Income Support Housing component and HTP
1 Summary
In May 2013 the States Assembly approved P. 33 "The Reform of Social Housing”, a major policy paper setting out the results and recommendations of the Housing Transformation Programme (HTP). More information was provided in the report R.15/2013: “States of Jersey Housing Transformation Programme: Full Business Case.”
The approval of P.33 included agreement that there should be a “rent policy of a return to near market fair rent levels (as set out in section 3.12.9 of the accompanying Report)” and the Minister for Social Security was charged to take the necessary action to address the Income Support implications of the revised rent policy to enable its implementation by April 2014.
These proposed Income Support Regulations therefore involve changes to the way the Income Support accommodation component is allocated to households who live in rented properties, and the creation of separate rules for private sector and social housing rental properties.
The Regulations create the following changes to the definition and allocation of the accommodation component of Income Support:
- Establish legal definitions of social housing and private sector housing
- Provide separate housing component rates depending on housing sector type
- Remove the cap on rental components in respect of social housing properties and allow the full rent to be included in the Income Support calculation
- Establish distinct rates for private sector properties
- Establish mechanism to pay appropriate rates where a property is shared by multiple households, and when properties are under-occupied
The Regulations also include a minor amendment that removes an erroneous cross-reference found in Regulation 11(1)(c).
2 Background
The proposed Income Support Regulations have been created in order to fulfil the Social Security Department’s obligations under the Housing Transformation Programme (HTP) and the decision taken by the States Assembly in May 2013. The proposals follow on from the policies outlined in “Achieving Decent Homes: An Affordable Housing Framework for the Future – White Paper April 2012” (R.47/2012) which originally identified the changes to Income Support required as a consequence of the adoption of a rent policy linked to 90% of market value.
According to timescales set out in P.33/2013: “The Reform of Social Housing,” the Housing Department will be implementing a new rental policy from April 2014; it will then be fully incorporated as a separate housing company (the Housing Company) on 1st July 2014. The new Income Support Regulations are therefore required to be in force by April, but will also contain essential provisions to allow for the subsequent change in the identity of the Housing Department later in 2014.
Although the new rental policy will apply from April 2014, existing Housing Department tenants will see no change to their rents other than annual updates (where appropriate). The new rental policy will only apply to tenants newly occupying a property or moving within the existing stock when they will be charged a rent that represents 90% of the market value for an equivalent property in the private sector. This important change allows the Housing Department and its successor organisation to charge rents on its properties that more closely reflect their realistic value on the open market, receiving a rental income that will in turn be reinvested in the maintenance of existing stock and the development of essential social housing projects.
At the same time, the Minister for Housing, supported by the Council of Ministers, identified the key importance of protecting Income Support tenants. P.33 (page 24) states:
“As a matter of principle, the Minister for Housing considers it would be unacceptable to ask those Social Housing (current States and Housing Trust) Tenants currently receiving Income Support to meet the cost of returning to near market rents as the primary basis of Income Support is to provide a safety net for those in greatest need.
…
Therefore, the proposed Fair Rental Level of 90% of market rents would only apply to those Tenants moving to new tenancies enabling them to plan for the increased rent as they do so. This would protect Tenants in receipt of the housing component of Income Support…”
The proposed Income Support Regulations are required to allow the Social Security Department to meet its agreed obligations under the scheme, namely to include the full cost of social rentals through Income Support, protecting existing and future social sector tenants.
A fair rent for Income Support Households renting in the private sector
P.33 notes that there is considerable unmet demand for social sector housing and many tenants currently have no option but to rent in the private sector. Section 3.12.10 states
“In her review of Social Housing in Jersey (Green Paper. 2010), Professor Christine Whitehead highlighted how the current eligibility requirements for States Housing, which restrict housing to those with housing qualifications of limited financial means with young children, aged over 50 or with disabilities, are severely restricted and mean there is considerable unmet demand amongst other demographic groups for social housing provision.”
Given these limitations, it is vital that Income Support also provides appropriate financial assistance to low income households who are currently reliant on private sector rental accommodation.
A consequence of the shift to equivalent market rents is that the rents charged for social housing properties will vary according to the market value of the individual property, and so can no longer be used to directly peg the “fair rent level” and the Income Support housing components that are available to households living in similar-sized properties in the private sector. As an example, the rent charged to a new tenant moving into a three-bedroom house owned by the Housing Company will in future vary depending on its size, condition and location, and so will not generate a standard rate that can be universally applied to three bedroom houses in the private sector.
