Memorandum by the Department for Work
and Pensions
SUMMARY
1. This memorandum is submitted by the Department
for Work and Pensions in response to a request from the Committee
to indicate the impact on Housing Benefit (HB) expenditure if
"temporary to settled"" schemes, such as those
operated by the housing association, Local Space, were to become
more widespread.
2. The scheme described by Local Space in
their written evidence to the Committee broadly involves using
the rental stream associated with temporary accommodation to procure
more social housing. The properties concerned are owned by Local
Space but held on a short-term lease by Newham local authority
for a period of 10 to 15 years from when they will revert to the
housing association and be settled properties. In the Department's
view, using projected HB payments as a basis for investment decisions
carries significant risk.
3. More recent temporary to settled initiatives,
which involve a variety of organisations, not just Local Space,
do not involve leasing arrangements between the purchaser of the
property and the local authority and, as such, are intended to
provide homes at rents that are cheaper than temporary accommodation
rents. In some schemes, the homes become social housing, and settled,
earlier on. The criteria for the pilot Extra Homes initiative,
launched by Communities and Local Government and the Greater London
Authority, require that the property is able to bring the homelessness
duty to an end from day one when the family move in.
BACKGROUND
What is temporary accommodation?
4. When required to house a homeless person
under their statutory duty, a local authority will often rely
on temporary accommodation until a permanent housing solution
is available. Temporary accommodation encompasses the following.
— Local authority short term leases—these
are properties which the local authority leases from a private
landlord for a period not exceeding ten years. The Department
pays HB subsidy on these properties at 100% up to a local authority
specific upper financial limit, which is known as the cap. No
subsidy is paid for any part of the rent which is above the cap.
— Local authority licensed accommodation
(rare) usually hotel licenses, and subsidised like local authority
short-term leases.
— Bed and breakfast accommodation—subsidised
at 100% up to a local authority specific lower limit which is
known as the threshold, and at 10% up to a local authority specific
upper limit, which is known as the cap, with nil above the cap.
These subsidy rates are lower to discourage the use of such accommodation
in line with CLG's remit to keep families in bed and breakfast
only in exceptional circumstances and then for only up to six
weeks.
— Housing Association short-term leases
(HALS). These are properties which a housing association leases
from a private landlord on a short-term basis. For HB purposes
they are treated in the same way as any other housing association
tenancy—referred to the rent officer for a possible rent
restriction if the local authority considers the rent too high
or the property under-occupied.
— Local authorities can also use other
types of non-permanent accommodation, such as hostels, and temporary
council, housing association or private accommodation let directly
to the applicant.
5. The vast majority of households (some
90%) placed in temporary accommodation rely on HB to pay their
accommodation costs.
The Local Space scheme in Newham
6. Leasing arrangements are commonly used
by local authorities to house homeless people until a settled
home becomes available, The total cost of providing this accommodation
combines a lease or rental payment to the landlord plus management
costs incurred by the local authority or a housing association
managing the property on the local authority's behalf. At the
end of a lease or rental period, the private landlord regains
his or her property for re-letting or selling.
7. The scheme operated by Local Space is
an alternative to the usual temporary accommodation leasing arrangements
in that the properties revert to the landlord at the end of the
leasing period. The intention is that they provide a more stable
stock of temporary accommodation in the short term and in the
longer term, permanent social housing.
8. This scheme uses the rental stream associated
with temporary accommodation to finance borrowing to purchase
the homes, so that they can be converted into social housing at
the end of the borrowing term—typically 10 to 15 years—rather
than returning properties to the private landlord, In other words,
the HB subsidy procures a public asset rather than going to a
private landlord.
5Implications for Housing Benefit
9. Whilst the scheme operated by Local Space
has obvious attractions, the Department has the following caveats.
— The explicit use of HB to fund capital
investment is a departure from the current expectation that HB
is paid in order to meet an individual tenant's rent liability.
— It would be risky for this scheme
to base a longer term financial guarantee to local authorities
and landlords on any assumptions about the long term benefit dependency
of the tenants given the Government's wider aspirations to help
these tenants move off benefit and into work.
— This scheme is intended to run for
some 10 to 15 years and it does not necessarily follow that the
HB rules will remain the same for the whole period concerned.
Under this scheme, whereby the properties are leased to Newham
Council, the rents are set by the council at the maximum levels
for HB subsidy purposes. Therefore the scheme relies heavily on
the current HB subsidy regime for temporary accommodation. This
is a significant risk because the rules are likely to change.
