The Smith Institute provided support for the Southwark Council Housing Residents’ Working Party on understanding and mitigating the economic and financial impacts of Covid for residents of council housing in Southwark.
The Covid pandemic has not only been a public health crisis, but resulted in a major economic shock, with its impacts falling most heavily on those with the lowest and most unstable incomes. In turn, significant number of households have fallen behind with their bills, including their largest outgoing – housing costs.
Problem debt and rent arrears are not new to households in Southwark. However, the Council wanted to know more about how the pandemic had changed things and how it had specifically impacted council housing residents (both tenants and homeowners/leaseholders).
To get a better understanding the Council helped establish a Council Housing Residents’ Working Party (RWP), comprising tenants and homeowners in June 2021. The Working Party was tasked to examine the economic and financial impacts of the COVID pandemic, including paying special attention to who has been worst affected, what support the Borough’s council housing residents have had, and what is needed to improve this moving forwards.
The RWP took oral and written evidence from Council officers, housing and debt experts, and representatives from the community and voluntary sector; considered government and Council held data on rent arrears and the impact of Covid; and conducted its own survey of over 1,800 tenants and leaseholders.
Impact of Covid generally
- The pandemic had a serious impact on household finances. Analysis by government showed that between a quarter and a third of social renters and homeowners saw a fall in income with a similar proportion experiencing a worsening employment situation.
- The Working Party identified serious affordability challenges and rising rent arrears. Those facing the biggest problems were low-income households and those who had been furloughed and on Universal Credit (UC).
- Social renters were more likely to be behind on household bills than homeowners. Government data also revealed that over half (57%) of social renters who are behind on their rent were also behind on one or more other bills.
- The crisis has also affected places and groups of people differently (including by household type, housing tenure, employment circumstance and ethnicity), with London experiencing a particularly sharp rise in furloughs, unemployment and UC claims.
- Evidence provided to the Working Party indicates that Covid exposed the low financial resilience of many households, especially in the black, Asian and minority ethnic community, as well as highlighting structural failings with the welfare system and labour market.
- Research also showed that the pandemic had uneven impacts, with some households able to build up savings and/or pay down pre-existing debts, whilst others – predominantly those who were already experiencing financial difficulties – finding themselves in deeper trouble.
Impact of Covid on tenant and leaseholder arrears in Southwark
- There has been a substantial increase in arrears in Southwark during the pandemic. Rent arrears rose by over £3.5m between March 2020 and June 2021. Leaseholder arrears increased 69% over the first year of the pandemic.
- The data shows that there was a spike in underpayments during the first few weeks of the pandemic. The situation has now stabilised but has left some households with large arrears.
- For those previously in rent arrears, average arrears rose by 30% from £1,185 in March 2020 to £1,543 in June 2021. Leaseholder arrears grew by 52% from an average of £450 in 2019 to £685 in 2020.
- Analysis of the data suggests the growth in arrears has largely been due to deepening levels of debt (rather than more people in debt). Some 3% of tenants (around 800 tenants) now have arrears over £5,000 and account for over 40% of total arrears. Meanwhile, 5% of leaseholders owe over £1,000 and account for around two thirds of total leaseholder arrears.
- The impact of Covid has also had a knock-on effect on council-run and other local services, which could worsen if resident’s personal finances deteriorate. Problem debt among tenants and leaseholders and their private tenants will continue to place pressure on
council resources. Extra Government funding will be needed to mitigate a future rent arrears crisis.
The views of tenants and residents – ‘Have Your Say’ survey
With the Council’s support the Working Party undertook a ‘Have Yours Say’ survey of tenants and homeowners/leaseholders in September 2021. Some 1,823 people responded.
- The majority of tenants saw their income drop during the pandemic and nearly half cut back on spending. Rent arrears and other debt rose and people borrowed from family and friends or took out new credit.
- While most groups have indicated some recovery in the assessment of their current situation, the numbers that find it difficult remain higher than before the pandemic (particularly younger tenants and those from black ethnicity groups).
- Should another situation arise with similar impacts of those of the pandemic, a larger proportion of residents may go into arrears as savings will take time to recover.
- 53% said their total income was lower than prepandemic. This decreased with age.
- A change in hours (21%), furlough (19%) or losing employment (including retiring) (16%) were the most common reasons for the drop in household income.
- Homeowners/leaseholders were less likely to have been furloughed and more likely to be up to date with service charge payments and bills.
How did they cope?:
- 16% of respondents made a new claim for UC and 9% for other benefits.
- 43% of people cut back on spending while 16% went without basics (heating/food).
- 43% sought financial help from friends or family.
