Rent affordability in the affordable housing sector: literature review

8. Policies with an impact on rent affordability

Among the main factors that affect rent affordability are macroeconomic factors, such as over-consumption of housing and supply shortages; labour markets, and housing factors, especially through shortage of supply and the balance between supply and demand (CIH 2013; Meen 2018b). Therefore, to tackle the problem of unaffordable housing a combination of housing policies and other policies is needed.

This chapter studies existing policies with an impact on rent affordability in Scotland and across the rest of the UK. We have also identified some literature on policies on rent affordability and social housing across Europe, but given the number of potential countries to study, and the contextual differences, such as different housing systems and different benefit systems, between countries, this chapter does not include discussion of any policies at the international level. Certainly, it appears that there is no single ‘European approach’, and although social housing tenants share common characteristics, social housing sectors across Europe are set up very differently (Scanlon et al. 2015).

8.1 Scotland

Housing, including building control and land use policy, has been a devolved policy area since 1998^[39], whilst the devolution of powers over social security began in 2016 and is ongoing. In Scotland, there is no central rent intervention policy. It is up to social landlords (and landlords in general) to determine the balance between rents and housing needs of the local communities, with the general idea that rents should remain affordable to low-income households without the only viable way to be through housing benefits (CIH 2013).

Some of the policies supporting low-income households with rent payments in Scotland and addressing rent affordability are listed below:

• Abolished Right-to-Buy in the Housing (Scotland) Act 2014 to preserve social housing stock for the future.
• Long-term housing policy ‘Homes Fit for the 21^st Century’ (2011-2020) aims at expanding policies that support affordable housing in Scotland until 2020 The Scottish Government is working on its approach to housing beyond 2021 and is aiming to publish a vision to 2040 and route map to get there in spring 2020. ‘More Homes’ is a policy framework which aims at increasing housing supply across all different tenures.
• Affordable Housing Supply Programme (AHSP): the programme aims to deliver at least 50,000 affordable homes by 2021^[40], of which 35,000 will be for social rent. AHSP grant subsidy benchmarks are set to ensure that social and mid-market rent levels remain affordable, and proposed social and mid-market rent levels are assessed at the individual property level as part of the grant application and approval process.
• Housing Infrastructure Fund – a 5-year fund launched in 2016, available to all housing tenures but with a priority to affordable housing projects and private rented housing. The Rural and Islands Housing Funds will run until 2021 and focus on the delivery of affordable housing of all tenures in rural Scotland.
• Standard requirements, such as the Energy Efficiency Standard for Social Housing (EESSH) and the same policy post-2020 (EESSH2) aim to improve the quality of social housing and reduce fuel poverty. The Scottish Government will support landlords in these changes with a fund.

Some of the benefits supporting low-income households with rent payments in Scotland are briefly described below:

• Housing Benefit – financial support for low-income households who are paying rent. It can be used only to cover rent expenses and it covers the whole or part of the rent.
• Universal Credit – introduced by the UK in order to replace Housing Benefit, Child Tax Credit, Income Support, income-related employment and support allowance, income-based jobseeker’s allowance and Working Tax credit. The aim of the Universal Credit is to combine various benefits into a single monthly payment. Part of the Universal Credit will be the housing element, which will cover rent expenses for the eligible household. Universal Credit is a UK-wide benefit reserved to the UK government.
• Universal Credit Scottish Choices – from October 2017 those living in Scotland can choose whether they want their Universal Credit paid twice a month rather than monthly and whether they want their Universal Credit housing element to be paid directly to their landlords. Between October 2017 and August 2018, 66,700 people had been offered one or both of the Universal Credit Scottish choices. Almost half of them (around 32,000 people) took up one or both of the choices: 26,910 people chose to receive twice monthly payments, 11,430 chose to have the housing element of Universal Credit paid directly to their landlords, and 6,380 chose both^[41].
• Discretionary Housing Payments (DHPs) – administered by local authorities in case a claimant of Housing Benefit or Universal Credit is considered to require additional financial support to cover the housing costs. The Scottish Government has funded Local Authorities to mitigate for the Bedroom Tax (discussed later) through DHPs. DHPs are devolved, but dependent on the Housing Benefit/Universal Credit, which are reserved to the UK Government.

