New analysis from think-tank the Resolution Foundation has found that disposable incomes are falling as a result of households having to spend more on housing costs.
It revealed that that around 3.3 million households spend at least a third of their income on housing costs – up from 1.6 million in the mid-1990s.
According to the Foundation, the rising share of income spent on housing over the last two decades is equivalent to a 10p increase in the basic rate of tax for a typical family.
It warned that these increases in housing costs have pushed too many households into spending a “perilously” high share of their income on housing.
Lindsay Judge, senior policy analyst at the Resolution Foundation, said: “The share of income working people spent on housing was fairly stable throughout the 90s and early 2000s. But spiralling house prices and stagnating wage growth created a growing wedge between housing costs and incomes, which peaked on the eve of the crash.
“Falling housing costs helped soften the living standards squeeze for many households during the downturn. But these costs are rising again and risk holding back the living standards recovery. This is particularly the case in London where any benefit from rising incomes is being wiped out by steeper housing cost increases.”
The analysis shows that households on low and middle incomes have been most affected by housing costs growing faster than incomes. Among these households, the share of income spent on housing has increased by almost a half over the last 20 years, from 18% to 26%.
Londoners have been worst hit over the last 20 years, currently spending around 28% of their income on housing costs, up a third since the mid-1990s (21%). Scotland and the North West have also experienced sharp rises.
The Foundation said that while housing costs outpacing income growth is severely impeding people’s living standards, policy action to stem rising housing costs and promote stronger income growth could help to bring the UK’s looming housing affordability crisis back under control.
“There is a risk that housing could do to future living standards what falling earnings did to recent living standards. Avoiding this will require decisive policy action over decades to get housing costs back under control,” said Judge.
“The government must be more ambitious. It should look beyond simply giving a few people a leg up onto the housing ladder and tackle the bigger issues of supply that is the root cause of rising housing costs. As home ownership moves out of reach for ever more families the government should also reform a private rented sector that is simply too insecure for many finding themselves dependent on it,” she added.
Loading ...