The government has been urged to commit £6bn at the upcoming Budget to tackle unaffordable UK rents faced by millions across the UK.
More than 1.1 million low-income tenants are facing a “cost of housing crunch”, according to a new report from the Resolution Foundation, as the gap between rental costs and housing benefits continues to hit record highs.
The influential think tank is calling on Andy Burnham and new chancellor John Healey to use next month’s Budget to intervene by relinking the benefit rates to local market prices.
The formula used to calculate housing benefit levels – the Local Housing Allowance (LHA) – has been frozen since April 2024. The mechanism is designed to ensure benefit levels are in line with at least the lowest 30 per cent of rents in any local area.
But market rents have continued to surge, the shortfall between LHA rates and the affordable rents is set to hit a record 23.3 per cent in October, the Resolution report warns. This means a shortfall of around £200 a month for renters in London, and £100 a month for the rest of the UK.
If left unchecked, this gap could rise to 30 per cent by early 2028, researchers forecast, increasing the London shortfall to £260 a month and the UK-wide figure to £130.
Recent research from Citizens Advice and Crisis found that less than 2 per cent of properties in the UK are now considered affordable for renters on housing benefits.
Official findings show that renters are increasingly being forced to forgo the essentials to meet costs, with over half (58 per cent) of working-age adults in private tenancies on housing support in material deprivation in 2024/25. One in five were unable to keep their homes warm, and one in eight unable to afford three meals a day.
Addressing criticism that unfreezing the LHA would prompt landlords to hike rents, Resolution analysed the April 2024 relinking, finding that just 10p of every additional pound in support resulted in higher rents at the bottom of the market.
This increase also resulted in an immediate reduction of over 150,000 Universal Credit households struggling with a rental shortfall.
Stephen Hunsaker, economist at the Resolution Foundation, said: “The gap between average rents and Local Housing Allowance levels is set to reach a record high this October, and failing to repeg LHA to actual rents in next month’s Budget could lock in a freeze for another year, and see the gap reach 30 per cent by March 2028.
“Rather than primarily benefitting landlords, our new analysis shows that the last time LHA was repegged to local rents in April 2024 it was tenants that benefited, with the fraction of LHA recipients facing a shortfall between their rents and the amount they could claim dropping significantly.
“With many tenants receiving housing support already going without essentials to pay their rent today, the Government should restore the automatic annual linking of LHA to relieve the pressure on low-income families in the private rented sector.”
The think tank has urged the government to spend £2bn annually to relink LHA to local market rents and restore the automatic annual adjustments. This would cost £6bn to 2029/30.
It echoes calls made by many housing campaigners, who argue that the policy continues to put pressure on renters and place them at risk of homelessness.
Mairi MacRae, director of policy and campaigns at Shelter, said: “Caught between an escalating cost-of-living crisis and skyrocketing private rents, families should be able to rely on housing benefit as a safety net to help cover costs. Yet with the freeze on housing allowance, thousands are left desperately grappling to plug the gap between their income and rent.
“Families are being forced to make impossible choices daily between feeding their family or paying their rent. Tens of thousands are stuck homeless in grim temporary accommodation for months or even years on end because there's nowhere affordable for them to move to.”
The Independent has contacted the government for comment.
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