Key facts
- Over 1.1 million low-income families in rented homes face a "cost of housing" crunch.
- Local housing allowance (LHA) has been frozen in cash terms since autumn 2024.
- A low-income family renting a typical two-bedroom flat faces an average shortfall of £158 a week.
- In parts of London, the shortfall rises to more than £300 a week.
- The Resolution Foundation estimates 90p of every £1 relinked to LHA tends to go to tenants.
- The gap between average rents and LHA levels is set to reach a record high in October.
The Resolution Foundation has warned that over 1.1 million low-income families in the private rented sector are facing a severe "cost of housing" crunch due to the freezing of the Local Housing Allowance (LHA) in cash terms since autumn 2024. The thinktank's report, "Saving Private Renters," highlights a growing disparity between what families receiving LHA can afford and current market rents.
A typical two-bedroom flat now presents a shortfall of £158 per week for these families, a figure that escalates to over £300 per week in some London areas. The Resolution Foundation refutes the idea that re-linking LHA to local market conditions would primarily benefit landlords, citing past analysis that suggests 90% of such increases tend to benefit tenants directly.
Economist Stephen Hunsaker noted that the gap between average rents and LHA levels is projected to hit a record high in October. He cautioned that failing to re-peg LHA to actual rents in the upcoming budget could result in a continued freeze and a widening gap of 30% by March 2028. Hunsaker urged the government to restore the automatic annual linking of LHA to alleviate pressure on families already struggling to afford essentials.
The report suggests that the estimated £2 billion annual cost of relinking LHA could be funded by adjusting the universal credit (UC) taper rate, which would reallocate funds within the UC system towards those most in need. Survey data indicates that one in five working-age adults on housing support in private rentals struggle to afford heating, and one in eight cannot afford three meals a day.
Historically, LHA was pegged to the median local rent upon its introduction in 2008, a benchmark later reduced to the 30th percentile in 2011. It has remained frozen for nine of the last 14 years. Numerous charities, including Crisis, the Joseph Rowntree Foundation, and Citizens Advice, have echoed calls for the restoration of the LHA link.
The Chancellor faces pressure to address rising costs in the upcoming budget on October 28, though economic constraints like inflation and interest rates may limit options. A government spokesperson stated that LHA rates are reviewed annually and future decisions will align with welfare priorities and the fiscal context.