Government must increase housing support and lift benefit cap – Shelter

New figures from Shelter reveal private renters could face a £55 million a month gap in their rent without extra support from the government during the current coronavirus emergency. The research shows the deficit between people’s rents and the welfare support available to them during the pandemic.

The press release goes on to say:

Despite the government recently increasing housing benefit levels so they cover the bottom 30% of rents, Shelter argues this is still woefully inadequate for the many renters who are paying average rents and warns that without action, a tidal wave of evictions could be unavoidable when the lockdown lifts.

Shelter’s analysis shows:

• Renters must find an estimated £13 million a week because Universal Credit is too low to cover average local rents. Many will slip into debt and fall behind on rent payments.
• This could add up to a £660 million black hole in renters’ finances over the next 12 months if the government fails to act.
• Government figures show there have been nearly two million new applications for Universal Credit in the last few weeks as people’s incomes fall, and jobs are lost.
• As many as 1.8 million privately renting households are now reliant on the welfare safety net to keep paying their rent.

The charity also looked in more detail at the shortfalls between Universal Credit and rents at a local and regional level. It found that outside of London, the shortfall a family renting a typical two-bedroom property would face can be as high as £400 a month, and in London it could be up to a staggering £1,227 a month.

For example, in Oxford a single parent with two children paying an average rent on a two-bedroom property would have to find £330 a month to top up their rent. Someone in the same situation in Manchester would have to scrape together an extra £170 a month.

Chief executive of Shelter, Polly Neate, said: “The government has rightly suspended evictions to stop people being forced out of their homes during this crisis. But struggling renters will be left with a huge black hole in their finances without more government help.

“Many people who’ve lost their jobs or seen their incomes tumble are having to rely on benefits to help pay their rent for the first time. Our services are hearing from families living in homes they used to comfortably afford, who are now in serious financial difficulty. The housing part of Universal Credit is just not enough to pay an average rent.

“With just a bit of help, they could ride out this crisis, get a new job, and move somewhere cheaper when it’s safe to do so. But without that help, we are going to see a tsunami of evictions once the lockdown ends.

“To avoid spiralling debt and people losing their homes, the government must increase housing support to cover the cost of average rents and lift the benefit cap so that people can get the support that will allow them to stay in their homes and get back on their feet.”

About the analysis

• This analysis estimates the funding gap faced by renters if local housing allowance (LHA) rates stay where they are currently (covering rent at the 30th percentile in each broad rental market area (BRMA)), compared to setting them so they cover the median rent in each BRMA.
• The estimate is based on calculations made by the Treasury in 2011 when the reduction of Local Housing Allowance rates from the median rent to the 30th percentile was announced. The Treasury estimated the annual reduction in expenditure on LHA once the change had been made in full. Taking this as the basis of our estimation, we have adjusted it to account for the change in the number of claimants and inflation in the intervening period1.

Methodology

• Take the Treasury’s projected savings and inflate it to reflect real prices. The Treasury estimated in 2010 that once the change had been made in full, expenditure on LHA would reduce by £425m in 2014/152. The figure is reported by the Treasury unadjusted for inflation. Inflation (measured by the GDP deflator) was 7.46% between 2010/11 and 2014/153. So, the £425m saving in nominal prices, would have been £457m in 2014/15.
• Use the Index of Private Housing Rental Prices (IPHRP) to uplift the estimate in line with today’s rental market. The IPHRP shows that rents in England rose by 11.09% between April 2014 and February 20204. We assume that inflation has shifted prices in the PRS uniformly and that the distribution of claimants (including new applicants) is consistent with claimants in 2014/15. This gives an updated figure for the funding gap if the number of claimants had stayed the same over time.
• To adjust for changes in claimant count, we divide this value by the number of claimants in April 2014 to calculate the gap per claimant. In 2014/15 (April) there were almost 1.4 million households receiving LHA5; this gives us an average amount per household as £363.38. We then multiply this by the number of claimants according to the latest published data, and an estimation of the number of new claimants since the beginning of March. The last published data on LHA claims (either via the legacy system or Universal Credit) shows that there were nearly 1.4 million LHA claimants, (of which 725,396 received LHA through the legacy system, and 671,625 through Universal Credit)6 in November 2019. We have assumed this has remained stable from November to March 2020.
• Data from the Department for Work and Pensions (DWP) suggest that there has been an additional 1.5 million applications for UC since the beginning of March 20207. We have assumed that these applications translate into claimants, and that the proportion of these new UC claimants who are private renters receiving the housing element of Universal Credit is the same as November 2019 – at 29%. This gives us an estimate of an increase of 430,611 LHA claimants since the beginning of March, and a total of 1,827,632 LHA claimants.
• This gives us an estimate of the funding gap faced by private renters of £664,126,774.81 a year, or 55,343,897.90 a month or £12,771,668.75 a week.
• The household benefit cap, and LHA caps further restrict the amount that private renters in need of housing benefit can receive. Therefore, the funding gap faced by private renters in need could be even higher than this estimate.

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