Cabinet Meeting 4 December 2013 Agenda Item No: 8 Report title Decision designation Cabinet member with lead responsibility Key decision In forward plan Wards affected Accountable director Originating service Accountable employee(s) Report to be/has been considered by Bedroom Reclassification as a Response to Welfare Reform Changes AMBER Councillor Peter Bilson Economic Regeneration and Prosperity Yes Yes All Tim Johnson, Education and Enterprise Regeneration Kenny Aitchison Tel Email Mila Simpson Tel Email Service Manager Housing Strategy and Development 01902 55(4841) kenny.aitchison@wolverhampton.gov.uk Section Leader Housing Strategy 01902 55(4845) mila.simpson@wolverhampton.gov.uk Strategic Executive Board Enterprise and Business Scrutiny Panel 17 April 2013 30 September 2013 Recommendation(s) for action or decision: The Cabinet is recommended to: 1. Agree that the Council does not adopt a widespread policy of bedroom reclassification, but for it to be undertaken by exception on individual or small groups of similar properties. 2. Authorise the Chief Legal Officer to make a minor amendment to the Constitution to allow delegated authority to the Strategic Director for Education and Enterprise with regards to individual determinations on bedroom reclassification. Page 1 of 7
1.0 Purpose 1.1 The purpose of this report is to inform Councillors of the advantages and risks associated with bedroom classification as a response to Welfare Reform changes, the resultant reduction in benefit and the Council s recommended approach to its use. 2.0 Background 2.1 A social rented sector size criteria commonly referred to as the Bedroom Tax was introduced in April 2013 as part of changes brought about by the Welfare Reform Act 2012. Working age social housing tenants claiming Housing Benefit who have more bedrooms in their home than they are deemed to need now lose a proportion of their Housing Benefit. They are expected to make rent payments to cover the difference unless they are able to move to alternative accommodation. 2.2 As at April 2013 there were approximately 2,621 Council tenants affected by the change, with 2,093 under-occupying by one bedroom with an average benefit loss of 11 per week and an additional 528 tenants under-occupying by two plus bedrooms, with an average benefit loss of 20 per week. 2.3 Wolverhampton City Council and its housing managing agents have been working on a number of different approaches to help mitigate the impact of Welfare Reform on our tenants. 2.4 Examples include; making contact with all those adversely affected to offer advice and support; amending the Allocations Policy to assist people in moving; contributing to West Midlands Best Use of Stock (WMBUS) a regional partnership developing joint approaches to making the best use of stock for example Let s Swap, a regional mutual exchange portal. 2.5 An alternative remedy that a number of other social housing providers have been considering is bedroom reclassification i.e. lowering the number of bedrooms a property is deemed to have to circumvent under-occupation classification and thus charges. This has been taken forward by a small number of providers, however there are a number of complexities associated with bedroom re-classification set out in this report. These were considered at a meeting between Council employees from Housing Services and Revenues and Benefits alongside Wolverhampton Homes and the Tenant Management Organisations. It is recommended that bedroom re-classification is only undertaken in exceptional circumstances following a rigorous assessment being undertaken. 3.0 Bedroom Reclassification 3.1 The Housing Act 1985, Section 326 sets out space standards for the purposes of defining statutory overcrowding, however these standards are only in relation to overcrowding and do not determine what constitutes a bedroom, which is for each landlord to determine. Some landlords are using the overcrowding minimum room size criteria to reclassify Page 2 of 7
certain small bedrooms in a property so their tenants are no longer subject to the Bedroom Tax. 3.2 There are a number of reasons why this solution may appeal to landlords: 3.2.1 It may be appropriate to apply to certain sections of the stock that are difficult to let to the required family sizes; for example two bedroom high rise flats or three bedroom maisonettes in less popular areas. 3.2.2 It could be a helpful response to households in certain situations for example an adapted property, e.g. where a vertical lift is installed within a bedroom 3.2.3 Going through a process of re-classification will help to correct where properties have been wrongly categorised on systems in the past, ensuring the correct information is held and the correct rent levels are set. 3.2.4 The reduction in rent will be known and can be planned for compared to a shortfall in rent caused by none payment and extended void periods where properties are difficult to let. 3.2.5 The Bedroom Tax is unpopular with tenants and this provides the potential to support tenants, reduce rent arrears and reduce evictions. 3.2.6 By intervening on properties that are difficult to let, landlords will be able to re-house as many people as the stock allows, thus continuing to assist those in housing need, as well as receiving some rental income on property that otherwise may stand void for long periods of time. 3.3 Knowsley Housing Trust has reclassified 566 hard to let larger properties. Leeds Council has reclassified about 830 properties on the basis of their build type, design and layout where it has made it more difficult to let these properties. Examples include reclassifying specific groups of three bedroom low rise flats to two bedroom flats due to layout and size, which are unsuitable for larger families; and specific groups of two bedroom multi storey flats to one bedroom flats due to the size and layout being unsuitable for families or shared accommodation. 3.4 There are a number of risks that need to be fully considered should the Council want to pursue bedroom reclassification: 3.4.1 Where reclassification of properties is only applied to those households affected by the Bedroom Tax this would cause an inequitable position to those tenants in similar sized properties that are unaffected. These tenants who would include those above pension age, those that fully occupy the property, or those earning sufficiently to have no benefit entitlement, would be charged a higher rent, which could leave them aggrieved and thus the Council exposed to a potential legal challenge. 3.4.2 Lord Freud, Minister for Welfare Reform has raised the possibility of action against landlords who re-designate bedrooms within properties without amending rent levels or who undertake blanket re-designations. Where the Department finds that a local authority has done this, sanctions could include restricting or not paying their Housing Benefit Page 3 of 7
