WHAT WILL THE HOUSING MARKET LOOK LIKE IN 2040?

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1 REPORT WHAT WILL THE HOUSING MARKET LOOK LIKE IN 2040? Mark Stephens, Chris Leishman, Glen Bramley, Ed Ferrari and Alasdair Rae What are the links between housing and poverty, and how will this change in decades to come? This report examines the relationship between poverty and housing by studying the circumstances of 5,000 people over an 18-year period. It also projects how this relationship will change by Researchers combined information about the types of tenure individuals were in throughout the period with events in their lives over the same time, such as changes in household composition, earnings and retirement. This report: investigates people s likelihood of experiencing poverty at different stages of life; forecasts how the proportion of social renting, private renting and home ownership will change by 2040 and the effect this could have on poverty; outlines ways poverty can be contained through changes to the housing market and housing policy. NOVEMBER 2014

2 CONTENTS Executive summary 04 1 Introduction, aims and methods 08 2 The nature of poverty and housing deprivation 11 3 Housing pathways and the experience of poverty 17 4 The spatial pattern of housing deprivation 32 5 Housing costs and the likelihood of poverty in the future 55 6 Conclusions 65 Note 69 References 70 Annex A: Detailed factor analysis results 73 Annex B: Life event analysis and pathways 75 Annex C: Summary of forecast housing costs, incomes and tenure split to Acknowledgements 78 About the authors 79 List of tables 1 Percentage of all poverty attributed to household types 14 2 Proportion of all poverty cases by age band 14 3 Distribution of cases by age band in BHPS waves 1 and Simplified tenure sequences and frequencies 21 5 Settled owner-occupation pathways 25 6 The transition to home-ownership 25 7 Social rented pathways 26 8 Fluctuating pathways 27 9 Percentage of people who experienced housing deprivation who also experienced poverty Percentage of people who experienced poverty who also experienced housing deprivation Home-ownership survival model, household type effects Home-ownership survival model, age effects Local authorities with the highest levels of housing deprivation in England Housing deprivation in England: 20 most deprived areas 40 02

3 15 Housing deprivation in England: 20 most deprived areas outside London Housing deprivation in Northern Ireland Housing deprivation in Scotland Housing deprivation in Wales Child poverty rate by local authority, 2010 (Great Britain average rate: 20.5%) Small area child poverty in England and Wales (20 highest values) Small area child poverty in Scotland (20 highest values) Baseline and forecast poverty rates (% of individuals) Predicted change in total Housing Benefit expenditure (%) 63 A1 Factor analysis results 73 List of figures 1 Baseline housing cost forecasts to Poverty projections for Projected tenure change 64 List of boxes 1 Types of poverty 24 Contents 03

4 EXECUTIVE SUMMARY This report examines the relationship between people s housing pathways and poverty over their life course. Housing pathways reflect both tenure and life events, such as changes to household structure and employment. As the housing system continues to change, this report identifies how this picture of housing and poverty might look in 2040, and which policies will affect the outcome. The main findings are: More than one-third of people experienced some form of poverty over the 18 years of the survey from 1991 to For most of them it was a temporary experience, but for 10 per cent it was chronic meaning that they experienced two or more spells of poverty lasting for three consecutive years. People with housing pathways rooted in settled home-ownership experienced above-average levels of temporary poverty, but relatively low levels of chronic poverty. In contrast, people with housing pathways rooted in settled social renting experienced rates of chronic poverty that were times the average of the sample as a whole. Life events associated with changing marital status, downsizing, falling labour market earnings and retirement are associated with the more severe forms of poverty across all tenures. While 60 per cent of those who experienced housing deprivation also experienced chronic poverty, more than 85 per cent of those who experienced chronic poverty did not experience housing deprivation. Housing deprivation is most frequently found in London boroughs in England, but in rural local authorities in Wales and Northern Ireland. The housing system will only prevent poverty from rising in England by 2040 if house-building rises to 220,000 units a year by 2040, social rents remain indexed to prices, Housing Benefit (or equivalent) continues to meet the current share of housing costs, and the decline of social renting is halted. 04

