Housing affordability and income-related support
This is the third blog from Professor Geoff Meen and Professor Christine Whitehead, ahead of the publication of their new book, ‘Understanding Affordability: The Economics of Housing Markets’, which is due to be released on 8 July.
In 1942, squalor – to be addressed by decent homes for all – was one of the five Giant Evils which Beveridge identified when setting out the principles underlying the welfare state. But he also noted that the fact that housing costs (or as he put it ‘rents’) varied so much across the country put the whole approach of national insurance at risk – a conundrum he failed fully to solve. Looking at the many places in our book where this topic comes up, it is clear that ensuring an adequate income, a decent home and the efficient use of public funds continues to plague both politicians and researchers across the world.
For most of the first three decades after the war, the national government addressed housing affordability mainly through rent control in the privately rented sector and large scale subsidised investment in social housing. These kept rents low for those directly affected but left many other households living in poor housing conditions and paying unaffordable rents.
By the 1970s we had started to move away from supply subsidies and rent controls towards a system of housing specific income-related housing benefits that, addressing Beveridge’s concerns, took account of both individual circumstances and rent variations.
Housing Benefit principles
The principles behind what, in 1988, became the housing benefit system were clear and in line with Beveridge’s objectives:
- social security rules would determine the income necessary to cover basic needs, excluding housing, for each type of household at a national level with no allowance for variations in costs across the country;
- housing costs would be treated separately because rents varied so greatly both spatially and between similar households;
- all those who paid rent would be eligible to apply for benefits;
- the rebate or allowance would cover the whole rent where the claimant’s income was no more than the basic needs allowance; and
- a proportion of every additional pound earned would be withdrawn until income reached a point where the system presumed rent could be fully paid by the tenant.
This was intended to give all tenants the minimum income required to meet the full range of essential needs while allowing basic housing standards to be achieved.
How has the system changed?
The shift from supply to income-related subsidies has been almost complete. In 1975/76 supply subsidies accounted for 82% of all government housing subsidies with only 18% going to income-related support. By 2015/16 just over 4% of the funding went on supply subsidies, while nearly 96% was spent on housing benefit and some limited mortgage interest support. Housing benefit alone now costs around £23bn.
Even though the scale of total housing benefit payments has grown so much, large numbers of policy changes have limited income-related housing support, undermining its original intention, especially in the private rented sector:
- A welfare cap was put in place in 2013 at rates set close to median incomes. This mainly affected larger households and people living in high rent areas, notably London. However, the cap was lowered in 2015, so households across the country are now not getting the amounts for which they are eligible.
- Social tenants in England and Wales who are regarded as having a spare bedroom must pay additional rent.
- In the private sector, single people aged under 35 are now generally only eligible for a shared accommodation rate.
- Most importantly, private tenants can only claim benefit (in the form of local housing allowance) up to the thirtieth percentile of the local rent distribution for the relevant sized property in their general area. Indeed, from 2015 until the COVID-19 crisis, even this was further constrained to the 2015 rate. As a result, many private tenants have to make significant rental payments, leaving them without enough to buy other essentials. In policy terms it is now being assumed that tenants, and especially private tenants, can choose to move to a cheaper area or a smaller unit – so it is seen as their own decision to use money for housing rather than other necessities of life.
How effective have income-related housing benefits been in helping tenants?
Table 1 looks at financial stress before and after benefits. After benefits, there is very little difference in self-reported levels of stress across the bottom four quintiles. However, levels of stress overall remain high – suggesting that housing support, while smoothing the stress pattern especially for the bottom two quintiles, is not enough to give a feeling of security to quite large proportions of tenant households.
Table 1. Housing Benefit and Financial Stress
Source: English Housing Survey
While welfare systems differ, particularly in the extent to which support is housing specific, this pattern is surprisingly similar to that found in other North-Western European and Scandinavian countries.
Housing costs would be unaffordable for large proportions of tenants without additional government support. Our current system is heavily reliant on income-related support. This helps to ensure that, on average, those with incomes in the lowest quartile are no more likely to suffer financial stress than those further up the income scale. However, when the system was introduced in the 1970s the intention was to ensure that everyone could pay their rent and buy the other essentials in life. Over the years, especially in the last decade, policy changes have restricted support so many, especially private sector tenants, have to choose between paying their rent and meeting other essential needs.
Geoffrey Meen and Christine Whitehead (published July 2020), Understanding Affordability: The Economics of Housing Markets, Bristol University Press.
Professor Geoff Meen and Professor Christine Whitehead are authors of the book, ‘Understanding Affordability: The Economics of Housing Markets’ (Bristol University Press), which is due for publication on 8 July 2020.
Views expressed by authors may not represent the views of CaCHE.
 Defined as the household stating that either they are finding it difficult to pay the rent or are in arrears or have been in arrears at some time over the last twelve months.
 Stephens, M (forthcoming) How housing systems are changing and why: a critique of Kemeny’s theory of housing regimes, Housing, Theory and Society.
Date: June 30, 2020 4:53 pm
Categorised in: Economy