Support for housing costs in the reformed welfare system - Work and Pensions Committee Contents

2  Local Housing Allowance reform and other changes to Housing Benefit

Local Housing Allowance

9. In April 2008, a new policy for calculating Housing Benefit for private rented sector tenants was introduced nationally, called Local Housing Allowance (LHA).[5] LHA removed the link between a tenant's rent and their Housing Benefit entitlement and introduced a method of calculating Housing Benefit based on the composition of the household and the median rent in a local "Broad Market Rental Area" (BMRA). In 2009, benefit rates for new LHA claimants were capped at the maximum LHA rate for five bedrooms in each BMRA.


10. From 2011, the following changes were made to LHA:

·  The LHA rates calculation was reduced from the median rent (50th percentile) in a BMRA to the 30th percentile of BMRA rents in a local area;

·  LHA rates were capped by the number of bedrooms at the rates shown in Table 1 below;

·  The maximum LHA rate cap was reduced from the five-bedroom cap, to the four- bedroom cap;

·  Claimants were no longer allowed to keep excess Housing Benefit (previously paid up to the amount of £15 per week).

Table 1: Maximum amount of Housing Benefit under LHA (capped since 2011)[6]
Size of Property Weekly amount
1 bedroom (or shared accommodation) Up to £250
2 bedrooms Up to £290
3 bedrooms Up to £340
4 bedrooms or more Up to £400

11. From January 2012 the upper age limit for the Shared Accommodation Rate for single people without dependent children was raised from 25 to 35.[7]


12. Prior to April 2012, LHA rates were set in relation to rents in the local BMRA. However, the Government has made changes to the way that LHA rates are up-rated as part of wider measures to reduce benefit expenditure. LHA rates were frozen between 2012 and 2013. In 2013 they were up-rated by the Consumer Price Index (CPI). The Government included measures in the Welfare Reform Act 2012 to up-rate LHA annually by CPI from 2013, with a maximum rise of 1% in 2014 and 2015.[8]

The effect of LHA changes on rents

13. The Government recognised that the reforms to LHA would cause shortfalls between benefit and rent levels unless rent levels declined. However it anticipated that one impact of changes to LHA would be a reduction in rent levels charged in the private sector, and indeed this is one of its policy objectives for the reforms.[9]

14. The Institute of Fiscal Studies (IFS), as part of an independent consortium commissioned by DWP, conducted an analysis of the impacts of the reforms on rent levels. The interim report published in 2013 found that, at least initially, there had been no perceived reduction in rents in the private sector arising from changes to LHA. Nor had there been a perceived effect on the size of properties rented by LHA recipients, though there was some indication of LHA recipients moving out of London. It concluded that tenants on low incomes, rather than landlords, were feeling the "pain" of the reduction in LHA.[10]

15. The IFS acknowledged that "early evidence is not a definitive guide to long-run effects" and that it might take time for tenants to renegotiate rents or for landlords to react by lowering rents. However, it identified that there was some evidence of landlords accepting lower rents on an informal basis, while contractual rents remained the same, and believed that this may eventually mean that some contractual rents would be lowered. It concluded that "the effect on rents, and therefore how much of the cut is passed on to landlords, is a key uncertainty."[11]

16. The Government argued that in some parts of the country, specifically Yorkshire and the West Midlands, private sector rents had decreased since 2012, and that overall, according to the ONS, there had been a 1% rent increase across the country.[12]

17. There was some discrepancy between the rent increases cited by the Government and those cited by witnesses. This may be because the Government data comes from the ONS Experimental Rent Price Index,[13] which covers both new, available lets and the stock of tenanted privately rented accommodation, whereas witnesses were more likely to discuss rents in terms of available properties, which will normally be higher than those for existing tenancies.[14] Witnesses were concerned that available rents in high demand areas were rising by much more than 1%. Zacchaeus 2000 Trust (Z2K) argued that rents in London had risen by 8% over the previous year.[15] Hackney Council elaborated:

