Written By Em

Around half of working Britons have seen no rise in living standards since the early 2000s, as a squeeze on earnings and rising housing costs hit household budgets.

A major new report from the Resolution Foundation shows how weak income growth and increasing housing costs have effectively wiped out any gains for low and middle income working age families since the early 2000s.

By considering the impact of rising housing costs on living standards, the report found that family budgets have been more squeezed than standard measures of incomes suggest. The organisation warns that this squeeze started well before the financial crisis and has continued despite post-crisis record low interest rates putting downward pressure on housing costs. The report adds that since the early 2000s, rising housing costs have had severe effects on low to middle income households.

Looking at the impact of housing costs on living standards amongst different groups, the report found that from the start of the income slowdown in 2002:

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  Half of Working Britons Have Seen No Rise in Living Standards Since Early 2000s

  Over half of households in the working age population have experienced falling or flat living standards – equivalent to almost 11m families.

• Two-thirds of the growth in average working age income has been wiped out by rising housing costs.
• More than all of the growth in private tenant income has been wiped out by rising housing costs.
• The same is true for households headed by someone aged between 25-44.

Although the report shows that London is a standout case in terms of how housing costs have dragged down living standards – the proportion of income spent on housing has risen by almost a third in the capital since the early 2000s – it is not just a southern problem.

The Resolution Foundation says that the north is catching up with the south, with Scotland, the North West and the East Midlands all experiencing sharper increases in housing costs as a proportion of income than the South East and South West.

The report claims that regional differences in the strength of leave votes in Thursday’s EU referendum were rooted in long-term, geographical economic inequality, rather than shorter term trends, and that explanations for last week’s outcome go far beyond economic concerns. However, it adds that the widespread squeeze on living standards for working Britons since the early 2000s has affected all parts of the UK, which has increased dissatisfaction with the status quo.

As politicians from all parties consider how to respond to last week’s vote, the Resolution Foundation insists that they will need to understand these trends and respond to them, with a renewed focus on housebuilding.

It adds that while many aspects of incomes are difficult for the Government to directly influence, the failure on housing is home grown, and tackling it is well within the power of the Government.

With the short-term economic uncertainty caused by the Brexit vote likely to increase inflation, the report believes that now is not the time to press ahead with large cuts to working age benefits, which would further dampen living standards for lower income families.

The Director of the Resolution Foundation, Torsten Bell, says: “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. 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.”

The Senior Policy Analyst at the organisation, Lindsay Judge, also comments: “Britain’s stagnation in living standards has a range of roots – from low pay growth to high inflation during the financial crisis. But rising housing costs have played a much bigger part than is normally appreciated.

“And while it’s not possible for Government to solve all the living standard challenges we face, the failure to address our housing crisis is a long and sustained home grown public policy failure. Finally getting to grips with our housing crisis would help to 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.”