The Landscape of Local Housing Allowance (LHA)
Let’s delve into the curious case of the Local Housing Allowance Rates (LHA), the primary determinant of housing benefits for tenants in the private rented sector.
Back in 2020, responding to the global health crisis, the LHA saw a historic rise, adjusted to cover the 30th percentile rent in each Broad Rental Market Area (BRMA). This theoretically made 30% of rental homes affordable for households relying on housing benefits.
LHA Rates Freeze Vs. Escalating Rents
However, since then, LHA rates have been stuck at 2020-21 levels. The fallout? In the face of soaring UK rents – a whopping 21.5% increase from March 2020 to 2023, these fixed rates have struggled to cover new benefit claimants’ rents in 2022-23.
On top of this, there have been fewer homes available for rent in the open market since 2017. This has made renters compete more for the shrinking number of available properties.
The Impact on Renters
In 2022, 10.1% of private renters in England relied on housing benefits. Local authorities such as Blackpool, Enfield, and Tendring saw more than 24% of private renters claiming housing benefits. In contrast, Islington, Cambridge, and Southwark all saw less than 5% of private renters claiming housing benefits.
Savills’ analysis of Rightmove listings for 2022-23, covering 889,922 asking rents, revealed that while 10.1% of private renters depended on LHA, only 3% of new rental listings were affordable for these non-benefit-capped claimants.
The Real Estate Maze
The quest for affordable rental listings turns out to be most promising in Scunthorpe, with 20.4% of listings deemed affordable. It is followed by Teesside at 13.1%, and Bath at 10.3%. The reality, however, is grim in Kent and Sussex, where less than 1.2% of listings are affordable.
The impact of the pandemic turned certain areas into real estate hotspots, causing an unprecedented surge in house prices and rents. For example, Thanet and Dover saw rental growth of 28.2% and 25.2% from March 2020-23, surpassing the South East average of 19.2% and the UK average of 21.5%.
The Housing Benefit Shortfall
Measuring the proportionate affordability of rental listings for those claiming housing benefits paints a stark picture. According to Savills, only 22 out of 308 local authorities had a satisfactory proportion of stock available. Unfortunately, 235 local authorities had a shortfall of up to -10%, with 51 witnessing a shortfall of over -10%.
The Road Ahead: Rethinking LHA
The present rental market dynamics put a strain on LHA recipients, forcing them into a fierce competition with other lower-income groups. The lack of affordable options is nudging many to compromise on their housing needs or stretch their budgets amidst escalating cost of living pressures.
As LHA remains frozen at 2020 levels for 2023-24, the proportion of affordable properties is likely to decline further.
Bottomline: Balancing Supply and Demand
The increasing reliance on the private rented sector amidst dwindling social housing availability calls for a balanced approach to supply and demand. A timely policy intervention is needed to relieve the pressure on the private rental market and provide much-needed affordable housing.
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