Why the freeze on Local Housing Allowance is unsustainable
Benefits and the housing market must move together
At Citizens Advice, we’re seeing rent arrears increasing as more people are unable to afford their essential costs. As the autumn statement approaches, it’s vital that any commitment to increasing benefits includes increasing housing support in line with rising rents to prevent more people falling into debt.
Housing costs often make up the largest and one of the most important parts of a household’s budget. Our benefits system provides several types of support with housing costs. Local Housing Allowance (LHA) helps those renting in the private sector, but it’s becoming less effective because the level of support is out of step with the housing market.
LHA rates are based on local rental prices. It used to be linked to the bottom half of the rental market, meaning someone could afford to live in a rental property equal to or below the average for the local area. This was reduced to the bottom 30% of rental properties in April 2011. In 2013 the link to rents was broken, with LHA increasing by inflation instead (which was lower at the time). And in 2016 it was included in the 4 year benefit freeze.
As a result, as rents rose Local Housing Allowance became weaker and weaker. In April 2020, Rishi Sunak, in his role as Chancellor, restored LHA to cover the bottom 30% of rents in response to the pandemic. But it was immediately refrozen and left to decline as the market moved on.
In the 2 years following, government statistics show the bottom 30% of rents rose by around 5%. Creating a shortfall of £27 a month, on average, between the bottom 30% of rents and LHA rates. As a result, by the start of this financial year (April 2022) the proportion of households unable to cover their rent with their LHA had already increased by 5 percentage points — that’s an additional 216,000 households with a shortfall.
Areas of the country where rents have risen faster have fared much worse, particularly our larger cities. Nottingham, Birmingham and Manchester have all seen increases of more than 10 percentage points.
Those who have fallen into arrears have seen them mount up. We’ve helped 7,167 people receiving Local Housing Allowance with debt so far in 2022. In August, they owed £509 in rent arrears, on average, up by 41% on the same time in 2020.
And wider cost-of-living pressures mean more and more of those who’ve fallen behind on their rent don’t have the money to pay down their arrears. Almost 1 in 2 (46%) people we help with debt in receipt of LHA can’t repay their arrears, up from just over 1 in 4 (28%) during the same time in 2020.
The problem is set to get worse. Data from Zoopla shows that asking rents in the private sector have increased by 12.3% in the 12 months to July this year. That’s an additional £115 a month on the average asking rent, far greater than the increase seen in the 2 years following the freeze. Those moving or renegotiating their tenancy will be the first to face the new pressures of this market shift as more are pushed into or further into a rental shortfall.
The freeze on Local Housing Allowance is clearly unsustainable. But it also risks undermining the government’s efforts to help people weather the cost of living crisis. The government needs to increase benefits in line with inflation. But if housing support is left frozen, some of that additional income would go straight out of the window on higher rents.
The government has 2 options:
- To include LHA in overall uprating and see it increased in line with inflation. While this would be welcome, it would leave the benefit seperated from local housing markets, with potential higher than necessary increases in some areas and inadequate ones in others
- To restore the link to local rents, returning it to the 30% percentile
The current situation is a benefit seperated from its original purpose — to help with the cost of renting in the private sector. Without acting to address the problem at its source, the government will leave thousands of households uncertain as to whether they’ll be able to afford their rent over the coming year.
