Going spare: How to deal with under-occupancy

Matt Hutchinson

The UK is in the grip of a housing crisis. This is nothing new; over the course of the second world war the UK lost almost half a million homes to a combination of the Blitz and doodlebug attacks. Add to that six years’ missed construction and an existing deficit of a further half million homes carried forward from 1939 and demand quickly outstripped supply. The answer, of course, was to build more homes.

Today, building our way out of the current crisis is the only sensible long-term solution, but it’s one we’re struggling to get to grips with. Housing is, by its very nature, a complex dance between public and private sectors, local and national concerns, economics and emotion. Yet 1940s Britain understood this and found a solution that relied far less on new builds and focused on existing stock – lodgers. It’s a solution we can turn to again.

Homeowners are sitting on an estimated 15 million spare bedrooms in England alone. Under-occupancy amongst homeowners stands at 49 per cent, compared to 10 per cent in the social sector and 16 per cent in the private rented sector. If we free up just a fraction of these rooms we’ll have affordable accommodation for hundreds of thousands without having to lay a single brick.

We even have an incentive in place to encourage just that. The Rent a Room Scheme, introduced in 1993, offers a tax break to anyone renting out a room in their home. The current threshold of £4,250 was put in place in 1997 and hasn’t been revisited since. In that time room rents have risen by 103 per cent.

The average UK rent for rooms let to a lodger is now £5,593 a year (£7,667 in London). If the incentive doesn’t keep pace with the market it quickly ceases to be an incentive. By increasing the threshold to £7,500 a year we’ll open up one of the biggest sources of unused housing in the country.

An increase to the threshold would also have wider-reaching benefits. Renting out a room is the single most effective way for homeowners, and many tenants, to generate extra income and deal with the cost of living crisis. It also helps combat the threat of repossession. When interest rates rise – as they eventually must – repossession will become a real threat.

More people renting out rooms means a supply of affordable accommodation, largely for the younger generation, but also for the increasing number of 40- and even 50-somethings who can’t afford to rent on their own. With ownership drifting out of the reach of millions we have to provide suitable, affordable alternatives.

There are secondary benefits to the environment and the economy. Two people living together have a 40 per cent lower carbon footprint (per person) than they would living separately; this rises to 59 per cent for people sharing a five bed house. London and the South-East face acute shortages of affordable housing and businesses are struggling to recruit in these areas. Increased supply keeps rents down and enables people to live where jobs are being created. 80 per cent of all new private sector jobs created from 2010-2012 were in London.

We need to build many more homes, but we also need to become more efficient at using the housing stock we have. The argument is simple – increase the Rent a Room Scheme threshold so it reflects the market it operates in and encourages lodging as a serious housing option.

Matt Hutchinson is director of SpareRoom.co.uk


  1. Anthony Sperryn

    I can’t write a lot on this topic at the moment, but for a person to let a room in his own house, there is the issue, which I can most succinctly describe as the two-for-one problem, which we all perhaps need guidance on. This also arises in tenancies. I apologise if the matter is covered in the website, which I haven’t yet searched.

  2. Katherine Read

    In my case the rent a room relief is a benefit to potential lodgers as I would never have let my room without it. I am a homeowner with a relatively low income (standard rate of tax with no other income to declare). I would never have let a room if I had had to keep details of individual expenses to declare. Until very recently I kept below the limit just to avoid the hassle of paying tax on it. However the single landlord loses out as we are not allowed to offset the additional cost of arising from the loss of council tax discount. I don’t think it needs to go up as far as 7K but 5.5-6K would be perfectly acceptable.

  3. Matt Hutchinson

    Hi Dan,

    Thanks for your comments.

    I agree this won’t solve the housing crisis – only building will ultimately do the. The problem is, even if we start building 300,000 new homes tomorrow – which we won’t – it’ll take years to address the issues. This could make a useful difference.

    We’ve put in an FOI request asking the following:

    - How many people annually take advantage of the Rent a Room Scheme
    - How much revenue was earned annually by HMT in the past two years from homeowners taking in lodgers and declaring income above the £4,250 Rent a Room scheme threshold
    - How much of this came from taxpayers declaring less than £3,250 income from taking in a lodger above the Rent a Room scheme threshold
    - The average cost of processing a self-assessment tax return

    It’ll be interesting to see what comes back.

