We investigate if neighbourhood characteristics matter to the success of an exogenous change in a country’s institutional settings. We examine the causal impact from one of the largest welfare reforms in Australia, which used the levers of reducing Income Support payments and increasing participation requirements, to reduce welfare dependency and to improve employment outcomes among single mothers. Using a new administrative dataset, which captures the full universe of single mothers targeted by this reform, along with information from five other data sources, we find significant heterogeneity in the reform effects across local areas. The reform did not have the intended effect in geographic regions that were relatively disadvantaged. The effect of the reform for all the local labour market in Australia is estimated with Regression Discontinuity models and correlated with the characteristics of the local labour market region. Our aim is to ask: is there spatial heterogeneity in the local reform effects? And if so, can we find patterns that describe how the reform’s effectiveness varies with local conditions such as employment opportunities, access to services, and community characteristics?