Local Housing Allowance - What is it and How can it prevent homelessness?

What is the Local Housing Allowance?

The Local Housing Allowance (LHA) is a government scheme that helps people on low incomes with their housing costs, but it is not a separate benefit.

Often paid directly to tenants who rent their homes from private landlords, LHA is based on where you live, the number of bedrooms you need, and your income.

Aiming to ensure that people can afford their rent and meet their needs, Local Housing Allowance Rates are set by the government and are reviewed annually. However this year, for the first time in four years, it has increased after many housing associations, local authorities, and housing charities have pushed the government to increase the allowance in line with fuel prices and the cost-of-living crisis.

LHA is used to work out both universal credit and housing benefits and offers three main types of rates:

• The shared accommodation rate
• 1 bedroom self-contained rate
• Or a higher rate based on the number of bedrooms you need

For more information on the eligibility of different Local Housing Allowance Rates explore Shelter’s breakdown today.

When was the Local Housing Allowance introduced?

The Local Housing Allowance started in 2008 to provide housing benefit entitlements for tenants renting in private-sector accommodation in England, Scotland, and Wales.

The introduction of the LHA brought significant changes to the way housing benefit levels are restricted and how the benefit is paid. It did not replace the original housing benefit however, it just provided a different way of calculating the entitlement under the existing scheme.

Starting at the 50^th percentile or median, this LHA rate was used from the introduction of the policy until 2011. Over the years the LHA rates have changed and now it is based on the 30^th percentile, but the LHA freeze saw these rates decrease and subsequently a rise in homelessness in the last four years.

Now, the specific rates someone is entitled to depend on the area they are making the claim in, also known as the ‘Broad Rental Market Areas’ defined as ‘where a person could reasonably be expected to live taking into account accessibility to facilities and services.’

Created by the Department for Work and Pensions, LHA rates ensure tenants in similar circumstances and areas can claim similar amounts based on their needs instead of the property so they could know in advance how much rent could be covered in a given area.

Since its introduction in 2008, it has not been as successful as originally anticipated. After its first implementation rent levels rose more rapidly in areas where the LHA was used, particularly for areas that previously how low rent prices. This, in turn, led to increased risks of homelessness, unemployment, as well as access to vital services for more vulnerable populations.

Since 2012 therefore, LHA increases have been capped year-on-year based on the rise in the Consumer Price Index. This changed how LHA rates were calculated from actual rents in a given area at a certain time, to one where the rate is based on standard increases each year.

Like other benefits a complete freeze on LHA rates was announced until 2020 was announced in 2015, but only as of this financial year, has the freeze been lifted.

What is the difference between housing benefit and local housing allowance?

Housing Benefits and Local Housing Allowance (LHA) are both types of financial assistance provided to help people with their housing costs.

Housing benefits can be used more generally referring to a means-tested benefit provided by the government to help people on low incomes pay their rent. It is both available to tenants renting to private landlords and tenants renting from local authorities or housing associations. Determined by multiple factors, the amount a person can receive depends on their income, savings, local housing market, and the rent charged by the landlord.

Local Housing Allowance, however, is a specific form of housing benefit that is used to calculate the housing benefit eligible to tenants only renting from private landlords. The amount one is eligible for is either the Local Housing Allowance Rate or the actual rent price, whichever is lower. The LHA rate is based on where you live and your household size (the number of bedrooms a household needs). How much you get also depends on your household income including benefits and pensions over £6,000 as well as different circumstances including your age and disability.

To learn more specifically about how LHA rates work visit the Gov.UK’s website today.

Local Housing Allowance Freeze – What was it and Why did it happen?

As discussed above the LHA Freeze was announced in 2015 to be frozen until 2020, however, the freeze continued throughout Covid for a further 3 years and it has only just been increased in April 2024.

In these three years, while rents have soared, only 5% of advertised rents were affordable. This, in turn, has led to private renters being pushed into homelessness because, if they’re evicted or have to move, there were hardly any affordable options available.

The cost of the freeze therefore heavily impacted struggling renters. Often renters had to cut spending on the rising cost of essentials such as food and heating leading to both food and fuel poverty.

It was estimated by Shelter that over 930,000 renters faced average monthly shortfalls of £163, leaving a huge amount to make up. Those who then sought temporary accommodation or have been forced into homelessness had to deal with extortionate bills for emergency ‘top-up’ payments.

It has also been highlighted that when forced into homelessness it gets harder to break out of the cycle. One in ten adults living in temporary accommodation have had to give up work completely and one in four have had to reduce their hours due to the unaffordable expenses on getting to and from work.  The LHA freeze therefore not only pushed more people into homelessness, it also generated huge mental and physical impacts including stress and anxiety as people worried how the next month's rent would be paid.

