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RR 798 Monitoring the impact of changes to the Local Housing Allowance system of housing benefit: Summary of early findings

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RR 798 Monitoring the impact of changes to the Local Housing Allowance system of housing benefit: Summary of early findings<

by Christina Beatty, Ian Cole, Peter Kemp, Ben Marshall, Ryan Powell and Ian Wilson

This research is the first output of the Independent Review and Monitoring of Housing Benefit (LHA) reforms and was conducted with tenants and landlords from 19 local authority (LA) areas in the late autumn of 2011 to explore their initial reactions to coming changes to the Local Housing Allowance (LHA) system that were introduced in April 2011. A key focus of the first stage of the research was on understanding tenants’ and landlords plans for the future.

An independent consortium led by Ian Cole from the Centre for Regional Economic and Social Research (CRESR) 1< at Sheffield Hallam University was commissioned by the Department 2< in March 2011 to carry out a review of the implementation of the Housing Benefit Emergency Budget and Spending Review measures that commenced in April 2011.

The research focuses on the Housing Benefit Emergency Budget and Spending Review measures for a period of two years between April 2011 and March 2013 but will also pick up some impacts from other measures affecting HB-LHA claimants, the nine months transitional protection offered to existing tenants from April 2011 was announced after the review had started. A substantial element of the project will be an econometric analysis of the impacts of the changes.

The findings of this research will help to inform the help the Department provides to local authorities who are responsible for administering Housing Benefit.

The Department for Work and Pensions has provided Councils with £190m to help people prepare for the changes. In December 2011 we published a good practice guide for based on our visits to local authorities, which includes advice on the various communication methods local authorities could consider including the value of follow ups and alternatives to letters.

The Department is supporting this work through £49 million transition funding secured across this spending review to help claimants affected by housing benefit reforms. In 2011-12 we allocated £4 million to 10 LA-led projects on the basis of a bid process. Most of the successful bids included some element of help with rent negotiation.

Over the coming months the consortium will report their findings from the current and next stages of the work in an interim report later this year and a final report next year.

1. Other key team members are Peter Kemp of Oxford Institute of Social Policy, Carl Emmerson of the Institute for Fiscal Studies (IFS) and Ben Marshall from IPSOS-MORI.

2. The Scottish Government along with the Department of Communities and Local Government and Welsh Assembly Government are working in close partnership with the DWP and each contributing £120,000 over three financial years to the costs of the review.

June 2012 156 pages 297x210mm

ISBN 978 1 908523 64 8


14 Conclusion

14.1 The findings in context

It is important, as with any research findings, to understand the nature of the evidence presented in this report. The surveys of claimants and landlords analysed in this report represent the first stage of a longitudinal study of the impact of the recent Local Housing Allowance (LHA) measures (see Chapter 3). However, the findings from the two surveys do not represent a ‘baseline’ in the strict sense of a ‘before and after’ evaluation.

At the time when the survey was undertaken, the measures had been in place for about six months. A proportion of respondents in both surveys had experience of the new measures. Thus, 29 per cent of the 1,910 claimants in the survey had been assessed under the ‘new’ (post-April 2011) rules. And of the 1,867 respondents to the landlord postal survey, 78 per cent had tenants currently claiming LHA, while the remainder had no claimants. While it is not possible to estimate a precise figure, it

is reasonable to assume that a similar proportion of lettings (around three in ten) made by those landlords with LHA tenants would have been made under the new rules. The findings from the two surveys therefore refer to emerging impacts as the LHA measures are phased in. In the follow-on surveys of both groups towards the end of 2012, a much higher proportion of respondents will have direct experience of the new measures (although, due to the phasing of implementation, a small proportion will still be operating under the old LHA rules).

A second caveat (see Chapter 3) is that the survey findings apply to the 19 case study areas – they are not nationally representative samples. The case study approach was taken because it seemed likely that the impacts of the measure would vary according to local housing market circumstances. Unlike a case study approach, a generic nationally representative sample survey would not have been able to examine the impact in different housing market types with sufficiently robust levels of statistical confidence. Nevertheless, one cannot generalise from these findings to present a national picture across Britain. However, a nation-wide analysis of LHA statistical data will be undertaken in the spatial and econometric studies later in this evaluation and this will help to provide an account of impact across Britain as a whole.

The findings in this report do not lend themselves to any universal or pithy assessment of impact
so far. This is perhaps not surprising, given the eclectic nature of the private rented sector (PRS), the predominance of small landlords, the high rate of household turnover and the disparate nature of local housing market dynamics. As the preceding chapters have shown, marked differences arise
on many issues between respondents in the London case studies and those based outside London. These differences are often magnified when one focuses on the three London areas characterised by high demand in the PRS and relatively high rent levels (namely, Brent, Hackney, and Westminster). These areas – which are described as potential out-flow areas where proportionately more claimants may leave for more affordable housing markets elsewhere – often show quite distinct responses among both landlords and claimants compared to respondents in other areas in Britain. Any contrasts between respondents in case study areas in Scotland and Wales and those in the rest of England outside London are less marked. The same is generally true, perhaps surprisingly, of difference between ‘new’ and existing’ claimants.

