Housing affordability - short life working group: final report 2022 to 2024

Summary and Recommendations

The Short Life Working Group (SLWG) on ‘towards a shared understanding of housing affordability’ arose from a recommendation of the Housing to 2040 housing strategy which argued for the need for a single shared Scotland definition fit for the future that could cut through the different measures and definitions of housing affordability inconsistently used in Scotland and the UK. An independent group was established (see Annex 1) in 2022 chaired by Kenneth Gibb, a brief and working practices were agreed, including new primary research and a range of consultation exercises. This report in draft was first tabled to the SLWG at the end of April, and was subsequently redrafted in July 2024, in the light of feedback from the group, from civil servants and subsequent detailed written feedback. A further round of comments on the second draft led to further work and discussions on remaining details which took quite some time to sort out. This final revision is a product of sustained reflection on those matters (discussed further in the main report).

The report sets out in more detail the need for the work, the nature of the problem and a sense of what previous commentators have said about the issue. It then goes through three forms of primary research – focus groups and interviews with residents organised by The Lines Between, household survey responses incorporated in a 2024 YouGov Scotland Omnibus Survey, and an online survey of SLWG members. We also tested ideas and sought views speaking at conferences in Scotland and invited external speakers to contribute to our SLWG meetings.

This approach allowed us to identify both the key fault lines in the affordability debate and a series of key questions that need to be tackled if we were to make progress towards the shared understanding (see the box at the beginning of section 5 of the main report). The existence of these different questions explains why a shared understanding is so intractable – affordability is normative, judgmental and subjective. We contend that there is no simple objective scientific answer to such a definitional question. Instead, we have tried to be straightforward, pragmatic and build a consensus around the (what we consider) reasonable principles set out below and in section 5 of the report.

Throughout this report, we recognise a critical issue that has informed our proposal. We confront rising problems of rental unaffordability in Scotland, particularly for low-income households, directly impacting on child poverty and making the human right to adequate housing more difficult to attain. Nonetheless, adopting a new affordability standard should not be used to punish housing providers if a combination of historical decisions on (then) prevailing norms and new pressures on rental income, mean they would fail such a standard. Rather, we need to view the new shared understanding as doing two things – setting a standard for newly initiated intervention by government (e.g. affordable new supply) that impacts on affordability, but also the sense that, as with the right to adequate housing, this needs to be conceived of as a long-term project where there is a progressive realisation of the new standard over time, directly linked to its achievement by the end of the Housing to 2040 strategy timespan. This should be a clear joined-up goal of Government prioritised within the National Performance Framework.

This exercise has been a daunting undertaking. The SLWG was designed to reflect a wide range of stakeholder perspectives. We anticipate much discussion and disagreement arising from our recommendations. That is inevitable given the subject matter. Throughout we seek to outline our decisions and the reasoning behind them, grounded in the prior belief that there is no unique scientific, objective answer to the question: what is housing affordability? Instead, we recognise the position taken is normative (what ought to be), subjective and judgmental. So, our question becomes, given that insight, what is the best we can achieve – and that is what we try to do.

The report explains the way we end up with our nine key recommendations (set out below). The principal recommendation is 7a. It says that a shared understanding of housing affordability (the policy assumption for government going forward) should have three components, all of which need to be met:

1. A maximum of 30% of net income should be accounted for by rent and service charges.

2. A minimum residual income should be achieved based on 100% of the After Housing Costs Minimum Income Standard set by Joseph Rowntree Foundation (see Annex 3 for more details).

3. The household should exceed the UK after housing costs poverty threshold.

Recommendations

Recommendation 1: As a key plank of fighting child poverty and constructing the human right to adequate housing, the new shared understanding definition ought to be a component part of the National Performance Framework national outcome indicators in line with the Government's proposal for a new National Outcome for Housing.

