Can people who work afford a home?
Did you know that over 290,000 households faced homelessness in England over the last 12 months? And that around a quarter of people who approach their local authority for assistance are actually in full-time or part-time work?
People working for low wages struggle to pay high private rental costs, showing that work does not inherently prevent homelessness. Crisis along with our partners at Zoopla released some research in July which showed that if you’re in receipt of some form of housing benefit only around 4% of England’s private rented sector is affordable to you. And in some parts of England, there are no affordable properties at all with the cost of rent outstripping incomes.
One of our central aims at Crisis is looking at how we can end homelessness with homes and make sure that the housing is good quality, affordable, and in places where people want to live.
While we campaign for commitments from all parties for a cohesive, long-term strategy on housing and homelessness, we also need bold and ambitious approaches to solving these complex issues in the here and now.
The panel
On Wednesday 5 July, Venture Studio from Crisis, in partnership with The House of St Barnabas, hosted a debate entitled: ‘Can people who work still afford a home?’.
Chaired by Francesca Albanese, Director of Policy and External Affairs at Crisis, the panel explored the reasons why people in work could not afford their home and innovative solutions to address this.
And demonstrated how the energy of founders, venture capital and bold, ambitious ideas is already and will continue to have an impact on the UK housing crisis to end homelessness.
Reasons housing is not affordable for people in work
- Problem debt
This is one of the things that contributes massively to homelessness in the UK. Research from the charity StepChange concluded that problem debt in the UK costs the economy around £800 million per annum. That’s the cost of people losing their homes, having mental and marital breakdowns, and job losses. This is the problem that Raza Ullah, Founder and CEO at Pfida, wanted to solve when he set up his company.
Sarah Wernér, Co-Founder and CEO at Husmus confirmed that there’s a huge mental health toll when you have financial difficulties that a lot of people just gloss over. And there is a significant relationship between financial stability, feeling safe in your home, and health outcomes.
There’s a reason why people who are on the extreme end of homelessness have significantly lower life expectancy. She felt that the combination of the work Crisis and Pfida are doing is completely changing health outcomes as well, which is really important.
2. Lack of housing supply and money supply
Raza went on to say that one of the reasons houses are so expensive is scarcity, which results in house prices being inflated. The second reason is money supply. When banks lend on mortgages, they leverage your money. Say you put £100 in your bank account; the bank lends up to £98 of your money on its mortgage portfolio.
Whilst you still own the £100 in your bank account, someone else now has £98 to buy a home with, so the bank has printed £98. This effectively increases the money supply in the economy, which increases housing demand and creates inflation. So, it’s the leveraged economy that results in house prices being as high as they are.
Countries like Turkey don’t have this problem, as few people have mortgages, which means homes are more affordable. Therefore, people can save up to buy a home outright.
“50% of people that currently need to move house are having to cut back on the basics such as clothing and food to do so. The UK is one of the top 10 economies in the world and this has become normal.”
3. Why temporary accommodation is unaffordable
Ceri Sheppard Director of Impact at House of St Barnabas, shared some research they had done recently with London Housing Foundation, which found that of the five biggest providers of hostels and supported housing, the most frequent figure cited for the percentage of people in work was 5%. Most of those 5% were in part-time work or very part-time work (four-eight hours per week).
This is because providers of temporary accommodation and hostels can charge higher rents for the additional services and accommodation that they offer, which is supported by an increased rate of benefits and/or universal credit. But as soon as somebody starts working, those rents quickly become unaffordable for people living there.
This is the reason that one of the areas Crisis focuses on is ‘general needs’ housing, preferably through a significant increase in the supply of housing at social rent levels. Or, failing that, through ensuring that a sufficient proportion of the private rented sector is affordable for people on the lowest incomes, whether they are in work. i.e. no higher than relevant Local Housing Allowance rates.
We talk quite a lot about the affordability of housing generally, rents in private sector or buying, but something that isn’t always talked about is how unaffordable rents are in the very services that are there to support people to move on. For example, hostels and supported temporary accommodation.
It means there is a baked-in incentive within those services doing much needed supportive work with people, to discourage work. And in fact, the ideal tenant for many forms of temporary accommodation is someone who is likely to need support via the benefit system over the long term.
