Wednesday, 11 May 2011

That promised post on Local Housing Allowance, from November 2008, with additional comments to bring it up to date.

The post below was written shortly after LHA had been rolled out nationally:
Taken from posts on the HBInfo forums, an amalgamation of points from two posts, to give some context to my reply...

So, six months into LHA and what do we find:-
-LHA rates at a level that even those with above average salaries would struggle to afford.
-Landlords looking up the lha/direct website and pushing rents for even sub-standard property up to the median.
-Landlords beginning to report increased incidences of rent arrears and apparently bumping up the level of deposits to try and cover losses (and all this before the Christmas and winter fuel bills start to compete with payment of rent for LHA recipients)
-BRMAs that have been set too broadly causing people to be priced out of their own communities.
-Localities and LRRs only introduced in the past year or so likely to be reviewed as a result of the post-Hefferenan guidance from the Rent Service, creating a fresh round of winners and losers (guidance which is readily available to all on the Rent Service website).
-Apparently national LHA expenditure levels in the first six months so high that Treasury is beginning to lean on DWP for an explanation and probably demanding that they be reined in, and quickly.
The main point is though that LHA appears to be causing a surge in expenditure well beyond DWP projections and will continue to increase as landlords bump rents up to and beyond the LHA level.  The DWP consistently said this would not happen and that it did not feature as a problem in their evaluation of the pathfinders.

My reply.

I would suggest that this would be because it didn't happen in the Pathfinders...

Remember, the biggest change between the pathfinder scheme and the final scheme was that the excess that was paid to the claimant was capped at £15. This removed the incentive for claimants to find a property that was more than £15 below the LHA cap. This in turn removes the incentive for landlords to charge less than £15 below the cap per week to encourage tenants to move into their property, rather than the property next door.

So, the two situations outlined above would theoretically work like this:

Pathfinder scheme:

LHA set at £120 pw

Property A, rent £100 pw, V. nice condition
Property B, rent £90 pw, V. good condition
Property C, rent £80 pw, OK condition

Claimant takes property C, other landlords find their property is harder to rent, drop prices slightly, rents drop, LHA figures drop, cost of HB goes down, everyone is happy, (except the landlords).

Final Scheme:

LHA set at £120 pw

Property A, rent £100 pw, V. nice condition
Property B, rent £90 pw, V. good condition
Property C, rent £80 pw, OK condition

Claimant will now take property A in preference, other landlords find that low cost of property is not an incentive to rent their property, increase prices, LHA figures rise, cost of HB goes up, only landlords are happy.

Of course this is all very simplified, but I believe is a reasonable estimation of what is/was happening on the ground.

My Solution to the Problem

The largest problem with the Pathfinder scheme was that it could be seen to encourage deliberate overcrowding of smaller properties so that the amount of excess that the claimant received was disproportionately high, thus stopping them from looking for larger properties that were a more suitable size.

If the government had really wanted to produce a properly functioning Housing Benefit scheme that had the desired effect of allowing claimants the security of knowing how much Housing Benefit they would receive, whilst encouraging Landlords to keep rents low, the following approach would have got results much closer to those desired than either of the two schemes tried thus far.

The amount of benefit to be paid would be the lower of either the rate for the number of bedrooms needed for the family size or the number of bedrooms in the property and also remove the cap on the LHA excess. 

This would solve a number of problems with one stroke, by help to lower the Housing Benefit bill, provide claimants with the stability of a known maximum amount of benefit and a genuine choice of properties, provide Landlords with a known rent level, and keep the scheme easy to administer.

An update on the situation at LHA is now (May 2011)

Relatively recently, the Government decided that the Housing Benefit bill was still far to high, and that Housing Benefit could be used as a tool to haelp lower rental prices.

This lead to two main changes from April this year.  The first was to remove the remaining £15 excess.  This will have saved an awful lot of money.  If a council had 5000 LHA claims, all paying out the maximum excess, this measure alone will have saved £7500 instantly.  I still feel that the points above stand, and that leaving the uncapped LHA excess would help to drive down rental prices.  This will still not have had as fast an effect as the second measure implemented by the government.

The second measure implemented was the change from using the median rent level as the figure for LHA, to using the third quartile figure.  This measure in itself more than wiped out most excess payments, and so the cost of rewarding claiminants for finding cheaper property would be reduced anway.