Mind the gap: frozen housing benefits increase risk of homelessness

Local Housing Allowance (LHA) rates have been frozen for three years, despite year on year increases to costs in the private rental sector. As the gap between housing benefit and rental prices grows, risk of homelessness increases.

A housing affordability crisis

Housing affordability has worsened over the last 25 years. The Office for National Statistics reports that in 1997, full-time employees could expect to spend less than five times their annual earnings when buying a home in 89% of local authorities. By 2022, only 7% of local authorities had this level of affordability. House prices have increased at a far faster rate than annual earnings, and in the current cost of living emergency the housing crisis is becoming more acute.

As the affordability of home ownership declined, so too has the affordability of the private rental sector. In the 12 months up to February 2023, private rental sector prices have risen by 4.5% in England. Exclude London, and that figure jumps up to 4.8%. This is the highest annual percentage change recorded since 2016. It is perhaps no surprise then that median monthly rent is also currently at the highest ever recorded: a staggering £800 a month.

So what does this mean for the people of Greater Manchester?

Median house prices are around 10.6 times greater than median workplace earnings for residents of Trafford whereas in Wigan, they are around 5.8 times greater. Within the region, Manchester has seen the greatest relative change in affordability since 1997. If you are renting in the private sector, the median monthly rent for a two bedroom property in Greater Manchester is currently £725, varying from £525 in Wigan and Rochdale, to £900 in Manchester. Add a third bedroom and this climbs to £1,050 in Manchester. Move to Trafford and this will set you back by £1,200 a month.

What does this mean for risk of homelessness? While unaffordable and precarious housing are not the only drivers of homelessness, they do play a significant part. As the gap in affordability grows, so does the importance of meaningful policy interventions. The Spring Budget however, was a missed opportunity to address some of the precarity and risks of our deepening housing crisis. Though a lifeline to struggling households was thrown in the form of reforms to childcare provision and energy support, not enough was offered to struggling private renters. With rental prices increasing at record levels, the consequences of this gap in policy will be substantial.

Frozen support, spiralling costs

Local Housing Allowance (LHA) rates determine the amount that people in private rentals are able to claim from the welfare system to help them pay their rent. LHA rates vary according to the local housing market and were intended to make the cheapest 30% of the local private rental stock accessible for people claiming housing benefit. These are set by central government and when first introduced, were intended to update annually allowing for the sort of yearly change we see in our housing markets.

Since April 2020, LHA rates have been frozen. Housing prices, however, have not. Research commissioned by Greater Manchester Combined Authority analysed new private tenancies in the city region between May and October 2022. The findings suggest only 4% of new tenancies in Greater Manchester were within LHA rates. This means that only 208 new tenancies were affordable to people in receipt of housing benefit. To bring current LHA rates in line with the cheapest 30% of the local market, the research concluded that rates would need to rise between 19% and 46% depending on the location and property size.

Minding the gap?

The concessions to the cost-of-living emergency made in the Spring Budget will ease some of the financial pressures on households across our city region, but they did not go far enough. Where housing benefit meets the costs of just 4% of new tenancies, more and more people will be forced to make unsustainable choices about how they make their rental payments. For some, this might mean a choice between heat or food, for others this may be the difference between maintaining or losing their home.

Greater Manchester is amongst those leading the way in tackling homelessness and rough sleeping, with major investment into the unrivalled A Bed Every Night behind preventing the sorts of increases to rough sleeping seen nationally replicated in our city region. But as the pressures on households mounts, so too will the pressures on the support networks and services for people at risk of or currently experiencing homelessness. Removing the freeze on LHA rates and opening up 30% of the private rental sector to households enduring a cost of living emergency is urgently needed. Mind the gap now, or deal with a looming chasm.

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