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

Written evidence submitted by London Councils

Summary

This paper sets out London Councils’ evidence to the DWP Select Committee on the impact of the changes to housing benefit announced in the June 2010 budget. London Councils is conscious of the need to address the budget deficit the need for a welfare system which helps people out of poverty and to assists them into and to maintain work.

However the June 2010 budget proposals, with the exception of the extra room for non resident carers, is focused on cutting the costs and is not an integrated set of reforms based on a holistic approach to welfare and housing support. This approach has a number of consequences which outweigh the estimated savings. Specifically on the impact of the proposed changes to Local Housing Allowance in London, which it is understood will;

- affect an estimated 159,370 households across London by October 2013.

- lead to an estimated 11,380 households moving from central London to secure cheaper accommodation else where in London and beyond

- Impact disproportionally on low income or workless households who will loose up to £641 a week.

- Increase the number of homeless households in temporary accommodation across London by 4,589 by March 2012.

Our key points and proposals are:

LHA National Caps and Rent Levels

London has been disproportionately affected by the national cap, which is expected to reap a saving of £55 million in 2011/12. We estimate that £37.3 million of that will come directly from London i.e. 68% of the saving; but London has only 16.9% of the caseload.

o London Councils requests the government to reconsider the level of the national cap in London and for the Central BRMA in particular, and introduce a transitional scheme which can be later integrated into the reform of the whole welfare scheme to ameliorate the impact on London.

o Changes could be made by reinstating the local authority power to refuse unreasonable rents asking them to take account of the national cap, but not necessarily placing that as the upper limit.

o A London maximum cap based on the estimated 30th percentile rate could be introduced for the Inner London or the Central BRMA. This would cut off the highest end of the market but not prompt wholesale migration.

o London Councils believes the anomaly for non resident carers should be removed and reconsideration be given to the original intention of the change rather than allowing the caps to restrict it.

o If the government reconsider the national cap and 30th percentile LHA change in the London context , the change to increases by the CPI index may not have such a severe impact, but if this takes place after the current proposals are implemented the long term rental market available to benefit claimants will be of the poorest quality.

Evictions and homelessness

o In a survey undertaken by London Councils and the London Landlord Accreditation Scheme, 46% of landlords have indicated they might accept rent shortfalls if landlord direct was reinstated. This may help to decrease rent levels and evictions if reintroduced.

o
London Councils believes to avoid potential evictions and to manage the migration, an increase of at least £20 million is necessary to the 2011/12 DHP pot and £18 million of that should be directed to London.

o The Homelessness Prevention grant is scheduled to end in 2010/11, being the last of the 3 years originally granted. It is imperative that this grant is maintained and it should be increased to match the extra workload arising from the continuing need to liaise with HB departments, landlords and claimants at risk.

o London Councils also requests that transitional relief be applied to current HAL leases for at least a 2 year period allowing the rental market to settle following the impact of these changes.

Incentives to work

o The caps, in creating a financial incentive to live in outer London areas, effectively encourages a move to areas where there are fewer employment opportunities, and perversely away from family child support, whilst also adding to transport costs.

o With regard to the 10% reduction, London Councils believes each case would have to be considered on its merits and the consequences of applying any reduction on any family members taken into consideration. Although a reduction in benefit could act as a rather harsh incentive to move into work, it should only be applied once a new welfare system lays the proper foundation for making work pay and providing help to access work.

o Increasing non-dependent deductions could be counter productive, especially in social tenancies, becoming a rising cause of evictions due to rent arrears and/or increasing the number of under 25s leaving home.

In short, London Councils believes the impact of the June proposals could be devastating to London.

The proposed cuts to benefit levels (taking no account of traditional rent levels) will cause migration out of central London to poorer areas, increase homelessness and overcrowding, intensify areas of deprivation, intensify pressure on local authorities at a time of severe budget constraints and sows the seeds of a return to systemic poor housing conditions with long term health and educational problems for the capital.

