The homelessness budget

After several days of a mixture of swearing and incredulity, I am finally ready to write about the ’emergency’ budget (the emergency apparently being the pressing need to raise inheritance tax thresholds). For housing, the budget will have a significant impact, and one which will get worse in future years. It will, without a shadow of a doubt, cause a significant rise in homelessness, while making it harder for councils to deal with that homelessness. Beyond that, it will make adequate rented housing for families, social or otherwise, a problem – a risk – in a previously unknown way. And it seriously changes the plans and direction of the social housing sector, even before any extended right to buy.

So, to the detail of this farrago.

Benefit Cap

As well as the £23,000 benefit cap for London, an out of London cap of £20,000 was announced, with lower figures for single people.

London: £23000 per year or £442.31 for families, £15,410 per year or £296.25 per week for single persons
Outside London: £20000 per year or £384.62 per week for families, £13400 per year or £257.69 per week for single persons

My detailed post on the £23K cap is here. Even that figure, if applied nationally, meant that households with 3 or 4 children would find social housing rents for 4 bed properties becoming unaffordable, or possibly 3 bed places too in some circumstances. A £20K out of London cap simply confirms this. For households subject to the cap, it would seem pretty certain that any household with more than two children will find social, affordable or private rent for a suitable property unaffordable.

The single person cap, certainly for London, looks very likely to make even a room in shared property unaffordable at private rents.

The result will be a significant increase in homelessness from unaffordable properties. First an initial spike from terminated private sector tenancies (which in London had already risen from 11% of accepted homeless applications in 2010 to 39% in 2014), followed by a slower rise in homelessness from social tenancies.

Suitable temporary accommodation will also be caught by the cap, meaning that Councils will have to either lower rents for temporary accommodation, or blow their DHP budget on supporting it (Westminster City Council, for example, recently went £1 million over budget on DHP very largely through funding benefit capped temporary accommodation). It will, of course, become increasingly impossible to find suitable affordable accommodation by which to discharge duty – in the social or private sector.

Here, borrowed from Joe Halewood, are the figures.

benefit cap figures

 

Under 21 Housing Benefit

Having apparently learnt nothing at all from the 1980s, the Government are to stop HB for under 21 year olds from 2017, unless in employment or education (with vague ‘vulnerability’ exceptions). This will obviously result in a huge increase in under 21 homelessness. It did before and there is no reason to think it will be any different this time.

Benefit freeze

HB and LHA rates are to be frozen for the next five years. In the private sector in particular, this will simply see the amount of properties available and affordable for LHA claimants shrink significantly year on year, as rents continue to rise. The rate of homelessness from private sector tenancies will inevitably increase as a result. Shelter calculate that after two years of freeze, the bottom third of the PRS market will be affordable in just 20 local authorities nationwide. Rents in England went up by 2.1% on average last year.

Two child cap

Both tax credits and housing benefit/LHA are to be changed from April 2017 so that only two children in a household are taken into account. This will apply to any existing claimants with a third (or more) child born after April 2017, or to any new claimants (new being not claimed in last 6 months) In addition, the ‘family premium’ element in HB/LHA calculation will be scrapped from April 2016 – meaning a reduction of £10.47 pw.

This means that HB/LHA will be effectively cut for working households or those getting CTC, with the child/family premium income disregards being removed. According to the IFS, it means losing the average of £3,670 a year that currently goes to 872,000 families (548,000 of them in work).

That said, the Government aren’t complete monsters. If you can prove that your third child was the result of being raped, there will be an exception. They actually said that. They really did.

IMG_0509

‘Pay to stay’

For tenants of social housing (Council or RSL), mandatory upper income limits will be set, above which a ‘market rent’ must be charged. This was of course brought in previously as a discretionary power for tenant households earning over £60K. Nobody but nobody took it up because it was a silly and expensive idea. Now, it will be a mandatory silly and expensive idea. What is more, the ‘higher income earners’ [sic] are households with gross income of £40,000 in London and £30,000 elsewhere.  A couple working full time on the new ‘national living wage’ (the minimum wage) rate would earn £26,000, which makes £30,000 an interesting definition of higher income.

