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Social renting: a working hypothesis

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Social housing has many virtues: it provides families with a secure home at a reasonable rent, and the state with a smaller benefit bill and an asset to leverage. So what’s not to like? Other than the upfront cost, perhaps the most enduring objection we hear to the tenure is that it may have a downward effect on rates of work, and that building new stock could have the perverse outcome of driving up unemployment. But does the evidence support this claim?

It is certainly true that social renters have lower levels of employment than those living in other tenures. Looking at period 2014-2018 (and focusing only on the working age population), just over half of social renters were working, compared to four-fifths of owners and private renters combined. That’s quite a gap – and one which policy makers are right to probe. More than a third of social renters are inactive in the sense of not working or looking actively for work – more than twice the proportion of the rest of the population.

These headline results should make us sit up, but are far from the full story. After all, groups with lower employment rates have always disproportionately lived in the social sector while allocation has, over time, become ever-more linked to need. As the Hills Review noted over a decade ago, social renters are much more likely to be parents (especially lone parents), to have a health condition or disability, and only low-level qualifications. These are characteristics that, regardless of tenure, reduce engagement with the labour market. So what happens to inactivity and unemployment rates if we assume social renters have the same characteristics as the population writ-large?

The chart below shows that if we control for such factors (and interact them, to account for the fact that many social renters have lots of these characteristics at the same time), 60 per cent of the employment gap disappears (falling from 27 to 11 per cent). If all tenures matched the characteristics of the population as a whole we could expect 7 out of 10 social renters to be in work, compared to 8 out 10 living in other tenures. The effect of the exercise is strongest on inactivity rates: controlling for personal characteristics reduces the inactivity gap between social renters and others from 21 to just 7 per cent.

 

There are good reasons, moreover, to think that the effect of personal characteristics on social renters’ rates of work is likely to be stronger than we are capturing here. To begin, there are other variables that are likely to have a downward effect on employment that we cannot put in the equation: lack of literacy and computer skills, for example, or time spent out of the labour market. But just as importantly, early qualitative research we have conducted on social renters’ barriers to employment shows there are aspects of people’s lives that are not just amenable to this type of analysis ­– how do you really measure the quality of family support, for example, or the acuteness of a mental health problem?

These limitations aside, we still observe a significant gap between the rates of work of social renters and those in other tenures. But could there be other factors at play beyond personal characteristics that explain the gap? Social renters have a low level of choice over where they live and low rates of residential mobility compared to private renters, meaning they are less likely to ‘pick’ the local labour market they live in compared to those in other tenures. So could place be having an effect too?

To test the hypothesis that social renters live in areas with weaker labour markets and fewer job opportunities we explore a new source of data, DWP’s Find a Job website. While the site does not contain a representative sample of vacancies, it does contain records of around 160,000 jobs per month of exactly the type that those who are unemployed are most likely to be directed towards. Using data scraped from the site we construct a measure of vacancies per 1,000 unemployed residents at the local authority level, and compare this to the concentration of social renters in the same area. The results of this experiment are set out below.

As this makes clear, it is the case that social renters are more likely to live in areas with weak labour markets. However, the gentle slope of the trend line shows the correlation is weak. A look at the outliers is interesting however, as several are London boroughs, many of which have both high densities of social renters and large numbers of vacancies. Given this, and the fact that local authorities across London are highly connected (the ONS treats London as a single ‘travel to work area’, for example), we can present results excluding the capital. On this account, the relationship we see between the density of social renters and weaker labour markets is now twice as strong.

While plugging a ‘weak local authority labour market’ variable back into our original analysis has only a minimal effect, it is worth noting that once more we are unlikely to be picking up the full effect of place. Given that those on lower incomes (and women) commute for shorter times, and are more likely to use cheaper but slower forms of transport such as the bus, many a social renter’s labour market is likely to be smaller than the local authority. Combine that with the fact that lots of (especially older) estates were built on the fringes of cities with often very poor transport links, and it is easy to see how important place could be in the real world to explaining the gaps between the employment rates of social renters and those in other tenures.

While the startling raw employment gap is nowhere near the full story, it should not be waved away or ignored. What we have found to date suggests more micro-level (and qualitative) research is needed – in particular to see how tenure interacts with local labour market strength and transport connections. But some implications for policy are already clear.