We believe that a transition process which recognises the traditional high rent levels should be put in place preceding any major reform of the welfare system avoiding the more costly unintended consequences of these reforms.

Introduction

1.1 London Councils is committed to fighting for more resources for the capital and getting the best possible deal for London’s 33 local authorities. We lobby key stakeholders, develop policy and do all we can to help our boroughs improve the services they deliver. We also run a range of services ourselves, all designed to make life better for Londoners

1.2 This document sets out evidence from London Councils to the DWP Select Committee on the impact of the changes to housing benefit announced in the June 2010 budget. It addresses the key points outlined in the brief and highlights the concerns and opportunities raised by London boroughs.

2 Background

2.1 The June 2010 budget set out a range of changes to the Housing Benefit (HB) scheme, from changes to the Local Housing Allowance (LHA) rates to the removal of 10% of entitlement after a year on HB. All but one of the changes were aimed at reducing the HB bill, therefore it comes as no surprise that the impact is huge, especially in London with its 799,5601 claimants accounting for a significant part of the HB budget2 (£5,185 million of £17,591 million for England).

2.2 However the numbers on benefit do not tell the whole story, which is one of demand and the lack of affordable housing, resulting in a city with exceptionally long waiting lists for social housing (354,389)3, nearly twice as many overcrowded households in the privately rented sector to the rest of England4 (London 9.8% England 4.9%) and 76% of the number of households in temporary accommodation5 (39,030 out of England’s 51,310).

2.3 In London the advent of the Local Housing Allowance offers a real alternative to households, enabling them to find affordable property and sustain a tenancy. It also allows local authorities the genuine option of discharging their statutory duty to the homeless into the private rented sector, instead of housing them in temporary accommodation until a social tenancy can be found (in some cases for 10 or 11 years).

2.4 London Councils welcomes the government‘s aim to reform the welfare system into one which provides support, but incentivises work and understands the pressure on the Housing Benefit budget. However we believe the proposals disproportionally affect London and the full range of the unintended consequences have not been considered.

2.5 These unintended consequences include:

§ Increased rent arrears and evictions leading to increasing homelessness;

§ A decrease in the number of landlords willing to accept LHA claimants in Central London in particular;

§ A decreased supply of move-on accommodation for hostel residents in Central London;

§ The creation of a no go area for LHA claimants in Central London;

§ A 2 tier system of housing support, where claimants who have been on benefit since prior to the introduction of LHA are not affected;

§ Increasing hardship for households trying to make up shortfalls;

§ Additional personal costs to the households as they are forced to move, e.g. the loss of local support groups and close family networks and interrupted education;

§ Increased amounts of overcrowding in the private rented sector as families opt to stay in overcrowded accommodation in order to find properties within their LHA budget;

§ Significant migration to cheaper outer London areas and out of London;

§ A decrease in the number of in-work benefit claimants as they are forced to move further away from their jobs and areas of employment;

§ The loss of the private rented sector as a valid option for family households in London resulting in a redirection of households down the homeless route especially for large families;

§ An increase in homeless households and placement in temporary accommodation;

§ A return to the use of bed and breakfast accommodation for family groups as competition for temporary accommodation increases;

§ Increased competition for larger properties to use as temporary accommodation;

§ A cost shunt to boroughs faced with increasing costs for homelessness advice support and leasing costs above the temporary accommodation subsidy cap;

§ Transfer of ‘household support costs’ from central London to outer boroughs for larger families;

§ Further pressure on school places in outer London.

The evidence for our statements and our proposals are divided into the key topics as requested below.

Regional Variation and Levels of Rent

3 Regional Variation

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

3.2 These higher rent levels are as 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 (see Appendix A).

3.3 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 elsewhere6. 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.

3.4 Although these proposals will lower rent levels in some areas, with a robust and buoyant PRS sector in Central London not reliant on benefit claimants, there seems little chance of landlords accepting the huge shortfalls and tenants will face eviction. 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.