5 Introduction Housing policy in the UK has been portrayed as being a safety net helping to break the link between income poverty and housing poverty. However, our understanding of this relationship is limited because most surveys only measure people s circumstances at a single point in time. This means that we know less about how the risks and experience of poverty evolve over people s life course. This report explores the histories of some 5,000 individuals whose circumstances were recorded in the British Household Panel Survey (BHPS) over the 18 years of the period Although this falls short of tracing people s entire life course, it does provide a much greater insight into people s experiences over almost two decades. Tenure histories were combined with life events (such as changes in household composition, earnings and retirement) in order to create housing pathways. These were then examined to establish their relationship with poverty and with housing deprivation. Meaning and measurement of poverty Poverty occurs when people lack the resources to meet their minimum needs. This study uses two measures of poverty. One is similar to the official measures that record people as living in poverty if they live in a household whose net income, after housing costs have been paid, falls below 60 per cent of national median income. The other is derived by estimating the income required to avoid deprivation. The study found that between 25 and 30 per cent of people were living in poverty in a given year using these measures. Housing and the duration of poverty This report demonstrates that the experience of poverty is very different according to housing pathways. In interpreting the findings it is important to note that two-thirds of the people in the sample are represented by pathways that include those who are home-owners throughout the 18- year period of the study ( settled home-owners). Although the social rented sector housed around 20 per cent of the population in the period, fewer than 10 per cent of the sample remained social renters throughout the period of the study ( settled social renters). Moreover, although the private rented sector was reviving in this period, there were insufficient numbers of settled private renters to be analysed. Three forms of poverty were investigated in the research: chronic, recurrent and temporary. Chronic poverty Chronic poverty occurs when people experience at least two spells of poverty that persist for at least three consecutive years. Around one in ten people experienced chronic poverty during the period of the study. Those people whose housing pathways were firmly rooted in homeownership experienced relatively low levels of chronic poverty. In contrast, people whose housing pathways were rooted in social rented housing are most strongly associated with chronic poverty. They were times more likely to experience chronic poverty than the average. The contrasting life Executive summary 05

6 events that are present in both settled owner pathways and settled social renting pathways seem likely to reflect the underlying economic position of the people and households in question, rather than particular incidences in the life course. Nonetheless, because settled home-ownership dominates the sample, it is likely that most people who experienced chronic poverty were settled owners. Looking across tenures, chronic poverty is associated with life events that include changing marital status, downsizing, falling labour market earnings and retirement. Recurrent poverty Recurrent poverty occurs when people experience at least three spells of poverty lasting for one or two years. Only between 1 and 1.5 per cent of people experienced this form of poverty in the study period. The link between poverty and housing pathways is much less clear for those households who experience recurrent poverty by moving in and out of poverty. Temporary poverty Temporary poverty occurs when people experience fewer than three spells of poverty lasting one or two years. Around per cent of people encountered temporary poverty in the study period. People on settled home-ownership pathways are more likely to experience temporary poverty compared to people in settled social renting. This finding should be interpreted in the light of much higher levels of chronic poverty among social renters. People who move from private renting to ownership appear to experience comparatively high levels of temporary poverty if they are new households. This may reflect the high upfront costs associated with ownership, and may be an accepted sacrifice that is made to secure a favoured housing pathway. In many cases, life events that reflect variations in income or labour market position and changes in marital status are present in tenure sequences that fluctuate between owning and private renting. Such pathways are sometimes associated with high levels of temporary poverty, but with low levels of chronic poverty. Poverty and housing deprivation A key question is whether being poor necessarily results in living in housing deprivation. Housing deprivation is recorded here when people experienced damp or hard-to-heat housing combined with overcrowding at any point during the 18-year period of the study. The study found that between 60 and 73 per cent of people who experienced housing deprivation also experienced chronic poverty during the study period. Overall, between 88 and 93 per cent of people who experienced housing deprivation experienced some form of poverty during the study period. However, only 12 per cent of people who experienced chronic poverty also experienced housing deprivation, compared to 9 per cent in the sample as a whole. Although people in chronic poverty are more likely to experience housing deprivation (as measured in the study) than the sample as a whole, more than 85 per cent of them did not experience housing deprivation at any point. Indeed, the link between temporary poverty and housing deprivation is such that people were less likely (5 per cent) to What will the housing market look like in 2040? 06

7 have encountered housing deprivation than those who did not experience any form of poverty (9 per cent). Spatial patterns of poverty The concentration of poverty in particular areas or neighbourhoods seems likely to affect the experience of poverty, and the life chances of those growing up in such communities. This research confirms that housing deprivation is concentrated in particular localities across the UK, but, in contrast to previous findings, it is not a universally urban phenomenon. While the 10 English local authorities with the highest concentrations of housing-related deprivation are all in London, this is not the case in Wales or Northern Ireland, where rural authorities are more strongly represented. Nonetheless, it should be noted that by number, housing-related deprivation is greater in urban areas across the UK. Housing and poverty in 2040 A model was constructed based on predicted house prices and private and social sector rents, and the availability of social lettings. It also considered demographic factors including household formation and migration, and economic factors such as income growth. The forecast, which applies only to England, suggests that there would be relatively little change in the level of poverty in 2040, which would remain at around 25 per cent of the population. However, the containment of poverty is conditional on four elements: first, that the supply of new housing must increase to some 200,000 units per year by the 2020s, and to 220,000 units by the end of the 2030s. Second, it depends on social rents being increased on the basis of CPI (consumer price index) + 1 per cent, whereas a move towards 65 per cent of market rents would increase poverty by 3 percentage points or some million people in England. Third, it depends on a similar proportion of rent being met by Housing Benefit (or equivalent) as was the case in 2008 implying an additional cost of 20 billion across Great Britain. Fourth it depends on the decline of social renting and the rise of private renting to cease. In short, unless some of the trends in housing policy are reversed, the link between income poverty and housing deprivation is likely to strengthen, with housing costs becoming a more important cause of poverty, and the experience of poverty more likely to be combined with the experience of housing deprivation. Executive summary 07

