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DWP estimates of bedroom tax savings much too high Matthew Warburton - 18/10/2013

Bedroom_tax_300The government has overestimated by more than 50 per cent the likely savings from introduction of the underoccupation penalty, according to research commissioned by four social landlords from the Centre for Housing Policy at the University of York. 


DWP estimates that HB savings from the policy will total £480 million in 2013/14 and £450 million in 2014/15. Comparison of the assumptions made in the DWP model with real-life data from the four landlords suggests that the 2013/14 figure may overstate the probable savings by up to £186 million. 


The four landlords - Affinity Sutton housing association, the Riverside and Gentoo housing association groups and Wigan and Leigh Housing - an ALMO - together manage 127,500 homes, 2.6 per cent of the UK national social housing stock.  This provides an evidence base robust enough to constitute a major challenge to the DWP's assumptions.


The DWP estimate assumes that no tenants affected by the penalty will move during 2013/14; it is produced by simply multiplying together the number of affected tenants (660,000) by the average reduction in HB (£14 per week).  To reach this assumption, DWP modelled a number of scenarios about how tenants would respond, some of which imply additional savings in HB, while others imply reduced savings.  Concluding that HB-saving scenarios were equally as likely as HB-increasing scenarios, DWP decided to base its central estimate on the no-moves scenario.


Responses to the under-occupation penalty that could lead to increased savings in HB include tenants finding work, working additional hours or increasing their income in other ways. 


Downsizing to a smaller home has a more complicated range of potential impacts. The new home, although smaller, could have a higher rent, particularly if it is in the private rented sector, or if it is a new home let on an "affordable" rent in the social sector, leading to a potential increase in HB.  How the vacated home is re-let also has an impact - the full HB saving will be preserved only if it is let to a new tenant not in receipt of HB. 


If the government's policy aspirations are realised, and formerly under-occupied homes are released for overcrowded social tenants, then where these are eligible for HB, their entitlement will increase as they move from smaller to larger properties.  And the full HB impact will depend on how their former homes are re-let - and so on.


DWP modelling makes the extraordinary assumption that only tenants under-occupying by two or more bedrooms will move, and that only a very small proportion will move to the private rented sector.  The implications of moves to affordable rented homes are not considered at all. 


Data from the four landlords suggests that DWP underestimates the total number of likely moves - particularly among tenants under-occupying by just one bedroom - and also the proportion of likely moves into the private rented sector.   It also underestimates the HB impact of the likely chain of relets triggered by tenants downsizing.  Re-examining the range of likely scenarios, the research suggests that, instead of HB-increasing scenarios having roughly the same probability as HB-reducing ones, they are four times as likely.  From this the compelling conclusion is that DWP has seriously over-estimated the likely savings from its policy.


And none of this takes account of the impact of the policy on the increased costs incurred by social landlords in responding to the policy, whether in additional contact, communications and advice to tenants, increased voids costs, including providing aids and adaptations, where tenants choose to move, and the impact of increasing rent arrears among tenants affected by the penalty. 


ARCH, with the NFA and CWAG, will shortly be publishing the results of a survey of councils and ALMOs on the impact of the underoccupation penalty, which will provide much more evidence to challenge the DWP's claims about the likely savings from the policy.   

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