Equally as well as impacting individuals and their families, councils also suffered from the LHA freeze. Here the money not spent on the LHA was then spent on temporary accommodation, stretching local authorities further.

In 2022 alone, councils spent over £1.7 billion on temporary accommodation where the majority was spent on expensive bed and breakfast or private nightly rated accommodation. In comparison, this was more than double the estimated cost of restoring LHA to cover the 30^th percentile for 2023/24.

Many organsiations and housing associations also got involved in promoting the urgency to act and restore the LHA rate to the 30^th percentile, with one major organsiation being Crisis. The Crisis report made a powerful case by demonstrating the expected savings of about £250 million over six years would help 55,000 households out of poverty by 2024/25 if LHA rates were restored.

With over 100,000 households living in temporary accommodation, costs have kept escalating quickly pushing council finances to the brink. This in turn led to 119 councils writing a letter to the chancellor urging him to take action to prevent homelessness which included restoring LHA to avert local authorities declaring bankruptcy themselves.

Local Housing Allowance April 2024 – What is the increase?

In response to the increasing pressures on councils, temporary accommodation, and the number of people being forced into homelessness, the LHA Freeze was then announced it would be lifted in April 2024.

It has been estimated by The Department for Work and Pensions, 1.6 million households will gain from returning LHA to the 30^th percentile in April 2024, and that on average every household will benefit by £785 in 2024/25.

The annual cost of this increase compared to 2020/2021 levels is forecasted to be around £1.3 billion in 2024/25 and it is estimated it will gradually increase to £1.7 billion by 2028/2029, to better respond to the housing crises we are facing across the UK.

Despite there being fears some claimants, particularly families with children will not benefit in full from the increase, as they will be subject to the benefit cap, it is certainly a step in the right direction to enable better homelessness prevention which has been needed over the past few years as a direct consequence of the cost-of-living crisis.

Local Housing Allowance Changes – What are the benefits?

The changes to the LHA will in theory provide several benefits to improve the housing conditions caused by the LHA freeze. These benefits include benefits for individuals and families as well as councils, local authorities, and integrated care boards (ICBs). The table below demonstrates these benefits:

Local Housing Allowance Changes – How can Access Adam Housing help?

Now that the Local Housing Allowance isn’t frozen, there are more opportunities to support low-income families to prevent homelessness, as well as reduce the demand and need for temporary accommodation.

It is vital that despite the Local Housing Allowance rates increasing, local authorities are aware the increase will not change things overnight and again they can change at any point, so it is important to find alternative methods to better manage demands and work alongside housing associations and landlords that are fully compliant to provide safe and high-quality housing continuously.

Investing in housing management systems is just one way to digitally transform how your local authority manages housing problems across the UK.

At Access Adam Housing we are dedicated to providing a platform that has been built by experts to better facilitate housing across your community.

Here our platform streamlines applications, payments, and adjustments efficiently so you only ever work with fully compliant housing providers that match the needs of the individual or family. This, in turn, helps your local authority to maintain accurate and up-to-date records on individuals’ housing situations and the accommodation that is available to facilitate better strategic commissioning and data-led decision-making to better manage demand both now and in the future as things change.

Since WREN Housing started using Access Adam Housing, we have automatically checked over 8,500 safety certificated from over 2,300 providers which in turn has placed 6,000 households into safer and higher quality temporary housing.

Investing in digital technology therefore provides local authorities many opportunities to not only better manage the rise of homelessness, it helps initiate more proactive long-term measures to better manage local housing allowances, save costs on temporary accommodation, and then use that money to re-invest in more preventative measures to enable more stable housing and community mental health and wellbeing in the future.

Local Housing Allowance Summary

This article has addressed what the local housing allowance is, how it’s different from housing benefits, and how it's changed over time. Through explaining the history of LHS rates and the LHA freeze, we have been able to address the impacts that has had on the rise in homelessness, especially over the past few years during the cost-of-living crisis.

By addressing the changes to the local housing allowance, this article has also explained the benefits, when used properly and successfully, it can have on individuals and families as well as local authorities.

Here we explain the importance of being more proactive in overcoming the housing problems across the UK to make temporary accommodation more permanent, and that although LHA rates have increased it is vital to have alternative strategies in place to provide better homeless preventative measures.

This article explains one way to do this is through digitally transforming your housing services to better manage the changing LHA rates to commission strategically whilst managing the need for temporary housing.

Here at Access Adam Housing our unique end-to-end solution improves the procurement and management of private and temporary accommodation to give you full visibility of the available market, remove risks, as well as support your goals including provider management, green initiatives, and improve local relationships to help combat homelessness.

Learn more about how our housing management system can digitally transform your housing services today.

Contact us now and see how we can help your local community place individuals into safer and more stable housing that meets their needs quicker now.