3.5 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, and the Inner North and Inner West BRMAs will become increasingly restricted for 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 their respective boroughs is practically nonexistent (a London Councils survey7 of the 7 most affected boroughs revealed a total of 261 properties available at or below the cap across the range of 2-4/4+ bedroom size).( Appendix B)

3.6 Further evidence of this no go area is found in Table 98 which considers the availability of accommodation after the national caps and 30th percentile changes have been applied. London has the only BRMAs where the availability of accommodation is less than 30%, in fact it has 3. The Central BRMA will have 7% of accommodation available, clearly being the exception to the idea that 30% of the accommodation should be available to tenants on LHA.

3.7 Another perverse incentive may develop as a result of the national caps being applied in the Central BRMA. The estimated 30th percentile LHA rate for a shared room at £137.50 is well below the single 1 bedroom (self contained cap) of £250; but, if a landlord decides to let one of his/her 3 or 4 bedroom properties as a shared house or on individual room agreements the rental value can increasing to say £550 for a 4 separate rooms or even further if public rooms are turned into bedrooms giving a 6 room shared house at £825. Families could be evicted for a more profitable clientele and houses of multiple occupation could multiply in areas of Central London.

3.8 However, that does not display the effect at individual BRMA level where individuals, with possible shortfalls rising to £25.50, £30, £40, £61, £57 for 1 shared, 1 bed, 2 ,3, and 4 bed respectively (Appendix C). Even when the effect of the inner London BRMAs is separated out (Appendix C graph) London is still faced with large shortfalls.

3.9 The range of shortfalls on the estimated 30th percentile change across all the London BRMAs is worrying. Unless landlords are willing to accept the shortfall claimants will find it exceptionally difficult to make up the differences in these amounts on their low incomes. Although we recognise Local Housing Allowance is a significant force in the market, any moves to influence rent levels has to take into account the current buoyancy in the market, as it will be claimants who will bear the brunt of this move to use LHA to alter markets.

3.10 The London Councils and the London Landlords Accreditation Scheme joint survey of landlords indicates that landlords will be unwilling to drop rents and intend to evict (Appendix D).

3.11 London Councils asks the government to reconsider the level of the national cap in London and for the Central BRMA in particular. Government should introduce a transitional scheme which can be later integrated into the reform of the whole welfare scheme. Specifically;

à Current claimants in the Central BRMA are subject to the 30 percentile change from April, but not the national cap;

à Any new claimants in the Central London BRMA who could find a property would be subject to the national cap;

à The rest of London would follow the current DWP proposals;

à There would be a steady progression towards the national cap level which could be made annually for central London;

3.12 This would cut off the highest end of the market but not prompt wholesale migration

3.13 Changes could be made by reinstating the local authority power to refuse unreasonable rents, asking them to take account of the national cap but not necessarily placing that as the upper limit.

3.14 The provision of a room for a non resident carer is welcomed but here again Londoners may fall foul of the impact of the national caps, e.g. someone in a 1 bed property in the Inner North BRMA in Islington (LHA £245) looking for a 2 bed property below the cap would have to move, with only the Outer North BRMA being available in the borough below the cap limits. How easy this would be for someone registered as disabled is questionable. While those already in larger properties in Central London will be forced to move due to the same caps even with an extra bedroom added to their LHA allowance.

3.15 A further anomaly exists in that claimants who are on Housing Benefit rather than LHA will be able to apply to the Valuation Office Agency for a new decision which will not be affected by the £290, £340 and £400 caps.

3.16 London Councils believes the anomaly for non resident carers should be removed and reconsideration be given to the original intention of the change rather than allowing the caps to restrict it.

4 Rent Levels

4.1 Claimants and LHA have been viewed as responsible for increasing rents in London, but in fact the DWP analysis9 clearly shows that 82,640 households are in property which is rented at below the maximum LHA, i.e. 52% of London claimants.

