The Malignant Cancer of Private Rent levels – the real dependency trap

High PRS rent levels create far more dependency than welfare benefit levels and act as a bigger deterrent to taking up employment than welfare benefit levels.  It is time the ‘dependency culture’ theory was exposed as the myth it is in blaming allegedly high welfare benefit levels as the cause and for drawing attention to the unregulated PRS as the main impediment to those unemployed taking up employment opportunities across the country.

The following argues that 97.3% of families in England can ONLY afford PRS rent levels if they are workless.

The welfare benefit dependency argument is a core rationale of Universal Credit.  Welfare benefits are too high and thus promote a ‘life on benefits’ for the workshy indolent feckless scrounger we have been told repeatedly and not just by the right-wing press though the Daily Mail piece below entitled “Curing the cancer of welfare dependency” from July 2012 sums up this errant view well:

“Iain Duncan Smith has come under the most ferocious attack from the Left-wing establishment for daring to seek a cure for the insidious, ambition-sapping British disease of welfare dependency. The most vicious, intemperate criticism of all was reserved for a new law which states that no household can receive more than £26,000 a year in state handouts– the same as the average salary of a working family”

Put simply the claim is that welfare benefit levels are so high that they prevent claimants from taking up a job.  I argue below that this is false and more importantly it is the high cost of private rented housing that is a much bigger deterrent to taking up employment than the level of welfare benefits.

30 years ago when Thatcher and Keith Joseph put forward the ‘dependency culture’ posit which the Daily Mail above calls the ‘British disease’ the rented housing market had approximately 80% social homes and 20% privately rented.  Today it is 50:50 and with many saying the private rented sector (PRS) has even overtaken the social rented sector (SRS) making it 51% PRS and 49% SRS.  This means families have much reduced choice and chances of being allocated a SRS property than before and have to accept a much higher cost PRS property. With average PRS rent nationally being £706pcm and national average SRS rent being £350pcm the dependency on housing benefit and the deterrent factor to employment high private rents creates is very much different today.

Looking at the numbers explains the above points.

1.  The national average PRS rent level of £706pcm comes from the VOA survey released last week – an official quarterly survey of 500,000 PRS rent levels across England. [Note: this survey even understated the true cost of PRS rent levels as it didn’t include service charges. Yet it is far and away the most comprehensive survey of national PRS rent levels.]

2. The national average SRS rent level of £350pcm is derived from the HB statistics which gives an average HB payment of £350pcm in SRS tenancies.

3. Last week the Halifax reported that the average mortgage payer uses 26% of nett income to pay the average mortgage.  This figure will become important when I discuss affordability below.

4. The £26,000 per year average income gross gives a nett income of £1,680.67 per calendar month.

Affordability?

From point 4 above we can compare and contrast what percentage of nett income is needed from average wages to pay SRS and PRS rent.  We can then compare these figures to a mortgage payer who pays 26% of nett income on housing costs (ignoring repair and maintenance costs) and 26% of nett income is therefore ‘affordable’ for the purposes of discussion here.

Average PRS rent of £706pcm is 42% of nett average wage income

Average SRS rent of £350pcm is 20.8% of nett average wage income

And for completeness an affordable rent model tenancy at 80% of PRS figure is 33.6% of nett average wage income and also unaffordable!

We can see that average earnings of £26k gross per annum makes SRS rent levels affordable and would allow a family the ability to save towards a deposit for a mortgage – the rationale of social housing as a step up for the aspiring family that politicians like to construct.  In short the average SRS rent level does and can make work pay more than benefits on the average wage.

Yet the PRS average percentage is markedly above this at 42%.  Put another way to make the average £706pcm PRS rent equal 26% of nett income then the gross salary needed is £2,715.38 per calendar month or £44,753 per year.

Hence renting privately is only affordable is your gross salary is £44,753 per year!

That is more than £10k per year above the 40% tax bracket and that is just the average PRS rent figure. Note too that when coalition MP’s state a PRS property is a stepping stone to home ownership that this line of argument must be bogus.

