Some home truths

In Britain today, a couple earning £22,000 with one child looking to buy a home are priced out of almost 40 per cent of local authorities.

How did we end up here? And where in Britain can low-income working families afford to live? According to our report Home Truths–published last week, a third of the country’s privately rented accommodation is also out of reach to the family described above.

To live in these areas they would have to spend more than a third of their net income on housing–widely considered unaffordable.

Large swathes of southern England are now out of reach and the situation in London is particularly acute. With the honourable exception of Bexley, there is no local authority in London where renting privately or owning with a 90 per cent mortgage is affordable to families in the bottom half of the income distribution.

At the root of the problem is our year-on-year failure to build as many homes as we need. This has pushed house prices to an historic high. The average house price is now, even after the financial crash, nine times the average gross wage, while in 2001 it was ‘only’ six times the average wage.

Deposits are now beyond the reach of large numbers of lower income families, even at a time of extremely low interest rates. Lower income families are left with only one option–private renting.

The dwindling stock of social housing is now targeted at the most vulnerable. With monthly mortgage costs temporarily suppressed, renting appears poor value by comparison: it now costs more to rent than to buy in nearly half of the country. Add to this mix a protracted squeeze on incomes and growing numbers of ordinary working families find themselves struggling to keep up with housing costs.

Fixing a problem that has developed over decades will not be quick or easy. We urgently need more supply, but addressing affordability has to be more than a numbers game.

Take Manchester as an example. The city has a good supply of social housing but it needs more high quality private rental property for working people who are currently struggling to afford to stay in the city where the jobs are.  We need a strategy to build the right type of new homes, in the right places, and at the right kind of price.

The government’s new Help to Buy scheme will undoubtedly enable some middle income families to get on the housing ladder–but for others ownership, even with a high loan to value mortgage, will be too great a stretch. Shared ownership is a more affordable way for lower income families to move into ownership. The Gentoo housing association’s Genie Home purchase plan, started in Sunderland and now being spread nationwide, is an example of innovative thinking in this area. It allows individuals to buy a home over 30 years without an initial deposit or mortgage.

This is one among several innovations that need support to grow. The extension of the government’s £1bn debt guarantee to these Rent-to-Buy schemes is one opportunity to support the growth of new routes to ownership for lower income families.

The government has put significant weight behind the development of a new Build To Rent sector that will offer purpose-built, professionally managed rental developments and potentially greater security for those who are likely to be long term tenants.

But further efforts are needed if Build to Rent is to deliver more than rental properties for the top quartile of earners in London and the South East where the prospects for capital growth make it a gamble investors are more willing to take.

Making Build to Rent affordable for lower-income groups across the country will require greater certainty for investors over the strength of the government guarantee. Public landowners will need to use their land creatively to improve the viability of such schemes. Local authorities could, for example, provide land on a long-term lease, retaining ownership, but charge an annual ground rent in order to make a return and reduce the upfront costs of land.

Without a multi-tenure strategy for housing supply, the safety net of housing benefit will continue to take the strain. Already the number of housing benefit recipients who are in work has risen from 430,000 in 2008 to 956,000 in 2011 (the overall case load increased by a fifth over the same time period), although those in work remain a minority. Without sustained effort to improve affordability, the housing benefit bill will continue to rise and progress on deficit reduction will continue to be slow.

This blog originally appeared on Prospect Magazine Blog