What is affordable housing?

Why is affordable housing needed?

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 significant numbers of households lack the resources to make a demand for decent housing effective in the market. Without subsidised housing, these households may 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 used by local planning authorities when making provision within their areas to meet local demand/need for affordable housing. The NPPF definition incorporates social rent, as well as a range of intermediate rent and for-sale products. The Affordable Housing Commission (2020) concluded “many” of these products “are clearly unaffordable to those on mid to lower incomes.”

Planning for affordable housing

The NPPF says 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) proposed substantial reforms, some of which may have implications for the delivery of affordable housing. Reponses to the white paper are being analysed and an announcement is expected in spring 2022.

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Housing Cost to Income Ratio (HCIR) was referenced in Planning Policy Guidance Note 3: Housing (the guidance which was repealed and replaced by the NPPF) and is frequently used in research into housing affordability.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. 

An affordability crisis

Commentators increasingly refer to a crisis of affordability in England. 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.”

Home ownership has been difficult to access in recent years, particularly for first-time buyers, while access to social housing is constrained by limited supply. The private rented sector has benefited, it now houses more households than the social rented sector. Private sector rent levels in high pressure areas have increased in response to demand. One Government response has been to restrict assistance through Housing Benefit/the housing element of Universal Credit. Analysis by Crisis (2022) found “housing benefit is no longer covering the cost of renting a modest property in most parts of England”.

Historically, homes for social rent (with rents at around 50-60% of market rents) and affordable home ownership have been the main source of new affordable housing. The introduction in 2011 of social sector units with rents of up to 80% of market rents has, in the view of some commentators, undermined the ability of even the social sector to supply housing that is truly affordable.

The 2021-26 Affordable Homes Programme (AHP) programme will allocate £11.5 billion of grant funding over five years. This 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.

In February 2021 the then-Housing Minister, Christopher Pincher, 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 National Housing Federation (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 (PDF).

There are widespread calls for increased support to develop more social rented housing. Cited benefits include potential to reduce pressure on Housing Benefit/UC expenditure, and improved housing options for people on a low income without having to rely on Housing Benefit. The Levelling Up white paper (February 2022) contains the following commitment:

The UK Government will also increase the amount of social housing available over time to provide the most affordable housing to those who need it. This will include reviewing how to support councils to deliver greater numbers of council homes, alongside Housing Associations.

New supply of affordable housing

Around 52,100 units of affordable housing were delivered in 2020/21. This is slightly lower than the 58,900 homes delivered in 2019/20, which may be partly due to building disruption caused by the Covid-19 pandemic.

Homes for Affordable Rent were the most common type of affordable housing supplied in 2020/21, making up 46% 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 2020/21 around 6,000 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 9.1 times higher than median wages in 2021. The ratio varies substantially across the country, with prices over 20 times higher than residents’ median earnings in some parts of London.

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 28% of median monthly earnings, in parts of London this is considerably higher (eg 68% in Westminster).