To begin, our work suggests that disability and poor (especially mental) health explains a very large part of the inactivity rates of social renters. Serious investment in and evaluation of ‘closer to work’ programmes – such as piloting the community-based ‘saturation’ models that have proven success in the US – would be an eminently sensible use of resource.

Second, building new social homes in areas which are close (or connected) to jobs is key, but comes with some tough trade-offs. As we flagged earlier this week, building in buoyant areas with higher land values will mean a higher unit cost. Are we prepared to accept that fewer homes for social rent will be built if the job prospects of their residents are to be improved? Alternatively, if new social homes are built in cheaper, more peripheral, areas then finding funds for transport links will be key.

Third, creating mixed neighbourhoods is clearly the way to go too. If a non-social renter lives in an area where the houses are all privately owned they have an 80 per cent chance their (working age) neighbour has a job; for social renters living cheek by jowl, this chance falls to just over 50 per cent. Given that word of mouth is an especially important way of finding work for those on lower incomes, creating local communities with a sensible social mix matters.

And finally, there’s a macro-economic take away from all of this for policy makers to ponder as well. As the chart below shows, social renters’ employment rates are more vulnerable to the cycle than those living in other tenures. During the latest recession their unemployment rates increased from 9 per cent to more than 13 per cent (compared to 2.7 to 4.5 percent for non-social tenants), before falling faster in the aftermath. While the low level today is something to celebrate, this also makes clear that one of the best things governments can do to protect the employment rates of social renters is avoid (or at least smooth) recessions as far as is possible.

All in all, it would be remiss to use the raw employment gaps between social renters and those in other tenures as a reason not to build more homes in the social sector. But it would be equally wrong to reject concerns about rates of work out of hand. It’s time we had a less polarised, more evidence-based conversation on the topic.

 

 

 

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To build, or not to build: that is the question

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They say a week is a long time in politics (at the moment a day can feel like a long time). The same isn’t often true about economics. Arguably the most important forces in economics are long-running; demographics, big infrastructure projects, technological change. Things that don’t happen overnight. Therefore this blog – the latest in the current series on social housing – takes a longer view at our housing stock.

Two drivers are likely to have a big impact on our housing need in future. The first is demographics; the fact that we’re an ageing society. The second is our failure to properly invest in housing, particularly social or ‘sub-market’ housing. [1] Between 2003 and 2008 the stock of sub-market homes fell by 250,000. Although numbers have risen since, there are still 130,000 fewer sub-market properties in Great Britain than there were in 2003.

Perhaps unsurprisingly the share of the population in social housing has fallen from 17 per cent at the turn of the millennium, to just over 13 per cent today. Compared to the situation for other generations, at the same age millennials are particularly unlikely to live in sub-market housing. And because homeownership rates have plummeted for this group, young people today are more likely to live in overcrowded, privately rented, accommodation. While these two forces are certainly being felt in the here and now, their impact will grow. In previous research we showed that a future where more of the population are retired, and more retired people rent privately, may also be one where we spend a lot more on housing benefit for pensioners.

This is just one possible scenario – policy makers may choose to address the issues of housing security, quality and affordability for those priced out of homeownership and into private renting, by building more sub-market homes than we are currently doing. But if they do not a far greater proportion of pensioners will end up renting privately in future. Based on our estimates below almost a fifth of millennials may end up in the private rented sector (PRS) in retirement. This would take us back to the situation in the late 1970s, when there were far more pensioners in the PRS, and sub-standard housing was a major issue for this group.[2]

Another thing often said about politics is that it is about choices (and not just the choice of what type of Brexit we want). And though we’re unlikely to have much choice in how much society ages in future we can decide how to respond. At the moment we’re on course to respond by increasing spending on housing benefit. Using our projections for homeownership out to 2060, per claimant spend on housing benefit and current rates of sub-market home construction we produce five possible scenarios (outlined below). For each of these scenarios about the world in 2060 we assume that in future we need to maintain the current ratio of benefit units (families) to dwellings.

The first scenario is that millennials enjoy the same tenure mix in retirement as the current retirees. This would mean that 22 per cent of pensioner families rent in retirement, of which 16 percentage points rent socially and the remaining 6 percentage points rent privately. Because the pensioner population will be larger in 2060 we’ll need to build an additional 9,000 sub-market homes a year above that which we’ve achieved over the past five years when we averaged 13,000 a year (22,000 in total) and housing benefit spending on pensioners would rise by 70 per cent because there will be more people renting privately in retirement.

