Resolution Foundation warns of severe housing crunch for low-income families

More than 1.1 million low-income families living in rented homes across the United Kingdom are facing a severe cost of housing crunch. According to a warning issued by the Resolution Foundation on 28 October, the crisis is being driven by the continued freezing of the Local Housing Allowance in cash terms, a policy that has remained in place since the autumn of 2024. The situation has raised profound concerns among researchers and welfare advocates ahead of the upcoming fiscal announcements.

Stephen Hunsaker of the Resolution Foundation highlighted the growing severity of the shortfall, noting that the gap between average rents and Local Housing Allowance levels is set to reach a record high this October. Hunsaker warned that failing to repeg the allowance to actual rents in next month’s budget could lock in a freeze for another year, ultimately seeing the overall gap reach 30 percent by March 2028. Furthermore, Hunsaker emphasized that with many tenants receiving housing support already going without essentials to pay their rent today, the government should restore the automatic annual linking of the allowance to relieve pressure on low-income families in the private rented sector.

The financial strain on households is already translating into stark material deprivation and difficult daily choices. Data shows that one in five working-age adults living in families on housing support within private rental accommodation were unable to afford to keep their homes warm. Additionally, one in eight of these individuals were unable to afford three meals a day. The financial shortfall for these renters is staggering, with a typical two-bedroom household currently facing a shortfall of £158 a week. In parts of London, this shortfall can be as high as £300 a week.

When the Local Housing Allowance was first introduced in 2008, it was originally pegged to the median level of local rents, ensuring that support tracked local market conditions. However, that benchmark was reduced in 2011 to the 30th percentile, and the allowance has since been subjected to cash-term freezes. Research indicates that 90 pence of every pound of support tends to fall to tenants rather than feeding through into price changes, leaving renters heavily exposed to market fluctuations without adequate public assistance.

To permanently address this widening disparity, the Resolution Foundation has calculated that relinking the Local Housing Allowance to actual rents would cost £2 billion a year by the end of the current parliament in 2029-30. As the chancellor prepares to present his budget on 28 October, organizations including the Resolution Foundation, Crisis, the Joseph Rowntree Foundation, Citizens Advice, and The Guardian have brought sharp focus to the issue. In response to the growing pressure, a government spokesperson stated that Local Housing Allowance rates are reviewed annually, and that future decisions will be taken in the context of the government’s welfare priorities and the wider fiscal context.