The proposed Regulations therefore replace the “fair rent” levels with a comparable set of maximum rates designed specifically for private-sector rental properties. These have been calculated from the average market rental values across the range of Housing Department stock for each comparable property type. Previous research into the private sector rental market has established that the historic process for the annual increase of Housing rents had resulted in “fair rent” levels that did not reflect the market, and so the proportionate increase in rates will allow the Income Support system to provide support to private sector tenants in a way that better represents their cost of living.
Any proposed change to rental support needs to consider possible unintended impacts, particularly where concerns exist that an increase in the Income Support component levels could be seen to benefit landlords rather than tenants. Independent research was commissioned by the Department to examine the most appropriate method to address the level at which private sector rental components should be set and to consider whether this would create a distortion in the Island’s rental market. This research, published as R.44/2013, confirms that the proposed increases will offer modest assistance to low income families who are required to rent in the private sector, but without influencing the general direction of the rental market and without encouraging landlords to increase their rents.
There has been a significant increase in the number of Income Support claimants renting in the private sector since the data analysis underlying R.44 was completed. Given that the full year allocation of £1 million to fund this additional support has already been agreed within this Medium Term Financial Plan, it is proposed to limit the increase in the private sector rental components to 95% of the market value, rather than the 100% level originally envisaged in R.44. The analysis of Income Support recipients in the private rental market is explained in more detail in section 3.3.
3 Changes to the Income Support accommodation component
The proposed Regulations create the following changes to the allocation of the accommodation component of Income Support:
- Establish legal definitions of social housing and private sector housing
- Provide separate housing component rates depending on housing sector type
- Remove the cap on rental components in respect of social housing properties and allow the full rent to be included in the Income Support calculation
- Establish distinct rates for private sector properties
- Establish a mechanism to pay appropriate rates where a property is shared by multiple households, and when properties are under-occupied
Each change is explained in greater detail below.
3.1 Definitions of social and private housing
The new distinction between social housing and private sector housing requires definitions as to what constitutes these separate categories.
The defined “social housing” sector will eventually encapsulate all properties that fall under the remit of the proposed Social Housing Regulator. All other properties will by definition fall into the category of private sector, including those housing trusts which do not become regulated.
As the relevant legislation is not yet in force, and the Regulator not yet formally empowered, the gap between the date on which the new rates are needed and the later stages of the HTP has required an interim definition, where “social housing” is deemed to be those properties rented from the five named organisations that are scheduled to become the social housing providers, with all other properties categorised as private sector rentals. These social housing providers are:
- the Housing Department (and its successor organisation);
- Jersey Homes Trust;
- Les Vaux Housing Trust;
- Christians Together In Jersey Housing Trust; and
- FB Cottages Housing Trust.
These definitions create a legal framework that allows Income Support to pay separate rates depending on which sector a given property falls into, and anticipates the creation of the Social Housing Regulator and a new category of regulated properties. A further minor change to the Income Support regulations will be needed when that legislation is brought forward.
3.2 Establish separate rental policy for the social housing sector
A key obligation proceeding from the approval of P.33/2013 is the removal of the upper limit or “cap” that restricts the amount of housing component that can be paid in respect of rent in the social housing sector. This is necessary in order to allow the Housing Department and its successor organisation to set rents when new tenants move into a property at 90% of market rents. Existing tenants will see no increase beyond annual uprates, and so from an Income Support perspective this change can be seen as the creation of a framework that allows for a fair and gradual increase in the rents that social housing providers charge. As soon as the Social Housing Regulator is in place, the responsibility for determining fair rental increases will lie entirely with the Regulator. Until that time, the Housing Department, Treasury and Resources Department and Social Security Department will work together to ensure that rent increases prior to the creation of regulatory powers will be measured and proportionate. In addition, the proposed Regulations will still allow the Social Security Department to cap the rent component in respect of a social housing tenancy if the rent is set at an inappropriate level.
As Income Support households move into new Housing Department tenancies, Income Support costs will rise and the Housing and Treasury and Resources Departments have confirmed that the gradual increase in costs to Income Support will be funded by the Treasury by means of an additional budget allocation to the Social Security Department.
This is set out in more detail in Section 5.2.2 of Report R.15/2013: “States of Jersey Housing Transformation Programme: Full Business Case” which predicts that 67% of the additional rent received by the Housing Company will be paid by the Social Security Department, as approximately 67% of the tenants of the Housing Department are entitled to an element of the housing component of Income Support. The report also notes that:
It is expected that approximately 55% of new tenancies will be to tenants from the waiting list. Therefore, the Income Support paid for these tenancies replaces Income Support paid in the private sector.
