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Poorer and younger households have borne the brunt of changes in UK housing costs since the financial crisis, according to a new analysis that is likely to increase the pressure on chancellor Philip Hammond to come up with bold reforms for the sector in his Budget.
Figures derived from official data show that UK households on below average incomes experienced typical increases in housing costs of £714 between 2007-08 and 2015-16. By stark contrast, those on above average incomes faced typical cuts in housing expenses of £271 over the same period.
The figures highlight the divide between homeowners who have enjoyed substantial cuts in mortgage interest charges after the Bank of England slashed benchmark rates during the financial crisis, and renters whose payments have risen every year since 2007-08.
Those near the bottom of the income scale have seen their housing costs rise 32 per cent between 2007-08 and 2015-16, while the best off households have enjoyed a 17 per cent cut in such expenses.
The figures highlight the dilemma for Mr Hammond as he prepares his Budget next Wednesday, amid pressure from all sides to take bold steps to tackle the housing crisis. The chancellor knows he needs to craft a coherent housing policy amid a cacophony of suggestions from within government.
Prime minister Theresa May pledged at the Conservative party in October to fix the “broken housing market”. Communities secretary Sajid Javid also last month called for large scale public borrowing to fund a housebuilding programme, with his allies later saying this could amount to £50bn.
The figures on housing costs — which were compiled from Department for Work and Pensions income distribution data by the Resolution Foundation, a think-tank — show much larger increases in such expenses among poorer households than richer ones.
For the tenth of households on the lowest incomes, annual housing costs were £569 higher on average in 2015-16 compared with 2007-08.
The next poorest decile experienced the largest increase in such expenses over the same period, amounting to £879.
But for households on higher incomes — which are more likely to be older, have mortgages or own homes outright — housing costs have become less of a burden.
For the tenth of households on the highest incomes, the expenses actually fell by £1,206 on average between 2007-08 and 2015-16.
This significant divergence has led to a dramatic equalisation of housing costs for rich and poor. The richest tenth of households paid 2.5 times the expenses of the poorest decile in 2007-08, but that gap had reduced to 1.7 times by 2015-16.
It means that inequality has risen once housing costs and related benefits have been taken into account.
Adam Corlett, analyst at the Resolution Foundation, said: “Over the past decade, housing has been an important driver of inequality. Those able to buy a home have benefited from falls in mortgage interest costs while rising rents have squeezed lower income families.
“Housing isn’t just fuelling income inequality — it’s creating a huge generational divide, too. The collapse in home ownership among younger adults and the increase in private rents as a share of income are key reasons why generation-on-generation living standards progress has stalled for millennials.”
For households where the occupants are aged between 25 and 34, the proportion of homeowners has fallen from just over 40 per cent in 2006 to about 25 per cent in 2016.
Meanwhile, the proportion of the same households in the private rented sector has increased from about a quarter to more than 35 per cent over the same period, with a small rise in the numbers still living at home with their parents.
Since the Conservatives entered government in 2010, the number of homeowners aged under 45 in England has dropped by 904,000: down from 4.46m in that year to 3.56m in 2015-16, according to data from the Department for Communities and Local Government.
This change in property tenure bites hardest for the young, as housing costs are higher in the private rented sector, on average, than in any other.
Economists are sharply divided on the best response to the costs problem, particularly for poorer and younger families.
But most agree Mr Hammond should aim to tackle the issue in the Budget. Ian Mulheirn, director of consulting at Oxford Economics, says that building many more homes will not bring house prices down quickly.
He called for a “focus on the worsening distributional problems” in housing, saying “housing benefit cuts and caps [on such benefits] have reduced the financial help that used to be available to people on lower incomes in the private rented sector”.
Polly Neate, chief executive of Shelter, a housing charity, said the only way to tackle the “dramatic increase in [housing] costs over the past decade” was “to lower the cost of land and get it into the hands of organisations who want to build houses which are genuinely affordable to rent or buy”.
That would involve Mr Hammond fulfilling the Conservatives’ contentious election manifesto pledge to change the rules on valuations when public authorities seek a compulsory purchase of land, so that they can buy it more cheaply.