The Impact of Welfare Reform Bill measures on affordability for low income private renting families

By: Sam Lister, Liam Reynolds, Kate Webb  Published: March 2011


The Welfare Reform Bill, introduced 16 Feb 2011, contains two important measures which will affect Local Housing Allowance claimants (LHA) living in the private rented sector. These effects are on top of changes to the calculation method and the payment caps announced in the 2010 budget and passed into law in November 2010. This research, carried out by Shelter and Chartered Institute of Housing (CIH), finds that these further changes will have a severe impact on private renting families’ ability to find decent affordable homes in areas with higher employment.

Summary

The first of these changes enabled by the Welfare Reform Bill, will allow the Government to use the Consumer Price Index (CPI) inflation measure to adjust the levels of LHA, which historically have been set using a sample of local private rents.  The Bill does not set out this proposal in detail, but it is understood from parliamentary questions and the emergency budget that Local Housing Allowance will be adjusted using CPI from 2013. The policy could be reviewed at the end of the Spending Review period, but at present there is no guarantee of this.

 

The second policy examined in this report is the proposal to limit the total amount of benefits an out-of work household can receive to the equivalent of average earnings, currently £26,000 a year after tax. This is essentially a further cap on Local Housing Allowance, because the likelihood of households breaching the limit is heavily dependent on housing costs. It is understood that the cap will initially be applied by restricting the level of housing benefit that can be paid to households.

 

This research finds that, in different ways, both of these policy changes are very likely to further decrease the supply of decent, affordable, private rented homes for claimant families renting privately in the short and long term. 

 

The change to CPI is likely to lead to areas with more employment locations becoming unaffordable more quickly than areas with higher unemployment. This will affect individual neighbourhoods in the short term, and whole local authorities and sub-regions in the longer term. The benefit limit has a severe short-term impact on households with children, living in the private rented sector. Both changes, particularly the benefit limit, will disproportionately affect the South of England.

 

To see Cambridge University's research on the impact of changes to LHA introduced in November 2010, click here.