Overview
London is suffering a severe housing affordability crisis at a time when the financial pressures on low-income Londoners have never been greater. The number of London households needing help from boroughs’ homelessness services is rising while the availability of temporary accommodation (TA) is shrinking. The problem has been made worse by rising rents, benefit shortfalls, the acute shortage of affordable housing and a sharp reduction in the supply of private rented sector (PRS) properties.
While there is a national homelessness crisis, there is no doubt that it is most acute in London. The number of homeless households living in TA in London is at near-record levels, with almost 150,000 people, including 74,000 children, living in TA according to the latest government data, accounting for almost 60% England’s total TA numbers. The number of households living in TA in London has seen a 51% increase over 10 years from June 2012.
Local Housing Allowance and Homelessness
A key factor in London’s increasing homelessness pressures is the rise in PRS rents, with London rents having increased by an average of 17% in the 12 months to August 2022. While Local Housing Allowance (LHA) rates remain frozen, this has had the impact of reducing the number of properties affordable to low-income households reliant on benefits.
Research by Savills and commissioned by Capital Letters (a not-for-profit company launched by the London boroughs to procure accommodation for homeless households in the private sector) found that in the year to Q1 2022 only 8.8% (18,072 out of 206,067) of all properties listed for rent were affordable on LHA. This is a reduction from 12.9% in the year to Q1 2021 The picture is even more stark for households impacted by the overall benefit cap. For a capped single parent household with two children over four years old only 0.8% properties were affordable in the two years to Q1 2022.
More recent research indicates the problem has worsened as rents have continued to rise over the year. Analysis by Crisis and Zoopla found that affordability in London almost halved in the five months from April to September. For example, in Hammersmith and Fulham the proportion of one-bed properties affordable on LHA fell from 12% to just 5%. The government’s recent decision to once again freeze LHA rates in the Autumn Statement will undermine London boroughs’ ability to tackle homelessness.
The freeze in LHA rates impacts on homelessness in two main ways: it places households who do not receive sufficient support to cover their rent at risk of homelessness; and it limits the ability of local authorities to prevent homelessness and secure affordable accommodation for currently homeless households. Currently 124,415 low-income London households reliant on housing support in the PRS do not receive enough support to meet their rental liability. These households can attempt to bridge the gap through cutting essential spending or borrowing, but with inflation driving up prices of food and energy, such a shortfall is unsustainable and inevitably leads to rent arrears. This significantly increases the risk of homelessness for these individuals and families.
PRS and Temporary Accommodation Supply
Increasing rents and homelessness pressures have only been made worse by sharp reduction in the supply of both PRS properties and TA in London. Research by Savills and commissioned by Capital Letters found that the number of properties listed to rent across London in Q1 2022 was 35% lower than the pre-covid quarterly average. More recent research, alongside reports from boroughs, has indicated that supply has continued to contract with Spareroom.com reporting there are seven times more prospective tenants than rooms available in London.
This combination of increased demand at a time of falling supply means boroughs have been increasingly unable to source housing either as part of homelessness prevention activity or for moving households out of TA. This is leading to a growing crisis in TA with numbers set to rise significantly as more households become homeless while boroughs are unable to move existing homeless households out of TA into settled accommodation.
This shortage of emergency accommodation has meant boroughs are increasingly reliant on commercial hotels, with use of B&B accommodation as TA beginning to rise again after years of sustained reductions. Data from the Department for Levelling Up, Housing and Communities (DLUHC) for April-June 2022 showe a 53% increase in the number of homeless families housed in B&Bs in London compared to just the previous quarter, highlighting the increasingly desperate shortage of suitable accommodation in the capital.
Homelessness Funding Concerns
DLUHC has recently consulted on proposed changes to the Homelessness Prevention Grant - the main source of funding for local authorities to tackle and prevent homelessness. London Councils’ analysis shows that the two proposed options would both result in reduced resources from 2023 onwards, despite London having by far the highest homelessness rates in the country. One of the options could lead to a 32% overall reduction for local authorities across the capital – equivalent to London losing almost £50 million. This level of funding volatility risks destabilising services going into a period of great economic uncertainty.
The government’s planned reforms to the Homelessness Prevention Grant are taking place in the context of enormous pressure on boroughs’ resources for this work. Funding for local authorities in England to make Discretionary Housing Payments – a crucial homelessness prevention tool – has seen a 28% reduction in 2022-23. Most London boroughs are forecast to run out of funding for these payments before the end of the year.
Total spending on homelessness in London has increased by over 120% from £560 million in 2010-11 to £1.2 billion in 2020-21. London accounts for 60% of expenditure nationally. This has risen while London boroughs’ overall Core Spending Power – the funding available for spending across all council services – has fallen by more than 20% in real terms. While additional funding for local authorities to tackle homelessness is part of the solution, it must be part of a wider package of measures that address housing affordability and supply.
Conclusion
London Councils wants to see a national, cross-cutting homelessness and TA strategy to prevent homelessness and increase the supply of both TA and settled homes. In the long term, more homes will need to be built, specifically more affordable socially rented accommodation. In the short term, increasing LHA rates is the most effective tool currently available to the government to prevent and reduce homelessness.
