Across Scotland, just eight per cent of advertised properties in the private-rented sector are covered by the Local Housing Allowance, new CIH-backed research has revealed.

New research commissioned by CIH Scotland in partnership with Fife Council has highlighted the shortfall between Local Housing Allowance (LHA) and the actual cost of renting a home in the private-rented sector (PRS). 

LHA is the amount of financial support a household can claim towards their rent in the PRS, and it is based on the number of bedrooms the household is deemed to need and the cost of rents in the Broad Rental Market Area (BRMA). 

LHA rates were initially set at the 50th percentile in 2008, before being reduced to the 30th percentile of local rents, meaning the bottom 30 per cent of homes in an area should be affordable to a household claiming benefits. 

However, the rate has been frozen since April 2020, when it was based on 2018/19 data. 

Rents in some areas have risen considerably in the intervening years, creating significant affordability issues for private renters across Scotland.  

The research, conducted by the UK Collaborative Centre for Housing Evidence (CaCHE) and based on analysis of Zoopla data on advertised rents, found:  

• Across Scotland, just one in 12 advertised properties in the PRS (8%) are covered by LHA 
• Aberdeen and Shire had the largest percentage of “affordable” properties at 19.7 per cent, still significantly below the 30th percentile (West Dunbartonshire had no properties available at or below the LHA rate) 
• The average shortfall in rent for a two-bedroom home was £108.10 per month 
• The smallest difference was found in Aberdeen and Shire at £6.64 per month (in Greater Glasgow the shortfall was £201.78 per month).

The report also explores issues with the way LHA is calculated, following rules set by the UK government’s Department of Work and Pensions (DWP). 

It found considerable gaps in the availability of rental data used to calculate LHA rates; lags between data being collected and new rates being set; and bias caused by the geographic spread of BRMAs, with only 18 separate areas defined across Scotland, some covering vast areas of land and including both urban and rural areas. 

The report concludes: “The PRS is now largely unaffordable to new entrants or those seeking to move within the sector who are in receipt of LHA.” 

Scotland's PRS year-on-year price change

The report recommends:  

• Reinstating LHA at the 30th percentile in the short-term, likely to cost around £98 million per year in Scotland (this cost could be covered by the UK government or a ‘top up’ by the Scottish government, similar to ‘bedroom tax’ mitigation in the social-rented sector) 
• Reviewing the process for setting LHA in the longer-term, including consideration of how rental data is gathered and the geographical boundaries of BRMAs 
• The Shared Accommodation Rate (SAR) – which limits single people under the age of 35 to a room in a shared home, rather than a one-bedroom home – is unfair and impractical, and consideration should be given to scrapping it. 

PRS ‘must be affordable’ 

Commenting on the findings, Gavin Smith, chair of CIH Scotland, said: “The PRS is a vital part of our housing system and can play a greater role in preventing and responding to homelessness in Scotland. 

“We cannot ignore the link between affordable housing supply, the rising number of people in temporary accommodation, and the emergence of Scottish councils having to declare housing emergencies. 

“The PRS plays a vital role but must be affordable, and as this research shows, freezing LHA rates has had a devastating impact on its affordability for those that need it the most. All UK governments must urgently unfreeze LHA rates.” 

Andrew Watson, lead author of the research by the UK Collaborative Centre for Housing Evidence (CaCHE), added: “Due to changes in housing choices and a lack of social housing, the PRS plays a critical role in the provision of homes for households in receipt of LHA. 

“A combination of rising rents and frozen LHA rates have rendered the sector unfordable for those seeking entry, whilst also limiting the ability of existing tenants to move within the sector. 

“The lack of affordability has many drivers, but the actions of UK and Scottish governments (in particular, the freeze in LHA rates and the introduction of rent caps) have played a significant role.

“It is therefore reasonable to expect that government action will play a key role in addressing the problem.”

Analysis

By Callum Chomczuk, director, CIH Scotland

Our report published today shows that the ongoing freezing of the Local Housing Allowance continues to reduce the supply of affordableprivate-rented housing in Scotland.

The report makes clear that only eight per cent of homes in Scotland are affordable to those in receipt of LHA, with the implication that 92 per cent of households in receipt of LHA must, in part, offset their housing costs with other income.

The findings are as relevant to Scotland as they are to the other nations of the UK.

The freezing of LHA rates at the 30th percentile since 2018/19 has: 

• Limited the availability of affordable housing stock
• Kept tenants locked in unsuitable housing because it is perceived as affordable – even if unsuitable
• Limited access for those seeking to enter the PRS, who face high rents, levels of competition, and deposits.

CIH has long called for the unfreezing and the uprating of the Local Housing Allowance across the UK and is supported in these calls by the Scottish government. Today, we again make this call.

We see the uprating of LHA as critical to addressing housing affordability and giving housing options to some of the poorest households in Scotland and across the UK.

Yes, there is the caution that higher LHA rates may translate into inflated rents. However, doing nothing is not an option if we want to address housing related poverty. We estimate that increasing LHA rates to the 30th percentile today in Scotland would cost £100 million, while an increase to the 50th would cost £172 million per year.

Beyond a long overdue uprating, we also need to end the cycle where LHA is frozen on a regular basis and in turn traps more and more households in poverty. We want to see LHA rates adjusted each year to protect the incomes of eligible households – something akin to where pensioner households benefit from the triple lock to ensure an appropriate uprating of their main benefit. Currently, those in receipt of LHA have no such guarantee.

The PRS is a hugely important part of the housing sector, and while it must play a part in supporting affordability, it cannot drive the system change required. The only way to ensure housing affordability for renters is to build more social housing.

Our report makes clear that while the latest Scottish government commitment to deliver 110,000 affordable homes by 2032 is a step in the right direction, we also know there is little confidence across the sector that this medium-term target will be achieved.

If we want to address the homelessness crisis, we must keep a focus on new social supply and ensure we utilise the current stock that we have in Scotland. This means ensuring the PRS can play a larger role – but to do so, it must be affordable.

• Read the research report in full

Main image: William Barton/Shutterstock