The project looked at the short and longer term influences on the supply of private rented housing to poorer households in Britain. The Government’s emergency budget of June 2010 proposed substantial reductions in the Local Housing Allowance (LHA) payments made to private tenants who cannot afford their rent.
Phase 1 of the project was a simulation of the effects of these changes on household budgets, and aimed to provide estimates of households at risk of arrears and having to move house involuntarily. This research was intended to provide evidence to a number of official enquiries into the changes.
The second phase of the project looked at the longer-term implications of the measures for the private rented sector. In particular, it looked at where within local rental markets would properties remain affordable to LHA claimants in the following five years.
Housing Benefit reform and the spatial segregation of low-income households in London
This working paper analyses in detail how the government's Housing Benefit reforms will affect where in London low-income private tenants will be able to find affordable housing. We show that almost all of inner London will be largely unaffordable by 2016, and that HB claimants are likely to become increasingly concentrated in disadvantaged neighbourhoods.
Local Housing Allowance (LHA) is a welfare benefit which helps low-income private tenants to pay their rent. The maximum financial help that a tenant may receive is set by reference to the range of local market rents. In June 2010, the new UK government proposed a suite of changes to the way LHA will be calculated. These changes mean reductions in payments to almost all present claimants, and make the maximum rates paid lower relative to market rents.
It is common knowledge that rents and prices of residential property are determined by location as well as by dwelling characteristics. In this paper we evaluate what the government's changes to LHA rates imply about the kind of neighbourhoods that claimants will be able to afford to rent in London in the future. London is of particular interest for several reasons. It has high average housing costs with wide variation around those averages, extremes of income poverty and wealth, and a buoyant rental market which meets demand from diverse groups aside from LHA claimants.
To assess the measures, we estimate current and future local rents for a large number of small neighbourhoods in the city. These rents are compared to the LHA rates that apply now in 2010 under the current system, and those that will apply in 2011 and 2016 after the government's changes have been enacted. Where the local LHA rate is below the lower quartile (bottom 25%) of rents, the neighbourhood is considered to be 'largely unaffordable' to LHA claimants. This means that someone seeking accommodation will find it hard to find a property that is available, affordable, in adequate condition and offered by a landlord who is willing to let to LHA claimants.
We find that the changes to be introduced in 2011 will immediately reduce the proportion of London neighbourhoods affordable to LHA claimants from 75% to 51%. This falls further to 36% by 2016 as a result of the measures' longer-term effects. Our estimates of current neighbourhood affordability are strongly correlated with current observed concentrations of LHA claimants, giving credence to the predictive value of the approach. The estimates for 2016 are highly sensitive to the future relationship between CPI inflation and nominal rent inflation, emphasising that this is a key uncertainty about the long-term effects of the proposed reforms.
Most inner London boroughs are likely to become almost entirely unaffordable to low-income tenants on LHA by 2016. The large clusters of neighbourhoods in outer East, South and West London which our model finds to remain affordable in 2016 are likely to house increasing numbers of low-income tenants as a result of the reforms. The areas which remain affordable are characterised by high rates of multiple deprivation and unemployment among the existing population. We conclude that the reforms will intensify the spatial concentration of disadvantage in the city, and increase the segregation of poor and better-off households within London.
Report
How will changes to Local Housing Allowance affect low-income tenants in private rented housing?
This working paper presents a detailed analysis of the effects of proposed changes to LHA on private tenants. It estimates numbers who will be moved into income poverty and numbers moved into severe housing difficulty. It also looks at the longer-term effects of the measures on poorer private tenants.
In its first budget of June 2010, the new UK government announced changes to Local Housing Allowance (LHA), which are welfare payments that help tenants with low incomes pay their rent. This CCHPR working paper examines the effects of the changes on around one million tenants in private rented housing in Britain whose housing is supported by LHA. The government has already published its own impact assessment of the measures. Its report shows that the measures will reduce payments to virtually all private tenants who claim LHA, with an average cut of £12 a week per claimant.
In this paper we argue that the existing study provides an incomplete basis for assessing the policy changes proposed, and offer new evidence to remedy the deficiencies. The changes to LHA will immediately reduce the incomes of households claiming a means-tested benefit and who are thus by definition already at or near minimum income standards. We conduct a simulation of the measures using detailed household survey data, and find that the average reduction of claimants' incomes after rents are paid will be approximately 7%. We show that between 42,000 and 84,000 additional households will be left with less than £100 a week, the lowest income level guaranteed by current welfare arrangements. Those so affected include lowpaid workers and retired people as well as the disabled and unemployed. The households who will be moved into severe poverty contain between 27,000 and 54,000 dependent children. The impact assessment has also not addressed how tenants will absorb reductions in their means.
Using the simulation and data from past studies of landlord tenant behaviour, we estimate that between 136,000 and 269,000 households will find their rent payments unmanageable as a result of the measures, and project that half of those will be unable to sustain their tenancy and so will be evicted or will move involuntarily. These include up to 21,000 elderly households and 72,000 families with children. We show that the increased sums available for discretionary payments are unlikely to be sufficient to meet the needs of all those whose housing is at risk. We estimate numbers who may resort to statutory homelessness assistance, and the costs of this to the public.
The second part of the paper argues that the changes will diminish the amount of housing available to LHA claimants. A majority of 500 landlords surveyed for the study believes the changes will increase arrears, and a large proportion of those who currently let to LHA claimants intends to reduce the number of such tenancies they offer. There is some scope for landlords to reduce rents, as the government hopes, but this depends on numerous conditions which have not been evaluated.
In the longer-term, the changes to the way maximum allowances are uprated over time will anyway progressively take larger sections of the rental market beyond claimants' reach.