8 1 INTRODUCTION, AIMS AND METHODS Historically, the UK has had one of the highest rates of income poverty in Western Europe. There is, however, some evidence to suggest that the housing system in the UK helps to mitigate the impact of these high levels of income poverty. Although in long-term decline, the UK has one of the larger social rented sectors in the European Union (EU), and is targeted at the lowest income households, performing a safety net function (Stephens, et al., 2002). Moreover, the UK has one of the most extensive Housing Benefit systems in the world. In terms of the numbers of people who receive it and the proportion of costs covered, it has performed a vital income maintenance function (Kemp, 2000). The UK also has a relatively mature home-ownership sector, with the result that a relatively large number of retired people enjoy low housing costs. These elements debt-free ownership in retirement, targeted but secure social rented housing, and extensive Housing Benefit might be expected to combine and help to break the link between income poverty and housing poverty. Certainly, the actual and in-kind incomes implied by these elements in the housing system do appear to reduce poverty (Stephens and van Steen, 2011). The housing outcomes (represented by overcrowding, the physical condition of housing, and neighbourhood quality) of households living in income poverty may also be better than one might expect, but the evidence is less clear-cut (Stephens, et al., 2010). Moreover, the key characteristics of the classic British housing system are in decline, giving rise to speculation that the safety net provided by social renting may be morphing into a mere ambulance service (Fitzpatrick and Pawson, 2014) whereby tenure security is replaced by temporary provision and is made available only to people facing the most acute cases of need. However, one of the key limitations to our understanding of the relationship between housing and poverty is that evidence is based on surveys that record people s experiences at a single point in time. Such snap shots tell us little about the evolving relationship between housing and poverty over people s life courses. 08

9 It is this gap that this report seeks to fill. It aims: to identify how households housing circumstances relate to their experience and risk of poverty over the life course; and to project how these circumstances may change by Poverty is a dynamic phenomenon. For some households it may only be a transient experience, while for others it is recurrent or even permanent (Smith and Middleton, 2007). Nor is income poverty a simple phenomenon: it varies in depth and according to circumstances, and is manifested in different levels of deprivation. Understanding poverty is therefore closely linked to the life cycle, which reflects, on the one hand, earnings and other income sources (notably pensions), and on the other, varying needs (for example, dependent children). Housing costs have the effect of raising poverty rates overall (Tunstall, et al., 2013). However, they have marked differences across the country, according to tenure, and over the life course. Home-ownership in particular is also prone to price and sometimes interest rate volatility. While private tenants can expect their rents to continue to rise over their lifetimes, owneroccupiers have traditionally expected to experience low housing costs in retirement, having paid off their mortgage (Stephens, 2011). Chapter 2 examines different measures of poverty. The need for an integrated understanding of life course, poverty type and housing pathway means that the research must be founded in meaningful measures of poverty that can also be applied to longitudinal data. We examine, assess and select appropriate and practical poverty measures for this study. It is now widely accepted that poverty should be measured on the basis of income after housing costs (Stone, 2006a,b), and so we also revisit what should be counted as a housing cost. Households must be able to secure accommodation of adequate size and quality before assessing the adequacy of their remaining income (Kutty, 2005). We consider under- and overconsumption of housing, and whether these are likely to be the result of free or highly constrained choice (Thalmann, 2003). In Chapter 3 we present, primarily, longitudinal analysis designed to demonstrate the relationship between different housing pathways, and the incidence of transient, recurrent and permanent poverty. The analysis then moves on to consider the changing propensities over time of individuals entering poverty. We also examine the changing propensity of individuals to attain home-ownership. The chapter therefore represents an analysis of the experience of people of housing and poverty both over time, and over the life course. Chapter 4 offers a deliberately cross-sectional, in-depth analysis of deprivation, housing-related deprivation and the concentration of child poverty in the UK. Each region of the UK is examined in turn, and specific case studies based on Birmingham, Glasgow, Liverpool and London are presented. In Chapter 5 we draw on a range of economic forecasts in order to gauge the likely incidence of poverty in The analysis will reflect projections of house prices, market and social rents, as well as housing supply, demography, economic and income growth. Conclusions are drawn in Chapter 6. Introduction, aims and methods 09

