Briefing Paper on the impact of changes to Housing Benefit and Local Housing Allowance in the budget. July 2010

Transcription

1 Briefing Paper on the impact of changes to Housing Benefit and Local Housing Allowance in the budget July 2010

2 Introduction In the emergency budget on 22 June 2010 the government announced significant changes to housing benefit and local housing allowance. The changes will mean an annual reduction of 1,765 million of government help with housing costs. The impact of the proposed changes to housing benefit and local housing allowance will affect social and private landlords, tenants, and strategic housing authorities in the UK. This briefing is designed to help you to plan how to assess and mitigate the impact of the changes for your own business and local area. Since the budget announcement CIH has been carrying out modelling and analysis on the potential impacts on your business here are the findings. The CIH position CIH has been making the case for housing benefit reform since the publication of the 2008 Welfare Reform Green Paper. Our focus has been on developing ideas for reform that could control rising expenditure and make housing benefit more effective in achieving its policy objectives. We published our proposals for short-term and long-term reform in response to the 2009 Housing Benefit Green Paper. Whilst we accept the need to control expenditure we do not support the proposals announced in the emergency Budget as being the right approach because they will hit low income households hard during the recession precisely when they are most in need of support and when adverse consequences are likely to be most damaging. We recognise the need to make savings across all departments but we believe that these particular budget proposals mean that low income households disproportionately shoulder the burden. Tens of thousands of households will be hit hard in the pocket or could be completely priced out of the communities where they are currently living and working. And all this is without consideration of the overall effect of these changes will have when combined with the sharp reductions in expenditure for social housing programmes across the UK. The CIH is working with government, the media, and a variety of stakeholders to raise the awareness of the potential impact of the changes. We want housing benefit to be high on the agenda for politicians across the political spectrum as the regulations and laws to implement these changes are developed and debated. We want to ensure that any changes are fair to consumers, help support sustainable communities and are practicable and achievable.

3 Summary of the main changes There are eight primary changes to housing benefit, identified in the two tables below. Six of the changes result in government savings (table 1) and two involve new expenditure (table 2). The saving proposals outweigh the expenditure proposals by a factor of 33. Change Capping the maximum LHA payable for each property size, and applying a four-bed limit: 250 for one-bed 290 for two-bed 340 for three-bed 400 for four-bed and larger properties Increasing deductions for non-dependents: they will no longer be frozen at 7.40 per week for non-earners and will be linked to prices Calculating Local Housing Allowance (LHA) rates using the 30 th percentile of market rents rather than the 50 th percentile Linking LHA increases to the consumer prices index (CPI) which does not include housing costs rather than the higher retail prices index (RPI) Time limiting full HB & LHA payable to people on Job Seekers Allowance (JSA) so that after 12 months HB is reduced by 10% Limiting housing benefit for working age tenants so that it only covers the size of property they are judged to need Total Date introduced April 2011 April 2011 Directly affects Private rented sector DWP expects it to affect just over 14,000 households 1. The vast majority of are expected to be within London Social & private rented sector Annual saving to government 65m by 2014/15 340m by 2014/15 October 2011 Private rented sector 425m by 2014/15 April 2013 Private rented sector 390m by 2014/15 April 2013 Social and private rented sector 110m by 2014/15 April 2013 Social rented sector 490m by 2014/15 1,820m by 2014/15 1 Hansard 28 June 2010 Col 389W

4 Change Date introduced Directly affects Annual expenditure to government 40m by 2014/15 Increased discretionary housing payments October 2010 Social and private rented sector Additional bedroom for April m by 2014/15 carers Total 55m by 2014/15 The Department s impact assessment for the first set of changes (i.e. those that can be implemented by regulations without the need for primary legislation) is expected to be published on the 23 July The impact assessment will be published on the Social Security Advisory Committee website

