Issues in the treatment of housing costs in poverty measures Mark Stephens, Chris Leishman, Kirsten Besemer

Introduction Three principal measures of poverty/ deprivation: 60% median income Direct measure of deprivation (PSE) Minimum Income Standard (JRF)

Treatment of housing costs Before and After Housing Costs – Cannot impute a standard housing cost – Actual housing costs do not account for: Poverty induced by voluntary overconsumption of housing Poverty avoided by underconsumption But accepted that poverty means having sufficient income remaining after meeting necessary housing costs to avoid non-housing poverty.

Aims  to identify a satisfactory ‘monetised’ poverty line;  to use it to identify BHC and AHC poverty rates; and  to identify those households whose poverty is induced or by voluntary or involuntary housing overconsumption; and those for whom AHC poverty is avoided by housing underconsumption.

Non-housing poverty line Estimated on basis of people ranked as being deprived using PSE data Lacking 3 or more (non-housing) items that are judged to be necessities by more than 50% of people. Logit model used to identify poverty line for 17 household types Prediction of poverty not as strong as we would like, & we will develop further using better spatial/ location variables.

Note on housing costs We depart from DWP’s HBAI in 2 ways: Mortgage repayments Treatment of HB

Overall Poverty Rates

Over/ underconsumption More than 70% agree (going back to 1983) that every child of opposite sex aged 10 or over should have 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; but it is acceptable for children of same sex to share (up to a given age, which we have set at 18 ); and for children of opposite sex to share up to age 10.

Extent of over/ underoccupation Of those in AHC poverty, the following %s are: Underoccupying: Overoccupying: 60% AHC: 62%8% PSE-est AHC: 52%9% PSE-direct:56%8.5%

Poverty caused by Overconsumption Overconsumption: poverty which is induced by a household consuming more housing than is required when cheaper adequate alternatives are available. It is the “excess” housing consumption that takes the household into non- housing poverty. The value of overconsumed housing must be sufficient to lift the household out of poverty AND cheaper alternatives must be available, so that the condition represents a choice.

Voluntary over-consumption Measure: (i) Household is underoccupying property, and (ii) Household income is above the non-housing cost poverty line, and (iii) Household income is below the after housing cost poverty line; and (iv) Household income is less than x 1 below the AHC poverty line, i.e. an even lower income level. Explanation: (ii) + (iii) poverty must be induced by housing costs (iii) a household which is taken a long way below the non-housing poverty line is likely to have overconsumed housing out of necessity (lack of affordable alternative) (1) We have used 10% and 20%

Extent of voluntary overconsumption 10% margin:20% margin: 60% AHC:0.3%0.4% PSE-est AHC:2.2%4.6%

Poverty avoided by Underconsumption Underconsumption: poverty is avoided by a household consuming LESS housing than is required. If housing consumption were increased to an adequate level, it would have the effect of placing the household in non-housing poverty.

Underconsumption Measure (i) Household is not in AHC poverty (ii) Household is overcrowded (iii) Household income is no more than x 1 above AHC poverty line Explanation: (ii) Is self-explanatory, but in itself does not tell us whether poverty was avoided by underconsumption of housing, i.e. is only a necessary condition (iii) This increases the probability that AHC poverty was avoided by low housing costs. (1) We have used 10% and 20%

Extent of poverty likely to have been avoided by underconsumption 10% margin:20% margin: 60% AHC:0.23%0.4% PSE-est AHC:0%0%

Conclusions Work to do on: – Improving model – Refine definitions – Refine measures