Challenges for social landlords:
A business case for providing debt
advice and financial inclusion activities
CfRC Financial Inclusion and Money Advice Conference
Wednesday 20 July 2011
Presentation by Gareth Evans
Background to Research:
• Currently undertaking 18 month longitudinal analysis.
• Researching the effectiveness of a range of debt advice
interventions on the rent arrears and behaviour of indebted
social housing residents.
• First attempt to establish if there is a business case for social
landlords to provide debt advice services for its residents.
• Partnership of six of the of the country’s leading housing
associations – Affinity Sutton / AmicusHorizon / Hyde Group /
Circle / MHP / Wandle HA.
• Research funded by the Friends Provident Foundation
Background to Research:
• Attempts to compare effectiveness of different debt
advice interventions;
– Not providing debt advice services (Control)
– Direct external outsourcing of debt advice (Telephone) to
free and independent services.
– Direct external outsourcing of debt advice (Face to Face)
to free and independent services.
– In-house delivery of specialist debt advice services with a
skilled debt advice specialists delivering services to their
own tenants
• Looks to make key policy recommendations on best
practice in the debt advice field for the social
housing sector.
Methodological framework
1.
Baseline audit that maps current debt advice and financial
inclusion activities amongst partner RSLs and the wider
social housing sector.
 Production of an Interim Report in April 2011 that sets out the
current scale of the problem, the benefits of addressing financial
inclusion/overindebtedness, what the sector is already doing and
the resources invested.
2.
Qualitative research with residents’ to evaluate the impact
and perceived effectiveness of the different debt advice
received.
 Production of summary of findings from telephone surveys.
3.
Modelling the effectiveness of different debt advice models
in terms of i) the financial return on investment (costs
versus savings on arrears/evictions) and ii) the social return
on investment (cost versus social benefits to residents).
 Comprehensive Final Report – findings promoted across the sector.
Challenges facing social landlords and
residents
• The financial circumstances of many social housing residents are expected
to be reshaped and deteriorate in the face of:
– deficit reduction measures (resulting in major cuts to public sector
spending and an increase in certain taxes such as VAT),
– forthcoming welfare benefit changes,
– adverse economic conditions such as; risk of unemployment and rising
inflation, and pay freezes and/or reductions in overtime payments =
real term net reduction in household incomes.
• Financially excluded households have less room for manoeuvre
with low levels of savings and/or insurance to cushion the blow in
difficult times.
• Disproportionately felt by vulnerable, low income households – many of
whom will be social housing residents.
• Therefore, levels of overindebtedness, arrears, and ultimately evictions in
the social housing sector expected to increase at great personal cost to
residents and high financial and reputational cost to social landlords - it is
prudent to plan for these changes
Challenges facing social landlords and
residents
• But - Social landlords face a potential financial ‘double
whammy’ of rising arrears and eviction related costs and
reduced available financial resources (as a result of public
spending cuts) to spend on income collections and providing
access to debt advice for residents and more general,
preventative, financial inclusion work.
• Social landlords are already reporting that demand for debt
advice is growing amongst their residents - even before the
full effects felt. Need for objective debt advice will grow.
• However, provision of free independent debt advice services,
particularly face-to-face support is expected to diminish as
sources of funding from local and national government are
significantly curtailed.
Challenges facing social landlords and
residents
Social housing residents are more likely to be
financially excluded -killer facts:
– Of the poorest 10% of households in the UK, over half live in social rented
housing.
– 61% of social households have no-one working within the household,
compared to 35% nationally
– Social housing residents earn on average half as much as private renters
with a median annual income of £10,900
– 81% have no savings account and 91% have no insurance cover
– Lower income households are more likely to be exposed to unfair
practices in the sub-prime lending sector - 20% of people in social
housing have used doorstep lenders.
– According to Citizen’s Advice, the proportion of social rented residents
amongst their debt service users is twice as high as in the general
population.
– 83% of social housing residents fail to make sufficient plans for their
financial future and 94% are making poor product choices.
Business benefits to social landlords
So how does it cost social landlords money?
• Rent arrears are a real drain on RSL resources. Rent collected is on
average, 83% of its annual revenue funding. So, rent arrears represents
reduced cash flow, lost interest and revenue that could be invested in
better homes and services
• Continually pursuing rent arrears cost significant funds – huge staffing
implications. Early intervention and preventing rent arrear before they
escalate, real opportunities can be realised for efficiency savings and
direct cost savings.
• Court actions are extremely expensive for landlords and are primarily
embarked upon on the grounds of rent arrears
• When a resident is evicted, the associated costs can be enormous and
importantly unknown.
• Even when a resident is evicted, landlords still incur costs and charges
associated when chasing former resident arrears. There are also negative
impacts to their balance sheets of writing off former resident arrears.
