Flatlining wages, surging rents and a national affordability crisis.

Flatlining wages, surging rents and a national affordability crisis.

Rents have surged ahead of wage growth in this decade.

Our analysis of government statistics shows that between 2011 and 2017 rents in England have grown 60% quicker than wages. Rents have increased by 16% while average wages have increased by just 10%[1].

And this isn’t just an issue confined to London and the south-east, as you might expect. This analysis confirms that rental markets in England’s suburbs, market towns and smaller cities are heating up.

This issue is underlined by internal migration figures[2] showing people moving out of the largest (and more expensive) city authorities. In the last year, out of the 10 largest city authorities in England, only Liverpool and Bristol had more people move to them from within the United Kingdom than leave. These new residents can drive up the price of both homes to buy and properties within the private rental sector (PRS), if there are insufficient new homes to meet new demand.

How does affordability look in the private rental sector?

Other government figures confirm the reality of the affordability crisis in the privately rented sector. The English Housing Survey (EHS) shows that renters spend 40% of their income on housing costs – double what owner-occupiers pay (19%). Affordability is particularly acute for those with the lowest incomes in England[3], who spend over 75% of their income on housing costs.

The combination of rising rents and the ongoing freeze to the Local Housing Allowance (LHA) makes lower income households particularly at risk of homelessness. Indeed, the National Audit Office state that rising rents and this freeze have “driven the increase in homelessness” since 2009/10.

A national crisis

So as well as affordability worsening in London, rents in Rugby in the West Midlands have risen at twice the national rate (30% vs. 16%) yet wages have increased by just 5%. Similar figures are seen for East Hertfordshire in the east of England, and in Daventry wages have fallen, while rents have increased by 26%.

Percentage point difference between rent and wage growth – Top twenty English authorities

Local Authority % Change in average rent for 2 bedrooms % Change in household wages (FT + PT) Percentage point difference Region
Barking and Dagenham 42% 2% 40% London
Elmbridge 21% -15% 36% South East
South Oxfordshire 30% -5% 35% South East
Dartford 40% 6% 34% South East
Kingston upon Thames 27% -6% 32% London
Bristol, City of 44% 12% 32% South West
Daventry 26% -4% 31% East Midlands
Wycombe 30% -1% 31% South East
Sutton 35% 5% 30% London
Tunbridge Wells 19% -9% 28% South East
Cambridge 36% 9% 26% East
Milton Keynes 29% 3% 26% South East
Harrow 33% 7% 26% London
Lewes 26% 0% 26% South East
Rugby 30% 5% 25% West Midlands
Waltham Forest 38% 13% 25% London
Newham 42% 17% 25% London
Merton 26% 1% 25% London
Redbridge 32% 6% 25% London
East Hertfordshire 29% 4% 25% East

Some of these changes at the local level are explored further below.

City of Bristol

Rents in Bristol have increased by 42%, three and a half times quicker than wages, which have risen by 12%.

This reflects a rapid period of population growth, particularly of students, and within the central areas of Bristol. The population of students increased by almost 50% between 2011 and 2017[4].

Bristol is also increasingly a destination of choice for those leaving London. In 2017 out of all authorities outside of London Bristol received the fourth highest number of people moving out of London. This amounts to 5,220 moving from the capital, up from 3,220 in 2012.

These individuals may be leaving the capital to settle down and purchase a property, having been priced out of the capital. This trend, and others from outside of London moving to Bristol, may reduce supply for the existing population in Bristol, forcing them to remain in the PRS – driving up prices in that sector.

Cambridge

Cambridge is experiencing similar demographic changes, with a high number of people leaving the capital to move there, and a large student population.

Rents have correspondingly increased far faster than wages –by 26 percentage points more than wages between 2011 and 2017 (36% vs. 9%).

Rising rents are making life particularly difficult for those receiving LHA. Research by the council showed that in 2014 just 10% of rooms, 2% of one-bedroom properties and no larger properties were available at or below the LHA rates[5].

And further analysis we’ve carried out shows that in 2017 Cambridge had the highest shortfall (£531) between the LHA rate and the average monthly rent out of all authorities outside London.

Newham

The population of Newham has grown by 36% between 2002 and 2017[6], making it one of the fastest growing populations in the UK.

The supply of housing has not expanded to meet the population growth – in the same period, the number of dwellings in the borough has increased by only 21%[7].

This shortfall in supply may in part explain why the cost of renting has increased by 42% since 2011. A young population[8] also means that they are less likely to be able to afford to buy, so demand for privately rented housing is likely to be higher.

Wages have increased by 17% in this time, which is higher than the national average (10%). Yet, wages in Newham remain lower than those nationally. While Newham’s rents are the 19th most expensive in England, their ranking of 178 is in the bottom half of the wages leaderboard.

Clearly, rents continue to be deeply unaffordable within the PRS. The government needs to build more social rented homes that are truly affordable and stable for families on low and average incomes. Our social housing commission will be making bold new recommendations about the future of social homes.

 

[1] To compare wages a two-person household of one full-time worker and one part-time worker has been modelled, taking data from the Annual Survey of Hours and Earnings (ASHE) at a local authority level. These are wages for those living in the area, rather than working there. Rental rise data is taken from the Index of Private Rental Prices. Local Authority rents are taken for a two-bedroom property from the private rental statistics released by the Valuation Office Agency.

[2] Internal migration: by local authority and region, age and sex: ONS June 2018

[3] Our analysis of the 2015/16 English Housing Survey shows that private renters in the bottom quintile of household income spend 76% of their income on their housing costs.

[4] Nomisweb count of economically inactive – student in the City of Bristol – Between April 2010 – March 2011 and April 2016 – March 2017

[5]https://democracy.cambridge.gov.uk/documents/s33198/Meeting%20the%20Housing%20need%20in%20Greater%20Cambridge%20250216.pdf

[6] ONS mid-year population estimates

[7] HSSA (Housing Strategy Statistical Appendix) – 2001/02 and Table 100: number of dwellings by tenure and district, England.

[8] Newham’s median age was 30.8 in 2015, compared to 39.8 for England

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