Chapter title Local Housing Allowance Evaluation

Chapter title Local Housing Allowance Evaluation 11 Local Housing Allowance Final Evaluation: The survey evidence of landlords and agents experience in the nine Pathfinder areas

Contents Executive Summary... 1 Chapter 1 - Introduction... 9 The LHA evaluation... 9 The quantitative landlord and agent surveys... 10 Policy background... 11 Details of changes to the Housing Benefit Regulations... 12 Changes in Jobcentre Plus... 13 Strategies to Prevent Housing Benefit Fraud and Error... 13 Housing Policy and other Interventions in the Private Rented Sector... 14 Progress of the LHA... 15 Housing Benefit sub-markets... 16 Report structure... 17 Chapter 2 - A profile of the landlords and letting agents... 19 Type of respondent... 19 Landlord s portfolio size... 21 Landlords who had changed their portfolio size... 22 Changes in numbers of lettings... 24 Shared accommodation... 26 Future portfolio intentions... 27 Chapter 3 - Letting strategies and the local market... 31 Most and least preferred types of tenant... 31 Most and least preferred types of household... 34

The most recent vacancy... 35 Voids... 38 Demand and supply... 39 Chapter 4 - The LHA and Housing Benefit... 45 Letting to HB/LHA tenants... 45 Number of HB/LHA lettings... 47 Letting preferences for HB/LHA tenants... 48 Renewals of existing tenancies to LHA tenants... 50 New tenancies and letting to HB/LHA tenants... 51 Overall views on the LHA... 52 Chapter 5 - Rent and rent arrears... 55 Usual method for setting the rent... 55 Rent levels over the last two years... 56 Rent negotiations... 57 Rent arrears... 58 HB/LHA shortfalls... 59 Chapter 6 - Management... 61 Use of letting agents... 62 Deposits... 62 Rent in advance... 64 Rent collection methods used for HB/LHA tenants... 66 Preferred methods of rent collection... 67 Advantages of preferred methods of rent collection... 68 Problems experienced with rent collection... 69 Management costs... 70

Chapter 7 - LHA administration... 73 Processing times of new claims... 73 Rent arrears arrangements under the LHA... 74 Vulnerability arrangements under the LHA... 75 Unlikely to pay arrangements under the LHA... 76 Chapter 8 - Conclusions... 77 The evaluation... 78 The context: market buoyancy and the HB sub-market... 78 The impact of the LHA on rent-setting... 79 Changes in the supply of properties to LHA claimants... 79 Changes in management practice... 80 Advantages of the LHA... 81 Housing Benefit sub-market differences... 82 Appendix A: Information used to classify the HB sub-markets... 83 Appendix B: Report conventions... 85 Appendic C: LHA Landlords Wave 3 Mainstage questionaire... 87 References... 173

Chapter title Executive summary Chapter 1: Introduction This report is the third in a series of three setting out the results of quantitative surveys of private landlords and letting agents that were part of an evaluation of the Local Housing Allowance (LHA). The main objective of this report is to present findings from the Final quantitative survey, completed in January and February 2006, by which time many of the respondents had two years experience of operating under the LHA. The Final report also draws comparisons with the views, experiences and attitudes of the same respondents in the earlier surveys, and particularly with the Baseline survey, which was completed before the introduction of the LHA. The Baseline survey interviewed 1,845 landlords and letting agents, and 1,109 of these (60 per cent) were re-interviewed in the Final survey. The LHA was introduced as a means of tackling some problems that were associated with the existing system of support for households paying rent in the private rented sector (PRS). Principal features are, first, that the LHA is still means tested, but pays a single flat rate allowance according to household size. Where households are able to secure property at a rent below the LHA rate, then they are able to keep the difference. The allowances are set by The Rent Service (TRS), and are reviewed monthly. Second, the presumption is that the allowance will be paid to the tenant, and only in certain circumstances will it be paid to the landlord or agent. Safeguards to protect the landlord from excessive rent arrears include: the transference of the payment to the landlord where the tenant has accrued eight weeks rent arrears; payment to the landlord in cases where the tenant is deemed vulnerable, and so unable to manage their own affairs; and payment to the landlord when the tenant is deemed unlikely to pay their rent due to a history of chronic rent arrears. Third, the processing of the new benefit would be simplified by the fact that all rents would not be subject to The Rent Service for review. As a result, the intention was for processing times to be quicker; and the system more transparent, with landlords and tenants more able to anticipate the level of support available. The LHA was introduced in nine Pathfinder areas between November 2003 and February 2004. As the bedding-in of the regulations got underway, a number of substantive issues began to arise for landlords and letting agents. The principal concern was the incidence of arrears under the new system. It was thought that where tenants were paid directly, some would be unwilling or unable to pay the rent. The incidence of arrears and landlord and agent responses were explored in an interim survey (Rugg and Rhodes, 2005a). A second issue was the way that local authorities were interpreting the safeguard regulations, and landlords degrees of satisfaction with the decisions being made. A third issue comprised the impact of the LHA on the speed and transparency of processing, and whether improvements in processing times offset other aspects of the scheme that were thought by landlords and letting agents to be disadvantageous. 1

