Top down aerial view of urban houses and streets in a residential area

The proportion of housing for affordable or social rent in England has fallen from around 20% in 2000 to 16% in 2023. As demand continues to grow, increasing the supply is proving challenging. Providers cite issues including funding, increasing costs, and the planning systems as barriers to delivery.

Housing and planning are devolved matters in the UK. This article focuses on affordable housing in England.

What is affordable housing?

The term ‘affordable housing’ is not defined in legislation. The most commonly used definition, set out in annex 2 of the government’s National Planning Policy Framework, is “housing for sale or rent, for those whose needs are not met by the market”.

This includes housing for rent at

  • a ‘social rent’ level (around 50% of local market rents)
  • an ‘affordable rent’ level (up to 80% of market rents)
  • an ‘intermediate rent’ level (between social and market rents)

It also includes low-cost home ownership. This is

  • housing sold at a discount of at least 20% below local market value, for example First Homes
  • Shared ownership, where people buy a share of a property and pay a subsidised rent on the remaining share
  • Rent to Buy, where people rent at around 80% of market rents in order to save for a deposit to buy the property

This definition of affordable housing is contested. For example, in 2020 the independent Affordable Housing Commission concluded many of these products “are clearly unaffordable to those on mid to lower incomes.” It proposed a definition related to people’s incomes and personal circumstances, rather than market prices.

How is affordable housing delivered?

Affordable homes are planned for by local planning authorities and are generally developed by registered providers of social housing. Primarily these are local authorities, housing associations (private, not-for-profit organisations set up to provide affordable homes) and for-profit organisations.

The role of the planning system

Planning law and national planning policy do not require a certain number or percentage of new homes to be affordable. However, local planning authorities, if they identify need, are able to include affordable housing policies in their local plans.

Planning guidance sets out which factors local authorities should consider when assessing the local affordable housing need. It does not set out how exactly they should calculate the number of affordable homes needed.

Local planning authorities can require developers to deliver affordable homes by attaching conditions to planning permission or negotiating ‘section 106 agreements’. A section 106 agreement might require a developer to build a certain number of affordable homes or pay the local authority financial contributions which it can use to fund affordable housing.

The Levelling Up and Regeneration Act 2023 gives the government the power to introduce a new ‘infrastructure levy’ on development, which local authorities could spend on affordable housing and infrastructure projects (such as roads).

In a consultation in March 2023, the government said it expected the infrastructure levy to replace section 106 agreements in most circumstances. The levy has not yet been implemented.  

Funding affordable housing

Affordable housing can be funded through:

  • government schemes, such as:
    • the Affordable Homes Programme 2021-26, which provides £11.5 billion in grant funding to support the capital costs of developing affordable housing. the 2019 Conservative government expected the programme to provide 157,000 new affordable homes in England between 2021 and 2026, of which 33,500 would be for social rent.
    • the Affordable Homes Guarantee Scheme 2020, which provided up to £6 billion in low-cost loans to support investment in affordable housing.
    • the new homes bonus, which is a grant to local authorities based on the amount of extra council tax revenue raised from new-build homes, conversions and empty homes brought back into use. There is an extra payment for providing affordable homes.
    • Right to Buy, where local authorities can keep a portion of what they receive when tenants buy their council house under the Right to Buy scheme (the rest goes to HM Treasury).
  • borrowing, where local authorities or housing associations borrow money to fund housing delivery. In 2018 the government removed the cap on the level of borrowing local authorities can undertake, to support more house building.
  • cross-subsidisation, where housing associations or ‘local authority companies’ sell or let housing at market rates and use the profits to build affordable housing. ‘Local housing companies’ are independent arms-length commercial organisations wholly or partly owned by local authorities which develop, buy and manage properties within and outside their area.
  • private sector investment.

How much affordable housing is being delivered?

There are around 4.1 million social and affordable rented homes in England, around 16% of the total housing stock. The proportion used to be higher: it was around 20% in 2000. At the end of March 2023, 165 out of 309 local authorities in England owned their own social and/or affordable housing stock.

Around 63,600 units of new affordable housing were supplied in 2022/23, the highest number in eight years. Around 14% of units were delivered by local authorities, with most of the remainder supplied by other social housing providers.

Homes for social rent made up the majority of new affordable housing supply until 2011/12, but now account for a much lower proportion. In 2022/23, around 15% of new affordable homes were for social rent, as shown in the chart. 49% were other forms of low-cost rent, and 36% were affordable home ownership.

A chart showing the number of new affordable homes in England each year since 1992/3. Since 2011/12 the share of these homes which are for social rent has fallen to a minority of all affordable homes.
Source: DLUHC, Live tables on affordable housing supply, Live Table 1000, November 2023

How much more affordable housing is needed?

It is widely acknowledged that there is a shortage of affordable housing. This is evidenced, for example, by the number of households in temporary accommodation and on local authority housing waiting lists.

Research carried out for homelessness charity Crisis and the National Housing Federation (2018) identified a need for 145,000 new affordable homes per year, and it said 90,000 of them should be for social rent.

The call for 90,000 new homes a year for social rent was endorsed by the Affordable Housing Commission, an independent group of housing experts established by the Smith Institute think tank. It urged the government to seek a “step change in affordable housing supply” in its March 2020 report.

The figure of 90,000 new social rent homes per year was also endorsed by the Levelling Up, Housing and Communities Committee’s May 2024 report, which called on the government to address the “chronic shortage” of social housing by investing in the sector.

What are the delivery challenges?

Several external factors affect social housing providers’ capacity to deliver new affordable housing supply.

Insufficient grant funding

According to research published by Legal and General and the British Property Federation (March 2022), grant funding would need to increase by up to £14 billion a year to deliver affordable housing at the necessary scale.

Increased costs and reduced income

In a May 2024 report, the Levelling Up, Housing and Communities Committee found the social housing sector has faced increased operational costs. This is because of inflation, higher energy prices, increased borrowing costs, and higher insurance premiums due to building safety issues.

There are also substantial financial pressures associated with decarbonisation, ensuring properties meet the decent homes standard, and new fire safety requirements. The report highlights that providers’ rental incomes have not kept up with increased costs.

In response to the rising cost of living, the government also limited social rent increases to 7%, for one year from April 2023.

Right to Buy and restrictions on use of receipts

Local authorities face additional challenges because of restrictions on how they can use money raised from selling homes under the Right to Buy.

The Local Government Association said that removing restrictions would help increase councils’ capacity to develop, deliver or acquire new homes.

The planning system

In its January 2023 Planning for the future consultation, the government said the planning system is the reason “we have nowhere near enough homes in the right places”. Changes to the planning system were introduced through the Levelling Up and Regeneration Act 2023, including making developers more accountable for the speed at which they deliver new homes.

Cost and availability of land

The July 2020 report of the Housing, Communities and Local Government Committee said the “high cost of land is the single biggest barrier councils face in getting social housing built”. In April 2024 the government announced new measures to help local authorities buy cheaper land for the development of more affordable homes.

Further reading

Authors: Hannah Cromarty, Faye Greaves, Felicia Rankl and Cassie Barton.

Photo Credit: (© By Anthony Brown – stock.adobe.com)

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