Chancellor must act to address record gap between local rents and support available to low-income renters

Chancellor must act to address record gap between local rents and support available to low-income renters

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 30^th 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 increasing 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.”