    The reform of the LHA rate was intended to help control rent levels, but this has not been effective in Hackney (nor in London as a whole). Other factors, such as rising land/property values, the resilient London economy and the lack of affordable stock are more important drivers.[16]


18. According to the Children's Society, the biggest factor contributing to the gap between rent and benefits has been the move from using the 50th percentile to the 30th percentile of local rents by property size as a guide for LHA rates. It was, however, also concerned that the 1% limit on annual up-rating of LHA would exacerbate the shortfall between rents and benefit levels. DWP evidence backed this up, showing that in 2013 around 70% of LHA rates were set at the 30th percentile, dropping in 2014 to around 45%. Z2K argued that far fewer than 30% of private sector properties were now available to Housing Benefit recipients in the private sector. It cited Hackney Citizens Advice Bureau (CAB) research which found that only around 9% of private sector properties in Hackney fell within LHA rates.[17]

19. The Children's Society submitted data showing the impact that the reforms have had on the level of rents in the private sector; it pointed out that since 2011 the gap between LHA rates and rents has continued to widen.

Figure 1: Eligible rent and expected rent for three bedroom property (English average) 2010-2013[18]

20. The Children's Society and Citizens Advice told us that, as a result of Housing Benefit rising more slowly than rent levels, many private sector households would, over time, see their arrears levels increasing.[19]

Impact of LHA reforms on private sector landlords

21. There is evidence that increasing numbers of private sector landlords are no longer willing to rent to Housing Benefit recipients.[20] Several witnesses reported that the number of evictions of Housing Benefit recipients in the private rental sector (PRS) has increased since 2010 as a result of landlords ending shorthold tenancies with a view to re-renting properties at higher prices to tenants not in receipt of Housing Benefit.[21] Homeless Link referred to reports from an agency which places homeless people in the private sector, which had lost 20% of the landlords with whom it had worked within the last year "specifically on the grounds that they think they can get higher rents paid by people who are not on benefits."[22]

22. Representatives of private landlords agreed. Chris Town of the Residential Landlords Association (RLA) said: "the vast majority [of our members] are reluctant to take benefit claimants, not just because of the benefit and welfare changes, but because of higher management costs involved in managing benefit claimants." The RLA reported that arrears have increased since the introduction of the LHA (and the switch to paying Housing Benefit directly to tenants in the private sector). It warned that, as LHA rates continue to lose value relative to private sector rents, landlords will have less motivation to rent to benefit claimants or invest in the affordable rental market and less incentive to keep homes properly repaired and maintained.[23] Carolyn Uphill of the National Landlords Association made a similar point:

    [...] in the last three years there has been a 50% drop in the number of landlords taking people who are on benefits. It is now down to only one fifth; 22% of our landlord members whom we surveyed say they have LHA tenants, and 52% of those surveyed said they would not look at taking on benefits tenants.[24]

23. Witnesses reported that the quality of PRS properties now available at LHA rates was relatively poor. St Mungo's told us that the majority of PRS accommodation affordable to those in receipt of Housing Benefit was near the "lower limit" of minimal standards of accommodation. It was finding that, before placing people in available properties, "a lot of work has to be done around addressing issues that have a big impact on health, around damp and other issues." Homeless Link reported that it was being compelled to place people in poor quality PRS properties because there were no other available options.[25]

24. The Government argued that private sector landlords were still willing to rent to people in receipt of Housing Benefit and pointed out that 30% of people renting in the private sector were in receipt of Housing Benefit. We queried this figure with Lord Freud as in our 2010 inquiry he had told us that the figure was 40%.[26] In subsequent written evidence, the Government acknowledged that "there are different sources of information on the proportion of the PRS that is in receipt of housing benefit. None of these gives a definitively accurate figure". At the time of the 2011 census, it is estimated that "there were potentially 34% of households in the PRS in receipt of housing benefit" but this was likely to be "a small overestimate because a household may include more than one benefit unit in receipt of housing benefit".[27]