RSLs will get to keep any additional rent. Councils will have to pay it to the Treasury. However, the mechanism for this is ‘to be consulted on’ – how landlords are to get income details, what amounts to ‘market rent’ etc. are all a fog. But whatever the mechanism, there will be substantial administrative burdens and costs on the landlords.

As far as I can see, given that households on £30K income are entitled to an element of housing benefit at certain rent levels, the net effect will be to put up the housing benefit bill. It is also, of course, a huge disincentive for people to increase their employment income, amounting to a huge marginal tax increase. A stroke of genius.

Rent cuts

It might seem odd to be castigating rent cuts. But…

Social landlords (RSL and Council) will have to cut rents by 1% every year for the next 4 years. This after a ’10 year deal’ in 2013 for rent increases of CPI plus 1%. While a limited rent reduction at least won’t hurt existing tenants’ ability to pay the rent, RSLs’ business and finance plans predicated on CPI plus 1% have been torn apart. Their ability to get loans is somewhat jeopardised and their building plans at the least will have to be shrunk. Fewer new social rent properties. For councils, looking at funding repairs out of the rent income, there is a real maintenance problem looming.

The only saving irony is that central government legislating for RSL rent levels may mean that RSLs’ debt ends up on the public balance sheet, adding £60 billion to Government debt overnight.

Private Sector

Even the PRS took a hit. Tax relief on mortgage interest for BTL landlords will only be claimable at basic rate – 20% – not at higher rates. To be phased in over 4 years

In addition, the ‘wear and tear’ tax allowance will no longer be set at 10% of the rental income, but will be based on actual costs.

Unsurprisingly, landlord bodies like the RLA insist that any losses in these changes will be passed on in higher rents.

Whether this will slow the BTL buying frenzy remains to be seen. I suspect it will be of marginal effect overall.

Conclusions

If I was managing a council homeless persons unit, I would be frankly terrified. There will be a very significant and sustained increase in applications, from households with children becoming homeless through unaffordability and from under 21 year olds, who may be vulnerable in post-Johnson terms. The council will simply have to subsidise the costs of temporary accommodation. Although the DHP pot from central Government will increase by between £100 million and £55 million up to 2020 over the originally proposed £85 million for 2015, this is unlikely to be anything like enough to either keep people in their homes or provide for the costs of temporary accommodation over the capped HB level. The experience of London Councils confirms this. And then, there will be the simple impossibility of finding suitable, affordable accommodation for discharge of duty. For households subject to the benefit cap, London councils won’t even be able to rely on out of London accommodation as being cheap enough any longer.

For non-London councils and Housing Associations who haven’t really had to deal with these issues before, things are going to get very tricky, pretty quickly.

For some family households, there will be nowhere suitable to go. At all. Anywhere. This is not something that we have had to deal with for many years.

As for the rest, the slow death of social housing continues, now somewhat accelerated, with extended RTB still to come. The Government also announced that social ‘tenancies for life’ are going to be reviewed. You might think that the introduction of ‘flexible’ tenancies had done that already, but apparently not. So we have that to look forward to.

And private rents aren’t going anywhere but up, faster…

About Giles Peaker

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts, and still is Nearly Legal on Google +.
Posted in Housing law - All.

42 Comments

  1. Pingback: Through a glass, darkly | Alex's Archives

  2. Have you read the rationale for reducing social Housing rents:

    “In 2011, the Government introduced a new form of social housing, Affordable Rent, whose rent can be set at up to 80% of market rate, inclusive of service charges, and which is also subject to rent policy and the limit on annual rent increases….In this Bill the Government intends to reduce rents in social housing in England by 1% a year for 4 years from April 2016. These reductions will reset the levels of rents in the social housing sector, which over recent years have become out of kilter with private rents. This will help protect taxpayers from the rising costs of subsiding [sic] rents through housing benefit”

    So the Government forced RSLs to let at higher “Affordable” rents (not to be confused with affordable rents), which has allegedly led to higher social housing rents, which must be clamped down on. The effect of which (by discouraging social housebuilding) is to drive tenants into the PRS where rents are still higher.

    Hanlon’s Razor just doesn’t cut it any more. I’m going for Clark’s Law.

  3. The rent ceiling (which was described by Sky News as a Clampdown of Rich Tenants – Rich tenants to be purged) only comes into existence 2016/17. If the new Living Wage is to reach £9.00 ph by 2020 then it would have to increase by £1.80 over the next 4 years (it will be £7.20 in 2016) that’s 45p per year.