5 The likely implications of the changes 1. Caps on the maximum LHA payable by property size This change means that tenants in the private rented sector and in receipt of LHA will be able to claim a maximum amount for each property size, with an overall limit set at the cap for four-bedroom property. Previously there were no caps on properties with up to four bedrooms; instead housing benefit was payable up to the LHA rate for appropriate sized accommodation and capped at the rate for five bedroom property. The initial DWP estimate is that 14,000 households will be affected. The caps largely affect London only but there may be some impact on the other more expensive areas in the South East. It is unclear at this stage whether the caps will be up-rated over time. If the caps are not up-rated or the index used fails to reflect rent increases then the number of housing markets affected will increase. The caps apply over and above the 30 th percentile limit so within the broad market areas over which the LHA applies, in which the cap takes effect, claimants will have less than 30% of the market available even by Government s own definition. The published rent officer figures for the 30 th percentile show that if applied immediately the caps will already restrict the availability of accommodation to less than 30% for some property types in 17 out of the 33 London boroughs. The affected boroughs are concentrated in the centre, north and west and have the greatest impact on larger properties. In many neighbourhoods within the affected boroughs there will be no properties that are affordable. What can you expect? Local Authorities with a strategic housing role may see: Movement of tenants from Central London to outer and eastern boroughs Changes in demand for services including schools and health Increased levels of overcrowding Increased demand for cheaper properties Increased applications for discretionary housing payments. Social landlords may see: Higher demand for social housing from tenants who currently live or intended to live in PRS accommodation.

6 2. Increasing non-dependent deductions Deductions from the claimant s eligible rent where other adults live with claimant who are not part their family for benefit purposes (typically the claimant s own adult children who are either working or claiming in their own right) are set to increase dramatically. The previous Government s policy was to freeze the level of deductions at their 1999 level. These freezes are to be reversed and in future years increase in line with prices. Reversing these freezes will result in an increase in the charge rates by between one third and one half their current rate and maybe even higher depending on the method of indexation used. In order to achieve the projected level of savings it also seems likely that there will be some restructuring of the rules which determine the charge band to be applied. Tenants sharing their home with other adult(s) will need to collect more money from the other adult(s) to contribute towards the rent, or make up the difference from their own money. The rates of deduction are particularly severe where the adult occupier earns more than 200 per week (nearly everyone in full time work). In many cases the deduction level will be such that it will disqualify the tenant from housing benefit altogether even where the tenant is on a qualifying passport benefit (e.g. income support, pension credit). These changes will be an incentive for tenants to encourage their children to leave home and a disincentive to voluntary sharing. They will hinder tenants own ability to deal with under-occupation and will result in a particularly harsh dilemma: if the tenant allows the occupier to stay they could lose all of their housing benefit, but if they ask them to leave then they could get hit with a reduction because they are under occupying. What can you expect? Social landlords may see: Increased demand for independent housing from people who previously shared. Higher incidence of adult children falling out with their parents and being asked to leave the family home Tenants being less willing to care for their elderly parents in their own home Increased risk and incidence of slowly increasing arrears Need for additional staff and communication resources to collect shortfall from tenants Increased pressure from HB departments on landlords to conduct tenancy audits and notify of changes

7 Local Authorities with a strategic housing role may see: Higher demand for debt counselling services Higher demand on homelessness and housing options services Potential impact on temporary and/or bed and breakfast accommodation if tenants evicted are considered intentionally homeless Increased applications and demand from young people Increased transfer applications and bidding via CBL Private landlords becoming more reluctant to let to families with older children who are approaching age 18 Increased applications for discretionary housing payments.

