Research estimates LHA uplift is nearly one-third below average growth in private rents

The LHA is used to work out how much people on benefits can claim for help with rent if they are renting in the private sector.

LHA rates were restored to the cheapest 30th percentile in response to the COVID-19 pandemic in 2020, but they have been frozen since then and have not kept pace with inflation. 

They often do not cover rents in the private rented sector, meaning families are often sent out of area or remain stuck in poor-quality temporary accommodation. 

Homelessness charities, housing associations and councils have been calling for the rates to be increased for years. 

Meanwhile, Savills notes that many areas will see much lower increases to LHA despite significant rental growth that reflects continued constraints on the availability of private rental housing in many areas. 

In Ceredigion, Darlington, and Dumfries and Galloway, rates will increase by just 7%, equating to less than £30 more per month. Yet these areas have had rental growth of 20%, 16% and 12% respectively since the rates were last increased.

Steve Partridge, a director at Savills Affordable Housing Consultancy, said: “While the increase in LHA rates is welcome and widens the choice of private rental homes available to people on the lowest incomes, significant challenges remain.

“Our analysis suggests private rents continue to rise faster than LHA rates, on average, and in almost all parts of the country. As a result, those reliant on housing benefit will continue to struggle in the highly competitive private rented sector.

“Private rents will remain out of reach for most and particularly for homeless households that local authorities are trying to move out of temporary accommodation.

“A policy emphasis on supply that provides substantially more much-needed affordable housing across all tenures is required to alleviate pressure and continue to improve access to private rented homes.”

Savills also analysed the situation across England, finding that non-benefit-capped claimants could only afford the cheapest 3% of homes listed for rent in 2022-23, far below the intention for LHA to cover the cheapest 30% of homes.

Additionally, Savills found that only 2.3% of new rental listings in London on Rightmove were affordable in 2022-23 for those reliant on housing benefit, falling from 18.9% in 2020-21.

The impact on renters in London was also highlighted by HSPG. It found that affordability in the capital is still restricted, with LHA failing to cover the 25th percentile rent in roughly a third of areas.

HSPG pointed out that there are currently 1.2 million households on the housing waiting list and a further 158,000 in temporary accommodation at a time when England is spending £1.7bn on this tenure each year.

As part of its strategy to tackle this issue, HSPG is planning to invest in 2,000 units of temporary accommodation in London over the next 18 months, and has called on the government to review LHA rates more frequently and consistently in order to keep up with affordability and mitigate against rising homelessness numbers.

Guy Horne, chief executive and co-founder of HSPG, said: “Unfreezing LHA rates is a really welcome move from the government. 

“Our analysis finds that, based on the government’s indicative LHA rates, affordability should increase by around a quarter in England, which will increase financial viability for registered providers of social housing who can continue to tackle the housing crisis.

“The picture in London remains a significant challenge, though, with roughly a third of areas still not being covered by LHA. As the government looks to maintain momentum on improving housing affordability for those who need it most, we suggest more frequent reviews of LHA rates.”

A government spokesperson said: “Our increase to the LHA 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. 

“This is on top of over £30bn we are investing in housing support this year, while our Discretionary Housing Payments provide a safety net for anyone struggling to meet their rent or housing costs.”

HSPG, the trading name for Hornsearle Property Investments, was launched in Manchester in 2015. In 2020 the firm bought for-profit registered provider Park Properties Housing, which acquires affordable rent and shared ownership homes through Section 106 agreements.

In November 2022, it formed a partnership with Residential Secure Income to deliver £50m in shared ownership properties.