POLICY BRIEFING. ! Housing and Poverty - the role of landlords JRF research report

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1 Housing and Poverty - the role of landlords JRF research report Sheila Camp, LGIU Associate 27 October 2015 Summary The Joseph Rowntree Foundation (JRF) published a report in June 2015 "Housing and Poverty", which is basically a roundup of existing research commissioned by JRF which looked at the links between housing and poverty. This was followed in September by "How do landlords address poverty", a review of landlord strategies and actions in the social and private sectors to examine whether and how landlords addressed poverty and deprivation. As the report was written prior to the changes announced in the July budget, this briefing comments on the budget's effects on the recommendations. This briefing will be of particular interest to members and officers with responsibility for housing and welfare, particularly the interaction between rented housing and poverty, and of general interest to other elected members and officers. Briefing in full Housing and Poverty - June 2015 Introduction This report is essentially a literature review of JRF's published research into poverty where it touches on the housing implications. The aim of the research programme is to develop "an evidence-based UK anti-poverty strategy for all ages. This includes the role of housing in the lives of people experiencing poverty, and practical ways to ease the housing crisis for people in or at risk of poverty". Poverty and tenure

2 Poverty is generally defined as having a household income below 60 per cent of the national median taking into account the number of adults and children; it excludes housing costs a drawback at a time of increasing reliance on the private rented sector, where rents are rising rapidly in many areas. Whilst it used to be that a combination of social housing, housing benefit and the homelessness safety net protected vulnerable households against poverty, this is no longer the case. Changes to benefits and homelessness rules mean that, on current trends, there is a danger that the housing system itself will exacerbate poverty and deprivation. Over the 10 years to 2012, home ownership declined from 69% to 64% and social renting from 21% t0 16%, whilst private renting expanded from 10% to 18%. At the same time, the number of private renters in poverty almost doubled from 2.2 million in 2002/03 to 4.1 million in 2012/13. Poverty fell among home owners and social renters. Half of all those in poverty were in a household where at least one person was in work. Welfare reform Given that the bulk of the changes to welfare benefits have impacted on people renting their homes, it is hardly surprising that the research found most tenants were affected by welfare reform, particularly changes to council tax benefit and the "bedroom tax". Although unemployment was high, most had been in work and/or were seeking employment. However, those currently working tended to be in lowpaid service sector jobs. Over half suffered from ill health or had a disability. Other housing issues Other housing issues identified by the research programme include: Housing conditions - People living in poverty have a higher risk of worse housing conditions than others but housing policies partly break the link between poverty and worse housing conditions. Poor housing conditions can affect some aspects of child development and adult health, and may affect income and employment. Housing costs create poverty and material deprivation yet the widely used definition of poverty excludes housing costs. Regional variations in housing costs affect poverty and material deprivation (for example, there are one million extra poor Londoners after housing costs are taken into account). Housing Benefit helps prevent poverty and material deprivation, though less so after recent changes, but can also reduce work incentives and create unemployment and poverty traps. Rent levels affect financial work incentives and create unemployment and poverty traps for tenants.

3 Housing supply - current shortages affect housing costs, particularly rents in pressurised areas, whereas building homes creates jobs. How do landlords address poverty? Introduction At a time when welfare reforms are reducing incomes and rents rising faster than wages and benefit rates, the research aimed to establish how landlords are responding to the challenges of poverty and deprivation among the population. The researchers examined the strategies of 128 housing organisations in the social and private sectors, following up with surveys and/or interviews with 163, with the aim of establishing whether addressing poverty is part of housing organisations' "mission", in principle or in practice; the impact on poverty of decisions over where and what to build, including the use of affordable rented housing; rent setting; measures to increase tenants incomes and reduce fuel bills and other costs; allocation systems and policies concerning who can access different types of housing. The research was carried out between June 2013 and November 2014, prior to the election of the new Conservative government in May The report, although published in September 2015, was written prior to the July budget, which made significant changes to some of the report's assumptions for the future. Do landlords focus on poverty and deprivation? Changes to the grant regime have meant that higher rents have played an increasingly important part in funding new affordable housing in the social sector. At the same time, rents in the private sector are increasing rapidly in areas of shortage. With around one third of households in England renting their home, either from private landlords or in the social sector - housing associations, local councils or ALMOs - how landlords respond to an increasing number of tenants in poverty or at risk of poverty is important. Analysis of the housing and other strategies of social landlords revealed that, whilst not all explicitly mentioned tackling poverty as a goal, it was implicit in wider strategies, for example keeping rents low and providing budgeting and benefit advice or maximising the development of affordable homes. In contrast, most private landlords saw their role as running a business rather than tackling poverty, although most were keen to keep hold of perceived good tenants.