Universal Credit and Rent arrears

As shown below, there is evidence that tenants receiving Universal Credit are more likely to experience rent arrears compared to those receiving Housing Benefit. According to a National Housing Federation report in July 2018, 65% of Universal Credit housing association tenants were in arrears in 2018 in Scotland, compared to 32% of all other tenants. Direct payments to landlords are less likely to cause rent arrears, compared to Universal Credit payments directed to households (SPICe 2017). In fact, 79% of Universal Credit claimants in England were in rent arrears, compared to 50% in arrears before claiming for Universal Credit (SPICe 2017). Similarly, in Scotland in 2016, Universal Credit claimants were more likely to be in rent arrears: 96% of council tenants in the full service areas in the Highland Council and 82% in East Lothian Council (SPICe 2017, p. 17). Research suggests that in England, Universal Credit claimants have higher average arrears than tenants on legacy benefits, although arrears appear to return to pre- Universal Credit levels 3-6 months after the first claim (National Housing Federation 2018, p. 2). The delay of the first benefit payment is considered to be related to the rent arrears (SPICe 2017; National Housing Federation 2018) and, according to a Shelter Scotland article, housing benefits are paid in arrears every month and therefore might lead to rent arrears. “Since August 2015, most new Universal Credit claimants have seven “waiting days” between the date on which they make a claim and the start of their Universal Credit entitlement. […] Combined with receipt of the first payment seven days after the end of the first month’s assessment period, this means that many claimants wait at least six weeks after making a claim to get any payment. Whilst advance “payments on account” are available, these must be repaid from future Universal Credit entitlement” (SPICe 2017, p. 16). In Northern Ireland, although the norm is that the housing element of Universal Credit is paid directly to all social landlords, concerns have been raised by housing associations and local authorities that Universal Credit has led to a significant increase in rent arrears (Frey 2018, p. 11).

Other policies beyond the control of the Scottish Government that might affect rent affordability are shown below:

• Benefit Cap – A top limit to the total amount of benefits a household can receive – introduced in April 2013. The cap was lowered in Scotland in 2016. Based on 2018 data^[42], more than 9 out of 10 of the households affected by the Benefit Cap contained children.
• Size Criteria or Bedroom Tax – the under-occupancy penalty is a reform consisting in a reduction in housing benefits for every extra bedroom in excess in each household. In detail, the Housing Benefit is reduced by 14% for one extra bedroom and by 25% for 2 or more extra bedrooms^[43]. The Scottish Government is currently mitigating this reform by topping up DHPs.

The Benefit Cap, Bedroom Tax and Universal Credit – all of which are matters reserved to the UK government – are making affordability a greater concern for landlords: “Higher levels of benefit dependency bring greater risks for social landlords” (CIH 2013, p. 5). According to the same report, tenants need a higher income (around £600 per week) to come off tax credits than to come off Housing Benefit, which means that more tenants will be on Universal Credit than were on Housing Benefit in 2013 (CIH 2013, p. 5).

Serin et al. (2018) claimed that public resources are not evenly distributed across Scotland, and there is an ongoing debate on whether the distribution of these resources for planning new social housing is based on actual local needs. They argued that the (un)affordability problems faced in west central Scotland are due to levels of deprivation, while those in the East are due to high housing costs.

Poverty and Housing Policies

The Child Poverty (Scotland) Act 2017 aims to eradicate child poverty in Scotland by 2030 and reverse this trend. The “Every child, every chance: tackling child poverty delivery plan 2018-2022” is the first Child Poverty Delivery Plan (published in March 2018) due under the Child Poverty (Scotland) Act 2017. The focus of the Plan is on the three main drivers on child poverty: employment, household costs (or else costs of living) and social security, especially for families with children. Child poverty targets are measured for the delivery plan on an after housing costs basis in order to reflect that housing is a significant element of households’ income and to aim at reducing family housing costs.