Business benefits to social landlords
Estimating the costs associated with rent arrear interventions:
• Limited examples of research studies to establish the direct costs
associated with various rent arrear interventions and management.
• Our study developed a business model that establishes a lower and an
upper unit cost associated with each of the various rent arrear
management interventions.
• This business model has been developed with income staff and based
upon the key procedures for rent arrears management and any specific
internal cost analysis
• The model allows the calculation of:
– the general costs associated with of each different rent arrear
intervention,
– an estimate of the cost of rent arrears management for an individual
resident, and
– the overall cost to the business of managing its rent arrears
Business benefits to social landlords
• Cost of each arrears process to eviction shown:
– Lower level - £2,498
– Upper level £7,677
• Costs of evicting residents increasing with an
estimated £39M being spent in 2008/09 by the
sector removing 7,700 GN residents in rent arrears.
– 10% increase = additional £4 million spent on
eviction costs.
What the sector is already doing and
investing?
• Social landlords are in a unique position to make a major
contribution to promoting financial inclusion and debt
management.
• Over a quarter of housing associations not to providing any
access to debt management advice for resident in rent
arrears.
• The majority of RSL do help residents access advice on their
rent arrears - 56% referral mechanisms to external advice
agencies and a similar number having in-house debt advice.
– Yet masks the extent of specialist services – most is
signposting and and in-house debt advice by rent arrear
staff trained in basic money advice.
• 75% of TSA respondents stated debt advice provision was via
informal referrals or the contact details for external advice
agencies.
What the sector is already doing and
investing?
• Report shows the range of Financial Inclusion services and debt advice
being offered by sector and 6 RSL partners.
• NHF show FI and money advice services a major part of this community
investment by RSLs.
– £44 million £30 million pounds was from RSL) was invested in
providing services to address financial exclusion and debt during
2006/7
– 450 housing association staff were directly employed to deliver these
services.
– 984 financial inclusion schemes were identified with 368,000 people
directly benefiting from these services.
• In terms of investment to deliver debt advice for residents, just £1.3
million during 2006/07 (3% of the total in FI).
• 6 partners – Significant growth in investment in FI and DA from £90K
(£2.29 per HH) in 2008/09 to £500K (£7.90 per HH) in 2010/11.
– Growth in DA investment from £1.15 to £4.85 per HH
Qualitative residents telephone survey
• To help gauge the experiences and thoughts on the
debt advice services that residents received and their
perceptions of any resulting social and financial
benefits.
• 10 minute structured interview.
• 179 residents from 4 RSLs receiving debt advice
during 2010 were surveyed.
Telephone Survey Findings:
About the resident’s situation:
• Over 90% of those accessing the debt advice service
had some level of rent arrears at the time of referral.
• High number of residents facing serious arrears
action at the point of referral - (56%) facing court
action and 36% facing eviction.
• 82% never accessed debt advice previously.
• Rent arrears hugely important indicator of a
resident’s wider financial problems – 66% had other
debt worries and 38% had more than 4 other
creditors.
Telephone Survey Findings:
About the debt advice service:
• 92% of residents being directly recommended from a
staff member (61% of these were from arrears staff).
• Only 22% of residents thought that it was a problem
being referred via landlord - surprisingly low number,
given the potential conflicts involved and the often
strained relationships.
• Vast majority of residents had a positive experience 51% rating it as very good and a further 28% as good
- extremely encouraging given the nature of the
problem.
Telephone Survey Findings:
Impact of the debt advice service:
• Does debt advice ultimately reduce the levels of rent arrears 71% of cases, resident’s rent arrears had reduced following
debt advice, with 36% of these saying the levels are ‘a lot less’.
Only 11% of cases has the situation deteriorated
• But was this resulting drop in arrear caused by the debt
advice. Of those in rent arrears - 62% claim that the debt
advice resulted in the reduction of their arrears and 71%
believe it helped them prioritise future rent payments.
• 48% believe it helped avoid being evicted and 47% from
facing court proceedings, representing huge potential cost
savings to the associations
• Other - 67% stopped them getting further into debt and 65%
thought that the impact of the help actually help them reduce
their debts.
Telephone Survey Findings:
• Positive impact resulting from the debt advice appears to
be significant, less than 10% saying the service had no
effect at all.
• 66% claim it had made them feel more in control of their
money and 68% claimed they feel more knowledgeable about
money matters
• 17% of those responding thought that their overall debt
problems had been completely sorted and 68% partially
sorted.
• Argument is that debt advice is offered to residents far too
late in the day - 60% of respondents saying that they would
have benefited more by earlier access.
• 81% would recommend the service to someone else.
