High housing costs are a particular strain on Britain’s growing army of private renters

Much of the housing debate focuses on the struggle to get on the housing ladder. It’s easy to see why. Imagine you are a middle income family wanting to buy an average priced home. Twenty years ago, if you budgeted carefully and put aside five per cent of your income each year for a deposit it would have taken you three years to save enough to realise your home-owning dream. Today, it will take you twenty-two.

The lived experience of housing costs across the UK is the focus of ongoing Resolution Foundation work which explores housing from a living standards perspective. By analysing the proportion of income that working age households have spent on housing costs over time, we see who has won and who has lost in the high housing stakes of the last two decades.

Those who have bought with a mortgage have had mixed fortunes. In the 1990s they spent around a fifth their incomes on housing. As house price growth outstripped earnings in the mid-late 2000s, this rose rapidly so that by 2008 mortgagors spent over a quarter of their income on housing. Post-crisis their lot has improved, due in large part to the unprecedented cutting of interest rates to 0.5 per cent. While house prices rises mean the stock of debt among homeowners is growing, these low interest rates are damping down overall costs. Today’s mortgagors spend on average 23 per cent of their household income on their homes.

Private renters have consistently spent a higher proportion of their budgets on housing, averaging around 29 per cent since the early 1990s. But unlike mortgagors, their housing costs have not dropped significantly in the post-crisis period. The benefit of low interest rates has not been passed on to date.

This is unsurprising given that demand for private rented properties is running at an all-time high. As well as driving up housing costs over time, the house price boom has locked out many from home-ownership. The figures say it all – the proportion of households who rent privately has more than doubled since the early 1990s. The profile of private renters is changing too. Generation Rent is growing up – and having children to boot.

Finally, we shouldn’t forget households who live in the social rented sector. Their housing costs are largely determined by policy. The over-indexation of social rents has driven up costs in recent years while welfare reforms have reduced incomes. As a result, social renters currently spend a record fifth of their income on housing. While lower than home-owners and private renters it’s worth remembering that social renters have the lowest residual income – and hence the slimmest margins – after housing costs.

So what does the future hold for all these groups? The combination of relatively weak income growth, rising house prices and the eventual rise in interest rates mean that housing costs are likely to absorb a growing share of household income in the coming years. Radical policy action that tackles both housing supply and demand, and focuses on all tenures rather than simply boosting home ownership, are needed to arrest this trend. Housing does indeed look set to be the living standards issue of this parliament.

This post originally appeared on the Chartered Institute of Housing blog