Local Housing Allowance Targeted Affordability Funding

Call for evidence: response from LB Tower Hamlets


The Department for Work and Pensions (DWP) is currently consulting on how to deploy its Targeted Affordability Funding which will be used to increase Local Housing Allowance Rates in some local areas by more than the 1 percent uprating limit being applied nationally. This paper sets out Tower Hamlets Council’s response to the consultation, particularly informed by our Housing Benefits and Housing Options service and the work of our cross borough Welfare Reform Task Group.

Local Housing Allowance (LHA) rates are a cap on Housing Benefit payable in the private rented sector and relate to the 30th centile of local rents.

The DWP call for evidence asks:

  1. what are the important things to consider when deciding which Broad Rental Market areas are experiencing the most significant issues with affordability of accommodation?
  2. how, if at all, should we consider difficulties faced by certain groups of claimants, such as young single people, families with children, disabled people, etc?
  3. are there other affordability issues that you are aware of for Housing Benefit claimants renting in the private sector that you think need to be considered? Can you provide details or further evidence?

Background: impact of LHA cap in Tower Hamlets

New Local Housing Allowance caps on Housing Benefit came into force in April 2011 based on rent levels in Broad Rental Market Areas and set at the 30th centile of local rents within these BRMAs. Tower Hamlets is part of the Inner East London BRMA.

Since April 2013, LHA rates have no longer been uprated in line with local rents but limited to CPI inflation rate; for 2014-15 and 2015-16 uprating will be limited to 1 percent. The changes in LHA have taken place gradually since April 2011 and there have been temporary protection periods in some cases – hence the full impact of the changes are not yet fully clear.

Already however, local rents and LHA rents are diverging significantly. Rents based on 30th centile local rents in April 2013 would be £1343 per month for a two bed house; £1582 for a three bed house and £2000 for a four bedroom house. The equivalent LHA caps based on the CPI uplift are £1284; £1506 and £1771 – monthly gaps of £59, £76 and £239 respectively.

Already a significant gap, up to £200 a month at the upper end, is opening up between rents based on 30th centile market rents and the LHA cap limited by inflation. An uplift of only 1 percent for the next two years, at a time when CPI inflation is currently running at nearer to 3 percent, will further widen this gap.

Local rent increases are in any case rising well above general inflation measured by the CPI. Rent inflation in Tower Hamlets over the last 12 months has been 16.7 percent. It is clear that it is not the availability of Housing Benefit which is pushing up rents in Tower Hamlets. This significant rise has continued despite the LHA caps being in place for over two years.

Low income families

The London Borough of Tower Hamlets therefore has considerable concerns that low income families are already being priced out of the private rented sector in Tower Hamlets and that the 1 percent limit will exacerbate this considerably. The distinction which the Government repeatedly makes between those on benefit and those out of work is reiterated in this paper which states that the policy intention is that “Housing Benefit should not support people who are not working to live in accommodation that would be out of the reach of most people in work.” This completely misunderstands the nature of Housing Benefit claimants in much of inner London and in particular in Tower Hamlets. High rent levels and low in-work income levels mean that even 30th centile rent levels of £1300-2000 per month are way out of reach of families on average incomes in Tower Hamlets. In fact many working people in Tower Hamlets are in low wage employment – 12 percent earning less than £7 an hour and 16 percent below the London Living Wage. 20 percent of jobs in the borough are within low paid sectors and the level of rents means that people in low paid work renting in the private sector rely on Housing Benefit to house their families. A household income of £75,000 is required to rent privately in Tower Hamlets and spend no more than a third of that income on housing costs.

Alternatives to the private rented sector for low income households are extremely limited. The average house price in Tower Hamlets is £364,500. This is over 12 times the median household income. Social housing is limited and in huge demand – despite the Council having enabled the building of nearly 4000 new affordable homes in the last four years, demand considerably outstrips supply. There are over 23,000 registered on the Council’s Housing Register, of whom nearly half are in significant immediate housing need.

Benefit cap

This situation is further exacerbated by the introduction of the over-arching Benefit Cap of £500 and the fact that the cap fails to take into account differential housing costs nationally. For those families who are not in work in Tower Hamlets, with the 30th centile rent level currently at £365 per week for a three bedroom house, this limits weekly income for food, clothing, heating/utilities etc to £135 per week. The private sector in effect becomes unaffordable to out of work households.

We are already seeing the impact of the LHA. The number of households presenting as homeless stating the loss of their assured shorthold tenancy (AST – i.e. private rental) as a reason for their homelessness has increased by 150 percent since last year. This has a significant knock-on effect on capacity in homelessness services.

At the same time, in a ‘double whammy’, the LHA and Benefit Caps are restricting the amount of temporary accommodation available to the Council to house families becoming homeless. We have over the years developed a set of strong relationships with local landlords and agents enabling us to house homeless families in the private rented sector and limit the use of expensive and highly undesirable bed and breakfast accommodation. These arrangements are now breaking down. Up until the beginning of 2013 we had been able for some years now to keep our use of bed and breakfast accommodation to house homeless families very low – since that time the rise in usage has been considerable and there is now an acute shortage of self-contained temporary accommodation (TA) in the private rented sector as landlords move away from benefit claimants due to benefit restrictions. This increase in bed and breakfast use is being mirrored across London. Landlords can now achieve 10 percent plus more in the local market than the Council can pay for TA, which is in turn more than 5 percent above the LHA rent.

