Poverty and Inequality

13.10.17

IFS: Rent increases disproportionately affect low-income households

Low-income households are disproportionately affected by rent increases, an analysis by the Institute for Fiscal Studies (IFS) has revealed.

The number of people living in private rented accommodation in Britain has more than doubled since the mid-1990s, with 19% of the population renting privately.

This increase is more marked in 25- to 34-year-olds, with 37% now renting privately, compared to 12% two decades ago.

Following reforms in 2011, low-income tenants have seen substantial cuts to their housing benefit, with 1.9 million privately renting households receiving an average of £24 per household per week.

In addition, real-terms rent increases of 33% since the mid-1990s have resulted in 28% of their non-housing benefit income going towards paying the rent of low-income private renters. This has increased from 21% in the same period.

In the capital the cost of private rent has risen by 53%, using 40% of household incomes – an increase of five percentage points since 2006-8 due to a sharp drop in London incomes during the recession.

Social housing rents have also been growing consistently in real terms over the last 20 years, and reforms have meant that 600,000 social renting households receive £19 less per household per week.

Tenants on lower incomes (defined as the lower 40% of the income distribution in their region) tend to spend a greater proportion of their income on rent, even when taking into account their housing benefit support.

Those in the lowest-income fifth spend an average of 35% of their non-housing benefit income on rent, compared to 19% for those in the highest-income fifth.

Furthermore, planned reforms mean that if rents continue to rise, support for the costs of housing will fall further behind the actual costs, the IFS warned.

Research economist at IFS, Agnes Norris Keiller, said: “Wider problems in the housing market are pushing up housing costs and increasing the size of the rented sector.

“While these remain unaddressed there is likely to be an ever tougher choice: continue decoupling support for housing costs for those on low incomes from the rising cost of housing or change policy and accept further rises in the housing benefit bill.”

She warned that the current approach “places most of the risk of further rises in costs onto low-income tenants, and little on the housing benefit bill.”

“While containing the cost to taxpayers, it leaves housing benefit vulnerable to becoming increasingly irrelevant with respect to its purpose - maintaining the affordability of adequate housing for those on low incomes,” added Keiller.

The institute has forecast that housing benefit entitlements will continue to fall behind rents in the coming years, because locally varying caps are no longer updated according to local rent levels. These caps are frozen until April 2020, and will then increase yearly according to national household inflation, measured by the CPI.

Social tenants will also see the gradual roll-out of these caps from 2019, which the IFS warns is likely to mean that the social sector will see another 200,000 low-income social tenants with a gap between their housing benefit entitlement and rent.

If private rents grow in line with earnings, the report says that current policy would mean that the proportion of low-income private renters facing a shortfall between rent and housing benefit entitlement would increase by four percentage points – equating to 200,000 people.

The IFS cautioned that if the freeze on housing benefit caps remains in place, an additional 150,000 people from low-income working-age private-renters with children (the group most impacted by the shortfall between housing benefit entitlement and rent) will be impacted by 2025.

Top image: georgeclerk

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