Affordability has long been a slippery word in housing circles. Thirty-years back when it first became vogue, following the introduction of private funding into housing association development finance, the affordability threshold was unofficially set at 25% of household income and that was gross income if my memory serves me. The reality was that affordability was set at whatever made a project financially stack up.
Now we are in different era and dealing with a different form of renting. The recent Rent Better Wave 2 research project, tracking the impact of recent housing legislation which brought into being a new form of private tenancy, the Private Residential Tenancy, provided new insights into affordability. On average tenants on lower incomes paid between a third to half their net household income on private rents, though some were paying more than half. When you add in Council Tax and heating costs for accommodation often in poor condition, housing is disproportionately expensive for the poorest.
The tenants interviewed for this study were poor, on average having net household incomes of just £17,000 per annum, so most also claimed benefits. Not surprisingly these tenants were finding it hard to pay their rent, though the rent they were paying was well below the levels currently being charged in so-called ‘hot markets’ such as central Edinburgh and Glasgow that attract so much public attention.
Even where the Local Housing Allowance level covers the full cost of their rent, the rental benchmark for setting housing benefit support, many tenants were struggling against poverty. Bear in mind these findings immediately precede the ‘cost of living crisis’ we have recently rapidly entered.
The Nationwide Foundation funded study also flagged warning signs about future affordability in this housing market. Evidence indicated that landlords preferred to rent to households receiving stable benefits, such as out-of-work single parents or pensioners, over households in precarious employment. This was because of the consequent unpredictability of the Universal Credit payments system. Landlords found the new Universal Credit arrangements to be seriously problematic when compared to the previous Housing Benefit system. This was a situation exacerbated by the Covid Crisis, when greater numbers of private renters were drawn into accessing Universal Credit.
Worryingly there was also evidence suggesting landlords are leaving the market. Half the landlords interviewed expected to stay in the market, but around half said that they expected to leave. That in itself is not something unusual, given there is always some churn with some landlords leaving, while others enter this market. What has changed, the study pinpoints, is that new landlords are not joining the market at the same rate as in the previous two decades. Consequently, there is now a decline in the scale of the private rented sector. Tax changes, attitudes to new or revised regulations, and recent housing market changes, have all made leaving the private rented sector a better option than staying.
The research found that those planning to exit the market intended to do so over the next two to five years. Landlords in parts of the market which Covid has highlighted to be riskier, namely student housing and the fore mentioned low income/benefits market, will exit sooner. So, if this does come to fruition, the market position of low-income renters will be further compromised as they find themselves within a constrained market with demand fighting for less supply.
The scale of the difficulties low-income renters currently face suggests that tackling affordability problems is well beyond the confines of housing policy, where the Scottish Government has a remit. To address their current and future poverty will involve tackling the challenges of precarious low-paid work, the current barriers to a benefit system failing to keep up with inflation, and the wider and accelerating cost of living crisis, all of which are, primarily, within Westminster’s remit. Given this impending scenario, controlling highest rents at the top end of the market will have absolutely no impact on current, let alone future, affordability concerns for the poorest that most need support.
Professor Douglas Robertson