Rental inflation

In summary, the LHA limits are having no impact on limiting rental inflation in Tower Hamlets which is now running way above CPI. The impact of this is being felt by non-working and working households alike and as a result homelessness is increasing. There is some evidence that the impact is in fact to reduce the availability of family-sized accommodation as landlords have increasingly converted family accommodation into HMOs which, when let as single rooms, can bring in higher rents.

In this context, the recognition of a need to help prevent more areas becoming unaffordable for Housing Benefit claimants through the Targeted Affordability Funding is welcome. It should be noted however that this will have to be significant to respond to the current private rental market in Tower Hamlets.

Our responses to the specific questions raised in the consultation paper are set out below.

What are the important things to consider when deciding which Broad Rental Market Areas are experiencing the most significant issues with affordability of accommodation?

Both absolute private rental levels and the speed of increase are significant issues in Tower Hamlets. These are significantly above those in London, which are in themselves higher than nationally.

  • Over the last 12 months median monthly rental prices have increased in most property size groups in the Borough. The average rent increase (all categories) in the borough was 16.7 percent.
  • House prices also grew over the last 12 months in Tower Hamlets by 4.2 percent
  • Monthly private rental prices increased the most for studios (29 percent) and 1 and 3 Bed room properties by 18.5 percent each.
  • Private rental prices increased substantially above the CPI (2.4 percent) and RPI (2.8 percent) inflation measures from April 2013. Overall, the data to March 2013 shows the largest increase in private rents since the data was published first in autumn 2011.

These rental increases mean that there is a growing divergence between LHA rates and market rents, even at the 30th centile level which might be expected to be affordable to low income families.

These factors need to be the key ones in determining which areas require Targeted Affordability Funding.

In addition, the relationship between housing and employment should not be ignored. Rents are likely to be higher in areas which have an active job market and local economy. Economic growth in Tower Hamlets is the highest of any local authority nationally. This is inevitably fuelling rental price inflation. Economic and household growth is projected to continue. The perverse effect of the LHA cap can be to force out of work or low income households to move to low rent areas where housing is affordable – but jobs much more scarce – thus making it less likely that they can find work or improve their employment prospects. The availability of jobs in a local area should be a factor in deploying targeted funding.

Consideration could also be made to levels of population growth - high growth areas will have higher demand for housing and therefore more substantial house price/rental inflation. Tower Hamlets has a fast growing population and is a popular place to live and work. The borough’s population in the last decade increased by some 29 percent to 256,100. Interim population projections published by both the regional and national projections predict continued growth in the borough’s population. Interim household projections predict suggest that, after the City of London, Tower Hamlets will have the second largest growth in the number of households in the country.

Given this situation, we would argue that there is a need to re-align LHA levels, with the 30th or indeed the 50th percentile if local market rents if the private sector is going to remain affordable for low income families in Tower Hamlets, either in or out of work.

How, if at all, should we consider difficulties faced by certain groups of claimants, such as young single people, families with children, disabled people, etc.?

Our work locally has identified the following groups as particularly vulnerable to the impact of welfare changes and the increase of rents in the private rented sector. These include:

  • Single parents who have a higher difficulty in finding work because of childcare requirements – affordable childcare in the borough is also limited in supply, again to some extent due to the strength of the local economy.
  • Those with caring responsibilities or ties to local communities which means there is a compelling reason for them to continue living in the local area.
  • Those with school age children (particularly at secondary school level) where moving to an area with more affordable accommodation could disrupt schooling and impact on educational attainment
  • Disabled and older people for whom moving is more difficult and disruptive and may move them away from informal care which reduces their costs to the public purse.

In addition in terms of the policy intention of making work pay and encouraging employment, exemptions should be considered for:

  • those in work and in receipt of Working Tax Credit where a move might mean having to give up existing work
  • those out of work who are complying with and fulfilling their JSA/ESA work conditionality obligations.

It also makes sense to consider protections for those households to whom the council will owe a statutory duty if they become homeless. If these families become homeless the overall cost to the public purse is likely to be higher than supporting them with Housing Benefit because the costs of accommodating in temporary accommodation are likely to be higher than if they are in ASTs – unless they are accommodated some distance from London. Increasingly, the only areas we can procure affordable private rented accommodation to house homeless families are those with high unemployment and few employment opportunities that exporting those households who are currently employed or have the potential to be employed would be counter-productive.

The Council is currently considering all these factors in deploying its Discretionary Housing Payments to support those most in need – but the increased amount made available this year, whilst welcome, in no way covers the impact of the range of welfare reform changes our borough is facing which include LHA caps, the social housing under-occupancy charge and the benefit cap, which in itself will lead to a £7million shortfall locally compared to a £2.2 million DHP allocation.

Are there other affordability issues that you are aware of for Housing Benefit claimants renting in the private sector that you think need to be considered? Can you provide details or further evidence?

We have covered the key issues in our evidence above around the impact of the LHA locally.

More generally it is clear that in areas such as Tower Hamlets it is high rents that are driving up welfare costs. Whilst the benefit bill is rising, JSA claimant levels are at their lowest for some time and employment rates at their highest. Increasing employment is a fundamental aim of the Council because of the considerable benefits it provides both to the individual, their family and the local and national economy, but this in itself is not bringing down the benefit bill because of high local rents and the point made earlier that Housing Benefit is paid to those in low income work as well as out of work.

It is our view that a more sustainable solution is to tackle the high costs of renting in inner London. This includes freeing the restrictions on local authorities to build more affordable housing; considering how it might be possible to regulate rents, particularly at the lower end of the market, and more vigorous pursuing of the London Living Wage which both our own authority and the Mayor of London have championed.