The London Assembly has called on the Mayor to launch an "urgent review" of the potential impact on London of the Government’s plans to change the way housing benefits are paid, amid fears that it could lead to an increase in rent arrears and damage the building of new affordable housing.

Assembly Members backed a motion urging Boris Johnson to press the Government for assurances that the introduction of the new Universal Credit – whereby rent would be paid to tenants instead of directly to landlords – would not exacerbate London’s housing crisis.

There are currently almost 370,000 households waiting for social housing in the capital and the motion expresses concern that the changes may lead to an increase in arrears and evictions as well as discouraging private landlords from renting homes to people on benefits.

Fiona Twycross AM, who proposed the motion, said: “These proposals are an object lesson in poorly designed reform and promise to create the perfect storm of unintended consequences. All the evidence suggests that when housing benefit is paid directly to tenants, more people get into arrears and that means housing association losing out on the cash they need to build more affordable homes.

“Londoners on benefits are already having trouble accessing private rented housing and the Universal Credit will leave them with even fewer options. It is a financial crisis in the making for tenants, but also councils, who will be forced to house them in high-cost bed and breakfast accommodation or hotels.

“This is not an issue that’s going to go away – The Mayor must undertake an urgent review of these changes to protect London from an ever worsening housing crisis.”

The full text of the motion agreed at the meeting reads as follows: “This Assembly recognises that, by making rent payments to recipients rather than direct to landlords as is currently the case, Universal Credit is likely to result in increased rent arrears. This Assembly further notes that, as a result of these increased levels of arrears, evictions may well grow and fewer homes will be built in London as housing associations suffer consequential increases in borrowing costs.

"This Assembly recognises that 90% of social tenants believe that it would be better for Housing Benefit to be paid direct to the landlord”, rather than direct to the tenant as intended under the government’s Universal Credit proposals. This desire is driven by the fact many Universal Credit recipients fear they would be unable to manage their finances effectively and would overspend under the new model, leading to rental arrears and possible eviction.

"The Assembly acknowledges that these fears appear to be borne out by London & Quadrant research showing that arrears amongst Local Housing Allowance recipients (those social tenants renting in the private-sector) increased from 3% to 7% when they moved over to direct payment, resulting in increased evictions. Furthermore, under LHA, the National Landlords Association found that more than half of private landlords said they would not rent out their properties to benefit tenants due to fears of rent arrears.

"This Assembly notes that an additional consequence of direct payment of rent to Universal Credit recipients may be increased borrowing costs for social house-builders and, therefore, in fewer housing units being built in London. The credit ratings agency Moody’s has, for example, noted that direct payment to the landlord is a ‘credit strength’, whereas direct payment of rent to recipients (who then pay their rent themselves) is a ‘credit negative’. The result would be that housing associations would have to pay more to borrow money, with knock-on implications for the building of affordable housing and new dwellings.

"This Assembly therefore recognises that Universal Credit presents three potential problems in respect of housing the capital: The single-payment system may result in fewer private rented homes being available to those in receipt of Universal Credit; The single payment system may result in elevated levels of arrears and, therefore evictions; and

"By increasing the borrowing costs of housing associations, the number of new social rented and affordable homes being built may be significantly reduced, which would exacerbate London’s housing crisis by accelerating private sector rent increases – up 12% in the last year – and place even greater pressure on London’s social housing waiting lists, which already contain almost 370,000 households.

"This Assembly calls on the Mayor to conduct an urgent review in to the potential impact of Universal Credit on housing in the capital, particularly the problem of arrears and elevated borrowing costs, which may prevent thousands of desperately-needed new homes from being built in capital. Further, this Assembly urges the Mayor to seek urgent reassurances from the Government that Universal Credit will not exacerbate London’s housing crisis.”

The motion echoes the concerns of the g15 group of housing associations which estimates that 1,200 new homes a year could be at risk nationally as a direct consequence of the government's welfare reforms.

The group, which currently houses around one in ten Londoners in its 410,000 homes, anticipates that rent collection costs could rise by as much as £600,000 a year for each organisation as low income tenants struggle to pay their rent.

Any increase in rent arrears and reduction in income will reduce housing associations’ financial capacity to build the homes that are urgently needed in the capital.

The cost of the increased staff needed to support benefit claimants is estimated at £860,000 and increased legal costs will add a further £300,000 per organisation.

The g15 members anticipate that collectively, some 21,500 of their tenants will lose up to £975 a year in housing benefit when the bedroom tax comes in on 1 April.

And a further one in 50 tenants is expected to be impacted by the overall benefit cap of £500 per week – reducing benefits by up to £2,600 a year.

Part time school cleaner Manuela Winter, from Upper Norwood, South London, is just one g15 resident who will be affected by the changes. She lives in a three bedroom Family Mosaic flat with her 19 year old son, Brandon. The ‘bedroom tax’ means that Manuela has one ‘spare room’ and in April she will have her housing benefit reduced by 14% – leaving her £17.88 a week worse off.

Family Mosaic’s Housing Options team are supporting her to find a smaller home but her options are limited by the need to be near her workplace – Manuela’s low pay means she can’t afford any extra public transport costs. Her son is also receiving help to find a job through Family Mosaic’s Employment Team.

g15 chair Keith Exford, who is Chief Executive of Affinity Sutton, said: “Welfare reform represents one of the greatest challenges we and our residents face in the coming years. These changes will put real pressure on hard working families already managing on low incomes, the benefit cap, bedroom tax and changes to council tax benefit could lead to many families losing their homes. They will also impact on the ability of housing associations to deliver new housing in the future.

“g15 members will invest £8.5m in London over next two years to mitigate the impacts upon our tenants of welfare reform.

“Housing associations need certainty and long term income streams in order to borrow the private debt required to deliver the affordable new homes desperately needed in the capital.”