A loan scheme for renters could stop tenants from being made homeless

The protracted length of the coronavirus crisis has led to rent arrears reaching twice the level observed going into the crisis. In January 2021, we estimate that over 750,000 families were behind with their housing payments, 300,000 of which contained dependent children.

Before the pandemic hit, many families spent a high share of their income on housing, leaving them at risk of arrears in the event of a fall in earnings. While a short, sharp income shock is not without its problems, savings and other resources often enable people to weather a small storm.

But with four times as many social renting families, and twice as many that privately rent, entering the pandemic with no savings compared to mortgaged home owners, it is unsurprising that three-quarters of those behind on their housing payments are renters.

Renters have also been disproportionately affected by the pandemic hit to the labour market. Close to one-quarter of private renters have seen their earnings fall during the last ten months, compared to one-in-six mortgagors.

To make matters worse, measures that could ease the pressure on renters, such as Discretionary Housing Payments (DHP) from local authorities and negotiated rent reductions from landlords, are not getting through to those that need them. More than half of private renter families with arrears are not in receipt of benefits, making them ineligible for DHP, and just 3 per cent of private renting families successfully negotiated lower rent, with a further 5 per cent refused rent reductions.

Housing arrears are likely to get worse before they get better, as the scale of arrears accumulated leaves problems ahead for tenants, landlords and the state. Even prior to Covid-19 the courts were under stress dealing with possession claims, but the pandemic backlog and excess new claims that have built up over the past ten months will exacerbate this. Family incomes will also be strained further by the planned end of both furlough and the temporary boost to Universal Credit in the spring, compounding the forecast rise in unemployment.

Boosting DHPs is a critical part of the solution – especially for those on low incomes – and efficiently functioning courts are an ultimate backstop for when arrears cannot be resolved in any other way. But there is currently little in between these two measures to help tenants and landlords manage and resolve housing arrears.

Introducing a UK-wide tenant loan system, specifically for renters suffering hardship as a result of Covid-19, would provide a middle-way – and significantly ease the pressure on tenants, landlords and the courts. This system could be modelled on a Spanish scheme that has been in place for private renters since March 2020, which covers a maximum of six months’ rent and has strict eligibility criteria to ensure effective targeting. Scotland and Wales are one step ahead in this regard: they have both recently started offering tenant loans underwritten by the state.

Extending this scheme for private and social renters in England would depersonalise the housing debt they have built up over the Covid-19 crisis – which totals an estimated £375 million – enabling them to participate in the economic recovery from the crisis and reducing the risk of eviction and homelessness.

As the scheme would consequently transfer the risk of Covid-19 arrears from landlords to the state, substantially benefitting the landlord, there should be a quid pro quo. Landlords should be required to take serious steps to negotiate a payment plan with indebted tenants before proceeding to court. This could involve mediation to negotiate a manageable repayment plan or a lower future rent.

Ten months into the crisis, the hit to renters has become clear. It’s true that unprecedented levels of Government support has supported families throughout the Covid-19 crisis. But without new and innovative thinking on resolving rent arrears, there is a real possibility that those most affected by the crisis are excluded from the recovery – or worse, experience detrimental long-term effects such as homelessness. There is a clear need for a system which provides a constructive approach to managing rent arrears, and plugs the gap between welfare support and court proceedings. A tenant loan scheme, supported by landlord-tenant mediation, would go a long way towards an equitable and efficient resolution of the incipient housing cost crisis.

This comment piece was first published in the i paper. Read it here.