Landlords with social tenants are facing a £1,700-a-year shortfall on new lets

Landlords who rent to social tenants will face a £1,700 annual shortfall on new lets despite the Chancellor’s attempt to increase housing benefits in his Autumn Statement, the Daily Telegraph reports.

The local housing allowance (LHA) rates, which determine the amount of housing benefit claimants receive, will be raised in April 2024 to cover rent on the cheapest 30% of homes in each area, Jeremy Hunt, the Chancellor, announced last week.

But this increase will only cover a third of the rent growth since 2019, leaving landlords with a choice between accepting lower income or risking tenants falling into arrears.

Rates have been frozen since the pandemic began

LHA rates have been frozen since the pandemic began but record levels of rent growth since 2020 have meant that they are now out of kilter with what is available on the market.

Now, instead of covering the cheapest 30% of homes, housing allowances only cover rent on the cheapest 5% of newly listed properties, according to property website Zoopla.

Mr Hunt’s latest decision means the LHA increase will be based on average rent growth across all properties since September 2019, which is around 12.5%.

Andrew Wishart, who runs the housing service at Capital Economics, said the average increase in market rates on newly let properties was nearly three times this at 33%.

Monthly housing benefit payment

This means that even after the increase in LHA, the monthly housing benefit payment for a two-bedroom home will still be £143 less than the market rate for a newly let home, Mr Wishart said.

Over a year, this will amount to a shortfall of £1,716.

Capital Economics has forecast that rents will rise by a further 7.7% in 2025-26, but next year’s LHA uprating will be a one-off, with rates frozen again from 2025-26.

Mr Wishart told the Telegraph: “This will generate a fresh shortfall.”

Rent gap will put pressure on both landlords and tenants

The rent gap will put pressure on both landlords and tenants, especially in areas where demand for social housing is high and supply is low.

Landlords may be reluctant to let to social tenants, reducing their options and increasing their vulnerability to homelessness.

Tenants may struggle to pay the difference between their benefit and their rent, leading to debt and eviction.

The National Residential Landlords Association (NRLA) has called for LHA rates to be reviewed annually and to reflect the realities of the rental market.

A landlord with a tenant on benefits

Adam Kingswood, of Kingswood Residential Investment Management in Nottingham, says that a landlord with a tenant on benefits will struggle to charge more than LHA rates because the tenant cannot afford to make up the difference.

Mr Kingswood said: “We have landlords who want to increase rents because rents have increased by about 10% in the last year and their costs have increased.

“But the tenants are already using all of their housing benefit and say they will not be able to feed their children.”

Mick Roberts, a large portfolio landlord in Nottingham, told the Telegraph: “The average rent on a two-bed in Nottingham is £800. The local housing allowance is £550. If that goes up to £620 I’m still more than 20% short.”

Mr Roberts says the rents for his social rent properties will rise in line with the LHA increase but this will make up for part of the market rate shortfall.

A DWP spokesman said: “Our approach is not intended to cover all rents in all areas, and we expect those in receipt of housing support to have to make the same decisions about where they can afford to live as those who do not receive benefit system support.”

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