What is local housing allowance (LHA)?
Despite a surge in unemployment rates during an already difficult period, the Government have now decided to freeze the Local Housing Allowance (LHA). This is used to calculate how much housing benefit (or housing element of universal credit) you would be entitled to when privately renting. The LHA rates are based on private market rents being paid by tenants in an area which a person might reasonably be expected to live. The rates are limited by legislation and the number of rooms and household needs are taken into consideration.
Many private renters are reliant on universal credit or housing benefit to assist with rental payments. The LHA was initially increased during the first wave of the COVID-19 pandemic, to take account of the financial impact of the pandemic and the fact that more and more people would be reliant on state support. This was largely welcomed amongst vulnerable renters and landlords, both of whom have been left struggling during the unprecedented times.
The stark reality
In its report, the Office of Budget Responsibility said the recent decision to freeze the allowance in cash terms meant the original £1bn cost of the measure in 2020/21 would decline to £0.3bn by 2025/26 and LHA rates would fall back below the 30% of cheapest local rents over time. The effect of this will be to render the majority of private rented properties unaffordable to those reliant on benefits, at a time when numbers of those without employment is on the rise.
This news is therefore hugely unwelcome as individuals will likely see a mighty shortfall in their income against rent. The decision to freeze LHA will have disastrous consequences and coupled with a rise in unemployment, will surely lead to a ripple effect causing a rise in evictions and homelessness.
Unsurprisingly, the decision was met with backlash from both sides of the rental market. Ben Beadle, Chief Executive of the National Residential Landlords Association, stated “Many renters and landlords are struggling with the consequence of rent arrears through no fault of their own, yet the government is failing to take the action needed to address this.” Ben Beadle further adds “Whilst the chancellor has spoken about the need to support those who find themselves homeless, it would be much better for all concerned to provide the funds needed to sustain tenancies in the first place.” This is surely a common sense approach: providing funds and assistance to tenants now, specifically those who are already struggling will help combat the large increases in homelessness and evictions. In turn, landlords will receive their rental payments.
These changes could affect many people in the upcoming months as recent analysis from the Joseph Rowntree Foundation showed that already around five percent (200,000) of households in the private rented sector are in arrears.
Further to this, the freeze will negatively impact local authorities as they are likely to struggle to secure affordable private accommodation for those who require housing when the rates fail to match the rents. Therefore, those who become homeless are far more likely to be placed in unsuitable accommodation as local authorities struggle to source affordable properties.
We at Hodge Jones & Allen add our voices to calls for the Government to rethink the decision to freeze the LHA. The only effect of this in the current climate can be to plunge more and more people into arrears and to increase the number of evictions. This does not serve anyone.
Until such a U-turn takes place, if you are a private renter and relying on either housing benefit or universal credit and find that you are struggling to pay rent, it is important that you liaise with your landlord and inform them of the situation. Should your landlord decide to issue possession proceedings if you fall behind on rent then please seek legal assistance as soon as possible.