A housing association has warned it faces losses of £23m a year from its extra care and retirement housing business if the government goes ahead with proposed welfare changes.

According to Inside Housing:

“Housing & Care 21 has warned capping housing benefit at Local Housing Allowance (LHA) levels would “kill off” its provision of retirement and extra care housing.

It has produced preliminary financial modelling which shows it could lose £13m a year from its 3,888 rented extra care properties, and £10.5m a year from its 11,000 retirement homes if the changes go through.

Bruce Moore, chief executive at Housing & Care 21, said: “It’s obviously not sustainable with those kind of losses. The changes would kill off extra care.

“We would have to talk to local authorities about paying the difference through social services budgets, or look at the mix of what we offer and do more market-based products.”

Housing & Care 21’s modelling is the first major estimate of the impact of the changes since the LHA cap was announced by George Osborne in the Spending Review last month.

It warns that the additional service charges for extra care and retirement housing would push rental costs substantially above LHA levels, even where the basic rent is aligned. It is currently not clear whether the government would include or exclude service charges in the cap.

It found that within its extra care business, the average total annual rent and service charge for its stock is £34.7m, while LHA would only provide £21.8m, leaving a shortfall of just under £13m.

In its retirement business, the total rent plus service charge cost is £72.2m, but LHA would only provide £61.2m.

Residents would be left to foot the bill themselves, or apply to councils for a short-term Discretionary Housing Payment to cover the difference – exposing extra care providers to substantial arrears.

Housing associations were encouraged to increase the rents on vacant extra care units to ‘affordable’ rates of up to 80% of market rents to make up for cuts to grant in 2011.

Housing & Care 21 has joined with the National Housing Federation, the Associated Retirement Community Operators and influential peers to push for an exemption to the cap.

Mr Moore said he is “hopeful” this will be successful as he “does not believe the government realises the consequences” of the change.

Michael Vogues, executive director of the ARCO, which represents retirement and extra care providers, said: “Most members are pretty concerned about the LHA cap, especially if it were to include service charges. What [Housing 21] is saying is pretty much the picture across the board.” “