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The increase in Local Housing Allowance rates from April only shows the widening gap between benefit claimants and other private renters.
The LHA rises for the first time in four years on April 1 with a hike that aims to make 30 per cent of homes in a neighbourhood affordable for benefit claimants.
However, a 2023 analysis of more than a million asking rents on property portal Zoopla found that just 85,000 were affordable to benefit LHA claimants.
Savills, the property consultant conducting the analysis, explained that affordability is not a problem exclusive to benefit claimants but highlights a broader gap in the housing market.
The problem arises from a lack of affordable homes to rent or buy and a spike in demand from renters and buyers.
The dilemma is that overheating demand won’t be satisfied until more affordable homes are built.
The research is against the backdrop of the LHA rising 17 per cent or £110 a month from April, compared to when rates were last increased in April 2020.
LHA caps the benefit a claimant living in a privately retained home can expect. Factors considered when calculating LHA include the number of bedrooms in the property. Another issue is whether the property is within the Broad Rental Market Area (BRMA), which maps the parameters of where LHA claimants can reasonably afford to live in a council’s area.
Separate research by the Department of Work and Pensions (DWP) reveals that 24% of benefit claimants, or 670,000 households, live in privately rented homes.
The LHA rise makes thousands of these claimants better off but still leaves hundreds of thousands trapped in the homes they already rent, unable to move because they do not earn enough to pass landlord and letting agent reference checks even with an improved LHA.
The data highlights the importance of considering benefit claimants as potential renters and the need for landlords to accept tenants who receive housing support.
The Savills report says: “Despite the LHA increase, households reliant on housing benefits face significantly reduced options in the private rented sector. This leads to increased competition for stock at lower prices and may keep households in living situations that no longer meet their needs.
”The overall benefit cap limits the total amount claimants can receive according to household composition, location, and employment status. If the benefit cap does not also increase in line with LHA, this will further reduce affordability, especially in places such as London, where high rents mean many benefit claimants are already affected by the current cap.
“The situation is likely to worsen given the limited supply of private rented homes, continued high demand, and the inbuilt shortages of homes.”
Savills also points out that reliance on private renting is the consequence of a smaller social housing sector.
Since the 1980s, the supply of affordable homes for rent has contracted by nearly half, from 31 per cent of the housing stock to 17 per cent. Housing experts have calculated that 700,000 additional social rented homes are needed to return social renting stock to the level of 1979.
Meanwhile, according to Glenigan’s Index of Construction Starts, housebuilding has faced a challenging year.
The site tracks how many properties are started by builders each month.
In the three months to the end of February, the number of private homes being built dropped 11 per cent to stand 17 per cent lower than a year ago. Social housing starts plunged by 31 per cent quarter-on-quarter and 30 per cent year-on-year.
Bad weather and a slump in the economy were blamed for the slow start to the year.