Wednesday 16 May 2018

The ‘Bedroom Tax’: How did families react? Did the policy achieve its objectives?

By Steve Gibbons

The ‘Bedroom Tax’ – or ‘under occupancy penalty’ or ‘removal of the spare room subsidy’ as it has been called officially – is a highly controversial part of the UK Government's recent social housing policy. The legislation was passed in April 2012 and came into effect in April 2013, and reduced housing benefits for social tenants – mainly council and housing association tenants - deemed to have a ‘spare’ bedroom.

The aim of the legislation was twofold. On the one hand, this was an attempt to curb increases in social housing expenditure. On the other hand, the Government was hoping to promote mobility and the reallocation of the limited social housing stock to better match households’ size and needs. However, the policy has been much criticised by housing charities and in the media for its draconian regulation of low income tenants’ entitlement to space, the penalty it imposed on tenants who were the least able to afford it and for its potential adverse impacts on their welfare. Typically, households would have ended up with a spare bedroom through no fault of their own, due to children leaving home, or due to a lack of availability of smaller accommodation when they were originally housed.

Our recently published CEP Urban and Spatial Programme discussion paper is the first to look directly at what impact this ‘bedroom tax’ actually had on the tenants it affected.  Whereas previous studies have simply asked a sample of tenants how they adjusted to the tax, we turn to an existing large scale survey of households who are followed year after year - the ‘Understanding Society’ longitudinal study. These data allow us to observe in detail how families actually reacted at the time the tax was introduced – in particular tracking whether they moved house.

The ‘bedroom tax’ legislation set out very specific rules regarding who in a household was entitled to their own bedroom and hence which households were deemed to have a spare bedroom. These rules were based number of adults and the age and gender of any children in the household. Anyone deemed as having one spare bedroom would face a 14% cut in housing benefit, while households with two spare bedrooms would face cuts of 25%.

These rules allow us to deduce which social tenant households in our data were affected by the policy and which weren’t. This means we can compare what happens to households who are affected by the policy because they had a spare bedroom, with very similar households who didn’t.  We can see, for example, whether there is any difference in what happens to a family with two adults and two children (a boy and girl) under 10 living in a flat with three bedrooms – who would be considered to have a spare room under the policy rules – with a household with two adults with a boy and girl aged over 10 – who wouldn’t.

So how did families react, and did the policy achieve what it set out to do?

Firstly, our results show very clearly that affected households did lose housing benefits – around £8 per week on average - and experienced a drop in overall income. However, we are unable to find precisely how tenants adjusted to these cuts.

The first thing that is clear is that the policy did not encourage households to move. We find no difference between affected and unaffected households in the likelihood of moving when the policy was introduced. One concern of the policy’s critics was that it would force moves, increase neighbourhood turnover, deprive poor children of a stable learning environment and push individuals already at the risk of being detached from the labour market to areas with even fewer employment opportunities. This evidently did not happen to any great extent.

We do find though that when social tenants do move after the introduction of the bedroom tax, they down size to smaller accommodation. So the policy was partly successful in one of its aims –rationalising the use of publicly-funded housing, albeit more slowly than might have been hoped. Although the policy didn’t encourage moves, it did encourage movers to downsize, so in the long run under-occupancy of social housing might be reduced. This change will however only occur in conjunction with natural turnover of occupants of social housing.

Households who didn’t move appear to have just taken the hit to their resources, presumably cutting back on other areas of expenditure, though we don’t detect precisely on what dimensions. We find no systematic falls in spending on food or savings. There is little evidence that individuals in affected households worked more or less. In line with what was predicted by its critics, the policy appears to have reduced well-being, as captured by measures of material deprivation and self-reported life satisfaction. However, these effects are not precisely estimated or large (they are not ‘statistically significant’). This evidence indicates that the policy did further strain the finances and standards of living of individuals who were already disadvantaged.

So did the policy save the Government money? It was expected that the policy would affect 660,000 households at the time it was introduced. Given the £8 per week benefits cut we observe in our data, this suggests direct savings of around £250 million per year – around half the Government’s own estimates of total savings. This simply amounts to a benefit cut for tenants who were unwilling or unable to move. These savings will also have been partly offset by the ‘discretionary payments’ that the government boosted in order to help support families adversely affected by the bedroom tax – around £60 million per year up to 2015/16.

