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

New Evidence initiated by the SLWG and its members

In addition to working group meetings, it was also the intention to undertake independent curated focus group meetings with renters (drawing on previous experience from the 2019 Lord Best Affordability Housing Commission in England). This was an important way to both understand what citizens think, but also to test out some of the emerging discussion from the group. We also surveyed the working group members individually to ensure we captured the different perspectives that make up the group. Doing this also reinforced the challenge of reaching simple group consensus with significantly different views expressed on the substantive questions asked. Finally, thanks to Citizens Advice Scotland, we were able to add affordability questions to a large scale representative Scottish population survey questionnaire (the YouGov Scotland Omnibus Survey). In this section we report and reflect on the findings from these three research instruments.

Focus Groups

The purpose of the qualitative research was to (1) find out what ‘affordable’ housing or housing ‘affordability’ means to tenants; (2) understand their concept of what constitutes a decent standard of living in relation to housing costs; (3) reflect as fully as possible the views of different groups experiencing unaffordability reflecting different demographic and other characteristics for participants; and, (4) explore the focus group members’ experiences of housing stress and unaffordability issues. The research was tendered and was carried out by The Lines Between who undertook the work in the summer and autumn of 2023^[10].

The research was a mix of focus groups and one-to-one interviews. In their final report the research team said (2023, pg. 1):

“A total of 24 participants took part in the study; the sample was designed to ensure adequate representation across several distinct categories, including: age; gender; local authority; rurality; and household and tenancy type [see figure 1 below]. Data collection involved online focus groups and one-to-one online/telephone interviews exploring tenants’ experiences of housing stress and unaffordability; housing aspirations; views on what constitutes a ‘decent’ standard of living; and views on different approaches to measuring and defining housing affordability”.

There was agreement among participants that housing costs should be defined for affordability purposes in a broad way relating to three categories: rent, utilities and council tax. Some did go further to include service charges, factoring, deposits, start-up costs when for example moving into unfurnished accommodation, and the cost of travel, which can be directly related to the spatial distribution of housing costs and amenities.

The participants identified specific housing affordability concerns arising from:

• Being stretched financially and having to make difficult trade-offs like reducing spending on entertainment, non-essentials, but also basics like food, in order to pay key bills for housing and fuel.
• Payment pressures were associated with losses in mental and physical well-being.
• Several said they were struggling to meet recent rent increases.
• High demand for social housing meant that there was little choice for many private tenants and hence respondents were more exposed to affordability risks. Overall, experiences were more favourable for social than private tenants.

Demographic

Gender

Breakdown

• 50% male (12)
• 46% female (11)
• 4% non-binary (1)

Demographic

Age

Breakdown

• 21% aged 21-30 (5)
• 21% aged 31-40 (5)
• 13% aged 41-50 (3)
• 17% aged 51-60 (4)
• 17% aged 61-70 (4)
• 13% aged 70+ (3)

Demographic

Location

Breakdown

• 14 different local authorities across Scotland^[12]
• 75% Urban (18)
• 25% Rural/Remote (6)

Demographic

Tenancy type

Breakdown

• 58% social landlord (14)
• 38% private landlord (9)
• 4% n/a (struggling first time buyer living with parents) (1)

Demographic

Living arrangements/ household type

Breakdown

• 38% living alone (9) 25% have child(ren) living with them (6 in total - 4 with partner/spouse, 2 single parents)
• 25% living with flatmates (6)
• 8% living with partner/spouse only (2)
• 4% living at home with parents (1)

Figure Reference: The Lines Between (2023)

The respondents were asked what they perceived to be the essentials of decent housing as part of the tripod of affordability questions (along with housing costs and standards of living). Apart from basic minimum standards, they also highlighted quality of life basics like safety, security, privacy, respectful neighbours, dignity and affordability as essential to mental well-being.