8 3. Change from 50 th percentile to 30 th percentile This change will mean that Local Housing Allowance (LHA) rates will be calculated on the 30 th percentile of local market rents rather than the mid point. This means that in each market area if there were 100 properties available for letting of the appropriate size, the LHA will be based on the 30 th lowest rent of those 100 properties. In other words they have (in theory) access to the bottom 30% of the market instead of the bottom 50% at present. Tenants in private rented housing who can claim LHA will have access to fewer properties in their area where their full rent could be covered by their benefit. Tenants who cannot find a property priced in the first 30 th percentile will have to make up the difference in rent. CIH has estimated that the average additional cost for a family in a 3-bed house in England is 475 per year. CIH summary table by region and broad rental market area What can you expect? Local Authorities with a strategic housing role may see: Movement of low income tenants from more expensive rental market areas to cheaper ones Households struggling to access private rented accommodation Increased hardship, shown by greater demand for debt and counselling services, and rising arrears Concentration of tenants in receipt of LHA in cheaper, poorer quality private rented housing Greater demand on homelessness and housing options services Potential impact on temporary and/or bed and breakfast accommodation if tenants evicted are considered intentionally homeless Greater levels of overcrowding Increased number of applications to the housing register Landlords becoming less prepared to let to known benefit claimants Landlords making more stringent income checks on potential tenants Increased applications for discretionary housing payments. Social landlords may see: Higher demand for social housing from tenants who currently live or intended to live in PRS accommodation.

9 4. Change to using CPI to up-rate benefits rather than RPI From April 2013 onwards the 30 th percentile LHA rate will be based on the LHA rates from April 2012 up-rated using CPI rather than being based on actual rents in local rental market area. Over the period rents have risen at an average of 2.57 percentage points per year above CPI. If this continues, the change will mean that LHA will not keep pace with rental inflation. The effect will be to shrink the 30% of the market that is at least theoretically available to tenants. In the long term there will come a point at which the cheapest property which is available in a given market area is more expensive than the full LHA rate. Within a generation there will be towns and cities all over the country where there is no accommodation with a rent within the reach of people whose income is supported by benefits. The impact is not restricted to expensive rental markets. The picture is different for different sizes of property and is particularly acute for 1-room properties, where in some areas within two years of the change coming into force there are projected to be no properties available that can be fully paid for with LHA. CIH analysis Tenants who do not move to a cheaper home will gradually have to make up more of the rent from other sources of income. What can you expect? Local Authorities with a strategic housing role may see: Movement of low income tenants from more expensive rental market areas to cheaper ones Households struggling to access private rented accommodation Increased hardship, shown by greater demand for debt and counselling services, and rising arrears Concentration of tenants in receipt of LHA in cheaper, poorer quality private rented housing Greater demand on homelessness and housing options services Potential impact on temporary and/or B&B accommodation if tenants evicted are considered intentionally homeless Greater levels of overcrowding Increased number of applications to the housing register Landlords becoming less prepared to let to known benefit claimants Landlords making more stringent income checks on potential tenants Increased applications for discretionary housing payments. Social landlords may see: Higher demand for social housing from tenants who currently live or intended to live in PRS accommodation.

10 5. Reduction in housing benefit to tenants in receipt of Job Seekers Allowance for more than a year This change means that tenants who have claimed Job Seekers Allowance (JSA) for 12 months or more will see their housing benefit or Local Housing Allowance (LHA) reduced by 10 per cent. Tenants who are unable to find work will have to make up the difference from their Job Seekers Allowance. At current average awards this would amount to around 6.70 per week for local authority tenants, 7.70 for housing association tenants and for private tenants on the LHA. The amount would vary and be greater the higher the rent and so would be bigger for large families or those living in the more expensive areas. Based on current levels of JSA claims CIH estimates that this could affect as many as 100,000 claims per year and this is likely to rise because the number of long-term JSA claimants is not expected peak until around 2012 and will remain a significant proportion of the caseload for a further three to four years after. Based on current caseloads of long-term JSA claims the areas of the UK most affected by this change are the midlands (being particularly severe in Birmingham), London and Northern Ireland. CIH analysis by parliamentary constituency. It is expected that more people will move onto JSA in future years as eligibility for Employment and Support Allowance (ESA) and Incapacity Benefit is restricted. A system to ensure housing benefit teams had accurate information from Jobcentre Plus would be required What can you expect? Social landlords may see: Increasing financial pressure on tenants, especially in areas where long-term unemployment is higher (Birmingham, parts of London and Northern Ireland) Increased risk and incidence of slowly increasing arrears Need for additional staff and communication resources to collect shortfall from tenants Higher levels of vacancies due to planned moves and abandonment Increased incidences of non-dependent deductions and overcrowding as households give up their own tenancy and move in with friends and family Increased requests for transfer as households seek cheaper properties