4.2 Rent levels in London are high and have been traditionally high, as reflected by the Local Reference Rents from 2005 for Central and Inner North areas (despite the fact that the local reference rent disregards the exceptionally high rents in the range):

4.3 There have been marked increases in rent levels, but these are not solely attributable to Housing Benefit or LHA claimants. They are more a function of the property market with rises in property prices10 over the same period in Westminster of 50% and Camden of 43% easily justifying rent increases, while outer London boroughs of Croydon and Waltham Forest show increases of 4% and 13%.

4.4 Landlords are unlikely to reduce their rents if their property costs are high when there is a buoyant market. This fundamental truth will cause evictions throughout parts of London. The decision then becomes one of budget constraints versus the impacts of households having to move out of their own area, increased overcrowding, cost shunts to local authority homelessness budgets as they try to find accommodation for larger families, increasing concentrations of areas of deprivation and whether society should establish separate areas for the rich or poor.

4.5 The announcement that LHA rates will be uprated in line with the Consumer Price Index and not the market is highly disturbing for London. This presents a scenario in that all areas become less and less affordable as the competition increases in areas where rents are currently low. Ultimately, all of London is constrained by the national caps and the worst aspects of "Rackmanism" are reinstated in the capital.

4.6 If the government reconsider the national cap and 30th percentile LHA change in the London context, the change to increases by the CPI index may not have such a severe impact. But, if this takes place after the current proposals are implemented the long term rental market available to benefit claimants will be of the poorest quality.

5 Levels of Eviction and the impact on homelessness services

5.1 The London Councils and London landlords Accreditation Scheme has recently undertaken a survey of landlords. Our survey findings on landlord behaviour in the light of the proposed changes are of more concern than original estimates. Our estimates were that for properties of 1 to 2 bedroom sizes landlords would accept shortfalls of £30 and £50 for 4 to 5 bedroom properties, again with the caveat that in areas with a robust rental market and demand that might not be the case. Based on those assumptions and the DWP analysis11 of the impact of all the changes at borough level our initial estimate was that from the worst affected boroughs i.e. those with a part of the central BRMA 11,340 households would be forced to move (Appendix E)

5.2 The survey findings12 indicate that whilst a notable proportion of landlords would be willing to reduce their rent by up to £10 a week for one and two bed properties (39% would reduce) and by up to £20 a week for larger properties (35% would reduce), numbers plummet at the next chosen bands of £10-20 (22%) for 1 and 2 bed and £20-50 for 3 bed plus (7%).

5.3 A significant number of landlords are proposing to wait until the tenancy ends rather than evict, but the end result will be the same unless the market drops dramatically. Responses are shown in the table overleaf:

London Councils/LLAS Landlord Survey

5.4 By applying the above probabilities from the survey data to the DWP impact analysis13 and our own modelling of caseload review we estimate that the total the number of claimants who could face eviction or their tenancy agreement not being renewed at the end of the term in London could be as high as 82,000 in 2011/12. This comprises 15,000 tenants who would be at risk of eviction following the April caps and another 67,000 tenants at risk following the October percentile change.

5.5 39% of landlords indicated they might be prepared to act differently if the tenants have been long term tenants, but we suspect that will also be a function of the amount of shortfall.

5.6 Similarly 46% of landlords have indicated they might accept rent shortfalls if landlord direct was re instated.

5.7 The actual levels of eviction could be lowered by the use of Discretionary Housing Payments, but for 2011-12 the increase in DHP is only £10 million nationally. Although initial indications are that London would receive the majority share, a look at the estimated amount shortfalls in London show that figure to be completely inadequate:

§ Disregarding those with shortfalls of below £30 (Appendix E), London would need approximately £36.8 million; or,

§ Disregarding those with under £10 shortfalls but only giving Discretionary Hardship payments to families1 (Appendix F), London would need approximately £35.3 million,

§ Concentrating on those boroughs in the Central BRMA alone (again disregarding £10 shortfalls) would need £27.8 million.

