Affordable housing

Image credit: David Hignett; licence

Although local authorities had been providing a measure of accommodation for the needy and badly paid since the nineteenth century, the Housing Act of 1919 ushered in a period of intensified building of council houses. The heyday of council-house construction came when a Labour government was returned after the Second World War, and particularly after the New Towns Act of 1947 and the sweeping reforms of the Town and Country Planning Act of 1949.

As part of the market-led policies brought in by the Conservative government under Margaret Thatcher, the Housing Act of 1988 allowed the selling-off of council properties; there was a brief revival of building under Labour in 2010, but the wholesale construction of new council housing has generally been replaced by a system of grants to developers and local authorities.

‘Affordable housing’ in the UK refers to properties offered for sale or rent at below the current market value. According to the government, affordable housing should be ‘social rented, affordable rented and intermediate housing, provided to specified eligible households whose needs are not met by the market’.

On 31 August 2021, the Communities Secretary announced an allocation of £8.6 billion of funding for affordable housing, with the intention of providing some 119,000 homes by 2026, of which about 29,600 are to be made available for social (i.e. below market value) rent. £5.2 billion of this sum is earmarked for schemes outside London.

In 2019-20 a total of 57,644 affordable homes were provided in England, as follows: 24,551 affordable rented homes, 23,122 shared ownership homes, 6,359 London affordable rent homes, and 5,716 social rented homes. Some 92% of affordable homes offered in this period were newly built.

Kinds of affordable housing

In a shared ownership scheme, the occupants buy part of the equity from a housing association, typically 25%, and pay rent on the rest, together with a service charge.

Social rented housing is let at rents below market level to ‘people whose needs are not adequately served by the commercial housing market’. Social rented housing is usually owned by local authorities. Properties may not be let for more than 80% of the local market rent.

Affordable private rented housing must also be at least 20% cheaper than local market rents. It is provided by the private market. Such properties are more widely available in developing tenures such as build-to-rent.

The government’s First Homes scheme offers first-time buyers a discount when they purchase a new-build home in England; First Homes must be sold at a discount of at least 30% against their market value. After the discount, the maximum amount First Homes can be sold for is £250,000, or £420,000 in Greater London. Local authorities can impose lower price caps if they wish. Not all new properties are available under the scheme, but the government says First Homes must account for at least 25% of affordable housing sold by developers.

Rent to Buy is for those with an annual household income below £80,000, who cannot buy a suitable home without help, and who have no outstanding credit problems. This scheme helps those buyers who cannot raise a deposit make progress towards eventually owning a home. Under it, housing associations offer properties for reduced rent, usually around 20% less than the market rate.

Intermediate rent, also known as affordable rent, was introduced as a new tenure in 2010. It allows housing associations to let properties out at 80% of local market rent levels – but to working people with household incomes of less than £66,000 (or £80,000 for larger homes).

Of course, house prices vary greatly across the country; a housing cost-to-income ratio would be a more effective way of ensuring affordable housing is truly affordable from area to area. The housing charity Shelter proposes that ‘affordable’ should classify as no more than 35% of a household’s net income.

The definition of ‘affordable housing’ is thus quite complex. The government’s intention is where possible to encourage home ownership, but it also recognises that a thriving rental market is necessary for many reasons. As a general rule of thumb, when a developer of so-called ‘market-led’ housing is required by a local authority to provide a percentage of affordable homes, each is offered at about 80% of its perceived market value, with the shortfall being sought from the government.