Participants were asked to discuss and express views about different ways to measure or conceptualise housing affordability (see the summary discussion in Figure 2 below). Overall, participants preferred the residual income measure to the cost to income ratio approach, although there were criticisms and reservations expressed with both. There were mixed views expressed about the adoption of a minimum income standard (MIS), particularly around its inevitable averaging out of specific individual circumstances. The most common alternative suggested by respondents was to replace a MIS with the minimum or living wage as a better proxy for low income in-work scenarios.

Measure + Description

1) Cost-to-income ratio

The percentage of a household income spent on rent; requires an agreed 'affordable' benchmark to be set.

Overall

• Mixed views.
• Views on a fair or reasonable housing cost-to-income ratio were mixed. 25-30% was the most common suggestion; other ratios between 20%-50% proposed.

Positives

• Standardised: could be used on an international scale.
• Gives a good sense of perspective.
• Easier to explain and understand than residual income.

Negatives

• Does not take into account individual circumstances, varying incomes or other essential expenses that people have.
• Need to establish whether to include just rent or core housing costs.
• Some struggled to understand the concept or to estimate how much of their income goes on rent.

Measure + Description

2) Residual Income

How much a household can afford to spend on housing costs without sacrificing other necessities or a decent standard of living, i.e. what remains of a household's income once non-housing expenses (food, childcare, travel, savings) have been deducted.

Overall

Generally preferred to the cost-to-income ratio, but reservations were expressed about its effectiveness and suitability.

Positives

• Fairer/more equitable approach than cost-to-income ratio.
• Takes into account a wider range of circumstances.
• Aligns with people's approach to budgeting.

Negatives

• Does not account for emergencies/unexpected one-off expenses.
• Difficult to explain/apply widely.
• Difficult to determine essential costs and a 'decent' standard of living.
• Potentially open to exploitation, either by renters 'exaggerating' costs or by landlords 'taking all they can get'.

Measure + Description

3) Minimum Income Standard

The annual income needed to reach a minimum acceptable standard of living. In April 2022, Joseph Rowntree Foundation concluded that a single person needs to earn £25,500 and a couple with two children needs to earn £43,400 between them.

Overall

Mixed views - some felt this was a fair approach; others felt it was too generic.

Positives

• Easy to explain and understand.
• Support for this if more personalised approach is used (i.e., individual calculator).
• Some felt this would be enough live comfortably.

Negatives

• Does not take into account individual circumstances (such as where you live, stage of life savings).
• Questions over how to define a minimum acceptable standard of living.
• Relies on effective and accessible public services to achieve an acceptable standard of living.
• Some felt this was not enough to live on.

Finally, participants were asked about how they would respond to an approach based around human rights principles. The research team noted (pg. 18):

“Participants … also discussed the UN Committee on Economic, Social and Cultural Rights affordability criteria for adequate housing, which states: ‘Housing is not adequate if its cost threatens or compromises the occupants' enjoyment of other human rights.’ Tenants welcomed this definition as ‘reasonable’ and ‘logical’. One felt it aligned well with the principles of the housing as a human right campaign which they endorsed. Another agreed with the definition in principle but thought it could be strengthened or supported by including a list of relevant or affected human rights”.

To conclude, the qualitative research found that many struggle with housing costs; in most cases, trying to ensure that core bills are paid, but sacrifices are being made and financial problems traded off. Long term financial risks were also an issue, with concerns that tenants may be able to cover their immediate housing costs and other essential outgoings but have little or nothing left to save for the future, or to protect against potential adversity such as unexpected bills, redundancy or ill health. The subjectivity and fluidity of housing affordability were emphasised; participants viewed situations as affordable for some households but not others, depending on their life stage, circumstances and geographic location. Significantly, (pg. 1):

“There was no clear consensus on the best measure or definition of housing affordability; participants described both positives and negatives of cost-to-income ratios, minimum income standards and residual income measures”.

“Few patterns or themes emerged among the views of those with shared characteristics; for example, there were no clear differences in views based on gender, age or family status. Generally, social tenants described more positive experiences of renting than private tenants; and older participants were less likely to express home ownership as a housing aspiration”.

