In April 2013 the overall benefit cap (OBC) comes into force. This is the welfare reform policy that limits total benefit receipt to £500 per family per week.

The DWP released a report a few weeks ago which said that 171,000 families in the first year will be affected by the cap each at an average loss of £93pw. The same report, which more than tripled the last and supposedly final estimate of July 2012, also says this figure will increase by 102,000 each year thereafter. So in 2014/15 it will capture 273,000 families, in 2015/16 it will capture 375,000 families and so on.

It also said 44% of those will be in the social rented sector (SRS) which is 75,000 and the other 96,000 will be in the PRS. That is what we know and the numbers are alarming and so are the consequences.

Lets deal with the PRS first. Here we see 96,000 families who will have a £93pw shortfall and the vast majority if not all won’t be able to afford the rent. The private landlord will have no truck with arrears and given the ease the law holds for evicting PRS tenants I can envisage 96,000 new and additional homelessness cases caused directly by this one policy from the PRS alone. (The additional evicted for arrears caused by the OBC from the SRS of course add to this.)

In context we have 56,000 homeless families at present yet this one policy the OBC alone will almost triple that number just from the PRS. Given these will be families with children the overwhelming majority again if not all will likely be found to be unintentionally homeless, in priority need giving each LA a full homeless duty of firstly providing temporary accommodation and then responsible for re-housing them.

So what will this entail for Local Authorities?

The cost of providing TA is huge and is in short supply so this means more use of B&B hotels at an even greater cost. The LA will not be able to re-house these families in the PRS in the local area as the same arrears build-up to eviction to TA route happens again. This leaves two options – locally re-housing in the SRS or re-housing these families out-of area – what I term the homeless diaspora. Note that the latest homeless statistics show a 28% increase already in out-of-area placements for which the LHA cap already in force plays a significant part. The local SRS is likely to be in short supply and with a long waiting list and if LAs wont to use this option it is likely they will incur greater costs as the homeless family will need to spend longer in temporary accommodation such as B&B hotels. Hence the likelihood is more and more LAs will place more and more of their homeless families out of area.

We already know and have seen this in action anyway with the “Newham to Stoke” fiasco of a few months back. This made national news, a rarity for housing issues – and Joe Public was outraged. You can’t place families 130 miles away, that is immoral and an outrage was the reaction of the public. Yet that is precisely what will inevitably happen with the OBC.

Note well as this stage that this is not a London phenomenon or is it limited to large families. This will happen to a 2 parent 3 child family in many areas of the country who currently live in the PRS. Hardly a large family size and such a family would receive about £325pw in welfare benefits leaving £175pw to pay for rent out of the £500pw cap. Yet in 157 LA areas of England, about half of all local authority areas the average private rent on a 3 bed property is over £175pw. Places such as Trafford in Greater Manchester, York and Warwick are unaffordable as well as all of London, Essex, Hants, Herts, Bucks, Oxfordshire, Surrey, East Sussex, West Sussex, Gloucestershire and Dorset are all unaffordable. In London it is unaffordable for a 2 parent two child family to remain there!

Yet in all these places a 3 child family will likely end up in Hull or Stoke or NE Lincolnshire which are the 3 lowest rent areas in England. The same children in a working family better hope daddy or mummy doesn’t lose his or her job as that is where they will end up! (And I mean no disrespect obviously to Stoke or Hull the issue is the diaspora or exporting of homelessness from high PRS rent areas to lower cost areas.)

Of course large families with 4 or more children will also be forced to move in the homeless diaspora.

Will social landlords house the homeless diaspora?

Firstly in practical terms there is a chronic shortage of social housing in which to re-house the homeless families. Secondly, if they can manage to find available properties then it means the homeless families will have to wait longer in temporary accommodation. This is a greater cost to the LA in which these homeless families present yet may well be a better option for LAs as it prevents repeat homelessness and repeat costs.

However, if you are a housing association and your LA quite rightly asks you to help them with their homeless duties would you accept a 2 parent 5 child family? Or more accurately can you afford to do so? Such a family will receive £463 pw in welfare benefits thus leaving a maximum £37 pw to pay for rent when the OBC begins in less than 5 months time. A cheap 3 bed SRs property anywhere in the country has a rent of £87 pw and so you will be allocating a property knowing the tenant is likely to run up a £50pw arrear!

The question becomes can a social landlord afford to accommodate a large family!

Bear in mind that because rents rise by a higher rate than the overall cap figure – part of the systemic flaw in the OBC – then this position gets worse each and every year as the risk to arrears gets higher and higher.

If the answer to that is no – on financial necessity grounds rather than principle – then where the hell are large families going to live?

That for now has to be a rhetorical question as outside of finding employment the only solution is long-term temporary accommodation at a huge cost.