However, it’s unlikely that tenure patterns will be the same in four decades time. Given current trends it’s doubtful that as many millennials will own their own home in retirement as today’s pensioners do. Assuming a relatively small increase in the proportion of pensioners renting in retirement, from 22 to 27 per cent, government could house this population by spending more on housing benefit. We’d still have to build an additional 9,000 more sub-market homes from now until 2060 (22,000 in total) and the pensioner housing benefit bill would rise by 90 per cent.

Assuming that just under three quarters of pensioners are homeowners in 2060 may be unrealistically optimistic though. Under a more pessimistic scenario – where around two thirds are homeowners – the pressures on the housing benefit bill will be greater. Under this scenario we project that if the government does not expand genuine social rented accommodation (beyond the 9,000 a year increase required to meet population growth) it will need to spend an additional 154 per cent on the pensioner housing benefit bill.

By contrast the social rented sector could take more of the strain. Under our optimistic scenario (where the proportion of pensioners renting in retirement rises from 22 to 27 per cent) we could choose to expand genuine social rented housing by building a further 20,000 homes a year (33,000 in total) and this would limit the rise in housing benefit to 70 per cent.[3] Under the more pessimistic ownership scenario the pressures for rental homes will be greater. Under this scenario we project that, in order to limit the rise in housing benefit to 70 per cent, the government would need to build an additional 34,000 (47,000 in total) homes for social rent a year.

There is no free lunch and the figures above (although obviously shrouded in a lot of uncertainty) point to some of the difficult trade-offs that government should be grappling with if it is to prepare for the future. However, now is the time to do so. We estimate that the typical capital grant for a genuinely social property is in the region of £70,000, and that it would take around 23 years of housing benefit savings to recoup this, alongside the wider returns to such investment in the form of rents and benefit to those housed. Therefore, while in the short run it is not the case that social housing pays for itself, in the long-run, investment in sub-market housing brings wider financial benefits to central government. The government has some big choices to make

[1] ‘Sub-market’ describes social rented, affordable rented and intermediate housing, provided to eligible households whose needs are not met by the market. That is people renting from social landlords – local authorities or housing associations.

[2] In what follows we restrict our analysis to the pensioner population and a time when the vast majority of millennials will be in retirement (2060), and so this analysis is different to recent research by Shelter that has tried to estimate the social housing need for the whole population in the more immediate future.

[3] Due to the housing benefit savings associated with housing people in genuinely social rented properties, which we discuss here.

 

Read the full methodology for this analysis.

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Top Of The Charts: Bridging Divides

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Sign up for our weekly Top of the Charts emails here

Afternoon all,

Nothing Lasts Forever these days. In the end the whale spits you out, or the Ecuadorians kick you out. That might be good news for Brexit-fatigued Brits. But then again Assange was stashed in the embassy for seven years, so maybe we’re not even half way there….

Because holidays are calling, and it’s important for art to imitate life, we’re getting into the spirit of Brexit by putting Top of the Charts on hold next week. The good news however is that we will be bringing it back to the people your inbox on Friday 26 April.

It’s important you use this time wisely to avoid letting down our school teachers Donald Tusk. By reading this week’s selections very carefully. Or submitting an essay for the Royal Economics Society/FT’s ‘Young Economist of the Year 2019 competition’. Or just having a snooze.

Either way, have a great break.

Torsten Bell,
Director, Resolution Foundation

Geographic divides. Notions of economic and geographical divides are increasingly intertwined, with UK debates on so-called ‘left behind towns’ and the French gilets jaunes described as the revolt of ‘peripheral France’. New research (open access summary) adds colour (quite literally in map form) to this issue by asking what has caused these geographical divides between rich and poor places to grow. The popular explanation is that the rich and highly educated have sorted themselves into the most successful places – think New York and San Francisco. But this research shows that national increases in income inequality between people are actually much more important – not rich people moving, but rich people who already live in rich places getting much richer. The implication? Place-based policies are crucial, but if you care about income divergence between places then national economic policy changes – like the national minimum wage – are really important too. When it comes to spatial inequality the nation is local.

