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Recent rent increases highlight the limitations of ongoing reforms to the private rented sector and local housing allowance

Last week, the estate agent Hamptons reported that private rents in Britain had increased by 10.2% year-on-year, the highest increase recorded in any November since 2014. In this post, we consider the implications for renters, particularly those on Housing Benefit or Universal Credit, and highlight the limitations of recent policy changes in alleviating housing stress.

The first thing to note is that the figure from Hamptons should be treated with some caution. Data on inflation within the private rented sector (PRS) is often flawed due to the discrepancy between existing rents and new lettings, with the latter dominating many rental inflation indices. More reliable data on private rents would ultimately help inform and evaluate policy. Nonetheless, there is good evidence of steep rental inflation across several regions in the past two years.

The impact of these price increases will be felt unevenly across the rental market. In practice the PRS is a heterogeneous set of submarkets, each shaped by location, property type, customer, and price. In the 21st Century, there has been a growth in professional corporate landlords in major cities providing a high-end service and an increase in student accommodation. But there has also been an increase in low-income households in the PRS supported by rent assistance (i.e. Housing Benefit or Universal Credit), accommodated mostly by small-scale landlords. This group of renters will be most vulnerable to increased housing stress as a result of rent inflation.

One of the reasons for their greater vulnerability is the interaction between price increases and the effects of welfare reform. Policies such as freezing local housing allowance (LHA – the rates used in the PRS to determine rent assistance entitlement) and the ongoing transition to Universal Credit have contributed to increased overcrowding and rental arrears. Rent increases are likely to compound these issues. Admittedly, there has been some welcome policy change recently; in the Autumn Statement, the UK government decided to unfreeze LHA rates and temporarily return them to the 30th percentile of local rents. However, LHA rates remain below their long-term levels as they used to be set at the median of local rents, and some households will not benefit from the unfreezing of rates. Welfare reform has introduced numerous holes in the social safety net, for instance those subject to the sanctions regime or the benefit cap. Rising rents will affect the ability to sufficiently support affected households, either exacerbating poverty after housing costs or funnelling low-income households into the lowest quality accommodation.

Tenancies in the PRS have historically been less secure than in social housing with higher rates of evictions. Similar to the LHA uplift, there are ongoing reforms in England to improve security of tenure in the PRS that will benefit some households. The Renters Reform Bill proposes ending fixed-term tenancies and banning landlords from refusing to let to benefit claimant households, and the good news is that the evidence suggests that regulation shouldn’t result in a mass landlord exodus. But during the legislative process doubt has been cast on whether the ban on no-fault evictions will be implemented. And more fundamentally, the recent spate of rent increases highlights that security is intimately related to affordability, with the Renters Reform Bill having a limited impact on the risk of arrears-related evictions.

So what can be done? The complexity of the issue suggests that change is needed across multiple areas. As highlighted above, holes in the social safety net need closing to support the incomes of renters. In terms of housing policy, supply needs to increase substantially and for a sustained period to improve affordability, including increasing the supply of social rented housing to provide an alternative to the PRS. This is easier said than done; recent interventions by the government to increase the rate of social rented housing have had some impact, but new supply remains far below the rate required to meet housing need. Planning interventions that could unlock additional sites for development are therefore highly sought after among policymakers.

In addition, the emerging impact of policy changes in the devolved nations might provide an evidence base as to how PRS tenants could be more effectively supported. Wales has implemented a range of legislation aimed at strengthening tenure security, including longer eviction notice periods and landlord registrations. In Scotland, the Cost of Living (Tenant Protection) Act is currently in place to put a pause on the enforcement of evictions and implement a temporary rent cap. Rent regulation is contentious, with possible negative side effects such as a reduction in supply and landlords spending less on maintenance. But a CaCHE-authored evidence review suggested that, at the very least, more work is needed to understand if these side effects could be avoided through careful policy design (underlining the need for high quality data). One thing is clear: comprehensive changes are required in housing and welfare systems to reduce the likelihood of future sharp rent increases and to mitigate the impact on low-income households.

 

Date: December 20, 2023 1:22 pm

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