We are in the midst of not just one housing crisis, but multiple overlapping crises. As interest rates have soared, attention has understandably focused on the explosion of the mortgage “timebomb”; the 4.2m households in Britain who have had their mortgage rates change and face sharp increases to their repayments, as well as the 3.3m households yet to do so. But another of our housing crises – that faced by low-income private renters – also made a rare foray into the limelight this week.
While the chancellor, Jeremy Hunt, has uprated other forms of social security with inflation, housing benefit for private renters – through a mechanism called local housing allowance (LHA) – remains frozen at 2020 levels. As a result, the Institute for Fiscal Studies has found that LHA covers only 5% of private rentals.
Since April 2020, UK rents have increased by almost 10%, with tenants expected to bridge the difference. Those who can’t must find cheaper accommodation, which often means poor-quality housing; about 600,000 privately rented homes pose a serious and immediate risk to health and safety, with issues such as damp and mould. The LHA freeze is driving already vulnerable tenants into more dangerous homes that are more expensive to keep warm.
Worse still, many cannot find anywhere affordable to live, contributing to rising homelessness. More than 100,000 families in England, including more than 125,000 children, live in temporary accommodation, the highest figure in 20 years. Renting privately is no longer a staging post, allowing young people to save for a deposit before owning their own home. Nor is it just for those who want flexibility. The number of renters has more than doubled in size since the late 1980s, and renting has become a quagmire in which millions are stuck.
It traps even those with high incomes, who cannot save enough for a deposit and for whom the idea of home ownership feels like a cruel joke. And the failure to replace the more than 2m homes lost through right to buy means the security of a social tenancy is an elusive aspiration for low-income households. There are millions of private renters who shouldn’t be renting, and who should instead be enjoying security of tenure either as homeowners or social tenants.
After rent controls were abolished in the late 1980s, the then housing minister, Sir George Young, dismissed concerns about rising rents by pledging that “housing benefit will take the strain”. And so it came to pass. For many landlords, taxpayers’ cash became a business strategy. Over the next four years, taxpayers will pay private landlords five times more in housing support than is spent on affordable housing development. In effect, we are all subsidising the private rental sector. Across the OECD, the UK spends by far the highest proportion of its GDP on housing support.
But over time the burden has shifted on to tenants. The coalition government cut LHA so that it covered only the bottom 30% of rents, and ministers have repeatedly frozen rates since 2016. Now it is both taxpayers and tenants who are taking the strain.
If done right, the renters’ (reform) bill will empower tenants. But it will do little to address the affordability of their homes. Three-fifths of private renters cannot afford a decent standard of living, partly because of the LHA freeze. In England, private tenants spend about a third of their income on housing costs, the highest across the tenures. Policymakers must look closely at rent controls. LHA too must be unfrozen immediately.
But we must go much further. Our housing system needs to be fundamentally rebalanced, and the private rental sector needs to play a smaller role. We must build new homes, particularly social homes, to rise to the challenges of homelessness and overcrowding, and deliver affordable homeownership.
Labour’s proposed land reforms are potentially transformative. These must be supplemented with new powers and resources for councils, housing associations and grassroots housing groups to buy properties from landlords wishing to sell or who let out substandard homes. These are proposals we have been working on at the New Economics Foundation, aspects of which have been mooted by Andy Burnham this week.
As well as tackling homelessness and council waiting lists, a housing acquisitions programme of this type could also regenerate left-behind communities, and deliver jobs, economic growth and pride of place in empty streets that have been ignored for decades. Put this together, and we can see a glimmer of light at the end of this long, dark tunnel. Unfreezing LHA to reflect the real costs that tenants face, which would help prevent homelessness, is just the start.
Alex Diner is a senior researcher at the New Economics Foundation
