Despite almost daily references in the media to the need for more affordable housing there’s little agreement about what this actually means. When asked how they define affordable housing, the Government refers to the National Planning Policy Framework (NPPF) which says that affordable housing is social rented, affordable rented (with rents of up to 80% of market rents) and intermediate housing (including homes for sale) provided to certain households whose needs are not met by the market.
Some commentators argue that definitions of housing affordability which don’t set targets related to incomes are lacking in credibility. Are rents at up to 80% of market rents and Starter Homes, capped at £450K in London and £250K outside of London, actually affordable for people on a low income? The proposal to include Starter Homes within the NPPF’s definition of affordable housing, and to require the provision of a minimum percentage of these homes on development sites, was hotly debated during the passage of the Housing and Planning Act 2016 through Parliament.
How can we measure affordability?
Measuring affordability involves comparing the amount people spend on housing to the amount of money they have coming in. In practice, there are different ways of doing this.
One commonly-used approach is to compare the average rent or house price in an area to the average salary. This is popular because salary data is readily available for small areas like constituencies and local authorities. It can give an idea of how one area compares to others, or how affordability has changed over time.
However, this approach misses a few things, like the fact that households often have more than one earner. It also doesn’t account for the impact of taxes or benefits. As Housing Benefit becomes more central to the affordability debate (see below), it starts to make less sense to use salary alone to measure affordability.
Another popular approach is to look at whole-household income after taxes and benefits – the Housing Cost to Income Ratio (HCIR). This kind of data is only available for broader areas, like regions, but it provides a more complete picture of a household’s circumstances. The HCIR was used by the Resolution Foundation in a recent report into trends in housing affordability, and by Shelter in their analysis of whether Starter Homes will be affordable.
The HCIR approach involves making a judgement about the ‘right’ amount of income for a household to spend on their rent or mortgage. A related technique, the residual income approach, defines housing as affordable if “a household is able to afford to meet their other basic or essential needs after paying for their housing”.
How affordable is housing in England?
Our new briefing paper, What is affordable housing?, looks at trends in affordability of tenure types in England.
We compare average house prices and private rents to average salaries so that we can make a consistent comparison across small areas. The table above shows some of our findings – the difference between the most and least affordable areas is striking.
For the social rented sector, we look at household income rather than salary in order to account for benefits income. Our research suggests that affordable rents (which are set at up to 80% of market rents) are less affordable than social rents (which are set through the national rent regime, usually at around 50% of market rents). This is particularly true in London and the South East.
Is Housing Benefit ‘taking the strain’?
Housing Benefit is a personal subsidy which enables non-working households and those on a low income to pay for rented accommodation. A series of changes introduced since 2010 mean that it’s more likely that a claimant’s Housing Benefit entitlement won’t cover the full amount of the rent due. This has implications for low income households’ ability to access and retain rented housing. Commentators argue that the freezing of Local Housing Allowance Rates (Housing Benefit paid to tenants in the private rented sector) is making private rented housing, particularly in London, increasingly unaffordable for people on a low income.
Calls to reshape the Affordable Homes Programme
Sector submissions to next week’s Autumn Statement have called for a reconfiguration of the Affordable Homes Programme to give providers more flexibility over the type of housing developed. There are particular calls to encourage development at social rents to reduce pressure on Housing Benefit expenditure and to improve housing options for people on a low income without having to rely on Housing Benefit.
If you want to find out more about housing affordability in England take a look at the new Library paper What is Affordable Housing?