Only about 10p of every £1 increase in Local Housing Allowance (LHA) appears to have fed through into higher rents, according to a new study challenging the argument that increasing the benefit simply hands more money to landlords.

The Resolution Foundation’s research found that after the April 2024 LHA increase - when LHA rates were re-linked to the 30th percentile of local rents after a period of being frozen - areas receiving larger increases saw only slightly larger rent rises at the bottom of the market. It estimates that for every £1 a week added to two-bedroom LHA, rents rose by about 10p a week more than they otherwise would have.

It says the evidence is consistent with anything from no spillover to around one-quarter of the increase feeding through into rents. Instead, the analysis suggests much of the benefit from the 2024 increase went towards reducing the gap between rents and housing support.

The proportion of low-income private renters whose LHA fell short of their rent dropped from 67% before the 2024 increase to 46% a year later, although it subsequently rose again, according to the independent think-tank. It adds that the gap between LHA and lower-market rents is now approaching a record, with the average two-bedroom property at the 30th percentile now £158 a month above the LHA rate.

Cash

LHA has been frozen in cash terms since the 2024 increase while private rents have continued to rise. The report – Saving Private Renters – explains: “Governments of various persuasions have claimed that LHA rates feed through to rents, inhibiting policy makers from relinking housing support in the fear that the increase would pass through to landlords.

Higher

“On the eve of the April 2024 relink, 67% of UC households receiving LHA in England had a rent that was higher than the LHA rate in their area and so had to use other income to pay their rent. For these households, rent is already eating into the money for everything else, meaning that a higher LHA simply shrinks the shortfall. It seems unlikely, then, that a household receiving more LHA would use the extra money to look for a more expensive property and hence boost housing demand. Rather, a rise in LHA works more like a rise in the standard allowance of UC than like a pure rent subsidy.”

The Foundation has urged the government to re-link LHA to the 30th percentile of local rents in April 2027 and then restore an annual link. It believes this would cost about £2 billion a year by 2029/30 but suggests it could partly be funded by increasing the rate at which UC is withdrawn as earnings rise, from 55p to 58p for every additional £1 earned.

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