10 Data and methods The main dataset referred to in the study is the British Household Panel Survey. BHPS has been the principal source of longitudinal data that can capture the relationships between poverty, households and housing. It was established in 1991 with an initial sample of 5,050 households (9,092 interviewed adults). The dataset was used to assemble five analysis building blocks for this study: Housing pathways based on BHPS participants from 1991 who remained in the BHPS throughout its 18 waves. We also break this down to consider four cohorts of newly forming households as we move through the 18 waves. The analysis refines and extends Clapham et al. s (2012) categorisations to include the progression of housing careers. Income poverty and housing costs. We created a parallel typology that reflects people s (transient/recurrent/chronic) experience of poverty over the life course, and examined the incidence of poverty before and after housing costs. This enabled us to capture the evolution of the life course, housing pathway and housing costs against income. Housing and the experience of poverty. The third building block provides the basis for examining whether housing mitigates or exacerbates the experience of poverty. This was done by exploring the interactions between before and after housing costs poverty, income, material deprivation and tenure. The analysis also considers the role of housing deprivation, over- and under-consumption. Spatial analysis. The spatial analysis of housing deprivation and child poverty is based on the housing-related domains of the indices of deprivation in each of the four parts of the UK. Projecting change to The final element of the project design required the projection of a range of factors including household composition, income and wealth distribution, employment, and, of course, housing costs. Economic forecasts were generated from longrun econometric and simulation models developed over a period of many years, primarily funded by central and devolved government departments, and adapted for the specific objectives of this project. What will the housing market look like in 2040? 10

11 2 THE NATURE OF POVERTY AND HOUSING DEPRIVATION Main points Poverty can be measured in different ways. In this project, two poverty measures are employed: one based on a fixed proportion of median income adjusted for household type, and one that is imputed by predicting the level of income required to avoid deprivation. Poverty is best assessed on income after actual housing costs have been taken into account. To assess the effect of housing costs across the life course, these costs should include the repayment of mortgage capital, as well as mortgage interest and rent. Assessments of poverty after housing costs should also take into account those households whose poverty is attributable to the voluntary overconsumption of housing, and those who avoid poverty by living in overcrowded or otherwise unsatisfactory housing. Introduction The relationship between poverty and housing lies at the heart of this report. It was therefore important to ensure that our findings were based on the most robust concepts available. What do we mean by poverty? And how should we measure it? Moreover, how should we measure the impact of housing costs on poverty? And what bearing do these have on housing deprivation? This chapter examines the choices available to us for the measurement of poverty, and how we should treat housing costs. Measures of poverty Any quantitative study relies on the availability of statistical data that are capable of measuring the key concepts under consideration. This project required a poverty line with three key properties: 11

12 meaningful representation of poverty; capable of being derived from longitudinal datasets; and available in a monetised form, so that housing costs could be taken into account. The Joseph Rowntree Foundation (JRF) has defined poverty as arising When a person s resources (mainly their material resources) are not sufficient to meet their minimum needs (including social participation). This definition of poverty relates to an enforced lack of necessities, which are identified by societal norms. In other words, poverty is a relative concept. Over time society has tended to define a wider range of necessities as living standards have risen, although there is some evidence that the post-2008 recession has led to some scaling back in society s view of necessities. Money is the key resource required to meet necessities, but resources might also come in the form of income-in-kind derived from the state, charities or relatives. The below-market rents associated with social rented housing are an important example of income-in-kind. There are three principal ways of measuring poverty, as follows. First, the EU measures poverty by using an income threshold set at the level of the household. Incomes are measured after tax and national insurance contributions, and are adjusted according to the composition of the household, using an equivalence scale devised by the OECD (Organisation for Economic Co-operation and Development). Individuals are identified as living in poverty if they live in a household whose net equivalised income falls below 60 per cent of the national median. In recognition of the significance of housing costs, poverty is often presented before and after actual housing costs are taken into account. After housing costs poverty rates are usually higher than those measured without taking them into account. The Department for Work and Pensions (DWP) (2013) employs a very similar measure in its assessment of Households Below Average Income (HBAI). The fundamental weakness of this approach, however, is that the poverty line is arbitrary. While this weakness is compounded by the use of an equivalence scale that lacks any scientific basis, its reform would not correct the underlying problem. Second, an alternative consensual approach has been developed by the Poverty and Social Exclusion (PSE) project. This eschews a monetary poverty line, and instead attempts to measure material deprivation directly. Approximately decennial surveys identify necessities on the basis of whether 50 per cent or more of those surveyed believe them to be necessary. If a household lacks three or more items so identified as being necessities (and does not wish to possess them), it is identified as being in material deprivation. There is no weighting between different necessities, and the approach is open to the objection that the number of necessities that must be lacking is necessarily arbitrary. A third approach, developed by JRF, addresses these issues by first identifying a minimum basket of goods and services by consensual means and, second, identifying how much they would cost. The resultant Minimum Income Standard (MIS) does not create an acceptable living standard for every individual, but it does suggest a level that is socially unacceptable for any individual to live below (Bradshaw, et al., 2008, p 52). The MIS does not cover every household type, and does not claim to be a poverty threshold (Padley and Hirsch, 2014, p 9). The budget line has been uprated with prices in between rebasing exercises that have taken place every four years since it was established in 2008 (Hirsch, 2013). What will the housing market look like in 2040? 12

