Housing Benefits Insufficient to Cover Housing Costs – The LHA Shortfall
Step by Step Partnership Ltd
Empowering young people facing adversity, including homelessness.
It’s a paradoxical situation. The standard rate of housing benefit is too low to pay for even the most basic of rented rooms or flats. For most people on Universal Credit, the Local Housing Allowance (LHA) falls short of covering their rent, leaving a gap that has to be plugged with money from elsewhere – money that is needed for bills, food and the basic necessities of life.
Young people are particularly affected by this Local Housing Allowance shortfall, particularly as those under 25 years old receive a lower rate of Universal Credit.
We take a look at this burgeoning crisis, drawing upon recent research, the stories of those affected, and the experience of front line staff at Step by Step – a charity that supports young people facing the devastating effects of homelessness.
We will also consider what can be done to address this situation; whether there is a way forward where the funding afforded to the most vulnerable in society is sufficient to put a roof over their heads.
What is Local Housing Allowance?
Local Housing Allowance (LHA) rates are used to determine how much housing benefit a claimant receives. The rate is worked out by looking at the rents charged by private landlords in the local area.
LHA is usually paid as a component of Universal Credit, specifically to cover accommodation rent.
While the idea behind Local Housing Allowances is a sound one, and it makes sense to match housing benefit payments to what one could expect to pay in a given area, it only works if LHA rates match the actuality of the local rental market. Where there is a disconnect between housing benefits and real-life rent payments, people are left struggling to afford even the most basic of accommodation.
The Local Housing Allowance Shortfall
The reality is that for most people, the housing benefit they receive is not sufficient to cover their rent.
The Guardian(1)?recently reported that the average housing benefit by a UK claimant is ￡95.77 a week. That’s less than ￡400 a month. Compare that to the average room rent in the UK (as per SpareRoom.com(2)), which is ￡683, and it’s not hard to appreciate a huge shortfall. This leads to people having to use the rest of their benefits to top up their rent, sacrificing money that is needed for other essentials.
To give an idea as to the extent of this problem, homelessness charity Crisis(3)?found that just 8% of properties are affordable for people on housing benefit, and that the average household living in a one-bedroom rental faces a shortfall of over ￡950 a year.
The Institute for Fiscal Studies (IFS)(4)?reports that the LHA shortfall is a result of the Government’s decision to freeze the rate for several years, therefore causing LHA to become out of synch with rising rents, and causing the gap to widen in real terms.
During the COVID-19 pandemic, the Government increased the rate of LHA as part of its Everyone In policy. However, in the years since, the Government has reintroduced the freeze on LHA rises. According to Byline Times(5), the current freeze is to be in place until 2025/26, which will see the shortfall widen further unless there is a dramatic fall in rental prices.
Young People Particularly Affected
Those under 25 years old get a lower rate of Universal Credit than their older peers. The Gov.uk website(6)?states that the rate for a single person under 25 is ￡292.11 a month, versus ￡368.74 for a single person 25 or over. That’s a difference of ￡76.63 a month.
This immediately puts younger people at a disadvantage where there is a shortfall in covering the rent and they have to dip into their reduced benefits. The Government’s stance is that under 25s are more likely to be supported by family and so do not require the full rate of Universal Credit, but this is not borne out by the findings of charities that support vulnerable young people.
Centrepoint(7)?conducted a survey of 215 young people supported by homelessness organisations across England. Their findings are sobering, including 65% of respondents saying they have fallen behind on rent or essential bills due to lack of money while receiving benefits, and 40% reporting that they have had to take out a loan or use an overdraft to cover costs.
Citizens Advice Scotland(8)?paint a similar picture, and go so far as to suggest that the benefits system is discriminatory on the basis of age.
