Impact of the changes to Housing Benefit announced in the June 2010 Budget

Written evidence submission by London Borough of Islington

This paper outlines the London borough of Islington’s response to the Housing Benefit changes announced by the Government in the June 2010 budget.

1. Incentives to work and access to low paid work

The proposed housing benefit (HB) caps of £400, £340, £290, £250 for resp. 4-, 3-, 2- and 1 bedroomed properties would potentially force low income households to move out to supposedly "cheaper" areas of outer London and having to commute back into the area for their jobs. This would impact on travel costs, child care arrangements etc.

We are also concerned that many people with close links to the communities would be forced out by these changes. We do not wish to see the Borough become the preserve of just the affluent.

1.1 Re the 10% reduction in HB after 12 months’ receipt of Job Seekers Allowance (JSA):

We believe that there are many reasons for people being in receipt of JSA, including lack of (suitable) jobs, being inadequately skilled/trained, inter-generational worklessness, being vulnerable, etc. We do not believe that reducing HB entitlement by 10% would have the desired effect of getting more people into work. On the contrary, we believe it will lead to an increase in: evictions for rent arrears; homelessness; and an exacerbation of the factors why people find themselves out of work in the first place.

In Islington, we currently have 1298 HB claims from people in receipt in JSA.

A 10% cut in HB after 12 months would amount to a reduction in HB of £14,675 per week or £763k per year.

2. Levels of rent, including regional variations

Islington is a high demand area, with some of the highest private sector market rents in London. With over 8,000 people on its housing register, and demand for social housing far outstripping its supply, the borough relies heavily on the private rented sector to help house its residents.

Whilst it is possible average rent levels may drop, we do not feel they would do so sufficiently to allow many affected households to retain their accommodation without other subsidy.

We recognise LHA rates have increased above pre LHA (2008) Housing Benefit levels, in particular for high demand properties i.e. larger properties. There is some anecdotal evidence of landlords raising their asking rents to the maximum LHA level which in turn incrementally raises the LHA rate. However, the proposed national caps of £250, £290, £340 and £400 for respectively 1, 2, 3 and 4/4+ properties take no account of the traditionally higher rents charged in Islington.

These higher rent levels are a result of the scarcity of affordable housing in London and the cost of land and property in the capital, rather than a product of the benefit system as evidenced by the relative rises since LHA started.

The DWP analysis clearly shows the inherently unfair impact of the proposed cap, with London being the only area within Britain affected by the level of the national caps at 1 to 4 bed level. 15,530 households in London are affected by the cap in 1 to 4 bed properties compared to none elsewhere1. London also has a further 1,910, 5 bedroom households affected by the restriction to a 4 bed property and the £400 cap i.e. over half of the numbers affected.

Islington is divided into four Broad Rental Market Areas (BRMAs).

The table below shows current (August 2010) LHA rates for each BRMA in the borough, by bedroom category;

Table 1: August 2010 LHA rates in LB Islington

The table below illustrates the potential impact of the caps, showing the maximum weekly HB loss per bedroom category by BRMA (based on August 2010 LHA rates);

Table 2: Potential weekly HB reductions under new caps

The private rented sector in the Central BRMA will become a ‘no go’ area for benefit claimants for 1, 2, 3 and 4/4+ properties with the Inner North BRMA becoming increasingly restrictive from the 2 bed size upwards. Current claimants in these areas will be forced to move as the likelihood of them finding alternative accommodation at the cap levels in these areas are practically non existent.

A London Councils survey revealed that Islington is one of the 7 most affected boroughs in London.

August 2010 figures provided by our Housing Benefit service confirm that of the total number of 2,042 private sector claims for self-contained accommodation, 629 (31%) would be adversely affected by the cap. Of those, 582 would have their benefit cut by more than £10 per week.

The table below shows the number of private sector households affected by the caps by property size;

Table 3: Number of households affected by the caps, by property size

3. Shortfalls in rent

Given the high demand in the borough for private rented accommodation (which has increased by some 20% over the last ten years) we believe it is highly unlikely that landlords will accept the huge shortfalls and tenants will face eviction. Many landlords have mortgages to finance, and the drop in LHA rates will simply not provide sufficient funds to meet mortgage repayments.

Not only will this have an impact on the "ethos" of stable mixed communities, but will cause further hardship to low income households with extra costs for removal, interrupted schooling, loss of support groups and possibly making the commute to work unaffordable as they are forced to relocate to outer boroughs.

The impact will be that it will no longer be possible for households on benefits to access the private rented sector in many parts of the borough.

