Renters are Working for 125 Days a Year to Pay Their Landlords
Renters in England worked for 125 days for their landlords this year. The 5th of May is the first day they start working for themselves
Cost of Rent falls on the 5th of May;
English renters work 125 days of the year solely to pay their landlords;
Cost of Rent Day is the day on which, on average, renters in England earn enough before tax to cover their annual rent bill;
Cost of Rent days have been calculated for 309 local areas, and 9 regions across England;
This analysis of local areas shows Cost of Rent Day is even later in England’s major cities and the South East;
For example, the average Cost of Rent day in London is the 16th July, more than a month later than the national average. This means that higher salaries are not sufficient to compensate for higher rent prices renters face in the capital;
The Adam Smith Institute has also created an interactive tool which allows users to input their gross annual income (before tax) and monthly rent, in order to find out what their personal Cost of Rent Day is;
This research also exposed gaps in ONS housing statistics that need to be addressed to enable better tracking and understanding of the costs of rent;
It is now incumbent on policy makers to fix the housing crisis, in particular, addressing the shortage of supply of homes;
MPs, including a former Secretary of State for Housing, Communities and Local Government, and two other former Cabinet Ministers, have provided comments in support of Cost of Rent Day, recognising the need to reduce the burden upon renters, particularly younger people.
Cost of Rent Day is a brand new initiative from the Adam Smith Institute (ASI). It is the day on which renters in England stop paying rent and start putting their earnings into their own pocket. The ASI has estimated that every penny that, on average, renters earned before tax for working before and including May 4th went to their landlord- from May 5th they are finally earning for themselves.
The ASI has created this measure in order to translate the severity of the housing and rental crisis into simple terms that can be easily understood by all audiences. It provides a useful measure to hold politicians to account and track changes over time.
To calculate the Cost of Rent Day, annual rents were divided by gross annual pay, to understand what proportion of earnings are spent on rent. Cost of Rent Days were calculated for 309 local areas across 9 regions across England, and the ASI has also created an interactive tool which allows renters to easily find out what their personal Cost of Rent day is.
As the ASI outlines, the root problem is the lack of supply. Since the 70s, England’s construction of new homes has lagged behind population growth. In other words, new demand has outstripped supply.
Directly punishing all landlords or introducing policies such as rent controls will only make the situation worse for renters. Instead, politicians must focus on creating the right incentives for developers and landlords, and on increasing supply.
The ASI has previously outlined a number of solutions, which it calls on the government to consider. These include using compulsory purchase orders to buy, and develop on metropolitan green belt land, and give local residents a share of the profit, releasing all green belt land within a ten minute’s walk of a railway station for development, and extending ‘full expensing’ to brownfield sites.
James Lawson, Chairman of the Adam Smith Institute and author of this report, said:
“Across the country, the cost of renting is simply too high. Our new analysis exposes just how severe the crisis is across England and that it is even worse in our cities, London, and the South East.
England’s housing market is not operating as a free market - the UK is shackled by regulations and an incentive structure that empower NIMBYs.
Many of the policies which are being widely touted as solutions, including rent controls and punishing landlords, will only make things worse. We must liberalise our planning system to address the lack of supply. We must boost productivity and wage growth, so pay packets increase too.
In the midst of a cost of living crisis, and nearly two decades of stagnation, ‘Cost of Rent Day’ is another damning indictment on the performance of the British economy. It must be fixed with renewed vigour.”
The Rt Hon Robert Jenrick, Member of Parliament for Newark and former Secretary of State for Housing, Communities and Local Government, said:
“This is a stark reminder to the Westminster bubble of just how distorted and unaffordable the rental market has become. We are at a crisis point where living standards are falling and younger generations are unable to save.
The solution is blindingly obvious. We need to build significantly more homes, particularly in London, to boost supply and we urgently need to cut net migration to the historical norms of 10,000s to ease demand.”
The Rt Hon Sir Brandon Lewis CBE, Member of Parliament for Great Yarmouth and Patron of the Adam Smith Institute said:
“The Housing Crisis is one of the single greatest issues facing the UK. High-skilled professionals are being priced out of our most productive towns and cities, young couples may feel unable to afford to have another child, and sky-high rents are eating into workers’ pay packets.
This new and engaging initiative by the Adam Smith Institute throws these problems into stark relief.
Conservatives should be genuinely concerned that the average worker in England today is spending nearly half a year earning enough money just to pay for their rental costs- and that’s before taxation.