Respondents also made their own suggestions for how best to define housing affordability: linking housing affordability to the minimum wage; linking housing costs to profits to ensure landlords charge a reasonable rent; and a tiered or means-tested approach that recognises that different households require different cost-to-income ratios depending on their circumstances.

Ultimately, the research team concluded (pg. 1-2) that the advice of the participants was that a measure or definition of housing affordability must involve four elements:

1. Be clear, specific and relative to tenants’ everyday lives and finances i.e. use only that can be applied to and measured against their own housing costs and financial circumstances.

2. Reflect the realities of the rental market. Participants suggested that some of the housing affordability definitions were ‘only working in theory’. The Scottish Government might well set an official affordable housing cost-to-income ratio of 25%, but there may be insufficient suitable properties on the market would which meet this price point for renters.

3. Emphasise fairness and dignity for tenants. Some felt it was important that the definition reflects the idea of tenants receiving ‘a fair deal’; i.e. being treated respectfully, living in housing with adequate standards, and not being exploited by landlords. This includes having enough money after rent to live a fulfilled life (including capacity to save for the future).

4. Consider what is realistic, affordable and allows for ‘future proofing’, especially for people living on benefits or the minimum (or living) wage.

SLWG Member Survey

We asked the SLWG members to complete an online survey. Fifteen did so (one took the form of a short interview). The responses were illuminating because they allowed the elaboration of perspectives held on the topics examined in a generally internally consistent fashion in a way that was difficult to fully explore in the working group meetings. The other striking feature was the diversity of views and approaches expressed. There was no sense of consensus on key issues at all. This is not a surprise, but it is both useful in producing a wide range of ideas and arguments and of course it means we still must make the case for a specific approach drawing on these and other varied findings such as the resident focus groups.

Each member of the SLWG was asked to complete a short online survey which asked the following substantive questions (in each case, respondents were able to amplify their answer in free text):

• Should the housing costs terms in an affordability calculation be narrowly or broadly drawn?
• Do minimum quality/conditions/size standards need to be met alongside the affordability definition?
• Roughly how much of a household’s net monthly income should be spent on rent (i.e. what is the upper threshold or limit that should not be overstepped)?
• Which of the following affordability measures would you favour (cost to income ratio, residual income, income standard, human rights definition, combination of these)?
• Respondents were also asked to amplify their views on any of the questions above or other relevant issues you would like considered.

Narrow or Broad Housing Costs

All the respondents thought rent should be included; just over half thought service charges and factor fees should also be incorporated, just over 55% included council tax and utilities within housing costs, and two in five included deposits (where applicable). Individual free text responses to the question included the following points, paraphrased from responses:

• Breadth of approach to housing costs depends on the purpose of the analysis.
• Take a broad perspective because it is about housing costs, not just rent.
• A broader approach is also more consistent with the wider dimensions of right to adequate housing (e.g. habitability, cultural adequacy etc).
• If we go too far beyond rent, it becomes non-comparable and infeasible – so keep it simple, except for also adding service charges.
• Housing cost definitions should equate to those used in the social security system.
• Lack of consistent data is a problem for widening any housing cost definition.
• Focus on the core costs that most of us pay. Focus on the unavoidable costs and not those influenceable by the occupier.
• Direct costs should include deposits.
• A recent Citizens Advice Scotland (CAS) survey indicated 80% felt council tax and energy costs were essential housing costs and should be included.
• Prefer to use whole home costs but if not feasible, then just focus on rent.
• You need to define it in relation to building and new supply so therefore take a narrow view just of housing costs (rent plus service charges).

Role of physical housing conditions

Broadly, two-thirds thought that conditions should be incorporated, around 30% thought not and a couple of responses were unsure. The free text individual responses included the following paraphrased points:

• Yes: include minimum standards because of the need to incorporate energy efficiency within affordability.
• No: data definition and defining over a wide class would be very difficult.
• No: conditions and physical standards are already considered elsewhere within housing policy frameworks.
• Yes: falling below that should not be considered affordable.
• Yes: quality is a key consideration.
• No: quality is a separate policy consideration dealt with elsewhere.
• Yes: reflect the different quality of social/Mid-Market Rent and the in the PRS.
• Yes: 80% in CAS survey said homes must meet min standards for health, etc.
• Yes: poor quality can incur costs e.g. for heating or dehumidifying.
• No: it is separate issue incorporated within policy so keep affordability simple.
• No: conditions/standards of the home is a separate policy issue, important, etc., but not in relation to housing affordability.

