Linking rents directly to incomes can make the housing market work, says Brian Robson.
JRF has highlighted the significant changes that have taken place in the labour market in recent years. There has been a vast increase in low-paid, part time and insecure work, which means that getting a job does not necessarily mean getting out of poverty.
These changes have had an impact on housing, with the number of Housing Benefit claimants in work doubling between 2009 and 2014. But housing isn’t helping people cope with the changed labour market. Paying housing costs pushes three million people into poverty every year and the number of people in poverty in the private rented sector, the most expensive form of housing, has doubled in the last decade.
Traditionally, social housing has played an important role in reducing the degree of poverty experienced by low-income groups, but in recent years things have changed. Rents for most new lettings are now linked directly to the dysfunctional private rented housing market this group can’t afford to access.
JRF research shows that continuing to set social rents nearer to market levels will result in an extra 1.3million people in poverty by 2040. In fact, we can only contain poverty at current levels with a big increase in housing supply and limits on social housing rent rises. The level social rents are set at really matters.
So what would a low-cost housing model designed to cope with this new reality look like? That’s what JRF set out to discover, working with our partners at the National Housing Federation. The result is Living Rents.
Living Rents moves away from any link to the housing market. Instead, rents are directly linked to local earnings. That’s a big change compared to existing models, which have set rents in relation to market rents or largely based them on property values.
Creating a strong connection between local earnings and rents will result in homes that those on low incomes can afford whether they’re in or out of work, making the transition into work easier and reducing the need to rely on Housing Benefit. And make renting more affordable for everyone.
The earnings figures used are based on lower-quartile average earnings which, at the national level, are equivalent to an average week on minimum wage. A rent is then set for each area, based on charging a fixed percentage (28 per cent) of the net local earnings figure. This means that rents vary according to local labour market and pay rates. The figure of 28 per cent is in line with the current share of income spent on rent by social renters, and substantially lower than the share of income spent by low-income private renters.
As well as genuinely affordable rents, we need a system that’s capable of delivering enough new homes. The Living Rents model can meet demand for social housing, delivering 40,000 homes to be let at Living Rent levels each year, plus an additional 40,000 for low-cost home ownership or discounted rent, like special schemes that give lower rents to key workers.
In Living Rents, we have a sustainable model that responds to the changed labour market. In purely practical terms, it can provide an increased supply of stable, high-quality housing that meets the needs of those in and out of work. But the real shift is taking the bold step of linking rents directly to incomes – a concept that can make the housing market work.