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

Conclusions and Recommendations for Scottish Ministers

At the end of this process, we have come to the position of proposing a three-part rental affordability definition which we believe is broadly consistent with the human right to adequate housing sense of affordability and the government’s focus on child poverty. The three elements which can be both a general policy assumption and applied in specific practice case e.g. considering the affordability dimensions of a social landlord’s proposed rent increase, are:

• Rent and service charge measure of housing cost should not exceed 30% of net monthly disposable income;
• Residual income (100% of the Joseph Rowntree Foundation Minimum Income Standard after housing costs) with the possible use of a supplementary indicator based on ASHE30; and
• After housing cost income should be greater than the official UK poverty line.

The reader will see that the approach taken here has been a pragmatic set of decisions based on the key building blocks regarding housing affordability and the affordability dimension of the right to adequate housing (affordability). There were different views proposed by our evidence (and the literature) throughout. It is now for others to judge how acceptable these are.

SLWG 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 RSL social rent benchmarks. Affordability scrutiny is also required for the mid-market rent sector, specifically, regarding future MMR 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 ASHE30, as discussed, conditional on it being successfully refreshed in the light of tax and benefit changes since its introduction and use in the SFHA 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 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, and both new build and existing asset investment capacity). 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.