13 Not one of these measures satisfies all three criteria, however. The PSE measure, while arguably a conceptually well-grounded reflection of poverty, is neither available on a longitudinal basis, and nor is it expressed in monetary terms. The MIS measure is both a conceptually robust reflection of poverty, and is expressed in monetary terms, but it is not applicable on a sufficiently long longitudinal basis for our purposes, having been first established in The EU/HBAI measure is available both on a longitudinal basis and in a monetary form, but its key weakness is its lack of a conceptual basis. However, it does have the advantage that in practice almost everyone whose income is below the EU/HBAI poverty line is also below the MIS poverty line (Davis, et al., 2014). Given that the 60 per cent of median income is an arbitrary poverty line and therefore open to criticism, even after equivalisation, there are potential benefits to be had in exploring incidence and experience of poverty using an additional, alternative measure of poverty. The MIS measure discussed above cannot be calculated prior to 2008, and cannot therefore be explored in a longitudinal study based on data first collected in Meanwhile, the PSE survey, despite its depth and great detail, is cross-sectional by design. We therefore set up an alternative measure of poverty that has similar characteristics to the PSE-styled material deprivation definition of poverty, but one that can be constructed within the scope of the BHPS. The BHPS dataset includes indicators of desired but unaffordable necessities, albeit a much smaller number than available in the PSE survey (there are 7 nonhousing items compared to 23 in the PSE). In fact, the PSE asks people whether they want but cannot afford 46 items, 25 of which are found in a related survey to be considered necessities by 50 per cent or more of people. Two of the 25 items are housing-related (hard-to-heat or damp home). We follow the PSE convention of defining an individual as being in material deprivation if lacking three of the seven non-housing necessities. Having set that indicator, we find the income line below which a majority of people fall into material deprivation. This is done by age group and household type. We therefore impute an income poverty line associated with material deprivation, and this becomes our alternative measure of poverty. Poverty rates and the incidence of poverty by household type and age In this section we provide a comparison of poverty rates by household type and age obtained using the different measures of poverty examined so far in this chapter. We focus on poverty defined on the basis of: people living in households with income less than 60 per cent of the median (both before and after housing costs); people living in households with income less than that indicated by the imputed poverty lines derived from deprivation indicators. Table 1 shows the measures of poverty under the two methods, both before and after housing costs where applicable. On an after housing costs basis, the imputed poverty line indicates a poverty rate that is 3.3 percentage points higher than under the 60 per cent measure. However, there are some great differences between poverty rates according to household types. The imputed poverty line suggests much lower rates of poverty among couples both with and without children. For all other household types the imputed poverty line indicates notably higher poverty rates than the 60 per cent The nature of poverty and housing deprivation 13

14 Table 1: Percentage of all poverty attributed to household types Household type <60% median BHC income <60% median AHC income Below AHC poverty line (imputed) Couple without children Couple with children Single people of working age Lone parents Retired people Multiple adults Overall Note: BHC = before housing costs; AHC = after housing costs. measure. However, both measures indicate that lone parents are most likely to be in poverty and childless couples least likely. Table 2 shows broadly similar patterns of poverty between age groups on an after housing costs basis. The exceptions are at either end of the age spectrum. Young (16-/17-year-old) adults are markedly more likely to be living in poverty according to the imputed poverty line, whereas older people (aged over 70) are twice as likely to experience poverty (compared to the same age group) according to the imputed measure. This apparent disparity is consistent with the hypothesis that deprivation lags behind a fall in income (in retirement), and that at a younger age, it may take some time to acquire necessities. Table 2: Proportion of all poverty cases by age band Household type <60% median BHC income <60% median AHC income Below AHC poverty line (imputed) 16/ / Housing costs and housing deprivation Housing costs are deeply problematic in the estimation of poverty. They are so significant that they merit separate treatment, which is why HBAI distinguishes between poverty before and after housing costs. However, because housing costs vary so much between different parts of the country, between tenures, and even within them, it is impossible to allow for a standard allowance for housing when constructing a poverty line. By measuring income after housing costs it is possible to say whether an individual lives in a household with an income that is adequate to avoid non-housing poverty on both HBAI and MIS measures of poverty. But it is not possible to predict accurately what income they would need to pay What will the housing market look like in 2040? 14