So the bottom line is that the policy seems to have saved some public money – with the burden falling on the affected tenants - but will be slower than expected in achieving its aims of reducing social tenants’ use of bedroom space.

Thursday 3 May 2018

Does gentrification displace low-income renters in Britain? In short: Yes!

By Sevrin Waights

Gentrification is an ambiguous term, which roughly speaking means the replacement of poor residents in a community by the rich, and a related change in the character of the community and its amenities. There are two broad mechanisms for gentrification – displacement and succession. Displacement is where the influx of rich residents actually increases the likelihood that poor residents move away (e.g. due to higher housing costs). Succession implies that rich households simply move in after poor residents that moved away for other reasons.

The distinction is important because displacement implies gentrification may be harmful whereas succession implies that it is a more benign process. My latest CEP Urban and Spatial Programme  discussion paper is the first study to provide empirical evidence that gentrification involves displacement of poor residents. While it’s true that several studies look at the question already, none of them find any evidence of displacement. Instead, these studies suggest that gentrification occurs through succession.

Displacement studies usually combine two types of data. Firstly, studies use data on the proportion of higher socioeconomic class households living in a neighbourhood (e.g. based on a Census). Neighbourhoods are then characterised as gentrifying or not according to whether there was a large increase in the share of high socioeconomic class residents over say ten years. Secondly, studies use data from longitudinal household surveys. Such datasets allow researchers to track individual households across all the different neighbourhoods they live in over the years. The usual approach is to link these data together in order to examine whether living in a gentrifying neighbourhood means households are more likely to move away. Previous studies find that poor households living in a neighbourhood characterised as gentrifying are no more likely to move away than poor households living in non-gentrifying neighbourhoods. This is interpreted as evidence that gentrification occurs through succession rather than displacement.

In my paper, however, I argue that previous estimates may be biased by the fact that different types of household (with different natural mobility rates) tend to live in different types of neighbourhood. This well documented phenomenon is called ‘sorting’ and means that previous studies might miss actual displacement. My approach makes use of year-to-year variation in winter temperatures in Great Britain. I argue that if displacement does happen, then it will be more pronounced in years with colder winters. The reason is that households will be less able to withstand rising rents resulting from gentrification if budgets are already stretched by higher fuel bills. This novel approach reveals a ‘causal’ effect because the type of household living in gentrifying neighbourhoods does not differ in cold years.

I use data from the UK Census to compute a measure of gentrification for every neighbourhood in Great Britain over two periods: the 1990s and the 2000s. Neighbourhoods are defined as gentrifying if there is an above-average increase in the share of residents with a university degree. Figure 1 illustrates my gentrification measure for London neighbourhoods in the 1990s (TTWA is the London Travel to Work Area, MSOAs are small census areas). Gentrification in the region, according to this definition, is evidently concentrated towards inner London but there are pockets elsewhere. I use this gentrification measure to estimate displacement effects for a sample of low-income private renter households from the British Household Panel Survey (BHPS). The BHPS is a survey of households that has been following a large sample of households since the 1990s, and so allows me to track which households move and when.

Figure 1: Gentrification index for London in the 1990s

I find that that gentrification does displace low-income households. In fact, my estimates show that you need to have a household income of more than 1.5 times the average for the city and year to have no chance of being displaced. My findings also indicate that displacement may be avoided if gentrification occurs slowly enough. Figure 2 illustrates the size of displacement effect (left axis) relative to the speed of gentrification (bottom axis). The figure shows that there are no significant displacement effects resulting from small increases (or decreases) in neighbourhood degree share, i.e. a slow pace of gentrification. Households only start to be displaced when the degree share increases by 10 percentage points more than average (which equates to 0.1 on the bottom axis). These findings suggest a need to rethink gentrification and its consequences.

Figure 2: Displacement effects at different levels of gentrification
A lot of place-based policies aim to encourage ‘mixed communities’ on the grounds of it being beneficial for existing low-income residents. While the evidence on whether mixed communities help is inconclusive, my findings suggest that such policies may end up displacing original residents altogether. If policymakers wish to improve outcomes for low-income private renters, it may be more effective to target housing assistance to households living in already gentrifying neighbourhoods.