25. Lord Freud told us that "the number of housing benefit claimants in the private-rented sector has increased by around 8% nationally and by around 5% in London". Data provided in subsequent supplementary evidence showed an increase between 2008 and 2012 in numbers of tenants on Housing Benefit in the PRS, and then a slight decline between November 2012 and 2013. It is not yet apparent whether this is a trend which will continue.[28]

26. The Children's Society provided a graph showing the number of households who lost their last home as a result of the end of an assured shorthold tenancy and who were accepted as being owed a main homelessness duty (which means that the local authority has a duty to house these households). The Children's Society pointed out that the number has nearly tripled since 2010.

Figure 2: Households accepted as owed a main homelessness duty by the Local Authority who lost their last home as a result of the end of an Assured Shorthold Tenancy: 2010-2013[29]

27. We welcome the Government's efforts to encourage private sector landlords to keep rents affordable and thereby help to keep LHA expenditure under control. However, we are concerned that, for some recipients of Housing Benefit, rents are becoming increasingly less affordable in the private sector. We recommend that the Government monitor the private sector rental market and that, if it finds evidence of a rise in homelessness and evictions and a decline in new letting to tenants in receipt of Housing Benefit, it should consider increasing LHA rates by more than 1% annually in the more pressured areas.

28. We are concerned that landlords are increasingly reluctant to let to tenants in receipt of Housing Benefit and to provide temporary accommodation, and that many of the private rental sector properties that do remain affordable to Housing Benefit recipients are of poor quality. We recommend that the Government work closely with private sector landlords to address their concerns and provide greater support to landlords who rent to Housing Benefit claimants.

Homelessness, the private rental sector and local authority duties

29. A number of witnesses reported adverse impacts on homelessness rates arising from the LHA reforms. The West London Housing Partnership told us that evictions from private rented accommodation of those who cannot pay their rent as a result of LHA reforms was becoming the "biggest single cause of homelessness." Hackney Council reported an increase in homelessness, which it attributed partly to private landlords refusing to rent to Housing Benefit tenants and partly to private sector rents becoming increasingly unaffordable.[30]

30. The Government did not accept this. Kris Hopkins MP, the Minister for Housing, told us that the number of "acceptances" of homeless families had dropped in October-December 2013 by 4% compared with the same quarter in 2012.[31] However, these figures relate only to homeless acceptances by local authorities. The level for those found to be homeless but not in priority need (and therefore not considered to be part of a "vulnerable group" and so not included in homeless acceptances) increased by 9% from July-September 2013 compared with the same quarter in 2012. In order to qualify as priority need, households need to be vulnerable in some way (for example, single mothers) or the victim of special circumstances (such as fire or flood). The Government figures also showed that, in London, homeless acceptances were up by 13% from the previous year (though down on average in England) and that "the ending of an assured shorthold tenancy has been the most frequently occurring reason for the loss of last settled home for the last six consecutive quarters."[32]

31. Hackney Council reported that it was becoming progressively more difficult to place homeless families in the private sector.[33] The West London Housing Partnership elaborated, explaining that, while homelessness, and therefore the need for temporary accommodation used to house homeless households, had been rising since 2011, private sector landlords were finding it less profitable to run temporary accommodation schemes and were instead opting to rent privately to non-benefit claimants. It was concerned that the supply, especially in London, of temporary accommodation was therefore dwindling and local authorities were being put in a position where they either had to fund homeless families to stay in highly expensive London-based temporary accommodation or to look for other temporary accommodation outside London.[34]

32. Centrepoint told us that it was getting harder to place homeless people in the private sector and therefore the number of people and families "stranded" in temporary accommodation and waiting for more permanent housing was on the increase. This was making it increasingly difficult to place newly homeless households in temporary accommodation. It claimed that an additional 15,670 units of emergency and supported accommodation would be required in order to house all young people who either have no suitable accommodation or "who may be street homeless, sofa-surfing or staying in other temporary forms of accommodation". It called this phenomenon "bed-blocking". St Mungo's had experienced a similar trend, describing it as "silting up".[35]