The supply of affordable housing is key in tackling child poverty. Increasing social rents closer to market levels could put more than an additional million people in poverty across the UK (JRF 2015). Initiatives such as Foundations First, housing advice and support services by Shelter Scotland^[44], assist families living in poverty to transform their life chances and meet their housing needs. Also, initiatives such as CHANGE: Childcare and Nurture, Glasgow East aim to mitigate the impacts of deprivation and to support children and families.

Housing Benefit contributes significantly to the reduction of housing-cost-induced poverty across the UK, but its contribution is not enough to eliminate poverty after housing costs (Tunstall et al. 2013). Based on a CIH research conducted in Scotland in 2016, the impact of the Benefit Cap was expected to be significant for families with children. They argued that 6,700 families across both the social and private rented sectors in Scotland would be affected by the cap, from which the majority are two and three-child families^[45]. In line with this finding, Tunstall et al. (2013) claimed that the impact of the Benefit Cap in the UK will hit larger families living in areas with high housing costs harder, leading to unaffordable housing, even in the case of the social rented sector.

The impact of fuel poverty on households includes health impacts associated with cold, damp homes and/or mental health stresses created by the financial pressures that they face with unaffordable and high fuel costs^[46]. Children who live in houses that face fuel poverty may be unable to find a warm, well-lit place to do their homework and may, as a result, be less likely to achieve their full potential. As part of the Fuel Poverty (Target, Definition and Strategy) (Scotland) Bill 2018, which aims to eradicate and define fuel poverty, the Scottish Government is proposing a new definition based on poverty after housing costs, which means that more affordable rents may lead to higher residual incomes for households, which in some cases may be sufficient to lift them out of fuel poverty.

8.2 UK Regions

Housing policy is devolved across the UK and, since the UK fiscal austerity of 2010, social housing policy has diverged even more (Stephens 2017). As seen in Table 8.1, the social rented sector remains larger in Scotland than in the rest of the UK. The sector has steadily decreased across the UK due to a decrease in new builds and a reduction in the existing stock that followed the Right to Buy scheme introduced by Margaret Thatcher’s administration (Stephens 2017). The Right to Buy policy had a severe impact on the social housing stock, especially in Scotland and Wales. It also led to the residualisation of the remaining social rented sector, since tenants living in houses and high quality flats were more likely to buy their properties (Stephens 2017, p. 8). Although Scotland currently has the highest proportion of social housing, it has also seen the greatest decline – from 54% to 23%.

Table 8.1 – Social rented housing as a percentage of total housing stock

	1976	1986	1997	2007	2014
England	29.0	26.0	21.9	18.0	17.4
Wales	27.2	24.5	20.3	16.5	16.0
Scotland	54.2	49.3	34.1	24.9	23.4
Northern Ireland	36.8	35.4	26.8	17.0	16.2

Source: Reproduced by Stephens 2017, p. 8

According to a Scottish Government report, in 2017, Scotland had a higher proportion of social rented stock (23%) compared to both England (17%) and Wales (16%) (CAD 2019). Conversely, in 2017, England had the highest proportion of private rented dwellings (20%), compared to Scotland (15%) and Wales (14%), whilst Wales had the highest proportion of owner occupier dwellings (70%) compared to both Scotland (62%) and England (63%). In Northern Ireland 2017/18 the total housing stock was estimated as 790,328 homes, from which 69% was owned (outright or with a mortgage), 14% belonged to the private rented sector and 16% to the social rented sector (Northern Ireland Housing Statistics 2017-18).

The Scottish legislation aims to mitigate the impact of the UK Government welfare changes (discussed in section 8.1) on the social housing sector (Wheatley Group 2016). The Scottish Government fully funds the reduction in Housing Benefit that occurred as result of the Bedroom Tax. In detail, the Scottish Government has made available in 2015/16 a fund of £35m to fully mitigate the Bedroom Tax reform. While in England the focus is on ownership – by supporting first-time buyers and shared ownership schemes – Scotland has set a target of 50,000 affordable homes by 2021, 35,000 of which will be for social rent (Wheatley Group 2016, p. 3).

