Affordability gap between Local Housing Allowance and local rents set to reach record level next year

Rapid rent increases since Local Housing Allowance has been frozen means the gap between the support low-income private tenants receive and the 30^th percentile of local rents is already at 14 per cent (£104 a month for a typical two-bedroom property). This affordability gap is expected to reach a record 17 per cent next year, and 25 per cent – or £180 a month – by 2029-30 unless the Government intervenes, according to new research published today (Saturday) by the Resolution Foundation.

The Foundation’s latest Housing Outlook looks at how the growing affordability gap between fast rising private rents and frozen rates of Local Housing Allowance (LHA) is dragging down household incomes for poorer families who can’t afford to own their home and rent in the private sector.

LHA, which determines the maximum amount of benefit support that private renting families in Britain can receive, has been readjusted to local rents just twice in the last decade (in 2020 and 2024).

But since current LHA rates (based on September 2023 rent levels) came into effect in April 2024, rents have been rising fast. This has created a 14 per cent affordability gap – bigger than when the Conservative government increased LHA in 2020 – equivalent to £104 a month for a household renting a typical two-bedroom property in England.

With the Government’s spending forecast assuming LHA will remain frozen until at least 2029-30, the LHA affordability gap is on course to far exceed record levels. Next year the gap between LHA and the 30^th percentile level is forecast to pass the previous record of 17 per cent – equivalent to £120 per month for a typical renter of a two-bedroom property. By 2029-30 the gap will reach 25 per cent, amounting to £180 a month.

The report finds that, although the current LHA gap is most stark in London, every region in England now contains at least one local authority where there is a £100-plus gap between the LHA rate for a two-bedroom property and the estimated 30^th percentile rent level.

Hackney in London has the biggest shortfall, with local rents on a two-bedroom property outpacing LHA by £350 per month. Elsewhere this gap has grown to £170 a month in Salford in the North West, and £144 a month in Hinckley and Bosworth in the East Midlands.

The ongoing freeze in LHA rates will ratchet up the burden on lower-income renters across Britain and risks wiping out any income gains from the welcome boosts to both the National Living Wage and the standard allowance in Universal Credit (UC). The research finds that freezing LHA from April 2024 to the end of the Parliament would leave a working single parent with one child living in Gloucester £129 a month worse off in today’s money, even after accounting for rises in wages and UC.

The report notes that the extra pressure on renters from the LHA freeze is contributing to the increasing number of households in temporary accommodation, which has reached a record high in England of 132,000.

The extra costs associated with temporary accommodation risk making the ‘savings’ from the LHA freeze a false economy, as well as causing misery to families. Last year, councils in England spent £2.8 billion on temporary accommodation, more than double the real-terms amount spent ten years earlier (£1.3 billion, in 2024-25 prices). Widening LHA shortfalls over the coming years risks pushing more families into temporary accommodation.

The report argues that these false economies and the unprecedented size of the expected affordability gap make freezing LHA until at least 2029-30 a fiscal fiction. The Government will inevitably have to act before that point in response to acute pressure on households’ living standards and local authorities’ finances. So, instead of making ad hoc adjustments to LHA rates when these pressures get too great, the fiscal forecast should be set on a realistic basis by accounting for the cost of annual LHA uprating, expected to be £2.5 billion by 2029-30.

Hannah Aldridge, Senior Research and Policy Analyst at the Resolution Foundation, said:

“The Local Housing Allowance is frozen at private rent levels from September 2023. Rapid rent rises since then have created an alarming affordability gap for almost two million low-income families. Without Government intervention in the Budget, this freeze in support will become a major drag on families’ living standards.

“The long-term freeze in rates is fiscally shortsighted, achieving short-term savings at the cost of a temporary accommodation crisis that is already costing local authorities £2.8 billion a year.

“With the gap between Local Housing Allowance rates and the 30^th percentile of rent expected to pass the previous record of 17 per cent next year, and on track to reach 25 per cent by the end of the Parliament, the Government needs to re-link housing support to local rents before the gap does further damage to living standards.”