33. Laurence Coaker of West London Housing Partnership told us that the London Borough of Brent had been experiencing significant problems placing homeless households in temporary accommodation or the private sector and, as a result, had increased the use of emergency bed and breakfast (B&B) accommodation, which was a more expensive option.[36] New Charter Housing Trust said that, in Knowsley "the current temporary accommodation model is B&B for the majority of placements".[37]

34. In Scotland everyone accepted as meeting the definition of being homeless has a right to a housing offer (ie the priority/non priority need distinction has been ended).[38] Recent numbers of homeless acceptances are down, which is thought largely to be due to better prevention and advice. However, despite the fall in acceptances, the numbers in temporary accommodation, and the length of time for which they are so accommodated, is rising in the most pressured areas, such as Edinburgh, leading to higher housing benefit expenditure.[39] As in other parts of the UK, homeless presentations due directly to the ending of a private sector tenancy are also rising, and more limited access to private rented accommodation may also be a contributing factor.

35. The Housing Minister told us that the number of homeless families with children spending over six weeks in a B&B had reduced by 10% over the past year. However the statistical release from which this figure is drawn also showed that, in England, the total number of households in B&B accommodation and the total number of households in temporary accommodation had both increased by 6% between September 2012 and September 2013.[40]

36. There is evidence that Housing Benefit reforms are contributing to increased levels of homelessness with corresponding serious implications for households and for local authorities. We note the Government's assertion that homelessness acceptances overall have decreased in England but we are concerned that rises are occurring in certain high-demand areas, such as London, and that homelessness among those not in priority need increased by 9% between 2012 and 2013. We recommend that the Government take steps to monitor the impact on homelessness of the Housing Benefit reforms it has introduced. If they are found to be exacerbating homelessness, the Government must look at further ways of supporting people and local authorities to prevent and deal with homelessness.

Changes to the Shared Accommodation Rate

37. Since 1996, single Housing Benefit recipients under the age of 25 without dependents, living in private rented accommodation, have only received Housing Benefit (or LHA) up to the average local rent for a room in a shared house. This is called the Shared Accommodation Rate (SAR). From April 2012, as part of the 2010 Housing Benefit reforms, the Government extended the SAR to any single claimant under the age of 35 without dependent children.[41]

38. Witnesses were concerned about the impact of these changes. Professor Fitzpatrick of Heriot-Watt University emphasised that vulnerable younger people and women fleeing domestic violence might now be expected to share accommodation with older people who might have mental health or drug and alcohol problems or otherwise be placed in an environment where they might not feel safe.[42] Citizens Advice also pointed out that in some cases, for example for some people with mental health problems, sharing might not be appropriate, and for those for whom it may be appropriate, accommodation within the SAR might simply not be available.[43]

39. Homeless Link found that only 5.5% of properties in London were affordable within the SAR, and most of these were unavailable to Housing Benefit claimants. It believed this was also the case in other parts of the country. Centrepoint told us that "mystery shopping" undertaken by Crisis had revealed that only 1.5% of the properties it looked at were affordable and had landlords willing to rent to young people in receipt of Housing Benefit. A similar exercise undertaken by a Surrey Citizens Advice Bureau discovered only six rooms available within the SAR with landlords who were willing to accept Housing Benefit claimants.[44]

40. Centrepoint argued that the change to the age threshold for the SAR had affected 62,500 people "but this has not been matched by any initiatives to increase supply, thus inevitably driving up prices." This point was also made by Homeless Link, who referred to estimates indicating that "the number of people seeking SAR properties had increased by 40% since the changes."[45]

