Time to end the freeze

Originally published on August 29 on my blog for Inside Housing. 

The freeze on the Local Housing Allowance (LHA) is a £1.2 billion question for which the answer seems obvious.

The problems detailed in analysis by the Chartered Institute of Housing (CIH) published on Wednesday are severe and they are getting worse.

LHA rates are midway through a four-year freeze that is the culmination of seven years of austerity. The result is that they have completely lost touch with the rents they were meant to cover.

The CIH analysis shows that 90% of LHA rates now fail to cover the rent of the cheapest 30% of private rented homes (bear in mind that this was itself a cut from the 50th percentile and that LHA was originally designed to enable tenants to ‘shop around’ for cheaper rents).

That leaves tenants facing rent shortfalls that grow larger with each year of austerity: outside London, two out of every three LHA shared accommodation rates have a weekly shortfall of £4 or more and half of other LHA rates are short by £10 or more; in London, the shortfalls for shared accommodation are more than £10 a week in every LHA area and at least £30 for all other homes.

True, there is Targeted Affordability Funding (TAF) that redistributes some of the savings to the most expensive areas but the CIH estimates that it typically covers 10% to 30% of the shortfall, meaning that it is ‘incapable’ of keeping LHA rates aligned with the 30th percentile.

There are also Discretionary Housing Payments, the Department for Work and Pensions’ all-purpose defence to any criticism of austerity, but which also have to cope with the benefit cap, the bedroom tax and all the other cuts to housing benefit made since 2010.

The continuing freeze means that the shortfalls will inevitably continue to grow as rents rise – effectively TAF can only slow down the rate of growth.

Iain Duncan Smith used to argue that cuts in housing benefit would lead to cuts in rents by landlords but the evidence suggests that around 90% of the shortfalls are being met instead by tenants.

The shortfalls have to be paid out of other benefits that are also frozen from 2016 until 2020 and many tenants will also be subject to the overall benefit cap.

Set it out like that and the importance of the u-turn on applying LHA caps to social housing become even clearer – not just in terms of the immediate impact but also the ratchet effect year on year.

But there is no such luck for the private rented sector: given all the other problems facing low-income tenants it is little wonder that loss of a private tenancy is the fastest rising cause of homelessness or that the reluctance of some letting agents to deal with tenants on benefit has turned into outright discrimination.

Effectively, while the government talks the talk of homelessness prevention the LHA freeze amounts to a policy of homelessness expansion.

So what is to be done? The £1.2 billion question I posed at the start of this blog is the CIH’s estimate of the cost of a full realignment between LHA rates and local rents – in other words not just ending the freeze but restoring the link with rents.

A figure like that suggests that there would be strong resistance from the Treasury and DWP, for whom breaking the link between benefits and rents may be more of a positive rather than a negative.

However, higher than expected inflation means that the government has already banked more savings than the Treasury estimated, not just from LHA but from all the other working age benefits frozen until 2020.

The Institute for Fiscal Studies estimated last year that the chancellor could afford to end the freeze a year early or switch to 1% a year increases this year and next and still achieve the estimated savings.

And the cost-benefit sums become even clearer when you take account of the wider costs of increased poverty and homelessness.

Ending the LHA freeze and restoring the link with rents was one part of the plan to end homelessness put forward by Crisis earlier this year.

PriceWaterhouseCoopers estimated that the plan would cost an eyewatering £19.3bn by 2041 – but also deliver benefits of £53.9bn.

At some stage next year the government will have to decide its priorities for the 2020s and beyond.

Can its answer really be more of the self-defeating austerity of the last decade?