The Housing Question No 8: Unwanted new records

Homeless children in bed and breakfast, how housing costs affect who we see as rich and poor, the end of the LHA freeze (for now) and not quite the end for leasehold.

Welcome to the eighth issue of The Housing Question, my newsletter covering everything to do with housing. After a week’s break due to other commitments, I’m back with some thoughts on what’s been catching my attention in the last week. The Housing Question is still a work in progress but let me know what you think and please consider subscribing (it’s free for now) and sharing on social media if you like what you read.

When temporary becomes permanent

The latest official figures on homelessness get bleaker and bleaker the more you delve into them.

Starting at the top, there were 21,000 homeless acceptances in the second quarter of the year, an increase of  19 per cent on a year ago.

Most of them will have joined the homeless families stuck in temporary accommodation while they wait for a permanent home, up 10.5 per cent on a year ago at 105,750. Those families included 138,930 children. Both are record highs in stats that date back to 1998 and have roughly doubled since the Conservatives came to power in 2010.

Of those, the number of households living in bed and breakfasts was up 39 per cent on a year ago at 14,090. That is higher than during the previous two surges in B&B use in the early 1990s and early 2000s.

After the second of those two crises, the Labour government introduced a legal order that no family with children should have to live in a B&B except in an emergency and even then only for a maximum of six weeks.

Flash forward to the three months to the end of June 2023 and there were 4,480 families with children in B&Bs, up 93 per cent in a year.

Of those, 2,510 had been resident for more than the statutory limit of six weeks. This is up 39 per cent from the previous quarter and a jaw-dropping 146 per cent on a year ago.

Picture: Shelter

Numbers like these show a systemic crisis that reaches well beyond housing into the health and education of children and the finances of local authorities. No wonder several have warned that the costs of homelessness could bankrupt them. They also reflect a political choice to fail to act.

Note that the figures above only cover those accepted as homeless and in priority need and do not include much larger numbers of people without a permanent home, let alone those exercising Suella Braverman’s ‘lifestyle choice’. Under the government’s single night snapshot count (a very conservative measure) there were 3,069 rough sleepers in Autumn 2022, a rise of 26 per cent on 2021, undoing much of the progress made with ‘Everyone In’ and leaving the government’s manifesto promise to end rough sleeping by 2024 in tatters. It does not include refugees kicked out of their accommodation by Home Office policies either.

In the short term, the government is at least removing some of the pressure from private renters losing their home by finally unfreezing Local Housing Allowance (see below).

In the longer term, the only solution for the crisis in temporary accommodation is more permanent social housing and there was at least a bit of good news on that front in more statistics published this week.

Total completions of affordable housing (of all types and from all sources including government grant and Section 106) rose 7.5 per cent in 2022/23 to 63,605.

Better still, completions for social rent (9,561) and London Affordable Rent (2,741) took up a greater share than before. The combined total of 12,302 completions in 2022/23 was comfortably the highest achieved since 2010.

However, to put that into grim perspective, it compares to 21,000 new homeless acceptances in the last three months alone, confining even more families to temporary accommodation and bed and breakfast.

As the graph shows (see the blue and green bars), those completions of genuinely affordable homes are barely a third of what Labour was achieving before the coalition government slashed funding and introduced affordable (up to 80 per cent of market) rent (the purple bar). Worse still, it is only a quarter of what the Conservative government achieved in the early 1990s.

Affordable housing is of course just part of the bigger picture on the supply of new homes. More new statistics showed that the number of net additional dwellings -the government’s preferred measure and probably the most accurate measure of new supply – barely changed in 2022/23 at 234,400.

As ministers were quick to boast, that leaves the government well on track to achieving one of the targets in the last Conservative manifesto: a million new homes in the lifetime of this parliament. This is not much to brag about since it would only be the same as it achieved in the previous parliament.

The second, more meaningful target – 300,000 new homes a year by the mid-2020s – already looked out of reach even before a succession of warnings from major housebuilders and housing associations that they are scaling back their development plans.

Conveniently, we will not know how much it missed that target by until 2026, well after the next election.

For richer, for poorer

Are we missing something fundamental when it comes to measuring who is rich and who is poor?

A new report from the Institute for Fiscal Studies (IFS) concludes that we are and it will come as no surprise to learn that the ‘something’ is housing costs.

Standard measures of absolute and relative poverty use income before housing costs. The justification for that is that decisions on whether to spend more on housing may be driven by improvements in housing quality rather than increases in costs as such.

But that assumption rests on increasingly shaky ground and a very different picture of who is rich and who is poor emerges when you look at income after housing costs. These changes are driven as much by housing policy as by housing quality.