11 Local Authorities with a strategic housing role may see: Higher demand for debt counselling services Higher demand placed on Jobcentre Plus services Higher demand on homelessness services Potential impact on temporary and/or bed and breakfast accommodation if tenants evicted are considered intentionally homeless Increased overcrowding as households give up their own tenancy and move in with friends and family Private sector landlords becoming unwilling to let to people on benefits because of fears of high levels of arrears Increased applications for discretionary housing payments.

12 6. Limiting housing benefit payable to working age tenants, by property size This change will restrict housing benefit for working age tenants who are occupying a larger social rented property than required for their household size (size restrictions already apply to private sector tenants claiming housing benefit). Based on the English Housing Survey the DWP estimates that around 430,000² social rented tenants currently under occupy their accommodation as defined by the bedroom standard. This does not break down by age so, given that a significant proportion of those under occupying are elderly, the numbers affected are likely to be somewhat less. The scale of this change is likely to be very significant, not least because it results in the biggest saving of all the housing benefit measures announced in the budget. It also seems likely that this measure will have a significant regional impact because under-occupation rates are likely to be higher in the midlands and the north. It may increase the number of larger homes available to let to people on housing registers Tenants may be unable to move to smaller social rented properties if the stock is not available even if they are willing to and will be penalised for it. Tenants will be expected to notify changes within the year as household members move out. This is likely to result in an increase in verification checks and housing benefit overpayments. What can you expect? Social landlords may see: Higher demand from existing tenants for smaller properties - increased transfer applications and bidding via choice based lettings Increased risk and incidence of slowly increasing arrears Need for additional staff and communication resources to collect shortfall from tenants Increased pressure from HB departments for landlords to conduct tenancy audits and notify of changes Housing associations income streams become vulnerable and ability to borrow money cheaply is affected - less funding for development, financial inclusion schemes, employment schemes 2. Hansard 6 July 2010 Col 214W

13 Local Authorities with a strategic housing role may see: Higher demand for debt counselling services Higher demand on homelessness services Potential impact on temporary and/or bed and breakfast accommodation if tenants evicted are considered intentionally homeless Increased transfer applications and bidding via CBL Increased applications for discretionary housing payments.

14 7. Increasing amounts available for discretionary housing payments More money available to offset impact, but equates to about 8.30 per year per case. In England this would support around 60,000 who face the maximum loss from the 30 th percentile change for one year (leaving nothing for social sector claimants) this is equivalent to just 1.5% of the entire caseload. The total increase in spending is less than 2.5% of the total package of housing benefit cuts. Tenants increasingly relying on a discretionary system to meet housing costs loss of certainty around income Tenants being disempowered around access to support to meet housing costs claiming discretionary payments is usually done with the help of an advisor What can you expect? Local Authorities with a strategic housing role may see: Increased number of applications for discretionary payments More demand on the funding pot than is available Increased levels of disputes around the use of discretion with pressure to make awards for deserving cases Increased numbers with time limited awards to help make the budget spread further Increased demand on advice services to help with such applications Social landlords may see: Increased number of tenants seeking support with applications for discretionary payments Less certainty around how much of a tenants rent will be supported by housing benefit

