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Housing Benefit Reform and the Spatial Segregation of Low-Income

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Housing Benefit Reform and the Spatial Segregation of Low-Income Housing Benefit reform and the spatial segregation of low-income households in London Housing Benefit reform and the spatial segregation of low-income households in London Alex Fenton ([email protected]) Cambridge Centre for Housing and Planning Research Department of Land Economy University of Cambridge January 2011 The research reported in this working paper was supported by Shelter, but the views are the author's and do not necessarily reflect Shelter's position. Christine Whitehead, Peter Kemp and members of the Shelter research team commented on earlier drafts of the paper, but any errors are entirely the responsibility of the author. Boundaries for maps were provided by the Ordnance Survey and UK Borders, and Census data were provided by NOMIS and the Census Dissemination Unit. Crown Copyright on all of these materials is acknowledged. 1 Table of Contents Summary.........................................................................................................................................4 Introduction....................................................................................................................................5 Background: Local Housing Allowance........................................................................................5 The 2010 reforms........................................................................................................................6 The spatial implications of the cuts in London..............................................................................7 Research Methods.......................................................................................................................10 Estimating local rents and LHA rates.........................................................................................10 The definition of 'largely unaffordable'........................................................................................12 The effects of rent inflation and the reforms...............................................................................13 LHA Rates.................................................................................................................................13 Basis for CPI and rent inflation assumptions..............................................................................14 Assumption about claimants making up a 'shortfall'...................................................................15 Where will be affordable?............................................................................................................17 What the main estimate shows..................................................................................................17 The separate effects of the measures........................................................................................19 Analysis by borough..................................................................................................................20 Verifying the predictive value of the approach............................................................................22 Variant assumptions about rental inflation to 2016.....................................................................24 Variant assumptions about 'shortfalls'........................................................................................25 Deprivation measures of affordable neighbourhoods..............................................................27 Multiple deprivation....................................................................................................................27 Unemployment...........................................................................................................................29 Discussion....................................................................................................................................30 Technical Appendix......................................................................................................................31 Geographies..............................................................................................................................31 Estimating neighbourhood rents................................................................................................32 Proportion of private tenancies supported by LHA.....................................................................33 2 Index of Tables Table 1: Summary of measures affecting private tenants' LHA, as set out in the June 2010 Budget6 Table 2: Summary of effects of measures and inflation on rents and LHA rates in 2011 and 2016. 15 Table 3: Main estimate of number and percent of neighbourhoods remaining affordable in 2010, 2011 and 2016.................................................................................................................19 Table 4: Number and percentage of neighbourhoods that are affordable in 2010, 2011 and 2016, showing the separate effects of the caps and the change to the 30th percentile.............20 Table 5: Proportion of Inner London neighbourhoods largely unaffordable in 2010, 2011 and 2016, by borough/council area. Outer London and all London figures shown for comparison...21 Table 6: Proportion of Outer London and peripheral neighbourhoods largely unaffordable in 2010, 2011 and 2016, by borough/council area. Inner London and all London figures shown for comparison......................................................................................................................22 Table 7: Results of varying assumptions about rental inflation: number and percentage of neighbourhoods remaining affordable at 3.5%, 5.0% and 2.5% per annum.....................25 Table 8: Main and variant assumptions tested, with number and percentage of neighbourhoods remaining affordable under each alternative....................................................................26 Table 9: Range of London rankings on the Index of Multiple Deprivation for neighbourhoods affordable to claimants in 2010, 2011 and 2016, using main estimate.............................27 Table 10: Average Job-Seekers Allowance claimant rate (% of working-age resident population), by affordability group of neighbourhoods..............................................................................29 Index of Figures Figure 1: Distribution of private rents for 2-bedroom properties in the Inner East London Broad Rental Market Area, October 2010...................................................................................11 Figure 2: Map of main estimate of London neighbourhoods that will be largely unaffordable to LHA claimants in 2010, 2011 and 2016...................................................................................18 Figure 3: Scatter-plot of London boroughs, percent of private rented dwellings 2009 tenanted by LHA claimants, by percent of neighbourhoods affordable in that borough, 2010..............23 Figure 4: Scatter-plot of London boroughs, percent of private rented dwellings 2009 tenanted by LHA claimants, by percent of neighbourhoods affordable in that borough from 2011.......24 Figure 5: Map of quintiles of Index of Multiple Deprivation 2007 scores for neighbourhoods within the London rental area; darkest areas are most deprived................................................28 3 Summary Local Housing Allowance (LHA) is a welfare benefit which helps low-income private tenants to pay their rent. The maximum financial help that a tenant may receive is set by reference to the range of local market rents. In June 2010, the new UK government proposed a suite of changes to the way LHA will be calculated. These changes mean reductions in payments to almost all present claimants, and make the maximum rates paid lower relative to market rents. It is common knowledge that rents and prices of residential property are determined by location as well as by dwelling characteristics. In this paper we evaluate what the government's changes to LHA rates imply about the kind of neighbourhoods that claimants will be able to afford to rent in London in the future. London is of particular interest for several reasons. It has high average housing costs with wide variation around those averages, extremes of income poverty and wealth, and a buoyant rental market which meets demand from diverse groups aside from LHA claimants. To assess the measures, we estimate current and future local rents for a large number of small neighbourhoods in the city. These rents are compared to the LHA rates that apply now in 2010 under the current system, and those that will apply in 2011 and 2016 after the government's changes have been enacted. Where the local LHA rate is below the lower quartile (bottom 25%) of rents, the neighbourhood is considered to be 'largely unaffordable' to LHA claimants. This means that someone seeking accommodation will find it hard to find a property that is available, affordable, in adequate condition and offered by a landlord who is willing to let to LHA claimants. We find that the changes to be introduced in 2011 will immediately reduce the proportion of London neighbourhoods affordable to LHA claimants from 75% to 51%. This falls further to 36% by 2016 as a result of the measures' longer-term effects. Our estimates of current neighbourhood affordability are strongly correlated with current observed concentrations of LHA claimants, giving credence to the predictive value of the approach. The estimates for 2016 are highly sensitive to the future relationship between CPI inflation and
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