full market rent would not be appropriate as it could produce unfairness.

Instead RPs present considered that other options which increase the amount of rents as income increases should be adopted instead.

On the whole RPs considered a cliff edge approach would be unfair and unworkable due to the impact on tenants and in some areas the stock that an RP has would not be capable of absorbing such an increase leading to a downturn in demand for properties. This could also have the unintended consequence of creating unsustainable communities as tenants may be split between areas of those below the threshold (or on Housing Benefit) and those who are required to pay increased rent based on their income.

From the other methods, gradual increases would be the most progressive and would require a formula to determine the figure to be paid. The other methods would be more beneficial to tenants but could be difficult and costly to administer. The two main options canvassed based on a single penny-in-the-pound increase in rent until full market rent was achieved were either a “simple taper” whereby the rent increased directly in accordance with earnings, or a banded system akin to income tax where tenants earning much greater incomes would pay a higher incremental rate at the top than tenants who had just crossed the threshold.  Each proposal had advantages and disadvantages.

Another idea suggested was creating area exemptions for a locality similar to Stamp Land Duty Tax to relieve the burden on RPs especially for areas where social rent is higher than market rent or not significantly higher to enable RPs to utilise their assets as required by the HCA’s Governance and Financial Viability Standard.

An associated concern was whether the suggested method of calculating income and then using it to set the rent for the next year could produce unfair outcomes. The DCLG consultation document is against frequent rent reviews while the RPs considered that volatile market rents and fluctuating tenant incomes, especially in examples such as maternity leave or self-employment, would make reviews essential to prevent payment of higher rents being enforced when they are higher than they would be set based on the tenant’s revised income.

Estimating administrative costs and factors driving such costs

Throughout the discussion RPs emphasised that this policy would be forcing them into somewhat uncharted territory as financial information has not been a data set that they have previously collected from tenants or individuals living in a household, except at allocations stage. That makes estimating administrative costs a difficult task.

RPs believe that to enable this policy to work in practice, a range of teams would have to contribute regularly to collection and updating of information. This would involve dedicating time of the income team, finance, housing officers and potentially setting up an additional team which would focus on looking into any false declarations or failure to declare change in circumstances. RPs also expect to incur additional costs in terms of technology to set up systems in place, as well as conducting market valuations to enable rent increases.

This process will also require additional spending in terms of governance to ensure that the policy is implemented properly and that data collected is processed according to the data protection principles.

RPs also indicated that they are concerned in relation to which tenancy types this policy will apply. This is because some RPs continue to have protected tenancies under the 1977 legislation where fair rent is a statutory requirement. Clarity is also needed as to whether the rental element of shared ownership would also be affected for purchasers who had committed to mortgages in the basis of rent being calculated as it now is. RPs are likely to also incur costs in terms of determining which tenancies this policy applies to, as well as incur costs in terms of tenancy management for all those tenancies that are affected.

Once a determination has been made that a particular tenant or household is above the threshold and is required to pay an increased rent, RPs expect that this may be challenged, especially where disabled occupiers are affected. In such a scenario RPs are conscious that they would also need to budget to deal with such challenges, as well as cases where an RP may be required to take legal action as a tenant may refuse to pay or to provide information to allow for a rent increase to be calculated, or may utilise any means available to seek a review of the rent increase.

On the whole covering a range of costs that arise may present particular difficulties for RPs in administering this policy as once costs are taken into account RPs may not be left with much income to utilise towards what seems to be new house building only.

Wider issues for RPs

During the discussion RPs identified that implementation of this policy raises a number of wider issues including:

  • issues of compatibility with ethos if an RP is required to increase rent and of charitable status if a significant number of tenants will be affected;
  • dividing communities, with certain areas being recipient of Housing Benefits and others market rent;
  • driving down demand in certain areas and devaluing stock that RPs own as the determining factor is income;
  • strained relationships with tenants as further information required for the purpose of charging them more and potentially with neighbours if only some are affected;
  • enhanced collection of data increasing burden on RP to collect and utilise accurately as well as hold securely;
  • it is unlikely to incentivise work as 2 cohabiting individuals each on the national living wage are likely to be affected and the scheme is very different to the previous voluntary high income tenants policy where the threshold was twice as high; and
  • for the policy to be workable a range of issues should be considered including whether self-certifying should be considered by tenants of their income and allowing RPs to decide the purposes for which any surpluses gained can be used.

Many of these issues will be detailed further in our response to the consultation, which will be shared shortly.

If you have any questions in relation to how this policy affects your organisation or tenants or any other regulatory matter, please contact Daniel Milnes.

Nat Avdiu

About Nat Avdiu

Nat Avdiu is a Paralegal in the Contracts and Projects team at Forbes Solicitors. Nat provides updates for clients on a range of issues including: governance, data protection and freedom of information, procurement and charity law.
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