A Thinkhouse blog: the UK’s cost of living crisis

Kerri Farnsworth considers what’s next for the housing sector under the current cost of living crisis.

The UK is now in a cost of living crisis, although there may be a difference of opinion as to how far the nation is into this crisis. It isn’t unexpected that we have received a significant uptick in research related to this topic.

The scale of the cost of living crisis is illustrated by the latest briefing by the House of Commons’ Library: Housing and Cost of Living. It cites an Ipsos survey in June 2022 which revealed that 47% of renters said that they were worried about their ability to pay the rent or their mortgage. The comparable figures in the 2020 English Housing Survey – at a time of considerable Covid-generated uncertainty over employment and income security – were 23-25% of renters and 6% of mortgage-holders.

More reports continued to consider the impact of the current UK cost of living crisis on different types of households: Cover The Cost: preventing homelessness for renters in the cost of living crisis, by Shelter; Falling short: Housing benefit and the rising cost of renting in England by Crisis and Zoopla and Protecting social housing residents from compounding crises by Peabody.

Shelter’s report focuses on those renting in the private sector, who feel they are disproportionally exposed to the current cost of living crisis. It states that 32% of private renters are now spending at least half their monthly income on rent and that 54% who claim housing benefit (one in three in private rent) have an average shortfall of that benefit to cover their rent of £151 per month, which they have to make up themselves.

This issue of shortfall is backed up by the Crisis and Zoopla study, which found that even before the October 2022 mortgage interest rate escalation, rents had increased 12% since the start of 2020, whilst Local Housing Allowances (LHAs) remained frozen at 2018-19 levels. The Crisis study also highlights the regional and typological disparities in housing affordability and hence the level of shortfall households are having to pay for: across the UK less than one in eight private rentals were on average affordable within existing housing benefits levels, but this went up to one in 20 in some areas and in certain typologies, especially one-bedroom properties.

Zoopla’s survey data also suggested that housing benefit shortfalls were more than double that suggested by recent government figures – which worryingly indicates that the scale of vulnerability is much greater than the current government believes it to be.

The impact of the cost of living crisis on social housing tenants is starkly set out in Peabody’s report, with information derived from a resident survey and consultation with staff and other housing associations. Amongst its own residents Peabody found that 80% were restricting use of heating to inadequate levels; 42% were spending less on food to inadequate levels; and 41% were having to do both. This is particularly shocking if, as many believe, we are only just at the beginning of this crisis.

The Shelter and Crisis and Zoopla reports both conclude that there is an urgent need to abolish the prevailing benefit cap and re-link LHA rates to the actual cost of renting in order to prevent mass rental defaults and evictions over the next 12 months. The key longer-term solution is a significant, central government investment in social housing with rents pegged to local income, as the only truly-affordable and sustainable tenure.

The report by Crisis and Zoopla also highlights deficiencies in central government data which mean it is difficult to keep housing benefit levels in line with the real cost of the market. This could be easily resolved by introducing things like a landlord register, with formal rent reporting.

The shortcomings of government data intelligence on households in the UK is also highlighted by another report by the Centre for Social Justice (CSJ), Protecting Vulnerable Households from the Inflation Crisis, which makes specific recommendations for immediate government interventions to reduce the impact of the cost of living crisis on all vulnerable households. Up-to-date data could inform the government of the need for, and level of, a further tranche of household in spring 2023 if current inflationary forecasts continue to rise at the same pace as expected.

A new package of support for the poorest working households in the UK could provide a highly-targeted income boost for households on Universal Credit, legacy benefits and pension credit, which in turn would help to significantly counteract the fall in average real income levels among poorer households now expected this autumn. CSJ estimate this package would also cost only 10-15% of the estimated cost of the Energy Price Cap announced by government in September 2022 – which is effectively a government subsidy of private profit generation, and does little to address what the CSJ suggest is a failure of central government to regulate the energy sector.

By mid-October, central government fiscal policy was in a state of flux and it was difficult to be definitive on official support or safeguards for the UK’s most vulnerable households while writing this blog. Such uncertainty makes it very difficult for housing associations to plan, but having a granular understanding of your residents and the specific impacts on them is now essential – and Thinkhouse can help arm you with the research evidence to substantiate your calls for support.

This blog is a small snapshot of all of the excellent report the Thinkhouse Editorial Panel reviewed in 2022 – please do go to the Thinkhouse website to check out the many others.