Change in tenant profiles for landlords?

What the OBC directly creates and forces is the movement of 3 child and higher families from the PRS to the SRS.

It also sees PRS landlords become increasingly unwilling to take a benefit claimant and may well see an almost total ban on benefit claimants in the PRS (HMOs excepted). This of course means social landlords will have an increasing percentage of benefit claimants residing there. Yet as HB is the ONLY benefit to be cut or capped in the OBC – a 2 parent 6+ child families will also have welfare benefit cuts and zero HB paid – then the SRS has a much higher overall risk of arrears.

I note yesterday Sarah Teather has called the OBC immoral. Her comments briefly touch on one aspect of the policy that it will see London families being ‘placed’ miles away and although correct it is a tiny piece of the OBC. As I have said above and on many previous occasions going back 12 months the OBC is NOT just a London phenomenon. The OBC is immoral but it is also rank incompetence as a policy and the above comments barely touch the impacts it will have.

The policy is being spun as lazy feckless tenants living off the state. Yet any 3 child+ working family anywhere in the country living in the PRS that becomes unemployed is in the same situation.

Financial implications?

This is a huge issue for me and one that social landlords in particular have overlooked as they have focused upon the bedroom tax and direct payment to tenants issues of alleged ‘reform.’

A very simple but valid analysis is the ‘risk to arrears’ (RTA) social landlords face and we see with the bedroom tax this is according to the National Housing Federation 660,000 tenants with an average loss of HB of £16pw in the first year. This RTA extrapolated becomes £551m in the first year when we multiply 660,000 lots of £16pw to a yearly figure. As social landlords currently receive £14.6bn per year in HB this is a considerable amount that equates to about 3.75% of HB income.

However, 75,000 lots of £93pw or £364m per year is the level of the HB cut to social landlords.

So the bedroom tax in those simple terms represents a bigger financial risk to social landlords in the first year.

Yet in the second year over 120,000 social tenants will be hit be the cap making this financial risk to arrears £583m and more than the bedroom tax of £551m. In the third year this OBC financial risk to arrears becomes £800m: In year 4 £1.02bn and year 5 £1.24bn. So in the first five years the bedroom tax hold a £551 x 5 risk to arrears or a £2.76bn risk whereas the OBC sees a £364m / £583m / £800m / £1.02bn / £1.24bn risk totalling a £4.01bn risk to arrears.

We can see from the above that the ‘risk to arrears’ figures show a much greater risk to social landlord’s finances from the OBC than from the bedroom tax.

In the first 5 years and by 2018/19 the arrears risk is 45% greater from the OBC than from the bedroom tax!

Summary

The above is a difficult subject to explain and especially in a blog which needs to be relatively short (else readers will stop reading) as opposed to a paper or full in-depth research which this policy needs.

The naive side of me believes such research should be in an impact assessment before ANY policy is ever released so that any government of the day can see the impacts of what they are proposing. That is an old-fashioned notion of correct governing, yet this hasn’t happened with the OBC or any of the welfare reforms.

The same naive side of me (which rarely comes out in this old cynic) could argue that is an excuse or even explanation for social landlords ignoring the OBC in favour of the bedroom tax or even direct payment issue. Yet in reality how social landlords have missed this monstrous elephant in the room is shameful.

What is annoying is that the OBC like the bedroom tax is now being called immoral and seems likely to remain to be discussed in this political and emotive way rather than serious consideration being given to its impacts. The impact on tenants, the impact on social landlords and even private landlords, the impact on the economy, the impact on the social housing model as we now know it. Social landlords, social tenants and the entire social housing model are under direct attack from this policy and especially the systemic flaw it holds which will see smaller and smaller sized families evicted for arrears and effectively barred from social housing – the cheapest form of accommodation.

Where the hell families will live I have no answer for and neither does the government. Instead it simply wants to label them as feckless workshy people who should get off their lazy backsides and get a job. At the same time the government (and to its shame) social landlords discuss the affordable (sic) rent model which as it contains allegedly social housing rents that are in some cases double real social housing rent levels will bring tenants residing there more quickly to the homeless diaspora I discuss above.

When the likelihood is that genuine social housing rent levels become unaffordable for 5 child families in 2013, 4 child families in 2020 and 3 child families in 2025 then something is wrong with the ‘safety net’ aspect of social housing. It also means that in financial terms social landlords cannot afford the risk of arrears such increasingly smaller family compositions present, that social landlords will get an ever reducing amount in HB as part of their income and will have to increase rents and reduce services to survive.

The OBC is the direct cause of all the above and is far more than immoral.

One final comment – 96,000 families in the PRS all with 3 children or more represents sees 192,000 adults being displaced and a minimum 288,000 children that’s 480,000 persons and a city the size of Liverpool