Young people are likely to rely on benefits because they are still in education, have reduced earning power, or might be estranged from parents or other support networks. Through no fault of their own, they find themselves relying on a Universal Credit payment far lower than the over 25s. Their situation is compounded by a rental market that is already stacked against them.(9)
With reduced income and unaffordable rents, homelessness is a very real prospect for such young people. The National Leaving Care Benchmarking Forum(10)?conducted a survey of 461 care experienced young people, with 31% of respondents saying they were at risk of homelessness due to struggling to pay rent.
Chris Furness, a Support Worker at youth homelessness charity Step by Step, sees this issue first-hand. “Many young people simply can’t afford to live independently once they move on from us. I know of some who have gone back to sofa surfing.”
Corrine’s Story
Corrine had to leave home when her mum kicked her out. She was offered accommodation with Step by Step’s Supported Lodgings. The placement gave her the care and support she needed; the problem was when she was ready to move on.
The Local Housing Allowance in Corrine’s area is ￡342 a month, while the average rate for a single room in a shared house is around ￡550 a month. She would have to make up the shortfall out of her Universal Credit payments, which would leave her with very little to cover food and bills.
Landlords appear to be aware that rent is simply not affordable on Universal Credit. Most do not respond to Corrine’s enquiries when they find out she receives benefits.
The View from the Front Line
The experience of Step by Step suggests that the Local Housing Allowance shortfall is having a considerable, demonstrable effect on some of the most vulnerable young people in society. The charity has found it increasingly hard for young people to move on to independent living. The housing options available for them are often simply non-existent.
Support Worker Chris exemplifies the issue. “I work with young people in Gosport, Hampshire. Local Housing Allowance for this area, for a single person who’s not a care leaver, is ￡78.81 per week. The lowest rent within 20km of Gosport is currently ￡89 a week, and that’s for a tiny top-floor bedsit.
"After covering the shortfall in rent, a young person would be left with just ￡68.62 of Universal Credit a week to pay for utilities, bills, food, toiletries, clothes and transport.”
Young people are typically supported by the charity for six to twelve months. However, because moving on to independent living is so difficult, the charity has to work at finding move on accommodation from the moment the young person arrives.
“We can’t control rents or LHA so there’s not much we can do other than make young people aware of the need for extremely careful budgeting,” Chris explains. “We have to encourage them to start looking for a place as soon as they move in with us.”
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Step by Step offers two models of accommodation for young people experiencing homelessness: Foyers, where young people live communally with access to shared facilities and 24/7 support; and Supported Lodgings, where young people live in the community with host individuals or families. Foyers are officially classed as Supported Accommodation under government definitions, and so are eligible for an enhanced rate of LHA. This just about covers the rent for the young people living there.
However, the charity’s Supported Lodgings service doesn’t meet the criteria for the enhanced rate and so experiences the LHA shortfall. This means it can’t pay its hosts the rate they would get if they were to take on a private lodger instead. The makes recruiting new hosts – essential to the running of the service – increasingly difficult.
“This is a major issue for us right now,” explains Kelly Headen, Head of Fostering and Supported Lodgings. “We set rent at the LHA rate, but hosts know that by renting privately they could get considerably more. If the LHA reflected the current area living costs (as it should), then this would reduce the risk to our service.”
Rhys’s Story
Rhys was made homeless at just 16 years old. Step by Step was able to give him a place in Supported Lodgings living with a host family. He had a very complex background and a high level of need, so was offered one-to-one specialist support.
Rhys made fantastic progress while in placement, and by the time he was 18, was stable enough to move on to independent living with minimal ongoing support. As a care leaver, he was given priority and offered a one bedroom flat via the council.
However, during the checking and referencing process, the Housing Association looked at the income he received from Universal Credit and decided not to offer him the flat. They calculated that the social housing flat was beyond his means and he would not be left with enough money to live on.
Kelly Headen commented: “I found this just unbelievable – that the benefits given to vulnerable people are not enough to cover the social housing that exists to support the same vulnerable people.”