Demographic divides. Everyone has got used to a big gap in election turnout for different generations – something we highlighted in the Intergenerational Commission. But the divide in who different age groups vote for is a more defining feature of modern politics – the old are increasingly true blue, while the young are singing Oh, Jeremy Corbyn. A new Tory think tank report does a good job of investigating the scale of the challenge facing the party to attract younger voters – and had the backing of 42 Conservative MPs and seven out of the potential 1,000,000 leadership contenders. The good news for Tories in the report is that while only 16 per cent of under-35s would vote Conservative today, 28 per cent – roughly 3 million voters – say they would consider it if the party changed. The less good news is that the change that might help isn’t talking more about who is the purest Brexiteer during a leadership contest. The report also rather ducks any trade-offs between generations, not least on the big question of how we pay for the rising cost of the welfare state into the 2020s, as my RF colleague David Willetts set out in his response. If you can’t get enough of this stuff, another interesting take on the plight of modern Conservatism this week bemoans the lack of serious economic thinking….

Watery divides. I love a good canal. So it turns out do home buyers. A new, slightly esoteric, paperinvestigates how much extra we’re prepared to pay to live (very) close to a canal – an average of 3-4 per cent more. But I’ve got some cunning advice for you. Yes you can pay a bit more for a flat or house overlooking a canal. OR you can pay a lot less to actually live on one. It’s house boat time people.

Historic divides. There are big questions in economic history, and then there are huge ones. The role slavery played in boosting Anglo-American economies fits into the second category. How crucial was slavery to driving Great Britain’s industrial revolution or US economic expansion by creating either the raw material or bigger markets required? Marx said very crucial: ‘Without slavery you have no cotton; without cotton you have no modern industry’. But an interesting new take suggests that while that may have been the case with the sugar trade, ‘cotton was not sugar’ – it could and was produced without slavery. The fact that British and American economic interests were less reliant on slavery in the 19th Century is not coincidental to the UK abolishing slavery and opposition to it in northern US states.  If that whets your appetite for some economic history, come along to an upcoming RF event in which we discuss 700 YEARS of wage growth across Britain.

Genetic divides. Do people have different incomes because they have very different IQs? Yes, but it’s far from all that’s going on. That’s the conclusion from new research that finds IQ differences can only explain 21 per cent of the variation in income between people. You might think this is good news if it means hard work, not just IQ, gets rewarded. Or less good news if it means Tim Nice-But-Dim is not only around but raking it in.

Chart of the Week
This week the Resolution Foundation has been focusing on the future of social housing, a topic that has seen a welcome return to policy attention in recent years. There are strong arguments for more social housing, not least if you want sustainably mixed communities. But there are big questions we need to asktoo if we are to see a renewed programme of social house building. One major critique of social housing is its association with low employment rates. Only around half of social renters are in employment, compared to four-in-five non-social renters. However, as our Chart of the Week shows, 60 per cent of that gap can be explained by the fact that social renters are more likely to be lone parents, have a disability or other characteristics that mean they face labour market barriers whatever form of housing they live in. The conclusion? We shouldn’t allow the headline employment gaps to be the end of the story, but we should renew our efforts to improve employment outcomes for social renters. So the future of social housing isn’t just about bricks and benefits. It’s about buses and buoyant job opportunities too…

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Social housing: time for change – and for long-term investment

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Guest post from Kate Henderson, Chief Executive of the National Housing Federation

This week the Resolution Foundation is throwing a welcome spotlight on the future of housing for social rent, and I’m really pleased to be a part of this important conversation about how the nation provides affordable housing for people who need it most.

This conversation couldn’t come at a better time, because I believe we are on the cusp of real change. Change the Government can drive if it seizes the moment in this year’s spending review to transform the country’s housing crisis.

It’s now widely accepted that England is in desperate need of more homes. We are short of four million homes, and to meet the nation’s housing needs we must build 340,000 new homes every year for the next ten years – including 90,000 homes a year for social rent.

Housing associations are already playing their part in this. Our latest supply statistics show that they are building more new homes, including more for social rent, and there have been some really welcome announcements of new funding for social housing that will help them do more.

But to achieve the step change in house building this country needs – particularly the kind of truly affordable homes that will make a difference to those pushed into poverty by housing costs – we need more. Better access to affordable land is a key piece of the puzzle. The other is funding, as the Resolution Foundation has highlighted. In the run-up to the spending review this year, we’ll be arguing for the transformational investment in social housing we need to really and truly end the housing affordability crisis.

