Housing Technology asked Derek Steele, managing director of Mobysoft, for his perspective on the rent market, how income management teams are ‘getting smart’, the potential impact of welfare reforms and how they can be mitigated.
After nine years of working with housing providers to optimise efficiency and improve businesses practices, it’s difficult to hear so many voices in the market now talking about ‘survival’.
We’re only too aware of the imminent seismic changes to the welfare system – changes that have put the once secure financial model under threat. Every day I hear the same story: “we’re going to have to do more with less in order to maintain current revenue levels”; in effect, trying to run harder into an ever-strengthening headwind.
The new vulnerability of income throws up the unsettling prospect of housing providers defaulting on loan covenants or losing safe credit status, and casts further doubt on the sector’s ability to provide desperately-needed new housing in future.
Astonishingly, figures from a recent Ipsos Mori and Cambridge University study show that a sizeable proportion of housing providers (16 per cent) are expecting little or no effects from the switch to the direct payment of housing benefit.
As a relentless ‘number cruncher’, I’m in a unique position to analyse the efficiency and vulnerability of rent collection across a large section of the social housing market. And the numbers are worrying.
Mobysoft currently provides digital rent solutions to 50 registered providers, administering 381,000 rent accounts per week, and is responsible for recouping a total annual rent charge of over £1.6 billion.
Around half of the total rent revenue from these households is currently guaranteed in the form of housing benefit paid directly to the landlord. Therefore, even allowing for the most optimistic interpretation, the implementation of housing benefit paid direct to tenants suddenly puts half of that total rent income at risk.
Every week, Mobysoft clients register over £65 million in arrears through industry-standard housing management systems. Using RentSense, which analyses trends in past payment patterns to predict tenant account activity and identify where contact is likely to yield a result, that figure is reduced to £13 million of unpaid revenue to be pursued each week. That equates to approximately 125,000 tenants each week who are at genuine risk of falling into further arrears, without timely intervention and assistance.
This process of streamlining data to provide a more targeted, manageable workflow will prove invaluable as payment processes are adapted for universal credit.
However, we have recognised that larger organisations which receive housing benefit payments through a number of local authorities are in a better position to deal with the challenges posed by universal credit.
Local authorities pay housing benefit on different schedules, meaning that larger organisations already have experience of managing a plethora of payment processes at different times in the rental month.
On the other hand, ALMOs who are accustomed to receiving housing benefit through just one channel, sometimes in advance, are most at risk from receipt of new payments monthly in arrears, scheduled around personal tenant information such as an individual’s National Insurance number.
Speaking to the market at large, the more conservative estimates suggest that the introduction of universal credit will see an increase of 50-100 per cent in rent arrears cases. There is a natural assumption that approximately 100 per cent more unmanaged accounts, resulting from the change in housing benefit payments, will lead to a doubling of the workload. However this doesn’t take into account the ability of those new rent payers to meet their financial commitments.
In fact, analysing the data processed by us every week, it’s hard to see a projection for required capacity any lower than 100 per cent. This means that across all customers, there could be as many as 250,000 arrears cases, equating to millions of pounds in revenue at risk each week.
Initial reports from the ongoing Direct Payment Demonstration Project show arrears cases at participating organisations almost doubling, from around five per cent to eight per cent. But then again, these figures aren’t a fair reflection of what to expect after the dawn of universal credit for a number of reasons.
The organisations involved have been able to choose which tenants are included in their sample, as well as the date that housing benefit is to be paid. Most importantly, the full effect of universal credit on tenant budgeting will not be known until all the changes to benefits and allowances are factored in (i.e. when it is already too late to act).
As more of the financial burden is passed to tenants, social landlords look set to become just another competitor for rent payers’ money. To this end, many housing providers are moving tenants in receipt of housing benefit onto direct debits in order to protect their income. However, direct debits will still rely on money being available in a tenant’s account at the time payment is due, otherwise banking fines will simply add to the individual’s burden.
Other organisations will employ more income management staff in order to mitigate any projected increase in rent arrears, but where will the budget for extra staff come from if revenue is reduced at the rate of even conservative estimates? Housing providers will find themselves trying to reallocate budgets towards rent collection and arrears management just to maintain the status quo.
It’s encouraging that some organisations have been proactive and innovative in confronting the issue head on. Jo Noshouri, service improvement manager at Amicus Horizon explains, “We were acutely aware that, with sweeping welfare and benefit reforms imminent, the housing sector was becoming increasingly sensitive to the potential risk of increasing arrears and reduced revenue. As a result, housing associations and sector analysts were considering how best to minimise the risk. We need to do everything we can to help households cope with the changes. Increasing capacity through innovation is one way we can prepare.”
Since tenants in receipt of full housing benefit are often those that RSLs know least about because rent money has never passed through their hands in the past, there is clearly a communications challenge for housing providers to address in order to protect their income. However, the budget and resources required to run publicity campaigns and other essential awareness-raising activities can’t simply be pulled out of thin air.
Henry Ford famously commented on the invention of the automobile, “If I had asked people what they wanted, they would have said faster horses”.
The momentous challenges on the housing industry’s horizon call for innovative and dynamic solutions, rather than the reinvention or expansion of established practises. Digital solutions are capable of unlocking significant capacity within income teams, making the management of arrears cases more efficient and less time-consuming.
Ultimately, however, innovation can only do so much. The biggest obstacle on the post-welfare reform horizon is understanding and appreciating the scale of the challenge.
Derek Steele is managing director of Mobysoft.
To download the Ipsos Mori / Cambridge University report, visit www.ipsos-mori.com.