Housing affordability and policy change: impacts on wellbeing in the

UKChristine Whitehead

Professor Emeritus in Housing Economics, London School of Economics

Illuminating the black box of housing and health

ARC sponsored Symposium, Barossa ValleyUniversity of Adelaide

21- 23 September, 2015

Logic chopping• What included in health? Physical and mental; short term and long term;

but also disability?• What included in housing? The dwelling, the neighbourhood, the

location, homelessness? • Housing and location have direct physical impact on health – damp,

asbestos, other construction materials, bacteria, pollution, disasters etc;• Housing has more complex impacts through occupation levels, security,

suitability of design for family living, financial stress etc; • Health has a direct impact on housing choice, location and housing

conditions;• Health has indirect effects on housing via through impact on length of life,

capacity to earn, types of employment etc;• Main link in terms of seriousness of negative impacts between the two –

in both directions – is poverty and affordability;• But also issue of high quality housing and its impact on wellbeing of

better off households.

Traditional Findings• Negative externalities of poor housing and by implication negative impact

on occupants restricted to extremely poor quality housing and dealt with by regulation and infrastructure investment – public health and fire prevention more important than housing per se but building regulations also fundamental.

• The vast majority of negative impacts are linked to poverty (or emergencies) with these being the major causal factors rather than housing per se;

• Historically as standards rose through regulation this increased costs against unequal income distributions, legal housing became unaffordable for many. Result was unaffordable housing, avoidance and evasion; rent controls; and subsidies to improve affordability;

• Majority of work done in Northern countries where issues around cold/damp/energy efficiency – and homelessness - have dominated.

Ensuring Housing Affordability in the UK• Supply side:

– Revenue and then from 1988 capital grants for new social housebuilding;– Residual subsidies and then capital grants for existing social housing stock to ensure affordable

rents and improvement to modern standards;– Various forms of rent stabilisation related to cost, value and inflation;– Allocations to lower income ‘deserving’ households and then from 1980 increasingly to very

poor and vulnerable – single parent and large families; those with problems with health and disability; elderly; vulnerable singles.

• Demand side: – from early 1970s open-ended income related housing benefits (HB) to all eligible

low income tenants; – increasingly constrained for private tenants and singles from mid 1990s; – Now some constraints on HB for social tenants since 2011 – ‘bedroom tax’ and

welfare cap.• Homelessness legislation in place from 1977 for families and vulnerable households

– initially local authorities required to house in own accommodation; – then to find secure accommodation in social housing; and now – to identify suitable accommodation – not necessarily with security of tenure.

Changes in tenure structure in England since 1981

Owner-occupation %

Private rented sector %

Housing Association/RP %

Local Authority %

Total stock (m)

1981 59 11 2 27 17.9

1991 68 9 3 20 19.7

2001 70 10 7 13 21.2

2011 64 18 10 8 22.8

2014 63 20 10 8 23.4

Source: DCLG Live tables

Social Housing Supply: Access, Affordability and Standards1. A Central Role for Housing Associations?

• Housing associations (HAs) have been the main builders and increasingly the main providers of affordable housing since 1989;

• Funded by grant and capacity to raise funds cheaply on the private finance market- safety net of HB and regulation;

• Large scale voluntary transfers of local authority stock to HAs by tenant ballot, normally through management buyout – including capacity to improve quality of existing stock;

• But grant has nearly disappeared so HAs must generate own resources and charge higher rents to fund additional housing, reducing affordability for those not on HB;

• Changing terms and conditions – – initially lifetime security from day 1; then– trial period;– Localism Act 2011 includes fixed term tenancies.

.

Additional affordable homes provided by type of scheme, England

Affordable housing is the sum of social rent, affordable rent, intermediate rent and low cost home ownership.

Source: Live Table 1000

19

91

-92

19

92

-93

19

93

-94

19

94

-95

19

95

-96

19

96

-97

19

97

-98

19

98

-99

19

99

-00

20

00

-01

20

01

-02

20

02

-03

20

03

-04

20

04

-05

20

05

-06

20

06

-07

20

07

-08

20

08

-09

20

09

-10

20

10

-11

20

11

-12

20

12

-13

20

13

-14

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Social Rent Affordable Rent Intermediate Rent Affordable Home Ownership

2. The Affordable Rents Regime

• Introduced in 2011 by the Coalition Government in response to capital grant reductions - to enable continued investment programme;

• Rents up to 80% of market rent, for most new build and some transfers on vacancy - giving increased capacity for HAs to borrow (NRAS a relevant comparator?);

• 170,000 plus units provided by end 2015 with around 50% contracted at Affordable Rents;

• Similar scheme from 2015 – 2018, extending to 2020;• Will maintain some scale in social sector output – but

increasing emphasis on partial ownership. HA Right to Buy may lead to some decline.

3. Impact on Tenants• Improvement of social sector stock through subsidies to

achieve Decent Homes Standard in LA and HA sectors;• Targeting allocations at more vulnerable households;• Rent stabilisation– social rents vary from around 30% of

market in London to 80% plus in some low demand areas; • Regulated relativities with respect to dwelling size have

favoured larger family households; • Affordable rents higher- but still less than 50% in London;• Rents eligible for Housing Benefit although increasing

(although still relatively limited) welfare constraints – different story in the private rented sector;

• More limited security of tenure for new tenants in social sector (anyway very limited in the private rented sector).

