Changes to way LHA rates are set could negatively impact on younger tenants

Housing Executive research has found that reclassifying the areas used to set benefit levels for private tenants could have serious affordability impacts on young people in Northern Ireland.

Local Housing Allowance rates, which determine how much help a private tenant gets towards their rent, have become increasingly misaligned with rents in BRMA areas. Although the aim of the research was to explore the potential for recalibrating the BRMA areas in NI to better reflect rental costs for tenants, it is acknowledged that some of the options put forward could have a negative impact for those young people whose benefits are restricted by the Shared Accommodation Rate.

The research explored the 8 “broad rental market areas” (BRMAs) which are used to set the maximum amount of housing assistance payable to private tenants who claim either Housing Benefit or Universal Credit. The Local Housing Allowance system, which determines how housing assistance levels for private tenants are set requires the Housing Executive to compile lists of rents for variant property sizes in each BRMA.

Shortfalls between rent payable and benefits received increasingly common due to welfare reforms

When the LHA system was first introduced in 2008, benefit was set at the median value of rents for the accommodation size in each BRMA. However, welfare reforms introduced in 2011 saw the allowance drop to the 30^th percentile, meaning people in receipt of benefit could now only affordably access properties at the very cheapest end of the market. In the same set of reforms, the government extended the definition of a “young person” to include any single person without dependents under the age of 35, effectively forcing this cohort of users into shared living arrangements for an additional 10 years.

Since 2016 the LHA rates have been frozen at the lower of the rates that applied in 2015 and the 30^th percentile rent, with up-rating annually by a maximum of 3% for a selection of LHA rates. Consequently, LHA rates are no longer aligned with their corresponding 30^th percentile rents and out of 40 LHA rates assessed for 2018-19, the research shows that 25 are now £5 or more below their 30^th percentile rents.

In March 2018 there were 52,300 PRS tenants in receipt of housing benefit and subject to the LHA regime. The average weekly rent for PRS tenants in receipt of housing benefit was £98. The report highlighted that 89% of those PRS tenants in receipt of housing benefit faced a shortfall between their weekly rent and the amount of benefit they receive. The average shortfall was £28 per week, representing almost a third of their average contract rent.

How are LHA rates for Northern Ireland calculated?

Under the present arrangements, LHA rates are set for each of five property size categories (single room in shared accommodation, one, two, three and four bedroom properties) within eight BRMAs which results in a total of 40 applicable LHA rates. Since 2008, NIHE have compiled lists of PRS rents for new lets annually, and these are ranked in ascending order for each property size, within each BRMA. From these lists, LHA rates were calculated for each BRMA area based on the median property value in each category. This meant that PRS tenants in receipt of housing benefit could rent a property in the bottom half of the market (by value) without facing a shortfall between their housing benefit and the rent they paid.

How will revising BRMAs impact affordability?

The research explored the implications for different options regarding potential changes to the BRMAs and the effect this would have on LHA rates, recognising that changes to the existing BRMAs would lead to LHA rates increasing in certain areas and decreasing in others. The various options were outlined in detail in the full report, which focuses on the disruption that would ensue from re-calculated LHA rates in a reclassified set of BRMAs.

In the context of aiming to provide list sizes which would be sufficient to calculate the 30th percentile rents, ideally lists of 100 properties or more (for BRMA/property type combinations) and avoiding disruption (by reducing the proportion of claimants likely to see a reduction of £5 or more in their LHA rate), the research shows that reducing the number of BRMAs to four or five would be the best option.

The second stage of the research assessed five scenarios which would enable a reduction in the number of BRMAs of varying boundaries, compared to the impact these various scenarios would have on LHA rates in each area, with the aim of remaining cost neutral. It was recognised that the potential loses and gains would not be shared equally by all household types.

Reductions to benefit a concern

The research acknowledged that potential reductions to housing benefit for PRS tenants is a concern, particularly given the above-average risk of income poverty among PRS tenants in receipt of housing benefit. The research showed that the main predicted effect of reclassification to four or five BRMAs would be a reduction in the shared accommodation rates in the reconfigured BRMAs, which would affect primarily single adults under 35. Furthermore, those who are single with no dependents are also predicted to experience larger net reductions compared to couples and claimants with dependents. This outcome is concerning, given the prevalence of young, single adults in homelessness applications.