The housing crisis isn’t just about affordability, though. It’s also about quality, community and equality. We should be confident that every home, for every resident, is of the highest possible quality – enough space for children to play and learn, and homes that are safe and warm. We should be investing in communities in parts of the country that missed out on prosperity, in people who have been let down by local job markets and economies. And we should be making sure everyone has the support they need to thrive.

All this is as central to the housing association mission as building desperately-needed new homes. We will continue to build and invest in not just affordable homes but good, safe, sustainable homes. We have a proud history of investing in communities, offering employment, skills and training services to their tenants and to others, with some, such as Aspire, dedicating a whole arm of its business to providing specialist training and support.

On top of this, our members provide services for people who have support needs, such as people with mental health problems, homeless people, or people who have experienced domestic abuse. These vital services offer people the chance of a job, a home, stability and hope for the future.

So the Federation will be calling for action on these issues too in the spending review. We’re calling for a review of these essential support services, to make sure they can continue, and we’ll be pushing for a welfare system that functions properly for both tenants and landlords. And we believe the Government should commit to invest properly in regeneration for great places whose people are being let down by the country’s economy.

When I think about the future of social housing, and the future of our communities, I think we’re ready to bring about change. Housing associations are working for this change, building the homes England needs and supporting the communities they serve. Now we need the long-term, strategic investment to make it happen.

This guest post is part of a Resolution Foundation week focused on the future of social housing. Watch a video of our panel event with Kate Henderson here, and read further Resolution Foundation analysis on the subject from Lindsay Judge, Stephen Clarke and Torsten Bell.

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Moving on up: Has Britain’s housing crisis made us a less mobile nation?

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Addressing Britain’s housing crisis is now firmly on the political agenda, but it is far bigger than millennials’ struggle to get onto the property ladder. The implications of big changes to housing costs and tenure over recent decades – on individuals, families and the world of work – are still not fully understood. In particular not enough is known about their impact on who moves around the country, not least for work.

Is it true that people are moving for work more than ever? How have pay levels and housing costs changed across the country in recent decades? Has the rise of private rented accommodation made it easier for people to move around for work? Does it pay for people to move, and does it make for a stronger economy or society?

In the run-up to the launch of the Intergenerational Centre in mid-June, which is housed within the Resolution Foundation, we presented research, supported by the Nuffield Foundation, on the impact of recent housing trends on young people’s pay and job prospects. A panel of experts then discussed the issues raised from the research, before taking part in an audience Q&A.

 

Speakers

Liz Truss MP, Chief Secretary to the Treasury

Alan Manning, Professor of Economics, LSE

Rain Newton-Smith, Chief Economist at the CBI

Lindsay Judge, Senior Research and Policy Analyst at the Resolution Foundation

David Willetts, Executive Chair of the Resolution Foundation

 

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High rents and fewer employment black spots are making millennials less job mobile

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Higher rents are reducing the financial gains from moving to better paying parts of the country, and mean that young people are less mobile than they were 20 years ago, according to new research published today (Thursday) by the Resolution Foundation.

Moving Matters – a report funded by the Nuffield Foundation – shows that the common stereotype of millennials being footloose in the world of work is wide of the mark, and explores what lies behind this trend of falling job and home mobility.

The report finds that the number of young people (aged 25-34) starting a new job and moving home in the last year has fallen from 30,000 in 1997 to 18,000 in 2018.

This fall is all the more surprising given that young people today are far more likely to live in private rented accommodation – rather than own a home or live in the social rented sector – the tenure traditionally seen as enabling mobility.

In fact, young private renters’ propensity to move areas for work has fallen by two-thirds over the last 20 years. While a greater share of private renters today have children, which can make it harder to move, this only explains a tiny part of the fall in job mobility for young private renters.

Instead, Moving Matters identifies an alternative explanation for falling job and home mobility – the financial incentives for moving are lower. That is partly good news as the country has seen employment gaps fall, meaning fewer young people are forced to move away from employment black spots to find work. The average gap between highest and lowest employment areas of the country has fallen by almost a fifth since 2000.

But it also reflects the fact that private rents have risen fastest in higher-paying areas of the country – rising by almost 90 per cent the among highest paying local authority areas, compared to just over 70 per cent among the lowest paying. This has significantly reduced the living standards uplift from moving for work once housing costs are factored into the equation.