41. The Government argued that in "60% of localities" the LHA rate for a two-bedroom house was less than twice the SAR for the same area. It pointed out that the number of 25-34 year olds claiming Housing Benefit had decreased by 14% between December 2011 and August 2013, and by 10% for those under 25.[46] However, Geoff Fimister of Citizens Advice believed that many affected young people across the UK were ceasing to claim Housing Benefit and opting instead to sleep "on friends' floors and in various informal settings of that nature." Joanna Kennedy told us that Z2K had also seen evidence of:

    [...] an enormous amount of hidden homelessness—of these people sleeping on sofas, living in incredibly overcrowded accommodation or living in a single room that they were entitled to before the changes but cannot now afford because their benefit has been cut, and they are getting massively into debt.[47]

42. Surrey Welfare Rights Unit also highlighted the issue of clients who had non-resident children, who reported being compelled by the raising of the SAR to move to shared accommodation, which meant they could no longer host their children for periodic or regular visits. [48]

43. We are concerned that the extension of the Shared Accommodation Rate (SAR) to single claimants up to age 35 may have reduced the availability of safe, appropriate accommodation for younger people, some of whom may be vulnerable. We recommend that the Government assess the impact of changes to the SAR. If it appears that it is resulting in some vulnerable young people having to live in situations which are inappropriate or which put them at risk, the Government should investigate introducing exemptions for vulnerable people, and take steps to increase provision of appropriate accommodation.

The Targeted Affordability Fund

44. The Government has committed to using 30% of the savings created from the cap on LHA up-rating (as at Autumn Statement 2012) to increase some LHA rates by more than the 1% limit. The funding for this is known as the Local Housing Allowance Targeted Affordability Fund. The Government announced in December 2013 that it would be increasing 126 LHA rates (out of 960) by 4%, in the areas where rates differ the most from market rents, and regulations were laid instructing rent officers on how to set the LHA rates in January 2014 to this effect.[49]

45. Paul Anderson of Homeless Link was concerned that the Targeted Affordability Fund would not be sufficient to address the projected level of rent increases across different regions of England over the next few years. Z2K pointed out that rents in London were increasing by 8%, 4% more than the scope of the Fund.[50]

46. Sam Royston of the Children's Society argued that the Fund would at least be a better form of intervention than the shorter-term intervention of Discretionary Housing Payments (covered in more detail later in this report) because "it has that automatic up-rating of people's entitlement, it makes sure that people get some extra help, and it is a long-term solution, rather than just a short-term intervention". [51]

47. We welcome the introduction of the Targeted Affordability Fund (TAF) as a means of increasing LHA levels in areas of higher than average rent rises. However, we are concerned that some areas may see rents rising by more than the TAF maximum of 4% yearly, particularly in London. We recommend that the Government amend the TAF so that it can be paid at higher levels in areas where rent increases are greater than 4%, and that it should use available rents rather than stock rents as a measure of the rental increase.

5   Prior to April 2008, the majority of Housing Benefit claims were assessed using the same criteria, regardless of whether the claimant was a private tenant or a social tenant. Back

6   See GOV.UK, Housing Benefit, accessed 7 March 2014 Back

7   Department for Work and Pensions (HCT 08) para 3.1 Back

8   Welfare Benefits Up-rating Act 2013 Back

9   DWP, Impact Assessment. Housing Benefit: Changes to the Local Housing Allowance Arrangements, November 2012, para 20; see also Work and Pensions Committee, Second Report of Session 2010-12, Changes to Housing Benefit announced in the June 2010 Budget, HC 469, Chapter 2 and Chapter 7 Back

10   Institute for Fiscal Studies (HCT 28) paras 4-5 Back

11   Institute for Fiscal Studies (HCT 28) paras 4-6, 12; Oral evidence taken on 06 November 2014, Q2 Back

12   Oral evidence taken on 12 February 2014, Qq513-516 Back

13   ONS Statistical bulletin: Index of Private Housing Rental Prices, September to December 2013 January 2014 Back

14   See for example West London Housing Partnership (HCT 38), section 2 Back

15   Oral evidence taken on 15 January 2014, Q301; Oral evidence taken on 29 January 2014, Q445; Oral evidence taken on 12 February 2014,Q514 Back

