JRF - Falling housing affordability for renters the result of four decades of cuts to housing subsidies

19 Jan 2023 09:37 AM

The affordability of rental properties would not have fallen had successive governments not eroded housing subsidies over four decades, according to a new report from the Joseph Rowntree Foundation (JRF).

• Rented housing swallows up almost three times as much of renters’ incomes today as it did in 1979 due to the falling generosity of policies that used to make housing more affordable.
• The value of housing subsidies for renters in 1979 would have been worth around £45bn in 2020, but the removal of rent controls, shrinking social housing stock and recent cuts to housing benefit mean the actual subsidy shrunk by a third to £31bn in 2020.
• Had subsidies not been reduced, housing affordability for renters would have been largely unchanged relative to 1979.
• The housing affordability crisis for renters can only be solved by rebuilding support mechanisms including more social housing and re-linking housing benefit to market rents.
• This is significant as figures released this morning by the ONS have shown the largest year-on-year increase in rents to December 2022 in England since the data series began in 2006, demonstrating the mounting pressures on renters as the cost of living crisis continues to bite.

Rents in both the private and social rented sectors are close to their highest for decades as a share of tenants’ incomes. In ‘Housing affordability since 1979: Determinants and Solutions’ authors Ian Mulheirn, James Browne and Christos Tsoukalis, from the Tony Blair Institute, quantify the impact of housing policy changes since 1979. They find that without these changes, rented housing would be as affordable today as it was 45 years ago.

Reductions in three forms of housing subsidy – sub-market rents for social housing, private sector rent controls and cash housing benefits – all contributed to declining affordability of rented housing:

• The social rented sector shrank from 31% to 17% of the English housing stock and social rents moved from around half to two-thirds of market levels. These changes reduced the effective subsidy to renters from social housing as a share of total day-to-day housing costs in the national accounts by five percentage points – or around £14 bn per year by 2020.
• The abolition of private sector rent controls in the 1980s cut the subsidy to renters by a further five percentage points of total housing costs, equivalent to £14bn higher costs for private renters annually.
• While cash benefits initially increased, recent reductions in the generosity of housing benefits have reduced subsidies for renters over the past 13 years.
• If housing subsidies had remained at their 1979 levels as a share of total housing costs, they would have been worth £45 billion in 2020 rather than their actual level of £31 billion.

Lead author Ian Mulheirn said:

“While the debate around housing affordability has focused on supply, our analysis shows that the erosion of housing subsidies has been the main factor driving the housing crisis we see today.

“Had subsidies not been reduced, housing affordability for renters would have been largely unchanged relative to 1979. Policy debate about how to tackle the housing crisis should therefore focus much more on the central role of housing subsidies.

“This does not imply that we should seek to recreate the housing policies of the 1970s. However there is a strong social and economic case for social housing to play a bigger role for many of the 1.9 million low-income families with children, pensioners and people with disabilities renting privately who would particularly benefit from greater stability of tenure.

“We also need to make a positive case for the central role of Housing Benefit, rather than see it just as a cost to be minimized. To improve the experience of living in the private rented sector, policy-makers should end the Local Housing Allowance freeze and re-link rates to the 30th percentile of local rents, and introduce the reforms to the private rented sector outlined in the recent ‘fairer private rented sector’ White Paper.”

Darren Baxter, Senior Policy Advisor, Joseph Rowntree Foundation said:

“Being able to rent a suitable home is a crucial foundation for life, and figures out show just how hard that has become. With the cost of renting a home privately continuing to rise and more and more people reliant on this part of the housing market, it is becoming harder to have that stable and secure platform on which to build the rest of your life.

“These figures confirm what many renters know too well – large rent increases are going hand in hand with other cost of living rises, to the point where 85% of low-income private renters are going without essentials such as meals, heating or keeping clean. Subsidies and an increase in the supply both have a crucial role to play in ensuring everyone has a safe and secure place to call home during good times and bad.

“This report shows us that there is a positive case to be made for using housing benefit as a way of supporting families to lead more secure lives, rather than it being seen simply as a cost to the exchequer. By recognising, acknowledging and tackling the housing crisis, governments can play a significant and positive role in making life better for families around the UK.”

Housing affordability since 1979: Determinants and solutions