The Pathfinder areas were initially chosen to represent a range of local authority types and settlement patterns, with variation in the strength of demand for property and property price variation. Three Control areas where the LHA was not introduced were also included in the evaluation to help assess the possible impacts of the LHA in the Pathfinder areas. The Control areas were Cardiff, Wakefield, and Wolverhampton. To aid the analysis of the quantitative data, the nine Pathfinder areas have been clustered into three groups according to the nature of their Housing Benefit (HB) submarket. Material collected in the qualitative parts of the research in conjunction with housing market data have been used to classify the Pathfinder areas into: HB Dominant markets, where tenants in receipt of HB made up a substantial portion of renters in the PRS (Blackpool and North East Lincolnshire); HB Concentrated markets, where tenants in receipt of HB were one of a number of demand groups for properties in the PRS, but where HB lettings tended to be physically concentrated in particular areas (Conwy, Edinburgh, and Leeds); and HB Dispersed markets, where demand was uniformly high from HB tenants and a range of other competing demand groups (Brighton & Hove, Coventry, Lewisham, and Teignbridge). Chapter 2: A profile of the landlords and letting agents Although there was an inevitable reduction in the number of respondents to the Final survey from the Baseline, the mixture of respondent types was virtually unchanged: 71 per cent were private landlords and 29 per cent were letting agents in the Final survey, compared with 73 per cent and 27 per cent respectively in the Baseline survey. A greater proportion of the landlords were private individuals/couples in the HB Dominant areas (89 per cent) compared with overall (81 per cent). Seventy-one per cent of the landlords were classified in the analysis as sideline landlords, in that they had other employment, or another interest or business that took up the majority of their time. Business landlords, whose principal concern was letting property, comprised 26 per cent of landlords. Three per cent of the landlords were institutions, and which in this instance were all charitable organisations. Portfolio size of the landlords followed the established pattern of being generally small in size, with around one half of them owning fewer than five lettings. Seven per cent of the landlords in the Final survey were no longer involved in letting residential property in their local authority area. Small, sideline landlords were the most likely type to have withdrawn from the market since the Baseline survey. Sixty-two per cent of all landlords had not changed their portfolio size since the Baseline survey. Twentytwo per cent of respondents had decreased their portfolio size, including those who had exited the sector; and 17 per cent had increased their number of residential lettings. The increases were most marked in the HB Dominant areas, and the decreases were most common amongst landlords in HB Concentrated areas. Landlords who had increased their portfolio size had done so at a greater rate than those who had reduced the size of their portfolio. As a consequence, the mean number of lettings for all the (current) landlords together increased from 10.3 in the Baseline survey to 11.0 in the Final survey. These increases were most common amongst landlords who, at the Baseline, already had relatively large portfolios. Increases were most marked in the HB Dominant areas. 2

Chapter title The proportion of landlords providing some shared accommodation remained about the same in the two surveys, at 21 per cent and 22 per cent respectively, although there was a high degree of churning in the ownership of this type of accommodation. Sixty-six per cent of landlords expected their portfolio size to remain at about the same size over the next two years. About twice as many of the remainder expected to increase rather than decrease their portfolio size over the next two years (22 per cent and 12 per cent). Chapter 3: Letting strategies and the local market The great majority of respondents to both the Baseline and Final surveys expressed a preference for working tenants (respectively 66 per cent and 67 per cent). These proportions were slightly lower amongst the HB Dominant respondents (60 per cent and 62 per cent). A small increase in the preference for working people was evident in the Control areas, where the proportion most preferring to let to this type of tenant grew from 66 per cent to 71 per cent. The largest proportion of respondents said that unemployed people were their least preferred tenant at both Baseline and Final survey stages (38 per cent and 42 per cent). In the HB Dominant markets, the proportion of respondents who least favoured letting to unemployed people increased from 34 per cent in the Baseline to 47 per cent in the Final survey. The type of household to which respondents most preferred to let was single people who were aged 25 and older (28 per cent in the Baseline and 30 per cent in the Final survey). There was little difference between Baseline and Final survey respondents experiences of the length of time before a vacancy was filled. In both cases around one quarter of respondents had filled their last vacancy within one week; and around four fifths of vacancies were filled within about four weeks. As at the Baseline stage, the majority of vacancies tended to be filled with tenants from within the local authority area (78 per cent), and most tenants had been private renters at their previous address. There was a slight reduction between the Baseline and Final surveys in the proportion of respondents reporting that they currently had a vacancy. The reduction was slightly more marked in the Pathfinder areas as a whole (from 47 per cent to 44 per cent) than in the Controls (58 per cent and 57 per cent). A higher proportion of respondents considered that the overall demand for PRS property had risen over the last two years than thought that it had stayed about the same (48 per cent compared with 44 per cent). There were some differences between the different types of market, with respondents in HB Dispersed being the most likely to consider that demand had remained about the same. In the HB Dominant and HB Concentrated markets, respondents were the most likely to think that demand had increased. The group from which increased demand was most evident, according to the respondents, was working tenants. 3