A final point to bear in mind is that nearly all the findings are presented in the report in terms of the number of respondents, rather than the size of housing stock affected. In the landlords survey, for example, it should be recalled that the minority of LHA landlords (28 per cent) who had more than ten properties accounted for the vast majority (87 per cent) of the estimated total housing stock. Their responses, in other words, will have a disproportionate impact on the market overall.

14.2 Claimant and landlord experiences to date

A substantial minority of claimants in the survey (nearly three in ten) were in full-time or part-time work, which does not perhaps conform to the popular view of the employment status of Housing Benefit (HB) claimants. This indicates that the LHA is playing an important role in helping low-paid workers to afford their accommodation. For the sizeable majority of claimants, the LHA was being paid to them (72 per cent) rather than directly to their landlords (28 per cent). While concerns are sometimes expressed about the standards of properties in parts of the PRS, it should be noted that the vast majority of claimants were satisfied with both their home (76 per cent) and the area where they live (80 per cent). This general level of satisfaction may, of course, affect their propensity to move elsewhere, even if there is a gap between their LHA and the rent charged.

Despite high rates of household turnover in the sector and the rapid growth in recent years of
the PRS, the majority of landlords (52 per cent) had been letting for more than ten years. The significance of the LHA sector to many of the landlords is illustrated by the fact that LHA lettings accounted for at least half the lettings of 61 per cent of LHA landlords in the survey, and that 30 per cent were letting exclusively to the LHA sub-market at the time of survey. Over one in ten landlords also stated that they preferred to let to out-of-work benefit claimants.

Nearly two-thirds of claimants in areas outside London said they knew nothing at all about the LHA changes, compared to a third of claimants living in the London areas. Claimants’ more detailed knowledge was framed in terms of concerns about ‘cuts to HB’ rather than the more specific measures introduced in the legislation. Again, there is a marked difference between claimants living in London (where 55 per cent mentioned this as a factor) and those living elsewhere (where 20 per cent mentioned it). In general, new claimants were less knowledgeable than existing claimants about the changes being made to LHA. While new claimants may well be concerned about any difference between the benefit they receive and the rent charged, it seems they are less aware of how these calculations have actually been arrived at under the new regime.

Claimants were also very much less aware of the detailed changes being made to the LHA than were landlords. Indeed, claimants’ knowledge of the specific changes to the LHA was negligible. For example, less than one per cent of them knew about the reduction in the LHA rate from the 50th to the 30th percentile. The most commonly mentioned individual LHA change was the new cap on LHA rates by property size, but even that was mentioned by just four per cent of claimants in the survey.

Landlords’ level of awareness of the changes to LHA in general, and the different measures in particular, was higher among larger landlords and landlords in the four London case study areas. Over a third of landlords with ten properties or fewer, and a similar proportion of landlords with stock outside London, stated that they were not aware of the changes. In terms of the various LHA measures that have been introduced, the overall LHA rate caps and setting rates on the 30th percentile of local market rents were perceived by landlords to have the most impact on their business so far. However, a quarter also mentioned the extension of the shared accommodation rate (SAR) to the under 35s, even though this had not been implemented at the time of survey.

Claimants were asked about arrears but this was not attributed to any particular set of reasons. It is therefore not possible to differentiate the impact of the new LHA measures from other factors. Nine out of ten claimants reported that they were not behind with their rent and one in ten stated that they were in arrears. The prevalence of rent arrears was the same in London as elsewhere, and among both new and existing claimants. However, rent arrears were less prevalent among

claimants whose LHA was paid to them (nine per cent) than those whose LHA was being paid directly to their landlord (20 per cent). About half of claimants in arrears said their landlord (or the agent) had asked them to pay the money back gradually over time and one in seven that they had been asked to repay the debt immediately. Meanwhile, 14 per cent of claimants in arrears reported that they had been served with a notice to quit or threatened with being served one; and eight per cent that they had been verbally asked to leave by the landlord or agent.

Around a third of all landlords in the postal survey (and four in ten in the London case study
areas) said that they perceived that some of their tenants were in arrears as a result of the LHA measures. A much higher proportion of landlords with large letting portfolios (58 per cent) than those with small portfolios (28 per cent) reported that they had tenants who were behind with the rent because of the changes to the LHA. This difference between large and small-scale landlords
is of course not surprising because, other things being equal, the more tenants a landlord has, the greater the probability that one of them will be in arrears. Three out of ten
landlords reported having taken action to evict, not renew or to end tenancies because of the LHA reforms. Nearly four in ten landlords in the three London potential out-flow areas (and a quarter outside London) said they had taken some action (eviction, termination or non-renewal of tenancy) because of the new measures.

The results also provide early evidence about effects which are likely to emerge over a much longer time period in terms of landlords’ lettings priorities, the extent of negotiations between tenants and landlords over rent levels and the potential geographical displacement of some LHA tenants from some high rent markets to more affordable property elsewhere.

