2017 Housing Perspectives #2: Growth of private sector renting and poverty ‘closely linked’
by Peter Kenway
In today’s exclusive article, compiled as part of the 75th anniversary of the Beveridge Report, Peter Kenway from the New Policy Institute examines the relationship between the growth of private sector renting and poverty.
Is the story about poverty and housing in the UK now dominated by the problems of one housing tenure – the private rented sector – and poverty? Or are these problems, large and growing though they are, distracting attention from a more general problem which housing of all sorts presents to those on low incomes?
The rise and rise of the private rented sector in the poverty story is simple to tell, striking and timely. The number of people living in poverty in the private rented sector has doubled in the past decade. Furthermore, most people in poverty in the private rented sector and owner occupation are in working families.
The key statistics are these: in 2014/15, the last year of the Coalition government and the latest for which official poverty statistics are available, there were 4.5m people in poverty living in each of the three housing tenures, namely, the private rented sector, the social rented sector and owner occupation.
15 years earlier, at the turn of the century, the picture looked quite different: 2.1m in the private rented sector and 6.0m in the social rented sector. Back then, the social rented used to dominate as far as poverty was concerned. Now, the three housing tenures are equal.
Against this background, confounding the stereotype of an overwhelming association between poverty and council tower blocks, it is inevitable that the private rented sector’s share of poverty should attract such attention.
Our 2016 poverty report also showed that far more low income households in the private rented sector face what could reasonably be called “high” housing costs. Looking here at household income before housing costs have been deducted (so as to avoid a circular argument), 73% of the households in the poorest fifth and living in the private rented sector devoted at least a third of their income to housing. This compares with 48% for those in the poorest fifth in in social rented homes and 27% for those in owner occupation. High housing costs are a much greater direct cause of poverty in the private rented sector than in other housing tenures.
On top of this, the private rented sector guarantees neither quality nor security. Some 40% of households in the private rented sector have lived at their current address for less than 12 months. The end of a shorthold tenancy is now the single biggest main cause of homelessness in England. Poor quality housing is not only unpleasant to live in but it can impact on people’s physical and mental health both currently and in the long-term and can lead to poor health outcomes for children.
There is no doubt that the state of private rented housing is a major cause of concern. If conditions in the sector were far better, low income households living there would certainly benefit. But does that mean that reform of the sector should be a major goal for those whose principal focus is poverty? I don’t think so.
The key point is that most low-income households living in the private rented sector have long face high housing costs. That 73% compares with more than 60% around 15 years ago (the top line in the graph). So, while high costs and unaffordability are worse in the private rented sector than they were in the early 2000s, the sector has always been a bad bet for low income households. The problem is not just – or perhaps even mainly – that the private rented sector has gotten more expensive for people with low incomes but that the too many people with limited incomes are having to live in it. It’s not the state of the private rented sector that’s the new problem now but its size, at least as far as poor people are concerned.
The graph also shows the proportions of people in the social rented sector and owner occupation facing high housing costs. Since the collapse in interest rates in 2009, the proportion of owner occupiers with a mortgage facing high housing costs has been falling steadily. The 27% facing high housing costs there may well be an all-time low.
The cause for concern in the graph that risks getting overlooked is what has been going on with the social rented sector. Although the proportion facing high housing cost – 48% – is well below the figure for the private tenants – the proportion has been rising steadily. 15 years ago, a quarter of low income social sector tenants faced high housing costs. With just a year or two on present trends it will be a half.
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If the social rented sector is expensive too, poorer households with chronically low income have almost no chance of avoiding poverty. For so long as the private rented sector was small and the social sector – largely affordable, the obvious answer to the housing cost problem for low income households was to get as many of them out of the private rented sector. But as the private rented sector becomes larger and larger and the social rented sector slowly more expensive, the path to a good society in which low income households can for the most part afford their housing is becoming blocked off.
The status of the private rented sector as the housing bad boy is for the most part well-justified, though it is never perfectly black and white. For example, the upside of the sector’s insecurity is that if you don’t like where you are living, you do have the chance to move. If the neighbourhood’s poor, that can freedom can matter. But I still think that the fundamental problem for low income households is that the social rented sector is no longer the obviously affordable option that it once was.
Looking back, the way that the social rented sector was allowed to become progressively more expensive while shrinking in size too is an inexplicable and – for the Labour party that depended politically on social housing – grievous error. There is no road to a good society in which the cost of housing is not the cause of poverty unless there is at least one housing tenure, sheltered from the vicissitudes of the market, in which housing is reliably affordable for low income households.
Peter Kenway is director of the New Policy Institute.
This piece was written for the Webb Memorial Trust and the All-Party Parliamentary Group on Poverty as part of the 75th anniversary of the Beveridge Report and is part of a series of articles we will be running in the coming weeks. It has also been published by the Chartered Institute of Housing.