Local Housing Allowance (LHA)

Background

Since its introduction in 2008, Local Housing Allowance (LHA) has had a massive effect on landlords letting accommodation to housing benefit tenants. Intended to help people on Housing Benefit access the PRS, LHA has not been with out its issues and problems. As an ongoing issue we've campaigned for the Government to recognise the sizable problem of rent arrears in this part of the PRS and to re-introduce

Current reforms 

Update - 3/02/2012

LHA rates will now be frozen from April 2012 to prepare for the annual adjusting of LHA rates by either CPI or the current 30th percentile of market rents (whichever is lower). See the NLA blog for further inforrmation.

On the 1st January 2012 under-35 year olds became ineligable for the one-bed rate of Local Housing Allowance, instead they will only receive the Shared Accommodation Rate.

This is just the latest change to LHA as part of the Government's programme of welfare reform. Since April 2010 we have seen the following changes implemented: 

• LHA rates capped at
  • £250 per week for a one-bedroom property
  • £290 per week for a twop-bedroom property
  • £340 per week for a three-bedroom property
  • £400 per week for all properties with four or more bedrooms

• LHA set on the basis of the 30th percentile of the local market rents and not the median (50th percentile).
• Tenants can no longer keep the difference (to a maximum of £15 per week) between their rent and their LHA rate

Longer term planned changes proposed by the Government include:

• uprating LHA rates against Consumer Price Index rather than in line with market rents
• introducing Universal Credit, a completely new system which brings together a number of welfare benefits, including housing benefit (potentially phased in from October 2012)

As part of these changes the government has also indicated that it will be giving discretionary powers for local authorities to make direct payments to landlords in return for reducing their rents.

In addtion to these reforms, the Government has set up an evaluation project that will see academic researchers analyse the impact of the Government measures. The NLA have worked to ensure that the research includes a serious look at the effect of these reforms on landlords and the sector.

Developments in Welfare Reform

On the 31 November 2010, the Secretary of State for Work and Pensions published the regulations that will bring in the first wave of changes to Local Housing Allowance. However there were three important amendments to the original plans the Chancellor announced in June’s Budget.

On the same day a joint letter by the NLA and Shelter was published in the Times calling for the Government to re-think its policy towards direct payment to landlords (Times’ Letters to the Editor are unfortunately behind the Times’ ‘paywall’ here), the Government announced:

The caps and 30th percentile changes will come into force from April 2011 for new LHA claims, instead of April and October 2011 respectfully. The Government is arguing that bringing forward the move to the 30th percentile will make it easier for new claimants as they will have a clearer idea of what they are entitled to.

However the Government has accepted the scale of the impact these changes for existing claimants. These tenants will see their rates continue at the present rates till their claim comes for its anniversary review by the local authority. From that time claimants will have access to a further transitional period of up of 9 months if there have been no changes to the claim.

The Government has also made further movement on the issue of direct payments. Ministers are “temporarily widening the discretion’ of Housing Benefit departments to make direct payments to landlords though they have been keen to emphasize that this will be only in:

In addition to the Government’s regulations, the Social Security Advisory Committee published their response to the Government’s proposals. However the majority of their recommendations criticised the changes to housing benefit and have been rejected by the Government.

Although bringing forward the 30th percentile cut for new claimants is a regressive step that will affect landlords being able to afford new LHA tenancies, the move to mitigate the impact of the sudden changes on existing LHA tenants is welcome. Landlords and tenants will need the extra transition period in order to adjust to lower LHA levels or manage the end of a tenancy that is no longer affordable.

The NLA has cautiously welcomed the Government’s move to ensure local authorities can use direct payment where it enables claimants to “to secure or retain a tenancy”. However, it is obvious to the housing industry that direct payment to landlords has an important role in protecting the private rented sector against growing rent arrears and not simply as an inducement into pushing landlords into accepting Government-dictated rent levels for housing benefit tenants.

The NLA will continue to press these issues with Government and seek to ensure that local authorities prepare for the impact of these changes by working more closely with landlords in their area.

Our campaign

There are now over 1.5 million recipients across the UK able to access the PRS through LHA. 

To inform MP's debating the Government’s proposed programme of changes in the House of Commons, the NLA has published briefings to MPs setting out its thinking on this issue.

As well as working to influence MPs and policy makers the NLa has been working closely with local authorities to ensure that they and local landlords are informed and prepared.

The Government's proposed a complex programme of changes aims to cut £2bn from Housing Benefit expenditure. The most damaging proposals will see:

• LHA rates re-calculated not at the median level of local rents but at the lowest 30th percentile of local market rents; and
• The long-term linking of LHA rates not to market rents but to the Consumer Price Index which has consistently undercut the usual inflation measure of the Retail Price Index.

The NLA has consistently put forward to Government that landlords expect tough decisions and consequences while the Government tries to tackle the national deficit. However Ministers need to recognise that landlords are not able to absorb the level of cuts the Government is proposing and providing housing costs money.

The NLA will continue to propose to the Government and MPs alternative proposals that ensure savings to the Welfare bill but ensure that recognition of the cost of providing housing.

NLA Chairman, David Salusbury, gave evidence to the parliamentary committee considering the Bill in March 2011 explaining the importance of restoring the option for direct payment and the link between housing cost and benefit rates. A full record of the session may be viewed here: