In 2021, the poorest quarter of the population spent an average of 21% of their household income on housing costs, such as rent or mortgage interest, compared to just 6% for the richest quarter, according to research from The Institute for Fiscal Studies (IFS).
This stark contrast means that the poorest 25% of households are spending 3.5 times more of their income on housing compared to the wealthiest 25%, underscoring a critical dimension of income poverty and inequality.
Further, the study highlights the impact of housing costs on poverty rates. The relative poverty rate, which was 17% based on incomes measured before housing costs, rose to 22% after accounting for these costs, translating to an additional 3.4 million people being classified as living in relative poverty.
Additionally, trends between 2008 and 2021 indicate a decrease in poverty by 1.4% when housing costs are ignored, but only a 0.5% reduction when they are included.
The report also reveals that poverty measures accounting for housing costs are more closely aligned with indicators of material deprivation and food insecurity.
When housing costs are included, 45% of the poorest tenth of the population are found to be materially deprived, compared to 39% when these costs are not considered.
This finding suggests that income assessments excluding housing costs can lead to misleading conclusions about the living standards of low-income households, especially those receiving housing benefits.
For instance, rent increases and corresponding hikes in housing benefits can create an illusion of improved living standards for these households, despite their actual living conditions remaining the same or worsening.
Furthermore, the report notes that the impact of housing costs on poverty rates varies by demographic and region. Child poverty rates are understated, and pensioner poverty rates are overstated when housing costs are excluded.
In London, for example, the relative poverty rate is measured at 16% before housing costs but jumps to 27% after these costs are considered.
Tom Wernham, a research economist at IFS and one of the authors of the report, commented on the findings: “As a fraction of their income, people on lower incomes spend substantially more on housing costs than richer people.
“Measures of income poverty that take housing costs into account provide a more reliable picture of poverty than those that disregard housing costs.”
