Local housing allowance and homelessness

What is Local Housing Allowance?

Local Housing Allowance (LHA) is used by local authorities to calculate how much Housing Benefit (HB) an eligible claimant can receive to help pay their rent in the private rented sector. Tenants in the private rented sector who are entitled to the housing costs element in Universal Credit (UC) will also have that assessment based on the local LHA rate.

LHA is a flat rate allowance for different sizes of properties within a Broad Rental Market Area (BRMA). The Valuation Office Agency provides guidance on Understanding Local Housing Allowances rates and broad rental market areas (Jan 2016). The Department for Work and Pensions (DWP) has also published Local Housing allowance: information for local authorities.

Policy reforms to restrict LHA

LHA was originally introduced to ensure fairness in the benefit system; to ensure that claimants in similar circumstances in the same area would receive similar benefit levels. It was also intended to encourage personal responsibility and choice.

The Coalition and Conservative Governments introduced a raft of welfare policy reforms, including a number of measures to restrict LHA:

• changing the basis on which LHA rates are set from the median to the 30th percentile of market rents within a BRMA.
• applying national caps to LHA rates for different property categories and abolishing the five room LHA rate.
• extending the Shared Accommodation Rate (which limited the amount of LHA a claimant aged 25 or under could receive) to people aged between 26 and 35.
• freezing LHA rates from April 2016 for four years.

These reforms were framed in terms of ensuring fairness between working and non-working households (i.e. ensuring households on benefits could not live in accommodation that would be unaffordable to similar, working families). They were also intended to reduce overall HB expenditure. Estimates suggested that reforms to LHA would save the government around £1.3 billion in cash terms in 2016-17, rising to around £1.7 billion in 2020-21.

The Commons Library Briefing Paper: Housing Benefit measures announced since 2010 (December 2016) provides more detailed information on the above reforms to LHA.

Measures to mitigate the impacts of LHA restrictions

The Government recognised that the impact of freezing LHA rates may have different effects across the country, with rents in some areas increasing at different rates. In view of that it put in place measures intended to help mitigate the effects:

• Targeted Affordability Funding – the Government has recycled some of the savings from the LHA freeze to be used to increase LHA rates in areas where there are the greatest divergences between rates and local rents.

In 2019/20 the Government invested £210m in the Targeted Affordability Fund, which is based on 50% of the [forecast] savings from the freeze to LHA rates.

• Discretionary Housing Payments (DHP) - Local authorities can use DHPs to assist claimants who are experiencing financial difficulty with housing costs.

As part of the welfare reforms package introduced from 2011, the Government has increased its contribution towards DHPs to help local authorities support those affected by some of the key changes to HB. In total in 2018/19, central government allocated £153 million of DHP funding to local authorities in England and Wales.

Data on the amount of DH Payments awarded to and spent by local authorities is available here. The Commons Library briefing paper Discretionary Housing Payments (July 2018) provides further information.

The Government has also made £20 million available through the Private Rented Sector Access Fund to enable better access and sustainment of tenancies for people who are, or at risk of becoming, homeless.

This is alongside various initiatives to increase the supply of housing – discussed in the Commons Library briefing papers Tackling the under-supply of housing in England (December 2018) and Stimulating housing supply - Government initiatives (England) (May 2019).

LHA restrictions and homelessness

There is evidence that in many areas, particularly in areas of high housing demand, there is a growing gap between actual rents and the amount of rent that is covered by LHA, which is making rental properties unaffordable for benefit claimants. There is concern that this is having an adverse impact on levels of homelessness and the ability of local authorities to use private rented accommodation in order to discharge their duties to homeless households.

The Chartered Institute of Housing’s report Missing the target: Is targeted affordability funding doing its job? (August 2018) analysed the gap between LHA rates and the lowest private rents in Great Britain and assessed the impact of the Government's targeted affordability funding. The key findings include:

LHA rates are now so seriously out of line with local rents that private renting has become unaffordable for most low income tenants and this substantially increases their risk of homelessness. The longer the freeze continues the wider the gap becomes and the more costly it becomes to restore LHA rates to their full value.

LHA rates are now so far out of line with local rents that only those that cover around five per cent of the market or less qualify for targeted affordability funding.

Despite targeted affordability funding, less than 10 per cent of LHA rates now cover the rent of the cheapest 30 per cent of private homes. Or, to put it another way, over 90 per cent of LHA rates now have a gap with the 30th percentile rent and this is true for every category of dwelling except the two bed rate where over 88 per cent have a gap.

