Monday, December 20, 2021

Including HAP in Disposable Income

The CSO have published the 2020 results for the Survey of Income and Living Conditions (SILC).  There were a number of methodological changes that mean there is a series break in 2020 compared to earlier estimates.  These are set out in a useful Information Note.

The note also confirms that the Housing Assistance Payment (HAP) payments to landlords, as well as payments to landlords under the Rental Accommodation Scheme (RAS) are considered part of household income:

From 2020, social transfers in SILC are defined as the total income received from DEASP social welfare transfers (e.g. jobseekers related payments, state pension (contributory and non-contributory), family or children related allowances), income received as education related allowances (e.g. Student Universal Support Ireland [SUSI] grants) and housing related supports which include rent supplement and Local Authority contributions to landlords of SILC respondents who are Housing Assistance Payment (HAP) or Rental Accommodation Scheme (RAS) tenants.

This isn’t necessarily a change that was introduced this year but it is now clear that the rent payments made by local authorities to lands in the HAP and RAS are included in the household income of the tenants.  It does not appear that the rent paid by Local Authorities to Approved Housing Bodies (AHBs) is included in the income of AHB tenants.  These rents paid to AHBs, as with those paid under the HAP or RAS (or the smaller Mortgage-To-Rent programme) are based on market rents.  Nor is a similar social transfer to households included in the income of tenants of Local Authorities even though they benefit from subsidised rents in the same way as RAS or AHB tenants.

The rent contribution that recipients of HAP make to their local authority is calculated on the same basis as the above but the tenants may be required to make an additional payment to the landlord if the agreed rent exceeds the relevant HAP limit for that area.  For the first half of 2019 it was estimated that 28 per cent of HAP tenants were making a top-up payment to their landlord.

That the rent contributions tenants make to their local authorities under these programmes is part of those households housing costs is incontrovertible (as well as any top-up payments that may be made to private landlords in HAP). What is less clear-cut is whether the payments local authorities make landlords on behalf of tenants should be included in the tenants’ income.

In terms scaled up to national level, around €1.5 billion of housing supports are included in income in the 2020 SILC.  This includes €600 million for HAP,  €130 million for RAS and €25 million for MTR. As these are not taxable they are then also fully included in disposable income.  These payments make up close to one per cent of the aggregate disposable income of around €90 billion that is represented in the SILC.

This may not seem like a significant amount but the payments will certainly be significant for those households involved.  There are around 17,000 households in the Rental Accommodation Scheme and 68,000 in the Housing Assistance Payment programme.

The issue is whether payments that households don’t directly receive should be included in their disposable income?  There is no doubt that the payments benefit the living conditions of the households but they are not income that the households can choose how to spent. 

As of the 30th June 2019, the average monthly landlord payment was €830 per month and the average rent contribution from the tenant was €47.50 per month.  The treatment in the SILC is that the €830 is counted as household income.  It is not clear in the notes but it certainly should be the case that the €830 also be included in the household’s housing costs and not the €47.50 differential rent. 

Different definitions abound but disposable income would seem like something a household's decisions should be able to have a bearing on how it is used - even if that can be spending on necessities or long-term commitments.  The household can, to a certain extent, choose how to do these. 

If a private tenant moves to a property that has a lower rent, then the use of their disposable income will change.  With a lower rent, the household’s income after housing costs are deducted will rise. 

If a household receiving HAP moves to an area that has lower HAP limits, then the inclusion of HAP as income, would see their income fall after the move.  The decision to move to an area with lower rents hasn't changed their spending (at least for the 72 per cent not making a top-up payment).  They continue to pay the appropriate differentiated rent. But in the SILC the move has changed their income. 

It seems a little incongruent that a spending/consumption decision would change income.  But then, the HAP aids consumption and does contribute to living standards so could be viewed as contributing to income.  But should the disposable income of a household with a medical car be increased every time they attend a GP?  No.  This is a benefit-in-kind rather than a cash transfer.

Why should HAP be counted as a cash transfer rather than a benefit-in-kind?  The State is paying for housing services.  Though that is with the intention of maintaining income after housing costs for beneficiaries.

However, it is not clear why the rent paid by a local authority paid to a private landlord should be counted in the household’s income but not the rent local authorities pay to AHBs.  Perhaps it could be justified on the basis that the household under HAP can choose they property the rents are to be paid for but in either case their income after housing costs will be determined by the differential rent not the rent paid to the landlord (whether that is a private landlord or an AHB).

Consider the contrived example of two households of similar composition, similar income and living in similar properties. Both are eligible for social housing. 

One of the households is an AHB tenant and the household’s income is under the at-risk-of-poverty threshold.  The household’s income after housing costs is calculated after the differential rent, and other costs, are deducted.  Logically, the household’s income after housing costs are deducted from it will also be below the AROP threshold

The second household is a HAP recipient and rents a similar property to the first household but does so from a private landlord.  The inclusion of the rent paid to the landlord in this household’s disposable income puts it above the at-risk-of-poverty threshold.

These households are similar in almost all respects. But one is considered below the at-risk-of-poverty threshold and one is above it.  The only difference is that one is a AHB tenant and one is a HAP recipient.  Assuming no top-up payment to the HAP landlord, both households have similar income remaining after housing costs are deducted. Their living standards are likely to be similar but their income in the SILC will differ significantly.

So, it could be that the headline at-risk-of-poverty rate is being under-estimated because a cash transfer for housing that households cannot spend is included in the income for HAP and RAS tenants.  Would it be better classed as a benefit-in-kind? That is how HAP and RAS are treated in the national accounts?  Or if an income transfer is to be included in household income should it be included for all social housing tenants and not just those in HAP or RAS?

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