What Does “Affordable Housing” Mean Now?

The draft changes to the NPPF are a response to what the Government has acknowledged is a housing “crisis”. That is why the amended definition of affordable housing (and “entry level” housing) in the new draft NPPF are going to prove important. So I thought I’d have a go at summarising how we got here and then I’d have a go at reading the tea leaves and think about where these latest changes take us.

The nature of the housing crisis is, at the very least, twofold: first, we do not have enough homes and, second, the homes we have are so expensive that many cannot afford them. Reasonable people can disagree about the nature of the causal link between these two aspects but, if you want to respond to a crisis in the affordability of housing, it matters what you mean when you talk about affordability and Affordable Housing.

Because there is a huge gap between the Government’s definition of the term and the general public’s understanding of it. This is the source of the exasperated guffaw with which the public so often greet discussions of affordable homes – “so-called affordable housing you mean – affordable to whom?”

The root of the trouble is that, for the Government, the term defines a cluster of tenures and products rather than the actual relationship between prices and what people can pay. The latest changes don’t clear up that confusion but they do at least permit a reassessment of how we tackle the problem. Government certainly isn’t leading from the front on this but they might be creating the space for others to do so. To see why, as is so often the case with these things, one needs to think about the present in the context of the past and so I will look back some way before looking forwards.

So, in the distant pre-history before the NPPF, Affordable Housing was Social Rented housing and Intermediate Housing.

Social Rented Housing included all of the existing stock of Council homes and also the new homes that were being developed and owned by Housing Associations. But the distinction didn’t matter much because, in both cases, rents were set by reference to the Target Rent regime – which included a link to earnings. Social Rents were therefore demonstrably affordable BUT there were never enough for all those who wanted them and access was increasingly limited to those in the direst straits.

Intermediate Housing was intended to capture a range of products intended to meet the needs of those caught in the gap that began to open up from the late ‘90s onwards, between open market housing and Social Housing. Into this gap fell a large number of younger households who couldn’t afford housing in the open market but whose needs were not sufficiently acute to get them to the front of the queue for Social Housing. In theory, all sorts of things could be intermediate housing but, in practice, the vast majority of what was provided was Shared Ownership housing – buy half, rent the rest.

The two products that comprised the overwhelming majority of Affordable Housing played very different roles in the market but they were supposed to share two common features – they were cheaper than open market housing and they remained so permanently. That wasn’t always true but that’s a post for another day.

The publication of the original NPPF did not change that basic split but it did introduce a new housing product – Affordable Rent – and other policy changes taking place at the time served to push the roles of rented and intermediate housing further apart.

The name Affordable Rent was always a bit sly because, unlike Social Rent, it was linked to 80% of the open market rent instead of local earnings. It might be more affordable than the open market but it wasn’t necessarily affordable per se. Despite that, the Government positioned it as, essentially, interchangeable with Social Rent – much to the indignation of the man on the Clapham omnibus (in Clapham, Affordable Rents might well have been twice what Social Rents were). The Government knew perfectly well that Affordable Rents were significantly higher than Social Rents but that was intentional. The idea was to off-set the impact of the decision to slash capital funding for affordable housing almost to nothing. The delivery of Social Rented housing had always depended on capital funding so, if the output of affordable homes was to be maintained, rents for new affordable homes would have to go up. Never mind; as in the 80s, Housing Benefit would take the strain. Affordable Rent duly became the primary form of affordable housing delivered.

But the Government’s focus had shifted to another type of housing altogether – Starter Homes. Capped at 80% of the market price (or £250k outside London), Starter Homes weren’t necessarily affordable (in the relationship to average incomes sense) and the discount was a one-off to the initial purchaser, so they were very different from traditional Affordable Housing. They seem originally to have been intended to supplement – rather than replace – older forms of affordable housing. That would have been an entirely sensible policy.

