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Rent costs are putting the squeeze on workers and pensioners

The huge rise in the cost of property since the 1990s has already had a material social impact on the UK. We are all aware of the increasing difficulties that young people are having in getting onto the housing ladder. There has been media coverage too of the increasing numbers of those in their 20s and 30s still living with their parents rather than moving out into their own homes. No surprise then that the percentage of households living in their own properties has fallen from its peak of 71% in 2003 to under 63% now. But as the numbers renting increase the focus is falling on the financial impact of rental payments particularly for those renting in retirement.

The increasing burden of rents in many parts of the country has been identified by research undertaken by BBC News. The research shows that for a middle income earner the rental cost of an average two-bedroom private property now absorbs 86 working days (or a third) of annual disposable earnings. This is up from 81 days in 2011. The pattern is not the same across the UK – London, the East and the South-east are seeing the rental burden increase as a proportion of earnings whilst in the North, Scotland and Wales the burden has eased. Clearly it is in the economically more prosperous parts of the country that demand for rental property is rising, pushing up the rents charged by landlords.

For many the irony is that the monthly cost of a mortgage for buying a home would be less than the monthly costs of renting an equivalent property. But the difficulties in building up the deposits needed and of securing the size of mortgage needed are resulting in large numbers of people falling into the catch-22 position of paying more per month for a property that will never be their own.

And then there is the issue of the growing numbers of retired people who are living in private rented accommodation. Research by Scottish Widows forecasts that by 2032 one in eight retired people will be in rented homes – three-times the proportion currently. Given the scale of rental costs the burden on the state (and hence the taxpayer) will rise with higher housing benefit payments an inevitable consequence. What is more rent, unlike mortgages, is never ‘paid off’ with state support for each renting retiree potentially needed for decades.

What are the solutions to this rental conundrum in the UK? Building more public or social rented housing would help, but even an active housing programme would take decades to have a material impact. The alternative is rent control - but this is something that, in England and Wales at least, was largely abandoned nearly 30 years ago.

We know that of all the personal finance challenges facing the UK planning effectively for an income in retirement is the greatest. The prospect of the current ‘generation rent’ in due course joining the growing ranks of renting-retirees makes this challenge even more daunting.

Martin Upton

Director, True Potential Centre for the Public Understanding of Finance (True Potential PUFin)

1st May 2018

This blog was also posted to Personal Finance Today and Investor Today

True Potential PUFin is based at the Open University Business School in Milton Keynes, UK

True Potential PUFin is the first and only personal finance research centre in the UK that has an active teaching programme freely available to the public. Supported by the University’s excellence in delivering distance learning, the Centre is uniquely positioned to develop the public’s financial capability and to research the impact and effectiveness of its education programme.

True Potential PUFin is supported by a five-year programme of financial support provided by True Potential LLP.

The views of True Potential PUFin academics do not necessarily reflect the views of True Potential LLP

 

 

 

 

 

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