The Impact of Freezing the Local Housing Allowance
The Impact of Freezing the Local Housing Allowance [ 370 kb]
Local Housing Allowance (LHA) determines the amount of Housing Benefit and Universal Credit claimants can receive to cover their housing costs. In 2008, LHA was linked to the 50th percentile of rents within the ‘broad rental market area’ where a claimant lives.
But this was reduced in 2011 to the 30th percentile, and from 2013 annual uprating was linked to CPI not rents. At the start of the pandemic LHA received a one-off uplift back to the 30th percentile but has been frozen ever since. In combination with other reforms, such as the introduction of a national limit on LHA rates in 2010 and the extension of the shared accommodation rate (SAR) to people aged under 35 in 2012, the freezing of LHA has led to significant shortfalls between housing cost support and actual rent costs for many of the people we help.
We know that the average gap between LHA and rent costs across Britain is £62.13 per month. But this masks a great deal of variation, and is based on out-dated assessments of rent costs. According to our cost of living survey, the vast majority of Housing Benefit and Universal Credit claimants renting privately now report a shortfall between benefit income and rent of more than £100 per month. And our debt clients on Universal Credit in the private rented sector report an average shortfall of almost £145 per month.
As rent increases accelerate, this situation has become untenable; we are advising thousands of people each month experiencing or threatened with homelessness. More generally, LHA inadequacy (and its complexity) is causing hardship as people use other benefit income to cover their rent, or cut back on daily essentials - or are forced to leave properties but cannot find affordable alternatives in the same area. The mental health of many people in these situations is affected.
Increasing income from work is not necessarily the solution: many of those most affected are already in full-time work, and gaps in support often mean people are forced to live far from employment opportunities. And nor can people rely on alternative financial support such as discretionary housing payments (DHPs).
The impact of this hidden housing tax on low-income households must be addressed. 4 immediate steps are needed to ease the pressure on low income households:
- Restoring the link between LHA and the 30th percentile of local rent costs
- Reforming the national limits on LHA rates
- Returning the SAR upper age limit to 25
- Increasing funding for DHPs
These measures should form part of a programme of housing market reform that reduces private tenants’ exposure to unaffordable rent rises.