However, Starter Homes looked like a vote winner. The Government set itself a target of delivering first 100,000 and then, in the 2015 manifesto, 200,000 of them over the course of a parliament. The only feasible route to doing that was to treat them as Affordable Housing and then to allow the new tenure to crowd out more traditional forms of affordable housing. A consultation was duly published in which it was proposed that 20% of all major residential sites were to be Starter Homes, with only the remainder of the policy quota as rented affordable housing. That proposal got the response it so richly deserved and all mention of Starter Homes was quietly dropped from the 2017 manifesto.

Which brings us to the new definition.

As before, Affordable Housing is for those whose needs are not met by the market but “essential local workers” are specifically mentioned. This looks like the beginnings of a return to the old “key worker” policies that the last Labour government sometimes sought to promote. Old hands may remember that they were pretty unwieldy in practice.

Affordable Housing for Rent: The rents can be either target rents or at least 20% below local market rents and must remain so in perpetuity. Thus, the new term encompasses the both of the older terms Social Rent and Affordable Rent but it does not repeat them. The lack of stable terminology is going to be a frustration for practitioners and is unlikely to engender public confidence. Moreover, the “or at least” formulation is an odd one. It could point to an approach whereby local authorities have more freedom to set rents anywhere between the maximum and minimum – taking into account viability and affordability. That might be a rather welcome development.

Starter Homes: They’re back! But it is interesting that the full definition isn’t set out in the NPPF itself and is instead delegated to the Housing and Panning Act 2016 and “should reflect the meaning set out in statute at the time of plan-preparation or decision-making”. I think it is fair to infer that the Government wants the freedom to change its mind on the details. Perhaps especially on the thorny question of that one-off discount and how long buyers have to wait before they can sell up without restriction on the open market.

Discounted Market Sale: Housing sold at a discount of at least 20% below local market value. It’s the same as Starter Homes except that the discount is retained in perpetuity and the Local Authority, rather than central Government, gets to set the discount and eligibility. Given that many people vehemently opposed the one-off nature of the discount on Starter Homes, this looks like a concession to them.

Other Affordable Routes to Home Ownership: Shared Ownership is dethroned from its position as the default position on intermediate housing! It is now just one of a number of products and measures. These other routes don’t need to be permanently affordable (although any public subsidy does need to be recycled) but you can also have equity loans and Rent to Buy. And that list clearly isn’t intended to be exhaustive.

What are we to make of this?

One could be a little cynical about it. One could easily criticise the lack of any real direction. In particular, the two different flavours of Starter Homes – and infer that the Government is no longer nearly as sure what to do. But one could just as easily celebrate it. Not all solutions work in all locations and in all different housing markets. This broader definition is an invitation for local authorities – and developers – to think for themselves and respond creatively.

For a long time, pretty much all authorities sought the majority of new affordable housing as homes for rent with an admixture of shared ownership to top up. It worked well in some places but a lot less well in others. Attempts to diversify the intermediate housing offer were often rebuffed by Housing Associations – who relied upon the surpluses they generated from Shared Ownership to cross subsidise the rest of their offer.

But the housing market crisis is a big and complex thing. We’re long overdue some more complex and sophisticated responses. Maybe it is a good thing to ask whether all affordable homes need to be affordable in perpetuity. Perhaps some people, in some places, do just need a temporary leg up into the housing market. The one-off nature of the discount on Starter Homes might be a gift to their initial occupiers, a bung – but how is that different from the free equity that older households received from the long housing boom?

We will always need geneuinely and permanently affordable homes – and more of them than we have now – but the real challenge is surely in the middle of the ever widening gap between Social Rent and the market. We need a whole range of products to fill that gap and maybe the new NPPF is, very quietly, encouraging us to work out for ourselves what they should be.Local Authority by Local Authority and even site by site.

None of which is to say that we should shift our focus entirely to higher value forms of Affordable Housing. Too often that has been the major form of “innovation” in the intermediate sector – small homes at smaller discounts. That won’t do. As we head into the uncertain new world of the New NPPF, we should keep before our eyes the image of that truculent member of the public and their perceptive complaint, “So-called affordable housing you mean! Affordable to whom?”

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