Councils face £260m gap in temporary housing costs

The financial gap between what councils spend on temporary accommodation and what they are reimbursed by the Department for Work and Pensions (DWP) has surged to £260 million, according to new analysis by the Local Government Association (LGA).

The shortfall – a 30% increase in just one year – highlights growing strain on council budgets, with money being diverted away from vital homelessness prevention services. Over the past six years, the cumulative funding gap has reached £1 billion.There are currently 131,140 households living in temporary accommodation, an 11.8% rise since March 2024. This includes 83,150 families with children and 47,990 single households. Councils cover the upfront costs of housing benefit for these households, before being reimbursed by the DWP.

However, under existing rules, reimbursement is capped at 90% of Local Housing Allowance (LHA) rates set in 2011 – despite rental costs having risen sharply since then. In 2023/24, councils in England spent £1.04 billion on temporary accommodation, but the DWP reimbursed only £780 million, leaving a £260 million gap.

The LGA is calling for reimbursement rates to be aligned with current LHA levels. Had this policy already been in place, councils would have received £941 million last year instead of £780 million, significantly easing the financial burden.

Cllr Tom Hunt, Chair of the LGA’s Inclusive Growth Committee, said: ‘Councils are caught in a vicious cycle of ever-increasing temporary accommodation costs versus static rates they receive back to cover their costs. 

‘Current housing benefit reimbursement rules for temporary accommodation are outdated – councils must pay landlords according to current market rates, whilst reimbursement for councils is linked to 2011 rental rates.

‘This is effectively penalising councils for supporting families in temporary accommodation – a challenge which has seen an upward trajectory. 

‘This needs to change and government needs to act, specifically by making the rate the current rate, as opposed to one that’s 15 years old.’

The LGA is urging the government to update the system, warning that without reform, the pressures on council finances will continue to escalate, undermining efforts to tackle rising homelessness across the country.