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Low income households ‘increasingly exposed to rent increases’

By Vicky Shaw, Press Association Personal Finance Correspondent
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Low income households ‘increasingly exposed to rent increases’

More people could be facing a shortfall between their housing benefit and rental costs in the coming years, the Institute for Fiscal Studies (IFS) has warned.

Households on low incomes are being left particularly exposed to rental increases as housing costs eat up a growing proportion of their money, according to analysis by the Institute for Fiscal Studies (IFS).

It said “substantial” cuts to housing benefit in recent years have led to rental payments now using up an average of 28% of the non-housing benefit income of low-income private renters.

This is up from 21% in the mid-1990s.

Those on low incomes were defined as being in the bottom 40% of the income distribution in their area.

The IFS said that across Britain, the proportion of people living in private rented accommodation has more than doubled in recent decades, from 8% in the mid-1990s to 19% in the mid-2010s, while among 25-to-34-year-olds this proportion has trebled from 12% to 37%.

It said that over the same period, average private rents have risen by a third (33%) in real terms.

The research, which was funded by the Joseph Rowntree Foundation, found tenants on lower incomes tend to spend greater fractions of their income on rent, even after accounting for the support they receive through housing benefit.

For example, the lowest-income fifth spend an average of 35% of their non-housing benefit income to pay the part of rent not covered by housing benefit, compared with 19% for the highest-income fifth.

The IFS said around 1.9 million privately renting households containing 4.8 million people are entitled to less housing benefit than they would have been without reforms introduced since 2011, by an average of £24 per household per week.

It said reforms have also cut the entitlements of 600,000 social-renting households containing 1.3 million people by an average of £19 per household per week.

Housing benefit entitlements are forecast to fall further behind rents in the coming years, the IFS said.

It said in the private sector, low income working age renters with children have particularly been affected and reforms since 2011 have already caused around 500,000 people in this group to face a shortfall between their housing benefit entitlement and rent.

It said potentially, a further 150,000 people in this group could also be facing a shortfall by 2025.

Agnes Norris Keiller, a research economist at IFS and an author of the report, said: “The current approach effectively places most of the risk of further rises in costs onto low-income tenants, and little on the housing benefit bill.

“While containing the cost to taxpayers, it leaves housing benefit vulnerable to becoming increasingly irrelevant with respect to its purpose – maintaining the affordability of adequate housing for those on low incomes.”