Half of working households have seen ‘no rise in living standards since 2000s’

28 Jun 16

Half of Britain’s working households have seen no rise in living standards since the early 2000s, according to a Resolution Foundation report published today.

The research looked at the impact of housing costs on living standards among different groups. It concluded that weak income growth and rising housing costs had “effectively wiped out any gains for low and middle-income working age households since the early 2000s”.

Released in the immediate aftermath of the UK’s shock decision to leave the European Union, the report said this stagnation was fuelling “disillusionment with the economic and political status quo.”

While recognising that it was difficult for governments to influence all aspects of income in a globalised world, the think-tank said “the failure of housing is homegrown – and tackling it is well within the power of government”.

According to the report, if the impact of rising housing costs (rents, mortgage repayments and the like) is taken into account, family budgets have been more squeezed than standard measures of incomes imply.

It stated that this pressure started well before the financial crisis and has occurred despite record low interest rates putting downward pressure on housing costs.

Since the early 2000s, rising housing costs have weighed most heavily on low to middle-income households. Meanwhile, from the start of the ‘income slowdown’ in 2002 to 2015, more than all the growth in private renter income has been wiped out by rising housing costs.

According to the report, the drag caused by increasing housing costs on living standards is far from being a London problem. Although the capital has seen a drastic increase (one third) in the share of income spent on housing, the North is catching up and Scotland, the North West and the East Midlands have all experienced sharper increases in housing costs as a proportion of income than the South East and South West.

Torsten Bell, director at the Resolution Foundation, said: ”There were many factors – both cultural and economic – behind Britain’s decision to back Brexit last week.

“But stagnating living standards have been an important background to rising dissatisfaction with the economic and political status quo, particularly among poorer households.”

He added: “The fact that the British people have seen successive governments fail to seriously address problems that are well within their control, such as housing, has only reinforced that feeling.”

Lindsay Judge, senior policy advisor analyst at the Resolution Foundation, agreed that “rising housing costs have played a much bigger part than is normally appreciated”.

She claimed that, while it is not possible for governments to “solve all the living standards challenges we face, the failure to address our housing crisis is a long and sustained home grown public policy failure.”  

Judge advised that “getting to grips with the housing crisis would help boost living standards for millions of people and have the added benefit of helping young people, many of whom have been hit hardest in recent years”.

As politicians consider their response to the Brexit vote, the Resolution Foundation advised policymakers to not simply press ahead with further cuts to working-age benefits that will “further erode living standards for lower income households”.

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