Thirty-six per cent of respondents thought that demand from Housing Benefit or LHA tenants had increased over the last two years, and 59 per cent thought that it had not changed. Very few respondents considered that demand from this group had decreased. Of the respondents who thought that demand had increased from such tenants, the majority thought that this was due to growth in the actual number of benefit recipients. The second most common reason given was that demand had increased because other landlords and letting agents had stopped letting to this type of tenant. Chapter 4: The LHA and Housing Benefit Eighty per cent of all respondents to the Final survey said they were letting to someone who was in receipt of the LHA or HB, a proportion that was almost identical in the Baseline survey (82 per cent). In both the Controls (85 per cent) and the HB Dispersed areas (79 per cent), there was no change to this proportion over the two surveys. In the HB Dominant areas the proportion of all respondents saying that they were letting to someone on HB/LHA dropped slightly from 90 per cent in the Baseline to 86 per cent in the Final survey. The proportion also dropped slightly in the HB Concentrated areas, from 77 per cent to 72 per cent. The proportion of the total number of landlords lettings that were let to someone claiming HB/LHA (based on the actual unweighted numbers of lettings) showed a small decrease between the Baseline and Final surveys, from 34.7 per cent to 31.3 per cent. There was a decrease in all types of area, including the Controls. There was little change over the evaluation in letting preferences for HB/LHA claimants. Six per cent of the Baseline respondents stated that they actively preferred letting to people in receipt of HB/LHA, a proportion that was the same amongst the respondents to the Final survey. There was a very slight increase in the proportion of people who said that they preferred non-hb/lha tenants, from 57 per cent to 60 per cent. The most common reason for preferring not to let to HB/LHA tenants, mentioned by 28 per cent of respondents, was that such tenants were undesirable. The slow processing of claims was given by 22 per cent of Pathfinder respondents, compared with 30 per cent in the Controls (and may be a reflection of the shortened processing times of claims under the LHA, as is indicated by other parts of the LHA evaluation). In contrast, six per cent of respondents in the Controls mentioned that HB/LHA tenants did not pay the rent, whereas in the Pathfinders this proportion was 20 per cent. Seventeen per cent of the Pathfinder respondents said that they had decided not to renew a tenancy because the tenant was in receipt of the LHA. This decision was more common in HB Dominant areas (22 per cent) and HB Concentrated areas (24 per cent). When questioned about which aspects of the LHA had prompted the decision, 92 per cent of respondents mentioned that the tenant in question had not paid their rent with the LHA. Twenty-six per cent of respondents with a vacancy over the past two years and who had heard of HB/LHA said that they had refused a tenant because they were claiming the benefit. There was no variation in this respect across all types of market. The great majority of such respondents had then gone on to let to someone who, in their knowledge, was not in receipt of the benefit. 4

Chapter title The principal reasons given for the refusal to let to someone on HB/LHA related to non-payment of rent and included experience of rent arrears amongst this tenant type (55 per cent), fears that the tenant may receive the benefit but then not pay the rent (44 per cent) and the switch away from direct payment to landlord (38 per cent). These reasons were most marked amongst the Pathfinder cases. In the Controls it was notable that slow processing times was given by a higher proportion of respondents than in the Pathfinders. Pathfinder respondents were asked whether the LHA had overall made them more or less likely to let to tenants in receipt of the benefit, or whether it had made no difference. Forty-eight per cent of respondents said that the LHA had made no difference. Respondents in the HB Concentrated area were the most likely to say that the change had made no difference (57 per cent), whereas 62 per cent of respondents in the HB Dominant markets said that they were less likely to let to claimants as a consequence of the LHA being introduced. Where respondents said that they were less likely to want to let to people on LHA, the principal reason given in all types of market was the ending of payments to landlords and agents. Experience of rent arrears was the second most cited reason, and fear of rent arrears the third. Chapter 5: Rent and rent arrears The principal way in which the rent was usually set was by charging the market or going rate. This usual method of rent setting increased from 39 per cent of all respondents in the Baseline survey to 49 per cent in the Final survey. The proportion of respondents who said they usually charged a reasonable level of rent dropped from 26 per cent to 17 per cent between the two surveys. Ninety-seven per cent of respondents said that it made no difference whether the tenant was on HB/LHA when they set the rent, usually charging the same level of rent irrespective of a tenant s benefit status. Fifty-one per cent of all respondents said that their rents had gone up over the last two years, and 46 per cent said that their rents had remained at about the same level. There was no significant difference between the Pathfinders as a whole and the Controls in this respect. Twenty-seven per cent of all respondents to the Final survey had been asked to negotiate over the rent level prior to the start of a tenancy over the last two years. Almost the identical proportion (28 per cent) reported the same in the Baseline survey. HB Dominant market respondents in the Final survey were much less likely to have been asked to negotiate over the rent level (nine per cent), compared with those from the HB Concentrated markets (31 per cent), the HB Dispersed markets (34 per cent), and the Controls (33 per cent). Sixty-five per cent of all respondents said that they had let to a tenant over the last two years who had fallen into rent arrears as a result of their own actions rather than as a consequence of benefit administration, a proportion that did not vary significantly between the Pathfinders as a whole and the Controls. Within the Pathfinders, such arrears were most common in the HB Dominant markets (75 per cent) and HB Concentrated markets (72 per cent), but notably lower in the HB Dispersed markets (53 per cent). 5