4 The research found that "the extent to which addressing poverty and deprivation is part of the mission of housing organisations is, perhaps unsurprisingly, one of the aspects that most clearly separated social and private landlords." Local authorities were most likely to have an explicit anti-poverty strategy whereas private landlords generally did not. Building for people in poverty? Recognising the growing disparity between demand for and supply of social housing, most sizeable social landlords aim to develop. However, changes to the grant regime have meant increased reliance on funding from rental income and private borrowing. Also, to access grant at all, new housing must be at "affordable rent" levels, i.e. up to 80% of market rent. Landlords have generally responded to these changes in two main ways; first, by looking to develop market housing to cross-subsidise social housing and second by reconsidering who should be housed in affordable rent homes. Some landlords were looking for working tenants, whilst others continued to house the same type of household as before. The researchers found that decisions on where to build new housing was often opportunistic, even for major social landlords. A few in high-value areas had policies of selling off some of their highest value stock in order to build more in cheaper areas. However, a larger number had policies of selling poorly performing stock, which would often be in lower demand areas. Most private landlords who took part in this research were not looking to expand their portfolio. Those that had recently done so by buying existing properties were targeting the middle or upper end of the market, or students, all of which were seen as more profitable than the housing benefit market. Rent Setting The research found that social landlords generally follow government guidance on rent setting, which has led to a policy of maximising rents. For housing associations, the affordable rent regime has led to some seeking working tenants for their affordable rent properties, rather than those in the greatest need who would struggle to maintain the tenancy after benefit changes. This paves the way for potential disputes with their local councils over nominations and whether to charge the full 80% of market rent in high cost areas. Some social landlords were now rethinking rent levels in response to local wage levels and welfare reforms and, in low cost areas, were seeking to be competitive with the private market. On service charges, which have increased in social housing recently, the researchers found that this was probably caused by landlords looking to recover the actual cost of the services.

5 POLICY BRIEFING Although private landlords generally set rents on new tenancies at market rates, they were prepared to go a bit below the market in order to get a perceived "good" tenant. Rent increases The government's influence on rent increases in the social sector was marked, with most landlords applying the maximum increase annually. This contrasted with private landlords; those contacted for the research were far less inclined to increase rents for existing tenants, particularly if they managed the property directly. This was due to a wish not to lose a good tenant and risk a vacancy period plus extra administrative work. Some letting agents had a policy of annual increases, but most did not. Supporting tenants and increasing disposable income 95% of the strategies of social landlords which the researchers examined mentioned providing some sort of support or advice to tenants, the most common being financial advice - benefits, grants, budgeting - which would also benefit the landlord. Most also advised on finding work or accessing training. Landlords saw the support they offered to tenants primarily as part of their social "mission" but also thought it was good value for money, given the spin-off of reducing rent arrears. Most private landlords did not think it was their role to provide similar support, although they would occasionally point the way to other services which could help - for example local authority services are often aimed at the wider community, not just council tenants. One exception was a letting agency with a large number of tenants, which had made a commercial decision to train staff on benefits and worked closely with local councils on benefit issues. Those landlords who did not offer advice to tenants could be deterred from letting to vulnerable tenants because of a perceived lack of support services. Many social landlords offered fuel efficiency advice and a few had negotiated deals for their tenants with energy providers. However, investing in existing stock to improve energy efficiency was increasingly difficult due to changes in grants and feed-in tariff payments. Several social landlords have scaled back their programmes. Private landlords generally saw investment in energy saving as not cost effective, although fuel efficiency was included in the wider agenda of letting good quality, wellmaintained homes. Selecting tenants Changes to welfare benefits and the introduction of "affordable" rented social housing has, the research found, made some housing associations question whether they should always seek to let to households in "greatest need" or whether they should look to a wider group. Although a majority of the association strategies