15 for adequate housing and still have sufficient income to meet non-housing needs. A further complication arises because assessing income after housing costs tells us only whether the household has sufficient income to meet its non-housing needs. It discounts the possibilities that: a household is in non-housing poverty because it has voluntarily consumed more housing than it needs ( over-consumption ); a household has avoided non-housing poverty only because it has consumed less housing than it needs ( under-consumption ). The conventional measures of after housing costs poverty ignore the possibility of over- and under-consumption. Housing deprivation In order to assess over- and under-consumption of housing we need to identify a minimum acceptable standard of housing. In keeping with the consensual approach adopted in PSE and MIS, we draw on PSE survey work to identify the key attributes of minimum housing standards. Adequate space is based on the bedroom standards implied by the PSE survey. More than 70 per cent of respondents agree (going back to 1983) that every child of the opposite sex aged 10 or over should have their own room. We can impute from this that an adult couple should have their own room, and all other single adults should have their own room. Equally this implies that it is acceptable for children of the same sex to share (we have set the upper age limit on this at 18), and for children of the opposite sex to share up to the age of 10. To this we have added the requirement for a home to be free of damp (which has commanded at least 90 per cent support since 1983), and the ability to keep the home adequately warm (which has received at least 95 per cent support since 1983). Thus we identify someone as living in housing deprivation should their home be overcrowded, or damp, or they are unable to heat it adequately. Poverty induced by voluntary housing over-consumption Having established a minimum housing standard, we can estimate whether a household is over-consuming housing voluntarily. (The bedroom tax has illustrated why it is necessary to establish that over-consumption is voluntary: often households do not have the option to move to smaller accommodation; see also Kutty, 2005.) A household may be said to over-consuming housing if: i. the household is not in housing deprivation; and ii. household income is above the before housing costs poverty line; and iii. household income is below the after housing costs poverty line; and iv. household income is less than 20 per cent below the after housing costs poverty line, that is, an even lower income level. Criterion (i) identifies whether the household is over-consuming housing. Criteria (ii) and (iii) are required because poverty must be induced by housing costs. Criterion (iv) is based on the assumption that if a household is taken a long way below the non-housing poverty line by housing costs, it is likely to have over-consumed housing out of necessity (that is, lack of an affordable alternative). The nature of poverty and housing deprivation 15

16 Poverty avoided by housing under-consumption A household may be said to be avoiding non-housing poverty if: i. the household is in housing deprivation; and ii. the household is not in after housing costs poverty; and iii. household income is no more than 20 per cent above the after housing costs poverty line. Criteria (i) and (ii) and both necessary conditions. Criterion (iii) increases the probability that after housing costs poverty was avoided by low housing costs. If income were further above the after housing costs poverty line, then it is less likely that the savings in housing costs provide the explanation for the avoidance of poverty. Housing costs We treat housing costs as follows: Renters: rent minus Housing Benefit + water rates/charges + service charges. Owners: mortgage interest payments, minus SMI/ISMI (Support for Mortgage Interest/Income Support for Mortgage Interest) + capital repayments (and payments to mortgage-related savings vehicles, for example, endowments) + structural insurance + ground rent + service charges. These measures are the same as those used by the DWP in HBAI, except Housing Benefit is treated as a deduction from rent, and capital repayments are treated as a housing cost. The first of these differences is justified because Housing Benefit is tied to housing consumption and cannot be traded for non-housing consumption without going into rent arrears. Economists tend to argue that capital repayments of mortgages are savings. However, to reach the happy state of a (more or less) housing cost (including interest) free existence, it is necessary to have paid off the mortgage. In effect home-owners are spreading their housing costs across the life cycle, which is a key element of this study. Conclusion This chapter has reviewed some of the conceptual and measurement issues that confront this project. It has identified strengths and weaknesses with different concepts and measures of poverty. It has presented the different measures of poverty on a cross-sectional basis that arise from using a poverty line based on 60 per cent of median income adjusted for household composition, and an imputed measure derived by predicting the income required to avoid material deprivation. Both have their merits and were selected to be used in the longitudinal analysis. Indicators for housing deprivation and for poverty that is induced by the voluntary overconsumption of housing and avoided by its under-consumption were also developed. What will the housing market look like in 2040? 16