It was more common for the Pathfinder than the Control respondents to think that LHA/HB recipients were more likely to fall into arrears than non-benefit tenants (70 per cent and 55 per cent). Sixty-eight per cent of Pathfinder respondents who had let to someone who had fallen into rent arrears over the last two years thought that LHA tenants were more likely than HB tenants under the previous system to fall into arrears. Forty-seven per cent of respondents said that they had let to a claimant with a shortfall between the amount of benefit being received and the rent for their accommodation over the past two years. This proportion was higher in the Controls (61 per cent) than in the Pathfinders as a whole (44 per cent). Within the Pathfinders it was highest in the HB Dominant markets (58 per cent). In 89 per cent of all cases in all areas, the tenant was required to make up the shortfall in full. Chapter 6: Management Thirteen per cent of landlords said that they were making use of a letting agent at the time of the Final survey, a proportion was not substantially different from the position at Baseline. Landlords in the most HBoriented markets (HB Concentrated and HB Dominant markets) were the least likely to have been using an agent. Seventy-four per cent of respondents always charged a deposit prior to the start of a tenancy, ten per cent usually did so, six per cent only sometimes charged a deposit, and ten per cent never charged a deposit. These proportions did not vary significantly between the different types of market. It was slightly less common for respondents to ask for a deposit from people in receipt of HB/LHA, compared with others who were not in receipt of benefit. Seventy-four per cent of all respondents always charged rent in advance at the outset of a new letting, nine per cent said that they usually did so, seven per cent said that they only sometimes did so, and ten per cent that they never charged rent in advance. Eighty-five per cent of lettings to HB claimants in the Control areas (the actual unweighted number of such lettings) had the rent collected by it being paid directly to the landlord or agent from the local authority. In the Pathfinders the methods for rent collection were much more varied, and patterns differed across the three market types. In HB Dominant markets, personal methods of rent collection made up the payment method in 41 per cent of lettings. In HB Concentrated markets, 46 per cent of lettings had rental payments through direct payment of HB from the local authority. In HB Dispersed areas, payments were likely to be made either by standing order or direct debit, or through payment into a landlord s bank account. In terms of the rent collection methods that were actually preferred by the respondents, 74 per cent of those from the Controls preferred to collect the rent by having it paid directly to themselves from the local authority (respondents could mention more than one preferred method of rent collection). This method was preferred by fewer respondents in the Pathfinder areas (58 per cent), who showed a greater preference for direct debit and standing order compared with the Controls. In broad terms, the least problematic method of rent collection appeared to be direct payment of the benefit to the landlord or agent from the local authority. Where problems had been encountered with this method they were often related to its late payment. Within the Pathfinder areas, 30 per cent of 6

Chapter title respondents using this method complained of difficulties in having the benefit payment switched to themselves, and 37 per cent complained of the time taken for the payment to be switched. Forty-five per cent of all landlords indicated that their management costs had increased over the past two years, a proportion that did not vary significantly across the different types of market, including the controls, suggesting that the introduction of the LHA had not in itself had a substantial impact on the incidence of rising management costs. Sixty-four per cent of the landlords who said that their management costs had increased said that it had done so ahead of the rate of inflation, a proportion which again did not vary significantly according to the different types of market. Chapter 7: LHA administration Fifty-four per cent of the Pathfinder respondents said that the processing times of new claims under the LHA were much the same as under the old regulations. HB Dominant and HB Concentrated respondents were more likely to say that the processing times under LHA were quicker (36 per cent in each case), compared with those in the HB Dispersed areas (20 per cent). Eighty-nine per cent of Pathfinder respondents were aware that it was possible to ask the local authority to switch the LHA payment to themselves from the tenant when eight weeks rent arrears had accrued. Seventy-four per cent of tenants with an LHA tenant in arrears had approached the local authority with such a request. The median number of weeks taken for the local authority to deal with the matter was four weeks. Eighty per cent of Pathfinder respondents had heard of the vulnerability safeguards, and in 56 per cent of these cases had let to someone where a vulnerability decision had been requested. The median length of time taken for the local authorities to deal with these requests was four weeks for all Pathfinders together. Twenty-eight per cent of Pathfinder respondents had heard of the unlikely to pay regulations, and 35 per cent of these had requested a switch to the payment of the LHA for this reason. Local authorities again took a median number of four weeks to deal with the request. Chapter 8: Conclusions The quantitative surveys have demonstrated only minor alterations to existing landlord and letting agent practice over the course of the evaluation period. The impression from both the Pathfinder and Control areas was that the private rented market was for the most part buoyant, with the level of both demand and supply thought to be increasing. Although a few landlords had withdrawn from the sector, the overall number of lettings owned by the landlords in the Final survey had increased since the Baseline. There was an increase in the proportion of respondents who said that they usually set the rent by charging a market rent/the going rate. However, no clarification was available on how respondents interpreted the going rate and HB levels may have been used as a proxy. Rent increases were reported across both Pathfinder and Control areas in roughly equal proportion. 7

