Housing affordability - short life working group: final report 2022 to 2024
As part of the Housing to 2040 strategy we committed to work with stakeholders to develop a shared understanding of affordability. The working group brought together experts from across Scotland’s housing sector. The final report of the group makes nine key recommendations to Ministers.
Annex 2 Affordability Approaches used in the YouGov Omnibus Scotland Survey
1. Cost-to-income ratio - The oldest and most used measure of rent affordability internationally, its formula, is based on the ratio of house prices (in terms of rents) relative to income/ earnings (affordability ratio = rent / income), which measures the proportion of a household's income that is spent on rent.
2. Residual income - It focuses on the difference between incomes and housing costs rather than the ratio. It subtracts from disposable income the monetary value of a pre-defined standard of non-housing needs; this, therefore, determines how much is left to spend on housing.
3. Joseph Rowntree Foundation Minimum Income Standard - The Minimum Income Standard (MIS) sets out what people think is needed to live with dignity in the UK. Since 2008, the MIS has shown what households need to spend to reach an acceptable standard of living, based on detailed deliberations by groups of members of the public.
4. United Nations Habitat affordability threshold - UN-Habitat calculates unaffordability as a net monthly expenditure on housing cost that exceeds 30 per cent of the total monthly income of the household.
5. Affordability based on minimum wage - Someone on the minimum wage should be able to comfortably afford their housing costs.
6. Affordability linked to profit/property maintenance costs - this approach would limit the rental amount to a specific percentage of profit for the landlord, which takes into consideration maintenance costs.