    On your point about getting a fair deal from the Treasury for people who choose to rent out a room in their home – this has to form part of the argument as we can’t force people to rent out their rooms. In order for the incentive to work, it must represent a fair deal. People won’t take in lodgers out of social obligation.

    Thanks again for a constructive response.


    • Dan Filson

      I cannot see the point of the last question – if people register and rrturn online it is of very low administrative cost (to HMRC, at any rate), but paper returns obviously have handling costs. It’s a pity the questions were not formulated as I gave them, as this would get the HMRC analysts working to provide the information which might enable a considered evaluation of the effectiveness of R-a-R either as at present or with a revised figure in addressing the housing crisis. Some regional differentation might also inform us greatly. It may be that in some northern towns an uplift would make a great difference (I can see university towns benefitting from more cheap student accommodation becoming available) but in London I do wonder if R-a-R is the answer.

  4. Dan Filson

    I’ve dwelt for some time on this issue and am puzzled as to why this has not increased.

    Reading the site Spareroom.co.uk’s pages “increase the Rent a Room Scheme threshold” to which the link is given, it is clear it is at least as much about getting “a fair deal from the Treasury for people who choose to rent out a room in their home” as relieving the housing crisis, if not more so. The author is, no disrespect, effectively a lobbyist for landlords.

    But do the maths. To increase £4,250 to £7,500 is an increase of £3,250, which for a current landlord is worth nothing at all to a non-taxpayer (yes, there are freeholders with tiny incomes but under-occupying their houses), £650 if a standard rate taxpayer, £1,300 for a 40% rate taxpayer and £1,462.50 to a 45% rate taxpayer. Are those savings in tax sufficient to induce landlords to continue with letting a room to a lodger with all the inconvenience that is involved? Indeed is £7,500 @ 20% = £1,500 sufficient to induce a standard-rate raxpayer into the fray of being a lodger-taking landlord? The loss of revenue to the Treasury could make this an expensive way of marginally reducing the extent of under-occupation in the private sector.

    One problem is, I suspect, that HMRC may have little or inaccurate data as to whether the Rent-a-Room allwoance is any kind of a success. By definition, there is a real risk or likelihood that those who receive rents under the limit may feel they are not be obliged to declare they are taking advantage of it. The guidance for the Income from Property pages for the Self-Assessment Tax Return say:
    “If you are claiming Rent a Room relief and your rents are £4,250
    or less
    “If you let a furnished room or rooms in your own home (excluding a room
    used exclusively as an office) and your total income was less than the
    Rent a Room exemption, £4,250 (or £2,125 if let jointly), put ‘X’ in the box.
    ‘Total income’ means the rents for the year to 5 April 2013 plus any income
    from services you provided. If that is your only letting income, that is all you
    have to do on the UK property pages.
    But, if your total income from this sort of letting was more than £4,250 you
    can choose between:
    • paying tax just on the excess over £4,250 (or £2,125 if let jointly) –
    without taking off any expenses. If so, include your total income in box 20
    and the exempt amount (£4,250, or £2,125 if let jointly) in box 37, or
    • calculating your profit from letting in the usual way – that is, total income
    (included in box 20) minus allowable expenses (boxes 24 to 29), leaving
    box 37 blank. You may want to do this if, for instance, you have made
    a loss.
    The Rent a Room scheme is described in more detail in Helpsheet 223 ”

    I wonder how many people simply decide that it is not worth getting the supplementary pages only to put an X in a box.

    It might be interesting for a Parliamentary Question to be asked seeking information about:-
    (a) how many people entered that simple X on their Self-Assessment tax return;
    (b) how many people claimed the Rent-a-room relief on rents exceeding £4,250
    (c) what would be the tax lost to the Revenue if the £4,250 was lifted to:
    (i) £5,500;
    (ii) £6,500, and
    (iii) £7,500
    (d) what are the estimates of the numbers of increased rooms becoming let as a result of increases to:
    (i) £5,500;
    (ii) £6,500, and
    (iii) £7,500

    It is interesting to see that you can claim a loss on this scheme. I preusme such losses can only be set against future income from Rent-a-Room lettings.

    Personally, I don’t think the housing crisis will be either solved or greatly alleviated by further promotion of this scheme. The trend towards preference for self-contained accommodation is inexorable, and, having lived in lodgings as a student, I would not recommend it as an alternative.

  5. Gary Griffiths

    How does this work, if it does, for social housing tenants? They will normally be prevented from ‘sub letting’.

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