A tweet from Ms Latham (@landlordtweets) caught my attention earlier today, she had linked to an article she had written on Property 118 on estate agent fees and how her experiences had resulted in about 9 weeks worth of rent.
I here questioned whether she had considered her Local Authority to help find tenants as it would be no cost to her by way of fees, deposit and rent advance to her via Discretionary Housing Benefit and could also opt to get Housing Benefit to her directly to save some hassle.
Ms Latham replied with the following:
@Legalnotebook I have got some LHA tenants but some properties that are high end & attract working couples, singles & families. I selfmanage
— Mary Latham (@landlordtweets) December 28, 2013
It got me thinking, is renting a property via a Estate Agent better ROI for a Landlord then giving it to a Local Authority Tenant? If not what would the difference between the two be?
I fired up Google and used figures as published by Home.co.uk and LHA page and did a comparison of yearly income (taking into account agency fees). I selected only a small number of locations that pop up during the course of work.
Analysis LHA vs Average Private Rent
| Town | Avg Rent | LHA Rent | Difference(Rent) % | Letting Fee (est) | Yearly Difference | LHA vs PRV Yearly % Diff |
| Acton | ||||||
| 1 Bedroom | £1,183.00 | £974.31 | -17.64 | £1,419.60 | £1,084.72 | 7.64 |
| 2 Bedroom | £1,626.00 | £1,278.33 | -21.38 | £1,951.20 | £2,220.80 | 11.38 |
| 3 Bedroom | £2,286.00 | £1,505.75 | -34.13 | £2,743.20 | £6,619.84 | 24.13 |
| 4 Bedroom | £2,747.00 | £1,771.47 | -35.51 | £3,296.40 | £8,410.00 | 25.51 |
| Hounslow | ||||||
| 1 Bedroom | £937.00 | £725.01 | -22.62 | £1,124.40 | £1,419.48 | 12.62 |
| 2 Bedroom | £1,297.00 | £919.79 | -29.08 | £1,556.40 | £2,970.08 | 19.08 |
| 3 Bedroom | £1,631.00 | £1,124.20 | -31.07 | £1,957.20 | £4,124.44 | 21.07 |
| 4 Bedroom | £1,934.00 | £1,328.60 | -31.30 | £2,320.80 | £4,944.00 | 21.30 |
| Southall | ||||||
| 1 Bedroom | £843.00 | £725.01 | -14.00 | £1,011.60 | £404.28 | 4.00 |
| 2 Bedroom | £1,109.00 | £919.79 | -17.06 | £1,330.80 | £939.68 | 7.06 |
| 3 Bedroom | £1,586.00 | £1,124.20 | -29.12 | £1,903.20 | £3,638.44 | 19.12 |
| 4 Bedroom | £1,529.00 | £1,328.60 | -13.11 | £1,834.80 | £570.00 | 3.11 |
| Uxbridge | ||||||
| 1 Bedroom | £814.00 | £725.01 | -10.93 | £976.80 | £91.08 | 0.93 |
| 2 Bedroom | £1,197.00 | £919.79 | -23.16 | £1,436.40 | £1,890.08 | 13.16 |
| 3 Bedroom | £1,382.00 | £1,124.20 | -18.65 | £1,658.40 | £1,435.24 | 8.65 |
| 4 Bedroom | £1,515.00 | £1,328.60 | -12.30 | £1,818.00 | £418.80 | 2.30 |
Conclusion
In some areas the LHA seems to below “private rental income” by less than 10% which then compared with the difference between the average and the median in a given area indicates that may be negligible at end of year or even below LHA maximum income.
The other end of the spectrum however shows 20-30% difference between the two.
So the answer is a “it depends”. Dependant on the area ROI may be comparable to Private Rented. With the Localism Act enabling discharge of duty under Part 7 to Private Rented accommodation and Local Authorities starting their own Estate Agencies demand will always grow. With the “rent guarantee” via Housing Benefit, Deposit and Rent Advance help via DHP and more help to the tenant if they do fall into arrears. Giving the property to the Local Authority does seem attractive, especially with fees and administrative hurdles climbing for management.
Though over to you, what makes you think a “social” tenant will be less attractive or what can be done to promote uptake by Landlords.
Great piece! LHA tenants are usually looking for a long-term home. In the rare circumstances where a tenant causes issues you can get in touch with a tenancy support officer who should be able to help. They can advise the tenant of the implications of their actions …
Thank you for your comment Mark. Having the council on your side as a Private Landlord as a almost mediator is always good to have. If LL misbehaves the tenant has support and vice versa.
The management cost of an ongoing tenancy is no less with a LHA tenant, if anything it is more. By taking a tenant from the council you may save some of the “tenant find” costs, but I can’t see how it reduces management or rent collection costs.
Also you have missed the fact that you can put a LHA tenant is a property that will get below average rent, but with the benefit cap etc, I would not be consider LHA in the areas you have listed.
Hi Ian, thanks for dropping by and your comments
In regards to “rent collection” I have opined paying Housing Benefit Direct to Landlord will eliminate any costs.
In regards to Management costs; the fee taken above (10% by EA) does not account for management so the “cost” would be comparable between the two.
Further in the exercise above we are assuming the client is on “permanent” benefit (by way of ESA etc) and would not be hit by the caps as in theory LHA + Benefits should play hand in hand with cap so as not to cause difficulty. Especially with recent developments in the area advocating the use of DHP where the tenant has disabilities to avoid being hit by “bedroom tax” and benefit cap (2.3 of guidance http://www.dwp.gov.uk/docs/discretionary-housing-payments-guide.pdf).
I know it’s not a perfect test scenario but the ROI exercise was with an aim to show the “vulnerable” part of society can have comparable ROI.