Freezes in housing support once again widen geographic disparities for low-income renters

Low-income households can receive support towards their housing costs through universal credit or housing benefit. For social renters (i.e. those who rent from a council or housing association), these benefits can cover the full rent. For private renters, support is capped by ‘local housing allowance’ (LHA) rates, which vary based on the area a household lives in (called a ‘broad rental market area’ or BRMA) and the number of bedrooms the government considers them to need, known as the bedroom entitlement. For properties with rents above the relevant cap, claimants can still receive support up to the value of the cap. Almost half of private renters are entitled to support for their rent through universal credit or housing benefit. For simplicity, we refer to both of these as housing benefit. 

LHA rates are designed to control housing benefit costs by preventing claimants from renting expensive properties and passing the full cost on to the benefit system, while ensuring that claimants can afford properties at the cheaper end of the market in their local area. This means the benefit system is intended to enable people to live in a local area of their choice (except the most expensive local areas which are subject to a national cap).1

However, rather than regularly updating the rates to reflect market conditions, the government has fallen into a pattern since 2016–17 of freezing LHA rates in cash terms, with ad hoc resets only every few years. Rates were last reset in April 2024, based on the 30th percentile of rents in the year to September 2023 (among properties not lived in by housing benefit recipients). Since the midpoint of that assessment period, UK rents have grown by approximately 19% (to October 2025), creating significant shortfalls between claimants’ rent and the support they can receive. With the Budget approaching and the Chancellor facing calls to increase LHA rates, this comment sets out the effect of the freeze and makes recommendations for the Chancellor.

How do frozen local housing allowance rates affect affordability for renters?

Since the year to September 2023, on which LHA rates are based, UK rents have grown by approximately 19%. Failing to uprate LHA rates since then has resulted in an average loss of almost £1,500 for the more than 1 million households in receipt of housing benefit and affected by the freeze (in that their rent exceeds current LHA rates).

Privately renting households are already a particularly poor group, with a relative poverty rate of 37%, compared with 21% among the whole population.2 These real cuts to LHA rates therefore have a substantial effect on the living standards of affected households, reducing their disposable income (after deducting housing costs) by 6%. For those in the poorest fifth, this figure is 12%.

Frozen LHA rates also mean a dwindling share of properties in the private market would be fully covered by housing benefit. At present, only around 10% of properties not lived in by recipients of housing benefit fall under the cap. Research from IFS on the previous freeze from April 2019 to April 2024 shows that when LHA rates lag behind local rents, the cheaper properties which remain affordable are more likely to have poor energy efficiency and be expensive to heat.

Why is the freeze bad policy design?

Ultimately, the question of how much the benefit system should contribute to poorer households’ private rent is a political choice. The government must trade off redistributing to low-income renters against the cost of housing benefit, accounting for the fact that a more generous system reduces work incentives. 

Restoring rates to the 30th percentile and maintaining regular uprating would come at an initial annual cost of around £1.5 billion, which would rise gradually thereafter (as rents, and hence the 30th percentile, continue to increase). Some of this could be offset by lower spending on temporary accommodation or discretionary housing payments. However, if tenants responded by moving to more expensive homes, or if landlords increased rents, total costs could increase. 

Nevertheless, the current pattern of resetting rates to the 30th percentile every few years, then freezing them indefinitely and only uprating them occasionally on an ad hoc basis is incoherent policy design. There are two problems with the current status quo.

First, it creates unnecessary volatility and uncertainty for both tenants and the public finances. When deciding where to live and planning their household finances, private tenants face declines of uncertain speeds and durations in how much of their rent will be covered by housing benefit, followed by occasional and unpredictable large increases. This uncertainty is mirrored in the public finance forecasts, which take as given the official policy to freeze LHA rates forever, implying real housing benefit spending continually falling. That such a policy is not really tenable means the public finance forecasts look unrealistically rosy. Given the limited headroom surrounding the fiscal rules, such forecasting bias could prove costly.

Second, it generates arbitrary inconsistency in the level of support available across local areas (and property size), due to differences in rent growth across BRMAs since the year to September 2023 – the last assessment period. For example, rents are estimated to have grown by 28% in Colchester3 since the last assessment period, compared with only 14% in Canterbury.4, 5 Consider two otherwise identical families in these two cities, living in two-bedroom properties that were at the 30th percentile of local rents in the year to September 2023. Now, as their rents have grown but LHA rates have been frozen, the family in Colchester has an estimated shortfall in its support relative to its rent of £227 per month (22% of its current rent), while the family in Canterbury has a shortfall of £82 per month (8%).6 There is no rationale for this. These differences in shortfalls arise not because the government is choosing to cap support more in high-cost areas (which is itself a coherent policy aim, achieved through separate national caps to LHA rates which bite far more rarely). They arise purely from the historical accident of Colchester having experienced more rent growth than Canterbury since an arbitrary and irrelevant date in the past. Had LHA rates been reset at a different time, Colchester might have a smaller shortfall than Canterbury. Similar distortions are introduced across bedroom entitlements. Our model of local rent growth at the number-of-bedrooms level suggests that LHA rates fully cover a smaller proportion of appropriate properties for households entitled to a one- or two-bed property relative to other property types. 

These various effects are captured in our interactive map below, which displays the estimated percentage shortfall in LHA rates relative to the 30th percentile for different local areas and bedroom entitlements. You can search for or select a local area for more information.7, 8

Should the government uprate local housing allowance rates?

A one-off reset to LHA rates would ease pressures and geographic disparities in support in the short term. But if we remain in the status quo of long freezes and ad hoc uprating, the level of support available to tenants will continue to fluctuate, and illogical discrepancies between areas will persist. Continuing to freeze LHA rates, at the current level or after another ad hoc reset, is not a rational policy. Moving to uprate current LHA rates by CPI inflation, or capping increases at a fixed percentage (as the government chose to do in the past), might be tempting as a cheaper alternative to resetting to the 30th percentile. However, this would still result in unjustified discrepancies in support between local areas arising because of differences in rent growth since the last assessment period.

Regardless of differing views on the long-term appropriate generosity of the system, if the government wants to continue with a system of locally varying caps, these should be continually uprated based on contemporaneous local market rents.

This does not mean that rates must be linked to the local 30th percentile. The government could select any percentile or fraction of the local median, reflecting its long-term decision on how generous the system should be, and then uprate regularly. It could, for example, pick a lower percentile than the 30th, or a fraction of the median rent, to match the average level of current support, ensuring there is no immediate cost to the reform. We estimate this to be around the 10th percentile or 75% of the median.9 Alternatively, it could even pick a sufficiently low percentile, or fraction of the median, to maintain the current forecast savings from frozen rates over the five-year forecast horizon – though this would likely mean only a small proportion of private renters could cover their rent solely with housing benefit. The cost-neutral approach would result in some families in some local areas ultimately seeing a real reduction in entitlements. In such a case, transitional protections could be implemented, such as temporarily preserving (or only gradually reducing) the nominal cash entitlements of existing claimants. This would give claimants the opportunity to find a cheaper property compatible with their new support for rent, and would add to a long list of benefit policy areas where transitional protections are in place due to recent reforms.

A tight fiscal situation is no excuse for a system that creates uncertainty for renters and unfairness between local areas. Whether the government wants to increase or reduce support for renters, there are alternatives that are more sensible and equitable than LHA rates that are only occasionally uprated then frozen for years at a time.