More than 1.1 million low-income families are facing an acute
cost-of-housing crunch as the gap between cheap local rents and
the benefit support private renters can claim is set to reach a
record high this October, with action needed in the Budget next
month to tackle the issue, said the Resolution Foundation today
(Saturday).
Saving private renters finds that the gap between
typical rents at the 30th percentile of a local
housing market and rates of Local Housing Allowance (LHA) has
grown dramatically in recent years as housing costs have risen
rapidly. Low-income families renting a 2-bedroom home in Inner
East London face a typical monthly shortfall of £324, for
example, and at least £200 across the rest of London. But the
problem not confined to the capital with the gap now above £100
in more than half of all areas in England.
This shortfall will only grow over time because LHA rates were
last linked to actual rents in April 2024, and have been frozen
ever since. As rents rise, so does the shortfall between support
and rents, and the gap is due to reach a record of 23.3 per cent
in October this year, contributing to an acute cost of housing
crunch for private sector tenants.
Some argue that unfreezing LHA would not help tenants at all,
with landlords simply raising their rents to match the increase,
capturing the extra support.
But new Resolution Foundation analysis of the most recent
relinking of LHA to local rents shows that this is not the case,
with just 10p in every pound of extra LHA support showing up as
higher rents at the bottom of the market. This finding mirrors a
previous study which found that 90 per cent of the 2011 LHA cut
fell on tenants, with only around one-tenth materialising in
lower rents.
In addition, the April 2024 LHA uplift led to a fall of just over
150,000 in the number of Universal Credit (UC) households in
England facing a shortfall between their housing support and
their rent, showing that the increase was of direct benefit to
the families it is intended to support.
These findings show that unfreezing LHA in the upcoming Budget
would lead to a genuine improvement in rental affordability,
rather than a funding bonanza for landlords, say the authors.
This improvement is needed too. In 2024-25, over half (58 per
cent) of working-age adults in private renting families on
housing support were in material deprivation, with one-in-five
unable to afford to keep their homes warm and one-in-eight unable
to afford three meals a day.
The authors add that with many recipients forgoing essentials to
pay their rent, it is highly likely that any uplift in LHA rates
will be first used to relieve those pressures before seeking more
expensive housing. This gives further weight to the Foundation's
argument that housing support benefits tenants not landlords, and
shows the pressure on tenants when it is delinked from the rents
it exists to meet.
The authors say that the Government should relink LHA to local
rents in next month's Budget, and restore the automatic annual
linking to local rents.
This policy would cost £2 billion a year by 2029-30, says the
Foundation. But such is the need to tackle this cost of housing
crunch that this funding could be found within the UC budget, for
example, by reducing the taper rate, making the overall benefits
system fairer as a result.
Stephen Hunsaker, Economist at the Resolution Foundation,
said:
The gap between average rents and Local Housing Allowance levels
is set to reach a record high this October, and failing to repeg
LHA to actual rents in next month's Budget could lock in a freeze
for another year, and see the gap reach 30 per cent by March
2028.
Rather than primarily benefitting landlords, our new analysis
shows that the last time LHA was repegged to local rents in April
2024 it was tenants that benefited, with the fraction of LHA
recipients facing a shortfall between their rents and the amount
they could claim dropping significantly.
With many tenants receiving housing support already going without
essentials to pay their rent today, the Government should restore
the automatic annual linking of LHA to relieve the pressure on
low-income families in the private rented sector.
Notes to Editors
- Local Housing Allowance (LHA) determines the maximum amount
of help that privately-renting households in Great Britain on
Universal Credit (UC) or Housing Benefit (HB) can receive from
the state with their rental costs. LHA caps the amount of benefit
paid for each property size in each of the 192 Broad Rental
Market Areas (BRMAs) in Great Britain.
