London Councils commissioned Alma Economics to carry out an economic impact assessment of ending the freeze on Local Housing Allowance (LHA) rates in London. LHA rates serve as the upper limits for housing support in private rented properties, applicable to claimants of Universal Credit and Housing Benefit. In 2023/24, the LHA rates were determined by the 30th percentile of the 2020/21 market rents, having remained stagnant since 2020/21.

Our goal was to estimate the impact ending this freeze would have on public sector finances, specifically the additional public expenditure required to fulfil the higher LHA rates and the financial savings resulting from reduced levels of homelessness. To quantify these financial costs and savings, we built an economic model using aggregate data on housing support and estimated the impact of the LHA rates freeze on the number of people experiencing homelessness.

We found that the average annual cost of the policy change was between £630 and £857 million per year, whereas the average annual savings were estimated to be between £33 and £45 million per year. These savings are quite modest, representing only 5% of the costs.

The above cost and savings estimates relate solely to the impact on public finances. They do not take into account social welfare benefits including welfare gains from better accommodation conditions and reduced levels of poverty and homelessness. Regarding the latter, it was estimated that maintaining the rates freeze would lead to an additional 16,500 to 22,000 London households becoming homeless over the period from 2024 to 2030.

Our research contributed to the growing number of voices calling for unfreezing the LHA rates. This was addressed in the 2023 Autumn Statement when the Government announced the end of a four-year freeze, effective from April 2024.