Guidance

Terms of reference for VfM Study on procuring short-term residential accommodation

Published 11 March 2025

1. Overview

Short term residential accommodation is procured by local authorities and by multiple central government departments, including the Ministry of Housing, Communities & Local Government, the Home Office, the Ministry of Defence, and the Ministry of Justice. It is used for a range of different cohorts, including the homeless, asylum seekers, Afghan arrivals and prison leavers.

The scale of spend in this area is significant. In 2022-23, the Home Office spent £2.3 billion on hotels as part of asylum support,^{[footnote 1]} while local authorities separately spent over £1.6 billion on procuring short term residential accommodation.^{[footnote 2]} The government is committed to ending the use of hotels for asylum seekers, and increasing supply through building 1.5 million homes in England. It has also announced measures to tackle homelessness. But demand for short term residential accommodation across all of the cohorts is likely to remain over the coming years, given other pressures on housing supply, and risks presented by global instability. The NAO’s recent report on homelessness concluded that the wide-scale use of temporary accommodation is likely to continue to be required in the short term.^{[footnote 3]}

The unit cost of short-term residential accommodation increased significantly in recent years.^{[footnote 4]} The Institute for Public Policy Research (IPPR) reported in 2024 that per asylum seeker costs had increased by 141% from £17,000 in 2019-20 to £41,000 in 2023-24.^{[footnote 5]} Private sector suppliers of short-term residential accommodation have made record profits in recent years, leading to accusations of profiteering. There is also evidence that some forms of short-term residential accommodation have a detrimental impact on children and families.

Independent experts, including the NAO and Centre for Homelessness Impact, have identified shortcomings in the procurement of short-term residential accommodation that may have prompted these issues:

• there is extremely limited coordination between public sector bodies, which may in and of itself be driving increased costs to the exchequer^{[footnote 6]}
• capacity and capability for procuring short-term residential accommodation has been spread thinly across government departments and local authorities.

Given the lack of co-ordination in procurement of short-term residential accommodation, the steep rise in costs, and likely ongoing reliance on it in the short term, there is a value for money case for improving the procurement of short-term residential accommodation across central and local government.

2. Scope, issues and challenges

This study will consider any form of accommodation that is provided at public expense while an individual or family is awaiting longer-term housing. This includes but is not limited to accommodation in hotels, bed & breakfasts, and the private rented sector.

The study will not consider who is entitled to short term residential accommodation; how to tackle the longer-term drivers of demand for short term residential accommodation; or broader questions related to the government’s housing strategy.

The study will explore a range of issues, including:

• the relationship between central and local government, the nature of devolution arrangements, and their implications
• how to make the most of capacity and capability for procurement of short-term residential accommodation within central and local government, balanced against the need for incentives to manage demand
• the functioning of the market, and how to develop a stronger pipeline of appropriate supply

3. Governance and resourcing

The Chief Secretary to the Treasury will oversee the study at a ministerial level, supported by the Deputy Prime Minister and the Home Secretary.

A senior official group, with representatives from relevant departments, will oversee policy development and the recommendations to ministers. This study will be resourced by officials from the Office for Value for Money, the Home Office, the Ministry of Housing, Communities & Local Government, the Ministry of Defence, the Ministry of Justice and HM Treasury, with input from the Cabinet Office and the Government Commercial Function.

The study will be informed by engagement with local authorities, the Local Government Association, the Centre for Homelessness Impact, and other relevant experts.

4. Timetable and output

The study will inform decisions at the upcoming Spending Review, and progress to the following timetable:

• February-March: policy development
• April: update to the ministerial oversight group
• May: Spending Review negotiations
• June: publication of the study’s outputs in the Spending Review

The OVfM will consider the outputs of this study as it develops options for system reform.  Given the OVfM is a time-limited organisation, the Spending Review will set out who will oversee implementation of the outputs.

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1. National Audit Office (2024), Investigation into asylum accommodation. ↩

2. National Audit Office (2024), The effectiveness of government in tackling homelessness. ↩

3. National Audit Office (2024), The effectiveness of government in tackling homelessness. ↩

4. Centre for Homelessness Impact (2024), Spending on Temporary Accommodation: Is it Value for Money? ↩

5. IPPR (2024), Transforming asylum accommodation. ↩

6. IPPR (2024), Transforming asylum accommodation. ↩