A Growing Issue
Figures from the Office of National Statistics(11)?show that the average private rental price in the UK rose by 4.8% in the 12 months to April 2023. This continues a series of year-on-year increases since a relative plateau in 2020 and there’s nothing to suggest this trend won’t continue. Indeed, the Independent(12)?suggest that current high interest rates will lead to landlords selling up, meaning a reduced pool of available rentals and therefore an increase in rental prices.
Shockingly, specialist broker Finanze (quoted in the FT Advisor(13)) predict UK rents will rise by an average of 12.91% in 2023.
Against a backdrop of increasing rent costs, there are currently no plans for the government to increase the rate of LHA, despite the fact that by its very definition, LHA is supposed to reflect rent prices. With this being the case, it’s hard to imagine the near impossible situation for many young renters improving any time soon.
Potential Solutions
Drawing upon their extensive experience in housing and homelessness, Step by Step suggest four ways in which the LHA paradox might be resolved.
1. An increased supply of affordable accommodation
This is the longer term solution and something which most stakeholders have no control over. Supply and demand dictates that the more abundant something is, the less costly it is to attain. The availability of more affordable accommodation would mean more options for those with lower means, particular young people just starting out on their journey.
2. Local Housing Allowance increased to match rental prices
The most direct and immediately implementable solution would be to quash the freeze on LHA and rise it to meet real-world rental costs. This is no more than the very thing the LHA was introduced to do.
The House of Commons’ Levelling Up, Housing and Communities Committee(14)?agrees that LHA should be realigned with actual rents
3. Allow under 25s to receive the higher rate of Universal Credit
Young people under 25 years may still experience the same high rents, bills and general living costs than their older peers, so the amount of Universal Credit they receive should reflect this. A lower rate of Universal Credit increases the rent shortfall for a group struggling to start out on their own.
4. Extend the criteria for Supported Accommodation enhanced LHA
Accommodation models such as Step by Step’s Supported Lodgings are not currently recognised as what the government terms ‘Supported Accommodation’. As a result, they are not eligible for the higher rate of LHA that would be available if they met the classification criteria.
The Supported Housing Blog(15)?agrees that “the supported housing component of Universal Credit should be payable to all supported housing providers, regardless of legal identity, provided that they are properly regulated and they generate value”.
This would level the playing field for providers and mean fewer have to contend with a rent shortfall.
An Untenable Situation
The Local Housing Allowance was introduced to match housing benefits with average rents in a given area. Unfortunately, it is failing to do that. While the government has frozen LHA, rents are spiralling ever higher, and the gap between housing benefits and housing costs is growing ever larger.
This is clearly an untenable situation. There is something inherently wrong with a system where low income renters – and in particular young people – cannot pay for even the most basic room with the money they are given for housing.
The solutions to this paradox are clear. Fundamentally, the unfreezing of the Local Housing Allowance so it can do what it was introduced to do. And protect those on a low income it was intended to protect.
References
Director @ PM Renovations ltd | Property Developer, Investor | ￡4.5m property portfolio in 5 years
1 年Having worked in children’s Social care for 25 years… and now a full-time landlord/ developer, the only people losing out are the renters, care leavers will be hit the hardest unless their placed with supported housing providers and have access to additional funding which could allow top ups to cover rental costs. The only accommodation available to renters will be the substandard accommodation, with the tired landlords, this too has an impact on the renters mental health. With the mortgage increases and the stress testing imposed by the Government and lenders the impact of section 24, has meant landlords have had to increase their rents to cover the costs… or sell, and this in turn has seen landlords leaving the market. Which will add to the situation. The increase in building materials , costs of living and lack of trades availabe has also seen less properties coming to the market. Once again the governments short term views have a huge impact! The LHA rate offered does not cover the market rental, and example of this a 1 bed flat in outer London is ￡875 and the market rent in same area is ￡1250-￡1350 where does the government think the tenant with find the extra ￡375-￡475 a month?