The true cost of homelessness prevention services in London

New research from the London School of Economics and London Councils shows the costs of providing homelessness prevention services in London. In this blog post Fabiana Macor, Policy and Data Analyst at Policy in Practice, looks at the importance of costing the homelessness crisis both in London and across the UK. 

In a rigorous and unique approach to data collection in the wake of the Homelessness Reduction Act 2017 the research shows that the number of people seeking help, and the resources required for homelessness services, have increased. The report highlights the shortfall in funding to London boroughs and examines the key limitations to how costs are currently calculated.

The scale of our homelessness problem

Meeting the cost of homelessness services and the provision of affordable housing is one of the biggest challenges faced by local government today. The latest government data states that 160,000 households were homeless between January and March this year and an additional 4,700 people were sleeping rough. This includes those that have been assessed by homelessness services, whether provided a duty of care or not, as well as those currently in temporary accommodation. Current figures are part of a longer and systematic increase in homelessness since 2010, (NAO, 2017).

The Homelessness Reduction Act 2017 (HRA) placed further responsibilities on local authorities to support people facing homelessness. This has increased the total cost to local authorities of providing homelessness services, while overall funding to local government falls and cuts in welfare support make it harder for local authorities to make ends meet. A four year freeze in Local Housing Allowance since 2016 means there is a growing gap between housing cost and affordability for privately renting tenants relying on housing benefit or Universal Credit. This has an impact on costs to local authorities as they aren’t able to recover the full cost of rent for tenants who have been housed as part of the homelessness duty.

The government’s New Burdens Doctrine earmarked additional funding to meet the cost of implementing the HRA. A budget of £73 million was assigned to local authorities to meet the requirements of the HRA and it was expected that initial costs would translate to a net financial benefit after the third year of the Act. This three year timeframe was calculated by estimating the costs of providing homelessness services. 

Consensus on the cost of homelessness is needed

The research published by the LSE and London Councils challenges these funding arrangements. The research had two aims; firstly, to provide a more accurate estimate of the costs of delivering homelessness services after the implementation of the Homelessness Reduction Act and, secondly, to project these costs over the five years that followed its implementation. 

The cost burden faced by London boroughs from homelessness is not met through current funding arrangements, according to the research. In 2017-18 London boroughs met £201 million of the cost of homelessness from general funds, thereby affecting the provision of other council services. The research found that increased costs for London boroughs is due to:

• A chronic shortage of affordable housing (and higher costs of providing accommodation)
• Higher unit costs of homelessness prevention and relief (almost four times the England average per case)

The research also estimates that the cost of London’s homelessness services will increase to over £1 billion a year by 2021-22. Under current funding arrangements, the cost to general funds is estimated to rise to £237 million by 2022-23 limiting the ability of London Boroughs to provide other services.

Homelessness caseload doubled since HRA introduced

The research confirmed the Homelessness Reduction Act increased the caseload of households interacting with homelessness services. Although this varies from one borough to the next, in the first year of HRA (from April 2018) the number of households assessed by homelessness services increased to 55,000 from an average of 30,000 households over the preceding ten years. 

Source: LSE and London Councils “The Cost of Homelessness Services in London”, 2019

In terms of total cost to London boroughs resulting from HRA, from 2017-18 to 2022-23, London boroughs will spend an extra £80 million, in real terms as a result of increases in homelessness and managing support services related to the Act. New Burdens allocation to London boroughs charged with implementing the Act falls considerably short of the real cost to those authorities, by over £50m after six years

Source: LSE and London Councils “The Cost of Homelessness Services in London”, 2019

MHCLG underestimated the cost of meeting HRA in London

According to the research government funding is based on a per-case estimate of £4,200 whilst the actual cost of homelessness duty is £9,500 per accepted case, an underestimate of £5,300. For homelessness prevention and relief costs, government funding is set at £530 per case whilst the research found the true figure for London is more likely to be £2,500, a significant variance of £1,970 per case.  Furthermore, the timeframe over which HRA 2017 will increase costs is expected to be more extensive than that used to allocate New Burdens Funding.

Why was the government’s cost estimate so far out?

The research was critical of MHCLG’s use of countrywide unit cost estimates rather than London-specific figures which therefore did not take account of the additional cost of administration and housing in London. In addition, the government did not factor in wider macro-economic factors such as the state of the housing market and the impact of welfare cuts which vary nationwide. Policy in Practice has recently undertaken research with the Joseph Rowntree Foundation highlighting the impact Universal Credit on the financial resilience of low-income households. The impact of the freeze in housing support on homelessness has recently been highlighted by Crisis and is the subject of ongoing research by Policy in Practice for the Local Government Association.

A further reason for the gap between government’s cost estimates and actual costs, highlighted in the report, is that data is collected and reported differently across local authorities and costs and funding from income and grants are consistently under-reported. Under reporting means that net expenditure, that is expenditure after income and grants, is under-reported by £50 million for London boroughs. Thanks to comprehensive input from the Society of London Treasurers, reflected in a 100% response rate to the research survey, more accurate cost figures were established.

The research also demonstrates the need for statistical accuracy when conducting analysis. The stark differences in regional variations, for example between London and Liverpool, mean that using nationwide statistics paints too broad a picture for meaningful conclusions. Policy in Practice’s own research on the living standards of low income Londoners shows marked variances between inner and outer London boroughs – geography matters.

Future research should extend beyond London

Extending the LSE Londo Councils research exercise across the rest of the UK would prove extremely useful. Although London is most affected by the homelessness and housing crisis, there is a vast amount of regional variation across the UK. Taking a longer-term view, as well as factoring in wider macro-economic factors, would no doubt help towards a more granular calculation of the burden faced by local government in the UK. It would also scrutinise MHCLG’s conclusion that a three year window of funding is sufficient.

More accurate funding is needed to tackle homelessness prevention

London Councils has welcomed the introduction of the Homelessness Reduction Act and the ability to transform lives through homelessness prevention yet the ability of London boroughs to act on homelessness is hampered by funding arrangements that fall short of costs and the severe shortage of affordable housing in the capital.

New Burdens funding ends in 2020 and new funding arrangements have not yet been announced. This shortfall in current funding and uncertainty about future funding means that London boroughs must develop strategic responses without knowing the funding gap that they will need to meet from General Funds.

Policy in Practice believes that funding must be re-examined to take account of the macro-economic framework, the additional pressures on costs and provision of homelessness services in London, and the true cost of prevention. London Boroughs need to know future funding arrangements to enable strategic planning. At the same time, London boroughs cannot wait to act.

London boroughs are identifying vulnerability by data analysis

A number of leading London boroughs are using data analysis to identify vulnerability far in advance of the 56 days required by the HRA. Croydon Council has developed its award-winning Gateway programme which moves from a reactive to a preventative service providing employment support, income maximisation and debt support. Royal Borough of Greenwich identifies those at risk of homelessness and offers targeted intervention to avoid crisis whilst Haringey Council and London Borough of Barking and Dagenham have both used insights from data analysis to drive internal culture change resulting in external action.

Some London boroughs use data analysis to identify vulnerability early

Read case studies of councils using their data to tackle vulnerability 

Join our webinar: Designing effective data-led intervention campaigns

Join us on Wednesday 13 November at 10:30 – 11:30 to hear how our guest speakers ran targeted intervention campaigns, using data analysis and their LIFT Dashboard, to encourage take-up of backdated Pension Credit claims. We will be joined by Margaret Gallagher and Emilio Innocenti, Haringey Council, plus Jenny Ingram-Brown, Luton Borough Council. Find out more and register here.