It has also been acknowledged that the progression to 90% market rents may produce an increase to the Income Support budget as a small number of States tenants previously outside Income Support entitlement become entitled to benefit. However, the analysis in R.15/2003 predicted that only 35 existing States’ tenants would become entitled to benefit under the proposed rents policy, should they move to a new property and be subject to the 90% market rents. It was estimated that these tenants would be entitled to approximately £19 Income Support per week (per tenant).
3.3 Private sector rental policy and rates
As stated earlier, the shift to 90% of equivalent market rents in the social sector in turn creates the need for a new mechanism to determine the levels at which rents are set for the range of properties available for private rental. Without a uniform “fair rent” attached to each property type in social housing, regardless of individual size and quality, the Income Support system requires a means for calculating a fair maximum amount to pay towards comparable properties in the private sector.
The Department commissioned report R.44/2013 “Income Support: Support for Rental Costs in the Private Sector” by Michael Jones of the Cambridge Centre for Housing and Planning Research. This research established that the historic process for the annual increase of Housing rents resulted in “fair rent” levels that did not reflect the true costs faced by private sector tenants, and strongly recommended that increased support was made available to Income Support households in the private rented sector.
It is important to stress that the proposed increase in private sector rental levels are not designed to be generous. They represent a fair level of support for families and individuals many of whom are unable to access the Island’s limited pool of social housing either because they do not meet the eligibility criteria or because they are on the waiting list. Many people in this situation have no alternative other than to rent in the private sector.
The replacement for the fair rent level has been calculated by the Housing Department using market rental data across individual Housing Department properties. An average market rent of all of the units of a specific property type was calculated, to give a figure that represents the average rent for each comparable property type in the open market.
Since the analysis underlying R.44 was undertaken which identified 1,521 private sector Income Support claims, there has been a considerable growth in the number of Income Support claimants renting in the private sector. For example, the Income Support reports for 2011 (R.126/2012) and 2012 (R.134/2013) show a net increase of 249 Income Support claims over a twelve month period. All the increase has been accommodated in the private rental sector, with very little change in the number of claimants renting in the social sector. During 2013 this trend has continued.
Given this significant number of additional claimants, it is not possible within the current budget allocation to achieve the original policy proposal of setting rental components at 100% of the average market value of the States rental stock. It is now proposed to use a figure based on 95% of the market value. This will still represent a significant improvement to the large number of private sector tenants who rely on Income Support to assist them to meet their basic living cost.
The temporary increase in the number of private sector tenants supported through Income Support is likely to be linked to the current poor economic climate. Improvements in the local economy and an increase in the number of social housing units available as the Housing Transformation Programme is implemented should reduce the pressure in this area over the next few years.
Property type | Current weekly “fair rent” | Average of weekly market value of current Housing Dept properties | Proposed maximum weekly private sector support |
Bedsit / lodgings | £115.71 | £131.86 | £125.30 |
1 bed flat | £165.27 | £190.84 | £181.30 |
2 bed flat | £207.90 | £247.89 | £235.48 |
3 bed flat | £236.18 | £254.98 | £242.20 |
1 bed house | £187.74 | £219.90 | £208.88 |
2 bed house | £244.58 | £287.94 | £273.56 |
3 bed house | £272.79 | £341.27 | £324.24 |
4 bed house | £295.19 | £359.24 | £341.25 |
5 bed house | £321.16 | £408.29 | £387.87 |
The Table shows the current proposed rates based on 95% of the average of current market rentals for Housing Department properties and provides a comparison with the existing fair rents, and the average of the full market value of Housing Department properties.
This proposal inevitably represents an increased cost to the Income Support budget, which will benefit families who are currently unable to access social housing. The R.44 report clearly indicates that there has been no banding of rents around the Income Support fair rent level in the private sector, and at the time that data was analysed 44% of tenants were paying rents below the maximum limits for Income Support, providing strong evidence that landlords had not based rental policies around the maximum available from Income Support. 56% of tenants in private rentals had rents that were above the Income Support limit, and were paying the balance of their rent from their other resources.
A similar analysis of data from November 2013 confirms that 44% of private sector tenants continue to pay rents within the Income Support limit. Increasing the Income Support components as proposed will increase this proportion to 60%, i.e. 765 tenants will still need to meet part of their rental costs from their remaining household budget. In other words, after the proposed changes, 40% of Income Support households in the private rented sector will still be required to pay some additional rent on their homes over and above the proposed rates.
