Low-income private renters face record gap between the rents they pay and Local Housing Allowance

The average shortfall between Local Housing Allowance (LHA) rates and the 30^th percentile rent level has now reached an all-time high of 23.3 per cent – equivalent to a £170 a month ‘affordability gap’ for a typical family in a two-bedroom home – just a week before John Healey’s first Budget, the Resolution Foundation said today (Wednesday).

Rates of LHA, which determine the maximum amount of benefit support that private renting families can receive, were last adjusted in April 2024 – when they were pegged to 2023 rent levels. But since 2023 average private rents have risen by 23.3 per cent, leaving families with a record shortfall between how much they owe their landlord and how much support they can get through the benefit system. The ongoing freeze is hitting households across Britain – by May 2026, over 900,000 families on Universal Credit were paying rents above their LHA.

While the LHA affordability gaps are most significant in London where rents are highest, every region in England now contains at least one local authority where there is a £100-plus a month shortfall between the LHA rate for a two-bedroom property and the estimated 30^th percentile rent level. In Manchester this gap now stands £250 a month, and even in Newcastle where rents are relatively low it is £180 a month.

Without Government action, these shortfalls are set to rise further and reach an estimated 32 per cent by 2029-30, equivalent to £235 a month for a typical family in a two-bedroom home, way beyond the point at which previous governments have intervened.

Instead of leaving low-income households to plug this growing affordability gap, the Government should use next week’s Budget to recommit to the annual re-linking of LHA support to the 30^th percentile of local rent. Restoring the link between local rents and support would help over 900,000 households at a cost of £2.3 billion by the end of the Parliament and can be funded, if necessary, within the Universal Credit budget by increasing the taper rate.

Previous Resolution Foundation research has shown that when the Government last raised LHA support, it was private tenants, not landlords, who overwhelmingly reaped the benefits – with just 10p in every pound of extra LHA support showing up as higher rents at the bottom of the market.

The same research found that 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 – the Foundation notes that any savings on rent would likely be used to relieve other essential needs.

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

“The affordability gap between the 30^th percentile rent level and Local Housing Allowance has now reached a record high. Without urgent government action this gap will keep growing and pushing down on the living standards of low-income families in the private rented sector.

“John Healey’s first Budget next week is an opportunity to fix this once and for all by committing to automatically linking LHA to private rent levels each year.

“Previous Resolution Foundation analysis suggests re-linking LHA would primarily benefit tenants, not landlords. And with rising energy bills bringing the cost of living back into focus, now is the right time to give hard-pressed households reassurance on future rent support.