Reflecting the slight increase in respondents who preferred not to let to someone on HB/LHA, the proportion of lettings to people in receipt of the benefit decreased between the Baseline and Final surveys. These decreases were evident in all areas including the Controls, and were not substantial in size. Forty-four per cent of respondents said that the introduction of the LHA had made them less likely to want to let to someone in receipt of the benefit. The issue most commonly cited for this position was the ending of direct payments of the benefit to landlords and agents. The LHA has impacted on rent collection methods. Throughout the Pathfinders, there was variation in the alternative methods employed: in the HB dominant markets, it was more likely for respondents to take up personal methods of rent collection; in other markets, bank-oriented methods were favoured, including direct debits, standing orders and payment by tenants into the bank account of their landlord or agent. The majority of landlords and letting agents in the Pathfinder areas reported that benefit processing times were either no worse than before, or that they had improved under the LHA. Delays were still evident in the time taken to process a request for a payment to be shifted to the landlord or letting agent under the safeguard regulations. The HB Dominant market showed the most notable change between the Baseline and Final surveys, with the landlords and letting agents from these Pathfinders expressing the greatest increase in disinclination to let to LHA tenants. 8

Chapter title Chapter 1: Introduction This report contains the results of a final quantitative survey of private landlords and letting agents, which was completed at the end of an evaluation period of the Local Housing Allowance (LHA). By the time of this survey, providers of private rented accommodation within the evaluation could have been operating under the LHA for up to two years. Two earlier quantitative surveys have also been completed: a Baseline survey before the LHA was introduced, and an Interim survey about half way through the evaluation. This report draws comparisons with the two previous surveys, and includes a total of 1,109 respondents. As with the two previous surveys, respondents to the Final survey were interviewed over the telephone by the National Centre for Social Research. Interviews were completed during January and February of 2006, and lasted for an average of about 20 minutes duration. Due to the inevitable reduction in the number of respondents between the Baseline and Final surveys, there were insufficient cases for the analysis to consider the individual areas within the evaluation. The nine Pathfinder areas have therefore been allocated to one of three groups to aid the analysis. The three Control areas, where the LHA has not been introduced collectively form a fourth group of areas within the analysis, and which have been used as a point of comparison for the Pathfinders. The three groups of Pathfinders are based on a range of qualitative and quantitative characteristics collected during the evaluation that were used to identify three types of private rented Housing Benefit market: - HB Dominant: Blackpool, North East Lincolnshire. - HB Concentrated: Conwy, Edinburgh, Leeds. - HB Dispersed: Brighton & Hove, Coventry, Lewisham, Teignbridge. - Controls: Cardiff, Wakefield, Wolverhampton. The LHA Evaluation This report is the third in a series of four that review landlords and letting agents experiences before and after the introduction of the Local Housing Allowance (LHA) in the deregulated private rented sector (PRS) in the nine Pathfinder areas. The evaluation also includes three Control areas where the LHA was not introduced. The landlord and letting agent reports are one strand of a programme of evaluation that also includes monitoring the operational aspects of introducing the new regulations (for example, Walker, 2005), and reviewing the experience of claimants (for example, Anderson et al., 2004). In addition to this and the two preceding reports on the quantitative research of landlords and letting agents in the Pathfinder areas, there is also a qualitative component. As part of the Final stage of the evaluation, qualitative semi-structured interviews took place with people who currently or have in the past let to people on LHA during the evaluation period. The results of the qualitative work are published separately (Rugg, 2006). 9

The quantitative landlord and agent surveys The three quantitative surveys of landlords and letting agents were conducted over the telephone by the National Centre for Social Research. As with the other aspects of the evaluation, these surveys were conducted in all Pathfinders in each of the three surveys. The Control areas were only included in the Baseline and Final surveys. The interim survey was specifically aimed at collecting information about the early experiences of the LHA system only. The intention of the Baseline survey was to establish a benchmark picture of the people and organisations involved in letting property on the private rented market in the Pathfinders and Controls prior to the introduction of the LHA. The Baseline survey was conducted between January and June of 2004, and interviewed a total number of 1,845 respondents. Respondents included in the Baseline survey were sampled from three sources in the areas: from the people interviewed in the first claimant survey who provided details of their landlord or agent (reported in Anderson et al., 2004); from the local authority records of payments of housing benefit directly to landlords or agents; and from advertisements for lettings that had been placed in the local newspapers and directories. Further details of the initial samples and methods are contained in the report of the Baseline survey (Rhodes and Rugg, 2005a). The Interim survey was completed to ascertain some of the early experiences of the LHA, and followed-up Pathfinder respondents to the initial Baseline survey. This survey was conducted in the Pathfinder areas during February, March and April of 2005, which was after the LHA had been operating for between 12 and 15 months depending on each Pathfinder s go-live date. A total number of 1,082 landlords and letting agents responded, which represented 76 per cent of the Pathfinder respondents to the Baseline survey. Further details can be found in the report of the Interim survey (Rhodes and Rugg, 2005b). This Final survey again followed up respondents who had been interviewed previously. It achieved 1,109 interviews with the landlords and letting agents interviewed in the Pathfinders and Controls in the Baseline survey, which equates to 60 per cent of the number originally interviewed. It was inevitable that there would be a drop-out of respondents between the Baseline and Final surveys, and especially since Pathfinder respondents to the Final survey will have been asked to participate in three surveys. However, it is important to note that the mixture of respondents to the Final survey was virtually identical to that of the Baseline (as set out in Chapter two). The Final survey was conducted in January and February of 2006, after which time some respondents will have been operating under the LHA for up to two years. The aim of the Final survey was to collect the views and experiences of working under the LHA, and to draw comparisons with the Baseline picture where relevant. Although the analysis draws comparisons between these three surveys, and particularly between the Baseline and Final surveys, the findings of such comparisons should be treated with a degree of caution. Any changes, or similarities, between the surveys are representative of only a relatively short period of time, and may not be reflective of any possible longer-term impacts of the introduction of the LHA, and possibly other initiatives that may have been introduced, perhaps in an ad hoc manner, within the individual areas in the evaluation. In addition, experiences of the LHA and length of time operating under the LHA by the landlords and letting agents will have varied depending on a range of factors, including the way in which the LHA was introduced, varying rates of tenant turn-over in the different areas, and other related factors such as the introduction of new computing systems for handling benefit claims by some local authorities. 10

