Cost of housing homeless people skyrocketing for councils

England’s housing crisis has reached boiling point. Soaring rents are leaving millions vulnerable to ​“no-fault” eviction and homelessness, as landlords evict tenants to capitalise off higher market values. Far from providing stability, our housing system has become a source of hardship for many. At the sharpest end are the 109,000 homeless families, including over 140,000 children, stuck in often unsuitable temporary accommodation (TA) while awaiting permanent housing.

These in-between homes often lack adequate facilities and pose safety risks: three-quarters suffer from poor conditions, with one in five facing hazards such as faulty wiring and fire risks. Most appallingly, 55 children have died at least in part because of conditions in their TA since 2019. Over two-thirds of children have inadequate access to basic amenities like cooking or laundry, whilst more than one in three lack their own bed to sleep in.

The instability and unsuitability of temporary lodging TA only compounds the hardship already faced by homeless families and children, especially more vulnerable groups such as survivors of domestic abuse.

But alongside this human crisis, the situation is causing a severe strain on local authority finances across England. Councils face mounting financial challenges and a surge in homelessness, which they have legal duties to address. With six local authorities since 2021 going bust, and one in 10 expected to join within the next year, councils are pressed for choices and strapped for cash. Recently, this government offered a last-minute £600m funding top-up aiming to prevent further council bankruptcy. However, this stopgap measure is not enough to plug the estimated £4bn funding gap.

Underlying issues

The root causes of this financial strain are twofold. Firstly, rising rents coupled with the freezing of the local housing allowance (LHA) TA subsidy from 2011 to 2024 have left councils grappling with a growing gap between housing costs and government support. In London, the LHA TA subsidy now covers only 69% of total TA expenses.

Secondly, the chronic lack of available social housing has forced councils to increasingly rely on more expensive forms of TA, particularly private rented sector (PRS) lettings, bed and breakfasts, and hostels. This reliance on costly PRS placements has been a driver of the surge in TA expenditure across England, from £1.4bn in 2018/​19 to £1.8bn in 2022/​23. London boroughs have been hit hardest, with the capital’s TA spend reaching £1bn annually, comprising 60% of the national expenditure, despite containing only 16% of the English population. At the same time, London’s councils’ TA costs have risen by 30% over the past five years.

The use of nightly paid dwellings, an expensive last resort for councils, has also risen sharply. Nightly paid accommodation are self-contained housing units rented from landlords on a nightly basis and managed by private bodies or individuals. Councils’ net spending on this across England has nearly doubled from £55m in 2021 to £107m in 2022, rising another £50m last year. At NEF we have submitted Freedom of Information Act (FOI) requests which show a third of responding councils had more than doubled their gross spending on nightly paid TA between 2018/​19 and 2022/​23.

London councils in particular have rapidly increased their reliance on this inadequate and costly form of accommodation. Over the past five years, Croydon has spent a net of £53m on nightly paid TA alone. At the same time, the council is cutting £200m from vital services like social care and education and hiking council tax by 15%, in an attempt to balance its books after going bust in 2022.

The use of nightly paid TA is exacerbating councils’ financial turmoil whilst confining families to often poor-quality accommodation, including converted office space described by tenants as ​“uninhabitable”. Local authorities are compelled to divert substantial funds towards what tends to be substandard TA, straining their budgets and compromising their ability to adequately finance other vital services.

Figure 1: The costs of homelessness to London councils have risen by 30% since 2018/​19

While this crisis is being felt most keenly in London, it is not confined to the capital. Our FOIs find that this spend looks set to continue rising. Southampton Council, for example, spent £23,000 in 2018/​19 on gross nightly paid expenditure, skyrocketing to £700,000 in the first three-quarters of this current financial year alone – an increase of over 30 times. Smaller councils have faced even more staggering hikes, with Rother going from spending just under £6,000 in 2018/​19 rising to a staggering £342,000 in little more than the first half of 2023/​24; an 8,000% surge in gross spend on nightly paid TA over the past 5 years.

Further examples include Manchester City Council, whose gross spend on nightly paid TA last year was £19.5m. Just over halfway through this financial year, they have already spent over £22m, meaning they are likely to spend double over the course of just one financial year. Meanwhile, Solihull have already spent six times as much in just over half of this financial year compared to 2021 – a jump from £41,000 to £250,000.

Figure 2: The percentage of TA spend on nightly paid tenure has risen to nearly a third of overall costs

How have we got into this mess?

The proportion of English households in social housing has halved since 1980, restricting access for 1.2 million households languishing on waiting lists and 310,000 homeless households. Faced with depleted housing stocks following decades of forced sales and having been prevented from building replacements by financial restrictions, councils have no choice but to address rising homelessness using market options.

We need immediate solutions. Instead of reneging on its commitments to renters, this government should abolish no-fault evictions and related policies that exacerbate housing insecurity. As a minimum, this government must ensure the LHA TA subsidy, which has been frozen since 2011, is uprated to establish a sustainable solution for councils moving forward.

Councils also need to be given grant funding and the tools they need to acquire new social homes to meet the challenge of rising homelessness. The government should encourage councils to buy homes to let for social rent or as TA – just as the Greater London Authority has done – allowing them to act quickly and better target supply with need. Our research at NEF has shown that over the next two decades, acquisition programmes in London will save councils £1.5bn in reduced TA costs, and deliver central government savings of £780m.

Fundamentally, we urgently need a new generation of social housing to address the housing emergency and provide safe, secure, affordable homes. In England, the number of social rented homes sold through the right-to-buy scheme surpassed those built in 2022/​23, with nearly 11,000 sold compared to over 9,500 completed. As well as resolving the homelessness crisis, building 90,000 social homes a year will generate £12bn in annual economic activity, paying for itself after 11 years.

This complex set of problems requires systemic, long-term solutions to grapple with the huge challenges driving human misery and pushing councils to the brink. Councils and housing associations must be given the funds and tools to deliver the affordable, secure, high-quality homes we desperately need. With ambitious, common sense policies focused on sustainable solutions, we can pull millions out of housing need. But swift, ambitious action is needed before the human and financial cost of homelessness spiral further out of control.

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