Jeremy Hunt’s Autumn Statement aimed to increase benefits, but landlords still face a £1,700 shortfall in new rentals to social tenants.
Economists warn that the increase announced in housing benefit payments last week only covers a third the increase in rents over the past four years.
Rents will be below market rate or tenants may fall behind on rent.
Last Wednesday, the Chancellor announced that the local housing allowance rates (LHA), which determine the amount housing benefit recipients receive, would be increased in April 2024 in order to cover the rent of the 30pc cheapest homes in each region.
LHA rates are frozen, but rents have risen at record levels since 2020. They no longer match what’s available in the market.
According to Zoopla, the housing allowances currently only cover the rent of the 5 cheapest newly listed properties.
The decision made by Mr. Hunt will lead to an increase in LHA. This increase will ensure that the 30% cheapest properties based on rents are covered.
This increase is based on the average growth in rent across all properties from September 2019, which is approximately 12.5%. This includes all tenancies, even those that haven’t been renewed.
Andrew Wishart from Capital Economics’ housing service said that the average increase in market rates for newly let properties is nearly three times higher at 33pc.
Mr. Wishart says that even with the higher LHA, the housing benefit payment will be £143 less than the market rate for a newly rented home.This will result in a deficit of £1,716 over the course of an entire year.
Adam Kingswood of Kingswood Residential Investment Management, Nottingham, says that landlords who have tenants on benefits find it difficult to charge higher rates than the LHA rate because their tenants can’t afford to pay for the difference.
Mr Kingswood stated: “We’ve got landlords who are looking to raise rents, because their costs and rents have gone up by 10pc over the past year. The tenants have already used up all their housing benefits and claim they won’t be able to feed their children.
Mick Roberts, who is a large landlord with tenants receiving benefits in Nottingham, stated: “The rent for a two-bed apartment in Nottingham averages £800. The local housing allowance is set at £550. “Even if it goes up to £620, I’m still 20pc short.”
Mr Roberts has said that he will raise his rents for social rent properties to match the rise in LHA. However, this will only cover a part of the gap with market rates.
It is expected that the shortfall will also increase in the future.
Capital Economics forecasts that rental rates will increase by 7.7pc more in 2025-2026. However, the LHA rate hike next year will be an exception, and rates will again be frozen from 2025-2026. “This will create a new shortfall,” said Mr Wishart.
A DWP spokesperson said: “The increase of £1.2bn in Local Housing Allowance, announced in the Autumn statement, means that around 1.6 m families will be £800 better off per year.
“Our approach does not intend to cover all rents, in all areas. We expect those receiving housing assistance to make the same decision about where they can afford to live as those not receiving benefit system support.
This year, we invested over £30bn in housing support, including our Discretionary House Payments, which provide help to those in need.