The rise in private renting has been well documented but is no less staggering for that fact. One in four children are now growing up in the private rented sector, compared to just one in ten a decade ago. This is in part a story about declining homeownership: the proportion of households buying with a mortgage actually peaked in the early 90s, long before the financial crash or anxieties about avocado-munching millennials kicked in.
But it’s also a story of declining options for people priced out of homeownership. In the mid-1980s, nearly three-quarters of people who didn’t own their own home lived in social housing. Now, more than half are renting from a private landlord. Their housing costs are the least affordable of all tenures and, in return, they are the least likely to live in a decent home and have the least security of tenure.
For many, this is a story of thwarted aspiration and frustration at ‘dead money’ being spent on rent. For others, the impacts are more profound. Shelter has analysed the characteristics of private renters. We found that 1.3 million households are left without enough money to meet the Joseph Rowntree Foundation’s minimum income standard after paying the rent. High housing costs mean they’re unable to cover the basics that we all think are necessary for a decent life.
This is not a story of abject poverty at the sharp end, the majority of these households are in work but on low incomes that are out of step with market rents.
Unsurprisingly, this means making sacrifices. New research for Shelter found that 44% of low paid renters have had to cut back on basics like food or clothes in order to pay the rent.
The government has not been silent in response to the housing crisis, but the solutions offered too often ignore the needs of this group. Big initiatives under both the Cameron and May governments have attempted to turn the tanker (or more accurately, Titanic) of falling homeownership, while few interventions have reached down the income scale.
Shelter analysed the incomes of private renters to assess whether even the lowest rung of the housing ladder – a 25% share of a shared ownership property – was affordable for them. Looking at households under 55 (already an optimistic cut off for a mortgage) we found that 1.6 million households cannot afford even shared ownership.
Some of these households may see their incomes rise in the future: although, with house prices eight times average earnings, there’s a long way for them to go. But for many, they are facing a future without a realistic prospect of homeownership. And that means a future in the private rented sector.
Unlike in the past, social housing is not available to fill the gap. Decades of shortages have led to an intense rationing of the limited social housing available, with the result that 1.2 million households are on a waiting list and councils have to make ever tougher decisions about who qualifies for a limited pool of genuinely affordable housing. As an indicator of need, only 37% of social rent lettings went to tenants in employment in 2015-16. And while stock is limited, attempting to re-jig allocations will only disadvantage others.
Fair Rent Homes
People priced out of homeownership desperately need a better offer. Today, Shelter is exploring the idea of a new generation of Fair Rent Homes, specifically targeted at people who are too poor for homeownership, but not experiencing the high levels of need that would make them a priority for social housing.
Crucially the rents would be genuinely affordable. We’ve been inspired by the living rent model advocated by the Joseph Rowntree Foundation and others, and propose that rents are set in line with what people can actually afford to pay, not what the broken housing market demands. We advocate a model that sets rent at a third of the lower 30th percentile of local incomes, ensuring that they are genuinely affordable to lower earners.
In London and the south east this would translate to rents that are considerably cheaper than both private rents but also Affordable Rents, which have provided the bulk of new social housing in recent years. Genuinely affordable ‘Fair Rents’ would give people much needed financial breathing space, and give them a better chance of saving for a deposit if homeownership becomes more affordable in the future.
How it would work
Achieving Fair Rents does require investment. Based on build costs and housing associations’ ability to cross-subsidise, we estimate that the government would need to contribute on average £58,000 per home. Homes could also be built if tighter S.106 arrangements require developers to play their part in fixing the housing crisis and by using Shelter’s New Civic Housebuilding model to reduce the cost of land.
With 1.3 million renting households currently left below the minimum income standard, the scale of investment needed must be ambitious. We’d like to see half a million new Fair Rent homes over the next decade – alongside a similar expansion of social housing.
The government has acknowledged that the housing market is broken but is yet to fully accept the implications of this. New investment for social rent is hugely welcome, but the number of new homes it will provide will barely scratch the sides of what’s needed. And continued investment in Help to Buy props up the worst features of the current housing market while doing nothing to ease the plight of ordinary working households locked in private renting. A bold new approach is needed that recognises the scale of the challenge and the need for new supply targeted at what ordinary private renters can actually afford.
- Want to learn more about Fair Rent Homes? Read the full report here.