Local councils in England face a temporary accommodation funding gap of nearly £4bn by 2029-30 as government reimbursements fail to keep pace with rising costs, the Local Government Association has warned.
Widening subsidy gap threatens council finances
Analysis released by the LGA found that since 2017, English councils have spent nearly £1.5bn more on temporary accommodation than they received back through subsidies. But this shortfall could more than double over the next four years to £3.9bn, as the amount of housing benefit councils can claim back remains capped at 90 percent of Local Housing Allowance rates from 2011.
In 2024-25, English councils spent £1.27bn on temporary accommodation but were only reimbursed £911m by the government – a shortfall of £360m in a single year. The growing deficit adds to existing cost pressures that have left many councils struggling with mounting debt.
Currently 132,000 households are in temporary accommodation, including 172,000 children. The LGA is calling on government to update the subsidy calculation to 90 percent of prevailing LHA rates – a move it says would cut council costs by 37 percent and save £1.5bn.
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.”
Landlord partnerships under pressure
The funding squeeze comes as councils increasingly turn to private landlords to house homeless families. This follows Residential Landlord’s February report on Liverpool Council negotiating lower rates with landlords, which cut its temporary accommodation spending by a third. However, with subsidies frozen at 2011 levels while market rents have climbed, councils face a difficult choice between paying landlords competitive rates or losing access to properties.
Some councils have responded by launching direct appeals to landlords. Sheffield Council recently offered guaranteed rent and damage cover to recruit private landlords, while several London boroughs have increased payments above LHA rates to secure properties.
The government has pledged to reduce temporary accommodation use, with homelessness minister Alison McGovern saying she wants to end B&B use for families by the end of this parliament. However, ministers have frozen LHA rates until 2026, despite calls from across the sector for a boost.
A government spokesperson said: “We’re tackling the impact of rising rents and the housing shortage with our commitment to build 1.5 million homes – including the biggest boost to social and affordable housing in a generation. We are also investing more than £1bn in homelessness services, launching a cross-government homelessness strategy and investing a record £39bn in affordable and social housing.”
Opinion
The mathematics here are brutal. Councils need private landlords to house homeless families, but the subsidy system makes this ever harder to sustain. For landlords considering council placements, the message is mixed: guaranteed income appeals, but councils under financial strain may become harder negotiating partners. The government’s housebuilding promises offer no short-term relief.
