• Press release

£90m monthly spending on homeless accommodation ‘threatens to bankrupt boroughs’

New data from London Councils reveals that boroughs’ monthly spending on temporary accommodation for homeless households grew by almost 40% last year – reaching £90 million a month.

Skyrocketing rates of homelessness and a severe shortage of affordable accommodation have put major strain on boroughs’ budgets, with London Councils labelling this a “critical danger” to their financial stability.

Ahead of next week’s Budget, the cross-party group is calling for more government support to help councils meet these costs and reduce the risk of requiring a Section 114 notice – effectively declaring bankruptcy.

A top priority is for ministers to lift the “unfair” cap on the money boroughs can receive from the government to subsidise their temporary accommodation spending, which is currently tied to 2011 benefit rates no longer reflecting temporary accommodation costs.

London Councils’ analysis also shows that:

  • Homelessness in the capital continues to grow. The number of Londoners seeking homelessness support (making a ‘homelessness presentation’) from their local borough increased 14.5% between September 2022 and September 2023 (the latest month for which data is available).
  • The number of London households living in temporary accommodation arranged by their local borough increased by 7% over the same time period.
  • More than 175,000 Londoners are homeless and living in temporary accommodation – equivalent to one in 50 residents of the capital. This figure also includes 85,000 children – suggesting on average at least one homeless child in every London classroom.
  • Many private landlords renting their properties to boroughs for use as temporary accommodation are cancelling these agreements, as they are instead renting to private tenants or selling the properties altogether. The number of landlord ‘notices to quit’ received by boroughs rose by 56.5%.

Cllr Darren Rodwell, London Councils’ Executive Member for Regeneration, Housing & Planning, said:

“Homelessness has a devastating impact on individuals and families, while also bringing massive and unsustainable costs to boroughs’ budgets.

“Boroughs work hard to house homeless Londoners. However, London’s ballooning temporary accommodation bill is a critical danger to boroughs’ financial stability. If things go on the way they are, it’s no exaggeration to say these enormous costs pose a bankruptcy risk.

“We’re urging ministers to boost funding support for boroughs grappling with a worsening homelessness crisis. Ending the unfair cap on housing benefit subsidy rates for temporary accommodation would relieve much of the pressure on boroughs’ resources, helping us balance the books while providing homelessness support to everyone who needs it.”

Homelessness and temporary accommodation pressures are a concern for councils across the country, but the crisis is most acute in the capital. According to government data, London accounts for well over half (57%) of England’s 105,750 homeless households living in temporary accommodation.

London’s worsening homelessness situation has been a long-term trend. Since 2010, the number of London households in temporary accommodation has almost doubled – from 36,000 in March 2010 to 63,000 according to London Councils’ latest data (for September 2023).

Boroughs report the pressures have become particularly extreme in the years following the Covid-19 pandemic. Factors such as the fast-rising cost of living and turbulence in London’s private rented sector [2], alongside the longstanding shortage of affordable housing, have created a perfect storm.  

If the £90m monthly spending continues this would mean more than £1 billion being spent annually on temporary accommodation for homeless Londoners. Although boroughs receive government funding to cover some of their costs, this is insufficient and boroughs are forecast to overspend on their homelessness budgets this year by at least £150m.

ENDS

[1] Under housing law, if an individual or family becomes homeless and is eligible for support, their local authority has a duty to place them in temporary accommodation while a long-term housing solution is sought.

This accommodation may take the form of a property owned privately or by a council or housing association, or a room in a hostel, bed & breakfast, or hotel.

Despite the term ‘temporary’, stays in temporary accommodation often last many years. This is particularly the case in London due to the shortage of affordable housing.  

[2] Research by LSE and Savills (commissioned by a partnership led by London Councils) published last year revealed a 41% reduction in the number of London properties available for private rent since the Covid-19 pandemic.

[3] London Councils is seeking policy change at a national level to improve support for boroughs’ homelessness services and help them tackle homelessness. London Councils is asking the government to:

Lift the cap on housing benefit subsidy for temporary accommodation. This is the amount of money local authorities can claim from the government for their temporary accommodation costs. Currently the subsidy has been frozen at 2011 rates – even though temporary accommodation has become significantly more expensive over the past 13 years.

The ‘subsidy gap’ is a priority concern for London boroughs, especially as they increasingly rely on relatively high-cost temporary accommodation options in B&Bs and commercial hotels. Lifting the cap would better reimburse boroughs for their spiralling temporary accommodation costs.

Confirm allocations for additional homelessness prevention funding. At the Autumn Statement in November the government announced additional UK-wide funding of £120m for homelessness prevention in 2024-25.

London Councils welcomes this extra funding. However, allocations to individual local authorities still need to be confirmed by the government. Confirming these allocations is essential for boroughs’ budget planning.

Even with this funding boost, boroughs still anticipate that their temporary accommodation costs will significantly outweigh government financial support. London Councils continues to call for more emergency funding.  

Help councils buy accommodation sold by private landlords. This could build on successful initiatives such as the Local Authority Housing Fund by providing increased capital investment for housing acquisitions.

With more resources, boroughs would be in a much better position for buying homes sold by private landlords as they exit the market, helping to secure more temporary accommodation options for placing homeless Londoners.

Increase Discretionary Housing Payments. These payments are used by councils to help residents in financial crisis meet their housing costs. They are an essential homelessness prevention tool, but government funding for Discretionary Housing Payments in 2023-24 has been frozen at 2022-23 levels, despite significantly increasing homelessness pressures.

Taking a longer-term view, the national funding pot for Discretionary Housing Payments has reduced by 53% in real terms over the 10 years from 2014-15 to 2024-25, while London has seen an even greater reduction of 60%.

Make the increase in Local Housing Allowance (LHA) rates a permanent measure. When LHA rates were increased to cover the bottom 30% of market rents as part of the Covid-19 emergency measures in 2020, this dramatically increased the number of properties affordable to households relying on LHA to cover their housing costs. However, when LHA rates were frozen again this fell to just 2.3% of new lets within two years.

The government should ensure that LHA rates track market rents to prevent future significant fluctuations between actual market rents and support for tenants.

Bring forward a cross-departmental strategy to reduce homelessness. Tackling homelessness must become a major priority at a national level with government departments working together – in addition to key partners such as local authorities – as effectively as possible.

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