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Seeking Remedy Using Judicial Review
As you have exhausted all appeal mechanisms within the Local Housing Authority (LHA) concerned without any suitable remedy, I suggest that you consider an alternative process of seeking remedy. As the LHA are a public body, acting under The Public Housing Act 2010, the LHA can be subject to Judicial Review. Judicial Review can be applied for by an individual with sufficient interest in seeing that/have evidence to the contrary of a public body is acting lawfully, rationally and using correct procedure.
Judicial Review is the process within the confines of Administrative Law. Administrative Law relates to public administration and government and how the relationship between the private individual is affected. Judicial review takes place within the superior courts and is the main process for challenging public law decisions. The use of judicial review as the main process was defined in order 53 of the rules of the Supreme Court given effect by s. 31 of The Supreme Court Act 1981. Judicial review is not about seeking an appeal; it is about examining the lawfulness of how a decision was made. Mr Justice Weatherup defined judicial review  “Judicial Review is the province of public law issues and not private disputes involving no element of public law." Within the superior courts Judicial Review examines decisions made by government and other public bodies. Judicial Review does not examine private law matters or rights, therefore it will not examine the merits of a previous decision not examine if the decision in question was, according to the legislation involved was reached in a reasonable, fair and lawful way. Hence Judicial review is somewhat specialised in its application, its main subjects are mostly those with statutory powers i.e. government and public bodies. Non-governmental and private bodies who are exercising public law functions i.e. Equality Commission, Northern Ireland Commissioner for Children and Young People are also subject to Judicial Review. Lesser courts are also subject to Judicial Review by the superior (administrative) courts.
The purpose of Judicial Review is to have a mechanism that can hold all these public bodies accountable for how the decisions or procedures in reaching decisions are made. This differs from ‘Appeal’; an appeal will seek an alternative outcome to the original decision. The focus of an appeal will be very much on the decision and the merits of it, which may be replaced following appeal in contrast to Judicial Review Lord Brightman states  “Judicial review is concerned, not with the decision but with the decision making process. Unless that restriction of the power of the court is observed, the court will in my view under the guise of preventing the abuse of power, be itself guilty of usurping power."
The purpose of Judicial Review is clear from the above statement, it exists to provide remedy for individuals wishing to challenge those bodies that have certain statutory powers, and it holds them accountable. In order to pursue Remedy through Judicial Review you must prove locus standi or standing. By its very nature Judicial Review assesses correct procedure has been followed and those wishing to apply for it must also follow correct procedure in applying.  Standing for Judicial Review is very accessible as you only have to show “sufficient interest in the case" under section 18(4) of the Judicature (Northern Ireland) Act 1978 and Order 53 of the Rules of the Supreme Court (Northern Ireland) 1980. This applies to individuals and representative groups for example a case concerning the ratifying of the Maastricht treaty by the United Kingdom R v Secretary of State for Foreign and Commonwealth Affairs Ex p. Rees Mogg  Q.B. 552. Lord Rees Mogg stated that his interest was due to  “sincere concern for constitutional issues" and was subsequently granted standing. In addition to having locus standi you must have an arguable case, cases are filtered on this basis at the mainly at the initial stages of application. In your case you should complete and lodge a claim form, within 3 months of the date of the relevant grievance against the LHA. This is a very strict time limit that is designed to filter out claims and give assurance to public authorities. Having met that requirement you can write to the LHA as you have done already reiterating your issues of grievance giving them an opportunity to write back (this is seen as accepted and good practise but is not compulsory) it is possible that this may avoid the need to take the case to Judicial Review by giving a further opportunity for settlement. A claim for Judicial Review must be given permission by the court, this is done at hearing (usually through written submissions) to assess the agreeability of your case. This is also useful for ‘weeding out’ of unnecessary claims.
If successful a substantive hearing will follow by assessing whether or not the LHA has infringed any of the grounds of Judicial Review. The grounds (i) illegality (ii) unreasonableness (iii) procedural impropriety are the only grounds in which Judicial Review can be taken, these grounds were classified following the GCHQ case  Council for Civil Service Unions and Other Appellants v Minister for the Civil Service  A.C. 374 where employees were no longer allowed to belong to a trade union for reasons of ‘national security’. The grounds consider any whether any unlawfulness has taken place and in your case we will look at whether the LHA has acted ‘ultra vires’ its powers.
Ultra vires examines whether the authority has acted unlawfully and illegally by acting outside of its boundaries of the powers conferred upon it by legislation. Lord Diplock  “by illegality as a ground for Judicial Review I mean that the decision maker must understand correctly the law that regulates his decision making power and must give effect to it." Illegality contains several elements or grounds 1. Error of fact, where a mistake may lead to a problem in the decision making process as in  R v Secretary of State for the Home Department, ex parte Khawaja . In your case the LHA have not used a mistake of fact in reaching their decision
2. Error of Law,  where a mistake in legal interpretation can lead to further errors as in R v Monopolies and Mergers Commission, Ex p. South Yorkshire Transport Limited  1 ALL ER 289 in this case the possible misinterpretation of s. 64 (1) (a) of the Fair Trading Act 1973 where the term  “In a substantial part of the UK" was found to be open to mis-interpretation. It could be argued that section 7 (2) “the LHA ‘in its absolute discretion’ believes that requiring an individual be re-located would ensure proper management of public housing." Has been misinterpreted by the LHA as weighs too heavily on the discretion element.
