The Financial Strain and Social Impact of Temporary Accommodation (TA)

The growing reliance on TA is placing a severe strain on London boroughs and their ability to deliver other essential services.

As of March 2024, 65,280 households, including 86,810 children, are currently living in TA across the capital.

The financial cost of TA is unsustainable, with London Councils estimating that councils in the capital are collectively spending £114 million per month, equating to over £1 billion annually.

This strain is stretching council budgets to breaking point. London Councils’ latest analysis showed that councils across London could face a combined £700 million budget shortfall if this situation persists.

Boroughs are diverting resources away from other critical services in order to manage this escalating TA demand. The strain is most acute in boroughs with higher levels of homelessness, where the percentage of local budgets spent on TA is crippling their ability to invest in long-term affordable housing.

TA often places families in unsuitable conditions, including hotels or nightly-paid accommodation away from their support networks. This instability leads to further negative outcomes, particularly for children, whose education, mental health and well-being are adversely affected by frequent moves and insecure living conditions.

Capital Letters’ research suggests that councils save an average of £12,000 per household per year moving from TA to a home with rents at the Local Housing Allowance (LHA) rate. This highlights the need for urgent action to increase affordable housing supply, as these savings could be redirected into other vital services or reinvested into long-term housing solutions.

The Supply Challenge: A Severe Imbalance Between Demand and Affordability

The severe shortage of affordable rental properties in London has exacerbated homelessness and forced more families into TA. Recent analysis undertaken by Savills, commissioned by London Councils and Trust for London, underscores just how precarious the situation has become:

Only 5% of rental listings in London were affordable for households receiving Local Housing Allowance (LHA) between July and September 2024. This represents a sharp decline compared to 18.9% in 2020-21, highlighting the growing affordability crisis in the capital that is leaving thousands of families at risk of homelessness.
45,000 private rental properties were sold between April 2021 and December 2023 without replacement, equivalent to 4.3% of London’s entire rental housing stock. This shrinkage in supply has disproportionately affected low-income families who rely on the availability of affordable private rental homes.
The most affordable areas in London are losing rental properties at a faster rate than wealthier neighbourhoods. Properties in these areas are being removed from the rental market at a rate of 3.3% per month, compared to 2.6% in the rest of London.

The supply-demand imbalance is pushing rents even higher, with rents rising by 9.7% in the year to June 2024. Such steep rent inflation is leaving many families – who might have previously been able to afford private rentals – unable to secure permanent housing, pushing them into TA.

This issue is compounded by the broader contraction in London’s buy-to-let market. According to Zoopla, 13% of homes for sale in October 2024 were previously rental properties, with many landlords being forced to sell due to rising mortgage rates. The majority of these sales are concentrated in London and the South East, worsening the already dire shortage of affordable rental homes.

Capital Letters’ Calls for Action

The shortage of affordable housing and the rising costs to London councils of TA are challenges which are interconnected with broader issues in London’s housing market and the benefit system.

Our four key recommendations below aim to create long-term solutions to relieve the strain on boroughs, reduce homelessness and ensure that more families can access stable, affordable housing.

A Homelessness Strategy that Spotlights the TA Crisis
We welcome the Government’s commitment to a cross-government strategy to end homelessness. Whilst tackling rough sleeping is a key part of this, any such strategy must also focus on reducing the significant number of households, and particularly families, in temporary accommodation.

Investing in the Benefits System for Long-Term Savings
London Councils found that an additional 16,500 to 22,000 London households could face homelessness over the next six years if the LHA rate is not permanently unfrozen. Ensuring that LHA permanently covers the lowest 30% of local rents could save over £100 million annually in public spending by reducing homelessness costs.

However, it is not just the LHA that needs attention. Before the LHA increase, more than 25,000 households in London had their income reduced as a result of the benefit cap. The Resolution Foundation found that not increasing the cap at the same time as unfreezing the LHA meant that thousands of households would receive limited or no extra income.

We are calling on the Government to:

Permanently align the Local Housing Allowance (LHA) with the bottom 30% of local rents to ensure it keeps pace with rising rent levels.
Remove the overall benefit cap and the two-child limit to prevent more families from falling into homelessness. These caps disproportionately affect low-income families and those with young children, making it increasingly difficult for them to secure suitable housing.

Bringing Empty Homes Back into Use
Across London, there are just over 36,000 long-term empty homes – i.e. those that have been vacant for over 6 months. This does not include second homes and those going through probate. If these homes were brought back into use, they could house half of the households currently in TA in London.

The Government should prioritise bringing these properties back into use by creating a National Empty Homes Strategy. This could also include:

Ringfencing some of the Affordable Homes Programme funding to support bringing long-term empty homes back into use or create a dedicated Empty Homes funding pot.
Councils could also be required to ring fence money coming from the empty homes tax to invest in further measures, such as increasing staffing resources to engage with owners, which would result in more empty homes being brought back into use.

Stronger Regulation of Short-Term Lets (STLs)
In May, London Councils estimated that there were at least 43,000 short-term lets in the capital, equivalent to one in every 85 London homes. The proliferation of STLs is driving up rents and exacerbating the housing crisis by reducing supply for permanent residents.
We support Sadiq Khan’s previous calls to implement a local licensing scheme for STLs that would limit the number of licenses granted for short-term lets and enforce stricter compliance with the 90-day rental cap to ensure that these homes remain available for long-term tenants.