Recommendation 2: the shared understanding focuses on social, affordable and private rental affordability, but this is on the basis that other aspects of housing policy are supporting access to home ownership, also working and lobbying to support policies to help owners in financial difficulty.

Recommendation 3: on grounds of simplicity and the existence of other complementary policies, we propose not to include minimum standards regarding housing conditions/standards in the working definition other than to be clear that the rent charged by a landlord should be based on meeting minimum legal and regulatory standards.

Recommendation 4: on grounds of simplicity, locus of decision-making and alternative policy domains relevant to certain property related costs, we conclude that a narrow measure of cost, rent plus service charge, should be used.

Recommendation 5: agreeing a framework for the shared understanding should allow regular monitoring and periodic review to consider updating of the indicators used in the light of evidence collected about affordability. In this way it should be possible to adopt the shared understanding to both immediate and longer-term questions re housing policy.

Recommendation 6: it is essential that we have a shared understanding of what social rent levels are and the extent to which future rent increases in social housing can rise to over time but still meet the accepted sense that rents remain at social levels. The Scottish Government should undertake further work to better understand what that social level is across the existing housing stock and how it compares for instance to assumptions within published guidance regarding registered social landlord social rent benchmarks. Affordability scrutiny is also required for the mid-market rental sector, specifically, regarding future mid-market rental sector rent increases.

Recommendation 7a: (1) national policy guideline or assumption – rent and service charge is no more than 30% of net monthly income; second, there is a minimum residual income relating to the after-housing costs version of the Joseph Rowntree Foundation Minimum Income Standard (with a possible supplementary indicator based on the Annual Survey of Hours and Earnings 30^th percentile, as discussed, conditional on it being successfully refreshed in the light of tax and benefit changes since its introduction and use in the Scottish Federation of Housing Associations affordability tool); third, if, after housing cost income is below the UK poverty benchmark, the housing is therefore not affordable.

Recommendation 7b: (2) disaggregated version of policy assumption guideline – as (1) but with focus on average national measures for significant groups of household types where we expect to observe and analyse important variations e.g. working age single adults, single families, couples, couples with children, single and couple retired households, young adults, women, ethnicity and other important protected characteristics. This will require a degree of new data capture, analysis and publication to support work done by providers, trade bodies and wider citizen interests.

Recommendation 8: Scottish Government, local authorities and providers need to collaborate to undertake a series of economic and equality impact assessments around the new affordability measure. They also need to consider how the new measure might be efficiently but fairly transitioned over time to deliver a progressive realisation of the new shared understanding. There will need to be new data collected to support monitoring the measure. This can draw on recent experience with the new fuel poverty measure.

Recommendation 9: The shared understanding should be viewed as a long-term objective or target of the Housing to 2040 strategy. Targets should be progressively realised by its end date, but with ongoing monitoring. At the same time, the shared understanding target should be used forthwith to influence and shape future policy discussions relevant to affordability e.g. seeking to converge over time the definitions of affordability used in policymaking.

Final Words

It is now for the Scottish Government to reflect on the shared understanding proposed here and decide how to both respond to the report and to factor it into future decisions about housing policy for new build and the existing housing, where there are direct and indirect affordability consequences of policy.

We also stress that this is not a prospectus to reduce rents, but rather one to achieve affordability objectives, mindful that this is a whole government project (and beyond), because affordability can only be understood as the combination of housing costs, incomes and benefits. Labour market, broad anti-poverty and welfare policies are equally important to reducing after housing cost poverty. Affordability has been worsening and tackling it over the coming 15 years requires, on the one hand, committed all-government focus (including with the UK government regarding Universal Credit, Housing Benefit and Local Housing Allowances), and at the same time, to explicitly assess the trade-offs arising from new regulatory and investment policies that put upward pressure on rents. The Housing Investment Taskforce recommended a comprehensive financial capacity study for social housing (and this should include council housing business planning). This is an important part of making these affordability-informed housing policy decisions, as is full consultation with the providers and the sector, including tenants.