What do we mean when we talk about affordability?

This is the second blog post in a series being brought to you by Housing Europe in partnership with membership organisations. As announced in the first blog in this series, Housing Europe is partnering with the UNECE to assess housing affordability and highlight best practice as part of a project we are calling #Housing2030. This blog will look at how housing affordability is assessed by the Scottish Federation of Housing Associations (SFHA).

The principal of setting affordable rents has been part of the SFHA’s modus operandi since it was founded by tenants’ groups in the 1970s. This means that, even today, there is no national social rent setting policy in Scotland and nor is there a desire for one. This gives SFHA member organisations the freedom to engage with tenants on a highly localised level, working with them to set rents that they can afford. While this may require more effort than the rent setting regimes in many other countries, which set fixed national or regional social rents, it means that social housing providers in Scotland can better adapt to local socioeconomic realities and better offer housing opportunities that are genuinely affordable.

As in other countries, the term ‘affordability’ can be difficult to pin down in Scotland. It is for that reason that the SFHA set about actively trying to define and measure it in 1991. This combined two common approaches to measuring affordability, namely: the rent-to-income ratio and a residual income approach. The latter looks at how much money is left after meeting basic needs like accommodation.

However, over time the SFHA saw the need to develop a more rounded view of affordability. In 1998, Scottish Homes, in partnership with the SFHA, commissioned Steve Wilcox, a renowned expert on affordability, to look at the issue as it related to the social housing sector. His report ‘The Vexed Question of Affordability’ was published in 1999. It outlined concerns about the disadvantages of both residual income and ratio measures. This lead the SFHA to adopt a new measure based on a Housing Benefit dependency approach. This approach took into account the underlying cost of housing and the varying reasons why tenants might need a subsidy.

However, changes in welfare and the national regulatory framework since 2014 have hampered both SFHA members and their tenants. Firstly, the SCORE scheme, which allowed social housing providers to collect detailed information on tenants was cancelled. Secondly, the move towards ‘Universal Credit’ has had the effect of seeing an increase in the number of social tenants in Scotland in rent arrears. This has forced the SFHA to adapt in recent years, in terms of how it supports members in assessing affordability.

The starting point on this was to publish a consultation paper, ‘Rethinking Affordability’, and seeking feedback from relevant stakeholders. From this, the SFHA developed a simple tool, which keeps the key Scottish ingredient of localised rent setting, which helped housing providers to assess appropriate rents for different types of household.

To use the tool the social housing provider selects their area, number of bedrooms and inputs the proposed rent for the social tenant. Using local income data, the tool shows a red, amber or green result, based on the percentage of income that will have to be spent on rent, with red indicating the proposed rent is likely unaffordable.

The tool was then developed further in a partnership with HouseMark Scotland. The new interactive tool, which is embedded into the SFHA and HouseMark Scotland websites for use solely by members, calculates five affordability measures for a proposed rent. It also allows users to see how the rent compares to other social landlords in their local authority area.

There are numerous benefits to the Scottish approach. For example, it adds additional transparency to the rent setting process. Users of the new digital platform have also noted how quick it is to use.

The situation in Scotland is not without its challenges, though. Increased expectations in terms of the quality and energy performance of residential buildings means social housing providers are being squeezed between a desire to keep rents affordable, using the high standards they have developed, and a need to invest in capital spending, which can push up rents for tenants.

Overall, though, the Scottish system of assessing affordability for social tenants shows that by engaging with people and by being proactive in constantly assessing how you think about affordability, you can offer housing that people can genuinely afford.

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