A quarter of lower-income working families spend more than they can afford on housing

At least 1.3 million families on lower incomes have to spend more than they can reasonably afford on housing the Resolution Foundation reveals today.

The figure represents almost one in four of the 5.6 million low-to-middle income households of working age in Britain. At a time when a severe shortage in property supply is pushing up both prices and rents, housing costs eat up more than 35 per cent of their net income – the most widely-accepted definition of affordability in housing. Even the most modest properties are often beyond their reach.

The new Resolution Foundation analysis will be unveiled at an event being staged today by the independent think tank to discuss the UK’s housing crisis.

The analysis draws on detailed information about how much families are spending on housing, particularly at the lower end of the market, from independent property analytics business Hometrack, and on data from the government’s Family Resources Survey to examine what proportion of their income this represents. The result of excessive housing costs is that families often have to make trade-offs with other areas of their spending such as furniture, clothing, travel or even food.

The findings show that of the 1.3 million families with unaffordable housing:

• 590,000 are private renters
• 585,000 are owners with a mortgage
• 100,000 are social renters
• Two thirds are outside London and the South East (see tables 1 and 2 below)
• A disproportionate number, 570,000, are younger families – where the head of the household is under 35

The analysis looks only at regular monthly housing costs – it does not take into account the cost of saving a deposit in order to buy a property or secure a rental. Previous Resolution Foundation research has shown that saving a buyer’s deposit would typically take a low-to-middle income family more than 20 years. This barrier, and a shortage of social housing stock which sees most of it reserved for the very vulnerable, leaves private renting as, increasingly, theleading option for many poorer working families. Opportunities for shared ownership schemes, which can offer good value, are still rare.

In order to show in more detail what housing options are open to lower income families – the Resolution Foundation analysis uses the example of a couple with one child on an annual income of £18,000 (putting them a quarter of the way up the income distribution) to see what is affordable for them  in four different parts of the country:

1. Unobtainable – Islington, London. Here the monthly rent on even a modest two-bedroom property (a quarter of the way up the price ranking for properties of this type in the area) is £1,630. For the family, this would equate to 108 per cent of their net income. The monthly mortgage payments on an equivalent property (£1,430 a month) would eat up 95 per cent of their net income and monthly payments of £1,000 under a shared ownership scheme 66 per cent – so there are no affordable options (under the 35 per cent of net income definition) without access to low cost social housing or substantial support through housing benefit
2. Expensive – Guildford, Surrey. Here the monthly rent on an equivalent property is £950 which equates to 63 per cent of the family’s income. Monthly mortgage payments on the property (valued at £209,250 would be £860 which is 57 per cent of the family’s income. Nor is shared-ownership, at 40 per cent of income (a monthly cost of £600), affordable under the 35 per cent definition
3. Tough but affordable – Coventry, West Midlands. Here monthly rent is £500 or 33 per cent of income. Mortgage repayments on the property would be £340, or 23 per cent of income while shared-ownership (£240) is 16 per cent. Private rent is just affordable, other types of tenure more so
4. Affordable – Doncaster, South Yorkshire. Here monthly rent drops to £410 and accounts for 27 per cent of income. Mortgage repayments (on a property valued at £65,750) of £270 a month, would consume 18 per cent of income. Shared-ownership, at £190, would account for 13 per cent of income. Here all types of tenure are affordable as defined by 35 per cent of net incomeLow income working families with very high housing costs may qualify for housing benefit to help meet those costs. However official figures show that almost three-quarters (74 per cent) of working age households receiving housing benefit have no one in work and that 65 per cent of working age households receiving housing benefit are in social housing.

Vidhya Alakeson, deputy chief executive of the Resolution Foundation and joint author of the report, said: “Many families are struggling to find any type of housing which fits both their needs and their budget. Often they are making difficult choices which mean going without other essentials to pay their housing bills or living in overcrowded conditions – all this at a time when other living costs are rising.“We’ve become used to the idea that buying a property is now an impossible dream for millions of people on low to middle incomes – in a typical case it would take 22 years just to save the deposit. But increasingly, private rent is also becoming unaffordable even though, for many families, it is the only option.”The findings will form part of a major report on housing affordability across Britain to be published by the Resolution Foundation this summer.

Ends

Notes

1. ‘Home Truths: the scale of Britain’s housing crisis and how to fix it’ is an event taking place at the Resolution Foundation from 10am on Thursday 16 May. 
   
2. Calculation of housing costs 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 and which captures at least 75 per cent of market transactions across Britain. Rental detail for 1.4 million properties is drawn from both lender valuations and property listings.
3. Amounts spent on housing by low to middle income families are calculated using the Family Resources Survey 2010-2011(the most recent version), published by the Department for Work and Pensions.
4. All figures for the cost of home ownership and shared ownership in the report are monthly on-going costs only – the cost of initial mortgage deposits is not included.
5. The following assumptions are made about housing costs: Private ownership – 20 per cent deposit; 3.75 per cent mortgage rate Shared ownership – 25 per cent equity share; 10 per cent deposit on the equity share; 3.75 per cent mortgage rent; 2.75 per cent rent on unsold equity
   
6. The Resolution Foundation is an independent policy and research organisation working to improve the lives of people on low to middle incomes. This group of people is defined as those of working age with incomes below the UK middle (median) who do not rely primarily on state support. In practice their gross household incomes range from £12,000 to £47,000 depending on how many children the household includes.
7. Hometrack is a privately owned, independent property analytics business with offices in London and Sydney. Hometrack services, which include automated valuations and risk services, interactive intelligence systems and analytics reports, are designed to inform mortgage lending, capital market investment, asset management and regulation. The company delivers its services to over 90% of UK mortgage lenders.  Hometrack also supplies information and consultancy services to developers, housing associations, national and local government and institutional investors.