Editor's note: This brief was summarised by The Property AI Newsroom from a report by The Negotiator. Read the original article for full details.
Gap between local rents and Local Housing Allowance nears record high
More than 1.1 million low-income families face a cost-of-housing crunch as the gap between local rents and the Local Housing Allowance (LHA) available to private renters is set to reach a record high this October, according to a new report from the Resolution Foundation.
The report, Saving private renters, found that the gap between typical rents at the 30th percentile of local housing markets and LHA rates has grown in recent years as housing costs have risen rapidly.
Where the shortfalls are greatest
Low-income families renting a two-bedroom home in inner East London face a typical monthly shortfall of £324, with a gap of at least £200 across the rest of London. The problem is not confined to the capital: the gap now exceeds £100 in more than half of all areas in England.
The shortfall is expected to keep growing because LHA rates were last linked to actual rents in April 2024 and have been frozen since. The gap is due to reach a record 23.3% in October this year.
Does unfreezing LHA benefit tenants or landlords?
Some argue that unfreezing LHA would simply see landlords raise rents to capture the extra support. However, the Resolution Foundation's analysis of the most recent relinking of LHA to local rents found that just 10p in every pound of extra LHA support showed up as higher rents at the bottom of the market. A previous study found that 90% of the 2011 LHA cut fell on tenants, with only around one-tenth materialising in lower rents.
The April 2024 LHA uplift also led to a fall of just over 150,000 in the number of Universal Credit households in England facing a shortfall between their housing support and their rent.
What the report recommends
The foundation urges the Government to relink LHA to local rents in next month's Budget and restore automatic annual linking, a policy it says would cost £2 billion a year by 2029-30. It suggests the funding could be found within the Universal Credit budget, for example by reducing the taper rate.
Stephen Hunsaker, Economist at the Resolution Foundation, warned that failing to repeg LHA to actual rents in the Budget could lock in a freeze for another year and see the gap reach 30% by March 2028. He noted that many tenants receiving housing support are already going without essentials to pay their rent.
Source: The Negotiator