Rising rents and frozen Local Housing Allowance (LHA) rates mean that more and more tenants on low incomes can't find an affordable place to live.
What's more, for those lucky enough to find a rental that they can afford, invariably they will cost more to run. That's because those properties at the bottom end of the housing market tend to be poorly insulated with inefficient heating systems, and they are costing around 20 per cent more in energy bills.
What is Local Housing Allowance
Local Housing Allowance (LHA) rates are used to calculate Housing Benefit for those tenants renting from private landlords. LHA rates are area specific called broad rental market areas (BRMA). LHA rates are based on private market rents being paid in the BRMA which can differ from advertised rents. The Valuation Office Agency (VOA) Rent Officers set the rates based on collected rental information from letting agents, landlords and tenants.
Rent Officers maintain rental information for each category of LHA rates and mathematical calculations are applied to the list of rents to determine the LHA rate which is set as the lower of:
the 30th percentile on a list of rents in the broad rental market area, or the existing LHA.
Recent research findings
Of the rental properties currently listed on Zoopla, according to the Institute for Fiscal Studies, only 5 per cent are affordable to those on the lowest incomes, and those eligible for Housing Benefit payments. That's compared to as high as nearly two-thirds of properties available to them in April 2020 when LHA was frozen.
Millions of private renters on low incomes are now being almost totally priced out of the rental housing market according to new research by the charity Crisis and Zoopla. This situation varies across the country but in the extreme there are some parts of the country where there are no affordable rentals at all.
Tenants receiving Housing Benefit
There are around 1.9 million private renters in England who receive housing benefit which goes some way or in some cases all the way to paying their rent. That represents well over one-third of all private renting in the country.
In recent years private landlords have taken up the mantle, the slack in the housing market as social housing has collapsed (local authority and housing association provision). In the meantime support for private landlords has dwindled.
Increasing costs for landlords
Adverse tax rules, and more recently increasing mortgage rates, as well as increasing costs through inflation, mean that landlords are increasing rents to help them pay their mortgages. Include the fact that landlords have been leaving the market, and a shortage of decent rental homes has led to rents skyrocketing, and you have the makings of further housing crisis.
With the freeze on Local Housing Allowance rates, and rents are rising well above what low income tenants can afford, the gap between what tenants can be afforded is getting wider and wider '� a gap that's nearly doubled in 12 months, according to this research.
London properties have received particularly high rent increases over the past year, as perhaps can be expected in the capital, but the research shows that average rents in other key cities have also seen significant increases. Rent prices in Manchester are up 14.4 per cent, Nottingham and Birmingham are around 11 per cent up, with Bristol and Sheffield up 10.5 per cent and 10 per cent respectively.
The letting agents trade body, Propertymark, along with other experts who represent landlords, tenants, policymakers, and the homeless, have been looking across the board at where the levels of LHA has impacted those at the lower end of the housing sector.
Propertymark has come to the conclusion that the DWP should 'engage more with landlords and recognise they are stakeholders in the housing allowance scheme.'�
Demand for rented property continues to outstrip supply in what has become a highly competitive rental market in the UK. One recent survey conducted by Propertymark shows their members reporting an increase in demand up 24 per cent in April 2023, compared to same period in the previous year.
Timothy Douglas, Propertymark's Head of Policy and Campaigns has given evidence to the Department for Work and Pensions Commons Committee hearing on the current benefit levels in the UK in June 23, when he emphasised the struggles in the private rented sector.
Propertymark and other experts representing landlords, tenants, policymakers, and the homeless looked at areas where LHA has impacted those on Housing benefit across the housing sector. The upshot was that Propertymark stressed that the DWP needs to engage more with landlords and recognise they are stakeholders too in the housing allowance scheme.
Timothy Douglas stressed that tenant benefits are simply not keeping pace up with rising rents, and further pressure has been placed on the private rented sector because of a shortage of social housing '� council and housing association provision - leading to vulnerable tenants being priced out.
Propertymark is calling for LHA rates to be set to at least the 30th percentile, if not the 50th percentile, and increased annually to keep up with market rents.
Current LHA rates were frozen in April 2020. Based on the findings of research by the Bevan Foundation in Wales and Centrepoint in England, Propertymark, in its evidence to the House of Commons Work and Pensions Committee inquiry, has highlighted the glaring price gap created for low income tenants on Housing benefit.
Matt Downie, CEO of homelessness charity Crisis, is calling for an injection of funding into the housing benefits system which is experiencing a rise in homelessness.
A recent ITV News investigation found that even people in full time work are becoming homeless because they are unable to find anywhere that's affordable to live. During 2022, they found, 25 per cent of all households seeking support were in full or part-time employment.
A spokesperson for the Government has said:
'We're helping ease the pressure of rising rents by maintaining 2020's �1 billion boost to Local Housing Allowance rates, giving more than a million people an extra �600 a year on average.
'We are set to spend over �30 billion on housing support this year, on top of significant cost of living support worth an average �3,300 per household.
'Building more affordable homes is key, which is why we're investing �11.5 billion to deliver more social and affordable rented homes across the country.'�
A spokesperson for Coventry City Council has said:
'These issues are not just present in Coventry but are national issues regarding housing supply nationally, there are a number of factors contributing to this housing crisis including Local Housing Allowance being frozen nationally since 2020 putting an incredible pressure on families seeking private sector accommodation, the continuation of '�no fault' S21 evictions despite the government giving a commitment to address this area, as well as a general underinvestment in housing stock over many years.'�
Will the LHA be going up in 2023?
Unfortunately not, in January, the Government confirmed that local housing allowance rates would again be frozen for 2023/24 which means support from Government will continue to fall short of meeting the cost of housing at a time when incomes are being stretched by the cost of living crisis.