It sounds like an easy question to answer, but what makes a home ‘affordable’ has become a serious point of contention. People even get angry about it, suspicious that what is being called ‘affordable housing’ isn’t actually affordable in any real sense.
This is because, fundamentally, there are two ways to answer the question ‘what is affordability?’
- One focuses on the person and what they can afford to pay for their housing.
- The other focuses on the home and what type (or tenure) of home it is.
Both are right. Or at least, both tell part of the truth. But depending on the way they’re used, they can also either be contradictory or aligned.
Focus on the person
If you ask enough people the question “what is affordable housing?” then sooner or later some smart aleck will say “housing that is affordable”. The annoying thing is that on a fundamental level, they’re absolutely right. Your home is affordable if you can afford to live in it: if you can pay the rent or mortgage without being forced to cut back on the essentials or falling into debt.
It’s only a rough guide, but we tend to say that the cut-off for what’s affordable in this sense is 35% of your net household income (your income after tax and benefits). Any more than this and it’s likely that you’ll have to cut back on something else or will have to borrow or will fall into arrears.
Of course, this can only ever be a rough guide. 35% for someone on a low income will be a lot more difficult to pay than 35% for someone on a high income. It will be easier to pay for someone without children than parents of three. It also gets complicated when someone receives housing benefit, because it’s possible that their rent will be ‘unaffordable’ as a proportion of their income even if all of it is covered by the benefit.
But this rough guide is also extremely useful. It helps us to make general judgements about easy it is for different groups of people to pay their housing costs. For example, the average amount that private renters shell out in rent is 47% of their net income. So it’s fairly obvious that that most private renters have deeply unaffordable housing costs, no matter what their individual circumstances are.
Focus on the home
There is another way of looking at affordability, though, and that’s to look at the legal definition. Under this definition, what gets called Affordable Housing (with a capital A and H) doesn’t directly take into account what the person occupying the home can actually afford to pay, given their income and dependants.
Instead, it focuses on what type (or tenure) the home is. It basically defines Affordable Housing as any home that is not private market housing, i.e. not a home bought privately or a home that’s rented from a private landlord.
There are lots of schemes included under this definition. They include:
- Social rented housing – low rent, secure housing prioritised by need.
- Affordable Rent housing – higher rent, less secure housing prioritised by need.
- Shared ownership – housing that you buy part of and rent part of
- Intermediate Rent homes – 80% market rate housing
The most common of these kinds of Affordable Home are social rented homes. 17% of all homes nationally are social rented, while the rest account for about 1% altogether.
However, the overwhelming majority of the Affordable Homes that are being built at the moment are Affordable Rent housing and shared ownership. Building of new social rented homes has almost completely collapsed. Social rented housing is even being converted to the more expensive Affordable Rent. This is because of a number of government decisions.
Which definition is right?
It would be nice say that one of these ways of looking at housing affordability is right and the other one is wrong, but you can’t. They are both a bit right.
The reason that both definitions are right is, fundamentally, because every type of home is affordable to someone.
Some people can afford a market home. For others, the only thing they will be able to afford is a social rented home. And government policy around housing benefit further complicates matters, by making it more or less easy for even people on very low incomes to access market homes to rent.
So we need a full mix of homes, including both ‘Affordable Homes’ (under the government definition) and market homes, so that everyone can find a home that is affordable for them (in terms of their income). We need
- Market homes for people to buy and rent, so people who should be able to buy don’t find house prices continuously running away from them
- Social rented homes so that people on low incomes are able to pay the rent without struggling
- And homes like shared ownership and intermediate rent for the people in the middle, who don’t need the full support of social rented housing but can’t afford a market home
The problem comes when we don’t have this full mix of homes.
At the moment we have an acute shortage of every type of home and we aren’t building enough to tackle the shortage. We’re barely building any social rented homes – and we aren’t building enough of any type of home.
This creates fierce competition for the housing that is available and the general impression that the Affordable Housing that is being built isn’t affordable enough. The shortage creates a misallocation. People who need social rented housing are being forced into more expensive types of home and people on good incomes are being forced to compete for shared ownership.
The only way we’ll solve this is by building the right mix of homes – more of everything. That way everyone will be able to find a home that is affordable for them.