Housing allowance crunch threatens low‑income renters
The Resolution Foundation warns that a frozen Local Housing Allowance (LHA) will leave over a million low‑income renters unable to keep up with rising rents. The think‑tank calls for relinking LHA to local market rates and suggests funding the change through a higher taper rate on Universal Credit.
By Felo News Desk · Published
In a stark warning to the UK government, the Resolution Foundation has highlighted that more than 1.1 million low‑income families living in private rented accommodation could face a severe housing cost crunch if the Local Housing Allowance (LHA) is not updated in next month’s budget. The think‑tank’s new report, Saving Private Renters, shows that the LHA has been frozen in real terms since autumn 2024, while rents have continued to climb, widening the gap between what tenants receive and what they need to pay.
What the LHA is and why it matters
The LHA is a government‑backed subsidy that helps low‑income households cover the cost of private rented housing. Introduced in 2008, it was originally tied to the median level of local rents. In 2011 the benchmark was lowered to the 30th percentile, and since then the allowance has been frozen for nine of the past 14 years. The result is that the subsidy has not kept pace with inflation or the rapid rise in private rental prices.
How the gap is growing
According to the Resolution Foundation’s analysis, the average shortfall for a typical two‑bedroom flat is now £158 per week. In high‑cost areas such as London, the shortfall can exceed £300 a week. The think‑tank argues that 90 pence of every £1 of the LHA actually goes to tenants, rather than influencing landlords to lower rents. This means the subsidy is not effectively curbing the market but simply filling a widening hole.
Why relinking LHA could help
Economist Stephen Hunsaker warns that the gap between average rents and LHA levels is set to hit a record high in October, and that a failure to re‑peg the allowance could lock in a freeze for another year. He projects the shortfall could reach 30 % by March 2028 if no action is taken. Relinking the allowance to current local rents would cost the Treasury about £2 bn a year by the end of this parliament in 2029‑30.
The Resolution Foundation proposes that the cost could be offset by raising the taper rate on Universal Credit (UC). This would increase the amount of UC that is withdrawn as a claimant’s income rises, effectively transferring more support to those who need it most. The think‑tank cites survey evidence that one in five working‑age adults in families receiving housing support cannot afford to keep their homes warm, and one in eight cannot afford three meals a day.
Calls from charities and campaigners
The call to restore the link between LHA and local rents is not new. Crisis, the Joseph Rowntree Foundation and Citizens Advice have all urged the government to act. They argue that a frozen allowance is a form of hidden rent‑control that disproportionately benefits landlords by keeping rents high while tenants struggle to pay.
What the government says
Chancellor John Healey will present his budget on 28 October, amid pressure to deliver a “breathing space” for voters in the face of rising costs. A government spokesperson said that LHA rates are reviewed annually and that future decisions will be made within the broader context of welfare priorities and fiscal constraints. The Treasury will need to balance the cost of a re‑peg against other budgetary commitments, including inflation and interest‑rate pressures.
Next steps and unresolved questions
As the budget deadline approaches, the Resolution Foundation urges policymakers to act quickly. The key questions that remain are: Will the Treasury accept the £2 bn cost of a re‑peg? Can the proposed UC taper increase be funded without cutting other benefits? And how will the government address the immediate needs of the 1.1 million families who could be left behind if no change is made?
Key facts
- 1.1 million low‑income renters face a housing cost gap
- LHA has been frozen in real terms since 2024
- Average shortfall: £158/week (up to £300+ in London)
- Relinking LHA could cost £2 bn/year, offset by UC taper
- Charities call for immediate action
- Budget deadline on 28 Oct, uncertainty remains
Why it matters
A frozen housing allowance leaves millions of low‑income renters behind, forcing them to cut essentials or risk homelessness. Restoring the link could provide immediate relief and prevent a deeper crisis in the private rental market.
Frequently asked questions
What is the Local Housing Allowance?
The LHA is a government subsidy that helps low‑income households cover private rental costs, originally tied to local median rents but now frozen for nine of the last 14 years.
How will a re‑peg of LHA affect tenants?
It would increase the amount of subsidy to match current local rents, reducing the gap between what tenants pay and what they receive.
What is the proposed funding mechanism?
The Resolution Foundation suggests raising the taper rate on Universal Credit, which would transfer more support to those with the greatest need.
Sources
- [1] theguardian.com — originally reported as “‘Cost of housing’ crunch looms for low-income families, warns Resolution Foundation”
