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

Introduction and Background^[1]

In 2021, the Scottish Government published their comprehensive long-term strategy, Housing to 2040. The strategy consisted of an ambitious vision and principles statement, centring the programme around the progressive realisation of the human right to adequate housing, within which affordable housing is an essential component. The strategy route map contains many proposed actions, such as ending homelessness, a two Parliament duration affordable supply programme, delivering a housing retrofit decarbonisation programme to 2045, and raising standards and conditions across all housing tenures, among several other interventions. Within Part 2 of the route map, Affordability and Choice, the document states (p.32):

“Stakeholders during our consultation told us that how affordability is currently understood and defined does not always deliver the best outcomes for people, meaning the right to an adequate home cannot be realised. We know that there is no one universally accepted definition of rent affordability, with differing accounts being taken of household incomes and other housing costs.

We will therefore work with stakeholders to develop a shared understanding of affordability which is fit for the future and takes into account the drivers of poverty and inequality, the economic challenges of the housing market, the financial sustainability of the affordable rented sector and the real costs of living in a home and a place”.

The independent short life working group – Towards a shared understanding of housing affordability (hereafter the SLWG) - was established to debate and deliver recommendations to arrive at such a shared understanding.

The quote above suggests several of the fault lines confronted when seeking a shared understanding. Chief among them are three points.

• First, in current practice, working definitions of affordability do not always help achieve desirable housing outcomes.
• Second, there are different definitions of affordability and different applications of affordability used at the same time, creating inconsistency and possibly undermining policy and practice.
• Third, the shared understanding needs to fit with prevailing notions of poverty, real housing costs and the financial sustainability of the sector providing social and affordable housing. It will also need to be robust and resilient over time.

Affordability and affordable housing emerged in the late 1980s. The wider use of the term affordable housing has always been ambiguous, sometimes specifically concerned with an intermediate provision of housing somewhere between standard social housing and the market but sometimes referring to all sub-market housing. This was never just about rent levels, but also the rights and duties that went along with social and affordable tenancies.

Affordability entered housing sector parlance when the UK Department of the Environment brought in American consultants to help shape what would be the 1989 mixed finance scheme for housing association grant. The consultants used the term affordable to describe the sub-market rents that would be generated by a combination of grant, private loans and assumptions about operating costs. Subsequently, in Scotland, the responsible national agency, Scottish Homes, expected housing associations to undertake empirical work that demonstrated that such rents would be affordable for low to moderate income tenants in work. This figure was originally intended by the Scottish Federation of Housing Associations (SFHA) to be 25% of disposable income echoing the nostrum that there should be a week’s wages for a month’s rent (Scottish Homes did not contest this but did not have an official position either as a funder or regulator: it was for associations and their trade body to argue through the finer details). This helped create the problem – government had no wish to set the parameters themselves and thereby created the space to have multiple definitions, scales and levels of affordability thresholds.

Criticism of this vagueness (and its implications) was apparent as early as the bedding-in of these new financial arrangements (Maclennan, et al, 1990; and Hancock, 1992,). Subsequently, over the next 30 years or more, versions of affordability, affordable models and usage of the term proliferated and became more and more enmeshed in different aspects of housing policy and practice, extending to S75 planning agreements and local affordable housing policies, assumptions within housing social security, non-market rent-setting (supported by an SFHA rent affordability model), subsidy definition, assumptions within Housing Needs and Demand Assessments, and innovations in affordable housing supply – leading to multiple uses and definitions, all the more so if looking beyond Scotland (Wilson and Barton, 2022).

Housing to 2040 was undoubtedly correct in seeking to bring consistency and clarity to the definition of affordability as a threshold, beyond which housing costs impose an intolerable burden, as viewed by policy and practice (to paraphrase Maclennan and Williams, 1990). This is the SLWG’s principal concern. However, as we explore further in this report, it quickly becomes challenging when considering the practical implications of shifting from the present confusion to working with a single consistent shared understanding. This is because there are further consequences and wider implications of moving from inconsistency to a single measure. In this report we will concentrate on these questions, but four examples illustrate the extent of the challenge.

