Renters on low incomes face a policy black hole: homes for social rent are the answer

JRF's latest analysis shows the large number of households on low incomes paying rents they cannot afford in the private rented sector. It provides new analysis on the depth and geographical spread of this problem and examines the Government’s policy response, which is not currently succeeding either in making renting more affordable or in making homeownership accessible to this group.

Our analysis shows why significantly increasing the supply of homes for social rent is the solution — 90,000 a year for the next 15 years — and sets out the level of investment the Government should commit to at this autumn’s Comprehensive Spending Review to deliver them.

It is not right that the high cost of private renting is leaving almost one million families paying rents they cannot afford. This is leaving 9 in 10 of these families in poverty, with some family budgets more than £100 a week below the poverty line as a result.

The Government’s current plans don’t come close to addressing the problem. There is an urgent need to ease the pressure on these families to reduce poverty, improve living standards and allow more people to save for their family’s future.

Unaffordable rents are hitting working families

Work is not a guaranteed route to being able to afford your rent, and this affordability crisis is hitting working families hard. 748,000 families who cannot afford their rent have one or more adult in work, two-thirds of whom work full-time. Sky-high rents in London can be devastating, but this problem affects all of England.

Private renters are more likely to be on low incomes in the North (55%) and Midlands (48%). Despite rents being cheaper on average, around 418,000 renters in these areas are paying rents they cannot afford. The Government will not fulfil its promise to improve the lives of people on the lowest incomes and ‘level up’ the country without a long-term plan to tackle this problem.

Current policy responses are failing low-income renters

The majority of the Government’s policy responses – Housing Benefit; the affordable rent scheme which lets properties at up to 80% of market rates; and homeownership products like Help to Buy, First Homes and the Mortgage Guarantee Scheme – are either not working for this group, or only working for a small proportion of them.

The Government’s ‘affordable rent’ scheme can ease pressure on some families on low incomes. 25% of families currently paying rents they can’t afford would find this tenure affordable. However, this leaves three-quarters of this group unable to afford ‘affordable’ rents. The homeownership products that form the cornerstone of Government housing policy are out of reach for the majority of this group.

Homes bought through Help to Buy would only be affordable to 2% of low-income private renters. Most current products, including the mortgage guarantee schemes and First Homes, are unaffordable to nine in ten low-income renting families. These products work for people already on the cusp of homeownership, but there is a policy black hole for low-income renters.

Housing Benefit is costly and insufficient

Housing Benefit plays a vital role in helping low-income households with their housing costs. However, years of cuts and freezes have undermined its effectiveness. Around half of the 956,000 families paying rent they can't afford receive Housing Benefit but are still struggling.

By itself, subsidising high private rents through the benefits system is not a sustainable solution to this problem. Housing Benefit costs the state around £30 billion a year, a large proportion of which goes to private landlords.

Why current supply plans fall short

The Government’s current ambitions to deliver 6,000 homes for social rent a year over five years through the Affordable Homes Programme is nowhere near ambitious enough. This number won’t even meet the needs of people currently on waiting lists. The people identified in this analysis do not stand to benefit from current plans.

Our recommendations

The Government must step up its housebuilding efforts to reach its target of 300,000 homes a year and must ensure that 30% of these are homes for social rent.

In the near term, this would meet the needs of the 1.1 million households on the social housing waiting list, as well as people experiencing homelessness. It would also support the Government’s aim to reduce homelessness and end rough sleeping this parliamentary term. Over the long term, it could lift 600,000 people who are renting privately out of poverty.

It would provide more than half a million households with a home they can afford, and ease the pressures of high rents for the remaining households paying rents they cannot afford. This would reduce the Housing Benefit bill and support the delivery of better quality, more energy-efficient homes that better meet the needs of families on low incomes.

It would also increase access to the most successful affordable homeownership scheme available to low-income renters in England: Right to Buy. With much greater ambition, we can deliver homes people can genuinely afford, lift people out of poverty, and strengthen the pathway to affordable homeownership through social housing. To do this, the Government must commit to 30% of its annual target of 300,000 homes being for social rent that are affordable to people on the lowest incomes.

Investment required to deliver social rent homes

Delivering this will require an increase in grant funding on top of what has already been committed in the current Affordable Homes Programme. An ongoing annual capital investment of an extra £11 to £14 billion would deliver 90,000 homes for social rent a year.

This funding should be committed at the autumn Comprehensive Spending Review. This level of spending is needed over 15 years to meet demand, following a long period of low investment. Now is the time to commit, as borrowing costs remain historically low. The precise figure will depend on whether the planning system can increase supply through developer contributions.

Given lead-in times for housing developments, this scale of delivery will not be achieved overnight. The Government should therefore use the spending review to set clear intent on both the target for new social homes and the level of public investment it will build up to over the coming years.

If you are using this document in your own writing, our preferred citation is:

Elliott, J. Earwaker, R. (2021) Renters on low incomes face a policy black hole: homes for social rent are the answer. York: Joseph Rowntree Foundation.