subsidy. In addition if benefit was received for a rent which was subsequently reduced there may be an obligation to recover the previous overpaid benefit. 3.4.3 Furthermore as the Council would be required by law to cut their rents (3.4.2) there is potential to lose income from the rent that is greater than the effect of rental income lost as any change would have to apply to all similar sized properties (3.4.1) to ensure the policy is equitable. 3.4.4 Any loss in rental income brought about by reclassification would lead to less money to spend on services as well as reduce the potential for borrowing against the Housing Revenue Account (HRA) for the development of new properties. 3.4.5 The Council could be further exposed if the Government decided to recall any Housing Benefit allocation paid for housing management and repairs based on the original number of bedrooms per property. 3.4.6 Where all identical properties are reclassified regardless of whether the occupants are impacted by the Bedroom Tax or not, this would lead to an apparent increase in overcrowded properties and would cause difficulties in the future when re-letting as families may appear too large and so further re-classification would be necessary. 4.0 First Tier Tribunals 4.1 There have been a number of recent First Tier Tribunal appeals heard on the application of the spare room deduction. Tribunals are specialist judicial bodies which decide disputes in particular areas of law. Appeals to the First-tier Tribunal are against the decisions from government departments and other public bodies. The Upper Tribunal hears appeals from the First-tier Tribunal on points of law i.e. an appeal made over the interpretation of a legal principle or statute. 4.2 Five cases have been heard in Fife, Scotland. In four of the cases the Judge ruled that a room which had been assessed as a bedroom was in fact not a bedroom. In the fifth case he ruled that a room used as something other than a bedroom could in fact be counted as one. 4.3 The Judge based his rulings on the overcrowding legislation contained in the Housing (Scotland) Act 1987 s.137 which says that a bedroom for an adult had to be at least 70 square feet (6.5 sq. metres) in size and a room between 50 and 70 sq.ft. could only be used by one child. The provisions in the Housing (Scotland) Act 1987 are also set out in the same terms in the Housing Act 1985 (s.326) which applies in England and Wales. This has been followed by a ruling against Westminster Council in favour of the tenant, after applying the ordinary English meaning of a bedroom, as the room in question was used to store medical equipment. 4.4 As these are rulings of a First Tier tribunal and not the Upper Tribunal they do not a set precedent, either in England or Scotland. There is however the potential for a case to go to the Upper Tribunal. If this is the case the implications for the Council are that: Page 4 of 7
it would increase the problems associated with administration and decision making on spare room deductions as a review would need to be undertaken on all properties in terms of room sizes and individual properties in terms of room uses; it may create problems with rent setting if there are a number of different variances across the stock, especially where decisions have been made on individual cases; where a property was reclassified the actual rent being charged in such cases would be too high and would need to be reduced and backdated from the start of the tenancy. 4.5 In terms of Wolverhampton Council properties there are 7,100 bedrooms in 6,900 properties that would fall under 70 square feet, so if a precedent is set via an Upper Tier Tribunal hearing, or if the Council was challenged and this was upheld based on bedroom size, rather than room use, this would pose a financial risk to the Council as set out at 3.4. It is however the National Housing Federation s view that the social sector size criteria rules depend on the number of bedrooms in the property, and for this purpose a room is either a bedroom or it is not. The rules provide for no definition of a bedroom, no minimum size of such a room or its suitability or otherwise for occupation by 2 people. 5.0 Proposed way forward 5.1 A policy of widespread reclassification of properties and resultant reduction in rental income would have significant financial implications for the HRA. This is exacerbated by the requirement to apply it to all like properties to ensure the policy would be equitable and not open to legal challenge. Any significant loss of rental income would have a direct impact on the Council s ability to fund its managing agents to deliver housing management services and improvements. It would also curtail the development of Council led affordable housing which is necessary to help meet housing need as well as to provide the smaller units required to help people move to accommodation that meets their size requirements. 