Moreover, in Scotland there is no rent regulation system, as there is in England (Wheatley Group 2016). The Scottish Housing Regulator (SHR), launched by the Housing (Scotland) Act 2010 aims to promote the interests of social tenants by monitoring, assessing, comparing and reporting on social landlords’ performance and by keeping a register of social landlords^[47]. Moreover, as required by the Housing (Scotland) Act 2010, the Scottish Social Housing Charter sets the standards and outcomes that all social landlords should aim to achieve when performing their housing activities. “The Housing (Scotland) Act 2001 requires social landlords to consult tenants and take account of their views when making decisions about proposed rent increases” (Scottish Housing Regulator 2016, p. 1). SFHA and Glasgow and West of Scotland Forum of Housing Associations (GWSF) represent housing associations, community-controlled housing associations and co-operatives across Scotland to promote their interests.

8.2.1 England

Under the UK Coalition Government (2010-15), a shift from social to affordable housing was observed in England, with affordable housing being defined as housing with rents of up to 80% of market rents (Stephens 2017). During these years the number of completed new social rented houses in England decreased from 37,680 units to 6,550, while the opposite happened to affordable rented housing, for which the number of completions rose from 1,150 to 16,550 units (Stephens 2017, p. 13, data source: DCLG; Table 1000).

During most of the last two decades, local authority landlords in England and Wales were constrained by the Housing Revenue Account (HRA) subsidy rule, which acted as a rent pooling system (Young et al. 2017). According to Young et al. (2017), this system led to little incentive for social landlords to consider affordability.

Since 2016/17, social landlords in England need to reduce social and affordable rents (but not services charges) by 1% each year until 2019/20^[48]. The Economic and Social Research Council (ESRC) suggested in 2016 that this will not benefit low-income households in social housing, as those who are in receipt of Housing Benefit will also see that reduce, leaving them paying the same rent as before^[49]. Social housing providers will also therefore likely suffer from lower income, and there may be a corresponding reduction in new housing supply.

The introduction of the Benefit Cap, Bedroom Tax and Universal Credit may impact affordability in many ways, some of which were discussed in section 8.1. Firstly, as shown in the table below, the percentage of social tenants under-occupying their accommodation declined before the Bedroom Tax was introduced (with the Welfare Reform Act 2012 and applied from April 2013). Secondly, the percentage of under-occupying is significantly higher among owners in England compared to social tenants (Table 8.2). Another factor to take into consideration when discussing the impact of the Bedroom Tax on rent affordability is that the size of the social property assigned to each household might not be based on preferences, but on availability and lack of smaller properties (Meen 2018b). For this reason, the reform has been often considered unfair by many commentators (Stephens 2017).

Table 8.2 – Under Occupation by tenure (% of households) – England

	Owner Occupiers	Private Renters	Social Renters	All tenures
1995/96	39.4	18.4	12.1	31.2
2000/01	42.8	16.6	12.7	34.1
2005/06	46.6	18.2	11.5	36.7
2010/11	49.3	15.5	10.0	36.9
2015/16	51.9	14.4	10.0	37.2

Source: Reproduced by Meen 2018b, p. 34; English Housing Survey 2015/16

CIH, in their final report of the ‘Rethinking Social Housing’ project focusing on England, stated that “The chronic shortage of genuinely affordable homes means that, for now at least, social housing in England is tending towards a safety net role. CIH believes that social housing should have a wider affordability role” (CIH 2018, p. 5). CIH conducted an in-depth research project on social housing in England. Research activities included an evidence review; analysis of 199 workshops held across England; analysis of 766 completed online surveys with questions mirroring those for the workshops; interviews with 13 people on the waiting list for social housing; and analysis of 62 responses to an online survey with people working in fields which complement housing, e.g. health and social care. CIH also commissioned Ipsos MORI to conduct a social perception survey using face-to-face interviews with 1,700 members of the public across England; commissioned CaCHE to undertake a supplementary evidence review and secondary data analysis to draw a picture on who is currently living in social housing; partnered with Housing Plus Academy to run a think tank event with tenants; and held a Twitter debate.

