Income Inequality and Housing in the UK: Examining the Role of Income Inequalities and the Housing Problems

1. Income Inequality and Housing

1.1 Evolving role of Income in Homeownership in the UK

1.1.1 In the nearly 50 years that have passed since the Great Depression, there has been a repolarization of income and wealth (Mulheirn, 2019). Because of the extensive coverage that this topic has gotten for at least a decade, if not longer, it has been well researched, and there is a lot of controversy around it. It is astounding how little emphasis is placed on the very important issue of income inequality and how it affects housing in the UK (Edwards, 2016). In reaction to this, there has to be some kind of action done. A house is not only a smart investment but also a safe and sound location to call home. The first one offers assistance to families in meeting one of the most essential necessities, which is to have a roof over their heads. The second function addresses the topic of how acquiring wealth via real estate investment may be possible for the general public. The movement of the housing market is driven by a combination of two elements, none of which may seem to belong together at first glance. On the one hand, Gallent, de Magalhaes, & Freire Trigo (2021) observe that people buy expensive real estate so that they may provide their families a safe and comfortable place to live. However, it is difficult for those within the UK, especially those who live in metropolitan areas (Watt & Minton, 2016), to locate property that is within their income/wealth range. On the other hand, homeowners often spend a substantial amount of money improving and maintaining their properties (Bowie, 2015). Because of specific rises in property values in the area, they have seen a growth in their wealth over the course of the previous several decades. Ultimately, there is a gap in the housing market that emerges due to income differences amongst UK residents.

1.2 Housing as a Measure of Socioeconomic Status

1.2.1 Homeownership is the single most important indicator of socioeconomic status in the UK. Families with large disposable income have a more diverse assortment of assets, which may include cash from businesses as well as investments (Gallent, Durrant, & Stirling, 2018). On the other hand, the poorest households own almost nothing but real estate and have no material possessions whatsoever. The major source of wealth for the ordinary voter comes from their own place of residence. In point of fact, it has been an objective of state policy for quite some time to facilitate the process of citizens acquiring their own homes. It is often contended that possessing a home may improve the health of a family, help them plan for the future, and help them save money (Scanlon, 2017). These are all valid points. One of the most important things that can be done to assist homeowners is to provide the houses that they occupy with a more favorable tax treatment than property that is rented (Gallent, 2019). One way to accomplish this goal is to provide buyers with the opportunity to reduce their taxable income by deducting the interest they pay on their mortgages.

1.3 Why is there a relationship between income inequality and housing?

1.3.1 The accumulation of wealth via real estate is not always symptomatic of a problem. In many different ways, it has been an important factor in the movement for greater economic equality and the equitable distribution of wealth. The UK is now facing challenges associated with economic inequality as well as housing inequality. Both of these things, according to White and Nandedkar (2021), are interrelated and contribute to each other’s success. Because of the way in which their affects interact with one another, migration and socioeconomic advancement are both slowed down. As a direct consequence of this, the size of the whole economy decreases (Infranca, 2019). The second problem is the difference in compensation, or more specifically, the rising split between high-tech industries and high-skill employment throughout the nation. This is a problem across the whole country. These two aspects are contributing factors to the housing problem in the UK.

2. Social Construction and Framing of Income Inequality and Housing Issue in the UK

2.1 Government Framing of the Housing and Income Inequality

2.1.1 There is widespread agreement that the global housing market is experiencing an affordability crisis. Following the Global Financial Crisis, this situation worsened due to stagnant wages, rising asset values, and austerity policies that made housing less accessible for families with young children and low incomes. Despite the fact that housing affordability is an issue throughout England (Inch & Shepherd, 2020), the housing crisis in the UK is primarily discussed in relation to London and the South East due to the region’s astronomically high rents and home prices. Although housing affordability is a problem throughout England, the situation is particularly dire in London and the South East due to exorbitant rents and property prices.

2.1.2 Because of the word “crisis,” the state must act quickly, but what should the state do in response? Despite extensive research, there is no agreement among policymakers, lawmakers, and the general public about what causes the problem of unaffordable housing and what can be done to solve it. Some believe there is a housing shortage, blaming factors such as increased immigration, a lack of mortgage financing options for first-time buyers (such as the Help to Buy program), and wealth and income disparities (Iafrati, 2021). Others focus on housing availability, whether it is a shortage caused by zoning restrictions, the monopolistic practices of volume homebuilders, or a lack of new social housing due to government budget cuts.

2.2 Interest Group Framing

2.2.1 Given the competing economic interests at stake, the emergence of such ideological rivalry should not be surprising from a political economics standpoint. Nonetheless, there is significant variation across geography and time that cannot be explained solely by structural variables, despite the fact that such structural constraints undoubtedly limit narratives that have a high likelihood of gaining traction in public and political discourse (Brill & Raco, 2021). Furthermore, the specific social and geographic environment influences how structural forces manifest.

