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Price tag of temporary accommodation to councils set to balloon to almost £4 billion by 2029/30 without action, warns LGA 

The gap between what councils pay out in housing benefit and how much the Department for Work and Pensions (DWP) reimburses them is projected to cost local government nearly £4 billion between 2017/18 to 2029/30, new analysis reveals.

The analysis, released ahead of the Spring Statement, was carried out by the Local Government Association (LGA) and looked at the cumulative cost of the ‘Temporary Accommodation Subsidy Funding Gap’ in the past eight years. 

It found that since 2017/18, councils across England have spent almost £1.5billion more on temporary accommodation than they have been reimbursed through subsidies. This is alongside cost and demand pressures continuing to outstrip the overall funding available to councils, which has compounded over many years and had a damaging impact on council services

Yet without intervention, this figure could balloon to nearly £4 billion (£3.9 billion), within the next four years (2029/30), an increase of more than double. 

While households receive the full housing benefit they are entitled to, the amount councils can claim back from DWP is currently capped to 90 per cent of Local Housing Allowance (LHA) rates from back in 2011.

This means councils are not able to claim back costs that reflect what they are spending, and it is increasingly getting worse as the demand for temporary accommodation (TA) rises and they can claim back less.

the LGA is calling on the Government to address this issue urgently by uprating the LHA rate councils can be reimbursed to 90 per cent of the prevailing LHA rates. 

In addition to identifying how much this difference had left local taxpayers to pick up over recent years, it also found that the annual gap was set to grow by 65 per cent in the next five years, from nearly £360 million to £595 million per year, without decisive action. 

In 2024/25, the most recent year for which we have data, the total spend on housing benefit for councils in England on temporary accommodation was £1.27 billion, while the DWP only reimbursed £911 million to councils, leaving an almost £360 million gap.

If the LGA ask of uprating the subsidy rate to 90 per cent of prevailing LHA rates were agreed, the total projected cumulative cost by 2029/30 will be 37 per cent less than if nothing is changed - that is a saving of £1.5 billion to councils, money that could significantly boost homelessness prevention and council housebuilding. 

The scale of the problem is immense, with currently 132,000 households in TA including 172,000 children.

Cllr Tom Hunt, Chair of the LGA’s Inclusive Growth Committee, said: “The temporary accommodation subsidy gap is a problem that is getting worse each year but is fixable. This would have a huge boost to council finances, money which could go towards preventing homelessness and building the homes that our communities desperately need . 

“Yet because of this ever-widening issue councils are caught in a vicious cycle of ever-increasing temporary accommodation costs versus static rates they receive back to cover their costs.

“We urge the Government to uprate housing benefits to 90 per cent of the current LHA rate – this outlay could yield significant results for the economy and national wellbeing.”

How the Temporary Accommodation reimbursement process works; 

Step 1: Individuals/families who are in immediate need of temporary housing are directed to contact their local authority. It is at this point that the local authorities are legally required to assess the needs of their residents and determine whether they are eligible for temporary accommodation.  

Step 2: If the individuals/families meet the conditions for assistance, they are placed into available temporary accommodation. These may be hostels, temporary flats owned by private landlords, councils, or housing associations, or even B&Bs and hotels.  

Step 3: Generally, the local authority covers the upfront cost of the temporary accommodation and is subsequently reimbursed through direct payment from the individual’s benefits (when applicable), Discretionary Housing Payments (DHPs), and homelessness prevention grants from the central government. DWP is responsible for administering the reimbursement process. Additionally, the local authority has a duty to provide ongoing support to its residents, including helping individuals in temporary housing find permanent housing and providing resources to help resolve the root causes of homelessness.  

The amount of TA reimbursement is calculated based on Local Housing Allowance (LHA) rates specific to the Broad Rental Market Area (BRMA) where the accommodation is located. The rates are based on January 2011 LHA rates and vary by the type and size of the property. Applicable LHA rates range from the one-bedroom rate to the five-bedroom rate.  

Non-Self-Contained Accommodation (Board and Lodging or Licensed): The subsidy is limited to the one-bedroom self-contained LHA rate for the property’s location, and even if more than one room is occupied by the same household, no extra subsidy can be claimed.   

Self-Contained Licensed and Short-Term Lease Accommodation: The maximum subsidy is 90 per cent of the LHA rate for the size of the property.  

Furthermore, the subsidy cannot exceed the weekly Housing Benefit entitlement, or the upper cap limit (£500 per week for accommodation within six London (Central London, Inner West London, Inner North London, Inner South West London, Inner East London, Inner South East London, Outer South West London) and £375 for all other BRMAs).