United Kingdom

The impact of housing costs

Graphs on this page:

Supporting information:

Key points

  • The proportion of people in low income is always lower on a ‘before deducting housing costs’ measure than on an ‘after deducting housing costs’ measure, although the two have followed similar trends over time.
  • So, for example, on both measures the proportion of people who are low-income households fell in each of the years from 1997/98 to 2004/05, rose in the each of the years 2005/06 to 2007/08, and remained unchanged in 2008/09.
  • The proportion of people in low income in Southern England (particularly London) is much higher on an ‘after deducting housing costs’ measure than on a ‘before deducting housing costs’ measure.
  • As a result, when looking at geographic variations, it does matter which of the two measures is used, particularly when thinking about London and Northern Ireland.  Whilst London has a below-average proportion in low income using the ‘before deducting housing costs’ measure, its high housing costs mean that it has by far the highest proportion in low income using the ‘after deducting housing costs’ measure.  Conversely, whilst Northern Ireland has a relatively high proportion in low income using the ‘before deducting housing costs’ measure, its low housing costs mean that it has a slightly below-average proportion in low income using the ‘after deducting housing costs’ measure.
  • This website take the view that the ‘after deducting housing costs’ measure is the better measure.  One reason is that housing costs are effectively a ‘given’ and must be met; it is the money left over after that that is therefore the measure of its standard of living.  A second reason is that the ‘before deducting housing costs’ measure treats a rise in Housing Benefit consequent upon a rise in rent as an increase in income (rather than no change) and the policy implications of this are very perverse.  For a further discussion of alternative thresholds, see the page on choices of low-income thresholds.

Why this indicator was originally chosen

This indicator shows how the number of people in low-income households after deducting housing costs compares with the number before deducting housing costs.  This is done in recognition of the government’s apparent plans to adopt the before deducting housing cost measure for its future poverty targets whereas common practice to date has been to use the after deducting housing cost measure.

Definitions and data sources

The first graph shows the number of people in households below 60% of contemporary median income for each year since 1979, both before and after deducting housing costs.

The second graph shows how the proportion of people who are in households below 60% of contemporary median income varies by region, again both before and after deducting housing costs.  To improve its statistical reliability, the data is the average for the latest three years.

The third graph shows how housing costs for those on below-average incomes vary by region, with the data shown separately depending on whether rents paid for by Housing Benefit are considered to be a housing cost or not.  Housing costs are calculated as ‘income before deducting housing costs’ less ‘income after deducting housing costs’ and are scaled to be for couples with no children.   To improve its statistical reliability, the data is the average for the latest three years.

The data source for all the graphs is Households Below Average Income, based on the Family Resources Survey (FRS) since 1994/95 and the Family Expenditure Survey (FES) for earlier years.  The analysis of the FES dataset was undertaken by the IFS.  The data relates to the United Kingdom, although this has required Great Britain figures for the years 1994/95 to 2001/02 to be scaled up as Northern Ireland was not included in the survey for these years.  Income is disposable household income.  All the data is equivalised (adjusted) to account for differences in household size and composition.  The self-employed are included in the statistics.  Note that in 2007 DWP made some technical changes to how it adjusted household income for household composition (including retrospective changes) and, as a result, the data is slightly different than previously published figures.

Overall adequacy of the indicator: high.  The FRS and FES are both well-established annual government surveys, designed to be representative of the population as a whole.

Relevant 2007 Public Service Agreements

Overall aim:  Halve the number of children in poverty by 2010-11, on the way to eradicating child poverty by 2020.

Lead department

HM Treasury.

Official national targets

Reduce by a half the number of children living in relative low-income by 2010/11.

Other indicators of progress

Number of children in absolute low-income households.

Number of children in relative low-income households and in material deprivation.

Previous 2004 targets

Halve the number of children in relative low-income households between 1998/99 and 2010/11, on the way to eradicating child poverty by 2020, including:

  • reducing the proportion of children in workless households by 5% between spring 2005 and spring 2008; and
  • increasing the proportion of parents with care on Income Support and income-based Jobseeker’s Allowance who receive maintenance for their children by 65% by March 2008.

By 2008, be paying Pension Credit to at least 3.2 million pensioner households.  While maintaining a focus on the most disadvantaged by ensuring that at least 2.2 million of these households are in receipt of the Guarantee Credit.

The numbers

Graph 1

Year After deducting housing costs Before deducting housing costs
1979 7.4M 7.2M
19808.4M 8.3M
1981 7.9M 7.4M
19827.7M 6.7M
19837.9M 7.0M
19848.4M 7.1M
19859.5M 7.7M
198610.5M 8.7M
198711.7M 9.9M
198812.8M 11.7M
198912.8M 12.0M
1990 13.3M 12.5M
1991 13.6M 12.0M
1992 14.3M 12.5M
1993/9414.0M 11.4M
1994/9513.9M 10.7M
1995/9613.9M 10.2M
1996/9714.5M 11.1M
1997/9814.0M 11.2M
1998/9914.0M 11.1M
1999/0013.8M 11.1M
2000/0113.4M 10.7M
2001/0213.2M 10.7M
2002/0313.1M 10.6M
2003/0412.6M 10.4M
2004/0512.1M 10.0M
2005/0612.8M 10.4M
2006/0713.2M 10.7M
2007/0813.4M 10.9M
2008/0913.4M 10.9M

Graph 2

Region After deducting housing costs Before deducting housing costs
East 20% 15%
East Midlands 23% 21%
London 28% 18%
North East 25% 22%
North West 24% 20%
Northern Ireland20% 20%
Scotland 19% 17%
South East 19% 13%
South West 20% 16%
Wales 23% 21%
West Midlands 25% 22%
Yorkshire and The Humber 23% 21%

Graph 3

Region Including costs paid for by Housing Benefit Excluding costs paid for by Housing Benefit
East £59 £47
East Midlands £47 £38
London £84 £60
North East £48 £35
North West £50 £37
Northern Ireland£35 £25
Scotland £49 £37
South East £67 £53
South West £57 £48
Wales £47 £37
West Midlands £48 £36
Yorkshire and The Humber £48 £38