    Add 45p to £7.20 and the Living Wage for 2017 should be £7.65. A couple working 40 per week at that rate is over £31,000 – over the threshold outside London.

    That is too low to class as a high earning tenant.

  4. Excellent article.

    One point you didn’t mention is that the increase in the ‘rent a room’ allowance may be a marginal help to supply, but it could also damage affordability as the shared accommodation LHA is already at or below the current £4,250 rate in most areas outside London.

    • And one other – the changes to Support For Mortgage Interest (wait time increased from 13 to 39 weeks and turning into a loan not a benefit) have significantly degraded its value as a safety net. Hard to see how more repossessions won’t result.

  5. I don’t understand why a single parent with a baby gets the 2 bed LHA rate, when it is normal for working people to have to sleep in the living room, when they can’t afford the cost of housing.

    I also fail to understand why it is housing benefit that is capped, not the other benefits, leading people to believe they have no need to pay the rent.

    Maybe it is time to abolish housing benefit, and pay the same benefit regardless of the costs of someone housing or if they own their own home.

    However until I can evict someone in 14 days for not paying the rent and/or quickly recover all money the court decides a person on benefits owns me – I will not be renting to people on benefits.

    I also predict that a lot more people on benefits will discover a way to get disability benefits – so leading to yet more problems for real disabled people with assessments that don’t cope with with all but the most simple case.

    • You are aware that a significant proportion of HB claimants are “working people” “who can’t afford the cost of housing”, aren’t you?

      And the LHA is a cap on HB payable – it doesn’t set the amount of HB paid.

      As to why HB is the benefit which takes the hit when benefit is capped – the fact that it’s the only benefit administered by local authorities may be relevant.

    • -> And the LHA is a cap on HB payable – it doesn’t set the amount of HB paid.

      In a lot of the UK it will set the HB payable for families.

      (All assuming none working and not disabled etc)

      In Stockport for example, 2 Parent 2 Children (different sex over 10) and 1 Parent 3 Children for example are capped at below the 3 bed LHA rate.

      So 2 Parents household cannot get a 3 bed house, but a 1 parent household can! Therefore marriage breakdown is being rewarded by both of the parents being better off if they separate.

      If the government thinks the parents should sleep in the living room, they should say so directly!

      (LHA rates in Stockport are at about the market rent for cheaper parts of Stockport. Unlike some of the north where the LHA is higher then the market rent.)

    • The LHA for a given bed-size and area was set at the 30th percentile in April 2011, and has been (at most) uprated by 1%pa from 2012 on. In how many areas of the north has the PRS market collapsed so completely that market rent (however defined) is now below the 2012 30th percentile plus 1%pa?

      Stockport LHA for a 3-bed property is either £126 or £151 (plus pence) depending on which part of the borough (it straddles 2 BRMAs); I don’t understand your claim that families entitled to 3-beds are capped at below the 3-bed LHA rate. Neither of those numbers is above £354.

    • You misunderstand how the benefit cap works. Look at the table in the post. The amount of capped housing benefit a 2 parent 3 kid household out of London would get is £50.68 pw. Or a one parent 3 child household £92.43.

    • I know precisely how the benefit cap works – it was, though, LHA that appeared to be in issue in Ian’s post.

      I can see though that if his first “it” referred to the benefit cap, rather than LHA as it appeared, some of the rest of the post follows. It still leaves unexplained his claim that LHA in some of the North is higher than market PRS rental.

    • Sympathetic landlord alert. It might be ‘normal’ for people to sleep in the living room in your properties, but that doesn’t make it right.

    • I would not take on any tenant that needed to use the living room as a bedroom, unless the property had a large kitchen/diner. However I have friends that choose to sleep in the living room so they can a lodger.

      What we consider “right” has changed over the years, given most people in the world, sleep with a complete family in a 1 room home, I tend to think our standards are set high. Nice, provided we can afford them as a nation – look at Greece for what happens if a benefit system gets out of hand and the problem is ignored for MANY years.

    • The financial problems in Greece are down to their benefits system? Do me a favour.

    • Pension system, along with none payment of tax, correction being a way of life, false accounting by the goverment over many years, etc.

