More than 1.1 million low-income families in England are facing a widening gap between local rents and the housing benefit support available to private renters, according to new research from the Resolution Foundation.
The think tank’s report, Saving private renters, found that the shortfall between typical rents at the 30th percentile of local housing markets and Local Housing Allowance (LHA) rates has expanded significantly as housing costs have risen. The gap is projected to reach 23.3% in October 2024, approaching record levels.
Regional disparities
Low-income families renting a two-bedroom property in inner East London face a typical monthly shortfall of £324, with gaps of at least £200 across the rest of the capital. The issue extends beyond London, with the gap now exceeding £100 in more than half of all areas in England.
LHA rates were last linked to actual rents in April 2024 and have remained frozen since then. The Resolution Foundation warns that without action in the upcoming Budget, the gap could reach 30% by March 2028.
Impact of benefit adjustments
The report analysed the April 2024 LHA uplift and found that only 10p in every pound of additional support translated into higher rents at the bottom of the market. The increase resulted in approximately 150,000 fewer Universal Credit households in England facing a shortfall between their housing support and rent payments.
This finding contradicts concerns that increasing LHA rates primarily benefits landlords rather than tenants. A previous study of the 2011 LHA cut found that 90% of the reduction fell on tenants, with only around one-tenth materialising in lower rents.
The challenges facing private renters come as lenders continue to develop new products for landlords, whilst the government has also been taking steps to address quality issues in the housing sector.
Policy recommendations
The Resolution Foundation has called on the government to relink LHA to local rents in the Budget and restore automatic annual linking. The policy would cost an estimated £2 billion annually by 2029-30. The report suggests funding could be sourced from within the Universal Credit budget, potentially by reducing the taper rate.
Stephen Hunsaker, economist at the Resolution Foundation, said: “The gap between average rents and Local Housing Allowance levels is set to reach a record high this October, and failing to repeg LHA to actual rents in next month’s Budget could lock in a freeze for another year, and see the gap reach 30% by March 2028.”
He added that the April 2024 data demonstrates tenants benefited from the last LHA adjustment, with the fraction of LHA recipients facing a shortfall dropping significantly.
The research highlights the affordability pressures facing low-income private renters across England, with implications for both the rental market and government housing policy.