The National Audit Office’s (NAO) September 2017 report Homelessness identified HB changes as contributing to an increase in homelessness:

Changes to Local Housing Allowance are likely to have contributed to the affordability of tenancies for those on benefits, and are an element of the increase in homelessness. Since 2011, the Department for Work & Pensions has introduced a series of welfare reforms, including capping and freezing Local Housing Allowance. These reforms have been designed to reduce overall welfare spending and to provide incentives for benefit recipients to take up employment. They have reduced the amount of household income that it is possible to derive from benefits where the Local Housing Allowance applies. At the same time, rents in the private rented sector in much of the country — London in particular — have increased faster than wage growth. All of these factors appear to have contributed to private rented properties becoming less affordable, which in turn is likely to be contributing to homelessness caused by the ending of an assured shorthold tenancy.

One of the key findings from the Homelessness Monitor: England 2019 focused on the impact of HB restrictions and the roll-out of Universal Credit:

The safety net once provided by Housing Benefit, whereby post housing incomes were protected from erosion below basic benefit levels, has now effectively ended for the bulk of private tenants in receipt of benefit across the country, with young people under 35 particularly badly affected by reduced Local Housing Allowance rates and the working age benefit freeze.

There is considerable concern amongst local authority respondents of the ongoing expected impact of welfare reform on homelessness in their area. The full roll out of UC is the subject of greatest concern with nearly two thirds of LAs anticipating a “significant” homelessness increase as a result. Aside from anxieties on UC, most LAs anticipated that homelessness would “significantly” increase due to then freeze in LHA rates (53%) and other working age benefits (51%), with almost as many LAs (47%) reporting likewise for the lowered benefit cap.

Charities, such as Shelter and Crisis, are campaigning for the Government to end the LHA freeze and restore rates to reflect at least the bottom 30th percentile of local rents.

The Government has confirmed that “There are no current plans to extend or maintain the LHA Freeze after March 2020. Specific decisions on how to uprate the Local Housing Allowance rates from April 2020 will form part of the discussions in support of fiscal events later this year”.

The Ministry of Housing, Communities and Local Government (MHCLG) and the Department for Work and Pensions (DWP) commissioned Alma Economics to undertake a feasibility study on the causes of homelessness and rough sleeping. The research reports were published on 29 March 2019.

Commenting on the findings in response to a PQ, the DWP Minister, Will Quince, said:

The causes of homelessness are numerous, varied and complex. A joint study between the Department and the Ministry for Housing, Communities and Local Government, has shown that there is not a direct causal link between welfare and homelessness.

[...]

Attributing homelessness to a single Governmental policy would simplify the issue, and this approach would wrongly deny it the multi-faceted approach which we’re committed to delivering.

Further information

The following Commons Library briefing papers provide further analysis:

• What is affordable housing? (May 2019) - looks at key trends in the affordability of different tenure types. It also examines the supply of affordable housing and the role of Housing Benefit in enabling households to access and retain affordable housing.

• Statutory Homelessness in England (June 2019) - provides statistics on statutory homelessness in England and explains local authorities' duties to assist homeless households. The paper includes an overview of, and comment on, Government policy in this area.

• Local Authority Homelessness Statistics (England) (January 2019) - this tool allows you to view collected homelessness statistics for individual local authorities in England. The webpage also provides links to homelessness statistics produced by the devolved administrations.

• Rough Sleeping (England) (February 2019) - provides background information on the causes of rough sleeping and local authorities' duties. The Government published a Rough Sleeping Strategy and a delivery plan in 2018.

• Comparison of homelessness duties in England, Wales, Scotland and Northern Ireland (April 2018) – examines the divergent approaches that are emerging in this devolved policy area.

The Homelessness Monitor: Scotland 2019 (funded by Crisis and the Joseph Rowntree Foundation) examines the homelessness impacts of recent economic and policy developments in Scotland. The Homelessness Monitor: Wales 2017 analyses the impacts of policies in Wales.

A number of recent reports/studies have drawn attention to and analysed this issue, including:

• A Shelter briefing (May 2019) for a Westminster Hall debate on Universal Credit and Debt provided a brief analysis of rent shortfalls with the LHA rate for 2019/20.

• Policy Evaluation and Research Unit at Manchester Metropolitan University, Homelessness and the Private Rented Sector, November 2018.

• Institute for Fiscal Studies, The cost of housing for low-income renters, October 2017.

• Shelter, Ending the freeze to Local Housing Allowance, October 2017.

• Savills, Impact of the LHA Freeze, July 2017.