Housing Benefit, Welfare Support and Housing Affordability1. The Role of Housing Benefit

• Social security a UK wide system with fixed rates – so those in low cost areas do better;

• But housing costs vary too much across the country to make fixed rates feasible - varying housing subsidy allowed governments to help those with high housing costs while keeping down the costs of social security, initially through rent subsidies and then with income related subsidies across the rented sector;

• HB based on individual rents and household circumstances and on the assumption that household could not move to reduce housing costs;

• Available to any household which could find a rented home;• Structure ensured minimum income unaffected by housing costs – but negative

implications for tenants from high marginal ‘tax’ rate as incomes rise - and for government because of increasing subsidy bill;

• Result has been that that UK had relatively little housing poverty – but overall social security ungenerous so UK overall poverty rates high;

• However the story has been changing for some years.

2. The Changing Housing Picture • Increasing emphasis on vulnerable households in the social

rented sector - 50% plus of HA income comes from HB; • Increasing size of the private rented sector (PRS) – doubling in

a decade with higher rents and very limited security;• Increasing policy role for the PRS in housing homeless and

poorer households with little additional support;• Increasing rents in the PRS as housing markets tighten,

pushing HB way up the income scale;• Large numbers of owner-occupiers without a mortgage but

access to owner-occupation heavily constrained unless bank of Mum and Dad;

• Income inequalities and intergenerational inequalities becoming more stark – although very poor have been protected by real increases in welfare payments.

3. Government Responses• Restricting household eligibility – mainly affecting younger single

households;• Limiting eligible rents - the introduction of the local housing allowance

(LHA) restricting eligible rent to 50% of the local market and now 30% - and social sector rents capped at LHA - so many have residual incomes below social security minima and increasing fear of evictions because of rent arrears;

• Limiting the size of dwelling for which HB available – the ‘bedroom tax’; - requiring households to pay a flat rate for an ‘additional’ room or move to smaller unit;

• Limiting absolute amount of welfare payment initially to about median income and now to £23,000 per annum in London and £20,000 elsewhere – which can avoid by moving into employment;

• Freezes on general welfare payments; and now • Cuts of 1% pa in HA rents for 4 years.

4. Impact on Tenants • HB restrictions hardest on young – sharing; living with parents; sofa surfing – not

only among poorest;• Welfare cut effects relatively limited in short run because of Discretionary Housing

Payments and LA/devolved government responses;• Many have been exempted for disability and health reasons; • Most have tried to pay bedroom tax –very little mobility except in North;• Large numbers have moved on to work based benefits by getting 16 hours

employment – some very positive messages around work incentives – but also some negative – including types of job;

• Growth in support mechanisms/mentoring by HAs, LAs, Job Centres etc;• More understanding of mental health and other problems as more relational

management by HAs;• Growth in food banks (often used by working households) - but more in Germany?• Longer term effects of welfare freezes, reductions in welfare cap and limiting

increases in rents to CPI; • Potential effect of Universal Credit.

Impacts of £23k Cap in London Given Mean Net Rents and Mean Affordable Rents

Household composition Children Cap limit on

total HB*

est. no beds

eligible

Social Rent Affordable Rent

Mean Net Rent in London

Headroom between

HB and cap in London

Mean Affordable

Rent in London

Headroom between

HB and cap in London

Lone parent - JSA

1 £285.20 2 £114.95 £170.25 £171.64 £113.56

2 £218.20 2 £114.95 £103.25 £171.64 £46.56

3 £151.20 3 £127.68£23.52

£182.38-£31.18

4 £84.20 3 £127.68-£43.48

£182.38-£98.18

5 £17.20 4 £141.75-£124.55

£201.60-£184.40

6 -£49.80 4 £141.75-£191.55

£201.60-£251.40

Couple - JSA

1 £243.50 2 £114.95£128.55

£171.64£71.86

2 £176.50 2 £114.95£61.55

£171.64£4.86

3 £109.50 3 £127.68-£18.18

£182.38-£72.88

4 £42.50 3 £127.68-£85.18

£182.38-£139.88

5 -£24.50 4 £141.75-£166.25

£201.60-£226.10

6 -£91.50 4 £141.75-£233.25

£201.60-£293.10

Conclusions on Housing • Housing specific subsidies of all types have been a major benefit, limiting housing

poverty through supply, below market rents and income support.• In the social sector in particular HAs have provided management support and

security for tenants;• The growth of the PRS, while generally increasing standards, has left many

households more insecure and paying unaffordable rents – and some unable to live seperately;

• Welfare changes are leading to greater insecurity and lower incomes – but poorest have still been protected up to now;

• Major issue around work incentives because high incidence of HB and high rents means large numbers of working households on partial benefit;

• Those in owner-occupation generally doing better – but many excluded even though could afford to buy so paying more in the PRS for less;

• Most welfare impacts still to come;• Underlying all these findings is dysfunctionality in both the welfare system

structure and the housing system particularly with respect to new housing supply;• And the intention of reducing government subsidy to housing.

Conclusions on Wellbeing• Very little street homelessness – which has the worst outcomes; • Still very bad among those in temporary accommodation;• Physical housing conditions generally continue to improve; • Insecurity and its impact of mental health and wellbeing worsened by growth of

PRS and changes to social tenancies; • Affordability a major problem for those just above HB and a growing problem for

those on HB. Leaves increasing numbers of households without minimum income– leading to poorer diet, inadequate heating and serious pressures on mental health;

• But need to be careful not to cry wolf. In work benefits being cut but incomes rising; cuts are as yet marginal in social sector; elderly and physically heavily disabled protected; outright ownership growing and those in owner-occupation benefit from low interest rates;

• Single parents and large families at increasing risk from welfare cap;• But those where housing affordability affects wellbeing most are young singles

tenure – and those who are most fearful of change – including in particular the disabled with lesser disabilities but little access to employment;

• Principles of housing in relation to welfare set in place in 1947 beginning to be eroded.