The UK has the fourth most burdensome housing costs in Europe. According to Eurostat figures, 15.4% of Britons live in households that experience ‘housing cost overburden’: this is when rent or mortgage payments represent more than 40% of disposable income.
By contrast, only 1.8% of the French population experience housing cost overburden, despite having almost the same average salary.
Whilst the Conservative Party Manifesto listed ‘money worries’ as one of the pressures families face, the debate on the ‘squeezed middle’ rarely looks at housing costs as a financial pressure.
It is not simply an immediate pressure on rent or mortgage payers. The deterioration of affordability has adverse economic and social consequences. The 2004 Barker Review of Housing supply, commissioned by the Treasury, set out trends for household formation based on demographic data. But household formation (young people moving out of home, or moving in together) is falling behind these projected trends, which a report for the Department for Communities and Local Government ascribes in large part to affordability.
In January 2010, Shelter reported that more than two million Britons are being forced to delay having children due to the high cost of housing. Their findings suggested 2.4 million people are actively putting off having children because of high housing costs. One in five 18-44 year olds have waited for as long as six years to start a family, and could wait longer.
There are economic implications too. The Barker Review also found that high housing costs raise the cost of living and labour costs, and reduce mobility, resulting in a loss of competitiveness for the British economy.
Furthermore, improving affordability might also reduce social inequalities. Increases in house prices generate a transfer of wealth from renters to homeowners and from younger to older households.
The Joseph Rowntree Foundation recently predicted that these cost pressures are set to grow. Even at the current rate of 150,000 new homes a year, the proportion of 30- to 34-year-old couples who can afford to buy a purpose-built flat will fall from over half now to around 28 per cent in 15 years’ time.
Commenting, Michael Trend, Executive Director of the Relationships Foundation, said:
“It is crucial that the Government takes a holistic approach to the pressures families face – it’s not simply a question of some flexible working improvements here and restricting some advertising there.”
“Families are feeling the squeeze, and housing costs are contributing to that in a big way: bringing these down might be more important even than tax and benefit changes.”
“The Coalition has committed to making us the most family friendly county in Europe – this is an area where we are lagging far behind: if they want to deliver that pledge, they have to sort out housing costs.”
Notes to Editors
• The figures are part of Relationships Foundation’s Pressure Gauge
• According to the World Bank, average salary in France is $26,416, in the UK it is $26,312 (at 2005 US dollar PPP values).
• Greece, Germany and Denmark have the most families experiencing housing cost overburden. Apart from Germany (21.4%), Denmark (20.9%), the UK (15.4%), Spain (13.6%) and the Netherlands (12.0%), less than 10% of the population in all other high-income economies of Europe live in households that experience housing cost overburden.
• In recent years, household formation has been lower than projected on the basis of demographic trends (Meen, Geoffrey & Mark Andrew, 2008. Planning for housing in the post-Barker era: affordability, household formation, and tenure choice. Oxford Review of Economic Policy, Oxford University Press, vol. 24(1), pages 79-98, spring. Holmans, A., 2008. Homes for the Future: A new analysis. Technical Report). The Barker Review is here.
• A 2009 report for the National Housing and Planning Advice Unit at the Department of Communities and Local Government found that though other socio–economic factors have played a role, low affordability is likely to have been an important factor. As many as 1.2 million households cannot be formed in England alone because high housing costs force young adults to live with their parents or share dwellings.
• In January 2010, Shelter reported that more than two million Britons are being forced to delay having children due to the high cost of housing. Their findings suggested 18% of 18 to 44 year olds, equivalent to 2.4 million people, are actively putting off having children because of high housing costs. This rises to 24% among 18-34 year olds. One in five 18-44 year olds have waited for as long as six years to start a family, while 37% expect housing costs to continue to delay their plans for another four years.
• Housing benefit changes, and interest rate rises, are likely to add to these pressures.
• Housing Minister Grant Shapps has said “For many years, too few homes have been built in this country. This has led to unsustainable price increases which means people are locked out of the housing market by unaffordable prices, unattainable mortgages and high rents.”
• But, a recent report from the Joseph Rowntree Foundation said: “Modelling confirms that a far higher rate of addition to supply is required even to maintain current levels of housing affordability. If the average annual rate of 150,000 net additions to the number of homes in England continued until 2026, it has been predicted that the proportion of 30- to 34-year-old couples who can afford to buy a purpose-built flat will fall from over half now to around 28 per cent in 15 years’ time. The vast majority of new supply comes from private housebuilding, but the capacity of the housebuilding industry has been restricted by limited credit availability and debts individual firms accumulated during the boom, while demand has been restricted by the tightened mortgage market.”
• A poll of 2000 people by Santander found that 25% of prospective first time buyers are taking on a second job in order to save up a deposit.
• The Conservative Manifesto listed ‘the lack of time, money worries, the impact of work, concerns about schools and crime, preventing unhealthy influences, poor housing’ (p. 41) as pressures on the family. It pledged ‘to make Britain the most family-friendly country in Europe’ (p. viii). As recently as May 4th 2011 Sarah Teather, the (Liberal Democrat) junior minister with responsibility for family policy, told the House of Commons: “It is vital that we support families as much as we can, and this Government believes that we should do much better. It is our ambition to make this country the most family-friendly in the world.”