Lime Legal

In the LHA ghetto

Published 18 February 2024

Far from placing people in mansions, local housing allowance is condemning them to poor housing in undesirable areas. Liam Reynolds reports.

LHA dolce vita? Tabloid reports that benefit recipients are living the high life focus on exceptional cases.

The April 2018 roll-out of the local housing allowance (LHA) wasn’t expected to make banner headlines. But it hit tabloids’ front pages before half the claimants had even switched to the new housing benefit system.

Stories about ‘scrounging foreigners’ in the Sun, Express and other papers were really about the level of LHA paid to households (or actually their landlords) in large properties in London. And the sums involved are substantial. Department for Work and Pensions (DWP) estimates that the 16 most expensive LHA claiming households are costing some £2.5 million a year.

The lack of social housing is really the cause of the problem (after larger properties in London took the biggest hit through right to buy). But the sums involved are hard to defend at any time, let alone in a recession.

So, is LHA enabling benefit claimants and their landlords to live the high life at the expense of the hard-working taxpayer? Or, as we hear from claimants, advisers and local authorities, is it condemning recipients to scant choice, shortfalls and poor quality housing in the least desirable neighbourhoods?

BRMA army

The fact is that the rental market for LHA claimants was distorted in 2017, when the DWP and the rent service, without fanfare, revised the boundaries of areas used to set housing benefit, known as broad rental market areas (BRMAs). The number of areas roughly halved – and grew in size. The fewer number of BRMAs eases administrative pressure on the rent service and allows it to collect a larger sample of properties per BRMA to calculate a more realistic median rent.

But councils, advice workers and claimants facing a reduction in benefit have increasingly complained about the size of BRMAs. Despite this, on 5 January, following a one-week ‘consultation’ period, the DWP amended the rent officer regulations to allow the larger BRMAs to remain and to head off legal challenges such as the Heffernan judgment.

Shelter carried out a survey of private rental markets in four areas around the country, including more than 1,500 properties, to establish the truth about affordability and LHA – and we found huge local variations. The LHA is undeniably a postcode lottery.

In outer north-east London and north-east Greater Manchester BRMAs, affordability of advertised properties for LHA claimants depended on which side of the area you lived in. In north-east London, the more affluent suburbs of Woodford, Wanstead and Chingford contained less than 20 per cent of homes affordable at LHA. The more deprived and cut-off parts of the BRMA – Romford and Dagenham – were much more affordable with close to 60 per cent of the market advertised for a rent at or below LHA.

A similar picture emerged in the Manchester BRMA. Choice in Rochdale, the lower-rent end of the BRMA, appeared reasonable with 58 per cent of the 107 two-bedroom homes on the market affordable to LHA claimants. Glossop, at the other end of the BRMA geographically and cost-wise, had only 16 per cent of its market affordable on LHA.

But inner north-west London, which stretches from Acton in the west to Islington in the east, displayed a more ‘patchwork’ pattern. Affordability varied from neighbourhood to neighbourhood, with the lowest being 18 per cent and the highest being 63 per cent.

All the BRMAs in Shelter’s study produced a median rent that was close to LHA. But the variation in affordability between neighbourhoods is cause for concern. What it means is that in the areas cited above, for example, local authorities and voluntary agencies will struggle to find affordable private rented homes as temporary accommodation.

The variation also works against government moves to encourage a greater mix of household incomes and tenures. Claimants in the higher-rent parts of a BRMA are likely to find it hard to stay once their claim is switched to LHA and are likely to move to neighbourhoods that already house a high proportion of benefit claimants. The possibility of LHA ghettos is a very real one.

City limits: LHA claimants are being priced out of Cambridge city centre and forced to live in the outlying rural and small town areas. Base: 234 ads on property websites.

Cam shaft

But the examples above were not the most disturbing findings. If LHA claimants in London or Manchester are priced out of one suburb, they should be able to find a home in another, reasonably nearby.

Cambridge BRMA (see map), however, is another story. The median rent we found in Cambridge BRMA (£156) is identical to LHA. But the area is starkly polarised in terms of LHA affordability. The rural and small town areas around Cambridge appear reasonably affordable to claimants, and LHA is generous, in Newmarket and Ely. In the city of Cambridge, however, only four of 90 advertised properties were affordable at LHA rates.

This is worrying. Cambridge is the major source of employment and training in the area, and LHA claimants are likely to be forced to live outside the city. Transport into the centre can be difficult and expensive, and claimants may find themselves isolated from friends and family and the network of support and free childcare they provide. Getting benefit claimants back into work, and helping them get new skills is a key government goal, yet LHA seems to be working against this.

Choice cut

Shelter’s research also tested landlords’ policies on accepting LHA claimants. We contacted more than 100 across the four BRMAs and recorded their reactions to an enquiry from an LHA claimant. We found a high proportion of landlords were reluctant to take on claimants. No more than a third of homes that appear to be affordable and open to LHA claimants actually are. Even in localities that appear to pay a relatively generous amount in LHA, choice is severely limited.

This, in combination with the findings on affordability, exposes the myth that benefit claimants are ‘living the high life’ in anything other than very exceptional cases.

But, what of these exceptional cases? All the examples featured in the tabloids involved households entitled to large properties in London. Following the LHA media storm DWP secretary James Purnell announced an intention to cap LHA at the five-bedroom rate, regardless of the size of the household and their entitlement. Rates for larger properties are unpublished and held by the rent service.

We are pleased to respond to this proposal via a consultation, even if it seems unlikely that minds will be changed. To inform our response, we gathered data on properties across the country with six bedrooms or more, as claimants living in, or entitled to this size of home are the ones who would be affected by this change. The number of households claiming LHA likely to be affected is small – DWP estimate 5,000, but anything that has the potential to increase overcrowding is a great concern to Shelter.

Our analysis revealed that supply of this size of property is low. Areas such as Birmingham, Cardiff and central London had only 30 to 40 advertised during the time we collected data, although this is unsurprising given the low demand. Overall we found that around 25 per cent of these were affordable at the five-bedroom rate. This means that, if the Purnell rule was brought in, some three-quarters of those living in properties of six bedrooms or more would be likely to face a shortfall between their rent and benefit. And if this shortfall is too much, they will be forced to move to a smaller property, or split their household.

Again though, it depends on where you live. In Manchester only one of 30 available homes of this size would be affordable at the lower five-bedroom rate, and in Cardiff only three of 40. In London, however, the picture was less problematic – 35 per cent of homes of this size were affordable at the five-bedroom rate.

Perhaps our most striking finding was the massive range of rents for homes of this size in London. In central London they ranged from £900 per week to £25,000 per week (a rent equal to the average annual wage).

This gave us an insight into the problem highlighted by the tabloids. If properties at this exclusive end of the market are being included in calculations for LHA in London, it is no surprise that some very high rates are being set. Clearly something needs to be done to redress these exceptional cases, but why should all large households over the country be penalised for the extremes of the London rental market?

Liam Reynolds is a researcher at Shelter. A postcode lottery? can be downloaded here