Welfare Reform Bill

Memorandum submitted by The Riverside Group Ltd (WR 43)

About the Riverside Group Ltd.

Riverside is a charitable housing association and one of the country’s largest providers of social housing. Founded in Liverpool in 1928, we now provide homes and services to over 50,000 households in over 170 local authority areas from Kent to Carlisle. As well as providing affordable rented homes to families, couples and single people, we also provide additional support to over 12,000 vulnerable households, including elderly people, those at risk of being homeless and former armed forces personnel.

1. Introduction and summary

1.1 The Welfare Reform Bill paves the way for wide ranging reforms to the welfare system which will have a significant impact on social housing tenants and providers.

1.2 This evidence addresses the proposal in the Bill which will probably have the greatest impact on social housing tenants: namely plans to restrict housing benefit in accordance with occupation (clause 68).

1.3 We believe that the introduction of such a restriction will not help the Government achieve the objectives it has set itself, and will have a range of unintended consequences which will undermine the achievement of broader Government policy. Ultimately it will undermine the role social housing can play in helping tenants improve their life chances.

2. Under-occupation: What the Bill proposes

2.1 The Welfare Reform Bill enables the Secretary of State to introduce, via regulations, size criteria for working-age housing benefit claimants living in the social rented sector. This means that from 2013 social tenants will have their housing benefit restricted, depending on their household size and the size of the accommodation that they occupy.

2.2 In introducing these changes the Government has four policy objectives: [1]

· To contain growing housing benefit expenditure;

· To encourage greater mobility within the social rented sector;

· To make better use of available social housing stock; and

· To improve work-incentives for working-age claimants.

2.3 Whilst detailed proposals will be set out in future regulation, the Government’s intentions are set out clearly in the impact assessment which accompanies the Bill. This indicates that benefit will be restricted using the same criteria as those currently applied to private rented tenants, with a number of very limited exceptions.

2.4 In most cases, this will mean that for those living in social housing, housing benefit will no longer cover the rent associated with having separate bedrooms for children of the same gender at any age, younger children of the opposite sex, or a spare bedroom, even where this is important in helping family life.

3. Why under-occupation happens

3.1 It is natural is to ask why households with limited incomes should be funded, at the tax payers’ expense, to occupy a home which is larger than they strictly require. This question underpins the rationale of the proposed changes.

3.2 To answer this question it is important to understand how under-occupation arises.

3.3 Most of the time, social landlords do not set out purposefully to under-occupy their homes - nor do most tenants have unreasonable expectations about the size and type of home they will be offered at the start of their tenancies. Strict criteria at the point of allocation normally ensure that social housing is efficiently occupied.

3.4 In most circumstances under-occupation arises because family circumstances change during a tenancy. For example, children grow up and leave home or family breakdown occurs.

3.5 However, in these circumstances, the majority of households left under-occupying aspire to remain in what is now their home - close to their relatives, friends and support networks. Furthermore, tenants often have vital uses for so called ‘spare’ bedrooms, such as:

· to accommodate children who have moved away – for example to study - returning home at some future point;

· to enable care for grandchildren, perhaps to help their own children to work;

· to facilitate access arrangements following a family breakdown;

· to provide tenants scope to act as foster parents;

· to give modest additional space to facilitate normal family life – for example sufficient private space to enable older children to study and fulfill their aspirations, or provide separate bedrooms for couples where one partner has an illness or disability.

3.6 Most home owners enjoy some modest additional space in their homes. This is all the more important for low income households who are trying to improve their opportunities.

3.7 Occasionally, there are circumstances when social landlords purposefully under-occupy homes when they are let, particularly where maximising occupation would create poor tenancy outcomes. For example:

· larger upper floor walk-up flats are not always suitable for permanent occupation by families with children, and there are instances where a 2 bed flat may be sensibly let to a father with access to children at weekends following a relationship breakdown;

· in dense urban environments, small ‘2 up 2 down’ bedroom Victorian terraced houses, often without gardens, are let to similar households because their size makes them unsuitable for family occupation, and there is a limited market for sharing adult households. Indeed many of these homes are smaller in floor area than newly built flats; [2] .

· on some estates where there is a concentration of family houses built to relatively high densities, landlords may purposefully under-occupy some homes to prevent child density reaching levels where anti-social behaviour becomes a problem. [3]

3.8 At Riverside, we estimate that these type of lettings arrangements apply to around 10 -15% of stock.

3.9 Taken together, this suggests that a degree of legitimate under-occupation is central to ensuring that social housing provides homes and creates communities where families can thrive and flourish as their circumstances change. Policies which seek to eliminate this are likely to have very significant unintended consequences.

4. Will the proposals set out in the Bill meet the Government’s stated objectives?

4.1 In addressing this question we need to consider three possible outcomes to the introduction of housing benefit restrictions:

(i) Outcome 1: Tenants ‘downsize’ to smaller accommodation more ‘suited’ to their needs

4.2 The achievement of this outcome depends upon there being a broad match between the supply of homes and the household profile of existing social housing tenants at both national and local levels. This is clearly not the case.