Next Steps - Quantative analysis of
residents
• Sample of data from indebted residents who have
received debt advice via their landlord and those
who have not (control),
• Tracking changes to their rent arrears levels and
patterns as well number of landlord arrear
interventions.
• Undertake 12 month retrospective (prior to the debt
advice) as well as 12 months following (to current
data).
• The final report with detailed findings and
recommendations will be published towards the end
of 2011.
Thank you
Gareth Evans
Financial Inclusion Centre
GRE Consulting
E: gareth.evans@inclusioncentre.org.uk
W: www.inclusioncentre.org.uk
E: gareth@greconsulting.co.uk
W: www.greconsulting.co.uk
MONEY GUIDANCE EVALUATION
DRAFT Quantative Analysis Findings:
• Impact of Casework MG:
£1,200
£800
Average
arrears
£600
Median
arrears
£400
£200
Trendline
(Median
arrears)
£0
PR
E
M
PR 9
E
M
PR 8
E
M
PR 7
E
M
PR 6
E
M
PR 5
E
M
PR 4
E
M
PR 3
E
M
PR 2
E
M
1
DO
PO R
ST
PO M1
ST
PO M2
ST
PO M3
ST
PO M4
ST
PO M5
ST
PO M6
ST
PO M7
ST
PO M8
ST
M
9
Arrears balance
£1,000
Months
Poly.
(Average
arrears)
MONEY GUIDANCE EVALUATION
DRAFT Quantative Analysis Findings:
PRE 9
Months
Total rent balances adjusted (arrears)
•
•
•
•
£79,576
POST 9
Months
DOR
£118,126 £105,379
PRE 9 -DOR
Change
DOR – POST 9
Change
-£38,550
£12,747
Average arrears
£730
£1,084
£967
-£532
£117
Median arrears
£469
£679
£624
-£252
£98
The average account balance nine months prior to referral was £730 in arrears
(and a median average of £469).
An evident decline in rent arrears in the months following the receipt of the MGP
service. The average rent account balance fell from £1,084 in arrears over the nine
months after receiving the service to £967 (or a median average of £624) in
arrears.
This means that each person receiving the Casework MG, improved rent balance
by an average of £117 (or median of £98) over the preceding 9 months compared
to the £532 worsening of their account on average in the 9 months before.
Impact of CW MG on residents is an average reduction in arrears of 10% over nine
month period.
MONEY GUIDANCE EVALUATION
DRAFT Quantative Analysis Findings:
• Model of average arrears (without MGP intervention):
£1,800
£1,600
£1,200
£1,000
Average
arrears
£800
£600
£400
Average
arrears
(worst case
scenario)
£200
9
ST
M
7
PO
ST
M
5
PO
ST
M
3
Months
PO
ST
M
1
PO
PO
ST
M
M
1
PR
E
M
3
PR
E
M
5
PR
E
M
7
PR
E
M
9
£0
PR
E
Arrears balance
£1,400
Average
arrears (same
scenario)
MONEY GUIDANCE EVALUATION
DRAFT Quantative Analysis Findings:
• Worse case scenario – with same arrears growth would see
average arrears increase from £1,084 to £1,609
• Even with same level of arrears after nine months – arrears
saving alone would be between £117 and an extra £642 of
arrears for each resident.
• Equates to between £12,800 and £70,600
MONEY GUIDANCE EVALUATION
DRAFT Quantative Analysis Findings:
• Impact of Light Touch MG:
£180
£160
£140
Arrears Balance
£120
£100
£80
Average arrear
balance
£60
Median arrear
balance
£40
£20
Trendline (Average
arrears)
£0
-£20
DOR
POST POST
M1
M2
POST POST
M3
M4
POST POST
M5
M6
Months
POST POST
M7
M8
POST
M9
Trendline (Median
arrears)
MONEY GUIDANCE EVALUATION
DRAFT Quantative Analysis Findings:
• In fact, the average rent balance was £117 (a median
average of £85) with these 69 residents owing £8,100 at
the point of accessing the support. Maybe it is not so
surprising that new residents have early rent arrears
given the relative expense of moving and furnishing a
new home.
• Average levels of arrears in the immediate months
following the referral remain high and appears to peak a
couple of months after accessing the service.
MONEY GUIDANCE EVALUATION
DRAFT Quantative Analysis Findings:
• Nevertheless, nine month on from accessing the service, rent balances are
shown to have gradually fallen from arrears of £177 (and a median of £85 in
arrears) to having an outstanding arrears balance of £94 (or a zero median
balance).
DOR
Total rent arrears
POST 9
DOR - POST9 Change
£8,100
£6,606
£1,493
Average arrears
£117
£94
£23
Median arrears
£85
£0
£85
• Impact of LT MG on residents is an average reduction in arrears of 19%
over nine month period