Housing Cost Crunch Hits Low-Income Families: Resolution Foundation 2026

The housing cost crunch is intensifying for over 1.1 million low-income families in rented homes, warns the Resolution Foundation. Without urgent action from Housing Secretary John Healey in next month's budget, these families face an escalating financial crisis. The thinktank's new report, Saving Private Renters, highlights a widening gap between frozen Local Housing Allowance (LHA) rates and soaring private rents.

What Is the Housing Cost Crunch?

The housing cost crunch refers to the growing disparity between the financial support low-income renters receive and the actual cost of renting a home. LHA, which helps cover rent for those on benefits, has been frozen in cash terms since autumn 2024. Meanwhile, average rents have continued to climb, leaving families to bridge an ever-larger shortfall.

According to the Resolution Foundation, a low-income family renting a typical two-bedroom flat now faces an average weekly shortfall of £158. In parts of London, this gap exceeds £300 per week. The thinktank warns that without re-pegging LHA to actual rents, the shortfall could reach 30% by March 2028.

Why the Freeze Matters

The freeze on LHA means that even as rents rise, the maximum housing benefit available to private renters remains static. This forces families to cut back on essentials like food and heating to cover their rent. The Resolution Foundation's analysis shows that 90p of every £1 increase in LHA goes directly to tenants, rather than being absorbed by landlords through higher rents.

Stephen Hunsaker, economist at the Resolution Foundation, said: “The gap between average rents and Local Housing Allowance levels is set to reach a record high this October, and failing to repeg LHA to actual rents in next month’s budget could lock in a freeze for another year, and see the gap reach 30% by March 2028.” He added that many tenants are already going without essentials to pay their rent.

Regional Disparities in Housing Support

The shortfall varies significantly across the UK. London renters face the most severe gap, with some areas seeing weekly deficits of over £300. Other regions also experience substantial shortfalls, though less extreme. The table below compares the average weekly LHA shortfall for a two-bedroom flat in different areas.

Key Takeaways for Renters and Policymakers

• 1.1 million families are affected by the housing cost crunch.
• LHA has been frozen since autumn 2024, while rents continue to rise.
• Average shortfall for a two-bedroom flat is £158 per week, rising to over £300 in London.
• Re-pegging LHA to actual rents would primarily benefit tenants, not landlords.
• Without action, the gap could reach 30% by March 2028.

What Can Be Done?

The Resolution Foundation urges the government to restore the automatic link between LHA and local rents. This would ensure that housing support keeps pace with market realities. The report dismisses concerns that increasing LHA would inflate rents, citing evidence that 90% of the benefit goes to tenants.

John Healey is expected to announce budget measures next month. Advocacy groups are calling for urgent action to prevent further hardship for low-income families. Without intervention, the housing cost crunch will deepen, pushing more families into debt and homelessness.

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