What is affordable housing?
With the terrible trio of sky-rocketing utility bills, stagnant wages and the soaring cost of living continuing to tighten their grip around households across the UK, affordable housing couldn’t be more relevant right now.
While affordable housing may seem like a fairly self-explanatory phrase, it actually covers an extensive range of property schemes and isn’t as cut and dried as it may first appear. So, what is affordable housing in the UK and could you stand to benefit?
Below, we take a deep dive into the subject of affordable housing to help demystify what is a potentially overwhelming topic. From the exact definition of affordable housing to who can qualify for Government-led affordable housing schemes, we leave no stone unturned.
What does ‘affordable housing’ mean?
According to Annex 2 of the National Planning Policy Framework, affordable housing is regarded as “housing for sale or rent, for those whose needs are not met by the market (including housing that provides a subsidised route to home ownership and/or is for essential local workers).”
This detailed definition is subject to complying with one of the four following definitions of either; affordable housing for rent, starter homes, discounted market sales housing, or other affordable routes to home ownership.
Put simply, affordable housing in the UK refers to housing that has been deemed ‘affordable’ by the Government according to the above definition that was most recently updated in November 2021.
While ‘affordable’ is a relative term, the Government has used the below definitions to clarify the meaning of affordable housing for renting, as well as for shared ownership and full ownership.
As reported by the BBC, in order for a rented property to be considered affordable it must cost no more than 80% of the average local market rent. This provides prospective tenants with much more affordable options than those that are currently available to them via the private rental market.
What about affordable housing for home ownership? The Government definition of affordable housing for home-owners is housing that is provided where the mortgage payments on the property are greater than council housing rent, but below market levels, creating an affordable middle ground.
How do you qualify for affordable housing?
Typically, you can qualify for affordable housing if your household income is at or below the median as dictated by a recognised housing affordability index. There are a number of various housing affordability indexes, each one measuring the ability of an average person to purchase a particular item; in this case, a house. Naturally, this median value will vary from region to region, providing a good indication of whether a household can afford a home in a certain location.
A good guide for determining whether or not you’re eligible for affordable housing is if you can afford to rent or buy housing privately. If you cannot afford private housing, the likelihood is you’ll be eligible for affordable housing. Most commonly, affordable housing schemes are aimed at certain groups of people, for example, local residents that earn less than the national average wage.
For more information on applying for affordable housing funding, it’s best to get in contact with your local housing association or the Government.
How does the affordable housing scheme work?
Currently, the Government is running an Affordable Homes Programme that started in 2021 and will continue until 2026. Ultimately, this programme provides grant funding to support the costs of developing affordable properties for both rent and sale.
With the aim of providing 180,000 affordable homes by the end of the scheme, it has created two affordable rental routes and four affordable home ownership schemes. Below, we take a look at some of the most popular.
Renting property: social rent and affordable rent
There are two types of rent that are more affordable than properties on the private market. They are social rent and affordable rent. While affordable rent (also known as intermediate rent) is simply homes let at 80% of the local market rent for an equivalent home, social housing refers to homes that are let by a registered provider or local authority for significantly below market rent.
The only issue with social housing is that not everyone is eligible for this scheme because these homes are prioritised according to need. As such, affordable housing is the next best thing. If your application is successful, households will have the opportunity to save money for a deposit thanks to these decreased monthly rent payments.
Buying property: First Homes and shared ownership schemes
Within the Affordable Homes Programme, the Government also offers a First Homes scheme that provides discounts on new-build properties for eligible first-time buyers. Through this scheme, successful applicants can snap up one of these first homes with a discount of at least 30% against their market value, providing them with full ownership at a decreased price tag.
Exclusively available to first-time buyers with a household income of £80,000 or less (£90,000 or less in Greater London), this scheme acts as a fantastic step onto the property ladder. It’s worth noting the home ownership schemes like First Homes lower the overall cost of the property for sale, while shared ownership schemes are more suitable for buyers with smaller deposits.
Shared ownership allows eligible households to purchase a certain percentage of a home (commonly 25%, 50% or 75%) and pay rent on the remaining share. The minimum share for purchase is just 10%, so there are plenty of opportunities to purchase your own home regardless of your deposit amount.
If you’re looking for more affordable rent with a view to buy, rent to buy schemes are also available which allow working households to pay discounted rent (set at or below 80% of the market value) for at least five years. During this time, the tenants have the opportunity to save and put this sum towards a deposit.
