Rent affordability in the affordable housing sector: literature review

6. Rents in the affordable housing sector

The purpose of this chapter is to examine rents in the affordable housing sector (social and MMR) and disaggregate them by size and location of the property and other characteristics. Most of the data refer to Scotland for the most recent year available at the time of writing or in the form of time series, and sometimes comparisons between the UK regions are presented and discussed.

6.1 Social rents

In the Scottish Government’s annual statistical publication on social tenants in Scotland^[30], it is claimed that 1.14 million people lived in social rented housing in 2017 (CAD 2019). Social rented homes in Scotland represented 23% of total accommodation in 2017, in contrast with only the 17% in England and 16% in Wales (CAD 2019). More than half of the social rented homes (593,841 units in total) were publicly-owned by local authorities (53%), while the remainder (47%) was owned by housing associations.

Social rent-to-income ratio

Information on the income of social rented households aims at drawing a general idea of the economic situation of social tenants, which is then compared to social rent levels. Almost 7 out of 10 social rented households had in 2017 a net income below £20,000, compared to 44% of private rented households (CAD 2019). In detail, 3% of the social rented households had in 2017 a net household income under £6,000, 14% of social rented households had a net household income between £6-10,000, 29% between £10-15,000, 22% had an income between £15-20,000, 13% between £20-25,000, 8% between £25-30,000, while 11% were earning over £30,000 (CAD 2019, p. 88; Chart 5.9). Overall, during the 3-year period from 2015/16 to 2017/18, in Scotland 42% of social rented households earned less than £15,000, compared to 34% in England (CAD 2019, p. 89).

During 2015-2018 social renting households in Scotland spent on average 24% of their net income on housing costs (rent gross of Housing Benefit, water and any service charges), while households in England spent 30% and in Wales 29% (Figure 6.1). For the same period private rented households in Scotland spent an equivalent of 27% (CAD 2019, p. 93). Overall, the rent-to-income ratio was lower in Scotland compared to England and Wales.

Figure 6.1 – Median ratio of housing costs to net unequivalised household income, 2015/16 to 2017/18 by tenure and country

Source: Reproduced by CAD 2019, p. 93; Family Resources Survey

Using the median ratio of housing costs to net unequivalised household income, analysts of the Scottish Government estimated how many households are spending more than 30% of the income on housing costs. Slightly more than 3 out of 10 social rented households spent more than 30% of their net income on housing costs during 2015/16-2017/18, while the same rent-to-income ratio corresponded to 49% of social rented households in England and 48% in Wales for the same time period (CAD 2019, p. 93).

Social rents by provider and UK region

The average weekly rent for socially rented properties in 2017/18 in Scotland was £76.23, which means on average £3,659 per year, an increase of 2.4% on the previous year (CAD 2019, p. 4). Social accommodation managed by local authorities is generally cheaper than housing associations’ rents: £70.73 compared with £82.28 respectively in 2017/18 in Scotland (Table 6.1). Moreover, in 2017/18 local authority average weekly social rent in Scotland (£70.73) was lower compared to England (£86.71) and Wales (£84.56). Similarly, the average weekly social rent offered by housing associations in Scotland (£82.28) was lower compared to England (£95.59) and Wales (£87.10) (CAD 2019, p. 5).

Table 6.1 – Average weekly social rents, 2014/15 to 2017/18, by social rent provider and country

	2014/15	2015/16	2016/17	2017/18
Housing Association Properties
Scotland	£76.92	£78.86	£80.24	£82.28
England (Private Registered Providers of social housing stock)	£95.89	£97.84	£96.61	£95.59
Wales	£79.16	£82.05	£83.93	£87.10
Northern Ireland (rent gross of service charges)	£97.99	£101.71	n/a	n/a
Local Authority Properties
Scotland	£65.78	£67.60	£69.22	£70.73
England (includes affordable rents as well as social rents)	£85.89	£87.93	£87.36	£86.71
Wales	£75.19	£78.44	£81.15	£84.65
Northern Ireland (Northern Ireland Housing Executive)	£63.46	£66.60	£66.61	£66.60

Source: Reproduced by CAD 2019, p. 84; Scottish Housing Regulator Reports on the Scottish Social Housing Charter Findings; MHCLG live tables on rents, lettings and tenancies (Table 702 and 704); StatWales tables on social housing stocks and rents; Northern Ireland Housing Statistics 2017/18.

