The rent gap: what is the local housing allowance?

Housing charity Shelter has calculated [pdf] that at least 1.4 million private renters in England, Scotland and Wales now have to claim housing benefit to help with the cost of their rent.

Research by the Joseph Rowntree Foundation on the 7 million Britons living in poverty found that housing costs have played a huge part in increasing poverty. The number of private renters living in poverty has doubled over the past decade, and there are now as many private renters in poverty as social renters.

For those who rent privately, the local housing allowance (LHA), a calculation method used in assessing housing benefit claims, determines how much help they are entitled to with housing rental costs. People are entitled to housing benefit if they are working or if they claim benefits.

What is LHA?

LHA was introduced in 2008 by the last Labour government to bring the amount being spent on housing benefit for those renting privately in line with the benefit for those renting social housing. Labour capped the LHA at half local market rents. If tenants’ rent was more than that, they would not be reimbursed for the rent over that 50%.

In the coalition’s 2010 emergency budget, the terms were tightened:

• LHA was calculated using the lowest third of local market rents rather than the lowest half, or median rent, so less housing benefit was paid for the same accommodation.
• LHA calculations were capped at four bedrooms, rather than five, particularly affecting larger families.
• The age under which claimants are only entitled to the shared accommodation rate (for a room in a shared house rather than a one bed flat) was raised from 25 to 35 years.

From 2011, tenants under 35 living alone were either only entitled to housing benefit for the cheaper shared room rate or had to move into shared accommodation, with their own bedroom, but shared kitchens and bathrooms. Larger families that previously qualified for the five bedroom rate were now entitled to less housing benefit, both in terms of the lower calculation, and the demise of the five bedroom rate.

A new LHA cap and stricter terms were announced by the then-chancellor George Osborne in his autumn statement in November 2015. Initially brought in for a nine-month transition period that applied only to new tenancies, the new LHA cap and stricter terms now apply to all private tenancies signed after 7 April 2008.

How does LHA work?

There are limits on the amount of LHA tenants can get and any shortfall in rent must be met by the claimant. The maximum weekly LHA rate limits are:

• £260.64 for a room in shared accommodation.
• £260.64 for one bedroom accommodation.
• £302.33 for two bedroom accommodation.
• £354.46 for three bedroom accommodation.
• £417.02 for four bedroom accommodation.

This differs by area – for example in Lambeth, the maximum LHA payment for a room in shared accommodation is £94.38 a week, in Aberdeenshire the maximum rate is £75.63 a week, and in the Rhondda it is £46.03 a week. In Southwark, where the LHA rate is set to a maximum of £204.08 a week for a one bedroom property, the maximum housing benefit awarded is £884 a month. A search on property listing site Rightmove shows only two one-bedroom flats available slightly under this rate, one of which specifies that potential occupants must earn a minimum of £23,850 a year.

What is the effect?

Kate Webb, Shelter’s head of policy, says: “With housing costs so high and genuinely affordable homes in such short supply, many families have to rely on housing benefit to keep a roof over their heads, often scraping by from one month to the next. With the loss of a rented home the single biggest cause of homelessness, we’re worried that the lower benefit cap could mean even more families struggling to pay the rent and ultimately losing their homes.”

Shelter’s research found that with rents rising as much as 8% a year in some areas, the gap between local housing allowance rates and actual rents is considerable. The rates of local housing allowance have also been frozen for four years, from April 2016 to April 2020: real term rents are unlikely to fall, meaning there is no link between LHA and real term rents.

For tenants hit by rent shortfalls, the only way to avoid falling into arrears is to move to cheaper areas, apply for discretionary housing payments (a payment from the local authority for people who need extra help with housing costs) or to pay the extra rent from other earnings or benefits.

For many, this is difficult: some areas are unaffordable under LHA, but discretionary housing payments are meant to be short term and councils’ funds are finite. At the moment, people hit by the bedroom tax, benefit cap and LHA gap relay on the DHP payments; in expensive areas demand for the payments outstrips available funds.

By 2020, Shelter predicts that there will be a gap between the cost of renting some of the cheapest properties and the maximum LHA support in 80% of the country:

• In 169 areas (52%) there will be a gap of more than £50 a month between LHA and private rents at the bottom quarter of the market.
• In 98 areas (30%) there will be a gap of more than a £100 a month.
• In 49 areas (15%) there will be a gap of more than a £200 a month.
• In 11 areas (3%) there will be a gap of more than £500 a month between LHA and private rents at the bottom quarter of the market.

Some areas are particularly hard hit, such as Cambridge, where the projected gap between LHA and rent is projected to rise to £529 a month by 2020, and Manchester, where the gap is projected to be £239. For households in these areas, the LHA gap is deepening their arrears, and opportunities to move are slim.

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