Housing in England: three things you should know

Housing remains a top five issue of concern for voters: above crime, education, Europe and pensions. Will it stay there? Today, the government published its full annual research report into the state of housing which may provide us some clues. Here’s three things you should know:

(1)   The big switch

One big macro trend in housing is often reported to be the relative boom in private renting compared to the relative decline of more secure, affordable rented homes (like renting from a council or housing association). Almost four million households are now private renters – which gets close to 10 million people in England – so this really is significant.

However, as you can see from Figure 1.1, the trend within home owners is just as interesting. The number of ‘outright’ owners who have paid off their mortgages has risen just as the number of those buying with a mortgage has declined.

The result of this across the country is a growing number of two groups:

  • Asset owners with very low or negligible housing costs.
  • Non-asset owners with higher housing costs.

This is a big structural shift from where we have been over recent decades, when the story was the rise of ownership with a mortgage.

(2)    Going with the flow

The most interesting graphic in the English Housing Survey is the tenure ‘flow chart’. While it looks scary, it tells a hugely interesting story about the state of housing today. The numbers on the chart are thousands of households and the flows are representative of what has happened to households who’ve changed their tenure (or become a household) in the last year.

So what’s the story? Well, I think what’s most interesting is the fact that the flows between the private rented sector (PRS) and owner occupiers are equal. You might expect more people to be going from renting into owning a home but that’s not been the case over the last year. This could be a story about owners losing their homes after falling into arrears, but repossessions are (historically) quite low. Instead it might be people who are renting out the home they own and going into the PRS themselves. This could be due to not being able to afford the next step on the ladder after starting a family, with three beds proportionally much more expensive than two beds.

Also of interest is that the scale of churn within the private rented sector, with around one quarter of all households in the PRS having moved in the last year. Great business for letting agents, less good for landlords who might have voids and renting families who need stability.

(3)    The enormous income vacuum

Perhaps the most important data in the government’s survey though is on the affordability of homes. The survey tells us that private renters spend a gigantic 40% of their income on their rent (47% before housing benefit), compared to 20% of income on mortgage payments for owners.

If private renters paid the same rent as social renters, then private renters would save £2,860 per year on average each. Across all 4m private renting households, that’s a staggering £11.4bn per year extra rent being paid, compared to the social rent median.

If you want to increase the spending power of millions of middle and low income households, then finding a way to reduce their weekly rent payments (such as building more affordable homes) would be a good place to start.

In conclusion…

Despite the housing market “recovery” (i.e. rising house prices), the big fundamental, structural shifts in England’s housing look unchanged. More and more households are renting privately and among those who can own, the trend is towards the outright owners and the decline of the mortgagee. The private rented sector is sucking in most new households and – despite perceptions – there are just as many households going from ownership to the PRS as vice versa. Finally, the disparity between the impact on household finances of being an owner and being a private renter is huge. It’s a big deal for the economy more broadly too, as a growing number of families find there’s very little left over once the rent has been paid, with a dampening impact on consumer spending.

It looks like housing won’t drop out of the biggest issues of concern for the public any time soon.