The report finds that once housing costs are deducted, the average private renter moving from a low-paying area (such as East Devon) to a mid-paying area (such as Bristol) would have seen a financial gain of 16 per cent in 1997, compared to just 1 per cent last year. Similarly, moving from a low-paying area straight to a high-paying area (such as Croydon) would have seen a financial gain of 26 per cent in 1997, compared to minus 3 per cent last year.

The Foundation notes that there are likely to be a range of non-financial reasons for falling job and home mobility, such as people preferring to stay close to their parents and local networks.

These challenges are also not limited to young people either, with increasing house price gaps between places making it harder for older home owners to move without also having to downsize to a significantly smaller property.

However, with the typical pay rise (before housing costs) for those moving areas for work over three times higher than for those who stay in the same job, the Foundation notes that lower job mobility can stunt young people’s pay and career prospects in particular.

It adds that lower job mobility is bad for the economy as a whole – making it harder for firms to fill skills gaps, and for workers to gain new skills. Preventing high housing costs acting a barrier to job mobility should therefore be a priority for policy makers, says the Foundation.

Lindsay Judge, Senior Policy Analyst at the Resolution Foundation, said:

“Young people today are often stereotyped as being footloose when it comes to work. But in fact they are moving around for new job opportunities far less frequently than they used to.

“A key reason why people move around for work is the lure of a bigger salary. But increasingly those pay gains are being swallowed up by high housing costs.

“Of course there are many good reasons why people don’t want to move around for work, from better job opportunities closer to home, to wanting to stay closer to friends and family.

“But for young people in particular, there are real advantages to moving when it comes to trying new roles and developing skills – and housing should not be a barrier that prevents them doing this.”

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Britain has become a less mobile nation – why?

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Donald Trump tells us there are no protesters. He says it so often, he probably believes it. Which is worrying, but also fairly normal. There are stories we hear so often that we simply assume they are true. Here’s one. Our communities are changing ever faster as more and more people move around for work, driven in part by growing economic gaps between richer and poorer places.

That’s the story – and then there’s the reality. In fact we are almost a third less likely to move for work than our predecessors at the turn of the millennium. This is particularly true of the supposedly ever more footloose and fancy free youth. The number of young people (aged 25-34) moving home and starting a new job has fallen from 30,000 in 1997 to 18,000 in 2018.

So why is everyone no-longer heading cross-country for work? There are many potential reasons, going far beyond the economic incentives we focus on in new research, to our family structures and social norms. There can be good reasons that job mobility has fallen, if people are no longer forced to upsticks. And there can be bad reasons, if we’re trapped from taking up opportunities we would like to seize. A look at how our country has changed suggests that economic change, both good and bad, explains part of our tendency to stay put.

 

First the clearly good. Repeating Norman Tebitt’s supposed call to “get on your bike” to find work in the 1980s would be a bad idea politically today, and it wouldn’t make much sense economically either. Ours is a much higher employment country than it was then – over 76 per cent of us are in work. This success reflects both the post-crisis jobs boom and a longer term trend of reduced worklessness. Crucially, recent jobs growth has been strongest in areas that have long lagged behind employment wise – the fastest growth has been in Merseyside and South Yorkshire. The result is a more equal country jobswise. 39 local authorities had employment rates 10 per cent below the national average in 1999. By 2018 this had fallen to 18. While there are still places where a good job is too hard to come by, there are far fewer places where people have to move away to find any job at all.

But moving for work isn’t just about getting a job, it’s often about getting a better job – doing something you’d prefer or earning a higher wage. Ours is a country with big gaps in earnings between places – the typical weekly wage is £670 in Richmond upon Thames but only £360 in Kingston upon Hull. But those gaps have shrunk in recent times, in part as the minimum wage has pushed up earnings at or near the bottom. Of course there are different stories for different groups, with different qualifications or in different industries. But the big picture is smaller earnings and employment gaps across Britain, adding to the picture that labour market incentives to move for a new job have decreased.

But what about beyond the labour market? Here we get to very bad reasons for reduced job mobility – housing. We might expect rents to move in line with earnings in each area. If so rent rises would be annoying, but they wouldn’t impact on financial incentives for people to move for a better paid job. But in fact, rents have risen fastest in areas that have the highest earnings levels – not the fastest earnings growth – rising by almost 90 per cent the among highest paying local authority areas, compared to 70 per cent among the lowest paying. This has reduced the living standards boost that people might receive from moving to higher paying parts of the country – and yes this is about far more than London.