In Scotland, over the five financial years from 2013/14 to 2017/18, average weekly social rents (provided both by councils and housing associations) have increased cumulatively by 12.2% (which equates to a real terms increase of 6.9% over and above the level of CPI^[31] inflation over these years) - from £67.96 in 2013/14 to £70.99 in 2014/15, £72.90 in 2015/16, £74.44 in 2016/17 and £76.23 in 2017/18 (CAD 2019, pp. 81-82).

As seen by Figure 6.2, besides the overall increase in council rents, there was also an increased divergence in social rents provided by local authorities across the regions of the UK. Council rents in England have (since 2001) been higher compared to the rest of the UK, followed by those in Wales. The differences between regions have widened between 2010-2015, when council rents in Scotland and Northern Ireland showed smaller increases than those registered for England and Wales. An increase in all the social rents provided by local authorities can be observed, with a sharper increase registered in England.

Figure 6.2 – Local authority and Northern Ireland Housing Executive average weekly rent by country, 2001-2 to 2014-15

Source: Reproduced by Young, Wilcox et al. 2017, p. 19 (DCLG Live Tables -Table 701, accessed September 2016; note 2014-15 are provisional)

Social rents by property size

As mentioned above, the average rent for social rented households was £76.23 per week in Scotland in 2017/18. This average rent varied from £67.44/week for a 1-bedroom apartment to £73.33 for a 2-bedroom, £74.94 for a 3-bedroom, £81.37 for a 4-bedroom and £90.39/week for a 5-bedroom apartment (CAD 2019, p. 81; Figure 6.3).

Figure 6.3 – Average weekly rents by social landlord type and property size, Scotland 2017/18

Source: Reproduced by CAD 2019, p. 81; Scottish Housing Regulator Reports on the Scottish Social Housing Charter Findings. Note that apartment size categories are based on a count of the number of bedrooms and living/dining rooms. Kitchens, bathrooms, toilets and utility rooms are not included.

Table 6.2 displays the average weekly social rents by type of provider and size of property across time. Since 2014/15 there has been an increase in social rents, proportional to the size of the property. This increase was balanced across all types of properties (based on number of bedrooms) and did not appear more pronounced for a particular type, with the only exception being the 1-bedroom flats provided by local authorities, which did not register any increase in their rent.

Table 6.2 – Average weekly rent by landlord type and property size, Scotland

Average weekly rent	RSLs			LAs			All Landlords
	Avg.	Avg.	Avg.		Avg.	Avg.		Avg.	Avg.	Avg.	Min	Max
	16/17	17/18	16/17		17/18	14/15		15/16	16/17	17/18	17/18	17/18
1 Apt	£69.86	£71.43	£59.71		£59.21	£64.06		£65.97	£66.48	£67.44	£30.91	£110.88
2 Apt	£77.81	£79.76	£64.90		£66.26	£68.53		£70.38	£71.64	£73.33	£48.78	£104.01
3 Apt	£78.30	£80.39	£68.89		£70.43	£69.59		£71.54	£73.11	£74.94	£57.35	£119.92
4 Apt	£86.65	£88.87	£73.66		£75.39	£75.68		£77.60	£79.40	£81.37	£54.10	£112.47
5+ Apt	£96.32	£98.47	£80.15		£81.99	£84.05		£85.98	£88.39	£90.39	£51.62	£126.75
Total	£80.24	£82.28	£69.22		£70.73	£70.99		£72.90	£74.43	£76.23	£53.48	£99.45

Source: Scottish Social Housing Charter Data of Scottish Housing Regulator

London is a unique example of a housing market in the UK and among European countries, comparable perhaps to Paris. We present the London Affordable Rent (LAR) benchmarks - introduced by mayor Sadiq Khan as part of the 2016 Affordable Homes Programme - to highlight the difference in social rents between average rents in Scotland and London. While the maximum rent for a one-bedroom social property in Scotland is £111 (Table 6.2), the equivalent LAR equals to £144 (Table 6.3).

Table 6.3 – London Affordable Rent (LAR) benchmarks for 2017-18

Bedroom size	2017-18 Benchmark (weekly rents, exclusive of service charge)
Bedsit and one bedroom	£144.26
Two bedrooms	£152.73
Three bedrooms	£161.22
Four bedrooms	£169.70
Five bedrooms	£178.18
Six or more bedrooms	£186.66

Source: Reproduced by Wilson and Barton 2018, p. 8.