5.8 London Councils believes to avoid significant numbers of tenant evictions and manage the migration an increase of £20 million is necessary for the 2011/12 DHP pot, and that £18 million of that should be directed to London.

5.9 Having exhausted DHP, tenants will have no alternative but to move. Some will of course make that move unaided. However, households who have already been through the homelessness route are likely to return the borough to seek assistance. The local authority has been able to discharge its statutory homelessness duty into the private rented sector using the current level of LHA, perhaps with the aid of a deposit. These households will be returning to the local authority as a source of help, especially in the central boroughs as the caps make their tenancies unsustainable. The subsequent budget costs for lost deposits to the boroughs will in some cases be over a £1 million.

5.10 The Homelessness Prevention Statistics2 show 15,000 households were helped to access alternative accommodation by London boroughs in 2009/10, boroughs with the central BRMA as part of their areas were responsible for 3,128 of these.

5.11 Central London boroughs have already started to contact landlords, who have indicated they will not let tenants stay if there are large shortfalls, setting up a revolving door for the homelessness services and a move to find other properties.

5.12 There will be other families seeking assistance, although the impact on services is more difficult to quantify as it will depend on a number of factors:

i. liaison between housing benefit departments as they consider DHPs;

ii. signposting to Housing Options;

iii. availability of accommodation within the areas the household wishes to move to or conversely their current area;

iv. whether they wish to join the queue for social housing;

v. whether they are willing to take whatever location the homelessness services can find in the hope of returning to their original borough;

vi. the likelihood that they can afford a property of their choice elsewhere under the new LHA rates.

5.13 The GLA has estimated that an additional 4,865 households will be accepted as homeless and moved into temporary accommodation in 2011/12 because of the proposed changes, but the number could be higher, boosted by those in need of larger properties.

5.14 The extra workload for boroughs comes at the same time that the Homelessness Prevention Grant is scheduled to end, 2010/11 being the last of the 3 years originally granted. It is imperative that this grant is maintained and it should be increased to match the extra workload arising from these changes. Boroughs should not be penalised with less resources in meeting the challenge of an increasing level of potential and actual homelessness. The Homelessness Prevention Statistics3 show 32,600 households were helped in London through 2009/10.

5.15 Boroughs will have to expend considerable resources locating new properties, of which a significant number will need to be larger properties. It is likely that in many cases these properties will be outside London and there will be an additional impact on homelessness services in locating and resourcing these given the numbers involved.

5.16
Boroughs in the east of London are already receiving an increased number of out of borough placements from other London boroughs and are very concerned that this will become the norm and in doing so establish long term migratory patterns of poor households from central/high cost boroughs to outer London.

5.17 The introduction of the £375 and £500 subsidy cap on PSL in 2010 created a number of problems for boroughs looking to locate their temporary accommodation within their own boundaries.

5.18 Further announcements that from April 2011, temporary accommodation procured through Housing associations will also be subject to the Private Sector Lease subsidy regime is causing further anxiety. Boroughs had looked to place within their boundaries using Housing Association Leasing Schemes and they now face shortfalls on current contracts of between £1 and £3 million. Housing Associations have also indicated that they are finding difficulty finding properties at the subsidy cap levels (£375 and £500).

5.19 London Councils requests that transitional relief be applied to current HAL leases for at least a 2 year period allowing the rental market to settle following the impact of these changes.

5.20 Mapping of the shortfalls of benefit as an indication of where claimants will migrate to in their search for affordable housing produced some interesting patterns (Appendix G). There will be increased competition in these areas between households looking for affordable housing, local authorities seeking to house their larger homeless families and the host borough trying to fulfil its own homelessness duty. In some cases London boroughs are already looking outside the M25.

6 Landlord confidence

6.1 The rental market in London is currently buoyant4 as corroborated by our landlord survey with high percentages of landlords indicating they would evict tenants or not renew their tenancies for shortfalls of between £10-20 (1 /2 bed) and £20-50 (3/4 bed).