To make this concrete we can provide some (very simplistic) illustrations of how the incentives to move from lower to higher paying places has fallen over time. While moving from a typical paying job in Scarborough to one in Leeds in 1997 might have seen a living standards boost of 29 per cent, today that figure is 4 per cent. Moving from Sunderland to York in 1997 would have meant a 6 per cent boost, today that move would entail a sizeable after-rent earnings fall of 24 per cent fall.

Our analysis focuses on rents, because that is the more likely housing cost faced by young people who move (or not). But rising house price gaps between places, relative to earnings gaps, also lock older and home owning workers out of moving should they wish to do so. Housing shifts may be trapping baby boomers, not just millennials, from moving for work.

These financial incentive shifts do appear to be changing our behaviour. Not only are we moving less for work, but those that are moving are more likely to head somewhere with lower housing costs. That may bring relief via lower costs, but it could also mean a lower paying job, or a longer commute to work. On average we’re spending 12 minutes more a day commuting than we were in the mid-1990s.

So where does that leave us? Fewer people moving for work, which is good news when people are no longer forced to move for any work, but bad news for those trapped by housing costs so that they cannot take up opportunities they would love to seize. The latter problem matters for individuals – the typical pay rise for those moving areas for work is over three times higher than for those who stay in the same job – but it also means lower productivity for the economy as a whole, as fewer people move from low productivity firms to higher productivity ones.

Three lessons for policy makers stand out. First, they should seek to further close earnings and employment gaps. Second, housing is needed in high demand areas so that higher productivity delivers higher living standards not just higher rents. And third – remember to dig deeper to understand our country rather than just believing the stories we’re told.

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Moving matters: Housing costs and labour market mobility

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Making a move – to a new job, a new home or both – can be born of many things, and it is this complex topic of residential and job mobility that is the subject of this briefing note. While the received wisdom is that living standards gaps between different parts of the UK have widened over time, when it comes to moving for work across areas, we show that as a nation the rate at which we take up a new opportunity and change residence has fallen over time. This is especially true for younger age groups – a surprise finding given that young people are more likely to be graduates, non-UK born and private renters than in the past, changes that should have increased rather than decreased moves made for work.

So what can explain the fall in job-plus-home mobility we observe? In this report, we focus on three possible economic explanations:

  • First, we show that the ‘push’ of a lack of employment has diminished over time.
  • Second, we explore whether the ‘pull’ of more buoyant areas has fallen apace: if the gap between earnings across local authorities has widened over time, the benefits to moving to better paying areas will have grown too. Again, however, we show this has not been the case. While the earnings uplift of moving local authority is often still very considerable, the difference in the average ‘wage premium’ achieved as a result of such a move has fallen since the turn of the century.
  • Third, we consider whether changing housing costs have acted as a headwind or tailwind when it comes to moving area for work. We find the propensity of young private renters to move home and job has fallen by two-thirds between 1997 and 2018, and suggest that this partly reflects the fact that private rents have risen consistently faster in higher-paying areas of England. Rents have risen by almost 90 per cent in the highest-paying 30 per cent of local authorities over the past 20 years, compared to just over 70 per cent among the 30 per cent lowest paying places. As a result, not only has the earnings boost of moving to a more productive area diminished as a result of closing wage differentials; so, too, has the broader living standards uplift once housing costs are taken into account.

With the evidence showing that efficiently matching with job opportunities is especially important for young people at the beginning of their working lives, the intergenerational implications of this briefing note are clear. While two of the reasons we identify that potentially explain the fall in job-plus-residence moves can be viewed as positive, our findings about the way that rising housing costs are determining the behaviour of younger renters in particular is a real cause for concern.

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Who owns Britain’s £13tn wealth?

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Britain is in the middle of a decades-long wealth boom. Total wealth now stands at a record £12.8tn, or almost 13 million millions. But where you live, and when you were born plays a big part in how much of that wealth you are likely to own.

In the 1960s and 1970s, Britain’s collective wealth – the value of our property, pensions and savings – was about three times as big as the UK economy’s national output, or GDP.  But since the 1980s, as wealth has boomed, it has surged to close to seven times the size of annual GDP. This growth continued even through the 2007-8 financial crises.


What is our wealth made up of?

Britain’s wealth boom has been driven mainly by rising house prices and pension entitlements, combined with rising home ownership in the 1980s and 1990s.

People often think of Britain’s wealth as being held in property and to an extent they are correct – at £4.6tn, it represents 36% of total wealth.

