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Housing benefit boost for renters will be wiped out by 2025, experts warn

Generation Rent predicts rents will rise 14% above new local housing allowance levels despite chancellor Jeremy Hunt’s Autumn Statement rise, leaving tenants facing the same affordability gap they see today

Hunt with Autumn Statement

Jeremy Hunt set to deliver the Spring Statement. Image: Flickr/ HM Treasury

Chancellor Jeremy Hunt gave low-income renters a much-needed boost when he raised local housing allowance (LHA) rates at the Autumn Statement – but tenants face being back to square one in 18 months time.

Hunt unfroze housing benefit for the first time since 2020 in November after skyrocketing rents meant tenants were left struggling to cover their monthly bills or find a place to live. Linking LHA back to the bottom 30% of market rents in April will give 1.6 million households an average of £800 of support next year, Hunt said.

But campaigners Generation Rent warned record-high rent inflation will soon outstrip the benefit rise with LHA set to be frozen in 2025 once again.

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Forecasted rent inflation of 8.5% between now and the end of 2025 could see tenants facing an affordability gap of 14% just as they are experiencing today.

Dan Wilson Craw, deputy chief executive of Generation Rent, said: “Until we build enough social homes, millions of people on low incomes will rely on local housing allowance to cover private sector rents. But the past failure of the government to take responsibility for record rent inflation has resulted in welfare support falling behind, and putting tenants at risk of eviction and homelessness.

“Last month’s announcement of an increase in LHA is sorely needed but will be overtaken quickly by actual rents, and tenants facing painful decisions today will be in the same position in two years’ time. It is past time for the government to relink LHA with local rents permanently so support automatically adjusts to housing costs every year.”

Since Rishi Sunak last uprated LHA in 2020 based on rental data from 2019, average rents have risen by 18.3%.

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That saw housing benefits fall far behind rents and research from Shelter and the Chartered Institute of Housing earlier this year found renters receiving LHA were left with no affordable options to rent privately in some parts of England.

The affordability gap has seen homelessness rise – the number of households seeking homelessness support after the end of a private tenancy increased to its highest level on record in the 12 months to June 2023, according to government statistics.

The LHA increase announced at the Autumn Statement is based on average rents in the year up to September 2023 and will see an average rise of 16%, equivalent to £25 per week.

But thousands of out-of-work households will see the support swallowed up by the benefit cap, which was not uprated at the Autumn Statement.

As a result, out-of-work two-child families in receipt of full universal credit  will have their benefits capped in 83% of local areas next year, compared to in just 11% of local areas for single adults, according to analysis by think tank the Resolution Foundation.

And rent rises in future will see the affordability gap rise once more with LHA set to be frozen once again for the foreseeable future.

By the end of 2025, renters could see an average annual shortfall of £1,370 for a two-bedroom house in England.

Both Generation Rent and the Resolution Foundation have called for LHA rates to be set annually, linked to changing rents. LHA has only been uprated five times in the last 12 years.

Speaking to the Levelling Up, Housing and Communities Committee this week, housing secretary Michael Gove said: “I think the increase [in LHA] is welcome and we (DLUHC) and the DWP will take stock of the impact, look at what is happening on the ground and if more help is required I will be determined to secure it.

“One of my big concerns is people who are suffering severe financial problems and struggling to make ends meet, particularly people who are in work, they are at the front of my mind. It’s tough and I do appreciate those concerns.”

The LHA rise is likely to have the biggest impact in London and the south east of England where rents have skyrocketed the most in recent years.

Households in other cities will also see a large income boost.

Alex Clegg, economist at the Resolution Foundation, said: “The LHA rise is particularly welcome news for households who have experienced the greatest rent increases in recent years – typically renters in Britain’s cities – as they stand to benefit most from this increase. 

“Families in three-bedroom properties in London could see their weekly housing support rise by as much as £82, while those in Glasgow and Bristol are expected to see an increase of £48 per week.”

“But significant gaps in housing support remain – with the benefit cap set to wipe out the gains for many out-of-work households with children and the freeze set to return in 2024.”

The Big Issue is among the scores of housing campaigners and charities that called for the government to unfreeze LHA as part of our End Housing Insecurity Now campaign.

The campaign saw thousands of readers call for an LHA rise alongside urging the government to reform universal credit and scrap no-fault evictions through the Renters Reform Bill.

The Big Issue will keep campaigning to ensure renters receiving LHA do not fall into homelessness in the years ahead.

Gove also hinted that could mean moving away from LHA entirely in the future.

“When I arrived, I wasn’t sure that LHA as currently constructed was necessarily the best way of getting the money to those who needed it. But at the moment we are working within the system that we’ve got rather than uprooting it,” said Gove.

“I think it’s perfectly legitimate to say there might be better ways of targeting the resources we have at those who need it most.”

Do you have a story to tell or opinions to share about this? We want to hear from you. Get in touch and tell us more.

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