Upper Limit of Net Monthly Income on Rent

A fifth of respondents thought that the ceiling should be 25% or less; the same proportion thought that a figure of 25-30% was appropriate. A smaller proportion, around a sixth, went for a larger proportion of 30-40%, and one respondent indicated 40-50%. Interestingly, the most common response, at a little more than a third, was ‘don’t know’. Individual responses said:

• Less than 25% for residual income and living standard reasons, rights or adequacy reasons.
• Don’t know but not a single estimate rather one varied by household circumstances and type.
• Letting agents normally assume one-third of income.
• Don’t know. Mortgagors set 30% but you could be paying 0 through HB but still have insufficient residual income.
• Less than 25% if it is the narrow measure of rent.
• 25% as rents should not drive poverty so that would be the upper limit.
• 30% is most common benchmark in the RSL sector but it can go higher for single person households (who are negatively affected by UC assumptions].
• 43% of surveyed households in CAS survey said 25-30%.
• Not above 30% if a young renter is to have sufficient residual income. I think 25-30% so you have 70-75% for everything else.

Housing Affordability Approach

Just over a third of respondents favoured a combination of methods, with equal proportions (29%) preferring either a cost to income ratio or a residual income measure. No-one opted for the income standard on its own and the human rights conceptualisation was the preferred choice of just over a fifth of respondents. Free text comments on this critical question included:

• Affordable housing is housing available at social rent levels.
• Something like the fuel poverty definition; residual income, which is not as crude as cost to income ratios.
• Combine residual income and cost to income ratio using the minimum income standard (or some other After-Housing Costs threshold) as the residual income measure – also sympathetic to the human rights approach.
• Combine residual income and cost to income ratio, which also fits with human right to adequate housing approach.
• Probably need a linked cost to income ratio and residual income.
• Just adopt cost to income ratio because of data problems for anything more sophisticated.
• Combine cost to income ratio and residual income but using minimum wage as income standard.
• Cost to income ratio but with a minimum income standard.
• Two people said residual income because it is linked implicitly to human rights.
• The simplest one is residual income i.e. after housing costs you have enough to live the rest of your life without housing costs impinging on that standard.

Wider Views

Wider opinions were aired in the open-ended final question in the survey, and we have included four specific quotes below, which are additional to the points already made and potentially relevant to our analysis: a focus on social rent, those with no recourse to public funds, the critical role of welfare benefits and social security, and the question of allowing individual choices and compromise or trade-offs decided on by those affected.

“Affordable housing is housing available at social rent…. We believe that the definition should be tied to council and social housing rent levels as this is something that is already calculated in a more fair and consistent way, with clear data and rules and clear targets in terms of enabling people, regardless of income to afford their home.”

“Those subject to immigration control may have ‘no recourse to public funds’, and be unable to work, placing them at high risk of destitution. To exercise their UN Human Right to Adequate Housing, they require housing provided at no cost”.

“The UK’s social security system has transitioned from one where most people have entitlement to a certain level of support to one that reduces support for many individuals. Changes to welfare rules, including the benefit cap, two child limit, bedroom tax, local housing allowance, sanctions, and deductions, have all reduced the support provided. Therefore, even if the social security system, theoretically, offers sufficient support for housing costs, the system’s overall inadequacy renders housing unaffordable for many”.

“A more sophisticated approach may be needed but it is also important to allow a household to make their own judgement…folk are entitled to accept compromises in finding housing solutions that work for them.”

CAS YouGov Scotland Omnibus Survey

Citizen’s Advice Scotland were represented on the SLWG and generously offered to include a small set of questions relevant to the working’s group’s agenda within the regular YouGov Scotland Omnibus Survey). The survey was carried out in early 2024 (January 19-24).