It’s no wonder our young people are unable to save to get onto the property ladder. If the Conservative party wants to continue to call itself the party of homeownership, it is absolutely imperative that we make increasing housing supply a key plank of our next manifesto.”
The Rt Hon Dame Priti Patel DBE, Member of Parliament for Witham said:
“Rental costs are becoming increasingly unaffordable for many. We need to see a return to a property-owning democracy with new measures brought in to boost housing supply and help more people get their first steps on the property ladder. When more people are able to own their homes they have a strong stake in the community they live in and the security that comes with owning an asset.”
Paul Scully, Member of Parliament for Sutton and Cheam, said:
“Cost of Rent Day’ is a stark reminder of the heavy financial burden that many people in England face today as a result of sky-high rental costs, including in Sutton where renters are working for longer than the national average to pay off their annual rent bill. It is a worrying state of affairs that higher wages in London are not compensating for higher rents.
The consequences of any failure to address the root causes of this issue are existential. As young people increasingly feel as though their hard work goes unrewarded, they will lose faith in markets. And if we fail to empathise with their struggles, we risk an entire generation turning their back on the Conservatives for years to come.”
Councillor Promise Knight, Labour Cabinet Lead Member for Housing, Homelessness and Renters Security at Brent Council said:
“There are close to 5 million renters in our capital, and for many Londoners renting is a flexible, high-quality option- and a place from which to build a new beginning and try out our city for every prospect it offers.
For a greater proportion still, renting is not a choice made freely, but the result of an overcooked housing market that squeezes out Londoners on lower or middle incomes and is draining our city of the key workers it needs to survive.
Today’s research from the ASI shows exactly what many of us know already, far too many Londoners are working only to pay their rent.
In Brent, we have over 32,838 residents on our housing waiting list, with thousands of renters added each year through no-fault evictions by landlords. We are building more homes than ever before, introducing landlord licensing to enforce against scrupulous profiteers, but it does not change the fundamentals- the housing market in London is broken and we need to sit up and take action.
Freddie Poser, Director of PricedOut, said:
“Cost of Rent Day shows just how much time renters spend working just to have a roof over their heads. Yet again it highlights the incredible burden the housing crisis places on young people, a burden that can only be lifted by building more homes.”
-ENDS-
METHODOLOGY:
To calculate the Cost of Rent Day monthly rents were converted into an annual figure. Then annual rents were divided by gross annual pay, to understand what proportion of earnings are spent on rent.
To balance for leap years and support better inter-year comparisons, a year is treated as being 365.25 days long.
Using otherwise unrounded inputs, this calculation implied 125 days of the year are spent on rent. The 126th day of the year is May 5th.
The ASI used annual gross pay (before fiscal deductions / taxes) to generate these calculations.
This is a deliberately simple calculation and as outlined above and below, will not capture the nuances of individual circumstances. However, it enables a simple, transparent, and intuitive calculation - this is preferable to more complex alternatives we developed.
To produce this analysis, the ASI used two readily available ONS data sources. The analysis is based on the average rent, across all types of rental. The data is broken down by rental type, including a ‘room’, ‘studio’, ‘one bedroom’, ‘two bedrooms’, ‘three bedrooms’ and ‘four or more bedrooms’ properties but this is not used in the headline calculation.
Regional analysis is based on ONS data and segments England into: East, East Midlands, London, North East, North West, South East South West, West Midlands and Yorkshire and The Humber.
The two data sets have common Area Codes, enabling the analysis across the 309 local areas and 9 regions, both data sets have in common, and where there are values.
The Median was used by default for both data sets. When a series of numbers are arranged by order of magnitude the median represents the middle value. The median was chosen instead of the mean, because the data sets are skewed and have outliers.
Notes to editors:
For further comment, or to arrange an interview, please contact emily@adamsmith.org | +44 7584778207
The report and the interactive tool will be available on the ASI website from 10pm Saturday 4th May.
James Lawson is Chairman of the Adam Smith Institute. He led on the creation of Cost of Rent Day.
Sarah Gall created the interactive tools using d3.js. She provides data strategy and analysis services through Sarah C Gall Ltd.
The Adam Smith Institute is one of the world’s leading think tanks. It is ranked first in the world among independent think tanks and as the best domestic and international economic policy think tank in the UK by the University of Pennsylvania. Independent, non-profit and non-partisan, the Institute is at the forefront of making the case for free markets and a free society, through education, research, publishing, and media outreach.