Homes could no longer be affordable on benefits - NAO

Published by 24publishing for 24dash.com in Housing and also in Finance, Local Government

Plans to change the way housing benefit is calculated could leave half of local authority areas in England with shortfalls of properties affordable to Local Housing Allowance (LHA) claimants, the National Audit Office (NAO) has warned.

The NAO has probed the Government’s housing benefit reforms and warns they will result in two million households receiving lower benefits, but will save the Government £2.3bn a year by 2013/14.

However, it says the department could be doing more to communicate reforms and that its impact assessments “do not reflect the full scale of potential impacts”.

As part of its welfare reform agenda, the Government has already capped LHA and pegged the allowance to the cheapest third of rents in an area.

However, the NAO warns that the decision to up-rate the allowance with the cheapest third of private rents or the consumer price index (whichever is lower) from next April could see as many as half of English councils end up with insufficient accommodation for claimants on 100% of LHA.

Downward pressure on rents or increased employment would mitigate the impact, it says, but on current trends 48 per cent of local authority areas in England could face shortfalls by 2017. This could see them have more than twice as many claimants as ‘affordable’ two bedroom homes, the most popular housing stock, warns the NAO.

According to Shelter, the CPI has increased at a far slower rate than rental inflation over the last decade (20%, compared to 70%).

The NAO’s warnings back a joint report by Shelter and the Chartered Institute of Housing (CIH), published last year, warning that by 2023, just 10 years after the change comes in, 34 per cent of local authorities outside of London will be unaffordable for people claiming LHA, including working households on low incomes.

It had earlier warned in a 2010 briefing paper on the impact of the switch to CPI that “at this point it can no longer be said that housing benefit will be meeting its central policy objective: to ensure that reasonably priced accommodation is available to all households regardless of their income.”

Margaret Hodge MP, chair of the committee of public accounts, urged the Department for Work and Pensions (DWP) to better prepare individuals for the changes.

She said: “The department must prepare individuals and families for how benefit cuts will impact on them. The survey cited in this report found that the vast majority of private rented sector respondents knew “not very much” or “nothing at all” about the changes that are about to hit them.

“The department also needs to assess urgently whether local authorities are capable of shouldering the additional administrative burden.”

The Government's thinking behind 'freezing' LHA rates is to exert downward pressure on rents and it says the limit will only apply where local market rent increases exceed the annual CPI inflation rate. 

It also still expects there to be around a third of properties to be available to rent.

A DWP spokesperson said: "Our reforms will ensure that people on benefits can no longer live in homes that most working families couldn't afford.

"Even with our reforms, housing benefit will meet rents of up to £21,000 a year and apart from the most expensive areas in London around a third of properties will still be available to rent.

"We are providing an additional discretionary fund of £190 million to help families in difficult situations. Our reforms restore fairness to a system that was left to spiral out of control.”

The National Housing Federation (NHF) said the report was a reminder  that housing benefit cuts will hit millions of people across the country and could lead to an increase in homelessness.

Chief executive David Orr said: “The NAO’s report is a reminder that housing benefit cuts will hit millions of people across the country and could lead to an increase in homelessness. Most alarming of all is that the DWP has been unable to assess the full potential impact of the reforms, which come in next year, on many low-income and vulnerable people.

“One of the reasons for the high housing benefit bill is that we don’t have enough affordable housing. More people are then forced to pay private rents that are increasing so much - by 37% in the past five years – that even workers can’t afford their rent without help from housing benefit.

“Nearly 10,000 more working families every month are relying on housing benefit to help them pay the rent. The only long-term way to reduce the high housing benefit bill is to address the shortage of affordable homes rather than penalising people for struggling to pay high rents. We need to urgently build more affordable homes of all prices for sale and rent.”