Sky-high rents mean ageing tenants 'won't be able to retire' – adding billions to the benefits bill
The Office for Budget Responsibility has predicted the 1.2 million extra pensioners will be privately renting by the 2040s and it will cost the Treasury an extra £2bn a year
Around half of private renters won't be able to keep up their living standards when they retire while a quarter are set to fall below minimum living standards, according to Department for Work and Pensions estimates. Image: RDNE Stock Project / Pexels
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Pensioners stuck in the private rented sector risk not being able to retire with the ageing generation rent posing a threat to the UK economy.
That’s the assessment of the Office for Budget Responsibility (OBR) as it warned the UK economy is in a “particularly vulnerable” a state after a series of major global economic shocks in recent years, ranging from the impact of Covid to the cost of living crisis.
The OBR also warned that the ageing population forced to rent privately also poses a fiscal problem for the Treasury.
The independent finance body said private renters are more likely than average to have inadequate retirement incomes and there is set to be a surge in pensioners renting privately, up 1.2 million people from 6% today to around 17% in the 2040s.
“Everyone needs a safe affordable home. So, it’s very welcome that the OBR has recognised the runaway train of retired private renters that is heading down the track,” said Dan Wilson Craw, deputy chief executive at Generation Rent.
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“Many middle-aged renters now have very little chance of buying a home before retirement. They’ll either face eking out their meagre pensions to stay on top of the rent, possibly even delaying their retirement, or need housing support, putting greater pressure on public finances, with billions of pounds of public money already being swallowed up by landlords each year.
“All renters need limits on rent increases, but they would particularly help retired renters manage their fixed incomes. Now is also the time for the government to figure out how to get older renters into lower cost housing, whether that’s home ownership or social tenancies. We hope their forthcoming housing strategy will heed the OBR’s warnings.”
How much does private renting cost the government?
That has seen the government face a big housing benefits bill to help people afford it.
Housing secretary Angela Rayner told MPs on the Housing, Communities and Local Government Committee on Tuesday (8 July) that the government is spending £34bn a year on housing support.
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Around £12bn of the total is related to the private rented sector, Rayner added.
What does the ageing population mean for the government and for renters?
The government is already facing limited fiscal headroom while attempts to make savings through cuts to the winter fuel payment and disability benefits have been met with stiff resistance and U-turns.
An ageing population promises to push public finances even further.
The OBR found the triple lock, which guarantees that pensions increase by whichever is the highest out of average earnings, CPI inflation, or 2.5%, has already cost three times more than originally forecast over the last two decades due to inflation and volatility.
In the private rented sector, falling homeownership rates mean more future pensioners are likely to rent, the OBR said.
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Estimates from the Pensions Policy Institute found an extra 400,000 people aged between 45 and 64 years of age today are likely to be eligible for pensioner housing benefit in the 2040s, leading to an additional bill of £2bn a year.
With housing assets a key factor in determining eligibility for state support for social care costs, the growing number of pensioners forced to rent could also have other indirect fiscal costs.
It could also mean that some private renters are not in a position to retire.
OBR noted that estimates from the Department of Work and Pensions show almost half of private renters will fall short of target replacement rates, which allows people to keep up their working-life living standards when they retire.
A quarter will fall below the minimum living standards benchmark, the government department estimated.
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Morgan Vine, director of policy and influencing at Independent Age, said: “We regularly hear from people in later life living on a low income who are forced to take extreme measures in order to pay their rent. This can include skipping meals or limiting water use by not flushing the toilet.
“As the number of older renters increases, so too will the levels of poverty in later life, as high rents leave people with less income to live on. Research we commissioned shows that older people being left to survive on low incomes has a direct cost to the individual, the NHS and the social care system. That’s why ensuring affordable housing for renters of all ages, including older people, is absolutely essential.
“With the number of older renters rising, it’s vital that the UK government acts quickly to pass the Renters’ Rights Bill in full. This legislation would provide renters of all ages with much-needed protections against unfair eviction and excessive upfront rent payments. Governments across the UK must also make sustained and significant investments in social housing, to ensure affordable and secure homes for renters in later life.”
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