Curate’s egg

This makes the benefit portable between properties. If a claimant’s rent is lower than the allowance rate to which their household size entitles them, they can keep the difference.

To deal with dependency, the allowance is paid directly to tenants, unless the tenant or landlord can make a clear case for doing otherwise.

The new regime was trialled by nine pathfinder authorities for two years between 2003 and 2004, so what indications are there that the local housing allowance has increased claimants’ independence, expanded choice of accommodation and redressed the balance in landlord-tenant relations?

Reducing dependency

Direct payment certainly appears to have made a big contribution as regards tenant inclusion and reduced dependency. At the start, between 20 per cent and 60 per cent of claimants in pathfinder areas were receiving housing benefit direct. By the end of the two-year evaluation, this figure had risen to an average of 84 per cent. In the London borough of Lewisham it shot up from 45 per cent to 91 per cent, in Blackpool from 50 per cent to 78 per cent, and in Coventry from 41 per cent to 95 per cent. However, the increase in direct payment can only be seen as a success if allowance recipients are using their entitlements to pay rent, and not, as many landlords feared, spending it on everything but. We did come across examples of tenants absconding with their payments, and others who were used to having housing benefit go direct to a landlord and fell into arrears.

Many housing benefit administrations took steps to prevent arrears building up – such as switching payments to landlords before significant arrears had accrued, making large first payments and all final payments to the landlord, and introducing procedures for identifying tenants judged to be too ‘vulnerable’ to receive direct payment.

These types of arrangements helped prevent problems arising. Evidence suggests the overwhelming majority of tenants receiving the allowance do pay their rent and make this the first priority. Few claimants defaulted on rent payments in the experiment.

As for the effect on landlord-tenant relations, we came across examples where tenants had withheld rent until landlords carried out repairs to a property – an outcome much more difficult to achieve where benefit is paid to landlords. But this was rare. Only about a quarter of landlords had been involved in negotiations over rents with allowance recipients, and this proportion appeared lower in areas where benefit recipients make up a majority of private renting households.

Suits you sir?

One hope for the local housing allowance was that it would encourage claimants to shop around, particularly where they were entitled to a greater rate than the rent being charged for their current home. Our work shows that many tenants benefited financially, particularly those in properties with lower rents but whose allowance rates reflected the impact of the higher rents being charged for other properties in the same area.

A comparison of rents set by the rent service with those charged before the introduction of the new regime reveals that 58 per cent of claimants had a shortfall under the earlier system. Nearly two years into the local housing allowance, 39 per cent had shortfalls and 58 per cent were eligible for a rate that exceeded their rent.

Some surpluses were spectacular, which explains the government’s decision to cap these in future.

However, despite the fewer, smaller shortfalls and the possibility of surpluses under the system, claimants’ housing choices do not seem to have been greatly affected. In particular, the concern that households would trade down in order to maximise their surpluses appears to have been misplaced. Claimants with the largest surpluses do seem to be larger households living in smaller properties than their household size warrants, but they appear to be doing so for reasons unconnected to their local housing allowance entitlement, or because of a lack of appropriately sized accommodation in their area.

A greater number of households receiving the allowance were occupying appropriately sized properties. Moves that took place were for the usual housing reasons, not because of possible financial gain or the opportunity provided by additional benefit. The surpluses do not seem sufficiently large, in general, to stimulate demand for alternative housing – but any surpluses are ‘great for paying the electric’, as one tenant put it.

Of course, it might be that the muted impact of the allowance on tenants’ choices stems from landlords’ letting decisions under the new arrangements, leading to less choice in the rental market. A lot of landlords have voiced concerns about non-payment and the extra costs of collecting and chasing rent.

Direct payment has led some landlords to be much more careful about letting to tenants on benefit. Others have increased the amount of rent in advance and deposits used as insurance against arrears. More than half the landlords in pathfinder areas told us they would prefer not to let to tenants on benefit.

But this figure hardly changed in the two years, and was almost identical to the non-pathfinder areas we studied. In fact, the numbers of local housing allowance claimants in the pathfinders grew over the two years, in line with housing benefit claimants elsewhere. And three-quarters of landlords in pathfinder areas who were letting to local housing allowance claimants kept the same number of properties in their portfolio or increased the number.

So, although we came across examples of landlords who stopped letting to allowance claimants, we found no evidence of a widespread change in letting policies. Indeed, in some areas and for some types of property, it was difficult to see what clients would remain if landlords refused to house claimants.

One possibility open to landlords is to set rents at or above the allowance level, thus absorbing any surplus. This might help explain the lack of benefit-induced movement between properties by claimants under the allowance.

Again, we came across examples where landlords had done this, one explaining that his elderly tenant had become so confused by the surplus she received that he had ‘helped her out’ by raising the rent in line with that amount.

Raising the rates

The pathfinder evidence suggests a modest tendency for rents to move towards local housing allowance levels, but this has to be interpreted in the context of the market – the impact of buy to let and the expansion of other groups on the demand side such as migrant workers and students or frustrated owner occupiers. The evidence does not suggest landlords are simply following the allowance rate.

It seems clear that the allowance has not been the disaster that some people, particularly landlords, predicted. Many stakeholders have welcomed the greater clarity of entitlement and, while the complexities of the means test continue, the administrative effect is positive, though hardly substantial.

There is widespread support for the principle of direct payment – that the benefit is the tenant’s, not the landlord’s – and some of the poorest households have gained financially. And, despite the strength of opposition from many landlords, there is little evidence that they are exiting the market or excluding tenants on benefit.

On the other hand, there is little evidence that the local housing allowance has widened tenants’ choices or led them to make housing decisions in the light of new, often less parsimonious, entitlements. After two years, there has been little improvement in housing conditions, and little sign that tenants have been empowered.

Still, to the extent that the principle underlying the local housing allowance is right, we can perhaps offer two, rather than three, cheers for its introduction.

Bruce Walker is a reader in housing economics at the University of Birmingham. He is project manager of the team that has been evaluating the impact of the local housing allowance for the Department for Work and Pensions.

This article draws on work from all members of the team but the opinions expressed are those of the author alone and should not be ascribed to colleagues or to the DWP. The final reports can be downloaded at: http://www.dwp.gov.uk/housingbenefit/lha/evaluation/