5.2 On this basis it is recommended that the Council does not adopt a widespread policy of bedroom reclassification. Individual or small groups of like properties will be considered on a case by case basis where a room classified as a bedroom is deemed inappropriate as a bedroom due to a combination of factors such as size, location, lack of natural light and/or poor access to the room; or where it has been adapted. This will be done by a panel including employees from Housing Services, Finance, Legal, Revenues and Benefits as well as our managing agent operating in that area, based on an assessment of the financial, legal, equalities and housing management implications of the change. 5.3 Where an assessment deems it appropriate for a change in the reclassification of a property, it is recommended that this is approved by the Strategic Director for Education and Enterprise under delegated powers in the constitution. As this is an operational decision it is not necessary for it to be made in consultation with the Cabinet Member for Economic Regeneration and Prosperity. 5.4 A small number of maisonettes above the Haymarket shops are currently being considered for reclassification as what is currently designated as the third bedroom may be inappropriate for use as such because of its small size and location amongst the living accommodation, directly above the shops, rather than upstairs with the other bedrooms. Page 5 of 7
In addition when opportunities present themselves through Decent Homes the possibility and feasibility of converting difficult to let three bedroomed maisonettes into smaller accommodation at Heath Town is currently being considered. 5.5 Furthermore Council employees will continue to work with its housing managing agents and other partners to develop and deliver a range of actions to mitigate the impacts of Welfare Reform. Some of which includes: Contacting all tenants affected by the spare room subsidy to advise them of the changes, to discuss rehousing opportunities and what other advice and support could be provided. Since April, Wolverhampton Homes have positioned three CAB officers within Wolverhampton Homes to support preventative and debt strategies. Tenants are being supported to make Discretionary Housing Payment applications. Contacting all tenants scheduled to be affected by the benefit cap and supporting them to update their personal information with the DWP, with around a third thereby avoiding the cap. The Council has being successful in a bid to the Homes and Communities Agency to increase the amount of affordable housing by bringing back into use 45 long term empty properties via commercial conversions, right to buy buy back and private sector leasing. Amending the Allocations Policy to assist tenants to move who have arrears as a direct result of the spare room subsidy (where they are making payments against them) as well as allowing joint tenancies of non-traditional households to avoid under occupation and improve affordability. Wolverhampton Homes and Bushbury Hill EMB are developing schemes with the Credit Union. Bushbury Hill EMB has introduced mobile working to take electronic payment and provide support to tenants on the doorstep. 6.0 Financial implications 6.1 Any redesignation of a property resulting in a reduction in the number of rooms classified as bedrooms would reduce the amount of rent that is charged for that property. This reduction in rent would mean that fewer resources would be available to the Housing Revenue Account. It is not possible to quantify this potential reduction in resources as it would be specific to each individual property where a room reclassification took place. 6.2 If the Council were obliged to repay any overpaid benefit following the reclassification and resultant reduction in rent charged for a property it would be likely to have significant financial implications for the Council. [CF/18092013/E] 7.0 Legal implications 7.1 The Housing Act 1985, Section 326 sets out space standards for the purposes of defining statutory overcrowding, however these standards are only in relation to overcrowding and Page 6 of 7
do not determine what constitutes a bedroom, and thus allows individual landlords to determine this. 7.2 Where a local authority chooses to reclassify the number of bedrooms in a property this should be applied to all like properties to avoid discrimination against tenants that would not benefit from a reduction in rent if based on the impact of Bedroom Tax alone. 7.3 Lord Freud, Minister for Welfare Reform has made it clear it is unacceptable for landlords to undertake blanket re-classifications or re-classify the number of bedrooms within a property without amending rent levels. Where the Department finds that a local authority has done this, sanctions could include restricting or not paying their Housing Benefit subsidy. [JH/21082013/E] 8.0 Equalities Implications 8.1 Any decision on bedroom reclassification would need to be informed by an equalities analysis to ensure there are no adverse impacts for the tenants affected as well as to ensure no inequalities arise for tenants in properties of the same type but are not directly affected by the bedroom tax. 9.0 Environmental Implications 9.1 A potential impact of the bedroom tax is that some properties may become more difficult to let and thus remain void for extended periods. This could have an adverse impact on local environments if such properties remain void in clusters. This will be considered as part of a wider assessment when making decisions on bedroom reclassification, although alternative methods around the allocations policy would be examined first. 10.0 Human Resource Implications 10.1 Any decision on bedroom reclassification will need to be made based on an assessment undertaken by a panel including employees from Housing Services, Finance, Legal, Revenues and Benefits as well as our managing agent operating in that area. This assessment will be undertaken within existing resources. 11.0 Schedule of background papers 11.1 Letter to Local Authority Chief Executives, Re-designation of properties and the removal of the Spare Room Subsidy, Lord Freud Welfare Minister, Departments of Work and Pensions, 20 June 2013 11.2 Removal of the Spare Room Subsidy, Housing Benefit bulletin, HB U6/2013, 23 September 2013. Page 7 of 7