4.3 In its own impact assessment, DWP quotes CLG research which demonstrates an over-supply of 3 bedroom houses in the social rented sector (relative to household size), and an under-supply of one bedroom homes. This is hardly surprising given the ‘baby boom’ origin of much of the nation’s current portfolio of stock, and whilst over the past decade there has been a move towards building smaller homes, and in particular flats, the current rate of replacement of social housing stock is very slow [4] . At Riverside we replace around 1% of our 50,000 homes per annum!.

4.4 The case of Riverside illustrates this issue very clearly. In April 2010, 47% of households comprised a single person, whilst only 20% of our stock had one bedroom. In some areas, such as former local authority estates where large numbers of family homes were built over a short period of time, this ratio is much more challenging. For instance in our Pennine Division, centred on a former local authority estate in Rochdale, 52% of existing households are single people yet only 12% of stock has one bedroom.

4.5 In the context of the Bill this means that working age tenants facing benefit restrictions and seeking to move to a smaller home (will have very limited opportunities to do so, at least in the same neighbourhood.

4.6 This is acknowledged by the DWP’s impact assessment, and it is possible that households seeking to ‘downsize’ will be forced to move some distance, in all likelihood into the private rented sector. As well as breaking down important family networks, there is a strong possibility that this would have the perverse effect of actually increasing the amount of benefit being paid. Taking the example of a couple in their mid 50s living in a 3 bedroom house on the outskirts of Liverpool paying a social rent of £82.87per week and facing a benefit reduction of, say, 20% or £16.50 per week through under-occupying their home. Assuming Riverside has a very limited supply of 1 bedroom flats in the locality (which is the case) the couple may move into a 1 bedroom flat in the private rented sector, receiving a local housing allowance at a post-April 1 bedroom rate of £86.54 per week – i.e. nearly £4 higher than the benefit they were receiving for a 3 bedroom house prior to the deduction for under-occupation!

4.7 And what if there were sufficient smaller home to enable mass ‘downsizing’? We believe there would be a number of negative consequences, in that many households would lose additional space that has a vital social purpose in helping support families. These include:

· Care arrangements: The Policy Studies Institute (PSI) has recently undertaken research for Riverside which has looked at worklessness amongst tenants. This study indicates that one of the principle ways tenants overcome barriers to work is through the close proximity of family, whether through members providing child care, care for a sick member of the household, or advice and support. Any measures which undermine this support, such as encouraging under- occupying households (especially parents) to move from their local neighbourhood, will weaken community cohesion and act as a further barrier to work. Further, the potential lack of surplus space – spare bedrooms – will impede traditional activities such as child minding.

· Access to children following family breakdown: Perhaps the people most likely to ‘downsize’ as a result of benefit restrictions are single fathers who frequently have very low net incomes. The combination of geographical relocation and a move to a one bedroom property is likely to impede overnight access arrangements and further reinforce family breakdown.

· Foster care: Couples who play a vital role in offering foster care will no longer have the space to do this – or face a financial penalty during periods without foster children. This will act as a significant disincentive to people volunteering to deliver this vital service.

4.8 Housing providers are not complacent about the issue of under-occupation, and often seek to incentivize and facilitate appropriate moves to smaller properties. This was explored by a group of housing associations in the ‘Mobility Matters’ report published in 2009 with funding from the HCA. This found that whilst under-occupying tenants are often prepared to consider a move if the offer of alternative accommodation is attractive, many would be resistant to moving if it would mean not being able to have a much needed spare room.

(ii) Outcome 2: Tenants ‘stay put’ and lose income

4.9 Assuming most tenants will not be able to move, the consequences of the proposal to restrict benefit will be a sharp loss of income for under-occupying tenants, based upon a 10-15% reduction in benefit for those under-occupying by 1 bedroom and a 20-25% reduction for those under-occupying by 2 bedrooms. DWP estimate that this will work out at an average of £13 per week for the 670,000 households affected nationally, or £676 per annum.

4.10 For Riverside 64% of tenants receive housing benefit, which accounts for nearly 50% of the association’s total income. We estimate that the proposal to restrict housing benefit in accordance with occupation will affect around one in five of our working age tenants currently in receipt of housing benefit, or over 7000 tenants. Based upon an impact assessment model developed by the Chartered Institute of Housing, these 7,000 tenants will lose around £2,500,000 per annum between them, although we suspect that this may be an underestimate given the DWP’s own published figures which indicate an average reduction of £13 per week per tenant, meaning that lost benefit could be in excess of £4m per annum.

4.11 This will have a very significant impact on household income at a time when tenants face huge pressures from rising fuel and food prices. Riverside houses some of the poorest households in the country with two thirds of our tenants having a net household income (including benefits) of less than £10,200 per annum and a quarter having an income of less than £5,200 per annum. For these poorest households, a loss in benefit of £13 per week would represent 12% of their net income, allowing for inflation. Such losses would enforce difficult choices between subsistence items such as eating well, clothing the children and, of course, paying the rent.