The key findings (CIH 2018) and suggestions for social housing in England can be summarised as follows:

• Adopt a common definition for social housing. They suggest the following definition: “decent, secure housing which is affordable to people on low incomes, wherever they may live in the country, provided by not-for-profit organisations” (CIH 2018, p. 6).
• Increase the supply of affordable housing using a government investment, redistributing existing housing funds towards more affordable housing options and suspending the Right to Buy, while promoting other ways to support tenants to transit towards home ownership.
• Develop a policy framework which links rents to local incomes, using rent setting mechanisms and learning from best practices in order to identify the local and regional differences and ensure that there is affordable housing offered everywhere across the country. Suggestions for the UK Government include defining a fair and transparent rent policy which takes into account affordability in relation to local incomes and at the same time ensures that housing providers can maintain housing standards; and reviewing the effect of welfare policy on social housing.
• Social housing and neighbourhoods should meet the standard requirements in quality, comfort and safety.
• Tackle the problem of stigma and stereotyping attached to social housing by ensuring that social housing and services are of good quality.

8.2.2 Wales

In line with the ‘Taking Wales Forward’ programme, the Welsh Government aims to build 14,000 social and affordable rented homes during 2016-2021 (plus 6,000 additional houses under the Help to Buy scheme). Based on the official projection calculated by the Public Policy Institute for Wales^[50] in 2015 (an update will be published in 2020), there is a need of 3,500 additional social houses per year during 2011-2031 (Smith 2018, p. 13).

In March 2017, the Welsh Government introduced the abolition of the Right to Buy, following the Scottish example, in order to maintain the existing social housing stock (Young et al. 2017; Smith 2018). There is a need to ensure that rents are affordable and achieving value for money housing. The Welsh Government provides a Social Housing Rents Policy, developed in collaboration with social landlords and tenant unions, and launched in 2014/15. This policy affects all social landlords that own 100 or more housing units. “At the core of the policy is a target rent band for each social landlord and an annual uplift that has been set at CPI+1.5% to 2019” (Young et al. 2017, p. 18). Social rents in Wales have been increasing during the last years (Smith 2018). Heriot-Watt University has (at the moment of writing) been commissioned to review Welsh social rent policy. The study will look at issues of affordability and will compare Wales with the rest of the UK.

Currently, Wales supports social housing through a social housing grant (SHG) of £337m (Smith 2018). Ongoing public investment is needed to tackle for the shortage of supply in social housing and in order to meet the Welsh Housing Quality Standard (WHQS), launched in 2002. There are discussions on whether the SHG should acquire a more flexible regime, which will better reflect the local needs for development (Smith 2018, p. 21). Smith (2018) claimed that a re-emergence of local authorities as social housing providers might play a significant role in the future of social housing in Wales.

Archer et al. (2018) conducted a study of housing for low-income households in the Welsh valleys (social housing rents in 2017/18 were the lowest in some of the South Wales valleys) (Smith 2018). Archer et al. used baseline analysis assessing demand, supply and affordability of housing for low-income households, ran four stakeholder workshops, three resident workshops and three policy development roundtables (Archer et al. 2018). They identified three main challenges: low incomes in combination with high housing costs; a shortage in supply of appropriate housing (regarding mainly size in number of bedrooms); and an over-supply of certain housing types, i.e. excess supply and not enough demand for certain types of dwellings, such as four-bedroom social housing. Their policy recommendations therefore focused on ensuring that housing is affordable for low-income households, and rethinking the existing housing stock in order to meet needs and demand, and to build only required new housing based on current needs and demand.

8.2.3 Northern Ireland

Social housing in Northern Ireland accounts for 15% of the housing stock, from which two thirds are provided by the Northern Ireland Housing Executive (NIHE) and the rest by housing associations (Young et al. 2017). In Northern Ireland, all social housing since the early 2000s has been built by housing associations in contrast with the rest of the UK, where new builds are normally provided by local authorities (Frey 2018). Policy divergence between Northern Ireland and the rest of the UK has increased since 2010 - for example the policy of social rents being paid directly to landlords by default. A key policy regarding social housing in Northern Ireland is the absence (compared to the rest of the UK) of any large scale transfer of social homes from public ownership to housing associations (Frey 2018). Northern Ireland also passed legislation to mitigate the UK Bedroom Tax, as in Scotland.