If you are a ‘hardworking family’ and an ‘aspiring family’ – both terms are used regularly by this coalition to differentiate between the good (the working) and the bad (the indolent workshy etc) – then on average earnings you cannot afford to rent privately and need a SRS tenancy. Yet as we know there is a national shortage of SRS properties.

Let’s look at this in another way.  The average nett income from average wages is £1,680.67 and for your PRS rent to be affordable it needs to be 26% of this figure or £436.97 per calendar month or £100.92pw.  The VOA survey broke down PRS rent levels by constituency and as you would imagine average PRS rent is much higher in Kensington & Chelsea at £2761.77 pcm than they are in Hull at £380.70 pcm.

Kingston upon Hull is one area where PRS average rent is affordable on average wages as the £380.70 pcm figure which is below the £436.97 pcm affordable 26% figure.  In fact it is one of just 10 areas in England where a PRS tenancy is affordable and that’s out of 371 areas.

Hence PRS rents are affordable in just 2.7% of England and unaffordable in 97.3%!

PRS rent levels being unaffordable in 97.3% of England acts as a huge deterrent to taking up employment for those out of work.  If you live in Hull, Stoke, Middlesbrough, Newcastle, Burnley, Barnsley, Lancaster, Blackburn, Hyndburn or Pendle then PRS rent levels are not a deterrent to taking up a job on average wages.

Yet if you have the misfortune to live in inner London with an average PRS rent level of £359.58 pw or £1558.06 pcm you will need to spend 92.7% of your nett average wages just on putting a PRS roof over your head!   For this £1558.06 average PRS rent figure to equate to 26% of nett income (ie affordable) your nett monthly salary needs to be £5,992.43 and gross yearly salary to be £116,944.

To afford to live in a PRS property in Inner London requires a gross salary of £116,944!

This means the average ‘hardworking’ family needs to have a mother and father both earning more than double the average wage to afford to live in a private rented property.  The same mum and dad who are ‘expected’ to save money and give their siblings a deposit for their first starter home as the much commented ‘bank of mum and dad!’

I hardly need to make the point that private rent levels are a much bigger deterrent factor to taking up employment than welfare benefit levels in Inner London.  Yet in 97.3% of areas of England a family on average earnings cannot afford to rent privately.  The huge deterrent factor from taking up employment has from ridiculously high PRS rent levels is not a London issue at all, it is a national problem and a much larger deterrent factor than the cancer of welfare dependency to take up employment.

The real dependency trap is not welfare benefit level but PRS rent levels.

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4 thoughts on “The Malignant Cancer of Private Rent levels – the real dependency trap

  1. thank you for explaining this so well. i have been saying exactly this for years. we live in private rent and my partner works. we get housing benefit to top our rent up. i would love to go to work but there is no point in taking myself away from my children when all that will happen is my wages would replace the housing benefit and we would be no better off. i absolutely believe that reducing the cost of private renting would fix most of the problems with the benefits bill. if we could have a SRS priced rent, i could go out to work and wouldn’t need housing benefit or tax credits at a saving of approx £1500 per month to the tax payer. i do not want to have to rely on that money but the system has us trapped so we have no choice. imagine if £1500 could be saved from every family in private rent. the country would be booming!

    1. Thank you first of all, its always nice to be complimented.

      Just to add to your general comments we, the taxpayer, spend £25.20pw more to 1.6m+ private tenants in housing benefit. Thats £2.2bn more we give to private landlords in benefit over wht we pay to social landlords for the same number of properties.

      Hardly public money efficiently spent!

  2. I’m not disputing the extortionate level of rent in this country (I pay £360/month PRS for a ROOM in Birmingham – c 40% of a £14K admin wage when I was in work, c 70% or more of my income now I’m out of work – but I hear in London it can be £600-£900 pcm plus tube for just a room) but is this study using houses or flats suitable for families as the basis of average rents as opposed to rooms in shared houses (typically the cheapest avaiable accommodation, and often the only thing many in the PRS can afford whether in work or not – including some families with kids unfortunately)?

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