2.2.2 To better understand why some framings of the housing affordability dilemma are more prevalent than others, it is useful to examine the forces driving ideational change. Since the 1980s, think tanks in England have established themselves as some of the most important sources of information on public policy. Given their size, Raco and Brill (2022) presents that it is difficult to find another non-governmental organization that has had the same impact on English housing and planning policy. Lobbyists and organizations only have a few analysts who focus on housing and development issues (Lord Taylor of Goss Moor, Essex, & Wilson, 2022). Geographers and urban academics have largely ignored the long-term impact of think tanks on housing and planning policy in England. This has recently changed, as evidenced by the publication of several studies examining the strategies used by think tanks to influence housing policy. Although these publications shed much-needed light on the theories and viewpoints promoted by think tanks, they do not thoroughly investigate the factors that influence their operations.

2.3 Media Framing

2.3.1 Framing tactics enable the media to pursue chosen policy agendas under the appearance of pure scientific investigation by tying the facts to their preferred policy-agenda. For instance, highlighting issues relating to planning restrictions is meant to influence the perception of other stakeholders regarding relevant issues such as housing price inflation. This is accomplished by tying the data to their chosen policy goal (Ferm et al., 2021). Additionally, it enables the media to do it in a way that is very compressed, which helps them survive in the general scholar debates and political spheres, where there is fierce rivalry for people’s attention (Clifford & Morphet, 2022). But because of these framing strategies and the structural logics they adhere to, causal narratives start to rely more on politics and theoretical impressions rather than factual concerns. The decision of which cause to highlight is made based on both the perceived short-term feasibility of the policy solutions that flow from it and the explanatory power of that cause.

2.3.2 Framing techniques by the media can make the debate more and more reductionist. Instead of respectfully debating alternative causal explanations and policy recommendations, there is a tendency to simply exclude them from the media and political discourse by repeatedly using the same frame to grab the attention of the general public and decision-makers. This is done rather than respectfully debating conflicting causation hypotheses and policy recommendations. Recently, Lima (2021) claimed that the debate around the English housing crisis was harmed by opposing simplifications presented in mainstream media. The end result of this is that competing simplifications weaken the argument for or against the housing crisis in the UK and how it is affected/affects income inequality.

3. Extent and Nature of Income Inequality and its Causal Relationship to Housing

3.1 The UK is now undergoing a housing crisis as a result of a shortage of sufficient homes and rising rents and property prices. The situation has deteriorated significantly as a result of the crisis in Ukraine and the COVID-19 pandemic (Clifford & Madeddu, 2022). A distinction is frequently made in discussions of inequality between inequality of outcomes (as measured by income, wealth, or expenditure) and inequality of opportunities, which is attributed to variations in uncontrollable circumstances such as gender, ethnicity, place of birth, or family background. This difference is made because characteristics such as income, wealth, and spending may contribute to disparities in results. Diverse variables, such as discrepancies in opportunity, as well as individual efforts and aptitude, all contribute to the unequal distribution of outcomes (Brill & Raco, 2021). Similarly, it may be difficult to separate the ideas of opportunity and effort, especially when considering the relationships of various generations. For example, the amount of money parents earn from their own employment is an important element in influencing the chance that their children will get an education. To understand the nature and extent of global inequality, a multidimensional approach is necessary, one that considers both the distribution of opportunities and the distribution of outcomes.

3.2 A certain level of inequality may not be a problem since it motivates people to work hard, compete with one another, save money, and invest in order to grow in their professional and personal life. Even though returns on education and labor pay are associated with higher levels of income inequality, they may drive the accumulation of human capital and economic progress (Gallent, de Magalhaes, & Freire Trigo, 2021). Inequality may also benefit economic development by stimulating innovation and entrepreneurship and, perhaps more crucially for developing countries, by enabling at least some people to collect the basic minimum of wealth necessary to begin enterprises and pursue a high-quality education.

3.3 Wide and persistent differences in wealth, income, education, and other dimensions of opportunity have the potential to be very harmful to society. Individuals’ educational and professional selections might be greatly influenced by an established gap in performance. Furthermore, if based on rents, outcomes inequality does not provide people with the “appropriate” incentives. People have an incentive to focus their efforts on obtaining preferential treatment and protection in such a situation, which encourages resource misallocation, corruption, and nepotism, all of which have negative effects for society and the economy (Gallent, de Magalhaes, & Freire Trigo, 2021). People, in particular, may lose faith in institutions in which they previously put their trust, undermining community cohesion and optimism for the future. The significant surge in home prices in the United Kingdom sparked the global financial crisis that followed the collapse of the American corporation Lehman Brothers. Lenders in the UK dramatically decreased lending and withdrew hazardous mortgage products from the market (Brill & Raco, 2021). When a result, acquiring a mortgage became considerably more difficult, particularly as the economic crisis damaged people’s work and financial situation. As the supply of social housing shrinks and mortgage rates rise, a growing proportion of people are forced to remain in the private rental market. The proportion of properties occupied by their original owners began to diminish.