4.12 One of the objectives of the proposed benefit change is that the reduction will create an additional work incentive for tenants. However work undertaken by the PSI for Riverside indicates that the main barriers to work faced by tenants are not related to the consequences of an overgenerous welfare system, but rather similar barriers effecting those living in private accommodation – that is affordable childcare, caring responsibilities, low skills and ill health or disability. This research suggests that it is positive measures – economic growth, training and employment support, the provision of affordable childcare etc. – which are most likely to succeed in incentivising work rather than the ‘stick’ of reduced welfare support.

(iii) Outcome 3: Tenants ‘stay put’, but don’t pay their rent

4.13 We do not know the extent to which tenants will pay, from their own means, the additional rent no longer covered by housing benefit. DWP itself acknowledges that the behavioural impact of the proposal is largely unknown.

4.14 However previous experience indicates that, particularly for those tenants who have previously enjoyed housing benefit covering all of their rent, immediate payment is unlikely to be forthcoming, putting tenancies at risk and increasing the bad debts of the association. Whilst on the face of it the ‘worst case’ loss of income to Riverside could be £4m per annum (although this would assume that no-one loses their tenancy), when this is combined with the potential end of direct payments to landlords, the potential loss of income could be far higher. Tenants who have previously experienced their whole rent being paid in full to their landlord who are now faced with a benefit payment direct to themselves for less than the full rent due, may, in fact, chose to pay nothing. Unlike in the private rented sector, social housing tenants do not pay rent deposits, and so frequently prioritise other debts over rent arrears.

4.15 Of course where a tenant persistently fails to pay the rent due, and where advice and support has been offered over a period of time, the social landlord ultimately needs to seek possession of the tenancy through the courts, leading to higher levels of homelessness with all the associated costs to the public purse. We estimate that each eviction costs Riverside around £5,600 in court fees, arrears, rent loss and relet costs.

4.16 For these reasons, if the housing benefit restrictions are applied, Riverside is considering doubling the bad debt provision in its business plan to 3% of rental income from 2013/14 (from a norm of 1.5%), amounting to over £5m per annum.

4.17 To put this sum in perspective, this increased bad debt provision dwarfs the £3 million per annum that Riverside currently invests in ‘value added’ activities such as employment and training advice, welfare advice, financial inclusion and neighbourhood management. Potential loss of rent will therefore put these vital activities at risk at a time when local authority area grant has been all but been withdrawn.

4.18 Furthermore this loss of income would occur at a time when Government is looking for providers such as Riverside to put more resources into funding the provision of new homes through charging higher sub-market rents for new lettings and a proportion of relets under its flagship "affordable rent" regime. The increased annual level of bad debt would exceed the additional rent generated even if all of Riverside’s new lets and relets were let at an affordable rent.

4.19 So whilst the introduction of the proposal to restrict benefit may reduce housing benefit costs, much of the financial impact is Iikely to be passed on to not for-profit landlords in the form of higher bad debt, reducing their capacity to develop more homes and deliver value-added services for the public benefit. Other Government costs are also likely to rise, such as the increasing cost of dealing with homelessness.

5. Conclusion

5.1 It is very difficult to predict the outcome of the introduction of a restriction on housing benefit in accordance with occupancy for social housing tenants. There is little precedent and so any assessment of impact quickly enters the realm of speculation. The DWP itself acknowledges this uncertainty, which is why the proposed introduction of this change seems ill considered. It is impossible to predict which, if any, of the Government’s objectives will be met, and what the unintended consequences will be.

5.2 The likelihood is that the ultimate impact of the proposal will be driven by a combination of the three scenarios outlined in section 4 of this memorandum – all of which are negative, and none of which will help the Government reach its broader policy objectives.

5.3 Some tenants will move (possibly to higher rent accommodation) severing important family support networks and undermining opportunity. Others will stay put and face increasing financial hardship. Others will stay and put their tenancies at risk by accumulating higher rent arrears to the detriment of the social purpose of their landlords. They may then lose their tenancies at a significant cost to their landlords and, indirectly, to the Government.

6. What the Public Bill Committee should do

6.1 We hope that members of the Bill Committee will take these issues into consideration. We would strongly support the removal of Clause 68 from the Bill.

6.2 At the very least, in introducing detailed regulations, the Secretary of State should be required to have a clear regard to:

· the availability of suitable smaller accommodation in the market, and

· their impact on enabling families to promote opportunity through the provision of care and support to other family members.

6.3 This should have the practical effect of identifying a wider set of circumstances where households would, in effect, be permitted to under-occupy within reason, without it affecting their housing benefit.

April 2011

[1] DWP impact assessment

[2] B edroom numbers are actually quite a poor proxy for size of accommodation

[3] The problems of excessive child density on social housing estates were analysed in JRF’s seminal ‘Building for Communities’ report in the 1990s (David Page)

[4] Interestingly the current Government is trying to reverse this trend encouraging providers, through the planning system, to build more lower-density family houses.