— The high level of rents/costs for
tenants and HB over the 10 to 15 year period before properties
convert to social housing could be perceived by tenants as a disincentive
to work and exacerbate benefit dependency and the public cost
of such initiatives (although possible future changes to the HB
rules for people in temporary accommodation which set rents at
an affordable level would help to address this issue),
— Whilst the intention of the Local
Space model is to allow people to remain in the property for the
period of the lease, and then, hopefully, move into social housing,
in that sense it does provide a stable home from day one. However
these are still non-secure tenancies, and classified as temporary
accommodation. In later initiatives, the Government has required
that these properties are not formally temporary accommodation
from day one, although they are still let on assured shorthold
tenancies.
10. In fact, in London, the subsidy caps
are set at a generous level and there is nothing to stop a local
authority from setting its rents for leased accommodation at the
cap regardless of the true cost of procuring that accommodation.
The Department have therefore made some HB subsidy changes for
local authority short term leases from April 2007, with a view
to possibly making further changes from April 2008 in the light
of evidence gathered by the Benefit Fraud Inspectorate on a sample
of London authorities.
11. The Department is also considering making
some major changes to the HB rules for people in temporary accommodation
from 2009. Together with Communities and Local Government and
the devolved administrations, the Department is currently developing
proposals which separate reasonable costs for the rent of and
management of temporary accommodation,
12. The objectives for reform are to ensure
that the amount paid reflects reasonable rent and management costs
(ie an affordable rent), offers value for money; and helps to
support people in temporary accommodation until a permanent solution
is available, This would, of course, have significant implications
for schemes such as those operated by Local Space.
The future of temporary to permanent schemes
13. The basic principle behind temporary
to settled schemes remains, ie. that rental income is used to
repay borrowing that has been used to buy a home, instead of going
to a private landlord to pay for renting a property as temporary
accommodation. After 10 to 15 years, the borrowing has been repaid
to a level that allows the properties to be converted to social
housing, let at affordable rents,
14. With this in mind, CLG and the GLA's
Settled Homes bid was launched in October 2006 to help families
in London accepted as homeless and living in temporary accommodation
move into long term housing.
15. As a result, housing schemes in Bromley,
Hackney, City of Westminster, Brent, Ealing and West London will
receive a total of £30million to help fund the purchase of
around 900 homes and convert them over time into quality settled
social housing.
16. The bids were assessed against the following
criteria:
— Providing settled accommodation
— Contribution to the 2010 temporary
accommodation reduction target
— Sound delivery plan and risk mitigation
— Housing quality standards.
17. These pilots aim to explore new approaches
which help families to overcome barriers to work, provide settled
homes, and reduce the cost of funding expensive temporary homes
through Housing Benefit,
18. Properties provided under these pilots
will be initially offered as fixed-term qualifying assured shorthold
tenancies (giving homeless families more certainty about where
they will be living compared with non-secure tenancies in temporary
accommodation) and at rents that are more affordable than temporary
accommodation (market levels or lower). As these properties will
not be held on a short-term lease by a local authority, this would
remove the scope for taking advantage of the generous HB subsidy
arrangements for temporary accommodation,
19. As there will be no leasing involved,
these properties will be cheaper than the current temporary accommodation
rents for leased units and, although the properties will initially
be provided on temporary tenancies, they will convert to long
term social rented housing within a given period. This means that
the families would not have to live in leased temporary accommodation
where at the end of the lease, the property would have to be handed
back to the private landlord.
The impact on the total housing benefit bill of
extending the Local Space temporary to permanent scheme
20. In 2005-06, nearly £600 million
was spent on HB for temporary accommodation rent rebate cases
in England. In London, the total spend was nearly £500 million
and in Newham it was around £70 million. Economic analysis
by CLG in 2005 showed that temporary to settled housing schemes
are good value for money compared with temporary accommodation
and favourable value for money when compared with traditional
capital investment in social housing.
21. However, since this economic assessment
was made, there have been two important policy developments. Firstly,
the CLG's Pilot Extra Homes Initiative has been established which
has introduced different models of temporary to settled schemes.
These have different features to the Local Space model and therefore
each have different effects on the HB bill. Secondly, the economic
assessment assumed that HB spend on temporary accommodation would
remain around the same level as currently. For example, the Local
Space scheme uses the higher rental stream and HB subsidy associated
with temporary accommodation to finance borrowing to purchase
new homes. This means that compared to current HB spending on
temporary accommodation, this would not incur additional public
funding, all other things being equal. However under the major
changes to the HB rules for people in temporary accommodation
from April 2009 that the Department is currently considering,
this higher rental stream may not exist and the resulting lower
HB bill may mean that additional or alternative forms of funding
would be required for Local Space schemes to purchase new homes.
22. The Department has yet to finalise the
details of its proposed reform of HB for those in temporary accommodation
and is therefore currently unable to give a detailed breakdown
of the financial impact of temporary to settled schemes, including
Local Space, on Housing Benefit expenditure.
23. The Department will work very closely
with colleagues in Communities and Local Government to ensure
we take account of the impact on Housing Benefit expenditure of
future temporary to settled schemes.
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