Is affordable housing good?
Pros of affordable housing
As explored above, affordable housing schemes can give eligible households a boost onto the property ladder. Regardless of whether they’re ready to buy or need more affordable rent for a few years to save a deposit in the meantime, affordable housing can be a lifeline for these households.
A massive pro of affordable housing for prospective homeowners is that it can help first time buyers to actually own their first home without spending more in the long run on renting a property. Plus, more affordable rented housing can also support many low-income households by providing them with quality housing for a better price, allowing them to save for the future.
Cons of affordable housing
Sadly, there’s no consensus on the exact definition of ‘affordable housing’. Due to the subjective nature of the word ‘affordable’, many organisations disagree with the Government’s definition of affordable housing. As a result, this had led to criticism of what is actually affordable for both low-income households and first-time buyers alike.
By way of illustrating, the homelessness charity, Shelter, puts forward its own definition of ‘affordable’ housing – 35% of a household’s net income (this is the income after tax and benefits). This definition uses a housing cost-to-income ratio instead of using the market value to deem which properties are affordable on a case-by-case basis.
Shelter adds that the average amount private renters can expect to spend on their rent is 47% of their net income – a substantial 17% extra than their proposed definition of affordable housing. This leads us to the conclusion that although affordable housing certainly gives prospective tenants and buyers support on their hunt for more cost-effective accommodation, there is room for improvement.
By ensuring property prices aren’t just cheaper than market value but actually take into consideration the net income of households, the Government can provide real, affordable housing. Ultimately, this will not only allow eligible households to consistently pay the rent or mortgage without falling into debt or arrears, but it’ll also allow them to achieve a good standard of living.
Why is affordable housing needed?
According to data provided by the popular property portal, Rightmove, average house prices saw a mammoth 10.4% annual price growth in March 2022 – the highest in eight years! This has led to record UK home prices with the average British home now costing a whopping £354,564.
Coupled with private rents ‘rising at the fastest rate in five years’ (as reported by the Guardian), first-time buyers are not only struggling to afford private rent, but are also unable to step foot onto the property ladder as they can’t save a decent deposit.
This is where social rent, affordable rent, and the Government’s home ownership schemes come into play to make renting more feasible for low-income households and buying property a real option for first-time buyers. Affordable housing has also been linked to both reducing stress and combating infectious diseases, improving a household’s overall mental and physical health.
Not to mention, affordable housing provides families with the opportunity to allocate more funds to cover other household essentials such as rising utility bills and their monthly food shop. The rising cost of living paired with a desire to ‘put down some roots’ has led to an ever-increasing demand for affordable housing because it offers both social and financial stability.
Do developers have to provide affordable housing?
Yes, property developers are bound by Government policies and quotas from the local authorities when it comes to the amount of affordable housing they need to provide. However, they can use a viability assessment to prove that their profits could be slashed by 20% if they were to follow these quotas, leading councils to reduce the number of affordable homes they are required to build.
Despite this loophole, according to official statistics as reported by Which?, a grand total of 57,644 affordable homes were provided in 2019-20. The split between affordable homes to buy and affordable homes to let was fairly equal with 24,551 affordable rented homes being created and 23,122 shared ownership properties being provided.
How much is affordable housing per development?
With the highest proportion of affordable housing being made up of new builds, it’s paramount that there are set levels of affordable housing developers must abide by. Typically, councils in the UK insist that at least 25% of new dwellings in developments should be affordable. However, this percentage can rise up to a significant 40% to cater to greater demand for affordable housing according to the area.
With a considerable proportion of new build developments consisting of affordable housing, there is a glimmer of hope for tenants stuck in unaffordable rental properties as well as first-time buyers struggling to pull a deposit together. Luckily, the team at Pick My Pad is just a phone call away if you require more information regarding affordable housing.
Get in touch with Pick My Pad
For reliable, expert advice when it comes to both selling and buying property or renting houses in the North West, look no further than Pick My Pad. We have invaluable experience when it comes to helping our clients find affordable properties. We even offer DSS and no-income tenants free, no-obligation advice and services.
Part of the Mistoria Group, we have a wealth of local area knowledge that includes in-depth information about great schools as well as vital transport links. By offering a bespoke service for each and every one of our clients, we take into account the unique needs of your household to unearth the perfect pad for your family.
You can either call us today on 01617903999 to speak to one of our friendly staff members and discuss your housing requirements or contact us online. However you choose to get in touch, we’re here to help.