Introduction:
The Institute for Fiscal Studies (IFS) recently released figures that paint a concerning picture of the housing market in the United Kingdom. These findings corroborate the evidence presented by Propertymark, a leading property organization, to the Department for Work and Pensions (DWP) Commons Committee on June 28, 2023. Timothy Douglas, Head of Policy and Campaigns at Propertymark, warned Members of Parliament about the growing issue of vulnerable tenants being priced out of the market. In this blog post, we delve into the key takeaways from the IFS report and explore the challenges faced by lower-income households in terms of housing quality and affordability.
A Dire Affordability Crisis:
According to the IFS report, a staggering 38% of private renting households (equivalent to 2 million households) rely on housing benefits. However, the affordability of housing for these individuals has reached an all-time low. Across Britain, the share of properties considered affordable for benefit claimants ranges from a mere 2.5% in Wales to 6.9% in the North East. This decline in affordability has been pervasive, affecting all regions and nations.
Demand Outstripping Supply:
Timothy Douglas seized the opportunity to highlight the concerns raised by Propertymark members to the DWP. In a highly competitive market, the demand for rental properties continues to outstrip supply. Evidence from a survey of Propertymark members reveals that the demand surged by 24% in April 2023 compared to the previous year. This increase in demand further exacerbates the challenges faced by vulnerable tenants.
The Freezing Effect:
One of the key factors contributing to the affordability crisis is the freezing of the Local Housing Allowance (LHA) since April 2020. As a result, the proportion of new private rental properties that are affordable to housing benefit or universal credit recipients has plummeted from 23% to a paltry 5%—the lowest level ever recorded. Propertymark has been consistent in advocating for LHA to be set at the thirtieth percentile, if not the fiftieth, to expand housing options for those with lower incomes.
Taxation Woes and Their Ripple Effects:
Landlords in the private rental sector are grappling with unprecedented financial challenges due to the phased-out Mortgage Interest Relief and other unfavorable taxation policies. If a pro-growth taxation agenda for the sector is not implemented promptly, it will have knock-on effects for the most vulnerable tenants, many of whom rely on housing benefits. This further compounds the difficulties faced by those in need of affordable housing.
The Vital Role of the Private Rental Sector:
Since the decline in homeownership since 2008, the private rental sector (PRS) has played a crucial role in filling the housing gap. Particularly for younger individuals with lower incomes, private rented accommodation has become the go-to option. In fact, almost half of lower-income adults born in the 1980s are private renters, compared to less than 20% of those born before 1960. However, the demand for rental properties continues to outstrip supply, perpetuating the affordability crisis.
Collaboration and Recognition:
Propertymark, along with other experts representing landlords, tenants, policymakers, and the homeless, stresses the urgent need for the DWP to engage more with landlords and recognize them as stakeholders in the housing allowance scheme. The current benefits system fails to keep pace with rising rents, and the shortage of social housing stock adds further pressure on the PRS.
Conclusion:
The IFS report and Propertymark’s evidence to the DWP paint a bleak picture of housing affordability and quality for lower-income households. Vulnerable tenants are increasingly being priced out of the market, with demand for affordable properties surpassing supply at an alarming rate. Urgent action is needed to address the freezing of LHA, create a pro-growth taxation agenda, and recognize the crucial role played by the PRS. By engaging with stakeholders, policymakers can work towards alleviating the challenges faced by those in need of affordable housing and ensure a brighter future for all.