Social rents by property location

The rents of social accommodation vary based on the location of the property. In particular, in 2018/19, estimated average weekly rents for social housing provided by local authorities ranged from £59.69/week in Moray to £95.58 in the City of Edinburgh (Housing Revenue Accounts 2017-18, published in the website of the Scottish Government; Figure 6.4) The actual average weekly rents for 2017/18 ranged in the same way, from £57.23 in Moray and £59.86 in East Lothian to £94.27 for Edinburgh (Housing Revenue Accounts 2017-18). The same figure for the City of London in 2017/18 was £104.62, while social rents for housing provided by Private Registered Providers was £126.83/week in 2018 (Live tables on rent, lettings and tenancies published at the website of the UK Government^[32]).

Figure 6.4 – Average weekly rent of council homes, by Local Authority, Scotland

Source: Scottish Government, Communities Analysis Division – based on Housing Revenue Account return provided by Local Authorities.

Note: Six councils transferred their housing stock to the housing association sector, therefore HRA information is not available for them.

6.2 Service charges

Service charges are charges added to the rent for services provided, such as stair-cleaning, maintaining the garden, lifts, building security, utility bills, council tax, phone bills, heating and lighting of communal areas. Service charges usually include the charges for the service provided plus administration costs, and should be listed in tenancy agreements. Services can be mandatory, such as lighting and maintenance of communal areas, and optional or else services to individual homes, such as heating, hot water and lighting and water charges. Mandatory services are usually considered as part of the rent, while optional or individual services are kept out of the rent. Service charges are usually property-specific.

Housing Benefit covers part of the service charges, but not charges for heating, hot water, lighting, laundry or cooking (Stephens et al. 2015). In Scotland, many landlords provide only service charges that are covered by Housing Benefit, such as communal heating (Young et al. 2017). For example, Ochil View, a housing association in Alloa, Clackmannanshire, reports that all their service charges are eligible for Housing Benefit^[33]. Most housing associations adopt a rent and service charges setting policy in line with the Scottish Housing Regulator Performance Standards for RSLs AS1.6 and AS1.7, in order to set affordable rents and service charges that enable the associations to maintain their properties at high standards. Scottish Housing Regulator Performance Standard AS1.6 states that rents should be set after taking into account affordability, the costs of managing and maintaining properties, comparability with other social landlords of the area, while AS1.7 states that services to the tenants and recover costs should be priced in a fair and accountable manner. Some housing associations, such as Berwickshire Housing^[34], have committed to not increase rents in order to cover the cost needed to meet the Energy Efficiency Standard for Social Housing (EESSH).

Service charges and rents are reviewed annually, for example Berwickshire Housing increased rents and service charges in 2018/19 by 2%. The service charges, as well as rents, of new builds differ from the stock transferred to the associations by local authorities. For instance, in the case of Berwickshire Housing, for all new builds completed after April 2015 there will be a standard rent + 9% charge.

According to a CIH report, “abolishing service charges makes it easier to measure affordability in terms of looking at the overall cost for the accommodation” (CIH 2013, p. 13).

6.3 Mid-Market rents

Mid-market rents are, by definition, lower than private market rents but higher than social rents. Usually MMR rent levels range between 20% above social rents and 80% of the LHA rate or else 80% of the local median private rent, and they never exceed the LHA. Similarly, according to an England-based housing association, the intermediate market rent in England is usually set at 80% of the market rent value, including service charges^[35]. Market (or private) rents are defined based on the open market, or the average private rent level for similar properties in a specific location. According to research commissioned by the Highland Council and conducted by Heriot-Watt University, intermediate rental affordability was defined as a rent-to-income ratio of 30%^[36].

However, more precise calculations of MMR depend on the characteristics of the providers and the tenants and there is not a lot of evidence in the literature.

6.4 Housing benefits

The final part of this chapter presents data on housing benefits and claimants in Scotland and across the UK.

The housing benefit scheme is designed to protect household incomes after taking into account housing costs. To protect household incomes from rent increases, housing benefits increase when rent increases (Stephens et al. 2015). However, in some occasions, tenants might not have their incomes fully protected (Stephens et al. 2015). These occasions include eligible tenants not claiming for their benefits, service charges not (fully) covered by housing benefits, and UK Government reforms such as the Bedroom Tax and Benefit Cap (see section 8.1 for more information).

