A housing benefits boost for low-income private renters is set to be wiped out by soaring rents within 18 months, i can reveal.
Experts have warned that the shortfall between rents and the support available to help pay them could push more renters into poverty and homelessness.
In his Autumn Statement, Chancellor Jeremy Hunt announced that he would increase the local housing allowance (LHA) from April 2024 for one year, so that the housing benefit covers the cheapest third of market rent in any given area again, before it is frozen again.
The LHA is the mechanism used to calculate the housing benefit element of universal credit. It is supposed to cover the lowest third of market rents but was frozen in cash terms in 2020, even though other benefits have increased with inflation, and private rents were at historic highs in many parts of the country year on year.
The boost was welcomed by renters’ rights advocacy group Generation Rent, and the National Residential Landlord’s Association (NRLA), which campaigns on behalf of private landlords.
But new forecasts by Generation Rent, and shared with i, show that average rents will rise by around 8.5 per cent in England between now and late 2025.
An 8.5 per cent rise will mean that average rent is eventually almost 14.2 per cent higher than the reference rents that were used to determine the Autumn Statement’s LHA boost.
Generation Rent warns this will result in housing affordability once again plummeting, leaving rent impossible to pay for those private renters who rely on state support, just 18 months after the LHA increase kicks in.
Generation Rent board member Ian Mulheirn, an economist and former Treasury adviser, warned that “very soon” after the LHA increase takes effect, “affordability for renters dependent on LHA will be almost back to the unsustainably low levels.
He added: “It’s not a permanent fix.”
If rents surge by 8.5 per cent, a family renting a typical two-bedroom house in England will have to find around £1,370 more each year from other sources to cover rising rent, even with LHA at its newly boosted level, Generation Rent says.
Ben Beadle, chief executive of the NRLA, said the decision to freeze housing benefit had been a “disastrous policy” that affected “the most vulnerable tenants across the private rented sector.”
“Taking steps to reverse this change will provide vital support for tenants who receive the LHA, making it easier for them to access and sustain rental tenancies,” he said.
The NRLA is now lobbying all political parties to commit to increasing the LHA each year so that it remains linked to market rents.
How LHA freeze has fuelled homelessness
Today more people are renting privately than living in social or council housing, including a growing number of low-income individuals and families.
Close to five million households rely on a private landlord to keep a roof over their heads in England today; 1.9 million of them need housing benefit to pay their rent.
Many of these people are in work.
General inflation may have peaked, but living costs – from food to energy, cinema tickets, and travel – are still more expensive than they were before the pandemic.
Low-income private renters are particularly hard hit by this because they are also being asked to find the cash for historically high rents, which are continuing to rise as a shortage of affordable homes, wage growth, and rising mortgage rates feed into the private renting market, causing landlords to increase rents.
The Government’s local housing allowance (LHA) freeze in recent years has meant that the support for poorer renters has barely covered rents in many places since 2020, leading homelessness charity Crisis to warn of the creation of a growing benefits “black hole” that was pushing low-income renters into poverty and homelessness.
Due to the combination of the LHA shortfall and rent hikes, the Institute for Fiscal Studies estimates that just 5 per cent of homes available for private rent are now affordable for those who rely on state support.
As a result of campaigning from the likes of Crisis, Generation Rent and Shelter, the Chancellor announced that LHA rates would be increased to cover the cheapest third of rents in any given area (also known as the 30th percentile) for this group of people from April next year.
However, the temporary nature of this increase could mean that private renters are once again being pushed into poverty and destitution.
A total of 104,510 homeless households are now living in temporary accommodation such as hostels, B&Bs, and even converted offices. This includes 131,370 dependent children and is a 10.3 per cent increase on last year.
The rise in homelessness is thought to be partly down to the shortfall between private rents and the LHA which has led to low-income people being evicted for rent arrears and landlords refusing to accept renters who rely on state support (also known as No DSS discrimination).
Homelessness experts say that unless the LHA is permanently linked to private rents again, the government has merely kicked the crisis in the cost of private renting down the road for whoever wins the next election to deal with.
Like the NRLA, Generation Rent is calling on the Treasury to relink the LHA with the cost of housing on a long-term basis to ensure private renters are protected from rent hikes, as opposed to freezing and unfreezing this support, as the Government has been doing in recent years.
Mr Mulheirn said: “The Government should recognise that while the LHA boost is very welcome, we will be back in the situation we are in – with poverty and destitution increasing, homelessness rising and evictions rising because people can’t afford their rent – within a very short time period if the LHA rates are not permanently linked to the cost of renting.”
In Scotland, private rents have been frozen in response to the cost of living crisis.
A Department for Work and Pensions spokesperson said: “Our increase to the local housing allowance rate means that 1.6 million private renters on housing benefit or universal credit will gain an average of nearly £800 a year to ease costs.
“In addition to this we’ve also invested over £30bn in housing support this year, while our Discretionary Housing Payments provide a safety net for anyone struggling to meet their rent or housing costs.”