Despite the strain that high housing costs cause, millions of people on modest incomes continue to live in high cost areas and are somehow coping. The Resolution Foundation report explores six ‘coping strategies’ – working more, increasing the term of a mortgage, getting help from friends and family, over-crowding, lowering standards and doubling up. It looks at how effective each of these would be in bringing housing costs within reach of three typical families. The effectiveness of each coping strategy depends on family circumstance and varies by household type and geographical area.
The Home Stretch finds that 2.2 million working households in Britain with below-median incomes are spending a third or more of their disposable income on housing, leaving an average of just £135 left over each week for other necessities. For modest income households looking to rent, they would have to spend at least a third of their disposable income to rent a low cost property in around one in five local authority areas. This proportion rises to over a third of local areas if the household wants to get onto the housing ladder with a mortgage. This does not include the challenge of saving for a deposit but only looks at the monthly costs of mortgage payments.
We find that in 37 per cent of local authorities in Great Britain, modest income households would have to spend on average one third or more of their disposable income to meet their monthly mortgage payment for one of the cheaper properties on the market, and in 21 per cent of local authorities, they would have to do the same to cover their monthly rent. Within this overall picture, several patterns emerge:
- London is a particular black spot, with no local authorities in which a modest income household would be able to buy or rent without spending one third of more of their income on housing. The South East, East of England and South West also have several hot spot local authorities where affordability is a challenge.
- By contrast, in the East Midlands, the North East and Scotland, almost all local authorities are within reach of modest income households wishing to spend no more than one third of their income on housing.
- One bedroom properties present a particularly significant challenge. Renting a one bedroom requires modest income households to spend one third or more of disposable income in 41 per cent of local authorities, compared to under a fifth of local authorities for households requiring two- or three-bedroom properties.
- Buying with a mortgage is the least affordable tenure overall, but renting prevails as the more expensive option in lower-cost areas. This is the case in just under half of local authorities nationally.
- Importantly, although the results are not directly comparable, this 2013-14 picture seems not to represent a worsening on previous years, reflecting stalling rents and tempered house prices in much of the country. In fact, affordability for modest income households in the private rented sector appears to have improved slightly.
- At the local level, it is essential that local authorities take a different approach to planning for the housing needs of their local area. They must assess a broader range of needs as part of strategic housing market assessments and local plans and ensure the delivery of new supply includes a mix of tenures that genuinely matches the needs of local populations. In particular, they must distinguish between demand for rented housing and demand for home ownership and strategically plan for part rent, part buy developments rather than relying on Section 106 agreements alone.
- In the most expensive parts of the country such as London, local authorities need to adopt a flexible approach to planning that supports modern methods of construction and sensibly allows deviations from space standards to encourage new and creative solutions to the housing affordability challenge.
- Local authorities and other public landowners must adopt a more nuanced approach to the use of their land to better support new types of housing. There is an important role for public land as long-term patient equity in joint ventures with investors and for land to be released on a leasehold basis to facilitate semi-permanent schemes over a 10 to 20 year period.
- At the national level, there needs to be a continued focus on the development of a purpose-built rental market that can offer higher quality, more secure renting and on the expansion of the part rent, part buy market that includes shared ownership. Few households on low and modest incomes will be able to get a foot on the housing ladder unless they have significant help from family members, and few do. This reality means that the majority will be long-term renters or will be reliant on a part rent, part buy product that can span the widening gulf between renting and buying.
- The current government has developed a range of policies to support the development of a purpose-built rented accommodation backed by institutional investment and these policies should be continued and extended.
- The government should build on last week’s Autumn Statement announcement on shared ownership to support the expansion of the part rent, part buy market from its current niche of fewer than 200,000 properties to one that can meet the needs of those who are shut out of full ownership.