Just under a fifth of landlords in the three out-flow areas said that they no longer let to LHA tenants (considerably higher than the six per cent of landlords letting in areas outside London). Similar proportions (for both in and outside London) said they were reducing their lettings within the local authority area due to the measures. Sixty-two per cent of claimants living in the London case study areas said that landlords were generally unwilling to let their accommodation to HB claimants, compared to a quarter of claimants living outside London.

Around five per cent of LHA landlords (rising to ten per cent of landlords with more than ten properties) stated that they had negotiated a lower rent with current or prospective tenants. Nearly a quarter of claimants said they had tried to negotiate with the landlord over the rent to be charged. However, there is a gap between the level of activity and the outcome of these negotiations. Thus,
a third of claimants living in London had tried to negotiate over the rent compared to just under
a fifth of those living elsewhere. However, a lower proportion of those in London undertaking rent negotiation were successful in reducing the rent than those living elsewhere (31 per cent compared to 49 per cent).

Over a third of claimants had experienced difficulties when looking for accommodation while in receipt of the LHA. Those living in London were more likely to have experienced such difficulties than were claimants elsewhere. Among respondents who had experienced difficulties finding accommodation, half of those living in London, compared to a quarter of claimants living elsewhere, had found that rents were generally unaffordable to them. Among the sample of claimants as a whole, a fifth reported that the rent was fairly difficult for them to afford and a quarter that it was very difficult to afford.

Just over two-thirds of claimants (and eight out of ten new claimants) had a ‘shortfall’ between their LHA and the rent. Perhaps surprisingly, shortfalls were less prevalent in London than elsewhere (56 per cent and 71 per cent of claimants respectively). In order to make up any shortfall, the most common response was to economise on both essential and non-essential items in the household budget. Over a quarter of all claimants (and over a third of those living in London) said they had

looked for a job to make up the difference. Only three per cent of claimants said they had moved home in order to make up the shortfall.

14.3 Looking ahead

Both surveys asked respondents about their future plans over the next year. Clearly, it would be unwise to read off from these general statements of intent any firm predictions about future actions and impacts, for what respondents say they will do is not necessarily the same as what they actually do in practice. Nevertheless, the findings may provide some general indications about the likely direction of change in the sector as a result of the LHA measures.

Among claimants, the most likely response to any future gap between their LHA and the rent charged was cutting back on essential (45 per cent) and non-essential (37 per cent) budget items. Just under a third of claimants said they would look for a job to make up any future shortfall. Claimants living in the London case study areas were less likely than those elsewhere to report that they would look for lower rent properties, whether locally or further afield (18 per cent compared to 24 per cent). The responses of new and existing claimants were broadly the same. This reluctance to move reflected a considerable attachment to their local area as a place to live, as well as its proximity to family and friends. Over half the claimants living in London, compared to three out of ten of those living elsewhere, said they were reluctant to move because they liked where they were currently living.

Among landlords, when asked whether they intended to continue letting to tenants who claim HB, the clear majority (70 per cent) said they would do so. The proportion of landlords saying they would continue letting to tenants on HB was 78 per cent in Wales and 80 per cent in Scotland: this may well reflect the different demand profile for PRS properties in these areas. Of the remainder, 15 per cent said they would not let to HB tenants in the next year and 15 per cent either did not know or were not sure. When asked more speculatively whether they would plan to cease, or to consider ceasing, to let to LHA tenants in the next year (from the time of survey), around a third of all LHA landlords said they would do so. This figure rises to 42 per cent of landlords with more than ten properties and in the three potential London out-flow areas.

Around a third of all LHA landlords stated that they had either already reduced rents after negotiating with tenants in exchange for direct payments, or that they would do so in the next year. Half of the LHA landlords said they would not consider doing this, and this group owns two-thirds of the total estimated LHA stock covered by the survey.

It is only possible at this stage to speculate on how far these intentions will be realised in practice. One scenario is that there will be a period of market adjustment, that PRS rent levels will fall in some markets, that landlords will work from smaller margins and that the gap between LHA rates and rents charged will remain generally low or non-existent. A second scenario is that there will be a ‘ripple effect’ of change working outwards from London to other higher value markets as landlords become more acquainted with the new regime, prioritise non-LHA tenants in their lettings, and reduce their involvement in the HB sub-market because of concerns about future affordability for tenants. A third possibility is that many tenants will seek to adjust their budgeting arrangements
in order to be able to stay put even if they are having to fund a greater shortfall between the rent charged and that covered by LHA. This kind of adaptation may be a temporary or permanent course of action. These possibilities are not, of course, mutually exclusive and it is likely that a mixed picture will emerge across the country.

Finally, it needs to be noted that it is, of course, not possible to insulate LHA landlords or claimants from other factors affecting their decision-making. The context within which that decision-making takes place includes not only the changing patterns of supply and demand in the private rental market, and in local housing markets more generally (such as what happens to barriers to entering owner-occupation or to waiting lists in social housing), but also developments in the wider economy. For the evaluation as a whole, it may become more straightforward to attribute (with appropriate degrees of caution) the impact of the LHA measures if the findings of the follow-up claimants and landlords surveys, and the econometric and the spatial analyses, all suggest a similar pattern of potential cause and effect.