16   London Borough of Hackney (HCT 51) para 17 Back

17   Oral evidence taken on 15 January 2014, Q293; Zacchaeus 2000 Trust (HCT 35) para 12; DWP (HCT92) section 2 Back

18   The Children's Society (HCT 80) section 1, Figure 2 Back

19   Oral evidence taken on 15 January 2014, Qq295-296 Back

20   Oral evidence taken on 04 December 2013, Qq87, 89, 98 Back

21   Oral evidence taken on 06 November 2014, Qq5, 34; Oral evidence taken on 15 January 2014, Q297 Back

22   Oral evidence taken on 15 January 2014 Q297 Back

23   Residential Landlords Association (HCT 59) paras 4.4.1, 6.2-6.3; Oral evidence taken on 18 December 2014, Q260 Back

24   Oral evidence taken on 18 December 2014, Q261 Back

25   Oral evidence taken on 15 January 2014, Qq299, 304-305 Back

26   Oral evidence taken on 12 February 2014, Q535 Back

27   DWP (HCT92) section 1 Back

28   Oral evidence taken on 12 February 2014, Q523; DWP (HCT92) section 1 Back

29   The Children's Society (HCT 80) section 1, Figure 3 Back

30   Oral evidence taken on 18 December 2014, Q197; London Borough of Hackney (HCT 51) paras 15-16; West London Housing partnership (HCT 38) section 3 Back

31   Oral evidence taken on 12 February 2014, Q498 Back

32   Oral evidence taken on 12 February 2014, Q499; Statutory Homelessness: July to September Quarter 2013, England, Pp 4-5, 13 Back

33   London Borough of Hackney (HCT 51) paras 15-16  Back

34   West London Housing partnership (HCT 38) sections 3-4 Back

35   Centrepoint (HCT 12) paras 8&9; St Mungo's (HCT 10) para 4.2 Back

36   Oral evidence taken on 18 December 2014, Qq190-191 Back

37   New Charter Housing Trust (HCT 06) para 3.4  Back

38   Crisis Webpage sourced 24 March 2014 states "On 31 December 2012, priority need was abolished by the Scottish Government and all councils across Scotland now have to provide 'settled accommodation' to anyone who is unintentionally homeless." Back

39   The Scottish Government, National Statistics, Operation Of The Homeless Persons Legislation in Scotland Quarterly Update: 1 July to 30 September 2013, para 6.3 Back

40   Oral evidence taken on 12 February 2014, Qq500-503, DCLG, Statutory Homelessness: July to September Quarter 2013, England, p 7 Back

41   House of Commons Library Standard Note, Housing benefit: Shared Accommodation Rate, 27 March 2012, SN/SP5889 Back

42   Oral evidence taken on 06 November 2014, Q9 Back

43   Citizens Advice (HCT 77) para 2.4 Back

44   Homeless Link (HCT 14) para 13, Centrepoint (HCT 12) para 5, Surrey Welfare Rights Unit (HCT 30) para 2 Back

45   Centrepoint (HCT 12) paras 5&6, Homeless Link (HCT 14) footnote 11 Back

46   Oral evidence taken on 12 February 2014, Q546 Back

47   Oral evidence taken on 29 January 2014, Qq 445, 457 Back

48   Surrey Welfare Rights Unit (HCT 30) para 2 Back

49   DWP, Local Housing Allowance Targeted Affordability Funding - Outcome of the call for evidence, December 2013, para 20 Back

50   Oral evidence taken on 15 January 2014, Q301; Oral evidence taken on 29 January 2014, Qq445, 456 Back

51   Oral evidence taken on 15 January 2014, Q302 Back

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Prepared 2 April 2014