If you liked the cut to tax credits… you’ll love the local housing allowance freeze
20 Oct 2015
Almost 400,000 working families in England receive housing benefit (in the form of Local Housing Allowance) to help them to cope with the high cost of renting from a private landlord. These families are home to over 750,000 children. These are the exact ‘hard-working families’ in need of a bit of support to bridge the gap between wages and essentials.
Housing benefit is a lifeline for these families. They have few alternatives: They can’t move beyond commuting distance of their job. They are priced out of homeownership – even ‘affordable’ options. They can’t find anything cheaper because of our shortage of affordable homes and long waiting lists for social housing. And this is why we were so concerned when the Summer Budget announced that housing benefit would be frozen for private renters from 2015 all the way to 2020.
Most renters expect to see their rent rise most years. By freezing support, the government are gambling that this will not happen. Will the gamble pay off? The last four years suggests no. The previous government reduced Local Housing Allowance and said this would bring private rental costs down. Yet their own research found that very few landlords reduced their rents. Across the market, rents skyrocketed – in some areas by more than 8% each and every year.
With this in mind, we looked at the possible impact of freezing Local Housing Allowance rates till 2020 for a working family in a small (two bedroom) home at the cheapest quarter of the market. The state of the housing shortage suggests that rents will gather pace in the next few years. But to be cautious, we assumed that rents would rise slower than they have in the past. We were shocked at how damaging the policy could be.
Our analysis suggests that by 2020:
- Families in four-fifths of the country could see a gap between the support they need to pay their rent and the maximum support they can get. More than 330,000 working families could be hit.
- The gap between support needed and support received might be large. In almost a third of the country (98 local authorities) working families will face a gap in their support of more than £100 a month.
- The freeze will affect families across the country. The freeze will particularly effect families in pricey areas. For example, by 2020 a family in one of the cheapest homes in Hackney would have to make up a shortfall of £750 a month. But it will also affect families in job creating cities throughout England. By 2020, families living in one of the cheapest homes in Manchester or Bristol could face a gap of over £230 a month.
And many working families are not eligible for the full amount of support anyway (as it is not unreasonably assumed that they should contribute towards their rent). So they will have to find even larger sums to keep a roof over their head.
A freeze might appear less punitive than a cut. But it is a gamble that is not worth taking when the impacts combine so dramatically over time.
Housing benefit plays a crucial role in protecting working families from our broken housing market. Freezing it for four years, while doing little to stop rents continuing to rise, means that families will have to make major sacrifices to cling to their housing and hold onto their jobs. Almost inevitably, some will lose their grip.
The only effective way of bringing down the housing benefit bill is to invest in genuinely affordable homes. Especially homes for families who may not be able to buy but would struggle to cover the cost of rents in the areas they work. But, in the meantime working families must get the support they need to afford their homes.
See how the LHA freeze will affect families across England here
Find out more about our analysis here