R.44 highlights that those in the private rented receiving Income Support account for only 20% of all residentially qualified private sector tenants, and that a relatively small number of tenants without residential qualifications in the private rented sector are in receipt of Income Support. It concluded:
“Given the current distribution and the relatively small proportion of private rental properties occupied by income support tenants (compared to other jurisdictions), there is no evidence to suggest that relatively small adjustments in the maximum income support levels available will have any significant impact on the rental levels in the private sector.”
It is therefore expected that the effect of the changes will be a modest increase in the support available to those households who currently spend a higher proportion of their income on rental costs. The proposed changes will mean that the rental components paid by Income Support will be directly linked to the value of the equivalent social housing stock, representing the type of property that should reasonably be made available to low income families when they are unable to secure a home in the social housing sector.
Ongoing demand for Income Support from private sector tenants will be closely monitored over the next twelve months to determine whether or not it will be possible to increase the rental components for private sector tenants in 2015. During this time funding for the next Medium Term Financial Plan will be discussed with a view to providing an appropriate level of future support.
3.4 Mechanism for under-occupation
In some cases, Income Support households will continue to occupy a social housing property that is larger than they require. Existing Income Support rules already cover these situations, providing a reasonable time for people to downsize to a smaller property, but afterward restricting the rental component to the value of a smaller, appropriate property.
These situations are dealt with in part by the existing Regulations, where paragraph 4(1) (c) of Schedule 1 accounts for under occupation and paragraph 4(6) for multiple households sharing a dwelling. The proposed Regulations provide clearer, specific rules to ensure that the accommodation component can be allocated fairly and consistently in all circumstances that may arise.
Under-occupation is expected to continue in a small number of social housing properties, typically in situations where grown-up children are no longer included in the Income Support claim of their parents as they are in full time work but they continue to live in the family home. For example, a household unit of two persons (married couple) remains occupying a social housing three bed house together with other family members (two grown up children) who are not receiving Income Support as they are in work. Under existing Income Support rules (as per paragraph 4(1)(c)) the parents would have their accommodation component ‘capped’ at the size of property they now require, in this case the rate for a one bedroom house. Following the proposed changes, this calculation will no longer be possible in social housing properties as there will be no standard value of a one-bedroom house to cap the level to.
The proposed Regulations deal with this situation by continuing to set the component at the size of the property the household requires, and setting this value for social housing properties at a maximum of 90% of the average rental value of equivalent Housing Department properties. In the example given above, the parents receiving Income Support in the three bedroom house would receive up to £197.89[1] based on 90% of the average rate for a one bedroom house (£219.90).
3.5 Multiple households sharing a property
As described above, paragraph 4(6) of the existing Schedule 1 provides for 2 or more Income Support households who are part of the same family unit to share one dwelling. The rental component is set according to the number of people in all the Income Support households and is then split between them. However, where a dwelling is shared between non-family members no rule is provided under the current Regulations.
To provide formally for this situation, a new rule is established in respect of a dwelling that is shared by individuals who do not form a family unit (i.e. a typical house share situation), as follows:
The housing component will be allocated as a fraction of the housing component that would be available in respect of the entire dwelling, based on the number of bedrooms appropriately allocated to each household:
(Number of bedrooms appropriately occupied by Income Support household) divided by (Number of bedrooms in whole dwelling)
If there are three bedrooms in a private sector house and a single claimant appropriately occupies one bedroom the fraction is 1/3 – the claimant will get 1/3 of the rate for a three bedroom property - £324.24 / 3 = £108.08
This calculation ensures that the total of all Income Support rental components for the property will not exceed the amount available to a single family who are appropriately occupying the same dwelling.
For example, 3 single Income Support claimants share a 3 bed house in the private sector. They each receive £108.08, a total of £324.24. If they move out and are replaced by an Income Support family consisting of a couple with a teenage son and teenage daughter, that family is appropriately housed in the 3 bed house and also receives £324.24 towards rental costs.
4 Miscellaneous – Regulation 11 (Carer’s Component)
The existing Regulation 11(1) (c) makes reference to an award under Regulation 6(3) (c) or (d) - personal care element. Regulation 6(3) (d) was removed by R&O 71/2009 but the cross reference to Regulation 11 was overlooked at that time.
5 Financial and manpower considerations
There are no manpower implications for these changes. The cost of increasing the private sector rental components is estimated to be £1,000,000 for a full year, and a bid to cover these costs was included in the Medium Term Financial Plan (MTFP). An amendment of the MTFP approved that £750,000 (8 months) in 2014, and £1 million recurring from 2015 be held in the Central Growth Allocation for 2014 and 2015. Funding for 2014 has now been released into the Social Security Department budget.
The cost of increased Income Support costs in the social sector will build up over a period of years and will be accommodated in future MTFPs.
gov.je