Chapter title Policy background Means-tested Housing Benefit (HB) comprises the principal mode of assistance for people on low incomes living in rented accommodation. Local authorities administer the benefit on behalf of the Department for Work and Pensions (DWP). Payments are made partly on the basis of decisions by The Rent Service, which reviews each PRS Housing Benefit application and determines the maximum eligible rent that will be payable. Criticism of the design and administration of Housing Benefit has been widespread and long-standing. In 2000, the Government announced its intention to review the system in Quality and Choice: A Decent Home for All. The Local Housing Allowance (LHA) was subsequently introduced in 2003, initially in the nine Pathfinders included in this evaluation. The LHA carries the intention of dealing with a number of key problems with the previous Housing Benefit system. First, a single flat-rate allowance is payable for a range of household sizes, irrespective of the contractual rent on a given property. Where the rent is below the LHA, then the claimant can keep the difference; for rents above the LHA level, the claimant is responsible for negotiating a lower rent or making up the shortfall from other income. The Rent Service retains responsibility for establishing the allowance levels, which are reviewed monthly and publicised locally. One intention of this aspect of the LHA is to make the HB system more transparent: tenants, landlords and letting agents will be aware of the rates payable, and so countering the argument that it was difficult to anticipate what level of support might be available under the previous HB system. Second, the LHA makes the presumption that in every case, the allowance will be paid to the claimant, who will then have responsibility for arranging to pay the rent to the landlord or letting agent. Safeguards are in place to protect the landlord or letting agent in circumstances where difficulties may accrue. These safeguards include instances where a tenant falls into eight weeks rental arrears (excluding the processing time of a new claim); cases where tenants are deemed vulnerable and may be incapable of paying the rent themselves, perhaps because of a mental or physical illness; and cases where a tenant is deemed unlikely to pay due to a history of poor rental payment. The exact implementation of the safeguards rests largely on the discretion of individual local authorities, and may therefore vary in operation slightly from one Pathfinder to the next. The intention to pay the clamant in the majority of cases acknowledges some criticism that the previous HB system disenfranchised the claimant. Rents paid directly to the landlord divorced the claimant from the act of shopping in the private rented market place, and offered no incentive for the tenant to seek a good deal. Tenants able to keep the difference between the rent and the LHA were thought likely to seek lower rents, and so increase competition amongst landlords and letting agents in the market. Third, the intention is that a much simplified system of determining the benefit levels would lead to reductions in processing times, and that payments of the LHA could be made more quickly once the local authority was in receipt of all the necessary information than was the case under the previous Housing Benefit system. One particular aspect of the LHA that was expected to be likely to have a beneficial impact on processing times was ending the requirement to refer all Housing Benefit claims to a Rent Officer for a reasonable market rent to be determined. 11

Details of changes to the Housing Benefit Regulations The Government outlined its intention to reform HB in the April 2000 Housing Green Paper Quality and Choice: A Decent Home for All (London: Department of Environment, Transport and the Regions/ Department of Social Security). This was followed by detailed proposals in October 2002 in Building choice and responsibility: a radical agenda for Housing Benefit (London, DWP) in which the Government announced its intention to introduce the LHA in the de-regulated private rented sector in the nine local authority Pathfinders and also introduced a wide range of other measures aimed at improving the administration of HB and Council Tax Benefit. The rollout of these measures took place between 2002 and 2006 and included the following key changes to the administration of HB, which, in the Pathfinders, were implemented alongside the introduction of the LHA. Benefit Periods were abolished for Pensioners from October 2003 and for working age people from April 2004. This change means that these HB (and subsequently LHA) claimants no longer need to reapply for HB yearly regardless of whether or not their circumstances have changed. Prior to this change, HB could generally be awarded only for a maximum of 60 weeks, and then had to be reclaimed. The change is expected to reduce unnecessary form-filling for claimants and reduce the amount of HB administration necessary. Treating entering work as a change of circumstances, introduced in April 2004, was part of the abolition of Benefit Periods for working age people. The change means that a new benefit claim is not required for the vast majority of people moving into work. Instead, it is treated as a change of circumstances, requiring a much shorter and less complex administrative process. The Council Tax Benefit (CTB) rule which restricted the benefit available to people in property in bands F, G and H to the benefit available for band E claimants was abolished in April 2004. Alongside the end of review periods for those claiming Pension Credit, people who have reached the qualifying age for Pension Credit (60 years old) can have their HB/CTB backdated for one year, or to the date at which they reached the age of 60 if that is less than one year, without having to demonstrate good cause for backdating. The Housing Benefit run-on for people starting work was widened in 2004 to include Incapacity Benefit (IB) and Severe Disability Allowance claimants. Broadly, the run-on means that people who qualify get their out of work HB/CTB for the first four weeks in a new job. Previously only those on Income Support or on both Job Seekers Allowance (JSA) and IB qualified for run-on after starting work. Any Tax Credit arrears are treated as capital for benefit purposes from April 2003. Tax Credit awards from April 2005 are taken into account much more simply for HB/CTB purposes by being treated as current income rather than using complicated attribution/retrospection rules. From October 2002, rapid re-claim procedures were introduced for people returning to HB/CTB after l2 weeks or less, which means that a full new claim is no longer required. 12

