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

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

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.

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less than £59.15, is eligible for the maximum level of Housing Benefit –For every pound earned above this, 65p in HB is withdrawn

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

…And for who? Profile of Edinburgh Tenants Gender

Age

Working Status of Working-Aged Tenants

Household Composition

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

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

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

New System Why Reform? A fixed LHA might give: »Fairness »Choice »Transparency »Simplicity

What will change? Existing Tenants For existing tenants, local boundaries will 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

Analysis Existing 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

Impact Existing Tenants 5% of existing Scottish claimants would face a reduction, averaging £ % of existing claimants will face no change in housing benefit. 7% of existing claimants will see an increase in housing benefit.

Impact by Local Authority

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

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

Findings Relative 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 a reduction in HB But variation in effect between Local Authorities

…if existing tenants switched

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%

Absolute Affordability Shortfall by Local Authority

Missing Analysis What 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?