However, the total value of pensions is actually marginally bigger at £5.3tn – 42% of total wealth.

Net financial wealth – savings, ISAs, stocks and shares – is worth £1.6tn. Physical wealth – wealth in possessions – is harder to measure but, according to the latest data, we even own £4.3bn worth of personalised number plates.

What does it take to be wealthy?

How much wealth do you need to be in the wealthiest part of the population? To do this, we break the adult population down into families, and then sort them into 10 equally-sized groups – or deciles – based on their wealth.

In 2018-19, you needed wealth of around £670,000 per adult ­– excluding physical possessions – to get into the richest tenth of families in the UK. Wealth of £105,000 per adult would put you in the top half of the population. By contrast, the bottom tenth of families tend to have more debts than they have property, pension and financial wealth.

 

Wealth inequality has fallen

While Britain has a lot of wealth, it is not shared equally across the country.

But this is not a story of ever-rising inequality.  In fact, the share of Britain’s wealth held by the richest 1% fell for most of the 20th Century, and has been stable ever since. This shift is mainly down to the sharp rise in homeownership.

We have moved a long away from the Downton Abbey-esque world of the 1920s. However, there are still enormous wealth gaps between different households.

 

Much of our wealth is concentrated in London and the South East, where a few households have very large amounts of it.

This is because London’s population is young and home ownership is low, so a typical household has relatively little wealth. In fact, high-wealth households in the capital have 24 times as much wealth as low-wealth ones.

 

Generational divide

Many of us aim to build up wealth over our lives, from getting on the property ladder to saving and investing, and watching our pension pots grow.

But younger people’s personal wealth is not growing at the same rate as their parents and grandparents. Those born from the mid-1960s onwards were less likely to have become homeowners in time to benefit from the rapid house price growth that started in the 1980s, or to have been enrolled in generous pension schemes.

This is part of the reason why sixty-somethings are the wealthiest age group, with average wealth equivalent to £332,000. Many are at the end of a career and have had time to accumulate savings, pensions and property. By contrast, those in their eighties have £186,000, while individuals in their 30s have just £55,000.

The impact of inheritance

The final stage of wealth is passing it on to the next generation though inheritance.

Inheritances have more than doubled over the last 20 years – and are expected to do so again over the next 20 too, as larger, wealthier generations pass through retirement. This means millennials – the generation currently aged 19-38 – are set for an inheritance boom in the future.But it’s a long way off, with the average millennial not expected to receive it until they reach 61; that’s far too late to help them onto the property ladder.

And those are the lucky ones. Nearly half of Millennials who don’t yet own homes have parents with no property wealth, meaning they are unlikely to receive a significant inheritance. By contrast, those with home owning parents are three times as likely to own a home by the age of 30.

Why wealth matters

Why does the size and distribution of Britain’s wealth matter?

Many hope that hard work and a good job means you can earn your way to prosperity. But large wealth gaps mean that whether you receive an inheritance could become the most important factor.Those without this source of wealth are more likely to face long-term housing insecurity, higher private rental costs, and insufficient funds for their retirement.

Britain is doing a pretty good job of growing its £13tn wealth pile, but less well at sharing it equally. How much wealth we have is often regarded as a private affair, but who holds it and how it is accumulated matters for the wider economy, and society as a whole.

 

This article was originally published as part of the BBC’s Expert Series.

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Taking stock: Report for the Scottish Poverty and Inequality Commission

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There has been a growing appreciation in recent years that living standards are determined not just by income (the flow of money into a household) but also by wealth (the stock of assets a household owns). Wealth can take various forms: it can be held in financial instruments (for example, a savings account or as shares); in a private pension; or as a physical asset (for example, land, an art work or piece of jewellery). But the most visible way that households accumulate and store significant amounts of wealth is through the ownership of their (or others’) homes.

Compared to income, wealth has generally been poorly measured – unsurprising given that it has only recently become the subject of serious study. As a result, erroneous or unexamined views about the topic are widespread. In this report, we bring together a wide range of data sources to take a long, hard look at both the scale and distribution of housing wealth in Scotland over time. In light of the evidence, we then reflect on a number of ways that Scottish policy makers could address the growing concerns about the scale and impact of housing wealth inequality.

The post Taking stock: Report for the Scottish Poverty and Inequality Commission appeared first on Resolution Foundation.





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