Take, for example, this graph showing the change over time in the proportion of income spent on housing costs by people in different tenures:

Much of this is the direct result of policy changes introduced in the 1980s: large real-terms rent increases for social housing have increased costs for social tenants; the Right to Buy has led to a concentration of poorer households in social housing; and the deregulation of the private rented sector has led to sharp increases in rents there. Housing benefit may have ‘taken the strain’ of some if these changes but when it is included in incomes it also leads to a distortion that makes people look better off before housing costs even as they get poorer after housing costs.

Some of the change – the fall in the percentage of incomes spent by owners with a mortgage– is the direct result of low interest rates since 2008. But another distortion is that outright owners are richer than they appear to be because they have no housing costs.

These effects are compounded by shifts in the distribution of households within the different tenures. So lower mortgage rates disproportionately benefit higher-income households who are more likely to be owners in the first place while lower-income households are less likely to be owners and much more likely to be social and private tenants paying higher rents.

The same applies when we look at tenure by age, with older households much more likely to be owners with lower housing costs:

The shape of the graph depends fundamentally on high levels of home ownership reducing housing costs as people get older pay off their mortgage. But the rise of Generation Rent and the squeeze on home ownership means that young people can no longer rely on a big decline from left to right. Even the declines in housing costs shown for those born in the 1980s and 1990s do not include the impact of recent rises in interest rates.

Finally, the measure we use influences our perception of where people are poor. London, for example, has a below average poverty rate before housing costs but a far higher one after its higher housing costs are included. It also impacts on how we see different kinds of households: not taking account of housing costs understates the number of poor families with children and overstates the number of poor pensioners.

All this matters in its own right but it also has an effect on how we perceive choices in housing policy. It’s not exactly a surprise that poorer households have been increasingly spending more of their income on housing than richer ones but the scale of the change over time is stark.

In 1968, housing costs accounted for 9 per cent of the disposable incomes of the poorest quarter of households. That rose to 26 per cent in 2015 before falling to 21 per cent in 2021. Allowing for housing benefit reduces that proportion slightly but it had still more than doubled by 2016. By contrast the richest quarter were spending 4 per cent of their disposable incomes in 1968 and just 6 per cent in 2021.

That stark contrast does not just change our perceptions of who is rich and who is poor, it should also make us think about who our housing policy is for.

Why the end of the LHA freeze is not the end of the story

My column for Inside Housing last week analysed the potential impact of the Autumn Statement on housing. The headline – and good – news is that the government will finally end the freeze on Local Housing Allowance (LHA) rates from next April in a move that chancellor Jeremy Hunt said would benefit 1.6 million households by £800 a year. The flipside of that is that this only reflects what they’ve been losing out on since rates were last increased in 2020.

The bad news is that LHA will promptly be frozen again from April 2025 under current plans. That will just restart the whole depressing cycle of rent arrears and homelessness that prompted the increase in the first place.

And there is good reason to think that LHA will still fall leave many tenants facing a shortfall against their rents in any case.

First, rates will only be restored to the 30^th percentile – the cheapest 30 per cent – of local rents. The 50^th percentile – median rents – applied until 2010.

Second, that 30^th percentile calculation will already be out of date by next April because it will be based on rents collected in the 12 months up to September 2023. The actual calculations are obscure and liable to be skewed, especially in areas with few properties to rent. 

Third, it depends whether you are an existing or new tenant. The (still experimental) index produced by the Office for National Statistics shows that rents for all lettings rose 6.1 per cent in the year to October. That is the biggest annual increase since an index that reaches back to 2011 but it is still small by comparison with the double-digit rises in rents for new lettings recorded by companies like Hometrack and Rightmove.

Fourth, a range of other restrictions could still apply to tenants who do get more LHA. Chief among these is the benefit cap which (with some exemptions) limits the total amount of benefits claimants can receive to £22,020 a year (£25,323 in London). The cap amounts were increased in line with inflation last year for the first time since they were cut in 2016 but 86,000 households were still capped in May 2023.

The other good news in the Autumn Statement was that main benefits like universal credit will be uprated in line with September’s inflation rate alongside the LHA increase. However, the benefit cap will not increase in April, and there will be an inevitable increase in the numbers capped, especially families with children and those living in high rent areas.

Not quite the end for leasehold

The Leasehold and Freehold Reform Bill got its first reading in the Commons this week, paving the way for major changes to existing leaseholds and a ban on the sale of new leasehold houses.

Or does it? One slight problem spotted by Labour is that the Bill as currently does not actually ban new leasehold houses, apparently because the government had not had time to draft the clause. The ban will be added later, it said.

Given the lengthy to and fro between Downing Street and the Levelling Up Department over whether the Bill would be in the King’s Speech at all that might sound understandable.

Except that the government first promised to ban the sale of new leasehold houses six and a half years ago and hardly any are now sold anyway.

Even that is only a step towards Michael Gove’s promise last year to abolish ‘feudal’ leasehold. The Bill will not end the sale of new leasehold flats, which means almost all new leasehold sales.