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What is affordable housing?

Published Monday, May 20, 2019

This briefing paper considers how affordable housing is defined in England and looks at key trends in the affordability of different tenure types. It examines the supply of affordable housing and the role of Housing Benefit in enabling households to access and retain affordable housing.

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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.

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.”

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

Defining affordability for planning purposes

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, following consultation, in July 2018. The revised 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.  

How much affordable housing is being built? 

Supply of affordable homes

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.

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 are now eight times higher than median earnings. In London, the ratio can be considerably higher: in Kensington, it is 32.2.

House price to earnings ratio

The decline in the affordability of home ownership together with pressure on the social rented sector has prompted growth in private renting. As private rents rise, the private rented sector has experienced its own affordability issues, particularly in London. While the median private rent in England is equivalent to 26% of median monthly earnings, in parts of London this is considerably higher (e.g. 75% in Kensington and Chelsea).

Access to social housing is constrained by a lack of supply. The number of new homes provided for social rent declined from 39,560 in 2010-11 to 6,463 in 2017-18 (although this represents an increase on the previous year's output). Following their introduction in 2011-12, the number of new homes for affordable rent initially increased rapidly: 40,830 new units were provided in 2014-15. Homes for affordable rent were the most common type of affordable housing supplied in 2017-18, making up 57% of the Government's Shared Ownership and Affordable Homes Programme.

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 East.

Housing Benefit

The private rented sector has been the beneficiary and now houses more households than the social rented sector. Private sector rent levels have increased in response to demand. One Government response has been to restrict levels of assistance through Housing Benefit. 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 Housing Benefit 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.

The Autumn Statement 2016

Sector submissions to the 2016 Autumn Statement called for a reconfiguration of the Affordable Homes Programme to allow providers more flexibility over the type of housing developed. There were particular calls to encourage development at social rent levels in order 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 to assist with rent payments. The Autumn Statement did announce the 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 NHF’s 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 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 – this additional funding will commence in 2021/22. The announcement extended support for the development of social rented housing. Subsequent developments include the Chancellor announcing 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 Smith Institute launched an Affordable Housing Commission in October 2018 which is looking at several issues, including an examination of “the causes and effects of the affordability crisis”. A final report is expected in early 2020.

Commons Briefing papers CBP-7747

Authors: Cassie Barton; Wendy Wilson

Topics: Housing, Housing supply, Owner occupation, Planning, Private rented housing, Social rented housing

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