17 3 HOUSING PATHWAYS AND THE EXPERIENCE OF POVERTY Main points More than one in three people experienced some form of poverty over a span of 18 years. For the majority the experience of poverty was temporary, but one in ten people experienced chronic poverty. People on settled home-ownership pathways experienced average levels of temporary poverty, but relatively low levels of chronic poverty. In contrast, people on settled social renting pathways experienced average levels of temporary poverty, but very high levels of chronic poverty. Within housing pathways, labour market change, changes in marital status and ageing were often associated with chronic poverty. While people who experienced poverty were more likely to have encountered housing deprivation than those who did not, more than 85 per cent of people who experienced chronic poverty did not experience housing deprivation. While Chapter 2 explored the meaning and measurement of poverty, and the relationship between housing and poverty, the focus of this chapter is on the life course. More precisely, we re-examine people s experiences of poverty and their consumption of housing at different stages of their life course. We also consider whether the experiences of specific, defined groups of people differed depending on which cohort they belonged to. In other words, were the experiences of (for example) a young couple with small children noticeably different in the early 2000s compared to, say, the early 1990s? Were the experiences of other groups noticeably different, and at what points during the /10 period covered by the study? Before presenting the analysis designed to address these questions, we briefly review the concept of housing pathways, the main theoretical construct or lens through which we examine the experience of individuals in education, the labour market, family, lifestyle, housing and poverty. 17

18 Definition of housing pathways The development by Ford et al. (2002) of five housing pathways has been highly influential throughout the field of housing studies and beyond. These authors accepted Giddens (1984) view of the changes to contemporary society: increasing globalisation, a flexible labour market and the associated increases in personal risk and individualism and fragmentation. However, they chose to take a more critical realist approach to their theoretical framework (Ford, et al., 2002, p. 2455), and accepted that the human agency factor had been underdeveloped in housing research. Bringing a greater emphasis on structural factors, they argued that these can impinge on housing pathways, linking pathways such as employment, often without the knowledge of the individual (Ford, et al., 2002, p. 2457). Five typical pathways were identified from their research: chaotic, unplanned, constrained, planned (non-student), and student. Each pathway outcome relates to a combination of criteria set on a continuum but which act at different levels of intensity to affect housing outcomes specifically, issues with how the young person can choose and control their entry to the housing pathway, the form and intensity of any constraints to entry, and the access or limits of family support are emphasised. Clapham (2002, 2003, 2005) develops housing pathways further, overtly influenced by social constructionist theory. The concept is advanced while amalgamated with life course analysis, offering deeper scrutiny of youth and older age housing pathways. Housing pathways allow a more integrated understanding of the effects that structural factors, dominant discourse and individual influences have on, in particular, young people s housing chances and choices. Clapham describes: [t]he housing pathway of a household as the continually changing set of relationships and interactions, which it experiences over time in its consumption of housing. (2002, p. 64) Clapham was further influenced by Giddens (1984) post-modern structuration concept (structural agents are not independent but produced and reproduced through human interaction), and used it as a mediating tool between theory and application. Further influenced by Giddens (1991) life planning concept allows for better interpretation and integration of the multiplicity of households identities (fractured and fragmented) and their perceptions of their housing situations. This is further mediated through knowledge and understanding of other pathways, such as employment pathways, over time and space. Clapham (2002) therefore defines housing pathways as patterns of interaction (practices) concerning house and home, over time and space (p. 63). He notes that it is neither a theory nor a methodology, but also that it may provide a framework for one (p. 64). He states that although housing careers, hence pathways, are applicable at the level of the individual, there is no escaping the fact that housing is consumed by households, hence this is inescapably the level at which analysis must be undertaken. Pathways focus on changes in the level of consumption of housing (including quality, quantity and location), often triggered by changes in life course events including marriage, divorce, birth of children, and labour market status. We could also easily add educational attainment and sudden changes to (household) income to this list of life events, thus allowing explicit recognition of linkages between housing and employment pathways. What will the housing market look like in 2040? 18

