Landlords who let properties to social tenants are facing a notable financial gap. Despite an effort to increase housing benefits, there is still a substantial shortfall landlords must contend with. The core issue is that the rise in housing benefits is insufficient to cover the rapid increase in market rents over the past four years. This gap poses a challenge for landlords, who may find themselves receiving rent below market rates or dealing with tenants at risk of falling into arrears.
Key Statistics and Facts
- The annual shortfall for landlords on new lets to social tenants is approximately £1,700.
- Housing benefits will only cover a third of the rent increase seen over the last four years.
- Local Housing Allowance (LHA) rates, which determine housing benefit amounts, will increase in April 2024 to cover rent on the cheapest 30% of homes in each area.
Understanding Local Housing Allowance (LHA) Rates
The LHA rates, frozen since the pandemic began, are set to undergo a significant change. Previously, these rates covered only the cheapest 5% of newly listed properties. The planned adjustment in 2024 aims to expand this coverage to the cheapest 30% of properties, based on current rents. However, there’s a catch: this increase will be based on an average rent growth of about 12.5% since September 2019, which doesn’t fully reflect the actual market dynamics.
The Real Impact on Market Rates
The average increase in market rates for newly let properties has been nearly three times the basis for the LHA rate increase, at about 33%. This discrepancy means that, even after the LHA increase, the monthly housing benefit for a two-bedroom home will be £143 less than the market rate for a newly let home. Over a year, this equates to a shortfall of £1,716.
Landlords’ Perspective and Challenges
Landlords, particularly those with tenants on benefits, face difficulties in charging more than the LHA rates. Tenants often cannot afford to pay more, leading to constraints for landlords in terms of rent adjustments. For instance, in Nottingham, landlords like Adam Kingswood and Mick Roberts highlight the struggle to align rents with market rates while ensuring their properties remain affordable for tenants on benefits.
The Nottingham Case Study
- The average rent for a two-bedroom home in Nottingham is £800, but the LHA is only £550, rising to £620 after the increase.
- Despite the rise in LHA, landlords will still experience a shortfall of over 20%.
Future Projections and Concerns
Looking ahead, the situation may become more challenging. Capital Economics forecasts a further rent increase of 7.7% in 2025-26. However, the LHA rate adjustment in 2024 is a one-off event, with rates expected to freeze again from 2025-26, potentially leading to an even larger shortfall.
Government’s Stance and Support Measures
The Department for Work and Pensions (DWP) has responded to these concerns. They argue that the £1.2 billion increase in LHA will make around 1.6 million households £800 per year better off. However, the government’s approach does not aim to cover all rents in every area. The DWP points to other forms of support, including a £30 billion investment in housing support this year and the availability of Discretionary Housing Payments as a safety net.