Thursday, 8 October 2026
Britain’s cost-of-living crisis is increasingly becoming a housing affordability issue as five years of elevated inflation leave households with less financial capacity to absorb rents, mortgage payments and everyday property costs. New analysis from the Resolution Foundation estimates that typical disposable income among non-pensioner households will be around £2,900 lower in 2026-27 than it would have been under a lower-inflation economic path, equivalent to a 7.9% difference.
The pressure has accumulated rather than disappearing as headline inflation has moderated. UK consumer prices increased by 28.4% between July 2021 and July 2026, following successive shocks from post-pandemic disruption, the European energy crisis and renewed pressure on global energy markets. The increase was greater than the corresponding rise in consumer prices in both the euro area and the United States over the same period.
The effect on housing is visible among both tenants and homeowners, although it has reached them through different channels. Renters have had to accommodate higher housing costs alongside increases in food, utilities and other essentials, while mortgage borrowers have gradually been exposed to higher financing costs as fixed-rate loans have been refinanced. The report identifies 2023-24 as an especially difficult period for middle-income households as earnings failed to keep pace with prices and mortgage costs increased.
Financial stress among lower-income tenants remains particularly pronounced. The proportion of lower-income renters behind with rent increased from 11% in September 2020 to a peak of 24% four years later. It remained at 22% in March 2026, suggesting that the improvement in inflation from its earlier peak has not translated into a comparable recovery in tenants’ household finances.
Energy costs have intensified the affordability problem because the expense of occupying a home extends well beyond rent or a mortgage. During the worst period of the energy crisis, households were spending 57% more on gas and electricity in inflation-adjusted terms than before the pandemic even though they had reduced consumption. By early 2026, expenditure remained 4% above the 2017-19 average in real terms despite households continuing to use substantially less energy.
Lower-income households have had less room to absorb these increases because essentials account for a larger proportion of their budgets. Food and household energy represented 22% of costs for households in the lowest income tenth compared with 12% for those in the highest. Excluding housing costs, the lowest-income tenth consequently experienced an average annual inflation rate of 4.9% between December 2019 and June 2026, around 0.7 percentage points above the wealthiest tenth.
The prolonged squeeze is also weakening the financial buffers households can use when housing costs increase unexpectedly. Savings accumulated by some lower-income families during the pandemic have partly been depleted, while arrears on essential bills have increased. Among Citizens Advice clients carrying energy debt, the average amount owed reached £1,980 in the third quarter of 2026, 78% higher in real terms than the 2019 average.
The impact reaches well beyond the lowest earners. Resolution Foundation modelling indicates that households across most of the income distribution have lost between 5% and 8% of the income they might otherwise have had by 2026-27. Although higher-income households have experienced larger losses in cash terms, the estimated proportional effect is almost identical between the upper and lower halves of the income distribution, at approximately 7%.
Weaker purchasing power rather than housing costs alone explains much of the deterioration. For middle-income households, real net earnings are estimated to be around £2,700 below the level expected under the report’s alternative economic scenario. This matters for residential markets because affordability ultimately depends on the relationship between housing expenditure and disposable income rather than movements in rents or house prices viewed separately.
The findings suggest that the legacy of the inflation shock could remain relevant to the residential market even if annual inflation continues to decline. Prices do not return to their previous levels simply because the inflation rate falls, while depleted savings, accumulated arrears and refinanced mortgages can continue affecting households for years. For landlords and residential investors, this increases the importance of tenant affordability and income growth when assessing sustainable rental increases; for developers, it places greater emphasis on the monthly cost of buying and occupying a home rather than its headline selling price.
Britain’s housing affordability debate is therefore becoming broader than the traditional questions of supply and property values. The combination of a permanently higher price level, weaker real incomes, elevated financing costs and pressure on household balance sheets is changing what tenants and buyers can realistically afford. The Resolution Foundation’s analysis indicates that the central legacy of the past five years may not simply be that housing became more expensive, but that households entered the next housing cycle with substantially less financial capacity to pay for it.