15 Next steps for social landlords Think about how the reforms could impact on your business and your tenants, and plan accordingly. Do you know who your tenants are and their current circumstances? How many tenants do you have who have been claiming JSA for more than 12 months? How many are likely to be by April 2013? How many tenants of working age are under-occupying? How many tenants already have non-dependent deductions from their benefit? What is the potential level and likelihood of increased arrears? Are your procedures and resources for rent collection able to cope with more people with small shortfalls on their rent? Does your transfer procedure / choice based lettings system give sufficient priority to households wanting to downsize? How are you going to communicate the changes to your tenants? How can you develop and extend support and advice services to help people get back to work? Will your front-line staff be fully trained and conversant with changes and geared up to deal with potential problems with emphasis on preventative work, for example financial inclusion, financial capacity building and measures to prevent households from falling into poverty? Do you have links to specialist debt advice as well as to credit unions and community banking? Management and repairs services will be required to be efficient and to turn voids around quickly to improve movement and transfer of households into appropriate sized properties; Consider proactive measures to deal with under-occupation perhaps through preferential measures for down-sizing transfers within the allocations scheme.

16 Next steps for strategic housing authorities Think about how the reforms could impact on your business and your housing market, and plan accordingly. Sub-regional and regional housing market analysis needed to examine the effects of potential migration of people to less expensive areas. How many people claim LHA in the private rented sector in your area? How will the changes affect claimants in the private rented sector? o Will the property caps affect your area? How many properties? o How different is the 30 th to 50 th percentile? How many properties are now out of reach o Is there a big spread of rents? If so, the impact of the move to CPI will be greater o What is the cumulative impact of all these changes? What do private landlords in your area think about the changes, and how might their letting behaviour change? Does your transfer procedure / CBL system give sufficient priority to households wanting to downsize? What additional resources might your housing options service need to deal with projected increased demand? Are your procedures for discretionary housing payments appropriate?

17 CIH working for you CIH will work with other partners in the sector, with government and politicians to continue to raise the profile of the impact of this change on tenants and housing organisations. There is potential to secure changes to these proposals as regulations and laws to enforce them are developed and debated. We will actively seek changes to mitigate the impact. We will also continue to seek better alignment of different strands of housing policy. In the longer term we will seek to influence the direction of longer term reforms to housing benefit, through the review announced by Iain Duncan Smith. Our ideas for fundamental reform of housing benefit have been developed with members over several years and are available at CIH can help housing organisations and strategic housing authorities to model the detailed impact of the changes on their business and implement strategic planning. We have been working to raise the profile of the impact of these changes in the media with coverage in the Times, the BBC Daily Politics Show, the Daily Telegraph and the London Evening Standard. Since the budget we have been working closely with others who have an interest and concern about these reforms. We will continue to share our analysis with others who have an interest in highlighting the risks to poorer people of these changes. CIH s briefing on the budget can be found at Get involved We are keen to hear your thoughts. We are particularly interested in your views on longer term reform and would like you to share your observations on the impact of the changes in your area, on your tenants and your business. CIH members who have done their own modelling and calculations of the impact on housing businesses and tenants are invited to share this information with CIH in order to help us build up a fuller picture. If you would like to comment please visit or call the CIH Policy and Practice team on

18 About the Chartered Institute of Housing The Chartered Institute of Housing (CIH) is the professional body for people involved in housing and communities. We are a registered charity and not-forprofit organisation. We have a diverse and growing membership of over 22,000 people both in the public and private sectors living and working in over 20 countries on five continents across the world. We exist to maximise the contribution that housing professionals make to the wellbeing of communities. Our corporate priorities include: shaping housing and community agendas; equipping the profession for today and tomorrow; delivering excellence for all our customers; striving to be world class; and uniting a global housing community CIH services and activities CIH provides a wide range of services available to members, non-members, organisations, the housing sector and other sectors involved in the creation of successful communities. Our main services and activities are: CIH Membership CIH Policy CIH Research CIH Practice CIH Publications CIH Training CIH Events CIH Education CIH Distance Learning CIH Careers CIH Organisational Development How to contact the Chartered Institute of Housing Head Office Chartered Institute of Housing Octavia House, Westwood Way Coventry CV4 8JP Telephone: Facsimile: customer.services@cih.org

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