Source: Adapted from White and Nandedkar (2021)

In 2018, there were 135,990 newly constructed residences in the UK, which is the lowest amount since 1946. The amount fell even further to 135,590 in 2013. But as the population of the area grew, so did the need for houses. The Gini coefficient is a statistic that may be used to assess how income disparity impacts the pace of economic development and its ability to be maintained. It is equal to zero when everyone gets the same amount of money and one person earns all of it (Gallent, de Magalhaes, & Freire Trigo, 2021). As inequality increases, low-income families find it more challenging to maintain their health and accumulate physical and human capital, which impedes economic growth (White and Nandedkar, 2021). For instance, less money may be spent on education since underprivileged students are more likely to attend poor schools and are less likely to complete their education beyond high school. Worker production may be less than it would have been in a more fair society as a consequence (White and Nandedkar, 2021). According to Clifford and Madeddu (2022), intergenerational mobility is projected to be worse in nations with more economic inequality. This is so because parental income has a greater impact on children’s wages. The reduction in aggregate demand due to increased income concentration may impede economic development. This is due to the fact that persons with high salaries spend a smaller percentage of their income than those with low and moderate incomes.

Adapted from: White and Nandedkar (2021)

Due to years of social housing being sold off and more than two decades of a property market that has been driven by low-cost borrowing, households that do not own homes have found themselves in a difficult position. Saving enough money to pay for a mortgage, which has a smaller monthly payment, may be challenging when rentals are high (Gallent, de Magalhaes, & Freire Trigo, 2021). Another significant concern is income inequality. Some individuals may find it challenging to ever accumulate enough money for a mortgage deposit at a respectable level due to skyrocketing housing prices. Low interest rates make real estate more enticing to investors and make it simpler for buyers who can afford a substantial down payment to acquire that money, but they are of little use to individuals who are saving money for a future purchase.

4 Theoretical Interpretations of the Causal Relationships

4.1 Theoretical Overview

4.1.1 Increasing numbers of people concur that housing expenses in the majority of Western countries are too costly. In many regions, it is far more expensive to build extra homes than it is to construct a new one. People who make more money often migrate to metropolitan regions (Brill & Raco, 2021), where they spend a portion of their increased income on housing and rent that is more expensive. People have been able to bid up home prices as a result of better access to credit and lowering interest rates (Clifford & Madeddu, 2022). These two variables lead to reduced interest rates on loans and profits on other investments. If wages rose and interest rates fell, the supply of most goods would rise, especially expensive, long-lasting things like ships and aircraft. This would prevent the price from being artificially maintained at a high level. However, the supply of housing in and around a number of densely populated locations has been unable to keep up with demand.

4.2 Housing Theory

4.2.1 Over the last 40 years, the affordability of housing has become worse, and this has coincided with the growth of the intangible economy. The transition away from physical capital and toward software and intellectual property is referred to as the intangible economy. A middle-class family in the US or the UK in the 1960s may only have one income yet still be able to purchase a decent home (White and Nandedkar, 2021). We have to either construct new homes or cram more people into the existing ones when more people want to reside in a certain region, which drives up the cost of living. In Western cities that are in great demand, all of these forces are in play (Clifford & Madeddu, 2022). Only a small portion of London’s residences are empty right now since it is more expensive to leave things unattended.

4.2.2 Price increases over the prior 40 years point to a shortage of homes. The average price of a home in England has increased by 706% since 1980 (Gallent, de Magalhaes, & Freire Trigo, 2021). Prices in Ireland, under the same report, have increased by almost 800 percent over that period, mostly in Dublin. Since rents aren’t directly impacted by interest rates, they exhibit comparable patterns but are less obvious (White and Nandedkar, 2021). When compared to developing new homes with the same specifications, these costs range from two to four times more. This discrepancy between construction costs and home values serves as a stand-in for new development restrictions.

4.3 Conclusion

4.3.1 The current research has shown how the movement of the real estate market is caused by the interaction of two forces, none of which would first seem to go together. To provide their family a safe place to live, people invest a lot of money on real estate. However, it could be difficult for individuals in the UK to locate real estate that is affordable, especially if they live in metropolitan areas. On the other hand, homeowners often spend a significant quantity of money improving and maintaining their homes. They have seen a rise in their wealth over the last several decades as a consequence of specific increases in local property values.

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