Francesca confirmed during the event that nearly 100,000 households are in some form of temporary accommodation in England — the highest it’s been in 18 years — and that includes 125,000 children. So, there’s got to be solutions which moves people out of temporary accommodation quicker and technology that can improve housing for people on low incomes and people working. Especially as the number of households in temporary accommodation continues to rise.
4. Homebuying red tape
This was echoed by Luke Graham, Head of Research at Pi Labs. He suggested a two-pronged approach was needed.
- The kind of interventions that technology can play in the private market that influence the social housing sector as well.
- How social housing can deploy technology when margins are tight.
His research paper entitled: The Impact of Homebuying Red Tape on the Supply of Rental Homes in England talks about a really basic equation called Little’s Law, which measures inefficiency and waste in a queue. This is used in manufacturing. The longer it takes to build something, the more inefficient that process is.
“His research identified that if it takes, say, one month longer to sell a house across England on average, that is 54,589 homes permanently withheld from the private rented sector every month. When that increases to two months, that’s 109,178 homes, just in England and Wales.”
In this analysis, he details his calculations and shares how tech can help increase the availability of private rented homes in England (and by extension, across the UK). And given the worsening housing crisis across the UK, tech solutions aimed at reducing delays to the homebuying process are becoming increasingly necessary.
He goes onto say that the key question that we then have from the tech lens is what interventions can be applied to each of the stages of the home selling process to have much less pressure on the social housing sector.
The transformative power of startups
The panel then moved onto discussing existing solutions and opportunities provided by startups in this space.
- Debt-free home ownership
Raza tackles this question by addressing home ownership. He explained how Pfida’s model is different to traditional banks and building societies. A bank will lend money to the customer and then take a legal charge over the home, what his company does is buy the property in partnership with the customer.
This means the customer doesn’t owe Pfida anything. There’s no debt. They are simply joint owners in the property. They don’t have to buy Pfida out if they don’t want to, although if they wish to, they can. This grants their customers enormous payment flexibility, and empowerment via their app, which allows customers to self-serve.
Benefits of Pfida’s home ownership product:
- Empowerment to control finances via self-serve app
- Flexibility to change payments, according to need
- Ability to rely on universal credit
- No penalties or fees
The customer rents the share of the property that they don’t own and that’s their only obligation. It’s a simple lease agreement. They can set up a target to purchase their home over a period of time and that’s entirely up to them. They may choose to just rent. But if they do want to fully own it, Pfida helps them to work out how much equity they need to buy every month to achieve full ownership by the end of that term.
So they’ve empowered customers with the information on the dashboard to make the best financial decisions and given them the flexibility to be able to move their payments up and down according to their needs. And what they have found since they have been doing in business in earnest since 2019, is that they have a specific focus on helping the most financially excluded in society.
And this helps to eliminate the poverty premium. Whereas banks charge more to people who earn less, Pfida actively subsidises people who earn less. Despite this, they have never had a single default. Most banks will reserve about 5% bad debt per annum for the average customer and it may be more depending on the customer’s background.
“Pfida have never had a single default because their customers have so much flexibility and breathing room in their payments.”
They also have an equity buffer. As customers buy equity in the home, they actually get share certificates proving ownership in the home. If a customer loses their job and can’t afford to pay their rent, they can fall back on this buffer, where they can actually trade equity with Pfida.
For example, if they owe £600 of rent, they can simply give back £600 pounds of equity and they’re not in default. They’ve covered their rent.
“What really sets Pfida apart is this flexibility and financial empowerment that helps customers to genuinely be able to afford to climb the housing ladder in a way that is completely free from the shackles of debt.”
Raza shared a very powerful example. One of their customers — a taxi driver — was in financial difficulty due to ill health and needed to continue supporting his family. They were able to use Pfida’s equity buffer and maintain their home, while also relying on universal credit. There were no penalties or fees or embarrassing conversations as they were able to self-serve through Pfida’s app. With Pfida’s focus on partnership, rather than debt-based home ownership, this person was empowered to control their finances without having to worry about the roof over their head.
If they had had a debt-based mortgage, they would almost certainly have lost their home.
