Local Housing Allowance (LHA) goes to eligible households as part of their housing benefit or Universal Credit payment to cover housing costs if they have a private landlord.
LHA was introduced in 2008 as a way of setting the rent element of housing benefit for tenants living in the private sector. In 2011 the government reduced the LHA from covering 50% of local market rents to the 30th percentile. Following this, the link between LHA rates and actual rent increases was broken when they were uprated by the Consumer Price Index (CPI) in 2013, prior to a 1% cap on uprating in 2014 and 2015, before a four-year freeze from April 2016.
In response to the Covid-19 pandemic, the government lifted LHA rates in April 2020 to cover the 30th percentile of local market rents. However, since this point LHA rates have once again been frozen – despite a dramatic rise in rents over the same period.
Alma Economics was commissioned by London Councils to estimate the impact of ending the freeze in LHA rates on public sector finances, specifically, the additional public expenditure required to fulfil the higher LHA rates and financial savings from reduced levels of homelessness. This replicated much of the methodology applied in Alma Economics’ 2019 report for Crisis, which estimated the social benefits of a similar policy change for the country as whole. They estimate that uprating LHA to the 30th percentile would prevent an additional 16,500 to 22,000 London households becoming homeless over the next six years, leading to savings of between £80 and £107 million per year for local authorities.
The cost and saving estimates above relate solely to the impact on public finances and do not take into account the benefits to households. There are additional social welfare benefits associated with the LHA rate unfreeze, including social welfare gains from better accommodation conditions and reduced levels of poverty and homelessness. A high-level estimate implies that the social benefit for London could be in the region of £1.2 billion. Taken together with the estimated savings to the public purse, the total benefit of ending the freeze is likely to be greater than the estimated cost.
The full report is available here.
