Unwillingness of councils to transfer staff and rising LHA rates factors in downfall of homelessness non-profit Capital Letters, MHCLG report finds

Rising Local Housing Allowance (LHA) rates and a lack of support from some members have been cited in a government-commissioned report looking into the factors that led to the decision to close Capital Letters at the end of the year.

A report into the downfall of the organisation, commissioned by the Ministry of Housing, Communities and Local Government (MHCLG), has now been published.

The paper, written by ATQ Consultants, looks at the reasons that led to the non-profit organisation taking the decision to close at the end of the year along with key lessons about how the government could support similar bodies in the future.

Capital Letters was set up by a group of London Councils in 2019. It focuses on addressing homelessness and reducing London councils’ spending on temporary accommodation. It partners private landlords with member boroughs to lease homes for homeless families at Local Housing Allowance (LHA) rates. It announced last April it is closing after exhausting options for funding.

The report said Capital Letters had some successes, including procuring around 6,500 properties to date, of which around 4,500 have been let to borough-nominated tenants. It said it introduced “innovative ways of attracting landlords such as a sustainment service which helps maintain tenancies by low-income households.”

However it said Capital Letters was less successful than expected as it was initially aiming to procure more than 20,000 homes.

Its findings point to adverse market conditions reducing the supply of private rented sector property in London and “over-optimistic” assumptions in its business plan.

One key assumption that proved unrealistic was the early transfer of staff from councils. According to the report, stakeholders said this was due to “risk aversion among the boroughs to transfer or second experienced staff to an untested entity, to staff reluctance to transfer, and to a view that Capital Letters should recruit its own staff.”

The report said: “There was over-optimism about the willingness and ability of boroughs to transfer staff to Capital Letters, and thus build the critical mass needed to eliminate interborough competition and avoid conflicting objectives”.

The report also found a reluctance from some boroughs to transfer private sector leased stock to Capital Letters.

Both the lower than expected staff and lack of stock transfer were manifestations of “what some saw as a lack of commitment to the vision for Capital Letters,” the report said. The group has 10 members, with 11 leaving in 2023 after the introduction of annual membership fees.

The report highlights challenges finding alternative sources of income.

It said: “Fundamentally, however, the underlying challenge for Capital Letters and its members remains unchanged and may even be increasing. The supply of private rented sector housing is falling, and a combination of sharply rising market rents and LHAs which do not reflect rental levels is making it very challenging to find private rented sector properties that are affordable by low-income households in receipt of benefits.”

The report outlines several key lessons learnt about the government’s management of grant funding for the programme, including the importance of stress-testing business plan assumptions and ensuring stakeholders are engaged.

Sue Edmonds, chief executive at Capital Letters, said the report “provides an objective and balanced appraisal of a range of stakeholder views about Capital Letters’ achievements, challenges and opportunities.”

She said: “The report highlights the issues Capital Letters faced in securing an independent, sustainable future, particularly in relation to the company’s first business plan, the operating environment and the company’s lack of assets, collateral or guarantees with which to leverage funding or partnerships.

“The consequence of this was that the ambitious plans for Capital Letters were impossible to achieve, resulting in the difficult decision to close the company. We fully support the key lessons set out in the report which, if applied in the future, could make a significant difference to the success and outcomes of a similarly ambitious, creative and innovative solution to collaborative endeavour.”