6.2 However the possible churn throughout London and the uncertainty around the actual value of the drop to the 30th 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.

6.3 The changes to temporary accommodation subsidy, which have been taking place on an annual basis also makes it difficult for landlords to manage and plan their portfolios.

6.4 Borough officers are advising that landlords will withdraw from the Housing Benefit market due to the continuing uncertainty which is further exacerbated by the hidden nature of any 30th percentile change.

7 Incentives to Work

7.1 The impact of the caps in London could be a retrograde step in the government’s drive to move people into work. Claimants forced to move may find this makes a vital difference to their access to work. They may lose support, e.g. childcare, which enables them to join the workforce or find the combination of travelling time and travel costs will mean that work doesn’t pay. Figures from 7 central boroughs indicate this could affect at least 4000 working claimants5 or approximately 57% of the caseload.

7.2
The proposal to have a staged increase in non-dependent deductions may act as a disincentive rather than an incentive to work, but London Councils’ concern is the effect it may have on rent arrears in both the PRS and the social sector and the possible increase in evictions.

7.3 The proposal of reducing benefit by 10% after 12 months in receipt of Jobseekers Allowance needs to be carefully considered. Are there jobs available? Are they suitable and accessible for the claimant? Presumably this would not be a case of moving to find cheaper accommodation as any reduction would still apply.

7.4 London Councils believes each case would have to be considered on its merits and the consequences of applying any reduction on any family members taken into consideration. Although a reduction in benefit could act as a rather harsh incentive to move into work, it should only be applied once a new welfare system lays the proper foundation for making work pay and providing help to access work.

8 Community Cohesion

8.1 It is understandable the government wishes to make best use of a scarce resource and intends to reduce housing entitlements for working age people in the social sector to the required bedroom size, i.e. on a par with the PRS, but this fails to take into account the reason someone is in a house too large for them, e.g. have they taken over the tenancy from a dead parent? Has a child died or family member died?

8.2 Any moves to reallocate households to smaller properties must be on a case by case basis, especially as it may be the prelude to a similar move for pensioner claimants where it would in fact make a significant difference to the availability of housing stock.

6 September 2010

Appendix A

Comparison of the starting, current and proposed LHA rates in the Central BRMA

Appendix B - LHA rates to be capped (by borough): based on Jan 2010 data

Appendix C

The range of possible shortfalls in London (by BRMA) caused by the April caps and 30th percentile changes using the VAO estimated October 2011 LHA rates

Graph of Regional shortfalls comparing LHA rates at June 2010 and the VAO estimated October 2011 LHA rates (by BRMA)

Appendix D:

Data from DWP analysis tables 7 and 8, as an example of the worst affected areas, i.e. those boroughs with the Central BRMA

Appendix D (cont.)

Number of households who will likely be required to move to new accommodation

(Based on number of households where shortfalls are over £30 in 1 or 2 bed properties and £50 in 3 or 4 Bed Properties)

Appendix E: Cost of DHP assistance to make up shortfalls to the end of 2011/12

(Assuming households with less than £30 shortfall are disregarded and in shared properties)

NB: the level of need is based on replacing the full shortfall as cases come up for review at standard rate throughout the year

DHPs are also normally paid for a short time e.g. 6 months but the constraints of modelling cases undergoing the change at different times of the year do not lend themselves to this modelling. In our model there are cases that will only be coming under the caps/percentile change at week 51 and therefore not inflating the cost; equally there will be cases who start at week1 or 26.

Appendix F: Cost of DHP assistance to make up shortfalls to the end of 2011/12

(Assuming households with a £10 shortfall are disregarded and those in shared properties and 1 bed properties are disregarded on the basis that they would be more mobile than family households).

NB: the level of need is based on replacing the full shortfall as cases come up for review at standard rate throughout the year.

Appendix G: Mapping of average shortfalls for different bedroom sizes as a measure of future affordability in areas