Cost of living pressures have not fallen as fast as inflation, as high – and highly variable – housing cost rises move centre stage

The cost of living challenges facing British households have not disappeared with fast falling inflation, as high and highly variable housing cost rises offset the welcome return of pay rises, according to new research published today (Thursday) by the Resolution Foundation.

The report Pressure on pay, prices and properties, which uses data from an October 2023 YouGov survey of 8,378 adults – supported by the Health Foundation – examines how the cost of living crisis has evolved and the impact on households, with a particular focus on pay and housing costs.

Recent significant falls in inflation – which fell to 4.6 per cent in October from 10.1 per cent as recently as March – should not be taken as indicating that the pressure on households has disappeared, warns the Foundation. People are twice as likely to report that their financial situation had become worse between July and October 2023 than better (38 per cent vs 15 per cent).

The extreme pressures experienced by households in the Autumn of 2022 (when 30 per cent experienced food insecurity, defined as an inability to afford sufficient food over the previous month) have eased somewhat but remain well above normal levels. This Autumn, 22 per cent of households are food insecure – almost three times as many as were in that position pre-pandemic (8 per cent).

These living standards pressures persist despite the welcome return of real-pay growth, which is up 1.5 per cent in the three months to October. In October, workers were more than twice as likely to report that their pay had risen, as opposed to saying it had stayed the same or fallen (48 per cent versus 23 per cent), and more than a third of workers reported getting an above-inflation pay rise.

This reflects a new phase in the cost of living crisis, as rising housing costs move centre stage, says the Foundation. Over two-in-five (42 per cent) households reported an increase in their housing costs this autumn, more than at any point in the past decade.

The recent increases in housing costs are also far larger than normal with a quarter of people seeing housing cost rises of 14 per cent or more over the past 12 months (pre-pandemic, only 15 per cent saw a rise of that scale).

Renters are most likely to have seen rising housing costs, but those with mortgages who are affected have seen the biggest rises. 54 and 43 per cent of social and private renters respectively have experienced higher housing costs since October 2022, compared to 35 per cent for those with a mortgage (reflecting the rise of fixed-rate mortgages). But among those whose housing costs have risen, the average increase over the past year was 23 per cent for mortgagors, compared to 7 per cent for private renters.

The Foundation notes, however, that this phase of the cost of living crisis – with different people seeing very different pay and housing cost rises – may be experienced in a wider variety of ways than fairly universal surges in food and energy prices.

For example, although housing cost rises were experienced fairly equally across the income distribution, there are large differences by age, because older working-age adults are far more likely to own their home outright. Only a quarter (25 per cent) of 55-64-year-olds saw their housing costs go up, compared to two-fifths of adults under 55.

The research identifies a group of ‘housing pinched’ individuals, who have seen their housing costs increase but not seen a pay rise, with about one-in-seven working-age individuals falling in this category. This group is struggling most, with two-in-three (66 per cent) respondents in that situation worried about their finances in future, compared to 55 per cent of those with both higher housing costs and higher pay. Most insulated are those who have not seen a housing cost rise, amongst whom only 38 per cent have such worries.

Felicia Odamtten, Economist at the Resolution Foundation, said:

“Inflation has fallen significantly but the cost of living pressures experienced by households have not fallen remotely as fast. With food insecurity remaining far higher than normal, the cost of living crisis is far from over.

“This is despite the welcome news that average pay levels are growing once again, in part because a new cost pressure is building: rising housing costs. Renters are most likely to be affected, but those seeing their mortgages rise are seeing the biggest rises.

“The experience of this new phase of the cost of living crisis may vary more than we saw with the near universal rises in energy and food prices. Those whose pay has risen, but housing costs have not, are least affected, while those most worried about their financial future face rising housing costs but have not seen their pay keep pace.

“As ever, headline averages do not always tell the full story.”

Jo Bibby, Director of Health at the Health Foundation, said: 

“This new research shows the continued impact on the health of the cost of living crisis. Despite inflation falling, price levels remain high, meaning low-income families, benefit claimants, and renters are under significant financial strain. These worrying trends deepen stark health inequalities and negatively impact our economy, public services and collective well being.

“The next government will face significant challenges in reversing these trends. And ones they cannot afford to duck as investing in health as an asset is critical to reducing inequalities and future prosperity setting.

“This shows the need for long term investment in the building blocks of health such as adequate incomes and affordable housing to improve financial resilience and protect our health.”

Notes to Editors

• The report uses data from an online survey of 8,378 adults aged 18+ conducted by YouGov, and supported by the Health Foundation. Fieldwork was undertaken between 13-17 October 2023. The figures have been weighted and are representative of all UK adults (aged 18+). The figures presented from the online survey have been analysed independently by the Resolution Foundation. The views expressed here are not the views of YouGov.
• Food insecurity can be measured in different ways. We examined five questions, and classified respondents as food insecure if they said that more than two applied to them. The indicators all referred to the past 30 days, and were as follows: The food that I bought just didn’t last, and I didn’t have money to get more; I couldn’t afford to eat balanced meals; I ate less than I should because there wasn’t enough money for food; I was hungry but didn’t eat because there wasn’t enough money for food;, I cut the size of meals or skipped meals because there wasn’t enough money for food.