6 examined still prioritised "greatest need", others thought a wider range of clients was needed and some had introduced affordability tests. Local authorities, in contrast, did not seek to let to a wider range of people and there was a resulting tension between some councils and housing associations over this. In the private sector, landlords and letting agents usually had a set of criteria for a prospective tenant, which typically included an affordability test. This was a formal credit check by lettings agents, whilst individual landlords were less consistent. Only one letting agent specifically barred housing benefit claimants; others stated they would be considered if the landlord allowed it. Those who did generally preferred to let to employed benefit claimants, although a few had made informal arrangements with the local council to receive benefit payments direct when they took on unemployed tenants referred by the council. Landlords who did not let to applicants on benefit generally cited past bad experiences as the main reason. Conclusion, recommendations and relevant changes since the General Election The research, as might be expected, found substantial differences between the social and private rented sectors' approach to alleviating poverty. Social landlords generally saw this as part of their "reason d'etre" and often provided wider services, such as employment and training advice, as well as more direct income maximisation help. How private landlords reacted depended a lot on their personal relations with an existing tenant; help for an existing tenant would rarely translate into looking to house someone in poverty in a vacant dwelling. For social landlords, the introduction of the "affordable rent" regime has caused a dilemma, particularly in high rent areas where the rents could actually tip tenants into poverty. Some associations have reacted by capping rents, others by not letting to tenants who cannot afford the rent, thus moving away from housing those in greatest need. Changes since the General Election have increased the problem for social landlords and done little to encourage the private sector to get involved with households in poverty. The 2015 General Election As indicated earlier, this report was written prior to the General Election of May 2015 and the return of a majority Conservative government with an increasing focus on promoting home ownership and reducing the welfare bill. Changes to housing and welfare policy which affect the assumptions in the report's recommendations include: Reducing the benefit cap from 25,000 to 23,000 in London and 20,000 outside the capital Requiring social landlords to reduce rents by 1% per annum to 2020

7 POLICY BRIEFING Introducing Right to Buy for housing association tenants with a requirement to replace stock lost, funded by councils selling their most expensive stock Moving from affordable rent to affordable home ownership - "starter homes" for first time buyers to be sold at 20% discount S106 agreements to cover starter homes, not affordable or social rented stock. Cutting child tax credits for workers in low paid jobs Requiring social landlords to identify so-called high income tenants and charge them up to market rents Recommendations The report's recommendations are set out below and, where appropriate, comment on the implications of the changes heralded by the General Election are given in italics 1. Social landlords should revisit their overall mission and consider the extent to which the alleviation of poverty is, or should be, central to their policies and practices 2. Social landlords should ensure that building market housing does produce an increase in the overall supply of sub-market housing. The changed emphasis from affordable rented homes to affordable home ownership means far fewer new rented homes will be built. The 1% annual rent reduction has impacted on business plans, particularly on future development of new rented homes. 3. Allocation of social housing should focus on those in the most need. This probably chimes with government thinking, given the "pay to stay" proposals, but landlords are likely to be allocating a decreasing quantity of homes, as Right to Buy for housing association tenants is introduced and development plans scaled back. 4. Affordable Rents should be within the limits that Housing Benefit will cover, taking into account known future changes to benefit rates. The benefit cap has tightened and the ability of tenants on benefit to live in high cost areas will reduce still further. 5. The government should ensure that benefit levels are sufficient to allow households who depend on Housing Benefit to afford at least some of the properties in a locality where they could reasonably be expected to live. This is not an aim of the new government 6. Social landlords should ensure that measures taken to prevent

8 the creation of unsustainable tenancies or overcrowding do not unnecessarily exclude households in poverty from Affordable Rented housing., except that other measures mean the number in poverty is likely to grow. 7. Social landlords should look at the affordability of a property holistically, including rent, service charges and estimated costs of utilities. 8. The government and local authorities should consider offering grants. to private landlords to invest in energy-efficiency measures, targeting those whose properties could be improved in the most cost-effective manner, and landlords who let homes to tenants dependent on Housing Benefit. Energy efficiency measures appear to have been down-graded so this is unlikely to happen 9. Social landlords and local authorities should develop systems for assessing the impact of investment in issues such as digital exclusion. 10.The DWP and local authorities should address the concerns that private landlords have in letting to people in receipt of Housing Benefit. 11. Local authorities should work with private landlords to address their concerns about evicting tenants who will become homeless. 12.More robust evidence on the impact of landlords actions on poverty is needed. Comment The overall aim of the whole JRF research programme is to develop "an evidencebased UK anti-poverty strategy for all ages". However, it must be open to question as to whether the new government sees anti-poverty strategy in this sense as a priority: the main method employed by government to combat poverty is to "make work pay". Nevertheless many social landlords do see combating poverty among their tenants as an important part of their role, and the research report on if and how

9 landlords tackle poverty is a valuable assessment of the problems already faced by landlords and tenants. For more information about this, or any other LGiU member briefing, please contact Janet Sillett, Briefings Manager, on janet.sillett@lgiu.org.uk