- 38% of respondents took out new credit during the pandemic. Rent/service charge payments:
- 70% of respondents reported being up to date with rent or service charge payments.
- Younger people and black and mixed ethnicity respondents were most likely to be in arrears.
- 52% of those in arrears were only 4 or 8 weeks behind, with 8% being 12+ months behind.
- Over half of homeowners/leaseholder in arrears with service charge payments were also in arrears with major works payments.
Savings and other debts:
- 25% of homeowners and 53% of tenants indicated they were in arrears with at least one other form of bill/credit payment. This decreased with age.
- 26% of respondents had savings or investments before the pandemic.
- White respondents were almost twice as likely to have savings compared to black respondents.
- 30% of those with savings before the pandemic have used savings occasionally to pay household bills, while 39% indicate using savings regularly.
Support for tenants and leaseholders
- The Working Party heard about the legal protection and financial support offered during the pandemic. This was viewed as a lifeline for those financially affected by the pandemic.
- However, there were gaps in the safety net, especially for those already in the most insecure work. The UC five-week wait continued to leave people struggling to pay their housing costs when first making a claim.
- The Working Party were told how the Council changed its approach from enforcement activity to supporting tenants and leaseholders through the pandemic (including stopping evictions). This was viewed as the right approach.
- The Working Party also heard from community and voluntary groups who supported those facing financial hardship and problem debt. It was noted how they helped residents with problem debt create repayment plans and maximise their income.
- It was said that council residents’ debts had stabilised but there were serious concerns about the withdrawal of emergency support. The withdrawal of the £20 UC uplift is a particular concern.
Supporting repayments and avoiding arrears
The Working Party heard about different approaches to problem debt, the issues that the Council faces as a landlord and creditor, how the Council could build on innovative new approaches set in place before the pandemic and develop new solutions in response to the unprecedented impacts of the pandemic. In particular:
- Supporting a financial inclusion rather than enforcement approach to debt and arrears is more effective and, in the end, will help ensure that more debt is repaid. The Council should ensure this is built into its approaches to debt collection and relevant performance indicators. Step-by-Step exemplifies the new approach and the Council should build on the work it has already done to widen its use as we emerge from the pandemic.
- The focus of support should be on maximising incomes and helping people create an affordable household budget, rather than pressing for repayments over an unrealistic timeframe or at rates people cannot afford under threat of enforcement action – an approach that
does not work in any event. Greater use of Step-by-Step will achieve this.
- Help to maximise incomes through established channels such as Rightfully Yours should include increased access to third party grants and low interest loans for example to ensure residents have white and other essential goods (over the longer term this can help save struggling tenants and leaseholders money).
- The Council should continue to support people to seek help and advice as early as possible. This should include continued support for community and voluntary sector initiatives to raise awareness of services available to support people after the pandemic.
- Increasing the number of people gaining advice and support depends on people coming forward. The Working Party heard how it was important to review approaches to communicating with those in arrears to garner more trust and support early intervention. We were pleased to hear that the Council was already testing new approaches before the pandemic. We recommend it learns lessons from testing and further develop new approaches in the future.
- The Working Party was impressed by the strength of the Council’s relationship with providers of debt and other advice, locally and nationally. The Council must continue to work closely with advice agencies to ensure there is adequate support and advice provision
(including capacity and capability to provide advice) especially as Government emergency measures are withdrawn.
- To ensure people can come forward and to better understand their needs, Council efforts to reduce arrears should continue to include measures to tackle digital exclusion and make online forms as easy as possible to complete.
- The link between problem debt and poor mental health is a recognised one. As we emerge from the pandemic, it is likely that extra help will be needed to support people with mental health problems, who are more likely to be in debt and where unresolved problem debt is likely to lead to further deterioration in their mental and physical health. For example, the Council could work with the Money and Mental Health Policy Institute toward becoming accredited as a Mental Health Accessible organisation (for local income collection purposes).
- For some of those affected by the impacts of the pandemic, even advice or income maximisation will not be enough to pay off all the debt owed. The Council could pilot new approaches – possibly through an enhanced Hardship Scheme – for this group of large debtors, especially those with vulnerabilities or where their financial circumstances mean that some of their debts are unlikely ever to be repaid.
- We heard that COVID impacts have increased what were already significant pressures on the Council’s Housing Revenue Account. Focusing on value for money and efficiency of services was also viewed as a way for the Council to save tenants and leaseholders
money and reduce arrears.
- Private tenants in council homes face particular problems and often don’t get the help and advice they need. The Council should continue to closely monitor the situation facing private renters sub-letting from nonresident homeowners, including landlord practices and the levels of and access to advice and support.
The full list of recommendations by the Working Party’s with the response from the Council is included in the final section of the report.