Frey’s paper (2018) drew on evidence from government statistics and academic papers as well as recently conducted qualitative interviews with key stakeholders in Northern Ireland. Frey (2018) included a number of policy suggestions for Northern Ireland:

• Developer Contributions: a key planning policy instrument that would boost the supply of affordable housing (social and shared ownership housing) in Northern Ireland. Developers in need of planning permission for the development of five or more housing units would need to contribute to affordable housing. Some of the critiques against this policy emerged from a consultation in 2014 and were focused on the crisis in the construction industry. A study conducted in 2015 underlined the effects of the European economic crisis on the Northern Irish economy and an overall ‘fragile’ housing market.
• A Housing Market Symposium in 2017 identified the planning process as one of the causes of the supply shortage in affordable housing, in particular the length of time that takes for housing associations’ planning applications to get approved. A policy suggestion was about local authorities needing to undertake small scale infill development on public estates, as a solution to the lengthy planning approvals that housing associations might face.
• Universal Credit. Indefinite direct payment of the housing element of Universal Credit to all social landlords unless otherwise requested by the tenants. A concern regarding Universal Credit is the online nature of the application, which might lead to digital exclusion of some claimants that do not have access to the web.
• Provision of the ‘Welfare Supplementary Payment’ to mitigate the impact of the UK reforms, namely the Benefit Cap and Bedroom Tax. However, local authorities have expressed their concern regarding this policy, arguing that claimants feel secure by this fund that will at some point expire and then they will have to deal with decreases in their incomes. There is an increased concern especially about the effects of the Bedroom Tax, since there is a mismatch between type of housing available (the vast majority of Housing Executive and housing association properties has two or more bedrooms) and housing applicants (mostly single working age applicants). Another issue which occurred after the introduction of the Bedroom Tax and Universal Credit is the decrease in tenant transfer in fear of changing their housing circumstances, a fact that leads to less effective use of the affordable housing stock.
• Decent Homes Standard, introduced in 2004 to ensure the quality of social housing. This policy was met with success investing in heating systems and insulation in existing housing and high-energy efficiency standards in new builds. However, the policy target has not been completed in full, and there is still need for investment. It is thought that the transfer of publicly-owned houses in need of major repairs to housing associations transfers also the investment required and could lead to better results.
• Finally, the policy initiative ‘Rethink Social Housing’ launched in 2018 by CIH suggested further research and engagement with tenants, the public, local authorities, housing associations and political parties on the future of social housing in Northern Ireland.

Another study, conducted by Young et al. (2017) and funded by the Department for Communities and NIHE, looked at the concept of affordability in social rents and the potential impact of rent increases on social tenants. The study included a literature review on the concept and measures of affordability and semi-structured interviews with policy makers, social landlords, housing bodies, tenant representative bodies and housing advice agencies across Northern Ireland and the rest of the UK. Part of this project was the study of the relationship between projected rents and incomes, applying simulations for working age households, pensioner households and households with limited capacity to work, taking into account the changes in the welfare benefit system, and any affordability implications (Young et al. 2017, p. 4). Some of the key findings of the simulation study are discussed here. Considering earnings at living wage levels, rent increases led to higher rent-to-income ratios for single person households under retirement age, followed by working-age couples without children, especially when Universal Credit work allowance cuts are not mitigated. Lone parents in (full/part-time) employment and with two or more children, as well as couples with children and one adult in full-time employment, experienced rent-to-income ratios below 20-21% even in the case of rent increases. This ratio increased if Universal Credit work allowance cuts were not mitigated (Young et al. 2017, p. 33).

Moreover, Young et al. (2017) analysed data from the face-to-face Continuous Tenants Omnibus Survey^[51] (CTOS), run by the NIHE for over two decades. Some of the key findings from the CTOS study were:

• Smaller households lived in bigger dwellings than required due to the shortage in supply of one or two-bedroom properties.
• The vast majority of the tenants were not in rent arrears and if they were it was for less than £300. Households with children were more likely to be in rent arrears.
• When tenants were asked how easy it was for them to pay their rent, 35% claimed that it was easy. However, 1 out of 5 tenants claimed that their rent was unaffordable, from which 30% had had to cut back on another form of consumption, especially on food shopping and paying fuel bills (Young et al. 2017).