      (And very rick Greek people living in London paying little UK tax and no Greek tax, while controlling Greek companies that pay little Greek tax!)

    • They choose to sleep in the living room to take in a lodger? That is hardly the scenario you were talking about before.

      And the question surely is not whether we can afford the space. It is whether we can afford to pay you for your space.

    • Oh Ian, where to start.

      It is not ‘normal’ for working people to have to sleep in the living room, but if that happens, it is because of the ridiculous broken market in private sector rents. And that, Ian, is down to you and your BTL kindred. You appear to be advocating a policy of equal misery for all in pursuit of maintaining your rent levels. While that is a plausible argument from a particular point of view, it does not sit well with moralising.

      The HB (or Universal Credit housing element) is capped because the remaining benefit elements are at subsistence level – what is needed to survive. And not even the DWP could quite justify cutting survival level benefits.

      Your demand for landlords to somehow be excepted from the usual rules of justice (time to for a defence to be served after a claim is served etc.) are noted. I am sure that every claimant would like to avoid the basic principles of natural justice in favour of their own interests in just such a way. I’m certain your mortgage lender would be pleased not to have to bother with a claim before taking your properties (although actually, they probably can). That said, the civil court system is broken – and it is broken for everybody – which is basically due to underfunding over many years. Perhaps you and I would agree we should pay more tax to help out?

      Disabled people on ESA are subject to the Cap. The only exemptions are for those receiving Disability Living Allowance or PIP. Which means that they have been assessed. Your prediction will turn out to be wrong.

    • It’s people like you with that attitude that are making the current housing crisis worse! If everyone thinks the same way as you do then I am terrified of the amount of family’s that will be living on the streets!! It’s about time the government did something about greedy landlords to make it fair for the underprivileged, zero hour contract workers and the disabled to have the right to a home! It makes me sick!!

    • This will not improve until people that can work are SEEN to be choosing to work. However I don’t like some of the details and perverse incentives the new system is putting in place.

    • “This will not improve until people that can work are SEEN to be choosing to work.”

      It happens all around you; the fact that it doesn’t fit the strivers/skivers workers/shirkers narrative is the reason it isn’t “seen”.

  6. Under self-financing, local authorities had to build a strong business case to take out substantial loans to buy their own housing stock.

    In the case of Exeter City Council, this involved taking on a 50-year £56m loan with The Public Works Loan Board to buy our 5000 social housing properties. The Summer Budget’s announcement that social rents will be cut by 1% year on year for the next 4 years (equating to a 12% compared to the business case) will be a serious challenge to our Housing Revenue Account.

    The shortfall will impact on our ability to invest in existing stock and fund new builds.

    George Osborne’s announcement was given the spin of a short-term gain for residents , but when I look beneath the surface gloss all I see is more long-term pain.

  7. The only good thing I can see from the benefit caps is that it might cause rents to actually fall. It is all very well saying people will be homeless etc and I accept that some will but these landlords want to have tenants and if they put the rents up and then have no tenants they will surely have to reduce them again until they do. Some will be forced to sell, perhaps triggering a crash in prices and maybe then some people can start to afford to buy houses again. More likely the next crowd of buy to let morons will be waiting in the wings for a bargain and endless milking of rent from the populace.

    • The benefit cap may help reduce private rents on areas of low housing demand…but here in Exeter there is a high demand for properties in the private rental sector. Already LHA fails to meet market rents, and the 4 year freeze total removes LHA from any link with rents in the Broad Markey Rental Area. This will ensure that people in housing need will need to top up LHA to find a home – turning LHA into a de facto *Bedroom Tax*. And since BMRA extends into some surrounding rural areas, the effect on private (and some social and affordable) rets is to increase them to way beyond affordable to those on low wage. Time for a Living Rent?

    • In the current market, that simply isn’t going to happen, I’m afraid. In most areas (granted not all) there is no shortage of prospective tenants, so no reason to lower rents.

