January 2024 sees Council Housing Benefit or Local Housing Allowance rise.

In a significant move, the Government, in its 2023 Autumn Statement announced the end of a four-year freeze on rates for Local Housing Allowance (LHA). This allowance represents the maximum amount individuals renting from a private landlord can receive in Housing benefits or Universal Credit, and its halt has severely impacted thousands of renters.

On January 31, the new rates for 2024-25 were officially announced, bringing a much-needed ray of hope for renters. These rates indicate an average increase of 17 percent, translating to an additional £110 per month for those receiving LHA. This adjustment is expected to significantly ease the financial strain for renters nationwide, offering some respite from their escalating housing costs.

Council Housing Benefit or Local Housing Allowance has been frozen since 2020

Before this, the last rate adjustment occurred in April 2020. However, the LHS freeze has become increasingly unbearable given the rise in the cost of living and the fact that rents in the UK have surged by an average of 29 percent in the same period up to November 2023. This sizeable increase underscores the severe and ongoing imbalance between demand and supply in the rental market. It poses continuous challenges for individuals dependent on housing benefits to secure affordable housing within the highly competitive private rented sector. Often, there is no alternative since council house building effectively ceased for decades, and many housing associations appear to be building more for sale than to rent and have to face substantial upgrade programs, leaving them little opportunity to increase building.

The recent rate hikes follow the latest research by London Councils, which delved into the state of the private rented sector in London.

Analysis: What percentage of UK houses are affordable for those on Council Housing Benefits or Local Housing Allowance?

The findings revealed a decline in affordability, with only 2.3 percent of new rental listings in 2022-23 deemed affordable for individuals dependent on housing benefits. This marks a significant drop from the 18.9 percent affordability rate recorded in 2020-21. Their analysis extended across England and uncovered a concerning disparity. Non-benefit-capped claimants could only afford the most economical 3 percent of homes listed for rent in 2022-23. This finding starkly contrasts with the initial goal for Local Housing Allowance (LHA), which is supposed to encompass the least expensive 30 percent of homes.

The most significant increases in rates are observed for shared accommodation, rising by 21 percent, followed by 4-bed properties with an 18 percent increase. The 1-to-3-bed properties will see a 16 percent increase compared to current rates. Despite these increments, they remain markedly lower than the overall surge in average rents. Certain areas in London and the South will experience the most substantial annual increases in terms of monetary value. However, when considering the proportion relative to already elevated rents, the rise in LHA rates in London is comparatively modest, standing at just 14 percent, lower than the national average.

Analysis: end of Housing Benefit freeze: which area in the UK will have the most significant rise as a proportion of rent?

As a proportion of current rents, Bristol will experience the most substantial average increase at 34 percent, translating to an additional £293 monthly. This aligns closely with the surge in private rents, which have grown by 33 percent since November 2023. Manchester follows closely with the second-highest increase of 32 percent, amounting to £221.

Analysis: rental growth versus Council Housing Benefit or Local Housing Allowance growth from 2020 to 2024

However, these increases must catch up to the 36 percent rent growth during the same period. Similarly, Glasgow expects a significant increase of 32 percent, equivalent to £223, yet this remains considerably lower than the 46 percent growth observed in private rents. In Scotland, implementing rent control policies has inhibited market supply, contributing to sustained growth. Despite significant rental growth in many areas, the increases in Local Housing Allowance (LHA) rates will be relatively low, highlighting the disparity between the two.

For instance, in Ceredigion, Wales, Darlington, Dumfries, and Galloway, rates are set to increase by just seven percent, resulting in less than a 30-month increment. However, rental prices in these areas have surged by 20 percent, 16 percent, and 12 percent, respectively, since the last rate adjustment, underlining the challenges faced by renters in these regions.

The Impact of the End of the LHA Freeze on Renters and Housing Affordability

The end of the Local Housing Allowance (LHA) freeze in January 2024 brings significant relief to renters who have been struggling with rising housing costs. With the increase in LHA rates by an average of 17 percent, renters will see an additional £110 per month in support, easing some financial strain. However, despite this increase, the LHA adjustments remain insufficient compared to the surging rental market, with average rents rising by 29 percent from 2020 to 2023. Areas like Bristol and Manchester will see the highest proportional increases, but these still fall short of addressing the full disparity between the cost of living and the available housing benefits. The challenge of securing affordable housing for LHA recipients remains ongoing, as only 2.3 percent of new rental listings in 2022-2023 were affordable for those relying on benefits, highlighting the continued need for broader housing policy reforms.