The need for affordable housing

The need for subsidised housing provision has long been recognised. The cost of private sector housing that meets acceptable standards, compared with the level and distribution of incomes and assets, means that significant numbers of households lack the resources to make a demand for decent housing effective in the market. Without subsidised housing, these households can fail to obtain housing of a decent standard.

No agreed definition of affordable housing

The most commonly referred to definition of affordable housing is set out in Annex 2 to the National Planning Policy Framework (NPPF). This is the definition that local planning authorities apply when making provision within their areas to meet local demand/need for affordable housing. The most recent version of the NPPF was published in February 2019. The NPPF definition incorporates social rent, as well as a range of intermediate rent and for-sale products. The Affordable Housing Commission (2020) concluded that “many” of these products “are clearly unaffordable to those on mid to lower incomes.”

Alternative measures of affordability

The definition of affordable housing set out in the NPPF does not make reference to the proportion of a household’s income or earnings that should be spent on housing costs. The Housing Cost to Income Ratio (HCIR) was referenced in Planning Policy Guidance Note 3: Housing (the guidance which was repealed and replaced by the NPPF) and is frequently used in research into housing affordability.

Housing costs can be compared to earnings (the amount of salary an employee earns before tax and benefits) or to household income (all the income a household receives, after tax and benefits). Earnings data is frequently used because it is readily available at local level. However, income data provides a more complete picture – it accounts for households with multiple earners, and those with a high proportion of their income coming from benefits.

Planning for affordable housing

The NPPF states that where major development includes the provision of housing, at least 10% of the housing provided should be for affordable home ownership, subject to some exceptions. There is no minimum level of provision of affordable rented housing – this is for local planning authorities to determine. The Planning White Paper (2020) proposes substantial reforms to the planning system, some of which may have implications for the delivery of affordable housing.

A crisis of affordability

Commentators are increasingly making the point that, in addition to a crisis in housing supply, England is in the grip of a crisis of affordability. In the foreword to the June 2017 IPPR report, What more can be done to build the homes we need?, Sir Michael Lyons said: “We would stress that it is not just the number built but also the balance of tenures and affordability which need to be thought through for an effective housing strategy.”

New supply of affordable housing

Around 57,600 units of affordable housing were delivered in 2019-20. This is part of a year-on-year increase since 2015-16, when completions fell after the 2011-2015 Affordable Homes Programme ended.

Chart showing the total supply of affordable housing in each year between 1991-92 and 2019-20.  Supply peaked in 1995-96 at around 74,500 homes before declining to a low of around 32,900 in 2002-03. It then spiked in 2014-15 at around 66,000 as the Affordable Homes Programme ended, before falling the year after. Delivery has increased year-on-year since 2015-16.

Homes for Affordable Rent were the most common type of affordable housing supplied in 2019-20, making up 47% of the total. Affordable Rents can be set at up to 80% of the local market rent. Affordable home ownership (including shared ownership) made up 35% of new supply, while homes for social rent made up 11% and other forms of rent made up 6%.

Homes for social rent are making up a declining proportion of overall affordable housing supply. In 2011-12 there were around 37,700 new social housing units supplied (65% of all new affordable housing) while in 2019-20 around 6,600 new social rent units were supplied.

Affordability and tenure

Home ownership has become increasingly difficult to access, particularly for first-time buyers, as house price growth has outstripped growth in wages. Median house prices in England were nearly eight times higher in 2020. The ratio varies substantially across the country, with prices over 20 times higher than residents’ median earnings in some parts of London.

Chart showing the ratio of median house prices to median earnings in England. The median house price was 5.1 times median earnings in 2002, but has risen to 7.8 times median earnings in 2020.

The decline in the affordability of home ownership in high demand areas, together with pressure on the social rented sector has prompted growth in private renting. As private rents rise, the sector has experienced its own affordability issues, particularly in London. While the median private rent in England is equivalent to 27% of median monthly earnings, in parts of London this is considerably higher (e.g. 77% in Westminster).

As discussed above, supply of new homes for Affordable Rent has grown in recent years while supply of new homes for social rent has decreased. Comparing mean social and affordable rents with the median household income of social-sector renters indicates that affordable rents take up a larger proportion of household income than social rents, particularly in London and the South of England.

Housing Benefit/housing element Universal Credit (UC)

The private rented sector houses more households than the social rented sector. Private sector rent levels have increased in response to demand in areas of high housing pressure. One Government response has been to restrict levels of assistance through Housing Benefit/housing element UC. Housing Benefit is a personal subsidy which enables non-working households and those on a low income to pay for rented accommodation. There have been several changes to Housing Benefit entitlement since 2010 which mean that it is more likely that a claimant’s entitlement may not cover the full amount of the rent due. Some London authorities argue that there is no affordable private rented accommodation available in their areas for households who are reliant on Housing Benefit/UC.

Calls for more social rented housing investment

Sector submissions to the 2016 Autumn Statement called for a reconfiguration of the Affordable Homes Programme (AHP) to allow providers more flexibility over the type of housing developed. There were calls to encourage development at social rent levels to reduce pressure on Housing Benefit expenditure and to increase housing options for people on a low income without having to rely on Housing Benefit. The Autumn Statement did announce a relaxation of restrictions on grant funding “to allow providers to deliver a mix of homes for affordable rent and low cost ownership, to meet the housing needs of people in different circumstances and at different stages of their lives.” Subsequently, the Housing White Paper (February 2017) set out “a comprehensive package of reform to increase housing supply and halt the decline in housing affordability.”

The National Housing Federation’s (NHF) submission to the Autumn Budget 2017 called for the additional £1.4 billion of investment announced during the Autumn Statement 2016 to be made available for bidding “at the earliest opportunity” and for the “unallocated” £1.1bn from the Starter Homes programme to be applied to “sustained capital investment in genuinely affordable homes for rent.”

In October 2017, the Conservative Government announced an increase in funding for the Shared Ownership and Affordable Homes Programme of £2 billion, bringing total funding up to £9.1 billion. The announcement extended support for the development of social rented housing. Subsequent developments included the lifting of borrowing caps from local authority Housing Revenue Accounts with effect from 29 October 2018. This was expected to enable councils to increase house building by an additional 10,000 homes per year.

The 2019 Conservative Party Manifesto contained a commitment to increase the number of homes being built and to “rebalance the housing market towards more home ownership.” The Queen’s Speech of 19 December 2019 contained reference to supporting the continued supply of social homes and to renewing the AHP. Subsequently, the March 2020 Budget announced £9.5 billion for an extension of the AHP:

The Budget announces an additional £9.5 billion for the Affordable Homes Programme. In total, the programme will allocate £12.2 billion of grant funding from 2021-22 to build affordable homes across England. This should bring in a further £38 billion in public and private investment. This new five-year programme will help more people into homeownership and help those most at risk of homelessness.

Funding is expected to support up to 180,000 new homes, subject to economic conditions. The programme’s funding will be split: 50% to fund homes at a discounted rent, and 50% for affordable home ownership products. The Government has confirmed that as a condition of receiving AHP funding, newly developed rented homes must have the Right to Shared Ownership attached.

In February 2021 the Housing Minister confirmed the new AHP “will deliver more than double the social rent than the current programme, with around 32,000 social rent homes due to be delivered.” Crisis and the NHF (2018) called for 90,000 units to be built in England in each year for fifteen years to meet new need and to address the backlog.

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