Book contents
- Frontmatter
- Contents
- List of Figures and Tables
- Preface
- 1 Crisis, What Crisis?
- 2 Is Housing Really Unaffordable?
- 3 What Factors Determine Changes in House Prices and Rents?
- 4 Influences on Household Formation and Tenure
- 5 Rental Affordability
- 6 What Determines the Number of New Homes Built?
- 7 Housing Demand, Financial Markets and Taxation
- 8 Housing, Affordability and the Macroeconomy
- 9 Planning and the Assessment of Housing Need and Demand
- 10 Raising the Level of Private Housing Construction
- 11 Subsidizing the Supply of Rental Housing
- 12 Subsidizing the Housing Costs of Lower-Income Tenants
- 13 Increasing Home Ownership
- 14 Where Do We Go from Here?
- Appendices
- Notes
- References
- Index
5 - Rental Affordability
Published online by Cambridge University Press: 02 March 2021
- Frontmatter
- Contents
- List of Figures and Tables
- Preface
- 1 Crisis, What Crisis?
- 2 Is Housing Really Unaffordable?
- 3 What Factors Determine Changes in House Prices and Rents?
- 4 Influences on Household Formation and Tenure
- 5 Rental Affordability
- 6 What Determines the Number of New Homes Built?
- 7 Housing Demand, Financial Markets and Taxation
- 8 Housing, Affordability and the Macroeconomy
- 9 Planning and the Assessment of Housing Need and Demand
- 10 Raising the Level of Private Housing Construction
- 11 Subsidizing the Supply of Rental Housing
- 12 Subsidizing the Housing Costs of Lower-Income Tenants
- 13 Increasing Home Ownership
- 14 Where Do We Go from Here?
- Appendices
- Notes
- References
- Index
Summary
Introduction
Rental affordability is a rather simpler concept than that for owner occupation as, at a point in time, it relates current rent to current income. In a free market, without government support, one would expect financial stress associated with housing expenditure to be directly related to the rent paid, the income of the household and to the standards of housing achieved by that household. So higherincome households could be expected to live in better quality housing, but probably to spend lower proportions of income on rents – and therefore to have higher levels of income available to purchase other goods and services than those on lower incomes. This was discussed in Chapter 2. Our interest in this chapter is therefore on the experience of lower-income households and particularly on how this is impacted by particular policy initiatives, issues which are developed further in Chapters 11 and 12.
First, we need a definition of what we mean by those on low incomes and whether they have a rental affordability problem. The simplest approach to determining low income is to concentrate on those in the lowest deciles, although even then it would be appropriate to take account of household structure and thus responsibilities and varying basic needs. In this context, the most policy relevant definition of low income for renters’ affordability in the UK is to accept the government's implicit definition when determining housing benefit: that ‘residual income’ after rent paid by housing benefit should be enough to cover all other basic needs. This at least takes account of household composition. Internationally, there are two general approaches to assessing rental unaffordability: the median (or, less usually, the mean) of the ratio of housing cost over income, which takes no account of distribution but is often used across tenures; and the ‘housing cost overburden rate’, which measures the proportion of households or population that spend more than a set proportion of their income taking account of housing benefits (that is, net rent after benefit and income excluding benefits). In Europe, that proportion is currently 40 per cent3 but the proportion has varied over time and between countries in part because of how rent is defined (for example, with or without service and utility charges).
- Type
- Chapter
- Information
- Understanding AffordabilityThe Economics of Housing Markets, pp. 77 - 92Publisher: Bristol University PressPrint publication year: 2020