• First, setting a consistent threshold beyond which housing is deemed unaffordable has repercussions for rent-setting, financial viability, and the required level of grant in individual social or affordable housing developments.
• Second, it raises questions about what is the specific difference between general needs social rents and affordable rents (i.e. we need to define what we mean by a social rent as distinct from an affordable one). While the Scottish Government have in the past used terms such as mid-market rent, GRO private rent and intermediate rent – we still have elements of inconsistency within them too. Linked to this is the question of how affordable are market rents and how do these outcomes compare with experience in the non-market sectors?
• Third, a shared understanding operates at different levels - as a consistent policy input or assumption into social and affordable housing, but also for instance to set a threshold for adequate social security for housing. There is also a need to distinguish between the general policy assumption of the shared understanding as a whole and to provide illustrative effects how this works in practice for different kinds of households with varying forms of need.
• Fourth, moving toward a common working definition is likely to have fiscal impacts on capital programmes and on benefit expenditure, as well as material consequences for providers. We need a sense of these scales of magnitude. Note, however, that economic impact assessment, once we have a shared understanding in principle (and a commitment to its progressive realisation, one which will require appreciation of the budgetary impact on capital funding and subsidies required to ensure that rents start out (and remain) affordable) - goes beyond the scope of the present exercise.

This exercise has been a daunting undertaking. The SLWG was designed to reflect a wide range of stakeholder perspectives but, in fact, it would be difficult to arrive at consensus from any one of those perspectives, let alone any two people working even in the same part of the housing system. 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.

Is affordability getting worse?

We resisted quantifying the degree of and trends in affordability in contemporary Scotland. In large part this was not done because it begged the question of the meaning of affordability used when we were established as a group to reach that conclusion among competing and different claims on the meaning of affordability. However, it is important, that regardless of how much we do so implicitly, that we clearly state and recognise that affordability is worsening and that this has been going on for some time. Some facts and trends are identified below:

• Pre-Covid, a 2017 Scottish Government study indicated that 34% of social tenants were paying more than 30% of net income in rent, with an average of 24% (comparative figures were 25% for PRS and 8% for mortgaged owners). This study also suggested that 59% of social tenants were on Housing Benefit (HB) and 47% had household incomes below £15,000 a year.
• In 2022-23 for the Chartered Institute of Housing (CIH) we calculated (Watson, et al, 2024) that if eligible, only 8% of PRS tenants would have their rents covered by LHA and only 1% of adverts were below the Local Housing Allowance (LHA) threshold. In the same year rents from adverts grew by 14.3% while inflation was 9% (when the rent freeze for existing tenancies was in force). Long term data suggests a wide variation in rental values (adverts) but a recent history of upward real terms growth in cities like Glasgow and Edinburgh.
• Additionally, Scotland and the UK has experienced the cost-of-living crisis centred on energy and food costs. Welfare benefits have generally risen with inflation but not of course the LHA.
• Wages and earnings have not kept up with inflation over the long term (particularly in the lower half of the income distribution), inequality has worsened, as has specific dimensions of poverty (increasing for working age households).
• Need is growing within the well-rehearsed current housing emergency in Scotland, while the affordable housing supply programme has come under considerable budgetary pressure, with two years of significant cuts followed by a restoration of the programme initial levels in the most recent financial year. Given rent pressures, the trajectory of wages and benefits, and the other symptoms of the housing emergency in many parts of Scotland, it is not surprising to find that the new national affordable need study for CIH, Shelter and SFHA published in September 2025 shows a 50% increase in affordable need compared to 2020 (Marshall, et al, 2025).
• We also present some new survey evidence later in this report.

What does this mean for the shared understanding? It is hard to make a compelling case that rental costs are stable or that housing is becoming more affordable. If that conclusion is accepted, then there is a stronger case to develop a shared understanding of a progressive set of targets for affordability and their inclusion into forward-looking operational government considerations such as starting rents for grant-funded new social housing. The affordability problem has been worsening and society needs to act. One way we can do this is by agreeing on such a shared understanding because it is important for the housing system and increasingly urgent for tenants. It is a real-world problem that requires purposeful response and the shared understanding is a necessary part of making progress. However, as we discuss further below, that does not mean that providers should come under pressure to lower rents.

The rest of this report is in five further sections. Section 2 briefly sets out the remit and working practice of the SLWG. Section 3 is contextual and provides a sense of the range of affordability meanings and definitions and why the lack of consistency matters in practical terms. It highlights the fundamental fault lines from the academic and research literature on affordability, and then asks what does this mean for moving towards a shared understanding? Section 4 presents the primary findings of the new evidence we assembled from the SLWG: focus groups and interviews; bespoke household survey data evidence, and a questionnaire of SLWG members. Section 5 analyses and reflects on the evidence we have brought to the working group and attempts to reach reasoned judgements on the fault lines we have identified through the SLWG meetings and evidence gathering. Finally, section 6 summarises and concludes by setting out our recommendations for Scottish Ministers.