Chapter title Changes in Jobcentre Plus The Customer Management System (CMS) was first implemented in Scotland in July 2003, and through a dedicated rollout is now moving towards full national implementation alongside the full rollout of Jobcentre Plus services. The aim of CMS is to improve the way in which information is gathered and verified for benefit claims. The way local authorities receive passported claims from the Jobcentre Plus (that is, claims from those entitled to claim JSA) changes under CMS. Any improvements in the speed of processing primary benefit, such as JSA, are expected have a positive effect on the speed of processing HB/CTB claims. The CMS rollout programme included all, or in some cases only part, of the local authority areas involved in the LHA Pathfinder initiative over the course of the Evaluation period. Strategies to Prevent Housing Benefit Fraud and Error The Verification Framework (VF) and Security against Fraud and Error (SAFE) represent major strategies intended to prevent HB fraud and error. SAFE is an anti-fraud incentive scheme that offers subsidies to local authorities for identifying incorrect benefit claims, for correcting those claims, and for administering sanctions and prosecutions where appropriate. It is one element of the anti-fraud and error schemes available to local authorities and complements the VF scheme. Together, the two schemes attempt to capture the end-to-end process of prevention, detection and deterrence, and reflect the DWPs overall strategy of reducing errors and flaws in the administration HB/CTB. All local authorities with HB/CTB responsibilities are expected to be VF compliant by March 2006. There have also been a number of other initiatives aimed at improving the accuracy of HB administration and assessment. These include: Moves to improve data sharing between local authorities and other agencies (Jobcentre Plus, Pension Service, Inland Revenue) to help them assess new claims more accurately and keep up-to-date with claimants changes of circumstances. The rules on how local authorities take into account new Tax Credits have been simplified to minimise errors. At the same time, non-declarations of such Credits are being identified through data-match referrals to councils. Further improvements have been made in the quality of data matches and in the risk scoring processes so that fraud investigators can focus their efforts on those cases with the highest risk of committing fraud. More frequent (monthly) data matches have also been introduced since April 2004. 13

Housing Policy and other Interventions in the Private Rented Sector The Homelessness Act 2002 provides greater protection to those in priority need for housing, such as families, and is intended to give people more choice in the housing they receive. The Act also extends the priority list to include 16 and 17 year olds, and 18 to 21 year olds leaving care, as well as those fleeing violence. It requires all local authorities to carry out a homelessness review, develop a homelessness strategy for their area to prevent homelessness, and provide accommodation and/or support for people who are, or who may become, homeless. The Homelessness Scotland Act 2003 broadly mirrors these provisions. Other, wider regulatory changes have been introduced through the Housing Act 2004: Powers for local housing authorities to licence Houses in Multiple Occupation (HMOs), with mandatory licensing for larger, higher-risk HMOs and discretionary powers to license smaller, multiple-occupied properties Selective landlord licensing enabling local authorities to tackle low housing demand and the difficulties of anti-social behaviour, and powers to make management orders for PRS properties New property and building regulations, including the new Housing Health and Safety Rating System to replace the current housing fitness standard. Considering each of these in turn, in respect of licensing of HMOs, the Scottish Executive initially took the lead in introducing the licensing of houses in multiple occupation in Scotland with a rolling approach, which is intended to eventually include all three bedroom and larger accommodation. The Housing Act 2004 introduces licensing of HMOs from April 2006 making it mandatory to license the larger, traditional, higher-risk HMOs. Local authorities will also have the discretion to extend licensing to other categories of HMO in order to address particular problems that may exist in smaller properties. These licensing possibilities are reflected in the Mandatory and Additional Licensing Schemes available under the Act. The Act also provides for a new definition of an HMO, and limits the scope of licensing and enforcement action (other than in relation to action under the new Housing, Health and Safety Rating System) to certain types of HMOs within that definition. The Act further extends local authorities powers to licence and accredit landlords in areas of housing market failure, low demand, or neighbourhood decline. Areas experiencing a significant and persistent problem of anti-social behaviour can also be included. Some local authorities have introduced voluntary landlord accreditation schemes to help bring property up to the decent home standards. Landlords who join such schemes are accredited if they agree to meet specified management or property standards. The Act also builds upon and extends recent policy changes affecting property and building regulations. These constitute a wide body of measures and interventions in respect of domestic and residential property, and include fire retardant upholstery in furnished rented property, and tighter control of gas and, more recently, electrical fittings installation, maintenance and replacement. 14

