2. Definitions of rent affordability in the affordable housing sector
It has been argued that housing affordability plays a key role in the housing problems of today (Meen 2018), whilst several European countries have recently agreed that new housing should include a proportion of affordable housing (Bramley 2012). The ‘Affordable Housing Supply Programme’ from the Scottish Government plans to deliver at least 50,000 affordable homes by 2021 – a 67% increase in the affordable housing supply, from which 35,000 will be for social rent in order to support people on low/modest incomes to rent high quality accommodation at affordable prices. This chapter aims at exploring what affordable housing means, and whether affordable housing has a universal meaning or means different things to different sub-groups of the population.
There are two major concepts of affordability, depending on the market studied. The first regards the housing market, i.e. home-owners and potential buyers; and the other regards rental properties. In the prime mortgage market, affordability can be distinguished between purchase, repayment and income affordability (Gan and Hill 2009; Meen 2018). Purchase affordability considers whether a household has the borrowing capacity to purchase a property, repayment affordability considers the capacity of repaying the mortgage, and income affordability measures the ratio of house price to income (Gan and Hill 2009). As the focus of this project is on rent affordability, further discussion of the housing market is out of scope.
2.1 Definitions of rent affordability
Rent affordability concerns both the private rented sector (PRS), as well as the affordable housing sector. The focus of this report is on the affordable housing sector, which has three main characteristics; lower rents compared to the PRS, greater security from eviction, and priority for vulnerable tenants.
A House of Commons Library briefing paper examined the definition of affordable housing in England and found that there is not one standard definition, but many different ones based on the purposes of each study (Wilson and Barton 2018). The same paper argued that “historically, the term affordable housing tended to be interchangeable with references to social housing”, but now the term is regarded as ambiguous (Wilson and Barton 2018, p. 5). A reason for this may lie in the fact that there is a larger variety of affordable housing nowadays, in addition to social rented housing. Traditionally the most common type of affordable housing is social rented housing. However, according to a Shelter (England) blog written by John Bibby in 2015, the majority of the new affordable housing and new builds in England are affordable rented housing, instead of social housing, such as shared ownership (mostly used in England) and mid-market rent.
Some of the definitions for rent affordability in the affordable housing sector are listed below:
- In the context of Scottish Planning Policy, affordable housing is defined as housing of a reasonable quality that is affordable to people on modest incomes; and this includes social rented accommodation, mid-market rented accommodation (both in scope of this project), shared ownership, shared equity, discounted low cost housing for sale including plots for self-build, and low-cost housing without subsidy.
- A Chartered Institute of Housing (CIH) report from 2013, argued that there cannot be a single definition of affordability as it depends on the household composition and size, income, benefits and tax credits regimes (CIH 2013).
- A UK Collaborative Centre for Housing Evidence (CaCHE) report defined affordable rent as “rents well below market rents and also well below Local Housing Allowance rent levels in the PRS, and other rents associated with affordable or mid-market supply” (Serin, Kintrea et al. 2018, p. 10).
- According to the Scottish Federation of Housing Associations (SFHA), “for a rent (including service charges) to be affordable, a household with one person working 35 hours or more should only exceptionally be dependent on Housing Benefit in order to pay it” (SFHA’s Rent Setting Guidance, January 2010).
- The National Planning Policy Framework (NPPF) defined affordable housing for rent as follows: “meets all of the following conditions: (a) the rent is set in accordance with the Government’s rent policy for Social Rent or Affordable Rent, or is at least 20% below local market rents (including service charges where applicable); (b) the landlord is a registered provider, except where it is included as part of a Build to Rent scheme (in which case the landlord need not be a registered provider); and (c) it includes provisions to remain at an affordable price for future eligible households, or for the subsidy to be recycled for alternative affordable housing provision” (NPPF July 2018, p. 64).
- “During the October 2010 Spending Review the [UK] Coalition Government announced an intention to introduce a new ‘intermediate rent’ tenure. Under this model, which is known as ‘affordable rent’, housing associations can offer tenancies at rents of up to 80% of market rent levels within the local area” (Wilson and Barton 2018, p. 6).
- According to a Shelter (England) blog by John Bibby (2015), the definition of affordable housing is usually based on two separate aspects: the person, i.e. what the tenant(s) can afford to pay for housing and the property, i.e. what type of accommodation is offered. Shelter, focusing on the tenant, classifies a home as affordable when “you can afford to live in it: if you can pay the rent or mortgage without being forced to cut back on the essentials or falling into debt”. The threshold is set at 35% of the net household income; however this has a different meaning and level of difficulty for low-income and high-income households.
- The threshold ratio between rent and household income has often been at the centre of attention of housing associations, policy makers and stakeholders. This ratio is used to distinguish between affordable and unaffordable housing. According to the National Housing Federation, this ratio should not exceed 25% in affordable housing (Chaplin and Freeman 1999). For more information on this ratio, see chapter 3, section 3.1.
- Affordability usually refers to low-income households renting their property and is concerned “with securing some given standard of housing at a rent which does not impose, in the eyes of some party – usually government – an unreasonable burden on household income” (Chaplin and Freeman 1999, p. 1949).
- According to Eurostat, a household is considered having housing affordability issues when spending more than 40% of their equivalised disposable income on housing: “The housing cost overburden rate is the percentage of the population living in households where the total housing costs ('net' of housing allowances) represent more than 40% of disposable income ('net' of housing allowances)”.
Housing affordability cannot be separated from a discussion on housing standards (Meen 2018, pp. 13-14). In fact, housing may appear affordable for low-income households that consume low levels of housing (in terms of household type, size and location), while at the same time it might appear unaffordable for those on high incomes that consume high levels of housing (Meen 2018). However, social tenants often do not have a choice on their home; rather, it is allocated to them by social landlords and might not be able to reduce some of their housing expenses. Housing standards may also include fuel consumption, as well as furniture and decoration. A further discussion on housing and non-housing costs can be found in chapter 3, section 3.2.
In summary, we can see that there is no universal definition of rent affordability, as it depends on the household type and composition, household income, including housing benefits, location and size of the property and other factors. Ideally, the term would be flexible, i. e. adaptable to tenants’ and social landlords’ needs and characteristics and also reasonably simple to calculate and understand.