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Can the changes to LHA achieve their aims in London’s housing market?

Author: Hannah Aldridge, New Policy Institute, Peter Kenway

A report by the New Policy Institute explores the impacts of the changes to Local Housing Allowance (LHA) introduced by this government, within the context of London’s higher housing costs.

Can the changes to LHA achieve their aims in London’s housing market? is a report for Shelter and is funded by Trust for London. The main findings are:

  • Lowering LHA rates always makes a household worse off as measured by its disposable income after housing costs. This cut in income persists as hours of work and earnings increase until the point when the household would have ‘floated off’ housing benefit (HB) before the rate was lowered.
  • Households could counter the effect of an LHA cut by moving to homes that charge rent within the lower LHA rate. But demand for these properties outstrips supply so this will only be an option for a minority of those affected.
  • Lower LHA rates do nothing to improve the incentive to enter paid work. The national LHA cap undermines the work incentive provided by the overall benefit cap
  • The lower LHA rates can change the incentive to do more work. This occurs because with a reduced housing benefit entitlement a household ‘floats off’ HB earlier.
  • Both the lower LHA rates and the national LHA cap save the Government money. The associated cuts in benefit are greatest in larger properties and for those in higher cost areas.
  • The LHA changes provide no reason for Government to bear down directly on rental levels. If rents rise, the Government is sheltered from paying higher housing benefit, leaving tenants as the sole agents of change and bearing the full consequences.

04 June 2014

Can the changes to LHA achieve their aims in London’s housing market?