Poorer families excluded from at least a third of Britain by high rents, new report reveals

One third of Britain is effectively off-limits to lower-income working families looking to rent a home privately because they can no longer afford a property in those parts of the country.

An alarming new report from the Resolution Foundation, the first to give a comprehensive assessment of where less affluent families can reasonably afford to live, reveals that even a very modest rented home is beyond the reach of low income households in 33 per cent of all local authority areas.

The study, Home Truths, reveals how the demand for private rentals, coupled with low interest rates, means rents are now more expensive than the cost of monthly mortgage repayments on a property in almost half (45 per cent) of the country and exceed the costs of social rent and shared ownership schemes in all cases. Yet private renting is increasingly the only option for millions of families who are not wealthy enough to afford a buyer’s deposit nor vulnerable enough to qualify for social housing. Most low to middle income households under the age of 35 (52 per cent) are now private renters.

The Resolution Foundation report, using comprehensive housing market data from independent residential property analysts Hometrack, looks at the example of a couple with one child and an annual net income of £22,000 to see where they can afford to live if they spend no more than 35 per cent of their net income on housing – a widely accepted definition of affordability.

The monthly rent on a modest two-bedroom property (costing a quarter of the most expensive property of its kind in the area) ranges from £340 in the cheapest part of the country, Blaenau Gwent in Wales – representing 18 per cent of the family’s net income – to £2,380 in the most expensive area, the London borough of Kensington and Chelsea – equivalent to 130 per cent of the same family’s net income.

Looking across the whole country the report finds:

• In 125 of the 376 local authorities in Britain studied (33 per cent), the rent would eat up more than 35 per cent of the family’s £22,000 net income, making it unaffordable
• In 38 of the 376 areas (10 per cent) the rent would consume more than half of their monthly net income
• And for a very low income working family – one with a household income of £19,000 – almost half of Britain (49 per cent of all areas) is unaffordable to rent
• Even a middle income couple (with one child and a median net income of £28,000) looking for a private rent would find themselves priced out of one in six areas of Britain (59 of 376) using the same 35 per cent measure

The report points out that that the high cost of renting affects not just London and the South East but creates affordability black spots across the country.  For example, Aberdeen, Exeter, South Cambridgeshire and Warwick in the West Midlands are all among the places where private rents exceed 35 per cent of net income for a low-income family, even on a modest property.

Shared ownership, the report shows, is the most affordable form of housing tenure.  In only one in 16 local authority areas (6 per cent) would a low income family have to spend more than 35 per cent of its income on housing. However opportunities for shared ownership are limited and less than 2 per cent of all households live in this type of tenure. Social rent also performs well – no areas being unaffordable on this income – though the stock of social housing has dwindled over the past 30 years and is heavily restricted.

Across the country, at least 1.3 million families on low to middle incomes have unaffordable housing costs says the study, which used data from the Government’s Family Resources Survey to show what proportion of their net income households spend on housing.

The picture becomes still bleaker when applying a different definition of affordability – the minimum income standard – which is calculated as the cost of meeting a basic standard of living as defined by members of the public.  Using the standard to see where the family on £22,000 a year could meet its housing costs and still have enough money left for the basic standard of living – the report finds there is nowhere in the country where this is possible for renters (private or social) and only one area where this is possible for a household who own with a mortgage.

A national shortage of housing is responsible for the affordability crisis, but the report says, local action to ease those pressures can be effective. For example building a new development of 100 homes for rent in an area many people can’t currently afford, would have a big impact on prices in that locale, even though its effect on the national housing shortage would be negligible. Local authorities should take a more active role in providing affordable housing for their communities – for example by earmarking some residential land for private rental development only, rather than for building homes to sell.

At a national level, the government should keep up the momentum on developing a new build to rent sector which would draw on private investment to provide purpose-built rental homes offering more secure tenures and better quality management. However the focus of the government’s recent policy announcement has been on home ownership, such as under the Help to Buy scheme announced in March’s budget

Vidhya Alakeson, deputy chief executive of the Resolution Foundation, said:  “There is an urgent need to provide more affordable housing for people on low and middle incomes.  They are increasingly unlikely to be able to afford the deposit to buy their own home so turn to the private rented sector – but here too they are now struggling to find decent, affordable housing.  Incomes for this group are not likely to grow for at least the next five years and this will only make the housing problem more acute.

“Only an increase in the stock of housing for rent can improve the situation and the government should make this a strategic priority.  People should not have to choose between decent, affordable housing and other essentials in life such as clothing, food or furniture – yet that is increasingly what is happening as housing costs escalate.”

Ends

1. Home Truths: Where can Britain’s ordinary working families afford to live? by Vidhya Alakeson and Giselle Cory is published by the Resolution Foundation and includes an annex which sets out the ratio of housing costs to typical incomes by local authority area.
2. In calculating housing costs, the report draws on data from Hometrack compiled between August 2012 and January 2013 which is taken from real sales information from a variety of sources, including Land Registry and Registers of Scotland and mortgage valuations figures from lenders.
3. The housing costs of low to middle income families in the report are calculated using the Family Resources Survey 2010-2011, published by the Department for Work and Pensions.
4. The report makes the following assumptions about housing costs: Social rent – Local social rents for general needs units: Shared ownership – 25 per cent equity share; 10 per cent deposit on the equity share; 5 per cent mortgage rent; 2.75 per cent rent on unsold equity. House values at the lower quartile of the local house value distribution Private rent – Local market rents at the lower quartile of the local rental costs distribution Private ownership – 10 per cent deposit; 5 per cent mortgage rate on house values at the lower quartile of the local house value distribution

5. All figures for the cost of home ownership in the report are monthly ongoing costs only – the costs of initial mortgage deposits are not included.
6. The model family used are a couple with one child. The full report shows this analysis for a couple with no children and a couple with two children.