3. Improper purpose looks at whether or not decisions were made outside of their proper purpose. In Attorney General v Fulham Corporation  1 CH 440  A public washhouse subject to  The Bath and Washhouse Act 1846-1878, for use by the public for bathing and washing clothes. The corporation introduced a further service to the public by offering to wash clothes by way of service for a small fee. This was found to be contrary to its purpose legislated for within the act. The reason (b) given by the LHA does not entirely match with the Act, giving the reason, as a drug user David would be better placed in a less upmarket part of the neighbourhood. Placing tenants due to Perceived class or lifestyle is not the intention of the act, although difficult to pursue this is a possible breach to which Judicial Review can address.
4. Relevant and Irrelevant Considerations, where a body must not consider irrelevant considerations but that it must take into account relevant considerations. As in R v Home Secretary, Ex p. Venables  AC 407.  The Home Secretary acted unlawfully by responding to public and media pressure to impose a sentence that was longer than that legislated for. In my legal opinion the LHA have failed to consider the relevancy of your position of husband and wife who, in time may wish to have a family therefore requiring you to have two bedrooms or more. This would need to be examined in more detail but if you both were considering having children it would be worth pointing this out to the LHA.
5. Unauthorised delegation, questions a decision that is made by a person/s that were delegated certain powers unlawfully. In R v Talbot Borough Council Ex p. Jones  2 ALL ER 207.  A decision to allocate housing was made by a lesser ranking staff member; this was held as unlawful as the decision could only be lawfully made by the Chair of the Housing Committee. In your case it seems that there was no unauthorised delegation, therefore would not be an avenue for redress.
6. Fettering discretion, looks at if a body has used discretion based on appropriate consideration of the issues. This applies when authorities have adopted a blanket policy as opposed to considering individual applications on merit. In British Oxygen Co v Board of Trade  AC 610  “Under a scheme for discretionary investment grants to industry, the board of trade applied a rule that grants could not be paid in respect of items costing less than £25 and refused to pay a grant to a firm which had spent over £4 million on gas cylinders costing £20 each; the House of Lords accepted that the department was entitled to make such a rule or policy, provided that it was prepared to listen to arguments for the exercise of individual discretion." The LHA in this case, although applying a blanket policy of reallocation have considered your case on individual merit.
7. Estoppel doctrine, whether the decision maker has carried out their duty, in other words  “whenever government officers, in their dealings with a subject, take on themselves to assume authority in a manner with which the subject is concerned, he is entitled to rely on their having the authority which they assume. He does not know and cannot be expected to know the limits of their authority, and ought not to suffer if they exceeded it." Roberts v Minister of Pensions  1 KB 227. It could be argued that the LHA in giving reason (b) have exercised their duty albeit without realising that concentrating on the issues of drug use and what the neighbours say is outside of their limits.
I think it important at this stage to question whether the LHA followed correct procedure in investigating complaints made by neighbours and following this allow you to respond to the complaints accordingly. The ‘neighbour complaint’ reason therefore could be an irrelevant consideration, used as an excuse to cleanse the immediate area of persons with David’s lifestyle. This is of course if David continues to be a drug user, he could be but this may have no impact on the neighbours at all. He also may, following been dealt with by the courts have stopped his drug use and become the model citizen. It is difficult for those as in David’s case to shake off the stigma of a prison sentence, the LHA are not making it easy for him by focusing on this as a reason for the reallocation. It is possible that any neighbour complaints could be because of this stigma and I reiterate that it should have been investigated properly before being given as a reason.
There is a possible human rights issue here as the European Convention on Human Rights is enacted in the UK through the Human Rights Act 1998. There may be a breach resulting in unlawfulness of Article 8  “Everyone has the right to respect for private and family life, his home and correspondence." Article 8 provides “There will be no interference by a public Authority with the exercise of this right except such as in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well-being of the country, for the prevention of disorder or crime, for the protection of health or morals or the protection of the rights and freedom of others." There are none of the above reasons given by the LHA (the public authority) as to why your right to family and home have been disregarded. It is possible to pursue reasons of the LHA acting ultra vires as there is a (i) possible breach of convention rights (ii) improper purpose (iii) use of relevant/irrelevant considerations in seeking remedy for such.
There are various remedies that can be sought in Judicial Review. The court may grant one of the following;  1. A mandatory order which requires the public body to carry out its functions as required by law (mandamus). 2. A prohibiting order which restrains
A public body from acting outside its jurisdiction or in an illegal way (prohibition).
3. A quashing order which quashes a decision which has been made unlawfully, confirming it is a nulitity and having no legal effect. The decision is remitted back to the decision-maker to be made again (certiorari).
4. A declaration which is a formal statement by the court of the legal position can be granted under the Civil Procedure Rules (2000) pt 54.3.
5. An injunction preventing a public body from acting in a certain way.
6. Damages which can only be rewarded if they would have been in a private law action. You could seek remedy through mandamus, certiorari or declaration. The possible outcome in your case is of course for the courts to decide. I think it likely that the best outcome would to be having a declaration and mandamus as the public authority has not carried out its duty according to the Human Rights Act 1998.