Only 3 out of 10 social rented households self-reported that they managed well financially in 2017 (CAD 2019, p. 97). Overall, in 2017, 59% of social rented households in Scotland received Housing Benefit (CAD 2019, p. 95). 60% of housing association households and 58% of local authority households were in receipt of Housing Benefit in 2017 (CAD 2019). Housing Benefit aims at supporting low income households to pay their rent; the benefit covers part of the rent (or the full rent) and cannot be used to cover other expenses. Universal Credit will eventually replace six types of benefits, including Housing Benefit. The housing element of the Universal Credit aims at supporting households with rent payments (see more information on section 8.1).

In Scotland between 2015/16 and 2017/18, Housing Benefit covered a median value of 94% of housing costs (which may include more expenses than just the rent) of eligible social rented households, compared to 89% in England and in Wales (to interpret with caution due to small sample size) (CAD 2019, p. 96; Figure 6.5). Housing benefits can meet 100% of the rent or part of it, as well as all the marginal costs of housing. Approximately 67% of social rented households had their rent fully covered by Housing Benefit (CAD 2019, p. 96).

Figure 6.5 – Median percentage of housing costs covered by Housing Benefit for claimants in Scotland, 2015/16 to 2017/18

Source: Reproduced by CAD 2019, p. 97; Family Resources Survey

Table 6.4 displays Housing Benefit claimants by age groups at the start of 2018, comparing the average age groups and mean weekly award amount in Scotland and the UK. The percentage of claimants increased between ages 25-44, then decreased and then increased again for people aged 70 years old or above (around 25%). This trend is similar for both Scotland and the UK. Around 9% of people between 45 and 69 years old were Housing Benefit claimants, while this was less than 5% for those under 25. Even though we have previously seen (Figure 6.5) that housing benefits covered a higher percentage of the housing costs in Scotland compared to the rest of the UK, in Scotland claimants received a lower amount of Housing Benefit overall compared with the whole of the UK: £71 compared to £90 respectively. This is due to lower social rents in Scotland. The highest amount of Housing Benefit was received by those under 25 years old.

Table 6.4 – Age (in bands) of Housing Benefit claimants and Mean weekly award amount, January 2018

	Scotland		UK
Age	Housing Benefit Claimants %	Mean of Weekly Award Amount	Housing Benefit Claimants %	Mean of Weekly Award Amount
Under 25	3.9	£81.29	3.9	£110.13
25 to 34	12.7	£72.22	13.5	£93.97
35 to 44	14.6	£72.88	15.2	£94.03
45 to 49	8.6	£70.58	8.6	£91.6
50 to 54	9.3	£69.21	8.8	£89.09
55 to 59	9.0	£68.47	8.1	£86.37
60 to 64	8.6	£68.19	7.7	£84.7
65 to 69	9.1	£70.96	8.8	£86.59
70 plus	24.3	£70.32	25.4	£85.65
Total	100	£70.98	100	£89.86

Source: DWP Stat-Xplore, https://www.gov.uk/government/statistics/housing-benefit-caseload-statistics

Finally, local authorities may administer Discretionary Housing Payments (DHPs) to tenants on Housing Benefit/Universal Credit who require further assistance with housing costs where Housing Benefit does not cover all the rent; where Universal Credit does not cover all the housing costs; where tenants need help with removal costs or where tenants need help with a rent deposit. DHPs can also be used to provide support to claimants affected by some of the key welfare reforms, including the introduction of the household Benefit Cap, the removal of the Spare Room Subsidy in the social rented sector (RSRS, also known as the ‘Bedroom Tax’) and reductions in LHA (Discretionary Housing Payments in Scotland: 1 April 2017 to 31 March 2018 Report). Based on the same report (p. 4), the Scottish Government’s total published budget for DHPs in 2017/18 is £57.9m, including two funding streams for DHPs, “Bedroom Tax Mitigation” (£47m) and “Other DHPs” (£10.9m).

6.5 Summary

Scotland had in 2017 the largest and most affordable social rented sector in the UK. The average social rent in Scotland in 2017/18 was £76.23/week. The rent levels varied greatly by Local Authority area, with the City of Edinburgh showing the highest social rent equal to £94.27/week in 2017/18. Overall, social housing provided by local authorities is more affordable than social housing provided by housing associations. Over the five financial years from 2013/14 to 2017/18, there has been an increase in social rents, an increase equal to 6.9% in real terms. On top of rent, social rented households face service charges, which are not necessarily covered by housing benefits and which might increase for new builds and in light of investments to satisfy housing standards. Around 60% of social rented households were in receipt of housing benefits in 2016/17, with 67% having their rent fully covered.