    • I have worked and claimed housing benefit for several years (landlord benefit I like to call it) I still think that yes there will be carnage but rents – and house prices – can not go up for ever. I know in London competition is strong but here in Kent there is plenty of property available to let, especially if you look outside of estate agents and use Gumtree, notice boards, word of mouth etc. We pay £700 a month for a 3 bed bungalow with garden and garage. That is less than we paid in Hertfordshire in 2006 for a 3 bed property. Similar properties here are £1000 a month but we just refuse to pay that amount. We have never been frightened to haggle. I understand many people are not so asertive though for many reasons. I don’t want to come across as right wing, that I am certainly not, but we need to take away the link between housing benefit and rents – and take away tax credits. I’m going to lose out now because my tax credits will reduce but I still believe it has to be done to make (some) work more viable. But there will be carnage for some.

  8. I work full time and i claim HB because i am not able to afford the rent on my 1 bed flat (outside London) on my wages alone, I dont rent in the most expensive area and compared to other rents in my area my rent is not a high rent, but it is still unaffordable without HB.

    Once the HB cap comes in i will struggle to pay my rent, which will obviusly have an impact on my other outgoings such as bills as i try to juggle payments

    I very much doubt my LL is going to reduce the rent for me… infact he is more liekly to put it up in the coming months and or years.
    Then what? a tenant who has never been late paying rent in 4 years cant meet the rent amount.

    Where do i go from there?
    There isnt anything cheaper than what i am paying now!

  9. This is an excellent article, summarising the incoherence of the government’s housing policies. I want to just mention the “rape exception.” No doubt it’s well-intentioned but it really would be impossible to implement in any decent manner, even if it made any intellectual sense. The former DPP, Kier Starmer, who knows something about the issues around rape and its victims, forcefully condemned the proposal in the Commons yesterday (http://www.publications.parliament.uk/pa/cm201516/cmhansrd/cm150714/debtext/150714-0004.htm#15071446003292)

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  11. Hi Giles,

    You mention that LA Homeless Managers will be terrified with the new cap levels. I have been discussing your blog with our HB Manager and she tells me that persons in temporary homeless accommodation are exempt from the cap. Well to be more precise the cost of the temporary accommodation is not used in the calculation for the cap. She is checking whether the Welfare Reform and Work Bill has changed that but we don’t think it has? Clearly if temp accomm is exempt from the cap then this makes a huge difference at least for homeless families. I am interested to know if you are right given that you usually are.

    John

    • Thanks Giles
      My HB Manager has cleared things up with this hopefully,
      “I think it’s to do with the definition of temporary accommodation and supported exempt accommodation. The hostel (we use this as S188 accomm) is temporary accommodation and not all temporary accommodation is supported exempt.

      Therefore, I think what the blogger has said is correct but doesn’t affect us as greatly as Westminster because of the type and use of accommodation we have. Up to now, I have treated the TVF hostel as supported exempt accommodation for these purposes because of the level of supervision and support they receive.”

      So it would appear that some accommodation may be exempt from the cap. At least as we calculate things the applicants in our temp accomm will not be impacted, although as you rightly say it would really be our problem (the local authority) and not theirs as per the recent case stating LAs would have to charge zero or peppercorn rent when cost is not met from HB. Thanks for helping me understand this a bit better, and by the way I am entirely with you as far as the politics of the cap goes.

    • John: are you saying that you don’t provide temporary accommodation otherwise than to those receiving care, support and supervision or fleeing DV?

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  13. Yes, we do of course Giles, and we now understand that the cap is going to effect all of the applicants who go into temporary housing. It seems that the homeless hostel we use, because of the level of support provided, is exempt from the cap calculations but the 30 or so housing units we use for TA are going to be effected. Up to now we have only had 8 HB applications effected by the cap and so it is something we are coming to terms with. In conclusion you are absolutely right as I suspected but it has helped me understand the situation and perhaps more importantly how it is going to effect our provision of accommodation as and when the new cap is introduced.

  14. “The single person cap, certainly for London, looks very likely to make even a room in shared property unaffordable at private rents.”

    Really Giles? I’m as aghast as you are, but allowing for a JSA claim at £73 (over 25) that would leave £223.25 per week for rent still. I’m not saying it won’t happen, but I think most rooms in London would still fall below.

    A one bed flat (over 35s only) wd be out of reach though, certainly. I was paying £250 per week to live in SE16, and that was in 2009.

    • Shorthand, sorry. Meant one bed or studio out of reach, but I suspect more rooms in shared property than you’d first think too.

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