What do the ONS private rental stats tell us about poverty?
At the end of last week ONS published its annual update of how private rents have increased across the country. As private renting became the second most common tenure (over taking social renting) in 2011 this index is increasingly important as a measure of household spending power.
What’s happened to private rents?
The graph below summarises what has happened to rents in recent years across England – it shows the average increase in rental costs by region in the two years to December 2013 and in the two years to December 2015. Four things stand out:
1. In the last two years rents in every region increased faster than prices overall. In earlier years, London was the only area where rents increased above prices
2. Overall price inflation has fallen, whilst rental inflation increased across the Midlands, South and East.
3. In the North rental inflation is lowest and slowed over the last two years
4. Rents in London grew at a faster rate than the rest of England but at a slower rate than previously
Why does this matter for poverty?
The number of private renters has seen considerable growth in the last decade and so has the number in poverty. In the last decade the number of private renters in poverty in England has risen from 2.1 million to 3.9 million. The reason that many private renters are in poverty is because their high and rising housing costs: the average low income private renter spends at least half of their total household income on rent.
An important thing to note about private renters in poverty is that they are not the traditional “private renters” that come to mind. Most private renters not in poverty do not have children (57%) but most private renters in poverty do (58%). Families with children need another bedroom, face higher housing costs and a higher poverty rate. There are almost as many children in poverty in private rented homes in England (at 1.1 million) than social rented ones (at 1.2 million). So increases in private renting costs are now a big child poverty issue.
The graph below gives us an idea of how many children live in families struggling to manage these rising rental costs. For each region it shows the number children in private rented housing whose parents claim housing benefit and the rent inflation for the two years to December 2015. London, the obvious extreme, contains 250,000 children needing help to pay their private rents. But problems are also likely to arise in the South East and East where another 260,000 children live in the private rented sector and need housing benefit. In these regions rents increased by 4.9% and 4.6% between 2013 and 2015 and at a faster rate than the previous two years.
What does this mean for household incomes?
The low levels of consumer price inflation in recent years have been welcomed following a period when prices had been rising faster than earnings. For social renters the news is even better: their rents are due to fall by 1% a year for the next 4 years. Meanwhile the Bank of England’s decision not to increase interest rates will mean mortgage costs should remain relatively low.
But for private renters, their largest unavoidable cost continues to increase and the support available for those struggling to meet those payments does not. The smallest increase in private rents between 2011-2013 was 1% in the North East, the highest was 6.4% in London. But in April 2016 the housing benefit limit for private renters will increase by exactly the same amount across the country: 0%. This will affect 1.1 million housing benefit claimants in England including 480,000 in work, 630,000 with children (380,000 both work and have children).
For the first time in years most of the 40 million people in social rented or owner-occupied accommodation will see their incomes rise faster than their housing costs. But ONS’s latest data shows us that the same is not the case for 10 million private renters. Their main financial outgoing continues to increase whilst the support available for it does not. The increasing numbers of low income families in the private rented sector to looks set to continue.