5. The role of mid-market rent in the concept of affordability
Mid-market rent (MMR) is a type of affordable housing located mainly in larger urban centres, with rents being lower than in the private market, but higher than in the social housing sector (Serin et al. 2018). MMR aims to help households on modest incomes, who have difficulty accessing social rented housing, buying their own home, or renting privately. According to a CACHe report, “Mid-market rent housing provides an alternative to the private rented sector but with high quality, grant-funded new units with rents at or around the same level as the Local Housing Allowance” (Serin et al. 2018, p. 10).
5.1 Mid-market rent tenants
The MMR housing option is popular with people on incomes that are not quite enough to afford owner occupation but who can afford to pay more than a social rent. Based on housing associations’ policy documents, to qualify for MMR tenants must be employed (or have a job offer) and their gross yearly household income must be between £20-40,000. These criteria may vary between housing providers. MMR tenants are typically single people and couples in work with modest earnings (Evans et al. 2017). The majority of MMR homes are accessed by young adults (aged 20 to 35).
The intermediate housing market, as defined by Wilcox (2005) in the UK, has three sub-sectors:
- working households unable to afford a social rent without the aid of housing benefits;
- households able to buy only at lowest decile house prices;
- working households that can afford a social rent without recourse to housing benefit but cannot purchase at lowest decile house prices for two- and three- bedroom dwellings (Wilcox 2005, p. 23).
MMR tenants usually transit from the private rented sector - typically they were renting a flat in the private market and were in need of more affordable accommodation and/or a better quality or size of flat. They can be also private tenants on the waiting list for social renting or social tenants looking for a different size of flat or a different location.
The most common type of MMR homes is a 2-bedroom flat (Evans et al. 2017), however due to increasing demand, a greater number of 2-3 bedroom homes are being delivered.
5.2 Mid-market rent demand
The Scottish Government’s Housing Need and Demand Assessment (HNDA) Tool is an Excel spreadsheet which allows local authorities to estimate future housing need and demand and to split this need into a number of tenures including MMR (termed ‘Below Market Rent’ in the Tool). The HNDA tool uses rent-to-income ratios to measure affordability using rent, income and house prices data. According to a 2016 Scottish Government article, based on standard affordability criteria (traditional affordability ratio), the need for “below market rent” is anticipated as around 2,000-2,500 additional households yearly for the period 2016-2021.
5.3 Mid-market rent expansion
One of the main housing goals of the Scottish Government is to include in housing planning, together with market housing, a proportion of affordable housing. “As part of the More Homes Scotland approach, launched on 29 February 2016, and to contribute to the target to deliver at least 50,000 more affordable homes by 2021, the Scottish Government announced that it would invite prospective MMR providers to submit proposals for expanded mid-market rented (MMR) housing”. The successful applicant from the MMR Invitation was the Places for People Capital MMR Fund which will deliver 1,000 additional MMR homes across Scotland. MMR housing completions have grown from 16 in 2007/08 to 1,133 units in 2017/18 in Scotland, an annual increase of 27 percentage points (Rettie 2018). MMR expansion is supported through the mainstream grant-funded Affordable Housing Supply Programme, as well as through innovative guarantee and loan models, including the National Housing Trust (NHT) initiative and the Local Affordable Rented (LAR) Housing Trust. Based on a Rettie report, “the use of the National Housing Trust (NHT) and Mid Market Rent (MMR) has contributed over 1/3rd of affordable housing starts in 2016/17” in Edinburgh (Rettie 2018, p. 6). Mid-market funds and initiatives help the Scottish Government to meet the goal of more affordable housing in Scotland, with little or no public subsidy (Edinburgh City Council 2010).
5.4 Mid-market sector and rent affordability
For a study commissioned by CIH Scotland and the Wheatley Group, Evans et al. (2017) used a range of research methods: a literature review, secondary data analysis, consultation with stakeholders, research with 16 current MMR tenants, a telephone survey of 100 potential customers and three focus groups with young people, families in the private rented sector and older owners in housing need. One of their findings highlighted that MMR with rents based on the Local Housing Allowance (LHA) were affordable at the 25% ratio, in line with the Scottish Government’s policy to ensure that MMR is an affordable housing tenure. However, according to the same report, LHA pricing regulations do not take into account small local markets with higher needs. They argued that there were 3,000-4,000 MMR homes across 21 local authority areas in Scotland with tenants, in most of the cases single people or couples with a household income of £20-30,000. They concluded that MMR could attract more families if there were enough affordable family-size properties (at the moment most MMR properties are two bedroom flats). The report stressed that although there are affordable flats in most areas of Scotland, it might be a challenge, especially for families, to identify an affordable flat of the required size, in the preferred location that satisfies certain housing standards. Even though there seem to be some eligibility criteria of households corresponding to specific size properties (based on number of bedrooms), exact criteria were not stated, as they might be local council-specific. Furthermore, young people face great difficulties in finding affordable accommodation, especially in the private market and often MMR does not represent an affordable option for them, particularly for those living in social renting (Evans et al. 2017; Hoolachan et al. 2017).
Overall, MMR is part of affordable housing in Scotland and its expansion increases the supply in affordable accommodation, funded mostly by the private sector with support from the Scottish Government. The aim of MMR is to offer an alternative to private renting and at the same time to offer affordable high quality and secure homes.
MMR tenants are usually households with a low/modest income, mostly single people and couples in work. Based on one research project, MMR could attract more families if there were more family-size dwellings available to rent and more young people if it was more affordable for them.