3.1 Re: The impact of setting LHA rates at the 30th percentile

DWP’s figures in their impact assessment show that, if all rents remain the same and no-one moves, the average loss in London will be £17 per week, compared to £9 per week nationally.

The average expected losses in 3 out of 4 Islington BRMAs are substantially higher.

The table below shows the potential reduction in HB if LHA rates are reduced to the 30th percentile of market rents;

Table 4: reduction in HB, with LHA rates reduced to 30th percentile,

compared to June 2010 LHA rates

4. Levels of evictions and the impact on homelessness services

Due to tenants’ inability to meet HB shortfalls and subsequently falling into rent arrears, there will inevitably be an increase in evictions and homelessness, and an increased need for temporary accommodation. The borough will have to pick up the additional costs of procuring and managing temporary accommodation and ultimately, permanent housing. All this will do is transfer the cost from one part of the public sector to another. There is already a shortage of temporary accommodation available in the Borough. In order to accommodate any increase in households, more temporary housing will have to be sought in the cheaper areas of London and outside London, particularly large accommodation with 4 or 5 bedrooms.

Islington has been very successful in reducing the number of households in temporary accommodation, which, over the past 5 years, has decreased by 45%.

One of the main ways in which we have managed this is by placing clients directly with a private sector landlord, through our Rent Deposit Scheme.

However, the successful continuation of the scheme will be jeopardised by the introduction of the caps, with landlords being unwilling or unable to offer properties to the council at the much reduced LHA rates. Furthermore, people currently housed under the scheme will be facing shortfalls in HB and potentially loose their tenancies.

An analysis of clients placed under the Rent Deposit Scheme over the past 18 months shows that 228 out of 422 (ie 54%) will be adversely affected by the caps.

The chart below shows the extend to which people placed by LB Islington under its Rent Deposit Scheme over the past 18 months will be affected by the caps;

The table below shows the shortfalls faced by clients placed by the council under its Rent Deposit Scheme, by property size.

Table 5: HB shortfalls for clients placed under Rent Deposit Scheme

5. Landlord confidence

The proposed changes will lead to a reduction in the amount of private sector properties available to claimants of housing benefit.

Landlords are unlikely to reduce their rents if their property costs are high when there is a buoyant market. This will cause evictions and unwillingness of landlords to rent to people on benefits. Many landlords will either sell their properties or seek to rent to people not on benefits.

The uncertainty around the actual value of the drop to the 30 percentile value, (depending as it does on the range and spread of properties available for rent) creates a challenge to landlords and their business plans, in particular their decision to let to claimants on benefit unless they wish to specialise in low cost accommodation.

The changes to temporary accommodation subsidy, which have been taking place on an annual basis, have already made it difficult for landlords working with councils to manage and plan their portfolios.

Many landlords offer the council a mixed portfolio of properties for use as either temporary accommodation or the Rent deposit Scheme. The proposed changes would make it even less attractive for landlords to offer properties to the council, and may well be the final nail in the coffin for many landlords.

There is also an expectation that the standard of properties will deteriorate, due to landlords being unable or unwilling to fund repairs and maintenance, with a much reduced rental income.

Furthermore, in order to maximise rental income, landlords may attempt to convert properties into a number of smaller units with possible disregard to planning regulations and guidance.

6. Community cohesion

Trying to create sustainable communities would seem a pointless policy aim if families are forced to move out of the borough.

The resultant decrease in the availability of the private rented sector for households on benefits will increase the demand for and pressure on social rented housing.

This is likely to lead to further increases in the concentration of people on benefits on social housing estates thereby increasing concentrations of areas of deprivation.

7. Disabled people, carers and specialist housing

The proposal for LHA to cover the cost of an extra bedroom for carers will be positive for those disabled people and carers who benefit from this, as long as their rents are fully covered by LHA.

8. Older people, large families and overcrowding

The proposals will inevitably increase overcrowding as, in some cases, particularly for large families, the only way to afford private sector housing in Islington will be to live in smaller accommodation than the household requires.

9. Conclusion

Islington council acknowledges the government is attempting to address the budget deficit and to reduce the housing benefit bill.

However, we do not believe that the proposed changes will achieve a fair welfare system which will assist those in the most need, help to reduce poverty or get people back into employment.

On the contrary we believe that the changes will lead to increased poverty, overcrowding, unemployment, the displacement of people and the break up of communities, people being driven away from inner city boroughs, and a potentially much reduced (but much needed) private rented sector.

The subsequent costs of increased overcrowding, homelessness, enforcement action against poorly maintained or converted properties, will have to be met by local authorities, as they try to improve and find alternative accommodation and meet the needs of their residents.

3 September 2010