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CLOSE TO 1.6 MILLION UK HOUSEHOLDS ARE ‘HOUSING PINCHED’ – SPENDING MORE THAN HALF THEIR DISPOSABLE INCOME ON MONTHLY RENT OR MORTGAGE PAYMENTS

15th August 2014

Close to 1.6 million UK households – the housing pinched – are spending more than half their disposable income on the ongoing costs of housing each month, according to new analysis from the independent think tank the Resolution Foundation published today.

Of the 1.6 million housing pinched, retired households and working age households in which nobody works account for just over a third (7 per cent – 110,000 households – and 30 per cent – 480,000 households – respectively). Leaving these two groups aside, there remain close to 1 million working households who are spending over half their disposable income on housing costs.

The new research finds that the vast majority of the housing pinched are not well off households choosing to spend a large chunk of their income on expensive homes.  Just 40,000 of the working households who are housing pinched have incomes in the top fifth of the household income distribution, while 830,000 are in the bottom half, meaning 84 per cent of the housing pinched have incomes below the national median. In 2011-12 – the latest year for which data are available – the housing pinched in the bottom half of incomes had on average just £60 left over each week to spend on all other essentials (including food and bills) after paying for accommodation.

Housing pinched households are more likely to rent privately, be young, live alone, live in one bedroom properties, have recently moved and live in London. The proportion of the population spending more than half of their disposable income on monthly rent or mortgage payments has grown significantly since the early 2000s, despite a slowdown in the growth of this group following the financial crisis. 

The analysis takes account of the support for housing costs that lower income households receive through Housing Benefit. Those who are defined as housing pinched spend more than half of their disposable income on housing even with the support offered by Housing Benefit. The analysis also finds that:

  • 11 per cent of working London households are housing pinched (250,000) compared to 3 per cent in the North East and Northern Ireland.
  • 12 per cent of working households renting privately are housing pinched, while 6 per cent of mortgagor households and 4 per cent of social rented households are affected.
  • Working households where the head is under 25 have a 12 per cent chance of being housing pinched, dropping to 7 per cent for the 25-30 age group.
  • Working households in one-bedroom homes have an 11 per cent chance of being housing pinched, compared to 7 per cent for working households in two bedroom homes.
  • Working single households with no children have an 11 per cent chance of being housing pinched, dropping to 6 per cent for single households with children and couple families with children.

It is likely that a return to house price growth in the years following 2011-12; expected rises in interest rates that will push up costs for many mortgage payers; and slow income growth across much of the distribution will combine to put even more households in the position of spending a very high share of their income on housing. The analysis published by the Resolution Foundation today highlights which types of household are bearing the brunt of the ongoing lack of adequate housing supply in the UK coupled with the delayed return of real wage growth and slow projected growth in incomes.

Laura Gardiner, report author and analyst at Resolution Foundation, said: 

“The majority of the housing pinched are in work but on low and middle incomes, leaving little left over after housing costs to spend on other essentials. With house prices and rents rising in some parts of the country, interest rates expected to start to go up and income growth remaining weak, we should be concerned about the ability of this group to absorb additional pressure on their household budgets from higher mortgage payments and rents.

“It is vital that more money is invested in the supply of new housing in order to drive down costs, otherwise we can expect to see a steady rise in the number of households that are ‘housing pinched’ over the coming years.” 

Notes

‘Housing pinched: Understanding which households spend the most on housing costs’ is available here http://www.resolutionfoundation.org/publications/housing-pinched-understanding-which-households-spe/

1. Housing benefit has been excluded from our measure of net incomes and rents because it has the effect of reimbursing households for some or all of the cost of their rent, and so effectively inflates bot household’s incomes and their actual housing costs by the same degree. Constructing housing cost to income ratios ‘net’ of Housing Benefit therefore provides a truer picture of the imposition that housing costs place on household budgets for low-income and workless households in particular (and therefore across the distribution).

2. We refer to the ongoing costs of housing rather than the initial lump sum required for access. The reason for this is that our focus is the costs for the whole UK population in their current homes, for whom the barriers to access, such as mortgage and tenancy deposits, have already been overcome.

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