19 The housing pathways approach builds on the study of housing career, which has been critiqued as a concept of mostly linear movement, from one normalised set of living circumstances to another. This process was argued to be positivist and universalistic, which over-emphasised the effect of housing policy (or lack of), therefore making opaque the meaning of housing for the individual the choices and the constraints that they have to negotiate, and action and structure that may be hidden to them. For example, Fitzpatrick (1999), in an early application of the pathways approach, found that for young homeless people, the understanding of home was mediated through both public policy and the interpretation of the gatekeepers of services, such as the local authority homeless service, and social control structures, such as the police. Their interpretations were shaped by the perception of needs, fortified by rights, and did not match those of the person presenting as homeless (Fitzpatrick, 1999). Those who break from the normalised housing career path for example, those experiencing homelessness are deemed at fault through a process of discourse, and are thereby ascribed with deviant and anti-social attributes. Housing pathways put the (individuals of a) household central to the analysis and allow research to develop a better cognisance of their attitudes, their perceptions and their meanings to their home (or lack of), along with a stronger lens to view the structural causes and dominant discourses. Intrinsic to the concept, and the ongoing development of the housing pathways approach, has been the understanding of particular event history significant events that have shaped or changed the individual s/household s pathway. The changes can be for the good or bad, and the individual may be unaware of the significance at the time of occurrence. Here, the terminology has been much contested, all phraseology giving highly specific meaning to the event itself and therefore potentially prescribing an outcome. Turning point, epiphanies, career break, fateful moment these have all been used to describe the point (Thomson, et al., 2002, p. 337). Clapham (2005) describes a critical junction which fits well with the pathways metaphor. However, the term critical juncture, used often in social policy and housing comparative studies such as Stephens et al. (2010) (apparently first coined by Collier and Collier, 1991), more adequately describes the phenomena through both place and time. Contemporaneously, the theoretical is influencing policy framework, for example, Rugg s updating thesis of nine housing pathways which followed an analysis of changes in society and the economy since Ford et al. (2002) developed the housing pathways concept (Rugg, 2010). Further conceptualising Rugg s pathways, Clapham et al. (2012) have brought future insight into ongoing and prospective structural and social issues that may affect young adults housing pathways by They predict that 6,000 more young people will find themselves following chaotic pathways than in As well as offering much food for thought, these predictions based on empirical research further offer potential solutions for policy-makers. The influence of housing pathways as a conceptual tool has allowed a better understanding of housing through the life course. How circumstances, choices and constraints in early pathways may help or hinder prospects in middle or later life, for example, home-ownership and the potential benefits this may bring in later life through personal welfare (Ford, et al., 2002, p. 2456; McKee, 2012), and links with health and housing (Gibson, et al., 2011). Further, the housing pathways approach has influenced the debate of housing and its cost effects on poverty and potentials for the alleviation of poverty (Heath, 2008; Tunstall, et al., 2013; Stephens, et al., 2010; Stephens and van Steen, 2011; Clapham, et al., 2012). The housing pathways approach Housing pathways and the experience of poverty 19

20 has more recently been used to analyse categorical differences such as ethnicity (Netto, 2011), and sexuality (Heath, 2008), to better understand the processes that occur to potentially hinder the progress of these young people along the housing pathway. Operationalising pathways It is clear that people will experience a great many life events that might lead to changes in their consumption of housing, particularly when we examine a significant part of their adult life course. If we break down the consumption of housing such that it has a number of dimensions tenure, quality, neighbourhood quality, quantity then a substantial number of changes that are of potential interest will be generated (we refer to these as housing events ). Allowing life events and housing events to interact will reveal housing pathways. Yet it is clear that the number of such pathways will be large. It is also likely that the number will include some common/dominant pathways, and perhaps many less frequently observed pathways. Clapham (2002, p. 65) makes this point: Households will travel along a particular housing pathway over time. Sometimes the pathway will be a motorway and they will be travelling along with many others. However, there will be junctions at which choices have to be made and part of a journey could be along a small track not often frequented or even involve marking out a new trail. From this, it is also clear that individuals may transfer between pathways, and so it is important that an analysis of housing pathways does not overfit (in other words, what might be described as a set of three pathways might alternatively be defined as two pathways, with recognition that some households transferred from one pathway to another over its life course). On the other hand, we are seeking in this project to reduce the enormous detail contained within the British Household Panel Survey (BHPS)/Understanding Society datasets to a more manageable level of detail. Therefore a great deal of generalisation is necessary. Here, Clapham s (2002) original paper on housing pathways is useful because he sets out four factors that he argues are important to retain in any generalisation of individuals pathways: 1 Focus on meanings of pathways. 2 The characterisation of households as creative agents developing their housing experience through life planning and lifestyle choice. 3 The dynamic nature of pathways. 4 The importance of social practices and the factors that frame them. It is clear that factors 1 and 4 fall into the domain of qualitative research, and are the dimensions to be explored in the qualitative follow-on study to this initial quantitative project. However, factors 2 and 3 clearly require our analysis of pathways to consider, as fully as possible, the interplay between life events/demographic factors and housing consumption (including quality and locational choices), but taking into account other lifestyle factors such as labour market activity and other types of (non-housing) consumption. What will the housing market look like in 2040? 20

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