Housing, house prices and homelessness
Housing has become one of the most important issues facing the UK today, with access to the housing market one of the most salient dividing lines of an increasingly unequal society. Regardless of whether an individual owns a home or rents, it is largely accepted that the size and location of that house, as well as its general condition, bear directly on that person’s life outcomes. Indeed, there are growing concerns that a concentration of economic power and material well-being in the hands of a propertied minority is exacerbating existing inequalities by inflating house prices and freezing certain members of society out of the market. In this post I examine the issue of housing inequality and in particular homelessness. I argue that not only does homelessness constitute a very specific kind of inequality, but that recent policy initiatives introduced by the Coalition government to tackle the national deficit have exacerbated longstanding problems in the housing sector.
Evidence from the Confederation of British Industry has demonstrated that that over the last decade house prices in the UK have risen on average by 56%, with residential property in the UK now worth approximately £4.5 trillion and quickly becoming the default repository of wealth. However, the latest SPERI British Political Economy Brief, ‘The UK housing market and stamp duty reform’, also shows that, while prices in London and the South-East have indeed surpassed pre-crisis levels, house values in the north of England are still approximately 5-10% below their pre-crisis peak.
The implication of such regional variations is that inequalities within the market have been intensified, with housing in some areas moving beyond the reach of many low-income families and households. By contrast, house prices in the north of England have fallen significantly between 2007 and 2013 and, although still historically high, are now more closely aligned to earnings.
Despite this, between 2010 and 2014 homelessness – that is, those recorded as ‘sleeping rough’ – increased by 55%, with London and the South-East experiencing the greatest increases amongst the regions, at 78% and 96% respectively. Statutory homelessness, defined as households or families that face a real and imminent threat of losing their homes or are at risk of being evicted from their current residence, also increased on average by 17% over the same period.
While homelessness cannot solely be attributed to rising house prices, evidence presented by the Joseph Roundtree Foundation demonstrates that housing market conditions tend to have a much greater direct impact upon homelessness than other market and economic factors. While rising house prices, tighter lending conditions and a lack of social housing have put home ownership beyond the reach of many working families, a number of policy initiatives put in place by the Coalition government, along with its sweeping welfare reform agenda, have had the effect of adding fuel to the fire, greatly exacerbating an already capricious market and further stacking the deck against the disadvantaged.
For example, the benefits cap, introduced in 2013, limits weekly welfare benefits for single people to £350, with all other households being limited to £500 per week. The impact of the benefits cap has been particularly felt by larger families and those living in London and the surrounding regions where rents, reflective of the local housing market, are particularly high. As a result, many families and households have struggled to meet their rent obligations and have slipped into statutory homelessness. It is not surprising, therefore, that between March 2013 and April 2014 local authorities spent £176 million in Discretionary Housing Payments (DHP) to families and households facing an imminent risk of losing their accommodation within both the social and private rented sectors.
Likewise, a limit on eligible rents for households in the social rented sector, better known as the ‘bedroom tax’, was also introduced in April 2013. It dictated that those in receipt of housing benefit would have that benefit reduced if the property being rented was deemed to have more bedrooms than necessary, with tenants having to make up any shortfalls in rent from their own pocket. Indeed, the Department for Work and Pensions has released figures which suggest that only two out of five tenants affected by the bedroom tax have been able to meet their rent obligations, with the remainder falling into debt, arrears or borrowing money from family and friends in order to avoid eviction.
Meanwhile, research presented by the Joseph Rowntree Foundation has shown that in England and Wales landlord possession actions increased by 18% in 2013-14 compared to the previous year and further claims that the ‘full homelessness impacts of the bedroom tax have yet to be felt’, with the termination of fixed-term tenancies likely to be the single largest factor causing loss of permanent accommodation amongst the homeless.
Changes to the Local Housing Allowance (LHA) may also be compounding homelessness in the UK. The LHA is a state benefit which assists tenants in privately-owned rental accommodation unable to meet their monthly rents in full. LHA recipients are often those in low-paid jobs, part-time workers, retirees or people dependent upon welfare. The LHA used to be calculated on the local market median, meaning that recipients were entitled to receive state help in order to be able to afford to rent a property up to the market median rate. However, in 2011 changes to the LHA mean that all new tenants, as well as some existing LHA recipients, are subject the thirtieth percentile rule, which insists that 3 in 10 properties of each size should be affordable to those receiving LHA.
In addition, market conditions, including rising house prices, will themselves have further increased inequality. For example, the Institute for Fiscal Studies (IFS) has shown that declining mortgage interest payments, resulting from an overall fall in interest rates, has had the effect of lowering costs for homeowners by approximately 37% during the years 2007-13, with income-to-cost ratio for homeowners falling by 5% over the same period. However, those in the private rental sector have not experienced a similar reduction in their overall housing costs.
The IFS report also demonstrates that falling mortgage interest payments have benefited a much smaller percentage of the population, with the number of mortgage homeowners falling by 5% during 2007-13. As such, homeowners are now better off than those in the rented sector and experience a greater ability to ‘consume’ housing, whether by moving to a more desirable property or purchasing a buy-to-let second property. When wealthier homeowners re-enter the housing market they have greater economic power than non-homeowners and are generally able to outbid their counterparts. The result is that prices rise, forcing non-homeowners and those on low incomes into the precarious rented sector and rendering them more dependent on state benefits that have already undergone significant reductions.
In sum, homeownership in the UK now represents the greatest repository of individual wealth, with unequal access to housing magnifying the unequal distribution of wealth within society more generally. Quite simply, homeownership is beyond the economic power of many. Although this cannot be attributed to any single individual factor, we do know that key policies of the Coalition government, in particular its welfare reform agenda, have significantly constrained the access to housing of many people, exacerbating housing exclusion and compounding the direct causes of homelessness.