Chapter title Landlords operating in all sectors of the market are affected to a greater or lesser extent by these changes irrespective of whether or not they operate in a Pathfinder area, or in the HB sub-sector of the local PRS. It would appear that for some landlords, the implications of the policy changes in respect of licensing in particular are of more concern than the impacts of the LHA. A wider policy context, including non-housing related benefit changes, is given in Walker (2006). Progress of the LHA The LHA was introduced between November 2003 and February 2004 in the nine Pathfinder areas. The method of introduction was either phased or big bang. The phased approach processed all new claims under the new scheme, and transferred existing claims on to it when their case came up for review. Under the big bang approach, all claims reverted to LHA levels but the shift to direct payment could be delayed for a period of up to six months. As the introduction of the LHA and its bedding-in got underway, a number of substantive issues began to arise for landlords and letting agents letting to LHA tenants. The first of these was the fact that the majority of tenants would be paid directly. Walker (2005) indicated that, by the time the regulations had been in effect for six months, on average 91 per cent of payments were being made to tenants. This figure has dropped slightly since that time to 85 per cent by November 2005, according to figures collected from each Pathfinder by the DWP. Landlords and letting agents expressed concern that an increase in direct payments would lead to tenants getting into arrears with the rent. The incidence of arrears, and landlord and letting agent responses to arrears, was explored in the interim survey, and is again covered in this report (in Chapter Five). A second issue was the way in which local authorities chose to interpret and implement safeguards with regard to direct payments to claimants. Landlords, letting agents and tenants can approach the local authority to request that the LHA be paid directly to the landlord or agent. The processes for dealing with the claim varied from one authority to the next, as the Final report on the operational stream of the evaluation indicates. The ability of landlords and letting agents to secure local authority co-operation in dealing with rent arrears is important to an understanding of their overall satisfaction with the new system. A third issue is the impact of the LHA on processing times. During the course of the evaluation, shifts downwards in processing times were not evident in all the Pathfinders, although the majority showed some improvement. It should be noted that, at the same time as the implementation of the LHA, the DWP also revised its regulations on annual reviews of HB cases, which reduced the administrative workloads for local authorities and carried the potential of improving processing times. It is therefore important to assess whether and how far landlords and letting agents considered the LHA to be an improvement with regard to more transparent and swifter administration (see Chapter Seven). 15

Housing Benefit sub-markets As a result of the inevitable fall in the number of the Baseline respondents taking part in the Final survey it became clear that there would be insufficient numbers of respondents for analysis at the individual Pathfinder and Control area level, a problem that also existed to some extent with the analysis of the Baseline survey. To deal with this problem, the analysis in this report has clustered the Pathfinders into three Housing Benefit market types, with the Controls comprising a fourth group of areas. The Pathfinder areas were initially chosen to represent a range of sizes of caseload in the deregulated PRS, numbers of deregulated private renting HB claimants on the New schemes, local authority types and patterns of settlement, and variation in the types of housing and labour markets. Control areas were similarly chosen for inclusion in the evaluation. At the Baseline stage of the evaluation, both qualitative and quantitative information was collected on the housing markets in the Pathfinder and Control areas, and has been analysed in order to arrive at a clustering of similar areas on a range of measures. It had been understood before the evaluation started, that lettings to Housing Benefit recipients might comprise a distinctive sub-market within the PRS, with its own specific practices. These practices might include, for example, tolerance of delays in payment of the rent due to the processing times of claims, the subsequent payment of the rent in arrears, a willingness to waive the payment of deposit, and rents set at or close to Local Reference Rents. Qualitative interviews took place with expert stakeholders in each of the Pathfinder and Control areas. These stakeholders generally included the housing strategy officer, an environmental health officer, staff related to Housing Benefit administration, and Rent Officers. Each respondent was asked a series of detailed questions on the nature of the local rental market (See Box A.1 in Appendix A for details). A range of non-qualitative key variables was also used in defining the Housing Benefit sub-markets (set out in Table A.1 of Appendix A). Evaluation of the Baseline material indicated that, in the areas under consideration, three different types of Housing Benefit submarket were discernible. These markets have been categorised as HB Dominant, HB Concentrated and HB Dispersed. HB Dominant markets Within this kind of market, demand for rented property from households in receipt of HB dominates the PRS, and low demand for rented property is evident from other market segments, such as students or young professionals. The balance of power between tenant and landlord can depend on the nature of the local owner occupied market. Where owner occupied house prices are stagnant, tenants within the HB Dominant markets might be more likely to be able to successfully negotiate over rent levels, since landlords can be less willing to sell their property on the owner occupied market. However, cartel-type behaviour from organised landlords and letting agents, including a general trend towards setting the rents at or above HB levels, might prove to be an obstacle to tenants shopping around. Case study areas in this category include Blackpool and North East Lincolnshire. 16