Private tenants can shop around more for properties under the new system
Changes to how housing benefit is paid to some private tenants will lead to rising homelessness and waste public money, a landlords' group has warned.
The National Landlords Association said the new Local Housing Allowance (LHA), introduced in 2008 for new tenants in the private sector, had to be modified.
NLA research suggests 52% of landlords will no longer let to LHA tenants because they often fall into arrears.
Unlike the old system, LHA is paid to tenants, not directly to landlords.
LHA applies to new housing benefit claimants in the deregulated private rented sector, and does not include council, social housing or supported housing tenants.
When the government introduced it in April 2008 it said it wanted to move away from the system in which people had rents paid directly to the landlord, and to give tenants more choice.
"By paying LHA direct to the customer it ensures they take on the personal responsibility of paying the rent to the landlord and helps develop the budgeting skills unemployed people will need when they move into the workplace," said the Department for Work and Pensions.
However, where tenants are in arrears for eight weeks, or are deemed unable to manage their own affairs, the rent is then paid to the landlord.
LHA is paid as a flat rate, which is calculated based on the rents being charged in the area, size of the property and the number of people.
Tenants can shop around for a property - if it costs more than the rate paid they pay the difference, and if it is less they can keep the difference, up to £15 a week.
But one year since its introduction some 43% of landlords told the NLA survey they would leave this part of the market because of "increased uncertainty about rent payments".
In the most serious cases, landlords are facing repossession because rent money does not arrive, said the NLA, which campaigns for the interests of private residential landlords.
"Clearly, LHA is now actively contributing to a shrinking of housing supply for benefit claimants, and more pressure is being placed on social housing.
"As always, this will affect the most vulnerable tenants and increase homelessness," said the NLA.
The group called for the 'trigger' period after which rent is paid directly to landlords to be reduced to four weeks.
In practice the new system meant arrears could accumulate for as long as three months before the landlord receives the first payment directly from the local authority, it said.
Where landlords choose to attempt to reclaim the lost money, they have to pursue the tenant privately through the courts.
NLA director Richard Price said LHA was not improving access to housing and had in fact reduced tenant choice.
"This was not the government's intention but the new system is simply not working. If landlords are opting out of this part of the market, where will these families go? The situation is now becoming very serious.
NLA also called for a better relationship between local authorities and private landlords, saying councils often caused confusion by not applying the new rules consistently. It also wants an improved system for identifying vulnerable tenants.
"Empowerment is about giving people the right to choose. The current situation is not sustainable and the government must act to ensure that LHA tenants are not further disadvantaged," he added.
From Monday the DWP will introduce a cap on LHA, to stop families on benefits being housed in properties with more than six bedrooms.