DWP Housing Benefit Reform: Impact on Claimants in the Private Rented Sector

1. DWP Housing Benefit Reform:Impact on Claimants in the Private Rented Sector Communities Analytical Services

2. Structure • Background - Housing Benefit • Profile - Edinburgh Tenants in 2004 • Determining Housing Benefit • Why Reform? • Analysis • Findings • Behaviour?

3. Housing Benefit: • A means-tested social security benefit to help people with low incomes pay for rented accommodation. • Administered in the Private Rented Sector, it is flexible to local market conditions.

4. Eligibility: • Example: • A single person household, between the age of 25 and 59, earning less than £59.15, is eligible for the maximum level of Housing Benefit • For every pound earned above this, 65p in HB is withdrawn

5. Eligible for what?HB Determination - Old System • For each applicant, maximum HB will be the minimum of: • The mid-point of local market rents (the LRR) • “ “ “ “ “ “ “ for an appropriately sized property (the ‘notional rent’) • The property’s actual rent

6. …And for who?Profileof Edinburgh Tenants - 2004 Gender

7. Age

8. Working Statusof Working-Aged Tenants

9. Household Composition

10. Income and Economic Wellbeing • 20% of tenants < £5,000 per year • Mean income: £8,766 • 73% of tenants ‘getting by alright’ or better • 26% ‘not managing very well’ or worse

11. Old SystemRecap • Each household can have rents supported up to eitherthe local average; the average for a suitable size property; or the actual rent • This means tenantsdon’t gain by finding anything cheaper than average • …and it’s unclear what level of HB a tenant will receive.

12. New System What Will Change? • A Single Local Housing Allowance for each area

13. New SystemWhy Reform? • A fixed LHA might give: • Fairness • Choice • Transparency • Simplicity

14. What will change?Existing Tenants • For existing tenants, local boundarieswill expand. • This may alter what is considered a reasonable local rent (an LRR) within these areas. • …which may affect some tenants’ maximum housing benefit entitlement

15. AnalysisExisting Tenants For each claimant recorded between November 2006 and October 2007 • Comparison of • Original ‘maximum rent applicable for housing benefit purposes’ • Simulated‘maximum rent applicable for housing benefit purposes’ given new Locality boundaries • For around 54,000 Scottish Households

16. Impact Existing Tenants • 5% of existing Scottish claimants would face a reduction, averaging£6.04. • 88%of existing claimants will face no change in housing benefit. • 7% of existing claimants will see anincreasein housing benefit.

17. Impactby Local Authority

18. What will change? Future Claimants • Introduction of Broad Rental Market Areas • Will make some less expensive localities more attractive • Introduction of a flat-rate Local Housing Allowance • Will make some cheaper properties more attractive

19. Method Future Claimants • Limited to describing the ‘generosity’ of the new system relative to the old • Future tenants will face different accommodation choices • But ROCAS can only examine currently-occupied properties

20. FindingsRelative Generosity of LHA • If existing tenants, in their existing properties, were to switch to the LHA: • 80% would see an increase in HB • 7% would see little change in HB • 13% would see areduction in HB • But variation in effect between Local Authorities

21. …if existing tenants switched

22. Accommodation Choice and HB Support: Absolute Affordability • Under the old system, 57% of existing claimants face a shortfall between their rent, and their maximum HB • If these tenants were to switch to LHA, this figure would reduce to 36%

23. Absolute AffordabilityShortfall by Local Authority

24. Missing AnalysisWhat can’t we say? • Existing Tenants – of those facing increases and decreases in HB, who are most financially vulnerable? • Future tenants – given the weak link between accommodation choice and HB, how will future choices change? • Landlords – Will market power lead to price-fixing?