'The market is broken': Just 5% of private rentals in London are affordable to low-income earners

Just 5% of private rental listenings in London are affordable to low-income households using local housing allowance (LHA) to pay their rent, new research has found.

This is despite LHA finally rising on 1 April after rates were frozen for four years. The rise, from then-chancellor Jeremy Hunt, was intended to give low-income tenants more support to keep up with rising rents.

The analysis, undertaken by Savills and commissioned by London Councils and Trust for London, also found that 45,000 rental properties were sold in the capital without being replaced. between April 2021 and December 2023. This accounts for 4.3% of London’s privately rented homes, with more affordable homes particularly affected.

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The findings reinforce concerns that reduced availability of privately rented homes in the capital puts low-income Londoners at increased risk of homelessness.

The research also shows that despite the government raising LHA in April to cover the lowest 30% of local market rent, it was not enough to keep up with the cost of inflation. This is because the increase in LHA relied on government data from September 2023.

New lettings were down due to a combination of tenants staying longer in properties and a reduction in the overall number of homes available to rent – recorded for the first time by London Councils and Trust for London.

London is home to an estimated 2.7 million private renters – around 30% of the capital’s population. More than 400,000 private renters in London – approximately one in seven – rely on LHA to cover their housing costs.

The loss of privately rented homes makes it harder for boroughs to prevent and relieve homelessness, including through using such properties as temporary accommodation.

Chris Buckle, director for Savills Research, said: “The affordability of renting in London has become very stretched and our research shows that loss of homes previously available to rent is adding to the pressure, particularly for those with low incomes.

“Policy solutions that boost the supply of private rented housing, going beyond new housing supply, are urgently needed to help ease the supply-demand imbalance.”

In the run up to budget day, councillors and leaders of local authorities are now calling for Rachel Reeves, the chancellor, to make the increased LHA rates permanent, with rates updated annually to track market rents and help ensure support for low-income tenants in private accommodation.

The cross-party group is pushing for more funding for local authorities to purchase housing being sold by private landlords, to improve accommodation offered by boroughs to people experiencing homelessness. They are also calls to double the Homelessness Prevention Grant from its current rate of £157m.

Councillor Grace Williams, London Councils’ executive member for housing and regeneration, said: “These stark figures are the latest evidence of the massive pressures faced by low-income private renters in the capital.

“London’s homelessness emergency is fundamentally driven by the chronic shortage of affordable housing. There are 2.7 million people relying on privately rented housing in the capital. The falling number of privately rented homes and worsening shortage of affordable accommodation are an urgent challenge for Londoners and London boroughs.

“Further action at a national policy level can help us turn the situation around and we are committed to working closely with the government on this important agenda. Interventions such as increasing local housing allowance rates to keep pace with rent rises would help prevent homelessness and save public money in the long run.”

London is grappling with the most severe housing and homelessness pressures in the country. London Councils’ figures show the number of London households owed homelessness support jumped by 15% in the past year.

Susie Dye, Trust for London’s grants manager, said: “It’s no surprise to renters that it’s desperately hard to find a home in London if you don’t have the money for a deposit and are on a low income.

“Savills has now given us the best available evidence of this, and it points clearly to the way forward. The government is rightly working to protect renters through the Renters’ Rights Bill. 

“But it urgently needs to act to make homes more affordable through ensuring local housing allowance covers the actual costs of renting for those who need it, funding for local authorities to support those made homeless in the broken housing market, and ultimately with significant investment in building social housing.”

Homes sold by landlords to owner occupiers are worth £410,000 each on average across the capital, according to London Councils, with one in 50 Londoners classified as currently homeless and living in temporary accommodation arranged by their local borough.

Zack Polanski, Green Party deputy leader and London Assembly member, said: “The private rented market is broken. These market distortions don’t just price people out of housing, they leave renters vulnerable to rogue landlords and exploitation.

“We need the government and local authorities to act. The government’s Renters’ Rights Bill, currently going through parliament could be the vehicle for this.

“It needs to include a national system for rent controls with the local flexibility, to take account of overheated areas like London, to bring rents down to affordable levels for all.

“Such a bill is long overdue and the government should not lose this opportunity to shift how we think and act about renting so that we can all enjoy an affordable home.”

Vikki Slade MP, the Liberal Democrat spokesperson for housing, said: “Local housing allowance has not kept apace with rising rents, putting more vulnerable people at risk of homelessness and evermore pressure on local councils. The government must work to ensure they deliver genuinely affordable housing, starting with a commitment to build 150,000 social homes a year.”

A spokesperson for Sadiq Khan, the mayor of London, said: “The mayor has repeatedly warned of the consequences of unaffordable private rents and is committed to doing everything in his power to stand up for London’s private renters.

“He has been clear that record high rents are a symptom of a long-standing housing crisis, which is why he is doing all he can to enable more homes to be built across the capital. In Sadiq’s time as mayor, 11,000 more homes a year have been completed on average compared to his predecessor, and council homebuilding hit the highest level since the 1970s.

“The disastrous inheritance left by the previous government resulted in a severe housing downturn that will take time to recover from, and infrastructure and funding is vital to meet London’s housing needs. The mayor is working hand-in-hand with the new government to do this, helping to build a better, fairer city for everyone.”

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