Middlemen have pocketed virtually £650m over 5 years from UK councils combating a housing disaster.
Information obtained by Cash reveals 13 councils have spent £633m since 2020 on a mannequin generally known as rent-to-rent, when an middleman sublets one other’s property for revenue.
Two in London account for almost all of that spend, with one in every of them declaring chapter thrice in that interval and the opposite warning it’s on the brink as a consequence of housing prices.
The system is solely authorized, however campaigners at Era Hire query if it is proper to revenue from determined native authorities.
“Not only does a landlord get a big payday, but a middleman takes a juicy cut of the proceeds for doing very little,” Ben Twomey, the group’s chief government, stated.
“It will be much better value for local taxpayers if councils had a supply of their own affordable homes.”
He added: “In the meantime, councils should be avoiding these rent-to-rent arrangements and dealing with landlords directly, rather than those looking to cash in on human misery.”
What we discovered
In London…
And elsewhere…
Because the charts above present, Newham and Croydon are the most important spenders by a distance, accounting for simply north of half a billion kilos.
Earlier this 12 months, each councils had been amongst 30 promised extra cash by the federal government to deal with “financial pressures”, with Croydon to obtain £136m and Newham £51.2m.
Newham was given permission by the federal government this 12 months to lift its council tax by greater than the utmost of 5% – a fee that usually triggers an area referendum.
The council was allowed a rise of 8.99% with out going to the polls after ending the final monetary 12 months £22.2m within the purple – attributable to “spiralling costs of homelessness”.
Three quarters of the council’s funds is now spent on care companies and housing.
Responding to our findings, Newham stated it had made “no secret” of rising housing pressures.
“Much of this is due to landlords leaving the private rented sector because of regulatory changes such as tax reforms and concerns around the Renters Reform Bill,” a spokesperson added, referring to new laws that can curb landlord powers (extra on that shortly).
“At the same time, we have seen costs rise as a result of both the Home Office and other local authorities housing their own homeless people within our borough.
“This has meant a scarcity of provide, which has pushed up costs over the previous 5 years.”
Triple bankruptcy
Croydon was described as “some of the financially distressed councils within the nation” by the local government minister in June.
Jim McMahon said the council’s debt stood at £1.4bn and was projected to rise to more than £1.9bn by 2029.
Its council tax has increased by the maximum 4.99% in 2025/26 for the second time in a row, after a mammoth 14.99% increase in 2023/24.
In the meantime, social housing wait times can stretch up to 10 years.
“Like many boroughs, Croydon is going through important housing pressures, with excessive demand and a restricted provide of reasonably priced properties,” a spokesperson said.
“To assist meet this pressing want, we use a variety of momentary housing choices, together with preparations the place properties are managed by brokers on behalf of landlords.”
This is a “long-established mannequin” used by many landlords and councils across the country, they added.
“The charges paid by the council for these properties are fastened and much like properties secured straight from landlords.”
The council said rent-to-rent accounted for 7% of its temporary accommodation portfolio.
What is rent-to-rent and is it really a problem?
As we’ve already outlined, rent-to-rent is totally legal, giving owners guaranteed rent at a fixed sum while all the fuss and paperwork is passed on to an agent.
This agent – or middleman – then lets it out to a third party, typically charging more than what they pay in rent, leaving them with a profit.
In this case, that third party is a council trying to house homeless residents.
While it’s turning a profit for these middlemen, one London council insider said it wasn’t necessarily costing them more than the market rate.
It may be that the owner is letting the property at a lower cost, partly because this model saves them from any management.
But even if sometimes rates are reasonable, a director at of one of the council’s housing teams, speaking to us on the condition of anonymity, said it was “positively dearer”.
“It’s irritating that somebody is being profitable out of native authorities,” they said, adding they were seeing the model operating “extra extensively” and “pushing costs up”.
Rent-to-rent has “exploded” in recent years, according to the council services head at Justice For Tenants, which works with 133 councils to help in disputes with landlords.
Al McClenahan told Money one problem with the model was “typically, the extra hyperlinks there are within the chain, the extra points there are”.
“They could be making greater earnings than they need to be,” he added. “However how do you get higher worth?”
It “displays the present want for housing amongst homeless households”, he said, adding: “It’s higher worth for taxpayers than lodge lodging and much more appropriate for the households that occupy these properties.”
McClenahan certainly has a point here. Councils are obliged to house homeless residents and when there is no house or flat available, they may have to turn to hotels.
That’s a significantly more expensive option than a rent-to-rent arrangement.
Croydon Council, for example, said this year the average cost of nightly-paid accommodation – typically a hotel or B&B – had increased by 16% to £64.91.
The average two-bedroom council-run property last year cost tenants £130.90 a week. This means nightly accommodation there is almost four times more expensive.
Warrington Council, which hadn’t used rent-to-rent at all between 2020 and 2024 but had to this year, said it would prefer not to but the alternative was either a hotel or B&B.
Why is this happening?
Council after council told us the same thing – homelessness is up and there simply isn’t enough housing to go around.
One local authority source in London put it bluntly: “Our provide can’t address this surge in demand.”
Figures compiled by the Resolution Foundation in July back this up.
According to the think tank, the number of households in temporary accommodation in England has reached a record 128,000, up from 50,000 in 2010.
And the waiting list is even bigger. According to the latest government figures, there were 1.33 million households in the queue across England as of March 2024.
In the London borough of Brent alone, Money understands there are 33,000 on the waiting list, which equates to 10% of the population there.
Some families have been on the list since last century.
Analysts have often traced the shortage back to Margaret Thatcher’s government and the Right to Buy scheme, under which just over two million social homes have been sold in England at discount since April 1980.
In December 1979, almost 5.2 million homes were rented from a council. In March last year, that number stood at little more than 1.5 million.
Charities such as Shelter believe the country needs 90,000 new social homes each year to meet demand.
Tackling evictions
Generation Rent also points to Section 21 of the 1988 Housing Act, which allows landlords to evict tenants with two months’ notice without giving a reason.
That, campaigners have said, is a major contributing factor to rising homelessness.
“Evictions place a horrible burden on society,” Twomey said.
“Not solely are households dropping their properties, however landlords are leaving the general public sector to select up the items, typically forcing councils to pay monumental sums to rehouse homeless households via elaborate rent-to-rent schemes.”
A new Renters’ Rights Bill will ban no-fault evictions and is expected to become law.
Meanwhile, the Labour government has set a target of 1.5 million new homes in its first five years in power, and in July revealed plans for 180,000 social homes in the next decade.
The Resolution Foundation welcomed that target, but warned the country was starting from a “traditionally low base of house-building”.
Planning approvals for new housing in the last quarter of 2024 stood at the lowest level since 1979, at just 7,356, it added.
“The federal government’s house-building ambitions, its deal with planning reform and the onerous money for reasonably priced properties are all welcome,” the group’s economist Camron Aref-Adib said.
“However this disaster is deep-rooted and can’t be fastened shortly.”