2. Personalised home-related insurance, based on track record
Sarah went on to discuss how her company, Husmus, is helping to make homes more affordable and tenancies more sustainable. “There’s a huge amount of bias in the system. So, the first step is looking at tenants in a more inclusive way.“
Instead of focusing on people having a nine-to-five job, for example, we look at tenants having an income source. And that income source could be pensions, a student loan, benefits, as long as you have a regular income source.
Husmus’ primary product is a risk classification engine that enables tenants to access homes based on their track record, not their credit scores or chosen profession or lifestyle. All of their insurance products have been designed to drive housing access and financial inclusion.
“So Husmus is changing the way that people think about tenants — is a doctor different to a teacher? To an Uber driver? To somebody who’s receiving a pension? Step one is to make people change the way they look at people and we’re just creating tech that allows people to do that on a massive scale.”
Step two is about making things affordable by reducing moving costs — like a five-week deposit — and turning it into policy that mimics what house insurance protection gives you. And as a tenant, you also get the kind of insurance backing that an insurance company would give a homeowner.
3. Supportive Employers
Ceri built on this by sharing that they have come across quite incredible employers — many employers that really understand some of the challenges and difficulties that people have in terms of working and paying their rent.
Some of the things that employers can do are making sure that people have predictable hours and pay, and enable flexibility where that’s needed. For example, people might get a few hours notice for a housing appointment. If they miss it, that’s the offer gone, literally. Some employers offer schemes where people can draw down their salary ahead of time. Understanding these needs and providing flexibility to employees is crucial.
However, this doesn’t address the underlying problems in the rental market. And means there’s also a limit in terms of what an employer can or should do in terms of housing.
We’ve had Housing First, what about jobs first? Where people are getting the work and then the housing. We’ve heard some solutions here that could really work with a jobs first approach, getting people into the housing that works with their job.
This is one of the reasons Crisis will be launching the Homelessness Covenant on 14 September 2023. The covenant will enable employers to support people facing or experiencing homelessness, by creating employment opportunities, adopt fairer policies and practices for existing and future employees, and end homelessness on a wider and broader scale.
Francesca reiterated the need for stable, well-paid jobs, along with low rents, affordable housing and housing stability and both things need to happen at the same time.
4. Support founders and entrepreneurs continue to generate solutions
The panel moved onto discussing advice for founders and entrepreneurs to support creating more solutions in this space.
Not every source of capital is equal.
Luke make a great point — one they they reiterate with a lot of the companies they deal with — which is that not every source of capital is equal. PiLabs specialise in the built world, which touches on property tech, construction tech, and a lot of the things that have been talked about today. But it doesn’t necessarily mean that any particular venture capitalist in that space is relevant for every company in that space.
As an example, your company might be better aligned with a philanthropy type venture capitalist or having a partnership with a real estate company. Or you might be best aligned with PiLabs or to a solution that could be applied to the housing crises of different levels of severity around the world.
Pick the right partners
Sarah went on to say that there are a few companies out there that are built with impact in mind, who want to change something about the way the world works. And improve the world for their customers.
When you are an impact first company, it’s important to pick the right partner. And thankfully there are more and more investors like the Venture Studio from Crisis who are focused on creating a positive impact in the world and improving the way we all live.
If you’re a company who puts impact first, then please get in touch with us.
Reframing the role of investors in non-financial return
Luke said that in the last three or four years, there’s been a positive reframing of the role of investors and non-financial return. PiLabs have recently made an investment in a company that measures non-financial return — watch out for the report coming soon on their website.
Conclusion
Although there are big challenges that have been discussed on this panel, there are also some really easy quick wins that are so clear and obvious that one or two startups, three or four startups at scale could really solve some of those problems.
Let’s sort out the inefficiencies with underutilised housing. As was mentioned earlier, for every month of homebuying red tape in England, there are 54,589 homes that aren’t put to use in the private rented sector. It’s really easy to solve this.
We’ve seen two examples of very innovative and straightforward solutions that apply tech to the challenges around the quality of housing, ability to buy a home, and looking at tenants in a more inclusive way.
Thank you
We want to say a huge thank you to our wonderful panelists and everyone who attended. We loved speaking with you all.
We’re actively fundraising for our £20million philanthropic venture fund to continue to invest in ventures to end homelessness. If you’d like to know more about our work and how to support it, please reach out to Sarah Hopley, Venture Studio Manager.