Table 1 refers to two issues, positive and normative, respectively. First (2^nd column), what do working renter households pay in rent as a proportion of take-home monthly income. The final column, second, asks all respondents what they think a reasonable percentage would be for this proportion? Of the relevant sample, just under 30% pay less than 25% and a further 27% pay between 25-30% i.e. the majority (56%) pay no more than 30%. But 17% pay between 30-40%, a further 9% pay between 40-50% and 5% say they pay more than half of their disposable monthly income on rent. Thus, around 14% pay more than 40% of their disposable monthly income on rent. Note that 6% did not know this proportion and a further 6% preferred not to say.

Turning to the normative second question in Table 1, how much would be reasonable, fully 43% think that the proportion should be less than 25%, and a further 27% think no more than 30% i.e. fully 70% think it should be less than 30%. Around one in eight opt for 30-40% and only 4% suggest more than 40%. Note that 14% (the third highest score) did not know which proportion to opt for. One simple way of looking at this table in the round is to say that respondents think housing should be more affordable than it currently is for a sub-sample of people paying rent.

1 – weighted working adults in rented accommodation

2 - full sample

Note: definitions based on those used with explanatory flashcards based on The Lines Between qualitative research study. See definitions in annex 2.

Table 2 allows multiple responses, which need to be interpreted carefully. It is also important to note that we do not have a sense of which people would have preferred to combine options, something that was an option for SLWG members in their online survey. On this basis the most popular option was to link affordability to a minimum wage income standard (48%), followed by the Joseph Rowntree Foundation (JRF) income standard (33%) and the cost to income ratio (32%). Note that the residual income method scored less (21%) than either the human rights adequate housing approach (24%)^[13], or tying affordability to profits or maintenance costs (25%). Also, note that 6% said ‘none of the above’ and fully 25% did not know.

In summary, the survey seems to be saying, within broad parameters of accuracy and error, that:

• 56% of working age renters pay no more than 30% of their take home monthly disposable income on rent; with 14% paying more than 40%.
• 70% of all respondents believe that the reasonable level of net disposable income (so defined) paid on rent should not exceed 30%.
• This figure rises to 83% if the threshold is 40% of net income.
• The most common choice of affordability approach was related to a minimum wage standard (48%) with lower scores for cost to income ratio (32%) and residual income at only 21%. Higher scores were given for JRF income standard (33%) and for the UN right to adequate housing method (24%).

Synthesis and Reflections on the Evidence

The empirical evidence assembled for the SLWG provides several important insights that shape our recommendations:

• There is much support expressed for a combination of approaches to the shared understanding of housing affordability.
• Most of the focus has been on renters only though there were some considerations of struggling home owners and distinctions made between affordability and accessibility for both renters and owners.
• There is considerable support from the different sources available for a relatively low target rent to income ratio.
• There is also, however, disagreement in the details and some fundamentals both within the members who responded to our survey and with respect to the qualitative research with renters.
• Significant differences relate to whether the shared understanding should adopt broad or narrow definitions of housing and housing-related costs, especially relating to the question of whether to focus on the narrowing that is implied by only looking at the costs’ households have no influence over (i.e. rent plus service charges).
• Differences also applied to how we think about the denominator in the ratio (income) and whether it should relate to an income standard of some kind, be it a minimum income guarantee a JRF income standard or a minimum/living wage concept.
• The three forms of evidence also produced different preferred routes to how we might understand housing affordability.

We anticipated that there would be considerable difference, lack of consensus, and high scores of ‘don’t know’ - and so it turned out. However, the new evidence, our reading of the literature and our meetings all provide useful material that helps the SLWG to address the major issues in defining our approach and allows us to make a series of decisions that shape what our shared understanding of housing affordability is, and how we think it should be advanced going forward. We start this process of establishing the necessary decisions and the reasons for them in the next section, before finally going on to set down our recommendations to ministers in the concluding section.