Hello, sorry to hear about Peanut. The area appears red with hair loss likely from him biting/chewing at it. Potential causes for this may include a local allergy with development of a secondary hotspot, he may be very itchy from flea allergy dermatitis, or he could have a primary skin infection with bacteria, yeast, or even parasites. I would recommend having his veterinarian examine that portion of his lower back to determine if this is most likely associated with allergies or an infection which will then direct this treatment suggestions.
In the interim make sure he is not licking or scratching at the area incessantly. Hope this helps and best of luck.