The House of Commons Library has issued a report on the Local Housing Allowance (LHA).

It can be seen here, and says:

What is Local Housing Allowance (LHA)

LHA is not a benefit in its own right. It sets maximum amounts claimants of Universal Credit and Housing Benefit can usually get in housing support for private rented properties of different sizes within specified areas. Maximum support is determined by:

• The size of property a household is entitled to, with bedroom entitlement based on family size and characteristics.
• The 30^th percentile rent for properties of different sizes within each “Broad Rental Market Area” (BRMA) based on rents surveyed in 2019/20, up to national maximum amounts.

LHA rates and information about BRMAs can be found on the Directgov website. Households renting privately can get housing support at the lower of the LHA that applies to them or the actual rent they are liable to pay.

Why was LHA introduced?

The LHA was rolled out nationally for new claimants in the deregulated private rented sector (those tenancies to which rent controls do not apply) from 7 April 2008. The reasons for its introduction included:

• Fairness: two households in similar circumstances in the same area would be entitled to a similar level of help through benefits.
• Choice: initially, claimants could keep up to £15 per week if they chose to rent a property cheaper than their LHA rate. The aim was to enable claimants to choose whether to rent a larger property or spend less on housing and increase their available income. Keeping the excess ended in April 2011.
• Transparency: LHA rates are published so claimants and landlords know the maximum amount of benefit payable.
• Personal responsibility: LHA was introduced with a default position of being paid directly to claimants. The aim was to empower people to budget for and to pay their rent themselves, rather than having it paid direct to landlords on their behalf. This is now the standard position with receipt of Universal Credit.
• Improved administration and reduced barriers to work: For working-age tenants, LHA was to provide greater certainty about what help is available in and out of work. Simplicity was aimed at speeding up administration. More transparency was aimed at improving the ability of individuals to move between areas and take advantage of employment opportunities.

LHA reforms

Several changes have been introduced since 2008, including:

• The removal of ‘keeping the difference’ of up to £15 per week in April 2011.
• Reducing the size of property a household would be eligible to claim LHA for to a maximum of five bedrooms from April 2009.
• Reducing the size of property a household would be eligible to claim LHA for to a maximum of four bedrooms from April 2011.
• Before April 2011 the LHA was based on median rents in each local BRMA.
  From April 2011, LHA rates within BRMAs were based on the 30th percentile of local market rents. In addition, LHAs for different sizes of properties become subject to national caps.
• LHA rates within BMRAs were, up to April 2012, subject to monthly review by Rent Officers based on movements (both up and down) in private sector rent levels. In April 2013 LHA rates were uprated by the Consumer Price Index (CPI) and then by a maximum of 1% in 2014 and 2015 (with an exemption from the 1% cap for areas with the highest rent increases). LHA rates were subsequently frozen for four years from April 2016 (again with “targeted affordability funding (PDF))” in some high rent growth areas. LHA rates were raised to 30th percentile rent levels in April 2020 but have subsequently been frozen in cash terms.

Current issues and debate

Freezing LHA rates

the current freeze on LHA rates would continue into 2023/24

On 17 October 2022, it was announced that the current freeze on LHA rates would continue into 2023/24. Rental prices paid by private tenants in the UK rose by 4.4% over the 12 months to January 2023 according to the Index of Private Housing Rental Prices.

Numerous bodies, including homeless charities, the representative bodies of local authorities and private landlords, are making the case for LHA rates to be uprated to cover at least the 30th percentile of local rents, alongside relinking rates to the real cost of renting for future years.

restore the link between LHA rates and the 30th percentile.

The Levelling Up, Housing and Communities Committee “received a huge amount of evidence on the impact of current local housing allowance (LHA) rates” during its inquiry into reforming the private rented sector (published on 9 February 2023). The Committee said those expressing concerns were “unanimous in calling on the Government to restore the link between LHA rates and the 30th percentile.” The Committee said the Government should:

…increase LHA rates to realign them with the 30th percentile in each broad rental market area, and commit to conducting a review as soon as possible into whether they should once more be aligned with the 50th percentile.

The size of BRMAs

The size of BRMAs means they can incorporate some wealthy and less wealthy regions. This has led to concern over the degree to which wealthy areas with high private sector rents can inflate LHA rates within a BRMA. In other BRMAs, concern focuses on the impact of less wealthy areas which decrease LHA rates, making the private rented sector less accessible for those who rely on benefits to help with rent payments.

Rent officers are required to review BRMA boundaries as often as it is thought appropriate with suggested changes subject to the agreement of the Secretary of State.

The complete report can be seen here.