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

 Incentives to work and access to low paid work

Housing benefit is a key support to help families from benefits and into work. It is arguable that the capping of HB could lead to lower rents and so help people working or seeking work. On the other hand it might just serve to exclude claimants from private rented housing and hinder choice and mobility which in turn might inhibit access to jobs. Many of our members believe that the caps on HB could take us back to pre LHA times when many people seeking private rented accommodation were excluded by landlords not willing to take benefit claimants. Since the LHA this has not been the case as HB has over the last few years reflected market rents.

To mitigate, there are a number of changes that could easily be made without affecting the proposed caps. AHAS has recommendations about rent direct and the targeted use of DHP – both discussed below. Another is the ability of low paid workers to access intermediate renting schemes and claim HB. Currently the products on offer from the HCA do not allow the low paid to claim a top up of benefits. It doesn’t make much sense to exclude the low paid from the very housing opportunities directed at them. This inevitably leads to shared ownership and Intermediate Rented housing going to the better off workers who could probably afford to make their way in the open market.

Levels of rent, including regional variations

AHAS thinks there is a strong case for London, or some parts of London, to be viewed as a special case for a higher cap as 83% of affected capped cases will be in London. This could be on a longer transitional basis. The profound changes that may affect rental areas in some parts of London should be managed carefully and government should be mindful of the pressures on local councils to meet the changes.

The proposed change to using CPI to up-rate benefits rather than RPI is also going to have an impact. Over the period 1991-2009 rents have risen at an average of 2.57 percentage points per y ear above CPI. Savills forecast that rents will end the year 8% higher than last year with another 7% of annual growth in 2011 and 2012; this is with a 6% fall in the supply of rental property. If this trend continues, the change to CPI will mean that LHA will not keep pace with rental inflation. The long term prospect for the HB rental market is challenging.

Shortfalls in rent

Shortfalls can only be dealt with either by negotiating a rent reduction or subsidising the landlord’s losses. The announcement of increased DHP is intended to meet the latter. CIH have calculated that the extra DHP equates to about £8.30 per year per case – and this is assuming that all the extra DHP is allocated to the rent loss cases. DHP for adult children of council tenants who choose not to pay their non dependent deductions is not a priority or a useful way of spending additional and valuable resources. We therefore recommend that DHP – or at the very minimum the extra amounts made available - should be targeted or ring fenced for only those tenants who are facing losses due to the LHA changes and prioritised for families where the council is seeking to prevent homelessness. Any other policy will lead to the funds having limited impact and no focus.

If used wisely it could be and efficient tool that fits hand in glove with the local authorities attempts to negotiate rent reductions and may tip the balance between the landlord agreeing to enter a further fixed term or not. AHAS therefore recommends that the fund is specifically given as a non ring fenced prevention fund and not tied to DHP budget policies or practice, and that clear guidance is given by DWP to make sure councils understand that the fund can and should specifically used for this purpose.

Levels of evictions and the impact on homelessness services

Local authorities are concerned about the impact on homelessness services and if homelessness can’t be prevented the cost of homelessness as a result of the changes. It’s difficult to predict how landlords are going to react to the changes but we believe that there will be a significant impact. Some landlords may have little alternative but to carry on renting at reduced rents. Others – and may buy to lets fall into this category – will have inflexible margins which means they simply cannot afford to take a lower rent and will see a higher non HB payer. They may be unsuccessful but nonetheless will seek to evict the HB renter.

Local authorities have been extremely successful at preventing homelessness by securing private rented accommodation for priority (and non priority) homeless applicants. This involved creating a culture change in the minds of applicants that the private sector can and does provide stable housing for families to bring up their children. This is still not fully imbedded and we forecast that evictions because of rent shortfalls will shatter that newly found confidence and drive back applicants into insisting (as is their legal rights) on formal homelessness applications to secure the perceived security and umbrella protection of local authorities. We foresee a significant rise in homelessness applications unless there is a cushion for priority homeless applicants. This will end up costing local authorities significant amounts of money in administration and storing up, once again, large amount of applicants being warehoused in temporary accommodation awaiting their nonexistent council allocation.

Planning homelessness services with this level uncertainty is very difficult. In order to assist, AHAS strongly recommends that DWP guidance is relaxed and clarified to allow rent direct payments to landlords in all homelessness prevention cases. We talk to many landlords and we are told that this small change would do more to build confidences and aid negotiation between the parties. This single change would be the most important aid to reducing the impact of evictions.

Landlord confidence

The private rented housing benefit market is the best it has ever been and this is due to a number of factors like the introduction of LHA, the expansion of the rental market aided by buy to lets, the increase in quality of accommodation, the relaxation of security of tenure. On the one hand landlords have learnt that HB tenants are long term stable customers, on the other hand if benefit ceases to pay the market rent landlords will seek to go elsewhere. In the short term the market may not allow them to move to alternative customers but over time this will change. To build confidences we need to offer landlords more.

Government can help by being more flexible in their approach to administration of benefits and pay landlords direct. Local authorities can do more by getting the tenants in the best position to be good tenants and to offer landlords good services. All this will build confidence and allow the HB market the best opportunity to house this group of tenants. Without all these measures the market may be too fragile to sustain the sector and we will see wholesale evictions.

 Community cohesion

Over the last few years there has been greater integration between claimant private tenants and full paying working tenants. There is little evidence or research but we should argue that this can only have improved community cohesion. Homeless families and others not traditionally able to access more expensive rental areas have been able to do this.

Large families and overcrowding

The impact on local councils being able to prevent homelessness for larger families is going to be most challenging. At the moment these families move into the private rented sector rather than being housed in more expensive temporary accommodation. The advantages of PRS are clear – families living in a location of their choice near their kids’ schools and the amenities they need to use. TA generally offers less choice and is usually more disruptive to the family and children.

In some areas like central London there will become HB no go areas where benefit levels are so low that families – particularly those needing larger accommodation - will have no choice but to move elsewhere. This is wrong on many different levels particularly for the family itself.

The pressures on neighbouring areas will be increased. Families not able to access accommodation will move to areas where they can. This will have a negative impact on services and resources in those areas such as schools and health services. These are serious medium and long term effects of the HB changes.

Limiting housing benefit payable to working age tenants, by property size

Limiting housing benefit payable to working age tenants, by property size will help to under occupation work and encourage more moves in social sector to smaller properties.